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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 14, 1994
FILE NO. 33-71592
FILE NO. 811-8674
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 / /
PRE-EFFECTIVE AMENDMENT NO. / /
POST-EFFECTIVE AMENDMENT NO. 1 /X/
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 / /
AMENDMENT NO. 2 /X/
PROTECTIVE INVESTMENT COMPANY
(Exact Name of Registrant)
2801 Highway 280 South
Birmingham, Alabama 35223
(Address of Principal Executive Offices)
Registrant's Telephone Number: 1-800-866-3555
LIZABETH R. NICHOLS, Esquire
2801 Highway 280 South
Birmingham, Alabama, 35223
(Name and Address of Agent for Service of Process)
COPY TO:
STEPHEN E. ROTH, Esquire
Sutherland, Asbill & Brennan
1275 Pennsylvania Avenue, N.W.
Washington, D.C. 20004-2404
It is proposed that this filing become effective (check appropriate box):
/ / immediately upon filing pursuant to paragraph (b) of Rule 485;
/X/ on September 30, 1994 pursuant to paragraph (b) of Rule 485;
/ / 60 days after filing pursuant to paragraph (a) of Rule 485; or
/ / on , 1994 pursuant to paragraph (a) of Rule 485.
Pursuant to Rule 24f-2 under the Investment Company Act of 1940, the
registrant has previously registered an indefinite amount of securities under
the Securities Act of 1933. The registrant will file a Rule 24f-2 Notice for the
fiscal year ended December 31, 1994, on or about February 25, 1995.
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PROTECTIVE INVESTMENT COMPANY
REGISTRATION STATEMENT ON FORM N-1A
CROSS REFERENCE SHEET
PURSUANT TO RULE 481(A)
N-1A
ITEM NO. CAPTION
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PART A INFORMATION REQUIRED IN A PROSPECTUS
1. Cover Page.......................... Cover Page
2. Synopsis............................ Not Applicable
3. Condensed Financial Information..... Condensed Financial Information
4. General Description of Registrant... Introduction; Investment Objectives
and Policies; Special Investment
Methods and Risks
5. Management of the Fund.............. Management
5A Management's Discussion of Not Applicable
Performance........................
6. Capital Stock and Other Other Information
Securities.........................
7. Purchase of Securities Being Offering, Purchase and Redemption of
Offered............................ Shares
8. Redemption or Repurchase............ Offering, Purchase and Redemption of
Shares
9. Pending Legal Proceedings........... Not Applicable
<PAGE>
PART B INFORMATION REQUIRED IN A STATEMENT OF ADDITIONAL INFORMATION
10. Cover Page.......................... Cover Page
11. Table of Contents................... Table of Contents
12. General Information and History..... Introduction; Shares of Stock
13. Investment Objectives and Additional Investment Policy
Policies........................... Information; Special Investment
Methods and Risks; Investment
Restrictions
14. Management of the Registrant........ Investment Manager; Investment
Advisers; Directors and Offers
15. Control Persons and Principal Shares of Stock
Holders of Securities..............
16. Investment Advisory and Other Investment Manager; Investment
Services........................... Advisers
17. Brokerage Allocation and Other Portfolio Transactions and Brokerage
Practices..........................
18. Capital Stock and Other Shares of Stock
Securities.........................
19. Purchase, Redemption and Pricing of Determination of Net Asset Value
Securities Being Offered...........
20. Tax Status.......................... Not Applicable
21. Underwriters........................ Not Applicable
22. Calculation of Performance Data..... Performance Information
23. Financial Statements................ Financial Statements
PART C OTHER INFORMATION
Information required to be included in Part C is set forth under the
appropriate Item, so numbered, in Part C to this Registration Statement.
<PAGE>
PART A
INFORMATION REQUIRED IN A PROSPECTUS
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PROTECTIVE INVESTMENT COMPANY
PROSPECTUS
SEPTEMBER 30, 1994
Protective Investment Company (the "Company") is an investment company
consisting of six separate investment portfolios or funds (the "Funds") each of
which has different investment objectives.
PROTECTIVE MONEY MARKET FUND seeks to maximize current income to the extent
consistent with the preservation of capital and maintenance of liquidity. This
Fund will pursue its objective by investing exclusively in high quality money
market instruments. AN INVESTMENT IN THE MONEY MARKET FUND IS NEITHER INSURED
NOR GUARANTEED BY THE U.S. GOVERNMENT AND THE COMPANY CANNOT ASSURE THAT IT WILL
BE ABLE TO MAINTAIN A STABLE NET ASSET VALUE OF $1 PER SHARE.
PROTECTIVE SELECT EQUITY FUND seeks a high total return consisting of
capital appreciation plus dividend income. This Fund will pursue its objective
by investing, under normal circumstances, at least 65% of its net assets in
equity securities that, at the time of purchase, are included on the Domestic
Recommended For Purchase List (described herein).
PROTECTIVE SMALL CAP EQUITY FUND seeks long-term capital growth. This Fund
will pursue its objective by investing, under normal circumstances, at least 65%
of its total assets in equity securities of companies with public stock market
capitalizations of $1 billion or less at the time of investment.
PROTECTIVE INTERNATIONAL EQUITY FUND seeks long-term capital appreciation.
This Fund will pursue its objective by investing primarily in equity and
equity-related securities of companies that are organized outside the United
States or whose securities are primarily traded outside the United States.
PROTECTIVE GROWTH AND INCOME FUND seeks long-term growth of capital and
growth of income. This Fund will pursue its objectives by investing, under
normal circumstances, at least 65% of its total assets in equity securities
having favorable prospects of capital appreciation and/or dividend growth.
PROTECTIVE GLOBAL INCOME FUND seeks high total return, emphasizing current
income and, to a lesser extent, providing opportunities for capital
appreciation. This Fund will pursue its objectives by investing in high quality
fixed-income securities of U.S. and foreign issuers and through foreign currency
transactions.
These Funds are available to the public only through the purchase of certain
variable annuity contracts (the "Contracts") issued by Protective Life Insurance
Company.
Investment Distributors Advisory Services, Inc. is the Company's investment
manager. For each Fund, either Goldman Sachs Asset Management, a separate
operating division of Goldman, Sachs & Co., or Goldman Sachs Asset Management
International, an affiliate of Goldman, Sachs & Co., is the investment adviser.
This Prospectus briefly describes the information that investors should know
before investing in these Funds including the risks associated with investing in
each. Investors should read and retain this prospectus for future reference. A
statement of additional information dated September 30, 1994, has been filed
with the Securities and Exchange Commission and contains further information
about the Funds. The statement of additional information is incorporated herein
by reference. A copy may be obtained without charge by calling 1-800-866-3555 or
writing the Company at P.O. Box 2606, Birmingham, Alabama 35202.
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 SHOULD BE READ IN CONJUNCTION WITH THE PROSPECTUS FOR THE
CONTRACTS.
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TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
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<S> <C>
INTRODUCTION............................................................................................... 2
INVESTMENT OBJECTIVES AND POLICIES......................................................................... 4
Protective Money Market Fund............................................................................. 4
Protective Select Equity Fund............................................................................ 5
Protective Small Cap Equity Fund......................................................................... 7
Protective International Equity Fund..................................................................... 8
Protective Growth and Income Fund........................................................................ 11
Protective Global Income Fund............................................................................ 12
SPECIAL INVESTMENT METHODS AND RISKS....................................................................... 14
Convertible Securities................................................................................... 14
Fixed-Income Securities.................................................................................. 14
Repurchase Agreements.................................................................................... 16
When-Issued Securities and Forward Commitments........................................................... 17
Lending of Portfolio Securities.......................................................................... 17
Restricted and Illiquid Securities....................................................................... 17
Borrowing................................................................................................ 18
Options on Securities and Securities Indices............................................................. 18
Futures Contracts and Options on Futures Contracts....................................................... 19
Foreign Transactions..................................................................................... 20
Other Investment Companies............................................................................... 24
Non-Diversified Status................................................................................... 24
Risks of Investing in Small Capitalization Companies..................................................... 24
Warrants and Rights...................................................................................... 25
Unseasoned Issuers....................................................................................... 25
INVESTMENT RESTRICTIONS.................................................................................... 25
PORTFOLIO TURNOVER......................................................................................... 25
MANAGEMENT................................................................................................. 25
Directors and Officers................................................................................... 25
Investment Manager....................................................................................... 26
Investment Advisers...................................................................................... 27
PERFORMANCE INFORMATION.................................................................................... 30
DETERMINATION OF NET ASSET VALUE........................................................................... 30
OFFERING, PURCHASE AND REDEMPTION OF SHARES................................................................ 31
INCOME DIVIDENDS AND CAPITAL GAINS DISTRIBUTIONS........................................................... 31
TAXES...................................................................................................... 32
OTHER INFORMATION.......................................................................................... 33
Reports.................................................................................................. 33
Voting and Other Rights.................................................................................. 33
Custody of Assets........................................................................................ 34
Accounting and Administrative Services................................................................... 34
Transfer Agent........................................................................................... 34
</TABLE>
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INTRODUCTION
Protective Investment Company (the "Company") is an open-end management
investment company incorporated in the State of Maryland on September 2, 1993.
The Company consists of six separate investment portfolios or funds (the "Funds"
or a "Fund"), each of which is, in effect, a separate mutual fund. The Company
issues a separate class of stock for each Fund representing fractional undivided
interests in that Fund. An investor, by investing in a Fund, becomes entitled to
a pro-rata share of all dividends and distributions arising from the net income
and capital gains on the investments of that Fund. Likewise, an investor shares
pro-rata in any losses of that Fund.
Pursuant to an investment management agreement and subject to the authority
of the Company's board of directors, Investment Distributors Advisory Services,
Inc. ("IDASI") serves as the Company's investment manager (the "Investment
Manager") and conducts the business and affairs of the Company. IDASI has
engaged Goldman Sachs Asset Management International ("GSAMI"), an affiliate of
Goldman, Sachs & Co., as the investment adviser to provide day-to-day portfolio
management for the Protective International Equity Fund and the Protective
Global Income Fund. IDASI has engaged Goldman Sachs Asset Management ("GSAM"), a
separate operating division of Goldman, Sachs & Co., as the investment adviser
to provide day-to-day portfolio management for each of the other Funds. (GSAM
and GSAMI are each referred to herein as the "Adviser" or together as the
"Advisers," as appropriate. Goldman, Sachs & Co. is referred to herein as
"Goldman Sachs").
The Company currently offers each class of its stock to a separate account
of Protective Life Insurance Company ("Protective Life") as funding vehicles for
certain variable annuity contracts (the "Contracts") issued by Protective Life
through the separate account (the "Account"). The Company does not offer its
stock directly to the general public. The Account, like the Company, is
registered as an investment company with the Securities and Exchange Commission
("SEC") and a separate prospectus, which accompanies this prospectus, describes
the Account and the Contracts. The Company may, in the future, offer its stock
to other registered and unregistered separate accounts of Protective Life and
its affiliates supporting other variable annuity contracts or variable life
insurance contracts and to qualified pension and retirement plans.
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PROTECTIVE INVESTMENT COMPANY
FINANCIAL HIGHLIGHTS
(UNAUDITED)
FOR A SHARE OF COMMON STOCK OUTSTANDING FOR THE PERIOD MARCH 14,
1994 (COMMENCEMENT OF INVESTMENT OPERATIONS) THROUGH JUNE 30, 1994
<TABLE>
<CAPTION>
REALIZED AND
NET ASSET UNREALIZED TOTAL DIVIDENDS NET ASSET
VALUE AT NET GAIN (LOSS) FROM FROM NET VALUE AT
BEGINNING INVESTMENT ON INVESTMENT INVESTMENT CAPITAL GAINS TOTAL END
OF PERIOD INCOME (2) INVESTMENTS OPERATIONS INCOME DISTRIBUTIONS DISTRIBUTION OF PERIOD
----------- ----------- ------------- ----------- ----------- --------------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Global Income
Fund (1)............ $ 10.000 $ 0.104 $ (0.303) $ (0.199) $ (0.104) $ 0.000 $ (0.104) $ 9.697
International Equity
Fund (1)............ 10.000 0.049 (0.627) (0.578) (0.000) 0.000 (0.000) 9.422
Growth and Income
Fund (1)............ 10.000 0.033 (0.388) (0.355) (0.033) 0.000 (0.033) 9.612
Select Equity
Fund (1)............ 10.000 0.032 (0.313) (0.281) (0.000) 0.000 (0.000) 9.719
Small Cap Equity
Fund (1)............ 10.000 0.015 (0.363) (0.348) (0.000) 0.000 (0.000) 9.652
Money Market
Fund (1)............ 1.000 0.010 0.000 0.010 (0.010) 0.000 (0.010) 1.000
<CAPTION>
RATIO OF RATIO OF NET
OPERATING INVESTMENT
NET ASSETS EXPENSES TO INCOME TO PORTFOLIO
TOTAL END AVERAGE NET AVERAGE NET TURNOVER
RETURN (3) OF PERIOD ASSETS (4) ASSETS (4) RATE (5)
------------- ----------- ------------- -------------- -------------
<S> <C> <C> <C> <C> <C>
Global Income
Fund (1)............ (2.08)% $ 8,006,059 1.10% 4.45% 125%
International Equity
Fund (1)............ (5.80) 9,496,191 1.10 3.19 8
Growth and Income
Fund (1)............ (3.56) 11,455,762 0.80 2.90 3
Select Equity
Fund (1)............ (2.81) 5,359,936 0.80 2.47 22
Small Cap Equity
Fund (1)............ (3.48) 7,259,571 0.80 1.22 3
Money Market
Fund (1)............ N/A 5,982,652 0.60 3.53 N/A
<FN>
- ------------------------------
(1) Investment operations commenced on March 14, 1994.
(2) Net Investment Income is after reimbursement of certain fees and
expenses by the Investment Manager. (See Note C to the Company's
financial statements.) Had the Investment Manager not undertaken to
reimburse expenses related to the Funds, net investment income per
share would have been as follows: Global Income Fund, $0.064;
International Equity Fund, $0.025; Growth and Income Fund, $0.013;
Select Equity Fund, $(0.009); Small Cap Equity Fund, $(0.013); and
Money Market Fund, $0.004.
(3) Total return is calculated assuming a purchase of shares at net
asset value per share on the first day and a sale at net asset value
per share on the last day of each period reported. Distributions are
assumed, for the purposes of this calculation, to be reinvested at
the net asset value per share on the respective payment dates of
each Fund.
(4) Annualized.
(5) Non-Annualized
</TABLE>
3
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INVESTMENT OBJECTIVES AND POLICIES
Each Fund has one or more investment objectives and related investment
policies and uses various investment techniques to pursue these objectives and
policies. THERE CAN BE NO ASSURANCE THAT ANY OF THE FUNDS WILL ACHIEVE ITS
INVESTMENT OBJECTIVE OR OBJECTIVES. Investors should not consider any one Fund
alone to be a complete investment program. All of the Funds are subject to the
risk of changing economic conditions, as well as the risk inherent in the
ability of the Adviser to make changes in the portfolio composition of the Fund
in anticipation of changes in economic, business, and financial conditions. As
with any security, a risk of loss is inherent in an investment in the shares of
any of the Funds.
The different types of securities, investments, and investment techniques
used by each Fund all have attendant risks of varying degrees. For example, with
respect to equity securities, there can be no assurance of capital appreciation
and there is a substantial risk of decline. With respect to debt securities,
there exists the risk that the issuer of a security may not be able to meet its
obligations on interest or principal payments at the time required by the
instrument. In addition, the value of debt instruments generally rises and falls
inversely with prevailing current interest rates. As described below, an
investment in certain of the Funds entails special additional risks as a result
of their ability to invest a substantial portion of their assets in either
foreign investments or small capitalization issuers or both. In addition, three
of the Funds are not diversified and this entails certain special risks. See
"Special Investment Methods and Risks."
Certain types of investments and investment techniques common to one or more
Funds are described in greater detail, including the risks of each, under
"Special Investment Methods and Risks" and in the statement of additional
information ("SAI"). The Funds are also subject to certain investment
restrictions that are described under the caption "Investment Restrictions" in
either this prospectus or the SAI.
The investment objective or objectives of each Fund as well as the
investment policies are not fundamental and may be changed by the Company's
board of directors without shareholder approval. Certain of the investment
restrictions of each Fund are fundamental and may not be changed without the
approval of a majority of the votes attributable to the outstanding shares of
that Fund. See "Investment Restrictions."
PROTECTIVE MONEY MARKET FUND
The investment objective of the Money Market Fund is to maximize current
income to the extent consistent with the preservation of capital and the
maintenance of liquidity. The Money Market Fund will pursue this objective by
investing in the following high quality money market instruments:
1. securities issued or guaranteed as to principal and interest by the U.S.
Government, its agencies, authorities or instrumentalities ("U.S.
Government Securities") and related custody receipts;
2. obligations issued or guaranteed by U.S. banks (including certificates
of deposit, bank notes, loan participation interests, commercial paper,
unsecured promissory notes, time deposits, and bankers' acceptances) that
have more than $1 billion in total assets at the time of purchase as well
as debt obligations of U.S. subsidiaries of such banks and, certificates
of deposit and promissory notes issued by Canadian affiliates of such
banks, provided that such obligations are guaranteed as to principal and
interest by such banks;
3. commercial paper (unsecured promissory notes including variable amount
master demand notes) issued or guaranteed by U.S. corporations or other
entities that are, at the time of purchase, rated in the highest rating
category for short-term debt obligations of at least one nationally
recognized statistical rating organization ("NRSRO");
4. asset-backed securities (including interests in pools of assets such as
motor vehicle installment purchase obligations and credit card
receivables); and
4
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5. other short-term obligations issued or guaranteed by U.S. corporations,
state and municipal governments or other entities;
6. unrated notes, paper, obligations or other instruments that the Adviser
determines to be of comparable high quality;
7. repurchase agreements with banks and government securities dealers that
are recognized as primary dealers by the Federal Reserve System, provided
that:
(a) at the time that the repurchase agreement is entered into, and
throughout the duration of the agreement, the collateral has a
market value at least equal to the value of the repurchase
agreement; and
(b) the collateral consists of U.S. Government Securities or
instruments that are rated in the highest rating category by the
requisite NRSROs (as defined below).
The Money Market Fund may acquire any of the above securities on a forward
commitment or when-issued basis. The Fund may also lend portfolio securities and
invest in other investment companies. See "Special Investment Methods and
Risks."
The Money Market Fund will only invest in instruments denominated in U.S.
dollars that the Adviser, under the supervision of the Company's board of
directors, determines present minimal credit risk and are, at the time of
acquisition, either:
1. rated in one of the two highest rating categories for short-term debt
obligations assigned by at least two NRSROs, or by only one NRSRO if only
one NRSRO has issued a rating with respect to the instrument ("requisite
NRSROs"); or
2. in the case of an unrated instrument, determined by the Adviser, under
the supervision of the Investment Manager and the Company's board of
directors, to be of comparable quality to the instruments described in 1
above; or
3. issued by an issuer that has received a rating of the type described in
1 above on other securities that are comparable in priority and security
to the instrument.
The Money Market Fund will invest 95% of its total assets in securities that
are rated in the highest category by the requisite NRSROs or unrated securities
of comparable investment quality. Of securities not rated in the highest
category (or not of comparable quality), the Fund will not invest more than the
greater of 1% of its total assets or $1 million in the securities of any single
issuer. The Fund is diversified. Except as explained in the SAI, the Fund will
not invest more than 5% of its assets (taken at amortized cost) in securities of
any single issuer (except U.S. Government securities or repurchase agreements
collateralized by such securities).
All Money Market Fund portfolio instruments will mature within 13 months or
less of the time that they are acquired. The average maturity of the Fund's
portfolio securities based on their dollar value will not exceed 90 days at the
time of each investment. If the disposition of a portfolio security results in a
dollar-weighted average portfolio maturity in excess of 90 days, the Money
Market Fund will invest its available cash in such manner as to reduce its
dollar-weighted average portfolio maturity to 90 days or less as soon as is
reasonably practicable.
NRSROs include Standard & Poor's Corporation, Moody's Investors Service,
Inc., Fitch Investors Service, Inc., Duff and Phelps, Inc., IBCA Limited and its
affiliate IBCA Inc., and Thompson BankWatch. See Appendix A to the SAI for a
description of each NRSRO's rating categories.
PROTECTIVE SELECT EQUITY FUND
The investment objective of the Select Equity Fund is to provide investors
with a high total return consisting of capital appreciation plus dividend
income.
5
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The Select Equity Fund will seek to meet its objective by investing, under
normal circumstances, at least 65% of its net assets in equity securities that,
at the time of purchase, are included on the Domestic Recommended For Purchase
List (the "recommended list") (described below) developed by the Investment
Research Department (the "research department") of Goldman Sachs. In addition,
analysts in the research department rate certain stocks that are not on the
recommended list as likely to outperform the market (referred to collectively as
the "secondary group"). The Adviser will, using the multifactor model (described
below), rank the securities on the recommended list and in the secondary group
and select investments from among these securities for the Fund's portfolio. The
Adviser will normally purchase the 50 securities on the recommended list and in
the secondary group that are ranked highest by the multifactor model, but may
also purchase other highly-ranked recommended list and secondary group
securities when the Adviser deems it advisable to do so. Securities eligible for
purchase by the Select Equity Fund are referred to herein as securities within
the "buy range" for the Fund.
The Select Equity Fund invests primarily in equity securities, consisting of
common stocks, preferred stocks, convertible securities and warrants. It is
therefore subject to certain market risks, such as the possibility that the
price of a security held by the Fund will decline over a short or even an
extended period of time. The market for equity securities in the United States
tends to be cyclical, with periods when the prices of securities generally rise
and periods when they generally decline. All equity securities are usually
influenced to some extent by price movements in the equities market. To a
limited extent, the Fund may purchase the securities of issuers with less than
three years' continuous operating history ("unseasoned issuers") and other
investment companies. See "Special Investment Methods and Risks."
The Select Equity Fund may invest in equity securities that are issued by
foreign issuers and are traded in the United States. All such securities will be
issued by foreign companies that comply with U.S. accounting standards. The Fund
may also invest in American depository receipts ("ADRs"). ADRs are receipts
typically issued by a U.S. bank or trust company which evidence ownership of
underlying securities of foreign corporations. See "Special Investment Methods
and Risks."
Since normal settlement for equity securities currently is five trading
days, the Select Equity Fund will need to hold cash balances to satisfy
shareholder redemption requests. Such cash balances will normally range from 5%
to 10% of the Fund's net asset value. The Fund may purchase futures contracts on
the S&P 500 Index in order to keep the Fund's effective equity exposure close to
100%. For example, if cash balances are equal to 10% of the net assets, the Fund
may enter into long futures contracts covering an amount equal to 10% of the
Fund's net assets. As cash balances fluctuate based on new contributions or
withdrawals, the Fund may enter into additional futures contracts or close out
existing positions. See "Special Investment Methods and Risks."
The Select Equity Fund will, under normal circumstances, invest at least 90%
of its assets in equity securities. In addition to the purchase and sale of
futures contracts on the S&P 500 Index, it may purchase securities on a
when-issued or forward commitment basis and engage in securities lending. See
"Special Investment Methods and Risks." Except for these investments and cash
equivalents, the Select Equity Fund expects to be fully invested in equity
securities. The Fund will not time its investments to anticipate market trends.
Under normal circumstances, for liquidity purposes only, the Fund may hold
up to 10% of its assets in cash, non-convertible preferred stock, or securities
of the type in which the Money Market Fund may invest. Under unusual
circumstances, the Fund may temporarily hold up to 35% of its assets in cash or
such short-term instruments for liquidity purposes.
THE RECOMMENDED LIST AND THE SECONDARY GROUP. The Select Equity Fund will
invest 65% of its net assets in securities that, at the time of purchase, are
included on the research department's recommended list. The recommended list is
typically comprised of equity securities traded in the United States that are
issued by approximately 150 to 200 domestic companies and foreign companies
6
<PAGE>
that comply with U.S. accounting standards. The recommended list is compiled by
analysts in the research department based upon the fundamental characteristics
of a security and its attractiveness in the anticipated economic and market
climate.
The Select Equity Fund may invest up to 35% of its net assets in secondary
group securities that, at the time of purchase, are rated by analysts in the
research department as likely to outperform the relevant market. The secondary
group is typically comprised of domestically traded equity securities issued by
approximately 300 to 400 domestic and foreign companies that comply with U.S.
accounting standards. Analysts in the research department also rate stocks that
are not on the recommended list or in the secondary group as likely either to
match or fall short of the performance of the relevant market. Those stocks that
match such performance may be included in the hold range, but are not in the buy
range. Those stocks that do not match such performance are not included in
either the hold range or the buy range.
The recommended list and the secondary group and their use by the Adviser in
managing the Select Equity Fund is discussed in greater detail in the SAI.
THE MULTIFACTOR MODEL. The multifactor model is a sophisticated
computerized rating system for evaluating equity securities according to twelve
fundamental investment characteristics (or factors). The twelve factors used by
the multifactor model incorporate many variables studied by traditional
fundamental analysts, and cover measures of value, yield, growth, momentum, risk
and liquidity which include price/earnings ratio, sustainable growth rate,
earnings momentum and market liquidity. All of these factors have been shown to
significantly impact the performance of equity securities. The weights applied
to the twelve factors are derived using a statistical formulation that considers
each factor's historical relationship to returns for the type of security being
evaluated. As such, the multifactor model is designed to evaluate each security
using only the factors that are statistically related to returns for that type
of security. Because it includes many disparate factors, the Adviser believes
that the multifactor model is broader in scope and provides a more thorough
evaluation than most conventional, value-oriented quantitative models.
PROTECTIVE SMALL CAP EQUITY FUND
The Small Cap Equity Fund's investment objective is long-term capital
growth. Dividend income, if any, is an incidental consideration. The Fund will
seek to achieve its investment objective by investing, under normal
circumstances, at least 65% of its total assets in equity securities of
companies with public stock market capitalizations of $1 billion or less at the
time of investment. However, the Fund currently intends to emphasize investments
in companies with public stock market capitalizations of $500 million or less at
the time of investment. Equity securities in which the Small Cap Equity Fund may
invest include common stocks, preferred stocks, convertible securities and
warrants. Public stock market capitalizations are calculated by multiplying the
total number of common shares available for trading on an unrestricted basis by
the market price per share of the stock. The Adviser believes that the companies
in which the Small Cap Equity Fund may invest offer greater potential for growth
of capital than larger, more mature, better known companies. Because of a
relative lack of interest and research coverage for small capitalization
companies in relation to larger capitalization companies, the Adviser believes
that significant market inefficiencies exist in securities of small
capitalization companies. However, investments in such small capitalization
companies may involve special risks. See "Special Investment Methods and Risks
- -- Risks of Investing in Small Capitalization Companies," below.
The Adviser expects that the Small Cap Equity Fund will typically invest in
the securities of approximately 20 to 40 companies. The number of stocks owned
is intended to provide the Fund with a moderate level of diversification while
at the same time not diluting the impact of any one investment. However, the
Fund is "non-diversified" as defined in the Investment Company Act of 1940, as
amended, (the "Act"). The only statutory or regulatory diversification
requirements to which it is subject arise under the federal tax law. See
"Special Investment Methods and Risks."
7
<PAGE>
The Fund may also invest in certain instruments or utilize investment
techniques that involve special risks. These include: convertible securities,
lower-rated debt securities, when-issued securities and forward commitments,
options on securities and securities indices, foreign securities, ADRs, forward
foreign currency exchange contracts, options on foreign currency, futures
contracts and options thereon, illiquid or restricted securities, repurchase
agreements, stock of other investment companies and lending portfolio
securities. These investments and techniques and their attendant risks are also
described in "Special Investment Methods and Risks."
Potential investments for the Small Cap Equity Fund are evaluated by the
Adviser using fundamental analysis, including criteria such as earnings, cash
flow and asset values. The Adviser intends to purchase securities of companies
that are, in the Adviser's view, underpriced relative to the company's long-term
growth prospects and/or current cash flow. In addition, the Fund may purchase
securities of companies that have experienced difficulties and that the Adviser
believes are thus available at attractive prices relative to the Adviser's view
of earnings potential. The Small Cap Equity Fund may also purchase securities of
companies able to generate high returns in sectors experiencing relatively slow
growth. The Adviser will attempt to identify companies that in its view possess
a sustainable competitive advantage, and may also invest in companies which
offer the possibility of accelerating earnings growth because of management
changes, new products or structural changes in new or existing markets. Equity
ownership by management or incentives tied to profitability or stock performance
will generally be a positive factor in evaluating whether to invest in a
company. Investments may also be made in companies that are in the early stages
of their life that the Adviser believes have significant growth potential. The
portfolio may include companies that are capable of financing future growth
through a relatively high rate of return on invested capital, as well as
companies that require external financing if the return on investment is judged
by the Adviser to be sufficiently high and sustainable.
Under normal circumstances, the Small Cap Equity Fund's investment horizon
for ownership of stocks will be two to three years. Portfolio securities will
generally be sold when the Adviser believes their market price fully reflects or
exceeds their fundamental valuation or due to an increase in risk beyond
acceptable levels. Under normal circumstances the Fund's cash position will be a
reflection of the availability of attractive investment alternatives.
The Adviser evaluates investments for the Small Cap Equity Fund using
fundamental analysis and through field research. In addition, the Adviser is
able to draw on the research and market expertise of the research department as
well as information provided by other securities dealers.
Although the Small Cap Equity Fund will invest primarily in publicly traded
U.S. securities, it may invest up to 25% of its total assets in foreign
securities and ADRs. Up to 35% of its total assets may be invested in the equity
securities of companies with public stock market capitalizations in excess of $1
billion and in debt securities, which may include notes, bonds, debentures, U.S.
Government Securities and zero coupon bonds, including lower rated corporate
debt. The timing of decisions to invest in such debt securities may result in
long-term capital appreciation or depreciation because the value of debt
securities rises and falls inversely with prevailing interest rates. The Fund
may invest up to 15% of its net assets in illiquid securities. Compliance with
all investment limitations, including those relating to liquidity and credit
quality, will be determined as of the date of investment.
Notwithstanding the Small Cap Equity Fund's investment objective of
long-term capital growth, the Fund may, when the Adviser deems appropriate, for
temporary defensive purposes to preserve capital, hold part or all of its assets
in cash, money market instruments of the type in which the Protective Money
Market Fund may invest, non-convertible preferred stocks, or, subject to tax
restrictions, foreign currencies.
PROTECTIVE INTERNATIONAL EQUITY FUND
The International Equity Fund's investment objective is long-term capital
appreciation. The Fund will seek to achieve its objective by investment
primarily in equity and equity-related securities
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of companies that are organized outside the United States or of companies whose
securities are principally traded outside the United States, and which
securities are considered by the Adviser to have long-term capital appreciation
potential. The Fund is "non-diversified" as defined in the Act. The only
statutory or regulatory diversification requirements to which it is subject
arise under the federal tax law. See "Special Investment Methods and Risks."
Under normal market conditions, the Fund will invest substantially all, and at
least 65%, of its total assets in equity and equity-related securities issued by
companies organized or companies whose securities are principally traded in at
least three different foreign countries.
The International Equity Fund is intended for investors who can accept the
risks involved in investments in equity and equity-related securities of
non-U.S. issuers, as well as in foreign currencies and in the active management
techniques that the Fund generally employs.
The equity and equity-related securities in which the International Equity
Fund will primarily invest are common stock, preferred stock, convertible debt
obligations, convertible preferred stock and warrants or other rights to acquire
stock that the Adviser believes offer the potential for long-term capital
appreciation. The Fund also may invest in securities of foreign issuers in the
form of sponsored and unsponsored ADRs, European Depository Receipts ("EDRs") or
other similar instruments representing securities of foreign issuers. EDRs are
receipts issued by a European financial institution evidencing an arrangement
similar to ADRs. Generally, ADRs, in registered form, are designed for trading
in U.S. securities markets and EDRs, in bearer form, are designed for trading in
European securities markets. See "Special Investment Methods and Risks."
As to any specific investment, the Adviser's analysis will focus on
evaluating the fundamental value of an enterprise. The International Equity Fund
will purchase securities for its portfolio when their market price appears to be
less than their fundamental value in the judgment of the Adviser. In selecting
specific investments, the Adviser will attempt to identify securities with
strong potential for appreciation relative to their downside exposure. In this
regard, the Adviser will also use a macro analysis of numerous economic and
valuation variables to determine the anticipated investment climate. In making
these determinations, the Adviser will take into account price-earnings ratios,
cash flow, the relationship of asset value to market price of the securities and
other factors which it may determine from time to time to be relevant. Because
current income is not the Fund's investment objective, the Fund will not
restrict its investments in equity securities to those issuers with a record of
timely dividend payments. In choosing the Fund's securities, the Adviser may
also perform first-hand fundamental research. This can include visiting company
headquarters and plant sites to assess operations and meet decision-makers.
SUBSTANTIAL INVESTMENT IN WESTERN EUROPE AND JAPAN. The International
Equity Fund expects to invest a substantial portion of its assets in the
securities of companies located in Western European countries and in Japan. In
particular, the International Equity Fund may invest more than 25% of its total
assets in the securities of corporate and government issuers located in one or
more Western European countries and in Japan and any successor countries
resulting from the dissolution, consolidation or political restructuring of such
countries. Investment of a substantial portion of the Fund's assets in such
countries will subject the Fund, to a greater extent than if investment was more
limited, to the risks of adverse securities markets, exchange rates and social,
political or economic events which may occur in those countries. See Appendix B
to the SAI for further information about such countries. The Fund may invest
more than 25% of its total assets in the securities of U.S. issuers provided
that the Fund does not invest more than 25% of its total assets in securities of
one or more U.S. issuers conducting their principal business activities in the
same industry.
INVESTMENTS IN EMERGING MARKETS. The International Equity Fund may invest
in the securities of issuers located in countries with emerging economies or
securities markets and any successor countries resulting from the dissolution,
consolidation or political restructuring of such countries. Up to 25% of the
Fund's total assets may be invested in any one country and such investments may,
in the
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aggregate, exceed 25% of the Fund's total assets. These countries are:
Argentina, Australia, Bangladesh, Brazil, Canada, Chile, China, Columbia,
Czechoslovakia, Egypt, Hong Kong, Hungary, India, Indonesia, Israel, Jamaica,
Jordan, Kenya, Korea, Kuwait, Malaysia, Mexico, Morocco, New Zealand, Nigeria,
Pakistan, Philippines, Poland, Singapore, Sri Lanka, South Africa, Taiwan,
Thailand, Turkey, Venezuela and Zimbabwe. Because some of these countries have,
to a greater or lesser extent, emerging economies or securities markets,
investment in such countries involves certain risks that are not present in
investments in more developed countries. See "Special Investment Methods and
Risks." In addition, the International Equity Fund may not invest in the
securities of issuers located in certain of the foregoing countries until the
Company's board of directors approves investing in such countries.
FOREIGN CURRENCY AND CURRENCY MANAGEMENT TECHNIQUES. Investment in foreign
issuers usually involves currencies of foreign countries. Because the
International Equity Fund's exposure to fluctuation of currency values is
independent of its securities positions, the value of the assets of the Fund as
measured in U.S. dollars is affected by changes in foreign currency exchange
rates. An unlimited amount of the International Equity Fund's assets may be
denominated or quoted in one or more of the currencies described in Appendix B
of the SAI. Substantial investment of the Fund's assets in a particular currency
will increase its exposure to adverse developments affecting the value of that
currency.
It is expected that the International Equity Fund will employ certain
currency management techniques to hedge against currency exchange rate
fluctuations or to enhance total return. When used to enhance total return,
these management techniques are considered speculative. Such currency management
techniques involve risks different from those associated with investing solely
in dollar-denominated securities of U.S. issuers. The management techniques
which the Fund may employ consist of transactions in options, futures contracts,
options on futures, forward foreign currency exchange contracts and currency
swaps. To the extent that the Fund is fully invested in foreign securities while
also maintaining currency positions, it may be exposed to greater combined risk.
The Fund's net currency positions may expose it to risks independent of its
securities positions. See "Special Investment Methods and Risks."
OTHER INVESTMENTS. The International Equity Fund's investments may include
U.S. Government Securities, mortgage-backed obligations, debt obligations of
corporate and asset-backed issuers, debt obligations of foreign governments and
their respective agencies, instrumentalities, political subdivisions and
authorities and debt obligations issued or guaranteed by international or
supranational entities that, in the opinion of the Adviser, offer the potential
to enhance total return. The timing of purchase and sale transactions in debt
obligations may result in capital appreciation or depreciation because the value
of debt obligations varies inversely with prevailing interest rates. The Fund
will not, under normal conditions, invest more than 35% of its total assets in
such debt obligations. The debt obligations in which the Fund may invest will be
rated BBB or higher by Standard & Poor's Corporation ("S&P") or Baa or higher by
Moody's Investors Services, Inc. ("Moody's"), or if unrated, determined by the
Adviser to be of comparable credit quality. The Fund will limit its investment
in corporate debt obligations to less than 35% of its total assets. See Appendix
A to the SAI for a description of the corporate bond ratings assigned by S&P and
Moody's.
The International Equity Fund may also make investments or utilize
investment techniques that involve special risks. These include: convertible
securities, when-issued securities and forward commitments, options on
securities and securities indices, futures contracts and options thereon,
illiquid or restricted securities, repurchase agreements, stock of other
investment companies, lending portfolio securities, small capitalization
companies and unseasoned issuers. These investments and techniques and their
attendant risks are described in "Special Investment Methods and Risks."
Notwithstanding the International Equity Fund's investment objective of
long-term capital appreciation through investment in equity and equity-related
securities of non-U.S. issuers or of companies whose securities are principally
traded outside the United States, the Fund may on occasion, for
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temporary defensive purposes to preserve capital, hold part or all of its assets
in cash, other money market instruments of the type in which the Money Market
Fund may invest, non-convertible preferred stocks, or, subject to certain tax
restrictions, foreign currencies. The Fund may assume a temporary defensive
posture only when political and economic factors affect foreign equity markets
to such an extent that the Adviser believes there to be extraordinary risks in
being substantially invested in such markets. When the Fund's assets are so
invested, the Fund may not be achieving its investment objective.
PROTECTIVE GROWTH AND INCOME FUND
The Growth and Income Fund's investment objective is to provide shareholders
with long-term growth of capital and growth of income. The Fund will seek to
achieve its investment objectives by investing, under normal market conditions,
at least 65% of its total assets in equity securities that the Adviser considers
to have favorable prospects for capital appreciation and/or dividend growth.
Equity securities in which the Fund may invest consist of common stocks,
preferred stocks, convertible securities, warrants and interests in real estate
investment trusts ("REITs"). These securities may or may not pay a current
dividend. The Fund generally will invest in equity securities that are listed on
a securities exchange or traded in the over-the-counter market. Securities in
which the Fund may invest may include foreign securities, ADRs, securities
acquired on a when-issued or forward commitment basis, restricted or illiquid
securities, securities of other investment companies and unseasoned issuers. The
Fund may also use certain investment techniques that entail special risks. These
include: options on securities and securities indices, futures contracts and
options thereon, lending portfolio securities, holding and trading foreign
currency, forward foreign currency contracts, futures contracts on foreign
currency and option contracts on foreign currencies. These securities and
techniques and their attendant risks are described in "Special Investment
Methods and Risks."
Potential investments for the Growth and Income Fund are evaluated by the
Adviser using fundamental analysis including criteria such as earnings, cash
flow, asset value and dividend-paying ability. The Adviser intends to purchase
securities of companies that are, in it's view, underpriced relative to the
company's long-term growth prospects, cash flow and dividend-paying ability. The
Fund also may purchase securities of companies that have experienced
difficulties and that the Adviser believes are thus available at attractive
prices. Consideration will be given to the business quality of the underlying
issuer. Factors positively affecting the Adviser's view of that quality include
the competitiveness and degree of regulation in the markets in which the company
operates, the return on capital invested in the business, the market position of
the company in the markets in which it operates, the acceptability of the level
of the company's financial leverage and the existence of a management team with
a record of success.
Portfolio securities will generally be sold when the Adviser believes their
market price fully reflects or exceeds their fundamental valuation or due to an
increase in risk beyond acceptable levels. Under normal market conditions, the
Fund's cash position will be a reflection of the availability of attractive
investment alternatives.
The Adviser evaluates investments for the Growth and Income Fund using
fundamental analysis and through field research. In addition, the Adviser is
able to draw upon the research and market expertise of the research department
as well as information provided by other securities dealers.
OTHER INVESTMENT POLICIES AND RISKS. The Growth and Income Fund may invest
up to 35% of its total assets in investment grade mortgage-backed, asset-backed
and fixed-income securities issued by corporations or other entities or in U.S.
Government Securities if such securities, in the opinion of the Adviser, offer
the potential to further the Fund's investment objectives. In addition, although
the Fund will invest primarily in publicly traded U.S. securities, it may invest
up to 25% of its assets in foreign securities and ADRs. The Fund does not intend
to invest in foreign fixed-income securities, except that the Fund may invest in
long-term foreign currency denominated debt obligations issued or guaranteed by
one or more foreign governments or any of their political subdivisions, agencies
or instrumentalities.
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When in the judgment of the Adviser market conditions warrant, the Growth
and Income Fund may for temporary defensive purposes to preserve capital, hold
part or all of its assets in cash, money market instruments of the type in which
the Money Market Fund may invest, and foreign currencies.
PROTECTIVE GLOBAL INCOME FUND
The Global Income Fund's investment objective is to provide investors with a
high total return, emphasizing current income and, to a lesser extent, providing
opportunities for capital appreciation, through investment in a portfolio of
high quality fixed-income securities of U.S. and foreign issuers and through
transactions in foreign currencies. High quality securities are defined as
securities which have ratings of at least AA by S&P or Aa by Moody's ("high
quality ratings") or, if unrated, are determined by the Fund's Adviser to be of
comparable credit quality. A security will be considered to have met this
requirement if it receives the minimum required rating from at least one such
rating organization even though it has been rated below the minimum by one or
more other rating organizations.
SELECTION OF PORTFOLIO INVESTMENTS. Under normal circumstances, the Global
Income Fund will seek to meet its investment objective by pursuing investment
opportunities in foreign and domestic fixed-income securities markets and by
engaging in currency transactions to enhance returns and for the purpose of
hedging its portfolio. In determining the countries and currencies in which the
Fund will invest, the Fund's portfolio managers will form an opinion based
primarily on the views of Goldman Sachs's economists as well as information
provided by securities dealers, including information relating to factors such
as interest rates, inflation, monetary and fiscal policies, taxation, and
political climate. The portfolio managers will apply the Black-Litterman model
(the "model") to their views to develop a portfolio that produces, in the view
of the Adviser, the optimal expected return for a given level of risk. The model
was developed by Fischer Black, Director of Quantitative Strategies for the
Adviser, and Robert Litterman, Director of Goldman Sachs's Research and Modeling
Development Group. The model factors in the opinions of the portfolio managers,
adjusting for their level of confidence in such opinions, with the views implied
by an international capital asset pricing formula. The model is also used to
maintain the level of portfolio risk within certain guidelines established by
the Adviser.
In selecting securities for the portfolio, the portfolio managers consider
such factors as the security's duration, sector and credit quality rating as
well as the security's yield and prospects for capital appreciation. The Global
Income Fund will, under normal market conditions, have at least 30% of its total
assets, adjusted to reflect the Fund's net exposure after giving effect to
currency transactions and positions, denominated in U.S. dollars. It is expected
that the Fund will use currency transactions both to enhance overall returns for
a given level of risk and to hedge its exposure to foreign currencies. While the
Fund will have both long and short currency positions, its net long and short
foreign currency exposure will not exceed the value of the Fund's total assets.
The Fund may, for temporary defensive purposes, invest up to 100% of its total
assets in dollar-denominated securities or securities of U.S. issuers. See
"Special Investment Methods and Risks."
PORTFOLIO DURATION. The Global Income Fund will maintain a dollar weighted
average portfolio duration of not more than five years. Duration represents the
weighted average maturity of expected cash flows on a debt obligation,
discounted to present value. The longer the duration of a debt obligation, the
more sensitive its value is to changes in interest rates. Maturity measures only
the time final payment is due on a bond or other debt security; it takes no
account of the pattern of a security's cash flows over time. In computing the
duration of its portfolio, the Fund will have to estimate the duration of debt
obligations that are subject to prepayment or redemption by the issuer.
The Global Income Fund may use various techniques to shorten or lengthen the
dollar weighted average duration of its portfolio, including the acquisition of
debt obligations at a premium or discount, transactions in options, futures
contracts and options on futures and interest rate swaps. Subject to the policy
of maintaining a dollar weighted average portfolio duration not exceeding five
years, the Fund may invest in individual obligations deemed to have estimated
average lives of ten years or less.
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CURRENCY AND INTEREST RATE TECHNIQUES. It is expected that the Global
Income Fund will employ certain currency and interest rate management techniques
involving risks different from those associated with investing solely in
dollar-denominated fixed-income securities of U.S. issuers. Such management
techniques include transactions in options (including yield curve options),
futures contracts, options on futures contracts, forward foreign currency
exchange contracts, currency options and futures and currency and interest rate
swaps. However, to the extent that the Fund is fully invested in foreign
securities while also maintaining currency positions, it may be exposed to
greater combined risk. The Fund's net currency positions may expose it to risks
independent of its securities positions. See "Special Investment Methods and
Risks."
CONCENTRATION IN CANADA, GERMANY, JAPAN AND THE UNITED KINGDOM. The Global
Income Fund may invest more than 25% of its total assets in the securities of
corporate and government issuers located in each of Canada, Germany, Japan and
the United Kingdom as well as the securities of U.S. issuers. Concentration of
the Fund's investments in such issuers or currencies will subject the Fund, to a
greater extent than if investment was more limited, to the risks of adverse
securities markets, exchange rates and social, political or economic events
which may occur in those countries. See Appendix B of the SAI for further
information about the foregoing countries. In addition, for purposes of these
percentage limitations, the term "securities" does not include foreign
currencies, which means that the Fund could have more than 25% of its total
assets denominated in any particular currency described in Appendix B of the
SAI.
OTHER INVESTMENT POLICIES. The Global Income Fund is "non-diversified"
under the Act. The only statutory or regulatory diversification requirements to
which it is subject arise under federal tax law. See "Special Investment Methods
and Risks." Except as described above, not more than 25% of the Fund's total
assets will be invested in the securities of any one foreign government or any
other issuer (this limitation does not apply to the U.S. Government). Under
normal circumstances, the Fund will invest in securities of issuers in at least
three countries. No more than 25% of the Fund's total assets will be invested in
securities of issuers located in any country other than Canada, Germany, Japan,
the United Kingdom and the United States.
FIXED-INCOME SECURITIES. The fixed-income securities in which the Global
Income Fund may invest include: (i) U.S. Government Securities and custody
receipts therefor; (ii) securities issued or guaranteed by a foreign government
or any of its political subdivisions, authorities, agencies or instrumentalities
or by international entities (I.E., international organizations designated or
supported by government entities to promote economic reconstruction or
development, such as the World Bank) having at least one high quality rating or,
if unrated, determined by the Adviser to be of comparable credit quality; (iii)
corporate debt securities having at least one high quality rating or, if
unrated, determined by the Adviser to be of comparable credit quality; (iv)
certificates of deposit, bankers' acceptances or time deposits of U.S. or
foreign banks (including domestic or foreign branches thereof) having total
assets of more than $1 billion and determined by the Adviser to be of comparable
credit quality to securities having a high quality rating; (v) commercial paper
having a high quality rating or determined by the Adviser to be of comparable
quality; and (vi) mortgage and asset-backed securities having at least one high
quality rating, or, if unrated, determined by the Adviser to be of comparable
credit quality to securities with a high quality rating.
Although the Global Income Fund may invest in securities satisfying the
minimum credit quality criteria prescribed above, the Fund generally intends to
invest at least 50% of its net assets in securities having the highest
applicable credit quality rating and unrated securities determined by the
Adviser to be of comparable credit quality to securities with the highest
applicable credit quality rating. Currently, most of the foreign securities that
meet the Fund's credit quality standards are likely to be securities issued by
foreign governments. The debt securities in which the Fund will invest may have
fixed, variable or floating interest rates.
RISKS OF FOREIGN INVESTMENTS AND CURRENCIES. The Global Income Fund will,
under normal market conditions, have at least 30% of its total assets, adjusted
to reflect the Fund's net exposure after giving
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effect to currency transactions and positions, denominated in U.S. dollars. The
performance of investments in non-dollar securities will depend on, among other
things, the strength of the foreign currency against the dollar and the interest
rate environment in the country issuing the foreign currency. Absent other
events which could otherwise affect the value of non-dollar securities (such as
a change in the political climate or an issuer's credit quality), appreciation
in the value of the foreign currency generally can be expected to increase the
value of the Fund's non-dollar securities in terms of U.S. dollars. A rise in
foreign interest rates or decline in the value of foreign currencies relative to
the U.S. dollar generally can be expected to depress the value of the Fund's
non-dollar securities in terms of U.S. dollars. The Adviser evaluates
investments on the basis of fundamental economic criteria (E.G., relative
inflation levels and trends, growth rate forecasts, balance of payments status
and economic policies) as well as technical and political data.
Investing the Global Income Fund's assets in securities of issuers located
outside the United States will subject the Fund to the risks of adverse social,
political or economic events which may occur in such foreign countries. See
"Special Investment Methods and Risks."
SPECIAL INVESTMENT METHODS AND RISKS
CONVERTIBLE SECURITIES
The Select Equity Fund, Small Cap Equity Fund, International Equity Fund,
and Growth and Income Fund may invest in convertible securities. Convertible
securities may include corporate notes or preferred stock but are ordinarily a
long-term debt obligation of the issuer convertible at a stated exchange rate
into common stock of the issuer. As with all debt securities, the market value
of convertible securities tends to decline as interest rates increase and,
conversely, to increase as interest rates decline. Convertible securities
generally offer lower interest or dividend yields than non-convertible
securities of similar quality. However, when the market price of the common
stock underlying a convertible security exceeds the conversion price, the price
of the convertible security tends to reflect the value of the underlying common
stock. As the market price of the underlying common stock declines, the
convertible security tends to trade increasingly on a yield basis, and thus may
not depreciate to the same extent as the underlying common stock. Convertible
securities generally rank senior to common stocks in an issuer's capital
structure and are consequently of higher quality and entail less risk of
declines in market value than the issuer's common stock. However, the extent to
which such risk is reduced depends in large measure upon the degree to which the
convertible security sells above its value as a fixed-income security. In
evaluating a convertible security, the Adviser gives primary emphasis to the
attractiveness of the underlying common stock. The convertible debt securities
in which a Fund may invest are subject to the same rating criteria as that
Fund's investment in non-convertible debt securities.
FIXED-INCOME SECURITIES
Fixed-income securities in which the Funds may invest will tend to decrease
in value when prevailing interest rates rise and increase in value when
prevailing interest rates fall. Because a Fund's investments in fixed-income
securities are interest rate sensitive, its performance may be affected by the
Adviser's ability to anticipate and respond to fluctuations in market interest
rates. Fixed-income securities include U.S. Government Securities, debt
obligations of states or municipalities or state or municipal government
agencies or instrumentalities, corporate debt obligations, preferred stock, zero
coupon bonds and deferred interest bonds.
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U.S. GOVERNMENT SECURITIES. All of the Funds may purchase U.S. Government
Securities. U.S. Government Securities are obligations issued or guaranteed by
the U.S. Government, its agencies, authorities or instrumentalities. Some U.S.
Government Securities, such as Treasury bills, notes and bonds, which differ
only in their interest rates, maturities and times of issuance, are supported by
the full faith and credit of the Unites States. Others, such as obligations
issued or guaranteed by U.S. Government agencies, authorities or
instrumentalities are supported either by (a) the full faith and credit of the
U.S. Government (such as securities of the Small Business Administration), (b)
the right of the issuer to borrow from the Treasury (such as securities of the
Federal Home Loan Banks), (c) the discretionary authority of the U.S. Government
to purchase the agency's obligations (such as securities of the Federal National
Mortgage Association), or (d) only the credit of the issuer. No assurance can be
given that the U.S. Government will provide financial support to U.S. Government
agencies, authorities or instrumentalities in the future. U.S. Government
Securities may also include zero coupon bonds.
Securities guaranteed as to principal and interest by the U.S. Government,
its agencies, authorities or instrumentalities are considered to include (a)
securities for which the payment of principal and interest is backed by a
guarantee of or an irrevocable letter of credit issued by the U.S. Government,
its agencies, authorities or instrumentalities and (b) participation in loans
made to foreign governments or their agencies that are so guaranteed. The
secondary market for certain of these participations is limited. Such
participations may therefore be regarded as illiquid.
Each Fund may also invest in separately traded principal and interest
components of securities guaranteed or issued by the U.S. Treasury if such
components are traded independently under the Separate Trading of Registered
Interest and Principal of Securities program ("STRIPS").
CUSTODY RECEIPTS. All of the Funds may also acquire securities issued or
guaranteed as to principal and interest by the U.S. Government, its agencies,
authorities or instrumentalities in the form of custody receipts. Such receipts
evidence ownership of future interest payments, principal payments or both on
certain notes or bonds issued by the U.S. Government, its agencies, authorities
or instrumentalities. For certain securities law purposes, custody receipts are
not considered obligations of the U.S. Government.
CORPORATE DEBT OBLIGATIONS. Corporate debt securities are subject to the
risk of an issuer's inability to meet principal and interest payments on the
obligations (credit risk) and may also be subject to price volatility due to
such factors as interest rate sensitivity, market perception of the
creditworthiness of the issuer and general market liquidity (market risk). Lower
rated or unrated securities are more likely to react to developments affecting
market and credit risk than are more highly rated securities, which react
primarily to movements in the general level of interest rates. The Adviser
considers both credit risk and market risk in making investment decisions as to
corporate debt obligations for a Fund.
LOWER RATED CORPORATE DEBT OBLIGATIONS. The corporate debt obligations in
which the Small Cap Equity Fund may invest may be rated in the lowest rating
categories by S&P or by Moody's or be unrated. The Fund will limit its
investment in corporate debt obligations to less than 35% of its total assets.
Bonds rated BB or below by S&P or Ba or below by Moody's (or comparable unrated
securities), commonly called "junk bonds," are considered speculative and
payments of principal and interest thereon may be questionable. In some cases,
such bonds may be highly speculative, have poor prospects for reaching
investment grade standing and be in default. As a result, investment in such
bonds will entail greater speculative risks than those associated with
investment in investment-grade bonds (I.E., bonds rated BBB or higher by S&P or
Baa or higher by Moody's). No minimum rating standard is required for a purchase
of bonds by the Small Cap Equity Fund. The Fund may purchase debt obligations of
issuers not currently paying interest as well as issuers who are in default. See
Appendix A to the SAI for a description of the ratings issued by investment
rating services.
ZERO COUPON AND DEFERRED INTEREST BONDS. The Small Cap Equity Fund,
International Equity Fund, Growth and Income Fund and Global Income Fund may
invest in zero coupon bonds. The
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Global Income Fund may also invest in deferred interest bonds. Zero coupon and
deferred interest bonds are debt obligations which are issued at a significant
discount from face value. The original discount approximates the total amount of
interest the bonds will accrue and compound over the period until maturity or
the first interest accrual date at a rate of interest reflecting the market rate
of the security at the time of issuance. A zero coupon security pays no interest
to its holder during its life and its value (above its cost to a Fund) consists
of the difference between its face value at maturity and its cost. While zero
coupon bonds do not require the periodic payment of interest, deferred interest
bonds generally provide for a period of delay before the regular payment of
interest begins. Although this period of delay is different for each deferred
interest bond, a typical period is approximately one-third of the bond's terms
to maturity. Such investments benefit the issuer by mitigating its initial need
for cash to meet debt service, but some also provide a higher rate of return to
attract investors who are willing to defer receipt of such cash. Such
investments experience greater volatility in market value due to changes in
interest rates than debt obligations which provide for regular payments of
interest. A Fund will accrue income on such investments for tax and accounting
purposes, as required, which is distributable to shareholders and which, because
no cash is received at the time of accrual, may require the liquidation of other
portfolio securities to satisfy the Fund's distribution obligations.
INVERSE FLOATING RATE SECURITIES. The Global Income Fund may invest in
inverse floating rate securities. The interest rate on such a security resets in
the opposite direction from the market rate of interest to which it is indexed.
An inverse floating rate security may be considered to be leveraged to the
extent that its interest rate varies by a magnitude that exceeds the magnitude
of the change in the index rate of interest. The higher degree of leverage
inherent in such securities generally results in greater volatility in their
market prices.
MORTGAGE-BACKED AND ASSET-BACKED SECURITIES. All of the Funds may invest in
mortgage-backed securities, which represent direct or indirect participation in,
or are collateralized by and payable from, mortgage loans secured by real
property. These Funds may also invest in asset-backed securities, which
represent participation in, or are secured by and payable from, assets such as
motor vehicle installment sale contracts, installment loan contracts, leases of
various types of real and personal property, receivables from revolving credit
(credit card) agreements and other categories of receivables. Such securities
are generally issued by trusts and special purpose corporations.
Mortgage-backed and asset-backed securities are often subject to more rapid
repayment than their stated maturity dates would indicate as a result of the
pass-through of prepayments of principal on the underlying loans. During periods
of declining interest rates, prepayment of loans underlying mortgage-backed and
asset-backed securities can be expected to accelerate, and thus impair a Fund's
ability to reinvest the returns of principal at comparable yields. Accordingly,
the market values of such securities will vary with changes in market interest
rates generally and in yield differentials among various kinds of U.S.
Government Securities and other mortgage-backed and asset-backed securities.
Asset-backed securities present certain additional risks that are not presented
by mortgage-backed securities because asset-backed securities generally do not
have the benefit of a security interest in collateral that is comparable to
mortgage assets. There is the possibility that, in some cases, recoveries on
repossessed collateral may not be available to support payments on these
securities.
REPURCHASE AGREEMENTS
All of the Funds may enter into repurchase agreements with "primary dealers"
in U.S. Government Securities and member banks of the Federal Reserve System
which furnish collateral at least equal in value or market price to the amount
of their repurchase obligation. In a repurchase agreement, an investor (E.G., a
Fund) purchases a debt security from a seller which undertakes to repurchase the
security at a specified resale price on an agreed future date (ordinarily a week
or less). The resale price generally exceeds the purchase price by an amount
which reflects an agreed-upon market interest rate for the term of the
repurchase agreement. The primary risk is that, if the seller defaults, a Fund
might suffer a loss to the extent that the proceeds from the sale of the
underlying securities and other collateral held by that Fund in connection with
the related repurchase agreement are less
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than the repurchase price. In addition, in the event of bankruptcy of the seller
or failure of the seller to repurchase the securities as agreed, that Fund could
suffer losses, including loss of interest on or principal of the security and
costs associated with delay and enforcement of the repurchase agreement. In
evaluating whether to enter into a repurchase agreement, the Adviser will
carefully consider the creditworthiness of the seller pursuant to procedures
established by the Company's board of directors.
All of the Funds, together with other registered investment companies
advised by the Advisers, may transfer uninvested cash balances into a single
joint account, the daily aggregate balance of which is invested in one or more
repurchase agreements.
WHEN-ISSUED SECURITIES AND FORWARD COMMITMENTS
All of the Funds may purchase when-issued-securities. When-issued
transactions arise when securities are purchased by a Fund with payment and
delivery taking place in the future in order to secure what is considered to be
an advantageous price and yield to the Fund at the time of entering into the
transaction. Certain of the Funds may also purchase securities on a forward
commitment basis; that is, make contracts to purchase securities for a fixed
price at a future date beyond customary settlement time. A Fund is required to
hold and maintain in a segregated account with its custodian until the
settlement date, cash, U.S. Government Securities or high grade liquid debt
obligations in an amount sufficient to meet the purchase price. Alternatively,
the Fund may enter into offsetting contracts for the forward sale of other
securities that it owns. Purchase of securities on a when-issued or forward
commitment basis involves a risk of loss if the value of the security to be
purchased declines prior to the settlement date. Although a Fund would generally
purchase securities on a when-issued or forward commitment basis with the
intention of acquiring securities for its portfolio, the Fund may dispose of a
when-issued security or forward commitment prior to settlement if the Adviser
deems it advantageous to do so.
LENDING OF PORTFOLIO SECURITIES
All of the Funds may seek to increase their income by lending portfolio
securities. Under present regulatory policies, such loans may be made to
institutions, such as certain broker-dealers, and are required to be secured
continuously by collateral in cash, cash equivalents, or U.S. Government
Securities maintained on a current basis at an amount at least equal to the
market value of the securities loaned. A Fund may experience a loss or delay in
the recovery of its securities if the institution with which it has engaged in a
portfolio loan transaction breaches its agreement with the Fund. If the Adviser
determines to make securities loans, the value of the securities loaned will not
exceed one-third of the value of the total assets of a Fund.
RESTRICTED AND ILLIQUID SECURITIES
The Select Equity Fund, Small Cap Equity Fund and the Growth and Income Fund
will each not invest more than 5%, and the International Equity Fund will not
invest more than 10%, of their total assets in securities that are not
registered or are offered in an exempt non-public offering ("restricted
securities") under the Securities Act of 1933 ("1933 Act"). However, such
restriction shall not apply to restricted securities offered and sold to
"qualified institutional buyers" under Rule 144A under the 1933 Act or to
foreign securities which are offered or sold outside the United States. In
addition, no Fund will invest more than 15% (10% for the Money Market Fund) of
its net assets in illiquid investments, which includes most repurchase
agreements maturing in more than seven days, currency and interest rate swaps,
time deposits with a notice or demand period of more than seven days, certain
over-the-counter option contracts, participation interests in loans, securities
that are not readily marketable and restricted securities, unless the Adviser
determines, based upon a continuing review of the trading markets for the
specific restricted security, that such restricted securities are eligible under
Rule 144A and are liquid.
The board of directors of the Company has adopted guidelines and delegated
to the Adviser the daily function of determining and monitoring the liquidity of
restricted securities. The board, however, will retain sufficient oversight and
be ultimately responsible for the determinations. Since it is
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not possible to predict with assurance exactly how the market for restricted
securities sold and offered under Rule 144A will develop, the board will
carefully monitor each Fund's investments in these securities, focusing on such
important factors, among others, as valuation, liquidity and availability of
information. To the extent that qualified institutional buyers become for a time
uninterested in purchasing these restricted securities, this investment practice
could have the effect of decreasing the level of liquidity in a Fund.
The purchase price and subsequent valuation of restricted securities
normally reflect a discount from the price at which such securities would trade
if they were not restricted, since the restriction makes them less liquid. The
amount of the discount from the prevailing market prices is expected to vary
depending upon the type of security, the character of the issuer, the party who
will bear the expenses of registering the restricted securities and prevailing
supply and demand conditions.
BORROWING
All of the Funds may borrow money but only from banks and only for temporary
or short-term purposes. Temporary or short-term purposes may include: (i)
short-term (I.E., no longer than five business days) credits for clearance of
portfolio transactions; (ii) borrowing in order to meet redemption requests or
to finance failed settlements of portfolio trades without immediately
liquidating portfolio securities or other assets; and (iii) borrowing in order
to fulfill commitments or plans to purchase additional securities pending the
anticipated sale of other portfolio securities or assets in the near future. No
Fund will borrow for leveraging purposes. Each Fund will maintain continuous
asset coverage of at least 300% (as defined in the Act) with respect to all of
its borrowings. Should the value of a Fund's assets decline to below 300% of
borrowings, the Fund may be required to sell portfolio securities within three
days to reduce the Fund's debt and restore 300% asset coverage. Borrowing
involves interest costs. A Fund will not purchase additional securities while
its borrowings exceed 5% of its total assets.
OPTIONS ON SECURITIES AND SECURITIES INDICES
WRITING COVERED OPTIONS. All of the Funds except the Money Market Fund may
write (sell) covered call and put options on any securities in which they may
invest. All call options written by the Funds are covered, which means that the
Fund will own the securities subject to the option so long as the option is
outstanding. All put options written by the Funds are covered, which means that
the Fund would have deposited with its custodian cash, U.S. Government
Securities or other high grade liquid debt securities with a value at least
equal to the exercise price of the put option. Call and put options written by a
Fund will also be considered to be covered to the extent that the Fund's
liabilities under such options are wholly or partially offset by its rights
under call and put options purchased by the Fund. The Funds other than the Money
Market Fund may also write call and put options on any securities index composed
of securities in which they may invest.
PURCHASING OPTIONS. All of the Funds except the Money Market Fund may
purchase put and call options on any securities in which they may invest or
options on any securities index based on securities in which they may invest.
YIELD CURVE OPTIONS. The Global Income Fund may enter into options,
referred to as "yield curve options," on the yield differential between two
securities.
RISKS ASSOCIATED WITH OPTIONS TRANSACTIONS. There is no assurance that a
liquid secondary market on a domestic or foreign options exchange will exist for
any particular exchange-traded option or at any particular time. If a Fund is
unable to effect a closing purchase transaction with respect to covered options
it has written, the Fund will not be able to sell the underlying securities or
dispose of assets held in a segregated account until the options expire or are
exercised. Similarly, if a Fund is unable to effect a closing sale transaction
with respect to options it has purchased, it would have to exercise the options
in order to realize any profit and will incur transaction costs upon the
purchase or sale of the underlying securities. In a closing purchase or sale
transaction, a Fund acquires a position that offsets and cancels an option
position then held by the Fund.
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The Funds (other than the Money Market Fund) may purchase and sell both
options that are traded on United States and foreign exchanges and options
traded over-the-counter with broker-dealers who make markets in these options.
The ability to terminate over-the-counter options is more limited than with
exchange-traded options and may involve the risk that broker-dealers
participating in such transactions will not fulfill their obligations. Until
such time as the staff of the SEC changes its position, the Funds will treat
purchased over-the-counter options and all assets used to cover written
over-the-counter options as illiquid securities. However, for options written
with primary dealers in U.S. Government Securities pursuant to an agreement
requiring a closing purchase transaction at a formula price, the amount of
illiquid securities may be calculated with reference to a formula approved by
the SEC staff.
The writing and purchase of options is a highly specialized activity which
involves investment techniques and risks different from those associated with
ordinary portfolio securities transactions. For example, the successful use of
puts for hedging purposes depends in part on the ability of the Adviser to
predict future price fluctuations and the degree of correlation between the
options and securities markets. If the Adviser is incorrect in its determination
of the direction or the extent of the movement of the yield differential, the
investment performance of a Fund will be less favorable than it would have been
in the absence of such option transactions. The Funds pay brokerage commissions
or spreads in connection with their options transactions. The writing of options
could significantly increase a Fund's portfolio turnover rate.
FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS
To hedge against changes in interest rates, securities prices or currency
exchange rates or to increase total return, the Funds other than the Money
Market Fund and the Select Equity Fund may purchase and sell various kinds of
futures contracts, and purchase and sell call and put options on any futures
contract that it may purchase or sell. The futures contracts may be based on
various securities (such as U.S. Government Securities), securities indices,
foreign currencies and other financial instruments and indices. These Funds may
also enter into closing purchase and sale transactions with respect to any
futures contract and options that each may purchase or sell. To hedge against
changes in securities prices or to increase total return, the Select Equity Fund
may purchase and sell futures contracts on the S&P 500 and purchase and sell
call and put options on such futures contracts. No Fund will engage in futures
and related options transactions except for bona fide hedging purposes as
defined in regulations of the Commodity Futures Trading Commission ("CFTC") or
to increase total return to the extent permitted by such regulations.
The Funds may not purchase or sell futures contracts or purchase or sell
related options to increase total return, except for closing purchase or sale
transactions, if immediately thereafter the sum of the amount of initial margin
deposits on a Fund's outstanding non-hedging positions in futures and related
options and the amount of premiums paid for outstanding options on futures would
exceed 5% of the market value of the Fund's net assets. Transactions in futures
contracts and options on futures involve brokerage costs, require margin
deposits and, in the case of contracts and options obligating a Fund to purchase
securities or currencies, require a Fund to segregate high grade liquid debt
securities with a value equal to the amount of the Fund's obligations.
While transactions in futures contracts and options on futures may reduce
certain risks, such transactions themselves entail certain other risks. Thus,
while a Fund may benefit from the use of futures and options on futures,
unanticipated changes in interest rates, securities prices or currency exchange
rates may result in a poorer overall performance for the Fund than if it had not
entered into any futures contracts or options transactions. The loss incurred by
a Fund in writing options on futures is potentially unlimited and may exceed the
amount of the premium received.
In the event of an imperfect correlation between a futures position and a
portfolio position which is intended to be protected, the desired protection may
not be obtained and a Fund may be exposed to risk of loss. The risk of imperfect
correlation may be minimized by investing in contracts whose price behavior is
expected to resemble that of a Fund's underlying securities. The risk that a
Fund will be
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unable to close out a futures position will be minimized to the extent that a
Fund enters into such transactions on a national exchange with an active and
liquid secondary market. Nonetheless, it is not, for example, possible to hedge
fully or perfectly against currency fluctuations affecting the value of
securities denominated in foreign currencies because the value of such
securities is also likely to fluctuate as a result of independent factors not
related to currency fluctuations. Therefore, perfect correlation between a
Fund's futures positions and portfolio positions will be impossible to achieve.
A Fund's transactions in futures contracts and options thereon may be
limited by the requirements of the Internal Revenue Code of 1986, as amended
(the "Code") for qualification as a regulated investment company.
FOREIGN TRANSACTIONS
FOREIGN INVESTMENTS. Investments in the securities of companies organized
outside the United States or of companies whose securities are principally
traded outside the United States ("foreign issuers") or investments in
securities denominated or quoted in foreign currency ("non-dollar securities")
may offer potential benefits not available from investments solely in securities
of domestic issuers or dollar denominated securities. The Funds other than the
Money Market Fund may invest in foreign issuers or non-dollar securities. Such
benefits may include the opportunity to invest in foreign issuers that appear,
in the opinion of the Adviser, to offer better opportunity for long-term capital
appreciation or current earnings than investments in domestic issuers, the
opportunity to invest in foreign countries with economic policies or business
cycles different from those of the United States and the opportunity to reduce
fluctuations in portfolio value by taking advantage of foreign securities
markets that do not necessarily move in a manner parallel to U.S. markets.
