As filed with the Securities and Exchange Commission
on March 29, 1996
Registration Nos. 33-79166
811-8522
==============================================================================
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. 4 [X]
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [ ]
Amendment No. 5 [X]
(Check appropriate box or boxes.)
EQUI-SELECT SERIES TRUST
_________________________________________________
(Exact name of registrant as specified in charter)
699 Walnut Street
Des Moines, Iowa 50309
________________________________________ __________
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, Including Area Code (800) 344-6860
John A. Merriman, Esq.
Assistant Secretary and General Counsel
Equitable Investment Services, Inc.
604 Locust Street
Des Moines, Iowa 50309
(Name and Address of Agent For Service)
Copies to:
Raymond A. O'Hara III, Esq. and G. Thomas Sullivan, Esq.
Blazzard, Grodd & Hasenauer, P.C. Nyemaster, Goode, McLaughlin,
P.O. Box 5108 Voigts, West, Hansell & O'Brien
Westport, CT 06881 1900 Hub Tower
(203) 226-7866 699 Walnut Street
Des Moines, Iowa 50309
It is proposed that this filing will become effective (check appropriate box)
___ immediately upon filing pursuant to paragraph (b)
_X_ on April 1, 1996 pursuant to paragraph (b)
___ 60 days after filing pursuant to paragraph (a)(1)
___ on (date) pursuant to paragraph (a)(1)
___ 75 days after filing pursuant to paragraph (a)(2)
___ on (date) pursuant to paragraph (a)(2) of rule 485.
appropriate, check the following box:
___ this post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
Registrant has declared that it has registered an indefinite number or amount
of securities under the Securities Act of 1933 pursuant to Investment Company
Act Rule 24f-2 and the Rule 24f-2 Notice for Registrants fiscal year 1995 was
filed on February 27, 1996.
EQUI-SELECT SERIES TRUST
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CROSS REFERENCE SHEET
(as required by Rule 404 (c))
PART A
N-1A
- --------
Item No. Location
- -------- ------------------------
1. Cover Page. . . . . . . . . . . . . . . . Cover Page
2. Synopsis. . . . . . . . . . . . . . . . . Summary
3. Condensed Financial Information . . . . . Financial Highlights
4. General Description of Registrant . . . . Cover Page; The Trust;
Investment Objectives
and Policies of the
Portfolios; Additional
Information; Appendix
5. Management of the Fund. . . . . . . . . . Management of the Trust;
Additional Information
6. Capital Stock and Other Securities. . . . Sales and Redemptions;
Net Asset Value; Tax
Status, Dividends and
Distributions;
Additional Information
7. Purchase of Securities Being Offered. . . The Trust; Net Asset
Value; Sales and
Redemptions
8. Redemption or Repurchase. . . . . . . . . Redemptions; Net
Asset Value
9. Pending Legal Proceedings . . . . . . . . Not Applicable
PART B
10. Cover Page . . . . . . . . . . . . . . . . Cover Page
11. Table of Contents. . . . . . . . . . . . . Cover Page
12. General Information and History . . . . . Not Applicable
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CROSS REFERENCE SHEET (cont'd)
(as required by Rule 404 (c))
PART B (CONT'D)
N-1A
- --------
Item No. Location
- -------- --------------------------
13. Investment Objectives and Policies . . . . Investment Objectives and
Policies of the Trust;
Investment Restrictions;
Portfolio Turnover
14. Management of the Fund . . . . . . . . . . Management of the Trust
15. Control Persons and Principal Holders of
Securities . . . . . . . . . . . . . . . Management of the Trust
16. Investment Advisory and Other Services . . Management of the Trust;
Independent Auditors;
Custodian
17. Brokerage Allocation . . . . . . . . . . . Management of the Trust
(Brokerage and Research
Services)
18. Capital Stock and Other Securities . . . . Sales and Redemptions;
Net Asset Value; Tax
Status, Dividends and
Distributions;
Organization and
Capitalization;
Additional Information
19. Purchase, Redemption and Pricing of
Securities Being Offered . . . . . . . . Determination of Net
Asset Value; Sales and
Redemptions
20. Tax Status . . . . . . . . . . . . . . . . Taxes; Dividends and
Distributions
21. Underwriters . . . . . . . . . . . . . . . Not Applicable
22. Calculations of Yield Quotations of Money
Market Funds . . . . . . . . . . . . . Performance Information
23. Financial Statements . . . . . . . . . . . Financial Statements
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PART C
Information required to be included in Part C is set forth under the
appropriate Item, so numbered, in Part C of the Registration Statement.
EXPLANATORY NOTE
==============================================================================
This Registration Statement contains twelve Portfolios of the Equi-Select
Series Trust. Two versions of Prospectuses will be created from this
Registration Statement. The distribution system for each version of the
Prospectus is different. One version of the Prospectus will contain the
twelve Portfolios of the Equi-Select Series Trust. The other version of the
Prospectus will contain only the Research Portfolio, OTC Portfolio and Total
Return Portfolio of the Equi-Select Series Trust. These Prospectuses will be
filed with the Commission pursuant to Rule 497.
The Registrant undertakes to update this Explanatory Note each time a
Post-Effective Amendment is filed. The following Prospectuses were filed
pursuant to Rule 497 regarding this Registration Statement:
1. On June 23, 1995, a prospectus was filed pursuant to Rule 497 which
contained the ten Portfolios of Equi-Select Series Trust.
2. On February 22, 1996, a prospectus was filed pursuant to Rule 497
which contained only the Research Portfolio, OTC Portfolio and Total Return
Portfolio of Equi-Select Series Trust.
==============================================================================
PART A
EQUI-SELECT SERIES TRUST
699 WALNUT STREET
DES MOINES, IOWA 50309
Equi-Select Series Trust (the "Trust") is an open-end, series management
investment company which currently offers shares of beneficial interest of ten
of its twelve series (the "Portfolios"), each of which has a different
investment objective and represents the entire interest in a separate
portfolio of investments. The ten available Portfolios are: Advantage
Portfolio, Growth & Income Portfolio, International Fixed Income Portfolio,
International Stock Portfolio, Money Market Portfolio, Mortgage-Backed
Securities Portfolio, OTC Portfolio, Research Portfolio, Total Return
Portfolio and Value + Growth Portfolio. These Portfolios are currently
available to the public only through certain variable annuity contracts ("VA
Contracts") issued by Equitable Life Insurance Company of Iowa ("Life
Company"). Shares of the Government Securities Portfolio and the Short-Term
Bond Portfolio are no longer offered for sale. Shares of the
International Stock Portfolio will no longer be offered for sale after
May 17, 1996.
This Prospectus sets forth concisely the information about the Trust that a
prospective investor should know before investing. Please read it carefully
and retain it for future reference. A Statement of Additional Information
("SAI") dated April 1, 1996 is available without charge upon request and may
be obtained by calling the Life Company at (800) 344-6864 or by writing to the
Life Company, P.O. Box 9271, Des Moines, Iowa 50306-9271. Some of the
discussions contained in this Prospectus refer to the more detailed
descriptions contained in the SAI, which is incorporated by reference into
this Prospectus and has been filed with the Securities and Exchange
Commission.
PURCHASERS SHOULD BE AWARE THAT AN INVESTMENT IN THE MONEY MARKET PORTFOLIO IS
NEITHER INSURED NOR GUARANTEED BY THE U.S. GOVERNMENT. THERE CAN BE NO
ASSURANCE THAT THE MONEY MARKET PORTFOLIO WILL BE ABLE TO MAINTAIN A STABLE
NET ASSET VALUE OF $1.00 PER SHARE.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
PROSPECTUS DATED APRIL 1, 1996
TABLE OF CONTENTS
PAGE
SUMMARY
The Trust
Investment Adviser and Sub-Advisers
The Portfolios
Investment Risks
Sales and Redemptions
FINANCIAL HIGHLIGHTS
FINANCIAL HIGHLIGHTS
INVESTMENT OBJECTIVES AND POLICIES OF THE PORTFOLIOS
Portfolios Seeking Current Income
Advantage Portfolio
Short-Term Bond Portfolio
Government Securities Portfolio
Money Market Portfolio
Mortgage-Backed Securities Portfolio
Portfolios Seeking Capital Growth
International Stock Portfolio
OTC Portfolio
Research Portfolio
Value + Growth Portfolio
Portfolios Seeking Total Return
International Fixed Income Portfolio
Total Return Portfolio
Growth & Income Portfolio
MANAGEMENT OF THE TRUST
Investment Adviser
Advisory Fee Waiver and Expense Cap
Expenses of the Trust
Sub-Advisers
SALES AND REDEMPTIONS
NET ASSET VALUE
PERFORMANCE INFORMATION
TAX STATUS, DIVIDENDS, AND DISTRIBUTIONS
ADDITIONAL INFORMATION
APPENDIX
SUMMARY
THE TRUST
The Trust is an open-end management investment company established as a
Massachusetts business trust under a Declaration of Trust dated May 11, 1994.
Each Portfolio issues a separate class of shares. The Declaration of Trust
permits the Trustees to issue an unlimited number of full or fractional shares
of each class of stock.
Each Portfolio has distinct investment objectives and policies. (See
"Investment Objectives and Policies of the Portfolios.") Additional Portfolios
may be added to the Trust in the future. This Prospectus will be supplemented
to reflect the addition of new Portfolios.
INVESTMENT ADVISER AND SUB-ADVISERS
Subject to the authority of the Board of Trustees of the Trust, Equitable
Investment Services, Inc. (the "Adviser") serves as the Trust's investment
adviser and has responsibility for the overall management of the investment
strategies and policies of the Portfolios. The Adviser has engaged
Sub-Advisers for certain of the Portfolios to make investment decisions and
place orders. The Sub-Advisers for these Portfolios are:
SUB-ADVISER NAME OF PORTFOLIO
Credit Suisse Investment Management Limited International Fixed Income
Strong Capital Management, Inc. International Stock
Massachusetts Financial Services Company OTC
Research
Total Return
Robertson, Stephens & Company Growth & Income
Investment Management, L.P. Value + Growth
For additional information concerning the Adviser and the Sub-Advisers,
including a description of advisory and sub-advisory fees, see "Management of
the Trust."
THE PORTFOLIOS
ADVANTAGE PORTFOLIO. The Advantage Portfolio seeks current income with a
very low degree of share-price fluctuation. The Portfolio invests primarily
in ultra short-term, investment-grade debt obligations, and its average
effective maturity will normally be one year or less.
GOVERNMENT SECURITIES PORTFOLIO. The Government Securities Portfolio
seeks total return by investing for a high level of current income with a
moderate degree of share-price fluctuation. The Portfolio normally invests at
least 80% of its total assets in U.S. government securities.
GROWTH & INCOME PORTFOLIO. The Growth & Income Portfolio seeks long-term
total return by investing in equity securities and debt securities, focusing
on small- and mid-cap companies that offer potential for capital appreciation,
current income, or both.
INTERNATIONAL FIXED INCOME PORTFOLIO. The International Fixed Income
Portfolio seeks to provide high total return. Under normal conditions, at
least 65% of the Portfolio's total assets will be invested in fixed income
securities of issuers whose principal activities are outside of the U.S. or
foreign currency denominated fixed income securities of U.S. issuers. Under
normal conditions, the Portfolio's Sub-Adviser expects that the Portfolio
generally will be invested in at least six different countries, including the
U.S., although the Portfolio may at times invest all of its assets in a single
country.
INTERNATIONAL STOCK PORTFOLIO. The International Stock Portfolio seeks
capital growth. The Portfolio invests at least 65% of the Portfolio's total
assets in the equity securities of issuers located outside the United States.
MONEY MARKET PORTFOLIO. The Money Market Portfolio seeks to achieve
maximum current income, consistent with the preservation of capital and the
maintenance of liquidity. The Portfolio will seek to achieve this objective
by investing exclusively in certain U.S. dollar-denominated money market
instruments maturing in 397 days or less.
MORTGAGE-BACKED SECURITIES PORTFOLIO. The Mortgage-Backed Securities
Portfolio seeks to obtain a high current return, consistent with safety of
principal, by investing, under normal conditions, at least 65% of the
Portfolio's total assets in mortgage-backed securities including those
representing an undivided ownership interest in a pool of mortgages, e.g.,
Government National Mortgage Association ("GNMA"), Federal National Mortgage
Association ("FNMA") and Federal Home Loan Mortgage Corporation ("FHLMC")
Certificates.
OTC PORTFOLIO. The primary investment objective of the OTC Portfolio is
to seek to obtain long-term growth of capital. The Portfolio seeks to achieve
this objective by investing at least 65% of its assets, under normal
circumstances, in securities principally traded on the over-the-counter (OTC)
securities market. The Portfolio is intended for investors who understand and
are willing to accept the risks entailed in seeking long-term growth of
capital. The Portfolio may invest 10% or more of its net assets in foreign
securities (not including American Depositary Receipts ("ADRs"); however,
under normal market conditions, the Portfolio expects to invest less than 35%
of its net assets in foreign securities. The Portfolio may invest up to 10%
of its net assets in emerging markets or countries with limited or developing
capital markets. (See "Appendix--Foreign Investments" and the SAI for a
discussion of the risks involved in foreign investing.) The Portfolio may
invest a portion of its assets in lower-grade corporate debt securities
commonly known as "junk bonds." Investors should be aware that such
investments involve a significant degree of risk. (See "Appendix--Lower-Rated
Securities" and the SAI for a discussion of the risks involved in investing in
lower-rated securities.)
RESEARCH PORTFOLIO. The Research Portfolio seeks to provide long-term
growth of capital and future income by investing a substantial portion of its
assets in common stocks or securities convertible into common stocks of
companies believed to possess better than average prospects for long-term
growth. A smaller proportion of the assets may be invested in bonds,
short-term obligations, preferred stocks or common stocks whose principal
characteristic is income production rather than growth. The Portfolio may
invest up to 20% (and generally expects to invest between 0% and 20%) of its
net assets in foreign securities (not including American Depositary Receipts).
(See "Appendix--Foreign Investments" and the SAI for a discussion of the
risks involved in foreign investing.) The Portfolio may invest up to 10% of
its net assets in lower-grade corporate debt securities commonly known as
"junk bonds." Investors should be aware that such investments involve a
significant degree of risk. (See "Appendix--Lower-Rated Securities" and the
SAI for a discussion of the risks involved in investing in lower-rated
securities.)
SHORT-TERM BOND PORTFOLIO. The Short-Term Bond Portfolio seeks total
return by investing for a high level of current income with a low degree of
share-price fluctuation. The Portfolio invests primarily in short- and
intermediate-term, investment grade debt obligations, and its average
portfolio maturity will normally be between one and three years.
TOTAL RETURN PORTFOLIO. The Total Return Portfolio primarily seeks to
obtain above-average income (compared to a portfolio entirely invested in
equity securities) consistent with the prudent employment of capital. The
Portfolio's secondary objective is to take advantage of opportunities for
growth of capital and income. Under normal market conditions, at least 25% of
the Portfolio's assets will be invested in fixed income securities and at
least 40% and no more than 75% of the Portfolio's assets will be invested in
equity securities, which include: common and preferred stocks; securities such
as bonds, warrants or rights that are convertible into stock; and depository
receipts for those securities. The Portfolio may invest up to 20% (and
generally expects to invest between 5% and 20%) of its net assets in foreign
securities (not including American Depositary Receipts). (See
"Appendix--Foreign Investments" and the SAI for a discussion of the risks
involved in foreign investing.) The Portfolio may invest a portion of its
assets in lower-grade corporate debt securities commonly known as "junk
bonds." Investors should be aware that such investments involve a significant
degree of risk. (See "Appendix--Lower-Rated Securities" and the SAI for a
discussion of the risks involved in investing in lower-rated securities.)
VALUE + GROWTH PORTFOLIO. The Value + Growth Portfolio seeks capital
appreciation by investing primarily in mid-cap growth companies with favorable
relationships between price/earnings ratios and growth rates, in sectors
offering the potential for above-average returns.
The investment objectives of a Portfolio and policies and restrictions
specifically cited as fundamental may not be changed without the approval of a
majority of the outstanding shares of that Portfolio. Other investment
policies and practices described in this Prospectus and the SAI are not
fundamental, and the Board of Trustees may change them without shareholder
approval. A complete list of investment restrictions, including those
restrictions which cannot be changed without shareholder approval, is
contained in the SAI. There is no assurance that a Portfolio will meet its
stated objective.
INVESTMENT RISKS
The value of a Portfolio's shares will fluctuate with the value of the
underlying securities in its portfolio, and in the case of debt securities,
with the general level of interest rates. When interest rates decline, the
value of an investment portfolio invested in fixed-income securities can be
expected to rise. Conversely, when interest rates rise, the value of an
investment portfolio invested in fixed-income securities can be expected to
decline. In the case of foreign currency denominated securities, these trends
may be offset or amplified by fluctuations in foreign currencies. Investments
by a Portfolio in foreign securities may be affected by adverse political,
diplomatic, and economic developments, changes in foreign currency exchange
rates, taxes or other assessments imposed on distributions with respect to
those investments, and other factors affecting foreign investments generally.
High-yielding fixed-income securities, which are commonly known as "junk
bonds", are subject to greater market fluctuations and risk of loss of income
and principal than investments in lower yielding fixed-income securities.
Certain of the Portfolios intend to employ, from time to time, certain
investment techniques which are designed to enhance income or total return or
hedge against market or currency risks but which themselves involve additional
risks. These techniques include options on securities, futures, options on
futures, options on indexes, options on foreign currencies, foreign currency
exchange transactions, lending of securities and when-issued securities and
delayed-delivery transactions. The Portfolios may have higher-than-average
portfolio turnover which may result in higher-than-average brokerage
commissions and transaction costs.
The investment strategies and portfolio investments of the Growth & Income
Portfolio and Value + Growth Portfolio will differ from those of most other
mutual funds. Robertson, Stephens & Company Investment Management, L.P., the
Sub-Adviser to each of these two Portfolios, seeks aggressively to identify
favorable securities, economic and market sectors, and investment
opportunities that other investors and investment advisers may not have
identified. When Robertson, Stephens & Company Investment Management, L.P.
identifies such an investment opportunity, it may devote more of a Portfolio's
assets to pursuing that opportunity, or at different times, than many other
mutual funds, and may select investments for a Portfolio that would be
inappropriate for less aggressive mutual funds.
SALES AND REDEMPTIONS
The Trust sells shares only to the separate accounts of the Life Company as a
funding vehicle for the VA Contracts offered by the Life Company. No fee is
charged upon the sale or redemption of the Trust's shares. Expenses of the
Trust are passed through to the separate accounts of the Life Company, and
therefore, are ultimately borne by VA Contract owners. In addition, other
fees and expenses are assessed by the Life Company at the separate account
level. (See the Prospectus for the VA Contract for a description of all fees
and charges relating to the VA Contract.)
FINANCIAL HIGHLIGHTS
EQUI-SELECT SERIES TRUST
following tables include selected data, derived from the Financial
Statements, for a share outstanding throughout the period shown for each of
the Portfolios at December 31, 1995. The tables should be read in conjunction
with the Financial Statements and notes thereto included in the Trust's Annual
Report to Contractholders which is incorporated by reference in the Statement
of Additional Information. The Financial Statements of the Trust at December
31, 1995 and 1994, and for each of the two years in the period ended December
31, 1995, have been audited by Ernst & Young LLP, independent auditors, as set
forth in their report thereon and incorporated by reference herein. Such
Financial Statements are incorporated herein by reference in reliance upon
such report given upon the authority of such firm as experts in accounting and
auditing.
Further information about the performance of the Trust is contained in the
Trust's December 31, 1995 Annual Report which may be obtained without charge
by calling the Life Company at (800) 344-6864.
EQUI-SELECT SERIES TRUST
FINANCIAL HIGHLIGHTS
(FOR A SHARE OF STOCK OUTSTANDING THROUGHOUT THE PERIOD INDICATED)
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Net Realized
Net Asset Net and Unrealized Total Distributions
Value at Investment Gain (Loss) from from Net
Beginning Income on Investment Investment
of Period (Loss)(1) Investments Operations Income
---------- ----------- --------------- ----------- --------------
MONEY MARKET PORTFOLIO (2)
Year ended December 31, 1995 $ 1.00 $0.05 $(0.00) $0.05 $(0.05)
Period ended December 31, 1994* 1.00 0.01 (0.00) 0.01 (0.01)
MORTGAGE-BACKED SECURITIES PORTFOLIO (2)
Year ended December 31, 1995 9.90 0.52 1.05 1.57 (0.52)
Period ended December 31, 1994* 10.00 0.15 (0.10) 0.05 (0.15)
INTERNATIONAL FIXED INCOME PORTFOLIO
Year ended December 31, 1995 10.02 0.41 1.24 1.65 (0.47)
Period ended December 31, 1994* 10.00 0.15 (0.05) 0.10 (0.08)
OTC PORTFOLIO
Year ended December 31, 1995 10.36 (0.02) 3.07 3.05 (0.00)
Period ended December 31, 1994* 10.00 0.00 0.36 0.36 (0.00)
RESEARCH PORTFOLIO
Year ended December 31, 1995 9.59 0.03 3.48 3.51 (0.03)
Period ended December 31, 1994* 10.00 0.09 (0.41) (0.32) (0.09)
TOTAL RETURN PORTFOLIO
Year ended December 31, 1995 9.76 0.21 2.19 2.40 (0.21)
Period ended December 31, 1994* 10.00 0.09 (0.24) (0.15) (0.09)
ADVANTAGE PORTFOLIO
Year ended December 31, 1995 9.98 0.71 0.20 0.91 (0.71)
Period ended December 31, 1994* 10.00 0.12 (0.02) 0.10 (0.12)
GOVERNMENT SECURITIES PORTFOLIO
Year ended December 31, 1995 10.02 0.91 0.88 1.79 (0.91)
Period ended December 31, 1994* 10.00 0.13 0.02 0.15 (0.13)
INTERNATIONAL STOCK PORTFOLIO
Year ended December 31, 1995 9.74 0.13 0.70 0.83 (0.18)
Period ended December 31, 1994* 10.00 0.06 (0.26) (0.20) (0.06)
SHORT-TERM BOND PORTFOLIO
Year ended December 31, 1995 10.04 0.82 0.15 0.97 (0.82)
Period ended December 31, 1994* 10.00 0.12 0.04 0.16 (0.12)
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(1) Net investment income is after reimbursement of cert to the financial statements).
Had EISI not undertaken to reimburse expenses related to the Portfolios, net investment income (loss)
per share and ratio of ssetmber 31, 1995 and the period ended December 31, 199Backed Securities Portfolio,
$0.43 and 1.99%, $0.11 and 2.43%; International Fixed Income Portfolio, $0.31 and 2.13%, $0%, $(0.04) and
7.48%; Total Return Portfolio, $0.14 and 2.36%, $(0.06) and 8.31%; Ad.05 and 8.03%; International Stock
Portfolio, $(0.02) and 2.88%, $0.00 and 3.31%; and Short-Term Bond Portfolio, $0.27 and 6.18%, $(0.07)
and 7.96%.
(2) BEA Associates became the sub-advisor to the Portfolio in April, 1995. EISI took over management of the
Portfolio in June, 1995.
(3) Total return figures are not annualized for periods less than one year. Total return does not reflrate
account surance contracts and inclusion of these charges would result in reducing the total return figures
for the period shown.
(4) Annualized for periods less than one year.
(5) Portfolio turnover rates are not annualized.
* For the period October 4, 1994 (commencement of investment operations) through December 31, 1994.
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The Growth & Income and Value + Growth Portfolios have not yet commenced
investment operations.
INVESTMENT OBJECTIVES AND POLICIES OF THE PORTFOLIOS
Each Portfolio of the Trust has a different investment objective or objectives
which it pursues through separate investment policies as described below. The
differences in objectives and policies among the Portfolios can be expected to
affect the return of each Portfolio and the degree of market and financial
risk to which each Portfolio is subject. An investment in a single Portfolio
should not be considered a complete investment program. The investment
objective(s) and policies of each Portfolio, unless otherwise specifically
stated, are non-fundamental and may be changed by the Trustees of the Trust
without a vote of the shareholders. Such changes may result in a Portfolio
having an investment objective(s) which differs from that which an investor
may have considered at the time of investment. There is no assurance that any
Portfolio will achieve its objective(s). United States Treasury Regulations
applicable to portfolios that serve as the funding vehicles for variable
annuity and variable life insurance contracts generally require that such
portfolios invest no more than 55% of the value of their assets in one
investment, 70% in two investments, 80% in three investments, and 90% in four
investments. The Portfolios intend to comply with the requirements of these
Regulations.
In order to comply with regulations which may be issued by the U.S. Treasury,
the Trust may be required to limit the availability or change the investment
policies of one or more Portfolios or to take steps to liquidate one or more
Portfolios. The Trust will not change any fundamental investment policy of a
Portfolio without a vote of shareholders of that Portfolio.
Except as otherwise noted herein, if the securities rating of a debt security
held by a Portfolio declines below the minimum rating for securities in which
the Portfolio may invest, the Portfolio will not be required to dispose of the
security, but the Portfolio's Adviser or Sub-Adviser will consider whether
continued investment in the security is consistent with the Portfolio's
investment objective.
In implementing its investment objectives and policies, each Portfolio uses a
variety of instruments, strategies and techniques which are described in more
detail in the Appendix and the SAI. With respect to each Portfolio's
investment policies, use of the term "primarily" means that under normal
circumstances, at least 65% of such Portfolio's assets will be invested as
indicated. A description of the ratings systems used by the following
nationally recognized statistical rating organizations ("NRSROs") is also
contained in the SAI: Moody's Investors Service, Inc. ("Moody's"), Standard &
Poor's Corporation ("S&P"), Duff & Phelps, Inc. ("Duff"), Fitch Investors
Service, Inc. ("Fitch"), Thomson Bankwatch, Inc., IBCA Limited and IBCA Inc.
New instruments, strategies and techniques, however, are evolving continually
and the Trust reserves authority to invest in or implement them to the extent
consistent with its investment objectives and policies. If new instruments,
strategies or techniques would involve a material change to the information
contained herein, they will not be purchased or implemented until this
Prospectus is appropriately supplemented.
PORTFOLIOS SEEKING CURRENT INCOME
ADVANTAGE PORTFOLIO
The Advantage Portfolio seeks current income with a very low degree of
share-price fluctuation.
The Portfolio invests primarily in ultra short-term investment grade debt
obligations. The Portfolio is designed for investors who seek higher yields
than money market funds generally offer and who are willing to accept some
modest principal fluctuation in order to achieve that objective. Because its
share price will vary, the Portfolio is not an appropriate investment for
those whose primary objective is absolute principal stability.
The Portfolio's investments include a combination of high-quality money
market instruments, as well as securities with longer maturities and debt
obligations of lower quality. Under normal market conditions, it is
anticipated that the Portfolio will maintain an average effective portfolio
maturity of one year or less.
Under normal market conditions, at least 75% of the Portfolio's total
assets will be invested in investment-grade debt obligations which generally
include a range of obligations from those in the highest rating category to
those rated medium-quality (e.g., BBB- or higher by Standard & Poor's Ratings
Group or "S&P") by at least one of the NRSROs. The Portfolio may also invest
up to 25% of its total assets in non-investment-grade debt obligations that
are rated in the fifth-highest rating category (e.g., BB by S&P) by at least
one of the NRSROs or unrated securities of comparable quality. In general,
non-investment-grade securities are regarded as predominantly speculative with
respect to the capacity of the issuer to pay interest and repay principal.
However, because these securities compose the tier immediately below
investment-grade, they are considered the least speculative
non-investment-grade securities. (See "Investment Policies and
Risks--Advantage, Short-Term Bond and Government Securities Portfolios" and
"Fundamentals of Fixed-Income Investing--Advantage, Short-Term Bond and
Government Securities Portfolios--Credit Quality.")
SHORT-TERM BOND PORTFOLIO
The Short-Term Bond Portfolio seeks total return by investing for a high
level of current income with a low degree of share-price fluctuation.
The Portfolio is designed for investors who are willing to accept some
fluctuation in principal in order to pursue a higher level of income than is
generally available from money market securities. Because its share price
will vary, the Portfolio is not an appropriate investment for those whose
primary objective is absolute principal stability.
The Portfolio invests primarily in short- and intermediate-term,
investment-grade debt obligations. Under normal market conditions at least
65% of the Portfolio's total assets will be invested in debt obligations, such
as corporate and U.S. government debt obligations. The Portfolio's
dollar-weighted average portfolio maturity will be between one and three years
under normal market conditions.
Under normal market conditions, at least 95% of the Portfolio's total
assets will be invested in investment-grade debt obligations, which include a
range of securities from those in the highest rating category to those rated
medium-quality (e.g., BBB- or higher by S&P) by at least one of the NRSROs.
The Portfolio may also invest up to 5% of its total assets in
noninvestment-grade debt obligations and other high-yield (high-risk)
securities (e.g., those rated C- or better by S&P) by at least one of the
NRSROs. (See "Investment Policies and Risks--Advantage, Short-Term Bond and
Government Securities Portfolios" and "Fundamentals of Fixed-Income
Investing--Advantage, Short-Term Bond and Government Securities Portfolios".)
GOVERNMENT SECURITIES PORTFOLIO
The Government Securities Portfolio seeks total return by investing for a
high level of current income with a moderate degree of share-price
fluctuation.
The Portfolio is designed for long-term investors who want to pursue
higher income than shorter-term securities generally provide, who are willing
to accept the fluctuation in principal associated with longer-term securities,
and who seek the low credit risk that U.S. government securities generally
carry.
Under normal market conditions, at least 80% of the Portfolio's total
assets will be invested in U.S. government securities. The balance of the
Portfolio's assets may be invested in other investment-grade debt obligations.
While there are no maturity restrictions on the portfolio, it is anticipated
that the Portfolio's average portfolio maturity will normally be between 5 and
10 years.
FUNDAMENTALS OF FIXED INCOME INVESTING--ADVANTAGE, SHORT-TERM BOND AND
GOVERNMENT SECURITIES PORTFOLIOS
The return and risk potential of each of the Advantage, Short-Term Bond and
Government Securities Portfolios depends in part on the maturity and
credit-quality characteristics of the underlying investments in its portfolio.
In general, longer-maturity fixed income securities carry higher yields and
greater price volatility than shorter-term fixed income securities.
Similarly, fixed income securities issued by less creditworthy entities tend
to carry higher yields than those with higher credit ratings. (See
"Investment Policies and Risks--Advantage, Short-Term Bond and Government
Securities Portfolios" for a more detailed discussion of the principals and
risks associated with fixed-income securities.)
Issuers of debt obligations have a contractual obligation to pay interest at a
specified rate ("coupon rate") on specified dates and to repay principal
("face value" or "par value") on a specified maturity date. Certain debt
obligations (usually intermediate- and long-term obligations) have provisions
that allow the issuer to redeem or "call" the obligation before its maturity.
Issuers are most likely to call such debt obligations during periods of
falling interest rates. As a result, a Portfolio may be required to invest
the unanticipated proceeds of the called obligations at lower interest rates,
which may cause the Portfolio's income to decline.
Although the net asset values of the Advantage, Short-Term Bond and Government
Securities Portfolios are expected to fluctuate, the Adviser actively manages
each Portfolio's portfolio and adjusts its average portfolio maturity
according to its interest rate outlook while seeking to avoid or reduce, to
the extent possible, any negative changes in net asset value.
When the Adviser determines market conditions warrant a temporary defensive
position, the Advantage, Short-Term Bond and Government Securities Portfolios
may each invest without limitation in cash and short-term fixed income
securities.
PRICE VOLATILITY. The market value of debt obligations is affected by
changes in prevailing interest rates. The market value of a debt obligation
generally reacts inversely to interest-rate changes, meaning, when prevailing
interest rates decline, an obligation's price usually rises, and when
prevailing interest rates rise, an obligation's price usually declines. A
fund portfolio consisting primarily of debt obligations will react similarly
to changes in interest rates.
MATURITY. In general, the longer the maturity of a debt obligation, the
higher its yield and the greater its sensitivity to changes in interest rates.
Conversely, the shorter the maturity, the lower the yield but the greater the
price stability. Commercial paper is generally considered the shortest form
of debt obligation. Notes, whose original maturities are two years or less,
are considered short-term obligations. The term "bond" generally refers to
securities with maturities longer than two years. Bonds with maturities of
three years or less are considered short-term, bonds with maturities between
three and seven years are considered intermediate-term, and bonds with
maturities greater than seven years are considered long-term.
Maturity may be calculated in several ways. In determining a Portfolio's
weighted average portfolio maturity, a Portfolio will consider a security to
have a maturity equal to its stated maturity (or redemption date if it has
been called for redemption), except that it may consider (i) variable rate
securities to have a maturity equal to the period remaining until the next
readjustment in the interest rate, unless subject to a demand feature, (ii)
variable rate securities subject to a demand feature to have a remaining
maturity equal to the longer of (a) the next readjustment in the interest rate
or (b) the period remaining until the principal can be recovered through
demand, and (iii) floating rate securities subject to a demand feature to have
a maturity equal to the period remaining until the principal can be recovered
through demand.
A Portfolio's average portfolio maturity represents an average based on the
actual stated maturity dates of the debt securities in the Portfolio's
portfolio, except that (i) variable-rate securities are deemed to mature at
the next interest-rate adjustment date, (ii) debt securities with put features
are deemed to mature at the next put-exercise date, (iii) the maturity of
mortgage-backed securities is determined on an "expected life" basis, and (iv)
securities being hedged with futures contracts may be deemed to have a longer
maturity, in the case of purchases of futures contracts, and a shorter
maturity, in the case of sales of futures contracts, than they would otherwise
be deemed to have.
A Portfolio's average "effective portfolio maturity" will be calculated in
nearly the same manner as average portfolio maturity, which is explained
above. However, for the purpose of calculating average effective portfolio
maturity, a security that is subject to redemption at the option of the issuer
on a particular date (the "call date") which is prior to the security's stated
maturity may be deemed to mature on the call date rather than on its stated
maturity date. The call date of a security will be used to calculate average
effective portfolio maturity when the Adviser reasonably anticipates, based
upon information available to it, that the issuer will exercise its right to
redeem the security. The Adviser may base its conclusion on such factors as
the interest rate paid on the security compared to prevailing market rates,
the amount of cash available to the issuer of the security, events affecting
the issuer of the security, and other factors that may compel or make it
advantageous for the issuer to redeem a security prior to its stated maturity.
CREDIT QUALITY. The values of the debt obligations may also be affected
by changes in the credit rating or financial condition of their issuers.
Generally, the lower the quality rating of an obligation, the higher the
degree of risk as to the payment of interest and return of principal. To
compensate investors for taking on such increased risk, those issuers deemed
to be less creditworthy generally must offer their investors higher interest
rates than do issuers with better credit ratings.
In conducting its credit research and analysis, the Adviser considers both
qualitative and quantitative factors to evaluate the creditworthiness of
individual issuers. The Adviser also relies, in part, on credit ratings
compiled by a number of NRSROs. See the SAI for a description of bond ratings.
INVESTMENT-GRADE DEBT OBLIGATIONS. Debt obligations rated in the
highest- through the medium-quality categories are commonly referred to as
"investment-grade" debt obligations and include the following:
- U.S. government securities (See "Types of Portfolio
Securities--Government Securities" below);
- commercial paper rated in one of the three highest rating categories
(e.g., A-3 or higher by S&P);
- short-term notes rated in one of the two highest rating categories
(e.g., SP-2 or higher by S&P);
- short-term bank obligations in one of the three highest categories by
any NRSRO (e.g., A-3 or higher by S&P), with respect to obligations maturing
in one year or less;
- bonds or bank obligations rated in one of the four highest rating
categories (e.g., rated BBB- or higher by S&P);
- unrated debt obligations determined by the Adviser to be of comparable
quality; and
- repurchase agreements involving investment-grade debt obligations.
Investment-grade debt obligations are generally believed to have relatively
low degrees of credit risk. However, medium-quality debt obligations, while
considered investment-grade, may have some speculative characteristics, since
their issuers' capacity for repayment may be more vulnerable to adverse
economic conditions or changing circumstances than that of higher-rated
issuers.
All ratings are determined at the time of investment. Any subsequent rating
downgrade of a debt obligation will be monitored by the Adviser to consider
what action, if any, a Portfolio should take consistent with its investment
objective.
HIGH-YIELD (HIGH-RISK) SECURITIES. High-yield (high-risk) securities,
also referred to as "junk bonds," are those securities that are rated lower
than investment-grade and unrated securities of comparable quality. Although
these securities generally offer higher yields than investment-grade
securities with similar maturities, lower-quality securities involve greater
risks, including the possibility of default or bankruptcy. In general, they
are regarded to be predominantly speculative with respect to the issuer's
capacity to pay interest and repay principal. Other potential risks
associated with investing in high-yield securities include:
- substantial market-price volatility resulting from changes in interest
rates, changes in or uncertainty about economic conditions, and changes in the
actual or perceived ability of the issuer to meet its obligations;
- greater sensitivity of highly leveraged issuers to adverse economic
changes and individual-issuer developments;
- subordination to the prior claims of other creditors;
- additional Congressional attempts to restrict the use or limit the tax
and other advantages of these securities; and
- adverse publicity and changing investor perceptions about these
securities.
As with any other asset in a Portfolio's portfolio, any reduction in the value
of such securities as a result of the factors listed above would be reflected
in the net asset value of the Portfolio. In addition, a Portfolio that
invests in lower-quality securities may incur additional expenses to the
extent it is required to seek recovery upon a default in the payment of
principal and interest on its holdings. As a result of the associated risks,
successful investments in high-yield, high-risk securities will be more
dependent on the Adviser's credit analysis than generally would be the case
with investments in investment-grade securities.
The market for high-yield (high-risk) securities initially grew during a
period of economic expansion and has experienced mixed results thereafter. It
is uncertain how the high-yield market will perform during a prolonged period
of rising interest rates. A prolonged economic downturn or a prolonged period
of rising interest rates could adversely affect the market for these
securities, increase their volatility, and reduce their value and liquidity.
In addition, lower-quality securities tend to be less liquid than
higher-quality debt securities because the market for them is not as broad or
active. If market quotations are not available, these securities will be
valued in accordance with procedures established by the Trust's Board of
Trustees. Judgment may, therefore, play a greater role in valuing these
securities. The lack of a liquid secondary market may have an adverse effect
on market price and a Portfolio's ability to sell particular securities.
INVESTMENT POLICIES AND RISKS--ADVANTAGE, SHORT-TERM BOND AND GOVERNMENT
SECURITIES PORTFOLIOS
In addition to the investment policies described above (and subject to certain
restrictions described herein), the Advantage, Short-Term Bond and Government
Securities Portfolios may invest in some or all of the following securities
and may employ some or all of the following investment techniques, some of
which may present special risks as described below. A more complete
discussion of certain of these securities and investment techniques and the
associated risks is contained in the Appendix and the SAI.
DEBT OBLIGATIONS
The Advantage, Short-Term Bond and Government Securities Portfolios may invest
in any debt obligations. A Portfolio's authority to invest in certain types
of debt obligations may be restricted or subject to objective investment
criteria, as described above.
TYPES OF OBLIGATIONS. Debt obligations include (i) corporate debt
securities, including bonds, debentures, and notes; (ii) bank obligations,
such as certificates of deposit, banker's acceptances, and time deposits of
domestic and foreign banks and their subsidiaries and branches, and domestic
savings and loan associations (in amounts in excess of the insurance coverage
(currently $100,000 per account) provided by the Federal Deposit Insurance
Corporation); (iii) commercial paper (including variable-amount master demand
notes); (iv) repurchase agreements; (v) loan interests; (vi) foreign debt
obligations issued by foreign issuers traded either in foreign markets or in
domestic markets through depositary receipts; (vii) convertible
securities--debt obligations of corporations convertible into or exchangeable
for equity securities or debt obligations that carry with them the right to
acquire equity securities, as evidenced by warrants attached to such
securities, or acquired as part of units of the securities; (viii) preferred
stocks--securities that represent an ownership interest in a corporation and
that give the owner a prior claim over common stock on the Company's earnings
or assets; (ix) U.S. government securities; (x) mortgage-backed securities,
collateralized mortgage obligations, and similar securities; and (xi)
municipal obligations.
GOVERNMENT SECURITIES. U.S. government securities are issued or
guaranteed by the U.S. government or its agencies or instrumentalities.
Securities issued by the government include U.S. Treasury obligations, such as
Treasury bills, notes, and bonds. Securities issued or guaranteed by
government agencies or instrumentalities include the following:
- the Federal Housing Administration, Farmers Home Administration,
Export-Import Bank of the United States, Small Business Administration, and
the Government National Mortgage Association, including GNMA pass-through
certificates, whose securities are supported by the full faith and credit of
the United States;
- the Federal Home Loan Banks, Federal Intermediate Credit Banks, and the
Tennessee Valley Authority, whose securities are supported by the right of the
agency to borrow from the U.S. Treasury;
- the Federal National Mortgage Association, whose securities are
supported by the discretionary authority of the U.S. government to purchase
certain obligations of the agency or instrumentality; and
- the Student Loan Marketing Association, the Interamerican Development
Bank, and International Bank for Reconstruction and Development, whose
securities are supported only by the credit of such agencies.
Although the U.S. government provides financial support to such U.S.
government-sponsored agencies or instrumentalities, no assurance can be given
that it will always do so. The U.S. government and its agencies and
instrumentalities do not guarantee the market value of their securities;
consequently, the value of such securities will fluctuate.