Investing in non-dollar securities or in the securities of foreign issuers
involves significant risks that are not typically associated with investing in
U.S. dollar denominated securities or in securities of domestic issuers. Such
investments may be affected by changes in currency rates, changes in foreign or
U.S. laws or restrictions applicable to such investments and in exchange control
regulations (E.G., currency blockage). For example, a decline in the exchange
rate would reduce the value of certain portfolio investments. In addition, if
the exchange rate for the currency in which a Fund receives interest payments
declines against the U.S. dollar before such interest is paid as dividends to
shareholders, the Fund may have to sell portfolio securities to obtain
sufficient cash to pay such dividends. As discussed below, a Fund may employ
certain investment techniques to hedge its foreign currency exposure; however,
such techniques also entail certain risks. Some foreign stock markets may have
substantially less volume than, for example, the New York Stock Exchange and
securities of some foreign issuers may be less liquid than securities of
comparable domestic issuers. Commissions and dealer mark-ups on transactions in
foreign investments may be higher than for similar transactions in the United
States. In addition, clearance and settlement procedures may be different in
foreign countries and, in certain markets, on certain occasions, such procedures
have been unable to keep pace with the volume of securities transactions, thus
making it difficult to conduct such transactions. For example, delays in
settlement could result in temporary periods when a portion of the assets of a
Fund are uninvested and no return is earned thereon. The inability of a Fund to
make intended investments due to settlement problems could cause it to miss
attractive investment opportunities. Inability to dispose of portfolio
securities or other investments due to settlement problems could result either
in losses to a Fund due to subsequent declines in value of the portfolio
investment or, if the Fund has entered into a contract to sell the investment,
could result in possible liability to the purchaser.
Foreign issuers are not generally subject to uniform accounting, auditing
and financial reporting standards comparable to those applicable to domestic
companies. There may be less publicly available information about a foreign
issuer than about a domestic one. In addition, there is generally less
government regulation of stock exchanges, brokers, and listed and unlisted
issuers in foreign countries than in the United States. Furthermore, with
respect to certain foreign countries, there is a possibility of expropriation or
confiscatory taxation, imposition of withholding taxes on dividend or
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interest payments, limitations on the removal of funds or other assets of the
Fund, or political or social instability or diplomatic developments which could
affect investments in those countries. Individual foreign economies also may
differ favorably or unfavorably from the United States economy in such respects
as growth of gross national product, rate of inflation, capital reinvestment,
resource self-sufficiency and balance of payments position.
INVESTMENTS IN ADRS AND EDRS. Many securities of foreign issuers are
represented by ADRs and EDRs. The Funds other than the Money Market Fund may
invest in ADRs and the International Equity Fund may invest in EDRs as well.
ADRs represent the right to receive securities of foreign issuers deposited in a
domestic bank or a foreign correspondent bank. Prices of ADRs are quoted in U.S.
dollars, and ADRs are traded in the United States on exchanges or
over-the-counter and are sponsored and issued by domestic banks. ADRs do not
eliminate all the risk inherent in investing in the securities of foreign
issuers. To the extent that a Fund acquires ADRs through banks which do not have
a contractual relationship with the foreign issuer of the security underlying
the ADR to issue and service such ADRs, there may be an increased possibility
that the Fund would not become aware of and be able to respond to corporate
actions such as stock splits or rights offerings involving the foreign issuer in
a timely manner. In addition, the lack of information may result in
inefficiencies in the valuation of such instruments. However, by investing in
ADRs rather than directly in the stock of foreign issuers, a Fund will avoid
currency risks during the settlement period for either purchases or sales. In
general, there is a large, liquid market in the United States for ADRs quoted on
a national securities exchange or the NASD's national market system. The
information available for ADRs is subject to the accounting, auditing and
financial reporting standards of the domestic market or exchange on which they
are traded, which standards are more uniform and more exacting than those to
which many foreign issuers may be subject.
Certain of the Funds may also invest in EDRs, which are receipts evidencing
an arrangement with a European bank similar to that for ADRs and are designed
for use in the European securities markets. EDRs are not necessarily quoted in
the same currency as the underlying security.
INVESTMENTS IN EMERGING MARKETS. The Small Cap Equity Fund, International
Equity Fund and Growth and Income Fund may invest in securities of issuers
located in countries with emerging economies and or securities markets. These
countries are located in the Asia-Pacific region, Eastern Europe, Central and
South America and Africa. Political and economic structures in many of these
countries may be undergoing significant evolution and rapid development, and
such countries may lack the social, political and economic stability
characteristic of more developed countries. Certain of these countries may have
in the past failed to recognize private property rights and have at times
nationalized or expropriated the assets of private companies. As a result, the
risks of foreign investment generally including the risks of nationalization or
expropriation of assets, may be heightened. See "Special Investment Methods and
Risks -- Foreign Securities" above. In addition, unanticipated political or
social developments may affect the values of the Small Cap Equity or
International Equity Fund's investments in those countries and the availability
to either Fund of additional investments in those countries.
The small size and inexperience of the securities markets in certain of
these countries and the limited volume of trading in securities in those
countries may also make the Small Cap Equity Fund's or International Equity
Fund's investments in such countries illiquid and more volatile than investments
in Japan or most Western European countries, and these Funds may be required to
establish special custody or other arrangements before making certain
investments in those countries. There may be little financial or accounting
information available with respect to issuers located in certain of such
countries, and it may be difficult as a result to assess the value or prospects
of an investment in such issuers. The laws of some foreign countries may limit
the ability of these Funds to invest in securities of certain issuers located in
those countries. The securities markets of these countries are also briefly
described in Appendix B of the SAI.
FOREIGN CURRENCY TRANSACTIONS. Because investment in foreign issuers will
usually involve currencies of foreign countries, and because the Small Cap
Equity Fund, International Equity Fund,
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Growth and Income Fund and Global Income Fund may be exposed to currency
exposure independent of their securities positions, the value of the assets of
these Funds as measured in U.S. dollars will be affected by changes in foreign
currency exchange rates. To the extent that a Fund's assets consist of
investments denominated in a particular currency, the Fund's exposure to adverse
developments affecting the value of such currency will increase. See Appendix B
of the SAI for a list of foreign currencies in which the Fund's portfolio
securities may be denominated.
An issuer of securities purchased by a Fund may be domiciled in a country
other than the country in whose currency the instrument is denominated or
quoted. The International Equity and Global Income Funds may also invest in
securities denominated in the European Currency Unit ("ECU"), which is a
"basket" consisting of specified amounts of the currencies of certain of the
twelve member states of the European Economic Community. The specific amounts of
currencies comprising the ECU may be adjusted by the Council of Ministers of the
European Economic Community from time to time to reflect changes in relative
values of the underlying currencies. In addition, the Fund may invest in
securities denominated in other currency "baskets."
Currency exchange rates may fluctuate significantly over short periods of
time causing, along with other factors, a Fund's net asset value to fluctuate as
well. They generally are determined by the forces of supply and demand in the
foreign exchange markets and the relative merits of investments in different
countries, actual or anticipated changes in interest rates and other complex
factors, as seen from an international perspective. Currency exchange rates also
can be affected unpredictably by intervention by U.S. or foreign governments or
central banks, or the failure to intervene, or by currency controls or political
developments in the U.S. or abroad. The market in forward foreign currency
exchange contracts, currency swaps and other privately negotiated currency
instruments offers less protection against defaults by the other party to such
instruments than is available for currency instruments traded on an exchange. To
the extent that a substantial portion of a Fund's total assets, adjusted to
reflect the Fund's net position after giving effect to currency transactions, is
denominated in the currencies of foreign countries, the Fund will be more
susceptible to the risk of adverse economic and political developments within
those countries.
In addition to investing in securities denominated or quoted in a foreign
currency, certain of the four Funds listed above may engage in a variety of
foreign currency management techniques. These Funds may hold foreign currency
received in connection with investments in foreign securities when, in the
judgment of the Adviser, it would be beneficial to convert such currency into
U.S. dollars at a later date, based on anticipated changes in the relevant
exchange rate. The Funds will incur costs in connection with conversions between
various currencies.
These Funds may purchase or sell forward foreign currency exchange contracts
for hedging purposes and the International Equity and Global Income Funds to
increase total return as well when the Adviser anticipates that the foreign
currency will appreciate or depreciate in value, but securities denominated or
quoted in that currency do not present attractive investment opportunities and
are not held in the Fund's portfolio. When purchased or sold for the purposes of
increasing total return, forward foreign currency exchange contracts are
considered speculative. In addition, these four Funds may enter into forward
foreign currency exchange contracts in order to protect against anticipated
changes in future foreign currency exchange rates. The International Equity Fund
and Global Income Fund may engage in cross-hedging by using forward contracts in
a currency different from that in which the hedged security is denominated or
quoted if the Adviser determines that there is a pattern of correlation between
the two currencies.
All four of these Funds may enter into contracts to purchase foreign
currencies to protect against an anticipated rise in the U.S. dollar price of
securities it intends to purchase. They may enter into contracts to sell foreign
currencies to protect against the decline in value of its foreign currency
denominated or quoted portfolio securities, or a decline in the value of
anticipated dividends from such securities, due to a decline in the value of
foreign currencies against the U.S. dollar. Contracts to sell foreign currency
could limit any potential gain which might be realized by a Fund if the value of
the hedged currency increased.
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If a Fund enters into a forward foreign currency exchange contract to sell
foreign currency to increase total return or to buy foreign currency for any
purpose, the Fund will be required to place cash, U.S. Government Securities or
high grade liquid debt securities in a segregated account of the Fund in an
amount equal to the value of the Fund's total assets committed to the
consummation of the forward contract. If the value of the securities placed in
the segregated account declines, additional cash or securities will be placed in
the segregated account so that the value of the account will equal the amount of
the Fund's commitment with respect to the contract.
Forward contracts are subject to the risk that the counterparty to such
contract will default on its obligations. Since a forward foreign currency
exchange contract is not guaranteed by an exchange or clearinghouse, a default
on the contract would deprive a Fund of unrealized profits, transaction costs or
the benefits of a currency hedge or force the Fund to cover its purchase or sale
commitments, if any, at the current market price. A Fund will not enter into
such transactions unless the credit quality of the unsecured senior debt or the
claims-paying ability of the counterparty is considered to be investment grade
by the Adviser.
OPTIONS ON CURRENCIES. The Small Cap Equity Fund, International Equity
Fund, Growth and Income Fund and Global Income Fund may purchase and sell
(write) put and call options on foreign currencies for the purpose of protecting
against declines in the U.S. dollar value of foreign portfolio securities and
anticipated dividends on such securities and against increases in the U.S.
dollar cost of foreign securities to be acquired. The International Equity and
Global Income Funds may use options on currency to cross-hedge, which involves
writing or purchasing options on one currency to hedge against changes in
exchange rates for a different currency, if there is a pattern of correlation
between the two currencies. As with other kinds of option transactions, however,
the writing of an option on foreign currency will constitute only a partial
hedge, up to the amount of the premium received. A Fund could be required to
purchase or sell foreign currencies at disadvantageous exchange rates, thereby
incurring losses. The purchase of an option on foreign currency may constitute
an effective hedge against exchange rate fluctuations; however, in the event of
exchange rate movements adverse to a Fund's position, the Fund may forfeit the
entire amount of the premium plus related transaction costs. In addition, the
International Equity and Global Income Funds may purchase call or put options on
currency to increase total return when the Adviser anticipates that the currency
will appreciate or depreciate in value, but the securities denominated in that
currency do not present attractive investment opportunities and are not held in
the Fund's portfolio. When purchased or sold for this purpose, options on
currencies are considered speculative. Options on foreign currencies to be
written or purchased by these Funds will be traded on U.S. and foreign exchanges
or over-the-counter. See "Options on Securities and Securities Indices" above
for a discussion of the liquidity risks associated with options transactions.
INTEREST RATE AND CURRENCY SWAPS. The Global Income Fund may enter into
interest rate and currency swaps for both hedging purposes and to increase total
return. The International Equity Fund may enter into currency swaps. The Global
Income Fund will typically use interest rate swaps to shorten the effective
duration of its portfolio. Interest rate swaps involve the exchange by the Fund
with another party of their respective commitments to pay or receive interest,
such as an exchange of fixed rate payments for floating rate payments. Currency
swaps involve the exchange of their respective rights to make or receive
payments in specified currencies. Since interest rate and currency swaps are
individually negotiated, these Funds expect to achieve an acceptable degree of
correlation between their portfolio investments and their interest rate or
currency swap positions.
The Global Income Fund will only enter into interest rate swaps on a net
basis, which means that the two payment streams are netted out, with the Fund
receiving or paying, as the case may be, only the net amount of the two
payments. Interest rate swaps do not involve the delivery of securities, other
underlying assets or principal. Accordingly, the risk of loss with respect to
interest rate swaps is limited to the net amount of interest payments that the
Fund is contractually obligated to make. If the other party to an interest rate
swap defaults, the Fund's risk of loss consists of the net amount of interest
payments that the Fund is contractually entitled to receive. In contrast,
currency swaps
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usually involve the delivery of the entire principal value of one designated
currency in exchange for the other designated currency. Therefore, the entire
principal value of a currency swap is subject to the risk that the other party
to the swap will default on its contractual delivery obligations. The Company
will maintain in a segregated account with its custodian cash and liquid
high-grade debt securities equal to the net amount, if any, of the excess of
each Fund's obligations over its entitlements with respect to swap transactions.
To the extent that the net amount of a swap is held in a segregated account
consisting of cash and high-grade liquid debt securities, the Company believes
that swaps do not constitute senior securities under the Act and, accordingly,
will not treat them as being subject to each Fund's borrowing restriction.
The use of interest rate and currency swaps is a highly specialized activity
which involves investment techniques and risks different from those associated
with ordinary portfolio securities transactions. If the Adviser is incorrect in
its forecasts of market values, interest rates and currency exchange rates, the
investment performance of the International Equity or Global Income Fund would
be less favorable than it would have been if this investment technique were not
used.
OTHER INVESTMENT COMPANIES
All of the Funds reserve the right to invest up to 10% of their total
assets, calculated at the time of purchase, in the securities of other
investment companies including business development companies and small business
investment companies. No Fund may invest more than 5% of its total assets in the
securities of any one investment company or in more than 3% of the voting
securities of any other investment company. Pursuant to an exemptive order
obtained from the SEC, other investment companies in which a Fund may invest may
include those for which its Adviser or its Adviser's affiliates serve as the
investment adviser, administrator or distributor. The Fund will indirectly bear
its proportionate share of any advisory fees paid by investment companies in
which it invests in addition to the management fee paid by the Fund. However, to
the extent that a Fund invests in a money market fund for which its Adviser or
any of its Adviser's affiliates acts as adviser, the fee payable by the Fund to
the Adviser will be reduced by an amount equal to the Fund's proportionate share
of the advisory and administrative fees paid by such money market fund to the
Adviser or any of its affiliates.
NON-DIVERSIFIED STATUS
Since the Small Cap Equity Fund, International Equity Fund and Global Income
Fund are not "diversified" as defined by the Act, each will be more susceptible
to adverse developments affecting any single issuer. Nonetheless, these
"non-diversified Funds" are still subject to the diversification requirements
that arise under federal tax law and the 25% limit on concentration of
investments in a single industry. See "Taxes" and "Investment Restrictions."
RISKS OF INVESTING IN SMALL CAPITALIZATION COMPANIES
Investing in securities of smaller, lesser-known companies involves greater
risks than investing in larger, more mature, better known issuers, including an
increased possibility of portfolio price volatility. Historically, small
capitalization stocks and stocks of recently organized companies, in which
certain of the Funds may also invest, have been more volatile in price than the
larger capitalization stocks included in the S&P 500. Among the reasons for the
greater price volatility of these small company stocks are the less certain
growth prospects of smaller firms, the lower degree of liquidity in the markets
for such stocks and the greater sensitivity of small companies to changing
economic conditions. For example, these companies are associated with higher
investment risk than that normally associated with larger, more mature, better
known firms due to the greater business risks of small size and limited product
lines, markets, distribution channels and financial and managerial resources.
The Small Cap Equity Fund may invest, without limitation, in securities of small
capitalization companies that may have experienced financial difficulties.
The values of small company stocks may fluctuate independently of larger
company stock prices. Small company stocks may decline in price as large company
stock prices rise, or rise in price as large company stock prices decline.
Investors should therefore expect that to the extent a Fund invests in
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stock of small capitalization companies, the net asset value of that Fund's
shares may be more volatile than, and may fluctuate independently of, broad
stock market indices such as the S&P 500. Furthermore, the securities of
companies with small stock market capitalizations may trade less frequently and
in limited volume.
WARRANTS AND RIGHTS
The Select Equity Fund, Small Cap Equity Fund, International Equity Fund and
Growth and Income Fund each may invest up to 5% of their total assets
(calculated at the time of purchase) in certain warrants or rights that entitle
the holder to buy equity securities at a specific price for a specific period of
time.
UNSEASONED ISSUERS
The Select Equity Fund, Small Cap Equity Fund, International Equity Fund and
Growth and Income Fund each may invest up to 5% of their net assets, calculated
at the time of purchase, in companies (including predecessors) which have
operated less than three years. The securities of such companies may have
limited liquidity which can result in their being priced lower than might
otherwise be the case. In addition, investments in unseasoned companies are more
speculative and entail greater risk than do investments in companies with an
established operating record.
INVESTMENT RESTRICTIONS
Each of the Funds is also subject to certain investment restrictions which
have been adopted by the Company for each Fund as fundamental policies that
cannot be changed without the approval of a majority of the outstanding votes
attributable to shares of the Fund. Among other restrictions, as diversified
funds, the Money Market Fund, Select Equity Fund and Growth and Income Fund each
may not, with respect to 75% of its total assets, purchase the securities of any
one issuer (except U.S. Government Securities) if more than 5% of the value of
the Fund's assets would be invested in such issuer. Similarly, none of the Funds
may invest more than 25% of its total assets in securities of issuers in any one
industry, except that this limitation does not apply to U.S. Government
Securities or foreign currency investments. For a more complete description of
the investment restrictions to which each Fund is subject, see the SAI.
PORTFOLIO TURNOVER
Other than the Global Income Fund, the Funds do not expect to trade in
securities for short-term gain. The Global Income Fund may engage in active
short-term trading to benefit from yield disparities among different issues of
securities or among the markets for fixed-income securities of different
countries, to seek short-term profits during periods of fluctuating interest
rates, or for other reasons. Such trading will increase the Global Income Fund's
portfolio turnover rate. A high rate of portfolio turnover (100% or higher)
involves correspondingly greater expenses which must be borne by a Fund and its
shareholders and may under certain circumstances make it more difficult for a
Fund to qualify as a regulated investment company under the Code.
The portfolio turnover rate is calculated by dividing the lesser of the
dollar amount of sales or purchases of portfolio securities by the average
monthly value of the Fund's portfolio securities, excluding securities having a
maturity at the date of purchase of one year or less. The Company anticipates
approximately the following annual portfolio turnover rates for the Funds:
Select Equity Fund 100%, Small Cap Equity Fund 100%, International Equity Fund
100% Growth and Income Fund 100%, and Global Income Fund 300%.
MANAGEMENT
DIRECTORS AND OFFICERS
The Company's board of directors is responsible for deciding matters of
general policy and reviewing the actions of the Investment Manager and the
Advisers, the custodian, accounting and
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administrative services provider and other providers of services to the Company.
The officers of the Company supervise its daily business operations. The SAI
contains information as to the identify of, and other information about, the
directors and officers of the Company.
INVESTMENT MANAGER
Investment Distributors Advisory Services, Inc. ("IDASI"), 2801 Highway 280
South, Birmingham, Alabama 35223, is the investment manager of the Company and
its Funds. IDASI is a wholly-owned subsidiary of Protective Life Corporation
("PLC"), an insurance holding company whose common stock is traded on the New
York Stock Exchange. PLC's principal operating subsidiary is Protective Life
Insurance Company, a stock life insurance company which maintains its
administrative offices in Birmingham, Alabama. Protective Life was incorporated
in Alabama in 1907 and changed its state of domicile from Alabama to Tennessee
in 1992. Protective Life's principal business is the writing of individual and
group life and health insurance contracts, annuity contracts, and guaranteed
investment contracts.
The Investment Manager has no direct previous experience in providing
management services for investment companies; however, its officers, all of whom
are officers of Protective Life, have extensive experience in the development
and distribution of investment products, particularly, guaranteed investment
contracts. In addition, the Investment Manager has retained the Advisers,
entities that have extensive experience managing the assets of investment
companies, pension plans and other clients, to manage the investment and
reinvestment of the Funds' assets.
The Investment Manager has entered into an investment management agreement,
dated March 3, 1994, with the Company under which the Investment Manager assumes
overall responsibility, subject to the supervision of the Company's board of
directors, for administering all operations of the Company and for monitoring
and evaluating the management of the assets of each of the Funds by the Advisers
on an ongoing basis. The Investment Manager provides or arranges for the
provision of the overall business management and administrative services
necessary for the Company's operations and furnishes or procures any other
services and information necessary for the proper conduct of the Company's
business. The Investment Manager also acts as liaison among, and supervisor of,
the various service providers to the Company, including the custodian, transfer
agent, and accounting services agent and to its own administration agent that
performs services for the Company on its behalf. The Investment Manager is also
responsible for overseeing the Company's compliance with the requirements of
applicable law and with each Fund's investment objective(s), policies and
restrictions, including oversight of the Advisers.
For its services to the Company, the Investment Manager receives a monthly
management fee. The fee is deducted daily from the assets of each of the Funds
and paid to the Investment Manager monthly. The fee for each Fund is based on
the average daily net assets of the Fund at the following annual rates: Money
Market Fund .60%, Select Equity Fund .80%, Small Cap Equity Fund .80%,
International Equity Fund 1.10%, Growth and Income Fund .80%, and Global Income
Fund 1.10%. See "Investment Manager" in the SAI for more detailed information
about the investment management agreement.
The investment management agreement does not place limits on the operating
expenses of the Company or of any Fund. However, Protective Life has voluntarily
undertaken to pay any such expenses (but not including brokerage or other
portfolio transaction expenses or expenses of litigation, indemnification, taxes
or other extraordinary expenses) to the extent that such expenses, as accrued
for each Fund, exceed the following percentages of that Fund's estimated average
daily net assets on an annualized basis: Protective Money Market Fund, .60%;
Protective Select Equity Fund, .80%; Protective Small Cap Equity Fund, .80%;
Protective International Equity Fund, 1.10%; Protective Growth and Income Fund,
.80%; and Protective Global Income Fund, 1.10%. This reduction of expenses will
increase the yield or total return of the Funds for any period for which it
remains in effect. The Protective Life may withdraw this undertaking to pay
expenses as to any or all of the Funds upon 120 days notice to the Company.
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INVESTMENT ADVISERS
Goldman Sachs Asset Management, 32 Old Slip, New York, New York 10005, a
separate operating division of Goldman Sachs, acts as the investment adviser of
the Money Market Fund, Select Equity Fund, Small Cap Equity Fund and Growth and
Income Fund. Goldman Sachs Asset Management International, 140 Fleet Street,
London EC4A 2BJ England, an affiliate of Goldman Sachs, acts as the investment
adviser to the International Equity Fund and the Global Income Fund. Both
Goldman Sachs and GSAMI are registered with the SEC as investment advisers. As
of January 31, 1994, the Advisers, together with their affiliates, acted as
investment adviser, administrator or distributor for approximately $49.9 billion
in assets.
The Advisers and their affiliates serve a wide range of clients including
private and public pension funds, endowments, foundations, banks, thrifts,
insurance companies, corporations, and private investors and family groups.
Founded in 1869, Goldman Sachs is among the oldest and largest investment
banking firms in the U.S. Goldman Sachs is a leader in virtually every field of
investing and financing, participating in financial markets world-wide and
serving individuals, institutions, corporations and governments. Goldman Sachs
is headquartered in New York and has offices throughout the U.S. and in
Frankfurt, George Town, Hong Kong, London, Madrid, Milan, Montreal, Osaka,
Paris, Singapore, Sydney, Taipei, Tokyo, Toronto and Zurich.
GSAMI was organized in 1990. As a company with unlimited liability under the
laws of England, it is authorized to conduct investment advisory business in the
United Kingdom as a member of the Investment Management Regulatory Organization
Limited, a U.K. self-regulatory organization.
In performing its investment advisory services to the International Equity
Fund and the Global Income Fund, GSAMI may draw upon the research and market
expertise of its affiliates, including Goldman Sachs Asia, Ltd. (its Hong Kong
affiliate), when making portfolio management decisions.
PORTFOLIO MANAGERS. The following individuals are the portfolio managers
for the Funds:
SELECT EQUITY FUND, Robert C. Jones, Quantitative Equity Strategies
Manager/Portfolio Manager, Vice President, Goldman Sachs. Mr. Jones has 11
years of investment experience in developing and implementing GSAM's
quantitative equity management services. Most recently, Mr. Jones was the
firm's senior quantitative analyst in the research department and the author
of the monthly stock selection publication. Before joining Goldman Sachs in
1987, he provided quantitative research for both a major investment firm and
an options consulting firm. His articles on quantitative techniques have
been published in leading financial journals and he is a Chartered Financial
Analyst.
SMALL CAP EQUITY FUND, Paul D. Farrell, Equity Portfolio Manager, Vice
President, Goldman Sachs. Mr. Farrell is responsible for analyzing
individual companies and managing equity portfolios for private investors
and institutions, as well as mutual funds. Prior to joining GSAM, Mr.
Farrell served as a managing Director at Plaza Investments, the investment
subsidiary of GEICO Corp., a major insurance company. He was previously
employed by Goldman Sachs as a Vice President in the research department and
was responsible for the formation of the firm's Emerging Growth Research
Group.
INTERNATIONAL EQUITY FUND, Roderick D. Jack, Executive Director, Equity
Portfolio Manager, GSAMI; Marcel Jongen, Executive Director, Equity
Portfolio Manager, GSAMI; and Octavia K. Morley, Associate, Equity Portfolio
Manager, GSAMI. Before joining GSAMI in 1992, Mr. Jack spent five years with
the advisory and financing group for S.G. Warburg in London, responsible
primarily for the development and execution of merger and acquisition
business in the U.K. and Continental Europe. Previous to that, he was a
management consultant with the LEK Partnership in London and Sydney,
advising on corporate strategy and company valuations. Before joining GSAMI
in 1992, Mr. Jongen was with Philips pension fund in Eindhaven where he was
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head of equities. At Philips, he managed U.S. Japanese and U.K. portfolios
and later took on the task of managing their European portfolios and
building up representation in France, Spain and Sweden. Before joining GSAMI
in 1992, Ms Morely spent three years as an analyst in the firm's investment
banking division, two years in the London mergers & acquisitions department
and one year in the Australian office corporate finance department.
GROWTH AND INCOME FUND, Mitchell E. Cantor, Vice President, Equity
Portfolio Manager, Goldman Sachs. Mr. Cantor joined Goldman Sachs in 1991.
Before joining Goldman Sachs, he was with Sanford C. Bernstein & Co. since
1983 where he served as research director of the Institutional Division and
as the management research director. Mr. Cantor was the youngest
professional ever to become a partner at Sanford C. Bernstein.
GLOBAL INCOME FUND, Stephen C. Fitzgerald, Executive Director, Global
Bond Portfolio Manager, GSAMI. Before joining GSAMI in 1992, Mr. Fitzgerald
spent two years managing multi-currency fixed-income and balanced portfolios
at Invesco MIM Limited where he was a senior member of the derivative
products group. Prior to Invesco, Mr. Fitzgerald spent three years with
Foreign and Colonial Management Limited in London managing fixed-income and
derivative funds and in the treasury department of NRMA Insurance Limited in
Sydney.
INVESTMENT ADVISORY AGREEMENTS. Each Adviser has entered into an investment
advisory agreement for each Fund it advises, dated March 2, 1994, with the
Investment Manager under which the Adviser, subject to the general supervision
of the Investment Manager and the Company's board of directors, manages the
investment portfolio of the Funds of which it is the Adviser. Under the
investment advisory agreements, the Advisers are responsible for making
investment decisions for the Funds and for placing the purchase and sale orders
for the portfolio transactions of each Fund. In this capacity, the Advisers
obtain and evaluate appropriate economic, statistical, timing, and financial
information and formulate and implement investment programs in furtherance of
each Fund's investment objective(s). The Advisers may place orders for portfolio
transactions with any broker including, to the extent and in the manner
permitted by applicable law, Goldman Sachs or its affiliates.
As compensation for its services, the Advisers receive a monthly fee from
the Investment Manager based on the average daily net assets of each Fund at the
following annual rates:
Protective Money Market Fund .35% of the first $50 million, .25% of the next
$100 million, .20% of the next $100 million, and .15% of assets in excess of
$250 million; Protective Select Equity Fund, Protective Small Cap Equity
Fund, and Protective Growth and Income Fund, .40% of the first $50 million,
.30% of the next $150 million, and .20% of assets in excess of $200 million;
Protective International Equity Fund and Protective Global Income Fund, .40%
of the first $50 million, .30% of the next $100 million, .25% of the next
$100 million, and .20% of the assets in excess of $250 million.
See the SAI for more detailed information about the investment advisory
agreement.
ACTIVITIES OF GOLDMAN SACHS AND ITS AFFILIATES AND OTHER ACCOUNTS MANAGED BY
GOLDMAN SACHS. The involvement of the Adviser and Goldman Sachs and their
affiliates in the management of, or their interests in, other accounts and other
activities of Goldman Sachs may present conflicts of interest with respect to
the Funds or impede their investment activities.
Goldman Sachs and its affiliates, including Goldman Sachs International
("GSI") and J. Aron & Co., ("J. Aron") have proprietary interests in, and may
manage, accounts investing in the global fixed-income securities and currency
markets which may have investment objectives similar or dissimilar to those of
the Funds and invest in the same types of securities, currencies and instruments
as the Funds. J. Aron in particular is a major participant in the global
currency markets. Goldman Sachs and GSI are active participants in the global
fixed-income markets. As such, Goldman Sachs and its affiliates are actively and
regularly engaged in trading, on a proprietary basis and for customer accounts,
the same types of securities, currencies and instruments to be traded on behalf
of the Funds.
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The trading activities of such entities could affect the prices of the
securities, currencies and instruments traded by the Funds, which could have an
adverse impact on a Fund's performance. Such entities may also compete with the
Funds for investments in securities, currencies, futures contracts, options, and
other instruments. Execution of such competing transactions is independent of
the Advisers' execution of transactions for their clients.
The Advisers, in managing the Funds' portfolios, will have access to
fundamental analysis provided by Goldman Sachs's affiliates such as GSI and
proprietary technical models developed and used by J. Aron. None of Goldman
Sachs, GSIL, J. Aron or their affiliates will have any obligation, however, to
make available to the Advisers any information regarding their proprietary
trading activities or strategies, or the trading activities or strategies used
for other accounts managed by them and it is not anticipated that the Advisers
will have access to such information. In addition, the Advisers will not in any
event be under any obligation to trade on behalf of a Fund in accordance with
the research products and technical models generated by Goldman Sachs and its
affiliates.
The results of the Funds' investment activities, therefore, may differ from
the results of the trading conducted by Goldman Sachs, GSI, J. Aron and their
affiliates for their proprietary accounts or other accounts under their
management, and it is possible that Goldman Sachs and its affiliates and other
accounts could achieve investment results which are substantially more favorable
than the results of any of the Funds. Moreover, it is possible that a Fund could
sustain losses during periods in which Goldman Sachs and its affiliates and
other accounts achieve significant profits on their trading for proprietary or
other accounts.
In addition to the potential conflicts with Goldman Sachs, GSI, J. Aron and
their affiliates discussed above, the Advisers (and their advisory affiliates)
may also manage accounts with investment objectives similar or dissimilar to
those of the Funds but trading in the same type of securities, currencies and
instruments as the Funds. Portfolio decisions and results of the Funds'
investments may differ from those of such accounts managed by the Adviser. There
is no obligation to make available for use in managing a Fund any information or
strategies used or developed in managing such accounts. Trading activities or
strategies used by the Advisers in managing other accounts could conflict with
the trading activities or strategies used by them in managing the Funds. When
two or more accounts managed by the Advisers or their advisory affiliates seek
to purchase or sell the same assets, the assets actually purchased or sold may
be allocated among the accounts on a basis determined by the Advisers in its
good faith discretion to be equitable. In some cases, this system may adversely
affect the size (or, as noted above, the price) of the position obtainable for a
Fund. Different Funds or accounts managed by the Advisers may have different
results.
It is possible that the Advisers will purchase securities for the Funds
issued by entities for which Goldman Sachs performs investment banking services,
as well as securities of entities in which Goldman Sachs makes a market. From
time to time, Goldman Sachs's activities may limit a Fund's flexibility in
purchasing and selling such securities. For example, when Goldman Sachs is
engaged in an underwriting or other distribution of securities of an entity, the
Advisers may be prohibited from purchasing or recommending the purchase of
certain securities of the entity for the Funds.
INVESTMENT POLICY COMMITTEE. Partners, officers and directors of Goldman
Sachs and GSI, and officers and directors of their affiliated entities, certain
of whom are involved in the fixed-income trading activities of GSI and its
affiliates, also serve on an Investment Policy Committee of the Advisers. As a
result of their participation on an Investment Policy Committee, those
individuals involved in the fixed-income trading activities of GSI may obtain
information regarding a Fund's trading and proposed investment activities which
is not generally available to unaffiliated market participants.
None of the members of the Investment Policy Committee are directly involved
in trading currencies on behalf of J. Aron or other affiliates of Goldman Sachs,
although they participate in other areas of the business operations of such
entities and may therefore have regular contract with individuals engaged in the
currency trading operations of such entities. In addition, by virtue of their
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affiliation with Goldman Sachs, members of the Investment Policy Committee (as
well as other Goldman Sachs partners) will in any event have direct or indirect
interests in the currency trading activities of Goldman Sachs and its
affiliates. In addition, certain partners, offices and directors of Goldman
Sachs and J. Aron and their affiliates who have active involvement in currency
trading on behalf of such entities and their accounts may be occasional
participants in the Investment Policy Committee of the Investment Advisers. As
such, such persons may also obtain information from time to time regarding a
Fund which is not generally available to unaffiliated market participants.
PERFORMANCE INFORMATION
From time to time the Company may publish average annual total return
figures for one or more of the Funds in advertisements and communications to
shareholders or sales literature. Average annual total return is determined by
computing the annual percentage change in value of $1,000 invested for specified
periods ending with the most recent calendar quarter, assuming reinvestment of
all dividends and distributions at net asset value. The average annual total
return calculation assumes a complete redemption of the investment at the end of
the relevant period.
The Company also may from time to time publish year-by-year total return,
cumulative total return and yield information for the Funds in advertisements,
communications to shareholders or sales literature. These may be provided for
various specified periods by means of quotations, charts, graphs or schedules.
Year-by-year total return and cumulative total return for a specified period are
each derived by calculating the percentage rate required to make a $1,000
investment in a Fund (assuming all distributions are reinvested) at the
beginning of such period equal to the actual total value of such investment at
the end of such period.
Yield is computed by dividing net investment income earned during a recent
30 day period by the product of the average daily number shares outstanding and
entitled to receive dividends during the period and the price per share on the
last day of the relevant period. The results are compounded on a bond equivalent
(semi-annual) basis and then annualized. Net investment income per share is
equal to the dividends and interest earned during the period, reduced by accrued
expenses for the period. The calculation of net investment income for these
purposes may differ from the net investment income determined for accounting
purposes.
In addition, the Company may from time to time publish performance of its
Funds relative to certain performance rankings and indices.
The investment results of the Funds will fluctuate over time and any
presentation of investment results for any prior period should not be considered
a representation of what an investment may earn or what a Fund's performance may
be in any future period. In addition to information provided in shareholder
reports, the Company may, in it's discretion, from time to time make a list of
the Fund's holdings available to investors upon request.
DETERMINATION OF NET ASSET VALUE
The net asset value per share of each Fund is normally determined once daily
as of the close of regular trading on the New York Stock Exchange, currently
4:00 p.m. New York time, on each day when the New York Stock Exchange is open,
except as noted below. The New York Stock Exchange is scheduled to be open
Monday through Friday throughout the year, except for certain federal and other
holidays. The net asset value of each Fund's shares will not be calculated on
the Friday following Thanksgiving, the Friday following Christmas if Christmas
falls on a Thursday and the Monday before Christmas if Christmas falls on a
Tuesday. The net asset value of each Fund is determined by dividing the value of
the Fund's securities, cash, and other assets (including accrued but uncollected
interest and dividends), less all liabilities (including accrued expenses but
excluding capital and surplus) by the number of shares of the Fund outstanding.
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The value of each Fund's securities and assets, except those of the Money
Market Fund and certain short-term debt securities held by any of the other
Funds, is determined on the basis of their market values. All of the securities
and assets of the Money Market Fund and short-term debt securities having
remaining maturities of sixty days or less held by any of the other Funds are
valued by the amortized cost method, which approximates market value.
Investments for which market quotations are not readily available are valued at
their fair value as determined in good faith by, or under authority delegated
by, the Company's board of directors. See "Determination of Net Asset Value" in
the SAI.
OFFERING, PURCHASE AND REDEMPTION OF SHARES
Pursuant to a distribution agreement, Investment Distributors, Inc. ("IDI")
acts without remuneration as the Company's distributor in the distribution of
the shares of each Fund. IDI is a wholly-owned subsidiary of PLC and has no
obligation to sell any stated number of shares. IDI's address is the same as
that of Protective Life and PLC.
Shares of the Funds are sold in a continuous offering and are authorized to
be offered to the Account to support the Contracts. Net purchase payments under
the Contracts are placed in one or more subaccounts of the Account and the
assets of each such subaccount are invested in the shares of the Fund
corresponding to that subaccount. The Account purchases and redeems shares of
the Funds for its subaccounts at net asset value without sales or redemption
charges.
For each day on which a Fund's net asset value is calculated, the Account
transmits to the Company any orders to purchase or redeem shares of the Fund(s)
based on the purchase payments, redemption (surrender) requests, and transfer
requests from Contract owners, annuitants and beneficiaries that have been
processed on that day. The Account purchases and redeems shares of each Fund at
the Fund's net asset value per share calculated as of that same day although
such purchases and redemptions may be executed the next morning. Money received
by the Company from the Account for the purchase of shares of International
Equity Fund and Global Income Fund may not be invested by those Funds until the
day following the execution of such purchases.
Please refer to the separate prospectus for the Contract and the Account for
a more detailed description of the procedures whereby a Contract owner,
annuitant, or beneficiary may allocate his or her interest in the Account to a
subaccount using the shares of one of the Funds as an underlying investment
medium.
In the future, the Company may offer shares of one or more of the Funds
(including new funds that might be added to the Company) to other registered or
unregistered separate accounts of Protective Life or its life insurance company
affiliates to support variable annuity contracts (other than the Contracts) or
variable life insurance contracts. Likewise, the Company may also, in the
future, offer shares of one or more of the Funds directly to qualified pension
and retirement plans.
In the event that shares of any Fund are offered to a separate account
supporting variable life insurance or to qualified pension and retirement plans,
a potential for certain conflicts may exist between the interests of variable
annuity contract owners, variable life insurance contract owners and plan
participants. The Company currently does not foresee any disadvantage to owners
of the Contracts arising from the fact that shares of any Fund might be held by
such entities. In such an event, the Company's board of directors, however, will
monitor the Funds in order to identify any material irreconcilable conflicts of
interest which may possibly arise, and to determine what action, if any, should
be taken in response to such conflicts.
INCOME DIVIDENDS AND CAPITAL GAINS DISTRIBUTIONS
The Money Market Fund intends to declare dividends from its net investment
income every day. The Fund will distribute such dividends monthly by reinvesting
them in additional Fund shares at net asset value.
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The Global Income Fund intends to distribute substantially all of its net
investment income in monthly dividends. The Select Equity Fund, International
Equity Fund and Small Cap Equity Fund each intend to distribute substantially
all of their net investment income annually and the Growth and Income Fund
intends to distribute such income quarterly. Each Fund also intends to annually
distribute substantially all of its net realized capital gains. All income
dividends and capital gain distributions made by a Fund will be reinvested in
shares of that Fund at that Fund's net asset value.
TAXES
TAX STATUS. The Company believes that each Fund will qualify as a regulated
investment company under Subchapter M, Chapter 1, Subtitle A of the Code, and
each Fund intends to distribute substantially all of its net investment income
and net capital gain to its shareholders. As a result, under the provisions of
subchapter M, there should be little or no income or gains taxable to the Funds.
In addition, each Fund intends to comply with certain other distribution rules
specified in the Code so that it will not incur a 4% nondeductible federal
excise tax that otherwise would apply. Under current law, the net investment
income of the Funds, including net capital gain, is not taxed to Protective Life
to the extent that it is applied to increase the reserves held by Protective
Life in respect of the Contracts.
SOURCES OF GROSS INCOME. To qualify for treatment as a regulated investment
company, a Fund must, among other things, derive its income from certain
sources. Specifically, in each taxable year, a Fund must generally derive at
least 90% of its gross income from dividends, interest, payments with respect to
securities loans, gains from the sale or other disposition of stock, securities
or foreign currencies, or other income (including, but not limited to, gains
from options, futures or forward contracts) derived with respect to its business
of investing in stock, securities, or currencies. A Fund must also generally
derive less than 30% of its gross income from the sale or other disposition of
any of the following which was held for less than three months: (1) stock or
securities, (2) options, futures, or forward contracts (other than options,
futures, or forward contracts on foreign currencies), or (3) foreign currencies
(or options, futures, or forward contracts on foreign currencies) but only if
such currencies (or options, futures, or forward contracts) are not directly
related to the Fund's principal business of investing in stock or securities (or
options and futures with respect to stock or securities). For purposes of these
tests, gross income generally is determined without regard to losses from the
sale or other disposition of stock or securities or other Fund assets.
DIVERSIFICATION OF ASSETS. To qualify for treatment as a regulated
investment company, a Fund must also satisfy certain requirements with respect
to the diversification of its assets. A Fund must have, at the close of each
quarter of the taxable year, at least 50% of the value of its total assets
represented by cash, cash items, United States Government securities, securities
of other regulated investment companies, and other securities which, in respect
of any one issuer, do not represent more than 5% of the value of the assets of
the Fund nor more than 10% of the voting securities of that issuer. In addition,
at those times not more than 25% of the value of the Fund's assets may be
invested in securities (other than United States Government securities or the
securities of other regulated investment companies) of any one issuer, or of two
or more issuers which the Fund controls and which are engaged in the same or
similar trades or businesses or related trades or businesses. The foregoing
diversification requirements are in addition to those imposed by the Investment
Company Act of 1940.
Because the Company is established as an investment medium for the Account,
which is a separate account of Protective Life, regulations under Subchapter L,
Chapter 1, Subtitle A of the Code impose additional diversification requirements
on each Fund. These requirements generally are that no more than 55% of the
value of the assets of a Fund may be represented by any one investment; no more
than 70% by any two investments; no more than 80% by any three investments; and
no more than 90% by any four investments. For these purposes, all securities of
the same issuer are treated as a single investment and each United States
government agency or instrumentality is treated as a separate issuer.
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FOREIGN INVESTMENTS. Funds investing in foreign securities or currencies
may be required to pay withholding or other taxes to foreign governments.
Foreign tax withholding from dividends and interest, if any, is generally at a
rate between 10% and 35%. The investment yield of the Funds that invest in
foreign securities or currencies will be reduced by these foreign taxes.
Shareholders will bear the cost of any foreign tax withholding, but may not be
able to claim a foreign tax credit or deduction for these foreign taxes. Funds
investing in securities of passive foreign investment companies may be subject
to U.S. Federal income taxes and interest charges, and the investment yield of
the Funds making such investments will be reduced by these taxes and interest
charges. Shareholders will bear the cost of these taxes and interest charges,
but will not be able to claim a deduction for these amounts.
ADDITIONAL TAX CONSIDERATIONS. If a Fund failed to qualify as a regulated
investment company, (1) owners of Contracts based on the Fund might be taxed
currently on the investment earnings under their Contracts and thereby lose the
benefit of tax deferral, and (2) the Fund might incur additional taxes. In
addition, if a Fund failed to comply with the diversification requirements of
the regulations under Subchapter L of the Code, owners of Contracts based on the
Fund would be taxed on the investment earnings under their Contracts and thereby
lose the benefit of tax deferral. Accordingly, compliance with the above rules
is carefully monitored by the Advisers and it is intended that the Funds will
comply with these rules as they exist or as they may be modified from time to
time. Compliance with the tax requirements described above may result in a
reduction in the return under a Fund, since, to comply with the above rules, the
investments utilized (and the time at which such investments are entered into
and closed out) may be different from that the Adviser might otherwise believe
to be desirable.
The shareholders of the Funds are currently limited to the Account and
Protective Life. For more information regarding the tax implications for the
purchaser of a Contract who allocates investments to the Funds, please refer to
the prospectus for the Contract.
The foregoing is a general and abbreviated summary of the applicable
provisions of the Code and Treasury Regulations currently in effect. It is not
intended to be a complete explanation or a substitute for consultation with
individual tax advisers. For the complete provisions, reference should be made
to the pertinent Code sections and the Treasury Regulations promulgated
thereunder. The Code and Regulations are subject to change.
OTHER INFORMATION
REPORTS
Annual Reports containing audited financial statements of the Company and
Semi-Annual Reports containing unaudited financial statements, as well as proxy
materials, are sent to Contract owners, annuitants or beneficiaries, as
appropriate. Inquiries may be directed to the Company at the telephone number or
address set forth on the cover page of this prospectus.
VOTING AND OTHER RIGHTS
Each share outstanding is entitled to one vote for each dollar of net asset
value on all matters submitted to a vote of shareholders (of a Fund or the
Company) and is entitled to a pro-rata share of any distributions made by a Fund
and, in the event of liquidation, of its net assets remaining after satisfaction
of outstanding liabilities. Each share (of each Fund), when-issued, is
nonassessable and has no preemptive or conversion rights. The shares have
noncumulative voting rights. Protective Life will vote shares of a Fund held by
the Account which are attributable to Contracts in accordance with instructions
received from Contract owners, annuitants and beneficiaries as provided in the
prospectus for the Contracts. Fund shares held by the Account as to which no
instructions have been received will be voted for or against any proposition, or
in abstention, in the same proportion as the shares of the Account as to which
instructions have been received. Fund shares held by any registered separate
account of Protective Life or its affiliates that are not attributable to
Contracts will also be voted for or against any proposition in the same
proportion as the shares for which voting instructions are
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received by that separate account. However, if Protective Life determines that
it is permitted to vote any such shares of a Fund in its own right, it may elect
to do so, subject to the then current interpretation of the Act and the rules
thereunder. Fund shares held by non-registered separate accounts or qualified
plans will be voted for or against any proposition in the same proportion as all
other Fund shares are voted unless the separate account or the plan makes other
arrangements.
As a Maryland corporate entity, the Company is not required to hold regular
annual shareholder meetings. The Company is, however, required to hold
shareholder meetings for such proposes as, for example: (i) approving certain
agreements as required by the Act; (ii) changing fundamental investment
objectives, policies and restrictions of any Fund; and (iii) filling vacancies
on the board of directors in the event that less than a majority of the
directors were elected by shareholders. Directors may also be removed by
shareholders by a vote of two-thirds of the outstanding votes attributable to
shares at a meeting called at the request of holders of 10% or more of such
votes. The Company has the obligation to assist in shareholder communications.
Protective Life owns more than 25% of the outstanding shares of each Fund
which may result in it being deemed a controlling person of each of these Funds,
as that term is defined in the Act.
CUSTODY OF ASSETS
Pursuant to a custody agreement with the Company, State Street Bank and
Trust Company ("State Street") serves as the custodian of the Funds' assets.
ACCOUNTING AND ADMINISTRATIVE SERVICES
Pursuant to the custody agreement, State Street also performs certain
accounting services for the Company. These services include maintaining and
keeping current the Company's books, accounts, records, journals and other
records of original entry related to the Company's business, performing certain
daily functions related thereto, including calculating each Fund's daily net
asset value. IDASI is responsible for providing certain administrative services
to the Company such as calculating each Fund's standardized performance
information, preparing annual and semi-annual reports to shareholders and the
SEC, preparing each Fund's tax returns, monitoring compliance and performing
other administrative duties. Pursuant to a subadministration agreement with
IDASI, State Street performs many of these administrative services.
TRANSFER AGENT
Pursuant to a Transfer Agency and Service Agreement with the Company, State
Street also acts as a transfer, redemption and dividend disbursing agent for the
Company.
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PART B
INFORMATION REQUIRED IN A STATEMENT OF ADDITIONAL INFORMATION
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
PROTECTIVE INVESTMENT COMPANY
PROTECTIVE MONEY MARKET FUND
PROTECTIVE SELECT EQUITY FUND
PROTECTIVE SMALL CAP EQUITY FUND
PROTECTIVE INTERNATIONAL EQUITY FUND
PROTECTIVE GROWTH AND INCOME FUND
PROTECTIVE GLOBAL INCOME FUND
September 30, 1994
This Statement of Additional Information is not a prospectus. Much of the
information contained in this Statement expands upon information discussed in
the prospectus for Protective Investment Company (the "Company") and should,
therefore, be read in conjunction with the prospectus for the Company. To obtain
a copy of the prospectus with the same date as this Statement of
Additional Information write to the Company at P.O. Box 2606, Birmingham,
Alabama 35202 or call 1-800-866-3555.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
INTRODUCTION.............................................................. 2
ADDITIONAL INVESTMENT POLICY INFORMATION.................................. 3
Protective Money Market Fund............................................ 3
Protective Select Equity Fund........................................... 3
Protective Small Cap Equity Fund and Protective Growth and Income
Fund................................................................... 5
Protective International Equity Fund.................................... 6
Protective Global Income Fund........................................... 7
SPECIAL INVESTMENT METHODS AND RISKS...................................... 8
Custody Receipts........................................................ 8
Restricted and Illiquid Securities...................................... 8
Options on Securities and Securities Indices............................ 8
Futures Contracts and Options on Futures Contracts...................... 10
Foreign Investments..................................................... 13
Fixed-Income Securities................................................. 17
Warrants and Rights..................................................... 21
INVESTMENT RESTRICTIONS................................................... 21
Fundamental Restrictions................................................ 21
Non-fundamental Restrictions............................................ 22
Interpretive Rules...................................................... 23
INVESTMENT MANAGER........................................................ 23
Investment Management Agreement......................................... 24
Expenses of the Company................................................. 25
INVESTMENT ADVISERS....................................................... 25
Investment Advisers..................................................... 25
Investment Advisory Agreements.......................................... 27
PORTFOLIO TRANSACTIONS AND BROKERAGE...................................... 28
DETERMINATION OF NET ASSET VALUE.......................................... 30
PERFORMANCE INFORMATION................................................... 31
SHARES OF STOCK........................................................... 33
CUSTODY OF ASSETS......................................................... 34
DIRECTORS AND OFFICERS.................................................... 35
OTHER INFORMATION......................................................... 35
Independent Certified Public Accountants................................ 35
Legal Counsel........................................................... 35
Other Information....................................................... 35
APPENDIX A................................................................ 36
APPENDIX B................................................................ 40
APPENDIX C................................................................ 46
FINANCIAL STATEMENTS...................................................... 47
</TABLE>
<PAGE>
INTRODUCTION
Protective Investment Company (the "Company") is an open-end management
investment company incorporated in the State of Maryland on September 2, 1993.
The Company consists of six separate investment portfolios or funds (the "Funds"
or a "Fund"), each of which is, in effect, a separate mutual fund. The Company
issues a separate class of stock for each Fund representing fractional undivided
interests in that Fund. An investor, by investing in a Fund, becomes entitled to
a pro-rata share of all dividends and distributions arising from the net income
and capital gains on the investments of that Fund. Likewise, an investor shares
pro-rata in any losses of that Fund.
Pursuant to an investment management agreement and subject to the authority
of the Company's board of directors, Investment Distributors Advisory Services,
Inc. ("IDASI") serves as the Company's investment manager (the "Investment
Manager") and conducts the business and affairs of the Company. IDASI has
engaged Goldman Sachs Asset Management International ("GSAMI"), an affiliate of
Goldman, Sachs & Co., as the investment adviser to provide day-to-day portfolio
management for the Protective International Equity Fund and the Protective
Global Income Fund. IDASI also has engaged Goldman Sachs Asset Management
("GSAM"), a separate operating division of Goldman, Sachs & Co., as the
investment adviser to provide day-to-day portfolio management for each of the
other Funds. (GSAM and GSAMI are each referred to herein as the "Adviser" or
together as the "Advisers," as appropriate. Goldman, Sachs & Co. is referred to
herein as "Goldman Sachs").
The Company currently offers each class of its stock to a separate account
of Protective Life Insurance Company ("Protective Life") as funding vehicles for
certain variable annuity contracts (the "Contracts") issued by Protective Life
through the separate account (the "Account"). The Company does not offer its
stock directly to the general public. The Account, like the Company, is
registered as an investment company with the Securities and Exchange Commission
("SEC") and a separate prospectus, which accompanies the prospectus for the
Company (the "Prospectus"), describes the Account and the Contracts. The
prospectus for the Account and the Contracts also has a statement of additional
information similar to this statement of additional information (the "SAI").
The Company may, in the future, offer its stock to other registered and
unregistered separate accounts of Protective Life and its affiliates supporting
other variable annuity contracts or variable life insurance contracts and to
qualified pension and retirement plans.
Terms appearing in the Statement that are defined in the Prospectus have the
same meaning herein as in the Prospectus.
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ADDITIONAL INVESTMENT POLICY INFORMATION
PROTECTIVE MONEY MARKET FUND
Pursuant to Rule 2a-7 under the Investment Company Act of 1940 (the "Act"),
securities which are rated (or that have been issued by an issuer that has been
rated with respect to a class of short-term debt obligations, or any security
within that class, comparable in priority and quality with such security) in the
highest short-term rating category by at least two NRSROs are designated "First
Tier Securities." Securities rated in the top two short-term rating categories
by at least two NRSROs, but which are not rated in the highest short-term rating
category by at least two NRSROs, are designated "Second Tier Securities." NRSROs
are listed in the Prospectus and a description of their ratings are found in
Appendix A herein.
Pursuant to Rule 2a-7, the Protective Money Market Fund may not invest more
than 5% of its assets taken at amortized cost in the securities of any one
issuer (except the U.S. Government, including repurchase agreements
collateralized by U.S. Government Securities). The Fund may, however, invest
more than 5% of its assets in the First Tier Securities of a single issuer for a
period of up to three business days after the purchase thereof, although the
Fund may not make more than one such investment at any time. Further, the Fund
will not invest more than the greater of (i) 1% of its total assets; or (ii) one
million dollars in the securities of a single issuer that were Second Tier
Securities when acquired by the Fund. In addition, the Fund may not invest more
than 5% of its total assets in securities which were Second Tier Securities when
acquired.
The foregoing operating policies are more restrictive than the fundamental
investment restriction number 12 set forth below, which would give the Fund the
ability to invest, with respect to 25% of its assets, more than 5% of its assets
in any one issuer. The Fund will operate in accordance with these operating
policies which comply with Rule 2a-7.
PROTECTIVE SELECT EQUITY FUND
THE RECOMMENDED LIST AND THE SECONDARY GROUP. The Select Equity Fund will
invest 65% of its net assets in securities that, at the time of purchase, are
included on the research department recommended list. The recommended list is
typically comprised of equity securities traded in the United States that are
issued by approximately 150 to 200 domestic companies and foreign companies that
comply with U.S. accounting standards.
The Select Equity Fund may invest up to 35% of its net assets in secondary
group securities that, at the time of purchase, are rated by analysts in the
research department as likely to outperform the relevant market. The secondary
group is typically comprised of domestically traded equity securities issued by
approximately 300 to 400 domestic and foreign companies that comply with U.S.
accounting standards. Analysts in the research department also rate stocks that
are not on the recommended list or in the secondary group as likely either to
match or fall short of the performance of the relevant market. Those stocks that
match such performance may be included in the hold range, but are not in the buy
range. Those stocks that do not match such performance are not included in
either the hold range or the buy range.
A security is proposed for inclusion on or removal from the recommended list
by the research department analyst following the issuer of a particular security
based on his or her knowledge of the security's fundamentals and the industry
outlook. Once the inclusion or removal of a security is proposed by the analyst,
the co-heads of the research department and the Stock Selection Committee at
Goldman Sachs (comprised of senior investment strategists and analysts) decide
whether to include the security on, or remove the security from, the recommended
list. They consider the fundamental characteristics of a security and its
attractiveness in the anticipated economic and market climate when reviewing the
proposals of analysts and selecting securities for inclusion in or removal from
the recommended list.
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A simpler procedure is followed for determining which securities not on the
recommended list should be added to or removed from the secondary group. This
determination is based solely on an assessment of whether a security is likely
to outperform the relevant market by an individual analyst in the research
department.
More than 270 persons, including more than 125 investment professionals and
8 general partners of Goldman Sachs, are currently employed worldwide in the
research department to research, analyze and monitor securities issued by more
than 1,600 companies, encompassing most major industries. For more than a
decade, Goldman Sachs has been among the top-ranked firms in INSTITUTIONAL
INVESTOR'S annual "All-American Research Team" survey. Research department
personnel and procedures and the composition of the recommended list and the
secondary group may change from time to time.
THE MULTIFACTOR MODEL. The multifactor model is a sophisticated
computerized rating system for evaluating equity securities according to twelve
fundamental investment characteristics (or factors). The twelve factors used by
the multifactor model incorporate many variables studied by traditional
fundamental analysts, and cover measures of value, yield, growth, momentum, risk
and liquidity which include price/earnings ratio, sustainable growth rate,
earnings momentum and market liquidity. All of these factors have been shown to
significantly impact the performance of equity securities. The weights applied
to the twelve factors are derived using a statistical formulation that considers
each factor's historical relationship to returns for the type of security being
evaluated. As such, the multifactor model is designed to evaluate each security
using only the factors that are statistically related to returns for that type
of security. For example, because their investment characteristics may differ,
the multifactor model may not evaluate the securities of an electric utility in
the same manner that it evaluates the securities of a drug manufacturer.
Because it includes many disparate factors, the Adviser believes that the
multifactor model is broader in scope and provides a more thorough evaluation
than most conventional, value-oriented quantitative models. As a result, the
securities ranked highest by the multifactor model do not have one dominant
investment characteristic (such as a low price/earnings ratio); rather, such
securities possess many different investment characteristics. By using a variety
of relevant factors to select securities from the recommended list and secondary
group, the Adviser believes that the Select Equity Fund will be better balanced
and have more consistent performance than an investment portfolio that uses only
one or two factors to select securities.
The Adviser will monitor, and may occasionally suggest changes to, the
method by which securities are selected for or weighted in the Select Equity
Fund. Such changes (which may be the result of changes in the nature of the
recommended list, the secondary group, the multifactor model or the method of
applying the multifactor model) may include: (i) evolutionary changes to the
structure of the multifactor model (E.G., the addition of new factors or a new
means of weighting the factors); (ii) changes in trading procedures (E.G.,
trading frequency or the manner in which the Fund uses futures on the S&P 500
Index); (iii) changes in the method by which securities are weighted in the
Fund; or (iv) changes to the parameters of the buy and hold ranges (E.G.,
allowing the purchase generally of recommended list and secondary group
securities ranked below the top 50 by the multifactor model). Any such changes
will preserve the Fund's basic investment philosophy of combining qualitative
and quantitative methods of selecting securities using a disciplined investment
process.
USE OF THE RECOMMENDED LIST, THE SECONDARY GROUP AND THE MULTIFACTOR
MODEL. By employing both qualitative (I.E., the recommended list and the
secondary group) and a quantitative (I.E., the multifactor model) method of
selecting securities, as described below, the Fund seeks to overcome the
inherent inability of quantitative methods to analyze non-quantitative factors
(such as the impact of a change in management or a pending lawsuit) and,
conversely, the susceptibility of quantitative methods to subjective influences
and biases.
Once securities are within the buy range, the Fund will acquire them in
amounts that are approximately proportionate to their market capitalizations
relative to the market capitalizations of
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the other securities in the Select Equity Fund's portfolio as adjusted based on
a proprietary portfolio optimization methodology of the Adviser that is designed
to balance the tradeoff between risk and expected return. However, under normal
conditions the securities of any one issuer may not exceed 5% of the Fund's net
assets at the time of purchase. The Adviser believes that this weighing method
should reduce portfolio volatility and enhance trading liquidity as compared to
most other methods for assigning weight to each investment.
Periodically, the Select Equity Fund will be "rebalanced" in order to align
the securities in the Fund's portfolio with those included in the buy range.
Such rebalancings are expected when the Adviser determines a rebalancing to be
necessary. Such rebalancings are not expected to cause the annual portfolio
turnover rate of the Fund to exceed 150%. To limit portfolio turnover, however,
recommended list and secondary group securities not within the buy range that
continue to be rated attractively by the multifactor model and which were
previously acquired by the Fund will be sold only to the extent that their
actual weights in the Fund exceed weights that are approximately proportionate
to their relative market capitalization as adjusted in accordance with the
portfolio optimization methodology. Recommended list and secondary group
securities that are not within the buy range, but continue to be rated
attractively by the multifactor model, will be considered by the Adviser to be
within the "hold range" for the Fund. Hold range securities may also include
recommended list and secondary group securities that are subsequently rated by
research department analysts as likely to at least match the performance of the
relevant market. The Fund will not make new purchases of securities in the hold
range.
During a rebalancing, all securities not within the buy range or hold range
will be sold in their entirety. Securities in the buy range or hold range will
also be sold to the extent that their actual Fund weights exceed weights that
are approximately proportionate to their relative market capitalizations as
adjusted in accordance with the portfolio optimization methodology. The proceeds
from the sale of Select Equity Fund portfolio securities will be invested in
securities from the recommended list or the secondary group that are in the buy
range and are weighted in the Fund in amounts below their proportionate market
capitalizations as adjusted in accordance with the portfolio optimization
methodology (but not to exceed 5% of the Fund's net assets). This may often
include securities not previously held by the Fund (E.G., securities new to the
recommended list, the secondary group or the buy range).
The Select Equity Fund may also purchase and sell securities between
rebalancing dates. For instance, it is expected that the Fund will sell a
security within a reasonable time after it has been removed from the recommended
list or the secondary group (unless the security has been removed for a reason
not related to its investment characteristics or it continues to be rated
attractively by the multifactor model). The Fund may make new investments
between rebalancing dates when dividends are paid on Fund holdings or when
additional Fund shares are sold to Protective Life. In determining which
securities to purchase or sell under these types of circumstances, the Adviser
will consider, among other things, such factors as a security's present status
on the recommended list or the secondary group, its ranking by the multifactor
model, its weighing in the portfolio, the amount of unrealized gain or loss in
the security and the depth and liquidity of the market for the security.
The investment strategy described above will be implemented to the extent it
is consistent with maintaining the Select Equity Fund's qualification as a
regulated investment company under the Internal Revenue Code of 1986 (the
"Code"). See "Taxes" in the Prospectus. The Fund's strategy may be limited, in
particular, by the requirement for such qualification that less than 30% of the
Fund's annual gross income be derived from the sale or other disposition of
stocks or securities (including options and futures contracts) held for less
than three months.
PROTECTIVE SMALL CAP EQUITY FUND AND PROTECTIVE GROWTH AND INCOME FUND.
Members of GSAM's equity portfolio team will manage the Small Cap Equity and
Growth and Income Funds' investment portfolios. They bring together many years
of experience in analyzing and investing in a wide range of businesses. In
building each Fund's investment portfolio, GSAM's equity
5
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portfolio team reviews a wide range of companies, looking for businesses that
have strong market positions in profitable industries. Generally, such companies
often generate more cash flow then they can effectively deploy and have a
history of distributing increasing dividends. GSAM regards the equity securities
of such companies as potential investments for the Funds.
Companies satisfying the above criteria are analyzed by GSAM to determine
the quality and durability of their business franchises as well as the strength
of their financial condition. GSAM seeks to avoid investments for these Funds in
the securities of companies that are burdened by greater than average levels of
debt. Quality of management is also an important factor in GSAM's selection
process and GSAM expects company visits to play a major role in this process.
PROTECTIVE INTERNATIONAL EQUITY FUND
INVESTING ABROAD: HIGH HISTORICAL RETURNS AND UNRECOGNIZED VALUES. Although
widespread interest in foreign equity investments has only recently developed
among U.S. investors, foreign equities have since 1970 produced higher returns
in dollars than the S&P 500. Because research coverage outside the U.S. is
fragmented and relatively unsophisticated, many foreign companies that are well-
positioned to grow and prosper have not come to the attention of investors. The
Adviser believes that the high historical returns and less efficient pricing of
foreign markets create favorable conditions for the Fund's highly focused
investment approach.
A RIGOROUS PROCESS OF STOCK SELECTION. Using fundamental industry and
company research, the Adviser's equity team in London and Tokyo seeks to
identify companies that have a high probability of achieving superior long-term
returns. Stocks are carefully selected for the Fund's portfolio through a
three-stage investment process.
INDUSTRIES: Using the research of the Adviser and Goldman Sachs as well
as information gathered from other sources in Europe and the AsiaPacific
region, the portfolio managers first identify attractive industries around
the world. Such industries have favorable underlying economics and allow
companies to generate sustainable and predictable high returns. As a rule,
they are less economically sensitive, relatively free of regulation and
favor strong franchises.
COMPANIES AND MANAGEMENT: Within these industries the portfolio
managers identify well-run companies that enjoy a stable competitive
advantage and are able to benefit from the favorable dynamics of the
industry. This stage includes analyzing the current and expected financial
performance of the company; contacting suppliers, customers and competitors;
and meeting with management. In particular, the portfolio managers look for
companies whose managers have a strong commitment to both maintaining the
high returns of the existing business and reinvesting the capital generated
at high rates of return. The Fund looks for companies whose management
always acts in the interests of the owners and seek to maximize returns to
all stockholders.
BUSINESS VALUE: The Adviser measures a company's business value by its
ability to generate substantial free cash flow after all working and fixed
capital expenditures. In the judgment of the Adviser, free cash flow is the
best measure of the underlying economics of a company, is less subject to
manipulation than reported earnings, and is more meaningful when valuing
companies across different tax and accounting regimes. Having identified
companies with superior free cash flow characteristics, the Adviser then
considers that free cash flow relative to the current stock price and the
prospects for long-term growth. These two components are used to determine
an expected total return at the stock's prevailing market price.
After buying a stock, the portfolio managers monitor developments within the
company and its industry and maintain regular contact with management.
Because the Fund is a long-term holder of stocks, the portfolio managers
adjust the Fund's portfolio only when expected returns fall below acceptable
levels or when the portfolio managers identify substantially more attractive
investments.
6
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BUSINESS VALUE INVESTING ABROAD. The Fund's approach to investing in
international markets is based on the concept of "business value." As explained
above, a company is eligible for the Fund only if it meets a set of strict
criteria and its stock is trading below the Adviser's assessment of its business
value. Given that few companies meet this criteria, the Fund invests in a
limited number of stocks, which it intends to hold over a long time horizon.
While the Fund is not designed to provide a broadly diversified exposure to
different countries or geographic regions, it is expected that its investments
will be in countries in Western Europe and the Asia-Pacific region.
HEDGING AND ENHANCING RETURNS THROUGH CURRENCY MANAGEMENT TECHNIQUES. The
Adviser's currency team manages the foreign exchange risk embedded in foreign
equities by means of a currency overlay program. The program is designed to
protect the value of foreign investments in sustained periods of dollar
appreciation and to add returns by seeking to take advantage of foreign exchange
fluctuations.
THE ADVISER'S INTERNATIONAL EQUITY TEAM. The members of the Adviser's
international equity team have substantial experience in analyzing and investing
in companies in Europe and the Asia-Pacific region. Their expertise spans a wide
range of skills including investment analysis, investment management, investment
banking and business consulting. In addition, they have access to over 200
economic, equity and currency research professionals of Goldman Sachs in London,
Frankfurt, Hong Kong, Tokyo and New York.
PROTECTIVE GLOBAL INCOME FUND
HIGH INCOME. The Fund is designed to have a higher current yield than a
money market fund, since it can invest in a broader range of securities. The
Fund's portfolio managers will seek out the highest yielding bonds in the global
fixed-income market that meet the Fund's credit quality standards and certain
other criteria.
CAPITAL APPRECIATION. Investing in the foreign bond markets offers the
potential for capital appreciation due to both interest rate and currency
exchange rate fluctuations. The portfolio managers also attempt to identify
investments with appreciation potential by carefully evaluating trends affecting
a country's currency as well as a country's fundamental economic strength.
However, there is a risk of capital depreciation as a result of unanticipated
interest rate and currency fluctuations.
PORTFOLIO MANAGEMENT FLEXIBILITY. The Fund is designed to be actively
managed. The Fund's portfolio managers invest in countries that, in their
judgment, meet the investment guidelines and often have strong currencies and
stable economies and in securities that they believe offer the best performance
prospects. Furthermore, because the Fund can purchase securities with
short-to-intermediate-term maturities, the portfolio managers can adjust the
Fund's holdings in an effort to maximize returns in almost any interest rate
environment. In addition, the Fund's ability to invest in securities deemed to
have estimated average lives of ten years or less allows its portfolio managers
to adjust the Fund's portfolio as interest rates change to take advantage of the
most attractive segments of the yield curve.
RELATIVE STABILITY OF PRINCIPAL. The Fund may be able to reduce principal
fluctuation by investing in foreign countries with economic policies or business
cycles different from those of the United States and in foreign securities
markets that do not necessarily move in the same direction or magnitude as the
U.S. market. Investing in a broad range of U.S. and foreign fixed-income
securities and currencies reduces the dependence of the Fund's performance on
developments in any particular market to the extent that adverse events in one
market are offset by favorable events in other markets. The Fund's policy of
investing only in high credit quality securities may also reduce principal
fluctuation. However, there is no assurance that these strategies will always be
successful. The Fund's net asset value per share will fluctuate more than that
of a money market fund.
PROFESSIONAL MANAGEMENT. Individual U.S. investors may prefer professional
management of their global bond and currency portfolios because a
well-diversified portfolio requires a large amount of capital and because the
size of the global market requires access to extensive resources and a
substantial commitment of time.
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SPECIAL INVESTMENT METHODS AND RISKS
CUSTODY RECEIPTS
The Funds may acquire custody receipts in connection with securities issued
or guaranteed as to principal and interest by the U.S. Government, its agencies,
authorities or instrumentalities. Such custody receipts evidence ownership of
future interest payments, principal payments or both on certain notes or bonds
issued by the U.S. Government, its agencies, authorities or instrumentalities.
These custody receipts are known by various names, including "Treasury
Receipts," "Treasury Investors Growth Receipts" ("TIGRs"), and "Certificates of
Accrual on Treasury Securities" ("CATS"). For certain securities law purposes,
custody receipts are not considered U.S. Government securities.
RESTRICTED AND ILLIQUID SECURITIES
The Funds may purchase certain restricted securities (those that are not
registered under the Securities Act of 1933 (the "1933 Act") but can be offered
and sold to "qualified institutional buyers" under Rule 144A of that Act) and
limited amounts of illiquid investments, including illiquid restricted
securities. Limitations on illiquid securities and other illiquid investments
for each Fund are described in non-fundamental investment restrictions 4(a) -
4(c) below.
Illiquid investments include many restricted securities, repurchase
agreements that mature in more than seven days, fixed time deposits that mature
in more than seven days and participation interests in loans.
Certain repurchase agreements which provide for settlement in more than
seven days, however, can be liquidated before the nominal fixed term on seven
days or less notice. The Company will consider such repurchase agreements as
liquid. Likewise, restricted securities (including commercial paper issued
pursuant to Section 4(2) of the 1933 Act) that the board of directors of the
Company or the Advisers have determined to be liquid will be treated as such.