MORTGAGE- AND ASSET-BACKED SECURITIES. Mortgage-backed securities
represent direct or indirect participation in, or are secured by and payable
from, mortgage loans secured by real property, and include single- and
multi-class pass-through securities and collateralized mortgage obligations.
Such securities may be issued or guaranteed by U.S. government agencies or
instrumentalities or by private issuers, generally originators in mortgage
loans, including savings associations, mortgage bankers, commercial banks,
investment bankers, and special purpose entities (collectively, "private
lenders"). Mortgage-backed securities issued by private lenders may be
supported by pools of mortgage loans or other mortgage-backed securities that
are guaranteed, directly or indirectly, by the U.S. government or one of its
agencies or instrumentalities, or they may be issued without any governmental
guarantee of the underlying mortgage assets but with some form of
non-governmental credit enhancement.
Asset-backed securities have structural characteristics similar to
mortgage-backed securities. However, the underlying assets are not first lien
mortgage loans or interests therein; rather they include assets such as motor
vehicle installment sales contracts, other installment loan contracts, home
equity loans, leases of various type of property and receivables from credit
card or other revolving credit arrangements. Payments or distributions of
principal and interest on asset-backed securities may be supported by
non-governmental credit enhancements similar to those utilized in connection
with mortgage-backed securities. (See "Appendix.")
The yield characteristics of mortgage- and asset-backed securities differ from
those of traditional debt obligations. Among the principal differences are
that interest and principal payments are made more frequently on mortgage- and
asset-backed securities, usually monthly, and that principal may be prepaid at
any time because the underlying mortgage loans or other assets generally may
be prepaid at any time. As a result, if a Portfolio purchases these
securities at a premium, a prepayment rate that is faster than expected will
reduce yield to maturity, while a prepayment rate that is slower than expected
will have the opposite effect of increasing the yield to maturity. Conversely,
if a Portfolio purchases these securities at a discount, a prepayment rate
that is faster than expected will increase yield to maturity, while a
prepayment rate that is slower than expected will reduce yield to maturity.
Accelerated prepayments on securities purchased by a Portfolio at a premium
also impose a risk of loss of principal because the premium may not have been
fully amortized at the time the principal is prepaid in full. The market for
privately issued mortgage- and asset-backed securities is smaller and less
liquid than the market for government sponsored mortgage-backed securities.
LOAN INTERESTS. The Advantage and Short-Term Bond Portfolios may each
invest a portion of their assets in loan interests, which are interests in
amounts owned by a corporate, governmental or other borrower to lenders or
lending syndicates. Loan interests purchased by a Portfolio may have a
maturity of any number of days or years and may be secured or unsecured. Loan
interests, which may take the form of participation interests in, assignments
of, or novations of a loan, may be acquired from U.S. and foreign banks,
insurance companies, finance companies or other financial institutions that
have made loans or are members of a lending syndicate or from the holders of
loan interests. Loan interests involve the risk of loss in case of default or
bankruptcy of the borrower and, in the case of participation interests,
involve a risk of insolvency of the agent lending bank or other financial
intermediary. Loan interests are not rated by any NRSROs and are, at present,
not readily marketable and may be subject to contractual restrictions on
resale.
FOREIGN SECURITIES AND CURRENCIES
The Advantage and Short-Term Bond Portfolios each may invest up to 25% of
their total assets directly in foreign securities. The Advantage and
Short-Term Bond Portfolios may also invest in foreign securities through
depositary receipts without regard to this limitation. However, the Adviser
currently intends to invest not more than 25% of a Portfolio's total assets in
foreign securities, including both direct investments and investments made
through depositary receipts. Depositary receipts are generally issued by
banks or trust companies and evidence ownership of underlying foreign
securities. (See "Appendix--Foreign Investments" and the SAI for a discussion
of the risks involved in foreign investing.)
Foreign investments involve special risks, including:
- expropriation, confiscatory taxation, and withholding taxes on
dividends and interest;
- less extensive regulation of foreign brokers, securities markets, and
issuers;
- less publicly available information and different accounting standards;
- costs incurred in conversions between currencies, possible delays in
settlement in foreign securities markets, limitations on the use or transfer
of assets (including suspension of the ability to transfer currency from a
given country), and difficulty of enforcing obligations in other countries;
and
- diplomatic developments and political or social instability.
Foreign economies may differ favorably or unfavorably from the U.S. economy in
various respects, including growth of gross domestic product, rates of
inflation, currency depreciation, capital reinvestment, resource
self-sufficiency, and balance of payments positions. Many foreign securities
are less liquid and their prices more volatile than comparable U.S.
securities. Although the Portfolios generally invest only in securities that
are regularly traded on recognized exchanges or in over-the-counter markets,
from time to time foreign securities may be difficult to liquidate rapidly
without adverse price effects. Certain costs attributable to foreign
investing, such as custody charges and brokerage costs, are higher than those
attributable to domestic investing. Because most foreign securities are
denominated in non-U.S. currencies, the investment performance of the
Advantage and Short-Term Bond Portfolios could to a certain extent be
significantly affected by changes in foreign currency exchange rates. The
value of a Portfolio's assets denominated in foreign currencies will increase
or decrease in response to fluctuations in the value of those foreign
currencies relative to the U.S. dollar. Currency exchange rates can be
volatile at times in response to supply and demand in the currency exchange
markets, international balances of payments, governmental intervention,
speculation, and other political and economic conditions.
The Advantage and Short-Term Bond Portfolios may purchase and sell foreign
currency on a spot basis and may engage in forward currency contracts,
currency options, and futures transactions for hedging or any other lawful
purpose. (See "Derivative Instruments.")
REPURCHASE AGREEMENTS
Each of the Advantage, Short-Term Bond and Government Securities Portfolios
may enter into repurchase agreements with certain banks and non-bank dealers.
(See "Appendix--Repurchase Agreements.") Each Portfolio will not invest more
than 10% of its net assets in repurchase agreements maturing in more than
seven days. (See "Illiquid Securities" below.)
DERIVATIVE INSTRUMENTS
The Advantage, Short-Term Bond and Government Securities Portfolios may use
derivative instruments for any lawful purpose, including hedging, risk
management, or enhancing returns, but not for speculation. Derivative
instruments are securities or agreements whose value is derived from the value
of some underlying asset, for example, securities, reference indexes, or
commodities. Options, futures, and options on futures transactions are
considered derivative transactions. Derivatives generally have investment
characteristics that are based upon either forward contracts (under which one
party is obligated to buy and the other party is obligated to sell an
underlying asset at a specific price on a specified date) or option contracts
(under which the holder of the option has the right but not the obligation to
buy or sell an underlying asset at a specified price on or before a specified
date). Consequently, the change in value of a forward-based derivative
generally is roughly proportional to the change in value of the underlying
asset. In contrast, the buyer of an option-based derivative generally will
benefit from favorable movements in the price of the underlying asset but is
not exposed to corresponding losses due to adverse movements in the value of
the underlying asset. The seller of an option-based derivative generally will
receive fees or premiums but generally is exposed to losses due to changes in
the value of the underlying asset. Derivative transactions may include
elements of leverage and, accordingly, the fluctuation of the value of the
derivative transaction in relation to the underlying asset may be magnified.
In addition to options, futures, and options on futures transactions,
derivative transactions may include short sales against the box, in which a
Portfolio sells a security it owns for delivery at a future date; swaps in
which the two parties agree to exchange a series of cash flows in the future,
such as interest-rate payments; interest-rate caps, under which, in return for
a premium, one party agrees to make payments to the other to the extent that
interest rates exceed a specified rate, or "cap"; and interest-rate floors,
under which, in return for a premium, one party agrees to make payments to the
other to the extent that interest rates fall below a specified level, or
"floor." Derivative transactions may also include forward currency contracts
and foreign currency exchange-related securities. (See "Appendix" and the SAI
for further information with respect to these investments and transactions.)
In connection with its futures and options on futures transactions, the
Advantage, Short-Term Bond and Government Securities Portfolios are subject to
certain restrictions on such transactions under the Commodity Exchange Act
and, accordingly, a Portfolio will use futures and options on futures
transactions solely for bona fide hedging transactions (within the meaning of
the Commodity Exchange Act). However, each Portfolio may, in addition to bona
fide hedging transactions, use futures and options on futures transactions if
the aggregate initial margin and premiums required to establish such
positions, less the amount by which any such options positions are in the
money (within the meaning of the Commodity Exchange Act), do not exceed 5% of
the Portfolio's net assets. In addition, the Portfolios follow certain other
restrictions concerning their options, futures, and options on futures
transactions and, accordingly, (i) the aggregate value of securities that
underlie call options on securities written by a Portfolio or obligations that
underlie put options on securities written by a Portfolio, determined as of
the date the options are written, will not exceed 50% of a Portfolio's net
assets; (ii) the aggregate premiums paid on all options purchased by a
Portfolio and which are being held will not exceed 20% of a Portfolio's net
assets; (iii) a Portfolio will not purchase put or call options, other than
hedging positions, if, as a result thereof, more than 5% of its total assets
would be so invested; and (iv) the aggregate margin deposits required on all
futures and options on futures transactions being held will not exceed 5% of a
Portfolio's total assets.
WHEN-ISSUED SECURITIES
Each of the Advantage, Short-Term Bond and Government Securities Portfolios
may invest without limitation in securities purchased on a when-issued or
delayed delivery basis. (See "Appendix--When Issued Securities and Delayed
Delivery Transactions.")
ILLIQUID SECURITIES
The Advantage, Short-Term Bond and Government Securities Portfolios may each
invest up to 10% of their net assets in illiquid securities. (See
"Appendix--Illiquid Securities"). Illiquid securities are those securities
that are not readily marketable, including restricted securities and
repurchase obligations maturing in more than seven days. Certain restricted
securities which may be resold to institutional investors under Rule 144A
under the Securities Act of 1933 and Section 4(2) commercial paper, may be
determined to be liquid under guidelines adopted by the Board of Trustees of
the Trust.
ZERO-COUPON, STEP-COUPON, AND PAY-IN-KIND SECURITIES
The Advantage, Short-Term Bond and Government Securities Portfolios may invest
without limitation in zero-coupon, step-coupon, and pay-in-kind securities.
These securities are debt securities that do not make regular cash interest
payments. Zero-coupon and step-coupon securities are sold at a deep discount
to their face value. Pay-in-kind securities pay interest through the issuance
of additional securities. Because such securities do not pay current cash
income, the price of these securities can be volatile when interest rates
fluctuate. While these securities do not pay current cash income, federal
income tax law requires the holders of zero-coupon, step-coupon, and
pay-in-kind securities to include in income each year the portion of the
original issue discount (or deemed discount and other non-cash income) on such
securities accruing that year. In order to continue to qualify for treatment
as a "regulated investment company" under the Internal Revenue Code and avoid
a certain excise tax, each Portfolio may be required to distribute a portion
of such discount and income and may be required to dispose of other portfolio
securities, which may occur in periods of adverse market prices, in order to
generate cash to meet these distribution requirements.
MORTGAGE DOLLAR ROLLS AND REVERSE REPURCHASE AGREEMENTS
The Advantage, Short-Term Bond and Government Securities Portfolios may engage
in reverse repurchase agreements to facilitate portfolio liquidity, a practice
common in the mutual fund industry or for arbitrage transactions discussed
below. In a reverse repurchase agreement, the Portfolio would sell a security
and enter into an agreement to repurchase the security at a specified future
date and price. The Portfolio generally retains the right to interest and
principal payments on the security. Since the Portfolio receives cash upon
entering into a reverse repurchase agreement, it may be considered a
borrowing. When required by SEC guidelines, a Portfolio will set aside
permissible liquid assets in a segregated account to secure its obligation to
repurchase the security.
Each of the Advantage, Short-Term Bond and Government Securities Portfolios
may also enter into mortgage dollar rolls, in which the Portfolio would sell
mortgage-backed securities for delivery in the current month and
simultaneously contract to purchase substantially similar securities on a
specified future date. While a Portfolio would forego principal and interest
paid on the mortgage-backed securities during the roll period, the Portfolio
would be compensated by the difference between the current sales price and the
lower price for the future purchase as well as by any interest earned on the
proceeds of the initial sale. The Portfolio also could be compensated through
the receipt of fee income equivalent to a lower forward price. When required
by SEC guidelines, a Portfolio would set aside permissible liquid assets in a
segregated account to secure its obligation for the forward commitment to buy
mortgage-backed securities. Mortgage dollar roll transactions may be
considered a borrowing by the Portfolios. (See "Appendix--Dollar Roll
Transactions and Reverse Repurchase Agreements.")
The mortgage dollar rolls and reverse repurchase agreements entered into by
the Portfolios may be used as arbitrage transactions in which a Portfolio will
maintain an offsetting position in investment-grade debt obligations or
repurchase agreements that mature on or before the settlement date of the
related mortgage dollar roll or reverse repurchase agreement. Since a
Portfolio will receive interest on the securities or repurchase agreements in
which it invests the transaction proceeds, such transactions may involve
leverage. Such securities or repurchase agreements will be high quality and
will mature on or before the settlement date of the mortgage dollar roll or
reverse repurchase agreement.
PORTFOLIO TURNOVER
The annual portfolio turnover rate indicates changes in a Portfolio's
investments and may also be affected by sales of portfolio securities
necessary to meet cash requirements for redemption of shares. The turnover
rate may vary from year to year, as well as within a year. High turnover in
any year will result in the payment by a Portfolio of above average amounts of
transaction costs. The annual portfolio turnover rates for the Advantage,
Short-Term Bond and Government Securities Portfolios are expected to be
between 200% and 300%. (See "Portfolio Turnover" in the SAI.) However, each
Portfolio's portfolio turnover rate may exceed 300% when the Adviser believes
the anticipated benefits of short-term investments outweigh any increase in
transaction costs or increase in capital gains. These rates should not be
considered as limiting factors. The portfolio turnover rates of the
Advantage, Short-Term Bond and Government Securities Portfolios for the period
ended December 31, 1995 are set forth herein under "Financial Highlights."
MONEY MARKET PORTFOLIO
The investment objective of the Money Market Portfolio is to obtain the
maximum current income, consistent with the preservation of capital and the
maintenance of liquidity. It will seek to achieve this objective by investing
exclusively in the following U.S. dollar-denominated money market instruments
having remaining maturities of 397 days or less (as determined by regulations
of the Securities and Exchange Commission (the "Commission") which meet the
Portfolio's quality requirements set forth below:
(1) securities issued or guaranteed as to principal and interest by the
United States Government or by agencies or instrumentalities thereof ("U.S.
Government Securities");
(2) obligations issued or guaranteed by United States banks with total
assets of at least $1 billion (including obligations of foreign branches of
such banks), by United States savings and loan associations or savings banks
with total assets of at least $1 billion and by the 100 largest foreign
commercial banks in terms of total assets;
(3) high quality commercial paper and other high quality short-term
obligations, including variable amount master demand notes and mortgage-backed
and receivable-backed bonds, notes or pass-through certificates, of United
States entities or of foreign corporations and foreign commercial banks issued
in the United States;
(4) obligations of the International Bank for Reconstruction and
Development, other supranational organizations and foreign governments and
their agencies and instrumentalities; and
(5) repurchase agreements pertaining thereto.
INVESTMENT POLICIES AND RISKS--MONEY MARKET PORTFOLIO
The Portfolio will purchase only U.S. dollar-denominated money market
instruments which are "Eligible Securities" (as defined by the Commission) and
which present minimal credit risks as determined by the Portfolio's Adviser
pursuant to guidelines approved and reviewed by the Trust's Board of Trustees
(the "Trustees"). Eligible Securities consist of (i) securities that either
(a) have short-term debt ratings at the time of purchase within the two
highest rating categories assigned by at least two unaffiliated NRSROs (or one
NRSRO if the security was rated by only one NRSRO), or (b) are issued by
issuers with such ratings, and (ii) certain securities that are unrated
(including securities of issuers that have a long-term but not short-term
ratings) but are of comparable quality as determined by the Adviser pursuant
to guidelines approved and reviewed by the Trustees. See the SAI for a
description of applicable NRSRO ratings. Eligible Securities must have
remaining maturities of 397 days or less as determined in accordance with the
rules of the Commission.
UNITED STATES GOVERNMENT SECURITIES. United States Treasury bills, notes
and bonds, all of which are supported by the full faith and credit of the
United States, constitute the principal type of U.S. Government Securities
invested in by the Portfolio. The Portfolio may also invest in separately
traded interest components of securities issued or guaranteed by the United
States Treasury. The Portfolio also invests in instruments issued by United
States Government agencies and instrumentalities which are supported by (a)
the full faith and credit of the United States Treasury, (b) the limited
authority of the issuer to borrow from the United States Treasury, (c) the
authority of the United States Government to purchase certain obligations of
the issuer, or (d) only the credit of the issuer. The United States
Government is not obligated by law to provide financial support to its
agencies and instrumentalities as described in clause (b), (c) or (d) in the
future, other than as set forth above.
OBLIGATIONS OF FINANCIAL INSTITUTIONS. The Portfolio may also invest in
obligations issued or guaranteed by United States banks with total assets of
at least $1 billion (including obligations issued by foreign branches of such
banks), by United States savings and loan associations or savings banks with
total assets of at least $1 billion and by the 100 largest foreign commercial
banks in terms of total assets. Such obligations include certificates of
deposit, commercial paper, bankers' acceptances and fixed time deposits. Bank
obligations may be general obligations of the parent bank or may be limited to
the issuing branch by the terms of the specific obligations or by government
regulation.
Foreign obligations (including obligations of foreign branches of United
States banks) may involve considerations different from investments in
domestic obligations of domestic issuers, due to the possible adoption of
foreign governmental restrictions affecting the payment of principal and
interest; the possible imposition of withholding or confiscatory taxes;
expropriation; limited publicly available information; non-
uniform accounting standards, and the fact that it may be more difficult to
obtain and enforce a judgment against a foreign issuer or a foreign branch of
a domestic bank. In addition, foreign banks are not subject to examination by
any United States Government agency or instrumentality. (See
"Appendix--Foreign Investments" and the SAI for a discussion of the risks
involved in foreign investing.)
COMMERCIAL PAPER AND OTHER SHORT-TERM OBLIGATIONS. The commercial paper
and other short-term obligations purchased by the Portfolio, other than those
of bank holding companies, consist of direct obligations of domestic corporate
issuers. The commercial paper and other short-term obligations of United
States bank holding companies purchased by the Portfolio include obligations
issued or guaranteed by bank holding companies with total assets of at least
$1 billion. Commercial paper that is exempt from the Securities Act of 1933
("1933 Act") by virtue of Section 4(2) of such Act may be regarded as
illiquid. A variable amount master demand note differs from ordinary
commercial paper in that it is issued pursuant to a written agreement between
the issuer and the holder, its amount may from time to time be increased by
the holder (subject to an agreed maximum) or decreased by the holder or the
issuer, it is payable on demand, the rate of interest payable on it varies
with an agreed-upon formula and it is not typically rated by a rating agency.
Variable amount master demand notes purchased by the Portfolio will be
regarded as illiquid.
The "other short-term obligations" referred to above in which the Portfolio
may invest include participations in corporate loans. Such loans must be to
corporations in whose commercial paper or other short-term obligations the
Portfolio may invest as described in the preceding paragraph. Any
participation purchased by the Portfolio must be issued by one of the 100
largest banks in the United States. Because the issuing bank does not
guarantee the participation in any way, it is subject to the credit risks
generally associated with the underlying corporate borrower. The secondary
market, if any, for these loan participations is limited and any such
participation purchased by the Portfolio may be regarded as illiquid.
Other short-term obligations" also include participation in, or bonds and
notes backed by, pools of mortgage, credit card, automobile or other types of
receivables. These structured financings will be supported by sufficient
collateral and other credit enhancement, including letters of credit, reserve
funds and guarantees by third parties, to enable such instruments to qualify
as Eligible Securities. The Portfolio will only invest in asset-backed
securities with remaining stated maturities of 397 days or less. Instruments
backed by pools of mortgages and receivables are subject to unscheduled
prepayments of principal prior to maturity. The Portfolio may be adversely
affected by such prepayments to the extent that prepayments of principal must
be reinvested in securities which may have lower yields than the prepaid
obligations. Moreover, prepayments of securities purchased at a premium could
result in a realized loss.
SECURITIES OF THE WORLD BANK, OTHER SUPRANATIONAL ORGANIZATIONS AND
FOREIGN GOVERNMENTS. Obligations of the International Bank for Reconstruction
and Development (also known as the World Bank) and certain other supranational
organizations are supported by subscribed but unpaid commitments of member
countries. There is no assurance that these commitments will be undertaken or
complied with in the future. The Portfolio limits its investments in United
States dollar-denominated obligations of foreign governments and their
agencies and instrumentalities to the commercial paper and other short-term
notes issued or guaranteed by the governments, or agencies and
instrumentalities thereof, that are members of the OECD (Organization for
Economic Co-Operation and Development) and those Latin American countries
whose sovereign issuances qualify as Eligible Securities.
REPURCHASE AGREEMENTS. The Portfolio may invest in repurchase agreements
collateralized by any of the types of securities listed above for the purpose
of realizing additional income. A repurchase agreement is an agreement under
which the Portfolio purchases securities and the seller (a bank or securities
dealer) agrees to repurchase the securities within a particular time at a
specified price. (See "Appendix--Repurchase Agreements.")
REVERSE REPURCHASE AGREEMENTS. The Portfolio may enter into reverse
repurchase agreements, under which the Portfolio temporarily transfers
possession of a portfolio security or securities to another party, such as a
bank or broker dealer in return for cash in an amount equal to a percentage of
the portfolio securities' market value, and agrees to repurchase the
securities at a future date. The difference between the amount the Portfolio
receives for the securities and the amount it pays on repurchase is deemed to
be a payment of interest. The Portfolio will use reverse repurchase
agreements as a temporary measure to facilitate redemptions, where liquidation
of portfolio securities is considered disadvantageous or inconvenient. The
Portfolio's use of reverse repurchase agreements may increase the volatility
of its net asset value per share and could also reduce net income (if interest
costs exceed income on the invested proceeds). The Portfolio will not enter
into reverse repurchase agreements in an amount which, when combined with all
other borrowings by the Portfolio, would exceed 33 1/3% of the Portfolio's
total assets, provided that it will not purchase additional investments if
borrowings and reverse repurchase agreements together exceed 5% of the value
of its total assets. In determining whether to enter into a reverse
repurchase agreement with a counterparty, the Adviser will take into account
the creditworthiness of such party. At all times that a reverse repurchase
agreement is outstanding, the Portfolio will maintain cash, liquid high grade
debt obligations, or U.S. Government securities, as the case may be, in a
segregated account at its custodian with a value at least equal to its
obligations under the agreement. In the event the buyer of securities under a
reverse repurchase agreement files for bankruptcy or becomes insolvent, the
Portfolio's use of proceeds from the agreement may be restricted pending a
determination by the other party or its trustee or receiver whether to enforce
the Portfolio's obligation to repurchase the securities. The Portfolio's use
of reverse repurchase agreements may increase the volatility of the
Portfolio's net asset value per share. (See "Appendix--Reverse Repurchase
Agreements.")
MANAGEMENT POLICIES. The Portfolio may seek to increase its income by
lending portfolio securities. The Portfolio may also purchase or acquire
"stand-by commitments," "unconditional puts" or "demand features" with respect
to money market investments held in its portfolio. The Portfolio may purchase
portfolio securities in when-issued or delayed delivery transactions. The
Portfolio may invest up to 10% of its assets in securities which are illiquid.
(See "Appendix" for a description of the investments described above.)
In accordance with Rule 2a-7 under the Investment Company Act of 1940, as
amended ("1940 Act"), the Portfolio may not invest more than 5% of its total
assets in securities issued by or subject to puts from any one issuer (except
U.S. Government Securities and repurchase agreements collateralized by such
securities), except that a single investment may exceed such limit if such
security (i) is rated in the highest rating category by the requisite number
of NRSROs or, if unrated, is determined to be of comparable quality and (ii)
is held for not more than three business days. In addition, the Portfolio may
not invest more than 5% of its total assets in securities of issuers not in
the highest rating category as determined by the requisite number of NRSROs
or, if unrated, of comparable quality, with investment in any one such issuer
being limited to not more than 1% of such total assets or $1 million,
whichever is greater. For a description of each NRSRO's rating categories,
see the SAI.
The Portfolio may invest in securities issued by other money market investment
companies. Other investment companies in which the Portfolio may invest
include those for which the Adviser, or any of its affiliates, serves as
investment adviser. Any investments in other investment companies are subject
to applicable limitations under the 1940 Act. (See "Appendix--Investment
Companies"). Such other investment companies will have investment objectives,
policies and restrictions substantially similar to those of the Portfolio and
will be subject to substantially the same risks. In determining whether to
invest Portfolio assets in other investment companies, the Adviser will take
into consideration, among other factors, the advisory fee payable by such
other investment companies.
MORTGAGE-BACKED SECURITIES PORTFOLIO
The investment objective of the Mortgage-Backed Securities Portfolio is to
obtain a high current return, consistent with safety of principal, primarily
through investments in mortgage-backed securities. The Portfolio is
classified as a diversified investment company. Mortgage-Backed Securities
represent interests in, or are secured by and payable from, pools of mortgage
loans, including collateralized mortgage obligations ("CMOs").
Mortgage-Backed Securities may be U.S. Government Mortgage-Backed Securities,
which are issued or guaranteed by a U.S. Government agency or instrumentality
(though not necessarily backed by the full faith and credit of the United
States), such as Government National Mortgage Association ("GNMA"), Federal
National Mortgage Association ("FNMA"), and Federal Home Loan Mortgage
Corporation ("FHLMC") certificates. Other Mortgage-Backed Securities are
issued by private issuers, generally originators of and investors in mortgage
loans, including savings associations, mortgage bankers, commercial banks,
investment bankers, and special purpose entities. These private
Mortgage-Backed Securities may be supported by U.S. Government Mortgage-Backed
Securities or some form of non-government credit enhancement.
INVESTMENT POLICIES AND RISKS--MORTGAGE-BACKED SECURITIES PORTFOLIO
MORTGAGE-RELATED SECURITIES ISSUED BY U.S. GOVERNMENT AGENCIES AND
INSTRUMENTALITIES. The mortgages backing mortgage-related securities include
conventional thirty-year fixed rate mortgages, fifteen-year fixed rate
mortgages, 5 or 7 year balloon payment fixed rate mortgages, graduated payment
mortgages and adjustable rate mortgages. The U.S. government or the issuing
agency guarantees the payment of interest and principal of these securities.
However, the guarantees do not extend to the securities' yield or value, which
are likely to vary inversely with fluctuations in interest rates, nor do the
guarantees extend to the yield or value of the Portfolio's shares. See
"Appendix--Mortgage-Backed Securities." These certificates are in most cases
"pass-through" instruments, through which the holder receives a share of all
interest and principal payments from the mortgages underlying the certificate,
net of certain fees. Because the prepayment characteristics of the underlying
mortgages vary, it is not possible to predict accurately the average life or
realized yield of a particular issue of pass-through certificates.
Mortgage-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 mortgage obligations. For example,
securities backed by mortgages with thirty-year maturities are customarily
treated as having average lives of less than 10 years based on expected
prepayments and securities backed by mortgages with fifteen-year maturities
are treated as having average lives of less than 7 years.
While the timing of prepayments of graduated payment mortgages differs
somewhat from that of conventional mortgages, the prepayment experience of
graduated payment mortgages is basically the same as that of the conventional
mortgages of the same maturity dates over the life of the pool. During
periods of declining interest rates, prepayment of mortgages underlying
mortgage-backed securities can be expected to accelerate. When the mortgage
obligations are prepaid, the Portfolio reinvests the prepaid amounts in
securities, the yields of which reflect interest rates prevailing at the time.
Therefore, the Portfolio's ability to maintain a portfolio of high-yielding
mortgage-backed securities will be adversely affected to the extent that
prepayments of mortgages must be reinvested in securities which have lower
yields than the prepaid mortgages. Moreover, prepayments of mortgages which
underlie securities purchased at a premium could result in capital losses.
The principal and interest on GNMA pass-through securities are guaranteed by
GNMA and backed by the full faith and credit of the U.S. Government. FNMA
guarantees full and timely payment of all interest and principal, while FHLMC
guarantees timely payment of interest and ultimate collection of principal of
its pass-through securities. Securities from FNMA and FHLMC are not backed by
the full faith and credit of the United States; however, they are generally
considered to offer minimal credit risks. The yields provided by these
mortgage-related securities historically have exceeded the yields on other
types of U.S. Government securities with comparable maturities, in large
measure due to the risks associated with prepayment, which include, but are
not limited to: (i) reinvestment risk, to the extent that prepayments of
principal must be reinvested in securities which may have lower yields than
the prepaid mortgages and (ii) risk of capital loss resulting from prepayments
of mortgages which underlie securities purchased at a premium.
Adjustable rate mortgage securities ("ARMs") are a form of pass-through
security representing interests in pools of mortgage loans whose interest
rates are adjusted from time to time. The adjustments usually are determined
in accordance with a predetermined interest rate index and may be subject to
certain limits. The adjustment feature of ARMs tends to make their value less
sensitive to interest rate changes.
CMOs are derivative mortgage-related securities that separate mortgage pools
into different components called classes or "tranches." Each class of a CMO is
issued at a specific fixed or floating coupon rate and has a stated maturity
or final distribution date. Principal prepayments on the collateral pool may
cause the CMOs to be retired substantially earlier than their stated
maturities or final distribution dates. The principal of and interest on the
collateral pool may be allocated among the several classes of a CMO in a
number of different ways. Generally, the purpose of the allocation of the
cash flow of a CMO to the various classes is to obtain a more predictable cash
flow to some of the individual tranches than exists with the underlying
collateral of the CMO. As a general rule, the more predictable the cash flow
is on a CMO tranche, the lower the anticipated yield will be on that tranche
at the time of issuance relative to prevailing market yields on
mortgage-related securities. Certain classes of CMOs may have priority over
others with respect to the receipt of prepayments on the mortgages.
PRIVATELY ISSUED MORTGAGE-RELATED SECURITIES. Mortgage-related
securities offered by private issuers include pass-through securities for
pools of conventional residential mortgage loans; Mortgage-Backed Bonds which
are considered to be obligations of the institution issuing the bonds and are
collateralized by mortgage loans; and bonds and CMOs, including regular
interests in Real Estate Mortgage Investment Conduits ("REMICs"), which are
collateralized by mortgage-related securities issued by GNMA, FNMA, FHLMC or
by pools of conventional mortgages.
Mortgage-related securities created by private issuers generally offer a
higher rate of interest (and greater credit and interest rate risk) than those
issued by U.S. Government agencies and instrumentalities because they offer no
direct or indirect government guarantees of payments. However, many issuers
or servicers of mortgage-related securities guarantee, or provide insurance
for, timely payment of interest and principal on such securities.
U.S. TREASURY SECURITIES. The Portfolio will also invest in U.S.
Treasury securities, including Bills, Notes, Bonds and other debt securities
issued by the U.S. Treasury. These instruments are direct obligations of the
U.S. government and, as such are backed by the full faith and credit of the
United States Government. They differ primarily in their interest rates, the
lengths of their maturities and the dates of their issuances.
SECURITIES ISSUED OR GUARANTEED BY U.S. GOVERNMENT AGENCIES AND
INSTRUMENTALITIES. The Portfolio will invest in securities issued by agencies
of the U.S. Government or instrumentalities established or sponsored by the
U.S. Government. These obligations, including those which are guaranteed by
Federal agencies or instrumentalities, may or may not be backed by the full
faith and credit of the United States. GNMA obligations are backed by the
full faith and credit of the United States. In the case of securities not
backed by the full faith and credit of the United States, the Portfolio must
look principally to the agency issuing or guaranteeing the obligation for
ultimate repayment and may not be able to assert a claim against the United
States if the agency or instrumentality does not meet its commitments.
Securities in which the Portfolio may invest which are not backed by the full
faith and credit of the United States Government include obligations such as
those issued by FNMA and FHLMC, each of which has the right to borrow from the
United States Treasury to meet its obligations, and obligations under the
Federal Home Loan Bank, the obligations of which may only be satisfied by the
individual credit of the issuing agency. FHLMC and FNMA investments may
include collateralized mortgage obligations.
ADDITIONAL INVESTMENTS. The Portfolio may invest in other fixed income
securities. The Portfolio may invest up to 10% of its total assets in zero
coupon U.S. Government Securities. The Portfolio may invest in repurchase
agreements collateralized by any of the types of securities described above
for the purpose of realizing additional income. The Portfolio may lend its
portfolio securities to banks, brokers, dealers and other financial
institutions that need to borrow securities in order to complete certain
transactions, such as covering short sales, avoiding failures to deliver
securities or completing arbitrage operations. The Portfolio may also lend
its Portfolio securities to increase its income. The Portfolio may purchase
or sell U.S. Government securities (including GNMA, FNMA and FHLMC
Certificates) on a when issued or delayed delivery basis. The Portfolio may
purchase and write put and call options on debt securities and purchase and
sell interest rate futures and related options. The Portfolio may purchase
and sell financial futures contracts and options thereon for certain hedging,
portfolio risk management or yield enhancement purposes. In order to protect
the value of the Portfolio's investments from interest rate fluctuations, the
Portfolio may enter into various hedging transactions, such as interest rate
swaps, and mortgage swaps and the purchase or sale of interest rate caps,
floors and collars.
The Portfolio may enter into reverse repurchase agreements with banks or
broker-dealers, under which the Portfolio sells securities and agrees to
repurchase them at an agreed upon time and at an agreed upon price. The
Portfolio may enter into mortgage "dollar roll" transactions with selected
banks and broker-dealers. The Portfolio will use both reverse repurchase
agreements and dollar roll transactions as sources of funds on a short-term
basis as a means of providing liquidity for redemptions, as well as for
purposes of seeking to enhance income through leverage. This use of leverage
tends to increase the volatility of the Portfolio's net asset value per share
and could also reduce net income (if income costs exceed income on the
invested proceeds). The Portfolio has determined not to use reverse
repurchase agreements or dollar roll transactions in an amount which, when
combined with all other borrowings by the Portfolio, would exceed 33 1/3% of
the Portfolio's total assets; however, the Portfolio may enter into covered
rolls, which do not involve the use of leverage, without regard to such
limitation. (See "Appendix" for a description of each of these investments
and techniques.)
The Portfolio may adjust its portfolio as it deems advisable in view of
prevailing or anticipated market conditions to accomplish the Portfolio's
investment objective. For example, the Portfolio may sell portfolio
securities in anticipation of a movement in interest rates. Frequency of
portfolio turnover will not be a limiting factor if the Portfolio considers it
advantageous to purchase or sell securities. The Adviser anticipates that the
Portfolio's portfolio turnover generally will not exceed 300%. (See
"Portfolio Turnover" in the SAI.) A higher rate of portfolio turnover may
result in correspondingly higher portfolio transaction costs which would have
to be borne directly by the Trust and ultimately by the shareholders. The
portfolio turnover rate of the Portfolio for the period ended December 31,
1995 is set forth herein under "Financial Highlights."
PORTFOLIOS SEEKING CAPITAL GROWTH
INTERNATIONAL STOCK PORTFOLIO
The International Stock Portfolio seeks capital growth. The Portfolio
invests primarily in the equity securities of issuers located outside the
United States.
The Portfolio will invest at least 65% of its total assets in foreign
equity securities, including common stocks, preferred stocks, and securities
that are convertible into common or preferred stocks, such as warrants and
convertible bonds, that are issued by companies whose principal headquarters
are located outside the United States.
Under normal market conditions, the Portfolio expects to invest at least
90% of its total assets in foreign equity securities. The Portfolio may,
however, invest up to 35% of its total assets in equity securities of U.S.
issuers or debt obligations, including intermediate- to long-term debt
obligations of U.S. issuers or foreign-government entities. (See
"Implementation of Policies and Risks--Debt Securities"). When the
Sub-Adviser determines that market conditions warrant a temporary defensive
position, the Portfolio may invest without limitation in cash (U.S. dollars,
foreign currencies, or multicurrency units) and short-term fixed-income
securities. Although the debt obligations in which it invests will be
primarily investment-grade, the Portfolio may invest up to 5% of its total
assets in non-investment grade debt obligations. (See "Appendix--Lower-Rated
Securities" and the SAI for a discussion of the risks involved in investing in
lower-rated securities.)
The Portfolio will normally invest in securities of issuers located in at
least three different countries. The Sub-Adviser expects that the majority of
the Portfolio's investments will be in issuers in the following markets:
Argentina, Australia, Brazil, Chile, Cambodia, the Czech Republic, France,
Germany, Hong Kong, Hungary, India, Indonesia, Italy, Japan, Malaysia, Mexico,
the Netherlands, New Zealand, Norway, Peru, the Philippines, Poland, Russia,
Singapore, South Africa, South Korea, Spain, Sweden, Switzerland, Taiwan, the
United Kingdom and Vietnam. The Portfolio will also invest in other European,
Pacific Rim, and Latin American markets.
As market and global conditions change, the Portfolio will change its
allocations among the countries of the world, and nothing herein will limit
the Portfolio's ability to invest in or avoid any particular countries or
regions. In allocating the Portfolio's assets among various countries, the
Sub-Adviser will seek economic and market environments favorable for capital
appreciation and, with respect to developing countries, economic, political,
and stock-market environments that show signs of stabilizing or improving.
Please see "Implementation of Policies and Risks--International Stock
Portfolio--Foreign Securities and Currencies" for a discussion of the special
risks involved in investing in foreign securities.
In analyzing foreign companies for investment, the Sub-Adviser will
ordinarily look for one or more of the following characteristics in relation
to the company's prevailing stock price:
- prospects for above-average sales and earnings growth and high return
on invested capital;
- overall financial strength, including sound financial and accounting
policies and a strong balance sheet;
- significant competitive advantages, including innovative products and
efficient service;
- effective research, product development, and marketing;
- pricing flexibility;
- stable, capable management; and
- other general operating characteristics that will enable the company to
compete successfully in its marketplace.
INVESTMENT POLICIES AND RISKS--INTERNATIONAL STOCK PORTFOLIO
FOREIGN SECURITIES AND CURRENCIES. The International Stock Portfolio may
invest in foreign securities, either directly or indirectly through the use of
depositary receipts. (See "Appendix--American Depositary Receipts and
European Depositary Receipts.")
Because most foreign securities are denominated in non-U.S. currencies, the
investment performance of the International Stock Portfolio could be
significantly affected by changes in foreign currency exchange rates. The
value of the Portfolio's assets denominated in foreign currencies will
increase or decrease in response to fluctuations in the value of those foreign
currencies relative to the U.S. dollar. Currency exchange rates can be
volatile at times in response to supply and demand in the currency exchange
markets, international balances of payments, governmental intervention,
speculation and other political and economic conditions.
The Portfolio may purchase and sell foreign currency on a spot basis and may
engage in forward currency contracts, currency options, and futures
transactions for hedging or any other lawful purpose. (See "Derivative
Instruments" below for further information with respect to such instruments.)
FOREIGN INVESTMENT COMPANIES. Some of the countries in which the
Portfolio invests may not permit direct investment by outside investors.
Investments in such countries may only be permitted through foreign
government-approved or -authorized investment vehicles, which may include
other investment companies. Investing through such vehicles may involve
frequent or layered fees or expenses and may also be subject to limitation
under the 1940 Act.
DERIVATIVE INSTRUMENTS. Derivative instruments may be used by the
Portfolio for any lawful purpose, including hedging, risk management, or
enhancing returns, but not for speculation. Derivative instruments are
securities or agreements whose value is derived from the value of some
underlying asset, for example, securities, currencies, reference indexes, or
commodities. Options, futures, and options on futures transactions are
considered derivative transactions. Derivatives generally have investment
characteristics that are based upon either forward contracts (under which one
party is obligated to buy and the other party is obligated to sell an
underlying asset at a specific price on a specified date) or option contracts
(under which the holder of the option has the right but not the obligation to
buy or sell an underlying asset at a specified price on or before a specified
date). Consequently, the change in value of a forward-based derivative
generally is roughly proportional to the change in value of the underlying
asset. In contrast, the buyer of an option-based derivative generally will
benefit from favorable movements in the price of the underlying asset but is
not exposed to corresponding losses due to adverse movements in the value of
the underlying asset. The seller of an option-based derivative generally will
receive fees or premiums but generally is exposed to losses due to changes in
the value of the underlying asset. Derivative transactions may include
elements of leverage and, accordingly, the fluctuation of the value of the
derivative transaction in relation to the underlying asset may be magnified.
In addition to options, futures, and options on futures transactions,
derivative transactions may include short sales against the box, in which a
Portfolio sells a security it owns for delivery at a future date; swaps, in
which the two parties agree to exchange a series of cash flows in the future,
such as interest-rate payments; interest-rate caps, under which, in return for
a premium, one party agrees to make payments to the other to the extent that
interest rates exceed a specified rate, or "cap"; and interest-rate floors,
under which, in return for a premium, one party agrees to make payments to the
other to the extent that interest rates fall below a specified level, or
"floor." Derivative transactions may also include forward currency contracts
and foreign currency exchange-related securities.
Derivative instruments may be exchange-traded or traded in over-the-counter
transactions between private parties. Over-the-counter transactions are
subject to the credit risk of the counterparty to the instrument and are less
liquid than exchange-traded derivatives since they often can only be closed
out with the other party to the transaction. When required by SEC guidelines,
a Portfolio will set aside permissible liquid assets or securities positions
that substantially correlate to the market movements of the derivatives
transactions in a segregated account to secure its obligations under
derivative transactions. In order to maintain its required cover for a
derivative transaction, a Portfolio may need to sell portfolio securities at
disadvantageous prices or times since it may not be possible to liquidate a
derivative position.
The successful use of derivative transactions by a Portfolio is dependent upon
the Sub-Adviser's ability to correctly anticipate trends in the underlying
asset. To the extent that a Portfolio is engaging in derivative transactions
other than for hedging purposes, the Portfolio's successful use of such
transactions is more dependent upon the Sub-Adviser's ability to correctly
anticipate such trends, since losses in these transactions may not be offset
in gains in the Portfolio's portfolio or in lower purchase prices for assets
it intends to acquire. The Sub-Adviser's prediction of trends in underlying
assets may prove to be inaccurate, which could result in substantial losses to
a Portfolio. Hedging transactions are also subject to risks. If the
Sub-Adviser incorrectly anticipates trends in the underlying asset, a
Portfolio may be in a worse position than if no hedging had occurred. In
addition, there may be imperfect correlation between a Portfolio's derivative
transactions and the instruments being hedged.
ILLIQUID SECURITIES. The Portfolio may invest up to 10% of its net
assets in illiquid securities. Illiquid securities are those securities that
are not readily marketable, including restricted securities and repurchase
obligations maturing in more than seven days. Certain restricted securities
that may be resold to institutional investors pursuant to Rule 144A under the
1933 Act and Section 4(2) commercial paper may be considered liquid under
guidelines adopted by the Trust's Board of Trustees.
SMALL COMPANIES. The Portfolio may, from time to time, invest a
substantial portion of its assets in small companies. While smaller companies
generally have potential for rapid growth, investments in smaller companies
often involve greater risks than investments in larger, more established
companies because smaller companies may lack the management experience,
financial resources, product diversification, and competitive strengths of
larger companies. In addition, in many instances the securities of smaller
companies are traded only over-the-counter or on a regional securities
exchange, and the frequency and volume of their trading is substantially less
than is typical of larger companies. Therefore, the securities of smaller
companies may be subject to greater and more abrupt price fluctuations. When
making large sales, the Portfolio may have to sell portfolio holdings at
discounts from quoted prices or may have to make a series of small sales over
an extended period of time due to the trading volume of smaller company
securities. Investors should be aware that, based on the foregoing factors,
an investment in the Portfolio may be subject to greater price fluctuations
than an investment in a fund that invests primarily in larger, more
established companies. Strong's research efforts may also play a greater role
in selecting securities for the Portfolio than in a fund that invests in
larger, more established companies.
DEBT OBLIGATIONS. Debt obligations in which the Portfolio will invest
will primarily be investment grade debt obligations, although the Portfolio
may invest up to 5% of its assets in non-investment grade debt obligations.
The market value of all debt obligations is affected by changes in the
prevailing interest rates. The market value of such instruments generally
reacts inversely to interest rate changes. If the prevailing interest rates
decline, the market value of debt obligations generally increases. If the
prevailing interest rates increase, the market value of debt obligations
generally decreases. In general, the longer the maturity of a debt
obligation, the greater its sensitivity to changes in interest rates.
Investment-grade debt obligations include:
- bonds or bank obligations rated in one of the four highest rating
categories of any nationally recognized statistical rating organization or
"NRSRO" (e.g., BBB- or higher by S&P);
- U.S. government securities (as defined below);
- commercial paper rated in one of the three highest ratings categories
of any NRSRO (e.g., A-3 or higher by S&P);
- short-term bank obligations that are rated in one of the three highest
categories by any NRSRO (e.g., A-3 or higher by S&P), with respect to
obligations maturing in one year or less;
- repurchase agreements involving investment-grade debt obligations; or
- unrated debt obligations which are determined by the Sub-Adviser to be
of comparable quality.
All ratings are determined at the time of investment. Any subsequent rating
downgrade of a debt obligation will be monitored by the Sub-Adviser to
consider what action, if any, the Portfolio should take consistent with its
investment objective. Securities rated in the fourth highest category (e.g.,
BBB- by S&P), although considered investment-grade, have speculative
characteristics and may be subject to greater fluctuations in value than
higher-rated securities.
Non-investment-grade debt obligations include:
- securities rated as low as C by S&P or their equivalents;
- commercial paper rated as low as C- by S&P or its equivalents; and
- unrated debt securities judged to be of comparable quality by the
Sub-Adviser.
PORTFOLIO TURNOVER. The annual portfolio turnover rate indicates changes
in the Portfolio's holdings. The turnover rate may vary from year to year, as
well as within a year. It may also be affected by sales of portfolio
securities necessary to meet cash requirements for redemptions of shares.
High portfolio turnover in any year will result in the payment by shareholders
of above average amounts of taxes on realized investment gains. The
International Stock Portfolio's portfolio turnover rate is expected to exceed
100% , but generally not to exceed 200%. (See "Portfolio Turnover" in the
SAI.) These rates should not be considered as limiting factors. The portfolio
turnover rate of the Portfolio for the period ended December 31, 1995 is set
forth herein under "Financial Highlights."
OTC PORTFOLIO
The investment objective of the OTC Portfolio is to seek to obtain
long-term growth of capital.
INVESTMENT POLICIES AND RISKS - OTC PORTFOLIO
The Portfolio seeks to achieve its objective by investing at least 65% of its
total assets, under normal circumstances, in securities principally traded on
the over-the-counter (OTC) securities market. OTC securities tend to be
securities of companies which are smaller or newer than those listed on the
New York or American Stock Exchanges. Issuers of the securities of companies
which are traded on the OTC market include, among others, industrial
corporations, financial service institutions, public utilities, and
transportation companies. OTC securities include both equity and debt
securities (including obligations of the U.S. government). The Portfolio may
also invest in securities of companies that are not traded on the OTC
securities market that represent opportunities for capital appreciation. The
Portfolio will seek to invest in companies that are undervalued relative to
present or future earnings, cash flow or book value. While the Portfolio
intends to invest primarily in equity securities, the Portfolio may also
invest in fixed income securities as described below. Equity securities
include: common and preferred stocks; securities such as bonds, warrants or
rights that are convertible into stock; and depositary receipts for those
securities.
The Portfolio will not purchase a security, under normal circumstances, if it
would result in less than 65% of its total assets being invested in OTC
securities (the "65% limitation"). Securities that were principally traded on
the OTC securities market when purchased but which have since been listed on
the New York or American Stock Exchange or a foreign exchange will be
considered to fall within the Portfolio's 65% limitation for 12 months after
the date the security was listed on an exchange.
Debt securities of issuers in which the Portfolio may invest include all types
of long- or short-term debt obligations, such as bonds, debentures, notes and
commercial paper. Fixed income securities in which the Portfolio may invest
include securities in the lower rating categories of recognized rating
agencies (and comparable unrated securities). Fixed income securities in
which the Portfolio may invest also include zero coupon bonds, deferred
interest bonds and bonds on which the interest is payable in kind. Such
investments involve certain risks. See "Appendix--Lower-Rated Securities" and
the SAI for a discussion of the risks involved in investing in lower-rated
securities.
Investing in securities traded on the OTC securities market can involve
greater risk than is customarily associated with investing in securities
traded on the New York or American Stock Exchanges since OTC securities are
generally securities of companies which are smaller or newer than those listed
on the New York or American Stock Exchange. For example, these companies
often have limited product lines, markets, or financial resources, may be
dependent for management on one or a few key persons, and can be more
susceptible to losses. Also, their securities may be thinly traded (and
therefore have to be sold at a discount from current prices or sold in small
lots over an extended period of time), may be followed by fewer investment
research analysts and may be subject to wider price swings and thus may create
a greater risk of loss than securities of larger capitalization or established
companies. Shares of the Portfolio, therefore, are subject to greater
fluctuation in value than shares of a conservative equity fund or of a growth
fund which invests entirely in proven growth stocks. Therefore, the Portfolio
is intended for long-term investors who understand and can accept the risks
entailed in seeking long-term growth of capital. The Portfolio is not meant
to provide a vehicle for those who wish to play short-term swings in the stock
market. Accordingly, an investment in shares of the Portfolio should not be
considered a complete investment program. Each prospective purchaser should
take into account his investment objectives as well as his other investments
when considering the purchase of shares of the Portfolio.
When the Sub-Adviser believes that investing for temporary defensive purposes
is appropriate, such as during periods of unusual market conditions, part or
all of the Portfolio's assets may be temporarily invested in cash (including
foreign currency) or cash equivalent short-term obligations including, but not
limited to, certificates of deposit, commercial paper, short-term notes,
obligations issued or guaranteed by the U.S. government or any of its agencies
or instrumentalities and repurchase agreements.
The Portfolio may invest 10% or more of its net assets in foreign securities
(not including ADRs); however, under normal market conditions, the Portfolio
expects to invest less than 35% of its net assets in foreign securities. The
Portfolio may invest up to 10% of its net assets in emerging markets or
countries with limited or developing capital markets. Investing in securities
of foreign issuers generally involves risks not ordinarily associated with
investing in securities of domestic issuers. (See "Appendix--Foreign
Investments" and the SAI for a discussion of the risks involved in foreign
investing.)
The Portfolio may invest in ADRs which are certificates issued by a U.S.
depository (usually a bank) and represent a specified quantity of shares of an
underlying non-U.S. stock on deposit with a custodian bank as collateral.
Although ADRs are issued by a U.S. depository, they are subject to many of the
risks of foreign securities such as changes in exchange rates and more limited
information about foreign issuers.
The Portfolio may also purchase securities that are not registered under the
Securities Act of 1933 ("1933 Act") ("restricted securities"), including those
that can be offered and sold to "qualified institutional buyers" under Rule
144A under the 1933 Act ("Rule 144A securities"). The Trust's Board of
Trustees confirms based upon information and recommendations provided by the
Sub-Adviser that a specific Rule 144Aa security is liquid and thus not subject
to the Portfolio's limitation on investing not more than 15% of its net assets
in illiquid investments. The Board of Trustees has adopted guidelines and
delegated to the Sub-Adviser the daily function of determining and monitoring
the liquidity of Rule 144A securities. The Board, however, will retain
sufficient oversight and be ultimately responsible for the determinations.
This investment practice could have the effect of decreasing the level of
liquidity in a Portfolio to the extent that qualified institutional buyers
become for a time uninterested in purchasing Rule 144A securities held in the
investment portfolio.
The Portfolio is classified as a "non-diversified" investment company. As a
result, the Portfolio is limited as to the percentage of its assets which may
be invested in the securities of any one issuer only by its own investment
restrictions and the diversification requirements imposed by the Internal
Revenue Code of 1986, as amended. U.S. Government securities which are
generally considered free of credit risk and are assured as to payment of
principal and interest if held to maturity are not subject to any investment
limitation. Since the Portfolio may invest a relatively high percentage of
its assets in a limited number of issuers, the Portfolio may be more
susceptible to any single economic, political or regulatory occurrence and to
the financial conditions of the issuers in which it invests. For these
reasons, an investment in shares of the Portfolio should not be considered to
constitute a complete investment program.
While it is not generally the Portfolio's policy to invest or trade for
short-term profits, the Portfolio may dispose of a portfolio security whenever
the Sub-Adviser is of the opinion that such security no longer has an
appropriate appreciation potential or when another security appears to offer
relatively greater appreciation potential. Portfolio changes are made without
regard to the length of time a security has been held, or whether a sale would
result in a profit or loss. Therefore, the rate of portfolio turnover is not a
limiting factor when a change in the portfolio is otherwise appropriate. It is
anticipated that the Portfolio's portfolio turnover rate will not exceed 100%
during the Portfolio's first fiscal year. (See "Portfolio Turnover" in the
SAI.) The portfolio turnover rate of the Portfolio for the period ended
December 31, 1995 is set forth herein under "Financial Highlights."
ADDITIONAL PORTFOLIO INVESTMENTS AND TRANSACTIONS. The Portfolio may
enter into repurchase agreements to earn income on available cash or as a
temporary defensive measure. The Portfolio may seek to increase its income by
lending portfolio securities. The Portfolio may purchase securities on a
"when issued" or on a "forward delivery" basis, which means that the
securities will be delivered to the Portfolio at a future date usually beyond
customary settlement time.
The Portfolio may invest in indexed securities whose value is linked to
foreign currencies, commodities, indices, or other financial indicators. The
Portfolio may enter into mortgage "dollar roll" transactions with selected
banks and broker-dealers.
The Portfolio also may purchase restricted securities, corporate asset-backed
securities, options on securities, options on stock indices, options on
foreign currencies, futures contracts, options on futures contracts and
forward foreign currency exchange contracts.
All of the Portfolio investments and transactions described in this section
are described in greater detail in the Appendix and the SAI.
RESEARCH PORTFOLIO
The investment objective of the Research Portfolio is to provide
long-term growth of capital and future income.
The portfolio securities of the Research Portfolio are selected by the
investment research analysts in the Equity Research Group of the Sub-Adviser.
The Portfolio's assets are allocated to industry groups (e.g. within the
health care sector, the managed care, drug and medical supply industries).
The allocation by sector and industry is determined by the analysts acting
together as a group. Individual analysts are then responsible for selecting
what they view as the best securities for capital appreciation and future
income within their assigned industry group. While the research analysts are
overseen by the Sub-Adviser's Director of Equity Research, investment
decisions are made by the analysts.
INVESTMENT POLICIES AND RISKS - RESEARCH PORTFOLIO
The Portfolio's policy is to invest a substantial proportion of its
assets in the common stocks or securities convertible into common stocks of
companies believed to possess better than average prospects for long-term
growth. A smaller proportion of the assets may be invested in bonds,
short-term obligations, preferred stocks or common stocks whose principal
characteristic is income production rather than growth. Such securities may
also offer opportunities for growth of capital as well as income. In the case
of both growth stocks and income issues, emphasis is placed on the selection
of progressive, well-managed companies. The Portfolio's debt investments, if
any, may consist of "investment grade" securities (e.g., rated Baa or better
by Moody's or BBB or better by S&P or Fitch), and, with respect to no more
than 10% of its net assets, securities in the lower rated categories (e.g.,
rated Ba or lower by Moody's or BB or lower by S&P or Fitch), or securities
which the Sub-Adviser believes to be of similar quality to these lower rated
securities (commonly known as "junk bonds"). For a description of bond
ratings, see the SAI. It is not the Portfolio's policy to rely exclusively on
ratings issued by established credit rating agencies but rather to supplement
such ratings with the Sub-Adviser's own independent and ongoing review of
credit quality. The Portfolio's achievement of its investment objective may
be more dependent on the Sub-Adviser's own credit analysis than in the case of
a fund investing in primarily higher quality bonds. From time to time, the
Portfolio's management will exercise its judgment with respect to the
proportions invested in growth stocks, income-producing securities or cash
(including foreign currency) and cash equivalents depending on its view of
their relative attractiveness.
The Portfolio may enter into repurchase agreements in order to earn income on
available cash or as a temporary defensive measure. The Portfolio may make
loans of its fixed income portfolio securities. (See "Appendix" for a further
description of these investments.)
The Portfolio may invest in American Depositary Receipts ("ADRs") which are
certificates issued by a U.S. depository (usually a bank) and represent a
specified quantity of shares of an underlying non-U.S. stock on deposit with a
custodian bank as collateral. Although ADRs are issued by a U.S. depository,
they are subject to many of the risks of foreign securities such as changes in
exchange rates and more limited information about foreign issuers.
The Portfolio may invest up to 20% (and generally expects to invest between 0%
and 20%) of its net assets in foreign securities (not including ADRs). The
Portfolio may invest in emerging markets or countries with limited or
developing capital markets. Investing in securities of foreign issuers
generally involves risks not ordinarily associated with investing in
securities of domestic issuers. (See "Appendix--Foreign Investments" and the
SAI for a discussion of the risks involved in foreign investing.)
As described above, the Portfolio may invest in fixed income (i.e., debt)
securities rated Baa by Moody's or BBB by S&P or Fitch and comparable unrated
securities. These securities, while normally exhibiting adequate protection
parameters, have speculative characteristics and changes in economic
conditions or other circumstances are more likely to lead to a weakened
capacity to make principal and interest payments than in the case of higher
grade fixed income securities. (See "Appendix--Lower-Rated Securities" and
the SAI for a discussion of the risks involved in investing in lower-rated
securities.)
The Portfolio may also purchase securities that are not registered under the
Securities Act of 1933 ("1933 Act") ("restricted securities"), including those
that can be offered and sold to "qualified institutional buyers" under Rule
144A under the 1933 Act ("Rule 144A securities"). The Trust's Board of
Trustees confirms based upon information and recommendations provided by the
Sub-Adviser that a specific Rule 144A security is liquid and thus not subject
to the Portfolio's limitation on investing not more than 10% of its net assets
in illiquid investments. The Board of Trustees has adopted guidelines and has
delegated to the Sub-Adviser the daily function of determining and monitoring
the liquidity of Rule 144A securities. The Board, however, will retain
sufficient oversight and be ultimately responsible for the determinations.
This investment practice could have the effect of decreasing the level of
liquidity in the Portfolio to the extent that qualified institutional buyers
become for a time uninterested in purchasing Rule 144A securities held in the
investment portfolio. Subject to the Portfolio's 10% limitation on
investments in illiquid investments and subject to the diversification
requirements of the Internal Revenue Code of 1986, as amended (the "Code"),
the Portfolio may also invest in restricted securities that may not be sold
under Rule 144A, which presents certain risks. As a result, the Portfolio
might not be able to sell these securities when the Sub-Adviser wishes to do
so, or might have to sell them at less than fair value. In addition, market
quotations are less readily available. Therefore, judgment may at times play
a greater role in valuing these securities than in the case of unrestricted
securities.
While it is not generally the Portfolio's policy to invest or trade for
short-term profits, the Portfolio may dispose of a portfolio security whenever
the Sub-Adviser is of the opinion that such security no longer has an
appropriate appreciation potential or when another security appears to offer
relatively greater appreciation potential. Portfolio changes are made without
regard to the length of time a security has been held, or whether a sale would
result in a profit or loss. Therefore, the rate of portfolio turnover is not
a limiting factor when a change in the portfolio is otherwise appropriate.
(See "Portfolio Turnover" in the SAI.) The portfolio turnover rate of the
Portfolio for the period ended December 31, 1995 is set forth herein under
"Financial Highlights."
VALUE + GROWTH PORTFOLIO
The investment objective of the Value + Growth Portfolio is capital
appreciation. The Portfolio invests primarily in mid-cap growth companies with
favorable relationships between price/earnings ratios and growth rates, in
sectors offering the potential for above-average returns. Mid-cap companies
are companies with market capitalizations ranging from $750 million to
approximately $2 billion, although the Portfolio's investments may include
securities of larger or smaller companies.
INVESTMENT POLICIES AND RISKS - VALUE + GROWTH PORTFOLIO
In selecting investments for the Portfolio, the primary emphasis of Robertson,
Stephens & Company Investment Management, L.P., the Portfolio's Sub-Adviser,
is typically on evaluating a company's management, growth prospects, business
operations, revenues, earnings, cash flows, and balance sheet in relationship
to its share price. Robertson, Stephens & Company Investment Management, L.P.
may select stocks which it believes are undervalued relative to the current
stock price. Undervaluation of a stock can result from a variety of factors,
such as a lack of investor recognition of (1) the value of a business
franchise and continuing growth potential, (2) a new, improved or upgraded
product, service or business operation, (3) a positive change in either the
economic or business condition for a company, (4) expanding or changing
markets that provide a company with either new earnings direction or
acceleration, or (5) a catalyst, such as an impending or potential asset sale
or change in management, that could draw increased investor attention to a
company. Robertson, Stephens & Company Investment Management, L.P. also may
use similar factors to identify stocks which it believes to be overvalued and
may engage in short sales of such securities.
The Portfolio may invest a substantial portion of its assets in securities
issued by small companies. Such companies may offer greater opportunities for
capital appreciation than larger companies, but investments in such companies
may involve certain special risks. See "Appendix - Small Companies" for a
discussion of such risks.
The Portfolio may invest in securities principally traded in foreign markets
and may buy or sell foreign currencies and options and futures contracts on
foreign currencies for hedging purposes in connection with its foreign
investments. The Portfolio also may at times invest a substantial portion of
its assets in securities of issuers in developing countries. The Portfolio may
at times invest a substantial portion of its assets in securities traded in
the over-the-counter markets in such countries and not on any exchange, which
may affect the liquidity of the investment and expose the Portfolio to the
credit risk of its counterparties in trading those investments.
International investing in general may involve greater risks than U.S.
investments. These risks may be intensified in the case of investments in
emerging markets or countries with limited or developing capital markets. (See
"Appendix - Foreign Investments" and the SAI for a discussion of the risks
involved in foreign investing and see "Appendix - Strategic Transactions -
Futures and Options on Futures" and "Options on Foreign Currencies" for a
discussion of the risks involved in investing in foreign currencies, options
and futures contracts.)
The Portfolio may invest in debt securities from time to time if the
Sub-Adviser believes that it might help achieve the Portfolio's objective. The
Portfolio may invest in debt securities to the extent consistent with its
investment policies, although the Sub-Adviser expects that under normal
circumstances, the Portfolio would not likely invest a substantial portion of
its assets in debt securities.
The Portfolio will invest only in securities rated "investment grade" or
considered by the Sub-Adviser to be of comparable quality. Investment grade
securities are rated Baa or higher by Moody's or BBB or higher by S&P.
Securities rated Baa or BBB lack outstanding investment characteristics, have
speculative characteristics, and are subject to greater credit and market
risks than higher-rated securities. Descriptions of the securities ratings
assigned by Moody's and S&P are described in the SAI.
The Portfolio may at times invest in so-called "zero-coupon" bonds and
"payment-in-kind" bonds. Zero-coupon bonds are issued at a significant
discount from face value and pay interest only at maturity rather than at
intervals during the life of the security. Payment-in-kind bonds allow the
issuer, at its option, to make current interest payments on the bonds either
in cash or in additional bonds. The values of zero-coupon bonds and
payment-in-kind bonds are subject to greater fluctuation in response to
changes in market interest rates than bonds which pay interest currently, and
may involve greater credit risk than such bonds. See "Zero Coupon Securities
and Pay-in-Kind Securities" in the SAI.
The Portfolio will not necessarily dispose of a security when its debt rating
is reduced below its rating at the time of purchase, although the Sub-Adviser
will monitor the investment to determine whether continued investment in the
security will assist in meeting the Portfolio's investment objective.
The Portfolio may buy and sell call and put options to hedge against changes
in net asset value or to attempt to realize a greater current return. In
addition, through the purchase and sale of futures contracts and related
options, a Portfolio may at times seek to hedge against fluctuations in net
asset value and to attempt to increase its investment return. Although the
Portfolio will only engage in options and futures transactions for limited
purposes, those transactions involve certain risks which are described in the
Appendix and SAI.
The Portfolio may buy and sell index futures contracts ("index futures") and
options on index futures and on indices for hedging purposes or to increase
its investment return (or may purchase warrants whose value is based on the
value from time to time of one or more foreign securities indices). See the
SAI for a further description of index futures and options including risks.
The Value + Growth Portfolio may purchase long-term exchange-traded equity
options called Long-Term Equity Anticipation Securities ("LEAPS") and
Buy-Write Options Unitary Derivatives ("BOUNDs"). LEAPs provide a holder the
opportunity to participate in the underlying securities' appreciation in
excess of a fixed dollar amount, and BOUNDs provide a holder the opportunity
to retain dividends on the underlying securities while potentially
participating in the underlying securities' capital appreciation up to a fixed
dollar amount. The Value + Growth Portfolio will not purchase these options
with respect to more than 25% of the value of its net assets and will limit
the premiums paid for such options in accordance with the most restrictive
applicable state securities laws.
The Portfolio may purchase and sell options in the over-the-counter markets
but only when appropriate exchange-traded transactions are unavailable and
when, in the opinion of the Sub-Adviser, the pricing mechanism and liquidity
of the over-the-counter markets are satisfactory and the participants are
responsible parties likely to meet their obligations. (See "Appendix -
Over-the-Counter Options.")
The Portfolio will not purchase futures or options on futures or sell futures
if, as a result, the sum of the initial margin deposits on the Portfolio's
existing futures positions and premiums paid for outstanding options on
futures contracts would exceed 5% of the Portfolio's assets. (For options that
are "in-the-money" at the time of purchase, the amount by which the option is
"in-the-money" is excluded from this calculation.)
At times the Portfolio may invest more than 25% of its assets in securities of
issuers in one or more market sectors such as, for example, the technology
sector. A market sector may be made up of companies in a number of related
industries. The Portfolio would only concentrate its investments in a
particular market sector if the Portfolio's Sub-Adviser were to believe the
investment return available from concentration in that sector justifies any
additional risk associated with concentration in that sector. When the
Portfolio concentrates its investments in a market sector, financial,
economic, business, and other developments affecting issuers in that sector
will have a greater effect on the Portfolio than if it had not concentrated
its assets in that sector.
The Portfolio may lend portfolio securities to broker-dealers and may enter
into repurchase agreements. These transactions must be fully collateralized at
all times, but involve some risk to the Portfolio if the other party should
default on its obligations and the Portfolio is delayed or prevented from
recovering the collateral.
At times, the Portfolio's Sub-Adviser may judge that market conditions make
pursuing the Portfolio's basic investment strategy inconsistent with the best
interests of its shareholders. At such times, the Portfolio's Sub-Adviser may
temporarily use alternative strategies, primarily designed to reduce
fluctuations in the values of the Portfolio's assets. In implementing these
"defensive" strategies, the Portfolio may invest in U.S. Government
securities, other high-quality debt instruments, and other securities the
Portfolio's Sub-Adviser believes to be consistent with the Portfolio's best
interests.
PORTFOLIOS SEEKING TOTAL RETURN
INTERNATIONAL FIXED INCOME PORTFOLIO
The investment objective of the International Fixed Income Portfolio is to
provide high total return. The Portfolio will seek to achieve its objective
by investing in both domestic and foreign debt securities and related foreign
currency transactions. The total return will be sought through a combination
of current income, capital gains and gains in currency positions.
INVESTMENT POLICIES AND RISKS - INTERNATIONAL FIXED INCOME PORTFOLIO
Under normal market conditions, the Portfolio will invest primarily in: (i)
obligations issued or guaranteed by foreign national governments, their
agencies, instrumentalities, or political subdivisions (including any entity
which is majority owned by such government, agency, instrumentality, or
political subdivision); (ii) U.S. government securities; and (iii) debt
securities issued or guaranteed by supranational organizations, considered to
be "government securities."
The Portfolio may also invest in non-government foreign and domestic debt
securities, including corporate debt securities, bank obligations,
mortgage-backed or asset-backed securities, and repurchase agreements.
As an international portfolio, the Portfolio may invest in securities issued
in any currency and may hold foreign currencies. Under normal conditions, the
Portfolio's Sub-Adviser expects that the Portfolio generally will be invested
in at least six different countries, including the U.S., although the
Portfolio may at times invest all of its assets in a single country.
It is currently anticipated that the Portfolio's assets will be invested
principally within, or in the currencies of, Australia, Canada, Japan, New
Zealand, the United States, Scandinavia, and Western Europe and in securities
denominated in the currencies of those countries or denominated in
multinational currency units, such as the European Currency Unit ("ECU"),
which is a "basket" consisting of specified amounts of the currencies of
certain states of the European Community. The specific amounts of currencies
comprising the ECU may be adjusted by the Council of Ministers of the European
Community to reflect changes in the relative values of the underlying
currencies. Securities of issuers within a given country may be denominated
in the currency of another country. In addition, when the Portfolio's
Sub-Adviser believes that U.S. securities offer superior opportunities for
achieving the Portfolio's investment objective, or for temporary defensive
purposes, the Portfolio may invest substantially all of its assets in
securities of U.S. issuers or securities denominated in U.S. dollars.
The Portfolio may also acquire securities and currency in less developed
countries as well as in developing countries. International investing in
general may involve greater risks than U.S. investments. These risks may be
intensified in the case of investments in emerging markets or countries with
limited or developing capital markets. (See "Appendix--Foreign Investments"
and the SAI for a discussion of the risks involved in foreign investing.)
The Portfolio is also authorized to invest in debt securities of supranational
entities. A supranational entity is an entity designated or supported by the
national government of one or more countries to promote economic
reconstruction or development. Examples of supranational entities include,
among others, the World Bank, the European Investment Bank and the Asian
Development Bank. The Portfolio is further authorized to invest in
"semi-governmental securities," which are debt securities issued by entities
owned by either a national, state or equivalent government or are obligations
of one of such government jurisdictions which are not backed by its full faith
and credit and general taxing powers.
The Portfolio may invest in debt securities of any type of issuer, including
foreign and domestic corporations, the 100 largest foreign commercial banks in
terms of total assets, and other business organizations, domestic and foreign
governments and their political subdivisions, including the U.S. government,
its agencies, and authorities or instrumentalities.
The Portfolio may invest in debt securities with varying maturities. Under
current market conditions, it is expected that the dollar-weighted average
maturity of the Portfolio's debt investments will not exceed 10 years.
Generally, the average maturity of the Portfolio's debt portfolio will be
shorter when interest rates worldwide or in a particular country are expected
to rise, and longer when interest rates are expected to fall.
To protect against credit risk, the Portfolio invests primarily in high-grade
debt securities. At least 65% of the Portfolio's investments will consist of
securities rated within the three highest rating categories of S&P (AAA, AA,
A) or Moody's (Aaa, Aa or A) or if unrated, will be considered by the
Sub-Adviser to be of equivalent quality.
The Portfolio may engage in certain Strategic Transactions, which include
dollar roll transactions, reverse repurchase agreements, interest rate
transactions, options on securities and indexes, futures and options on
futures, options on foreign currencies, foreign exchange transactions and over
the counter options. (See "Appendix--Strategic Transactions".)
The Portfolio is classified as a "non-diversified" investment company. As a
result, the Portfolio is limited as to the percentage of its assets which may
be invested in the securities of any one issuer only by its own investment
restrictions and the diversification requirements imposed by the Internal
Revenue Code of 1986, as amended. U.S. Government securities which are
generally considered free of credit risk and are assured as to payment of
principal and interest if held to maturity are not subject to any investment
limitation. Since the Portfolio may invest a relatively high percentage of
its assets in a limited number of issuers, the Portfolio may be more
susceptible to any single economic, political or regulatory occurrence and to
the financial conditions of the issuers in which it invests. For these
reasons, an investment in shares of the Portfolio should not be considered to
constitute a complete investment program.
The Portfolio's net asset value per share fluctuates, depending on (i) current
worldwide market interest rates, (ii) the value of the currencies in which the
Portfolio's securities are denominated when compared to the U.S. dollar, (iii)
the success of the Sub-Adviser's currency hedging techniques, and (iv) the
creditworthiness of the issuers in which the Portfolio is invested. In
pursuing the Portfolio's investment objective, however, the Sub-Adviser
actively manages the Portfolio in an effort to minimize the effect of such
factors on the Portfolio's net asset value per share. The Sub-Adviser
allocates the Portfolio's investments among those markets, issuers and
currencies which it believes offer the most attractive combination of high
income and principal stability. In evaluating investments for the Portfolio,
the Sub-Adviser analyzes relative yields and the appreciation potential of
securities in particular markets; world interest rates and monetary trends;
economic, political and financial market conditions in different countries;
credit quality; and the relationship of individual foreign currencies to the
U.S. dollar. The Sub-Adviser also relies on internally and externally
generated financial, economic, and credit research to evaluate alternative
investment opportunities.
The Portfolio may adjust its portfolio as it deems advisable in view of
prevailing or anticipated market conditions to accomplish the Portfolio's
investment objective. For example, the Portfolio may sell portfolio
securities in anticipation of a movement in interest rates. Frequency of
portfolio turnover will not be a limiting factor if the Portfolio considers it
advantageous to purchase or sell securities. The Sub-Adviser anticipates that
the Portfolio's portfolio turnover rate generally will not exceed 300%. (See
"Portfolio Turnover" in the SAI.) A higher rate of portfolio turnover may
result in correspondingly higher portfolio transaction costs which would have
to be borne directly by the Trust and ultimately by the shareholders. The
portfolio turnover rate of the Portfolio for the period ended December 31,
1995 is set forth herein under "Financial Highlights."
TOTAL RETURN PORTFOLIO
The primary investment objective of the Total Return Portfolio is to
obtain above-average income (compared to a portfolio entirely invested in
equity securities) consistent with the prudent employment of capital. While
current income is the primary objective, the Portfolio believes that there
should also be a reasonable opportunity for growth of capital and income,
since many securities offering a better than average yield may also possess
growth potential. Thus, in selecting securities for its portfolio, the
Portfolio considers each of these objectives. Under normal market conditions,
at least 25% of the Portfolio's assets will be invested in fixed income
securities and at least 40% and no more than 75% of the Portfolio's assets
will be invested in equity securities.
INVESTMENT POLICIES AND RISKS - TOTAL RETURN PORTFOLIO
The Portfolio's policy is to invest in a broad list of securities,
including short-term obligations. The list may be diversified not only by
companies and industries, but also by type of security. Fixed income
securities and equity securities (which include: common and preferred stocks;
securities such as bonds, warrants or rights that are convertible into stock;
and depository receipts for those securities) may be held by the Portfolio.
Some fixed income securities may also have a call on common stock by means of
a conversion privilege or attached warrants. The Portfolio may vary the
percentage of assets invested in any one type of security in accordance with
the Sub-Adviser's interpretation of economic and money market conditions,
fiscal and monetary policy and underlying security values. The Portfolio's
debt investments may consist of both "investment grade" securities (e.g.,
rated Baa or better by Moody's or BBB or better by S&P or Fitch) and
securities that are unrated or are in the lower rating categories (e.g., rated
Ba or lower by Moody's or BB or lower by S&P or Fitch) (commonly known as
"junk bonds") including up to 20% of its net assets in nonconvertible fixed
income securities that are in these lower rating categories and comparable
unrated securities. Generally, most of the Portfolio's long-term debt
investments will consist of "investment grade" securities. See the SAI for a
description of these ratings. It is not the Portfolio's policy to rely
exclusively on ratings issued by established credit rating agencies but rather
to supplement such ratings with the Sub-Adviser's own independent and ongoing
review of credit quality.
U. S. GOVERNMENT SECURITIES. The Portfolio may also invest in U.S.
government securities, including: (1) U.S. Treasury obligations, which differ
only in their interest rates, maturities and times of issuance: U.S. Treasury
bills (maturities of one year or less); U.S. Treasury notes (maturities of one
to ten years); and U.S. Treasury bonds (generally maturities of greater than
ten years), all of which are backed by the full faith and credit of the U.S.
Government; and (2) obligations issued or guaranteed by U.S. Government
agencies or instrumentalities, some of which are backed by the full faith and
credit of the U.S. Treasury, e.g., direct pass-through certificates of GNMA;
some of which are supported by the right of the issuer to borrow from the U.S.
Government, e.g., obligations of Federal Home Loan Banks; and some of which
are backed only by the credit of the issuer itself, e.g., obligations of the
Student Loan Marketing Association.
MORTGAGE PASS-THROUGH SECURITIES. The Portfolio may invest in mortgage
pass-through securities. Mortgage pass-through securities are securities
representing interests in "pools" of mortgage loans. Monthly payments of
interest and principal by the individual borrowers on mortgages are passed
through to the holders of the securities (net of fees paid to the issuer or
guarantor of the securities) as the mortgages in the underlying mortgage pools
are paid off. Payment of principal and interest on some mortgage pass-through
securities (but not the market value of the securities themselves) may be
guaranteed by the full faith and credit of the U.S. government (in the case of
securities guaranteed by GNMA); or guaranteed by U.S. government-sponsored
corporations (such as FNMA or FHLMC, which are supported only by the
discretionary authority of the U.S. government to purchase the agency's
obligations). Mortgage pass-through securities may also be issued by
non-governmental issuers (such as commercial banks, savings and loan
institutions, private mortgage insurance companies, mortgage bankers and other
secondary market issuers). See the Appendix for a further discussion of these
securities.
ZERO COUPON BONDS, DEFERRED INTEREST BONDS AND PIK BONDS. Fixed income
securities that the Portfolio may invest in also include zero coupon bonds,
deferred interest bonds and bonds on which the interest is payable in kind
("PIK bonds"). Zero coupon and deferred interest bonds are debt obligations
which are issued or purchased at a significant discount from face value. The
discount approximates the total amount of interest the bonds will accrue and
compound over the period until maturity or the first interest payment date at
a rate of interest reflecting the market rate of the security at the time of
issuance. While zero coupon bonds do not require the periodic payment of
interest, deferred interest bonds provide that the issuer thereof may, at its
option, pay interest on such bonds in cash or in the form of additional debt
obligations. Such investments benefit the issuer by mitigating its need for
cash to meet debt service, but also require a higher rate of return to attract
investors who are willing to defer receipt of such cash. Such investments may
experience greater volatility in market value due to changes in interest rates
than debt obligations which make regular payments of interest. The Portfolio
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 Portfolio's distribution obligations.
AMERICAN DEPOSITARY RECEIPTS. The Portfolio may invest in American
Depositary Receipts ("ADRs") which are certificates issued by a U.S.
depository (usually a bank), that represent a specified quantity of shares of
an underlying non-U.S. stock on deposit with a custodian bank as collateral.
Although ADRs are issued by a U.S. depository, they are subject to many of the
risks of foreign securities such as changes in exchange rates and more limited
information about foreign issuers.
The Portfolio may invest up to 20% (and generally expects to invest between 5%
and 20%) of its net assets in foreign securities (including investments in
emerging markets or countries with limited or developing capital markets) (not
including ADRs). Investing in securities of foreign issuers generally
involves risks not ordinarily associated with investing in securities of
domestic issuers. (See "Appendix--Foreign Investments" and the SAI for a
discussion of the risks involved in foreign investing.)
In order to protect the value of the Portfolio's investments from interest
rate fluctuations, the Portfolio may enter into various hedging transactions,
such as interest rate swaps, and the purchase or sale of interest rate caps,
floors and collars. (See the SAI for information relating to these
transactions including related risks.)
The Portfolio may also purchase securities that are not registered under the
1933 Act ("restricted securities"), including those that can be offered and
sold to "qualified institutional buyers" under Rule 144A under the 1933 Act
("Rule 144A securities"). The Trust's Board of Trustees confirms based upon
information and recommendations provided by the Sub-Adviser that a specific
Rule 144A security, is liquid and thus not subject to the Portfolio's
limitation on investing not more than 15% of its net assets in illiquid
investments. The Board of Trustees has adopted guidelines and delegated to
the Sub-Adviser the daily function of determining and monitoring the liquidity
of Rule 144A securities. The Board, however, will retain sufficient oversight
and be ultimately responsible for the determinations. This investment
practice could have the effect of decreasing the level of liquidity in a
Portfolio to the extent that qualified institutional buyers become for a time
uninterested in purchasing Rule 144A securities held in the investment
portfolio. Subject to the Portfolio's 15% limitation on investments in
illiquid investments and subject to the diversification requirements of the
Code, the Portfolio may also invest in restricted securities that may not be
sold under Rule 144A, which presents certain risks. As a result, the
Portfolio might not be able to sell these securities when the Sub-Adviser
wishes to do so, or might have to sell them at less than fair value. In
addition, market quotations are less readily available. Therefore, judgment
may at times play a greater role in valuing these securities than in the case
of unrestricted securities.
While it is not generally the Portfolio's policy to invest or trade for
short-term profits, the Portfolio may dispose of a portfolio security whenever
the Sub-Adviser is of the opinion that such security no longer has an
appropriate appreciation potential or when another security appears to offer
relatively greater appreciation potential. Portfolio changes are made without
regard to the length of time a security has been held, or whether a sale would
result in a profit or loss. Therefore, the rate of portfolio turnover is not
a limiting factor when a change in the portfolio is otherwise appropriate.
(See "Portfolio Turnover" in the SAI.) The portfolio turnover rate of the
Portfolio for the period ended December 31, 1995 is set forth herein under
"Financial Highlights."
ADDITIONAL PORTFOLIO INVESTMENTS AND TRANSACTIONS. The Portfolio may
enter into repurchase agreements to earn income on available cash or as a
temporary defensive measure. The Portfolio may seek to increase its income by
lending portfolio securities. The Portfolio may purchase securities on a
"when issued" or on a "delayed delivery" basis, which means that the
securities will be delivered to the Portfolio at a future date usually beyond
customary settlement time.
The Portfolio may invest in indexed securities whose value is linked to
foreign currencies, indices, or other financial indicators. The Portfolio may
enter into mortgage "dollar roll" transactions with selected banks and
broker-dealers. The Portfolio may invest a portion of its assets in loan
participations and other direct indebtedness.
The Portfolio also may purchase restricted securities, corporate asset-backed
securities, options on securities, options on stock indices, options on
foreign currencies, futures contracts, options on futures contracts and
forward foreign currency exchange contracts.
All of the Portfolio investments and transactions described in this section
are described in greater detail in the Appendix and the SAI.
GROWTH & INCOME PORTFOLIO
The investment objective of the Growth & Income Portfolio is long-term total
return. The Portfolio will pursue this objective primarily by investing in
equity and debt securities, focusing on small- and mid-cap companies that
offer the potential for capital appreciation, current income, or both.
The Portfolio will normally invest the majority of its assets in common and
preferred stocks, convertible securities, bonds, and notes. Although the
Portfolio will focus on companies with market capitalizations of up to $3
billion, the Portfolio intends to remain flexible and may invest in securities
of larger companies. The Portfolio may also engage in short sales of
securities it expects to decline in price.