The SEC staff has taken the position that fixed time deposits maturing in
more than seven days that cannot be traded on a secondary market and
participation interests in loans are illiquid and not readily marketable. Until
such time (if any) as this position changes, the Company will include such
investments in the percentage limitation on illiquid investments applicable to
each Fund.
OPTIONS ON SECURITIES AND SECURITIES INDICES
All of the Funds except the Money Market Fund may write (sell) covered call
and put options on any securities in which it may invest. A call option written
by a Fund obligates such Fund to sell specified securities to the holder of the
option at a specified price if the option is exercised at any time before the
expiration date. All call options written by a Fund are covered, which means
that such Fund will own the securities subject to the option so long as the
option is outstanding. A Fund's purpose in writing covered call options is to
realize greater income than would be realized on portfolio securities
transactions alone. However, a Fund may forgo the opportunity to profit from an
increase in the market price of the underlying security.
A put option written by a Fund would obligate such Fund to purchase
specified securities from the option holder at a specified price if the option
is exercised at any time before the expiration date. All put options written by
a Fund would be covered, which means that such Fund would have deposited with
its custodian cash or liquid high grade debt securities with a value at least
equal to the exercise price of the put option. The purpose of writing such
options is to generate additional income for the Fund. However, in return for
the option premium, a Fund accepts the risk that it will be required to purchase
the underlying securities at a price in excess of the securities' market value
at the time of purchase.
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In addition, a written call option or put option may be covered by
maintaining cash or liquid high grade debt securities (either of which may be
denominated in any currency) in a segregated account with its custodian or by
purchasing an offsetting option or any other option which, by virtue of its
exercise price or otherwise, reduces a Fund's net exposure on its written option
position.
The Funds other than the Money Market Fund may also write (sell) covered
call and put options on any securities index composed of securities in which it
may invest. Options on securities indices are similar to options on securities,
except that the exercise of securities index options requires cash payments and
does not involve the actual purchase or sale of securities. In addition,
securities index options are designed to reflect price fluctuations in a group
of securities or segment of the securities market rather than price fluctuations
in a single security.
A Fund may cover call options on a securities index by owning securities
whose price changes are expected to be similar to those of the underlying index,
or by having an absolute and immediate right to acquire such securities without
additional cash consideration (or for additional cash consideration held in a
segregated account by its custodian) upon conversion or exchange of other
securities in its portfolio. A Fund may cover call and put options on a
securities index by maintaining cash or liquid high grade debt securities with a
value equal to the exercise price in a segregated account with its custodian.
A Fund may terminate its obligations under an exchange traded call or put
option by purchasing an option identical to the one it has written. Obligations
under over-the-counter options may be terminated only by entering into an
offsetting transaction with the counterparty to such option. Such purchases are
referred to as "closing purchase" transactions.
Each Fund may purchase put and call options on any securities in which it
may invest or options on any securities index based on securities in which it
may invest. A Fund would also be able to enter into closing sale transactions in
order to realize gains or minimize losses on options it had purchased.
A Fund would normally purchase call options in anticipation of an increase
in the market value of securities of the type in which it may invest. The
purchase of a call option would entitle a Fund, in turn for the premium paid, to
purchase specified securities at a specified price during the option period. A
Fund would ordinarily realize a gain if, during the option period, the value of
such securities exceeded the sum of the exercise price, the premium paid and
transaction costs; otherwise such a Fund would realize a loss on the purchase of
the call option.
A Fund would normally purchase put options in anticipation of a decline in
the market value of securities in its portfolio ("protective puts") or in
securities in which it may invest. The purchase of a put option would entitle a
Fund, in exchange for the premium paid, to sell specified securities at a
specified price during the option period. The purchase of protective puts is
designed to offset or hedge against a decline in the market value of a Fund's
securities. Put options may also be purchased by a Fund for the purpose of
affirmatively benefiting from a decline in the price of securities which it does
not own. A Fund would ordinarily realize a gain if, during the option period,
the value of the underlying securities decreased below the exercise price
sufficiently to cover the premium and transaction costs; otherwise such a Fund
would realize a loss on the purchase of the put option. Gains and losses on the
purchase of protective put options would tend to be offset by countervailing
changes in the value of the underlying portfolio securities.
The Fund would purchase put and call options on securities indices for the
same purposes as it would purchase options on individual securities.
RISKS ASSOCIATED WITH OPTIONS TRANSACTIONS. There is no assurance that a
liquid secondary market on an options exchange will exist for any particular
exchange-traded option or at any particular time. If a Fund is unable to effect
a closing purchase transaction with respect to covered options it has written,
the Fund will not be able to sell the underlying securities or dispose of assets
held in a segregated account until the options expire or are exercised.
Similarly, if a Fund is unable to effect a
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closing sale transaction with respect to options it has purchased, it would have
to exercise the options in order to realize any profit and will incur
transaction costs upon the purchase or sale of underlying securities.
Reasons for the absence of a liquid secondary market on an exchange include
the following: (i) there may be insufficient trading interest in certain
options; (ii) restrictions may be imposed by an exchange on opening transactions
or closing transactions or both; (iii) trading halts, suspensions or other
restrictions may be imposed with respect to particular classes or series of
options; (iv) unusual or unforeseen circumstances may interrupt normal
operations on an exchange; (v) the facilities of an exchange or the Options
Clearing Corporation may not at all times be adequate to handle current trading
volume; or (vi) one or more exchanges could, for economic or other reasons,
decide or be compelled at some future date to discontinue the trading of options
(or a particular class or series of options), in which event the secondary
market on that exchange (or in that class or series of options) would cease to
exist, although outstanding options on that exchange that had been issued by the
Options Clearing Corporation as a result of trades on that exchange would
continue to be exercisable in accordance with their terms.
The Funds other than the Money Market Fund may purchase and sell both
options that are traded on United States and foreign exchanges and options
traded over-the-counter with broker-dealers who make markets in these options.
The ability to terminate over-the-counter options is more limited than with
exchange-traded options and may involve the risk that broker-dealers
participating in such transactions will not fulfill their obligations. Until
such time as the staff of the SEC changes its position, each Fund will treat
purchased over-the-counter options and all assets used to cover written
over-the-counter options as illiquid securities, except that with respect to
options written with primary dealers in U.S. Government securities pursuant to
an agreement requiring a closing purchase transaction at a formula price, the
amount of illiquid securities may be calculated with reference to the formula.
Transactions by a Fund in options on securities and stock indices will be
subject to limitations established by each of the exchanges, boards of trade or
other trading facilities governing the maximum number of options in each class
which may be written or purchased by a single investor or group of investors
acting in concert. Thus, the number of options which a Fund may write or
purchase may be affected by options written or purchased by other investment
advisory clients of the Advisers. An exchange, board of trade or other trading
facility may order the liquidations of positions found to be in excess of these
limits, and it may impose certain other sanctions.
The writing and purchase of options is a highly specialized activity which
involves investment techniques and risks different from those associated with
ordinary portfolio securities transactions. The successful use of protective
puts for hedging purposes depends in part on the Adviser's ability to predict
future price fluctuations and the degree of correlation between the options and
securities markets.
FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS
The Funds other than the Money Market Fund may purchase and sell futures
contracts. Of these Funds, the Funds other than Select Equity Fund may also
purchase and write options on futures contracts. These Funds may purchase and
sell futures contracts based on various securities (such as U.S. Government
Securities), securities indices, foreign currencies and other financial
instruments and indices. Select Equity Fund may only purchase and sell futures
contracts on the S&P 500 Index. A Fund will engage in futures or, in the case of
Funds other than Select Equity, related options transactions, only for bona fide
hedging purposes as defined below or to increase total returns to the extent
permitted by regulations of the Commodity Futures Trading Commission ("CFTC").
All futures contracts entered into by a Fund are traded on U.S. exchanges or
boards of trade that are licensed and regulated by the CFTC or on foreign
exchanges.
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FUTURES CONTRACTS. A futures contract may generally be described as an
agreement between two parties to buy and sell particular financial instruments
for an agreed price during a designated month (or to deliver the final cash
settlement price, in the case of a contract relating to an index or otherwise
not calling for physical delivery at the end of trading in the contract).
When interest rates are rising or securities prices are falling, a Fund can
seek through the sale of futures contracts to offset a decline in the value of
its current portfolio securities. When rates are falling or prices are rising, a
Fund, through the purchase of futures contracts, can attempt to secure better
rates or prices than might later be available in the market when it effects
anticipated purchases. Similarly, a Fund (other than the Money Market Fund or
Select Equity Fund) can sell futures contracts on a specified currency to
protect against a decline in the value of such currency and its portfolio
securities which are denominated in such currency. These Funds can purchase
futures contracts on foreign currency to fix the price in U.S. dollars of a
security denominated in such currency that such Fund has acquired or expects to
acquire.
Positions taken in the futures markets are not normally held to maturity,
but are instead liquidated through offsetting transactions which may result in a
profit or a loss. While a Fund's futures contracts on securities or currency
will usually be liquidated in this manner, it may instead make or take delivery
of the underlying securities or currency whenever it appears economically
advantageous for the Fund to do so. A clearing corporation associated with the
exchange on which futures on securities or currency are traded guarantees that,
if still open, the sale or purchase will be performed on the settlement date.
HEDGING STRATEGIES. Hedging by use of futures contracts seeks to establish
more certainly than would otherwise be possible the effective price, rate of
return or currency exchange rate on portfolio securities or securities that a
Fund owns or proposes to acquire. A Fund may, for example, take a "short"
position in the futures market by selling futures contracts in order to hedge
against an anticipated rise in interest rates or a decline in market prices or
foreign currency rates that would adversely affect the U. S. dollar value of the
Fund's portfolio securities. Such futures contracts may include contracts for
the future delivery of securities held by the Fund or securities with
characteristics similar to those of a Fund's portfolio securities. Similarly, a
Fund may sell futures contracts on a currency in which its portfolio securities
are denominated or in one currency to hedge against fluctuations in the value of
securities denominated in a different currency if there is an established
historical pattern of correlation between the two currencies.
If, in the opinion of its Adviser, there is a sufficient degree of
correlation between price trends for a Fund's portfolio securities and futures
contracts based on other financial instruments, securities indices or other
indices, the Fund may also enter into such futures contracts as part of its
hedging strategy. Although under some circumstances prices of securities in a
Fund's portfolio may be more or less volatile than prices of such futures
contracts, the Adviser will attempt to estimate the extent of this difference in
volatility based on historical patterns and to compensate for it by having the
Fund enter into a greater or lesser number of futures contracts or by attempting
to achieve only a partial hedge against price changes affecting the Fund's
securities portfolio. When hedging of this character is successful, any
depreciation in the value of portfolio securities will substantially be offset
by appreciation in the value of the futures position. On the other hand, any
unanticipated appreciation in the value of the Fund's portfolio securities would
be substantially offset by a decline in the value of the futures position.
On other occasions, a Fund may take a "long" position by purchasing such
futures contracts. This would be done, for example, when a Fund anticipates the
subsequent purchase of particular securities when it has the necessary cash, but
expects the prices or currency exchange rates then available in the applicable
market to be less favorable than prices or rates that are currently available.
OPTIONS ON FUTURES CONTRACTS. The acquisition of put and call options on
futures contracts will give a Fund the right (but not the obligation), for a
specified price, to sell or to purchase, respectively, the underlying futures
contract at any time during the option period. As the purchaser of an option on
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a futures contract, a Fund obtains the benefit of the futures position if prices
move in a favorable direction but limits its risk of loss in the event of an
unfavorable price movement to the loss of the premium and transaction costs.
The writing of a call option on a futures contract generates a premium which
may partially offset a decline in the value of a Fund's assets. By writing a
call option, a Fund becomes obligated, in exchange for the premium, to sell a
futures contract, which may have a value higher than the exercise price.
Conversely, the writing of a put option on a futures contract generates a
premium, which may partially offset an increase in the price of securities that
the Fund intends to purchase. However, a Fund becomes obligated to purchase a
futures contract, which may have a value lower than the exercise price. Thus,
the loss incurred by the Fund in writing options on futures is potentially
unlimited and may exceed the amount of the premium received. A Fund will
increase transaction costs in connection with the writing of options on futures.
The holder or writer of an option on a futures contract may terminate its
position by selling or purchasing an offsetting option on the same series. There
is no guarantee that such closing transactions can be effected. A Fund's ability
to establish and close out positions on such options will be subject to the
development and maintenance of a liquid market.
OTHER CONSIDERATIONS. Where permitted, a Fund will engage in futures
transactions and in related options transactions only for bona fide hedging or
to increase total return to the extent permitted by CFTC regulations. A Fund
will determine that the price fluctuations in the futures contracts and options
on futures used for hedging purposes are substantially related to price
fluctuations in securities held by the Fund or which it expects to purchase.
Except as stated below, each Fund's futures transactions will be entered into
for traditional hedging purposes -- I.E., futures contracts will be sold to
protect against a decline in the price of securities (or the currency in which
they are denominated) that the Fund owns, or futures contracts will be purchased
to protect the Fund against an increase in the price of securities (or the
currency in which they are denominated) it intends to purchase. As evidence of
this hedging intent, the Funds expect that on 75% or more of the occasions on
which they take a long futures or option positions (involving the purchase of
futures contracts), the Fund will have purchased, or will be in the process of
purchasing, equivalent amounts of related securities (or assets denominated in
the related currency) in the cash market at the time when the futures or option
position is closed out. However, in particular cases, when it is economically
advantageous for a Fund to do so, a long futures position may be terminated or
an option may expire without the corresponding purchase of securities or other
assets.
As an alternative to literal compliance with the bona fide hedging
definition, a CFTC regulation permits a Fund to elect to comply with a different
test, under which the aggregate initial margin and premiums required to
establish positions in futures contracts and options on futures for the purpose
of increasing total return, will not exceed 5 percent of the net asset value of
the Fund's portfolio, after taking into account unrealized profits and losses on
any such positions and excluding the amount by which such options were
in-the-money at the time of purchase. As permitted, each Fund will engage in
transactions in futures contracts and in related options transactions only to
the extent such transactions are consistent with the requirements of the
Internal Revenue Code of 1986, as amended (the "Code") for maintaining its
qualification as a regulated investment company for federal income tax purposes
(see "Taxation").
Transactions in futures contracts and options on futures involve brokerage
costs, require margin deposits and, in the case of contracts and options
obligating a Fund to purchase securities or currencies, require the Fund to
segregate with its custodian liquid high grade debt securities in an amount
equal to the underlying value of such contracts and options.
While transactions in futures contracts and options on futures may reduce
certain risks, such transactions themselves entail certain other risks. Thus,
unanticipated changes in interest rates, securities prices or currency exchange
rates may result in a poorer overall performance for a Fund
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than if it had not entered into any futures contracts or options transactions.
In the event of an imperfect correlation between a futures position and
portfolio position which is intended to be protected, the desired protection may
not be obtained and a Fund may be exposed to risk of loss.
Perfect correlation between a Fund's futures positions and portfolio
positions may be difficult to achieve because no futures contracts based on
individual equity securities are currently available. The only futures contracts
available to hedge a Fund's portfolio are various futures on U.S. Government
securities, securities indices and foreign currencies. In addition, it is not
possible for a Fund to hedge fully or perfectly against currency fluctuations
affecting the value of securities denominated in foreign currencies because the
value of such securities is likely to fluctuate as a result of independent
factors not related to currency fluctuations.
FOREIGN INVESTMENTS
Investing in the securities of companies organized outside the United States
or of companies whose securities are principally traded outside the United
States ("foreign issuers") or investments in securities denominated or quoted in
foreign currency ("non-dollar securities") involves certain special
considerations, including those set forth below, which are not typically
associated with investing in securities of domestic issuers or U.S. dollar
denominated securities. Since investments in foreign issuers may involve
currencies of foreign countries and since a Fund may temporarily hold funds in
bank deposits in foreign currencies during completion of investment programs and
since a Fund may be subject to currency exposure independent of its securities
positions, the Fund may be affected favorably or unfavorably by changes in
currency rates and in exchange control regulations and may incur costs in
connection with conversions between various currencies.
Since foreign issuers are not subject to uniform accounting, auditing and
financial reporting standards, practices and requirements comparable to those
applicable to U.S. issuers, there may be less publicly available information
about a foreign issuer than about a domestic issuer. Volume and liquidity in
most foreign securities markets are less than in the United States and
securities of many foreign issuers are less liquid and more volatile than
securities of comparable domestic issuers. Fixed commissions on foreign
securities exchanges are generally higher than negotiated commissions on U.S.
exchanges, although the Funds endeavor to achieve the most favorable net results
on its portfolio transactions. There is generally less government supervision
and regulation of securities exchanges, brokers, dealers and listed and unlisted
issuers than in the United States. Mail service between the United States and
foreign countries may be slower or less reliable than within the United States,
thus increasing the risk of delayed settlements of portfolio transactions or
loss of certificates for portfolio securities.
Foreign investment markets also have different clearance and settlement
procedures, and in certain markets there have been times when settlements have
been unable to keep pace with the volume of transactions, making it difficult to
conduct such transactions. Such delays in settlement could result in temporary
periods when a portion of the assets of a Fund are uninvested and no return is
earned on such assets. The inability of a Fund to make intended security
purchases due to settlement problems could cause the Fund to miss attractive
investment opportunities. Inability to dispose of portfolio investments due to
settlement problems could result either in losses to a Fund due to subsequent
declines in value of the portfolio securities or, if the Fund has entered into a
contract to sell the securities, could result in possible liability to the
purchaser. In addition, with respect to certain foreign countries, there is the
possibility of expropriation or confiscatory taxation, political or social
instability, or diplomatic developments which could affect a Fund's investments
in those countries. Moreover, individual foreign economies may differ favorably
or unfavorably from the U.S. economy in such respects as growth of gross
national product, rate of inflation, capital reinvestment, resource self-
sufficiency and balance of payments position.
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS. The Small Cap Equity Fund,
International Equity Fund, Growth and Income Fund and Global Income Fund may
enter into forward foreign currency exchange contracts. A forward foreign
currency exchange contract involves an obligation to
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purchase or sell a specific currency at a future date, which may be any fixed
number of days from the date of the contract agreed upon by the parties, at a
price set at the time of the contract. These 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 generally charged at any stage for
trades.
At the maturity of a forward contract the Fund may either accept or make
delivery of the currency specified in the contract or, at or prior to maturity,
enter into a closing purchase transaction involving the purchase or sale of an
offsetting contract. Closing purchase transactions with respect to forward
contracts are usually effected with the currency trader who is a party to the
original forward contract.
These Funds may enter into forward foreign currency exchange contracts in
several circumstances. First, when a Fund enters into a contract for the
purchase or sale of a security denominated or noted in a foreign currency, or
when the Fund anticipates the receipt in a foreign currency of dividend or
interest payments on such a security which it holds, the Fund may desire to
"lock in" the U.S. dollar price of the security or the U.S. dollar equivalent of
such dividend or interest payment, as the case may be. By entering into a
forward contract for the purchase or sale, for a fixed amount of dollars, of the
amount of foreign currency involved in the underlying transactions, the Fund
will attempt to protect itself against an adverse change in the relationship
between the U.S. dollar and the subject foreign currency during the period
between the date on which the security is purchased or sold, or on which the
dividend or interest payment is declared, and the date on which such payments
are made or received.
Additionally, when the Adviser of a Fund believes that the currency of a
particular foreign country may suffer a substantial decline against the U.S.
dollar, it may enter into a forward contract to sell, for a fixed amount of
dollars, the amount of foreign currency approximating the value of some or all
of the Fund's portfolio securities denominated in such foreign currency. The
precise matching of the forward contract amounts and the value of the securities
involved will not generally be possible because 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 date on which the
contract is entered into and the date it matures. Using forward contracts to
protect the value of a Fund's portfolio securities against a decline in the
value of a currency does not eliminate fluctuations in the underlying prices of
the securities. It simply establishes a rate of exchange which a Fund can
achieve at some future point in time. The precise projection of short-term
currency market movements is not possible, and short-term hedging provides a
means of fixing the dollar value of only a portion of a Fund's foreign assets.
The International Equity Fund and Global Income Fund may engage in
cross-hedging by using forward contracts in one currency to hedge against
fluctuations in the value of securities denominated in a different currency if
the Adviser determines that there is a pattern of correlation between the two
currencies. These Funds may also purchase and sell forward contracts for
non-hedging purposes when the Adviser anticipates that the foreign currency will
appreciate or depreciate in value, but securities denominated in that currency
do not present attractive investment opportunities and are not held in the
Fund's portfolio.
A Fund's custodian will place cash or high grade liquid debt securities
(I.E., securities rated in one of the top three ratings categories by S&P or by
Moody's or, if unrated, deemed by the Adviser to be of comparable credit
quality) into a segregated account of the Fund in an amount equal to the value
of the Fund's total assets committed to the consummation of forward foreign
currency exchange contracts requiring the Fund to purchase foreign currencies or
forward contracts entered into for non-hedging purposes. If the value of the
securities placed in the segregated account declines, additional cash or
securities will be placed in the account on a daily basis so that the value of
the account will equal the amount of the Fund's commitments with respect to such
contracts. The segregated account will be marked-to-market on a daily basis.
Although the contracts are not presently regulated by the CFTC, the CFTC may in
the future assert authority to regulate these contracts. In such event, the
Fund's ability to utilize forward foreign currency exchange contracts may be
restricted.
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While a Fund will enter into forward contracts to reduce currency exchange
rate risks, transactions in such contracts involve certain other risks. Thus,
while a Fund may benefit from such transactions, unanticipated changes in
currency prices may result in a poorer overall performance for the Fund than if
it had not engaged in any such transactions. Moreover, there may be imperfect
correlation between a Fund's portfolio holdings of securities denominated in a
particular currency and forward contracts entered into by the Fund. Such
imperfect correlation may cause the Fund to sustain losses which will prevent
the Fund from achieving a complete hedge or expose the Fund to risk of foreign
exchange loss.
WRITING AND PURCHASING CURRENCY CALL AND PUT OPTIONS. The Small Cap Equity
Fund, International Equity Fund, Growth and Income Fund and Global Income Fund
may write covered put and call options and purchase put and call options on
foreign currencies for the purpose of protecting against declines in the U.S.
dollar value of portfolio securities and against increases in the dollar cost of
securities to be acquired. The International Equity Fund and Global Income Fund
may use options on currency to cross-hedge, which involves writing or purchasing
options on one currency to hedge against changes in exchange rates for a
different currency if a pattern of correlation exists between the values of the
currencies. In addition, the last two Funds may purchase call options on
currency for non-hedging purposes when the Adviser anticipates that the currency
will appreciate in value, but the securities denominated in that currency do not
present attractive investment opportunities and are not included in the Fund's
portfolio.
A call option written by a Fund obligates the Fund to sell specified
currency to the holder of the option at a specified price at any time before the
expiration date. A put option written by a Fund would obligate the Fund to
purchase specified currency from the option holder at a specified price at any
time before the expiration date. The writing of currency options involves a risk
that a Fund will, upon exercise of the option, be required to sell currency
subject to a call at a price that is less than the currency's market value or be
required to purchase currency subject to a put at a price that exceeds the
currency's market value.
A Fund may terminate its obligations under a call or put option by
purchasing an option identical to the one it has written. Such purchases are
referred to as "closing purchase transactions." A Fund would also be able to
enter into closing sale transactions in order to realize gains or minimize
losses on options purchased by it.
A Fund would normally purchase call options in anticipation of an increase
in the U.S. dollar value of currency in which securities to be acquired by the
Fund are denominated. The purchase of a call option would entitle a Fund, in
return for the premium paid, to purchase specified currency at a specified price
during the option period. The Fund would ordinarily realize a gain if, during
the option period, the value of such currency exceeded the sum of the exercise
price, the premium paid and transaction costs; otherwise the Fund would realize
either no gain or a loss on the purchase of the call option.
A Fund would normally purchase put options in anticipation of a decline in
the dollar value of currency in which securities in its portfolio are
denominated ("protective puts"). The purchase of a put option would entitle the
Fund, in exchange for the premium paid, to sell specified currency at a
specified price during the option period. The purchase of protective puts is
designed merely to offset or hedge against a decline in the dollar value of the
Fund's portfolio securities due to currency exchange rate fluctuations. A Fund
would ordinarily realize a gain if, during the option period, the value of the
underlying currency decreased below the exercise price sufficiently to more than
cover the premium and transaction costs; otherwise the Fund would realize either
no gain or a loss on the purchase of the put option. Gains and losses on the
purchase of protective put options would tend to be offset by countervailing
changes in the value of underlying currency.
In addition to using options for the hedging purposes described above, the
International Equity Fund and Global Income Fund may use options on currency for
non-hedging purposes. These Funds may write (sell) covered put and call options
on any currency in order to realize greater income than
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would be realized on portfolio securities transactions alone. However, in
writing covered call options for additional income, the Fund may forgo the
opportunity to profit from an increase in the market value of the underlying
currency. Also, when writing put options, a Fund accepts, in return for the
option premium, the risk that it may be required to purchase the underlying
currency at a price in excess of the currency's market value at the time of
purchase.
These two Funds would normally purchase call options for non-hedging
purposes in anticipation of an increase in the market value of a currency. They
would ordinarily realize a gain if, during the option period, the value of such
currency exceeded the sum of the exercise price, the premium paid and
transaction costs. Otherwise the Fund would realize either no gain or a loss on
the purchase of the call option. Put options may be purchased by these two Funds
for the purpose of benefiting from a decline in the value of currencies which it
does not own. They would ordinarily realize a gain if, during the option period,
the value of the underlying currency decreased below the exercise price
sufficiently to more than cover the premium and transaction costs. Otherwise
they would realize either no gain or a loss on the purchase of the put option.
SPECIAL RISKS ASSOCIATED WITH OPTIONS ON CURRENCY. An exchange traded
options position may be closed out only on an options exchange which provides a
secondary market for an option of the same series. Although a Fund will
generally purchase or write only those options for which there appears to be an
active secondary market, there is no assurance that a liquid secondary market on
an exchange will exist for any particular option, or at any particular time. For
some options no secondary market on an exchange may exist. In such event, it
might not be possible to effect closing transactions in particular options, with
the result that a Fund would have to exercise its options in order to realize
any profit and would incur transaction costs upon the sale of underlying
securities pursuant to the exercise of put options. If a Fund as a covered call
option writer is unable to effect a closing purchase transaction in a secondary
market, it will not be able to sell the underlying currency (or security
denominated in that currency) until the option expires or it delivers the
underlying currency upon exercise.
There is no assurance that higher than anticipated trading activity or other
unforeseen events might not, at times, render certain of the facilities of the
Options Clearing Corporation inadequate, and thereby result in the institution
by an exchange of special procedures which may interfere with the timely
execution of customers' orders.
The Funds may purchase and write over-the-counter options to the extent
consistent with its limitation on investments in restricted securities. See
"Investment Restrictions" in the Prospectus. Trading in over-the-counter options
is subject to the risk that the other party will be unable or unwilling to
close-out options purchased or written by the Fund.
The amount of the premiums which a Fund may pay or receive may be adversely
affected as new or existing institutions, including other investment companies,
engage in or increase their option purchasing and writing activities.
INTEREST RATE AND CURRENCY SWAPS. The Global Income Fund may enter into
interest rate and currency swaps for hedging purposes and non-hedging purposes.
The International Equity Fund may enter into currency swaps. Inasmuch as swaps
are entered into for good faith hedging purposes or are offset by a segregated
account as described below, the Fund and the Adviser believe that swaps do not
constitute senior securities as defined in the Act and, accordingly, will not
treat them as being subject to the Fund's borrowing restrictions. The net amount
of the excess, if any, of the Fund's obligations over its entitlement" with
respect to each interest rate or currency swap will be accrued on a daily basis
and an amount of cash or liquid high grade debt securities (I.E., securities
rated in one of the top three ratings categories by Moody's or S&P, or, if
unrated, deemed by the Investment Adviser to be of comparable credit quality)
having an aggregate net asset value at least equal to such accrued excess will
be maintained in a segregated account by the Fund's custodian. A Fund will not
enter into any interest rate or currency swap unless the credit quality of the
unsecured senior debt or the claims-paying ability of the other party thereto is
considered to be investment grade by the Adviser. If there is
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a default by the other party to such a transaction, the Fund will have
contractual remedies pursuant to the agreement, 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 in comparison with the markets for other similar instruments
which are traded in the interbank market.
FIXED-INCOME SECURITIES
SHORT-TERM BANK AND CORPORATE OBLIGATIONS. Commercial paper represents
short-term unsecured promissory notes issued in bearer form by banks or bank
holding companies, corporations, and finance companies. The commercial paper
purchased by the Funds consists of direct U.S. dollar-denominated obligations of
domestic issuers. Bank obligations in which the Funds may invest include
certificates of deposit, bankers' acceptances, fixed time deposits and bank
notes. Certificates of deposit are negotiable certificates issued against funds
deposited in a commercial bank for a definite period of time and earning a
specified return.
Bankers' acceptances are negotiable drafts or bills of exchange, normally
drawn by an importer or exporter to pay for specific merchandise, which are
"accepted" by a bank, meaning, in effect, that the bank unconditionally agrees
to pay the face value of the instrument on maturity. Fixed time deposits are
bank obligations payable at a stated maturity date and bearing interest at a
fixed rate. Fixed time deposits may be withdrawn on demand by the investor, but
may be subject to early withdrawal penalties which vary depending upon market
conditions and the remaining maturity of the obligation. There are no
contractual restrictions on the right to transfer a beneficial interest in a
fixed time deposit to a third party, although there is no market for such
deposits. Certain fixed time deposits maturing in more than seven days may be
deemed to be illiquid securities. Bank notes rank junior to deposit liabilities
of the bank and PARI PASSU with other senior, unsecured obligations of the bank.
Bank notes are classified as "other borrowings" on a bank's balance sheet, while
deposit notes and certificates of deposit are classified as deposits. Bank notes
are not insured by the Federal Deposit Insurance Corporation or any other
insurer. Deposit notes are insured by the Federal Deposit Insurance Corporation
only to the extent of $100,000 per depositor per bank.
VARIABLE AMOUNT MASTER DEMAND NOTES. The Funds may purchase variable amount
master demand notes. These obligations permit the investment of fluctuating
amounts at varying rates of interest pursuant to direct arrangements between the
lender and borrower and are not generally transferable nor are they ordinarily
rated. A Fund may invest in them only if the Adviser believes that the notes are
of comparable quality to the other obligations in which the Fund may invest.
VARIABLE RATE AND FLOATING RATE DEMAND INSTRUMENTS. The Funds may purchase
variable and floating rate demand instruments that are debt securities that
possess a floating or variable interest rate adjustment formula. These
instruments also permit a Fund to demand payment of the principal balance plus
unpaid accrued interest upon a specified number of days' notice to the issuer or
its agent. The demand feature may be backed by a bank letter of credit or
guarantee issued with respect to such instrument.
The terms of the variable or floating rate demand instruments that a Fund
may purchase provide that interest rates are adjustable at intervals ranging
from daily up to six months, and the adjustments are based upon current market
levels, the prime rate of a bank or other appropriate interest rate adjustment
index as provided in the respective instruments. Some of these instruments are
payable on demand on a daily basis or on not more than seven days' notice.
Others, such as instruments with quarterly or semiannual interest rate
adjustments, may be put back to the issuer on designated days on not more than
thirty days's notice. Still others are automatically called by the issuer unless
the Fund instructs otherwise. The Funds intend to exercise the demand only (1)
upon a default under the terms of the debt security, (2) as needed to provide
liquidity to the Fund, (3) to maintain the respective quality standards of a
Fund's investment portfolio, or (4) to attain a more optimal portfolio
structure.
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The Money Market Fund will determine the variable or floating rate demand
instruments that it will purchase in accordance with procedures approved by the
board of directors to minimize credit risks. Accordingly, any variable or
floating rate demand instrument must satisfy that Fund's credit criteria with
respect to both its long-term and short-term ratings except that where credit
support is provided, the Fund may rely solely upon the short-term rating of the
variable or floating rate demand instrument (I.E., the right to sell). A
variable or floating rate demand instrument that is unrated must have high
quality characteristics similar to those of other obligations rated high
quality. The Adviser may determine that an unrated variable or floating rate
demand instrument meets the Money Market Fund's quality criteria by reason of
being backed by a letter of credit or guarantee issued by a bank that meets the
quality criteria for that Fund. Thus, either the credit of the issuer of the
obligation or the guarantor bank or both will meet the quality standards of the
Fund.
The maturity of the variable or floating rate demand instruments held by any
of the Funds will ordinarily be deemed to be the longer of (1) the notice period
required before the Fund is entitled to receive payment of the principal amount
of the instrument or (2) the period remaining until the instrument's next
interest rate adjustment.
LOAN PARTICIPATION INTERESTS. The Money Market Fund may purchase
participation interests with remaining maturities of thirteen months or less in
loans of any maturity. Such loans must be to issuers in whose obligations the
Fund may otherwise invest. Any participation purchased by the Fund must be
issued by a bank in the United States with assets exceeding $1 billion. Because
the issuing bank does not guarantee the participation in any way, the
participations are subject to the credit risks generally associated with the
underlying corporate borrower. In addition, because it may be necessary under
the terms of the loan participation for the Fund to assert through the issuing
bank such rights as may exist against the underlying corporate borrower, in the
event the underlying corporate borrower fails to pay principal and interest when
due, the Fund may be subject to delays, expenses and risks that are greater than
those that would have been involved if the Fund had purchased a direct
obligation (such as commercial paper) of such borrower. Moreover, under the
terms of the loan participation the Money Market Fund may be regarded as a
creditor of the issuing bank (rather than of the underlying corporate borrower),
so that the Fund may also be subject to the risk that the issuing bank may
become insolvent. Further, in the event of the bankruptcy or insolvency of the
corporate borrower, the loan participation may be subject to certain defenses
that can be asserted by such borrower as a result of improper conduct by the
issuing bank. The secondary market, if any, for these loan participation is
limited and any such participation purchased by the Fund may be regarded as
illiquid.
The Money Market Fund does not believe that price quotations currently
obtainable from banks, dealers or pricing services consistently represent the
market values of participation interests. Therefore, the Company's accounting
servicing agent will, following guidelines established by the board of
directors, value the participation interests held by the Fund at fair value,
which approximates market value. In valuing a participation interest, the agent
will consider the following factors: (i) the characteristics of the
participation interest, including the cost, size, interest rate, period until
next interest rate reset, maturity and base lending rate of the participation
interest, the terms and conditions of the loan and any related agreements and
the position of the loan in the borrower's debt structure; (ii) the nature,
adequacy and value of the collateral, including the Fund's rights, remedies and
interests with respect to the collateral; (iii) the creditworthiness of the
borrower, based on an evaluation of its financial condition, financial
statements and information about the borrower's business, cash flows, capital
structure and future prospects; (iv) the market for the participation interest,
including price quotations for and trading in the participation interest and
similar participation interest or instruments and the market environment and
investor attitudes towards the participation interest or participation interests
generally; (v) the quality and creditworthiness of any intermediate
participants; and (vi) general economic or market conditions.
LOWER-RATED CORPORATE DEBT OBLIGATIONS. As described in the Prospectus, the
Small Cap Equity Fund may make certain investments including corporate debt
obligations that are unrated or rated in
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the lower rating categories by Standard & Poor's Corporation ("Standard &
Poor's") or by Moody's Investors Service, Inc. ("Moody's") (I.E., ratings of BB
or lower by Standard & Poor's or Ba or lower by Moody's). Bonds rated BB or Ba
or below (or comparable unrated securities) are commonly referred to as
"lower-rated" securities or as "junk bonds" and are considered speculative and
may be questionable as to principal and interest payments. In some cases, such
bonds may be highly speculative, have poor prospects for reaching investment
standing and be in default. As a result, investment in such bonds will entail
greater speculative risks than those associated with investment in
investment-grade bonds (I.E., bonds rated AAA, AA, A or BBB by Standard & Poor's
or Aaa, Aa, A or Baa by Moody's). See Appendix A for a description of the
ratings issued by investment rating services. The Small Cap Equity Fund will
limit its investments in lower-rated corporate debt obligations to less than 35%
of its total assets.
The amount of junk bond securities outstanding has proliferated in
conjunction with the increase in merger and acquisition and leveraged buyout
activity. An economic downturn could severely affect the ability of highly
leveraged issuers to service their debt obligations or to repay their
obligations upon maturity. Factors having an adverse impact on the market value
of lower rated securities will have an adverse effect on a Fund's net asset
value to the extent it invests in such securities. In addition, a Fund may incur
additional expenses to the extent it is required to seek recovery upon a default
in payment of principal or interest on its portfolio holdings.
The secondary market for junk bond securities, which is concentrated in
relatively few market makers, may not be as liquid as the secondary market for
more highly rated securities, a factor which may have an adverse effect on a
Fund's ability to dispose of a particular security when necessary to meet its
liquidity needs. Under adverse market or economic conditions, the secondary
market for junk bond securities could contract further, independent of any
specific adverse changes in the condition of a particular issuer. As a result, a
Fund's Adviser could find it more difficult to sell these securities or may be
able to sell the securities only at prices lower than if such securities were
widely traded. Prices realized upon the sale of such lower rated or unrated
securities, under these circumstances, may be less than the prices used in
calculating a Fund's net asset value.
Certain proposed and recently enacted federal laws including the required
divestiture by federally insured savings and loan associations of their
investments in junk bonds and proposals designed to limit the use, or tax and
other advantages, of junk bond securities could adversely affect a Fund's net
asset value and investment practices. Such proposals could also adversely affect
the secondary market for junk bond securities, the financial condition of
issuers of these securities and the value of outstanding junk bond securities.
The form of such proposed legislation and the probability of such legislation
being passed are uncertain.
Since investors generally perceive that there are greater risks associated
with lower-rated debt securities, the yields and prices of such securities may
tend to fluctuate more than those for higher rated securities. In the lower
quality segments of the fixed-income securities market, changes in perceptions
of issuers' creditworthiness tend to occur more frequently and in a more
pronounced manner than do changes in higher quality segments of the fixed-income
securities market resulting in greater yield and price volatility.
Another factor which causes fluctuations in the prices of fixed-income
securities is the supply and demand for similarly rated securities. In addition,
the prices of fixed-income securities fluctuate in response to the general level
of interest rates. Fluctuations in the prices of portfolio securities subsequent
to their acquisition will not affect cash income from such securities but will
be reflected in a Fund's net asset value.
Lower-rated (and comparable non-rated) securities tend to offer higher
yields than higher-rated securities with the same maturities because the
historical financial condition of the issuers of such securities may not have
been as strong as that of other issuers. Since lower rated securities generally
involve greater risks of loss of income and principal than higher-rated
securities, investors should consider carefully the relative risks associated
with investment in securities which carry lower ratings
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and in comparable non-rated securities. In addition to the risk of default,
there are the related costs of recovery on defaulted issues. The Advisers will
attempt to reduce these risks through diversification of these Funds' portfolios
and by analysis of each issuer and its ability to make timely payments of income
and principal, as well as broad economic trends in corporate developments.
ZERO COUPON BONDS. The Small Cap Equity Fund, International Equity Fund,
Growth and Income Fund and Global Income Fund may invest in zero coupon bonds
which are debt obligations that do not entitle the holder to any periodic
payments of interest prior to maturity or provide for a specified cash payment
date when the bonds begin paying current interest. As a result, zero coupon
bonds are generally issued and traded at a significant discount from their face
value. The discount approximates the present value amount of interest the bonds
would have accrued and compounded over the period until maturity.
Zero coupon bonds benefit the issuer by mitigating its initial need for cash
to meet debt service, but generally provide a higher rate of return to
compensate investors for the deferment of cash interest or principal payments.
Such securities are often issued by companies that may not have the capacity to
pay current interest and so may be considered to have more risk than current
interest-bearing securities. In addition, the market price of zero coupon bonds
generally is more volatile than the market prices of securities that provide for
the periodic payment of interest. The market prices of zero coupon bonds are
likely to fluctuate more in response to changes in interest rates than those of
interest-bearing securities having similar maturities and credit quality.
Zero coupon bonds carry the additional risk that, unlike securities that
provide for the periodic payment of interest to maturity, the Funds will realize
no cash until a specified future payment date unless a portion of such
securities is sold. If the issuer of such securities defaults, the Funds may
obtain no return at all on their investment. In addition, a Fund's investment in
zero coupon bonds may require it to sell certain of its portfolio securities to
generate sufficient cash to satisfy certain income distribution requirements.
See "Taxation" below.
MORTGAGE-BACKED AND ASSET-BACKED SECURITIES. All of the Funds may invest in
mortgage-backed securities, which represent direct or indirect participation in,
or are collateralized by and payable from, mortgage loans secured by real
property. These Funds may also invest in asset-backed securities, which
represent participation in, or are secured by and payable from, assets such as
motor vehicle installment sales, installment loan contracts, leases of various
types of real and personal property, receivables from revolving credit (I.E.,
credit card) agreements and other categories of receivables. Such assets are
securitized though the use of trusts and special purpose corporations. Payments
or distributions of principal and interest may be guaranteed up to certain
amounts and for a certain time period by a letter of credit or a pool insurance
policy issued by a financial institution unaffiliated with the trust or
corporation, or other credit enhancements may be present.
Mortgage-backed and asset-backed securities are often subject to more rapid
repayment than their stated maturity date would indicate as a result of the
pass-through of prepayments of principal on the underlying loans. A Fund's
ability to maintain positions in such securities will be affected by reductions
in the principal amount of such securities resulting from prepayments, and its
ability to reinvest the returns of principal at comparable yields is subject to
generally prevailing interest rates at that time. To the extent that a Fund
invests in mortgage-backed and asset-backed securities, the values of its
portfolio securities will vary with changes in market interest rates generally
and the differentials in yields among various kinds of U.S. Government
Securities and other mortgage-backed and asset-backed securities.
Asset-backed securities present certain additional risks that are not
presented by mortgage-backed securities because asset-backed securities
generally do not have the benefit of a security interest in collateral that is
comparable to mortgage assets. Credit card receivables are generally unsecured
and the debtors on such receivables are entitled to the protection of a number
of state and federal consumer credit laws, many of which give such debtors the
right to set-off certain amounts owed on the credit cards, thereby reducing the
balance due. Automobile receivables generally are
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secured, but by automobiles rather than residential real property. Most issuers
of automobile receivables permit the loan servicers to retain possession of the
underlying obligations. If the servicer were to sell these obligations to
another party, there is a risk that the purchaser would acquire an interest
superior to that of the holders of the asset-backed securities. In addition,
because of the large number of vehicles involved in a typical issuance and
technical requirements under state laws, the trustee for the holders of the
automobile receivables may not have a proper security interest in the underlying
automobiles. Therefore, there is the possibility that, in some cases, recoveries
on repossessed collateral may not be available to support payments on these
securities.
WARRANTS AND RIGHTS
The Select Equity Fund, Small Cap Equity Fund, International Equity Fund and
Growth and Income Fund each may invest up to 5% of its total assets, calculated
at the time of purchase, in warrants or rights (other than those acquired in
units or attached to other securities) which entitle the holder to buy equity
securities at a specific price for a specific period of time but will do so only
if such equity securities are deemed appropriate by the Adviser for investment
by the Fund. The Funds will each not invest more than 2% of their total assets,
calculated at the time of purchase, in warrants or rights which are not listed
on the New York or American Stock Exchanges. Warrants and rights have no voting
rights, receive no dividends and have no rights with respect to the assets of
the issuer.
INVESTMENT RESTRICTIONS
FUNDAMENTAL RESTRICTIONS
The following investment restrictions have been adopted by the Company as
fundamental policies for the Fund to which each applies, as shown below. A
fundamental policy is one that cannot be changed without the affirmative vote of
the holders of a majority (as defined in the Act) of the outstanding votes
attributable to the shares of a Fund. The investment objective or objectives of
each Fund and all other investment policies or practices of the Fund are
considered by the Company not to be fundamental and accordingly may be changed
by the Company's board of directors without shareholder approval. See
"Investment Objective and Policies" in the Fund's Prospectus. For purposes of
the Act, "majority" means the lesser of (a) 67% or more of the votes
attributable to shares of the Fund present at a meeting, if the holders of more
than 50% of such votes are present or represented by proxy, or (b) more than 50%
of the votes attributable to shares of the Fund.
None of the Funds may:
1. Pledge, mortgage or hypothecate its assets, except to the extent
necessary to secure permitted borrowings and to the extent related to the
deposit of assets in escrow in connection with the writing of covered put
and call options and the purchase of securities on a forward commitment or
delayed-delivery basis and collateral and initial or variation margin
arrangements with respect to currency transactions, options, futures
contracts (including those relating to indices), and options on futures
contracts or indices.
2. Purchase securities on margin, except for such short-term credits as
are necessary for the clearance of transactions, but a Fund may make margin
deposits in connection with transactions in currencies, options, futures
contracts and options on futures contracts.
3. Sell securities short or maintain a short position except for short
sales against the box.
4. Underwrite securities issued by others, except to the extent that
the sale of portfolio securities by a Fund may be deemed to be underwriting.
5. Purchase, hold or deal in real estate (including real estate limited
partnerships) or oil, gas or mineral leases, although a Fund may purchase
and sell securities that are secured by real estate or interests therein and
may purchase mortgage-related securities and securities issued by real
estate investment trusts and may hold and sell real estate acquired for the
Fund as a result of the ownership of securities.
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6. Invest in commodities except that a Fund may purchase and sell
futures contracts, including those relating to securities, currencies and
indices, and options on futures contracts, securities, currencies or
indices, and purchase and sell currencies or securities on a forward
commitment or delayed-delivery basis as described in the Prospectus.
7. Lend any money or other assets except through the purchase of all or
a portion of an issue of securities or obligations of the type in which the
Fund may invest. However, a Fund may lend its portfolio securities in an
amount not to exceed one-third of the value of its total assets.
8. Issue any senior security (as such term is defined in Section 18(f)
of the Act) except as otherwise permitted under these fundamental investment
restrictions.
9. Alone or together with any other of the Funds, make investments for
the purpose of exercising control over, or management of, any issuer.
10. Borrow money except from banks for temporary or short-term purposes
and then only if each maintains asset coverage of at least 300% for such
borrowings. For purposes of this investment restriction, transactions in
currency, swaps, options, futures contracts, including those relating to
indices, forward contracts, options on futures contracts or indices and
forward commitment transactions shall not constitute borrowing. None of the
Funds will purchase securities when such borrowings exceed 5% of its assets.
Fund-specific restrictions:
11(a). Each of the Funds other than the Money Market Fund may not
invest more than 25% of the value of its total assets in the securities of
issuers conducting their principal business activities in the same industry.
This limitation does not apply to U.S. Government Securities.
11(b). The Money Market Fund will not purchase securities if such
purchase would cause more than 25% of its total assets to be invested in the
securities of one or more issuers having their principal business activities
in the same industry. This limitation, however, will not apply to U.S.
Government Securities, obligations (other than commercial paper) issued or
guaranteed by U.S. banks and U.S. branches of foreign banks, and repurchase
agreements and securities loans collateralized by U.S. Government Securities
or such bank obligations. (For the purposes of this restriction, telephone
companies are considered to be a separate industry from water, gas, or
electric utilities, personal credit finance companies and business credit
finance companies are considered separate industries and wholly-owned
finance companies are considered to be in the industries of their parents if
their activities are primarily related to financing the activities of their
parents.)
12. The Money Market Fund, Select Equity Fund and the Growth and Income
Fund each may not, as to 75% of the total assets of each at the time of
purchase, purchase the securities of any issuer if more than 5% of the value
of the Fund's total assets would be invested in such securities.
NON-FUNDAMENTAL RESTRICTIONS
In addition to the investment restrictions mentioned above, the directors of
the Company have adopted certain non-fundamental restrictions for each Fund as
shown below. Non-fundamental restrictions represent the current intentions of
the Company's board of directors and they differ from fundamental investment
restrictions in that they may be changed or amended by the board of directors
without prior notice to or approval of shareholders.
None of the Funds (except the Global Income Fund) may:
1. Purchase the securities of any issuer if by such purchase the Fund
would own more than 10% of the outstanding voting securities of such issuer.
Fund specific restrictions:
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2. The Select Equity Fund, Small Cap Equity Fund, International Equity
Fund and Growth and Income Fund will each not write covered calls or put
options with respect to more than 25% of the value of its net assets, invest
more than 25% of its net assets in puts, calls, spreads or straddles, or any
combination thereof other than protective put options. The aggregate value
of premiums paid on all options held by one of these Funds at any time will
not exceed 20% of the Fund's total net assets.
3(a). The International Equity Fund and the Global Income Fund each
will not invest (a) more than 15% or its net assets in illiquid investments,
including repurchase agreements maturing in more than seven days, securities
that are not readily marketable and restricted securities not eligible for
resale pursuant to Rule 144A under the Securities Act of 1933 (the "1933
Act"); (b) more than 10% of its total assets in securities which are
restricted under the 1933 Act, excluding securities eligible for resale
pursuant to Rule 144A or foreign securities which are offered or sold
outside the United States in accordance with Regulation S under the 1933
Act; or (c) more than 15% of its nets assets in restricted securities
(including those eligible for resale under Rule 144A).
3(b). The Select Equity Fund, Small Cap Equity Fund and Growth and
Income Fund will each not invest (a) more than 15% or its net assets in
illiquid investments, including repurchase agreements maturing in more than
seven days, securities that are not readily marketable and restricted
securities not eligible for resale pursuant to Rule 144A under the 1933 Act;
(b) more than 5% of its total assets in securities which are restricted
under the 1933 Act, excluding securities eligible for resale pursuant to
Rule 144A or foreign securities which are offered or sold outside the United
States in accordance with Regulation S under the 1933 Act; or (c) more than
15% of its net assets in restricted securities (including those eligible for
resale under Rule 144A).
3(c). The Money Market Fund will not invest in illiquid securities,
including certain repurchase agreements or time deposits maturing in more
than seven days, if, as a result thereof, more than 10% of the value of its
total assets would be invested in assets that are either illiquid or are not
readily marketable.
4. The Small Cap Equity Fund, International Equity Fund and the Global
Income Fund each may not, as to 75% of the total assets of each at the time
of purchase, purchase the securities of any issuer if more than 10% of the
value of the Fund's total assets would be invested in such securities.
5. The International Equity Fund and the Global Income Fund will each
not invest in foreign issuers unless after such investment issuers in at
least the following number of different countries are represented in the
Fund's portfolio: if up to 40% of the Fund's total assets are invested in
foreign issuers, two foreign countries; if between 40% and 60% of the Fund's
total assets are invested in foreign issuers, three foreign countries; if
between 60% and 80% of the Fund's total assets are invested in foreign
issuers, four foreign countries; and if over 80% of the Fund's total assets
are invested in foreign issuers, five foreign countries.
INTERPRETIVE RULES
For purposes of the foregoing limitations, any limitation which involves a
maximum percentage will not be violated unless an excess over the percentage
occurs immediately after, and is caused by, an acquisition or encumbrance of
securities or assets of, or borrowings by, a Fund. In addition, with regard to
exceptions recited in a restriction, a Fund may only rely on an exception if its
investment objective(s) or policies (as disclosed in the Prospectus) otherwise
permit it to rely on the exception.
INVESTMENT MANAGER
Investment Distributors Advisory Services, Inc. ("IDASI"), 2801 Highway 280
South, Birmingham, Alabama 35223, is the investment manager of the Company and
its Funds. IDASI is a wholly-owned subsidiary of Protective Life Corporation
("PLC"), an insurance holding company whose
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common stock is traded on the New York Stock Exchange. PLC's principal operating
subsidiary is Protective Life Insurance Company, a stock life insurance company
which maintains its administrative offices in Birmingham, Alabama. Protective
Life was incorporated in Alabama in 1907 and changed its state of domicile from
Alabama to Tennessee in 1992. Protective Life's principal business is the
writing of individual and group life and health insurance contracts, annuity
contracts, and guaranteed investment contracts.
The Investment Manager has no direct previous experience in providing
management services for investment companies; however, its officers, most of
whom are officers of Protective Life, have extensive experience in the
development and distribution of investment products, particularly guaranteed
investment contracts. In addition, the Investment Manager has retained the
Advisers, entities that have extensive experience managing the assets of
investment companies, pension plans and other clients, to manage the investment
and reinvestment of the Funds' assets.
INVESTMENT MANAGEMENT AGREEMENT
The Investment Manager has entered into an investment management agreement,
dated March 3, 1994, with the Company under which the Investment Manager assumes
overall responsibility, subject to the supervision of the Company's board of
directors, for administering all operations of the Company and for monitoring
and evaluating the management of the assets of each of the Funds by the Advisers
on an ongoing basis. The Investment Manager provides or arranges for the
provision of the overall business management and administrative services
necessary for the Company's operations and furnishes or procures any other
services and information necessary for the proper conduct of the Company's
business. The Investment Manager also acts as liaison among, and supervisor of,
the various service providers to the Company, including the custodian, transfer
agent, and accounting services agent and to its own administration agent that
performs services for the Company on its behalf. The Investment Manager is also
responsible for overseeing the Company's compliance with the requirements of
applicable law and in conformity with each Fund's investment objective(s),
policies and restrictions, including oversight of the Advisers.
For its services to the Company, the Investment Manager receives a monthly
management fee. The fee is deducted daily from the assets of each of the Funds
and paid to the Investment Manager monthly. The fee for each Fund is based on
the average daily net assets of the Fund at the following annual rates: Money
Market Fund .60%, Select Equity Fund .80%, Small Cap Equity Fund .80%,
International Equity Fund 1.10%, Growth and Income Fund .80%, and Global Income
Fund 1.10%.
The investment management agreement does not place limits on the operating
expenses of the Company or of any Fund. However, the Investment Manager has
voluntarily undertaken to pay any such expenses (but not including brokerage or
other portfolio transaction expenses or expenses of litigation, indemnification,
taxes or other extraordinary expenses) to the extent that such expenses, as
accrued for each Fund, exceed the following percentages of that Fund's average
daily net assets on an annualized basis: Protective Money Market Fund, .60%;
Protective Select Equity Fund, .80%; Protective Small Cap Equity Fund, .80%;
Protective International Equity Fund, 1.10%; Protective Growth and Income Fund,
.80%; and Protective Global Income Fund, 1.10%. This reduction of expenses will
increase the yield or total return of the Funds for any period for which it
remains in effect. The Investment Manager may withdraw this undertaking to pay
expenses as to any or all of the Funds upon 120 days notice to the Company.
The investment management agreement provides that the Investment Manager may
render similar services to others so long as the services that it provides
thereunder are not impaired thereby. The investment management agreement also
provides that the Investment Manager shall not be liable for any error of
judgment or mistake of law or for any loss arising out of any investment or for
any act or omission in the management of the Company, except for (i) willful
misfeasance, bad faith or gross negligence in the performance of its duties or
by reason of reckless disregard of its duties or
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obligations under the investment management agreement, and (ii) to the extent
specified in Section 36(b) of the Act concerning loss resulting from a breach of
fiduciary duty with respect to the receipt of compensation.
The investment management agreement was approved for each Fund by the
directors of the Company, including a majority of the directors of the Company
who are not parties to the investment advisory agreement or "interested persons"
(as such term is defined in the Act) of any party thereto (the "non-interested
directors"), on February 8, 1994, and by the sole initial shareholder of the
Fund on March 2, 1994. The investment management agreement will remain in effect
from year to year provided such continuance is specifically approved as to each
Fund at least annually by (a) the vote of a majority of the votes attributable
to shares of the Fund or a majority of the directors of the Company, and (b) the
vote of a majority of the non-interested directors of the Company, cast in
person at a meeting called for the purpose of voting on such approval. The
investment management agreement will terminate automatically if assigned (as
defined in the Act) and is terminable as to any Fund at any time without penalty
by the directors of the Company or by vote of a majority of the votes
attributable to outstanding voting securities of the applicable Fund on 60 days'
written notice to the Investment Manager and by the Investment Manager on 60
days' written notice to the Company.
EXPENSES OF THE COMPANY
The company incurs certain operating and general administrative expenses in
addition to the Investment Manager's fee. These expenses, which are accrued
daily, include but are not limited to: taxes; expenses for legal and auditing
services; costs of printing; charges for custody services; transfer agent fees,
if any; expenses of redemption of shares; expense of registering shares under
federal and state securities laws; accounting costs; insurance; interest;
brokerage costs, and other expenses properly payable by the Company.
In general, each Fund is charged for the expenses incurred in its operations
as well as for a portion of the Company's general administrative expenses,
allocated on the basis of the asset size of the respective Funds, or by the
board of directors as appropriate. Expenses other than the Investment Manager's
fee that are borne directly and paid individually by a Fund include, but are not
limited to, brokerage commissions, dealer markups, taxes, custody fees, and
other costs properly payable by the Fund. Expenses which are allocated among the
Funds include, but are not limited to, directors' fees and expenses, independent
accountant fees, transfer agent fees, expenses of redemption, insurance costs,
legal fees, and all other costs of operation properly payable by the Company.
INVESTMENT ADVISERS
INVESTMENT ADVISERS
Goldman Sachs Asset Management, 32 Old Slip, New York, New York 10005, a
separate operating division of Goldman Sachs, acts as the investment adviser of
the Money Market Fund, Select Equity Fund, Small Cap Equity Fund and Growth and
Income Fund. Goldman Sachs Asset Management International, 140 Fleet Street,
London EC4A 2BJ England, an affiliate of Goldman Sachs, acts as the investment
adviser to the International Equity Fund and the Global Income Fund. Both
Goldman Sachs and GSAMI are registered with the SEC as investment advisers. As
of January 31, 1994, the Advisers, together with their affiliates, acted as
investment adviser, administrator or distributor for approximately $49.9 billion
in assets.
Founded in 1869, Goldman Sachs is among the oldest and largest investment
banking firms in the United States. Goldman Sachs is a leader in developing
portfolio strategies and in many fields of investing and financing,
participating in financial markets worldwide and serving individuals,
institutions, corporations and governments. Goldman Sachs is among the principal
market sources for current and thorough information on companies, industrial
sectors, markets, economies and currencies, and trades and makes markets in a
wide range of equity and debt securities 24-hours a day. The firm is
headquartered in New York and has offices throughout the United States and in
Frankfurt, George Town, Hong Kong, London, Madrid, Milan, Montreal, Osaka,
Paris, Singapore, Sydney, Taipei,
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Tokyo, Toronto and Zurich. It has trading professionals throughout the United
States, as well as in London, Tokyo, Hong Kong and Singapore. The active
participation of Goldman Sachs in the world's financial markets enhances its
ability to identify attractive investments.
The Advisers are able to draw on the substantial research and market
expertise of Goldman Sachs, whose investment research effort is one of the
largest in the industry. With an annual equity research budget approaching $130
million, Goldman Sachs's Investment Research Department covers approximately
1,600 companies, including approximately 900 U.S. corporations in 60 industries.
The in-depth information and analyses generated by Goldman Sachs's research
analysts are available to the Advisers. For more than a decade, Goldman Sachs
has been among the top-ranked firms in INSTITUTIONAL INVESTOR'S annual
"All-America Research Team" survey. In addition, many of Goldman Sachs's
economists, securities analysts, portfolio strategists and credit analysts have
consistently been highly ranked in respected industry surveys conducted in the
U.S. and abroad. Goldman Sachs is also among the leading investment firms using
quantitative analysis (now used by a growing number of investors) to structure
and evaluate portfolios.
In connection with the Fund's investments in foreign securities and related
transactions in foreign currencies, the Adviser has access to Goldman Sachs's
economics team, based in London, which is internationally recognized for its
skill in currency forecasting and international economics.
The fixed-income research capabilities of Goldman Sachs available to each of
the Advisers include the Goldman Sachs Fixed-Income Research Department and the
Credit Department. The Fixed-Income Research Department monitors developments in
U.S. and foreign fixed-income markets, assesses the outlooks for various sectors
of the markets and provides relative value comparisons, as well as analyzes
trading opportunities within and across market sectors. The Fixed-Income
Research Department is at the forefront in developing and using computer-based
tools for analyzing fixed-income securities and markets, developing new
fixed-income products and structuring portfolio strategies for investment policy
and tactical asset allocation decisions. The Credit Department tracks specific
governments, regions and industries and from time to time may review the credit
quality of a Fund's investments.
In addition to fixed-income research and credit research, both Advisers are
supported by Goldman Sachs's economics research. The Economics Research
Department conducts economic, financial and currency markets research which
analyzes economic trends and interest and exchange rate movements worldwide. The
Economics Research Department tracks factors such as inflation and money supply
figures, balance of trade figures, economic growth, commodity prices, monetary
and fiscal policies, and political events that can influence interest rates and
currency trends. The success of Goldman Sachs's international research team has
brought wide recognition to its members. The team has earned top rankings in the
INSTITUTIONAL INVESTOR annual "All British Research Team Survey" in the
following categories: Economics (U.K.) 1986-1991; Economics/International
1989-1990; and Currency Forecasting 1986-1990. In addition, the team has also
earned top rankings in the annual "extel Financial Survey" of U.K. investment
managers in the following categories: U.K. Economy 1989-1993; International
Economies 1986, 1988-1993; and Currency Movements 1986-1993.
In allocating assets in a Fund's portfolio among currencies, the Advisers
will have access to the global asset allocation model developed by Dr. Fischer
Black and Robert Litterman, Co-head of Goldman Sachs's Research and Model
Development Group. The model is based on the observation that the prices of all
financial assets, including foreign currencies, will adjust until investors
globally are comfortable holding the pool of outstanding assets. Using the
model, the Advisers will estimate the total returns from each currency sector
which are consistent with the average investor holding a portfolio equal to the
market capitalization of the financial assets among those currency sectors.
These estimated equilibrium returns are then combined with Goldman Sachs's
research professionals' expectations to produce an optimal currency and asset
allocation for the level of risk suitable for a
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Fund's investment objective and criteria. In allocating a Fund's assets among
currencies, the Advisers will also have access to Goldman Sachs's economics
team, which is internationally recognized for its skill in currency forecasting
and international economics.
The multifactor model has been used by Goldman Sachs and its institutional
clients since it was first developed in 1987 and became proprietary to GSAM in
1989. The model is a computerized system that is extremely comprehensive; it
evaluates each stock in terms of its value, yield, growth, momentum, risk and
liquidity characteristics. The model ranks each security on the recommended list
and in the secondary group according to 12 diverse factors that are widely
recognized as important performance indicators. Based on the results of this
approach, approximately 50 of the top-ranked stocks are selected for the Select
Equity Fund's portfolio.
As of September 30, 1993, approximately $2.1 billion in assets are managed
using the multifactor model, including approximately $1.7 billion in equity
assets managed by the Adviser and its affiliates. The Adviser believes that
Select Equity Fund is the only vehicle currently available to insurance product
investors that combines a quantitative multifactor model with traditional
research recommendations.
The Co-heads of the research department and the Stock Selection Committee at
Goldman Sachs decide which securities will be included on the recommended list
from which Select Equity Fund selects its portfolio securities. The Stock
Selection Committee will consider, among other things, economic data, earnings
estimates, market data and a security's fundamental characteristics in selecting
stocks for the recommended list. A simpler procedure is followed for determining
which securities not on the recommended list should be added to or removed from
the secondary group. This determination is based solely on an assessment by an
individual analyst in the research department of whether a security is likely to
outperform the relevant market.
INVESTMENT ADVISORY AGREEMENTS
Each Adviser has entered into an investment advisory agreement, dated March
2, 1994, with the Investment Manager in connection with each Fund it advises.
Under the agreements, the Adviser, subject to the general supervision of the
Company's board of directors, manages the investment portfolio of each Fund.
Under the investment advisory agreements, the Advisers are responsible for
making investment decisions for the Funds and for placing the purchase and sale
orders for the portfolio transactions of each Fund. In this capacity, the
Advisers obtain and evaluate appropriate economic, statistical, timing, and
financial information and formulates and implements investment programs in
furtherance of each Fund's investment objective(s).
As compensation for its services to the Funds on behalf of the Investment
Manager, the Advisers receive a monthly fee from the Investment Manager based on
the average daily net assets of each Fund at the following annual rates:
Protective Money Market Fund .35% of the first $50 million, .25% of the next
$100 million, .20% of the next $100 million, and .15% of assets in excess of
$250 million; Protective Select Equity Fund, Protective Small Cap Equity
Fund, and Protective Growth and Income Fund, .40% of the first $50 million,
.30% of the next $150 million, and .20% of assets in excess of $200 million;
Protective International Equity Fund and Protective Global Income Fund, .40%
of the first $50 million, .30% of the next $100 million, .25% of the next
$100 million, and .20% of the assets in excess of $250 million.
The Funds' investment advisory agreements each provide that the Advisers may
render similar services to others so long as the services that they provide
thereunder are not impaired thereby.
The investment advisory agreement for each Fund was approved by the
directors of the Company, including a majority of the directors of the Company
who are not parties to the investment advisory agreement or "interested persons"
(as such term is defined in the Act) of any party thereto (the "non-interested
directors"), on February 8, 1994, and by the sole initial shareholder of the
Fund on
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March 2, 1994. The foregoing agreements will remain in effect until March 2,
1996 and from year to year thereafter provided such continuance is specifically
approved at least annually by (a) the vote of a majority of the votes
attributable to shares of the Fund or a majority of the directors of the
Company, and (b) the vote of a majority of the non-interested directors of the
Company, cast in person at a meeting called for the purpose of voting on such
approval. The investment advisory agreements will each terminate automatically
if assigned (as defined in the Act) and each is terminable at any time without
penalty by the directors of the Company or by vote of a majority of the votes
attributable to outstanding voting securities of the applicable Fund on 60 days'
written notice to the Adviser and by the Adviser on 60 days' written notice to
the Company.
GSAM and GSAMI and their affiliates may manage, or have proprietary
interests in, accounts with similar or the same investment objectives as the
Funds. Such accounts may be in competition with the Funds for investments.
Investment decisions for such accounts are based on criteria relevant to such
accounts; portfolio decisions and results of a Fund's investments may differ
from those of such other accounts. There is no obligation to make available for
use in managing the Funds any information or strategies used or developed in
managing such accounts. In addition, when two or more accounts seek to purchase
or sell the same assets, the assets actually purchased or sold may be allocated
among accounts on a good faith equitable basis at the discretion of the
account's adviser. In some cases, this system may adversely affect the price or
size of the position obtainable for a Fund. See "Portfolio Transactions and
Brokerage."
If determined by the Adviser to be beneficial to the interests of a Fund,
partners and employees of Goldman Sachs may serve on investment advisory
committees, which will consult with the Adviser regarding investment objectives
and strategies for the Funds. In connection with serving on such a committee,
such persons may receive information regarding the Fund's proposed investment
activities which is not generally available to unaffiliated market participants,
and there will be no obligation on the part of such persons to make available
for use in managing the Fund any information or strategies known to them or
developed in connection with their other activities.
It is possible that a Fund's holdings will include securities of entities
for which Goldman Sachs performs investment banking services as well as
securities of entities in which Goldman Sachs makes a market. From time to time,
Goldman Sachs's activities may limit a Fund's flexibility in purchases and sales
of securities. For example, when Goldman Sachs is engaged in an underwriting or
other distribution of securities of an entity, the Adviser may be prohibited
from purchasing or recommending the purchase of certain securities of that
entity for the Fund.
PORTFOLIO TRANSACTIONS AND BROKERAGE
The Advisers are responsible for decisions to buy and sell securities for
the Funds, the selection of brokers and dealers to effect the transactions and
the negotiation of brokerage commissions, if any. Purchases and sales of
securities on a securities exchange are effected through brokers who charge a
negotiated commission for their services. Orders may be directed to any broker
including, to the extent and in the manner permitted by applicable law, Goldman
Sachs.
In the over-the-counter market, securities are generally traded on a "net"
basis with dealers acting as principal for their own accounts without a stated
commission, although the price of a security usually includes a profit to the
dealer. In underwritten offerings, securities are purchased at a fixed price
which includes an amount of compensation to the underwriter, generally referred
to as the underwriter's concession or discount. On occasion, certain money
market instruments may be purchased directly from an issuer, in which case no
commissions or discounts are paid. The Company will not deal with Goldman Sachs
in any transaction in which Goldman Sachs acts as principal.
In placing orders for portfolio securities of a Fund, its Adviser is
required to give primary consideration to obtaining the most favorable price and
efficient execution. This means that the Adviser will seek to execute each
transaction at a price and commission, if any, which provide the most
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favorable total cost or proceeds reasonably attainable in the circumstances.
While the Adviser generally seeks reasonably competitive spreads or commissions,
the Funds will not necessarily be paying the lowest spread or commission
available. Within the framework of this policy, the Advisers will consider
research and investment services provided by brokers or dealers who effect or
are parties to portfolio transactions of the Funds, the Advisers and their
affiliates, or other clients of the Advisers or their affiliates. Such research
and investment services are those which brokerage houses customarily provide to
institutional investors and include statistical and economic data and research
reports on particular companies and industries. Such services are used by the
Advisers in connection with all of their investment activities, and some of such
services obtained in connection with the execution of transactions for the Funds
may be used in managing other investment accounts. Conversely, brokers
furnishing such services may be selected for the execution of transactions of
such other accounts, whose aggregate assets are far larger than those of the
Funds, and the services furnished by such brokers may be used by the Advisers in
providing investment advisory services for the Funds. On occasions when the
Adviser deems the purchase or sale of a security to be in the best interest of a
Fund as well as its other advisory clients (including any other fund or other
investment company or advisory account for which the Adviser or an affiliate
acts as investment adviser), the Adviser, to the extent permitted by applicable
laws and regulations, may aggregate the securities to be sold or purchased for
the Fund with those to be sold or purchased for such other customers in order to
obtain the best net price and most favorable execution. In such event,
allocation of the securities so purchased or sold, as well as the expenses
incurred in the transaction, will be made by the Adviser in the manner it
considers to be most equitable and consistent with its fiduciary obligations to
the Fund and such other customers. In some instances, this procedure may
adversely affect the price and size of the position obtainable for a Fund.
Commission rates are established pursuant to negotiations with the broker
based on the quality and quantity of execution services provided by the broker
in the light of generally prevailing rates. The allocation of orders among
brokers and the commission rates paid are reviewed periodically by the board of
directors of the Company.
Subject to the above considerations, the Advisers may use Goldman Sachs as a
broker for the Funds. In order for Goldman Sachs to effect any portfolio
transactions for a Fund, the commissions, fees or other remuneration received by
Goldman Sachs must be reasonable and fair compared to the commissions, fees or
other remuneration paid to other brokers in connection with comparable
transactions involving similar securities being purchased or sold on a
securities exchange during a comparable period of time. This standard would
allow Goldman Sachs to receive no more than the remuneration which would be
expected to be received by an unaffiliated broker in a commensurate arm's-length
transaction. Furthermore, the board of directors of the Company, including a
majority of the non-interested directors, have adopted procedures which are
reasonably designed to provide that any commissions, fees or other remuneration
paid to Goldman Sachs are consistent with the foregoing standard. Brokerage
transactions with Goldman Sachs are also subject to such fiduciary standards as
may be imposed upon Goldman Sachs by applicable law.