INVESTMENT POLICIES AND RISKS - GROWTH & INCOME PORTFOLIO
Small- and mid-cap companies may present greater opportunities for investment
return, but may also involve greater risks. They may have limited product
lines, markets, or financial resources, or may depend on a limited management
group. Their securities may trade less frequently and in limited volume. As a
result, the prices of these securities may fluctuate more than prices of
securities of larger, widely traded companies. See "Appendix - Small
Companies."
The Portfolio may invest a substantial portion of its assets in securities
issued by small companies. Such companies may offer greater opportunities for
capital appreciation than larger companies, but investments in such companies
may involve certain special risks. See "Appendix - Small Companies" for a
discussion of such risks.
The Portfolio may invest in securities principally traded in foreign markets
and may buy or sell foreign currencies and options and futures contracts on
foreign currencies for hedging purposes in connection with its foreign
investments. The Portfolio also may at times invest a substantial portion of
its assets in securities of issuers in developing countries. The Portfolio may
at times invest a substantial portion of its assets in securities traded in
the over-the-counter markets in such countries and not on any exchange, which
may affect the liquidity of the investment and expose the Portfolio to the
credit risk of its counterparties in trading those investments.
International investing in general may involve greater risks than U.S.
investments. These risks may be intensified in the case of investments in
emerging markets or countries with limited or developing capital markets. (See
"Appendix - Foreign Investments" and the SAI for a discussion of the risks
involved in foreign investing and see "Appendix - Strategic Transactions -
Futures and Options on Futures" and "Options on Foreign Currencies" for a
discussion of the risks involved in investing in foreign currencies, options
and futures contracts.)
The Portfolio may invest without limit in debt securities and other
fixed-income securities. The Portfolio may invest in lower-quality, high
yielding debt securities. Lower-rated debt securities (commonly called "junk
bonds") are considered to be of poor standing and predominantly speculative.
Such investments involve certain risks. See "Appendix - Lower Rated
Securities" and the SAI for a discussion of the risks involved in investing in
lower-rated securities.
The Portfolio may at times invest in so-called "zero-coupon" bonds and
"payment-in-kind" bonds. Zero-coupon bonds are issued at a significant
discount from face value and pay interest only at maturity rather than at
intervals during the life of the security. Payment-in-kind bonds allow the
issuer, at its option, to make current interest payments on the bonds either
in cash or in additional bonds. The values of zero-coupon bonds and
payment-in-kind bonds are subject to greater fluctuation in response to
changes in market interest rates than bonds which pay interest currently, and
may involve greater credit risk than such bonds. See "Zero Coupon Securities
and Pay-in-Kind Securities" in the SAI.
The Portfolio will not necessarily dispose of a security when its debt rating
is reduced below its rating at the time of purchase, although the Sub-Adviser
will monitor the investment to determine whether continued investment in the
security will assist in meeting the Portfolio's investment objective.
The Portfolio may buy and sell call and put options to hedge against changes
in net asset value or to attempt to realize a greater current return. In
addition, through the purchase and sale of futures contracts and related
options, a Portfolio may at times seek to hedge against fluctuations in net
asset value and to attempt to increase its investment return. Although the
Portfolio will only engage in options and futures transactions for limited
purposes, those transactions involve certain risks which are described in the
Appendix and SAI.
The Portfolio may buy and sell index futures contracts ("index futures") and
options on index futures and on indices for hedging purposes or to increase
its investment return (or may purchase warrants whose value is based on the
value from time to time of one or more foreign securities indices). See the
SAI for a further description of index futures and options including risks.
The Portfolio may purchase and sell options in the over-the-counter markets
but only when appropriate exchange-traded transactions are unavailable and
when, in the opinion of the Sub-Adviser, the pricing mechanism and liquidity
of the over-the-counter markets are satisfactory and the participants are
responsible parties likely to meet their obligations. (See "Appendix -
Over-the-Counter Options.")
The Portfolio will not purchase futures or options on futures or sell futures
if, as a result, the sum of the initial margin deposits on the Portfolio's
existing futures positions and premiums paid for outstanding options on
futures contracts would exceed 5% of the Portfolio's assets. (For options that
are "in-the-money" at the time of purchase, the amount by which the option is
"in-the-money" is excluded from this calculation.)
At times the Portfolio may invest more than 25% of its assets in securities of
issuers in one or more market sectors such as, for example, the technology
sector. A market sector may be made up of companies in a number of related
industries. The Portfolio would only concentrate its investments in a
particular market sector if the Portfolio's Sub-Adviser were to believe the
investment return available from concentration in that sector justifies any
additional risk associated with concentration in that sector. When the
Portfolio concentrates its investments in a market sector, financial,
economic, business, and other developments affecting issuers in that sector
will have a greater effect on the Portfolio than if it had not concentrated
its assets in that sector.
The Portfolio may lend portfolio securities to broker-dealers and may enter
into repurchase agreements. These transactions must be fully collateralized at
all times, but involve some risk to the Portfolio if the other party should
default on its obligations and the Portfolio is delayed or prevented from
recovering the collateral.
At times, the Portfolio's Sub-Adviser may judge that market conditions make
pursuing the Portfolio's basic investment strategy inconsistent with the best
interests of its shareholders. At such times, the Portfolio's Sub-Adviser may
temporarily use alternative strategies, primarily designed to reduce
fluctuations in the values of the Portfolio's assets. In implementing these
"defensive" strategies, the Portfolio may invest in U.S. Government
securities, other high-quality debt instruments, and other securities the
Portfolio's Sub-Adviser believes to be consistent with the Portfolio's best
interests.
MANAGEMENT OF THE TRUST
INVESTMENT ADVISER
Under an Investment Advisory Agreement dated October 1, 1994, Equitable
Investment Services, Inc., 699 Walnut Street, Des Moines, Iowa 50309 (the
"Adviser"), manages the business and affairs of the Portfolios and the Trust,
subject to the control of the Trustees.
The Adviser is an Iowa corporation which was incorporated in 1969. The
Adviser is engaged in the business of providing investment advice to
affiliated insurance companies.
Under the Investment Advisory Agreement, the Adviser is obligated to formulate
a continuing program for the investment of the assets of each Portfolio of the
Trust in a manner consistent with each Portfolio's investment objectives,
policies and restrictions and to determine from time to time securities to be
purchased, sold, retained or lent by the Trust and implement those decisions.
The Investment Advisory Agreement also provides that the Adviser shall manage
the Trust's business and affairs and shall provide such services required for
effective administration of the Trust as are not provided by employees or
other agents engaged by the Trust. The Investment Advisory Agreement further
provides that the Adviser shall furnish the Trust with office space and
necessary personnel, pay ordinary office expenses, pay all executive salaries
of the Trust and furnish, without expense to the Trust, the services of such
members of its organization as may be duly elected officers or Trustees of the
Trust. The Investment Advisory Agreement provides that Adviser may retain
sub-advisers, at the Adviser's own cost and expense, for the purpose of making
investment recommendations and research information available to the Trust.
The Adviser retains sub-advisers for each of the Portfolios except the Money
Market Portfolio, Mortgage-Backed Securities Portfolio, Advantage Portfolio,
Short-Term Bond Portfolio and Government Securities Portfolio. The Adviser
currently performs the portfolio management function for the Money Market,
Mortgage-Backed Securities, Advantage, Short-Term Bond and Government
Securities Portfolios.
Robert F. Bowman is the senior portfolio manager of the Adviser responsible
for the Money Market Portfolio, Advantage Portfolio, Short-Term Bond Portfolio
and Government Securities Portfolio. Mr. Bowman was graduated from Wabash
College with a Bachelor of Arts degree in Economics and from the University of
Texas with a Master of Business Administration degree in Finance. Mr. Bowman
currently holds the title of Managing Director at the Adviser.
As full compensation for its services under the Investment Advisory Agreement,
the Trust pays the Adviser a monthly fee at the following annual rates shown
in the table below based on the average daily net assets of each Portfolio.
<TABLE>
<CAPTION>
<S> <C>
PORTFOLIO ADVISORY FEE
(Annual Rate based on average daily net assets
of each Portfolio)
Advantage .50% of first $100 million
.35% of average net assets over and above $100 million
Government Securities .75% of first $200 million
.55% of average net assets over and above $200 million
Growth & Income .95% of first $200 million
.75% of average net assets over and above $200 million
International Fixed Income .85% of first $200 million
.75% of next $300 million
.60% of next $500 million
.55% of next $1 billion
.40% of average net assets over and above $2 billion
International Stock .80% of first $300 million
.55% of average net assets over and above $300 million
Money Market .375% of first $50 million
.35% of average net assets over and above $50 million
Mortgage-Backed Securities .75% of first $200 million
.65% of next $300 million
.55% of next $500 million
.50% of next $1 billion
.40% of average net assets over and above $2 billion
OTC .80% of first $300 million
.55% of average net assets over and above $300 million
Research .80% of first $300 million
.55% of average net assets over and above $300 million
Short-Term Bond .65% of first $100 million
.50% of next $100 million
.45% of next $300 million
.40% of average net assets over and above $500 million
Total Return .80% of first $300 million
.55% of average net assets over and above $300 million
Value + Growth .95% of first $500 million
.75% of average net assets over and above $500 million
</TABLE>
ADVISORY FEE WAIVER AND EXPENSE CAP
The Adviser has undertaken to reimburse each Portfolio for all operating
expenses, excluding management fees, that exceed .30% of the average daily net
assets of the Money Market, Advantage and Short-Term Bond Portfolios, .50% of
the average daily net assets of the Mortgage-Backed Securities and Government
Securities Portfolios and .75% of the average daily net assets of the
International Stock, International Fixed Income, OTC, Total Return, Research,
Growth & Income and Value + Growth Portfolios. This undertaking is subject to
termination at any time without notice to shareholders. For the year ended
December 31, 1995, the Adviser had agreed to reimburse the Trust for $577,896
for expenses in excess of the voluntary expense limitations, of which $64,354
was owed to the Trust as of December 31, 1995. For the period of January 1,
1995 through October 5, 1995, pursuant to a prior undertaking to waive
advisory fees for each of the Portfolios (except the Growth & Income and Value
+ Growth Portfolios which have not yet commenced investment operations), the
advisory fee waivers amounted to $245,910.
EXPENSES OF THE TRUST
The organizational expenses of the Trust are being amortized on a
straight-line basis over a period of five years (beginning with the
commencement of operations). If any of the initial shares (purchased by the
Life Company through its contribution of the initial "seed money" to the Trust
totaling $10,000 per Portfolio) are redeemed during the amortization period by
the holder thereof, the redemption proceeds will be reduced by any unamortized
organizational expenses in the same proportion as the number of initial shares
being redeemed bears to the number of initial shares outstanding at the time
of the redemption.
SUB-ADVISERS
In accordance with a Portfolio's investment objective and policies and under
the supervision of Adviser and the Trust's Board of Trustees, a Portfolio's
Sub-Adviser is responsible for the day to day investment management of the
Portfolio, makes investment decisions for the Portfolio and places orders on
behalf of the Portfolio to effect the investment decisions made as provided in
separate Sub-Advisory Agreements among each Sub-Adviser, the Adviser and
(except with respect to the Sub-Advisory Agreement between Strong and the
Adviser) the Trust. The following organizations act as Sub-Advisers to the
Portfolios:
MASSACHUSETTS FINANCIAL SERVICES COMPANY ("MFS"), 500 Boylston Street,
Boston, Massachusetts 02116, is the Sub-Adviser for the OTC Portfolio, the
Research Portfolio and the Total Return Portfolio of the Trust.
MFS is America's oldest mutual fund organization. MFS and its predecessor
organizations have a history of money management dating from 1924 and the
founding of the first mutual fund in the United States, Massachusetts
Investors Trust. Net assets under the management of the MFS organization were
approximately $43.9 billion on behalf of approximately 1.9 million investor
accounts as of February 29, 1996. As of such date, the MFS organization
managed approximately $20 billion of assets in equity securities and $20
billion of assets in fixed income securities. Approximately $3.8 billion of
assets managed by MFS are invested in securities of foreign issuers and
non-U.S. dollar denominated securities of U.S. issuers. MFS is a subsidiary
of Sun Life Assurance Company of Canada (U.S.) which in turn is a wholly-owned
subsidiary of Sun Life Assurance Company of Canada ("Sun Life"). The
Directors of MFS are A. Keith Brodkin, Jeffrey L. Shames, John R. Gardner,
John D. McNeil and Arnold D. Scott. Mr. Brodkin is the Chairman, Mr. Shames
is the President and Mr. Scott is the Secretary and a Senior Executive Vice
President of MFS. Messrs. McNeil and Gardner are the Chairman and the
President, respectively, of Sun Life. Sun Life, a mutual life insurance
company, is one of the largest international life insurance companies and has
been operating in the U.S. since 1895, establishing a headquarters office in
the U.S. in 1973. The executive officers of MFS report to the Chairman of Sun
Life.
Kevin R. Parke is the portfolio manager for the Research Portfolio. Mr. Parke
is the Director of Equity Research of MFS and oversees the selection of
portfolio securities made by the investment research analysts of the Equity
Research Group. Mr. Parke is a Senior Vice President - Investments of MFS and
has been employed as a portfolio manager by MFS since 1985.
David M. Calabro heads a team of portfolio managers of MFS for the Total
Return Portfolio. Mr. Calabro is a Vice President - Investments of MFS and
manages the equity portion of the portfolio along with Judith N. Lamb, a Vice
President - Investments of MFS, Lisa B. Nurme, a Vice President - Investments
of MFS and Maura Shaughnessy, a Vice President - Investment of MFS. Geoffrey
L. Kurinsky, a Senior Vice President - Investment manages the fixed income
portion of the portfolio and has been employed as a portfolio manager by MFS
since 1987. Mr. Calabro has been employed as a portfolio manager by MFS since
1992. Ms. Lamb has been employed as a portfolio manager by MFS since 1992. Ms.
Nurme has been employed as a portfolio manager by MFS since 1987. Ms.
Shaughnessy has been employed as a portfolio manager by MFS since 1991.
John W. Ballen and Mark Regan are the portfolio managers for the OTC
Portfolio. Mr. Ballen is a Senior Vice President - Investments and the Chief
Equity Officer at MFS and has been employed by MFS since 1984. Mr. Regan is a
Vice President - Investments at MFS and has been employed as a portfolio
manager by MFS since 1989.
Under the terms of the Sub-Advisory Agreement, the Adviser shall pay to MFS,
as full compensation for services rendered under the Sub-Advisory Agreement
with respect to the OTC, Research and Total Return Portfolios, the following
annual fees:
<TABLE>
<CAPTION>
<S> <C>
OTC Portfolio .40% of first $300 million
.25% of average net assets over and above $300 million
Research Portfolio .40% of first $300 million
.25% of average net assets over and above $300 million
Total Return .40% of first $300 million
Portfolio .25% of average net assets over and above $300 million
</TABLE>
CREDIT SUISSE INVESTMENT MANAGEMENT LTD. (FORMERLY, CS FIRST BOSTON
INVESTMENT MANAGEMENT LTD.), ("CSIML"), Beaufort House, London, England, is
the Sub-Adviser for the International Fixed Income Portfolio of the Trust.
CSIML is a wholly-owned subsidiary of Credit Suisse, the second largest Swiss
bank, which in turn is a subsidiary of CS Holding, a Swiss corporation.
Robert J. Parker and Mark J. Morris are the portfolio managers of CSIML for
the International Fixed Income Portfolio. Mr. Parker is a managing director,
and President of CSIML. Mr. Parker is also chief investment officer of the
international fixed income group. Mr. Parker was a founding member of CSIML.
Prior to joining the firm, he spent six years at N.M. Rothschild and Sons,
Limited as assistant director in the investment management department. He
began his career with Lloyds Bank International in France in the corporate
finance department. Mr. Parker earned an M.A. degree in economics from the
University of Cambridge.
Mr. Morris is a director and global fixed income portfolio manager of CSIML.
Mr. Morris has responsibility for both U.S. and non-U.S. clients. He joined
CSIML in 1986 as a fixed income portfolio manager with primary research
responsibility for Japan, and also to coordinate currency views. Prior to
joining the firm, he worked at Bank of America and Barclays National
Industrial Bank. Mr. Morris earned a B.Sc. degree in electrical engineering
and an M.B.A. degree in finance from Cape Town University. He is a member of
the Securities Institute.
Under the terms of the Sub-Advisory Agreement, the Adviser shall pay to CSIML
as full compensation for services rendered under the Agreement with respect to
the International Fixed Income Portfolio, the following annual fees:
<TABLE>
<CAPTION>
<S> <C>
International Fixed .45% of first $200 million
Income Portfolio .40% of next $300 million
.30% of next $500 million
.25% of next $1 billion
.10% of average net assets over and above $2 billion
</TABLE>
STRONG CAPITAL MANAGEMENT, INC. ("STRONG"), P.O. Box 2936, Milwaukee, WI
53201-2936, is the Sub-Adviser for the International Stock Portfolio of the
Trust.
Strong began conducting business in 1974. Since then, its principal business
has been providing continuous investment supervision for mutual funds,
individuals, and institutional accounts, such as pension funds and
profit-sharing plans. As of February 29, 1996, Strong had over $18 billion
under management. Mr. Richard S. Strong controls Strong. Strong also acts as
investment adviser for each of the mutual funds comprising the Strong Family
of Funds.
Anthony L.T. Cragg is the portfolio manager of Strong for the International
Stock Portfolio. Mr. Cragg joined Strong in April, 1993 to develop Strong's
international investment activities. During the prior seven years, he helped
establish Dillon, Read International Asset Management, where he was in charge
of Japanese, Asian, and Australian investments. A graduate of Christ Church,
Oxford University, Mr. Cragg began his investment career in 1980 at Gartmore,
Ltd., as an international investment manager, where his tenure included
assignments in London, Hong Kong, and Tokyo.
Under the terms of the Sub-Advisory Agreement, the Adviser shall pay to
Strong, as full compensation for services rendered under the Agreement with
respect to the International Stock Portfolio the following annual fees:
<TABLE>
<CAPTION>
<S> <C>
International Stock Portfolio .40% of first $300 million
.25% of average net assets over and above $300 million
</TABLE>
ROBERTSON, STEPHENS & COMPANY INVESTMENT MANAGEMENT, L.P., 555 California
Street, San Francisco, CA 94104, is the Sub-Adviser for the Growth & Income
and Value + Growth Portfolios of the Trust. Robertson, Stephens & Company
Investment Management, L.P., a California limited partnership, was formed in
1993 and is registered as an investment adviser with the Securities and
Exchange Commission. The general partner of Robertson, Stephens & Company
Investment Management, L.P. is Robertson, Stephens & Company, Inc., and the
principal limited partner is Robertson, Stephens & Company, L.P., a major
investment banking firm specializing in emerging growth companies that has
developed substantial investment research, underwriting, and venture capital
expertise. Since 1978, Robertson, Stephens & Company, L.P. has managed
underwritten public offerings for over $15.23 billion of securities of
emerging growth companies. Robertson, Stephens & Company Investment
Management, L.P., and its affiliates have in excess of $2.7 billion under
management in public and private investment funds. Robertson, Stephens &
Company, L.P., its general partner, Robertson, Stephens & Company, Inc. and
Sanford R. Robertson may be deemed to be control persons of Robertson,
Stephens & Company Investment Management, L.P.
Ronald E. Elijah joined Robertson, Stephens & Company Investment Management,
L.P. in 1992 and is the portfolio manager for the Value + Growth Portfolio.
From August 1985 to January, 1990, Mr. Elijah was a securities analyst for
Robertson, Stephens & Company, L.P. From January 1990 to January 1992, Mr.
Elijah was an analyst and portfolio manager for Water Street Capital, which
managed short selling investment funds.
John L. Wallace is the portfolio manager for the Growth & Income Portfolio.
Prior to joining Robertson, Stephens & Company Investment Management, L.P.,
Mr. Wallace was Vice President of Oppenheimer Management Corp., where he was
portfolio manager of the Oppenheimer Main Street Income and Growth Fund.
Under the terms of the Sub-Advisory Agreement, the Adviser shall pay to
Robertson, Stephens & Company Investment Management, L.P., as full
compensation for services rendered under the Agreement with respect to the
Growth & Income and Value + Growth Portfolios the following annual fees:
<TABLE>
<CAPTION>
<S> <C>
Growth & Income Portfolio .55% of first $200 million
.45% of average net assets over and above $200 million
Value + Growth Portfolio .55% of first $500 million
.45% of average net assets over and above $500 million
</TABLE>
SALES AND REDEMPTIONS
The separate account of the Life Company places orders to purchase and redeem
shares of each Portfolio based on, among other things, the amount of premium
payments to be invested and surrender and transfer requests to be effected on
that day pursuant to the VA contracts issued by the Life Company. Orders
received by the Trust are effected on days on which the New York Stock
Exchange is open for trading, at the net asset value per share next determined
after receipt of the order, except that, in the case of the Money Market
Portfolio, purchases will not be effected until the next determination of net
asset value after federal funds have been made available to the Trust. For
orders received before 4:00 p.m. New York time, such purchases and redemptions
of shares of each Portfolio are effected at the respective net asset values
per share determined as of 4:00 p.m. New York time on that day. See "Net
Asset Value," below and "Determination of Net Asset Value" in the Trust's SAI.
Payment for redemptions will be made within seven days after receipt of a
redemption request in good order. No fee is charged the separate account of
the Life Company when it redeems Portfolio shares. The Trust may suspend the
sale of shares at any time and may refuse any order to purchase shares.
The Trust may suspend the right of redemption of shares of any Portfolio and
may postpone payment for any period: (i) during which the New York Stock
Exchange is closed other than for customary weekend and holiday closings or
during which trading on the New York Stock Exchange is restricted; (ii) when
the Securities and Exchange Commission determines that a state of emergency
exists which makes the sale of portfolio securities or the determination of
net asset value not reasonably practicable; (iii) as the Securities and
Exchange Commission may by order permit for the protection of the security
holders of the Trust; or (iv) at any time when the Trust may, under applicable
laws and regulations, suspend payment on the redemption of its shares.
NET ASSET VALUE
Each Portfolio calculates the net asset value of a share by dividing the total
value of its assets, less liabilities, by the number of shares outstanding.
Shares are valued as of 4:00 p.m. New York time on each day the New York Stock
Exchange is open.
The Money Market Portfolio's securities are valued at their amortized cost,
which does not take into account unrealized gains or losses on securities.
This method involves initially valuing an instrument at its cost and
thereafter assuming a constant amortization to maturity of any premium paid
or discount received. For a more complete description of amortized cost
valuation, see "Determination of Net Asset Value" in the SAI.
Because foreign securities are quoted in foreign currencies which will be
translated into U.S. dollars at the New York cable transfer rates or at such
other rates as the Trustees may determine in computing net asset value,
fluctuations in the value of such currencies in relation to the U.S. dollar
will affect the net asset value of shares of a Portfolio investing in foreign
securities even though there has not been any change in the local currency
values of such securities.
PERFORMANCE INFORMATION
Money Market Portfolio: From time to time, the Money Market Portfolio's
annualized "yield" and "effective yield" may be presented in advertisements
and sales literature. These yield figures are based on historical earnings
and are not intended to indicate future performance. The "yield" of the Money
Market Portfolio refers to the income generated by an investment in the shares
of that Portfolio over a seven-day period (which period will be stated in the
advertisement). This income is then "annualized." That is, the amount of
income generated by the investment during that week is assumed to be generated
each week over a 52-week period and is shown as a percentage of the
investment. The "effective yield" is calculated similarly but, when
annualized, the income earned by an investment in the shares of the Money
Market Portfolio is assumed to be reinvested. The "effective yield" will be
slightly higher than the "yield" because of the compounding effect of this
assumed reinvestment. For more information regarding the computation of
"yield" and "effective yield", see "Performance Information" in the SAI.
Other Portfolios: Performance information for each of the other Portfolios may
also be presented from time to time in advertisements and sales literature.
The Portfolios may advertise several types of performance information. These
are the "yield," "average annual total return" and "aggregate total return".
Each of these figures is based upon historical results and is not necessarily
representative of the future performance of any Portfolio.
The yield of a Portfolio's shares is determined by annualizing net investment
income earned per share for a stated period (normally one month or thirty
days) and dividing the result by the net asset value per share at the end of
the valuation period. The average annual total return and aggregate total
return figures measure both the net investment income generated by, and the
effect of any realized or unrealized appreciation or depreciation of the
underlying investments in, the Portfolio's portfolio for the period in
question, assuming the reinvestment of all dividends. Thus, these figures
reflect the change in the value of an investment in a Portfolio's shares
during a specified period. Average annual total return will be quoted for at
least the one, five and ten year periods ending on a recent calendar quarter
(or if such periods have not yet elapsed, at the end of a shorter period
corresponding to the life of the Portfolio). Average annual total return
figures are annualized and, therefore, represent the average annual percentage
change over the period in question. Total return figures are not annualized
and represent the aggregate percentage or dollar value change over the period
in question. For more information regarding the computation of yield, average
annual total return and aggregate total return, see "Performance Information"
in the SAI.
Any Portfolio performance information presented will also include performance
information for the insurance company separate accounts investing in the Trust
which will take into account insurance-related charges and expenses under such
insurance policies and contracts.
Advertisements concerning the Trust may from time to time compare the
performance of one or more Portfolios to various indices. Advertisements may
also contain the performance rankings assigned certain Portfolios or their
advisers by various publications and statistical services, including, for
example, SEI, Lipper Analytical Services Mutual Funds Survey, Lipper Variable
Insurance Products Performance Analysis Service, Morningstar, Intersec
Research Survey of Non-U.S. Equity Fund Returns, Frank Russell International
Universe, and Financial Services Week. Any such comparisons or rankings are
based on past performance and the statistical computation performed by
publications and services, and are not necessarily indications of future
performance. Because the Portfolios are managed investment vehicles investing
in a wide variety of securities, the securities owned by a Portfolio will not
match those making up an index.
TAX STATUS, DIVIDENDS, AND DISTRIBUTIONS
Each Portfolio of the Trust intends to qualify and elect to be treated as a
regulated investment company that is taxed under the rules of Subchapter M of
the Internal Revenue Code. As such an electing regulated investment company,
a Portfolio will not be subject to federal income tax on its net ordinary
income and net realized capital gains to the extent such income and gains are
distributed to the separate account of the Life Company which hold its shares.
For further information concerning federal income tax consequences for the
holders of the VA contracts of the Life Company, investors should consult the
prospectus used in connection with the issuance of their VA contracts.
The Money Market Portfolio will declare a dividend of its net ordinary income
daily and distribute such dividend monthly. The Money Market Portfolio does
not anticipate that it will normally realize any long-term capital gains with
respect to its portfolio securities. Distributions will be made shortly after
the first business day of each month following declaration of the dividend.
Each of the other Portfolios will declare and distribute dividends from net
ordinary income at least annually and will distribute its net realized capital
gains, if any, at least annually. Distributions of ordinary income and
capital gains will be made in shares of such Portfolios unless an election is
made on behalf of a separate account to receive distributions in cash. The
Life Company will be informed at least annually about the amount and character
of distributions from the Trust for federal income tax purposes.
ADDITIONAL INFORMATION
The Trust was established as a Massachusetts business trust under the laws of
Massachusetts by a Declaration of Trust dated May 11, 1994 (the "Declaration
of Trust"). Under Massachusetts law, shareholders of such a trust may, under
certain circumstances, be held personally liable as partners for the
obligations of the trust. The Declaration of Trust contains an express
disclaimer of shareholder liability in connection with Trust property or the
acts, obligations, or affairs of the Trust. The Declaration of Trust also
provides for indemnification out of a Portfolio's property of any shareholder
of that Portfolio held personally liable for the claims and liabilities to
which a shareholder may become subject by reason of being or having been a
shareholder. Thus, the risk of a shareholder's incurring financial loss on
account of shareholder liability is limited to circumstances in which the
Portfolio itself would be unable to meet its obligations. A copy of the
Declaration of Trust is on file with the Secretary of State of The
Commonwealth of Massachusetts.
The Trust has an unlimited authorized number of shares of beneficial
interest. Shares of the Trust are entitled to one vote per share (with
proportional voting for fractional shares) and are freely
transferable, and, in liquidation of a Portfolio, shareholders of the
Portfolio are entitled to receive pro rata the net assets of the Portfolio.
Although no Portfolio is required to hold annual meetings of its shareholders,
shareholders have the right to call a meeting to elect or remove Trustees or
to take other actions as provided in the Declaration of Trust. Shareholders
have no preemptive rights. The Trust's custodian, transfer and
dividend-paying agent is State Street Bank and Trust Company.
To mitigate the possibility that a Portfolio will be adversely affected by
personal trading of employees, the Trust, the Adviser and the Sub-Advisers
have adopted policies that restrict securities trading in personal accounts of
the portfolio managers and others who normally come into possession of
information on portfolio transactions. These policies comply, in all material
respects, with the recommendations of the Investment Company Institute.
APPENDIX
SECURITIES AND INVESTMENT PRACTICES
In attempting to achieve its investment objective or policies each Portfolio
employs a variety of instruments, strategies and techniques, which are
described in greater detail below. Risks and restrictions associated with
these practices are also described. Policies and limitations are considered
at the time a security or instrument is purchased or a practice initiated.
Generally, securities need not be sold if subsequent changes in market value
result in applicable limitations not being met.
A Portfolio might not buy all of these securities or use all of these
techniques to the full extent permitted unless the Adviser or the Sub-Adviser,
subject to oversight by Adviser, believes that doing so will help the
Portfolio achieve its goal. As a shareholder, you will receive Portfolio
reports every six months detailing the Trust's holdings and describing recent
investment practices.
The investment guidelines set forth below may be changed at any time without
shareholder consent by vote of the Board of Trustees of the Trust. A complete
list of investment restrictions that identifies additional restrictions that
cannot be changed without the approval of a majority of an affected
Portfolio's outstanding shares is contained in the SAI.
AMERICAN DEPOSITARY RECEIPTS AND EUROPEAN DEPOSITARY RECEIPTS
Certain of the Portfolios may invest in securities of foreign issuers directly
or in the form of American Depositary Receipts ("ADRs"), European Depositary
Receipts ("EDRs") or other similar securities representing securities of
foreign issuers. These securities may not necessarily be denominated in the
same currency as the securities they represent. ADRs are receipts typically
issued by a United States bank or trust company evidencing beneficial
ownership of the underlying foreign securities. EDRs are receipts issued by a
European financial institution evidencing a similar arrangement. Generally,
ADRs, in registered form, are designed for use in the United States securities
markets, and EDRs, in bearer form, are designed for use in European securities
markets.
ASSET-BACKED SECURITIES
Certain of the Portfolios may purchase asset-backed securities, which
represent a participation in, or are secured by and payable from, a stream of
payments generated by particular assets, most often a pool of assets similar
to one another. Assets generating such payments may include motor vehicle
installment purchase obligations, credit card receivables and home equity
loans.
BANK OBLIGATIONS
All of the Portfolios may invest in Bank Obligations, which include
certificates of deposit, time deposits and bankers' acceptances of U.S.
commercial banks or savings and loan institutions which are determined by the
Adviser or the Sub-Advisers to present minimal credit risks. Certain of the
Portfolios may invest in foreign-currency denominated Bank Obligations,
including Euro-currency instruments and securities of U.S. and foreign banks
and thrifts.
BORROWING
Each of the Portfolios may borrow money (up to 33 1/3% of its assets) for
temporary or emergency purposes. In addition, the Money Market Portfolio
may borrow to facilitate redemptions. The Mortgage-Backed Securities
Portfolio and the International Fixed Income Portfolio may also borrow to
enhance income. If a Portfolio borrows money, its share price may be subject
to greater fluctuation until the borrowing is paid off. If the Portfolio
makes additional investments while borrowings are outstanding, this may be
construed as a form of leverage.
Borrowing, including reverse repurchase agreements and, in certain
circumstances, dollar rolls, creates leverage which increases a Portfolio's
investment risk. If the income and gains on the securities purchased with the
proceeds of borrowings exceed the cost of the arrangements, the Portfolio's
earnings or net asset value will increase faster than would be the case
otherwise. Conversely, if the income and gains fail to exceed the costs,
earnings or net asset value will decline faster than would otherwise be the
case.
BRADY BONDS
Certain Portfolios of the Trust may invest in Brady Bonds, which are
securities created through the exchange of existing commercial bank loans to
public and private entities in certain emerging markets for new bonds in
connection with debt restructurings under a debt restructuring plan introduced
by former U.S. Secretary of the Treasury, Nicholas F. Brady (the "Brady
Plan"). Brady Plan debt restructurings have been implemented to date in
Argentina, Brazil, Bulgaria, Costa Rica, Ecuador, Mexico, Nigeria, the
Philippines, Poland, Uruguay and Venezuela. Brady Bonds have been issued only
recently, and for that reason do not have a long payment history. Brady Bonds
may be collateralized or uncollateralized, are issued in various currencies
(but primarily the U.S. dollar) and are actively traded in over-the-counter
secondary markets. U.S. dollar denominated, collateralized Brady Bonds, which
may be fixed rate bonds or floating-rate bonds, are generally collateralized
in full as to principal by U.S. Treasury zero coupon bonds having the same
maturity as the bonds. Brady Bonds are often viewed as having three or four
valuation components: the collateralized repayment of principal at final
maturity; the collateralized interest payments; the uncollateralized interest
payments; and any uncollateralized repayment of principal at maturity (these
uncollateralized amounts constituting the "residual risk"). In light of the
residual risk of Brady Bonds and the history of defaults of countries issuing
Brady Bonds with respect to commercial bank loans by public and private
entities, investments in Brady Bonds may be viewed as speculative.
COMMON STOCK AND OTHER EQUITY SECURITIES
Common Stocks represent an equity (ownership) interest in a corporation. This
ownership interest generally gives a Portfolio the right to vote on measures
affecting the company's organization and operations.
Certain of the Portfolios may also buy securities such as convertible debt,
preferred stock, warrants or other securities exchangeable for shares of
Common Stock. In selecting equity investments for a Portfolio, the Adviser or
Sub-Adviser will generally invest the Portfolio's assets in industries and
companies that it believes are experiencing favorable demand for their
products and services and which operate in a favorable competitive and
regulatory climate.
CONVERTIBLE SECURITIES
A convertible security is a security that may be converted either at a stated
price or rate within a specified period of time into a specified number of
shares of Common Stock. By investing in Convertible Securities, a Portfolio
seeks the opportunity, through the conversion feature, to participate in the
capital appreciation of the Common Stock into which the securities are
convertible, while earning a higher fixed rate of return than is available in
Common Stocks.
CURRENCY MANAGEMENT
A Portfolio's flexibility to participate in higher yielding debt markets
outside of the United States may allow the Portfolio to achieve higher yields
than those generally obtained by domestic money market funds and short-term
bond investments. When a Portfolio invests significantly in securities
denominated in foreign currencies, however, movements in foreign currency
exchange rates versus the U.S. dollar are likely to impact the Portfolio's
share price stability relative to domestic short-term income funds.
Fluctuations in foreign currencies can have a positive or negative impact on
returns. Normally, to the extent that the Portfolio is invested in foreign
securities, a weakening in the U.S. dollar relative to the foreign currencies
underlying a Portfolio's investments should help increase the net asset value
of the Portfolio. Conversely, a strengthening in the U.S. dollar versus the
foreign currencies in which a Portfolio's securities are denominated will
generally lower the net asset value of the Portfolio. The Adviser or
Sub-Adviser attempts to minimize exchange rate risk through active portfolio
management, including hedging currency exposure through the use of futures,
options and forward currency transactions and attempting to identify bond
markets with strong or stable currencies. There can be no assurance that such
hedging will be successful and such transactions, if unsuccessful, could
result in additional losses or expenses to a Portfolio.
DOLLAR ROLL TRANSACTIONS
Certain Portfolios seeking a high level of current income may enter into
dollar rolls or "covered rolls" in which the Portfolio sells securities
(usually Mortgage-Backed Securities) and simultaneously contracts to purchase,
typically in 30 to 60 days, substantially similar, but not identical
securities, on a specified future date. The proceeds of the initial sale of
securities in the Dollar Roll Transactions may be used to purchase long-term
securities which will be held during the roll period. During the roll period,
the Portfolio forgoes principal and interest paid on the securities sold at
the beginning of the roll period. The Portfolio is compensated by the
difference between the current sales price and the forward price for the
future purchase (often referred to as the "drop") as well as by the interest
earned on the cash proceeds of the initial sale. A "covered roll" is a
specific type of dollar roll for which there is an offsetting cash position or
cash equivalent securities position that matures on or before the forward
settlement date of the dollar roll transaction. As used herein the term
"dollar roll" refers to dollar rolls that are not "covered rolls." At the end
of the roll commitment period, the Portfolio may or may not take delivery of
the securities the Portfolio has contracted to purchase.
The Portfolio will establish a segregated account with its custodian in which
it will maintain cash, U.S. Government Securities or other liquid high-grade
debt obligations equal in value at all times to its obligations in respect of
dollar rolls, and, accordingly, the Portfolio will not treat such obligations
as senior securities for purposes of the 1940 Act. "Covered rolls" are not
subject to these segregation requirements. Dollar Roll Transactions may be
considered borrowings and are, therefore, subject to the borrowing limitations
applicable to the Portfolios.
EQUITY AND DEBT SECURITIES ISSUED OR GUARANTEED BY SUPRANATIONAL ORGANIZATIONS
Portfolios authorized to invest in securities of foreign issuers may
invest assets in equity and debt securities issued or guaranteed by
Supranational Organizations, such as obligations issued or guaranteed by the
Asian Development Bank, Inter-American Development Bank, International Bank
for Reconstruction and Development (World Bank), African Development Bank,
European Coal and Steel Community, European Economic Community, European
Investment Bank and the Nordic Investment Bank.
EXCHANGE RATE-RELATED SECURITIES
Certain of the Portfolios may invest in securities which are indexed to
certain specific foreign currency exchange rates. The terms of such security
would provide that the principal amount or interest payments are adjusted
upwards or downwards (but not below zero) at payment to reflect fluctuations
in the exchange rate between two currencies while the obligation is
outstanding, depending on the terms of the specific security. A Portfolio
will purchase such security with the currency in which it is denominated and
will receive interest and principal payments thereon in the currency, but the
amount of principal or interest payable by the issuer will vary in proportion
to the change (if any) in the exchange rate between the two specific
currencies between the date the instrument is issued and the date the
principal or interest payment is due. The staff of the SEC is currently
considering whether a mutual fund's purchase of this type of security would
result in the issuance of a "senior security" within the meaning of the 1940
Act. The Trust believes that such investments do not involve the creation of
such a senior security, but nevertheless undertakes, pending the resolution of
this issue by the staff, to establish a segregated account with respect to
such investments and to maintain in such account cash not available for
investment or U.S. Government Securities or other liquid high quality debt
securities having a value equal to the aggregate principal amount of
outstanding securities of this type.
Investment in Exchange Rate-Related Securities entails certain risks. There
is the possibility of significant changes in rates of exchange between the
U.S. dollar and any foreign currency to which an Exchange Rate-Related
Security is linked. In addition, there is no assurance that sufficient
trading interest to create a liquid secondary market will exist for a
particular Exchange Rate-Related Security due to conditions in the debt and
foreign currency markets. Illiquidity in the forward foreign exchange market
and the high volatility of the foreign exchange market may from time to time
combine to make it difficult to sell an Exchange Rate-Related Security prior
to maturity without incurring a significant price loss.
FIXED-INCOME SECURITIES
The market value of fixed-income obligations held by the Portfolios and,
consequently, the net asset value per share of the Portfolios can be expected
to vary inversely to changes in prevailing interest rates. Investors should
also recognize that, in periods of declining interest rates, the yields of the
Bond Portfolios will tend to be somewhat higher than prevailing market rates
and, in periods of rising interest rates, the Bond Portfolios' yields will
tend to be somewhat lower. Also, when interest rates are falling, the inflow
of net new money to the Bond Portfolios from the continuous sales of their
shares will likely be invested in instruments producing lower yields than the
balance of their assets, thereby reducing current yields. In periods of
rising interest rates, the opposite can be expected to occur. Prices of
longer term securities generally increase or decrease more sharply than those
of shorter term securities in response to interest rate changes. In addition,
obligations purchased by certain of the Bond Portfolios that are rated in the
lower categories are considered to have speculative characteristics and
changes in economic conditions or other circumstances are more likely to lead
to a weakened capacity to make principal and interest payments than is the
case with higher grade securities. (See "Lower Rated Securities" in this
Appendix.)
FOREIGN CURRENCY EXCHANGE TRANSACTIONS
Certain of the Portfolios may engage in foreign currency exchange
transactions. Portfolios that buy and sell securities denominated in
currencies other than the U.S. dollar, and receive interest, dividends and
sale proceeds in currencies other than the U.S. dollar, may enter into foreign
currency exchange transactions to convert to and from different foreign
currencies and to convert foreign currencies to and from the U.S. dollar. A
Portfolio can either enter into these transactions on a spot (i.e., cash)
basis at the spot rate prevailing in the foreign currency exchange market, or
use forward contracts to purchase or sell foreign currencies.