In addition, although Section 11(a) of the Securities Exchange Act of 1934
provides that member firms of a national securities exchange may not effect
transactions on such exchange for the account of an investment company of which
the member firm or its affiliate is the investment adviser, except pursuant to
the requirements of that Section. The Company's board of directors has adopted
procedures designed to insure compliance with the requirements of Section 11(a).
In this regard, Goldman Sachs will provide the Company at least annually with a
statement setting forth the total amount of all compensation retained by Goldman
Sachs in connection with effecting transactions for the accounts of each Fund.
The board of directors of the Company will review and approve all of each Fund's
portfolio transactions with Goldman Sachs and the compensation received by
Goldman Sachs in connection therewith.
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DETERMINATION OF NET ASSET VALUE
Under the Act, the board of directors of the Company is responsible for
determining in good faith the fair value of securities of each Fund. In
accordance with procedures adopted by the board of directors of the Company, the
net asset value per share is calculated by determining the net worth of each
Fund (assets, including securities at market value, minus liabilities) divided
by the number of that Fund's outstanding shares. All securities are valued as of
the close of regular trading on the New York Stock Exchange. Each Fund will
compute its net asset value once daily at the close of such trading (normally
4:00 p.m. New York time), on each day (as described in the Prospectus) that the
Company is open for business.
In the event that the New York Stock Exchange or the national securities
exchange on which stock options are traded adopt different trading hours on
either a permanent or temporary basis, the board of directors of the Company
will reconsider the time at which net asset value is computed. In addition, the
Funds may compute their net asset value as of any time permitted pursuant to any
exemption, order or statement of the SEC or its staff.
Portfolio assets of the Funds (other than the Money Market Fund) are valued
as follows:
(a) securities and other investments listed on any U.S. or foreign stock
exchange or the National Association of Securities Dealers Automated
Quotation System ("NASDAQ") are valued at the last sale price on that
exchange or NASDAQ on the valuation day; if no sale occurs, securities
traded on a U.S. exchange or NASDAQ are valued at the mean between the
closing bid and closing asked prices and securities traded on a foreign
exchange will be valued at the official bid price (the last sale price
and official bid price for securities traded principally on a foreign
exchange will be determined as of the close of the London Foreign
Exchange);
(b) over-the-counter securities not quoted on NASDAQ are valued at the last
sale price on the valuation day or, if no sale occurs, at the mean
between the last bid and asked prices;
(c) debt securities with a remaining maturity of 61 days or more are valued
on the basis of dealer-supplied quotations or by a pricing service
selected by the Adviser and approved by the board of directors of the
Company if those prices are deemed by the Adviser to be representative of
market values at the close of business of the New York Stock Exchange;
(d) options and futures contracts are valued at the last sale price on the
market where any such option or futures contracts is principally traded;
(e) over-the-counter options are valued based upon prices provided market
makers in such securities or dealers in such currencies.
(f) forward foreign currency exchange contracts are valued based upon
quotations supplied by dealers in such contracts;
(g) all other securities and other assets, including those for which a
pricing service supplies no quotations or quotations are not deemed by
the Adviser to be representative of market values, but excluding debt
securities with remaining maturities of 60 days or less, are valued at
fair value as determined in good faith pursuant to procedures established
by the board of directors of the Company; and
(h) debt securities with a remaining maturity of 60 days or less will be
valued at their amortized cost which approximates market value.
Portfolio securities traded on more than one U.S. national securities
exchange or foreign securities exchange are valued at the last sale price on
each business day at the close of the exchange representing the principal market
for such securities. The value of all assets and liabilities expressed in
foreign currencies will be converted into U.S. dollar values at the mean between
the buying and
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selling rates of such currencies against U.S. dollars last quoted by any major
bank. If such quotations are not available, the rate of exchange will be
determined in good faith by or under procedures established by the board of
directors of the Company.
Trading in securities on European and Far Eastern securities exchanges and
on over-the-counter markets is normally completed well before the close of
business on each business day. In addition, European or Far Eastern securities
trading generally or in a particular country or countries may not take place on
all business days. Furthermore, trading takes place in Japanese markets on
certain Saturdays and in various foreign markets on days which are not business
days for the Company and days on which the Funds' net asset value is not
calculated. Such calculation does not take place contemporaneously with the
determination of the prices of the majority of the portfolio securities used in
such calculation. Events affecting the values of portfolio securities that occur
between the time their prices are determined and the close of regular trading on
the New York Stock Exchange will not be reflected in a Fund's calculation of net
asset values unless the Adviser deems that the particular event would materially
affect net asset value, in which case an adjustment will be made.
All of the assets of the Money Market Fund are valued on the basis of
amortized cost in an effort to maintain a constant net asset value of per share
$1.00. The Company's board of directors has determined that to be in the best
interests of the Money Market Fund and its shareholders. Under the amortized
cost method of valuation, securities are valued at cost on the date of their
acquisition, and thereafter a constant accretion of any discount or amortization
of any premium to maturity is assumed, regardless of the impact of fluctuating
interest rates on the market value of the security. While this method provides
certainty in valuation, it may result in periods in which value as determined by
amortized cost is higher or lower than the price the Fund would receive if it
sold the security. During such periods, the quoted yield to investors may differ
somewhat from that obtained by a similar fund or portfolio which uses available
market quotations to value all of its portfolio securities.
The Company's board of directors has established procedures reasonably
designed, taking into account current market conditions and the Money Market
Fund's investment objective, to stabilize the net asset value per share for
purposes of sales and redemptions at $1.00. These procedures include review by
the board, at such intervals as it deems appropriate, to determine 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
should exceed one half of one percent, the board will promptly consider
initiating corrective action. If the board believes that the extent of any
deviation from a $1.00 amortized cost price per share may result in material
dilution or other unfair results to new or existing shareholders, it will take
such steps as it considers appropriate to eliminate or reduce these consequences
to the extent reasonably practicable. Such steps may include: selling portfolio
securities prior to maturity; shortening the average maturity of the portfolio;
withholding or reducing dividends; or utilizing a net asset value per share
determined from available market quotations. Even if these steps were taken, the
Money Market Fund's net asset value might still decline.
PERFORMANCE INFORMATION
The Company may from time to time quote or otherwise use average annual
total return information for the Funds in advertisements, shareholder reports or
sales literature. Average annual total return values are computed pursuant to
equations specified by the SEC.
Average annual total return for a specified period is derived by calculating
the actual dollar amount of the investment return on a $1,000 investment in a
Fund made at the beginning of the period, and then calculating the annual
compounded rate of return which would produce that amount, assuming a redemption
at the end of the period. This calculation assumes a complete redemption of the
investment. It also assumes that all dividends and distributions are reinvested
at net asset value on the reinvestment dates during the period.
The Company also may from time to time quote or otherwise use year-by-year
total return, cumulative total return and yield information for the Funds in
advertisements, shareholder reports or
31
<PAGE>
sales literature. Year-by-year total return and cumulative total return for a
specified period are each derived by calculating the percentage rate required to
make a $1,000 investment in a Fund (assuming that all distributions are
reinvested) at the beginning of such period equal to the actual total value of
such investment at the end of such period.
Yield is computed by dividing net investment income earned during a recent
30 day period by the product of the average daily number of shares outstanding
and entitled to receive dividends during the period and the price per share on
the last day of the relevant period. The results are compounded on a bond
equivalent (semi-annual) basis and then annualized. Net investment income per
share is equal to the dividends and interest earned during the period, reduced
by accrued expenses for the period. The calculation of net investment income for
these purposes may differ from the net investment income determined for
accounting purposes.
Any performance data quoted for a Fund will represent historical performance
and the investment return and principal value of an investment will fluctuate so
that an investor's shares, when redeemed, may be worth more or less than
original cost.
From time to time the Company may publish an indication of the Funds' past
performance as measured by independent sources such as (but not limited to)
Lipper Analytical Services, Incorporated, Weisenberger Investment Companies
Service, Donoghue's Money Fund Report, Barron's, Business Week, Changing Times,
Financial World, Forbes, Fortune, Money, Personal Investor, Sylvia Porter's
Personal Finance and The Wall Street Journal. The Company may also advertise
information which has been provided to the NASD for publication in regional and
local newspapers. In addition, the Company may from time to time advertise its
performance relative to certain indices and benchmark investments, including:
(a) the Lipper Analytical Services, Inc. Mutual Fund Performance Analysis,
Fixed-Income Analysis and Mutual Fund Indices (which measure total return and
average current yield for the mutual fund industry and rank mutual fund
performance); (b) the CDA Mutual Fund Report published by CDA Investment
Technologies, Inc. (which analyzes price, risk and various measures of return
for the mutual fund industry); (c) the Consumer Price Index published by the
U.S. Bureau of Labor Statistics (which measures changes in the price of goods
and services); (d) Stocks, Bonds, Bills and Inflation published by Ibbotson
Associates (which provides historical performance figures for stocks, government
securities and inflation); (e) the Hambrecht & Quist Growth Stock Index; (f) the
NASDAQ OTC Composite Prime Return; (g) the Russell Midcap Index; (h) the Russell
2000 Index -- Total Return; (i) the ValueLine Composite-Price Return; (j) the
Wilshire 4500 Index; (k) the Salomon Brothers' World Bond Index (which measures
the total return in U.S. dollar terms of government bonds, Eurobonds and foreign
bonds of ten countries, with all such bonds having a minimum maturity of five
years); (l) the Shearson Lehman Brothers Aggregate Bond Index or its component
indices (the Aggregate Bond Index measures the performance of Treasury, U.S.
Government agencies, mortgage and Yankee bonds); (m) the S&P Bond indices (which
measure yield and price of corporate, municipal and U.S. Government bonds); (n)
the J.P. Morgan Global Government Bond Index; (o) Donoghue's Money Market Fund
Report (which provides industry averages of 7-day annualized and compounded
yields of taxable, tax-free and U.S. Government money market funds); (p) other
taxable investments including certificates of deposit, money market deposit
accounts, checking accounts, savings accounts, money market mutual funds and
repurchase agreements; (q) historical investment data supplied by the research
departments of Goldman Sachs, Lehman Brothers, First Boston Corporation, Morgan
Stanley (including EAFE), Salomon Brothers, Merrill Lynch, Donaldson Lufkin and
Jenrette or other providers of such data; (r) the FT-Actuaries Europe and
Pacific Index; (s) mutual fund performance indices published by Variable Annuity
Research & Data Service; and (t) mutual fund performance indices published by
Morningstar, Inc. The composition of the investments in such indices and the
characteristics of such benchmark investments are not identical to, and in some
cases are very different from, those of a Fund's portfolio. These indices and
averages are generally unmanaged and the items included in the calculations of
such indices and averages may be different from those of the equations used by
the Company to calculate a Fund's performance figures.
32
<PAGE>
The Company may from time to time summarize the substance of discussions
contained in shareholder reports in advertisements and publish the Advisers'
views as to markets, the rationale for a Fund's investments and discussions of
the Fund's current asset allocation.
From time to time, advertisements or information may include a discussion of
certain attributes or benefits to be derived by an investment in a particular
Fund. Such advertisements or information may include symbols, headlines or other
material which highlight or summarize the information discussed in more detail
in the communication.
Such performance data will be based on historical results and will not be
intended to indicate future performance. The total return or yield of a Fund
will vary based on market conditions, portfolio expenses, portfolio investments
and other factors. The value of a Fund's shares will fluctuate and an investor's
shares may be worth more or less than their original cost upon redemption. The
Company may also, at its discretion, from time to time make a list of a Fund's
holdings available to investors upon request.
SHARES OF STOCK
The Company was incorporated in Maryland on September 2, 1993. The
authorized capital stock of the Company consists of 1 billion (1,000,000,000)
shares, par value one-tenth of one per cent ($0.001) per share. Six hundred
million (600,000,000) of the authorized shares have been divided into and may be
issued in six designated classes as follows: Money Market Series, 100,000,000
shares; Select Equity Series, 100,000,000 shares; Small Cap Equity Series,
100,000,000 shares; International Equity Series, 100,000,000 shares; Growth and
Income Series 100,000,000 shares; and, Global Income Series, 100,000,000 shares.
The shares of each class represent fractional undivided interests in an
investment portfolio of the Company corresponding to that class. The board of
directors of the Company have authority, subject to certain limitations, under
the Company's Charter to create and classify shares of capital stock in
additional separate series and to reclassify existing series of stock into one
or more different new classes without further action by shareholders.
Each issued and outstanding share is entitled to participate equally in
dividends and distributions declared for the respective class and, upon
liquidation or dissolution, in net assets allocated to such class remaining
after satisfaction of outstanding liabilities. The shares of each class, when
issued, will be fully paid and non-assessable and have no preemptive or
conversion rights.
Rule 18f-2 under the Act provides that any matter required to be submitted
by the provisions of the Act, applicable state law or otherwise to the holders
of the outstanding voting securities of an investment company such as the
Company shall not be deemed to have been effectively acted upon unless approved
by the holders of a majority of the outstanding shares of each class or series
affected by such matter. Rule 18f-2 further provides that a class or series
shall be deemed to be affected by a matter unless the interests of each class or
series in the matter are substantially identical or the matter does not affect
any interest of such class or series. However, Rule 18f-2 exempts the selection
of independent public accountants, the approval of principal underwriting
contracts and the election of directors from the separate voting requirements of
Rule 18f-2.
Protective Life provided the initial capital for each of the Company's Funds
by purchasing stock of each class in the following amounts: Money Market Fund,
$500,000; Select Equity Fund, $1,000,000; Small Cap Equity Fund, $1,000,000;
International Equity Fund, $3,000,000; Growth and Income Fund, $1,000,000; and
Global Income Fund, $3,000,000. Such shares were acquired for investment and can
only be disposed of by redemption. As of the date of this Statement, Protective
Life was the only record or beneficial holder of the Company's shares.
Under normal circumstances, subject to the reservation of rights explained
above, the Company will redeem shares of the Funds in cash within seven days.
However, the right of a shareholder to redeem shares and the date of payment by
the Company may be suspended for more than seven days for any period during
which the New York Stock Exchange is closed, other than the customary
33
<PAGE>
weekends or holidays, or when trading on such Exchange is restricted as
determined by the SEC; or during any emergency, as determined by the SEC, as a
result of which it is not reasonably practicable for a Fund to dispose of
securities owned by it or fairly to determine the value of its net assets; or
for such other period as the SEC may by order permit for the protection of
shareholders.
CUSTODY OF ASSETS
Pursuant to a custody agreement with the Company, State Street Bank and
Trust Company ("State Street"), 225 Franklin Street, Boston, Massachusetts
02110, holds the cash and portfolio securities of the Company as custodian.
State Street is responsible for holding all securities and cash of each
Fund, receiving and paying for securities purchased, delivering against payment
securities sold, and receiving and collecting income from investments, making
all payments covering expenses of the Company, all as directed by persons
authorized by the Company. State Street does not exercise any supervisory
function in such matters as the purchase and sale of portfolio securities,
payment of dividends, or payment of expenses of the Funds or the Company.
Portfolio securities of the Funds purchased domestically are maintained in the
custody of State Street and may be entered into the Federal Reserve, Depository
Trust Company, or Participant's Trust Company book entry systems. Pursuant to
the Custody Agreement, portfolio securities purchased outside the United States
will be maintained in the custody of various foreign branches of State Street
and such other custodians or subcustodians, including foreign banks and foreign
securities depositories, as are approved by the board of directors of the
Company, in accordance with regulations under the Act.
State Street holds securities of the Funds on which call options have been
written and certain assets of the Funds constituting margin deposits with
respect to financial futures contracts at the disposal of the futures commission
merchants ("FCMs") through which such transactions are effected. The Funds may
also be required to post margin deposits with respect to covered call and put
options written on stock indices and for this purpose certain assets of those
Funds may be held by the custodian pursuant to similar arrangements with the
brokers involved.
This arrangement regarding margin deposits essentially consists of State
Street creating a separate segregated account into which it transfers (upon the
Company's instructions) assets from a Fund's general (regular) custodial
account. The custody agreement for such arrangement provides that FCMs or
brokers will have access to the funds in the segregated accounts when and if the
FCMs or brokers represent that the Company has defaulted on its obligation to
the FCMs or brokers and that the FCMs or brokers have met all the conditions
precedent to their right to receive such funds under the agreement between the
Company and the FCMs or brokers. The Company has an agreement with each FCM or
broker which provides (1) that the assets of any Fund held by the FCM or broker
will be in the possession of State Street until released or sold or otherwise
disposed of in accordance with or under the terms of such agreement, (2) that
such assets would not otherwise be pledged or encumbered by the FCM or broker,
(3) that when requested by the Company the FCM or broker will cause State Street
to release to its general custody account any assets to which a Fund is entitled
under the terms of such agreement, and (4) that the assets in the segregated
account shall otherwise be used only to satisfy the Company's obligations to the
FCM or broker under the terms of such agreement.
If on any day a Fund experiences net realized or unrealized gains with
respect to financial futures contracts or covered options on stock indices held
through a given FCM or broker, it is entitled immediately to receive from the
FCM or broker, and usually will receive by the next business day, the net amount
of such gains. There upon, such assets will be deposited in its general or
segregated account with State Street, as appropriate.
34
<PAGE>
DIRECTORS AND OFFICERS
The directors and officers of the Company are listed below together with
their respective positions with the Company and a brief statement of their
principal occupations during the past five years.
<TABLE>
<CAPTION>
NAME AND ADDRESS POSITION WITH THE COMPANY, PRINCIPAL OCCUPATIONS AND OTHER AFFILIATIONS
- ------------------------- ---------------------------------------------------------------------------------------
<S> <C>
R. Stephen Briggs* Director and President. Executive Vice President, Protective Life Corporation (since
October, 1993).**
D. Warren Bailey Director.
Doretta Milligan Director, President and Chief Executive Officer, Protective Equity Services, Inc.
(since March, 1994).
G. Ruffner Page, Jr. Director.
Cleophus Thomas, Jr. Director.
Richard J. Bielen* Vice President and Compliance Officer. Vice President, Protective Life Corporation
(since July 1991).**
Lizabeth R. Nichols Vice President, Secretary and Chief Compliance Officer
<FN>
- ------------------------
* "Interested Person" of the Company for purposes of the Act. The address of
Interested Persons of the Company is the same as that of Protective Life
Corporation.
** These are the most current titles and positions for these persons at
Protective Life Corporation. Each has held various positions with Protective
Life Corporation over the past five years. The address of Protective Life
Corporation is 2801 Highway 280 South, Birmingham, Alabama 35223.
</TABLE>
As of the date of this Statement, no director or officer beneficially owns
more than 1% of the outstanding stock of any class of the Company.
OTHER INFORMATION
INDEPENDENT ACCOUNTANTS
Coopers & Lybrand an international public accounting firm, has served since
inception of Protective Investment Company as its independent accountants.
Responsibility for the audit is assigned to the firm's office located at One
Post Office Square, Boston, Massachusetts 02109.
LEGAL COUNSEL
Sutherland, Asbill & Brennan, 1275 Pennsylvania Avenue, N.W., Washington,
D.C. 20004-2404, is counsel to the Company.
OTHER INFORMATION
The Prospectus and this Statement do not contain all the information
included in the registration statement filed with the SEC under the 1933 Act
with respect to the securities offered by the Prospectus. Certain portions of
the registration statement have been omitted from the Prospectus and this
Statement pursuant to the rules and regulations of the SEC. The registration
statement including the exhibits filed therewith may be examined at the office
of the SEC in Washington, D.C.
Statements contained in the Prospectus or in this Statement 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 the
Prospectus and this Statement form parts, each such statement being qualified in
all respects by such reference.
35
<PAGE>
APPENDIX A
DESCRIPTION OF CORPORATE BOND AND PREFERRED STOCK RATINGS
AND COMMERCIAL PAPER (1)
DESCRIPTION OF MOODY'S INVESTORS SERVICE, INC.'S CORPORATE BOND RATINGS
AAA: Bonds which are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to as
"gilt edge". Interest payments are protected by a large or by an exceptionally
stable margin and principal is secure. While the various protective elements are
likely to change, such changes as can be visualized are most unlikely to impair
the fundamentally strong position of such issues.
AA: Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally known as
high grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities or fluctuation of protective
elements may be of greater amplitude or there may be other elements present
which make the long-term risks appear somewhat larger than in Aaa securities.
A: Bonds which are rated A possess many favorable investment attributes and
are to be considered as upper medium grade obligations. Factors giving security
to principal and interest are considered adequate, but elements may be present
which suggest a susceptibility to impairment sometime in the future.
BAA: Bonds which are rated Baa are considered a medium grade obligation,
I.E., they are neither highly protected nor poorly secured. Interest payments
and principal security appear adequate for the present but certain protective
elements may be lacking or maybe characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
BA: Bonds which are rated Ba are judged to have speculative elements and
their future cannot be considered as well assured. Often the protection of
interest and principal payments may be very moderate and thereby not well
safe-guarded during both good and bad times over the future. Uncertainty of
position characterizes bonds in this class.
B: Bonds which are rated B generally lack characteristics of a desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
CAA: Bonds which are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal or
interest principal or interest.
CA: Bonds which are rated Ca represent obligations which are speculative in
a high degree. Such issues are often in default or have other marked
shortcomings.
UNRATED: Where no rating has been assigned or where a rating has been
suspended or withdrawn, it may be for reasons unrelated to the quality of the
issue.
Should no rating be assigned, the reason may be one of the following:
1. An application for rating was not received or accepted.
- ------------------------
(1) The rating systems described herein are believed to be the most recent
ratings systems available from Moody's Investors Service, Inc. ("Moody's")
and Standard & Poor's Corporation ("S&P") at the date of this Statement for
the securities listed. Ratings are generally given to securities at the time
of issuance. While the rating agencies may from time to time revise such
ratings, they undertake no obligations to do so, and the ratings indicated
do not necessarily represent ratings which will be given to these securities
on the date of the Fund's fiscal year end.
36
<PAGE>
2. The issue or issuer belongs to a group of securities or companies that
are not rated as a matter of policy.
3. There is a lack of essential data pertaining to the issue or issuer.
4. The issue was privately placed, in which case the rating is not
published in Moody's publications.
Suspension or withdrawal may occur if new and material circumstances arise,
the effects of which preclude satisfactory analysis; if there is no longer
available reasonable up-to-date data to permit a judgment to be formed; if a
bond is called for redemption; or for other reasons.
NOTE: Those bonds in the Aa, A and Baa groups which Moody's believe possess
the strongest investment attributes are designated by the symbols Aa1, A1 and
Baa1.
DESCRIPTION OF STANDARD & POOR'S CORPORATION'S
CORPORATE BOND RATINGS
AAA: Bonds rated AAA have the highest rating assigned by S&P. Capacity to
pay interest and repay principal is extremely strong.
AA: Bonds rated AA have a very strong capacity to pay interest and repay
principal and differ from the higher rated issues only in small degree.
A: Bonds rated A have a very strong capacity to pay interest and repay
principal although they are somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions than bonds in higher rated
categories.
BBB: Bonds rated BBB are regarded as having an adequate capacity to pay
interest and repay principal. Whereas they normally exhibit adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
bonds in this category than in higher rated categories.
BB-B-CCC-CC: Bonds rated BB, B, CCC and CC are regarded, on balance, as
predominantly speculative with respect to the issuer's capacity to pay interest
and repay principal in accordance with the terms of the obligation. BB indicates
the lowest 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.
PLUS (+) OR MINUS (-): The ratings from "AA" to "BBB" may be modified by
the addition of a plus or minus sign to show relative standing within the major
rating categories.
UNRATED: Indicates that no public rating has been requested, that there is
insufficient information on which to base a rating, or that S&P does not rate a
particular type of obligation as a matter of policy.
NOTES: Bonds which are unrated expose the investor to risks with respect to
capacity to pay interest or repay principal which are similar to the risks of
lower-rated speculative obligations. The Fund is dependent on the Adviser's
judgment, analysis and experience in the evaluation of such bonds.
DESCRIPTION OF CERTAIN COMMERCIAL PAPER RATINGS
STANDARD & POOR'S
Commercial paper rated A by S&P has the following characteristics: Liquidity
ratios are adequate to meet cash requirements. Long-term senior debt is rated
"A" or better, although in some cases "BBB" credits may be allowed. The issuer
has access to at least two additional channels of borrowing. Basic earnings and
cash flow have an upward trend with allowance made for unusual circumstances.
Typically, the issuer's industry is well established and the issuer has a strong
position within the
37
<PAGE>
industry. The reliability and quality of management are unquestioned. The rating
is described by S&P as the investment grade category, the highest rating
classification. Relative strength or weakness of the above factors determine
whether the issuer's commercial paper is rated A-1, A-2 or A-3.
MOODY'S
Among the factors considered by Moody's in assigning commercial paper
ratings are the following: (1) evaluation of the management of the issuer; (2)
economic evaluation of the issuer's industry or industries and an appraisal of
speculative-type risks which may be inherent in certain areas; (3) evaluation of
the issuer's products in relation to competition and customer acceptance; (4)
liquidity; (5) amount and quality of long-term debt; (6) trend of earnings over
a period of ten years; (7) financial strength of a parent company and the
relationships which exist with the issuer; (8) recognitions by the management of
obligations which may be present or may arise as a result of public interest
questions and preparations to meet such obligations. Relative differences in
strengths and weaknesses in respect of these criteria establish a rating in one
of three classifications. The rating Prime-1 is the highest commercial paper
rating assigned by Moody's. Its other two ratings, Prime-2 and Prime-3 are
designated Higher Quality and High Quality, respectively.
FITCH INVESTORS SERVICE, INC.
Fitch's short-term ratings apply to debt obligations that are payable on
demand or have original maturities of up to three years, including commercial
paper, certificates of deposit, medium-term notes, and municipal and investment
notes.
<TABLE>
<S> <C>
F-1+: Exceptionally Strong Credit Quality. Issues assigned this rating are regarded
as having the strongest degree of assurance for timely payment.
F-1: Very Strong Credit Quality. Issues assigned this rating reflect an assurance
of timely payment only slightly less in degree than issues rated "F-1+".
</TABLE>
DUFF & PHELPS
Commercial Paper/Certificates of Deposits
Category 1: Top Grade
<TABLE>
<S> <C>
Duff 1 Highest certainty of timely payment. Short-term liquidity including internal
plus: operating factors and/or ready access to alternative sources of funds, is
clearly outstanding, and safety is just below risk-free U.S. Treasury
short-term obligations.
Duff 1: Very high certainty of timely payment. Liquidity factors are excellent and
supported by strong fundamental protection factors. Risk factors are minor.
Notes: Bonds which are unrated may expose the investor to risks with respect to
capacity to pay interest or repay principal which are similar to the risks of
lower-rated bonds. The Fund is dependent on the Investment Adviser's
judgment, analysis and experience in the evaluation of such bonds.
Investors should note that the assignment of a rating to a bond by a rating
service may not reflect the effect of recent developments on the issuer's
ability to make interest and principal payments.
</TABLE>
IBCA LIMITED AND ICBA INC.
A-1: Short-term obligations rated A-1 are supported by very strong
capacity for timely repayment. A plus ("+") sign is added to those
issues determined to possess the highest capacity for timely repayment.
A-2: Short-term obligations rated A-2 are supported by a strong
capacity for timely repayment, although such capacity may be susceptible
to adverse changes in business, economic or financial conditions.
38
<PAGE>
THOMPSON BANKWATCH, INC.
The TBW short-term ratings apply only to unsecured instruments that have a
maturity of one year or less and specifically assess the likelihood of an
untimely payment of principal and interest.
TBW-1: The highest category; indicates a very high degree of likelihood
that principal and interest will be paid on a timely basis.
TBW-2: The second highest category; while the degree of safety
regarding timely repayment of principal and interest is strong, the
relative degree of safety is not as high as for issues rated TBW-1.
CREDIT RATINGS FOR GOVERNMENT BONDS
The following table shows the credit rating assigned by Moody's Investors
Service, Inc. and Standard & Poor's Corporation to the government bonds of
various countries.
<TABLE>
<CAPTION>
COUNTRY MOODY'S S&P
- --------------- --------- ---------
<S> <C> <C>
USA Aaa AAA
Japan Aaa AAA
Germany Aaa AAA
Italy A1 AA
France Aaa AAA
UK Aaa AAA
Canada Aaa AA+
Belgium Aa1 AA+
Denmark Aa1 AA+
Sweden Aa2 A+
Switzerland Aaa AAA
Netherlands Aaa AAA
Spain Aa2 AA
Australia Aa2 AA
</TABLE>
Certain governments listed above carry an implied rating by Moody's and/or
S&P. Information is as of January 13, 1994 for Moody's and as of January, 1994
for S&P.
39
<PAGE>
APPENDIX B
COUNTRY SUMMARIES
As stated in the prospectus, certain of the Funds may invest in securities
issued by foreign issuers and denominated in foreign currencies and engage in
certain foreign currency transactions. The following summaries are designed to
provide a brief general discussion of the economic and certain other conditions
of each of these countries. The summaries are presented in alphabetical order.
The information in these summaries has been derived from sources that the
Adviser believes to be reliable, but has not been independently verified. In
some cases the data are seasonally adjusted. Except as otherwise noted below,
currency exchange rate is a period average.
Because the Protective Global Income Fund may invest more than 25% of its
total assets in securities of issuers located, in addition to the United States,
in each of Canada, Germany, Japan and the United Kingdom additional information
about their bond markets is provided in their respective summaries. In addition,
more than 25% of that Fund's total assets, adjusted to reflect currency
transactions and positions, may be denominated in any currency.
Although the countries for which summaries are provided below generally have
developed and industrialized economies, they are subject to periods of economic
or political instability. For example, efforts by the member countries of the
European Community to eliminate internal barriers to the free movement of goods,
persons, services and capital have encountered opposition arising from the
conflicting economic, political and cultural interests and traditions of the
member countries and their citizens. The reunification of the former German
Democratic Republic (East Germany) with the Federal Democratic Republic of
Germany (West Germany) has caused considerable economic and social dislocations.
The efforts of the German central bank to control domestic inflation associated
with reunification costs by raising interest rates has adversely affected the
economies of other European countries whose currencies are linked to the German
deutschemark. Such events can materially affect securities markets and have also
disrupted the relationship of such currencies with each other and with the U.S.
dollar. Similarly, events in the Japanese economy as well as social development
may affect Japanese and other Asian securities and currency markets. In Japan, a
deflation in the market values of Japanese real estate and equity securities and
the resulting instability in the Japanese banking system, have had adverse
effects on the economies of both Japan and its regular trading partners. Future
political and economic developments can be expected to produce continuing
effects on securities and currency markets.
AUSTRALIA. The currency is the Australian dollar (December 1993: AUD 1.4725
= $1 U.S.). Gross National Product was AUD 395.3 billion ($290.3 billion) in
1992. The current account balance in foreign trade in 1992 was a deficit of AUD
14.6 billion ($10.7 billion), which was 3.7% of GNP. The annual rate of
inflation was 0.98% in 1992. The average rate of inflation over the three years
ending in 1992 was 3.8%. Australia is a major power in the Southeast Pacific
with close ties to Japan and Southeast Asia. Iron, steel, textiles, electrical
equipment, chemicals, autos, aircraft, ships, machinery, cattle and wool are
chief industries.
AUSTRIA. The currency is the Austrian schilling (December 1993: ATS 12.210
= $1 U.S.). Gross Domestic Product was ATS 2,046.0 billion ($186.2 billion) in
1992. The 1992 current account balance in foreign trade was a deficit of ATS 7.6
billion ($0.7 billion), which was 0.4% of GDP. The annual rate of inflation in
1992 was 4.1%. The average rate of inflation over the three years ending 1992
was 3.6%. Steel, machinery, autos, electrical and optical equipment, glassware,
sport goods, paper, textiles, chemicals and cement are the chief industries.
Austria produces most of its food as well as an array of industrial products.
Stock market capitalization was ATS 230 billion at the end of December 1992
as compared to ATS 259 billion at the end of 1991. The Creditanstalt Share
Index, which is based on 25 Austrian stocks
40
<PAGE>
quoted on the Vienna Stock Exchange which account for 65% of the total par value
officially listed and for 90% of share turnover, was 502.26, 418.98 and 348.46
at year-end 1990, 1991 and 1992, respectively.
BELGIUM. The currency is the Belgian franc (December 1993: BEF 36.15 = $1
U.S.). Gross Domestic Product was BEF 6,997 billion ($217.7 billion) in 1992.
The current account balance in foreign trade in 1992 was a surplus of BEF 203.5
billion ($6.3 billion), which was 2.9% of GDP. The annual rate of inflation was
2.4% in 1992. The average rate of inflation over the three years ending 1992 was
3.0%. Steel, glassware, diamond cutting, textiles and chemicals are important
industries.
At the end of 1992 and 1991, market capitalization (in ECU millions) for the
main market in domestic equities was 53,098.21 and 53,321.00, respectively,
which was a decrease of 0.42%. The Belgian General Return Index, which comprises
all Belgian shares and is adjusted for dividends and increases in capital, was
4,963.81, 5,481.43 and 5,568.08 at year-end 1990, 1991 and 1992, respectively.
CANADA. The currency is the Canadian dollar (December 1993: CAD 1.3238 = $1
U.S.). Gross Domestic Product was CAD 688.5 billion ($569.7 billion) in 1992.
The current account balance in foreign trade in 1991 was a deficit of CAD 27.7
($22.9 billion), which was 4.0% of the GNP. The annual rate of inflation in 1992
was 1.5%. The average rate of inflation for the three years ending 1992 was
4.0%.
CANADIAN BOND MARKETS. As of the year end 1991, the Canadian Bond Market
had 445 billion Canadian dollars outstanding. The market has two major domestic
sectors. The largest of these is the federal government market which has 197
billion Canadian dollars outstanding. The Provencial debt market has 168 billion
Canadian dollars outstanding. In the 1991-92 financial year total government
debt outstanding was 82% of GNP.
DENMARK. The currency is the Danish krone (December 1993: DKK 6.7793 = $1
U.S.). Gross Domestic Product was $143.10 billion in 1992. The current account
balance in 1992 was a surplus of DKK 27.4 billion ($4.5 billion), which was 3.2%
of GDP. The annual rate of inflation was 2.1% in 1992. The average rate of
inflation over the three years ending 1992 was 2.4%. Machinery, textiles,
furniture, electronics and dairy are the chief industries.
At the end of 1992 and 1991, market capitalization (in ECU millions) for the
main market in domestic equities was 27,084.90 and 33,533.60, respectively,
which was a decrease of 19.23%. The KFX Index, the share index of the Copenhagen
Stock Exchange, which is calculated on the basis of the values of all shares
listed on the Copenhagen Stock Exchange was 315.00, 352.56 and 261.58 at year-
end 1990, 1991 and 1992, respectively.
FINLAND. The currency is the Finnish markka (December 1993: FIM 5.7912 = $1
U.S.). Gross Domestic Product was FIM 510.6 billion ($113.8 billion) in 1992.
The current account balance in foreign trade in 1992 was a deficit of FIM 20.0
billion ($4.9 billion), which was 4.3% of GDP. The annual rate of inflation was
2.9% in 1992. The average rate of inflation over the three years ending 1992 was
4.4%. Machinery, metal, ship building, textiles and clothing are the chief
industries.
At the end of 1992 and 1991, market capitalization (in ECU millions) for the
main market in domestic equities was 9,864.60 and 11,721.10, respectively, which
was a decrease of 15.84%. The Helsinki Stock Exchange share price index (HEXZ),
which includes all share series quoted on the Helsinki Stock Exchange, was
1,000.00, 781.84 and 829.00 at year-end 1990, 1991 and 1992, respectively.
FRANCE. The currency is the French franc (December 1993: FRF 5.9090 = $1
U.S.) Gross Domestic Product was FRF 7,125.4 billion ($1,346.4 billion) in 1992.
The current account balance in foreign trade in 1992 was a surplus of FRF 14.7
billion ($2.8 billion), which was 0.2% of GDP. The annual rate of inflation was
2.3% in 1992. The average rate of inflation over the three years ending 1992 was
3.0%. Steel, chemicals, autos, textiles, wine, perfume, aircraft and electronic
equipment are the chief industries.
41
<PAGE>
At the end of 1992 and 1991, market capitalization (in ECU millions) for the
main market in domestic equities was 271,795.60 and 267,953.30, respectively,
which was an increase of 1.43%. The CAC General Index, which is compiled from
the values of over 250 stocks, was 415.80, 476.66 and 484.49 at year-end 1990,
1991 and 1992, respectively.
GERMANY. The currency is the German deutschemark (December 1993: GDM 1.7365
= $1 U.S.). Gross Domestic Product was GDM 2,766.8 billion ($1,771.9 billion) in
1992. The current account balance in foreign trade in 1992 was a deficit of GDM
39.1 billion ($25.1 billion), which was 1.4% of the GDP. The annual rate of
inflation in 1992 was 4.0%. The average rate of inflation for the three years
ending 1992 was 3.4%.
At the end of 1992 and 1991, market capitalization (in ECU millions) for the
main market in domestic equities was 273,033.60 and 277,191.60, respectively,
which was a decrease of 1.50%. The German Stock Index, DAX, which comprises 30
selected German blue chip stocks, was 1,339.23, 1,577.98 and 1,545.05 at
year-end 1990, 1991 and 1992, respectively.
GERMAN BOND MARKETS. The German public bond market has three primary
sectors: the federal government market; the bank bond market; and the corporate
bond market which includes domestically issued and Eurodeutschemark issues. As
of the end of 1991, the total amount of public debt outstanding was GDM 2200
billion of which GDM 643 billion represents federal debt. The bank bond market
is large, with approximately GDM 1000 billion outstanding. There is also an
almost equal amount of borrowing in the form of Schuldscheinderlein, although
these are loans rather than securities. The GDM Eurobond market is the primary
market for both domestic corporate borrowers and supranational, sovereign, and
foreign corporate borrowers. There is approximately GDM 242 billion outstanding
in International GDM bonds. There are currently three exchanges listing futures
on deutschemark financial instruments.
GREECE. The currency is the Greek drachma (December 1993: GDR 249.35 = $1
U.S.). Gross Domestic Product was GDR 15,218 billion ($79.8 billion) in 1992.
The current account balance in foreign trade in 1992 was a deficit of GDR
2,529.9 billion (13.3 billion), which was 16.6% of the GDP. The annual rate of
inflation in 1992 was 15.8%. The average rate of inflation for the three years
ending 1992 was 18.6%. Agriculture, tourism, textiles and shipping are the chief
industries.
At the end of 1992 and 1991, market capitalization (in ECU millions) for the
main market in domestic equities was 7,804.30 and 9,983.30, respectively, which
was a decrease of 21.83%. The Greek share price index, ASE, which takes into
account capital increases as a result of new issues, share splits, reverse
splits and capitalization of the excess value of fixed assets, was 932.00,
809.71 and 672.31 at year-end 1990, 1991 and 1992, respectively.
IRELAND. The currency is the Irish punt (December 1993: IRP 0.70980 = $1
U.S.). Gross Domestic Product was IRP 28.6 billion ($48.7 billion) in 1992. The
trade balance in 1992 was a surplus of IRP 3.46 billion ($5.8 billion), which
was 12.0% of the GDP. The annual rate of inflation in 1992 was 3.0%. The average
rate of inflation for the three years ending 1992 was 3.2%. Agriculture, paper,
machinery and textiles are the chief industries.
At the end of 1992 and 1991, market capitalization (in ECU millions) for the
main market in domestic equities was 8,881.40 and 9,548.80, respectively, which
was a decrease of 6.99%.
ITALY. The currency is the Italian lira (December 1993: ITL 1,713.06 = $1
U.S.). Gross Domestic Product was ITL 1,507.2 trillion ($1,222.6 billion) in
1992. The current account balance in foreign trade in 1992 was a deficit of ITL
32,735 billion ($20.9 billion), which was 2.2% of GDP. The annual rate of
inflation was 6.3% in 1992. The average rate of inflation over the three years
ending 1992 was 6.4%. Steel, machinery, autos, textiles, shoes, machine tools
and chemicals are the chief industries.
42
<PAGE>
At the end of 1992 and 1991, market capitalization (in ECU millions) for the
main market in domestic equities was 95,478.20 and 115,295.60, respectively,
which was a decrease of 17.19%. The Milan Stock Exchange current index, which is
based on the prices of all listed shares, was 750.0, 981.0 and 884.0 at year-end
1990, 1991 and 1992, respectively.
JAPAN. The currency is the Japanese yen (December 1993: Yen 111.61 = $1
U.S.). Gross Domestic Product was Yen 464.8 trillion ($3,670 billion) in 1992.
The current account balance in foreign trade in 1992 was a surplus of US $116.4
billion, which was 3.2% of the GDP. The annual rate of inflation in 1992 was
1.7%. The average rate of inflation for the three years ending 1992 was 2.7%.
Japan is a highly industrialized nation with a population in excess of 120
million people.
At the end of 1992 and 1991, total market value of shares listed on the
Tokyo Stock Exchange was $2,263 billion and $2,912 billion, respectively, which
was a decrease of 22.27%. The Nikkei stock average, which is calculated on a
formula similar to that used for the Dow Jones average in the United States, was
23,848.71, 22,983.77 and 16,924.95 at year-end 1990, 1991 and 1992,
respectively.
JAPANESE BOND MARKETS. The Japanese government bond market is the second
largest government bond market behind the United States. Over the last few years
both the government and private bond markets have been substantially reformed
and deregulated. While many of the market's new characteristics have corollaries
in other markets there are many more unique characteristics that must be
understood in order to effectively trade Japanese bonds. The Japanese government
bond market is divided into five sectors distinguished by the maturity of the
bonds being issued. As of August 1992, the total amount of Japanese government
bonds outstanding was 164,200 billion yen. There is a very pronounced liquidity
tiering in the secondary market for government bonds, with the long-term sector
of the market accounting for 90% of all trades. The Euroyen market, established
in 1977, allows highly rated supranational, sovereign and corporate entities to
issue yen-denominated debt outside Japan. As of the end of 1990, there are
approximately 13,095 billion yen in Euroyen bonds outstanding. Derivative
instruments (including futures contracts and options thereon) are traded on the
Tokyo Stock Exchange, the London International Financial Futures Exchange and
the Tokyo Financial Futures Exchange.
LUXEMBOURG. The currency is the Luxembourg franc which is identical in
value to the Belgian franc (December 1993: LUF 36.15 = $1 U.S.). Gross Domestic
Product was LUF 337.5 billion ($10.5 billion) in 1992. The annual rate of
inflation was 3.1% in 1992. The average rate of inflation over the three years
ending 1992 was 3.3%. Steel, chemicals, beer, tires, tobacco, metal products and
cement are the chief industries.
At the end of 1992 and 1991, market capitalization (in ECU million) for the
main market in domestic equities was 9,854.49 and 8,432.40, respectively, which
was an increase of 16.88%. The Domestic Share Price Index comprises nine
securities and was 2,302.86, 2,377.71 and 2,140.68 at year-end 1990, 1991 and
1992, respectively.
NETHERLANDS. The currency is the Dutch guilder (December 1993; NLG 1.94090
= $1 U.S.). Gross Domestic Product was NGL 536.9 billion ($287.0 billion) in
1992. The current account balance in foreign trade in 1992 was a surplus of NLG
11.8 billion ($6.7 billion), which was 2.2% of GDP. The annual rate of inflation
was 3.3% in 1992. The average rate of inflation over the three years ending 1992
was 3.3%. Metals, machinery, chemicals, oil refinery, diamond cutting,
electronics and tourism are the chief industries.
At the end of 1992 and 1991, market capitalization (in ECU millions) for the
main market in domestic equities was 141,704.00 and 126,710.60, respectively,
which was an increase of 11.83%.
NORWAY. The currency is the Norwegian kronor (December 1993: NOK 7.5187 =
$1 U.S.). Gross Domestic Product was NOK 698.3 billion ($112.4 billion) in 1992.
The current account balance in foreign trade during 1992 was a surplus of NOK
17.8 billion ($2.9 billion), which was 2.5% of GDP.
43
<PAGE>
The annual rate of inflation was 2.4% in 1992. The average rate of inflation
over the three years ending 1992 was 3.3%. Engineering, metals, chemical, food
processing, fishing, paper, shipbuilding and oil and gas are the chief
industries.
At the end of 1992 and 1991, market capitalization (in ECU millions) for the
main market in domestic equities was 14,803.30 and 16,463.20, respectively,
which was a decrease of 10.08%. The Oslo Stock Exchange Index, which comprises
approximately 50 stocks, was 446.61, 413.55 and 372.12 at year-end 1990, 1991
and 1992, respectively.
PORTUGAL. The currency is the Portuguese escudo (December 1993: PES 176.62
= $1 U.S.). Gross Domestic Products was PES 11,296.2 billion ($83.8 billion) in
1992. The current account balance in foreign trade in 1992 was a deficit of PES
28.8 billion ($0.2 billion), which was 0.3% of the GDP. The annual rate of
inflation in 1992 was 8.9%. The average rate of inflation for the three years
ending 1992 was 11.2%. Fishing, agriculture, tourism and engineering are the
chief industries.
At the end of 1992 and 1991, market capitalization (in ECU millions) for the
Lisbon Stock Exchange in domestic equities was 7,201.59 and 6,982.38,
respectively, which was an increase of 3.14%. The Banco Totta & Acores Share
Index comprises about one-third of the listed companies on the exchange and was
2,129.80, 1,977.7 and 1,637.9 at year-end 1990, 1991 and 1992, respectively.
SPAIN. The currency is the Spanish peseta (December 1993: ESP 116.09 = $1
U.S.). Gross Domestic Product was ESP 59,934.7 billion ($585.3 billion) in 1992.
The current account balance in foreign trade in 1992 was a deficit of ESP
2,516.7 billion ($24.6 billion), which was 4.2% of GDP. The annual rate of
inflation was 5.9% in 1992. The average rate of inflation over the three years
ended 1992 was 6.2%. Machinery, steel, textiles, shoes, autos and processed
foods are the chief industries.
At the end of 1992 and 1991, market capitalization (in ECU millions) for the
main market in domestic equities was 96,317.12 and 100,875.90, respectively,
which was a decrease of 13.13%. The Madrid Index, which is comprised of 94
Spanish securities and represents over 80% of exchange capitalization, was
222.15, 246.24 and 214.25 at year-end 1990, 1991 and 1992, respectively.
SWEDEN. The currency is the Swedish krona (December 1993; SEK 8.3309 = $1
U.S.). Gross Domestic Product was SEK 1,457.4 billion ($250.0 billion) in 1992.
The current account balance in foreign trade in 1992 was a deficit of SEK 28.1
billion ($4.8 billion), which was 1.9% of GDP. The annual rate of inflation was
2.2% in 1992. The average rate of inflation over the three years ended 1992 was
7.4%. Steel, machinery, instruments, autos, shipbuilding, shipping and paper are
the chief industries.
At the end of 1992 and 1991, market capitalization (in ECU millions) for the
main market in domestic equities was 63,099.70 and 74,777.60, respectively,
which was a decrease of 15.62%. The Stockholm Stock Exchange All-Share Index, SX
General, comprises all shares listed on the A1 and A2 lists and is weighted for
the market value of each company. The index was 865,912.15 and 912.07 at
year-end 1990, 1991 and 1992, respectively.
SWITZERLAND. The currency is the Swiss franc (April 1993; CHF 1.4850 = $1
U.S.). Gross Domestic Product was CHF 338.4 billion ($240.7 billion) in 1992.
The current account balance in foreign trade in 1992 was a surplus of CHF 21.2
billion ($15.0 billion), which was 6.3% of GDP. The annual rate of inflation was
4.1% in 1992. The average rate of inflation over the three years ended 1992 was
5.1%. Machinery, machine tools, steel, instruments, watches, textiles,
foodstuffs (cheese, chocolate), chemicals, drugs, banking and tourism are the
chief industries.
At the end of 1992 and 1991, market capitalization (in ECU millions) for the
main market in domestic equities was 161, 875.70 and 130,003.20 respectively,
which was an increase of 24.52%. The Swiss Market Index, which contains the 22
stocks which are permanently traded and covers about 45% of market
capitalization, was 908.30, 1,052.80 and 1,238.60 at year-end 1990, 1991 and
1992, respectively.
44
<PAGE>
UNITED KINGDOM. The currency is the British pound sterling (December 1993;
BPS 0.6759 = $1 U.S.). Gross Domestic Product was BPS 516.4 billion ($906.2
billion) in 1992. The current account balance in foreign trade in 1992 was a
deficit of BPS 11.8 billion ($20.7 billion), which was 2.3% of the GDP. The
annual rate of inflation in 1992 was 3.7%. The average rate of inflation for the
three years ending 1992 was 6.4%.
At the end of 1992 and 1991, market capitalization (in ECU millions) for the
main market in domestic equities was 754,370.96 and 716,554.31, respectively,
which was an increase of 5.28%. The FT Industrial Ordinary Share Index, based on
the shares of 30 companies chosen to be representative of British industry and
commerce, was 2,167.80, 2,493.10 and 2,846.50 at year-end 1990, 1991 and 1992,
respectively.
BRITISH BOND MARKETS. The British public bond market has five primary
sectors; the government bond market; the short-term debt market; the derivative
bond market; the mortgage bond market; and the Eurosterling bond market. The
derivative bond market includes the London International Financial Futures
Exchange. The Eurosterling bond market allows highly rated supranational,
sovereign and corporate entities to issue sterling-denominated debt outside the
United Kingdom. As of the end of 1991, the total amount of debt outstanding was
121.72 billion pounds of which 57.96% represents government debt.
II. OTHER FOREIGN COUNTRIES AND CURRENCIES.
The Protective International Equity Fund may invest up to 25% of its total
assets in the securities of corporate and governmental issuers located in one or
more of the following countries and any successor countries resulting from the
dissolution, consolidation or political restructuring of such counties:
Argentina, Australia, Bangladesh, Brazil, Canada, Chile, China, Columbia,
Czechoslovakia, Egypt, Hong Kong, Hungary, India, Indonesia, Israel, Jamaica,
Jordan, Kenya, Korea, Kuwait, Malaysia, Mexico, Morocco, New Zealand, Nigeria,
Pakistan, Philippines, Poland, Singapore, Sri Lanka, Taiwan, Thailand, Turkey,
Venezuela and Zimbabwe. Such investments may, in the aggregate, exceed 25% of
the Fund's total assets.
More than 25% of the Protective International Equity Fund's total assets,
adjusted to reflect currency transactions and positions, may be denominated in
any one or more of the following currencies, and currencies of successor
countries resulting from the dissolution, consolidation or political
restructuring of such countries: the Austrian schilling, Belgian franc, British
pound sterling, Danish krone, Dutch guilder, Finnish markka, French franc,
German mark, Greek drachma, Irish punt, Italian lira, Japanese yen, Luxembourg
franc, Norwegian krona, Portuguese escudo, Spanish peseta, Swedish krona, Swiss
franc, and U.S. dollar.
Up to 25% of the Protective International Equity Fund's total assets,
adjusted to reflect currency transactions and positions, may be denominated in
each of the following currencies and currencies of successor countries resulting
from the dissolution, consolidation or political restructuring of such
countries: Argentina austral, Australian dollar, Bangladeshi taka, Brazilian
cruziero, Canadian dollar, Chilian peso, Chinese yuan/renminbi, Columbia peso,
Czechoslovakian koruna, Egyptian pound, Hong Kong dollar, Hungarian forint,
Indian rupee, Indonesian rupiah, Israeli shekel, Jamaican dollar, Jordanian
dinar, Kenyan shilling, Korean won, Kuwaiti dinar, Mexican peso, Moroccan
dirham, New Zealand dollar, Nigerian naira, Pakistan rupee, Philippine peso,
Polish zloty, Singapore dollar, Sri Lankan rupee, New Taiwan dollar, Thai baht,
Turkish lire, Venezuelan bolivares and Zimbabwe dollar. The Fund may also invest
up to 25% of its total assets in securities denominated in the European Currency
Unit. Such investments may, in the aggregate, exceed 25% of the Fund's total
assets.
45
<PAGE>
APPENDIX C
GOLDMAN, SACHS & CO.'S INVESTMENT BANKING
AND SECURITIES ACTIVITIES
Goldman, Sachs & Co. is a leading global investment banking and securities
firm with a number of distinguishing characteristics.
Privately owned and ranked among Wall Street's best capitalized firms, with
assets exceeding $57 billion and partner capital and subordinated liabilities of
over $3 billion.
Twenty-seven offices worldwide, where professionals focus on identifying
financial opportunities (includes a staff of 1,100 in London, 650 in Tokyo, 160
Hong Kong and 4,000 in 11 offices throughout the U.S.).
Worldwide research coverage consistently top-ranked in surveys conducted by
Institutional Investors, Extel Financial Ltd. and Nihon Keizei Shinbum (Japan's
leading financial newspaper). The firm has a research budget of $130 million for
1993.
Ranked number one for the past five years in negotiated municipal bond
underwriting. In 1992, Goldman Sachs underwrote over $23 billion in negotiated
municipal bonds.
Lead manager for 25 percent of the total volume of U.S. equity underwritings
from 1988 through 1992. Ranked number one in equity offerings for 1992, with
over 180 issues.
Voted number one for overall services in Financial World's survey of chief
investment and financial officers more than any other firm over the past 15
years.
GOLDMAN, SACHS & CO.'S HISTORY OF EXCELLENCE
<TABLE>
<S> <C>
1868 End of Civil War
1869 Marcus Goldman opens Goldman Sachs
1890 Dow Jones Industrial Average first published
1896 Goldman Sachs joins New York Stock Exchange
1890 Regional office network founded
1908 Goldman Sachs takes Sears Roebuck public (oldest ongoing client)
Dow Jones Industrial Average tops 100
1926 Goldman Sachs finances Warner Brothers, producer of the first talking film
1956 Goldman Sachs Ford public offering is the largest to date
1960 Dow Jones Industrial Average breaks 1000
1970 London office of Goldman Sachs opens (staff of 1,100 in 1993)
1977 Goldman Sachs begins 10-year stint as number one underwriter of negotiated municipal
bonds
1980 Dow Jones Industrial Average breaks 2000
1984 Goldman Sachs joins Tokyo Stock Exchange as one of the first non-Japanese firms
(firm's Tokyo staff exceeded 650 in 1993)
1987 Goldman Sachs leads in the privatization of Conrail in the largest equity offering to
date in the U.S.
1992 Dow Jones Industrial Average breaks 3000
1993 Goldman Sachs is lead manager in taking Allstate public, largest equity offering to
date ($2.4 billion)
</TABLE>
46
<PAGE>
FINANCIAL STATEMENTS
The statements of assets and liabilities as of March 2, 1994, as audited by
Coopers & Lybrand the Company's independent accountants, together with the
Report of Independent Accountants dated March 2, 1994 and the Company's
unaudited financial statements as of June 30, 1994 and for the period March 14,
1994 (commencement of operations) through June 30, 1994 are included in this
statement of additional information.
47
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders
Protective Investment Company
We have audited the accompanying statements of assets and liabilities of
Protective Investment Company (Money Market, Select Equity, Small Cap Equity,
International Equity, Growth and Income, and Global Income Funds) as of March 2,
1994 (date of initial capitalization). These statements of assets and
liabilities are the responsibility of the Company's management. Our
responsibility is to express an opinion on these statements of assets and
liabilities based on our audit. The accompanying statements of assets and
liabilities, including the schedule of investments, as of June 30, 1994 and the
related statements of operations, changes in net assets and financial highlights
for the period then ended were not audited by us and, accordingly we do not
express an opinion on them.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the statements of assets and liabilities are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the statements of assets and
liabilities. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the statements of assets and liabilities referred to above
present fairly, in all material respects, the financial position of Protective
Investment Company as of March 2, 1994, in conformity with generally accepted
accounting principles.
COOPERS & LYBRAND
Birmingham, Alabama
March 2, 1994
48
<PAGE>
PROTECTIVE INVESTMENT COMPANY
STATEMENTS OF ASSETS AND LIABILITIES
MARCH 2, 1994
<TABLE>
<CAPTION>
INTERNA- GROWTH
MONEY SELECT SMALL CAP TIONAL AND GLOBAL
MARKET EQUITY EQUITY EQUITY INCOME INCOME
FUND FUND FUND FUND FUND FUND
--------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Cash................................................ $ 10,000 $ 10,000 $ 10,000 $ 10,000 $ 10,000 $ 10,000
--------- --------- --------- --------- --------- ---------
Total assets...................................... 10,000 10,000 10,000 10,000 10,000 10,000
--------- --------- --------- --------- --------- ---------
LIABILITIES........................................... $ -0- $ -0- $ -0- $ -0- $ -0- $ -0-
--------- --------- --------- --------- --------- ---------
Net assets.......................................... $ 10,000 $ 10,000 $ 10,000 $ 10,000 $ 10,000 $ 10,000
--------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- ---------
Number of shares of $.001 par value capital stock,
issued and outstanding............................... 10,000 1,000 1,000 1,000 1,000 1,000
--------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- ---------
Net asset value, offering and redemption price per
share................................................ $ 1.00 $ 10.00 $ 10.00 $ 10.00 $ 10.00 $ 10.00
--------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- ---------
</TABLE>
See notes to statements of assets and liabilities.
49
<PAGE>
NOTES TO STATEMENTS OF ASSETS AND LIABILITIES, MARCH 2, 1994
A. ORGANIZATION
Protective Investment Company (the Company) was incorporated in the State of
Maryland on September 2, 1993 as an open-end management investment company. The
Company offers six separately managed portfolios, the Money Market Fund, the
Select Equity Fund, the Small Cap Equity Fund, the International Equity Fund,
the Growth and Income Fund, and the Global Income Fund. The Company had no
operations prior to March 2, 1994. The initial capital contributions totaling
$60,000 were provided on March 2, 1994 by Protective Life Insurance Company
(Protective Life).
The Company offers each class of its stock to a separate account of Protective
Life as funding vehicles for certain variable annuity contracts issued by
Protective Life through a separate account.
B. AGREEMENTS
Investment Management Agreement -- The Company has entered into an
investment management agreement with Investment Distributors Advisory Services,
Inc. (IDASI), a wholly owned subsidiary of Protective Life Corporation, parent
of Protective Life, under which the Company agrees to pay for business
management and administrative services furnished by IDASI. The investment
manager receives a monthly management fee for its services to the Company based
on the average daily net assets of each fund at the following annual rates:
Money Market Fund .60%, Select Equity Fund .80%, Small Cap Equity Fund .80%,
International Equity Fund 1.10%, Growth and Income Fund .80%, and Global Income
Fund 1.10%.
Protective Life has voluntarily undertaken to pay certain operating expenses of
the Company or of any Fund to the extent that such expenses, as accrued for each
fund, exceed the following percentages of that Fund's estimated average daily
net assets on an annualized basis: Money Market Fund .60%, Select Equity Fund
.80%, Small Cap Equity Fund .80%, International Equity Fund 1.10%, Growth and
Income Fund .80%, and Global Income Fund 1.10%.
Investment Advisory Agreements -- Goldman Sachs Asset Management is the
investment advisor for the Money Market Fund, the Select Equity Fund, the Small
Cap Equity Fund, and the Growth and Income Fund. Goldman Sachs Asset Management
International is the investment advisor for the International Equity Fund and
the Global Income Fund. Each advisor has entered into an investment advisory
agreement for each fund with the investment manager. The advisors receive
compensation for their services through a monthly fee from the investment
manager based on the average daily net assets of each fund at the following
annual rates: Money Market Fund .35% of the first $50 million, .25% of the next
$100 million, .20% of the next $100 million, and .15% of assets in excess of
$250 million; Select Equity Fund, Small Cap Equity Fund, and Growth Income Fund,
.40% of the first $50 million, .30% of the next $150 million, and .20% of assets
in excess of $200 million; International Equity Fund and Global Income Fund,
.40% of the first $50 million, .30% of the next $100 million, .25% of the next
$100 million, and .20% of the assets in excess of $250 million.
C. CAPITAL STOCK
The authorized capital stock of the Company consists of 1 billion shares,
par value $.001 per share. Six hundred million of the authorized shares have
been divided into and may be issued in six designated classes as follows: Money
Market Fund, 100 million shares; Select Equity Fund, 100 million shares; Small
Cap Equity Fund, 100 million shares; International Equity Fund, 100 million
shares; Growth and Income Fund, 100 million shares; and Global Income Fund, 100
million shares.
50
<PAGE>
PROTECTIVE GLOBAL INCOME FUND
SCHEDULE OF INVESTMENTS
JUNE 30, 1994 (UNAUDITED)
<TABLE>
<CAPTION>
PRINCIPAL
SECURITY DESCRIPTION AMOUNT U.S. $ VALUE
- ---------------------------------------------------------------------------- -------------- -------------
<S> <C> <C> <C>
GOVERNMENT AND AGENCY SECURITIES -- 70.5%
AUSTRALIA -- 4.5%
Commonwealth of Australia, 9.500%, 08/15/2003........................... AUD 500,000 $ 362,906
-------------
FRANCE -- 12.9%
Government of France, 8.500%, 03/28/2000................................ FRF 2,000,000 392,885
Government of France, 5.500%, 04/25/2004................................ 4,000,000 636,489
-------------
1,029,374
-------------
ITALY -- 7.1%
Republic of Italy, 8.500%, 01/01/1997................................... ITL 925,000,000 568,627
-------------
JAPAN -- 7.2%
Japan Government, 6.600%, 06/20/2001.................................... JPY 50,000,000 578,078
-------------
NETHERLANDS -- 7.0%
Dutch Government, 6.250%, 07/15/1998.................................... NLG 1,000,000 559,110
-------------
SWEDEN -- 3.4%
Kingdom of Sweden, 10.750%, 01/23/1997.................................. SEK 2,000,000 270,461
-------------
UNITED KINGDOM -- 6.3%
U.K. Treasury, 9.750%, 08/27/2002....................................... GBP 100,000 162,492
U.K. Treasury, 6.750%, 11/26/2004....................................... 250,000 341,510
-------------
504,002
-------------
UNITED STATES -- 22.1%
United States Treasury Notes, 8.500%, 11/15/2000........................ US$ 350,000 374,665
United States Treasury Notes, 6.250%, 02/15/2003........................ 1,500,000 1,398,285
-------------
1,772,950
-------------
TOTAL U.S. GOVERNMENT AND AGENCY SECURITIES -- (Cost $5,624,800)........ 5,645,508
-------------
CORPORATE BOND -- 5.3%
JAPAN -- 5.3%
International Bank Reconstruction & Development, 5.250%, 03/20/2002..... JPY 40,000,000 427,157
-------------
TOTAL CORPORATE BOND -- (Cost $422,840)................................. 427,157
-------------
TIME DEPOSIT -- 33.7%
UNITED STATES -- 33.7%
State Street Bank and Trust Co.
Eurodollar Time Deposit, 4.125%, 07/01/1994........................... US$ 2,693,000 2,693,000
-------------
TOTAL TIME DEPOSIT -- (Cost $2,693,000)................................. 2,693,000
-------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
51
<PAGE>
PROTECTIVE GLOBAL INCOME FUND
SCHEDULE OF INVESTMENTS (CONTINUED)
JUNE 30, 1994 (UNAUDITED)
<TABLE>
<CAPTION>
CURRENCY
SECURITY DESCRIPTION AMOUNT U.S. $ VALUE
- ---------------------------------------------------------------------------- -------------- -------------
<S> <C> <C> <C>
CURRENCY OPTIONS PURCHASED -- 0.1%
US$ Put -- DEM Call, expiring 07/27/1994 @ 1.55......................... DEM 1,500,000 $ 4,200
US$ Put -- CHF Call, expiring 09/13/1994 @ 1.32......................... CHF 350,000 5,075
-------------
TOTAL CURRENCY OPTIONS PURCHASED -- (Cost $17,898)...................... 9,275
-------------
TOTAL INVESTMENTS -- (Cost $8,758,538) -- 109.6% 8,774,940
OTHER ASSETS LESS LIABILITIES -- (9.6)% (768,881)
-------------
NET ASSETS -- 100.0% $ 8,006,059
-------------
-------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
52
<PAGE>
PROTECTIVE INTERNATIONAL EQUITY FUND
SCHEDULE OF INVESTMENTS
JUNE 30, 1994 (UNAUDITED)
<TABLE>
<CAPTION>
SECURITY DESCRIPTION SHARES U.S. $ VALUE
- -------------------------------------------------------------------------------------- --------- ------------
<S> <C> <C>
COMMON STOCK -- 65.1%
AUSTRALIA -- 0.9%
Rothmans Holdings Ltd............................................................. 21,900 $ 84,679
------------
BELGIUM -- 1.8%
Colruyt SA........................................................................ 800 175,844
------------
DENMARK -- 3.2%
Tele Danmark AS-B share........................................................... 6,000 302,102
------------
FINLAND -- 4.3%
Huhtamaki OY-B share.............................................................. 3,000 99,394
Kone Corporation B share.......................................................... 2,950 307,175
------------
406,569
------------
FRANCE -- 0.6%
NRJ SA............................................................................ 500 52,881
------------
GERMANY -- 2.4%
Weru AG........................................................................... 270 230,893
------------
HONG KONG -- 7.2%
Harbour Ring International (Holdings) Ltd......................................... 1,316,000 246,872
Hong Kong Electric (Holdings) Ltd................................................. 89,000 268,284
South China Morning Post (Holdings) Ltd........................................... 287,380 168,238
------------
683,394
------------
INDONESIA -- 1.0%
Mulia Industrindo................................................................. 39,000 97,950
------------
ITALY -- 0.5%
Mondadori (Arnoldo) Editore....................................................... 4,700 44,681
------------
NETHERLANDS -- 11.3%
N.V. GTI Holdings................................................................. 2,000 183,610
Randstad Holdings N.V............................................................. 6,900 310,121
Van Melle N.V..................................................................... 3,020 187,270
Wolters Kluwer N.V................................................................ 6,535 388,309
------------
1,069,310
------------
NORWAY -- 4.5%
Helikopter Service AS............................................................. 15,000 195,355
Unitor Ships Service AS........................................................... 13,530 232,989
------------
428,344
------------
SWEDEN -- 10.3%
Arjo AB *......................................................................... 13,200 225,641
Getinge Industrier AB, class B.................................................... 5,760 129,278
Hoganas AB, class B............................................................... 12,500 155,771
Securitas AB, class B............................................................. 13,000 398,643
Skane Gripen AB................................................................... 9,900 73,635
------------
982,968
------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
53
<PAGE>
PROTECTIVE INTERNATIONAL EQUITY FUND
SCHEDULE OF INVESTMENTS
JUNE 30, 1994 (UNAUDITED)
<TABLE>
<CAPTION>
SECURITY DESCRIPTION SHARES U.S. $ VALUE
- -------------------------------------------------------------------------------------- --------- ------------
<S> <C> <C>
COMMON STOCK (CONTINUED)
SPAIN -- 3.9%
Banco Popular Espana.............................................................. 2,860 $ 312,596
Zardoya-Otis...................................................................... 500 60,531
------------
373,127
------------
SWITZERLAND -- 3.1%
Cie Financier Richemont AG........................................................ 360 291,782
------------
UNITED KINGDOM -- 10.1%
Boots Co. PLC..................................................................... 35,100 289,148
British Airport Authority PLC..................................................... 26,000 361,133
Reckitt & Colman.................................................................. 2,400 21,295
Rentokil Group PLC................................................................ 86,000 288,975
------------
960,551
------------
TOTAL COMMON STOCK -- (Cost $6,407,682)........................................... 6,185,075
------------
PREFERRED STOCK -- 3.9%
GERMANY
Fresenius *....................................................................... 556 200,013
Fresenius AG...................................................................... 450 167,561
------------
TOTAL PREFERRED STOCK -- (Cost $329,096).......................................... 367,574
------------
</TABLE>
<TABLE>
<CAPTION>
CURRENCY
AMOUNT
-----------
<S> <C> <C> <C>
CURRENCY OPTIONS PURCHASED -- 0.1%
US$ Put -- DEM Call, expiring 07/27/1994 @ 1.55.......................... DEM 1,700,000 4,760
US$ Put -- CHF Call, expiring 09/13/1994 @1.32........................... CHF 400,000 5,800
--------------
TOTAL CURRENCY OPTIONS PURCHASED -- (Cost $20,349)....................... 10,560
--------------
<CAPTION>
PRINCIPAL
AMOUNT
-----------
<S> <C> <C> <C>
TIME DEPOSIT
UNITED STATES -- 36.7%
State Street Bank and Trust Co.
Eurodollar Time Deposit, 4.125%, 07/01/1994............................ US$ 3,482,000 $ 3,482,000
--------------
TOTAL TIME DEPOSIT -- (Cost $3,482,000).................................. 3,482,000
--------------
TOTAL INVESTMENTS -- (Cost $10,239,127) -- 105.8% 10,045,209
OTHER ASSETS LESS LIABILITIES -- (5.8)% (549,018)
--------------
NET ASSETS -- 100.0% $ 9,496,191
--------------
--------------
<FN>
- ------------------------
* Denotes non-income producing security.
</TABLE>
The accompanying notes are an integral part of the financial statements.