A forward foreign currency exchange contract is an obligation by a Portfolio
to purchase or sell a specific currency at a future date, which may be any
fixed number of days from the date of the contract. Forward foreign currency
exchange contracts establish an exchange rate at a future date. These
contracts are transferable in the interbank market conducted directly between
currency traders (usually large commercial banks) and their customers. A
forward foreign currency exchange contract generally has no deposit
requirement, and is traded at a net price without a commission. When a
Portfolio engages in forward contracts for the sale or purchase of currencies,
the Portfolio will either cover its position or establish a segregated
account. The Portfolio will consider its position covered if it has
securities in the currency subject to the forward contract, or otherwise has
the right to obtain that currency at no additional cost. In the alternative,
the Trust, on behalf of the Portfolio, will place cash which is not available
for investment, liquid, high-grade debt securities or other securities
(denominated in the foreign currency subject to the forward contract) in a
separate account. The amounts in such separate account will equal the value
of the Portfolio's total assets which are committed to the consummation of
foreign currency exchange contracts. If the value of the securities placed in
the separate account declines, the Trust, on behalf of the Portfolio, will
place additional cash or securities in the account on a daily basis so that
the value of the account will equal the amount of the Portfolio's commitments
with respect to such contracts. Neither spot transactions nor forward foreign
currency exchange contracts eliminate fluctuations in the prices of the
Portfolio's portfolio securities or in foreign exchange rates, or prevent loss
if the prices of these securities should decline.
A Portfolio may enter into foreign currency exchange transactions for hedging
purposes as well as for non-hedging purposes. Transactions are entered into
for hedging purposes in an attempt to protect against changes in foreign
currency exchange rates between the trade and settlement dates of specific
securities transactions or changes in foreign currency exchange rates that
would adversely affect a portfolio position or an anticipated portfolio
position. Although these transactions tend to minimize the risk of loss due
to a decline in the value of the hedged currency, at the same time they tend
to limit any potential gain that might be realized should the value of the
hedged currency increase. 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 these securities in foreign currencies
will change as a consequence of market movements in the value of those
securities between the date the forward contract is entered into and the date
it matures. The projection of currency market movements is extremely
difficult, and the successful execution of a hedging strategy is highly
uncertain. In addition, when the Adviser or Sub-Adviser believes that the
currency of a specific country may deteriorate against another currency, it
may enter into a forward contract to sell the less attractive currency and buy
the more attractive one. The amount in question could be less than or equal
to the value of the Portfolio's securities denominated in the less attractive
currency. The Portfolio may also enter into a forward contract to sell a
currency which is linked to a currency or currencies in which some or all of
the Portfolio's portfolio securities are or could be denominated, and to buy
U.S. dollars. These practices are referred to as "cross hedging" and "proxy
hedging."
A Portfolio may enter into foreign currency exchange transactions for other
than hedging purposes which presents greater profit potential but also
involves increased risk. For example, if the Adviser or Sub-Adviser believes
that the value of a particular foreign currency will increase or decrease
relative to the value of the U.S. dollar, the Portfolio may purchase or sell
such currency, respectively, through a forward foreign currency exchange
contract. If the expected changes in the value of the currency occur, the
Portfolio will realize profits which will increase its gross income. Where
exchange rates do not move in the direction or to the extent anticipated,
however, the Portfolio may sustain losses which will reduce its gross income.
Such transactions, therefore, could be considered speculative.
Forward currency exchange contracts are agreements to exchange one currency
for another--for example, to exchange a certain amount of U.S. dollars for a
certain amount of Japanese Yen--at a future date and specified price.
Typically, the other party to a currency exchange contract will be a
commercial bank or other financial institution. Because there is a risk of
loss to the Portfolio if the other party does not complete the transaction,
the Portfolio's Adviser or Sub-Adviser will enter into foreign currency
exchange contracts only with parties approved by the Trust's Board of
Trustees.
A Portfolio may maintain "short" positions in forward currency exchange
transactions in which the Portfolio agrees to exchange currency that it
currently does not own for another currency--for example, to exchange an
amount of Japanese Yen that it does not own for a certain amount of U.S.
dollars--at a future date and specified price in anticipation of a decline in
the value of the currency sold short relative to the currency that the
Portfolio has contracted to receive in the exchange.
While such actions are intended to protect the Portfolio from adverse currency
movements, there is a risk that currency movements involved will not be
properly anticipated. Use of this technique may also be limited by
management's need to protect the status of the Portfolio as a regulated
investment company under the Internal Revenue Code of 1986, as amended. The
projection of currency market movements is extremely difficult, and the
successful execution of currency strategies is highly uncertain.
FOREIGN INVESTMENTS
Certain Portfolios may invest in securities of foreign issuers. There are
certain risks involved in investing in foreign securities, including those
resulting from fluctuations in currency exchange rates, devaluation of
currencies, future political or economic developments and the possible
imposition of currency exchange blockages or other foreign governmental laws
or restrictions, reduced availability of public information concerning
issuers, and the fact that foreign companies are not generally subject to
uniform accounting, auditing and financial reporting standards or to other
regulatory practices and requirements comparable to those applicable to
domestic companies. Moreover, securities of many foreign companies may be
less liquid and the prices more volatile than those of securities of
comparable domestic companies. With respect to certain foreign countries,
there is the possibility of expropriation, nationalization, confiscatory
taxation and limitations on the use or removal of funds or other assets of the
Portfolios, including the withholding of dividends.
Because foreign securities generally are denominated and pay dividends or
interest in foreign currencies, and the Portfolios hold various foreign
currencies from time to time, the value of the net assets of the Portfolios as
measured in U.S. dollars will be affected favorably or unfavorably by changes
in exchange rates. The cost of the Portfolio's currency exchange transactions
will generally be the difference between the bid and offer spot rate of the
currency being purchased or sold. In order to protect against uncertainty in
the level of future foreign currency exchange rates, the Portfolios are
authorized to enter into certain foreign currency exchange transactions.
Investors should be aware that exchange rate movements can be significant and
can endure for long periods of time. Extensive research of the economic,
political and social factors that influence global markets is conducted by the
Sub-Advisers. Particular attention is given to country-specific analysis,
reviewing the strength or weakness of a country's overall economy, the
government policies influencing business conditions and the outlook for the
country's currency. Certain Portfolios are authorized to engage in foreign
currency options, futures, options on futures and forward currency contract
transactions for hedging and/or other permissible purposes.
In addition, while the volume of transactions effected on foreign stock
exchanges has increased in recent years, in most cases it remains appreciably
below that of the NYSE. Accordingly, the Portfolios' foreign investments may
be less liquid and their prices may be more volatile than comparable
investments in securities of United States companies. Moreover, the
settlement periods for foreign securities, which are often longer than those
for securities of United States issuers, may affect portfolio liquidity. In
buying and selling securities on foreign exchanges, the Portfolio normally
pays fixed commissions that are generally higher than the negotiated
commissions charged in the United States. In addition, there is generally
less governmental supervision and regulation of securities exchanges, brokers
and issuers in foreign countries than in the United States.
Certain of the Portfolios may invest, as described below, in countries or
regions with relatively low gross national product per capita compared to the
world's major economies, and in countries or regions with the potential for
rapid economic growth (emerging markets). Emerging markets will include any
country: (i) having an "emerging stock market" as defined by the International
Finance Corporation; (ii) with low- to middle-income economies according to
the International Bank for Reconstruction and Development (the World Bank);
(iii) listed in World Bank publications as developing; or (iv) determined by
the Adviser or a Sub-Adviser to be an emerging market as defined above. The
Portfolio may invest in securities of: (i) companies the principal securities
trading market for which is an emerging market country; (ii) companies
organized under the laws of, and with a principal office in, an emerging
market country; (iii) companies whose principal activities are located in
emerging market countries; (iv) companies traded in any market that derive 50%
or more of their total revenue from either goods or services produced in an
emerging market or sold in an emerging market; (v) companies that have 50% or
more of their assets in an emerging market country; or (vi) the security is
issued or guaranteed by the government of an emerging market country or any of
its agencies, authorities or instrumentalities.
The risks of investing in foreign securities may be intensified in the case of
investments in emerging markets. Securities prices in emerging markets can be
significantly more volatile than in the more developed nations of the world,
reflecting the greater uncertainties of investing in less established markets
and economies. In particular, countries with emerging markets may have
relatively unstable governments, present the risk of nationalization of
businesses, restrictions on foreign ownership, or prohibitions of repatriation
of assets, and may have less protection of property rights than more developed
countries. The economies of countries with emerging markets may be
predominantly based on only a few industries, may be highly vulnerable to
changes in local or global trade conditions, and may suffer from extreme and
volatile debt burdens or inflation rates. Local securities markets may trade
a small number of securities and may be unable to respond effectively to
increases in trading volume, potentially making prompt liquidation of
substantial holdings difficult or impossible at times. Securities of issuers
located in countries with emerging markets may have limited marketability and
may be subject to more abrupt or erratic price movements.
FUTURES AND OPTIONS ON FUTURES
When deemed appropriate by its Adviser or Sub-Adviser, certain Portfolios may
enter into financial or currency futures and related options that are traded
on a U.S. exchange or board of trade or, to the extent permitted by applicable
law, on exchanges located outside the U.S., for hedging purposes or for
non-hedging purposes to the extent permitted by applicable law. A Portfolio
may not enter into futures and options contracts for which aggregate initial
margin deposits and premiums paid for unexpired futures options entered into
for purposes other than "bona fide hedging" positioning as defined in
regulations adopted by the Commodity Future Trading Commission exceed 5% of
the fair market value of the Portfolio's net assets, after taking into account
unrealized profits and unrealized losses on futures contracts into which it
has entered. With respect to each long position in a futures contract or
option thereon, the underlying commodity value of such contract will always be
covered by cash and cash equivalents set aside plus accrued profits held at
the futures commission merchant.
A financial or currency futures contract provides for the future sale by one
party and the purchase by the other party of a specified amount of a
particular financial instrument or currency (e.g., debt security or currency)
at a specified price, date, time and place. An index futures contract is an
agreement pursuant to which two parties agree to take or make delivery of an
amount of cash equal to the difference between the value of the index at the
close of the last trading day of the contract and the price at which the index
contract was originally written. An option on a futures contract generally
gives the purchaser the right, in return for the premium paid, to assume a
position in a futures contract at a specified exercise price at any time prior
to the expiration date of the option.
The purpose of entering into a futures contract by a Portfolio is to either
enhance return or to protect the Portfolio from fluctuations in the value of
its securities caused by anticipated changes in interest rates, currency or
market conditions without necessarily buying or selling the securities. The
use of futures contracts and options on futures contracts involves several
risks. There can be no assurance that there will be a correlation between
price movements in the underlying securities, currencies or index, on the one
hand, and price movements in the securities which are the subject of the
futures contract or option on futures contract, on the other hand. Positions
in futures contracts and options on futures contracts may be closed out only
on the exchange or board of trade on which they were entered into, and there
can be no assurance that an active market will exist for a particular contract
or option at any particular time. If a Portfolio has hedged against the
possibility of an increase in interest rates or bond prices adversely
affecting the value of securities held in its portfolio and rates or prices
decrease instead, a Portfolio will lose part or all of the benefit of the
increased value of securities that it has hedged because it will have
offsetting losses in its futures positions. In addition, in such situations,
if a Portfolio had insufficient cash, it may have to sell securities to meet
daily variation margin requirements at a time when it may be disadvantageous
to do so. These sales of securities may, but will not necessarily, be at
increased prices that reflect the decline in interest rates or bond prices, as
the case may be. In addition, the Portfolio would pay commissions and other
costs in connection with such investments, which may increase the Portfolio's
expenses and reduce its return. While utilization of options, futures
contracts and similar instruments may be advantageous to the Portfolio, if the
Portfolio's Adviser or Sub-Adviser is not successful in employing such
instruments in managing the Portfolio's investments, the Portfolio's
performance will be worse than if the Portfolio did not make such investments.
Losses incurred in futures contracts and options on futures contracts and the
costs of these transactions will adversely affect a Portfolio's performance.
GEOGRAPHICAL AND INDUSTRY CONCENTRATION
Where a Portfolio invests at least 25% of its assets in Bank Obligations, the
Portfolio's investments may be subject to greater risk than a Portfolio that
does not concentrate in the banking industry. In particular, Bank Obligations
may be subject to the risks associated with interest rate volatility, changes
in federal and state laws and regulations governing banking and the inability
of borrowers to pay principal and interest when due. In addition, foreign
banks present the risks of investing in foreign securities generally and are
not subject to reserve requirements and other regulations comparable to those
of U.S. Banks.
GOVERNMENT STRIPPED MORTGAGE-BACKED SECURITIES
Certain Portfolios may invest in Government Stripped Mortgage-Backed
Securities issued or guaranteed by the Government National Mortgage
Association ("GNMA"), Federal National Mortgage Association ("FNMA") and
Federal Home Loan Mortgage Corporation ("FHLMC"). These securities represent
beneficial ownership interests in either periodic principal distributions
("principal-only") or interest distributions ("interest-only") on
mortgage-backed certificates issued by GNMA, FNMA or FHLMC, as the case may
be. The certificates underlying the Government Stripped Mortgage-Backed
Securities represent all or part of the beneficial interest in pools of
mortgage loans. The Portfolios will invest in interest-only Government
Stripped Mortgage-Backed Securities in order to enhance yield or to benefit
from anticipated appreciation in value of the securities at times when the
Adviser or the appropriate Sub-Adviser believes that interest rates will
remain stable or increase. In periods of rising interest rates, the value of
interest-only Government Stripped Mortgage-Backed Securities may be expected
to increase because of the diminished expectation that the underlying
mortgages will be prepaid. In this situation the expected increase in the
value of interest-only Government Stripped Mortgage-Backed Securities may
offset all or a portion of any decline in value of the portfolio securities of
the Portfolios. Investing in Government Stripped Mortgage-Backed Securities
involves the risks normally associated with investing in mortgage-backed
securities issued by government or government-related entities. See
"Mortgage-Backed Securities" below. In addition, the yields on interest-only
and principal-only Government Stripped Mortgage-Backed Securities are
extremely sensitive to the prepayment experience on the mortgage loans
underlying the certificates collateralizing the securities. If a decline in
the level of prevailing interest rates results in a rate of principal
prepayments higher than anticipated, distributions of principal will be
accelerated, thereby reducing the yield to maturity on interest-only
Government Stripped MortgageBacked Securities and increasing the yield to
maturity on principal-only Government Stripped Mortgage-Backed Securities.
Conversely, if an increase in the level of prevailing interest rates results
in a rate of principal prepayments lower than anticipated, distributions of
principal will be deferred, thereby increasing the yield to maturity on
interest-only Government Stripped Mortgage-Backed Securities and decreasing
the yield to maturity on principal-only Government Stripped Mortgage-Backed
Securities. Sufficiently high prepayment rates could result in the Portfolio
not fully recovering its initial investment in an interest-only Government
Stripped Mortgage-Backed Security. Government Stripped Mortgage-Backed
Securities are currently traded in an over-the-counter market maintained by
several large investment banking firms. There can be no assurance that the
Portfolio will be able to effect a trade of a Government Stripped
Mortgage-Backed Security at a time when it wishes to do so. The Portfolios
will acquire Government Stripped Mortgage-Backed Securities only if a liquid
secondary market for the securities exists at the time of acquisition.
INTEREST RATE TRANSACTIONS
Certain Portfolios may engage in certain Interest Rate Transactions, such as
swaps, caps, floors and collars. Interest rate swaps involve the exchange
with another party of commitments to pay or receive interest (e.g., an
exchange of floating rate payments for fixed rate payments). The purchase of
an interest rate cap entitles the purchaser, to the extent that a specified
index exceeds a predetermined interest rate, to receive payments of interest
on a notional principal amount from the party selling such interest rate cap.
The purchase of an interest rate floor entitles the purchaser, to the extent
that a specified index falls below a predetermined interest rate, to receive
payments of interest on a notional principal amount from the party selling
such interest rate floor. An interest rate collar combines the elements of
purchasing a cap and selling a floor. The collar protects against an interest
rate rise above the maximum amount but gives up the benefits of an interest
rate decline below the minimum amount. The net amount of the excess, if any,
of a Portfolio's obligations over its entitlements with respect to each
interest rate swap will be accrued on a daily basis and an amount of cash or
liquid securities having an aggregate net asset value at least equal to the
accrued excess will be maintained in a segregated account with the Trust's
custodian. If there is a default by the other party to the transaction, the
Portfolio will have contractual remedies pursuant to the agreements related to
the transactions.
ILLIQUID SECURITIES
Up to 10% (15% for the International Fixed Income Portfolio, Mortgage-Backed
Securities Portfolio, OTC Portfolio and Total Return Portfolio) of the net
assets of a Portfolio may be invested in securities that are not readily
marketable, including, where applicable: (1) Repurchase Agreements with
maturities greater than seven calendar days; (2) time deposits maturing in
more than seven calendar days; (3) to the extent a liquid secondary market
does not exist for the instruments, futures contracts and options thereon
(except for the Money Market Portfolio); (4) certain over-the-counter options,
as described in the SAI; (5) certain variable rate demand notes having a
demand period of more than seven days; and (6) securities the disposition of
which is restricted under Federal securities laws (excluding Rule 144A
Securities, described below). The Portfolios will not include for purposes of
the restrictions on illiquid investments, securities sold pursuant to Rule
144A under the Securities Act of 1933, as amended, so long as such securities
meet liquidity guidelines established by the Trust's Board of Trustees. Under
Rule 144A, securities which would otherwise be restricted may be sold by
persons other than issuers or dealers to qualified institutional buyers.
INVESTMENT COMPANIES
When a Portfolio's Adviser or Sub-Adviser believes that it would be
beneficial for the Portfolio and appropriate under the circumstances, up to
10% of the Portfolio's assets may be invested in securities of mutual funds.
As a shareholder in any such mutual fund, the Portfolio will bear its ratable
share of the mutual fund's expenses, including management fees, and will
remain subject to the Portfolio's advisory and administration fees with
respect to the assets so invested.
LEASE OBLIGATION BONDS
Lease Obligation Bonds are mortgages on a facility that is secured by the
facility and are paid by a lessee over a long term. The rental stream to
service the debt as well as the mortgage are held by a collateral trustee on
behalf of the public bondholders. The primary risk of such instrument is the
risk of default. Under the lease indenture, the failure to pay rent is an
event of default. The remedy to cure default is to rescind the lease and sell
the assets. If the lease obligation is not readily marketable or market
quotations are not readily available, such lease obligations will be subject
to a Portfolio's limit on Illiquid Securities.
LENDING OF SECURITIES
All of the Portfolios have the ability to lend portfolio securities to brokers
and other financial organizations. By lending its securities, a Portfolio can
increase its income by continuing to receive interest on the loaned securities
as well as by either investing the cash collateral in short-term instruments
or obtaining yield in the form of interest paid by the borrower when U.S.
Government Securities are used as collateral. These loans, if and when made,
may not exceed 20% (25% with respect to the Money Market Portfolio) of a
Portfolio's total assets taken at value. Loans of portfolio securities by a
Portfolio will be collateralized by cash, irrevocable letters of credit or
U.S. Government Securities that are maintained at all times in an amount at
least equal to the current market value of the loaned securities. Any gain or
loss in the market price of the securities loaned that might occur during the
term of the loan would be for the account of the Portfolio involved. Each
Portfolio's Adviser or Sub-Adviser will monitor on an ongoing basis the credit
worthiness of the institutions to which the Portfolio lends securities.
LOWER-RATED SECURITIES
Certain Portfolios may invest in debt securities rated in the lower NRSRO
categories (e.g., BBB- by S&P or Baa3 by Moody's), or of equivalent quality as
determined by the Adviser or Sub-Adviser. Securities rated BB+, Ba1 or lower
are commonly referred to as high yield securities or "junk bonds."
Securities rated below investment grade as well as unrated securities are
often considered to be speculative and usually entail greater risk (including
the possibility of default or bankruptcy of the issuers). Such securities
generally involve greater price volatility and risk of principal and income,
and may be less liquid, than securities in higher rated categories. Both
price volatility and illiquidity may make it difficult for the Portfolio to
value certain of these securities at certain times and these securities may be
difficult to sell under certain market conditions. Prices for securities
rated below investment grade may be affected by legislative and regulatory
developments. (See SAI for additional information pertaining to lower-rated
securities including risks.)
MORTGAGE-BACKED SECURITIES
Certain of the Portfolios may invest in Mortgage-Backed Securities, which
represent an interest in a pool of mortgage loans. The primary government
issuers or guarantors of Mortgage-Backed Securities are GNMA, FHMA and FHLMC.
Mortgage-Backed Securities provide a monthly payment consisting of interest
and principal payments. Additional payments may be made out of unscheduled
repayments of principal resulting from the sale of the underlying residential
property, refinancing or foreclosure, net of fees or costs that may be
incurred. Prepayments of principal on Mortgage-Backed Securities may tend to
increase due to refinancing of mortgages as interest rates decline. Prompt
payment of principal and interest on GNMA mortgage pass-through certificates
is backed by the full faith and credit of the U.S. government. FNMA
guaranteed mortgage pass-through certificates and FHLMC participation
certificates are solely the obligations of those entities but are supported by
the discretionary authority of the U.S. Government to purchase the agencies'
obligations. Collateralized Mortgage Obligations are a type of bond secured
by an underlying pool of mortgages or mortgage pass-through certificates that
are structured to direct payments on underlying collateral to different series
or classes of the obligations.
To the extent that a Portfolio purchases mortgage-related or mortgage-backed
securities at a premium, prepayments may result in some loss of the
Portfolio's principal investment to the extent of the premium paid. The yield
of the Portfolio may be affected by reinvestment of prepayments at higher or
lower rates than the original investment. In addition, like other debt
securities, the value of mortgage-related securities, including government and
government-related mortgage pools, will generally fluctuate in response to
market interest rates.
NEW ISSUERS
A Portfolio may invest up to 5% (except for the OTC Portfolio which may invest
without limitation) of its assets in the securities of issuers which have been
in continuous operation for less than three years.
OPTIONS ON SECURITIES
OPTION PURCHASE. Certain Portfolios may purchase put and call options on
portfolio securities in which they may invest that are traded on a U.S. or
foreign securities exchange or in the over-the-counter market. A Portfolio
may utilize up to 10% of its assets to purchase put options on portfolio
securities and may do so at or about the same time that it purchases the
underlying security or at a later time and may also utilize up to 10% of its
assets to purchase call options on securities in which it is authorized to
invest. By buying a put, the Portfolios limit their risk of loss from a
decline in the market value of the security until the put expires. Any
appreciation in the value of the underlying security, however, will be
partially offset by the amount of the premium paid for the put option and any
related transaction costs. Call options may be purchased by the Portfolio in
order to acquire the underlying securities for the Portfolio at a price that
avoids any additional cost that would result from a substantial increase in
the market value of a security. The Portfolios may also purchase call options
to increase their return to investors at a time when the call is expected to
increase in value due to anticipated appreciation of the underlying security.
Prior to their expirations, put and call options may be sold in closing sale
transactions (sales by the Portfolio, prior to the exercise of options that it
has purchased, of options of the same series), and profit or loss from the
sale will depend on whether the amount received is more or less than the
premium paid for the option plus the related transaction costs.
COVERED OPTION WRITING. Certain Portfolios may write put and call
options on securities for hedging purposes. The Portfolios realize fees
(referred to as "premiums") for granting the rights evidenced by the options.
A put option embodies the right of its purchaser to compel the writer of the
option to purchase from the option holder an underlying security at a
specified price at any time during the option period. In contrast, a call
option embodies the right of its purchaser to compel the writer of the option
to sell to the option holder an underlying security at a specified price at
anytime during the option period.
Upon the exercise of a put option written by a Portfolio, the Portfolio may
suffer a loss equal to the difference between the price at which the Portfolio
is required to purchase the underlying security and its market value at the
time of the option exercise, less the premium received for writing the option.
Upon the exercise of a call option written by the Portfolio, the Portfolio
may suffer a loss equal to the excess of the security's market value at the
time of the option exercise over the Portfolio's acquisition cost of the
security, less the premium received for writing the option.
Each Portfolio will comply with regulatory requirements of the SEC and the
Commodity Futures Trading Commission with respect to coverage of options and
futures positions by registered investment companies and, if the guidelines so
require, will set aside cash and/or appropriate liquid assets in a segregated
custodial account in the amount prescribed. Securities held in a segregated
account cannot be sold while the futures or options position is outstanding,
unless replaced with other permissible assets. As a result, there is a
possibility that the segregation of a large percentage of a Portfolio's assets
may force the Portfolio to close out futures and options positions and/or
liquidate other portfolio securities, any of which may occur at
disadvantageous prices, in order for the Portfolio to meet redemption requests
or other current obligations.
The principal reason for writing covered call and put options on a securities
portfolio is to attempt to realize, through the receipt of premiums, a greater
return than would be realized on the securities alone. In return for a
premium, the writer of a covered call option forfeits the rights to any
appreciation in the value of the underlying security above the strike price
for the life of the option (or until a closing purchase transaction can be
effected). Nevertheless, the call writer retains the risk of a decline in the
price of the underlying security. Similarly, the principal reason for writing
covered put options is to realize income in the form of premiums. The writer
of the covered put option accepts the risk of a decline in the price of the
underlying security. The size of the premiums that the Portfolios may receive
may be adversely affected as new or existing institutions, including other
investment companies, engage in or increase their option-writing activities.
The Portfolios may engage in closing purchase transactions to realize a
profit, to prevent an underlying security from being called or put or, in the
case of a call option, to unfreeze an underlying security (thereby permitting
its sale or the writing of a new option on the security prior to the
outstanding option's expiration). To effect a closing purchase transaction,
the Portfolios would purchase, prior to the holder's exercise of an option
that the Portfolio has written, an option of the same series as that on which
the Portfolio desires to terminate its obligation. The obligation of the
Portfolio under an option that it has written would be terminated by a closing
purchase transaction, but the Portfolio would not be deemed to own an option
as the result of the transaction. There can be no assurance that the
Portfolio will be able to effect closing purchase transactions at a time when
it wishes to do so. The ability of the Portfolio to engage in closing
transactions with respect to options depends on the existence of a liquid
secondary market. While the Portfolio will generally purchase or write
options only if there appears to be a liquid secondary market for the options
purchased or sold, for some options no such secondary market may exist or the
market may cease to exist. To facilitate closing purchase transactions,
however, the Portfolio will ordinarily write options only if a secondary
market for the options exists on a U.S. securities exchange or in the
over-the-counter market.
Option writing for the Portfolios may be limited by position and exercise
limits established by U.S. securities exchanges and the National Association
of Securities Dealers, Inc. and by requirements of the Code for qualification
as a regulated investment company. In addition to writing covered put and
call options to generate current income, the Portfolios may enter into options
transactions as hedges to reduce investment risk, generally by making an
investment expected to move in the opposite direction of a portfolio position.
A hedge is designed to offset a loss on a portfolio position with a gain on
the hedge position; at the same time, however, a properly correlated hedge
will result in a gain on the portfolio position's being offset by a loss on
the hedge position. The Portfolios bear the risk that the prices of the
securities being hedged will not move in the same amount as the hedge. A
Portfolio will engage in hedging transactions only when deemed advisable by
its Adviser or Sub-Adviser. Successful use by the Portfolio of options will
depend on its Adviser's or Sub-Adviser's ability to correctly predict
movements in the direction of the stock underlying the option used as a hedge.
Losses incurred in hedging transactions and the costs of these transactions
will adversely affect the Portfolio's performance.
OPTIONS ON FOREIGN CURRENCIES
A Portfolio may purchase and write put and call options on foreign currencies
for the purpose of hedging against declines in the U.S. dollar value of
foreign currency-denominated portfolio securities and against increases in the
U.S. dollar cost of such securities to be acquired. Generally, transactions
relating to Options on Foreign Currencies occur in the over-the-counter
market. As in the case of other kinds of options, however, the writing of an
option on a foreign currency constitutes only a partial hedge, up to the
amount of the premium received, and the Portfolio could be required to
purchase or sell foreign currencies at disadvantageous exchange rates, thereby
incurring losses. The purchase of an option on a foreign currency may
constitute an effective hedge against fluctuations in exchange rates,
although, in the event of rate movements adverse to the Portfolio's position,
it may forfeit the entire amount of the premium plus related transaction
costs. There is no specific percentage limitation on the Portfolio's
investments in Options on Foreign Currencies. See the SAI for further
discussion of the use, risks and costs of Options on Foreign Currencies and
Over the Counter Options.
OPTIONS ON INDEXES
A Portfolio may, subject to applicable securities regulations, purchase and
write put and call options on stock and fixed-income indexes listed on foreign
and domestic stock exchanges. A stock index fluctuates with changes in the
market values of the stocks included in the index. An example of a domestic
stock index is the Standard and Poor's 500 Stock Index. Examples of foreign
stock indexes are the Canadian Market Portfolio Index (Montreal Stock
Exchange), The Financial Times--Stock Exchange 100 (London Stock Exchange) and
the Toronto Stock Exchange Composite 300 (Toronto Stock Exchange). Examples
of fixed-income indexes include the Lehman Government/Corporate Bond Index and
the Lehman Treasury Bond Index.
Options on Indexes are generally similar to options on securities except that
the delivery requirements are different. Instead of giving the right to take
or make delivery of a security at a specified price, an option on an index
gives the holder the right to receive a cash "exercise settlement amount"
equal to (a) the amount, if any, by which the fixed exercise price of the
option exceeds (in the case of a put) or is less than (in the case of a call)
the closing value of the underlying index on the date of exercise, multiplied
by (b) a fixed "index multiplier." Receipt of this cash amount will depend
upon the closing level of the index upon which the option is based being
greater than, in the case of a call, or less than, in the case of a put, the
exercise price of the option. The amount of cash received will be equal to
such difference between the closing price of the index and the exercise price
of the option expressed in dollars or a foreign currency, as the case may be,
times a specified multiple. The writer of the option is obligated, in return
for the premium received, to make a delivery of this amount. The writer may
offset its position in index options prior to expiration by entering into a
closing transaction on an exchange or the option may expire unexercised.
The effectiveness of purchasing or writing options as a hedging technique will
depend upon the extent to which price movements in the portion of the
securities portfolio of a Portfolio correlate with price movements of the
stock index selected. Because the value of an index option depends upon
movements in the level of the index rather than the price of a particular
stock, whether a Portfolio will realize a gain or loss from the purchase or
writing of options on an index depends upon movements in the level of stock
prices in the stock market generally or, in the case of certain indexes, in an
industry or market segment, rather than movements in the price of a particular
stock. Accordingly, successful use of Options on Indexes by a Portfolio will
be subject to its Adviser's or Sub-Adviser's ability to predict correctly
movements in the direction of the market generally or of a particular
industry. This requires different skills and techniques than predicting
changes in the price of individual stocks.
Options on securities indexes entail risks in addition to the risks of options
on securities. Because exchange trading of options on securities indexes is
relatively new, the absence of a liquid secondary market to close out an
option position is more likely to occur, although a Portfolio generally will
only purchase or write such an option if the Sub-Adviser believes the option
can be closed out. Because options on securities indexes require settlement
in cash, a Portfolio may be forced to liquidate portfolio securities to meet
settlement obligations. A Portfolio will engage in stock index options
transactions only when determined by its Adviser or Sub-Adviser to be
consistent with its efforts to control risk. There can be no assurance that
such judgement will be accurate or that the use of these portfolio strategies
will be successful.
OVER-THE-COUNTER OPTIONS
Certain Portfolios may write or purchase options in privately negotiated
domestic or foreign transactions ("OTC Options"), as well as exchange-traded
or "listed" options. OTC Options can be closed out only by agreement with the
other party to the transaction, and thus any OTC Options purchased by a
Portfolio will be considered an Illiquid Security. In addition, certain OTC
Options on foreign currencies are traded through financial institutions acting
as market-makers in such options and the underlying currencies.
The staff of the SEC has taken the position that purchased over-the-counter
options and assets used to cover written over-the-counter options are illiquid
and, therefore, together with other illiquid securities, cannot exceed a
certain percentage of a Portfolio's assets (the "SEC illiquidity ceiling").
Except as provided below, the Portfolios intend to write over-the-counter
options only with primary U.S. Government securities dealers recognized by the
Federal Reserve Bank of New York. Also, the contracts which such Portfolios
have in place with such primary dealers will provide that each Portfolio has
the absolute right to repurchase any option it writes at any time at a price
which represents the fair market value, as determined in good faith through
negotiation between the parties, but which in no event will exceed a price
determined pursuant to a formula in the contract. Although the specific
formula may vary between contracts with different primary dealers, the formula
will generally be based on a multiple of the premium received by the Portfolio
for writing the option, plus the amount, if any, of the option's intrinsic
value (i.e., the amount that the option is in-the-money). The formula may
also include a factor to account for the difference between the price of the
security and the strike price of the option if the option is written
out-of-money. A Portfolio will treat all or a part of the formula price as
illiquid for purposes of the SEC illiquidity ceiling. Certain Portfolios may
also write over-the-counter options with non-primary dealers, including
foreign dealers, and will treat the assets used to cover these options as
illiquid for purposes of such SEC illiquidity ceiling.
OTC Options entail risks in addition to the risks of exchange-traded options.
Exchange-traded options are in effect guaranteed by the Options Clearing
Corporation, while a Portfolio relies on the party from whom it purchases an
OTC Option to perform if the Portfolio exercises the option. With OTC
Options, if the transacting dealer fails to make or take delivery of the
securities or amount of foreign currency underlying an option it has written,
in accordance with the terms of that option, the Portfolio will lose the
premium paid for the option as well as any anticipated benefit of the
transaction. Furthermore, OTC Options are less liquid than exchange-traded
options.
REPURCHASE AGREEMENTS
Repurchase Agreements are agreements to purchase underlying debt obligations
from financial institutions, such as banks and broker-dealers, subject to the
seller's agreement to repurchase the obligations at an established time and
price. The collateral for such Repurchase Agreements will be held by the
Portfolio's custodian or a duly appointed sub-custodian. The Portfolio will
enter into Repurchase Agreements only with banks and broker-dealers that have
been determined to be creditworthy by the Trust's Board of Trustees under
criteria established in consultation with the Adviser and the Sub-Adviser.
The seller under a Repurchase Agreement would be required to maintain the
value of the obligations subject to the Repurchase Agreement at not less than
the repurchase price. Default by the seller would, however, expose the
Portfolio to possible loss because of adverse market action or delay in
connection with the disposition of the underlying obligations. In addition,
if bankruptcy proceedings are commenced with respect to the seller of the
obligations, the Portfolio may be delayed or limited in its ability to sell
the collateral.
REVERSE REPURCHASE AGREEMENTS
Reverse Repurchase Agreements are the same as repurchase agreements except
that, in this instance, the Portfolios would assume the role of
seller/borrower in the transaction. The Portfolios will maintain segregated
accounts with the Custodian consisting of U.S. Government Securities, cash or
money market instruments that at all times are in an amount equal to their
obligations under Reverse Repurchase Agreements. Reverse Repurchase
Agreements involve the risk that the market value of the securities sold by a
Portfolio may decline below the repurchase price of the securities and, if the
proceeds from the reverse repurchase agreement are invested in securities,
that the market value of the securities sold may decline below the repurchase
price of the securities sold. Each Portfolio's Adviser or Sub-Adviser, acting
under the supervision of the Board of Trustees, reviews on an on-going basis
the creditworthiness of the parties with which it enters into Reverse
Repurchase Agreements. Under the 1940 Act, Reverse Repurchase Agreements may
be considered borrowings by the seller. Whenever borrowings by a fund,
including Reverse Repurchase Agreements, exceed 5% of the value of a
Portfolio's total assets, the Portfolio will not purchase any securities.
SMALL COMPANIES
Certain of the Portfolios may invest in small companies, some of which may be
unseasoned. Such companies may have limited product lines, markets, or
financial resources and may be dependent on a limited management group. While
the markets in securities of such companies have grown rapidly in recent
years, such securities may trade less frequently and in smaller volume than
more widely held securities. The values of these securities may fluctuate more
sharply than those of other securities, and a Portfolio may experience some
difficulty in establishing or closing out positions in these securities at
prevailing market prices. There may be less publicly available information
about the issuers of these securities or less market interest in such
securities than in the case of larger companies, and it may take a longer
period of time for the prices of such securities to reflect the full value of
their issuers' underlying earnings potential or assets.
Some securities of smaller issuers may be restricted as to resale or may
otherwise be highly illiquid. The ability of a Portfolio to dispose of such
securities may be greatly limited, and a Portfolio may have to continue to
hold such securities during periods when a Sub-Adviser would otherwise have
sold the security. It is possible that a Sub-Adviser or its affiliates or
clients may hold securities issued by the same issuers, and may in some cases
have acquired the securities at different times, on more favorable terms, or
at more favorable prices, than a Portfolio which it manages.
STRATEGIC TRANSACTIONS
Subject to the investment limitations and restrictions for each of the
Portfolios as stated elsewhere in the Prospectus and SAI of the Trust, each of
the Portfolios, except the Strong Fixed Income Portfolios, may, but is not
required to, utilize various investment strategies as described in this
Appendix to hedge various market risks, to manage the effective maturity or
duration of Fixed-Income Securities, or to seek potentially higher returns.
Utilizing these investment strategies, the Portfolio may purchase and sell, to
the extent not otherwise limited or restricted for such Portfolio,
exchange-listed and over-the-counter put and call options on securities,
equity and fixed-income indexes and other financial instruments, purchase and
sell financial futures contracts and options thereon, enter into various
Interest Rate Transactions such as swaps, caps, floors or collars, and enter
into various currency transactions such as currency forward contracts,
currency futures contracts, currency swaps or options on currencies or
currency futures (collectively, all the above are called "Strategic
Transactions").
Strategic Transactions may be used to attempt to protect against possible
changes in the market value of securities held in or to be purchased for the
Portfolio's portfolio resulting from securities markets or currency exchange
rate fluctuations, to protect the Portfolio's unrealized gains in the value of
its portfolio securities, to facilitate the sale of such securities for
investment purposes, to manage the effective maturity or duration of the
Portfolio's portfolio, or to establish a position in the derivatives markets
as a temporary substitute for purchasing or selling particular securities.
Some Strategic Transactions may also be used to seek potentially higher
returns, although no more than 5% of the Portfolio's assets will be used as
the initial margin or purchase price of options for Strategic Transactions
entered into for purposes other than "bona fide hedging" positions as defined
in the regulations adopted by the Commodity Futures Trading Commission. Any
or all of these investment techniques may be used at any time, as use of any
Strategic Transaction is a function of numerous variables including market
conditions. The ability of the Portfolio to utilize these Strategic
Transactions successfully will depend on the Adviser's or Sub-Adviser's
ability to predict, which cannot be assured, pertinent market movements. The
Portfolio will comply with applicable regulatory requirements when utilizing
Strategic Transactions. Strategic Transactions involving financial futures
and options thereon will be purchased, sold or entered into only for bona fide
hedging, risk management or portfolio management purposes.
U.S. GOVERNMENT SECURITIES
U.S. Government Securities include direct obligations of the U.S. Treasury
(such as U.S. Treasury bills, notes and bonds) and obligations directly issued
or guaranteed by U.S. Government agencies or instrumentalities. Some
obligations issued or guaranteed by agencies or instrumentalities of the U.S.
Government are backed by the full faith and credit of the U.S. Government
(such as GNMA certificates), others are backed only by the right of the issuer
to borrow from the U.S. Treasury (such as securities of Federal Home Loan
Banks) and still others are backed only by the credit of the instrumentality
(such as FNMA and FHLMC certificates).
WHEN ISSUED SECURITIES AND DELAYED-DELIVERY TRANSACTIONS
In order to secure yields or prices deemed advantageous at the time, certain
Portfolios may purchase or sell securities on a when-issued or a
delayed-delivery basis. The Portfolios will enter into a when-issued
transaction for the purpose of acquiring portfolio securities and not for the
purpose of leverage. In such transactions, delivery of the securities occurs
beyond the normal settlement periods, but no payment or delivery is made by,
and no interest accrues to, the Portfolios prior to the actual delivery or
payment by the other party to the transaction. Due to fluctuations in the
value of securities purchased on a when-issued or a delayed-delivery basis,
the yields obtained on such securities may be higher or lower than the yields
available in the market on the dates when the investments are actually
delivered to the buyers. Similarly, the sale of securities for
delayed-delivery can involve the risk that the prices available in the market
when delivery is made may actually be higher than those obtained in the
transaction itself. The Portfolios will establish a segregated account with
the Custodian consisting of cash, U.S. Government-securities or other high
grade debt obligations in an amount equal to the amount of its when-issued and
delayed-delivery commitments.
PART B
EQUI-SELECT SERIES TRUST
FORM N-1A
PART B
STATEMENT OF ADDITIONAL INFORMATION
APRIL 1, 1996
This Statement of Additional Information (this "Statement") contains
information which may be of interest to investors but which is not included in
the Prospectus of Equi-Select Series Trust (the "Trust"). This Statement is
not a prospectus and is only authorized for distribution when accompanied or
preceded by the Prospectus of the Trust dated April 1, 1996. This Statement
should be read together with the Prospectus. Investors may obtain a free copy
of the Prospectus by calling Equitable Life Insurance Company of Iowa ("Life
Company") at (800) 344-6864. Not all Portfolios described in this Prospectus
may be available for investment.
TABLE OF CONTENTS
PAGE
DEFINITIONS
INVESTMENT OBJECTIVES AND POLICIES OF THE TRUST
Swaps, Caps, Floors and Collars
INVESTMENT RESTRICTIONS
MANAGEMENT OF THE TRUST
DETERMINATION OF NET ASSET VALUE
TAXES
DIVIDENDS AND DISTRIBUTIONS
PERFORMANCE INFORMATION
SHAREHOLDER COMMUNICATIONS
ORGANIZATION AND CAPITALIZATION
PORTFOLIO TURNOVER
CUSTODIAN
LEGAL COUNSEL
INDEPENDENT AUDITORS
SHAREHOLDER LIABILITY
DESCRIPTION OF NRSRO RATINGS
FINANCIAL STATEMENTS
EQUI-SELECT SERIES TRUST
STATEMENT OF ADDITIONAL INFORMATION
DEFINITIONS
The "Trust" -- Equi-Select Series Trust.
"Adviser" -- Equitable Investment Services, Inc.,
the Trust's investment adviser.
INVESTMENT OBJECTIVES AND POLICIES OF THE TRUST
The Trust currently offers shares of beneficial interest of ten series (the
"Portfolios") with separate investment objectives and policies. The
investment objectives and policies of each of the Portfolios of the Trust are
described in the Prospectus. This Statement contains additional information
concerning certain investment practices and investment restrictions of the
Trust.
Shares of the Trust are sold only to insurance company separate accounts to
fund the benefits of variable annuity contracts owned by their respective
contractholders. Certain Portfolios of the Trust may not be available in
connection with a particular contract or in a particular state. Investors
should consult the separate account prospectus of the specific insurance
product that accompanies the Trust prospectus for information on any
applicable restrictions or limitations with respect to the Portfolios of the
Trust.
Except as described below under "Investment Restrictions", the investment
objectives and policies described in the Prospectus and in this Statement are
not fundamental, and the Trustees may change the investment objectives and
policies of a Portfolio without an affirmative vote of shareholders of the
Portfolio.
Except as otherwise noted below, the following descriptions of certain
investment policies and techniques are applicable to all of the Portfolios.
OPTIONS
Each Portfolio other than the Money Market Portfolio may purchase put and call
options on portfolio securities in which they may invest that are traded on a
U.S. or foreign securities exchange or in the over-the-counter market.
COVERED CALL OPTIONS. Each Portfolio other than the Money Market
Portfolio may write covered call options on portfolio securities to realize a
greater current return through the receipt of premiums than it would realize
on portfolio securities alone. Such option transactions may also be used as a
limited form of hedging against a decline in the price of securities owned by
the Portfolio.
A call option gives the holder the right to purchase, and obligates the
writer to sell, a security at the exercise price at any time before the
expiration date. A call option is "covered" if the writer, at all times while
obligated as a writer, either owns the underlying securities (or comparable
securities satisfying the cover requirements of the securities exchanges), or
has the right to acquire such securities through immediate conversion of
portfolio securities.
In return for the premium received when it writes a covered call option,
the Portfolio gives up some or all of the opportunity to profit from an
increase in the market price of the securities covering the call option during
the life of the option. The Portfolio retains the risk of loss should the
price of such securities decline. If the option expires unexercised, the
Portfolio realizes a gain equal to the premium, which may be offset by a
decline in price of the underlying security. If the option is exercised, the
Portfolio realizes a gain or loss equal to the difference between the
Portfolio's cost for the underlying security and the proceeds of sale
(exercise price minus commissions) plus the amount of the premium.
A Portfolio may terminate a call option that it has written before it
expires by entering into a closing purchase transaction. A Portfolio may
enter into closing purchase transactions in order to free itself to sell the
underlying security or to write another call on the security, realize a profit
on a previously written call option, or protect a security from being called
in an unexpected market rise. Any profits from a closing purchase transaction
may be offset by a decline in the value of the underlying security.
Conversely, because increases in the market price of a call option will
generally reflect increases in the market price of the underlying security,
any loss resulting from a closing purchase transaction is likely to be offset
in whole or in part by unrealized appreciation of the underlying security
owned by the Trust.
COVERED PUT OPTIONS. Each Portfolio other than the Money Market
Portfolio may write covered put options in order to enhance its current
return. Such options transactions may also be used as a limited form of
hedging against an increase in the price of securities that the Portfolio
plans to purchase. A put option gives the holder the right to sell, and
obligates the writer to buy, a security at the exercise price at any time
before the expiration date. A put option is "covered" if the writer
segregates cash and high-grade short-term debt obligations or other
permissible collateral equal to the price to be paid if the option is
exercised.
In addition to the receipt of premiums and the potential gains from
terminating such options in closing purchase transactions, the Portfolio also
receives interest on the cash and debt securities maintained to cover the
exercise price of the option. By writing a put option, the Portfolio assumes
the risk that it may be required to purchase the underlying security for an
exercise price higher than its then current market value, resulting in a
potential capital loss unless the security later appreciates in value.
A Portfolio may terminate a put option that it has written before it
expires by a closing purchase transaction. Any loss from this transaction may
be partially or entirely offset by the premium received on the terminated
option.
PURCHASING PUT AND CALL OPTIONS. Each Portfolio other than the Money
Market Portfolio may also purchase put options to protect portfolio holdings
against a decline in market value. This protection lasts for the life of the
put option because the Portfolio, as a holder of the option, may sell the
underlying security at the exercise price regardless of any decline in its
market price. In order for a put option to be profitable, the market price of
the underlying security must decline sufficiently below the exercise price to
cover the premium and transaction costs that the Portfolio must pay. These
costs will reduce any profit the Portfolio might have realized had it sold the
underlying security instead of buying the put option.
Each Portfolio other than the Money Market Portfolio may purchase call
options to hedge against an increase in the price of securities that the
Portfolio wants ultimately to buy. Such hedge protection is provided during
the life of the call option since the Portfolio, as holder of the call option,
is able to buy the underlying security at the exercise price regardless of any
increase in the underlying security's market price. In order for a call
option to be profitable, the market price of the underlying security must rise
sufficiently above the exercise price to cover the premium and transaction
costs. These costs will reduce any profit the Portfolio might have realized
had it bought the underlying security at the time it purchased the call
option. A Portfolio may also purchase put and call options to enhance its
current return.
OPTIONS ON FOREIGN SECURITIES. The Trust may, on behalf of each of the
Portfolios other than the Money Market Portfolio, purchase and sell options on
foreign securities if in the opinion of the Sub-Adviser of the particular
Portfolio the investment characteristics of such options, including the risks
of investing in such options, are consistent with the Portfolio's investment
objectives. It is expected that risks related to such options will not differ
materially from risks related to options on U.S. securities. However,
position limits and other rules of foreign exchanges may differ from those in
the U.S. In addition, options markets in some countries, many of which are
relatively new, may be less liquid than comparable markets in the U.S.
RISKS INVOLVED IN THE SALE OF OPTIONS. Options transactions involve
certain risks, including the risks that a Portfolio's Sub-Adviser will not
forecast interest rate or market movements correctly, that a Portfolio may be
unable at times to close out such positions, or that hedging transactions may
not accomplish their purpose because of imperfect market correlations. The
successful use of these strategies depends on the ability of a Portfolio's
Sub-Adviser to forecast market and interest rate movements correctly.
An exchange-listed option may be closed out only on an exchange which
provides a secondary market for an option of the same series. There is no
assurance that a liquid secondary market on an exchange will exist for any
particular option or at any particular time. If no secondary market were to
exist, it would be impossible to enter into a closing transaction to close out
an option position. As a result, a Portfolio may be forced to continue to
hold, or to purchase at a fixed price, a security on which it has sold an
option at a time when a Portfolio's Sub-Adviser believes it is inadvisable to
do so.
Higher than anticipated trading activity or order flow or other
unforeseen events might cause The Options Clearing Corporation or an exchange
to institute special trading procedures or restrictions that might restrict a
Portfolio's use of options. The exchanges have established limitations on the
maximum number of calls and puts of each class that may be held or written by
an investor or group of investors acting in concert. It is possible that the
Trust and other clients of a Sub-Adviser may be considered such a group.
These position limits may restrict the Trust's ability to purchase or sell
options on particular securities.
Options which are not traded on national securities exchanges may be
closed out only with the other party to the option transaction. For that
reason, it may be more difficult to close out unlisted options than listed
options. Furthermore, unlisted options are not subject to the protection
afforded purchasers of listed options by The Options Clearing Corporation.
Government regulations, particularly the requirements for qualification
as a "regulated investment company" under the Internal Revenue Code, may also
restrict the Trust's use of options.
SPECIAL EXPIRATION PRICE OPTIONS
Certain of the Portfolios may purchase over-the-counter ("OTC") puts and calls
with respect to specified securities ("special expiration price options")
pursuant to which the Portfolios in effect may create a custom index relating
to a particular industry or sector that a Sub-Adviser believes will increase
or decrease in value generally as a group. In exchange for a premium, the
counterparty, whose performance is guaranteed by a broker-dealer, agrees to
purchase (or sell) a specified number of shares of a particular stock at a
specified price and further agrees to cancel the option at a specified price
that decreases straight line over the term of the option. Thus, the value of
the special expiration price option is comprised of the market value of the
applicable underlying security relative to the option exercise price and the
value of the remaining premium. However, if the value of the underlying
security increases (or decreases) by a prenegotiated amount, the special
expiration price option is canceled and becomes worthless. A portion of the
dividends during the term of the option is applied to reduce the exercise
price if the options are exercised. Brokerage commissions and other
transaction costs will reduce these Portfolios' profits if the special
expiration price options are exercised. A Portfolio will not purchase special
expiration price options with respect to more than 25% of the value of its net
assets, and will limit premiums paid for such options in accordance with state
securities laws.
LEAPS AND BOUNDS
The Value + Growth Portfolio may purchase certain long-term exchange-traded
equity options called Long-Term Equity Anticipation Securities ("LEAPs") and
Buy-Right Options Unitary Derivatives ("BOUNDs"). LEAPs provide a holder the
opportunity to participate in the underlying securities' appreciation in
excess of a fixed dollar amount. BOUNDs provide a holder the opportunity to
retain dividends on the underlying security while potentially participating in
the underlying securities' capital appreciation up to a fixed dollar amount.
The Value + Growth Portfolio will not purchase these options with respect to
more than 25% of the value of its net assets, and will limit the premiums paid
for purchasing such options in accordance with the most restrictive applicable
state securities laws.
LEAPs are long-term call options that allow holders the opportunity to
participate in the underlying securities' appreciation in excess of a
specified strike price, without receiving payments equivalent to any cash
dividends declared on the underlying securities. A LEAP holder will be
entitled to receive a specified number of shares of the underlying stock upon
payment of the exercise price, and therefore the LEAP will be exercisable at
any time the price of the underlying stock is above the strike price. However,
if at expiration the price of the underlying stock is at or below the strike
price, the LEAP will expire worthless.
BOUNDs are long-term options which are expected to have the same economic
characteristics as covered call options, with the added benefits that BOUNDs
can be traded in a single transaction and are not subject to early exercise.
Covered call writing is a strategy by which an investor sells a call option
while simultaneously owning the number of shares of the stock underlying the
call. BOUND holders are able to participate in a stock's price appreciation up
to but not exceeding a specified strike price while receiving payments
equivalent to any cash dividends declared on the underlying stock. At
expiration, a BOUND holder will receive a specified number of shares of the
underlying stock for each BOUND held if, on the last day of trading, the
underlying stock closes at or below the strike price. However, if at
expiration the underlying stock closes above the strike price, the BOUND
holder will receive a payment equal to a multiple of the BOUND's strike price
for each BOUND held. The terms of a BOUND are not adjusted because of cash
distributions to the shareholders of the underlying security. BOUNDs are
subject to the position limits for equity options imposed by the exchanges on
which they are traded.
The settlement mechanism for BOUNDs operates in conjunction with that of the
corresponding LEAPs. For example, if at expiration the underlying stock closes
at or below the strike price, the LEAP will expire worthless, and the holder
of a corresponding BOUND will receive a specified number of shares of stock
from the writer of the BOUND. If, on the other hand, the LEAP is "in the
money" at expiration, the holder of the LEAP is entitled to receive a
specified number of shares of the underlying stock from the LEAP writer upon
payment of the strike price, and the holder of a BOUND on such stock is
entitled to the cash equivalent of a multiple of the strike price from the
writer of the BOUND. An investor holding both a LEAP and a corresponding
BOUND, where the underlying stock closes above the strike price at expiration,
would be entitled to receive a multiple of the strike price from the writer of
the BOUND and, upon exercise of the LEAP, would be obligated to pay the same
amount to receive shares of the underlying stock. LEAPs are American-style
options (exercisable at any time prior to expiration) whereas BOUNDs are
European-style options (exercisable only on the expiration date).
FUTURES CONTRACTS
The Trust may, on behalf of each Portfolio that may invest in debt securities,
other than the Money Market Portfolio, buy and sell futures contracts on debt
securities of the type in which the Portfolio may invest and on indexes of
debt securities. In addition, the Trust may, on behalf of each Portfolio that
may invest in equity securities, purchase and sell stock index futures for
hedging and non-hedging purposes. The Trust may also, for hedging and
non-hedging purposes, purchase and write options on futures contracts of the
type which such Portfolios are authorized to buy and sell and may engage in
related closing transactions. All such futures and related options will, as
may be required by applicable law, be traded on exchanges that are licensed
and regulated by the Commodity Futures Trading Commission ("CFTC").
FUTURES ON DEBT SECURITIES AND RELATED OPTIONS. A futures contract on a
debt security is a binding contractual commitment which, if held to maturity,
will result in an obligation to make or accept delivery, during a particular
month, of securities having a standardized face value and rate of return. By
purchasing futures on debt securities -- assuming a "long" position -- the
Trust will legally obligate itself on behalf of the Portfolios to accept the
future delivery of the underlying security and pay the agreed price. By
selling futures on debt securities -- assuming a "short" position -- it will
legally obligate itself to make the future delivery of the security against
payment of the agreed price. Open futures positions on debt securities will
be valued at the most recent settlement price, unless that price does not in
the judgment of persons acting at the direction of the Trustees as to the
valuation of the Trust's assets reflect the fair value of the contract, in
which case the positions will be valued by or under the direction of the
Trustees or such persons.
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 futures positions taken by the Trust on behalf of a
Portfolio will usually be liquidated in this manner, the Trust may instead
make or take delivery of the underlying securities whenever it appears
economically advantageous to the Portfolio to do so. A clearing corporation
associated with the exchange on which futures are traded assumes
responsibility for such closing transactions and guarantees that the Trust's
sale and purchase obligations under closed-out positions will be performed at
the termination of the contract.
Hedging by use of futures on debt securities seeks to establish more
certainly than would otherwise be possible the effective rate of return on
portfolio securities. A Portfolio may, for example, take a "short" position
in the futures market by selling contracts for the future delivery of debt
securities held by the Portfolio (or securities having characteristics similar
to those held by the Portfolio) in order to hedge against an anticipated rise
in interest rates that would adversely affect the value of the Portfolio's
portfolio securities. When hedging of this character is successful, any
depreciation in the value of portfolio securities may substantially be offset
by appreciation in the value of the futures position.
On other occasions, the Portfolio may take a "long" position by
purchasing futures on debt securities. This would be done, for example, when
the Trust expects to purchase for the Portfolio particular securities when it
has the necessary cash, but expects the rate of return available in the
securities markets at that time to be less favorable than rates currently
available in the futures markets. If the anticipated rise in the price of the
securities should occur (with its concomitant reduction in yield), the
increased cost to the Portfolio of purchasing the securities may be offset, at
least to some extent, by the rise in the value of the futures position taken
in anticipation of the subsequent securities purchase.
Successful use by the Trust of futures contracts on debt securities is
subject to the ability of a Portfolio's Adviser or Sub-Adviser to predict
correctly movements in the direction of interest rates and other factors
affecting markets for debt securities. For example, if a Portfolio has hedged
against the possibility of an increase in interest rates which would adversely
affect the market prices of debt securities held by it and the prices of such
securities increase instead, the Portfolio will lose part or all of the
benefit of the increased value of its securities which it has hedged because
it will have offsetting losses in its futures positions. In addition, in such
situations, if the Portfolio has insufficient cash, it may have to sell
securities to meet daily maintenance margin requirements, and thus the
Portfolio may have to sell securities at a time when it may be disadvantageous
to do so.
The Trust may purchase and write put and call options on certain debt
futures contracts, as they become available. Such options are similar to
options on securities except that options on futures contracts give the
purchaser the right, in return for the premium paid, to assume a position in a
futures contract (a long position if the option is a call and a short position
if the option is a put) at a specified exercise price at any time during the
period of the option. As with options on securities, the holder or writer of
an option may terminate his position by selling or purchasing an option of the
same series. There is no guarantee that such closing transactions can be
effected. The Trust will be required to deposit initial margin and
maintenance margin with respect to put and call options on futures contracts
written by it pursuant to brokers' requirements, and, in addition, net option
premiums received will be included as initial margin deposits. See "Margin
Payments" below. Compared to the purchase or sale of futures contracts, the
purchase of call or put options on futures contracts involves less potential
risk to the Trust because the maximum amount at risk is the premium paid for
the options plus transactions costs. However, there may be circumstances when
the purchase of call or put options on a futures contract would result in a
loss to the Trust when the purchase or sale of the futures contracts would
not, such as when there is no movement in the prices of debt securities. The
writing of a put or call option on a futures contract involves risks similar
to those risks relating to the purchase or sale of futures contracts.
INDEX FUTURES CONTRACTS AND OPTIONS. The Trust may invest in debt index
futures contracts and stock index futures contracts, and in related options.
A debt index futures contract is a contract to buy or sell units of a
specified debt index at a specified future date at a price agreed upon when
the contract is made. A unit is the current value of the index. Debt index
futures in which the Trust presently expects to invest are not now available,
although the Trust expects such futures contracts to become available in the
future. A stock index futures contract is a contract to buy or sell units of
a stock index at a specified future date at a price agreed upon when the
contract is made. A unit is the current value of the stock index.
The following example illustrates generally the manner in which index
futures contracts operate. The Standard & Poor's 100 Stock Index (the "S&P
100 Index") is composed of 100 selected common stocks, most of which are
listed on the New York Stock Exchange. The S&P 100 Index assigns relative
weightings to the common stocks included in the Index, and the Index
fluctuates with changes in the market values of those common stocks. In the
case of the S&P 100 Index, contracts are to buy or sell 100 units. Thus, if
the value of the S&P 100 Index were $180, one contract would be worth $18,000
(100 units x $180). The stock index futures contract specifies that no
delivery of the actual stocks making up the index will take place. Instead,
settlement in cash must occur upon the termination of the contract, with the
settlement being the difference between the contract price and the actual
level of the stock index at the expiration of the contract. For example, if a
Portfolio enters into a futures contract to buy 100 units of the S&P 100 Index
at a specified future date at a contract price of $180 and the S&P 100 Index
is at $184 on that future date, the Portfolio will gain $400 (100 units x gain
of $4). If the Portfolio enters into a futures contract to sell 100 units of
the stock index at a specified future date at a contract price of $180 and the
S&P 100 Index is at $182 on that future date, the Portfolio will lose $200
(100 units x loss of $2).
The Trust does not presently expect to invest in debt index futures
contracts. Stock index futures contracts are currently traded with respect to
the S&P 100 Index on the Chicago Mercantile Exchange, and with respect to
other broad stock market indexes, such as the New York Stock Exchange
Composite Stock Index, which is traded on the New York Futures Exchange, and
the Value Line Composite Stock Index, which is traded on the Kansas City Board
of Trade, as well as with respect to narrower "sub-indexes" such as the S&P
100 Energy Stock Index and the New York Stock Exchange Utilities Stock Index.
A Portfolio may purchase or sell futures contracts with respect to any stock
indexes. Positions in index futures may be closed out only on an exchange or
board of trade which provides a secondary market for such futures.
In order to hedge a Portfolio's investments successfully using futures
contracts and related options, the Trust must invest in futures contracts with
respect to indexes or sub-indexes the movements of which will, in its
judgment, have a significant correlation with movements in the prices of the
Portfolio's securities.
Options on index futures contracts are similar to options on securities
except that options on index futures contracts give the purchaser the right,
in return for the premium paid, to assume a position in an index futures
contract (a long position if the option is a call and a short position if the
option is a put) at a specified exercise price at any time during the period
of the option. Upon exercise of the option, the holder would assume the
underlying futures position and would receive a variation margin payment of
cash or securities approximating the increase in the value of the holder's
option position. If an option is exercised on the last trading day prior to
the expiration date of the option, the settlement will be made entirely in
cash based on the difference between the exercise price of the option and the
closing level of the index on which the futures contract is based on the
expiration date. Purchasers of options who fail to exercise their options
prior to the exercise date suffer a loss of the premium paid.
As an alternative to purchasing and selling call and put options on index
futures contracts, each of the Portfolios which may purchase and sell index
futures contracts may purchase and sell call and put options on the underlying
indexes themselves to the extent that such options are traded on national
securities exchanges. Index options are similar to options on individual
securities in that the purchaser of an index option acquires the right to buy
(in the case of a call) or sell (in the case of a put), and the writer
undertakes the obligation to sell or buy (as the case may be), units of an
index at a stated exercise price during the term of the option. Instead of
giving the right to take or make actual delivery of securities, the holder of
an index option has the right to receive a cash "exercise settlement amount".
This amount is equal to the amount by which the fixed exercise price of the
option exceeds (in the case of a put) or is less than (in the case of a call)
the closing value of the underlying index on the date of the exercise,
multiplied by a fixed "index multiplier".
A Portfolio may purchase or sell options on stock indices in order to
close out its outstanding positions in options on stock indices which it has
purchased. A Portfolio may also allow such options to expire unexercised.
Compared to the purchase or sale of futures contracts, the purchase of
call or put options on an index involves less potential risk to the Trust
because the maximum amount at risk is the premium paid for the options plus
transactions costs. The writing of a put or call option on an index involves
risks similar to those risks relating to the purchase or sale of index futures
contracts.
MARGIN PAYMENTS. When a Portfolio purchases or sells a futures contract,
it is required to deposit with the Custodian an amount of cash, U.S. Treasury
bills, or other permissible collateral equal to a small percentage of the
amount of the futures contract. This amount is known as "initial margin".
The nature of initial margin is different from that of margin in security
transactions in that it does not involve borrowing money to finance
transactions. Rather, initial margin is similar to a performance bond or good
faith deposit that is returned to the Trust upon termination of the contract,
assuming the Trust satisfies its contractual obligations.
Subsequent payments to and from the broker occur on a daily basis in a
process known as "marking to market". These payments are called "variation
margin" and are made as the value of the underlying futures contract
fluctuates. For example, when a Portfolio sells a futures contract and the
price of the underlying debt security rises above the delivery price, the
Portfolio's position declines in value. The Portfolio then pays the broker a
variation margin payment equal to the difference between the delivery price of
the futures contract and the value of the index underlying the futures
contract. Conversely, if the price of the underlying index falls below the
delivery price of the contract, the Portfolio's futures position increases in
value. The broker then must make a variation margin payment equal to the
difference between the delivery price of the futures contract and the value of
the index underlying the futures contract.
When a Portfolio terminates a position in a futures contract, a final
determination of variation margin is made, additional cash is paid by or to
the Portfolio, and the Portfolio realizes a loss or a gain. Such closing
transactions involve additional commission costs.
SPECIAL RISKS OF TRANSACTIONS IN FUTURES CONTRACTS AND RELATED OPTIONS
LIQUIDITY RISKS. Positions in futures contracts may be closed out only
on an exchange or board of trade which provides a secondary market for such
futures. Although the Trust intends to purchase or sell futures only on
exchanges or boards of trade where there appears to be an active secondary
market, there is no assurance that a liquid secondary market on an exchange or
board of trade will exist for any particular contract or at any particular
time. If there is not a liquid secondary market at a particular time, it may
not be possible to close a futures position at such time and, in the event of
adverse price movements, a Portfolio would continue to be required to make
daily cash payments of variation margin. However, in the event financial
futures are used to hedge portfolio securities, such securities will not
generally be sold until the financial futures can be terminated. In such
circumstances, an increase in the price of the portfolio securities, if any,
may partially or completely offset losses on the financial futures.
In addition to the risks that apply to all options transactions, there
are several special risks relating to options on futures contracts. The
ability to establish and close out positions in such options will be subject
to the development and maintenance of a liquid secondary market. It is not
certain that such a market will develop. Although a Portfolio generally will
purchase 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. In the event
that no such market exists for particular options, it might not be possible to
effect closing transactions in such options with the result that a Portfolio
would have to exercise the options in order to realize any profit.
HEDGING RISKS. There are several risks in connection with the use by a
Portfolio of futures contracts and related options as a hedging device. One
risk arises because of the imperfect correlation between movements in the
prices of the futures contracts and options and movements in the underlying
securities or index or movements in the prices of the Trust's securities which
are the subject of the hedge. A Portfolio's Adviser will, however, attempt to
reduce this risk by purchasing and selling, to the extent possible, futures
contracts and related options on securities and indexes the movements of which
will, in its judgment, correlate closely with movements in the prices of the
underlying securities or index and the Trust's portfolio securities sought to
be hedged.
Successful use of futures contracts and options by a Portfolio for
hedging purposes is also subject to a Portfolio's Sub-Adviser's ability to
predict correctly movements in the direction of the market. It is possible
that, where a Portfolio has purchased puts on futures contracts to hedge its
portfolio against a decline in the market, the securities or index on which
the puts are purchased may increase in value and the value of securities held
in the portfolio may decline. If this occurred, the Portfolio would lose
money on the puts and also experience a decline in value in its portfolio
securities. In addition, the prices of futures, for a number of reasons, may
not correlate perfectly with movements in the underlying securities or index
due to certain market distortions. First, all participants in the futures
market are subject to margin deposit requirements. Such requirements may
cause investors to close futures contracts through offsetting transactions
which could distort the normal relationship between the underlying security or
index and futures markets. Second, the margin requirements in the futures
markets are less onerous than margin requirements in the securities markets in
general, and as a result the futures markets may attract more speculators than
the securities markets do. Increased participation by speculators in the
futures markets may also cause temporary price distortions. Due to the
possibility of price distortion, even a correct forecast of general market
trends by a Portfolio's Sub-Adviser may still not result in a successful
hedging transaction over a very short time period.
OTHER RISKS. Portfolios will incur brokerage fees in connection with
their futures and options transactions. In addition, while futures contracts
and options on futures will be purchased and sold to reduce certain risks,
those transactions themselves entail certain other risks. Thus, while a
Portfolio may benefit from the use of futures and related options,
unanticipated changes in interest rates or stock price movements may result in
a poorer overall performance for the Portfolio than if it had not entered into
any futures contracts or options transactions. Moreover, in the event of an
imperfect correlation between the futures position and the portfolio position
which is intended to be protected, the desired protection may not be obtained
and the Portfolio may be exposed to risk of loss.
INDEXED SECURITIES
Certain of the Portfolios may purchase securities whose prices are indexed to
the prices of other securities, securities indices, currencies, precious
metals or other commodities, or other financial indicators. Indexed securities
typically, but not always, are debt securities or deposits whose value at
maturity or coupon rate is determined by reference to a specific instrument or
statistic. Gold-indexed securities, for example, typically provide for a
maturity value that depends on the price of gold, resulting in a security
whose price tends to rise and fall together with gold prices. Currency-indexed
securities typically are short-term to intermediate-term debt securities whose
maturity values or interest rates are determined by reference to the values of
one or more specified foreign currencies, and may offer higher yields than
U.S. dollar-denominated securities of equivalent issuers. Currency-indexed
securities may be positively or negatively indexed; that is, their maturity
value may increase when the specified currency value increases, resulting in a
security whose price characteristics are similar to a put option on the
underlying currency. Currency-indexed securities also may have prices that
depend on the values of a number of different foreign currencies relative to
each other.
The performance of indexed securities depends to a great extent on the
performance of the security, currency, commodity or other instrument to which
they are indexed, and also may be influenced by interest rate changes in the
U.S. and abroad. At the same time, indexed securities are subject to the
credit risks associated with the issuer of the security, and their values may
decline substantially if the issuer's creditworthiness deteriorates. Recent
issuers of indexed securities have included banks, corporations, and certain
U.S. Government agencies.
FORWARD COMMITMENTS
The Trust may, on behalf of each Portfolio, enter into contracts to purchase
securities for a fixed price at a future date beyond customary settlement time
("forward commitments") if the Portfolio holds, and maintains until the
settlement date in a segregated account, cash or high-grade debt obligations
in an amount sufficient to meet the purchase price, or if the Portfolio enters
into offsetting contracts for the forward sale of other securities it owns.
Forward commitments may be considered securities in themselves, and involve a
risk of loss if the value of the security to be purchased declines prior to
the settlement date, which risk is in addition to the risk of decline in the
value of the Portfolio's other assets. Where such purchases are made through
dealers, the Portfolio relies on the dealer to consummate the sale. The
dealer's failure to do so may result in the loss to the Portfolio of an
advantageous yield or price.
Although a Portfolio will generally enter into forward commitments with the
intention of acquiring securities for its portfolio or for delivery pursuant
to options contracts it has entered into, a Portfolio may dispose of a
commitment prior to settlement if a Portfolio's Sub-Adviser deems it
appropriate to do so. A Portfolio may realize short-term profits or losses
upon the sale of forward commitments.
REPURCHASE AGREEMENTS
On behalf of each Portfolio, the Trust may enter into repurchase agreements.
A repurchase agreement is a contract under which the Portfolio acquires a
security for a relatively short period (usually not more than one week)
subject to the obligation of the seller to repurchase and the Portfolio to
resell such security at a fixed time and price (representing the Portfolio's
cost plus interest). It is the Trust's present intention to enter into
repurchase agreements only with member banks of the Federal Reserve System and
securities dealers meeting certain criteria as to creditworthiness and
financial condition established by the Trustees of the Trust and only with
respect to obligations of the U.S. government or its agencies or
instrumentalities or other high-quality, short-term debt obligations.
Repurchase agreements may also be viewed as loans made by a Portfolio which
are collateralized by the securities subject to repurchase. The Sub-Advisers
will monitor such transactions to ensure that the value of the underlying
securities will be at least equal at all times to the total amount of the
repurchase obligation, including the interest factor. If the seller defaults,
a Portfolio could realize a loss on the sale of the underlying security to the
extent that the proceeds of sale including accrued interest are less than the
resale price provided in the agreement including interest. In addition, if
the seller should be involved in bankruptcy or insolvency proceedings, a
Portfolio may incur delay and costs in selling the underlying security or may
suffer a loss of principal and interest if a Portfolio is treated as an
unsecured creditor and required to return the underlying collateral to the
seller's estate.
LEVERAGE
Leveraging a Portfolio creates an opportunity for increased net income but, at
the same time, creates special risk considerations. For example, leveraging
may exaggerate changes in the net asset value of a Portfolio's shares and in
the yield on a Portfolio's portfolio. Although the principal of such
borrowings will be fixed, a Portfolio's assets may change in value during the
time the borrowing is outstanding. Leveraging will create interest expenses
for a Portfolio, which can exceed the income from the assets retained. To the
extent the income derived from securities purchased with borrowed funds
exceeds the interest these Portfolios will have to pay, each Portfolio's net
income will be greater than if leveraging were not used. Conversely, if the
income from the assets retained with borrowed funds is not sufficient to cover
the cost of leveraging, the net income of the Portfolio will be less than if
leveraging were not used, and therefore the amount available for distribution
to stockholders as dividends will be reduced.
REVERSE REPURCHASE AGREEMENTS
The Trust may, on behalf of each of the Portfolios, enter into reverse
repurchase agreements, which involve the sale by the Portfolio of securities
held by it with an agreement to repurchase the securities at an agreed upon
price, date, and interest payment. The Portfolios will use the proceeds of
the reverse repurchase agreements to purchase securities either maturing, or
under an agreement to resell, at a date simultaneous with or prior to the
expiration of the reverse repurchase agreement. A Portfolio will use reverse
repurchase agreements when the interest income to be earned from the
investment of the proceeds of the transaction is greater than the interest
expense of the reverse repurchase transaction. Reverse repurchase agreements
into which the Portfolios will enter require that the market value of the
underlying security and other collateral equal or exceed the repurchase price
(including interest accrued on the security), and require the Portfolios to
provide additional collateral if the market value of such security falls below
the repurchase price at any time during the term of the reverse repurchase
agreement. At all times that a reverse repurchase agreement is outstanding,
the Portfolio will maintain cash, liquid high grade debt obligations, or U.S.
Government securities, as the case may be, in a segregated account at its
custodian with a value at least equal to its obligations under the agreement.
In addition to the general risks involved in leveraging, reverse repurchase
agreements involve the risk that, in the event of the bankruptcy or insolvency
of the Portfolio's counterparty, the Portfolio would be unable to recover the
security which is the subject of the agreement, the amount of cash or other
property transferred by the counterparty to the Portfolio under the agreement
prior to such insolvency or bankruptcy is less than the value of the security
subject to the agreement, or the Portfolio may be delayed or prevented, due to
such insolvency or bankruptcy, from using such cash or property or may be
required to return it to the counterparty or its trustee or receiver.
WHEN-ISSUED SECURITIES
The Trust may, on behalf of each Portfolio, from time to time purchase
securities on a "when-issued" basis. Debt securities are often issued on this
basis. The price of such securities, which may be expressed in yield terms,
is fixed at the time a commitment to purchase is made, but delivery and
payment for the when-issued securities take place at a later date. Normally,
the settlement date occurs within one month of the purchase. During the
period between purchase and settlement, no payment is made by a Portfolio and
no interest accrues to the Portfolio. To the extent that assets of a
Portfolio are held in cash pending the settlement of a purchase of securities,
that Portfolio would earn no income. While the Trust may sell its right to
acquire when-issued securities prior to the settlement date, the Trust intends
actually to acquire such securities unless a sale prior to settlement appears
desirable for investment reasons. At the time a Portfolio makes the
commitment to purchase a security on a when-issued basis, it will record the
transaction and reflect the amount due and the value of the security in
determining the Portfolio's net asset value. The market value of the
when-issued securities may be more or less than the purchase price payable at
the settlement date. Each Portfolio will establish a segregated account in
which it will maintain cash and U.S. Government Securities or other high-grade
debt obligations at least equal in value to commitments for when-issued
securities. Such segregated securities either will mature or, if necessary,
be sold on or before the settlement date.
LOANS OF PORTFOLIO SECURITIES
The Trust may lend the portfolio securities of any Portfolio, provided: (1)
the loan is secured continuously by collateral consisting of U.S. Government
Securities, cash, or irrevocable letters of credit adjusted daily to have
market value at least equal to the current market value of the securities
loaned; (2) the Trust may at any time call the loan and regain the securities
loaned; (3) the Trust will receive any interest or dividends paid on the
loaned securities; and (4) the aggregate market value of securities of any
Portfolio loaned will not at any time exceed 20% (25% with respect to the
Money Market Portfolio) of the total assets of the Portfolio taken at value.
In addition, it is anticipated that the Portfolio may share with the borrower
some of the income received on the collateral for the loan or that it will be
paid a premium for the loan. Before the Portfolio enters into a loan, a
Portfolio's Sub-Adviser considers all relevant facts and circumstances
including the creditworthiness of the borrower. The risks in lending
portfolio securities, as with other extensions of credit, consist of possible
delay in recovery of the securities or possible loss of rights in the
collateral should the borrower fail financially. Although voting rights, or
rights to consent, with respect to the loaned securities pass to the borrower,
the Trust retains the right to call the loans at any time on reasonable
notice, and it will do so in order that the securities may be voted by the
Trust if the holders of such securities are asked to vote upon or consent to
matters materially affecting the investment. The Trust will not lend
portfolio securities to borrowers affiliated with the Trust.
EUROPEAN AND AMERICAN DEPOSITARY RECEIPTS
Each of the Portfolios, other than the Money Market Portfolio, may invest in
foreign securities by purchasing American Depositary Receipts ("ADRs") and
also may purchase securities of foreign issuers in foreign markets and
purchase European Depositary Receipts ("EDRs") or other securities convertible
into securities or issuers based in foreign countries. These securities may
not necessarily be denominated in the same currency as the securities into
which they may be converted. Generally, ADRs, in registered form, are
denominated in U.S. dollars and are designed for use in the U.S. securities
markets, while EDRs, in bearer form, may be denominated in other currencies
and are designed for use in European securities markets. ADRs are receipts
typically issued by a U.S. Bank or trust company evidencing ownership of the
underlying securities. EDRs are European receipts evidencing similar
arrangements. For purposes of the Portfolio's investment policies, ADRs and
EDRs are deemed to have the same classification as the underlying securities
they represent. Thus, an ADR or EDR representing ownership of common stock
will be treated as common stock.
ADR facilities may be established as either "unsponsored" or "sponsored."
While ADRs issued under these two types of facilities are in some respects
similar, there are distinctions between them relating to the rights and
obligations of ADR holders and the practices of market participants. A
depository may establish an unsponsored facility without participation by (or
even necessarily the acquiescence of) the issuer of the deposited securities,
although typically the depository requests a letter of non-objection from such
issuer prior to the establishment of the facility. Holders of unsponsored ADRs
generally bear all the costs of such facilities. The depository usually
charges fees upon the deposit and withdrawal of the deposited securities, the
conversion of dividends into U.S. dollars, the disposition of non-cash
distribution, and the performance of other services. The depository of an
unsponsored facility frequently is under no obligation to distribute
shareholder communications received from the issuer of the deposited
securities or to pass through voting rights to ADR holders in respect of the
deposited securities. Sponsored ADR facilities are created in generally the
same manner as unsponsored facilities, except that the issuer of the deposited
securities enters into a deposit agreement with the depository. The deposit
agreement sets out the rights and responsibilities of the issuer, the
depository and the ADR holders. With sponsored facilities, the issuer of the
deposited securities generally will bear some of the costs relating to the
facility (such as dividend payment fees of the depository), although ADR
holders continue to bear certain other costs (such as deposit and withdrawal
fees). Under the terms of most sponsored arrangements, depositories agree to
distribute notices of shareholder meetings and voting instructions, and to
provide shareholder communications and other information to the ADR holders at
the request of the issuer of the deposited securities.
FOREIGN SECURITIES
Investments in foreign securities may involve considerations different from
investments in domestic securities due to limited publicly available
information, non-uniform accounting standards, lower trading volume and
possible consequent illiquidity, greater volatility in price, the possible
imposition of withholding or confiscatory taxes, the possible adoption of
foreign governmental restrictions affecting the payment of principal and
interest, expropriation of assets, nationalization, or other adverse political
or economic developments. Foreign companies may not be subject to auditing
and financial reporting standards and requirements comparable to those which
apply to U.S. companies. Foreign brokerage commissions and other fees are
generally higher than in the United States. It may also be more difficult to
obtain and enforce a judgment against a foreign issuer.
In addition, to the extent that any Portfolio's foreign investments are not
United States dollar-denominated, the Portfolio may be affected favorably or
unfavorably by changes in currency exchange rates or exchange control
regulations and may incur costs in connection with conversion between
currencies.
In determining whether to invest in securities of foreign issuers, the
Sub-Adviser of a Portfolio will consider the likely impact of foreign taxes on
the net yield available to the Portfolio and its shareholders. Income
received by a Portfolio from sources within foreign countries may be reduced
by withholding and other taxes imposed by such countries. Tax conventions
between certain countries and the United States may reduce or eliminate such
taxes. It is impossible to determine the effective rate of foreign tax in
advance since the amount of a Portfolio's assets to be invested in various
countries is not known, and tax laws and their interpretations may change from
time to time and may change without advance notice. Any such taxes paid by a
Portfolio will reduce its net income available for distribution to
shareholders.
FOREIGN CURRENCY TRANSACTIONS
The Trust may engage in currency exchange transactions, on behalf of its
Portfolios which may invest in foreign securities, to protect against
uncertainty in the level of future foreign currency exchange rates and to
increase current return. The Trust may engage in both "transaction hedging"
and "position hedging".
When it engages in transaction hedging, the Trust enters into foreign currency
transactions with respect to specific receivables or payables of a Portfolio
generally arising in connection with the purchase or sale of its portfolio
securities. The Trust will engage in transaction hedging when it desires to
"lock in" the U.S. dollar price of a security it has agreed to purchase or
sell, or the U.S. dollar equivalent of a dividend or interest payment in a
foreign currency. By transaction hedging the Trust will attempt to protect a
Portfolio against a possible loss resulting from an adverse change in the
relationship between the U.S. dollar and the applicable 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.
The Trust may purchase or sell a foreign currency on a spot (i.e., cash) basis
at the prevailing spot rate in connection with transaction hedging. The Trust
may also enter into contracts to purchase or sell foreign currencies at a
future date ("forward contracts") and purchase and sell foreign currency
futures contracts.
For transaction hedging purposes the Trust may also purchase
exchange-listed and over-the-counter call and put options on foreign currency
futures contracts and on foreign currencies. A put option on a futures
contract gives the Trust the right to assume a short position in the futures
contract until expiration of the option. A put option on currency gives the
Trust the right to sell a currency at a specified exercise price until the
expiration of the option. A call option on a futures contract gives the Trust
the right to assume a long position in the futures contract until the
expiration of the option. A call option on currency gives the Trust the right
to purchase a currency at the exercise price until the expiration of the
option. The Trust will engage in over-the-counter transactions only when
appropriate exchange-traded transactions are unavailable and when, in the
opinion of the Portfolio's Sub-Adviser, the pricing mechanism and liquidity
are satisfactory and the participants are responsible parties likely to meet
their contractual obligations.
When it engages in position hedging, the Trust enters into foreign currency
exchange transactions to protect against a decline in the values of the
foreign currencies in which securities held by a Portfolio are denominated or
are quoted in their principle trading markets or an increase in the value of
currency for securities which a Portfolio expects to purchase. In connection
with position hedging, the Trust may purchase put or call options on foreign
currency and foreign currency futures contracts and buy or sell forward
contracts and foreign currency futures contracts. The Trust may also purchase
or sell foreign currency on a spot basis.