54
<PAGE>
PROTECTIVE GROWTH AND INCOME FUND
SCHEDULE OF INVESTMENTS
JUNE 30, 1994 (UNAUDITED)
<TABLE>
<CAPTION>
SECURITY DESCRIPTION SHARES VALUE
- ------------------------------------------------------------------------------------- ------------- --------------
<S> <C> <C>
COMMON STOCK -- 72.1%
AEROSPACE/DEFENSE -- 1.9%
Lockheed Corp.................................................................... 200 $ 13,075
McDonnell Douglas Corp........................................................... 900 105,300
Northrop Grumman Corp............................................................ 2,600 96,525
--------------
214,900
--------------
AIRLINES -- 0.9%
AMR Corp. Delaware *............................................................. 1,700 100,938
--------------
AUTOMOBILE -- 2.5%
General Motors Corp.............................................................. 5,700 286,425
--------------
AUTOPARTS -- ORIGINAL EQUIPMENT -- 1.0%
Lear Seating Corp. *............................................................. 6,500 119,438
--------------
BEVERAGES -- ALCOHOLIC -- 0.2%
Seagram LTD. *................................................................... 800 24,200
--------------
BROADCAST MEDIA -- 1.2%
Tele-Communications Inc. *....................................................... 6,800 138,550
--------------
BROKERAGE FIRMS -- 3.7%
Bear Stearns Cos. Inc............................................................ 17,885 304,045
Paine Webber Group Inc........................................................... 7,600 118,750
--------------
422,795
--------------
CHEMICALS -- 1.7%
Geon Co.......................................................................... 7,600 197,600
--------------
CONTAINERS -- PAPER -- 1.7%
Stone Container Corp. *.......................................................... 13,500 197,437
--------------
ELECTRICAL EQUIPMENT -- 0.5%
Thomas & Betts Corp.............................................................. 1,000 61,500
--------------
ELECTRONICS -- DEFENSE -- 0.2%
Interpoint Corp. *............................................................... 3,300 27,225
--------------
ELECTRONICS -- SEMICONDUCTORS -- 1.3%
Advanced Micro Devices Inc. *.................................................... 5,900 146,763
--------------
FINANCIAL -- 0.4%
Liberty Corp..................................................................... 1,500 41,063
--------------
FOODS -- 4.7%
Borden Inc....................................................................... 15,300 189,337
Chiquita Brands International Inc................................................ 27,800 347,500
--------------
536,837
--------------
GAMING COMPANIES -- 0.8%
Penn National Gaming Inc. *...................................................... 11,700 86,288
--------------
HEALTH CARE -- 0.2%
Grancare Inc. *.................................................................. 1,300 26,813
--------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
55
<PAGE>
PROTECTIVE GROWTH AND INCOME FUND
SCHEDULE OF INVESTMENTS
JUNE 30, 1994 (UNAUDITED)
<TABLE>
<CAPTION>
SECURITY DESCRIPTION SHARES VALUE
- ------------------------------------------------------------------------------------- ------------- --------------
<S> <C> <C>
COMMON STOCK (CONTINUED)
HOSPITAL MANAGEMENT -- 5.6%
Community Psychiatric Centers.................................................... 9,600 $ 114,000
National Medical Enterprises Inc................................................. 33,900 529,687
--------------
643,687
--------------
HOUSEHOLD PRODUCTS -- 0.8%
Playtex Products Inc. *.......................................................... 10,900 91,288
--------------
HOUSEWARES -- 2.7%
National Presto Industries Inc................................................... 7,600 307,800
--------------
LEISURE TIME -- 1.7%
Brunswick Corp................................................................... 8,900 195,800
--------------
MAJOR REGIONAL BANKS -- 0.3%
First Bank Systems Inc........................................................... 1,000 36,500
--------------
MANUFACTURING -- DIVERSIFIED -- 0.9%
Figgie International Holdings Inc................................................ 9,800 99,225
--------------
MEDICAL PRODUCTS AND SUPPLIES -- 0.3%
Pharmchem Labs Inc. *............................................................ 13,200 33,825
--------------
MISCELLANEOUS -- 0.4%
Block (H & R) Inc................................................................ 300 11,775
Harland (John H.) Co............................................................. 600 13,050
Sphere Drake Holdings LTD........................................................ 1,000 16,250
--------------
41,075
--------------
MULTI-LINE INSURANCE -- 1.2%
Cigna Corp....................................................................... 1,000 73,125
Security Connecticut Corp........................................................ 2,900 65,975
--------------
139,100
--------------
OIL AND GAS DRILLING -- 1.8%
North American Mortgage Co....................................................... 8,800 211,200
--------------
OIL -- INTERNATIONAL INTEGRATED -- 3.7%
Exxon Corp....................................................................... 5,800 328,425
Royal Dutch Petroleum Co......................................................... 900 94,162
--------------
422,587
--------------
OIL WELL EQUIPMENT AND SERVICES -- 1.1%
Sonat Offshore Drilling Inc...................................................... 6,600 128,700
--------------
OTHER MAJOR BANKS -- 0.6%
Union Bank of San Francisco...................................................... 2,200 65,450
--------------
PAPER AND FOREST PRODUCTS -- 1.9%
Georgia Pacific Corp............................................................. 3,700 221,537
--------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
56
<PAGE>
PROTECTIVE GROWTH AND INCOME FUND
SCHEDULE OF INVESTMENTS
JUNE 30, 1994 (UNAUDITED)
<TABLE>
<CAPTION>
SECURITY DESCRIPTION SHARES VALUE
- ------------------------------------------------------------------------------------- ------------- --------------
<S> <C> <C>
COMMON STOCK (CONTINUED)
PROPERTY AND CASUALTY INSURANCE -- 7.1%
Ace LTD.......................................................................... 8,100 $ 199,462
American Premier Underwriters.................................................... 7,400 185,925
Home State Holdings Inc. *....................................................... 9,800 156,800
Partner Re Holdings.............................................................. 9,100 184,275
USF & G Corp..................................................................... 6,600 80,850
--------------
807,312
--------------
PUBLISHING -- 2.7%
Valassis Communications Inc...................................................... 18,800 303,150
--------------
PUBLISHING -- NEWSPAPERS -- 1.4%
American Publishing Co. *........................................................ 11,500 158,125
--------------
REAL ESTATE INVESTMENT TRUSTS -- 3.3%
Haagen Alexander Properties Inc.................................................. 7,200 128,700
LTC Properties................................................................... 10,200 136,425
Mills Corp....................................................................... 3,200 72,000
United Mobile Homes Inc.......................................................... 5,434 42,793
--------------
379,918
--------------
RETAIL -- SPECIALTY -- 0.1%
Jostens Inc...................................................................... 1,000 16,125
--------------
SAVINGS AND LOAN HOLDING COMPANIES -- 1.6%
GP Financial Corp................................................................ 8,100 180,225
--------------
<CAPTION>
SHARES OR
PRINCIPAL
AMOUNT
-------------
<S> <C> <C>
STEEL -- 1.0%
Quanex Corp...................................................................... 6,200 118,575
--------------
TEXTILE -- APPAREL MANUFACTURERS -- 1.7%
Chic By HIS Inc. *............................................................... 15,500 193,750
--------------
TOBACCO -- 3.7%
Philip Morris Cos. Inc........................................................... 4,600 236,900
RJR Nabisco Holdings Corp. *..................................................... 2,700 16,537
Universal Corp................................................................... 2,400 46,800
UST Inc.......................................................................... 4,600 124,775
--------------
425,012
--------------
TRUCKERS -- 3.6%
Consolidated Freightways Inc. *.................................................. 7,900 187,625
Roadway Services Inc............................................................. 3,500 220,500
--------------
408,125
--------------
TOTAL COMMON STOCK -- (Cost $8,415,119).......................................... 8,256,863
--------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
57
<PAGE>
PROTECTIVE GROWTH AND INCOME FUND
SCHEDULE OF INVESTMENTS
JUNE 30, 1994 (UNAUDITED)
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL
SECURITY DESCRIPTION AMOUNT VALUE
- ------------------------------------------------------------------------------------- ------------- --------------
<S> <C> <C>
PREFERRED STOCK -- 1.6%
ELECTRONICS -- SEMICONDUCTORS -- 0.3%
Advanced Micro Devices Inc....................................................... 700 $ 37,275
--------------
FOODS -- 0.6%
Chiquita Brands International Inc................................................ 1,600 64,400
--------------
TOBACCO -- 0.7%
RJR Nabisco Holdings Corp. *..................................................... 12,200 80,825
--------------
TOTAL PREFERRED STOCK -- (Cost $185,046)......................................... 182,500
--------------
REAL ESTATE INVESTMENT TRUST -- 0.1%
REAL ESTATE INVESTMENT TRUSTS
Burnham Pacific Properties Inc................................................... 500 8,500
--------------
TOTAL REAL ESTATE INVESTMENT TRUST -- (Cost $9,218).............................. 8,500
--------------
SHORT TERM INVESTMENT -- 18.7%
REPURCHASE AGREEMENT
State Street Bank and Trust Co., 4.000%, 07/01/1994 ............................. $ 2,139,000 2,139,000
(Dated 06/30/1994, collateralized by $2,180,000 United States Treasury Note, --------------
4.250%, 11/30/1995, with a value of $2,143,313)
TOTAL SHORT TERM INVESTMENT -- (Cost $2,139,000)................................. 2,139,000
--------------
<CAPTION>
PRINCIPAL
AMOUNT
-------------
<S> <C> <C>
U.S. GOVERNMENT OBLIGATION -- 18.0%
United States Treasury Bill, 2.900%, 07/07/1994.................................. $ 2,070,000 $ 2,068,999
--------------
TOTAL U.S. GOVERNMENT OBLIGATION -- (Cost $2,068,999)............................ 2,068,999
--------------
TOTAL INVESTMENTS -- (Cost $12,817,382) -- 110.5% 12,655,862
OTHER ASSETS LESS LIABILITIES -- (10.5%) (1,200,100)
--------------
NET ASSETS -- 100.0% $ 11,455,762
--------------
--------------
<FN>
- ------------------------
* Denotes non-income producing security.
</TABLE>
The accompanying notes are an integral part of the financial statements.
58
<PAGE>
PROTECTIVE SELECT EQUITY FUND
SCHEDULE OF INVESTMENTS
JUNE 30, 1994 (UNAUDITED)
<TABLE>
<CAPTION>
SECURITY DESCRIPTION SHARES VALUE
- ---------------------------------------------------------------------------------------- ----------- -------------
<S> <C> <C>
COMMON STOCK -- 62.8%
AEROSPACE/DEFENSE -- 3.2%
Raytheon Co......................................................................... 800 $ 51,800
Rockwell International Corp......................................................... 1,500 56,062
United Technologies Corp............................................................ 1,000 64,250
-------------
172,112
-------------
AIRLINES -- 0.9%
AMR Corp. *......................................................................... 800 47,500
-------------
AUTOMOBILE -- 3.6%
Chrysler Corp....................................................................... 900 42,412
Ford Motor Co....................................................................... 1,300 76,700
General Motors Corp................................................................. 1,500 75,375
-------------
194,487
-------------
BEVERAGES -- ALCOHOLIC -- 1.0%
Anheuser Busch Cos. Inc............................................................. 1,100 55,825
-------------
BEVERAGES -- SOFT DRINKS -- 1.4%
PepsiCo Inc......................................................................... 2,400 73,500
-------------
BROADCAST MEDIA -- 1.3%
Capital Cities ABC Inc.............................................................. 1,000 71,125
-------------
CHEMICALS -- 3.6%
Dow Chemical Co..................................................................... 700 45,763
DuPont E I De Nemours & Co.......................................................... 1,500 87,562
Monsanto Co......................................................................... 800 60,500
-------------
193,825
-------------
COMMERCIAL SERVICES -- 1.0%
Omnicom Group....................................................................... 1,100 53,075
-------------
CONGLOMERATES -- 3.0%
ITT Corp............................................................................ 800 65,300
Tenneco Inc......................................................................... 1,100 51,012
Textron Inc......................................................................... 900 47,138
-------------
163,450
-------------
COSMETICS -- 0.9%
Avon Products Inc................................................................... 800 47,100
-------------
ELECTRIC COMPANIES -- 3.4%
Duke Power Co....................................................................... 1,000 35,750
Pacific Gas & Electric Co........................................................... 2,600 61,750
Peco Energy Co...................................................................... 1,700 44,837
Public Service Co. *................................................................ 3,700 42,550
-------------
184,887
-------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
59
<PAGE>
PROTECTIVE SELECT EQUITY FUND
SCHEDULE OF INVESTMENTS (CONTINUED)
JUNE 30, 1994 (UNAUDITED)
<TABLE>
<CAPTION>
SECURITY DESCRIPTION SHARES VALUE
- ---------------------------------------------------------------------------------------- ----------- -------------
<S> <C> <C>
COMMON STOCK (CONTINUED)
ELECTRONICS -- INSTRUMENTATION -- 1.3%
Hewlett Packard Co.................................................................. 900 $ 67,838
-------------
ELECTRONICS -- SEMICONDUCTORS -- 1.1%
Intel Corp.......................................................................... 1,000 58,500
-------------
ENTERTAINMENT -- 1.0%
Disney (Walt) Co. (The)............................................................. 1,300 54,113
-------------
FINANCIAL -- MISCELLANEOUS -- 2.0%
American General Corp............................................................... 1,400 38,675
Federal National Mortgage Assn...................................................... 800 66,800
-------------
105,475
-------------
HEALTH CARE DRUGS -- 2.2%
Pfizer Inc.......................................................................... 700 44,187
Schering Plough Corp................................................................ 1,200 73,500
-------------
117,687
-------------
HOSPITAL MANAGEMENT -- 0.7%
Columbia HCA Healthcare Corp........................................................ 1,000 37,500
-------------
HOUSEHOLD PRODUCTS -- 2.3%
Colgate Palmolive Co................................................................ 800 41,600
Unilever N V........................................................................ 800 80,600
-------------
122,200
-------------
INSURANCE BROKERS -- 1.1%
Marsh & McLennan Companies Inc...................................................... 700 58,363
-------------
MACHINERY -- DIVERSIFIED -- 0.9%
Caterpillar Inc..................................................................... 500 50,000
-------------
MAJOR REGIONAL BANKS -- 3.9%
First Fidelity Bancorp.............................................................. 1,100 51,012
Nationsbank Corp.................................................................... 1,200 61,650
PNC Bank Corp....................................................................... 1,800 51,975
Wells Fargo & Co.................................................................... 300 45,113
-------------
209,750
-------------
MANUFACTURING -- DIVERSIFIED IN -- 1.1%
Dover Corp.......................................................................... 1,000 58,875
-------------
MISCELLANEOUS -- 1.9%
Destec Energy Inc. *................................................................ 1,400 14,000
Dial Corp........................................................................... 900 38,475
Minnesota Mining & Manufacturing Co................................................. 1,000 49,500
-------------
101,975
-------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
60
<PAGE>
PROTECTIVE SELECT EQUITY FUND
SCHEDULE OF INVESTMENTS (CONTINUED)
JUNE 30, 1994 (UNAUDITED)
<TABLE>
<CAPTION>
SECURITY DESCRIPTION SHARES VALUE
- ---------------------------------------------------------------------------------------- ----------- -------------
<S> <C> <C>
COMMON STOCK (CONTINUED)
MULTI-LINE INSURANCE -- 0.8%
American International Group Inc.................................................... 500 $ 43,313
-------------
OIL -- INTERNATIONAL INTEGRATED -- 4.2%
Exxon Corp.......................................................................... 1,100 62,287
Mobil Corp.......................................................................... 700 57,138
Royal Dutch Petroleum Co............................................................ 1,000 104,625
-------------
224,050
-------------
OTHER MAJOR BANKS -- 1.0%
Mellon Bank Corp.................................................................... 1,000 56,250
-------------
PERSONAL LOANS -- 1.1%
Beneficial Corp..................................................................... 1,600 58,400
-------------
PUBLISHING -- NEWSPAPERS -- 1.8%
Gannett Inc......................................................................... 1,100 54,450
Knight Ridder Inc................................................................... 800 40,900
-------------
95,350
-------------
RETAIL -- FOOD CHAINS -- 1.6%
Albertsons Inc...................................................................... 2,000 55,000
Penn Traffic Co. *.................................................................. 800 28,200
-------------
83,200
-------------
RETAIL -- GENERAL MERCHANDISE -- 1.4%
Wal Mart Stores Inc................................................................. 3,100 75,175
-------------
RETAIL -- SPECIALTY APPAREL STORE -- 1.0%
Limited Inc......................................................................... 3,000 51,750
-------------
TELECOMMUNICATIONS -- LONG DISTANCE -- 2.8%
American Telephone & Telegraph Corp................................................. 1,900 103,312
Sprint Corp......................................................................... 1,400 48,825
-------------
152,137
-------------
TELEPHONE -- 1.0%
Ameritech Corp...................................................................... 1,400 53,550
-------------
TEXTILE -- APPAREL MANUFACTURERS -- 1.1%
V F Corp............................................................................ 1,200 57,000
-------------
TOBACCO -- 2.2%
Philip Morris Cos. Inc.............................................................. 2,300 118,450
-------------
TOTAL COMMON STOCK -- (Cost $3,462,182)............................................. 3,367,787
-------------
DEPOSITORY RECEIPTS -- 2.1%
OIL -- INTERNATIONAL INTEGRATED -- 1.4%
British Petroleum Plc............................................................... 1,000 71,750
-------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
61
<PAGE>
PROTECTIVE SELECT EQUITY FUND
SCHEDULE OF INVESTMENTS (CONTINUED)
JUNE 30, 1994 (UNAUDITED)
<TABLE>
<CAPTION>
SECURITY DESCRIPTION SHARES VALUE
- ---------------------------------------------------------------------------------------- ----------- -------------
<S> <C> <C>
DEPOSITORY RECEIPTS (CONTINUED)
TELEPHONE -- 0.7%
British Telecommunications.......................................................... 700 $ 39,463
-------------
TOTAL DEPOSITORY RECEIPTS -- (Cost $107,912)........................................ 111,213
-------------
LIMITED PARTNERSHIP UNITS -- 0.9%
OIL AND GAS DRILLING
Teppco Partners L.P................................................................. 1,700 46,963
-------------
TOTAL LIMITED PARTNERSHIP UNITS -- (Cost $50,237)................................... 46,963
-------------
SHORT TERM INVESTMENT -- 17.4%
REPURCHASE AGREEMENT
State Street Bank and Trust Co., 4.000%, 07/01/1994................................. $ 932,000 932,000
(Dated 06/30/1994, collateralized by $950,000 United States Treasury Note, 4.250%,
11/30/1995, with a value of $934,013)
-------------
TOTAL SHORT TERM INVESTMENT -- (Cost $932,000)...................................... 932,000
-------------
U.S. GOVERNMENT OBLIGATION -- 15.2%
United States Treasury Bill, 2.900%, 07/07/1994..................................... 815,000 814,606
-------------
TOTAL U.S. GOVERNMENT OBLIGATION -- (Cost $814,606)................................. 814,606
-------------
TOTAL INVESTMENTS -- (Cost $5,366,937) -- 98.4% 5,272,569
OTHER ASSETS LESS LIABILITIES -- 1.6% 87,367
-------------
NET ASSETS -- 100.0% $ 5,359,936
-------------
-------------
<FN>
* Denotes non-income producing security.
</TABLE>
The accompanying notes are an integral part of the financial statements.
62
<PAGE>
PROTECTIVE SMALL CAP EQUITY FUND
SCHEDULE OF INVESTMENTS
JUNE 30, 1994 (UNAUDITED)
<TABLE>
<CAPTION>
SECURITY DESCRIPTION SHARES VALUE
- -------------------------------------------------------------------------------------- ------------- -------------
<S> <C> <C>
COMMON STOCK -- 66.2%
AUTO PARTS -- AFTER MARKET -- 3.0%
APS Holding Corp. *............................................................... 11,000 $ 218,625
-------------
BROADCAST MEDIA -- 0.3%
Saga Communications *............................................................. 1,900 23,038
-------------
BUILDING MATERIALS -- 1.7%
ABT Building Products Corp. *..................................................... 5,600 127,400
-------------
COMMERCIAL SERVICES -- 5.3%
International Post LTD. *......................................................... 19,000 161,500
MB Communications Inc. *.......................................................... 21,500 220,375
-------------
381,875
-------------
COMMUNICATION -- EQUIPMENT/MANUFACTURERS -- 2.5%
Micom Communications *............................................................ 6,599 74,239
Plantronics Inc. *................................................................ 6,100 104,462
-------------
178,701
-------------
COMPUTER SOFTWARE AND SERVICES -- 1.0%
Opinion Research Corp. *.......................................................... 8,600 72,025
-------------
ELECTRICAL EQUIPMENT -- 0.9%
Holophone Corp. *................................................................. 3,600 64,800
-------------
ELECTRONICS -- SEMICONDUCTORS -- 0.3%
Fusion Systems Corp. *............................................................ 1,400 25,200
-------------
FINANCIAL -- MISCELLANEOUS -- 0.1%
Hamilton Financial Services Corp. *............................................... 2,000 9,000
-------------
FOODS -- 4.0%
Alpine Lace Brands Inc. *......................................................... 1,800 9,675
Brothers Gourmet Coffees Inc. *................................................... 8,400 96,600
Morningstar Group Inc............................................................. 24,200 187,550
-------------
293,825
-------------
HEALTH CARE MISCELLANEOUS -- 4.8%
American Healthcorp Inc. *........................................................ 15,100 95,319
Grancare Inc. *................................................................... 2,500 51,562
National Health Labs Inc.......................................................... 10,400 126,100
Physicians Clinical Labs Inc. *................................................... 7,200 72,900
-------------
345,881
-------------
HOMEBUILDING -- 0.6%
Miles Homes Inc. *................................................................ 9,800 43,488
-------------
HOUSEHOLD PRODUCTS -- 1.5%
American Safety Razor Co. *....................................................... 10,500 110,250
-------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
63
<PAGE>
PROTECTIVE SMALL CAP EQUITY FUND
SCHEDULE OF INVESTMENTS (CONTINUED)
JUNE 30, 1994 (UNAUDITED)
<TABLE>
<CAPTION>
SECURITY DESCRIPTION SHARES VALUE
- -------------------------------------------------------------------------------------- ------------- -------------
<S> <C> <C>
COMMON STOCK (CONTINUED)
MACHINERY -- DIVERSIFIED -- 1.3%
DT Industries Inc................................................................. 6,200 $ 97,650
-------------
MANUFACTURING -- DIVERSIFIED IN -- 2.5%
Figgie International Holdings Inc................................................. 17,700 179,212
-------------
MEDICAL PRODUCTS AND SUPPLIES -- 0.9%
American White Cross Inc. *....................................................... 11,600 62,350
-------------
MISCELLANEOUS -- 1.7%
Childrens Discovery Centers America *............................................. 5,100 66,937
Norwood Promotional Products Inc. *............................................... 400 3,950
Oroamerica Inc. *................................................................. 4,900 52,063
-------------
122,950
-------------
OFFICE EQUIPMENT AND SUPPLIES -- 3.6%
International Imaging Materials *................................................. 8,900 166,875
Nu Kote Holding Inc. *............................................................ 5,400 93,150
-------------
260,025
-------------
PUBLISHING -- NEWSPAPERS -- 3.5%
American Publishing Co. *......................................................... 18,700 257,125
-------------
RESTAURANTS -- 2.5%
Quantum Restaurant Group Inc. *................................................... 12,000 100,500
Sonic Corp. *..................................................................... 4,300 83,850
-------------
184,350
-------------
RETAIL -- SPECIALTY -- 14.1%
Baker J. Inc...................................................................... 9,600 186,000
Brookstone Inc. *................................................................. 14,500 221,125
Just For Feet Inc. *.............................................................. 500 6,875
Musicland Stores Inc. *........................................................... 7,900 126,400
North American Watch Corp......................................................... 16,000 192,000
Service Merchandise Co. Inc. *.................................................... 19,200 122,400
Shoe Carnival Inc. *.............................................................. 6,600 63,525
Supercuts Inc. *.................................................................. 9,600 103,200
-------------
1,021,525
-------------
RETAIL -- SPECIALTY APPAREL STORES -- 2.8%
A Pea In The Pod Inc. *........................................................... 13,800 67,275
Charming Shoppes Inc.............................................................. 14,300 134,062
-------------
201,337
-------------
<CAPTION>
SHARES OR
PRINCIPAL
AMOUNT
-------------
<S> <C> <C>
STEEL -- 0.7%
Webco Industries Inc. *........................................................... 3,400 52,700
-------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
64
<PAGE>
PROTECTIVE SMALL CAP EQUITY FUND
SCHEDULE OF INVESTMENTS (CONTINUED)
JUNE 30, 1994 (UNAUDITED)
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL
SECURITY DESCRIPTION AMOUNT VALUE
- -------------------------------------------------------------------------------------- ------------- -------------
<S> <C> <C>
COMMON STOCK (CONTINUED)
TELECOMMUNICATIONS -- LONG DISTANCE -- 1.2%
USA Mobile Communications *....................................................... 9,500 $ 85,500
-------------
TEXTILE -- APPAREL MANUFACTURERS -- 2.4%
Authentic Fitness Corp. *......................................................... 2,500 35,000
Norton McNaughton Inc. *.......................................................... 6,800 137,700
-------------
172,700
-------------
TOYS -- 3.0%
American Recreation Co. Holdings Inc. *........................................... 14,600 215,350
-------------
TOTAL COMMON STOCK -- (Cost $4,870,470)........................................... 4,806,882
-------------
DEPOSITORY RECEIPTS -- 1.4%
COMMERCIAL SERVICES
Automated Security Holdings Plc *................................................. 29,100 98,213
-------------
TOTAL DEPOSITORY RECEIPTS -- (Cost $100,880)...................................... 98,213
SHORT TERM INVESTMENT -- 23.7%
REPURCHASE AGREEMENT
State Street Bank and Trust Co., 4.000%, 07/01/1994............................... $ 1,718,000 1,718,000
-------------
(Dated 06/30/1994, collateralized by $1,750,000 United States Treasury Note,
4.250%, 11/30/1995, with a value of $1,720,549)
TOTAL SHORT TERM INVESTMENT -- (Cost $1,718,000).................................. 1,718,000
-------------
U.S. GOVERNMENT OBLIGATION -- 22.4%
United States Treasury Bill, 2.900%, 07/07/1994................................... 1,630,000 1,629,212
-------------
TOTAL U.S. GOVERNMENT OBLIGATION -- (Cost $1,629,212)............................. 1,629,212
-------------
TOTAL INVESTMENTS -- (Cost $8,318,562) -- 113.7% 8,252,307
OTHER ASSETS LESS LIABILITIES -- (13.7)% (992,736)
-------------
NET ASSETS -- 100.0% $ 7,259,571
-------------
-------------
<FN>
- ------------------------
* Denotes non-income producing security.
</TABLE>
The accompanying notes are an integral part of the financial statements.
65
<PAGE>
PROTECTIVE MONEY MARKET FUND
SCHEDULE OF INVESTMENTS
JUNE 30, 1994 (UNAUDITED)
<TABLE>
<CAPTION>
PRINCIPAL
SECURITY DESCRIPTION AMOUNT VALUE
- -------------------------------------------------------------------------------------- ----------- -------------
<S> <C> <C>
U.S. GOVERNMENT AND AGENCY SECURITIES -- 90.6%
FEDERAL AGENCIES
Federal Farm Credit Bank, 4.370%, 08/17/1994...................................... $ 220,000 $ 218,745
Federal Farm Credit Bank, 4.390%, 09/16/1994...................................... 740,000 733,052
Federal Home Loan Bank, 4.480%, 08/22/1994........................................ 125,000 124,191
Federal Home Loan Bank, 4.350%, 08/24/1994........................................ 500,000 496,737
Federal Home Loan Bank, 4.400%, 09/08/1994........................................ 215,000 213,187
Federal Home Loan Mortgage Corp., 4.370%, 08/19/1994.............................. 600,000 596,431
Federal Home Loan Mortgage Corp., 4.330%, 09/14/1994.............................. 650,000 644,136
Federal Home Loan Mortgage Corp., 4.370%, 09/16/1994.............................. 375,000 371,495
Federal National Mortgage Assn., 4.250%, 08/03/1994............................... 275,000 273,929
Federal National Mortgage Assn., 4.270%, 08/22/1994............................... 125,000 124,229
Federal National Mortgage Assn., 4.380%, 09/08/1994............................... 90,000 89,244
Federal National Mortgage Assn., 4.400%, 09/08/1994............................... 310,000 307,386
Student Loan Marketing Assn., 4.200%, 07/27/1994.................................. 290,000 289,120
Student Loan Marketing Assn., 4.310%, 09/09/1994.................................. 500,000 495,810
United States Treasury Bill, 4.040%, 07/28/1994................................... 45,000 44,864
United States Treasury Bill, 4.060%, 09/08/1994................................... 400,000 396,887
-------------
TOTAL U.S. GOVERNMENT AND AGENCY SECURITIES -- (Cost $5,419,443) 5,419,443
-------------
TOTAL INVESTMENTS -- (Cost $5,419,443) -- 90.6% 5,419,443
OTHER ASSETS LESS LIABILITIES -- 9.4% 563,209
-------------
NET ASSETS -- 100.0% $ 5,982,652
-------------
-------------
<FN>
- ------------------------
* Denotes non-income producing security.
</TABLE>
The accompanying notes are an integral part of the financial statements.
66
<PAGE>
PROTECTIVE INVESTMENT COMPANY
STATEMENTS OF ASSETS AND LIABILITIES
JUNE 30, 1994 (UNAUDITED)
ASSETS
<TABLE>
<CAPTION>
GLOBAL INTERNATIONAL GROWTH AND SELECT SMALL CAP MONEY
INCOME FUND EQUITY FUND INCOME FUND EQUITY FUND EQUITY FUND MARKET FUND
----------- ------------- ------------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Investments in securities, at value
(Note B).......................... $8,774,940 $10,045,209 $10,516,862 $4,340,569 $6,534,307 $5,419,443
Investments in repurchase
agreements (Note B)............... 0 0 2,139,000 932,000 1,718,000 0
Cash, including foreign currency at
value............................. 38,743 2,380 1,073 164 803 9,333
Receivable for forward currency
contracts (Note F)................ 8,863,705 10,713,597 0 0 0 0
Receivable for securities sold..... 1,129,127 26,650 18,850 0 78,097 0
Receivable for currency sold....... 692,673 467,160 0 0 0 0
Interest receivable................ 117,969 399 238 103 191 0
Receivable for fund shares sold.... 65,988 134,777 185,890 80,594 96,054 554,696
Receivable due from Investment
Manager (Note C).................. 24,646 24,668 24,364 21,768 20,572 18,913
Foreign income tax reclaim
receivable........................ 2,402 1,063 239 0 0 0
Dividends receivable............... 0 14,712 16,001 7,928 428 0
----------- ------------- ------------- ----------- ----------- -----------
TOTAL ASSETS................... 19,710,193 21,430,615 12,902,517 5,383,126 8,448,452 6,002,385
LIABILITIES
Payable for forward currency
contracts (Note F)................ 8,926,089 10,831,374 0 0 0 0
Payable for securities purchased... 2,050,274 605,770 1,417,978 0 1,165,913 0
Payable for currency purchased..... 694,336 464,545 0 0 0 0
Investment management fee payable
(Note C).......................... 6,314 7,224 5,780 2,789 3,764 2,146
Foreign income tax payable......... 3,842 2,210 0 0 0 0
Director fees payable (Note C)..... 988 988 988 988 988 988
Accounts payable and accrued
expenses.......................... 22,291 22,313 22,009 19,413 18,216 16,599
----------- ------------- ------------- ----------- ----------- -----------
TOTAL LIABILITIES.............. 11,704,134 11,934,424 1,446,755 23,190 1,188,881 19,733
----------- ------------- ------------- ----------- ----------- -----------
NET ASSETS..................... $8,006,059 $ 9,496,191 $11,455,762 $5,359,936 $7,259,571 $5,982,652
----------- ------------- ------------- ----------- ----------- -----------
----------- ------------- ------------- ----------- ----------- -----------
NET ASSETS
Paid-in capital (Note E)......... $8,156,062 $ 9,911,070 $11,623,403 $5,445,235 $7,318,376 $5,982,473
Undistributed net investment
income (Note B)................. 0 48,967 0 17,903 11,362 0
Accumulated net realized gain
(loss) on:
Investments.................... (40,403 ) (8,918) (6,121) (8,834) (3,912) 179
Foreign currency
transactions.................. (59,373 ) (146,417) 0 0 0 0
Net unrealized appreciation
(depreciation) of:
Investments.................... 16,402 (193,918) (161,520) (94,368) (66,255) 0
Foreign currency
translations.................. (66,629 ) (114,593) 0 0 0 0
----------- ------------- ------------- ----------- ----------- -----------
NET ASSETS..................... $8,006,059 $ 9,496,191 $11,455,762 $5,359,936 $7,259,571 $5,982,652
----------- ------------- ------------- ----------- ----------- -----------
----------- ------------- ------------- ----------- ----------- -----------
NET ASSET VALUE PER SHARE
Offering and redemption price per
share (based on shares of
beneficial interest outstanding,
par value $.001 per share)...... $ 9.697 $ 9.422 $ 9.612 $ 9.719 $ 9.652 $ 1.000
Total shares outstanding at end
of period....................... 825,587 1,007,922 1,191,855 551,505 752,157 5,982,473
Cost of investments.............. $8,758,538 $10,239,127 $12,817,382 $5,366,937 $8,318,562 $5,419,443
</TABLE>
The accompanying notes are an integral part of the financial statements.
67
<PAGE>
PROTECTIVE INVESTMENT COMPANY
STATEMENTS OF OPERATIONS
FOR THE PERIOD MARCH 14, 1994* THROUGH JUNE 30, 1994 (UNAUDITED)
<TABLE>
<CAPTION>
GLOBAL INTERNATIONAL GROWTH AND SELECT SMALL CAP MONEY MARKET
INCOME FUND EQUITY FUND INCOME FUND EQUITY FUND EQUITY FUND FUND
------------ ------------ ------------ ----------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
INVESTMENT INCOME
Interest income..................... $ 82,873 $ 26,890 $ 22,661 $ 9,810 $ 18,201 $ 30,272
Dividend income..................... 0 45,074 26,377 13,884 644 0
Foreign taxes withheld.............. (3,779) (6,099) (375) 0 0 0
------------ ------------ ------------ ----------- ----------- -------------
TOTAL INVESTMENT INCOME......... 79,094 65,865 48,663 23,694 18,845 30,272
EXPENSES
Investment management fee (Note C).. 15,674 16,898 10,536 5,791 7,483 4,461
Audit fee........................... 7,706 7,706 7,706 7,706 7,706 7,706
Custodian fees and expenses......... 7,476 7,498 5,364 5,245 5,288 3,604
Printing expense.................... 2,158 2,158 2,158 2,158 2,158 2,158
Directors' fees (Note C)............ 1,988 1,988 1,988 1,988 1,988 1,988
Registration and filing expense..... 1,954 1,954 3,376 1,455 495 507
Legal fee........................... 1,849 1,849 1,849 1,849 1,849 1,849
Transfer agent fee.................. 583 583 583 583 583 583
Miscellaneous expense............... 932 932 1,340 784 505 518
------------ ------------ ------------ ----------- ----------- -------------
Total operating expenses before
reimbursement.................. 40,320 41,566 34,900 27,559 28,055 23,374
Expenses borne by the investment
manager (Note C)............... (24,646) (24,668) (24,364) (21,768) (20,572) (18,913)
------------ ------------ ------------ ----------- ----------- -------------
TOTAL EXPENSES................ 15,674 16,898 10,536 5,791 7,483 4,461
------------ ------------ ------------ ----------- ----------- -------------
NET INVESTMENT INCOME......... 63,420 48,967 38,127 17,903 11,362 25,811
REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS AND FOREIGN CURRENCY
Net realized gain (loss) on:
Investments....................... (48,237) (17,678) (6,121) (8,834) (3,912) 250
Foreign currency transactions..... (59,373) (146,417) 0 0 0 0
Foreign currency options.......... 7,834 8,760 0 0 0 0
Change in unrealized appreciation
(depreciation) of:
Investments....................... 25,025 (184,129) (161,520) (94,368) (66,255) 0
Foreign currency translations..... (66,629) (114,593) 0 0 0 0
Foreign currency options.......... (8,623) (9,789) 0 0 0 0
------------ ------------ ------------ ----------- ----------- -------------
NET REALIZED AND UNREALIZED GAIN
(LOSS)......................... (150,003) (463,846) (167,641) (103,202) (70,167) 250
------------ ------------ ------------ ----------- ----------- -------------
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS............ $ (86,583) $ (414,879) $ (129,514) $ (85,299) $ (58,805) $ 26,061
------------ ------------ ------------ ----------- ----------- -------------
------------ ------------ ------------ ----------- ----------- -------------
<FN>
- ------------------------------
*Commencement of investment operations.
</TABLE>
The accompanying notes are an integral part of the financial statements.
68
<PAGE>
PROTECTIVE INVESTMENT COMPANY
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE PERIOD MARCH 14, 1994* THROUGH JUNE 30, 1994 (UNAUDITED)
<TABLE>
<CAPTION>
GLOBAL INTERNATIONAL GROWTH AND SELECT SMALL CAP MONEY
INCOME FUND EQUITY FUND INCOME FUND EQUITY FUND EQUITY FUND MARKET FUND
----------- ------------- ------------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
From operations:
Net investment income.......... $ 63,420 $ 48,967 $ 38,127 $ 17,903 $ 11,362 $ 25,811
Net realized gain (loss) on:
Investments.................. (48,237) (17,678) (6,121) (8,834) (3,912) 250
Foreign currency
transactions................ (59,373) (146,417) 0 0 0 0
Foreign currency options..... 7,834 8,760 0 0 0 0
Change in unrealized
appreciation (depreciation)
of:
Investments.................. 25,025 (184,129) (161,520) (94,368) (66,255) 0
Foreign currency
translations................ (66,629) (114,593) 0 0 0 0
Foreign currency options..... (8,623) (9,789) 0 0 0 0
----------- ------------- ------------- ----------- ----------- -----------
Net increase (decrease) in net
assets resulting from
operations.................... (86,583) (414,879) (129,514) (85,299) (58,805) 26,061
Dividends and distributions to
shareholders from:
Net investment income.......... (63,420) 0 (38,127) 0 0 (25,811)
Net realized gain on
investments................... 0 0 0 0 0 (71)
Fund share transactions (Note
E).............................. 8,146,062 9,901,070 11,613,403 5,435,235 7,308,376 5,972,473
----------- ------------- ------------- ----------- ----------- -----------
Total increase (decrease) in
net assets.................... 7,996,059 9,486,191 11,445,762 5,349,936 7,249,571 5,972,652
Net assets
Beginning of period.............. 10,000 10,000 10,000 10,000 10,000 10,000
----------- ------------- ------------- ----------- ----------- -----------
End of period (1)................ $8,006,059 $9,496,191 $11,455,762 $5,359,936 $7,259,571 $5,982,652
----------- ------------- ------------- ----------- ----------- -----------
----------- ------------- ------------- ----------- ----------- -----------
(1) Including undistributed net
investment income................. $ 0 $ 48,967 $ 0 $ 17,903 $ 11,362 $ 0
----------- ------------- ------------- ----------- ----------- -----------
----------- ------------- ------------- ----------- ----------- -----------
<FN>
- ------------------------------
*Commencement of investment operations.
</TABLE>
The accompanying notes are an integral part of the financial statements.
69
<PAGE>
PROTECTIVE INVESTMENT COMPANY
FINANCIAL HIGHLIGHTS
(UNAUDITED)
FOR A SHARE OF COMMON STOCK OUTSTANDING FOR THE PERIOD MARCH 14,
1994 (COMMENCEMENT OF INVESTMENT OPERATIONS) THROUGH JUNE 30, 1994
<TABLE>
<CAPTION>
REALIZED AND
NET ASSET UNREALIZED TOTAL DIVIDENDS NET ASSET
VALUE AT NET GAIN (LOSS) FROM FROM NET VALUE AT
BEGINNING INVESTMENT ON INVESTMENT INVESTMENT CAPITAL GAINS TOTAL END
OF PERIOD INCOME (2) INVESTMENTS OPERATIONS INCOME DISTRIBUTIONS DISTRIBUTION OF PERIOD
----------- ----------- ------------- ----------- ----------- --------------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Global Income
Fund (1)............ $ 10.000 $ 0.104 $ (0.303) $ (0.199) $ (0.104) $ 0.000 $ (0.104) $ 9.697
International Equity
Fund (1)............ 10.000 0.049 (0.627) (0.578) (0.000) 0.000 (0.000) 9.422
Growth and Income
Fund (1)............ 10.000 0.033 (0.388) (0.355) (0.033) 0.000 (0.033) 9.612
Select Equity
Fund (1)............ 10.000 0.032 (0.313) (0.281) (0.000) 0.000 (0.000) 9.719
Small Cap Equity
Fund (1)............ 10.000 0.015 (0.363) (0.348) (0.000) 0.000 (0.000) 9.652
Money Market
Fund (1)............ 1.000 0.010 0.000 0.010 (0.010) 0.000 (0.010) 1.000
<CAPTION>
RATIO OF RATIO OF NET
OPERATING INVESTMENT
NET ASSETS EXPENSES TO INCOME TO PORTFOLIO
TOTAL END AVERAGE NET AVERAGE NET TURNOVER
RETURN (3) OF PERIOD ASSETS (4) ASSETS (4) RATE (5)
------------- ----------- ------------- -------------- -------------
<S> <C> <C> <C> <C> <C>
Global Income
Fund (1)............ (2.08)% $ 8,006,059 1.10% 4.45% 125%
International Equity
Fund (1)............ (5.80) 9,496,191 1.10 3.19 8
Growth and Income
Fund (1)............ (3.56) 11,455,762 0.80 2.90 3
Select Equity
Fund (1)............ (2.81) 5,359,936 0.80 2.47 22
Small Cap Equity
Fund (1)............ (3.48) 7,259,571 0.80 1.22 3
Money Market
Fund (1)............ N/A 5,982,652 0.60 3.53 N/A
<FN>
- ------------------------------
(1) Investment operations commenced on March 14, 1994.
(2) Net Investment Income is after reimbursement of certain fees and
expenses by the Investment Manager. (See Note C to the Company's
financial statements.) Had the Investment Manager not undertaken to
reimburse expenses related to the Funds, net investment income per
share would have been as follows: Global Income Fund, $0.064;
International Equity Fund, $0.025; Growth and Income Fund, $0.013;
Select Equity Fund, $(0.009); Small Cap Equity Fund, $(0.013); and
Money Market Fund, $0.004.
(3) Total return is calculated assuming a purchase of shares at net
asset value per share on the first day and a sale at net asset value
per share on the last day of each period reported. Distributions are
assumed, for the purposes of this calculation, to be reinvested at
the net asset value per share on the respective payment dates of
each Fund.
(4) Annualized.
(5) Non-Annualized
</TABLE>
70
<PAGE>
PROTECTIVE INVESTMENT COMPANY
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1994 (UNAUDITED)
NOTE A -- ORGANIZATION
Protective Investment Company (the "Company") was incorporated in the State
of Maryland on September 2, 1993 as an open-end management investment company.
The Company offers six separately managed pools of assets which have differing
investment objectives and policies. The Company currently issues six classes of
its shares: Global Income Fund, International Equity Fund, Growth and Income
Fund, Select Equity Fund, Small Cap Equity Fund and Money Market Fund. The
Company had no operations prior to March 2, 1994, other than those relating to
organizational matters. The initial capital contribution of $60,000, $10,000 per
class, resulting in 1,000 shares being issued by the Global Income Fund,
International Equity Fund, Growth and Income Fund, Select Equity Fund, Small Cap
Equity Fund and 10,000 shares being issued by the Money Market Fund, was
provided on March 2, 1994 by Protective Life Insurance Company. The Company
commenced investment operations on March 14, 1994.
The Company offers each class of its stock to a separate account of
Protective Life Insurance Company ("Protective Life") as funding vehicles for
certain variable annuity contracts issued by Protective Life through the
separate account.
NOTE B -- SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies followed by
the Company in the preparation of its financial statements.
In the opinion of management, the unaudited financial statements include all
adjustments (consisting only of those of a normal recurring nature) necessary
for a fair presentation of investments, net assets, results of operations,
changes in net assets and financial highlights.
VALUATION OF INVESTMENTS -- The Company's portfolio securities traded on a
national securities exchange are valued at the last sale price, or, if no sale
occurs, at the mean between the closing bid and closing asked prices. Portfolio
securities traded over-the-counter are valued at the last sale price, or, if no
sale occurs, at the mean between the last bid and asked prices. Debt securities
with a remaining maturity of 61 days or more are valued on the basis of
dealer-supplied quotations or by a pricing service selected by Goldman Sachs
Asset Management, investment adviser to the Company, and approved by the board
of directors of the Company. Short-term securities and debt securities with a
remaining maturity of 60 days or less are valued at their amortized cost which
approximates market value. Options and futures contracts are valued at the last
sale price on the market where any such options or futures contract is
principally traded. Options traded over-the-counter are valued based upon prices
provided by market makers in such securities or dealers in such currencies.
Securities for which current market quotations are unavailable or for which
quotations are not deemed by the investment adviser to be representative of
market values are valued at fair value as determined in good faith pursuant to
procedures established by the board of directors.
FOREIGN SECURITIES -- Foreign securities traded on a recognized securities
exchange are valued at the last sale price in the principal market where they
are traded, or, if closing prices are unavailable, at the last bid price
available prior to the time a Fund's net asset value is determined. Foreign
portfolio securities prices are furnished by quotation services expressed in the
local currency's value and are translated into U.S. dollars at the current rate
of exchange.
REPURCHASE AGREEMENTS -- In connection with transactions in repurchase
agreements, the Company's custodian takes possession of the underlying
collateral securities, the value or market price of which is at least equal to
the principal amount, including interest, of the repurchase transaction. To the
extent that any repurchase transaction exceeds one business day, the value of
the collateral is marked-to-market on a daily basis to ensure the adequacy of
the collateral. In the event of default of the
71
<PAGE>
PROTECTIVE INVESTMENT COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 1994 (UNAUDITED)
NOTE B -- SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
obligation to repurchase, the Fund has the right to liquidate the collateral and
apply the proceeds in satisfaction of the obligation. Under certain
circumstances, in the event of default or bankruptcy by the other party to the
agreement, realization and/or retention of the collateral or proceeds may be
subject to legal proceedings.
INVESTMENT TRANSACTIONS -- Investment security transactions are recorded on the
date of purchase or sale. Realized gains and losses from security transactions
are determined on the basis of identified cost.
INVESTMENT INCOME -- Dividend income is recorded on the ex-dividend date, or, in
the case of dividend income on foreign securities, on the ex-dividend date or
when the Fund becomes aware of its declaration. Interest income is recorded on
the accrual basis.
FOREIGN CURRENCY TRANSLATIONS -- The records of the Company are maintained in
U.S. dollars. Foreign currency amounts are translated into U.S. dollars at a
current rate of exchange of such currency to determine the value of investments,
other assets and liabilities on the date of any determination of net asset value
of the Funds. Purchases and sales of securities and income and expenses are
converted at the prevailing rate of exchange on the respective dates of such
transactions. Net realized gain or loss on foreign currency includes net
realized currency gains and losses recognized between accrual and payment dates.
Upon the purchase or sale of a security denominated in a foreign currency,
the Company may enter into a foreign currency exchange contract for the purchase
or sale, for a fixed amount of U.S. dollars, of an amount of the foreign
currency required to settle the security transaction. Accordingly, the Company
would not realize currency gains or losses between the trade and settlement
dates on such security transactions.
The net U.S. dollar value of foreign currency underlying all contractual
commitments held by the Company on each day and the resulting net unrealized
appreciation, depreciation and related net receivable or payable amounts are
determined by using forward currency exchange rates supplied by a quotation
service.
FORWARD CURRENCY CONTRACTS -- A forward foreign currency contract ("Forward") is
an agreement between two parties to buy and sell a currency at a set price on a
future date. The market value of the Forward fluctuates with changes in currency
exchange rates. The Forward is marked-to-market daily and the change in the
market value is recorded by the Fund as an unrealized gain or loss. When the
Forward is closed, the Fund records a realized gain or loss equal to the
difference between the value at the time its was opened and the value at the
time it was closed. The Fund could be exposed to risk if a counterparty is
unable to meet the terms of the contract or if the value of the currency changes
unfavorably. The Fund may enter into Forwards in connection with planned
purchases and sales of securities, to hedge specific receivables or payables
against changes in future exchange rates or to hedge the U.S. dollar value of
portfolio securities denominated in a foreign currency.
CURRENCY CALL AND PUT OPTIONS -- A call option written by a Fund obligates the
Fund to sell specified currency to the option holder at a specified price at any
time before the expiration date. A put option written by a Fund obligates the
Fund to purchase specified currency from the option holder at a specified price
at any time before the expiration date. These transactions involve a risk that a
Fund may, upon exercise of the option, be required to sell currency at a price
that is less than its market value or be required to purchase currency at a
price that exceeds its market value. A Fund may also realize gains or losses by
entering into closing purchase transactions identical to call or put options
72
<PAGE>
PROTECTIVE INVESTMENT COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 1994 (UNAUDITED)
NOTE B -- SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
that have been written by the Fund in order to terminate its obligation under a
call or put option. In determining the amount of gain or loss realized, the
option premium paid and related transactions costs are added to the exercise
price.
EXPENSES -- Expenses directly attributable to a Fund are charged to that Fund.
Expenses not directly attributable to a Fund are split evenly among the affected
Funds, allocated on the basis of relative average net assets, or otherwise
allocated among the Funds as the board of directors may direct or approve.
DISTRIBUTIONS -- Distributions from net investment income are declared and
distributed at least annually for International Equity Fund, Select Equity Fund
and Small Cap Equity Fund; declared and distributed quarterly for Growth and
Income Fund; declared and distributed monthly for Global Income Fund; and
declared daily and distributed monthly for Money Market Fund. Distributions from
net realized capital gains, if any, are declared and distributed at least
annually. Distributions are recorded on the ex-dividend date.
FEDERAL INCOME TAXES -- Each Fund of the Company is treated as a separate entity
for federal tax purposes. Each Fund intends to qualify each year as a regulated
investment company under Subchapter M of the Internal Revenue Code, as amended.
By so qualifying, the Funds will not be subject to federal income taxes to the
extent that they distribute all of their taxable income, including realized
capital gains, for the fiscal year. In addition, by distributing during each
calendar year substantially all off their net investment income, capital gains
and certain other amounts, if any, the Funds will not be subject to a federal
excise tax.
Income and capital gains distributions are determined in accordance with
income tax regulations which may differ from generally accepted accounting
principles. These differences are primarily due to differing treatments for
market discount, foreign currency transactions, losses deferred due to wash
sales and excise tax regulations.
NOTE C -- AGREEMENTS AND FEES
The Company has entered into an investment management agreement with
Investment Distributors Advisory Services, Inc. (the "Investment Manager"), a
wholly-owned subsidiary of Protective Life Corporation, under which the Company
agrees to pay for business management and administrative services furnished by
the Investment Manager. For its services to the Company, the Investment Manager
receives a monthly management fee based on the average daily net assets of each
Fund at the following annual rates: Global Income Fund, 1.10%; International
Equity Fund, 1.10%; Growth and Income Fund, .80%; Select Equity Fund, .80%;
Small Cap Equity Fund, .80%; and Money Market Fund, .60%.
In order to limit expenses, the Investment Manager has voluntarily
undertaken to pay certain operating expenses of the Company or of any Fund to
the extent that such expenses (excluding brokerage or other portfolio
transaction expenses or expenses of litigation, indemnification, taxes or other
extraordinary expenses, as accrued for each Fund) exceed the following
percentages of that Fund's estimated average daily net assets on an annualized
basis: Global Income Fund, 1.10%; International Equity Fund, 1.10%; Growth and
Income Fund, .80%; Select Equity Fund, .80%; Small Cap Equity Fund, .80%; and
Money Market Fund, .60%. The Investment Manager may end its obligation to pay
such expense upon 120 days notice to the Company.
Goldman Sachs Asset Management acts as the investment adviser (the
"Adviser") of Growth and Income Fund, Money Market Fund, Select Equity Fund and
Small Cap Equity Fund. Goldman Sachs
73
<PAGE>
PROTECTIVE INVESTMENT COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 1994 (UNAUDITED)
NOTE C -- AGREEMENTS AND FEES (CONTINUED)
Asset Management-International acts as the Adviser to Global Income Fund and
International Equity Fund. Each Adviser has entered into an investment advisory
agreement for each Fund with the Investment Manager under which the Adviser
manages the investment portfolios of the Funds of which it is Adviser. As
compensation for its services, the Advisers receive a monthly fee from the
Investment Manager based on the average daily net assets of each Fund at the
following annual rates: Global Income Fund and International Equity Fund, .40%
of the first $50 million, .30% of the next $100 million, .25% of the next $100
million, and .20% of the assets in excess of $250 million; Growth and Income
Fund, Select Equity Fund and Small Cap Equity Fund, .40% of the first $50
million, .30% of the next $150 million , and .20% of assets in excess of $200
million; Money Market Fund, .35% of the first $50 million, .25% of the next $100
million, .20% of the next $100 million, and .15% of assets in excess of $250
million.
Directors of the Company who are not interested persons receive an annual
fee of $2,000 and $1,500 for each meeting attended.
NOTE D -- INVESTMENT TRANSACTIONS
Purchases and proceeds from sales and maturities of investments, excluding
short-term securities for each Fund other than the Money Market Fund, for the
period from March 14, 1994 (commencement of investment operations) to June 30,
1994 were as follows:
<TABLE>
<CAPTION>
NON-U.S. U.S. NON-U.S. U.S.
GOVERNMENT GOVERNMENT GOVERNMENT GOVERNMENT
PURCHASES PURCHASES SALES SALES
------------- ------------- ------------- -----------
<S> <C> <C> <C> <C>
Global Income Fund..................................... $ 7,553,319 $ 2,671,125 $ 3,272,052 $ 856,516
International Equity Fund.............................. 7,061,523 0 307,067 0
Growth and Income Fund................................. 8,721,929 0 106,425 0
Select Equity Fund..................................... 4,075,270 0 446,105 0
Small Cap Equity Fund.................................. 5,055,522 0 80,260 0
</TABLE>
Purchases and sales, including maturities, of short-term securities by the
Money Market Fund for the period from March 14, 1994 (commencement of investment
operations) to June 30, 1994 were $13,008,769 and $7,619,848, respectively.
The identified cost of investments in securities owned by each Fund for
federal income tax purposes and their respective gross unrealized appreciation
and depreciation at June 30, 1994 were as follows:
<TABLE>
<CAPTION>
GROSS UNREALIZED NET UNREALIZED
IDENTIFIED --------------------------- APPRECIATION
COST APPRECIATION (DEPRECIATION) (DEPRECIATION)
-------------- ------------ ------------- --------------
<S> <C> <C> <C> <C>
Global Income Fund.................................. $ 8,740,640 $ 73,157 $ (48,132) $ 25,025
International Equity Fund........................... 10,218,778 101,101 (285,230) (184,129)
Growth and Income Fund.............................. 12,817,382 140,678 (302,198) (161,520)
Select Equity Fund.................................. 5,366,937 23,621 (117,989) (94,368)
Small Cap Equity Fund............................... 8,318,562 140,375 (206,630) (66,255)
Money Market Fund................................... 5,419,943 0 0 0
</TABLE>
NOTE E -- SHAREHOLDER TRANSACTIONS
The authorized capital stock of the Company consists of 1 billion shares,
par value $.001 per share. Six hundred million of the authorized shares have
been divided into and may be issued in six
74
<PAGE>
PROTECTIVE INVESTMENT COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 1994 (UNAUDITED)
NOTE E -- SHAREHOLDER TRANSACTIONS (CONTINUED)
designated classes as follows: Global Income Fund, 100 million shares;
International Equity Fund, 100 million shares; Growth and Income Fund, 100
million shares; Select Equity Fund, 100 million shares; Small Cap Equity Fund,
100 million shares; and Money Market Fund, 100 million shares.
Transactions in shares were as follows:
<TABLE>
<CAPTION>
GLOBAL INCOME FUND INTERNATIONAL EQUITY FUND
MARCH 14, 1994* MARCH 14, 1994*
TO JUNE 30, 1994 TO JUNE 30, 1994
(UNAUDITED) (UNAUDITED)
--------------------------- ----------------------------
SHARES DOLLARS SHARES DOLLARS
----------- -------------- ------------ --------------
<S> <C> <C> <C> <C>
Shares sold........................... 832,616 $ 8,224,361 1,007,660 $ 9,908,280
Shares issued to shareholders in
reinvestment of dividends............ 6,502 63,419 0 0
Shares redeemed....................... (14,531) (141,718) (738) (7,210)
----------- -------------- ------------ --------------
Net increase.......................... 824,587 $ 8,146,062 1,006,922 $ 9,901,070
----------- -------------- ------------ --------------
----------- -------------- ------------ --------------
<CAPTION>
GROWTH AND INCOME FUND SELECT EQUITY FUND
MARCH 14, 1994* MARCH 14, 1994*
TO JUNE 30, 1994 TO JUNE 30, 1994
(UNAUDITED) (UNAUDITED)
--------------------------- ----------------------------
SHARES DOLLARS SHARES DOLLARS
----------- -------------- ------------ --------------
<S> <C> <C> <C> <C>
Shares sold........................... 1,193,435 $ 11,639,925 551,697 $ 5,447,030
Shares issued to shareholders in
reinvestment of dividends............ 3,967 38,127 0 0
Shares redeemed....................... (6,547) (64,649) (1,192) (11,795)
----------- -------------- ------------ --------------
Net increase.......................... 1,190,855 $ 11,613,403 550,505 $ 5,435,235
----------- -------------- ------------ --------------
----------- -------------- ------------ --------------
<CAPTION>
SMALL CAP EQUITY FUND MONEY MARKET FUND
MARCH 14, 1994* MARCH 14, 1994*
TO JUNE 30, 1994 TO JUNE 30, 1994
(UNAUDITED) (UNAUDITED)
--------------------------- ----------------------------
SHARES DOLLARS SHARES DOLLARS
----------- -------------- ------------ --------------
<S> <C> <C> <C> <C>
Shares sold........................... 752,120 $ 7,317,871 9,690,441 $ 9,690,441
Shares issued to shareholders in
reinvestment of dividends............ 0 0 25,882 25,882
Shares redeemed....................... (963) (9,495) (3,743,850) (3,743,850)
----------- -------------- ------------ --------------
Net increase.......................... 751,157 $ 7,308,376 5,972,473 $ 5,972,473
----------- -------------- ------------ --------------
----------- -------------- ------------ --------------
<FN>
- ------------------------
* Commencement of investment operations.
</TABLE>
75
<PAGE>
PROTECTIVE INVESTMENT COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 1994 (UNAUDITED)
NOTE F -- FORWARD FOREIGN CURRENCY CONTRACTS
At June 30, 1994, the outstanding forward exchange currency contracts, which
contractually obligate the Fund to deliver currencies at a specified date, were
as follows:
GLOBAL INCOME FUND
<TABLE>
<CAPTION>
U.S. $ COST
ON U.S. $ UNREALIZED
ORIGINATION CURRENT APPRECIATION
DATE VALUE (DEPRECIATION)
------------- ------------- -------------
<S> <C> <C> <C>
FOREIGN CURRENCY PURCHASE CONTRACTS
AUD, expiring 07/18/1994............................................ $ 340,082 $ 336,350 $ (3,732)
CAD, expiring 07/18/1994............................................ 332,896 333,308 412
CHF, expiring 07/18/1994............................................ 400,000 409,776 9,776
DEM, expiring 08/08/1994............................................ 904,988 905,273 285
DKK, expiring 07/11/1994............................................ 428,651 428,651 0
GBP, expiring 08/05/1994............................................ 19,500 19,500 0
ITL, expiring 08/04/1994............................................ 678,038 685,576 7,538
JPY, expiring 07/29/1994............................................ 370,000 372,730 2,730
SEK, expiring 07/25/1994............................................ 127,272 127,628 356
------------- ------------- -------------
3,601,427 3,618,792 17,365
-------------
AUD, expiring 07/18/1994............................................ 373,197 373,609 (412)
CHF, expiring 07/18/1994............................................ 400,000 400,000 0
DEM, expiring 08/04/1994............................................ 727,772 758,602 (30,830)
DKK, expiring 07/11/1994............................................ 415,654 428,651 (12,997)
FRF, expiring 08/10/1994............................................ 1,035,208 1,051,077 (15,869)
GBP, expiring 07/28/1994............................................ 187,741 187,703 38
ITL, expiring 07/20/1994............................................ 1,087,968 1,094,568 (6,600)
JPY, expiring 07/29/1994............................................ 1,017,373 1,030,452 (13,079)
------------- ------------- -------------
5,244,913 5,324,662 (79,749)
-------------
$ (62,384)
-------------
-------------
INTERNATIONAL EQUITY FUND
<CAPTION>
U.S. $ COST
ON U.S. $ UNREALIZED
ORIGINATION CURRENT APPRECIATION
DATE VALUE (DEPRECIATION)
------------- ------------- -------------
<S> <C> <C> <C>
FOREIGN CURRENCY PURCHASE CONTRACTS
AUD, expiring 07/18/1994............................................ $ 161,122 $ 161,137 $ 15
BEF, expiring 07/05/1994 -- 08/05/1994.............................. 218,220 218,220 0
CHF, expiring 07/18/1994............................................ 412,740 422,598 9,858
DEM, expiring 07/25/1994 -- 08/01/1994.............................. 1,388,611 1,388,265 (346)
DKK, expiring 08/09/1994............................................ 19,118 19,118 0
ESP, expiring 07/13/1994............................................ 12,224 12,224 0
FIM, expiring 07/27/1994............................................ 60,018 60,018 0
GBP, expiring 07/28/1994............................................ 16,435 16,435 0
ITL, expiring 08/04/1994............................................ 779,403 789,032 9,629
NLG, expiring 07/21/1994............................................ 2,396 2,396 0
NOK, expiring 08/16/1994............................................ 31,870 31,870 0
SEK, expiring 07/25/1994............................................ 428,363 428,363 0
------------- ------------- -------------
3,530,520 3,549,676 19,156
-------------
</TABLE>
76
<PAGE>
PROTECTIVE INVESTMENT COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 1994 (UNAUDITED)
NOTE F -- FORWARD FOREIGN CURRENCY CONTRACTS (CONTINUED)
<TABLE>
<S> <C> <C> <C>
INTERNATIONAL EQUITY FUND (CONTINUED)
<CAPTION>
U.S. $ COST
ON U.S. $ UNREALIZED
ORIGINATION CURRENT APPRECIATION
DATE VALUE (DEPRECIATION)
------------- ------------- -------------
<S> <C> <C> <C>
FOREIGN CURRENCY SALE CONTRACTS
BEF, expiring 08/05/1994............................................ $ 396,526 $ 404,197 $ (7,671)
CHF, expiring 08/24/1994............................................ 699,395 716,798 (17,403)
DEM, expiring 08/04/1994............................................ 915,471 952,534 (37,063)
DKK, expiring 08/09/1994............................................ 302,262 317,643 (15,381)
ESP, expiring 07/13/1994............................................ 376,968 389,827 (12,859)
FIM, expiring 07/27/1994............................................ 454,401 457,629 (3,228)
FRF, expiring 08/10/1994............................................ 54,540 57,144 (2,604)
GBP, expiring 07/28/1994............................................ 981,921 981,686 235
ITL, expiring 07/20/1994............................................ 607,923 607,914. 9
NLG, expiring 07/21/1994............................................ 1,063,779 1,091,917 (28,138)
NOK, expiring 08/16/1994............................................ 456,114 471,264 (15,150)
SEK, expiring 07/25/1994............................................ 854,621 852,301 2,320
------------- ------------- -------------
7,163,921 7,300,854 (136,933)
-------------
$ (117,777)
-------------
-------------
</TABLE>
GLOSSARY OF TERMS
AUD -- Australian Dollar
BEF -- Belgian Franc
CAD -- Canadian Dollar
CHF -- Swiss Franc
DEM -- Deutsche Mark
DKK -- Danish Kroner
ESP -- Spanish Peseta
FIM -- Finnish Markka
FRF -- French Franc
GBP -- Great British Pound
ITL -- Italian Lira
JPY -- Japanese Yen
NLG -- Dutch Guilder
NOK -- Norwegian Krone
SEK -- Swedish Krona
US$ -- United States Dollar
77
<PAGE>
PART C
OTHER INFORMATION
Item 24. FINANCIAL STATEMENTS AND EXHIBITS.
(a) Financial Statements:
The audited statements of assets and liabilities of the Registrant are found
in Part B.
The unaudited financial statements for June 30, 1994 of the Registrant are
found in Part B.
(b) Exhibits:
1. Articles of Incorporation of Registrant. (1)
2. By-Laws of Registrant. (2)
3. None.
4. None.
5. (a) Investment Management Agreement Between Investment Distributors
Advisory Services, Inc. and the Registrant.
(b) Investment Advisory Agreements (sub-advisory agreement) Between
Investment Distributors Advisory Services, Inc. and Goldman Sachs
Asset Management.
(c) Investment Advisory Agreements (sub-advisory agreement) Between
Investment Distributors Advisory Services, Inc. and Goldman Sachs
Asset Management International.
6. Participation/Distribution Agreement between Registrant, Investment
Distributors, Inc. and Protective Life Insurance Company.
7. None.
8. Custody Agreement between Registrant and State Street Bank and Trust
Company.
9. (a) Transfer Agency and Service Agreement between Registrant and State
Street Bank and Trust Company.
(b) Subadministration Agreement Between Registrant, State Street Bank and
Trust Company and Investment Distributors Advisory Services, Inc.
10.Opinion and Consent of Sutherland, Asbill & Brennan. (2)
11.(a) Consent of Sutherland, Asbill & Brennan.
(b) Consent of Coopers & Lybrand L.L.P.
12.None.
13.Subscription Agreement. (2)
14.None.
15.None.
16.Schedule for Computation of Performance Calculations.
17.None.
18.Copies of Powers of Attorney. (2)
- ------------------------
(1) Incorporated herein by reference to the initial Form N-1A registration
statement filed on November 12, 1993 (file No. 33-71592).
(2) Incorporated herein by reference to the pre-effective amendment No. 1 to the
Form N-1A registration statement filed on March 4, 1994 (file No. 33-71592).
C-1
<PAGE>
Item 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT.
No person is controlled by the Registrant. All of the outstanding common
stock of the Registrant is, or will be, owned by Protective Life Insurance
Company ("Protective"), a Tennessee life insurance corporation, Protective Life
Corporation 401(k) and Stock Ownership Plan and Protective Variable Annuity
Separate Account, a separate account of Protective that is registered as a unit
investment trust under the Investment Company Act of 1940 (File Nos.
811-8108/33-70984). Protective is a wholly-owned subsidiary of Protective Life
Corporation ("PLC"), an insurance holding corporation whose common stock is
traded on the New York Stock Exchange. Since 1983, Protective has owned 100% of
American Foundation Life Insurance Company, an Alabama domiciled life insurance
company. In addition, various other companies controlled by Protective and PLC
or otherwise affiliated with Protective and therefore may be deemed to be under
common control with the Registrant. These companies, together with the identity
of the owners of their common stock, are set forth on the diagram following.
C-2
<PAGE>
[GRAPHIC]
C-3
<PAGE>
Item 26. NUMBER OF HOLDERS OF SECURITIES.
<TABLE>
<CAPTION>
NUMBER OF RECORD HOLDERS
TITLE OF CLASS AS OF SEPTEMBER 10, 1994
- ------------------------------------------------ -------------------------------
<S> <C>
Money Market Series 2
Select Equity Series 2
Small Cap Equity Series 2
International Equity Series 2
Global Income Series 2
Growth and Income Series 2
</TABLE>
Item 27. INDEMNIFICATION.
See Article X of the Registrant's Articles of Incorporation, filed as
Exhibit 1 to the initial filing of this Registration Statement, which provision
is incorporated herein by reference.
The Investment Advisory Agreements between the Investment Manager and
Goldman Sachs Asset Management and Goldman Sachs Asset Management International
all provide that the Manager will indemnify the Adviser (and its affiliates) for
all claims, actions, losses, damages, liabilities, costs, charges, counsel fees
and expenses arising out of any breach by the Manager of any representation or
agreement contained in the Advisory Agreements. The Advisory Agreements also all
provide that the Adviser will indemnify the Manager for any losses arising out
of the Adviser's disabling conduct.
The Registrant has purchased a directors and officers liability insurance
policy to insure such persons (subject to the policy's coverage limits,
exclusions and deductibles) against loss resulting from claims by reason of any
act, error, omission, misstatement, misleading statement, neglect or breach of
duty.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 ("Act") may be permitted to directors, 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 Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer or controlling person of the Registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, 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 by it is against public
policy as expressed in the Act, and Registrant will be governed by the final
adjudication of such issue.
Item 28.BUSINESS AND OTHER CONNECTIONS OF THE INVESTMENT MANAGER AND INVESTMENT
ADVISER.
INVESTMENT MANAGER
The Registrant's investment manager is Investment Distributors Advisory
Services, Inc. ("IDASI"). The business of Protective is summarized in item 25 of
this registration statement and in the prospectus constituting Part A under the
caption "Investment Manager" and in the statement of additional information
constituting Part B under the caption "Investment Manager," which summarizations
are incorporated by reference herein. Set forth below is a list of: (a) each
director of IDASI, (b) each principal executive officer of IDASI, and (c)
certain other officers of IDASI who may be considered to be involved in IDASI's
investment management activities.
As to each director, the list indicates business, profession, vocation or
employment of a substantial nature that such director has been, at any time
during the past two fiscal years, engaged for his or her own account or in the
capacity of director, officer, partner or trustee. Unless otherwise indicated,
officers of IDASI have no other business, profession, vocation or employment of
a substantial nature than their position at IDASI. The principal business
address of each officer of IDASI is the same as that of the Registrant.
C-4
<PAGE>
<TABLE>
<CAPTION>
ORGANIZATION AND BUSINESS
NAME POSITION ADDRESS OF ORGANIZATION
- ---------------------------- --------------------------- ------------------------------------------------------
<S> <C> <C>
J. Kelly Ardrey Treasurer Treasurer and Financial Operations Principal
Protective Equity Services, Inc.
2801 Highway 280 South
Birmingham, Alabama 35223
John K. Wright Secretary, Director Secretary, Director
Protective Equity Services, Inc.
2801 Highway 280 South
Birmingham, Alabama 35223
Vice President & Senior Associate Counsel
Protective Life Corporation
2801 Highway 280 South
Birmingham, Alabama 35223
Lizabeth R. Nichols Assistant Secretary, Chief Assistant Secretary, Chief Compliance Officer,
Compliance Officer, Director
Director Protective Equity Services, Inc.
2801 Highway 280 South
Birmingham, Alabama 35223
Second Vice President &
Senior Associate Counsel
Protective Life Corporation
2801 Highway 280 South
Birmingham, Alabama 35223
R. Stephen Briggs Director Director
Protective Equity Services, Inc.
2801 Highway 280 South
Birmingham, Alabama 35223
Executive Vice President
Protective Life Corporation
2801 Highway 280 South
Birmingham, Alabama 35223
Doretta Milligan President, Director President, Chief Executive Officer, Director
Protective Equity Services, Inc.
2801 Highway 280 South
Birmingham, Alabama 35223
Richard Bielen Director Vice President
Protective Life Corporation
2801 Highway 280 South
Birmingham, Alabama 35223
</TABLE>
INVESTMENT ADVISER
The Registrant has two investment advisers: Goldman Sachs Asset Management
("GSAM"), a separate operating division of Goldman Sachs & Company, and Goldman
Sachs Asset Management International ("GSAMI"), an affiliate of Goldman, Sachs &
Co. The business of GSAM and GSAMI is summarized in the prospectus constituting
Part A under the caption "Advisers" and in the statement of additional
information constituting Part B under the caption "Investment Advisers," which
summarizations are incorporated by reference herein.
C-5
<PAGE>
More information about GSAM and GSAMI, including the business and other
connections of the officers and partners of Goldman, Sachs & Co. and Goldman
Sachs Funds Management, L.P., is included in the Form ADVs for Goldman, Sachs &
Co., GSAMI, and Goldman Sachs Funds Management, L.P., respectively as currently
filed with the Securities and Exchange Commission (File Nos. 801-16048,
801-38157, and 801-37591, respectively) the text of which is incorporated herein
by reference.
Item 29. PRINCIPAL UNDERWRITER.