The precise matching of the amounts of foreign currency exchange transactions
and the value of the portfolio securities involved will not generally be
possible since the future value of such securities in foreign currencies will
change as a consequence of market movements in the values of those securities
between the dates the currency exchange transactions are entered into and the
dates they mature.
It is impossible to forecast with precision the market value of a Portfolio's
portfolio securities at the expiration or maturity of a forward or futures
contract. Accordingly, it may be necessary for the Trust to purchase
additional foreign currency on behalf of a Portfolio on the spot market (and
bear the expense of such purchase) if the market value of the security or
securities being hedged is less than the amount of foreign currency the Trust
is obligated to deliver and if a decision is made to sell the security or
securities and make delivery of the foreign currency. Conversely, it may be
necessary to sell on the spot market some of the foreign currency received
upon the sale of the portfolio security or securities of a Portfolio if the
market value of such security or securities exceeds the amount of foreign
currency the Trust is obligated to deliver on behalf of the Portfolio.
To offset some of the costs to a Portfolio of hedging against fluctuations in
currency exchange rates, the Trust may write covered call options on those
currencies.
Transaction and position hedging do not eliminate fluctuations in the
underlying prices of the securities which a Portfolio owns or intends to
purchase or sell. They simply establish a rate of exchange which one can
achieve at some future point in time. Additionally, although these techniques
tend to minimize the risk of loss due to a decline in the value of the hedged
currency, they tend to limit any potential gain which might result from the
increase in the value of such currency.
A Portfolio may also seek to increase its current return by purchasing and
selling foreign currency on a spot basis, and by purchasing and selling
options on foreign currencies and on foreign currency futures contracts, and
by purchasing and selling foreign currency forward contracts.
CURRENCY FORWARD AND FUTURES CONTRACTS. A forward foreign currency
exchange contract involves an obligation to purchase or sell a specific
currency at a future date, which may be any fixed number of days from the date
of the contract as agreed by the parties, at a price set at the time of the
contract. In the case of a cancelable forward contract, the holder has the
unilateral right to cancel the contract at maturity by paying a specified fee.
The contracts are traded in the interbank market conducted directly between
currency traders (usually large commercial banks) and their customers. A
forward contract generally has no deposit requirement, and no commissions are
charged at any stage for trades. A foreign currency futures contract is a
standardized contract for the future delivery of a specified amount of a
foreign currency at a future date at a price set at the time of the contract.
Foreign currency futures contracts traded in the United States are designed by
and traded on exchanges regulated by the CFTC, such as the New York Mercantile
Exchange.
Forward foreign currency exchange contracts differ from foreign currency
futures contracts in certain respects. For example, the maturity date of a
forward contract may be any fixed number of days from the date of the contract
agreed upon by the parties, rather than a predetermined date in a given month.
Forward contracts may be in any amounts agreed upon by the parties rather
than predetermined amounts. Also, forward foreign exchange contracts are
traded directly between currency traders so that no intermediary is required.
A forward contract generally requires no margin or other deposit.
At the maturity of a forward or futures contract, the Trust may either
accept or make delivery of the currency specified in the contract, or at or
prior to maturity enter into a closing transaction involving the purchase or
sale of an offsetting contract. Closing transactions with respect to forward
contracts are usually effected with the currency trader who is a party to the
original forward contract. Closing transactions with respect to futures
contracts are effected on a commodities exchange; a clearing corporation
associated with the exchange assumes responsibility for closing out such
contracts.
Positions in foreign currency futures contracts and related options may
be closed out only on an exchange or board of trade which provides a secondary
market in such contracts or options. Although the Trust intends to purchase
or sell foreign currency futures contracts and related options only on
exchanges or boards of trade where there appears to be an active secondary
market, there is no assurance that a secondary market on an exchange or board
of trade will exist for any particular contract or option or at any particular
time. In such event, it may not be possible to close a futures or related
option position and, in the event of adverse price movements, the Trust would
continue to be required to make daily cash payments of variation margin on its
futures positions.
FOREIGN CURRENCY OPTIONS. Options on foreign currencies operate
similarly to options on securities, and are traded primarily in the
over-the-counter market, although options on foreign currencies have recently
been listed on several exchanges. Such options will be purchased or written
only when a Portfolio's Sub-Adviser believes that a liquid secondary market
exists for such options. There can be no assurance that a liquid secondary
market will exist for a particular option at any specific time. Options on
foreign currencies are affected by all of those factors which influence
exchange rates and investments generally.
The value of a foreign currency option is dependent upon the value of the
foreign currency and the U.S. dollar, and may have no relationship to the
investment merits of a foreign security. Because foreign currency
transactions occurring in the interbank market involve substantially larger
amounts than those that may be involved in the use of foreign currency
options, investors may be disadvantaged by having to deal in an odd lot market
(generally consisting of transactions of less than $1 million) for the
underlying foreign currencies at prices that are less favorable than for round
lots.
There is no systematic reporting of last-sale information for foreign
currencies and there is no regulatory requirement that quotations available
through dealers or other market sources be firm or revised on a timely basis.
Available quotation information is generally representative of very large
transactions in the interbank market and thus may not reflect relatively
smaller transactions (less than $1 million) where rates may be less favorable.
The interbank market in foreign currencies is a global, around-the-clock
market. To the extent that the U.S. options markets are closed while the
markets for the underlying currencies remain open, significant price and rate
movements may take place in the underlying markets that cannot be reflected in
the U.S. options markets.
FOREIGN CURRENCY CONVERSION. Although foreign exchange dealers do not
charge a fee for currency conversion, they do realize a profit based on the
difference (the "spread") between prices at which they buy and sell various
currencies. Thus, a dealer may offer to sell a foreign currency to the Trust
at one rate, while offering a lesser rate of exchange should the Trust desire
to resell that currency to the dealer.
SWAPS, CAPS, FLOORS AND COLLARS . Among the Strategic Transactions into
which certain of the Portfolios may enter are interest rate, currency and
index swaps and other types of available swap agreements, such as caps, floors
and collars. A Portfolio will enter into these transactions primarily to
preserve a return or spread on a particular investment or portion of its
portfolio, to protect against currency fluctuations, as a duration management
technique or to protect against any increase in the price of securities a
Portfolio anticipates purchasing at a later date. A Portfolio will use these
transactions as hedges and not as speculative investments and will not sell
interest rate caps or floors where it does not own securities or other
instruments providing the income stream the Portfolio may be obligated to pay.
Interest rate swaps involve the exchange by the Portfolio with another party
of their respective commitments to pay or receive interest, e.g., an exchange
of floating rate payments for fixed rate payments with respect to a notional
amount of principal. A currency swap is an agreement to exchange cashflows on
a notional amount of two or more currencies based on the relative value
differential among them. An index swap is an agreement to swap cash flows on
a notional amount based on changes in the values of the reference indices.
The purchase of a cap entitles the purchaser to receive payments on a notional
principal amount from the party selling such cap to the extent that a
specified index exceeds a predetermined interest rate or amount. The purchase
of a floor entitles the purchaser to receive payments on a notional principal
amount from the party selling such floor to the extent that a specified index
falls below a predetermined interest rate or amount. A collar is a
combination of a cap and a floor that preserves a certain return within a
predetermined range of interest rates or values.
A Portfolio will usually enter into swaps on a net basis, i.e., the two
payment streams are netted out in a cash settlement on the payment date or
dates specified in the instrument, with the Portfolio receiving or paying, as
the case may be, only the net amount of the two payments. Inasmuch as these
swaps, caps, floors and collars are entered into for good faith hedging
purposes, the Sub-Advisers and the Portfolios believe such obligations do not
constitute senior securities under the Investment Company Act of 1940, as
amended, and, accordingly, will not treat them as being subject to its
borrowing restrictions. If there is a default by the counterparty, the
Portfolio may have contractual remedies pursuant to the agreements related to
the transaction. The swap market has grown substantially in recent years with
a large number of banks and investment banking firms acting both as principals
and agents utilizing standardized swap documentation. As a result, the swap
market has become relatively liquid. Caps, floors and collars are more recent
innovations for which standardized documentation has not yet been fully
developed and, accordingly, they are less liquid than swaps.
With respect to swaps, the Portfolio will accrue the net amount of the
excess, if any, of its obligations over its entitlements with respect to each
swap on a daily basis and will segregate with its custodian an amount of cash
or liquid high-grade securities having a value equal to the accrued excess.
Caps, floors and collars require segregation of assets with a value equal to a
Portfolio's net obligation, if any.
ZERO-COUPON DEBT SECURITIES AND PAY-IN-KIND SECURITIES
Zero-coupon securities in which a Portfolio may invest are debt obligations
which are generally issued at a discount and payable in full at maturity, and
which do not provide for current payments of interest prior to maturity.
Zero-coupon securities usually trade at a deep discount from their face or par
value and are subject to greater market value fluctuations from changing
interest rates than debt obligations of comparable maturities which make
current distributions of interest. As a result, the net asset value of shares
of a Portfolio investing in zero-coupon securities may fluctuate over a
greater range than shares of other Portfolios of the Trust and other mutual
funds investing in securities making current distributions of interest and
having similar maturities.
Zero-coupon securities may include U.S. Treasury bills issued directly by the
U.S. Treasury or other short-term debt obligations, and longer-term bonds or
notes and their unmatured interest coupons which have been separated by their
holder, typically a custodian bank or investment brokerage firm. A number of
securities firms and banks have stripped the interest coupons from the
underlying principal (the "corpus") of U.S. Treasury securities and resold
them in custodial receipt programs with a number of different names, including
Treasury Income Growth Receipts ("TIGRS") and Certificates of Accrual on
Treasuries ("CATS"). The underlying U.S. Treasury bonds and notes themselves
are held in book-entry form at the Federal Reserve Bank or, in the case of
bearer securities (i.e., unregistered securities which are owned ostensibly by
the bearer or holder thereof), in trust on behalf of the owners thereof.
In addition, the Treasury has facilitated transfers of ownership of
zero-coupon securities by accounting separately for the beneficial ownership
of particular interest coupons and corpus payments on Treasury securities
through the Federal Reserve book-entry record-keeping system. The Federal
Reserve program as established by the Treasury Department is known as "STRIPS"
or "Separate Trading of Registered Interest and Principal of Securities."
Under the STRIPS program, a Portfolio will be able to have its beneficial
ownership of U.S. Treasury zero-coupon securities recorded directly in the
book-entry record-keeping system in lieu of having to hold certificates or
other evidences of ownership of the underlying U.S. Treasury securities.
When debt obligations have been stripped of their unmatured interest coupons
by the holder, the stripped coupons are sold separately. The principal or
corpus is sold at a deep discount because the buyer receives only the right to
receive a future fixed payment on the security and does not receive any rights
to periodic cash interest payments. Once stripped or separated, the corpus
and coupons may be sold separately. Typically, the coupons are sold
separately or grouped with other coupons with like maturity dates and sold in
such bundled form. Purchasers of stripped obligations acquire, in effect,
discount obligations that are economically identical to the zero-coupon
securities issued directly by the obligor.
Zero-coupon securities allow an issuer to avoid the need to generate cash to
meet current interest payments. Even though zero-coupon securities do not pay
current interest in cash, a Portfolio is nonetheless required to accrue
interest income on them and to distribute the amount of that interest at least
annually to shareholders. Thus, a Portfolio could be required at times to
liquidate other investments in order to satisfy its distribution requirement.
A Portfolio also may purchase pay-in-kind securities. Pay-in-kind securities
pay all or a portion of their interest or dividends in the form of additional
securities.
VARIABLE- OR FLOATING-RATE SECURITIES
Certain of the Portfolios may invest in securities which offer a variable or
floating rate of interest. Variable-rate securities provide for automatic
establishment of a new interest rate at fixed intervals (e.g., daily, monthly,
semi-annually, etc.). Floating-rate securities provide for automatic
adjustment of the interest rate whenever some specified interest rate index
changes. The interest rate on variable- or floating-rate securities is
ordinarily determined by reference to or is a percentage of a bank's prime
rate, the 90-day U.S. Treasury bill rate, the rate of return on commercial
paper or bank certificates of deposit, an index of short-term interest rates,
or some other objective measure.
Variable- or floating-rate securities frequently include a demand feature
entitling the holder to sell the securities to the issuer at par. In many
cases, the demand feature can be exercised at any time on 7 days' notice; in
other cases, the demand feature is exercisable at any time on 30 days' notice
or on similar notice at intervals of not more than one year. Some securities
which do not have variable or floating interest rates may be accompanied by
puts producing similar results and price characteristics.
Variable-rate demand notes include master demand notes which are obligations
that permit a Portfolio to invest fluctuating amounts, which may change daily
without penalty, pursuant to direct arrangements between the Portfolio as
lender, and the borrower. The interest rates on these notes fluctuate from
time to time. The issuer of such obligations normally has a corresponding
right, after a given period, to prepay in its discretion the outstanding
principal amount of the obligations plus accrued interest upon a specified
number of days' notice to the holders of such obligations. The interest rate
on a floating-rate demand obligation is based on a known lending rate, such as
a bank's prime rate, and is adjusted automatically each time such rate is
adjusted. The interest rate on a variable-rate demand obligation is adjusted
automatically at specified intervals. Frequently, such obligations are
secured by letters of credit or other credit support arrangements provided by
banks. Because these obligations are direct lending arrangements between the
lender and borrower, it is not contemplated that such instruments will
generally be traded, and there generally is not an established secondary
market for these obligations, although they are redeemable at face value.
Accordingly, where these obligations are not secured by letters of credit or
other credit support arrangements, the Portfolio's right to redeem is
dependent on the ability of the borrower to pay principal and interest on
demand. Such obligations frequently are not rated by credit rating agencies.
If not so rated, a Portfolio may invest in them only if the Portfolio's
Sub-Adviser determines that, at the time of investment, the obligations are of
comparable quality to the other obligations in which the Portfolio may invest.
The Sub-Adviser, on behalf of a Portfolio, will consider on an ongoing basis
the creditworthiness of the issuers of the floating- and variable-rate demand
obligations in the Portfolio's portfolio.
LOWER GRADE SECURITIES
Certain of the Portfolios may invest in lower-grade income securities. Such
lower-grade securities are commonly referred to as "junk bonds". Investment
in such securities involves special risks, as described herein. Liquidity
relates to the ability of a Portfolio to sell a security in a timely manner at
a price which reflects the value of that security. As discussed below, the
market for lower grade securities is considered generally to be less liquid
than the market for investment grade securities. The relative illiquidity of
some of a Portfolio's portfolio securities may adversely affect the ability of
the Portfolio to dispose of such securities in a timely manner and at a price
which reflects the value of such security in the Adviser's or Sub-Adviser's
judgment. The market for less liquid securities tends to be more volatile
than the market for more liquid securities and market values of relatively
illiquid securities may be more susceptible to change as a result of adverse
publicity and investor perceptions than are the market values of higher grade,
more liquid securities.
A Portfolio's net asset value will change with changes in the value of its
portfolio securities. If a Portfolio invests in fixed income securities, the
Portfolio's net asset value can be expected to change as general levels of
interest rates fluctuate. When interest rates decline, the value of a
portfolio invested in fixed income securities can be expected to rise.
Conversely, when interest rates rise, the value of a portfolio invested in
fixed income securities can be expected to decline. Net asset value and
market value may be volatile due to a Portfolio's investment in lower grade
and less liquid securities. Volatility may be greater during periods of
general economic uncertainty.
A Portfolio's investments are valued pursuant to guidelines adopted and
periodically reviewed by the Board of Trustees. To the extent that there is
no established retail market for some of the securities in which a Portfolio
may invest, there may be relatively inactive trading in such securities and
the ability of the Sub-Adviser to accurately value such securities may be
adversely affected. During periods of reduced market liquidity and in the
absence of readily available market quotations for securities held in a
Portfolio's portfolio, the responsibility of the Sub-Adviser to value the
Portfolio's securities becomes more difficult and the Sub-Adviser's judgment
may play a greater role in the valuation of the Portfolio's securities due to
the reduced availability of reliable objective data. To the extent that a
Portfolio invests in illiquid securities and securities which are restricted
as to resale, the Portfolio may incur additional risks and costs.
Lower grade securities generally involve greater credit risk than higher grade
securities. A general economic downturn or a significant increase in interest
rates could severely disrupt the market for lower grade securities and
adversely affect the market value of such securities. In addition, in such
circumstances, the ability of issuers of lower grade securities to repay
principal and to pay interest, to meet projected financial goals and to obtain
additional financing may be adversely affected. Such consequences could lead
to an increased incidence of default for such securities and adversely affect
the value of the lower grade securities in a Portfolio's portfolio and thus a
Portfolio's net asset value. The secondary market prices of lower grade
securities are less sensitive to changes in interest rates than are those for
higher rated securities, but are more sensitive to adverse economic changes or
individual issuer developments. Adverse publicity and investor perceptions,
whether or not based on rational analysis, may also affect the value and
liquidity of lower grade securities.
Yields on a Portfolio's portfolio securities can be expected to fluctuate over
time. In addition, periods of economic uncertainty and changes in interest
rates can be expected to result in increased volatility of the market prices
of the lower grade securities in a Portfolio's portfolio and thus in the net
asset value of a Portfolio. Net asset value and market value may be volatile
due to a Portfolio's investment in lower grade and less liquid securities.
Volatility may be greater during periods of general economic uncertainty. The
Portfolios may incur additional expenses to the extent they are required to
seek recovery upon a default in the payment of interest or a repayment of
principal on their portfolio holdings, and the Portfolios may be unable to
obtain full recovery thereof. In the event that an issuer of securities held
by a Portfolio experiences difficulties in the timely payment of principal or
interest and such issuer seeks to restructure the terms of its borrowings,
such Portfolio may incur additional expenses and may determine to invest
additional capital with respect to such issuer or the project or projects to
which the Portfolio's portfolio securities relate.
The Portfolios will rely on each Sub-Adviser's judgment, analysis and
experience in evaluating the creditworthiness of an issue. In this
evaluation, the Sub-Adviser will take into consideration, among other things,
the issuer's financial resources, its sensitivity to economic conditions and
trends, its operating history, the quality of the issuer's management and
regulatory matters. The Sub-Adviser also may consider, although it does not
rely primarily on, the credit ratings of S&P and Moody's in evaluating
fixed-income securities. Such ratings evaluate only the safety of principal
and interest payments, not market value risk. Additionally, because the
creditworthiness of an issuer may change more rapidly than is able to be
timely reflected in changes in credit ratings, the Sub-Adviser continuously
monitors the issuers of such securities held in the Portfolio's portfolio. A
Portfolio may, if deemed appropriate by the Sub-Adviser, retain a security
whose rating has been downgraded below B by S&P or below B by Moody's, or
whose rating has been withdrawn.
SHORT SALES
Certain of the Portfolios may seek to hedge investments or realize additional
gains through short sales. Short sales are transactions in which a Portfolio
sells a security it does not own, in anticipation of a decline in the market
value of that security. To complete such a transaction, a Portfolio must
borrow the security to make delivery to the buyer. A Portfolio then is
obligated to replace the security borrowed by purchasing it at the market
price at or prior to the time of replacement. The price at such time may be
more or less than the price at which the security was sold by a Portfolio.
Until the security is replaced, a Portfolio is required to repay the lender
any dividends or interest that accrue during the period of the loan. To borrow
the security, a Portfolio also may be required to pay a premium, which would
increase the cost of the security sold. The net proceeds of the short sale
will be retained by the broker (or by the Trust's custodian in a special
custody account), to the extent necessary to meet margin requirements, until
the short position is closed out. A Portfolio also will incur transaction
costs in effecting short sales.
A Portfolio will incur a loss as a result of the short sale if the price of
the security increases between the date of the short sale and the date on
which a Portfolio replaces the borrowed security. A Portfolio will realize a
gain if the security declines in price between those dates. The amount of any
gain will be decreased, and the amount of any loss increased, by the amount of
the premium, dividends, interest or expenses a Portfolio may be required to
pay in connection with a short sale.
SHORT SALES AGAINST THE BOX
The International Stock Portfolio may sell securities short against the box to
hedge unrealized gains on portfolio securities. Selling securities short
against the box involves selling a security that the Portfolio owns or has the
right to acquire, for delivery at a specified date in the future. If the
Portfolio sells securities short against the box, it may protect unrealized
gains, but will lose the opportunity to profit on such securities if the price
rises.
WARRANTS
Each of the Portfolios that may invest in equity securities may acquire
warrants. Warrants are securities giving the holder the right, but not the
obligation, to buy the stock of an issuer at a given price (generally higher
than the value of the stock at the time of issuance) during a specified period
or perpetually. Warrants may be acquired separately or in connection with the
acquisition of securities. Warrants acquired by a Portfolio in units or
attached to securities are not subject to these restrictions. Warrants do not
carry with them the right to dividends or voting rights with respect to the
securities that they entitle their holder to purchase, and they do not
represent any rights in the assets of the issuer. As a result, warrants may be
considered more speculative than certain other types of investments. In
addition, the value of a warrant does not necessarily change with the value of
the underlying securities, and a warrant ceases to have value if it is not
exercised prior to its expiration date.
INVESTMENT RESTRICTIONS
FUNDAMENTAL INVESTMENT RESTRICTIONS
The following investment restrictions are fundamental and may not be changed
with respect to any Portfolio without the approval of a majority of the
outstanding voting securities of that Portfolio. Under the Investment Company
Act of 1940 and the rules thereunder, "majority of the outstanding voting
securities" of a Portfolio means the lesser of (1) 67% of the shares of that
Portfolio present at a meeting if the holders of more than 50% of the
outstanding shares of that Portfolio are present in person or by proxy, and
(2) more than 50% of the outstanding shares of that Portfolio. Any investment
restrictions which involve a maximum percentage of securities or assets shall
not be considered to 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 or on behalf of, a Portfolio, as the
case may be.
ALL PORTFOLIOS (EXCEPT THE GROWTH & INCOME PORTFOLIO AND VALUE + GROWTH
PORTFOLIO)
The Trust may not, on behalf of a Portfolio:
(1) With respect to 75% of its total assets, purchase the securities of
any issuer if such purchase would cause more than 5% of the value of a
Portfolio's total assets to be invested in securities of any one issuer
(except securities issued or guaranteed by the U.S. Government or any agency
or instrumentality thereof), or purchase more than 10% of the outstanding
voting securities of any one issuer; provided that this restriction shall not
apply to the International Fixed Income Portfolio or the OTC Portfolio;
(2) invest more than 25% of the value of its net assets in the securities
(other than U.S. Government Securities), of issuers in a single industry,
except that this policy shall not limit investment by the Money Market
Portfolio in obligations of U.S. banks (excluding their foreign branches);
(3) with respect to all Portfolios except for the Money Market
Portfolio, borrow money except from banks as a temporary measure for
extraordinary or emergency purposes or by entering into reverse repurchase
agreements (each Portfolio of the Trust is required to maintain asset coverage
(including borrowings) of 300% for all borrowings), except that the
Mortgage-Backed Securities Portfolio and the International Fixed Income
Portfolio may also borrow to enhance income; with respect to the Money Market
Portfolio, borrow money except as a temporary measure from banks for
extraordinary or emergency purposes or engage in reverse repurchase agreements
except for such purposes or as a temporary measure to facilitate redemptions
(i.e., not for investment leverage, but only to enable it to satisfy
redemption requests where liquidation of portfolio securities is considered
disadvantageous or inconvenient), and in either event not in excess of an
amount (taking borrowings and reverse repurchase agreements together) equal to
one third of the value of its net assets;
(4) make loans to other persons, except loans of portfolio securities
and except to the extent that the purchase of debt obligations in accordance
with its investment objectives and policies or entry into repurchase
agreements may be deemed to be loans;
(5) purchase or sell any commodity contract, except that each Portfolio
(other than the Money Market Portfolio) may purchase and sell futures
contracts based on debt securities, indexes of securities, and foreign
currencies and purchase and write options on securities, futures contracts
which it may purchase, securities indexes, and foreign currencies and purchase
forward contracts. (Securities denominated in gold or other precious metals
or whose value is determined by the value of gold or other precious metals are
not considered to be commodity contracts.) The OTC, Research and Total Return
Portfolios reserve the freedom of action to hold and to sell real estate or
mineral leases, commodities or commodity contracts acquired as a result of the
ownership of securities. The OTC, Research and Total Return Portfolios will
not purchase securities for the purpose of acquiring real estate or mineral
leases, commodities or commodity contracts (except for options, futures
contracts, options on futures contracts and forward contracts).
(6) underwrite securities issued by other persons except to the extent
that, in connection with the disposition of its portfolio investments, it may
be deemed to be an underwriter under federal securities laws;
(7) purchase or sell real estate, although (with respect to Portfolios
other than the Money Market Portfolio) it may purchase and sell securities
which are secured by or represent interests in real estate, mortgage-related
securities, securities of companies principally engaged in the real estate
industry and participation interests in pools of real estate mortgage loans,
and it may liquidate real estate acquired as a result of default on a
mortgage;
(8) issue any class of securities which is senior to a Portfolio's
shares of beneficial interest except as permitted under the Investment Company
Act of 1940 or by order of the SEC.
VALUE + GROWTH PORTFOLIO
The Trust may not, on behalf of the Portfolio:
(1) purchase or sell commodities or commodity contracts, or interests in
oil, gas, or other mineral leases, or other mineral exploration or development
programs, although it may invest in companies that engage in such businesses
to the extent otherwise permitted by the Portfolio's investment policies and
restrictions and by applicable law, except as required in connection with
otherwise permissible options, futures and commodity activities as described
elsewhere in the Prospectus and this Statement:
(2) purchase or sell real estate, although it may invest in securities
secured by real estate or real estate interests, or issued by companies,
including real estate investment trusts, that invest in real estate or real
estate interests;
(3) make short sales or purchases on margin, although it may obtain
short-term credit necessary for the clearance of purchases and sales of its
portfolio securities and except as required in connection with permissible
options, futures, short selling and leverage activities as described elsewhere
in the Prospectus and this Statement (the short sale restriction is
nonfundamental);
(4) with respect to 75% of its total assets, invest in the securities of
any one issuer (other than the U.S. Government and its agencies and
instrumentalities), if immediately after and as a result of such investment
more than 5% of the total assets of the Portfolio would be invested in such
issuer (the remaining 25% of its total assets may be invested without
restriction except to the extent other investment restrictions may be
applicable);
(5) mortgage, hypothecate, or pledge any of its assets as security for
any of its obligations, except as required for otherwise permissible
borrowings (including reverse repurchase agreements), short sales, financial
options and other hedging activities;
(6) make loans of the Portfolio's assets, including loans of securities
(although it may, subject to the other restrictions or policies stated herein,
purchase debt securities or enter into repurchase agreements with banks or
other institutions to the extent a repurchase agreement is deemed to be a
loan);
(7) borrow money, except from banks for temporary or emergency purposes
or in connection with otherwise permissible leverage activities, and then only
in an amount not in excess of 5% of the Portfolio's total assets (in any case
as determined at the lesser of acquisition cost or current market value and
excluding collateralized reverse repurchase agreements);
(8) underwrite securities of any other company, although it may invest in
companies that engage in such businesses if it does so in accordance with
policies established by the Trust's Board of Trustees, and except to the
extent that the Portfolio may be considered an underwriter within the meaning
of the Securities Act of 1933, as amended, in the disposition of restricted
securities;
(9) invest more than 25% of the value of the Portfolio's total assets in
the securities of companies engaged in any one industry (except securities
issued by the U.S. Government, its agencies and instrumentalities);
(10) issue senior securities, as defined in the 1940 Act, except that this
restriction shall not be deemed to prohibit the Portfolio from making any
otherwise permissible borrowings, mortgages or pledges, or entering into
permissible reverse repurchase agreements, and options and futures
transactions;
(11) own, directly or indirectly, more than 25% of the voting securities
of any one issuer or affiliated person of the issuer; and
(12) purchase the securities of other investment companies, except as
permitted by the 1940 Act or as part of a merger, consolidation, acquisition
of assets or similar reorganization transaction.
GROWTH & INCOME PORTFOLIO
The Trust may not, on behalf of the Portfolio:
(1) issue any class of securities which is senior to the Portfolio's
shares of beneficial interest, except that the Portfolio may borrow money to
the extent contemplated by Restriction 3 below;
(2) purchase securities on margin (but a Portfolio may obtain such
short-term credits as may be necessary for the clearance of transactions).
(Margin payments or other arrangements in connection with transactions in
short sales, futures contracts, options, and other financial instruments are
not considered to constitute the purchase of securities on margin for this
purpose);
(3) borrow more than one-third of the value of its total assets less all
liabilities and indebtedness (other than such borrowings) not represented by
senior securities;
(4) act as underwriter of securities of other issuers except to the
extent that, in connection with the disposition of portfolio securities, it
may be deemed to be an underwriter under certain federal securities laws;
(5) as to 75% of the Portfolio's total assets, purchase any security
(other than obligations of the U.S. Government, its agencies or
instrumentalities) if as a result: (i) more than 5% of the Portfolio's total
assets (taken at current value) would then be invested in securities of a
single issuer, or (ii) more than 25% of the Portfolio's total assets (taken at
current value) would be invested in a single industry;
(6) invest in securities of any issuer if any officer or Trustee of the
Trust or any officer or director of the Sub-Adviser owns more than 1/2 of 1%
of the outstanding securities of such issuer, and such officers, Trustees and
directors who own more than 1/2 of 1% own in the aggregate more than 5% of the
outstanding securities of such issuer;
(7) make loans, except by purchase of debt obligations or other financial
instruments in which the Portfolio may invest consistent with its investment
policies, by entering into repurchase agreements, or through the lending of
its portfolio securities.
NON-FUNDAMENTAL INVESTMENT RESTRICTIONS
The following investment restrictions are non-fundamental and may be changed
by the Trustees of the Trust without shareholder approval. Although
shareholder approval is not necessary, the Trust intends to notify its
shareholders before implementing any material change in any non-fundamental
investment restriction.
ALL PORTFOLIOS (EXCEPT THE GROWTH & INCOME PORTFOLIO AND VALUE + GROWTH
PORTFOLIO)
The Trust may not, on behalf of a Portfolio:
(1) invest more than 10% (except 15% with respect to the International
Fixed Income Portfolio, Mortgage-Backed Securities Portfolio, OTC Portfolio
and Total Return Portfolio) of the net assets of a Portfolio (taken at market
value) in illiquid securities, including repurchase agreements maturing in
more than seven days;
(2) purchase securities on margin, except (with respect to all
Portfolios other than the Money Market Portfolio) such short-term credits as
may be necessary for the clearance of purchases and sales of securities, and
except (with respect to all Portfolios other than the Money Market Portfolio)
that it may make margin payments in connection with options, futures
contracts, options on futures contracts and forward foreign currency contracts
and in connection with swap agreements;
(3) make short sales of securities unless such Portfolio (other than the
Money Market Portfolio) owns an equal amount of such securities or owns
securities which, without payment of any further consideration, are
convertible into or exchangeable for securities of the same issue as, and
equal in amount to, the securities sold short;
(4) make investments for the purpose of gaining control of a company's
management.
VALUE + GROWTH PORTFOLIO
The Trust may not, on behalf of the Portfolio:
(1) except as required in connection with otherwise permissible options
and futures activities, invest more than 5% of the value of the Portfolio's
total assets in rights or warrants (other than those that have been acquired
in units or attached to other securities), or invest more than 2% of its total
assets in rights or warrants that are not listed on the New York or American
Stock Exchange;
(2) participate on a joint basis in any trading account in securities,
although the Sub-Adviser may aggregate orders for the sale or purchase of
securities with other accounts it manages to reduce brokerage costs or to
average prices;
(3) invest, in the aggregate, more than 10% of its net assets in illiquid
securities;
(4) purchase or write put, call, straddle or spread options except as
described in the Prospectus or Statement of Additional Information;
(5) purchase or retain in the Portfolio's portfolio any security if any
officer, trustee or shareholder of the issuer is at the same time an officer,
trustee or employee of the Trust or of its Sub-Adviser and such person owns
beneficially more than 1/2 of 1% of the securities and all such persons owning
more than 1/2 of 1% own in the aggregate more than 5% of the outstanding
securities of the issuer;
(6) invest in real estate limited partnerships or invest more than 10% of
the value of its total assets in real estate investment trusts;
(7) buy or sell physical commodities;
(8) invest or engage in arbitrage transactions;
(9) invest more than 40% of its total assets in the securities of
companies operating exclusively in one foreign country;
(10) purchase securities of other open-end investment companies;
(11) under normal market conditions, invest less than 65% of its total
assets in companies listed on a nationally recognized securities exchange or
traded on the National Association of Securities Dealers Automated Quotation
System.
(12) purchase the securities of any company for the purpose of exercising
management or control;
(13) purchase more than 10% of the outstanding voting securities of any
one issuer; and
(14) invest more than 5% of the value of its total assets in securities
of any issuer which has not had a record, together with its predecessors, of
at least three years of continuous operations.
GROWTH & INCOME PORTFOLIO
The Trust may not, on behalf of the Portfolio:
(1) invest in warrants (other than warrants acquired by the Portfolio as
a part of a unit or attached to securities at the time of purchase) if, as a
result, such investment (valued at the lower of cost or market value) would
exceed 5% of the value of the Portfolio's net assets, provided that not more
than 2% of the Portfolio's net assets may be invested in warrants not listed
on the New York or American Stock Exchanges;
(2) purchase or sell commodities or commodity contracts, except that the
Portfolio may purchase or sell financial futures contracts, options on
financial futures contracts, and futures contracts, forward contracts, and
options with respect to foreign currencies, and may enter into swap
transactions;
(3) purchase securities restricted as to resale if, as a result, (i) more
than 10% of the Portfolio's total assets would be invested in such securities,
or (ii) more than 5% of the Portfolio's total assets (excluding any securities
eligible for resale under Rule 144A under the Securities Act of 1933) would be
invested in such securities;
(4) invest in (a) securities which at the time of such investment are not
readily marketable, (b) securities restricted as to resale, and (c) repurchase
agreements maturing in more than seven days, if, as a result, more than 15% of
the Portfolio's net assets (taken at current value) would then be invested in
the aggregate in securities described in (a), (b), and (c) above;
(5) invest in securities of other registered investment companies, except
by purchases in the open market involving only customary brokerage commissions
and as a result of which not more than 5% of its total assets (taken at
current value) would be invested in such securities, or except as part of a
merger, consolidation, or other acquisition;
(6) invest in real estate limited partnerships;
(7) purchase any security if, as a result, the Portfolio would then have
more than 5% of its total assets (taken at current value) invested in
securities of companies (including predecessors) less than three years old;
(8) purchase or sell real estate or interests in real estate, including
real estate mortgage loans, although it may purchase and sell securities which
are secured by real estate and securities of companies, including limited
partnership interests, that invest or deal in real estate and it may purchase
interests in real estate investment trusts. (For purposes of this restriction,
investments by a Portfolio in mortgage-backed securities and other securities
representing interests in mortgage pools shall not constitute the purchase or
sale of real estate or interests in real estate or real estate mortgage
loans.);
(9) make investments for the purpose of exercising control or management;
(10) invest in interests in oil, gas or other mineral exploration or
development programs or leases, although it may invest in the common stocks of
companies that invest in or sponsor such programs;
(11) acquire more than 10% of the voting securities of any issuer;
(12) invest more than 15%, in the aggregate, of its total assets in the
securities of issuers which, together with any predecessors, have a record of
less than three years continuous operation and securities restricted as to
resale (including any securities eligible for resale under Rule 144A under the
Securities Act of 1933);
(13) purchase or sell puts, calls, straddles, spreads, or any combination
thereof, if, as a result, the aggregate amount of premiums paid or received by
the Portfolio in respect of any such transactions then outstanding would
exceed 5% of its total assets.
MANAGEMENT OF THE TRUST
<TABLE>
<CAPTION>
<S> <C> <C>
Position Held Principal Occupation
Name, Address and Age (1) With the Trust During Past 5 Years
- -------------------------- -------------------- ---------------------------
Paul R. Schlaack* President, Principal President, Chief Executive
2000 Hub Tower Executive Officer Officer and Director
699 Walnut Street and Trustee of Adviser since 1984.
Des Moines, IA 50309
Age: 49
Thomas W. Bedell Trustee Chairman and Chief
Berkley Incorporated Executive Officer of
1 Berkley Drive Berkley, Inc., a
Spirit Lake, IA 51360 manufacturer and marketer
Age: 46 of fishing tackle and
outdoor recreation
products.
J. Michael Earley Trustee President and Chief
665 Locust Street Executive Officer, Bankers
Des Moines, IA 50309 Trust Company, Des Moines,
Age: 50 Iowa since July, 1992;
President and Chief
Executive Officer,
Mid-America Savings Bank,
Waterloo, Iowa from April,
1987 to June, 1992.
R. Barbara Gitenstein Trustee Provost, Drake University
Provost Office since July, 1992; Assistant
202 Old Main Provost, State University
Drake University of New York from August,
2507 University Avenue 1991 to July, 1992;
Des Moines, IA 50311-4505 Associate Provost, State
Age: 48 University of New York -
Oswego from January, 1989
to August, 1991
Stanley B. Seidler Trustee President, Iowa
P.O. Box 1297 Periodicals, Inc., a
3301 McKinley Avenue distributor of books,
Des Moines, IA 50321 periodicals and video
Age: 67 cassettes
Paul E. Larson Treasurer and Executive Vice President,
Age: 43 Principal Financial Treasurer and Chief
Officer Financial Officer of
Equitable of Iowa
Companies, Equitable
American Insurance Company
(since January, 1993) and
USG Annuity & Life Company,
and Executive Vice
President and Chief
Financial Officer of
Equitable Life Insurance
Company of Iowa
John A. Merriman Secretary Secretary and General
Age: 53 Counsel of Equitable of
Iowa Companies, USG Annuity
& Life Company, Equitable
American Insurance Company
(since January, 1993) and
Assistant Secretary and
General Counsel of
Equitable Life Insurance
Company of Iowa
David A. Terwilliger Principal Accounting Vice President and
Age: 38 Officer Controller of Equitable of
Iowa Companies, Equitable
American Insurance Company
(since January, 1993),
Adviser, Equitable Life
Insurance Company of Iowa
and USG Annuity & Life
Company
Dennis D. Hargens Assistant Treasurer Treasurer, Equitable Life
Age: 53 Insurance Company of Iowa
Kimberly K. Krumviede Assistant Vice Managing Director of
Age: 29 President Equitable Investment
Services, Inc. since
February, 1996.
Director - Administration,
Treasurer/Secretary of
Adviser from June, 1994
to January, 1996.
Principal - Research of
Adviser from April, 1994 to
June, 1994; Chief Financial
Officer, Joliet Concrete
Products, Inc., Joliet,
Illinois, from September,
1991 to March, 1994;
Financial Analyst -
Research of Adviser from
June, 1989 to August, 1991
Christopher R. Welp Assistant Vice Assistant Vice President -
Age: 35 President - Finance Equitable Life Insurance
and Tax Company of Iowa
<FN>
____________________
* Interested person of the Trust within the meaning of the 1940 Act.
(1) Unless otherwise indicated, the business address of each listed person is
604 Locust Street, Des Moines, Iowa 50309
</TABLE>
Each Trustee of the Trust who is not an interested person of the Trust or
Adviser or Sub-Adviser receives an annual fee of $6,000 and an additional fee
of $1,500 for each Trustees' meeting attended. With respect to the period
ended December 31, 1995, the Trust paid Trustees' Fees aggregating $47,250.
The following table shows 1995 compensation by Trustee.
COMPENSATION TABLE
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
(1) (2) (3) (4) (5)
Pension or Total
Aggregate Retirement Estimated Compensation
Compensation Benefits Accrued Annual From Registrant
Name of Person, From As Part of Fund Benefits Upon and Fund Complex
Position Registrant Expenses Retirement Paid to Trustees
- ----------------------- ------------- ----------------- -------------- -----------------
Paul R. Schlaack, N/A N/A N/A N/A
President and
Trustee
Thomas W. Bedell, 11,250 N/A N/A 11,250
Trustee
J. Michael Earley, 12,000 N/A N/A 12,000
Trustee
R. Barbara Gitenstein, 12,000 N/A N/A 12,000
Trustee
Stanley B. Seidler, 12,000 N/A N/A 12,000
Trustee
</TABLE>
SUBSTANTIAL SHAREHOLDERS
Shares of the Portfolios are issued and redeemed in connection with
investments in and payments under certain variable annuity contracts issued
through a separate account of the Life Company. As of February 29, 1996, the
separate account of the Life Company and the Life Company were each known to
the Board of Trustees and the management of the Trust to own of record the
following percentages of the various Portfolios of the Trust.
<TABLE>
<CAPTION>
<S> <C> <C>
Separate Account Life Company
----------------- -------------
Percentage Percentage
----------------- -------------
Portfolio Ownership Ownership
- -------------------------- ----------------- -------------
Advantage 64.58% 35.42%
Government Securities 30.40% 69.60%
International Fixed Income 45.36% 54.64%
International Stock 64.09% 35.91%
Money Market 99.86% 0.14%
Mortgage-Backed Securities 62.85% 37.15%
OTC 99.90% 0.10%
Research 99.94% 0.06%
Short-Term Bond 18.90% 81.10%
Total Return 99.94% 0.06%
</TABLE>
The Growth & Income and Value + Growth Portfolios have not yet commenced
investment operations.