(a)Investment Distributors, Inc. ("IDI") serves as principal underwriter for
Registrant and also acts as the principal underwriter for variable
annuity contracts issued by Protective and Protective Variable Annuity
Separate Account. IDI is a wholly-owned subsidiary of PLC.
(b)The principal business address of each director and officer of IDI is the
same as that of the Registrant. Set forth below is a list of each
director and officer of IDI.
<TABLE>
<CAPTION>
NAME POSITION WITH IDI POSITION WITH REGISTRANT
------ -------------------------------------------------- -----------------------------------
<S> <C> <C>
Briggs, R. Stephen Director, President Chairman and President, Director
Wright, John K. Director, Secretary None
Nichols, Lizabeth R. Director, Chief Compliance Officer, Assistant Vice President, Secretary and Chief
Secretary Compliance Officer
Milligan, Doretta President/CEO, Director Director
Bielen, J. Richard Vice President Vice President and Compliance
Officer
Ballard, Michael B. Director None
Merrill, Lawrence G. Director None
Ardrey, J. Kelly Treasurer None
</TABLE>
(c)Inapplicable.
Item 30. LOCATION OF ACCOUNTS AND RECORDS.
All accounts, books and other documents required to be maintained by Section
31(a) of the Investment Company Act of 1940 and the rules thereunder will be
maintained at the following offices of the Registrant, Goldman Sachs Asset
Management, Goldman Sachs Asset Management International, or State Street Bank
and Trust Company.
Protective Investment Company
2801 Highway 280 South
Birmingham, Alabama 35223
Goldman Sachs Asset Management
32 Old Slip
New York, N.Y. 10005
Goldman Sachs Asset Management International
140 Fleet Street
London EC4A 2BJ
England
State Street Bank and Trust Company
225 Franklin Street
Boston, Massachusetts 02110
C-6
<PAGE>
Item 31.MANAGEMENT SERVICES.
Inapplicable.
Item 32. UNDERTAKINGS.
(a)Inapplicable.
(b)Inapplicable.
(c)The Registrant undertakes to furnish, upon request and without charge, to
each person to whom a prospectus is delivered a copy of the Registrant's
latest annual report to shareholders.
C-7
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant certifies that it meets all of
the requirements for effectiveness of this registration statement pursuant to
Rule 485(b) under the Securities Act of 1933 and has duly caused this post-
effective amendment number 1 to the registration statement to be signed on its
behalf by the undersigned, thereto duly authorized, in the City of Birmingham
and State of Alabama, on the 13th day of September, 1994.
PROTECTIVE INVESTMENT COMPANY
By /s/ R. STEPHEN BRIGGS
--------------------------------------
R. Stephen Briggs, President
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed below by the following persons in the
capacities and on the dates indicated.
<TABLE>
<C> <S> <C>
/S/ R. STEPHEN BRIGGS
- ------------------------------------------- President and Director 9/13/94
R. Stephen Briggs (Principal Executive Officer) (dated)
*
- ------------------------------------------- Director 9/13/94
D. Warren Bailey (dated)
*
- ------------------------------------------- Director 9/13/94
Doretta Milligan (dated)
*
- ------------------------------------------- Director 9/13/94
Cleophus Thomas, Jr. (dated)
*
- ------------------------------------------- Director 9/13/94
G. Ruffner Page, Jr. (dated)
/S/ JERRY W. DEFOOR Vice President, Principal
- ------------------------------------------- Financial and Accounting 9/13/94
Jerry W. DeFoor Officer (dated)
By
---------------------------------------
*ATTORNEY-IN-FACT
*Pursuant to a power of attorney.
</TABLE>
<PAGE>
EXHIBIT INDEX
<TABLE>
<C> <S>
5(a). Investment Management Agreement Between Investment Distributors Advisory Services,
Inc. and the Registrant.
5(b). Investment Advisory Agreements Between Investment Distributors Advisory Services,
Inc. and Goldman Sachs Asset Management.
5(c). Investment Advisory Agreements Between Investment Distributors Advisory Services,
Inc. and Goldman Sachs Asset Management International.
6. Participation/Distribution Agreement Between Registrant, Investment Distributors,
Inc. and Protective Life Insurance Company.
8. Custody Agreement Between Registrant and State Street Bank and Trust Company.
9(a). Transfer Agency and Service Agreement Between Registrant and State Street Bank and
Trust Company.
9(b). Subadministration Agreement Between Registrant, State Street Bank and Trust Company
and Investment Distributors Advisory Services, Inc.
11(a). Consent of Sutherland, Asbill & Brennan.
11(b). Consent of Coopers & Lybrand L.L.P.
16. Schedule for Computation of Performance Calculations.
27.1 Protective Money Market Fund Financial Data Schedule
27.2 Protective Select Equity Fund Financial Data Schedule
27.3 Protective Small Cap Fund Financial Data Schedule
27.4 Protective International Equity Fund Financial Data Schedule
27.5 Protective Growth and Income Fund Financial Data Schedule
27.6 Protective Global Income Fund Financial Data Schedule
</TABLE>
<PAGE>
Appendix
On page C-3 in the typeset version of the N-1A, there is a Protective Life
Corporation organizational chart which lists all subsidiaries of Protective
Life Corporation, subsidiaries and affiliates of Protective Life Insurance
Company and affiliates of Protective Investment Company.
<PAGE>
Exhibit 5(a)
Investment Advisory Agreement Between Investment Distributors Advisory Services,
Inc. and Protective Investment Company
<PAGE>
INVESTMENT MANAGEMENT AGREEMENT
THIS INVESTMENT MANAGEMENT AGREEMENT ("Agreement") made this 3rd day of
March, 1994, by and between Protective Investment Company, a Maryland
corporation (hereinafter referred to as the "Company"), and Investment
Distributors Advisory Services, Inc. ("Investment Manager"), a Tennessee
corporation which is registered as an investment adviser under the Investment
Advisers Act of 1940 (the "Act").
WITNESSETH
WHEREAS, the Company intends to engage in business as a diversified, open-
end, management investment company registered under the Investment Company Act
of 1940, as amended (the "1940 Act") and has established six classes of capital
stock designated the: Money Market Series; the Select Equity Series, the Small
Capital Equity Series; the International Equity Series, Growth and Income
Series, and the Global Income Series.
WHEREAS, the Company has established separate investment portfolios
("Portfolios") corresponding to each class of stock, each such portfolio having
its own investment objective;
<PAGE>
WHEREAS, the Investment Manager is engaged principally in rendering
management and investment advisory services and is registered as an investment
adviser under the Act; and
WHEREAS, the Company desires to retain the Investment Manager to render
management and investment advisory services to each Series of the Company in the
manner and on the terms hereinafter set forth; and
WHEREAS, the Investment Manager is willing to provide management and
investment advisor services to the Company on the terms and conditions
hereinafter set forth.
NOW, THEREFORE, in consideration of the premises and the covenants
hereinafter contained, the Company and the Investment Manager hereby agree as
follows:
ARTICLE I
DUTIES OF THE INVESTMENT MANAGER
The Company hereby employs the Investment Manager to act as the manager and
investment adviser of each Series of the Company now established and of any
additional series the Company may create in the future, upon written notice
thereof to the Investment Manager, of each series established hereafter, and to
furnish (or in connection
2
<PAGE>
with management services arrange for affiliates to furnish), the management and
investment advisory services described below, subject to the supervision of the
Board of Directors of the Company ("Board"), for the period and on the terms and
conditions set forth in this Agreement. The Investment Manager hereby accepts
such employment and agrees during such period, at its own expense, to render, or
arrange for the rendering of, such services and to assume the obligations herein
set forth for the compensation provided for herein. In connection therewith,
the Investment Manager may retain a sub-adviser to render such services and to
assume the obligations herein set forth, subject to the provisions of the Act
and the 1940 Act.
The Investment Manager and its affiliates shall for all purposes herein be
deemed to be independent contractors and shall, unless otherwise expressly
provided or authorized, have no authority to act for or represent the Company in
any way or otherwise be deemed agents of the Company.
The Investment Manager shall, for purposes of this Agreement, have and
exercise full investment discretion and authority to act as agent for the
Company in buying, selling or otherwise disposing of or managing the Company's
investments, subject to supervision of the Board.
(a) GENERAL MANAGEMENT SERVICES. The Investment Manager shall perform (or
arrange for the performance) the management and administrative services
necessary for
3
<PAGE>
the operation of the Company, including processing shareholder orders,
administering shareholder accounts and handling shareholder relations. The
Investment Manager shall provide the Company with office space, equipment,
facilities and such other services as the Investment Manager, subject to review
by the Board, shall from time to time determine to be necessary or useful to
perform its obligations under this Agreement. The Investment Manager shall
also, on behalf of the Company, conduct relations with custodians, depositories,
transfer agents, dividend disbursing agents, other shareholder service agents,
underwriters, brokers and dealers, corporate fiduciaries, insurers, banks and
such other persons in any such other capacity deemed to be necessary or
desirable. The Investment Manager shall make reports to the Board of its
performance of its obligations hereunder and furnish advice and recommendations
with respect to such other aspects of the business and affairs of the Company as
it shall determine to be desirable. The Investment Manager shall also be
responsible for performance of various administrative functions for the Company
including: (a) computation of each Fund's net asset value and daily income; (b)
computation of each Fund's yields and total returns; (c) schedule, plan agendas
for and conduct directors and shareholders meetings; (d) coordinate the efforts
of the Company's counsel and auditors; (e) prepare and distribute all required
reports, proxy materials and other communications with shareholders; (f) prepare
and file tax returns, reports, registration statements and other required
documents with the Securities and Exchange Commission ("SEC"), state blue sky
authorities, the Internal Revenue Service and other appropriate government
agencies; (g) provide clerical, secretarial, and bookkeeping services, office
supplies, office space and
4
<PAGE>
related services (including telephone and other utility services); (h) maintain
corporate records not otherwise maintained by the Company's custodian, transfer
agent, accounting services agent or investment managers, and (i) monitor state
and federal law as it may apply to the Company or the Funds.
(b) INVESTMENT MANAGEMENT SERVICES. The Investment Manager shall provide
the Company with such investment research, advice and supervision as the latter
may from time to time consider necessary for the proper supervision of the
assets of each Portfolio of the Company, shall furnish continuously an
investment program for each Portfolio, shall determine from time to time which
securities shall be purchased, sold or exchanged and what portions of each
Portfolio shall be held in the various securities or cash, and shall take such
steps as are necessary to implement an overall investment plan for each
Portfolio, including providing or obtaining such services as may be necessary in
managing, acquiring or disposing of investments. The Investment Manager's
services shall be subject always to the control and supervision of the Board,
the restrictions of the Articles of Incorporation and Bylaws of the Company, as
amended from time to time, the provisions of the 1940 Act, the statements
relating to the Portfolio's investment objectives, investment policies and
investment restrictions as same are set forth in the currently effective
registration statement of the Company under the Securities Act of 1933, as
amended, appropriate state insurance laws, and any applicable provisions of the
Internal Revenue Code of 1986 (the "Code"). The Company has furnished or will
furnish the Investment Manager with copies of the Company's registration
statement, articles of incorporation, and by-laws as currently in effect and
agrees during the continuance of this
5
<PAGE>
agreement to furnish the Investment Manager with copies of any amendments or
supplements thereto before or at the time the amendments or supplements become
effective. The Investment Manager will be entitled to rely on all documents
furnished by the Company.
In particular, the Investment Manager represents that in performing
investment advisory services for each Portfolio, the Investment Manager shall
make every effort to ensure that: (1) each Portfolio shall comply with Section
817(h) of the Code, and the regulations issued thereunder specifically
Regulation Section 1.817-5, relating to the diversification requirements for
variable annuity, endowment, and life insurance contracts, and any amendments or
other modifications to such Section or regulations; (2) each Portfolio
continuously qualifies as a regulated Investment Company under Subchapter M of
the Code or any successor provision; (3) any and all applicable state insurance
law restrictions on investments that operate to limit or restrict the
investments of a Portfolio may otherwise make are complied with as well as any
changes thereto. Except as instructed by the Board, the Investment Manager
shall also make decisions for the Company as to the manner in which voting
rights, rights to consent to corporate action and any other rights pertaining to
the Company's portfolio securities shall be exercised. Should the Board of the
Company at any time make any determination as to investment policy and notify
the Investment Manager thereof, the Investment Manager shall be bound by such
determination for the period, if any, specified in such notice or until
similarly notified that such determination has been revoked.
6
<PAGE>
The Investment Manager shall take, on behalf of each Portfolio all actions
which it deems necessary to implement the investment policies of Portfolio, and
in particular to place all orders for the purchase or sale of portfolio
investments for the Company's account of each Portfolio with brokers or dealers
selected by it, and to that end, the Investment Manager is authorized as the
agent of the Company to give instructions to the custodian of the Company as to
deliveries of securities and payments of cash for the account of the Company.
In connection with the selection of brokers or dealers and the placing of
purchase and sale orders with respect to assets of the Portfolio, the Investment
Manager is directed at all times to seek to obtain best execution and price
within the policy guidelines determined by the Board of the Company and set
forth in the current registration statement. Subject to this requirement and
the provisions of the Act, the Securities Exchange Act of 1934, as amended, and
other applicable provisions of law, the Investment Manager may select brokers or
dealers with which it or the Company is affiliated as well as brokers or dealers
which sell insurance policies of Protective Life Insurance Company or its
affiliates.
In addition to seeking the best price and execution, the Investment Manager
may also take into consideration research and statistical information and wire
and other quotation services provided by brokers and dealers to the Investment
Manager. Investment Manager is also authorized to effect individual securities
transactions at commission rates in excess of the minimum commission rates
available, if the Investment Manager determines in good faith that such amount
of commission is reasonable in
7
<PAGE>
relation to the value of the brokerage and research services provided by such
broker or dealer, viewed in terms of either that particular transaction or
Investment Manager's overall responsibilities with respect to each Portfolio of
the Company. The policies with respect to brokerage allocation, determined from
time to time by the Board are those disclosed in the currently effective
registration statement. The execution of such transactions shall not be deemed
to represent an unlawful act or breach of any duty created by this Agreement or
otherwise. The Investment Manager will periodically evaluate the statistical
data, research and other investment services provided to it by brokers and
dealers. Such services may be used by the Investment Manager in connection with
the performance of its obligations under this Agreement or in connection with
other advisory or investment operations including using such information in
managing its own accounts.
In addition, in carrying out its obligations to manage the investment and
reinvestment of the assets of each Portfolio, the Investment Manager shall:
(a) perform research and obtain and evaluate pertinent economic,
statistical, and financial data relevant to the investment policies of
each Portfolio as set forth in the registration statement for the
Company, as amended from time to time;
8
<PAGE>
(b) consult with the Board and furnish to the Board recommendations with
respect to an overall investment strategy for each Portfolio for
approval, modification, or rejection by the Board;
(c) seek out and implement specific investment opportunities, consistent
with any investment strategies approved by the Board;
(d) take such steps as are necessary to implement any overall investment
strategies approved by the Board for each Portfolio, including making
and carrying out day-to-day decisions to acquire or dispose of
permissible investments, management of investments and any other
property of the Portfolio, and providing or obtaining such services as
may be necessary in managing, acquiring or disposing of investments;
(e) regularly report to the Board with respect to the implementation of
any approved overall investment strategy and any other activities in
connection with management of the assets of each Portfolio including
furnishing, within 30 days after the end of each calendar quarter, a
statement of all purchases and sales during the quarter and a schedule
of investments and other assets of each Portfolio as of the end of the
quarter;
9
<PAGE>
(f) maintain all required accounts, records, memoranda, instructions or
authorizations relating to the acquisition or disposition of
investments for each Portfolio and the Company;
(g) assist the Company officers in determining each business day the net
asset value of the shares of each Portfolio of the Company in
accordance with applicable law; and
(h) enter into any advisory or sub-advisory contract with another
affiliated or unaffiliated entity pursuant to which such entity will
carry out some or all of the Manager's responsibilities (as specified
in such advisory or subadvisory contract) listed above.
ARTICLE II
ALLOCATION OF CHARGES AND EXPENSES
(a) THE INVESTMENT MANAGER. The Investment Manager assumes the expense of
and shall pay for maintaining the staff and personnel necessary to perform its
obligations under this Agreement, and shall at its own expense provide the
office space, equipment and facilities which it is obligated to provide
hereunder, and shall pay all compensation of officers of the Company and all
directors of the Company who are affiliated persons of the Investment Manager.
10
<PAGE>
(b) THE COMPANY. The Company assumes and shall pay or cause to be paid
all other expenses of the Company, including, without limitation, the following:
taxes, expenses for legal and auditing services, costs of printing proxy
materials, stock certificates, shareholder reports and prospectuses (except to
the extent such prospectuses are used in connection with the sale and
distribution of the Company's securities), custody and transfer agency fee,
expenses of redemption of shares, Securities and Exchange Commission fees,
expenses of registering the shares under federal and state securities laws, fees
and actual out-of-pocket expenses of directors who are not affiliated persons of
the Company, accounting and pricing costs (including the daily calculation of
the net asset value), insurance, interest, brokerage costs, litigation and other
extraordinary or nonrecurring expenses, and other expenses properly payable by
the Company.
ARTICLE III
COMPENSATION OF THE INVESTMENT MANAGER
For the services rendered, the facilities furnished and expenses assumed by
the Investment Manager, the Company shall pay to the Investment Manager at the
end of each calendar month a fee calculated as a percentage of the average daily
net assets each Portfolio during that month at the following annual rates:
11
<PAGE>
MONEY MARKET: .60%
SELECT EQUITY: .80%
SMALL CAPITAL EQUITY: .80%
INTERNATIONAL EQUITY: 1.10%
GROWTH AND INCOME: .80%
GLOBAL INCOME: 1.10%
Investment Manager's fee shall be accrued daily at 1/365th of the
applicable annual rate set forth above. For the purpose of accruing
compensation, the net assets of each Portfolio shall be determined in the manner
and on the dates set forth in the current prospectus of the Company and, on days
on which the net assets are not so determined, the net asset computation to be
used shall be as determined on the next day on which the net assets shall have
been determined.
In the event of termination of this Agreement, all compensation due through
the date of termination will be calculated on a pro-rated basis through the date
of termination and paid within fifteen business days of the date of termination.
During any period when the determination of net asset value is suspended,
the net asset value of a Portfolio as of the last business day prior to such
suspension shall for this purpose be deemed to be the net asset value at the
close of each succeeding business day until it is again determined.
12
<PAGE>
ARTICLE IV
LIMITATION OF LIABILITY OF THE INVESTMENT MANAGER
The Investment Manager shall not be liable for any error of judgment or
mistake of law or for any loss arising out of any investment or for any act or
omission in the management of the Company, except for (i) willful misfeasance,
bad faith or gross negligence in the performance of its duties or by reason of
reckless disregard of its obligations and duties hereunder, and (ii) to the
extent specified in section 36(b) of the 1940 Act concerning loss resulting from
a breach of fiduciary duty with respect to the receipt of corporation. As used
in this Article IV, the term "Investment Manager" shall include any affiliates
of the Investment Manager performing services for the Company contemplated
hereby and directors, officers and employees of the Investment Manager and such
affiliates.
ARTICLE V
ACTIVITIES OF THE INVESTMENT MANAGER
The services of the Investment Manager to the Company are not deemed to be
exclusive, and the Investment Manager is free to render services to others, so
long as the Investment Manager's services under this Agreement are not impaired.
It is understood that directors, officers, employees and shareholders of the
Company are or may become interested persons of the Investment Manager, as
directors, officers, employees and
13
<PAGE>
shareholders or otherwise, and that directors, officers, employees and
shareholders of the Investment Manager are or may become similarly interested
persons of the Company, and that the Investment Manager may become interested
in the Company as a shareholder or otherwise.
It is agreed that the Investment Manager may use any supplemental
investment research obtained for the benefit of the Company in providing
investment advice to its other investment advisory accounts. The Investment
Manager or its affiliates may use such information in managing their own
accounts. Conversely, such supplemental information obtained by the placement
of business for the Investment Manager or other entities advised by the
Investment Manager will be considered by and may be useful to the Investment
Manager in carrying out its obligations to the Company.
Securities held by the Company may also be held by separate investment
accounts or other mutual funds for which the Investment Manager may act as an
investment adviser or by the Investment Manager or its affiliates. Because of
different investment objectives or other factors, a particular security may be
bought by the Investment Manager or its affiliates or for one or more clients
when one or more clients are selling the same security. If purchases or sales
of securities for the Company or other entities for which the Investment Manager
or its affiliates act as investment adviser or for their advisory clients arise
for consideration at or about the same time, the Company agrees that the
Investment Manager may make transactions in such securities, insofar as
14
<PAGE>
feasible, for the respective entities and clients in a manner deemed equitable
to all. To the extent that transactions on behalf of more than one client of
the Investment Manager during the same period may increase the demand for
securities being purchased or the supply of securities being sold, the Company
recognizes that there may be an adverse effect on price.
It is agreed that, on occasions when the Investment Manager deems the
purchase or sale of a security to be in the best interest of the Company as well
as other accounts or companies, it may, to the extent permitted by applicable
laws or regulations, but will not be obligated to, aggregate the securities to
be sold or purchased for other accounts or companies in order to obtain
favorable execution and lower brokerage commissions or prices. In that event,
allocation of the securities purchased or sold, as well as the expenses incurred
in the transaction, will be made by the Investment Manager in the manner it
considers to be most equitable and consistent with its fiduciary obligations to
the Company and to such other accounts or companies. The Company recognizes
that in some cases this procedure may adversely affect the size of the position
obtainable for a Portfolio.
15
<PAGE>
ARTICLE VI
BOOKS AND RECORDS
The Investment Manager hereby undertakes and agrees to maintain, in the
form and for the period required by Rule 31a-2 and Rule 2a-7 under the
Investment Company Act of 1940, all records relating to the Company's
investments that are required to be maintained by the Company pursuant to the
requirements of Rule 31a-1 and Rule 2a-7 of that Act.
The Investment Manager agrees that all books and records which it maintains
for the Company are the property of the Company and further agrees to surrender
promptly to the Company any such books, records or information upon the
Company's request. All such books and records shall be made available, within
five business days of a written request, to the Company's accountants or
auditors during regular business hours at the Investment Manager's offices. The
Company or its authorized representative shall have the right to copy any
records in the possession of the Investment Manager which pertain to the
Company. Such books, records, information or reports shall be made available to
properly constituted governmental authorities consistent with state and federal
law and/or regulations. In the event of the termination of this Agreement, all
such books, records or other information shall be returned to the Company free
from any claim or assertion of rights by the Investment Manager.
16
<PAGE>
The Investment Manager further agrees that it will not disclose or use any
records or information obtained pursuant to this Agreement in any manner
whatsoever except as authorized in this Agreement and that it will keep
confidential any information obtained pursuant to this Agreement and disclose
such information only if the Company has authorized such disclosure, or if such
disclosure is required by Federal or state regulatory authorities.
ARTICLE VII
DURATION AND TERMINATION OF THIS AGREEMENT
This Agreement shall not become effective unless and until it is approved
by the Company's Board, including a majority of directors who are not parties to
this Agreement or interested persons of any such party to this Agreement. This
Agreement shall come into full force and effect on the date which it is so
approved, provided that it shall not become effective as to any subsequently
created Series or Portfolio until it has been approved by the Board specifically
for such Series or Portfolio. As to each Series or Portfolio of the Company,
the Agreement shall continue in effect until the date of the first annual or
special meeting of shareholders of the Series subsequent to its creation, but
not later than one year after the effective date of the Securities Act of 1933
Registration Statement for the class or Series of shares representing interests
in that Portfolio and shall thereafter continue in effect from year to year so
long as such continuance is specifically approved for each Portfolio at least
annually by (i) the Board of the Company, or by the
17
<PAGE>
vote of a majority of the outstanding votes attributable to the shares of a
class or Series; and (ii) a majority of those directors 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 at any time as to any Series or Portfolios
or to all Series or Portfolios, without the payment of any penalty, by the Board
of the Company, or by vote of a majority of the outstanding votes attributable
to the shares of a class or Series, or by the Investment Manager, on sixty days
written notice to the other party. If this Agreement is terminated only with
respect to one or more, but less than all, of the Series or Portfolios, or if a
different adviser is appointed with respect to a new Series or Portfolios, the
Agreement shall remain in effect with respect to the remaining Series or
Portfolios. This Agreement shall automatically terminate in the event of its
assignment.
ARTICLE VIII
AMENDMENTS OF THIS AGREEMENT
This Agreement may be amended as to each Portfolio by the parties only if
such amendment is specifically approved by (i) the vote of a majority of
outstanding votes attributable to the shares of a class or Series, and (ii) a
majority of those directors 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.
18
<PAGE>
ARTICLE IX
DEFINITIONS OF CERTAIN TERMS
The term "assignment", "affiliated person" and "interested person", when
used in this Agreement, shall have the respective meanings specified in the
Investment Company Act of 1940. The term "majority of the outstanding votes
attributable to the shares of a class or Series means the lesser of (a) 67% or
more of the votes attributable to shares of the Fund presented at a meeting if
the holders of more than 50% of such votes are present or represented by proxy
or (b) more than 50% of the votes attributable to shares of the Fund.
ARTICLE X
GOVERNING LAW
This Agreement shall be construed in accordance with laws of the State of
Maryland, and applicable provisions of the Act and the 1940 Act.
ARTICLE XI
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.
19
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Agreement as of the date first above written.
PROTECTIVE INVESTMENT COMPANY
By: ______________________________
Its: ______________________________
ATTEST:
__________________________
INVESTMENT DISTRIBUTORS ADVISORY
SERVICES, INC.
By: ______________________________
Its: ______________________________
ATTEST:
__________________________
20
<PAGE>
Exhibit 5(b)
Investment Advisory Agreements Between Investment Distributors Advisory
Services, Inc. and Goldman Sachs Asset Management.
<PAGE>
ADVISORY AGREEMENT
BETWEEN INVESTMENT DISTRIBUTORS ADVISORY SERVICES, INC.
and
GOLDMAN SACHS ASSET MANAGEMENT,
a separate operating division of
GOLDMAN, SACHS & CO.
It is hereby agreed by and between INVESTMENT DISTRIBUTORS ADVISORY
SERVICES, INC. (the "Manager") and GOLDMAN SACHS ASSET MANAGEMENT, a separate
operating division of GOLDMAN, SACHS & CO. ("Adviser") as follows:
1.
DUTIES OF ADVISER. Manager hereby engages the services of Adviser in
furtherance of its Investment Management Agreement with Protective Investment
Company (the "Company") dated as of March 2, 1994 on behalf of Protective Money
Market Fund (the "Fund"). Pursuant to this Advisory Agreement and subject to
the oversight and review of Manager, Adviser will manage the investment and
reinvestment of the assets of the Fund. In this regard, Adviser will determine
in its discretion the securities to be purchased or sold, will provide Manager
with records concerning its activities which Manager or the Company is required
to maintain, and will render regular reports to Manager and to Officers and
Directors of the Company concerning its discharge of the foregoing
responsibilities. Adviser shall discharge the foregoing responsibilities
subject to the control of the Officers and the Directors of the Company and in
compliance with such policies as the Directors of the Company may from time to
time establish, and in compliance with the objectives, policies, and limitations
for the Fund set forth in the Fund's current prospectus and statement of
additional information, and applicable laws and regulations. Manager agrees to
inform Adviser of any and all applicable state insurance law restrictions on
investments that operate to limit or restrict the investments the Fund may
otherwise make, and to inform Adviser promptly of any changes in such
requirements. Adviser accepts such employment and agrees, at its own expense, to
render the services set forth herein and to provide the office space,
furnishings, equipment and personnel required by it to perform such services on
the terms and for the compensation provided in this Agreement.
<PAGE>
2.
FUND TRANSACTIONS. Adviser is authorized to select the brokers or dealers that
will execute the purchases and sales of portfolio securities and is directed to
use its best efforts to obtain the best price and execution. Subject to
policies established from time to time by the Directors of the Company, Adviser
may also be authorized to effect individual securities transactions at
commission rates in excess of the minimum commission rates available, if Adviser
determines in good faith that such amount of commission is reasonable in
relation to the value of the brokerage and research services provided by such
broker or dealer, viewed in terms of either that particular transaction or
Adviser's overall responsibilities with respect to the Fund, other portfolios of
the Fund and other clients of Adviser. The policies of the Company with respect
to brokerage allocation, determined from time to time by the Company's Board of
Directors, are those disclosed in the Company's currently effective registration
statement at any time. The execution of such transactions shall not be deemed
to represent an unlawful act or breach of any duty created by this Agreement or
otherwise. Adviser will promptly communicate to Manager and to the Officers and
the Directors of the Company such information relating to portfolio transactions
as they may reasonably request.
It is agreed that Adviser may use any supplemental investment research
obtained for the benefit of the Fund in providing investment advice to its other
investment advisory accounts. The Adviser or its subsidiaries may use such
information in managing their own accounts. Conversely, such supplemental
information obtained by the placement of business for the Adviser or other
entities advised by the Adviser will be considered by and may be useful to the
Adviser in carrying out its obligations to the Fund.
3.
COMPENSATION OF ADVISER. As its compensation hereunder, the Manager shall pay
to Adviser promptly after the end of each month, a fee calculated as a
percentage of the average daily net assets of the Fund during that month at the
following annual rates: .35% of the first $50 million, .25% of the next $100
million, .20% of the next $100 million, and .15% of the net assets in excess of
$250 million.
Adviser's fee shall be accrued daily at 1/365th of the applicable annual
rate set forth above. For the purpose of accruing compensation, the net assets
of the Fund shall be that determined in the manner and on the dates set forth in
the current prospectus of the Fund and, on days on which the net assets are not
so determined, the net asset computation to be used shall be as determined on
the next day on which the net assets shall have been determined.
2
<PAGE>
In the event of termination of this Agreement, all compensation due through
the date of termination will be calculated on a pro-rated basis through the date
of termination and paid within fifteen business days of the date of termination.
4.
REPORTS. Manager and Adviser agree to furnish to each other, if applicable,
current prospectuses, statements of additional information, proxy statements,
reports of shareholders, certified copies of their financial statements, and
such other information with regard to their affairs and that of the Fund as each
may reasonably request.
5.
STATUS OF ADVISER. The services of Adviser to Manager and the Fund are not to
be deemed exclusive, and Adviser shall be free to render similar services to
others so long as its services to the Fund are not impaired thereby. Adviser
shall be deemed to be an independent contractor and shall, unless otherwise
expressly provided or authorized, have no authority to act for or represent the
Fund in any way or otherwise be deemed an agent of the Fund.
6.
CERTAIN RECORDS. Adviser hereby undertakes and agrees to maintain, in the form
and for the period required by Rule 31a-2 and Rule 2a-7 under the Investment
Company Act of 1940, all records relating to the Fund's investments that are
required to be maintained by the Fund pursuant to the requirements of Rule 31a-1
and Rule 2a-7 of that Act. Any records required to be maintained and preserved
pursuant to the provisions of Rule 31a-1, Rule 31a-2 and Rule 2a-7 promulgated
under the Investment Company Act of 1940 which are prepared or maintained by
Adviser on behalf of the Fund are the property of the Fund and will be
surrendered promptly to the Fund or Manager on request.
Adviser agrees that all accounts, books and other records maintained and
preserved by it as required hereby shall be subject at any time, and from time
to time, to such reasonable periodic, special and other examinations by the
Securities and Exchange Commission, the Fund's auditors, the Fund or any
representative of the Fund, the Manager, or any governmental agency or other
instrumentality having regulatory authority over the Fund.
3
<PAGE>
7.
REFERENCE TO ADVISER. Neither the Fund nor Manager or any affiliate or agent
thereof shall make reference to or use the name of Adviser or any of its
affiliates in any advertising or promotional materials without the prior
approval of Adviser, which approval shall not be unreasonably withheld.
8.
LIABILITY OF MANAGER AND ADVISER. In the absence of willful misfeasance, bad
faith, gross negligence or reckless disregard of obligations or duties
("disabling conduct") hereunder on the part of Adviser (and its officers,
directors, agents, partners, employees, controlling persons, shareholders and
any other person or entity affiliated with Adviser ("associated persons")),
Adviser and its associated persons shall not be subject to liability to the
Manager or to any other person for any act or omission in the course of, or
connected with, rendering services hereunder (including, without limitation, as
a result of failure by Manager, by any other affiliate of Protective Life
Insurance Company ("PLIC"), or by PLIC, to comply with this Agreement and/or any
applicable insurance laws and regulations or, as a result of any error of
judgment or mistake of law or for any loss suffered by Manager or any other
person in connection with the matters to which this Agreement relates), except
to the extent specified in Section 36(b) of the Investment Company Act of 1940
concerning loss resulting from a breach of fiduciary duty with respect to the
receipt of compensation for services.
Manager hereby indemnifies, defends and protects Adviser and holds Adviser
and its associated persons harmless from and against any and all claims,
demands, actions, losses, damages, liabilities, costs, charges, counsel fees and
expenses of any nature ("Losses") arising out of any breach by Manager of any
representation or agreement contained in this Advisory Agreement, (including any
failure by Manager to apprise Adviser of any changes in any applicable state
insurance laws and regulations). Adviser hereby indemnifies, defends and
protects Manager and holds the Manager and its associated persons harmless, from
and against any Losses arising out of the Adviser's disabling conduct.
9.
DURATION AND TERMINATION. This Agreement shall continue in full force and
effect with respect to the Fund until the earlier of (a) two years from the
execution date of Agreement, or (b) the first meeting of the shareholders of the
Fund after the date hereof. If approved at such meeting by the affirmative vote
of a majority of the outstanding voting securities (as defined in the Investment
Company Act of 1940), of the Fund with respect to such Fund, voting separately
from any other series of the Company, this Agreement
4
<PAGE>
shall continue in full force and effect with respect to the Fund from year to
year thereafter so long as such continuance is specifically approved at least
annually (i) by the vote of a majority of those Directors of the Company 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, and (ii)
by the Directors of the Company or by vote of a majority of the outstanding
voting securities of the Fund voting separately from any other Fund, provided,
however, that if the shareholders fail to approve the Agreement as provided
herein, Adviser may continue to serve hereunder in the manner and to the extent
permitted by the Investment Company Act of 1940 and rules thereunder. The
foregoing requirement that continuance of this Agreement be "specifically
approved at least annually" shall be construed in a manner consistent with the
Investment Company Act of 1940 and the rules and regulations thereunder.
This Agreement may be terminated at any time, without the payment of any
penalty by vote of a majority of the Directors of the Company or by a vote of a
majority of the outstanding voting securities of the Fund on not less than 30
days nor more than 60 days written notice to Adviser or by Adviser at any time
without the payment of any penalty, on 90 days written notice to Manager and the
Company. This Agreement shall automatically terminate in the event of its
assignment (as defined in the Investment Company Act of 1940). Any notice under
this Agreement shall be given in writing, addressed and delivered, or mailed
postage prepaid, to the other party at any office of such party.
As used in this Section 9, the terms "assignment," "interested persons,"
and a "vote of a majority of the outstanding voting securities" shall have the
respective meanings set forth in the Investment Company Act of 1940 and the
rules and regulations thereunder, subject to such exemptions as may be granted
by the Securities and Exchange Commission under said Act.
This Agreement will also terminate in the event that the Investment
Management Agreement by and between the Company on behalf of the Fund and
Manager referred to in Section 1 is terminated.
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.
AMENDMENTS. This Agreement may not be amended, altered, modified in any way
except by an addendum in writing duly executed by the proper officials of the
parties hereto.
5
<PAGE>
GOVERNING LAW. This Agreement shall be construed in accordance with the laws of
the State of Tennessee, and the applicable provisions of the Investment Company
Act of 1940. To the extent that the applicable laws of the State of Tennessee,
or any provisions herein, conflict with the applicable provisions of the
Investment Company Act of 1940, the later shall control.
IN WITNESS WHEREOF, the parties have caused their respective duly
authorized officers to execute this Agreement as of March 2, 1994.
INVESTMENT DISTRIBUTORS ADVISORY
SERVICES, INC.
By: ______________________________________
Authorized Officer
GOLDMAN SACHS ASSET MANAGEMENT,
a separate operating division of
GOLDMAN, SACHS & CO.
By: GOLDMAN, SACHS & CO.
By: ______________________________________
Authorized Officer
6
<PAGE>
ADVISORY AGREEMENT
BETWEEN INVESTMENT DISTRIBUTORS ADVISORY SERVICES, INC.
and
GOLDMAN SACHS ASSET MANAGEMENT,
a separate operating division of
GOLDMAN, SACHS & CO.
It is hereby agreed by and between INVESTMENT DISTRIBUTORS ADVISORY
SERVICES, INC. (the "Manager") and GOLDMAN SACHS ASSET MANAGEMENT, a separate
operating division of GOLDMAN, SACHS & CO. ("Adviser") as follows:
1.
DUTIES OF ADVISER. Manager hereby engages the services of Adviser in
furtherance of its Investment Management Agreement with Protective Investment
Company (the "Company") dated as of March 2, 1994, on behalf of Protective
Select Equity Fund (the "Fund"). Pursuant to this Advisory Agreement and
subject to the oversight and review of Manager, Adviser will manage the
investment and reinvestment of the assets of the Fund. In this regard, Adviser
will determine in its discretion the securities to be purchased or sold, will
provide Manager with records concerning its activities which Manager or the
Company is required to maintain, and will render regular reports to Manager and
to Officers and Directors of the Company concerning its discharge of the
foregoing responsibilities. Adviser shall discharge the foregoing
responsibilities subject to the control of the Officers and the Directors of the
Company and in compliance with such policies as the Directors of the Company may
from time to time establish, and in compliance with the objectives, policies,
and limitations for the Fund set forth in the Fund's current prospectus and
statement of additional information, and applicable laws and regulations.
Manager agrees to inform Adviser of any and all applicable state insurance law
restrictions on investments that operate to limit or restrict the investments
the Fund may otherwise make, and to inform Adviser promptly of any changes in
such requirements. Adviser accepts such employment and agrees, at its own
expense, to render the services set forth herein and to provide the office
space, furnishings, equipment and personnel required by it to perform such
services on the terms and for the compensation provided in this Agreement.
<PAGE>
2.
FUND TRANSACTIONS. Adviser is authorized to select the brokers or dealers that
will execute the purchases and sales of portfolio securities and is directed to
use its best efforts to obtain the best price and execution. Subject to
policies established from time to time by the Directors of the Company, Adviser
may also be authorized to effect individual securities transactions at
commission rates in excess of the minimum commission rates available, if Adviser
determines in good faith that such amount of commission is reasonable in
relation to the value of the brokerage and research services provided by such
broker or dealer, viewed in terms of either that particular transaction or
Adviser's overall responsibilities with respect to the Fund, other portfolios of
the Fund and other clients of Adviser. The policies of the Company with respect
to brokerage allocation, determined from time to time by the Company's Board of
Directors, are those disclosed in the Company's currently effective registration
statement at any time. The execution of such transactions shall not be deemed
to represent an unlawful act or breach of any duty created by this Agreement or
otherwise. Adviser will promptly communicate to Manager and to the Officers and
the Directors of the Company such information relating to portfolio transactions
as they may reasonably request.
It is agreed that Adviser may use any supplemental investment research
obtained for the benefit of the Fund in providing investment advice to its other
investment advisory accounts. The Adviser or its subsidiaries may use such
information in managing their own accounts. Conversely, such supplemental
information obtained by the placement of business for the Adviser or other
entities advised by the Adviser will be considered by and may be useful to the
Adviser in carrying out its obligations to the Fund.
3.
COMPENSATION OF ADVISER. As its compensation hereunder, the Manager shall pay
to Adviser promptly after the end of each month, a fee calculated as a
percentage of the average daily net assets of the Fund during that month at the
following annual rates: .40% of the first $50 million, .30% of the next $150
million, and .20% of the net assets in excess of the next $100 million.
Adviser's fee shall be accrued daily at 1/365th of the applicable annual
rate set forth above. For the purpose of accruing compensation, the net assets
of the Fund shall be that determined in the manner and on the dates set forth in
the current prospectus of the Fund and, on days on which the net assets are not
so determined, the net asset computation to be used shall be as determined on
the next day on which the net assets shall have been determined.
2
<PAGE>
In the event of termination of this Agreement, all compensation due through
the date of termination will be calculated on a pro-rated basis through the date
of termination and paid within fifteen business days of the date of termination.
4.
REPORTS. Manager and Adviser agree to furnish to each other, if applicable,
current prospectuses, statements of additional information, proxy statements,
reports of shareholders, certified copies of their financial statements, and
such other information with regard to their affairs and that of the Fund as each
may reasonably request.
5.
STATUS OF ADVISER. The services of Adviser to Manager and the Fund are not to
be deemed exclusive, and Adviser shall be free to render similar services to
others so long as its services to the Fund are not impaired thereby. Adviser
shall be deemed to be an independent contractor and shall, unless otherwise
expressly provided or authorized, have no authority to act for or represent the
Fund in any way or otherwise be deemed an agent of the Fund.
6.
CERTAIN RECORDS. Adviser hereby undertakes and agrees to maintain, in the form
and for the period required by Rule 31a-2 under the Investment Company Act of
1940, all records relating to the Fund's investments that are required to be
maintained by the Fund pursuant to the requirements of Rule 31a-1 of that Act.
Any records required to be maintained and preserved pursuant to the provisions
of Rule 31a-1 and Rule 31a-2 promulgated under the Investment Company Act of
1940 which are prepared or maintained by Adviser on behalf of the Fund are the
property of the Fund and will be surrendered promptly to the Fund or Manager on
request.
Adviser agrees that all accounts, books and other records maintained and
preserved by it as required hereby shall be subject at any time, and from time
to time, to such reasonable periodic, special and other examinations by the
Securities and Exchange Commission, the Fund's auditors, the Fund or any
representative of the Fund, the Manager, or any governmental agency or other
instrumentality having regulatory authority over the Fund.
3
<PAGE>
7.
REFERENCE TO ADVISER. Neither the Fund nor Manager or any affiliate or agent
thereof shall make reference to or use the name of Adviser or any of its
affiliates in any advertising or promotional materials without the prior
approval of Adviser, which approval shall not be unreasonably withheld.
8.
LIABILITY OF MANAGER AND ADVISER. In the absence of willful misfeasance, bad
faith, gross negligence or reckless disregard of obligations or duties
("disabling conduct") hereunder on the part of Adviser (and its officers,
directors, agents, partners, employees, controlling persons, shareholders and
any other person or entity affiliated with Adviser ("associated persons")),
Adviser and its associated persons shall not be subject to liability to the
Manager or to any other person for any act or omission in the course of, or
connected with, rendering services hereunder (including, without limitation, as
a result of failure by Manager, by any other affiliate of Protective Life
Insurance Company ("PLIC"), or by PLIC, to comply with this Agreement and/or any
applicable insurance laws and regulations or, as a result of any error of
judgment or mistake of law or for any loss suffered by Manager or any other
person in connection with the matters to which this Agreement relates), except
to the extent specified in Section 36(b) of the Investment Company Act of 1940
concerning loss resulting from a breach of fiduciary duty with respect to the
receipt of compensation for services.
Manager hereby indemnifies, defends and protects Adviser and holds Adviser
and its associated persons harmless from and against any and all claims,
demands, actions, losses, damages, liabilities, costs, charges, counsel fees and
expenses of any nature ("Losses") arising out of any breach by Manager of any
representation or agreement contained in this Advisory Agreement, (including any
failure by Manager to apprise Adviser of any changes in any applicable state
insurance laws and regulations). Adviser hereby indemnifies, defends and
protects Manager and holds the Manager and its associated persons harmless, from
and against any Losses arising out of the Adviser's disabling conduct.
9.
DURATION AND TERMINATION. This Agreement shall continue in full force and
effect with respect to the Fund until the earlier of (a) two years from the
execution date of Agreement, or (b) the first meeting of the shareholders of the
Fund after the date hereof. If approved at such meeting by the affirmative vote
of a majority of the outstanding voting securities (as defined in the Investment
Company Act of 1940), of the Fund with respect to such Fund, voting separately
from any other series of the Company, this Agreement
4
<PAGE>
shall continue in full force and effect with respect to the Fund from year to
year thereafter so long as such continuance is specifically approved at least
annually (i) by the vote of a majority of those Directors of the Company 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, and (ii)
by the Directors of the Company or by vote of a majority of the outstanding
voting securities of the Fund voting separately from any other Fund, provided,
however, that if the shareholders fail to approve the Agreement as provided
herein, Adviser may continue to serve hereunder in the manner and to the extent
permitted by the Investment Company Act of 1940 and rules thereunder. The
foregoing requirement that continuance of this Agreement be "specifically
approved at least annually" shall be construed in a manner consistent with the
Investment Company Act of 1940 and the rules and regulations thereunder.
This Agreement may be terminated at any time, without the payment of any
penalty by vote of a majority of the Directors of the Company or by a vote of a
majority of the outstanding voting securities of the Fund on not less than 30
days nor more than 60 days written notice to Adviser or by Adviser at any time
without the payment of any penalty, on 90 days written notice to Manager and the
Company. This Agreement shall automatically terminate in the event of its
assignment (as defined in the Investment Company Act of 1940). Any notice under
this Agreement shall be given in writing, addressed and delivered, or mailed
postage prepaid, to the other party at any office of such party.
As used in this Section 9, the terms "assignment," "interested persons,"
and a "vote of a majority of the outstanding voting securities" shall have the
respective meanings set forth in the Investment Company Act of 1940 and the
rules and regulations thereunder, subject to such exemptions as may be granted
by the Securities and Exchange Commission under said Act.
This Agreement will also terminate in the event that the Investment
Management Agreement by and between the Company on behalf of the Fund and
Manager referred to in Section 1 is terminated.
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.
AMENDMENTS. This Agreement may not be amended, altered, modified in any way
except by an addendum in writing duly executed by the proper officials of the
parties hereto.
5
<PAGE>
GOVERNING LAW. This Agreement shall be construed in accordance with the laws of
the State of Tennessee, and the applicable provisions of the Investment Company
Act of 1940. To the extent that the applicable laws of the State of Tennessee,
or any provisions herein, conflict with the applicable provisions of the
Investment Company Act of 1940, the later shall control.
IN WITNESS WHEREOF, the parties have caused their respective duly
authorized officers to execute this Agreement as of March 2, 1994.
INVESTMENT DISTRIBUTORS ADVISORY
SERVICES, INC.
By: ______________________________________
Authorized Officer
GOLDMAN SACHS ASSET MANAGEMENT,
a separate operating division of
GOLDMAN, SACHS & CO.
By: GOLDMAN, SACHS & CO.
By: ______________________________________
Authorized Officer
6
<PAGE>
ADVISORY AGREEMENT
BETWEEN INVESTMENT DISTRIBUTORS ADVISORY SERVICES, INC.
and
GOLDMAN SACHS ASSET MANAGEMENT,
a separate operating division of
GOLDMAN, SACHS & CO.
It is hereby agreed by and between INVESTMENT DISTRIBUTORS ADVISORY
SERVICES, INC. (the "Manager") and GOLDMAN SACHS ASSET MANAGEMENT, a separate
operating division of GOLDMAN, SACHS & CO. ("Adviser") as follows:
1.
DUTIES OF ADVISER. Manager hereby engages the services of Adviser in
furtherance of its Investment Management Agreement with Protective Investment
Company (the "Company") dated as of March 2, 1994, on behalf of Protective
Growth and Income Fund (the "Fund"). Pursuant to this Advisory Agreement and
subject to the oversight and review of Manager, Adviser will manage the
investment and reinvestment of the assets of the Fund. In this regard, Adviser
will determine in its discretion the securities to be purchased or sold, will
provide Manager with records concerning its activities which Manager or the
Company is required to maintain, and will render regular reports to Manager and
to Officers and Directors of the Company concerning its discharge of the
foregoing responsibilities. Adviser shall discharge the foregoing
responsibilities subject to the control of the Officers and the Directors of the
Company and in compliance with such policies as the Directors of the Company may
from time to time establish, and in compliance with the objectives, policies,
and limitations for the Fund set forth in the Fund's current prospectus and
statement of additional information, and applicable laws and regulations.
Manager agrees to inform Adviser of any and all applicable state insurance law
restrictions on investments that operate to limit or restrict the investments
the Fund may otherwise make, and to inform Adviser promptly of any changes in
such requirements. Adviser accepts such employment and agrees, at its own
expense, to render the services set forth herein and to provide the office
space, furnishings, equipment and personnel required by it to perform such
services on the terms and for the compensation provided in this Agreement.
<PAGE>
2.
FUND TRANSACTIONS. Adviser is authorized to select the brokers or dealers that
will execute the purchases and sales of portfolio securities and is directed to
use its best efforts to obtain the best price and execution. Subject to
policies established from time to time by the Directors of the Company, Adviser
may also be authorized to effect individual securities transactions at
commission rates in excess of the minimum commission rates available, if Adviser
determines in good faith that such amount of commission is reasonable in
relation to the value of the brokerage and research services provided by such
broker or dealer, viewed in terms of either that particular transaction or
Adviser's overall responsibilities with respect to the Fund, other portfolios of
the Fund and other clients of Adviser. The policies of the Company with respect
to brokerage allocation, determined from time to time by the Company's Board of
Directors, are those disclosed in the Company's currently effective registration
statement at any time. The execution of such transactions shall not be deemed
to represent an unlawful act or breach of any duty created by this Agreement or
otherwise. Adviser will promptly communicate to Manager and to the Officers and
the Directors of the Company such information relating to portfolio transactions
as they may reasonably request.
It is agreed that Adviser may use any supplemental investment research
obtained for the benefit of the Fund in providing investment advice to its other
investment advisory accounts. The Adviser or its subsidiaries may use such
information in managing their own accounts. Conversely, such supplemental
information obtained by the placement of business for the Adviser or other
entities advised by the Adviser will be considered by and may be useful to the
Adviser in carrying out its obligations to the Fund.
3.
COMPENSATION OF ADVISER. As its compensation hereunder, the Manager shall pay
to Adviser promptly after the end of each month, a fee calculated as a
percentage of the average daily net assets of the Fund during that month at the
following annual rates: .40% of the first $50 million, .30% of the next $150
million, and .20% of the net assets in excess of the next $200 million.
Adviser's fee shall be accrued daily at 1/365th of the applicable annual
rate set forth above. For the purpose of accruing compensation, the net assets
of the Fund shall be that determined in the manner and on the dates set forth in
the current prospectus of the Fund and, on days on which the net assets are not
so determined, the net asset computation to be used shall be as determined on
the next day on which the net assets shall have been determined.
2
<PAGE>
In the event of termination of this Agreement, all compensation due through
the date of termination will be calculated on a pro-rated basis through the date
of termination and paid within fifteen business days of the date of termination.
4.
REPORTS. Manager and Adviser agree to furnish to each other, if applicable,
current prospectuses, statements of additional information, proxy statements,
reports of shareholders, certified copies of their financial statements, and
such other information with regard to their affairs and that of the Fund as each
may reasonably request.
5.
STATUS OF ADVISER. The services of Adviser to Manager and the Fund are not to
be deemed exclusive, and Adviser shall be free to render similar services to
others so long as its services to the Fund are not impaired thereby. Adviser
shall be deemed to be an independent contractor and shall, unless otherwise
expressly provided or authorized, have no authority to act for or represent the
Fund in any way or otherwise be deemed an agent of the Fund.
6.
CERTAIN RECORDS. Adviser hereby undertakes and agrees to maintain, in the form
and for the period required by Rule 31a-2 under the Investment Company Act of
1940, all records relating to the Fund's investments that are required to be
maintained by the Fund pursuant to the requirements of Rule 31a-1 of that Act.
Any records required to be maintained and preserved pursuant to the provisions
of Rule 31a-1 and Rule 31a-2 promulgated under the Investment Company Act of
1940 which are prepared or maintained by Adviser on behalf of the Fund are the
property of the Fund and will be surrendered promptly to the Fund or Manager on
request.
Adviser agrees that all accounts, books and other records maintained and
preserved by it as required hereby shall be subject at any time, and from time
to time, to such reasonable periodic, special and other examinations by the
Securities and Exchange Commission, the Fund's auditors, the Fund or any
representative of the Fund, the Manager, or any governmental agency or other
instrumentality having regulatory authority over the Fund.
3
<PAGE>
7.
REFERENCE TO ADVISER. Neither the Fund nor Manager or any affiliate or agent
thereof shall make reference to or use the name of Adviser or any of its
affiliates in any advertising or promotional materials without the prior
approval of Adviser, which approval shall not be unreasonably withheld.
8.
LIABILITY OF MANAGER AND ADVISER. In the absence of willful misfeasance, bad
faith, gross negligence or reckless disregard of obligations or duties
("disabling conduct") hereunder on the part of Adviser (and its officers,
directors, agents, partners, employees, controlling persons, shareholders and
any other person or entity affiliated with Adviser ("associated persons")),
Adviser and its associated persons shall not be subject to liability to the
Manager or to any other person for any act or omission in the course of, or
connected with, rendering services hereunder (including, without limitation, as
a result of failure by Manager, by any other affiliate of Protective Life
Insurance Company ("PLIC"), or by PLIC, to comply with this Agreement and/or any
applicable insurance laws and regulations or, as a result of any error of
judgment or mistake of law or for any loss suffered by Manager or any other
person in connection with the matters to which this Agreement relates), except
to the extent specified in Section 36(b) of the Investment Company Act of 1940
concerning loss resulting from a breach of fiduciary duty with respect to the
receipt of compensation for services.
Manager hereby indemnifies, defends and protects Adviser and holds Adviser
and its associated persons harmless from and against any and all claims,
demands, actions, losses, damages, liabilities, costs, charges, counsel fees and
expenses of any nature ("Losses") arising out of any breach by Manager of any
representation or agreement contained in this Advisory Agreement, (including any
failure by Manager to apprise Adviser of any changes in any applicable state
insurance laws and regulations). Adviser hereby indemnifies, defends and
protects Manager and holds the Manager and its associated persons harmless, from
and against any Losses arising out of the Adviser's disabling conduct.
9.
DURATION AND TERMINATION. This Agreement shall continue in full force and
effect with respect to the Fund until the earlier of (a) two years from the
execution date of Agreement, or (b) the first meeting of the shareholders of the
Fund after the date hereof. If approved at such meeting by the affirmative vote
of a majority of the outstanding voting securities (as defined in the Investment
Company Act of 1940), of the Fund with respect to such Fund, voting separately
from any other series of the Company, this Agreement
4
<PAGE>
shall continue in full force and effect with respect to the Fund from year to
year thereafter so long as such continuance is specifically approved at least
annually (i) by the vote of a majority of those Directors of the Company 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, and (ii)
by the Directors of the Company or by vote of a majority of the outstanding
voting securities of the Fund voting separately from any other Fund, provided,
however, that if the shareholders fail to approve the Agreement as provided
herein, Adviser may continue to serve hereunder in the manner and to the extent
permitted by the Investment Company Act of 1940 and rules thereunder. The
foregoing requirement that continuance of this Agreement be "specifically
approved at least annually" shall be construed in a manner consistent with the
Investment Company Act of 1940 and the rules and regulations thereunder.
This Agreement may be terminated at any time, without the payment of any
penalty by vote of a majority of the Directors of the Company or by a vote of a
majority of the outstanding voting securities of the Fund on not less than 30
days nor more than 60 days written notice to Adviser or by Adviser at any time
without the payment of any penalty, on 90 days written notice to Manager and the
Company. This Agreement shall automatically terminate in the event of its
assignment (as defined in the Investment Company Act of 1940). Any notice under
this Agreement shall be given in writing, addressed and delivered, or mailed
postage prepaid, to the other party at any office of such party.
As used in this Section 9, the terms "assignment," "interested persons,"
and a "vote of a majority of the outstanding voting securities" shall have the
respective meanings set forth in the Investment Company Act of 1940 and the
rules and regulations thereunder, subject to such exemptions as may be granted
by the Securities and Exchange Commission under said Act.
This Agreement will also terminate in the event that the Investment
Management Agreement by and between the Company on behalf of the Fund and
Manager referred to in Section 1 is terminated.
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.
AMENDMENTS. This Agreement may not be amended, altered, modified in any way
except by an addendum in writing duly executed by the proper officials of the
parties hereto.
5
<PAGE>
GOVERNING LAW. This Agreement shall be construed in accordance with the laws of
the State of Tennessee, and the applicable provisions of the Investment Company
Act of 1940. To the extent that the applicable laws of the State of Tennessee,
or any provisions herein, conflict with the applicable provisions of the
Investment Company Act of 1940, the later shall control.
IN WITNESS WHEREOF, the parties have caused their respective duly
authorized officers to execute this Agreement as of March 2, 1994.
INVESTMENT DISTRIBUTORS ADVISORY
SERVICES, INC.
By: ______________________________________
Authorized Officer
GOLDMAN SACHS ASSET MANAGEMENT,
a separate operating division of
GOLDMAN, SACHS & CO.
By: GOLDMAN, SACHS & CO.
By: ______________________________________
Authorized Officer
6
<PAGE>
ADVISORY AGREEMENT
BETWEEN INVESTMENT DISTRIBUTORS ADVISORY SERVICES, INC.
and
GOLDMAN SACHS ASSET MANAGEMENT,
a separate operating division of
GOLDMAN, SACHS & CO.
It is hereby agreed by and between INVESTMENT DISTRIBUTORS ADVISORY
SERVICES, INC. (the "Manager") and GOLDMAN SACHS ASSET MANAGEMENT, a separate
operating division of GOLDMAN, SACHS & CO. ("Adviser") as follows:
1.
DUTIES OF ADVISER. Manager hereby engages the services of Adviser in
furtherance of its Investment Management Agreement with Protective Investment
Company (the "Company") dated as of March 2, 1994, on behalf of Protective Small
Cap Equity Fund (the "Fund"). Pursuant to this Advisory Agreement and subject
to the oversight and review of Manager, Adviser will manage the investment and
reinvestment of the assets of the Fund. In this regard, Adviser will determine
in its discretion the securities to be purchased or sold, will provide Manager
with records concerning its activities which Manager or the Company is required
to maintain, and will render regular reports to Manager and to Officers and
Directors of the Company concerning its discharge of the foregoing
responsibilities. Adviser shall discharge the foregoing responsibilities
subject to the control of the Officers and the Directors of the Company and in
compliance with such policies as the Directors of the Company may from time to
time establish, and in compliance with the objectives, policies, and limitations
for the Fund set forth in the Fund's current prospectus and statement of
additional information, and applicable laws and regulations. Manager agrees to
inform Adviser of any and all applicable state insurance law restrictions on
investments that operate to limit or restrict the investments the Fund may
otherwise make, and to inform Adviser promptly of any changes in such
requirements. Adviser accepts such employment and agrees, at its own expense, to
render the services set forth herein and to provide the office space,
furnishings, equipment and personnel required by it to perform such services on
the terms and for the compensation provided in this Agreement.
<PAGE>
2.
FUND TRANSACTIONS. Adviser is authorized to select the brokers or dealers that
will execute the purchases and sales of portfolio securities and is directed to
use its best efforts to obtain the best price and execution. Subject to
policies established from time to time by the Directors of the Company, Adviser
may also be authorized to effect individual securities transactions at
commission rates in excess of the minimum commission rates available, if Adviser
determines in good faith that such amount of commission is reasonable in
relation to the value of the brokerage and research services provided by such
broker or dealer, viewed in terms of either that particular transaction or
Adviser's overall responsibilities with respect to the Fund, other portfolios of
the Fund and other clients of Adviser. The policies of the Company with respect
to brokerage allocation, determined from time to time by the Company's Board of
Directors, are those disclosed in the Company's currently effective registration
statement at any time. The execution of such transactions shall not be deemed
to represent an unlawful act or breach of any duty created by this Agreement or
otherwise. Adviser will promptly communicate to Manager and to the Officers and
the Directors of the Company such information relating to portfolio transactions
as they may reasonably request.
It is agreed that Adviser may use any supplemental investment research
obtained for the benefit of the Fund in providing investment advice to its other
investment advisory accounts. The Adviser or its subsidiaries may use such
information in managing their own accounts. Conversely, such supplemental
information obtained by the placement of business for the Adviser or other
entities advised by the Adviser will be considered by and may be useful to the
Adviser in carrying out its obligations to the Fund.
3.
COMPENSATION OF ADVISER. As its compensation hereunder, the Manager shall pay
to Adviser promptly after the end of each month, a fee calculated as a
percentage of the average daily net assets of the Fund during that month at the
following annual rates: .40% of the first $50 million, .30% of the next $150
million, and .20% of the net assets in excess of the next $200 million.
Adviser's fee shall be accrued daily at 1/365th of the applicable annual
rate set forth above. For the purpose of accruing compensation, the net assets
of the Fund shall be that determined in the manner and on the dates set forth in
the current prospectus of the Fund and, on days on which the net assets are not
so determined, the net asset computation to be used shall be as determined on
the next day on which the net assets shall have been determined.
2
<PAGE>
In the event of termination of this Agreement, all compensation due through
the date of termination will be calculated on a pro-rated basis through the date
of termination and paid within fifteen business days of the date of termination.
4.
REPORTS. Manager and Adviser agree to furnish to each other, if applicable,
current prospectuses, statements of additional information, proxy statements,
reports of shareholders, certified copies of their financial statements, and
such other information with regard to their affairs and that of the Fund as each
may reasonably request.
5.
STATUS OF ADVISER. The services of Adviser to Manager and the Fund are not to
be deemed exclusive, and Adviser shall be free to render similar services to
others so long as its services to the Fund are not impaired thereby. Adviser
shall be deemed to be an independent contractor and shall, unless otherwise
expressly provided or authorized, have no authority to act for or represent the
Fund in any way or otherwise be deemed an agent of the Fund.
6.
CERTAIN RECORDS. Adviser hereby undertakes and agrees to maintain, in the form
and for the period required by Rule 31a-2 under the Investment Company Act of
1940, all records relating to the Fund's investments that are required to be
maintained by the Fund pursuant to the requirements of Rule 31a-1 of that Act.
Any records required to be maintained and preserved pursuant to the provisions
of Rule 31a-1 and Rule 31a-2 promulgated under the Investment Company Act of
1940 which are prepared or maintained by Adviser on behalf of the Fund are the
property of the Fund and will be surrendered promptly to the Fund or Manager on
request.
Adviser agrees that all accounts, books and other records maintained and
preserved by it as required hereby shall be subject at any time, and from time
to time, to such reasonable periodic, special and other examinations by the
Securities and Exchange Commission, the Fund's auditors, the Fund or any
representative of the Fund, the Manager, or any governmental agency or other
instrumentality having regulatory authority over the Fund.
3
<PAGE>
7.
REFERENCE TO ADVISER. Neither the Fund nor Manager or any affiliate or agent
thereof shall make reference to or use the name of Adviser or any of its
affiliates in any advertising or promotional materials without the prior
approval of Adviser, which approval shall not be unreasonably withheld.
8.
LIABILITY OF MANAGER AND ADVISER. In the absence of willful misfeasance, bad
faith, gross negligence or reckless disregard of obligations or duties
("disabling conduct") hereunder on the part of Adviser (and its officers,
directors, agents, partners, employees, controlling persons, shareholders and
any other person or entity affiliated with Adviser ("associated persons")),
Adviser and its associated persons shall not be subject to liability to the
Manager or to any other person for any act or omission in the course of, or
connected with, rendering services hereunder (including, without limitation, as
a result of failure by Manager, by any other affiliate of Protective Life
Insurance Company ("PLIC"), or by PLIC, to comply with this Agreement and/or any
applicable insurance laws and regulations or, as a result of any error of
judgment or mistake of law or for any loss suffered by Manager or any other
person in connection with the matters to which this Agreement relates), except
to the extent specified in Section 36(b) of the Investment Company Act of 1940
concerning loss resulting from a breach of fiduciary duty with respect to the
receipt of compensation for services.
Manager hereby indemnifies, defends and protects Adviser and holds Adviser
and its associated persons harmless from and against any and all claims,
demands, actions, losses, damages, liabilities, costs, charges, counsel fees and
expenses of any nature ("Losses") arising out of any breach by Manager of any
representation or agreement contained in this Advisory Agreement, (including any
failure by Manager to apprise Adviser of any changes in any applicable state
insurance laws and regulations). Adviser hereby indemnifies, defends and
protects Manager and holds the Manager and its associated persons harmless, from
and against any Losses arising out of the Adviser's disabling conduct.
9.
DURATION AND TERMINATION. This Agreement shall continue in full force and
effect with respect to the Fund until the earlier of (a) two years from the
execution date of Agreement, or (b) the first meeting of the shareholders of the
Fund after the date hereof. If approved at such meeting by the affirmative vote
of a majority of the outstanding voting securities (as defined in the Investment
Company Act of 1940), of the Fund with respect to such Fund, voting separately
from any other series of the Company, this Agreement
4
<PAGE>
shall continue in full force and effect with respect to the Fund from year to
year thereafter so long as such continuance is specifically approved at least
annually (i) by the vote of a majority of those Directors of the Company 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, and (ii)
by the Directors of the Company or by vote of a majority of the outstanding
voting securities of the Fund voting separately from any other Fund, provided,
however, that if the shareholders fail to approve the Agreement as provided
herein, Adviser may continue to serve hereunder in the manner and to the extent
permitted by the Investment Company Act of 1940 and rules thereunder. The
foregoing requirement that continuance of this Agreement be "specifically
approved at least annually" shall be construed in a manner consistent with the
Investment Company Act of 1940 and the rules and regulations thereunder.
This Agreement may be terminated at any time, without the payment of any
penalty by vote of a majority of the Directors of the Company or by a vote of a
majority of the outstanding voting securities of the Fund on not less than 30
days nor more than 60 days written notice to Adviser or by Adviser at any time
without the payment of any penalty, on 90 days written notice to Manager and the
Company. This Agreement shall automatically terminate in the event of its
assignment (as defined in the Investment Company Act of 1940). Any notice under
this Agreement shall be given in writing, addressed and delivered, or mailed
postage prepaid, to the other party at any office of such party.
As used in this Section 9, the terms "assignment," "interested persons,"
and a "vote of a majority of the outstanding voting securities" shall have the
respective meanings set forth in the Investment Company Act of 1940 and the
rules and regulations thereunder, subject to such exemptions as may be granted
by the Securities and Exchange Commission under said Act.
This Agreement will also terminate in the event that the Investment
Management Agreement by and between the Company on behalf of the Fund and
Manager referred to in Section 1 is terminated.
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.
AMENDMENTS. This Agreement may not be amended, altered, modified in any way
except by an addendum in writing duly executed by the proper officials of the
parties hereto.
5
<PAGE>
GOVERNING LAW. This Agreement shall be construed in accordance with the laws of
the State of Tennessee, and the applicable provisions of the Investment Company
Act of 1940. To the extent that the applicable laws of the State of Tennessee,
or any provisions herein, conflict with the applicable provisions of the
Investment Company Act of 1940, the later shall control.
IN WITNESS WHEREOF, the parties have caused their respective duly
authorized officers to execute this Agreement as of March 2, 1994.
INVESTMENT DISTRIBUTORS ADVISORY
SERVICES, INC.
By: ______________________________________
Authorized Officer
GOLDMAN SACHS ASSET MANAGEMENT,
a separate operating division of
GOLDMAN, SACHS & CO.
By: GOLDMAN, SACHS & CO.
By: ______________________________________
Authorized Officer
6
<PAGE>
Exhibit 5(c)
Investment Advisory Agreements Between Investment Distributors Advisory
Services, Inc. and Goldman Sachs Asset Management International.
<PAGE>
ADVISORY AGREEMENT
BETWEEN INVESTMENT DISTRIBUTORS ADVISORY SERVICES, INC.
and
GOLDMAN SACHS ASSET MANAGEMENT INTERNATIONAL,
an affiliate of
GOLDMAN, SACHS & CO.
It is hereby agreed by and between INVESTMENT DISTRIBUTORS ADVISORY
SERVICES, INC. (the "Manager") and GOLDMAN SACHS ASSET MANAGEMENT INTERNATIONAL,
an affiliate of GOLDMAN, SACHS & CO. ("Adviser") as follows:
1.
DUTIES OF ADVISER. Manager hereby engages the services of Adviser in
furtherance of its Investment Management Agreement with Protective Investment
Company (the "Company") dated as of March 2, 1994, on behalf of Protective
International Equity Fund (the "Fund"). Pursuant to this Advisory Agreement and
subject to the oversight and review of Manager, Adviser will manage the
investment and reinvestment of the assets of the Fund. In this regard, Adviser
will determine in its discretion the securities to be purchased or sold, will
provide Manager with records concerning its activities which Manager or the
Company is required to maintain, and will render regular reports to Manager and
to Officers and Directors of the Company concerning its discharge of the
foregoing responsibilities. Adviser shall discharge the foregoing
responsibilities subject to the control of the Officers and the Directors of the
Company and in compliance with such policies as the Directors of the Company may
from time to time establish, and in compliance with the objectives, policies,
and limitations for the Fund set forth in the Fund's current prospectus and
statement of additional information, and applicable laws and regulations.
Manager agrees to inform Adviser of any and all applicable state insurance law
restrictions on investments that operate to limit or restrict the investments
the Fund may otherwise make, and to inform Adviser promptly of any changes in
such requirements. Adviser accepts such employment and agrees, at its own
expense, to render the services set forth herein and to provide the office
space, furnishings, equipment and personnel required by it to perform such
services on the terms and for the compensation provided in this Agreement.
<PAGE>
2.
FUND TRANSACTIONS. Adviser is authorized to select the brokers or dealers that
will execute the purchases and sales of portfolio securities and is directed to
use its best efforts to obtain the best price and execution. Subject to
policies established from time to time by the Directors of the Company, Adviser
may also be authorized to effect individual securities transactions at
commission rates in excess of the minimum commission rates available, if Adviser
determines in good faith that such amount of commission is reasonable in
relation to the value of the brokerage and research services provided by such
broker or dealer, viewed in terms of either that particular transaction or
Adviser's overall responsibilities with respect to the Fund, other portfolios of
the Fund and other clients of Adviser. The policies of the Company with respect
to brokerage allocation, determined from time to time by the Company's Board of
Directors, are those disclosed in the Company's currently effective registration
statement at any time. The execution of such transactions shall not be deemed
to represent an unlawful act or breach of any duty created by this Agreement or
otherwise. Adviser will promptly communicate to Manager and to the Officers and
the Directors of the Company such information relating to portfolio transactions
as they may reasonably request.
It is agreed that Adviser may use any supplemental investment research
obtained for the benefit of the Fund in providing investment advice to its other
investment advisory accounts. The Adviser or its subsidiaries may use such
information in managing their own accounts. Conversely, such supplemental
information obtained by the placement of business for the Adviser or other
entities advised by the Adviser will be considered by and may be useful to the
Adviser in carrying out its obligations to the Fund.
3.
COMPENSATION OF ADVISER. As its compensation hereunder, the Manager shall pay
to Adviser promptly after the end of each month, a fee calculated as a
percentage of the average daily net assets of the Fund during that month at the
following annual rates: .40% of the first $50 million, .30% of the next $100
million, .25% of the next $100 million, and .20% of the net assets in excess of
$250 million.
Adviser's fee shall be accrued daily at 1/365th of the applicable annual
rate set forth above. For the purpose of accruing compensation, the net assets
of the Fund shall be that determined in the manner and on the dates set forth in
the current prospectus of the Fund and, on days on which the net assets are not
so determined, the net asset computation to be used shall be as determined on
the next day on which the net assets shall have been determined.
2
<PAGE>
In the event of termination of this Agreement, all compensation due through
the date of termination will be calculated on a pro-rated basis through the date
of termination and paid within fifteen business days of the date of termination.
4.
REPORTS. Manager and Adviser agree to furnish to each other, if applicable,
current prospectuses, statements of additional information, proxy statements,
reports of shareholders, certified copies of their financial statements, and
such other information with regard to their affairs and that of the Fund as each
may reasonably request.
5.
STATUS OF ADVISER. The services of Adviser to Manager and the Fund are not to
be deemed exclusive, and Adviser shall be free to render similar services to
others so long as its services to the Fund are not impaired thereby. Adviser
shall be deemed to be an independent contractor and shall, unless otherwise
expressly provided or authorized, have no authority to act for or represent the
Fund in any way or otherwise be deemed an agent of the Fund.
6.
CERTAIN RECORDS. Adviser hereby undertakes and agrees to maintain, in the form
and for the period required by Rule 31a-2 under the Investment Company Act of
1940, all records relating to the Fund's investments that are required to be
maintained by the Fund pursuant to the requirements of Rule 31a-1 of that Act.
Any records required to be maintained and preserved pursuant to the provisions
of Rule 31a-1 and Rule 31a-2 promulgated under the Investment Company Act of
1940 which are prepared or maintained by Adviser on behalf of the Fund are the
property of the Fund and will be surrendered promptly to the Fund or Manager on
request.
Adviser agrees that all accounts, books and other records maintained and
preserved by it as required hereby shall be subject at any time, and from time
to time, to such reasonable periodic, special and other examinations by the
Securities and Exchange Commission, the Fund's auditors, the Fund or any
representative of the Fund, the Manager, or any governmental agency or other
instrumentality having regulatory authority over the Fund.
3
<PAGE>
7.
REFERENCE TO ADVISER. Neither the Fund nor Manager or any affiliate or agent
thereof shall make reference to or use the name of Adviser or any of its
affiliates in any advertising or promotional materials without the prior
approval of Adviser, which approval shall not be unreasonably withheld.
8.
LIABILITY OF MANAGER AND ADVISER. In the absence of willful misfeasance, bad
faith, gross negligence or reckless disregard of obligations or duties
("disabling conduct") hereunder on the part of Adviser (and its officers,
directors, agents, partners, employees, controlling persons, shareholders and
any other person or entity affiliated with Adviser ("associated persons")),
Adviser and its associated persons shall not be subject to liability to the
Manager or to any other person for any act or omission in the course of, or
connected with, rendering services hereunder (including, without limitation, as
a result of failure by Manager, by any other affiliate of Protective Life
Insurance Company ("PLIC"), or by PLIC, to comply with this Agreement and/or any
applicable insurance laws and regulations or, as a result of any error of
judgment or mistake of law or for any loss suffered by Manager or any other
person in connection with the matters to which this Agreement relates), except
to the extent specified in Section 36(b) of the Investment Company Act of 1940
concerning loss resulting from a breach of fiduciary duty with respect to the
receipt of compensation for services.
Manager hereby indemnifies, defends and protects Adviser and holds Adviser
and its associated persons harmless from and against any and all claims,
demands, actions, losses, damages, liabilities, costs, charges, counsel fees and
expenses of any nature ("Losses") arising out of any breach by Manager of any
representation or agreement contained in this Advisory Agreement, (including any
failure by Manager to apprise Adviser of any changes in any applicable state
insurance laws and regulations). Adviser hereby indemnifies, defends and
protects Manager and holds the Manager and its associated persons harmless, from
and against any Losses arising out of the Adviser's disabling conduct.
9.
DURATION AND TERMINATION. This Agreement shall continue in full force and
effect with respect to the Fund until the earlier of (a) two years from the
execution date of Agreement, or (b) the first meeting of the shareholders of the
Fund after the date hereof. If approved at such meeting by the affirmative vote
of a majority of the outstanding voting securities (as defined in the Investment
Company Act of 1940), of the Fund with respect to such Fund, voting separately
from any other series of the Company, this Agreement
4
<PAGE>
shall continue in full force and effect with respect to the Fund from year to
year thereafter so long as such continuance is specifically approved at least
annually (i) by the vote of a majority of those Directors of the Company 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, and (ii)
by the Directors of the Company or by vote of a majority of the outstanding
voting securities of the Fund voting separately from any other Fund, provided,
however, that if the shareholders fail to approve the Agreement as provided
herein, Adviser may continue to serve hereunder in the manner and to the extent
permitted by the Investment Company Act of 1940 and rules thereunder. The
foregoing requirement that continuance of this Agreement be "specifically
approved at least annually" shall be construed in a manner consistent with the
Investment Company Act of 1940 and the rules and regulations thereunder.
This Agreement may be terminated at any time, without the payment of any
penalty by vote of a majority of the Directors of the Company or by a vote of a
majority of the outstanding voting securities of the Fund on not less than 30
days nor more than 60 days written notice to Adviser or by Adviser at any time
without the payment of any penalty, on 90 days written notice to Manager and the
Company. This Agreement shall automatically terminate in the event of its
assignment (as defined in the Investment Company Act of 1940). Any notice under
this Agreement shall be given in writing, addressed and delivered, or mailed
postage prepaid, to the other party at any office of such party.
As used in this Section 9, the terms "assignment," "interested persons,"
and a "vote of a majority of the outstanding voting securities" shall have the
respective meanings set forth in the Investment Company Act of 1940 and the
rules and regulations thereunder, subject to such exemptions as may be granted
by the Securities and Exchange Commission under said Act.
This Agreement will also terminate in the event that the Investment
Management Agreement by and between the Company on behalf of the Fund and
Manager referred to in Section 1 is terminated.
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.
AMENDMENTS. This Agreement may not be amended, altered, modified in any way
except by an addendum in writing duly executed by the proper officials of the
parties hereto.
5
<PAGE>
GOVERNING LAW. This Agreement shall be construed in accordance with the laws of
the State of Tennessee, and the applicable provisions of the Investment Company
Act of 1940. To the extent that the applicable laws of the State of Tennessee,
or any provisions herein, conflict with the applicable provisions of the
Investment Company Act of 1940, the later shall control.
IN WITNESS WHEREOF, the parties have caused their respective duly
authorized officers to execute this Agreement as of March 2, 1994.
INVESTMENT DISTRIBUTORS ADVISORY
SERVICES, INC.
By: ______________________________________
Authorized Officer
GOLDMAN SACHS ASSET MANAGEMENT
INTERNATIONAL, an affiliate of
GOLDMAN, SACHS & CO.
By: GOLDMAN SACHS ASSET MANAGEMENT
INTERNATIONAL
By: ______________________________________
Authorized Officer
6
<PAGE>
ADVISORY AGREEMENT
BETWEEN INVESTMENT DISTRIBUTORS ADVISORY SERVICES, INC.
and
GOLDMAN SACHS ASSET MANAGEMENT INTERNATIONAL,
an affiliate of
GOLDMAN, SACHS & CO.
It is hereby agreed by and between INVESTMENT DISTRIBUTORS ADVISORY
SERVICES, INC. (the "Manager") and GOLDMAN SACHS ASSET MANAGEMENT INTERNATIONAL,
an affiliate of GOLDMAN, SACHS & CO. ("Adviser") as follows:
1.
DUTIES OF ADVISER. Manager hereby engages the services of Adviser in
furtherance of its Investment Management Agreement with Protective Investment
Company (the "Company") dated as of March 2, 1994, on behalf of Protective
Global Income Fund (the "Fund"). Pursuant to this Advisory Agreement and
subject to the oversight and review of Manager, Adviser will manage the
investment and reinvestment of the assets of the Fund. In this regard, Adviser
will determine in its discretion the securities to be purchased or sold, will
provide Manager with records concerning its activities which Manager or the
Company is required to maintain, and will render regular reports to Manager and
to Officers and Directors of the Company concerning its discharge of the
foregoing responsibilities. Adviser shall discharge the foregoing
responsibilities subject to the control of the Officers and the Directors of the
Company and in compliance with such policies as the Directors of the Company may
from time to time establish, and in compliance with the objectives, policies,
and limitations for the Fund set forth in the Fund's current prospectus and
statement of additional information, and applicable laws and regulations.
Manager agrees to inform Adviser of any and all applicable state insurance law
restrictions on investments that operate to limit or restrict the investments
the Fund may otherwise make, and to inform Adviser promptly of any changes in
such requirements. Adviser accepts such employment and agrees, at its own
expense, to render the services set forth herein and to provide the office
space, furnishings, equipment and personnel required by it to perform such
services on the terms and for the compensation provided in this Agreement.
<PAGE>
2.
FUND TRANSACTIONS. Adviser is authorized to select the brokers or dealers that
will execute the purchases and sales of portfolio securities and is directed to
use its best efforts to obtain the best price and execution. Subject to
policies established from time to time by the Directors of the Company, Adviser
may also be authorized to effect individual securities transactions at
commission rates in excess of the minimum commission rates available, if Adviser
determines in good faith that such amount of commission is reasonable in
relation to the value of the brokerage and research services provided by such
broker or dealer, viewed in terms of either that particular transaction or
Adviser's overall responsibilities with respect to the Fund, other portfolios of
the Fund and other clients of Adviser. The policies of the Company with respect
to brokerage allocation, determined from time to time by the Company's Board of
Directors, are those disclosed in the Company's currently effective registration
statement at any time. The execution of such transactions shall not be deemed
to represent an unlawful act or breach of any duty created by this Agreement or
otherwise. Adviser will promptly communicate to Manager and to the Officers and
the Directors of the Company such information relating to portfolio transactions
as they may reasonably request.
It is agreed that Adviser may use any supplemental investment research
obtained for the benefit of the Fund in providing investment advice to its other
investment advisory accounts. The Adviser or its subsidiaries may use such
information in managing their own accounts. Conversely, such supplemental
information obtained by the placement of business for the Adviser or other
entities advised by the Adviser will be considered by and may be useful to the
Adviser in carrying out its obligations to the Fund.
3.
COMPENSATION OF ADVISER. As its compensation hereunder, the Manager shall pay
to Adviser promptly after the end of each month, a fee calculated as a
percentage of the average daily net assets of the Fund during that month at the
following annual rates: .40% of the first $50 million, .30% of the next $100
million, .25% of the next $100 million, and .20% of the net assets in excess of
$250 million.
Adviser's fee shall be accrued daily at 1/365th of the applicable annual
rate set forth above. For the purpose of accruing compensation, the net assets
of the Fund shall be that determined in the manner and on the dates set forth in
the current prospectus of the Fund and, on days on which the net assets are not
so determined, the net asset computation to be used shall be as determined on
the next day on which the net assets shall have been determined.
2
<PAGE>
In the event of termination of this Agreement, all compensation due through
the date of termination will be calculated on a pro-rated basis through the date
of termination and paid within fifteen business days of the date of termination.
4.
REPORTS. Manager and Adviser agree to furnish to each other, if applicable,
current prospectuses, statements of additional information, proxy statements,
reports of shareholders, certified copies of their financial statements, and
such other information with regard to their affairs and that of the Fund as each
may reasonably request.
5.
STATUS OF ADVISER. The services of Adviser to Manager and the Fund are not to
be deemed exclusive, and Adviser shall be free to render similar services to
others so long as its services to the Fund are not impaired thereby. Adviser
shall be deemed to be an independent contractor and shall, unless otherwise
expressly provided or authorized, have no authority to act for or represent the
Fund in any way or otherwise be deemed an agent of the Fund.
6.
CERTAIN RECORDS. Adviser hereby undertakes and agrees to maintain, in the form
and for the period required by Rule 31a-2 under the Investment Company Act of
1940, all records relating to the Fund's investments that are required to be
maintained by the Fund pursuant to the requirements of Rule 31a-1 of that Act.
Any records required to be maintained and preserved pursuant to the provisions
of Rule 31a-1 and Rule 31a-2 promulgated under the Investment Company Act of
1940 which are prepared or maintained by Adviser on behalf of the Fund are the
property of the Fund and will be surrendered promptly to the Fund or Manager on
request.
Adviser agrees that all accounts, books and other records maintained and
preserved by it as required hereby shall be subject at any time, and from time
to time, to such reasonable periodic, special and other examinations by the
Securities and Exchange Commission, the Fund's auditors, the Fund or any
representative of the Fund, the Manager, or any governmental agency or other
instrumentality having regulatory authority over the Fund.
3
<PAGE>
7.
REFERENCE TO ADVISER. Neither the Fund nor Manager or any affiliate or agent
thereof shall make reference to or use the name of Adviser or any of its
affiliates in any advertising or promotional materials without the prior
approval of Adviser, which approval shall not be unreasonably withheld.
8.
LIABILITY OF MANAGER AND ADVISER. In the absence of willful misfeasance, bad
faith, gross negligence or reckless disregard of obligations or duties
("disabling conduct") hereunder on the part of Adviser (and its officers,
directors, agents, partners, employees, controlling persons, shareholders and
any other person or entity affiliated with Adviser ("associated persons")),
Adviser and its associated persons shall not be subject to liability to the
Manager or to any other person for any act or omission in the course of, or
connected with, rendering services hereunder (including, without limitation, as
a result of failure by Manager, by any other affiliate of Protective Life
Insurance Company ("PLIC"), or by PLIC, to comply with this Agreement and/or any
applicable insurance laws and regulations or, as a result of any error of
judgment or mistake of law or for any loss suffered by Manager or any other
person in connection with the matters to which this Agreement relates), except
to the extent specified in Section 36(b) of the Investment Company Act of 1940
concerning loss resulting from a breach of fiduciary duty with respect to the
receipt of compensation for services.
Manager hereby indemnifies, defends and protects Adviser and holds Adviser
and its associated persons harmless from and against any and all claims,
demands, actions, losses, damages, liabilities, costs, charges, counsel fees and
expenses of any nature ("Losses") arising out of any breach by Manager of any
representation or agreement contained in this Advisory Agreement, (including any
failure by Manager to apprise Adviser of any changes in any applicable state
insurance laws and regulations). Adviser hereby indemnifies, defends and
protects Manager and holds the Manager and its associated persons harmless, from
and against any Losses arising out of the Adviser's disabling conduct.
9.
DURATION AND TERMINATION. This Agreement shall continue in full force and
effect with respect to the Fund until the earlier of (a) two years from the
execution date of Agreement, or (b) the first meeting of the shareholders of the
Fund after the date hereof. If approved at such meeting by the affirmative vote
of a majority of the outstanding voting securities (as defined in the Investment
Company Act of 1940), of the Fund with respect to such Fund, voting separately
from any other series of the Company, this Agreement
4
<PAGE>
shall continue in full force and effect with respect to the Fund from year to
year thereafter so long as such continuance is specifically approved at least
annually (i) by the vote of a majority of those Directors of the Company 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, and (ii)
by the Directors of the Company or by vote of a majority of the outstanding
voting securities of the Fund voting separately from any other Fund, provided,
however, that if the shareholders fail to approve the Agreement as provided
herein, Adviser may continue to serve hereunder in the manner and to the extent
permitted by the Investment Company Act of 1940 and rules thereunder. The
foregoing requirement that continuance of this Agreement be "specifically
approved at least annually" shall be construed in a manner consistent with the
Investment Company Act of 1940 and the rules and regulations thereunder.
This Agreement may be terminated at any time, without the payment of any
penalty by vote of a majority of the Directors of the Company or by a vote of a
majority of the outstanding voting securities of the Fund on not less than 30
days nor more than 60 days written notice to Adviser or by Adviser at any time
without the payment of any penalty, on 90 days written notice to Manager and the
Company. This Agreement shall automatically terminate in the event of its
assignment (as defined in the Investment Company Act of 1940). Any notice under
this Agreement shall be given in writing, addressed and delivered, or mailed
postage prepaid, to the other party at any office of such party.
As used in this Section 9, the terms "assignment," "interested persons,"
and a "vote of a majority of the outstanding voting securities" shall have the
respective meanings set forth in the Investment Company Act of 1940 and the
rules and regulations thereunder, subject to such exemptions as may be granted
by the Securities and Exchange Commission under said Act.
This Agreement will also terminate in the event that the Investment
Management Agreement by and between the Company on behalf of the Fund and
Manager referred to in Section 1 is terminated.
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.
AMENDMENTS. This Agreement may not be amended, altered, modified in any way
except by an addendum in writing duly executed by the proper officials of the
parties hereto.
5
<PAGE>
GOVERNING LAW. This Agreement shall be construed in accordance with the laws of
the State of Tennessee, and the applicable provisions of the Investment Company
Act of 1940. To the extent that the applicable laws of the State of Tennessee,
or any provisions herein, conflict with the applicable provisions of the
Investment Company Act of 1940, the later shall control.
IN WITNESS WHEREOF, the parties have caused their respective duly
authorized officers to execute this Agreement as of March 2, 1994.
INVESTMENT DISTRIBUTORS ADVISORY
SERVICES, INC.
By: ______________________________________
Authorized Officer
GOLDMAN SACHS ASSET MANAGEMENT
INTERNATIONAL, an affiliate of
GOLDMAN, SACHS & CO.
By: GOLDMAN SACHS ASSET MANAGEMENT
INTERNATIONAL
By: ______________________________________
Authorized Officer
6
<PAGE>
Exhibit 6
Participation/Distribution Agreement Between Registrant, Investment
Distributors, Inc. and Protective Life Insurance Company.
<PAGE>
PARTICIPATION/DISTRIBUTION AGREEMENT
THIS AGREEMENT, is hereby entered into on this ___ day of February,
1994, between Protective Life Insurance Company (Protective Life), a life
insurance company organized under the laws of the State of Tennessee, for itself
and on behalf of Protective Variable Annuity Account (the "Account"), a separate
account established by Protective Life in accordance with the laws of the State
of Tennessee; Protective Investment Company (the "Company"), an open-end
management investment company organized under the laws of the State of Maryland
and Investment Distributors, Inc. ("IDI"), a broker-dealer.
WITNESSETH:
WHEREAS, the Account has been established by Protective Life pursuant
to the Tennessee Insurance Code in connection with certain variable annuity
contracts ("Contracts") proposed to be issued to the public by Protective Life;
and
WHEREAS, the Account has been registered as a unit investment trust
under the investment Company Act of 1940 (the "1940 Act"); and
WHEREAS, the income, if any, and gains and losses, realized and
unrealized, from assets allocated to the Account are, in accordance with the
applicable contracts, to be credited to or charged against Account without
regard to other income, gains or losses of Protective Life; and
WHEREAS, the Account is subdivided into various subaccounts ("sub-
accounts") as to which income, if any, and gains and losses, realized and
unrealized, from assets allocated to each such sub-account are to be credited to
or charged against such sub-accounts without regard to other income, gains or
losses of other sub-accounts; and
WHEREAS, the Company is registered as an open-end management
investment company organized under the laws of the State of Maryland and will
operate in accordance with the 1940 Act; and
WHEREAS, the Company is divided into various investment portfolio's
(each, a "Fund"), each being subject to certain fund mental investment policies
and restrictions that may not be changed without a majority vote of the
shareholders of such Fund; and
WHEREAS, the shares of each Fund will be offered to a corresponding
sub-account; and
<PAGE>
WHEREAS, IDI is the principal underwriter for the contracts and is a
broker-dealer registered as such under the Securities Exchange Act of 1934 and
is a member of the National Association of Securities Dealers ("NASD");
NOW THEREFORE, in consideration of the foregoing and of mutual
covenants and conditions set forth herein Protective Life, the Account, IDI and
the Company hereby agree as follows:
1. The Contracts funded through the account will provide for the
allocation of purchase payments among certain sub-accounts for investment in
such shares of the Funds as may be offered from time to time in the prospectus
for the Contracts. The selection of the particular sub-account is to be made by
the contract owner and such selection may be changed or the cash value may be
transferred among or between sub-accounts in accordance with the terms of the
Contracts.
2. No representation is made as to the number or amount of such
Contracts to be sold; however, Protective Life, through IDI, will make
reasonable efforts to market such Contracts.
3. The Company hereby appoints IDI as its principal underwriter and
exclusive distributor to sell its shares to the Account. The Company reserves
the right to sell its shares to other persons and to appoint additional
underwriters and distributors.
4. IDI accepts such appointment. IDI shall offer shares of the
Company only on the terms set forth in the Company's currently effective
registration statement.
5. The Company agrees to sell to Protective Life those shares of the
Company which the Account orders, executing such orders on a daily basis at the
net asset value next computed after receipt by the Company or its designated
agent of the order for the shares of the Company. For purposes of this Section,
Protective Life or Vantage Computer Systems, Inc. ("Vantage") (or either of
their designated agents) shall be the designated agent of the Company for
receipt of such orders from contract owners and receipt by such designated agent
shall constitute receipt by the Company; provided that the Company's transfer
agent receives notice of such order by 9:30 a.m. New York time on the next
following business day. "Business day" shall mean any day on which the New York
Stock Exchange is open for trading and on which the Company calculates the net
asset value of the Funds as described in its registration statement.
The Company agrees to make shares of each Fund available indefinitely
for purchase at the applicable net asset val per share by the Account on those
days on which the Company calculates its net asset value as described in its
registration statement and the
2
<PAGE>
Company shall use reasonable efforts to calculate such net asset value on each
business day as defined above. Notwithstanding the foregoing, the Board of
Directors of the Company (hereinafter the "Board") may refuse to sell shares of
any Fund to Protective Life, or suspend or terminate the offering of shares of
any Fund if such action is required by law or by regulatory authorities having
jurisdiction or is, in the sole discretion of the Board acting in good faith and
in light of their fiduciary duties under federal and any applicable state laws
necessary in the best interests of the Shareholders of such Fund or contract
owners indirectly invested in such Fund.
Protective Life shall pay for the such shares by 9:30 a.m. New York
time on the next business day after an order to purchase shares is made in
accordance with the provisions of this Sect on 5. Payment shall be in federal
funds transmitted by wire to the Company's transfer agent or by a credit for any
shares redeemed.
6. The Company agrees to redeem for cash, on Protective Life's
request, any full or fractional shares of the Company held by Protective Life,
executing such requests on a daily basis at the net asset value next computed
after receipt by the Company or its designated agents of the request for
redemption by Contract owners. For purposes of this Section, Protective Life or
Vantage Computer Systems, Inc. (or its designated agents) shall be the
designated agent of the Company for receipt of requests for redemption from
Contract owners and receipt by such designated agent shall constitute receipt by
the Company; provided that the Company receives notice of such request for
redemption by 9:30 a.m. New York time on the next following business day.
The Company ordinarily shall make payment to Protective Life for
shares redeemed on the day the Company receives notice from Protective Life
or Vantage, but the Company may delay payment for up to seven calendar days
after the request is received. Payment shall be in federal funds transmitted
by wire or by a credit for any shares purchased.
7. Transfer of shares will be by book entry. No stock certificates
will be issued to the account. Shares of each Fund will be recorded in an
appropriate title for the corresponding sub-account on the books of Protective
Life. If, however, state law requires transfer other than by book entry, then
the Company agrees to provide the required form of transfer.
8. The Company shall make the net asset value per share for each
Fund available to Protective Life or Vantage on a daily basis as soon as
reasonably practicable after the net asset value per share is calculated and
shall use its best efforts to make such net asset value per share available to
Protective Life or Vantage by 7 p.m. New York time.
3
<PAGE>
9. The Company or its transfer agent shall furnish notice on the ex-
dividend date to Protective Life or Vantage of any dividend or distribution
payable on any shares. All of such dividends and distributions as are payable
on shares of a Fund shall be automatically reinvested in additional shares of
that Fund. The Company shall notify Protective Life or Vantage of the number of
shares so issued.
10. The Company shall pay all its expenses incidental to its
performance under this Agreement. The Company shall see to it that all of its
shares are registered and authorized for issue in accordance with applicable
federal and state laws prior to their purchase by Protective Life for the
Account. The Company shall bear the expenses for the cost of registration of
its shares, preparation of its prospectus, proxy materials and reports, the
printing and distribution of such items to each Contract owner who has allocated
net amounts to any sub-account, the preparation of all statements and notices
required by any federal or state law, and taxes imposed upon the Company on the
issue or transfer of the Company's shares subject to this Agreement. The
parties shall cooperate in the printing of the prospectuses of the Contracts and
the Company. The Company shall provide Protective Life with a reasonable
quantity of Company prospectuses and reports to be sent to existing Contract
owners.
Il. The Company does not charge a load or redemption fee in connection
with the sale or redemption of its shares and IDI will not charge any load or
redemption fee in connection with the sale of shares to or redemption of shares
from the Account. Notwithstanding this, IDI assumes and will pay, from its own
resources, all expenses related to distribution of the Company's share and will
bear other costs and expenses attributable to any activity primarily intended to
result in the sale of shares. Such expenses include, but are not limited to:
a. printing and distribution of the Company's prospectus to
prospective investors;
b. preparation, printing and distribution of advertising and sales
literature for use in the offering of the Company's shares (in
connection with the offering of the Contracts or otherwise) and
printing and distribution of reports to shareholders used as
sales literature; and
c. the qualification of IDI as a distributor or broker or dealer
under any applicable federal or state securities laws.
12. In selling shares of the Company, IDI shall use its best efforts
in all respects duly to conform with the requirements of all federal and state
laws and regulations and the less of the NASD, relating to the sales of the
Company's share or the Contracts.
4
<PAGE>
13. IDI shall act as an independent contractor and nothing contained
herein shall be construed to make it, its agent or representatives, or any
employees, employees of the Company. In addition, IDI shall remain fully
responsible for its own conduct and that of its agents, representatives and
employees under applicable law.
14. Protective Life and IDI shall make no representations concerning
the Company or its shares except those contained in the then-current prospectus
of the Company and in printed information subsequently issued on behalf of the
Company and approved in writing by the Company as supplemental to such
prospectus, or otherwise approved by the Company in writing.
15. The Company represents that each Fund of the Company shall comply
with Section 817(h) of the Internal Revenue Code of 1986, as amended, (the
"Code") and the regulations issued thereunder (Reg. Section 1.817-5), relating
to the diversification requirements for variable annuity, endowment, and life
insurance contracts, and any amendments or other modifications to such Section
or regulations.
The Company represents that each Fund of the Company is currently
qualified or will be qualified as a Regulated Investment Company under
Subchapter M of the Code and that every effort will be made to maintain such
qualification (under Subchapter M or an successor or similar provision) and that
the Company will notify Protective Life orally (followed by written notice) or
by wire immediately upon having a reasonable basis for believing that any Series
might not so qualify in the future.
16. It is understood among the parties to this Agreement that,
subject to obtaining any applicable regulatory approvals which may be
conditioned on the parties complying with certain requirements, shares of the
Funds may be offered in the future to the separate accounts of various
insurance companies in addition to Protective Life and in connection with
variable life insurance contracts or variable annuity contracts other than the
Contracts. It is also understood among the parties that shares of the Funds
only may be offered to the other persons identified in paragraph (f) of
Regulation Section 1.817-5, in order that the account can rely on the
"look-through" provisions of that paragraph.
17. The Company represents and warrants that all of its officers,
employees, investment advisers, and other individuals or entities having access
to the assets of the Company are and shall continue to be at all times covered
by a blanket fidelity bond or similar coverage for the benefit of the Company in
an amount not less than the minimal coverage as required currently by Section
17(g) of the 1940 Act and Rule 17g-l or related provisions as may be promulgated
from time to time.
18. This Agreement shall terminate:
5
<PAGE>
(a) at any time on six months' written notice by the Company to
Protective Life and IDI or on six months' written notice by Protective Life to
the Company and IDI or on six months' written notice by IDI to Protective Life
and the Company without the payment of any penalty (provided, however, that if
Protective Life is not able, acting in good faith, to obtain suitable substitute
investment media within six months, this Agreement shall terminate one year from
the date of the notice of termination); or
(b) at the option of any party hereto upon institution of formal
enforcement proceedings against the Company, the Company's investment manager,
Protective Life or IDI by the Securities and Exchange Commission, or if
Protective Life or the Company is determined by the other to have failed to
perform its obligations under this Agreement in a satisfactory manner; or
(c) upon a vote of the holders of a majority of the votes
attributed to the shares supporting the Contracts having an interest in a
particular sub-account to substitute the shares of another investment company or
Fund for the Company shares then being held by that sub-account in accordance
with the terms of the Contracts. Protective Life will give 60 days' prior
written notice to the Company upon becoming aware of a proposed Contract owner
vote; or
(d) in the event the shares of the Company are not registered,
issued, or sold in accordance with applicable state and/or federal law or such
law prohibits the use of such shares as an underlying investment for the
Contracts issued or to be issued by Protective Life. Prompt notice of such an
event shall be given by each party to the other in the event the conditions of
this provision occur; or
(e) upon assignment of this Agreement, at the option of any
party not assigning this Agreement.
19. Each notice required by this Agreement shall be given in writing
to:
Protective Life Insurance Company
2801 Highway 280 South
Birmingham, Alabama 35223
Lizabeth R. Nichols, Esq.
Protective Investment Company
2801 Highway 280 South
Birmingham, Alabama 35223
20. Each party hereto shall cooperate with each other party and all
appropriate government authorities and shall permit such authorities reasonable
access to its books and records in
6
<PAGE>
connection with any investigation or inquiry relating to this Agreement or the
transactions contemplated hereby.
The Company agrees that all records and other data pertaining to the
Contracts are the exclusive property of Protective Life and that any such
records and other data shall be furnished to Protective Life by the Company upon
termination of this Agreement for any reason whatsoever. Protective Life shall
have the right to inspect, audit and copy all pertinent records pertaining to
the Contracts. This shall not preclude the Company from keeping copies of such
data or records for its own files subject to the provisions of this section.
21. Protective Life, the Account and IDI agree to look solely to the
assets of the Company for the satisfaction of any liability of the Company, with
respect to this Agreement and will not seek recourse against the members of the
Board or its officers, employees, agents, or shareholders, or any of them, or
any of their personal assets for such satisfaction.
22. The Company agrees to indemnify and hold harmless Protective
Life, each member of its Board of Directors, each of its officers, and any
person that controls Protective Life within the meaning of section 15 of the
Securities Act of 1933 against any and all losses, claims, damages, liabilities
(including amounts paid in settlement with the written consent of the Company)
or litigation (including legal and other expenses) to which Protective Life may
become subject under any statute, at co on law or otherwise, insofar as such
losses, claims, damages, liabilities or expenses (or actions in respect thereof)
or settlements arise as a result of Protective Life's reliance on an information
contained in a then current prospectus, statement of additional information, or
report of the Company; or any current information communicated to Protective
Life in writing by the Company.
The Company shall, at all times, have the right, but not the
obligation, to take over and conduct, in the name of Protective Life, the
Account and/or IDI, the investigation and defense of any claim by a third party
for which indemnification may be sought, and in such event, Protective Life, the
Account and/or IDI shall cooperate in every way with the Company.
24. The Company agrees to indemnify and hold harmless IDI, each
member of its Board of Directors, each of its officers, and any person that
controls IDI within the meaning of Section 15 of the Securities Act of 1933
against any and all losses, claims, damages, liabilities (including amounts paid
in settlement with the written consent of the Company) or litigation (including
legal and other expenses) to which IDI may become subject under any statute, at
common law or otherwise, insofar as such losses, claims, damages, liabilities or
expenses (or actions in respect thereof) or settlements arise as a result of
IDI's reliance on any
7
<PAGE>
information contained in a then current prospectus, statement of additional
information, or report of the Company; or any current information communicated
to IDI in writing by the Company.
The Company shall, at all times, have the right, but not the
obligation, to take over and conduct, in the name of IDI, or any controlling
person of IDI, the investigation and defense of any claim by a third party for
which indemnification may be sought, and in such event, IDI shall cooperate in
every way with the Company.
25. Protective Life agrees to indemnify and hold harmless the
Company, each member of its Board, each of its officers, and each person that
controls the Company within the meaning of the Securities Act of 1933 against
any and all losses, claims, damages, liabilities (including amounts paid in
settlement with the written consent of Protective Life) or litigation
(including legal and other expenses) to which the Company may become subject
under any statute, at common law or otherwise, insofar as such losses, claims,
damages, liabilities or expenses (or actions in respect thereof) or settlements
arise as a result of the Company's reliance on any information contained in the
then current prospectus, statement of additional information, or contract of
the Account; or any information Communicated to the Company in writing by
Protective Life.
Protective Life shall, at all times, have the right, but not the
obligation, to take over and conduct, in the name of the Company, the
investigation and defense of any claim by a third party for which
indemnification may be sought, and in such event, the Company shall cooperate in
every way with Protective Life.
26. IDI agrees to indemnify and hold harmless the Company, each
member of its Board, each of its officers, and each person that controls the
Company within the meaning of the Securities Act of 1933 against any and all
losses, claims, damages, liabilities (including amounts paid in settlement with
the written consent of IDI) or litigation (including legal and other expenses)
to which the Company may become subject under any statute, at common law or
otherwise, insofar as such losses, claims, damages, liabilities or expenses (or
actions in respect thereof) or settlements arise as a result of the Company's
reliance on any information communicated to the Company in writing by IDI (for
inclusion in the Company's registration statement or otherwise), as a result of
any misrepresentation or omission to state a material fact by IDI (or any agent
or employee of IDI) unless such misrepresentation or omission was made in
reliance on written information furnished by the Company or as a result of IDI's
wilful misconduct or failure to exercise reasonable care and diligence
(including supervision of its agents representatives and employees) in providing
the services the Company specified herein.
8
<PAGE>
IDI shall, at all times, have the right, but not the obligation, to take
over and conduct, in the name of the Company, the investigation and defense of
any claim by a third party for which indemnification may be sought, and in such
event, the Company shall cooperate in every way with IDI.
27. This Agreement shall be construed in accordance with the laws of
the State of Maryland.
28. This Agreement shall be subject to the provisions of the 1933,
1934 and 1940 Acts, and the rules and regulations and rulings thereunder,
including such exemptions from those statutes, rules and regulations as the
Securities and Exchange Commission may grant and the terms hereof shall be
interpreted and construed in accordance therewith.
IN WiTNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed and attested as of the date shown on the First page.
PROTECTIVE LIFE INSURANCE
COMPANY ON BEHALF OF ITSELF
AND PROTECTIVE VARIABLE
ANNUITY SEPARATE ACCOUNT
ATTEST:
By:_______________________
PROTECTIVE INVESTMENT COMPANY
ATTEST:
By:_______________________
INVESTMENT DISTRIBUTORS, INC.
ATTEST:
By: _______________________
9
<PAGE>
EXHIBIT 8
Custody Agreement Between Registrant and State Street Bank and Trust Company.
<PAGE>
CUSTODIAN CONTRACT
Between
PROTECTIVE INVESTMENT COMPANY
and
STATE STREET BANK AND TRUST COMPANY
<PAGE>
TABLE OF CONTENTS
-----------------
Page
----
1. Employment of Custodian and Property to be Held By
It 1
2. Duties of the Custodian with Respect to Property
of the Fund Held by the Custodian in the United States 2
2.1 Holding Securities 2
2.2 Delivery of Securities 2
2.3 Registration of Securities 5
2.4 Bank Accounts 5
2.5 Availability of Federal Funds 6
2.6 Collection of Income 6
2.7 Payment of Fund Monies 6
2.8 Liability for Payment in Advance of
Receipt of Securities Purchased 8
2.9 Appointment of Agents 8
2.10 Deposit of Fund Assets in Securities System 8
2.11 Fund Assets Held in the Custodian's Direct
Paper System 10
2.12 Segregated Account 11
2.13 Ownership Certificates for Tax Purposes 11
2.14 Proxies 12
2.15 Communications Relating to Portfolio Securities.. .12
3. Duties of the Custodian with Respect to Property of
the Fund Held Outside of the United States 12
e 3.1 Appointment of Foreign Sub-Custodians 12
3.2 Assets to be Held 12
3.3 Foreign Securities Depositories 13
3.4 Agreements with Foreign Banking Institutions 13
3.5 Access of Independent Accountants of the Fund 13
3.6 Reports by Custodian 13
3.7 Transactions in Foreign Custody Account 14
3.8 Liability of Foreign Sub-Custodians 14
3.9 Liability of Custodian 14
3.10 Reimbursement for Advances 15
3.11 Monitoring Responsibilities 15
3.12 Branches of U.S. Banks 16
3.13 Tax Law 16
4. Payments for Sales or Repurchase or Redemptions
of Shares of the Fund 16
5. Proper Instructions 17
<PAGE>
6. Actions Permitted Without Express Authority 17
7. Evidence of Authority 18
8. Duties of Custodian With Respect to the Books
of Account and Calculation of Net Asset Value
and Net Income 18
9. Records 19
10. Opinion of Fund's Independent Accountants 19
11. Reports to Fund by Independent Public Accountants 19
12. Compensation of Custodian 19
13. Responsibility of Custodian 20
14. Effective Period, Termination and Amendment 21
15. Successor Custodian 22
16. Interpretive and Additional Provisions 23
17. Additional Funds 23
18. Massachusetts Law to Apply 23
19. Prior Contracts 23
20. Shareholder Communications 24
<PAGE>
CUSTODIAN CONTRACT
This Contract between Protective Investment Company, a corporation
organized and existing under the laws of Maryland, having its principal place of
business at 2801 Highway 280 South, Birmingham, Alabama 35223 hereinafter called
the "Fund", and State Street Bank and Trust Company, a Massachusetts trust
company, having its principal place of business at 225 Franklin Street, Boston,
Massachusetts, 02110, hereinafter called the "Custodian",
WITNESSETH:
WHEREAS, the Fund is authorized to issue shares in separate series, with
each such series representing interests in a separate portfolio of securities
and other assets; and
WHEREAS, the Fund intends to initially offer shares in six series, the
Protective Money Market Fund, the Protective Select Equity Fund, the Protective
Small Cap Equity Fund, the Protective International Equity Fund, Protective
Growth and Income Fund and the Protective Global Income Fund (such series
together with all other series subsequently established by the Fund and made
subject to this Contract in accordance with paragraph 17, being herein referred
to as the "Portfolio(s)");
NOW THEREFORE, in consideration of the mutual covenants and agreements
hereinafter contained, the parties hereto agree as follows:
1. EMPLOYMENT OF CUSTODIAN AND PROPERTY TO BE HELD BY IT
The Fund hereby employs the Custodian as the custodian of the assets of the
Portfolios of the Fund, including securities which the Fund, on behalf of the
applicable Portfolio desires to be held in places within the United States
("domestic securities") and securities it desires to be held outside the United
States ("foreign securities") pursuant to the provisions of the Articles of
Incorporation. The Fund on behalf of the Portfolio(s) agrees to deliver to the
Custodian all securities and cash of the Portfolios, and all payments of income,
payments of principal or capital distributions received by it with respect to
all securities owned by the Portfolio(s) from time to time, and the cash
consideration received by it for such new or treasury shares of capital stock of
the Fund representing interests in the Portfolios, ("Shares") as may be issued
or sold from time to time. The Custodian shall not be responsible for any
property of a Portfolio held or received by the Portfolio and not delivered to
the Custodian.
1
<PAGE>
Upon receipt of "Proper Instructions" (within the meaning of Article 5),
the Custodian shall on behalf of the applicable Portfolio(s) from time to time
employ one or more sub-custodians, located in the United States but only in
accordance with an applicable vote by the Board of Directors of the Fund on
behalf of the applicable Portfolio(s), and provided that the Custodian shall
have no more or less responsibility or liability to the Fund on account of any
actions or omissions of any sub-custodian so employed than any such sub-
custodian has to the Custodian. The Custodian may employ as sub-custodian for
the Fund's foreign securities on behalf of the applicable Portfolio(s) the
foreign banking institutions and foreign securities depositories designated in
Schedule A hereto but only in accordance with the provisions of Article 3.
2. DUTIES OF THE CUSTODIAN WITH RESPECT TO PROPERTY OF THE FUND HELD BY THE
CUSTODIAN IN THE UNITED STATES
2.1 HOLDING SECURITIES. The Custodian shall hold and physically segregate for
the account of each Portfolio all non-cash property, to be held by it in
the United States including all domestic securities owned by such
Portfolio, other than (a) securities which are maintained pursuant to
Section 2.10 in a clearing agency which acts as a securities depository or
in a book-entry system authorized by the U.S. Department of the Treasury,
collectively referred to herein as "Securities System" and (b) commercial
paper of an issuer for which State Street Bank and Trust Company acts as
issuing and paying agent ("Direct Paper") which is deposited and/or
maintained in the Direct Paper System of the Custodian pursuant to Section
2.11.
2.2 DELIVERY OF SECURITIES. The Custodian shall release and deliver domestic
securities owned by a Portfolio held by the Custodian or in a Securities
System account of the Custodian or in the Custodian's Direct Paper book
entry system account ("Direct Paper System Account") only upon receipt of
Proper Instructions from the Fund on behalf of the applicable Portfolio,
which may be continuing instructions when deemed appropriate by the
parties, and only in the following cases:
1) Upon sale of such securities for the account of the Portfolio and
receipt of payment therefor;
2) Upon the receipt of payment in connection with any repurchase
agreement related to such securities entered into by the Portfolio;
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3) In the case of a sale effected through a Securities System, in
accordance with the provisions of Section 2.10 hereof;
4) To the depository agent in connection with tender or other similar
offers for securities of the Portfolio;
5) To the issuer thereof or its agent when such securities are called,
redeemed, retired or otherwise become payable; provided that, in any
such case, the cash or other consideration is to be delivered to the
Custodian;
6) To the issuer thereof, or its agent, for transfer into the name of the
Portfolio or into the name of any nominee or nominees of the Custodian
or into the name or nominee name of any agent appointed pursuant to
Section 2.9 or into the name or nominee name of any sub-custodian
appointed pursuant to Article 1; or for exchange for a different
number of bonds, certificates or other evidence representing the same
aggregate face amount or number of units; PROVIDED that, in any such
case, the new securities are to be delivered to the Custodian;
7) Upon the sale of such securities for the account of the Portfolio, to
the broker or its clearing agent, against a receipt, for examination
in accordance with "street delivery" custom; provided that in any such
case, the Custodian shall have no responsibility or liability for any
loss arising from the delivery of such securities prior to receiving
payment for such securities except as may arise from the Custodian's
own negligence or willful misconduct;
8) For exchange or conversion pursuant to any plan of merger,
consolidation, recapitalization, reorganization or readjustment of the
securities of the issuer of such securities, or pursuant to provisions
for conversion contained in such securities, or pursuant to any
deposit agreement; provided that, in any such case, the new securities
and cash, if any, are to be delivered to the Custodian;
9) In the case of warrants, rights or similar securities, the surrender
thereof in the exercise of such warrants, rights or similar securities
or the surrender of interim receipts or temporary securities for
definitive securities; provided that, in any such case, the new
securities and cash, if any, are to be delivered to the Custodian;
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10) For delivery in connection with any loans of securities made
by the Portfolio, BUT ONLY against receipt of adequate
collateral as agreed upon from time to time by the Custodian
and the Fund on behalf of the Portfolio, which may be in the
form of cash or obligations issued by the United States
government, its agencies or instrumentalities, except that
in connection with any loans for which collateral is to be
credited to the Custodian's account in the book-entry system
authorized by the U.S. Department of the Treasury, the
Custodian will not be held liable or responsible for the
delivery of securities owned by the Portfolio prior to the
receipt of such collateral;
11) For delivery as security in connection with any borrowings
by the Fund on behalf of the Portfolio requiring a pledge of
assets by the Fund on behalf of the Portfolio, BUT ONLY
against receipt of amounts borrowed;
12) For delivery in accordance with the provisions of any agreement among
the Fund on behalf of the Portfolio, the Custodian and a broker-dealer
registered under the Securities Exchange Act of 1934 (the "Exchange
Act") and a member of The National Association of Securities Dealers,
Inc. ("NASD"), relating to compliance with the rules of The Options
Clearing Corporation and of any registered national securities
exchange, or of any similar organization or organizations, regarding
escrow or other arrangements in connection with transactions by the
Portfolio of the Fund;
13) For delivery in accordance with the provisions of any agreement among
the Fund on behalf of the Portfolio, the Custodian, and a Futures
Commission Merchant registered under the Commodity Exchange Act,
relating to compliance with the rules of the Commodity Futures Trading
Commission and/or any Contract Market, or any similar organization or
organizations, regarding account deposits in connection with
transactions by the Portfolio of the Fund;
14) Upon receipt of instructions from the transfer agent ("Transfer
Agent") for the Fund, for delivery to such Transfer Agent or to the
holders of shares in connection with distributions in kind, as may be
described from time to time in the currently effective prospectus and
statement of additional information of the Fund, related to the
Portfolio ("Prospectus"), in satisfaction of requests by holders of
Shares for repurchase or redemption; and
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15) For any other proper corporate purpose, BUT ONLY upon receipt of, in
addition to Proper Instructions from the Fund on behalf of the
applicable Portfolio, a certified copy of a resolution of the Board of
Directors or of the Executive Committee signed by an officer of the
Fund and certified by the Secretary or an Assistant Secretary,
specifying the securities of the Portfolio to be delivered, setting
forth the purpose for which such delivery is to be made, declaring
such purpose to be a proper corporate purpose, and naming the person
or persons to whom delivery of such securities shall be made.
2.3 REGISTRATION OF SECURITIES. Domestic securities held by the Custodian
(other than bearer securities) shall be registered in the name of the
Portfolio or in the name of any nominee of the Fund on behalf of the
Portfolio or of any nominee of the Custodian which nominee shall be
assigned exclusively to the Portfolio, UNLESS the Fund has authorized in
writing the appointment of a nominee to be used in common with other
registered investment companies having the same investment adviser as the
Portfolio, or in the name or nominee name of any agent appointed pursuant
to Section 2.9 or in the name or nominee name of any sub-custodian
appointed pursuant to Article l. All securities accepted by the Custodian
on behalf of the Portfolio under the terms of this Contract shall be in
"street name" or other good delivery form. If, however, the Fund directs
the Custodian to maintain securities in "street name", the Custodian shall
utilize its best efforts only to timely collect income due the Fund on such
securities and to notify the Fund on a best efforts basis only of relevant
corporate actions including, without limitation, pendency of calls,
maturities, tender or exchange offers.
2.4 BANK ACCOUNTS. The Custodian shall open and maintain a separate bank
account or accounts in the United States in the name of each Portfolio of
the Fund, subject only to draft or order by the Custodian acting pursuant
to the terms of this Contract, and shall hold in such account or accounts,
subject to the provisions hereof, all cash received by it from or for the
account of the Portfolio, other than cash maintained by the Portfolio in a
bank account established and used in accordance with Rule 17f -3 under the
Investment Company Act of 1940. Funds held by the Custodian for a
Portfolio may be deposited by it to its credit as Custodian in the Banking
Department of the Custodian or in such other banks or trust companies as it
may in its discretion deem necessary or desirable; PROVIDED, however, that
every such bank or trust company shall be qualified to act as a custodian
under the
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Investment Company Act of 1940 and that each such bank or trust company and
the funds to be deposited with each such bank or trust company shall on
behalf of each applicable Portfolio be approved by vote of a majority of
the Board of Directors of the Fund. Such funds shall be deposited by the
Custodian in its capacity as Custodian and shall be withdrawable by the
Custodian only in that capacity.
2.5 AVAILABILITY OF FEDERAL FUNDS. Upon mutual agreement between the Fund on
behalf of each applicable Portfolio and the Custodian, the Custodian shall,
upon the receipt of Proper Instructions from the Fund on behalf of a
Portfolio, make federal funds available to such Portfolio as of specified
times agreed upon from time to time by the Fund and the Custodian in the
amount of checks received in payment for Shares of such Portfolio which are
deposited into the Portfolio's account.
2.6 COLLECTION OF INCOME. Subject to the provisions of Section 2.3, the
Custodian shall collect on a timely basis all income and other payments
with respect to registered domestic securities held hereunder to which each
Portfolio shall be entitled either by law or pursuant to custom in the
securities business, and shall collect on a timely basis all income and
other payments with respect to bearer domestic securities if, on the date
of payment by the issuer, such securities are held by the Custodian or its
agent thereof and shall credit such income, as collected, to such
Portfolio's custodian account. Without limiting the generality of the
foregoing, the Custodian shall detach and present for payment all coupons
and other income items requiring presentation as and when they become due
and shall collect interest when due on securities held hereunder. Income
due each Portfolio on securities loaned pursuant to the provisions of
Section 2.2 (10) shall be the responsibility of the Fund. The Custodian
will have no duty or responsibility in connection therewith, other than to
provide the Fund with such information or data as may be necessary to
assist the Fund in arranging for the timely delivery to the Custodian of
the income to which the Portfolio is properly entitled.
2.7 PAYMENT OF FUND MONIES. Upon receipt of Proper Instructions from the Fund
on behalf of the applicable Portfolio, which may be continuing instructions
when deemed appropriate by the parties, the Custodian shall pay out monies
of a Portfolio in the following cases only:
1) Upon the purchase of domestic securities, options, futures contracts
or options on futures contracts for the
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account of the Portfolio but only (a) against the delivery of such
securities or evidence of title to such options, futures contracts or
options on futures contracts to the Custodian (or any bank, banking firm or
trust company doing business in the United States or abroad which is
qualified under the Investment Company Act of 1940, as amended, to act as a
custodian and has been designated by the Custodian as its agent for this
purpose) registered in the name of the Portfolio or in the name of a
nominee of the Custodian referred to in Section 2.3 hereof or in proper
form for transfer; (b) in the case of a purchase effected through a
Securities System, in accordance with the conditions set forth in Section
2.10 hereof; (c) in the case of a purchase involving the Direct Paper
System, in accordance with the conditions set forth in Section 2.11; (d) in
the case of repurchase agreements entered into between the Fund on behalf
of the Portfolio and the Custodian, or another bank, or a broker-dealer
which is a member of NASD, (i) against delivery of the securities either in
certificate form or through an entry crediting the Custodian's account at
the Federal Reserve Bank with such securities or (ii) against delivery of
the receipt evidencing purchase by the Portfolio of securities owned by the
Custodian along with written evidence of the agreement by the Custodian to
repurchase such securities from the Portfolio or (e) for transfer to a time
deposit account of the Fund in any bank, whether domestic or foreign; such
transfer may be effected prior to receipt of a confirmation from a broker
and/or the applicable bank pursuant to Proper Instructions from the Fund as
defined in Article 5;
2) In connection with conversion, exchange or surrender of securities
owned by the Portfolio as set forth in Section 2.2 hereof;
3) For the redemption or repurchase of Shares issued by the Portfolio as
set forth in Article 4 hereof;
For the payment of any expense or liability incurred by the Portfolio,
including but not limited to the following payments for the account of
the Portfolio: interest, taxes, management, accounting, transfer agent
and legal fees, and operating expenses of the Fund whether or not such
expenses are to be in whole or part capitalized or treated as deferred
expenses;
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5) For the payment of any dividends on Shares of the Portfolio
declared pursuant to the governing documents of the Fund;
6) For payment of the amount of dividends received in respect
of securities sold short;
7) For any other proper purpose, BUT ONLY upon receipt of, in
addition to Proper Instructions from the Fund on behalf of
the Portfolio, a certified copy of a resolution of the Board
of Directors or of the Executive Committee of the Fund
signed by an officer of the Fund and certified by its
Secretary or an Assistant Secretary, specifying the amount
of such payment, setting forth the purpose for which such
payment is to be made, declaring such purpose to be a proper
purpose, and naming the person or persons to whom such
payment is to be made.
2.8 LIABILITY FOR PAYMENT IN ADVANCE OF RECEIPT OF SECURITIES
PURCHASED. Except as specifically stated otherwise in this
Contract, in any and every case where payment for purchase of
domestic securities for the account of a Portfolio is made by the
Custodian in advance of receipt of the securities purchased in
the absence of specific written instructions from the Fund on
behalf of such Portfolio to so pay in advance, the Custodian
shall be absolutely liable to the Fund for such securities to the
same extent as if the securities had been received by the
Custodian.
2.9 APPOINTMENT OF AGENTS. The Custodian may at any time or times in
its discretion appoint (and may at any time remove) any other
bank or trust company which is itself qualified under the
Investment Company Act of 1940, as amended, to act as a
custodian, as its agent to carry out such of the provisions of
this Article 2 as the Custodian may from time to time direct;
PROVIDED, however, that the appointment of any agent shall not
relieve the Custodian of its responsibilities or liabilities
hereunder.
2.10 DEPOSIT OF FUND ASSETS IN SECURITIES SYSTEMS. The Custodian may deposit
and/or maintain domestic securities owned by a Portfolio in a clearing
agency registered with the Securities and Exchange Commission under Section
17A of the Securities Exchange Act of 1934, which acts as a securities
depository, or in the book-entry system authorized by the U.S. Department
of the Treasury and certain federal agencies, collectively referred to
herein as "Securities System" in accordance with applicable Federal Reserve
Board and Securities and Exchange Commission rules and regulations, if any,
and subject to the following provisions:
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1) The Custodian may keep domestic securities of the Portfolio in a
Securities System provided that such securities are represented in an
account ("Account") of the Custodian in the Securities System which
shall not include any assets of the Custodian other than assets held
as a fiduciary, custodian or otherwise for customers;
2) The records of the Custodian with respect to domestic securities of
the Portfolio which are maintained in a Securities System shall
identify by book-entry those securities belonging to the Portfolio;
3) The Custodian shall pay for domestic securities purchased for the
account of the Portfolio upon (i) receipt of advice from the
Securities System that such securities have been transferred to the
Account, and (ii) the making of an entry on the records of the
Custodian to reflect such payment and transfer for the account of the
Portfolio. The Custodian shall transfer domestic securities sold for
the account of the Portfolio upon (i) receipt of advice from the
Securities System that payment for such securities has been
transferred to the Account, and (ii) the making of an entry on the
records of the Custodian to reflect such transfer and payment for the
account of the Portfolio. Copies of all advices from the Securities
System of transfers of domestic securities for the account of the
Portfolio shall identify the Portfolio, be maintained for the
Portfolio by the Custodian and be provided to the Fund at its request.
Upon request, the Custodian shall furnish the Fund on behalf of the
Portfolio confirmation of each transfer to or from the account of the
Portfolio in the form of a written advice or notice and shall furnish
to the Fund on behalf of the Portfolio copies of daily transaction
sheets reflecting each day's transactions in the Securities System for
the account of the Portfolio.
4) The Custodian shall provide the Fund for the Portfolio with any report
obtained by the Custodian on the Securities System's accounting
system, internal accounting control and procedures for safeguarding
domestic securities deposited in the Securities System;
5) The Custodian shall have received from the Fund on behalf of
the Portfolio the initial or annual certificate, as the case
may be, required by Article 14 hereof;
6) Anything to the contrary in this Contract notwithstanding,
the Custodian shall be liable to the Fund for the benefit of
the Portfolio for any loss or damage to the Portfolio
resulting from use of the
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Securities System by reason of any negligence, misfeasance or
misconduct of the Custodian or any of its agents or of any of its
or their employees or from failure of the Custodian or any such
agent to enforce effectively such rights as it may have against
the Securities System; at the election of the Fund, it shall be
entitled to be subrogated to the rights of the Custodian with
respect to any claim against the Securities System or any other
person which the Custodian may have as a consequence of any such
loss or damage if and to the extent that the Portfolio has not
been made whole for any such loss or damage.
2.11 FUND ASSETS HELD IN THE CUSTODIAN'S DIRECT PAPER SYSTEM.
The Custodian may deposit and/or maintain securities owned by a
Portfolio in the Direct Paper System of the Custodian subject to the
following provisions:
1) No transaction relating to securities in the Direct Paper System will
be effected in the absence of Proper Instructions from the Fund on
behalf of the Portfolio;
2) The Custodian may keep securities of the Portfolio in the Direct Paper
System only if such securities are represented in an account
("Account") of the Custodian in the Direct Paper System which shall
not include any assets of the Custodian other than assets held as a
fiduciary, custodian or otherwise for customers;
3) The records of the Custodian with respect to securities of the
Portfolio which are maintained in the Direct Paper System shall
identify by book-entry those securities belonging to the Portfolio;
4) The Custodian shall pay for securities purchased for the account of
the Portfolio upon the making of an entry on the records of the
Custodian to reflect such payment and transfer of securities to the
account of the Portfolio. The Custodian shall transfer securities sold
for the account of the Portfolio upon the making of an entry on the
records of the Custodian to reflect such transfer and receipt of
payment for the account of the Portfolio;
5) The Custodian shall furnish the Fund on behalf of the Portfolio
confirmation of each transfer to or from the account of the Portfolio,
in the form of a written advice or notice, of Direct Paper on the next
business day following such transfer and shall furnish to the Fund on
behalf of the Portfolio copies of daily transaction
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sheets reflecting each day's transaction in the Securities System for
the account of the Portfolio;
6) The Custodian shall provide the Fund on behalf of the Portfolio with
any report on its system of internal accounting control as the Fund
may reasonably request from time to time.
2.12 SEGREGATED ACCOUNT. The Custodian shall upon receipt of Proper
Instructions from the Fund on behalf of each applicable Portfolio establish
and maintain a segregated account or accounts for and on behalf of each
such Portfolio, into which account or accounts may be transferred cash
and/or securities, including securities maintained in an account by the
Custodian pursuant to Section 2.10 hereof, (i) in accordance with the
provisions of any agreement among the Fund on behalf of the Portfolio, the
Custodian and a broker-dealer registered under the Exchange Act and a
member of the NASD (or any futures commission merchant registered under the
Commodity Exchange Act), relating to compliance with the rules of The
Options Clearing Corporation and of any registered national securities
exchange (or the Commodity Futures Trading Commission or any registered
contract market), or of any similar organization or organizations,
regarding escrow or other arrangements in connection with transactions by
the Portfolio, (ii) for purposes of segregating cash or government
securities in connection with options purchased, sold or written by the
Portfolio or commodity futures contracts or options thereon purchased or
sold by the Portfolio, (iii) for the purposes of compliance by the
Portfolio with the procedures required by Investment Company Act Release
No. 10666, or any subsequent release or releases of the Securities and
Exchange Commission relating to the maintenance of segregated accounts by
registered investment companies and (iv) for other proper corporate
purposes, BUT ONLY, in the case of clause (iv), upon receipt of, in
addition to Proper Instructions from the Fund on behalf of the applicable
Portfolio, a certified copy of a resolution of the Board of Directors or of
the Executive Committee signed by an officer of the Fund and certified by
the Secretary or an Assistant Secretary, setting forth the purpose or
purposes of such segregated account and declaring such purposes to be
proper corporate purposes.
2.13 OWNERSHIP CERTIFICATES FOR TAX PURPOSES. The Custodian shall execute
ownership and other certificates and affidavits for all federal and state
tax purposes in connection with receipt of income or other payments with
respect to domestic securities of each Portfolio held by it and in
connection with transfers of securities.
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2.14 PROXIES. The Custodian shall, with respect to the domestic securities held
hereunder, cause to be promptly executed by the registered holder of such
securities, if the securities are registered otherwise than in the name of
the Portfolio or a nominee of the Portfolio, all proxies, without
indication of the manner in which such proxies are to be voted, and shall
promptly deliver to the Portfolio such proxies, all proxy soliciting
materials and all notices relating to such securities.
2.15 COMMUNICATIONS RELATING TO PORTFOLIO SECURITIES. Subject to the provisions
of Section 2.3, the Custodian shall transmit promptly to the Fund for each
Portfolio all written information (including, without limitation, pendency
of calls and maturities of domestic securities and expirations of rights in
connection therewith and notices of exercise of call and put options
written by the Fund on behalf of the Portfolio and the maturity of futures
contracts purchased or sold by the Portfolio) received by the Custodian
from issuers of the securities being held for the Portfolio. With respect
to tender or exchange offers, the Custodian shall transmit promptly to the
Portfolio all written information received by the Custodian from issuers of
the securities whose tender or exchange is sought and from the party (or
his agents) making the tender or exchange offer. If the Portfolio desires
to take action with respect to any tender offer, exchange offer or any
other similar transaction, the Portfolio shall notify the Custodian at
least three business days prior to the date on which the Custodian is to
take such action.
3. DUTIES OF THE CUSTODIAN WITH RESPECT TO PROPERTY OF THE FUND HELD OUTSIDE
OF THE UNITED STATES
3.1 APPOINTMENT OF FOREIGN SUB-CUSTODIANS. The Fund hereby authorizes and
instructs the Custodian to employ as sub-custodians for the Portfolio's
securities and other assets maintained outside the United States the
foreign banking institutions and foreign securities depositories designated
on Schedule A hereto ("foreign sub-custodians"). Upon receipt of "Proper
Instructions", as defined in Section 5 of this Contract, together with a
certified resolution of the Fund's Board of Directors, the Custodian and
the Fund may agree to amend Schedule A hereto from time to time to
designate additional foreign banking institutions and foreign securities
depositories to act as sub-custodian. Upon receipt of Proper Instructions,
the Fund may instruct the Custodian to cease the employment of any one or
more such sub-custodians for maintaining custody of the Portfolio's assets.
3.2 ASSETS TO BE HELD. The Custodian shall limit the securities and other
assets maintained in the custody of the foreign sub-custodians
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to: (a) "foreign securities", as defined in paragraph (c) (l) of Rule 17f-5
under the Investment Company Act of 1940, and (b) cash and cash equivalents
in such amounts as the Custodian or the Fund may determine to be reasonably
necessary to effect the Portfolio's foreign securities transactions. The
Custodian shall identify on its books as belonging to the Fund, the foreign
securities of the Fund held by each foreign sub-custodian.
3.3 FOREIGN SECURITIES DEPOSITORIES. Except as may otherwise be agreed upon in
writing by the Custodian and the Fund, assets of the Portfolios shall be
maintained in foreign securities depositories only through arrangements
implemented by the foreign banking institutions serving as sub-custodians
pursuant to the terms hereof. Where possible, such arrangements shall
include entry into agreements containing the provisions set forth in
Section 3.4 hereof.
3.4 AGREEMENTS WITH FOREIGN BANKING INSTITUTIONS. Each agreement with a
foreign banking institution shall be substantially in the form set forth in
Exhibit l hereto and shall provide that: (a) the assets of each Portfolio
will not be subject to any right, charge, security interest, lien or claim
of any kind in favor of the foreign banking institution or its creditors or
agent, except a claim of payment for their safe custody or administration;
(b) beneficial ownership for the assets of each Portfolio will be freely
transferable without the payment of money or value other than for custody
or administration; (c) adequate records will be maintained identifying the
assets as belonging to each applicable Portfolio; (d) officers of or
auditors employed by, or other representatives of the Custodian, including
to the extent permitted under applicable law the independent public
accountants for the Fund, will be given access to the books and records of
the foreign banking institution relating to its actions under its agreement
with the Custodian; and (e) assets of the Portfolios held by the foreign
sub-custodian will be subject only to the instructions of the Custodian or
its agents.
3.5 ACCESS OF INDEPENDENT ACCOUNTANTS OF THE FUND. Upon request of
the Fund, the Custodian will use its best efforts to arrange for
the independent accountants of the Fund to be afforded access to
the books and records of any foreign banking institution employed
as a foreign sub-custodian insofar as such books and records
relate to the performance of such foreign banking institution
under its agreement with the Custodian.
3.6 REPORTS BY CUSTODIAN. The Custodian will supply to the Fund from
time to time, as mutually agreed upon, statements in respect of
the securities and other assets of the Portfolio(s) held by
foreign sub-custodians, including but not limited to
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an identification of entities having possession of the
Portfolio(s) securities and other assets and advices or
notifications of any transfers of securities to or from each
custodial account maintained by a foreign banking institution for
the Custodian on behalf of each applicable Portfolio indicating,
as to securities acquired for a Portfolio, the identity of the
entity having physical possession of such securities.
3.7 TRANSACTIONS IN FOREIGN CUSTODY ACCOUNT. (a) Except as otherwise
provided in paragraph (b) of this Section 3.7, the provision of
Sections 2.2 and 2.7 of this Contract shall apply, MUTATIS
MUTANDIS to the foreign securities of the Fund held outside the
United States by foreign sub-custodians. (b) Notwithstanding any
provision of this Contract to the contrary, settlement and
payment for securities received for the account of each
applicable Portfolio and delivery of securities maintained for
the account of each applicable Portfolio may be effected in
accordance with the customary established securities trading or
securities processing practices and procedures in the
jurisdiction or market in which the transaction occurs,
including, without limitation, delivering securities to the
purchaser thereof or to a dealer therefor (or an agent for such
purchaser or dealer) against a receipt with the expectation of
receiving later payment for such securities from such purchaser
or dealer. (c) Securities maintained in the custody of a foreign
sub-custodian may be maintained in the name of such entity's
nominee to the same extent as set forth in Section 2.3 of this
Contract, and the Fund agrees to hold any such nominee harmless
from any liability as a holder of record of such securities.
3.8 LIABILITY OF FOREIGN SUB-CUSTODIANS. Each agreement pursuant to which the
Custodian employs a foreign banking institution as a foreign sub-custodian
shall require the institution to exercise reasonable care in the
performance of its duties and to indemnify, and hold harmless, the
Custodian and the Fund from and against any loss, damage, cost, expense,
liability or claim arising out of or in connection with the institution's
performance of such obligations. At the election of the Fund, it shall be
entitled to be subrogated to the rights of the Custodian with respect to
any claims against a foreign banking institution as a consequence of any
such loss, damage, cost, expense, liability or claim if and to the extent
that the Fund has not been made whole for any such loss, damage, cost,
expense, liability or claim.
3.9 LIABILITY OF CUSTODIAN. The Custodian shall be liable for the acts or
omissions of a foreign banking institution to the same
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extent as set forth with respect to sub-custodians generally in this
Contract and, regardless of whether assets are maintained in the custody of
a foreign banking institution, a foreign securities depository or a branch
of a U.S. bank as contemplated by paragraph 3.12 hereof, the Custodian
shall not be liable for any loss, damage, cost, expense, liability or claim
resulting from nationalization, expropriation, currency restrictions, or
acts of war or terrorism or any loss where the sub-custodian has otherwise
exercised reasonable care. Notwithstanding the foregoing provisions of this
paragraph 3.9, in delegating custody duties to State Street London Ltd.,
the Custodian shall not be relieved of any responsibility to the Fund for
any loss due to such delegation, except such loss as may result from (a)
political risk (including, but not limited to, exchange control
restrictions, confiscation, expropriation, nationalization, insurrection,
civil strife or armed hostilities) or (b) other losses (excluding a
bankruptcy or insolvency of State Street London Ltd. not caused by
political risk) due to Acts of God, nuclear incident or other losses under
circumstances where the Custodian and State Street London Ltd. have
exercised reasonable care.
3.10 REIMBURSEMENT FOR ADVANCES. If the Fund requires the Custodian to advance
cash or securities for any purpose for the benefit of a Portfolio including
the purchase or sale of foreign exchange or of contracts for foreign
exchange, or in the event that the Custodian or its nominee shall incur or
be assessed any taxes, charges, expenses, assessments, claims or
liabilities in connection with the performance of this Contract, except
such as may arise from its or its nominee's own negligent action, negligent
failure to act or willful misconduct, any property at any time held for the
account of the applicable Portfolio shall be security therefor and should
the Fund fail to repay the Custodian promptly, the Custodian shall be
entitled to utilize available cash and to dispose of such Portfolios assets
to the extent necessary to obtain reimbursement.
3.11 MONITORING RESPONSIBILITIES. The Custodian shall furnish annually to the
Fund, during the month of June, information concerning the foreign sub-
custodians employed by the Custodian. Such information shall be similar in
kind and scope to that furnished to the Fund in connection with the initial
approval of this Contract. In addition, the Custodian will promptly inform
the Fund in the event that the Custodian learns of a material adverse
change in the financial condition of a foreign sub-custodian or any
material loss of the assets of the Fund or in the case of any foreign sub-
custodian not the subject of an exemptive order from the Securities and
Exchange Commission is notified by such foreign sub-custodian that there
appears to be
15
<PAGE>
a substantial likelihood that its shareholders' equity will decline below
$200 million (U.S. dollars or the equivalent thereof) or that its
shareholders' equity has declined below $200 million (in each case computed
in accordance with generally accepted U.S. accounting principles).
3.12 BRANCHES OF U.S. BANKS. (a) Except as otherwise set forth in this
Contract, the provisions hereof shall not apply where the custody of the
Portfolios assets are maintained in a foreign branch of a banking
institution which is a "bank" as defined by Section 2(a) (5) of the
Investment Company Act of 1940 meeting the qualification set forth in
Section 26(a) of said Act. The appointment of any such branch as a sub-
custodian shall be governed by paragraph l of this Contract. (b) Cash held
for each Portfolio of the Fund in the United Kingdom shall be maintained in
an interest bearing account established for the Fund with the Custodian's
London branch, which account shall be subject to the direction of the
Custodian, State Street London Ltd. or both.
3.13 TAX LAW. The Custodian shall have no responsibility or liability for any
obligations now or hereafter imposed on the Fund or the Custodian as
custodian of the Fund by the tax law of the United States of America or any
state or political subdivision thereof. It shall be the responsibility of
the Fund to notify the Custodian of the obligations imposed on the Fund or
the Custodian as custodian of the Fund by the tax law of jurisdictions
other than those mentioned in the above sentence, including responsibility
for withholding and other taxes, assessments or other governmental charges,
certifications and governmental reporting. The sole responsibility of the
Custodian with regard to such tax law shall be to use reasonable efforts to
assist the Fund with respect to any claim for exemption or refund under the
tax law of jurisdictions for which the Fund has provided such information.
4. PAYMENTS FOR REPURCHASES OR REDEMPTIONS AND SALES OF SHARES OF THE FUND
The Custodian shall receive from the distributor for the Shares or from the
Transfer Agent of the Fund and deposit into the account of the appropriate
Portfolio such payments as are received for shares of that Portfolio issued or
sold from time to time by the Fund. The Custodian will provide timely
notification to the Fund on behalf of each such Portfolio and the Transfer Agent
of any receipt by it of payments for Shares of such Portfolio.
From such funds as may be available for the purpose but subject to the
limitations of the Articles of Incorporation and any applicable votes of the
Board of Directors of the Fund pursuant thereto, the
16
<PAGE>
Custodian shall, upon receipt of instructions from the Transfer Agent, make
funds available for payment to holders of Shares who have delivered to the
Transfer Agent a request for redemption or repurchase of their Shares. In
connection with the redemption or repurchase of Shares of a Portfolio, the
Custodian is authorized upon receipt of instructions from the Transfer Agent to
wire funds to or through a commercial bank designated by the redeeming
shareholders. In connection with the redemption or repurchase of Shares of the
Fund, the Custodian shall honor checks drawn on the Custodian by a holder of
Shares, which checks have been furnished by the Fund to the holder of Shares,
when presented to the Custodian in accordance with such procedures and controls
as are mutually agreed upon from time to time between the Fund and the
Custodian.
5. PROPER INSTRUCTIONS
Proper Instructions as used throughout this Contract means a writing signed
or initialled by one or more person or persons as the Board of Directors shall
have from time to time authorized. Each such writing shall set forth the
specific transaction or type of transaction involved, including a specific
statement of the purpose for which such action is requested. Oral instructions
will be considered Proper Instructions if the Custodian reasonably believes them
to have been given by a person authorized to give such instructions with respect
to the transaction involved. The Fund shall cause all oral instructions to be
confirmed in writing. Upon receipt of a certificate of the Secretary or an
Assistant Secretary as to the authorization by the Board of Directors of the
Fund accompanied by a detailed description of procedures approved by he Board of
Directors, Proper Instructions may include communications effected directly
between electro-mechanical or electronic devices provided that the Board of
Directors and the Custodian are satisfied that such procedures afford adequate
safeguards for the Portfolios' assets. For purposes of this Section, Proper
Instructions shall include instructions received by the Custodian pursuant to
any three-party agreement which requires a segregated asset account in
accordance with Section 2.12.
6. ACTIONS PERMITTED WITHOUT EXPRESS AUTHORITY
The Custodian may in its discretion, without express authority from the
Fund on behalf of each applicable Portfolio:
1) make payments to itself or others for minor expenses of handling
securities or other similar items relating to its duties under this
Contract, PROVIDED that all such payments shall be accounted for to
the Fund on behalf of the Portfolio;
17
<PAGE>
2) surrender securities in temporary form for securities in definitive
form;
3) endorse for collection, in the name of the Portfolio, checks, drafts
and other negotiable instruments; and
4) in general, attend to all non-discretionary details in connection with
the sale, exchange, substitution, purchase, transfer and other
dealings with the securities and property of the Portfolio except as
otherwise directed by the Board of Directors of the Fund.
7. EVIDENCE OF AUTHORITY
The Custodian shall be protected in acting upon any instructions, notice,
request, consent, certificate or other instrument or paper believed by it to be
genuine and to have been properly executed by or on behalf of the Fund. The
Custodian may receive and accept a certified copy of a vote of the Board of
Directors of the Fund as conclusive evidence (a) of the authority of any person
to act in accordance with such vote or (b) of any determination or of any action
by the Board of Directors pursuant to the Articles of Incorporation as described
in such vote, and such vote may be considered as in full force and effect until
receipt by the Custodian of written notice to the contrary.
8. DUTIES OF CUSTODIAN WITH RESPECT TO THE BOOKS OF ACCOUNT AND CALCULATION OF
NET ASSET VALUE AND NET INCOME
The Custodian shall cooperate with and supply necessary information to the
entity or entities appointed by the Board of Directors of the Fund to keep the
books of account of each Portfolio and/or compute the net asset value per share
of the outstanding shares of each Portfolio or, if the Custodian and the Fund
execute the applicable Price Source Authorization (the "Authorization"), the
Custodian shall on behalf of each Portfolio, keep such books of account and/or
compute such net asset value per share in accordance with the Authorization and
the attachments thereto. If so directed, the Custodian shall also calculate
daily the net income of the Portfolio as described in the Fund's currently
effective prospectus related to such Portfolio and shall advise the Fund and the
Transfer Agent daily of the total amounts of such net income and, if instructed
in writing by an officer of the Fund to do so, shall advise the Transfer Agent
periodically of the division of such net income among its various components.
The calculations of the net asset value per share and the daily income of each
Portfolio shall be made at the time or times described from time to time in the
Fund's currently effective prospectus related to such Portfolio.
18
<PAGE>
9. RECORDS
The Custodian shall with respect to each Portfolio create and maintain all
records relating to its activities and obligations under this Contract in such
manner as will meet the obligations of the Fund under the Investment Company
Act of 1940, with particular attention to Section 31 thereof and Rules 31a-1
and 31a-2 thereunder. All such records shall be the property of the Fund and
shall at all times during the regular business hours of the Custodian be open
for inspection by duly authorized officers, employees or agents of the Fund and
employees and agents of the Securities and Exchange Commission. The Custodian
shall, at the Fund's request, supply the Fund with a tabulation of securities
owned by each Portfolio and held by the Custodian and shall, when requested to
do so by the Fund and for such compensation as shall be agreed upon between the
Fund and the Custodian, include certificate numbers in such tabulations.
10. OPINION OF FUND'S INDEPENDENT ACCOUNTANT
The Custodian shall take all reasonable action, as the Fund on behalf of
each applicable Portfolio may from time to time request, to obtain from year to
year favorable opinions from the Fund's independent accountants with respect to
its activities hereunder in connection with the preparation of the Fund's Form
N-1A, and Form N-SAR or other annual reports to the Securities and Exchange
Commission and with respect to any other requirements of such Commission.
11. REPORTS TO FUND BY INDEPENDENT PUBLIC ACCOUNTANTS
The Custodian shall provide the Fund, on behalf of each of the Portfolios
at such times as the Fund may reasonably require, with reports by independent
public accountants on the accounting system, internal accounting control and
procedures for safeguarding securities, futures contracts and options on futures
contracts, including securities deposited and/or maintained in a Securities
System, relating to the services provided by the Custodian under this Contract;
such reports, shall be of sufficient scope and in sufficient detail, as may
reasonably be required by the Fund to provide reasonable assurance that any
material inadequacies would be disclosed by such examination, and, if there are
no such inadequacies, the reports shall so state.
12. COMPENSATION OF CUSTODIAN
The Custodian shall be entitled to reasonable compensation for its services
and expenses as Custodian, as agreed upon from time
19
<PAGE>
to time between the Fund on behalf of each applicable Portfolio and the
Custodian.
13. RESPONSIBILITY OF CUSTODIAN
So long as and to the extent that it is in the exercise of reasonable care,
the Custodian shall not be responsible for the title, validity or genuineness of
any property or evidence of title thereto received by it or delivered by it
pursuant to this Contract and shall be held harmless in acting upon any notice,
request, consent, certificate or other instrument reasonably believed by it to
be genuine and to be signed by the proper party or parties, including any
futures commission merchant acting pursuant to the terms of a three-party
futures or options agreement. The Custodian shall be held to the exercise of
reasonable care in carrying out the provisions of this Contract, but shall be
kept indemnified by and shall be without liability to the Fund for any action
taken or omitted by it in good faith without negligence. It shall be entitled
to rely on and may act upon advice of counsel (who may be counsel for the Fund)
on all matters, and shall be without liability for any action reasonably taken
or omitted pursuant to such advice.
The Custodian shall be liable for the acts or omissions of a foreign
banking institution appointed pursuant to the provisions of Article 3 to the
same extent as set forth in Article l hereof with respect to sub-custodians
located in the United States (except as specifically provided in Article 3.9)
and, regardless of whether assets are maintained in the custody of a foreign
banking institution, a foreign securities depository or a branch of a U.S. bank
as contemplated by paragraph 3.12 hereof, the Custodian shall not be liable for
any loss, damage, cost, expense, liability or claim resulting from, or caused
by, the direction of or authorization by the Fund to maintain custody of any
securities or cash of the Fund in a foreign country including, but not limited
to, losses resulting from nationalization, expropriation, currency restrictions,
or acts of war or terrorism.
If the Fund on behalf of a Portfolio requires the Custodian to take any
action with respect to securities, which action involves the payment of money or
which action may, in the opinion of the Custodian, result in the Custodian or
its nominee assigned to the Fund or the Portfolio being liable for the payment
of money or incurring liability of some other form, the Fund on behalf of the
Portfolio, as a prerequisite to requiring the Custodian to take such action,
shall provide indemnity to the Custodian in an amount and form satisfactory to
it.
20
<PAGE>
If the Fund requires the Custodian, its affiliates, subsidiaries or agents,
to advance cash or securities for any purpose (including but not limited to
securities settlements, foreign exchange contracts and assumed settlement) for
the benefit of a Portfolio including the purchase or sale of foreign exchange or
of contracts for foreign exchange or in the event that the Custodian or its
nominee shall incur or be assessed any taxes, charges, expenses, assessments,
claims or liabilities in connection with the performance of this Contract,
except such as may arise from its or its nominee's own negligent action,
negligent failure to act or willful misconduct, any property at any time held
for the account of the applicable Portfolio shall be security therefor and
should the Fund fail to repay the Custodian promptly, the Custodian shall be
entitled to utilize available cash and to dispose of such Portfolio's assets to
the extent necessary to obtain reimbursement.
14. EFFECTIVE PERIOD, TERMINATION AND AMENDMENT
This Contract shall become effective as of its execution, shall continue in
full force and effect until terminated as hereinafter provided, may be amended
at any time by mutual agreement of the parties hereto and may be terminated by
either party by an instrument in writing delivered or mailed, postage prepaid to
the other party, such termination to take effect not sooner than thirty (30)
days after the date of such delivery or mailing; PROVIDED, however that the
Custodian shall not with respect to a Portfolio act under Section 2.10 hereof in
the absence of receipt of an initial certificate of the Secretary or an
Assistant Secretary that the Board of Directors of the Fund has approved the
initial use of a particular Securities System by such Portfolio and the receipt
of a certificate of the Secretary or an Assistant Secretary that the Board of
Directors has reviewed any subsequent change regarding the use by such Portfolio
of such Securities System, as required in each case by Rule 17f -4 under the
Investment Company Act of 1940, as amended and that the Custodian shall not with
respect to a Portfolio act under Section 2.11 hereof in the absence of receipt
of an initial certificate of the Secretary or an Assistant Secretary that the
Board of Directors has approved the initial use of the Direct Paper System by
such Portfolio and the receipt of an annual certificate of the Secretary or an
Assistant Secretary that the Board of Directors has reviewed the use by such
Portfolio of the Direct Paper System; PROVIDED FURTHER, however, that the Fund
shall not amend or terminate this Contract in contravention of any applicable
federal or state regulations, or any provision of the Articles of Incorporation,
and further provided, that the Fund on behalf of one or more of the Portfolios
may at any time by action of its Board of Directors (i) substitute another bank
or trust company for the Custodian by giving notice as described above to the
Custodian, or (ii) immediately terminate
21
<PAGE>
this Contract in the event of the appointment of a conservator or receiver for
the Custodian by the Comptroller of the Currency or upon the happening of a like
event at the direction of an appropriate regulatory agency or court of competent
jurisdiction.
Upon termination of the Contract, the Fund on behalf of each applicable
Portfolio shall pay to the Custodian such compensation as may be due as of the
date of such termination and shall likewise reimburse the Custodian for its
costs, expenses and disbursements.
15. SUCCESSOR CUSTODIAN
If a successor custodian for the Fund, of one or more of the Portfolios
shall be appointed by the Board of Directors of the Fund, the Custodian shall,
upon termination, deliver to such successor custodian at the office of the
Custodian, duly endorsed and in the form for transfer, all securities of each
applicable Portfolio then held by it hereunder and shall transfer to an account
of the successor custodian all of the securities of each such Portfolio held in
a Securities System.
If no such successor custodian shall be appointed, the Custodian shall, in
like manner, upon receipt of a certified copy of a vote of the Board of
Directors of the Fund, deliver at the office of the Custodian and transfer such
securities, funds and other properties in accordance with such vote.
In the event that no written order designating a successor custodian or
certified copy of a vote of the Board of Directors shall have been delivered to
the Custodian on or before the date when such termination shall become
effective, then the Custodian shall have the right to deliver to a bank or trust
company, which is a "bank" as defined in the Investment Company Act of 1940,
doing business in Boston, Massachusetts, of its own selection, having an
aggregate capital, surplus, and undivided profits, as shown by its last
published report, of not less than $25,000,000, all securities, funds and other
properties held by the Custodian on behalf of each applicable Portfolio and all
instruments held by the Custodian relative thereto and all other property held
by it under this Contract on behalf of each applicable Portfolio and to transfer
to an account of such successor custodian all of the securities of each such
Portfolio held in any Securities System. Thereafter, such bank or trust company
shall be the successor of the Custodian under this Contract.
In the event that securities, funds and other properties remain in the
possession of the Custodian after the date of termination hereof owing to
failure of the Fund to procure the certified copy of the vote referred to or of
the Board of Directors
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<PAGE>
to appoint a successor custodian, the Custodian shall be entitled to fair
compensation for its services during such period as the Custodian retains
possession of such securities, funds and other properties and the provisions of
this Contract relating to the duties and obligations of the Custodian shall
remain in full force and effect.
16. INTERPRETIVE AND ADDITIONAL PROVISIONS
In connection with the operation of this Contract, the Custodian and the
Fund on behalf of each of the Portfolios, may from time to time agree on such
provisions interpretive of or in addition to the provisions of this Contract as
may in their joint opinion be consistent with the general tenor of this
Contract. Any such interpretive or additional provisions shall be in a writing
signed by both parties and shall be annexed hereto, PROVIDED that no such
interpretive or additional provisions shall contravene any applicable federal or
state regulations or any provision of the Articles of Incorporation of the Fund.
No interpretive or additional provisions made as provided in the preceding
sentence shall be deemed to be an amendment of this Contract.
17. ADDITIONAL FUNDS
In the event that the Fund establishes one or more series of Shares in
addition to the Protective Money Market Fund, the Protective Select Equity Fund,
the Protective Small Cap Equity Fund the Protective International Equity Fund,
Protective Growth and Income Fund and the Protective Global Income Fund with
respect to which it desires to have the Custodian render services as custodian
under the terms hereof, it shall so notify the Custodian in writing, and if the
Custodian agrees in writing to provide such services, such series of Shares
shall become a Portfolio hereunder.
18. MASSACHUSETTS LAW TO APPLY
This Contract shall be construed and the provisions thereof interpreted
under and in accordance with laws of The Commonwealth of Massachusetts.
19. PRIOR CONTRACTS
This Contract supersedes and terminates, as of the date hereof, all prior
contracts between the Fund on behalf of each of the Portfolios and the Custodian
relating to the custody of the Fund's assets.
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<PAGE>
20. SHAREHOLDER COMMUNICATIONS
Securities and Exchange Commission Rule 14b-2 requires banks which hold
securities for the account of customers to respond to requests by issuers of
securities for the names, addresses and holdings of beneficial owners of
securities of that issuer held by the bank unless the beneficial owner has
expressly objected to disclosure of this information. In order to comply with
the rule, the Custodian needs the Fund to indicate whether the Fund authorizes
the Custodian to provide the Fund's name, address, and share position to
requesting companies whose securities the Fund owns. If the Fund tells the
Custodian "no", the Custodian will not provide this information to requesting
companies. If the Fund tells the Custodian "yes" or does not check either "yes"
or "no" below , the Custodian is required by the rule to treat the Fund as
consenting to disclosure of this information for all securities owned by the
Fund or any funds or accounts established by the Fund. For the Fund's
protection, the Rule prohibits the requesting company from using the Fund's name
and address for any purpose other than corporate communications. Please
indicate below whether the Fund consents or objects by checking one of the
alternatives below
YES [ ] The Custodian is authorized to release the Fund's name, address,
and share positions.
NO [ ] The Custodian is not authorized to release the Fund's name,
address, and share positions.
IN WITNESS WHEREOF, each of the parties has caused this instrument to be
executed in its name and behalf by its duly authorized representative and its
seal to be hereunder affixed as of the ____ day of ____________, 199__.
ATTEST: PROTECTIVE INVESTMENT COMPANY
___________________________ By: ______________________________
ATTEST: STATE STREET BANK AND TRUST COMPANY
___________________________ By: _______________________________
15789
24
<PAGE>
SCHEDULE A
The following foreign banking institutions and foreign securities
depositories have been approved by the Board of Directors of __________________
for use as sub-custodians for the Fund's securities and other assets:
(Insert banks and securities depositories)
Certified:
_____________________________
Fund's Authorized Officer
Date: _______________________
25
<PAGE>
Exhibit 9(a)
Transfer Agency and Service Agreement Between Registrant and State Street Bank
and Trust Company.
<PAGE>
TRANSFER AGENCY AND SERVICE AGREEMENT
between
PROTECTIVE INVESTMENT COMPANY
and
STATE STREET BANK AND TRUST COMPANY
<PAGE>
TABLE OF CONTENTS
Page
----
1. Terms of Appointment; Duties of the Bank 1
2. Fees and Expenses 4
3. Representations and Warranties of the Bank 4
4. Representations and Warranties of the Fund 5
5. Data Access and Proprietary Information 5
6. Indemnification 6
7. Standard of Care 8
8. Covenants of the Fund and the Bank 8
9. Termination of Agreement 9
10. Additional Funds 9
11. Assignment 9
12. Amendment 10
13. Massachusetts Law to Apply 10
14. Force Majeure 10
15. Consequential Damages 10
16. Merger of Agreement 10
17. Counterparts 10
<PAGE>
TRANSFER AGENCY AND SERVICE AGREEMENT
AGREEMENT made as of the ____ day of _____________________, 199_, by and between
PROTECTIVE INVESTMENT COMPANY, a Maryland corporation, having its principal
office and place of business at 2801 Highway 280 South, Birmingham, Alabama
35223 (the "Fund"), and STATE STREET BANK AND TRUST COMPANY, a Massachusetts
trust company having its principal office and place of business at 225 Franklin
Street, Boston, Massachusetts 02110 (the "Bank")
WHEREAS, the Fund is authorized to issue shares in separate series, with each
such series representing interests in a separate portfolio of securities and
other assets; and
WHEREAS, the Fund intends to initially offer shares in six series, the
Protective Money Market Fund, the Protective Select Equity Fund, the Protective
Small Cap Equity Fund, the Protective International Equity Fund, Protective
Growth and Income Fund and the Protective Global Income Fund (each such series,
together with all other series subsequently established by the Fund and made
subject to this Agreement in accordance with Article 10, being herein referred
to as a "Portfolio", and collectively as the "Portfolios");
WHEREAS, the Fund on behalf of the Portfolios desires to appoint the Bank as
its transfer agent, dividend disbursing agent, custodian of certain retirement
plans and agent in connection with certain other activities, and the Bank
desires to accept such appointment;
NOW, THEREFORE, in consideration of the mutual covenants herein contained, the
parties hereto agree as follows:
1. TERMS OF APPOINTMENT; DUTIES OF THE BANK
1.1 Subject to the terms and conditions set forth in this Agreement, the Fund,
on behalf of the Portfolios, hereby employs and appoints the Bank to act
as, and the Bank agrees to act as its transfer agent for the Fund's
authorized and issued shares of its common stock, $________ par value,
("Shares"), dividend disbursing agent, custodian of certain retirement
plans and agent in connection with any accumulation, open-account or
similar plans provided to the shareholders of each of the respective
Portfolios of the Fund ("Shareholders") and set out in the currently
effective prospectus and statement of additional information
("prospectus") of the Fund on behalf of the applicable Portfolio,
including without limitation any periodic investment plan or periodic
withdrawal program.
1.2 The Bank agrees that it will perform the following services:
(a) In accordance with procedures established from time to
<PAGE>
time by agreement between the Fund on behalf of each of the
Portfolios, as applicable and the Bank, the Bank shall:
(i) Receive for acceptance, orders for the purchase of Shares, and
promptly deliver payment and appropriate documentation thereof to
the Custodian of the Fund authorized pursuant to the Articles of
Incorporation of the Fund (the "Custodian");
(ii) Pursuant to purchase orders, issue the appropriate number of
Shares and hold such Shares in the appropriate Shareholder
account;
(iii) Receive for acceptance redemption requests and redemption
directions and deliver the appropriate documentation thereof to
the Custodian;
(iv) At the appropriate time as and when it receives monies paid to it
by the Custodian with respect to any redemption, pay over or
cause to be paid over in the appropriate manner such monies as
instructed by the redeeming Shareholders;
(v) Effect transfers of Shares by the registered owners thereof upon
receipt of appropriate instructions;
(vi) Prepare and transmit payments for dividends and distributions
declared by the Fund on behalf of the applicable Portfolio;
(vii) Maintain records of account for and advise the Fund and its
Shareholders as to the foregoing; and
(viii) Record the issuance of shares of the Fund and maintain pursuant
to SEC Rule 17Ad-10(e) a record of the total number of shares of
the Fund which are authorized, based upon data provided to it by
the Fund, and issued and outstanding. The Bank shall also
provide the Fund on a regular basis with the total number of
shares which are authorized and issued and outstanding and shall
have no obligation, when recording the issuance of shares, to
monitor the issuance of such shares or to take cognizance of any
laws relating to the issue or sale of such shares, which
functions shall be the sole responsibility of the Fund.
(b) In addition to and neither in lieu nor in contravention of the
services set forth in the above paragraph (a), the Bank shall: (i)
perform the customary services of a transfer agent, dividend
disbursing agent, custodian of certain retirement plans and, as
relevant, agent in
2
<PAGE>
connection with accumulation, open-account or similar plans (including
without limitation any periodic investment plan or periodic withdrawal
program), including but not limited to: maintaining all Shareholder
accounts, preparing Shareholder meeting lists, mailing proxies,
mailing Shareholder reports and prospectuses to current Shareholders,
withholding taxes on U.S. resident and non-resident alien accounts,
preparing and filing U.S. Treasury Department Forms 1099 and other
appropriate forms required with respect to dividends and distributions
by federal authorities for all Shareholders, preparing and mailing
confirmation forms and statements of account to Shareholders for all
purchases and redemptions of Shares and other confirmable transactions
in Shareholder accounts, preparing and mailing activity statements for
Shareholders, and providing Shareholder account information and (ii)
provide a system which will enable the Fund to monitor the total
number of Shares sold in each State.
(c) In addition, the Fund shall (i) identify to the Bank in writing those
transactions and assets to be treated as exempt from blue sky
reporting for each State and (ii) verify the establishment of
transactions for each State on the system prior to activation and
thereafter monitor the daily activity for each State. The
responsibility of the Bank for the Fund's blue sky State registration
status is solely limited to the initial establishment of transactions
subject to blue sky compliance by the Fund and the reporting of such
transactions to the Fund as provided above.
(d) Procedures as to who shall provide certain of these services in
Section 1 may be established from time to time by agreement between
the Fund on behalf of each Portfolio and the Bank per the attached
service responsibility schedule. The Bank may at times perform only a
portion of these services and the Fund or its agent may perform these
services on the Fund's behalf.
(e) The Bank shall provide additional services on behalf of the Fund
(i.e., escheatment services) which may be agreed upon in writing
between the Fund and the Bank.
2. FEES AND EXPENSES
2.1 For the performance by the Bank pursuant to this Agreement, the Fund agrees
on behalf of each of the Portfolios to pay the Bank an annual maintenance
fee for each Shareholder account as set out in the initial fee schedule
attached hereto. Such fees and out-of-pocket expenses and advances
identified under Section 2.2 below may be changed from time
3
<PAGE>
to time subject to mutual written agreement between the Fund and the Bank.
2.2 In addition to the fee paid under Section 2.1 above, the Fund agrees on
behalf of each of the Portfolios to reimburse the Bank for out-of-pocket
expenses, including but not limited to confirmation production, postage,
forms, telephone, microfilm, microfiche, tabulating proxies, records
storage, or advances incurred by the Bank for the items set out in the fee
schedule attached hereto. In addition, any other expenses incurred by the
Bank at the request or with the consent of the Fund, will be reimbursed by
the Fund on behalf of the applicable Portfolio.
2.3 The Fund agrees on behalf of each of the Portfolios to pay all fees and
reimbursable expenses within five days following the receipt of the
respective billing notice. Postage for mailing of dividends, proxies, Fund
reports and other mailings to all shareholder accounts shall be advanced to
the Bank by the Fund at least seven (7) days prior to the mailing date of
such materials.
3. REPRESENTATIONS AND WARRANTIES OF THE BANK
The Bank represents and warrants to the Fund that:
3.1 It is a trust company duly organized and existing and in good standing
under the laws of the Commonwealth of Massachusetts.
3.2 It is duly qualified to carry on its business in the Commonwealth of
Massachusetts.
3.3 It is empowered under applicable laws and by its Charter and By-Laws to
enter into and perform this Agreement.
3.4 All requisite corporate proceedings have been taken to authorize it to
enter into and perform this Agreement.
3.5 It has and will continue to have access to the necessary facilities,
equipment and personnel to perform its duties and obligations under this
Agreement.
4. REPRESENTATIONS AND WARRANTIES OF THE FUND
The Fund represents and warrants to the Bank that:
4.1 It is a corporation duly organized and existing and in good standing under
the laws of Maryland.
4.2 It is empowered under applicable laws and by its Articles of Incorporation
and By-Laws to enter into and perform this Agreement.
4
<PAGE>
4.3 All corporate proceedings required by said Articles of Incorporation and
By-Laws have been taken to authorize it to enter into and perform this
Agreement.
4.4 It is an open-end management investment company registered under the
Investment Company Act of 1940, as amended.
4.5 A registration statement under the Securities Act of 1933, as amended on
behalf of each of the Portfolios is currently effective and will remain
effective, and appropriate state securities law filings, as necessary have
been made and will continue to be made, with respect to all Shares of the
Fund being offered for sale.
5. DATA ACCESS AND PROPRIETARY INFORMATION
5.1 The Fund acknowledges that the data bases, computer programs, screen
formats, report formats, interactive design techniques, and documentation
manuals furnished to the Fund by the Bank as part of the Fund's ability to
access certain Fund-related data ("Customer Data") maintained by the Bank
on data bases under the control and ownership of the Bank or other third
party ("Data Access Services") constitute copyrighted, trade secret, or
other proprietary information (collectively, "Proprietary Information") of
substantial value to the Bank or other third party. In no event shall
Proprietary Information be deemed Customer Data. The Fund agrees to treat
all Proprietary Information as proprietary to the Bank and further agrees
that it shall not divulge any Proprietary Information to any person or
organization except as may be provided hereunder. Without limiting the
foregoing, the Fund agrees for itself and its employees and agents:
(a) to access Customer Data solely from locations as may be
designated in writing by the Bank and solely in accordance with
the Bank's applicable user documentation;
(b) to refrain from copying or duplicating in any way the Proprietary
Information;
(c) to refrain from obtaining unauthorized access to any portion of
the Proprietary Information, and if such access is inadvertently
obtained, to inform in a timely manner of such fact and dispose
of such information in accordance with the Bank's instructions;
(d) to refrain from causing or allowing third-party data acquired
hereunder from being retransmitted to any other computer facility
or other location, except with the prior written consent of the
Bank;
(e) that the Fund shall have access only to those authorized
transactions agreed upon by the parties;
5
<PAGE>
(f) to honor all reasonable written requests made by the Bank to
protect at the Bank's expense the rights of the Bank in
Proprietary Information at common law, under federal copyright
law and under other federal or state law.
Each party shall take reasonable efforts to advise its employees of their
obligations pursuant to this Section 5. The obligations of this Section shall
survive any earlier termination of this Agreement.
5.2 If the Fund notifies the Bank that any of the Data Access Services do not
operate in material compliance with the most recently issued user
documentation for such services, the Bank shall endeavor in a timely manner
to correct such failure. Organizations from which the Bank may obtain
certain data included in the Data Access Services are solely responsible
for the contents of such data and the Fund agrees to make no claim against
the Bank arising out of the contents of such third-party data, including,
but not limited to, the accuracy thereof. DATA ACCESS SERVICES AND ALL
COMPUTER PROGRAMS AND SOFTWARE SPECIFICATIONS USED IN CONNECTION THEREWITH
ARE PROVIDED ON AN AS IS, AS AVAILABLE BASIS. THE BANK EXPRESSLY DISCLAIMS
ALL WARRANTIES EXCEPT THOSE EXPRESSLY STATED HEREIN INCLUDING, BUT NOT
LIMITED TO, THE IMPLIED WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A
PARTICULAR PURPOSE.
5.3 If the transactions available to the Fund include the ability to originate
electronic instructions to the Bank in order to (i) effect the transfer or
movement of cash or Shares or (ii) transmit Shareholder information or
other information, then in such event the Bank shall be entitled to rely on
the validity and authenticity of such instruction without undertaking any
further inquiry as long as such instruction is undertaken in conformity
with security procedures established by the Bank from time to time.
6. INDEMNIFICATION
6.1 The Bank shall not be responsible for, and the Fund shall on behalf of the
applicable Portfolio indemnify and hold the Bank harmless from and against,
any and all losses, damages, costs, charges, counsel fees, payments,
expenses and liability arising out of or attributable to:
(a) All actions of the Bank or its agent or subcontractors required
to be taken pursuant to this Agreement, provided that such
actions are taken in good faith and without negligence or willful
misconduct.
(b) The Fund's lack of good faith, negligence or willful misconduct
which arise out of the breach of any representation or warranty
of the Fund
6
<PAGE>
hereunder.
(c) The reliance on or use by the Bank or its agents or
subcontractors of information, records, documents or services
which (i) are received by the Bank or its agents or
subcontractors, and (ii) have been prepared, maintained or
performed by the Fund or any other person or firm on behalf of
the Fund including but not limited to any previous transfer agent
or registrar.
(d) The reliance on, or the carrying out by the Bank or its agents or
subcontractors of any instructions or requests of the Fund on
behalf of the applicable Portfolio.
(e) The offer or sale of Shares in violation of any requirement under
the federal securities laws or regulations or the securities laws
or regulations of any state that such Shares be registered in
such state or in violation of any stop order or other
determination or ruling by any federal agency or any state with
respect to the offer or sale of such Shares in such state.
6.2 At any time the Bank may apply to any officer of the Fund for instructions,
and may consult with legal counsel with respect to any matter arising in
connection with the services to be performed by the Bank under this
Agreement, and the Bank and its agents or subcontractors shall not be
liable and shall be indemnified by the Fund on behalf of the applicable
Portfolio for any action taken or omitted by it in reliance upon such
instructions or upon the opinion of such counsel. The Bank, its agents and
subcontractors shall be protected and indemnified in acting upon any paper
or document furnished by or on behalf of the Fund, reasonably believed to
be genuine and to have been signed by the proper person or persons, or upon
any instruction, information, data, records or documents provided the Bank
or its agents or subcontractors by machine readable input, telex, CRT data
entry or other similar means authorized by the Fund, and shall not be held
to have notice of any change of authority of any person, until receipt of
written notice thereof from the Fund. The Bank, its agents and
subcontractors shall also be protected and indemnified in recognizing stock
certificates which are reasonably believed to bear the proper manual or
facsimile signatures of the officers of the Fund, and the proper
countersignature of any former transfer agent or former registrar, or of a
co-transfer agent or co-registrar.
6.3 In order that the indemnification provisions contained in this Section 6
shall apply, upon the assertion of a claim for which the Fund may be
required to indemnify the Bank, the Bank shall
7
<PAGE>
promptly notify the Fund of such assertion, and shall keep the Fund advised
with respect to all developments concerning such claim. The Fund shall
have the option to participate with the Bank in the defense of such claim
or to defend against said claim in its own name or in the name of the Bank.
The Bank shall in no case confess any claim or make any compromise in any
case in which the Fund may be required to indemnify the Bank except with
the Fund's prior written consent.
7. STANDARD OF CARE
The Bank shall at all times act in good faith and agrees to use its best
efforts within reasonable limits to insure the accuracy of all services
performed under this Agreement, but assumes no responsibility and shall not
be liable for loss or damage due to errors unless said errors are caused by
its negligence, bad faith, or willful misconduct or that of its employees.
8. COVENANTS OF THE FUND AND THE BANK
8.1 The Fund shall on behalf of each of the Portfolios promptly furnish to the
Bank the following:
(a) A certified copy of the resolution of the Board of Directors of the
Fund authorizing the appointment of the Bank and the execution and
delivery of this Agreement.
(b) A copy of the Articles of Incorporation and By-Laws of the Fund and
all amendments thereto.
8.2 The Bank hereby agrees to establish and maintain facilities and procedures
reasonably acceptable to the Fund for safekeeping of stock certificates,
check forms and facsimile signature imprinting devices, if any; and for the
preparation or use, and for keeping account of, such certificates, forms
and devices.
8.3 The Bank shall keep records relating to the services to be performed
hereunder, in the form and manner as it may deem advisable. To the extent
required by Section 31 of the Investment Company Act of 1940, as amended,
and the Rules thereunder, the Bank agrees that all such records prepared or
maintained by the Bank relating to the services to be performed by the Bank
hereunder are the property of the Fund and will be preserved, maintained
and made available in accordance with such Section and Rules, and will be
surrendered promptly to the Fund on and in accordance with its request.
8.4 The Bank and the Fund agree that all books, records, information and data
pertaining to the business of the other party which are exchanged or
received pursuant to the negotiation or the carrying out of this Agreement
shall remain confidential, and shall not be voluntarily disclosed to any
other person, except as may be required by law.
8
<PAGE>
8.5 In case of any requests or demands for the inspection of the Shareholder
records of the Fund, the Bank will endeavor to notify the Fund and to
secure instructions from an authorized officer of the Fund as to such
inspection. The Bank reserves the right, however, to exhibit the
Shareholder records to any person whenever it is advised by its counsel
that it may be held liable for the failure to exhibit the Shareholder
records to such person.
9. TERMINATION OF AGREEMENT
9.1 This Agreement may be terminated by either party upon one hundred twenty
(120) days written notice to the other.
9.2 Should the Fund exercise its right to terminate, all out-of-pocket expenses
associated with the movement of records and material will be borne by the
Fund on behalf of the applicable Portfolio(s) . Additionally, the Bank
reserves the right to charge for any other reasonable expenses associated
with such termination and/or a charge equivalent to the average of three
(3) months' fees.
10. ADDITIONAL FUNDS
In the event that the Fund establishes one or more series of Shares in
addition to the Protective Money Market Fund, the Protective Select Equity
Fund, the Protective Small Cap Equity Fund, the Protective International
Equity Fund, Protective Growth and Income Fund and the Protective Global
Income Fund with respect to which it desires to have the Bank render
services as transfer agent under the terms hereof, it shall so notify the
Bank in writing, and if the Bank agrees in writing to provide such
services, such series of Shares shall become a Portfolio hereunder.
11. ASSIGNMENT
11.1 Except as provided in Section 10.3 below, neither this Agreement nor any
rights or obligations hereunder may be assigned by either party without the
written consent of the other party.
11.2 This Agreement shall inure to the benefit of and be binding upon the
parties and their respective permitted successors and assigns.
11.3 The Bank may, without further consent on the part of the Fund, subcontract
for the performance hereof with (i) Boston Financial Data Services, Inc., a
Massachusetts corporation ("BFDS") which is duly registered as a transfer
agent pursuant to Section 17A(c) (1) of the Securities Exchange Act of
1934, as amended ("Section 17A(c) (1)"), (ii) a BFDS subsidiary duly
registered as a transfer agent pursuant to Section 17A(c) (1) or (iii) a
BFDS affiliate; provided, however, that the Bank shall be as fully
responsible to the Fund for the acts and
9
<PAGE>
omissions of any subcontractor as it is for its own acts and omissions.
12. AMENDMENT
This Agreement may be amended or modified by a written agreement executed
by both parties and authorized or approved by a resolution of the Board of
Directors of the Fund.
13. MASSACHUSETTS LAW TO APPLY
This Agreement shall be construed and the provisions thereof interpreted
under and in accordance with the laws of the Commonwealth of Massachusetts.
14. FORCE MAJEURE
In the event either party is unable to perform its obligations under the
terms of this Agreement because of acts of God, strikes, equipment or
transmission failure or damage reasonably beyond its control, or other
causes reasonably beyond its control, such party shall not be liable for
damages to the other for any damages resulting from such failure to perform
or otherwise from such causes.
15. CONSEQUENTIAL DAMAGES
Neither party to this Agreement shall be liable to the other party for
consequential damages under any provision of this Agreement or for any
consequential damages arising out of any act or failure to act hereunder.
16. MERGER OF AGREEMENT
This Agreement constitutes the entire agreement between the parties hereto
and supersedes any prior agreement with respect to the subject matter
hereof whether oral or written.
17. COUNTERPARTS
This Agreement may be executed by the parties hereto on any number of
counterparts, and all of said counterparts taken together shall be deemed
to constitute one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed
in their names and on their behalf by and through their duly authorized
officers, as of the day and year first above written.
PROTECTIVE INVESTMENT COMPANY
10
<PAGE>
By: ________________________________
ATTEST:
____________________________
STATE STREET BANK AND TRUST COMPANY
By: ________________________________
ATTEST:
____________________________
11
<PAGE>
STATE STREET BANK & TRUST COMPANY
FUND SERVICE RESPONSIBILITIES*
Service Performed Responsibility
--------------
Bank Fund
---- ----
1. Receives orders for the purchase X
of Shares.
2. Issue Shares and hold Shares in X
Shareholders accounts.
3. Receive redemption requests. X
4. Pay over monies to redeeming X
Shareholders.
5. Effect transfers of Shares. X
6. Prepare and transmit dividends X
and distributions.
7. Reporting of abandoned property. X
8. Maintain records of account. X
9. Maintain and keep a current and X
accurate control book for each
issue of securities.
10. Mail proxies. X
11. Mail Shareholder reports. X
12. Mail prospectuses to current X
Shareholders.
13. Withhold taxes on U.S. resident X
and non-resident alien accounts.
14. Prepare and file U.S. Treasury X
Department forms.
15. Prepare and mail account and X
confirmation statements for
Shareholders.
12
<PAGE>
Service Performed Responsibility
--------------
Bank Fund
---- ----
16. Provide Shareholder account X
information.
17. Blue sky reporting. X
* Such services are more fully described in Section 1.2 (a), (b) and (c) of
the Agreement.
PROTECTIVE INVESTMENT COMPANY
By: ________________________________
ATTEST:
____________________________
STATE STREET BANK AND TRUST COMPANY
By: ________________________________
ATTEST:
____________________________
13
<PAGE>
Exhibit 9(b)
Subadministration Agreement Between Registrant, State Street Bank and Trust
Company and Investment Distributors Advisory Services, Inc.
<PAGE>
SUBADMINISTRATION AGREEMENT
for
REPORTING AND ACCOUNTING SERVICES
---------------------------------
Agreement between Investment Distributors Advisory Services, Inc.
(the "Manager"), State Street Bank and Trust Company, a Massachusetts trust
company (the "Bank") and Protective Investment Company, a Maryland corporation
with its principal place of business at 32 South Street, Baltimore, Maryland
(the "Fund")
WHEREAS, the Manager has been appointed manager of the Fund, including
each portfolio or series thereof if applicable (the "Portfolio(s)"), an open-end
diversified management investment company registered under the Investment
Company Act of 1940, as amended (the "Investment Company Act"), and the Manager
has accepted such appointment;
WHEREAS, the Manager and the Fund have entered into a management
agreement (the "Management Agreement") pursuant to which the Manager will
provide management, administrative and other services to the Fund and certain of
said services are commonly referred to as those performed by an administrator;
WHEREAS, the Bank provides management, subadministrative, and other
services to investment companies and others; and
WHEREAS, the Manager desires to retain the Bank to render certain sub-
administrative and other services with respect to the Fund and its Portfolios as
listed on Schedule A attached hereto, together with such additional Portfolios
as may be offered by the Fund from time to time and with respect to which it is
agreed by the Manager and the Bank this Agreement shall apply, and the Bank is
willing to render such services on the terms and conditions hereinafter set
forth.
NOW, THEREFORE, the parties hereto agree as follows:
1. APPOINTMENT OF SUB-ADMINISTRATOR
The Manager with the consent of the Fund hereby appoints the Bank to
act as sub-administrator with respect to the Fund and each Portfolio for
purposes of reporting and accounting exclusively to the Manager and the Fund for
the period and on the terms set forth in this Agreement. The Bank accepts such
appointment and agrees to render the services stated herein and to provide the
office facilities and the personnel required by it to perform such services. In
connection with such appointment, the Manager will deliver or cause the Fund to
deliver to the Bank copies of each of the following documents and will deliver
to it all future amendments and supplements, if any:
a. Certified copies of the Agreement and Articles of Incorporation
of the Fund as presently in effect and as amended from time to time;
<PAGE>
b. A certified copy of the Fund's By-Laws as presently in effect and
as amended from time to time;
c. The Fund's most recent registration statement on Form N-1A as
filed with, and, if applicable, declared effective by the U.S. Securities and
Exchange Commission, and all amendments thereto;
d. Each resolution of the Directors of the Fund authorizing the
original issue of its shares;
e. Certified copies of the resolutions of the Fund's Directors
authorizing: (l) this Agreement, (2) certain officers and employees of the
Manager and the Fund to give instructions to the Bank pursuant to this Agreement
and (3) certain officers and employees of the Manager or the Fund to sign checks
and pay expenses on behalf of the Manager or the Fund, respectively;
f. A copy of the Management Agreement;
g. A copy of the Investment Advisor Agreement between the Fund and
the Advisor;
h. A copy of the Custodian Agreement between the Fund and its
custodian;
i. A copy of the Transfer Agency and Services Agreement between the
Fund and its transfer agent; and
j. Such other certificates, documents or opinions which the Bank
may, in its reasonable discretion, deem necessary or appropriate in the proper
performance of its duties.
2. REPRESENTATION AND WARRANTIES OF THE BANK
The Bank represents and warrants to the Manager and the Fund that:
a. It is a Massachusetts trust company, duly organized and existing
in good standing under the laws of the Commonwealth of Massachusetts;
b. It is duly qualified to carry on its business in the Commonwealth
of Massachusetts;
c. It is empowered under applicable laws and by its Charter and By-
Laws to enter into and perform the services contemplated in this Agreement;
d. All requisite corporate proceedings have been taken to authorize
it to enter into and perform this Agreement; and
e. It has and will continue to have and maintain the necessary
facilities, equipment and personnel to perform its duties and obligations
2
<PAGE>
under this Agreement.
3. AUTHORIZED SHARES
The Manager certifies to the Bank that, as of the close of business on
the date of this Agreement, the Fund is authorized to issue shares of stock, and
that the Directors of the Fund have the power to classify or reclassify unissued
shares, from time to time, into one or more series, and that it presently offers
shares in the authorized amounts as set forth in Schedule A attached hereto.
4. REPORTING AND ACCOUNTING SERVICES
The Bank shall discharge the responsibilities set forth in Schedule B
hereof subject to the control of the Manager in accordance with procedures
established from time to time between the Manager and the Bank.
It is the responsibility of the Manager and/or its outside legal
counsel and accountants to notify the Bank in a timely manner of any change to
any rule, regulation, law or statute that will affect the services to be
provided hereunder. Without limiting the obligations or responsibilities of any
of the parties hereto, the Bank and the Manager agree that all services provided
hereunder are subject to review and correction by the Fund's accountants and
legal counsel and the services provided by Bank shall not constitute the
practice of public accountancy or law.
5. SERVICES TO BE OBTAINED BY THE MANAGER OR THE FUND
The Manager and/or the Fund shall provide for any of its own:
a. Organizational expenses;
b. Services of an independent accountant;
c. Services of outside legal and tax counsel (including such
counsel's review of the Fund's registration statement, proxy materials, federal
and state tax qualification as a regulated investment company, and other reports
and materials prepared by the Bank under this Agreement);
d. Any services contracted for by either the Manager or the Fund
directly from parties other than the Bank;
e. Trading operations and brokerage fees, commissions and transfer
taxes in connection with the purchase and sale of securities for the Fund;
f. Investment advisory services;
g. Taxes, insurance premiums and other fees and expenses applicable
to its operation;
h. Costs incidental to any meetings of shareholders including,
3
<PAGE>
but not limited to, legal and accounting fees, proxy filing fees and the
preparation, printing and mailing of any proxy materials;
i. Administration of and costs incidental to Director's meetings,
including fees and expenses of Directors;
j. The salary and expenses of any officer or employee of the Fund or
the Manager;
k. Costs incidental to the preparation, printing and distribution of
the Fund's registration statements and any amendments thereto, and shareholder
reports;
l. All applicable registration fees and filing fees required under
the securities laws of the United States and state regulatory authorities;
m. Preparation and filing of the Fund's tax returns, Form N-1A,
Annual Report and Semi-Annual Report on Form N-SAR, and all notices,
registrations and amendments associated with applicable tax and securities laws
of the United States and state regulatory authorities; and
n. Fidelity bond and directors' and officers' liability insurance.
6. FEES
The Bank shall receive from the Manager such compensation for the
Bank's services provided and the expenses incurred pursuant to this Agreement as
may be agreed to from time to time in a written fee schedule approved by the
parties hereto and initially set forth herein in Schedule C attached hereto. In
addition, the Bank shall be reimbursed by the Manager for the reasonable out-of-
pocket costs incurred by it in connection with this Agreement.
7. INSTRUCTIONS
At any time the Bank may apply to any officer of the Manager or the
Fund for instructions and may consult with legal counsel for the Fund or the
Manager as directed by the Manager, or its own outside legal counsel, the
outside counsel for the Fund or the outside auditors for the Fund at the expense
of the Fund, with respect to any matter arising in connection with the services
to be performed by the Bank under this Agreement. The Bank shall not be liable
and shall be indemnified by the Manager for any action taken or omitted by it
without negligence and in good faith in reliance upon such instructions or upon
any paper or document reasonably believed by it to be genuine and to have been
signed by the proper person or persons. The Bank shall not be held to have
notice of any change of authority of any person until receipt of written notice
thereof from the Manager or the Fund.
4
<PAGE>
8. LIMITATION OF LIABILITY AND INDEMNIFICATION
a. The Bank shall be responsible for the performance of only such
duties as are set forth herein and shall have no responsibility for the actions
or activities of any other party including other service providers not acting
upon instructions of, at the direction of, or in reliance upon the Bank. The
Bank shall have no liability for any loss or damage resulting from the
performance or nonperformance of its duties hereunder except to the extent
caused by or resulting from the negligence or willful misconduct of the Bank,
its officers or employees. In any event, the Bank's liability shall be limited
to its total annual compensation earned and fees paid during the preceding
twelve months for any liability suffered by the Manager or the Fund including,
but not limited to, any liability relating to qualification of the Fund as a
regulated investment company or any liability relating to the Fund's compliance
with any federal or state tax or securities statute, regulation or ruling.
b. The Manager shall indemnify and hold the Bank harmless from all
loss, cost, damage and expense, including reasonable expenses for counsel,
incurred by the Bank resulting from any claim, demand, action or suit in
connection with the Bank's acceptance of this Agreement, any action or omission
by it in the performance of its duties hereunder, or as a result of acting upon
any instructions reasonably believed by it to have been executed by a duly
authorized officer of the Manager or of the Fund, provided that this
indemnification shall not apply to actions or omissions of the Bank, its
officers, employees or agents in cases of its or their own gross negligence or
willful misconduct.
c. The Manager will be entitled to participate at their own expense
in the defense, or, if either so elects, to assume the defense of any suit
brought to enforce any liability subject to the indemnification provided above.
In the event the Manager or the Fund elects to assume the defense of any such
suit and retain such counsel, the Bank or any of its affiliated persons named as
defendant or defendants in the suit may retain additional counsel but shall bear
the fees and expenses of such counsel unless the Manager shall have specifically
authorized the retaining of such counsel.
d. The indemnification contained herein shall survive the
termination of this Agreement.
e. This Section 8 shall not apply with respect to services covered
by the Custodian Agreement or the Transfer Agency and Services Agreement.
9. CONFIDENTIALITY
The Bank agrees that, except as otherwise required by law it will keep
confidential the terms of this Agreement, all records and information in its
possession relating to the Fund or its shareholders or shareholder accounts and
will not disclose the same to any person except at the request or with the
written consent of the Fund
5
<PAGE>
10. COMPLIANCE WITH GOVERNMENTAL RULES AND REGULATIONS
The Manager and the Fund assume full responsibility for complying
with all applicable requirements of the Investment Company Act, the Securities
Act of 1933, the Securities Exchange Act of 1934, and the Internal Revenue Code
of 1986, all as amended, and any laws, rules and regulations issued thereunder,
provided that such assumption shall not limit the Bank's obligation to perform
all of its duties hereunder in accordance with the terms hereof.
The Bank shall maintain and preserve for the periods prescribed such
records relating to the services to be performed by the Bank under this
Agreement as are required pursuant to the Investment Company Act and such other
records as may be agreed upon by the parties. All such records shall at all
times remain the respective properties of the Manager or the Fund, shall be
readily accessible during normal business hours to each, and shall be promptly
surrendered upon the termination of the Agreement or otherwise on written
request. Records shall be surrendered in usable machine-readable form.
11. STATUS OF THE BANK
The services of the Bank to the Manager and the Fund are not to be
deemed exclusive, and the Bank shall be free to render similar services to
others. The Bank shall be deemed to be an independent contractor and shall,
unless otherwise expressly provided herein or authorized by the Manager or the
Fund, as the case may be from time to time, have no authority to act or
represent either the Manager in any way or otherwise be deemed an agent of
either the Manager or of the Fund.
12. PRINTED MATTER
Neither the Manager nor the Bank shall publish or circulate any
printed matter which contains any reference to the other party without such
party's prior written approval. The Fund or the Manager may circulate such
printed matter as refers in accurate terms to the Bank's appointment hereunder
provided that the Bank is given a copy of such material prior to its first use.
13. TERM, AMENDMENT AND TERMINATION
This Agreement may be modified or amended from time to time by mutual
agreement between the parties hereto. The Agreement shall remain in effect for
a period of one year from the date hereof and shall automatically continue in
effect thereafter unless terminated by a party at the end of such period or
thereafter on sixty (60) days' prior written notice. Upon termination of this
Agreement entirely or with respect to a Portfolio, the Manager shall pay to the
Bank such compensation as may be due under the terms hereof as of the date of
such termination including reasonable out-of-pocket expenses associated with
such termination.
14. NOTICES
Any notice or other communication authorized or required by this
Agreement to be given to any party mentioned herein shall be sufficiently
6
<PAGE>
given if addressed to such party and mailed postage prepaid or delivered to its
principal office.
15. NON-ASSIGNABILITY
This Agreement shall not be assigned by any of the parties hereto
without the prior consent in writing of the other parties.
16. SUCCESSORS
This Agreement shall be binding on and shall inure to the benefit of
the Manager, the Fund and the Bank and their respective successors.
17. ENTIRE AGREEMENT
This Agreement (and the Fund Profile and Compliance Manual) contains
the entire understanding between the parties hereto and supersedes all previous
representations, warranties or commitments regarding the services to be
performed hereunder whether oral or in writing. This Agreement cannot be
modified or terminated except in accordance with its terms or by a writing
signed by all parties.
18. GOVERNING LAW
This Agreement shall be construed and the provisions thereof
interpreted under and in accordance with the laws of the Commonwealth of
Massachusetts.
IN WITNESS WHEREOF, each of the parties has caused this agreement to
be executed in its name and behalf by its duly authorized representatives on the
14th day of March, 1994.
INVESTMENT DISTRIBUTORS ADVISORY SERVICES, INC.
By: ___________________________________________
Name: _________________________________________
Title: ________________________________________
STATE STREET BANK AND TRUST COMPANY
By: __________________________________________
Name: _________________________________________
Title: ________________________________________
7
<PAGE>
PROTECTIVE INVESTMENT COMPANY
By: __________________________________________
Name: _________________________________________
Title: ________________________________________
8
<PAGE>
SCHEDULE A
TO
SUBADMINISTRATION AGREEMENT
<TABLE>
<CAPTION>
PORTFOLIO AUTHORIZED SHARES AND CLASS
1,000,000,000
DESIGNATED
<S> <C>
Protective Money Market Fund 100,000,000
Protective Select Equity Fund 100,000,000
Protective Small Cap Equity Fund 100,000,000
Protective International Equity Fund 100,000,000
Protective Growth and Income Fund 100,000,000
Protective Global Income Fund 100,000,000
</TABLE>
9
<PAGE>
SCHEDULE B
TO
SUBADMINISTRATION AGREEMENT
Reporting and Accounting Services Provided by the Bank
(a) Oversee the determination and publication of the Fund's net asset value in
accordance with the Fund's policy as instructed by the Manager;
(b) Oversee the maintenance by the Bank and Fund of certain books and records
of the Fund as required under Rule 31a-l(b)(4) of the Investment Company Act of
1940;
(c) Prepare the Fund's federal, state and local income tax returns for review
by the independent accountants and filing by the treasurer;
(d) Review the appropriateness of and arrange for payment of the Fund's
expenses;
(e) Perform such compliance reviews of the Fund as may be agreed upon between
the Manager and the Bank;
(f) Prepare for review and approval by officers of the Fund financial
information for the Fund's semi-annual and annual reports, proxy statements and
other communications with shareholders;
(g) Prepare for review by an officer and counsel of the Fund certain periodic
financial reports required by the Securities and Exchange Commission as may be
mutually agreed upon;
(h) Prepare reports relating to the business and affairs of the Fund as may be
mutually agreed upon;
(i) Make such reports and recommendations to the Directors concerning the
performance of the independent accountants as the Directors may reasonably
request or deem appropriate;
(j) Make such reports and recommendations to the Directors concerning the
performance and fees of the Fund's custodian and transfer and dividend
disbursing agent as the Directors may reasonably request or deem appropriate;
(k) Oversee and review calculations of fees paid to the Manager, the investment
adviser, the custodian, and the transfer agent;
(l) Consult with the Fund's officers, independent accountants,
10
<PAGE>
legal counsel, custodian and transfer and dividend disbursing agent in
establishing the accounting policies of the Fund;
(m) Review implementation by the Fund of any dividend reinvestment programs
authorized by the Directors;
(n) Provide such assistance to the Manager, the adviser, the custodian, the
transfer agent and the Fund's counsel and auditors as may be mutually agreed
upon to properly carry on the business and operations of the Fund; and
(o) Respond to or refer to the Fund's officers or transfer agent any
shareholder inquiries relating to the Fund.
Certain details of the scope of the Bank's services hereunder shall be
documented in the Compliance Manual and Fund Profile as agreed upon by the
Manager, the Fund, and the Bank from time to time.
11
<PAGE>
STATE STREET BANK AND TRUST COMPANY
FUND ADMINISTRATION FEE SCHEDULE
PROTECTIVE INVESTMENT COMPANY
I. FUND ADMINISTRATION SERVICES
ASSET BASED FEES - ALLOCATED BASED ON ASSETS OF EACH PORTFOLIO
<TABLE>
<CAPTION>
Annual Fee
Average Assets (Expressed in Basis Points: 1/100 of 1%)
-------------- ----------------------------------------
<S> <C>
First $125 Million per portfolio 10
Next $125 Million per portfolio 8
Thereafter 4
</TABLE>
MINIMUM - ALLOCATED BASED ON ASSETS OF EACH PORTFOLIO
Year 1: $35,000 annual minimum per portfolio
Thereafter: $70,000 annual minimum per portfolio
II. MULTIPLE CLASS OF SHARES
An additional $10,000 annual fee will be applied to each class of shares,
excluding the initial class of shares, if more than one class of shares is
operational in a portfolio.
III OUT OF POCKET EXPENSES - INCLUDE BUT MAY NOT BE LIMITED TO
- Printing for shareholder reports and SEC filings
- Legal fees, audit fees and other professional fees
- Postage, telephone, fax and photocopying
- Supplies related to fund records
- Travel and lodging for board and operations meetings
- Preparation of financials other than Annual, Semi-Annual and Quarterly
Board Reporting $3,000 per financial report
IV. SPECIAL ARRANGEMENTS
Fees for activities of a non-recurring nature such as consolidations or
reorganization, and/or preparation of special reports will be subject to
negotiation. Fees for a change in fund structure (i.e. Core and Feeder) are
subject to negotiation.
12
<PAGE>
FUND ADMINISTRATION FEE SCHEDULE
(CONTINUED)
PROTECTIVE INVESTMENT COMPANY
________________________________________________________________
v. TERM OF THE CONTRACT
The parties agree that this fee schedule shall remain in effect through
December 31,1995 and from year to year thereafter until it is revised as a
result of negotiations initiated by either party.
INVESTMENT DISTRIBUTORS
ADVISORY SERVICES, INC. STATE STREET BANK AND TRUST CO.
Name: _________________ Name: ______________________
Title: _________________ Title: ______________________
Date: _________________ Date: ______________________
13
<PAGE>
EXHIBIT 11(a)
[SUTHERLAND, ASBILL & BRENNAN - LETTERHEAD]
September 12, 1994
Board of Directors
Protective Investment Company
2801 Highway 280 South
Birmingham, Alabama 35229
Directors:
We hereby consent to the reference to our name under the caption
"Legal Counsel" in the statement of additional information filed as part of
post-effective amendment No. 1 to the Form N-1A registration statement
for Protective Investment Company (File No. 33-71592). In giving this
consent, we do not admit that we are in the category of persons whose
consent is required under Section 7 of the Securities Act of 1933.
Sincerely,
SUTHERLAND, ASBILL & BRENNAN
By: /s/ Stephen E. Roth
---------------------------
Stephen E. Roth
<PAGE>
Exhibit 11(b)
Consent of Coopers & Lybrand
<PAGE>
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in Part B of the Statement of Additional
Information, constituting part of this Registration Statement on Form N-1A
(File No. 33-71592) of our report dated March 2, 1994 on the audit of the
Statements of Assets and Liabilities of Protective Investment Company (Money
Market, Select Equity, Small Cap Equity, International Equity, Growth and
Income, and Global Income Funds) as of March 2, 1994 (date of initial
capitalization).
We also consent to the reference to our firm under the heading "Independent
Accountants" in Part B of the Registration Statement.
/s/ COOPERS AND LYBRAND L.L.P.
COOPERS AND LYBRAND L.L.P.
Birmingham, Alabama
September 14, 1994
<PAGE>
Exhibit 16
Schedule of Computation of Performance Data
<PAGE>
EXHIBIT 16
SCHEDULE OF COMPUTATION OF PERFORMANCE DATA
PROTECTIVE INVESTMENT COMPANY
TOTAL RETURN CALCULATION
<TABLE>
<CAPTION>
TOTAL RETURN OVER THE PERIOD TOTAL RETURN ANNUALIZED (NON-COMPOUNDED)
MARCH 14, 1994 TO JUNE 30, 1994 MARCH 14, 1994 TO JUNE 30, 1994
------------------------------- ------------------------------- T
P (1 + T) = ERV P (1 + T) * N = ERV ANNUALIZED
--------------- ------------------- ----------
<S> <C> <C> <C>
MONEY MARKET FUND
- ----------------- $1,000.00 (1 + 0.97%) = $1,009.70 $1,000.00 (1 + 0.97%) * 365/108 = $1,032.78 3.28 %
SELECT EQUITY FUND
- ------------------ $1,000.00 (1 + (2.81)%) = $971.90 $1,000.00 (1 + (2.81)%) * 365/108 = $905.03 (9.50)%
SMALL CAP EQUITY FUND
- --------------------- $1,000.00 (1 + (3.48)%) = $965.20 $1,000.00 (1 + (3.48)%) * 365/108 = $882.39 (11.76)%
INTERNATIONAL EQUITY FUND
- ------------------------- $1,000.00 (1 + (5.80)%) = $942.00 $1,000.00 (1 + (5.80)%) * 365/108 = $803.98 (19.60)%
GROWTH AND INCOME FUND
- ---------------------- $1,000.00 (1 + (3.56)%) = $964.40 $1,000.00 (1 + (3.56)%) * 365/108 = $879.69 (12.03)%
GLOBAL INCOME FUND
- ------------------ $1,000.00 (1 + (2.08)%) = $979.20 $1,000.00 (1 + (2.08)%) * 365/108 = $929.70 (7.03)%
</TABLE>
SEVEN-DAY YIELD CALCULATION SEVEN-DAY EFFECTIVE YIELD CALCULATION
<TABLE>
<CAPTION>
BASE PERIOD RETURN * 365/7 [(BASE PERIOD RETURN +1) /\ 365/7] -1
= 7-DAY YIELD = 7-DAY EFFECTIVE YIELD
<S> <C> <C>
MONEY MARKET FUND
0.000734783 * 365/7 = 3.83% [(0.000734783 + 1) /\ 365/7] -1 = 3.90%
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<LEGEND>
Protective Money Market Fund Financial Data Schedule
</LEGEND>
<SERIES>
<NUMBER> 1
<NAME> PROTECTIVE MONEY MARKET FUND
<S> <C>
<PERIOD-TYPE> 4-MOS
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-START> MAR-14-1994
<PERIOD-END> JUN-30-1994
<INVESTMENTS-AT-COST> 5,419,443
<INVESTMENTS-AT-VALUE> 5,419,443
<RECEIVABLES> 573,609
<ASSETS-OTHER> 9,333
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 6,002,385
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 19,733
<TOTAL-LIABILITIES> 19,733
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 5,982,473
<SHARES-COMMON-STOCK> 5,982,473
<SHARES-COMMON-PRIOR> 1,000
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 179
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 5,982,652
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 30,272
<OTHER-INCOME> 0
<EXPENSES-NET> 4,461
<NET-INVESTMENT-INCOME> 25,811
<REALIZED-GAINS-CURRENT> 250
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 26,061
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 25,811
<DISTRIBUTIONS-OF-GAINS> 71
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 9,690,441
<NUMBER-OF-SHARES-REDEEMED> 3,743,850
<SHARES-REINVESTED> 25,882
<NET-CHANGE-IN-ASSETS> 5,972,652
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 4,461
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 23,374
<AVERAGE-NET-ASSETS> 2,495,082
<PER-SHARE-NAV-BEGIN> 1.000
<PER-SHARE-NII> 0.010
<PER-SHARE-GAIN-APPREC> 0.000
<PER-SHARE-DIVIDEND> 0.010
<PER-SHARE-DISTRIBUTIONS> 0.000
<RETURNS-OF-CAPITAL> 0.000
<PER-SHARE-NAV-END> 1.000
<EXPENSE-RATIO> 60
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<LEGEND>
Protective Select Equity Fund Financial Data Schedule
</LEGEND>
<SERIES>
<NUMBER> 2
<NAME> PROTECTIVE SELECT EQUITY FUND
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 4-MOS
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-START> MAR-14-1994
<PERIOD-END> JUN-30-1994
<INVESTMENTS-AT-COST> 5,366,937
<INVESTMENTS-AT-VALUE> 5,272,569
<RECEIVABLES> 110,393
<ASSETS-OTHER> 164
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 5,383,126
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 23,190
<TOTAL-LIABILITIES> 23,190
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 5,445,235
<SHARES-COMMON-STOCK> 551,505
<SHARES-COMMON-PRIOR> 1,000
<ACCUMULATED-NII-CURRENT> 17,903
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (8,834)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (94,368)
<NET-ASSETS> 5,359,936
<DIVIDEND-INCOME> 13,884
<INTEREST-INCOME> 9,810
<OTHER-INCOME> 0
<EXPENSES-NET> 5,791
<NET-INVESTMENT-INCOME> 17,903
<REALIZED-GAINS-CURRENT> (8,834)
<APPREC-INCREASE-CURRENT> (94,368)
<NET-CHANGE-FROM-OPS> (85,299)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 551,697
<NUMBER-OF-SHARES-REDEEMED> 1,192
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 5,349,936
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 5,791
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 27,559
<AVERAGE-NET-ASSETS> 2,455,796
<PER-SHARE-NAV-BEGIN> 10.000
<PER-SHARE-NII> 0.032
<PER-SHARE-GAIN-APPREC> (0.313)
<PER-SHARE-DIVIDEND> 0.000
<PER-SHARE-DISTRIBUTIONS> 0.000
<RETURNS-OF-CAPITAL> 0.000
<PER-SHARE-NAV-END> 9.719
<EXPENSE-RATIO> 80
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<LEGEND>
Protective Small Cap Fund Financial Data Schedule
</LEGEND>
<SERIES>
<NUMBER> 3
<NAME> PROTECTIVE SMALL CAP EQUITY FUND
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 4-MOS
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-START> MAR-14-1994
<PERIOD-END> JUN-30-1994
<INVESTMENTS-AT-COST> 8,318,562
<INVESTMENTS-AT-VALUE> 8,252,307
<RECEIVABLES> 195,342
<ASSETS-OTHER> 803
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 8,448,452
<PAYABLE-FOR-SECURITIES> 1,165,913
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 22,968
<TOTAL-LIABILITIES> 1,188,881
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 7,318,376
<SHARES-COMMON-STOCK> 752,157
<SHARES-COMMON-PRIOR> 1,000
<ACCUMULATED-NII-CURRENT> 11,362
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (3,912)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (66,255)
<NET-ASSETS> 7,259,571
<DIVIDEND-INCOME> 644
<INTEREST-INCOME> 18,201
<OTHER-INCOME> 0
<EXPENSES-NET> 7,483
<NET-INVESTMENT-INCOME> 11,362
<REALIZED-GAINS-CURRENT> (3,912)
<APPREC-INCREASE-CURRENT> (66,255)
<NET-CHANGE-FROM-OPS> (58,805)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 752,120
<NUMBER-OF-SHARES-REDEEMED> 963
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 7,249,571
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 7,483
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 28,055
<AVERAGE-NET-ASSETS> 3,171,270
<PER-SHARE-NAV-BEGIN> 10.000
<PER-SHARE-NII> 0.015
<PER-SHARE-GAIN-APPREC> (0.363)
<PER-SHARE-DIVIDEND> 0.000
<PER-SHARE-DISTRIBUTIONS> 0.000
<RETURNS-OF-CAPITAL> 0.000
<PER-SHARE-NAV-END> 9.652
<EXPENSE-RATIO> 80
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<LEGEND>
Protective International Equity Fund Financial Data Schedule
</LEGEND>
<SERIES>
<NUMBER> 4
<NAME> PROTECTIVE INTERNATIONAL EQUITY FUND
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 4-MOS
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-START> MAR-14-1994
<PERIOD-END> JUN-30-1994
<INVESTMENTS-AT-COST> 10,239,127
<INVESTMENTS-AT-VALUE> 10,045,209
<RECEIVABLES> 11,383,026
<ASSETS-OTHER> 2,380
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 21,430,615
<PAYABLE-FOR-SECURITIES> 605,770
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 11,328,654
<TOTAL-LIABILITIES> 11,934,424
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 9,911,070
<SHARES-COMMON-STOCK> 1,007,922
<SHARES-COMMON-PRIOR> 1,000
<ACCUMULATED-NII-CURRENT> 48,967
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (155,335)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (308,511)
<NET-ASSETS> 9,496,191
<DIVIDEND-INCOME> 38,975
<INTEREST-INCOME> 26,890
<OTHER-INCOME> 0
<EXPENSES-NET> 16,898
<NET-INVESTMENT-INCOME> 48,967
<REALIZED-GAINS-CURRENT> (155,335)
<APPREC-INCREASE-CURRENT> (308,511)
<NET-CHANGE-FROM-OPS> (414,879)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1,007,660
<NUMBER-OF-SHARES-REDEEMED> 738
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 9,486,191
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 16,898
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 41,566
<AVERAGE-NET-ASSETS> 5,169,017
<PER-SHARE-NAV-BEGIN> 10.000
<PER-SHARE-NII> 0.049
<PER-SHARE-GAIN-APPREC> (0.627)
<PER-SHARE-DIVIDEND> 0.000
<PER-SHARE-DISTRIBUTIONS> 0.000
<RETURNS-OF-CAPITAL> 0.000
<PER-SHARE-NAV-END> 9.422
<EXPENSE-RATIO> 110
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
ABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<LEGEND>
Protective Growth and Income Fund Financial Data Schedule
</LEGEND>
<SERIES>
<NUMBER> 5
<NAME> PROTECTIVE GROWTH AND INCOME FUND
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 4-MOS
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-START> MAR-14-1994
<PERIOD-END> JUN-30-1994
<INVESTMENTS-AT-COST> 12,817,382
<INVESTMENTS-AT-VALUE> 12,655,862
<RECEIVABLES> 245,582
<ASSETS-OTHER> 1,073
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 12,902,517
<PAYABLE-FOR-SECURITIES> 1,417,978
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 28,777
<TOTAL-LIABILITIES> 1,446,755
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 11,623,403
<SHARES-COMMON-STOCK> 1,191,855
<SHARES-COMMON-PRIOR> 1,000
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (6,121)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (161,520)
<NET-ASSETS> 11,455,762
<DIVIDEND-INCOME> 26,002
<INTEREST-INCOME> 22,661
<OTHER-INCOME> 0
<EXPENSES-NET> 10,536
<NET-INVESTMENT-INCOME> 38,127
<REALIZED-GAINS-CURRENT> (6,121)
<APPREC-INCREASE-CURRENT> (161,520)
<NET-CHANGE-FROM-OPS> (129,514)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 38,127
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1,193,435
<NUMBER-OF-SHARES-REDEEMED> 6,547
<SHARES-REINVESTED> 3,967
<NET-CHANGE-IN-ASSETS> 11,445,762
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 10,536
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 34,900
<AVERAGE-NET-ASSETS> 4,460,090
<PER-SHARE-NAV-BEGIN> 10.000
<PER-SHARE-NII> 0.033
<PER-SHARE-GAIN-APPREC> (0.388)
<PER-SHARE-DIVIDEND> 0.033
<PER-SHARE-DISTRIBUTIONS> 0.000
<RETURNS-OF-CAPITAL> 0.000
<PER-SHARE-NAV-END> 9.612
<EXPENSE-RATIO> 80
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
BLE> <S> <C>
<PAGE>
<ARTICLE> 6
<LEGEND>
Protective Global Income Fund Financial Data Schedule
</LEGEND>
<SERIES>
<NUMBER> 6
<NAME> PROTECTIVE GLOBAL INCOME FUND
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 4-MOS
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-START> MAR-14-1994
<PERIOD-END> JUN-30-1994
<INVESTMENTS-AT-COST> 8,758,538
<INVESTMENTS-AT-VALUE> 8,774,940
<RECEIVABLES> 10,896,510
<ASSETS-OTHER> 38,743
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 19,710,193
<PAYABLE-FOR-SECURITIES> 2,050,274
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 9,653,860
<TOTAL-LIABILITIES> 11,704,134
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 8,156,062
<SHARES-COMMON-STOCK> 825,587
<SHARES-COMMON-PRIOR> 1,000
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (99,776)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (50,227)
<NET-ASSETS> 8,006,059
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 79,094
<OTHER-INCOME> 0
<EXPENSES-NET> 15,674
<NET-INVESTMENT-INCOME> 63,420
<REALIZED-GAINS-CURRENT> (99,776)
<APPREC-INCREASE-CURRENT> (50,227)
<NET-CHANGE-FROM-OPS> (86,583)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 63,420
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 832,616
<NUMBER-OF-SHARES-REDEEMED> 14,531
<SHARES-REINVESTED> 6,502
<NET-CHANGE-IN-ASSETS> 7,996,059
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 15,674
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 40,320
<AVERAGE-NET-ASSETS> 4,815,494
<PER-SHARE-NAV-BEGIN> 10.000
<PER-SHARE-NII> 0.104
<PER-SHARE-GAIN-APPREC> (0.303)
<PER-SHARE-DIVIDEND> 0.104
<PER-SHARE-DISTRIBUTIONS> 0.000
<RETURNS-OF-CAPITAL> 0.000
<PER-SHARE-NAV-END> 9.697
<EXPENSE-RATIO> 110
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