The Declaration of Trust provides that the Trust will indemnify its Trustees
and officers against liabilities and expenses incurred in connection with
litigation in which they may be involved because of their offices with the
Trust, except if it is determined in the manner specified in the Declaration
of Trust that they have not acted in good faith in the reasonable belief that
their actions were in the best interests of the Trust or that such
indemnification would relieve any officer or Trustee of any liability to the
Trust or its shareholders by reason of willful misfeasance, bad faith, gross
negligence, or reckless disregard of his or her duties. The Trust, at its
expense, may provide liability insurance for the benefit of its Trustees and
officers.
Under the Investment Advisory Agreement between the Trust and the Adviser (the
"Investment Advisory Agreement"), the Adviser, at its expense, provides the
Portfolios with investment advisory services and advises and assists the
officers of the Trust in taking such steps as are necessary or appropriate to
carry out the decisions of its Trustees regarding the conduct of business of
the Trust and each Portfolio. The fees to be paid under the Investment
Advisory Agreement are set forth in the Trust's prospectus.
Under the Investment Advisory Agreement, the Adviser is obligated to formulate
a continuing program for the investment of the assets of each Portfolio of the
Trust in a manner consistent with each Portfolio's investment objectives,
policies and restrictions and to determine from time to time securities to be
purchased, sold, retained or lent by the Trust and implement those decisions,
subject always to the provisions of the Trust's Declaration of Trust and
By-laws, and of the Investment Company Act of 1940, and subject further to
such policies and instructions as the Trustees may from time to time
establish.
The Investment Advisory Agreement further provides that the Adviser shall
furnish the Trust with office space and necessary personnel, pay ordinary
office expenses, pay all executive salaries of the Trust and furnish, without
expense to the Trust, the services of such members of its organization as may
be duly elected officers or Trustees of the Trust.
Under the Investment Advisory Agreement, the Trust is responsible for all its
other expenses including, but not limited to, the following expenses: legal,
auditing or accounting expenses, Trustees' fees and expenses, insurance
premiums, brokers' commissions, taxes and governmental fees, expenses of issue
or redemption of shares, expenses of registering or qualifying shares for
sale, reports and notices to shareholders, and fees and disbursements of
custodians, transfer agents, registrars, shareholder servicing agents and
dividend disbursing agents, and certain expenses with respect to membership
fees of industry associations.
The Investment Advisory Agreement provides that the Adviser may retain
sub-advisers, at Adviser's own cost and expense, for the purpose of making
investment recommendations and research information available to the Trust.
State Street Bank and Trust Company provides certain accounting, transfer
agency, and other services to the Trust.
The Investment Advisory Agreement provides that neither the Adviser nor any
director, officer or employee of Adviser will be liable for any loss suffered
by the Trust in the absence of willful misfeasance, bad faith, gross
negligence or reckless disregard of obligations and duties.
The Investment Advisory Agreement may be terminated without penalty by vote of
the Trustees, as to any Portfolio by the shareholders of that Portfolio, or by
Adviser on 60 days written notice. The Agreement also terminates without
payment of any penalty in the event of its assignment. In addition, the
Investment Advisory Agreement may be amended only by a vote of the
shareholders of the affected Portfolio(s), and provides that it will continue
in effect from year to year only so long as such continuance is approved at
least annually with respect to each Portfolio by vote of either the Trustees
or the shareholders of the Portfolio, and, in either case, by a majority of
the Trustees who are not "interested persons" of the Adviser. In each of the
foregoing cases, the vote of the shareholders is the affirmative vote of a
"majority of the outstanding voting securities" as defined in the Investment
Company Act of 1940.
The Adviser has undertaken to reimburse each Portfolio for all operating
expenses, excluding management fees, that exceed .30% of the average daily net
assets of the Money Market, Advantage and Short-Term Bond Portfolios, .50% of
the average daily net assets of the Mortgage-Backed Securities and Government
Securities Portfolios and .75% of the average daily net assets of the
International Stock, International Fixed Income, OTC, Total Return, Research,
Growth & Income and Value + Growth Portfolios. This undertaking is subject to
termination at any time without notice to shareholders. Information concerning
the dollar amounts of advisory fees waived and expenses reimbursed for the
period ended December 31, 1995 is contained in the Prospectus.
For the year ended December 31, 1995, the Adviser was paid advisory fees as
follows: $13,049, Money Market Portfolio; $49,251, Mortgage-Backed Securities
Portfolio; $59,498, International Fixed Income Portfolio; $43,113, OTC
Portfolio; $55,590, Research Portfolio; $54,549, Total Return Portfolio;
$24,385, Advantage Portfolio; $13,542, Government Securities Portfolio;
$61,236 International Stock Portfolio; and $8,830, Short-Term Bond Portfolio.
SUB-ADVISERS
Each of the Sub-Advisers described in the Prospectus serves as Sub-Adviser to
one or more of the Portfolios of the Trust pursuant to separate written
agreements. Certain of the services provided by, and the fees paid to, the
Sub-Advisers are described in the Prospectus under "Management of the Trust -
Sub-Advisers."
BROKERAGE AND RESEARCH SERVICES
Transactions on U.S. stock exchanges, commodities markets, futures markets
and other agency transactions involve the payment by the Trust of negotiated
brokerage commissions. Such commissions vary among different brokers. A
particular broker may charge different commissions according to such factors
as the difficulty and size of the transaction. Transactions in foreign
securities often involve the payment of fixed brokerage commissions, which may
be higher than those in the United States. There is generally no stated
commission in the case of securities traded in the over-the-counter markets,
but the price paid by the Trust usually includes an undisclosed dealer
commission or mark-up. In underwritten offerings, the price paid by the Trust
includes a disclosed, fixed commission or discount retained by the underwriter
or dealer. It is anticipated that most purchases and sales of securities by
funds investing primarily in certain fixed-income securities will be with the
issuer or with underwriters of or dealers in those securities, acting as
principal. Accordingly, those funds would not ordinarily pay significant
brokerage commissions with respect to securities transactions.
It is currently intended that the Sub-Advisers will place all orders for the
purchase and sale of portfolio securities for the Trust and buy and sell
securities for the Trust through a substantial number of brokers and dealers.
In so doing, the Sub-Advisers will use their best efforts to obtain for the
Trust the best price and execution available. In seeking the best price and
execution, the Sub-Advisers, having in mind the Trust's best interests, will
consider all factors they deem relevant, including, by way of illustration,
price, the size of the transaction, the nature of the market for the security,
the amount of the commission, the timing of the transaction taking into
account market prices and trends, the reputation, experience, and financial
stability of the broker-dealer involved, and the quality of service rendered
by the broker-dealer in other transactions.
It has for many years been a common practice in the investment advisory
business for advisers of investment companies and other institutional
investors to receive brokerage and research services (as defined in the
Securities Exchange Act of 1934 (the "1934 Act")) from broker-dealers which
execute portfolio transactions for the clients of such advisers and from third
parties with which such broker-dealers have arrangements. Consistent with this
practice, the Sub-Advisers may receive brokerage and research services and
other similar services from many broker-dealers with which they place the
Trust's portfolio transactions and from third parties with which such
broker-dealers have arrangements. These services, which in some cases may also
be purchased for cash, include such matters as general economic and security
market reviews, industry and company reviews, evaluations of securities, and
recommendations as to the purchase and sale of securities. Some of these
services may be of value to the Sub-Advisers and/or their affiliates in
advising various other clients (including the Trust), although not all of
these services are necessarily useful and of value in managing the Trust. The
management fees paid by the Trust are not reduced because the Sub-Advisers
and/or their affiliates may receive such services.
As permitted by Section 28(e) of the 1934 Act, a Sub-Adviser may cause a
Portfolio to pay a broker-dealer which provides "brokerage and research
services" as defined in the 1934 Act to the Sub-Adviser an amount of
disclosed commission for effecting a securities transaction for the
Portfolio in excess of the commission which another broker-dealer would
have charged for effecting that transaction provided that the Sub-Adviser
determines in good faith that such commission was reasonable in relation
to the value of the brokerage and research services provided by
such broker-dealer viewed in terms of that particular transaction or in terms
of all of the accounts over which investment discretion is so exercised. A
Sub-Adviser's authority to cause a Portfolio to pay any such greater
commissions is also subject to such policies as the Adviser or the Trustees
may adopt from time to time.
INVESTMENT DECISIONS. Investment decisions for the Trust and for the
other investment advisory clients of the Sub-Advisers are made with a view to
achieving their respective investment objectives and after consideration of
such factors as their current holdings, availability of cash for investment,
and the size of their investments generally. Frequently, a particular
security may be bought or sold for only one client or in different amounts and
at different times for more than one but less than all clients. Likewise, a
particular security may be bought for one or more clients when one or more
other clients are selling the security. In addition, purchases or sales of
the same security may be made for two or more clients of a Sub-Adviser on the
same day. In such event, such transactions will be allocated among the
clients in a manner believed by the Sub-Adviser to be equitable to each. In
some cases, this procedure could have an adverse effect on the price or amount
of the securities purchased or sold by the Trust. Purchase and sale orders
for the Trust may be combined with those of other clients of a Sub-Adviser in
the interest of achieving the most favorable net results for the Trust.
For the period ended December 31, 1995, the Portfolios paid brokerage
commissions in the following aggregate amounts: International Stock Portfolio,
$76,268; OTC Portfolio, $15,221; Research Portfolio, $26,453; and Total Return
Portfolio, $8,312.
DETERMINATION OF NET ASSET VALUE
The net asset value per share of each Portfolio is determined daily as of 4:00
p.m. New York time on each day the New York Stock Exchange is open for
trading. The New York Stock Exchange is normally closed on the following
national holidays: New Year's Day, President's Day, Good Friday, Memorial
Day, Independence Day, Labor Day, Thanksgiving, and Christmas.
The value of a foreign security is determined in its national currency as of
the close of trading on the foreign exchange on which it is traded or as of
4:00 p.m. New York time, if that is earlier, and that value is then converted
into its U.S. dollar equivalent at the foreign exchange rate in effect at
noon, New York time, on the day the value of the foreign security is
determined.
The valuation of the Money Market Portfolio's portfolio securities is based
upon their amortized cost, which does not take into account unrealized
securities gains or losses. This method involves initially valuing an
instrument at its cost and thereafter assuming a constant amortization to
maturity of any discount or premium, regardless of the impact of fluctuating
interest rates on the market value of the instrument. By using amortized cost
valuation, the Trust seeks to maintain a constant net asset value of $1.00 per
share for the Money Market Portfolio, despite minor shifts in the market value
of its portfolio securities. While this method provides certainty in
valuation, it may result in periods during which value, as determined by
amortized cost, is higher or lower than the price the Money Market Portfolio
would receive if it sold the instrument. During periods of declining interest
rates, the quoted yield on shares of the Money Market Portfolio may tend to be
higher than a like computation made by a fund with identical investments
utilizing a method of valuation based on market prices and estimates of market
prices for all of its portfolio instruments. Thus, if the use of amortized
cost by the Portfolio resulted in a lower aggregate portfolio value on a
particular day, a prospective investor in the Money Market Portfolio would be
able to obtain a somewhat higher yield if he or she purchased shares of the
Money Market Portfolio on that day, than would result from investment in a
fund utilizing solely market values, and existing investors in the Money
Market Portfolio would receive less investment income. The converse would
apply on a day when the use of amortized cost by the Portfolio resulted in a
higher aggregate portfolio value. However, as a result of certain procedures
adopted by the Trust, the Trust believes any difference will normally be
minimal.
The net asset value of the shares of each of the Portfolios other than the
Money Market Portfolio is determined by dividing the total assets of the
Portfolio, less all liabilities, by the total number of shares outstanding.
Securities traded on a national securities exchange or quoted on the NASDAQ
National Market System are valued at their last-reported sale price on the
principal exchange or reported by NASDAQ or, if there is no reported sale, and
in the case of over-the-counter securities not included in the NASDAQ National
Market System, at a bid price estimated by a broker or dealer. Debt
securities, including zero-coupon securities, and certain foreign securities
will be valued by a pricing service. Other foreign securities will be valued
by the Trust's custodian. Securities for which current market quotations are
not readily available and all other assets are valued at fair value as
determined in good faith by the Trustees, although the actual calculations may
be made by persons acting pursuant to the direction of the Trustees.
If any securities held by a Portfolio are restricted as to resale, their fair
value is generally determined as the amount which the Trust could reasonably
expect to realize from an orderly disposition of such securities over a
reasonable period of time. The valuation procedures applied in any specific
instance are likely to vary from case to case. However, consideration is
generally given to the financial position of the issuer and other fundamental
analytical data relating to the investment and to the nature of the
restrictions on disposition of the securities (including any registration
expenses that might be borne by the Trust in connection with such
disposition). In addition, specific factors are also generally considered,
such as the cost of the investment, the market value of any unrestricted
securities of the same class (both at the time of purchase and at the time of
valuation), the size of the holding, the prices of any recent transactions or
offers with respect to such securities, and any available analysts' reports
regarding the issuer.
Generally, trading in certain securities (such as foreign securities) is
substantially completed each day at various times prior to the close of the
New York Stock Exchange. The values of these securities used in determining
the net asset value of the Trust's shares are computed as of such times.
Also, because of the amount of time required to collect and process trading
information as to large numbers of securities issues, the values of certain
securities (such as convertible bonds and U.S. Government Securities) are
determined based on market quotations collected earlier in the day at the
latest practicable time prior to the close of the Exchange. Occasionally,
events affecting the value of such securities may occur between such times and
the close of the Exchange which will not be reflected in the computation of
the Trust's net asset value. If events materially affecting the value of such
securities occur during such period, then these securities will be valued at
their fair value, in the manner described above.
The proceeds received by each Portfolio for each issue or sale of its shares,
and all income, earnings, profits, and proceeds thereof, subject only to the
rights of creditors, will be specifically allocated to such Portfolio, and
constitute the underlying assets of that Portfolio. The underlying assets of
each Portfolio will be segregated on the Trust's books of account, and will be
charged with the liabilities in respect of such Portfolio and with a share of
the general liabilities of the Trust. Expenses with respect to any two or
more Portfolios may be allocated in proportion to the net asset values of the
respective Portfolios except where allocations of direct expenses can
otherwise be fairly made.
TAXES
Each Portfolio of the Trust intends to continue to qualify each year and has
previously elected to be taxed as a regulated investment company under
Subchapter M of the United States Internal Revenue Code of 1986, as amended
(the "Code").
As a regulated investment company qualifying to have its tax liability
determined under Subchapter M, a Portfolio will not be subject to federal
income tax on any of its net investment income or net realized capital gains
that are distributed to the separate account of the Life Company. As a
Massachusetts business trust, a Portfolio under present law will not be
subject to any excise or income taxes in Massachusetts.
In order to qualify as a "regulated investment company," a Portfolio must,
among other things, (a) 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, and
other income (including gains from options, futures, or forward contracts)
derived with respect to its business of investing in such stock, securities,
or currencies; (b) derive less than 30% of its gross income from the sale or
other disposition of certain assets (including stock and securities) held less
than three months; (c) diversify its holdings so that, at the close of each
quarter of its taxable year, (i) at least 50% of the value of its total assets
consists of cash, cash items, U.S. Government Securities, and other securities
limited generally with respect to any one issuer to not more than 5% of the
total assets of the Portfolio and not more than 10% of the outstanding voting
securities of such issuer, and (ii) not more than 25% of the value of its
assets is invested in the securities of any issuer (other than U.S. Government
Securities). In order to receive the favorable tax treatment accorded
regulated investment companies and their shareholders, moreover, a Portfolio
must in general distribute at least 90% of its interest, dividends, net
short-term capital gain, and certain other income each year.
With respect to investment income and gains received by a Portfolio from
sources outside the United States, such income and gains may be subject to
foreign taxes which are withheld at the source. The effective rate of foreign
taxes in which a Portfolio will be subject depends on the specific countries
in which its assets will be invested and the extent of the assets invested in
each such country and therefore cannot be determined in advance.
A Portfolio's ability to use options, futures, and forward contracts and other
hedging techniques, and to engage in certain other transactions, may be
limited by tax considerations, in particular, the requirement that less than
30% of the Portfolio's gross income be derived from the sale or disposition of
assets held for less than three months. A Portfolio's transactions in
foreign-currency-denominated debt instruments and its hedging activities will
likely produce a difference between its book income and its taxable income.
This difference may cause a portion of the Portfolio's distributions of book
income to constitute returns of capital for tax purposes or require the
Portfolio to make distributions exceeding book income in order to permit the
Trust to continue to qualify, and be taxed under Subchapter M of the Code, as
a regulated investment company.
Under federal income tax law, a portion of the difference between the purchase
price of zero-coupon securities in which a Portfolio has invested and their
face value ("original issue discount") is considered to be income to the
Portfolio each year, even though the Portfolio will not receive cash interest
payments from these securities. This original issue discount (imputed income)
will comprise a part of the net investment income of the Portfolio which must
be distributed to shareholders in order to maintain the qualification of the
Portfolio as a regulated investment company and to avoid federal income tax at
the level of the Portfolio.
It is the policy of each of the Portfolios to meet the requirements of the
Code to qualify as a regulated investment company that is taxed pursuant to
Subchapter M of the Code. One of these requirements is that less than 30% of a
Portfolio's gross income must be derived from gains from sale or other
disposition of securities held for less than three months (with special rules
applying to so-called designated hedges). Accordingly, a Portfolio will be
restricted in selling securities held or considered under Code rules to have
been held less than three months, and in engaging in hedging or other
activities (including entering into options, futures, or short-sale
transactions) which may cause the Trust's holding period in certain of its
assets to be less than three months.
The foregoing is a general and abbreviated summary of the applicable
provisions of the Code and related regulations currently in effect. For the
complete provisions, reference should be made to the pertinent Code sections
and regulations. The Code and regulations are subject to change by legislative
or administrative actions. This discussion does not describe in any respect
the tax treatment or offsets of any insurance or other product pursuant to
which investments in the Trust may be made.
DIVIDENDS AND DISTRIBUTIONS
MONEY MARKET PORTFOLIO. The net investment income of the Money Market
Portfolio is determined as of the close of trading on the New York Stock
Exchange (generally 4:00 p.m. New York time) on each day on which the Exchange
is open for business. All of the net investment income so determined normally
will be declared as a dividend daily to shareholders of record as of the close
of trading on the Exchange after the purchase and redemption of shares. A
dividend declared on the business day before a weekend or holiday will not
include an amount in respect of the Portfolio's income for the subsequent
non-business day or days. No daily dividend will include any amount of net
income in respect of a subsequent semi-annual accounting period. Dividends
commence on the next business day after the date of purchase. Dividends
declared during any month will be invested as of the close of business on the
last calendar day of that month (or the next business day after the last
calendar day of the month if the last calendar day of the month is a
non-business day) in additional shares of the Portfolio at the net asset value
per share, normally $1.00, determined as of the close of business on that day,
unless payment of the dividend in cash has been requested.
Net income of the Money Market Portfolio consists of all interest income
accrued on portfolio assets less all expenses of the Portfolio and amortized
market premium. Amortized market discount is included in interest income.
The Portfolio does not anticipate that it will normally realize any long-term
capital gains with respect to its portfolio securities.
Normally the Money Market Portfolio will have a positive net income at the
time of each determination thereof. Net income may be negative if an
unexpected liability must be accrued or a loss realized. If the net income of
the Portfolio determined at any time is a negative amount, the net asset value
per share will be reduced below $1.00 unless one or more of the following
steps, for which the Trustees have authority, are taken: (1) reduce the number
of shares in each shareholder's account, (2) offset each shareholder's pro
rata portion of negative net income against the shareholder's accrued dividend
account or against future dividends, or (3) combine these methods in order to
seek to maintain the net asset value per share at $1.00. The Trust may
endeavor to restore the Portfolio's net asset value per share to $1.00 by not
declaring dividends from net income on subsequent days until restoration, with
the result that the net asset value per share will increase to the extent of
positive net income which is not declared as a dividend.
Should the Money Market Portfolio incur or anticipate, with respect to
its portfolio, any unusual or unexpected significant expense or loss which
would affect disproportionately the Portfolio's income for a particular
period, the Trustees would at that time consider whether to adhere to the
dividend policy described above or to revise it in light of the then
prevailing circumstances in order to ameliorate to the extent possible the
disproportionate effect of such expense or loss on then existing shareholders.
Such expenses or losses may nevertheless result in a shareholder's receiving
no dividends for the period during which the shares are held and receiving
upon redemption a price per share lower than that which was paid.
OTHER PORTFOLIOS. Each of the Portfolios other than the Money Market
Portfolio will declare and distribute dividends from net investment income, if
any, and will distribute its net realized capital gains, if any, at least
annually. Both dividends and capital gain distributions will be made in
shares of such Portfolios unless an election is made on behalf of a separate
account to receive dividends and capital gain distributions in cash.
PERFORMANCE INFORMATION
MONEY MARKET PORTFOLIO: The Portfolio's yield is computed by determining the
percentage net change, excluding capital changes, in the value of an
investment in one share of the Portfolio over the base period, and multiplying
the net change by 365/7 (or approximately 52 weeks). The Portfolio's
effective yield represents a compounding of the yield by adding 1 to the
number representing the percentage change in value of the investment during
the base period, raising that sum to a power equal to 365/7, and subtracting 1
from the result.
OTHER PORTFOLIOS:
(a) A Portfolio's yield is presented for a specified 30-day period (the
"base period"). Yield is based on the amount determined by (i) calculating
the aggregate of dividends and interest earned by the Portfolio during the
base period less expenses accrued for that period, and (ii) dividing that
amount by the product of (A) the average daily number of shares of the
Portfolio outstanding during the base period and entitled to receive dividends
and (B) the net asset value per share of the Portfolio on the last day of the
base period. The result is annualized on a compounding basis to determine the
Portfolio's yield. For this calculation, interest earned on debt obligations
held by a Portfolio is generally calculated using the yield to maturity (or
first expected call date) of such obligations based on their market values
(or, in the case of receivables-backed securities such as Ginnie Maes, based
on cost). Dividends on equity securities are accrued daily at their stated
dividend rates.
Total return of a Portfolio for periods longer than one year is determined
by calculating the actual dollar amount of investment return on a $1,000
investment in the Portfolio made at the beginning of each period, then
calculating the average annual compounded rate of return which would produce
the same investment return on the $1,000 investment over the same period.
Total return for a period of one year or less is equal to the actual
investment return on a $1,000 investment in the Portfolio during that period.
Total return calculations assume that all Portfolio distributions are
reinvested at net asset value on their respective reinvestment dates.
From time to time, Adviser may reduce its compensation or assume expenses
in respect of the operations of a Portfolio in order to reduce the Portfolio's
expenses. Any such waiver or assumption would increase a Portfolio's yield
and total return during the period of the waiver or assumption.
SHAREHOLDER COMMUNICATIONS
Owners of VA contracts issued by Life Company for which shares of one or more
Portfolios are the investment vehicle are entitled to receive from the Life
Company unaudited semi-annual financial statements and audited year-end
financial statements certified by the Trust's independent public accountants.
Each report will show the investments owned by the Portfolio and the market
value thereof and will provide other information about the Portfolio and its
operations.
ORGANIZATION AND CAPITALIZATION
The Trust is an open-end investment company established under the laws of The
Commonwealth of Massachusetts by a Declaration of Trust dated May 11, 1994.
Shares entitle their holders to one vote per share, with fractional shares
voting proportionally; however, a separate vote will be taken by each
Portfolio on matters affecting an individual Portfolio. For example, a change
in a fundamental investment policy for the Advantage Portfolio would be voted
upon only by shareholders of the Advantage Portfolio. Additionally, approval
of the Investment Advisory Agreement is a matter to be determined separately
by each Portfolio. Approval by the shareholders of one Portfolio is effective
as to that Portfolio. Shares have noncumulative voting rights. Although the
Trust is not required to hold annual meetings of its shareholders,
shareholders have the right to call a meeting to elect or remove Trustees or
to take other actions as provided in the Declaration of Trust. Shares have no
preemptive or subscription rights, and are transferable. Shares are entitled
to dividends as declared by the Trustees, and if a Portfolio were liquidated,
the shares of that Portfolio would receive the net assets of that Portfolio.
The Trust may suspend the sale of shares at any time and may refuse any order
to purchase shares.
Additional Portfolios may be created from time to time with different
investment objectives or for use as funding vehicles for different variable
life insurance policies or variable annuity contracts. Any additional
Portfolios may be managed by investment advisers or sub-advisers other than
the current Adviser and Sub-Advisers. In addition, the Trustees have the
right, subject to any necessary regulatory approvals, to create more than one
class of shares in a Portfolio, with the classes being subject to different
charges and expenses and having such other different rights as the Trustees
may prescribe and to terminate any Portfolio of the Trust.
PORTFOLIO TURNOVER
The portfolio turnover rate of a Portfolio is defined by the Securities and
Exchange Commission as the ratio of the lesser of annual sales or purchases to
the monthly average value of the portfolio, excluding from both the numerator
and the denominator securities with maturities at the time of acquisition of
one year or less. Under that definition, the Money Market Portfolio would not
calculate portfolio turnover. Portfolio turnover generally involves some
expense to a Portfolio, including brokerage commissions or dealer mark-ups and
other transaction costs on the sale of securities and reinvestment in other
securities.
CUSTODIAN
State Street Bank and Trust Company is the custodian of the Trust's assets.
The custodian's responsibilities include safeguarding and controlling the
Trust's cash and securities, handling the receipt and delivery of securities,
and collecting interest and dividends on the Trust's investments. The Trust
may employ foreign sub-custodians that are approved by the Board of Trustees
to hold foreign assets.
LEGAL COUNSEL
Legal matters in connection with the offering are being passed upon by
Blazzard, Grodd & Hasenauer, P.C., Westport, Connecticut.
INDEPENDENT AUDITORS
The Trust has selected Ernst & Young LLP, as the independent auditors who will
audit the annual financial statements of the Trust.
SHAREHOLDER LIABILITY
Under Massachusetts law, shareholders could, under certain circumstances, be
held personally liable for the obligations of the Trust. However, the
Declaration of Trust disclaims shareholder liability for acts or obligations
of the Trust and requires that notice of such disclaimer be given in each
agreement, obligation, or instrument entered into or executed by the Trust or
the Trustees. The Declaration of Trust provides for indemnification out of a
Portfolio's property for all loss and expense of any shareholder held
personally liable for the obligations of a Portfolio. Thus the risk of a
shareholder's incurring financial loss on account of shareholder liability is
limited to circumstances in which the Portfolio would be unable to meet its
obligations.
DESCRIPTION OF NRSRO RATINGS
DESCRIPTION OF MOODY'S CORPORATE 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 as medium grade
obligations, i.e., they are neither highly protected nor poorly secured.
Interest payments and principal security appear adequate for the present, but
certain protective elements may be lacking or may be characteristically
unreliable over any great length of time. Such bonds lack outstanding
investment characteristics and in fact have speculative characteristics as
well.
Ba -- Bonds which are rated Ba are judged to have speculative elements;
their future cannot be considered as well assured. Often the protection of
interest and principal payments may be very moderate and thereby not well
safeguarded during both good and bad times over the future. Uncertainty of
position characterizes bonds in this class.
B -- Bonds which are rated B generally lack characteristics of the
desirable investment. Assurance of interest and principal payments or of
maintenance of other terms of the contract over any long period of time may be
small.
Caa -- Bonds which are rated Caa are of poor standing. Such issues may
be in default or there may be present elements of danger with respect to
principal or interest.
Ca -- Bonds which represent obligations which are speculative in a high
degree. Such issues are often in default or have other marked shortcomings.
C -- Bonds which are the lowest rated class of bonds. Issues so rated
can be regarded as having extremely poor prospects of ever attaining any real
investment standing.
DESCRIPTION OF S&P CORPORATE RATINGS
AAA -- Bonds rated AAA have the highest rating assigned by Standard &
Poor's to a debt obligation. 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 highest rated issues only in small degree.
A -- Bonds rated A have a 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 for bonds in higher rated
categories.
BB-B-CCC-CC and C -- Bonds rated BB, B, CCC, CC and C 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 least degree of speculation and C the highest
degree of speculation. While such debt will likely have some quality and
protective characteristics, these are outweighed by large uncertainties or
major risk exposures to adverse conditions. A C rating is typically applied
to debt subordinated to senior debt which is assigned an actual or implied CCC
rating. It may also be used to cover a situation where a bankruptcy petition
has been filed, but debt service payments are continued.
DESCRIPTION OF DUFF CORPORATE RATINGS
AAA - Highest credit quality. The risk factors are negligible being only
slightly more than for risk-free U.S. Treasury debt.
AA - risk is modest but may vary slightly from time to time because of
economic conditions.
A - Protection factors are average but adequate. However, risk factors
are more variable and greater in periods of economic stress.
BBB - Investment grade. Considerable variability in risk during economic
cycles.
BB - Below investment grade but deemed likely to meet obligations when
due. Present or prospective financial protection factors fluctuate according
to industry conditions or company fortunes. Overall quality may move up or
down frequently within this category.
B - Below investment grade and possessing risk that obligations will not
be met when due. Financial protection factors will fluctuate widely according
to economic cycles, industry conditions and/or company fortunes. Potential
exists for frequent changes in quality rating within this category or into a
higher or lower quality rating grade.
SUBSTANTIAL RISK - Well below investment grade securities. May be in
default or have considerable uncertainty as to timely payment of interest,
preferred dividends and/or principal. Protection factors are narrow and risk
can be substantial with unfavorable economic/industry conditions, and/or with
favorable company developments.
DESCRIPTION OF FITCH CORPORATE RATINGS
AAA - Bonds considered to be investment grade and of the highest credit
quality. The obligor has an exceptionally strong ability to pay interest and
repay principal, which is unlikely to be affected by reasonably foreseeable
events.
AA - Bonds considered to be investment grade and of very high credit
quality. The obligor's ability to pay interest and repay principal is very
strong, although not quite as strong as bonds rated "AAA." Because bonds
rated in the "AAA" and "AA" categories are not significantly vulnerable to
foreseeable future developments, short-term debt of these issues is generally
rated "[-]+."
A - Bonds considered to be investment grade and of high credit quality.
The obligor's ability to pay interest and to repay principal is considered to
be strong, but may be more vulnerable to adverse changes in economic
conditions and circumstances than bonds with higher ratings.
BBB - Bonds considered to be investment grade and of satisfactory credit
quality. The obligor's ability to pay interest and to repay principal is
considered to be adequate. Adverse changes in economic conditions and
circumstances, however, are more likely to have an adverse impact on these
bonds, and therefore impair timely payment. The likelihood that the ratings
of these bonds will fall below investment grade is higher than for bonds with
higher ratings.
BB - Bonds considered speculative and of low investment grade. The
obligor's ability to pay interest and repay principal is not strong and is
considered likely to be affected over time by adverse economic changes.
B - Bonds considered highly speculative. Bonds in this class are lightly
protected as to the obligor's ability to pay interest over the life of the
issue and repay principal when due.
CCC - Bonds which may have certain identifiable characteristics which, if
not remedied, could lead to the possibility of default in either principal or
interest payments.
CC - Bonds which are minimally protected. Default in payment of interest
and/or principal seems probable.
C - Bonds which are in imminent default in payment of interest or
principal.
DESCRIPTION OF THOMSON BANKWATCH, INC. CORPORATE RATINGS
AAA - Long-term fixed income securities that are rated AAA indicate that
the ability to repay principal and interest on a timely basis is very high.
AA - Long-term fixed income securities that are rated AA indicate a
superior ability to repay principal and interest on a timely basis with
limited incremental risk versus issues rated in the highest category.
TBW may apply plus ("+") and minus ("-") modifiers in the AAA and AA
categories to indicate where within the respective category the issue is
placed.
DESCRIPTION OF IBCA LIMITED AND IBCA INC. CORPORATE RATINGS
AAA - Obligations which are rated AAA are considered to be of the lowest
expectation of investment risk. Capacity for timely repayment of principal
and interest is substantial such that adverse changes in business, economic,
or financial conditions are unlikely to increase investment risk
significantly.
AA - Obligations which are rated AA are considered to be of a very low
expectation of investment risk. Capacity for timely repayment of principal
and interest is substantial. Adverse changes in business, economic, or
financial conditions may increase investment risk albeit not very
significantly.
DESCRIPTION OF S&P COMMERCIAL PAPER RATINGS
Commercial paper rated A-1 by S&P indicates that the degree of safety
regarding timely payments is either overwhelming or very strong. Those issues
determined to possess overwhelming safety characteristics are denoted A-1+.
Capacity for timely payment on commercial paper rated A-2 is strong, but the
relative degree of safety is not as high as for issues designated A-1. An A-3
designation indicates an adequate capacity for timely payment. Issues with
this designation, however, are more vulnerable to the adverse effects of
changes in circumstances than obligations carrying the higher designations. B
issues are regarded as having only speculative capacity for timely payment. C
issues have a doubtful capacity for payment. D issues are in payment default.
The D rating category is used when interest payments or principal payments
are not made on the due date, even if the applicable grace period has not
expired, unless Standard & Poor's believes that such payments will be made
during such grace period.
DESCRIPTION OF MOODY'S COMMERCIAL PAPER RATINGS
The rating Prime-1 is the highest commercial paper rating assigned by
Moody's. Issuers rated Prime-1 (or related supporting institutions) are
considered to have a superior capacity for repayment of short-term promissory
obligations. Issuers rated Prime-2 (or related supporting institutions) are
considered to have a strong capacity for repayment of short-term promissory
obligations. This will normally be evidenced by many of the characteristics
of issuers rated Prime-1 but to a lesser degree. Earnings trend and coverage
ratios, while sound, will be more subject to variation. Capitalization
characteristics, while still appropriate, may be more affected by external
conditions. Ample alternative liquidity is maintained. P-3 issuers have an
acceptable capacity for repayment of short-term promissory obligations. The
effect of industry characteristics and market composition may be more
pronounced. Variability in earnings and profitability may result in changes
in the level of debt protection measurements and the requirement for
relatively high financial leverage. Adequate alternate liquidity is
maintained. Not Prime issuers do not fall within any of the Prime rating
categories.
DESCRIPTION OF DUFF'S COMMERCIAL PAPER RATINGS
The rating Duff-1 is the highest commercial paper rating assigned by Duff
& Phelps. Paper rated Duff-1 is regarded as having very high certainty of
timely payment with excellent liquidity factors which are supported by ample
asset protection. Risk factors are minor. Paper rated Duff-2 is regarded as
having good certainty of timely payment, good access to capital markets and
sound liquidity factors and company fundamentals. Risk factors are small.
DESCRIPTION OF FITCH'S COMMERCIAL PAPER RATINGS
The rating Fitch-1 (Highest Grade) is the highest commercial paper rating
assigned by Fitch. Paper rated Fitch-1 is regarded as having the strongest
degree of assurance for timely payment. The rating Fitch-2 (Very Good Grade)
is the second highest commercial paper rating assigned by Fitch which reflects
an assurance of timely payment only slightly less in degree than the strongest
issues.
DESCRIPTION OF IBCA LIMITED AND IBCA INC. COMMERCIAL PAPER RATINGS
A1 - Short-term obligations rated A1 are supported by a very strong
capacity for timely repayment. A plus ("+") sign is added to those issues
determined to possess the highest capacity for timely payment.
A2 - Short-term obligations rated A2 are supported by a strong capacity
for timely repayment, although such capacity may be susceptible to adverse
changes in business, economic or financial conditions.
DESCRIPTION OF THOMSON BANKWATCH, INC. COMMERCIAL PAPER RATINGS
TBW-1 - Short-term obligations rated TBW-1 indicate a very high degree of
likelihood that principal and interest will be paid on a timely basis.
TBW-2 - Short-term obligations rated TBW-2 indicate that while the degree
of safety regarding timely payment of principal and interest is strong, the
relative degree of safety is not as high as for issues rated TBW-1.
FINANCIAL STATEMENTS
The Trust's financial statements and notes thereto for the year ended December
31, 1995, and the report of Ernst & Young LLP, Independent Auditors, with
respect thereto, appear in the Trust's Annual Report for the year ended
December 31, 1995, which is incorporated by reference into this Statement of
Additional Information. The Trust delivers a copy of the Annual Report to
investors along with the Statement of Additional Information. In addition,
the Trust will furnish, without charge, additional copies of such Annual
Report to investors which may be obtained without charge by calling the Life
Company at (800) 344-6864.
A Statement of Assets and Liabilities of each of the Growth & Income and Value
+ Growth Portfolios as of March 21, 1996, and the report of Ernst & Young LLP,
Independent Auditors, with respect thereto, is set forth below.
Statements of Assets and Liabilities
Growth & Income Portfolio and Value + Growth
Portfolio of Equi-Select Series Trust
March 20, 1996
with Report of Independent Auditors
Growth & Income Portfolio and Value + Growth
Portfolio of Equi-Select Series Trust
Statements of Assets and Liabilities
March 20, 1996
Contents
Report of Independent Auditors
Statements of Assets and Liabilities
Notes to Statements of Assets and Liabilities
Report of Independent Auditors
The Board of Trustees and Shareholder
Growth & Income Portfolio and Value + Growth
Portfolio of Equi-Select Series Trust
We have audited the accompanying statements of assets and liabilities of
the Growth & Income Portfolio and the Value + Growth Portfolio of Equi-
Select Series Trust (the "Trust") as of March 20, 1996. These statements
of assets and liabilities are the responsibility of the Trust's management.
Our responsibility is to express an opinion on these statements of assets
and liabilities based on our audits.
We conducted our audits 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. Our procedures included
confirmation of cash held as of March 20, 1996, by correspondence with the
custodian. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the
overall statement of assets and liabilities presentation. We believe that
our audits provide 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 the
Growth & Income Portfolio and the Value + Growth Portfolio of the Equi-
Select Series Trust at March 20, 1996, in conformity with generally
accepted accounting principles.
/s/ Ernst & Young LLP
Des Moines, Iowa
March 20, 1996
Growth & Income Portfolio and Value + Growth
Portfolio of Equi-Select Series Trust
Statements of Assets and Liabilities
March 20, 1996
<TABLE>
<CAPTION>
Growth & Value +
Income Growth
Portfolio Portfolio
__________________________
<S> <C> <C>
Assets
Cash in bank $10,000 $10,000
Deferred organizational costs 7,628 7,628
__________________________
Total assets 17,628 17,628
Liabilities - accounts payable to Equitable
Life Insurance Company of Iowa 7,628 7,628
__________________________
Net assets applicable to Capital Stock
outstanding (Note 4) $10,000 $10,000
==========================
Net asset value, redemption price and
offering price per share $10.00 $10.00
=========================
</TABLE>
See accompanying notes.
Growth & Income Portfolio and Value + Growth
Portfolio of Equi-Select Series Trust
Notes to Statements of Assets and Liabilities
March 20, 1996
1. Organization and Significant Accounting Policies
Equi-Select Series Trust ("the Trust") is registered under the Investment
Company Act of 1940, as amended, as a no-load, open-end series management
investment company and operates in the mutual fund industry. The Trust
currently offers shares of beneficial interest of eight of its twelve
portfolios (known as the Advantage, International Fixed Income,
International Stock, Money Market, Mortgage-Backed Securities, OTC,
Research, and Total Return Portfolios). Effective September 22, 1995, the
Trust ceased offering the Government Securities and Short-Term Bond
Portfolios to new investors. On March 20, 1996, Equitable Life Insurance
Company of Iowa made the initial purchase of 1,000 shares of beneficial
interest in each of two new portfolios, the Growth & Income Portfolio and
the Value + Growth Portfolio. It is intended that shares of the Trust will
be sold to certain life insurance companies' separate accounts to fund the
benefits under variable insurance contracts issued by such life insurance
companies, including Equitable Life Insurance Company of Iowa. It is also
expected that Equitable Life Insurance Company of Iowa will provide working
capital during the initial period of operations.
Certain costs incurred in connection with the organization of the Trust
have been deferred and will be amortized on a straight-line basis over a
period of five years.
2. Operations
The Trust has agreed to pay investment advisory fees to Equitable
Investment Services, Inc. ("the Adviser"), an affiliate of Equitable Life
Insurance Company of Iowa, computed at an annual percentage rate of the
Trust's average daily net assets. The rate used in this calculation is
.95% of the first $200 million for the Growth & Income Portfolio, and .95%
of the first $500 million for the Value + Growth Portfolio. The Adviser
has subcontracted the investment advisory services for both portfolios to
Robertson, Stephens & Company Investment Management, L.P.
The annual percentage rates for the advisory fees for each portfolio
generally decrease in layers in excess of amounts set forth above.
The Adviser will absorb the cost of these sub-advisory agreements. In
addition, the Adviser has undertaken to bear, subject to termination at any
time without notice to shareholders, all operating expenses of each portfolio
(excluding compensation of the Adviser) that exceed .75% of each Portfolio's
average daily net assets.
Certain officers and directors of the Trust are also officers of Equitable
Life Insurance Company of Iowa and Equitable Investment Services, Inc.
Growth & Income Portfolio and Value + Growth
Portfolio of Equi-Select Series Trust
Notes to Statements of Assets and Liabilities (continued)
3. Federal Income Taxes
The Trust intends to qualify as a "regulated investment company" under the
Internal Revenue Code and intends to distribute each year substantially all
of its net investment income and realized capital gains to its
shareholders.
4. Capital Stock
The Trust has an unlimited number of shares of beneficial interest
authorized with a par value of $.01 per share. Net assets as of March 20,
1996 consisted of:
<TABLE>
<CAPTION>
Growth & Value +
Income Growth
Portfolio Portfolio
__________________________
<S> <C> <C>
Capital Stock $ 10 $ 10
Additional paid-in capital 9,990 9,990
__________________________
Net assets $10,000 $10,000
==========================
Shares issued and outstanding 1,000 1,000
</TABLE>
PART C
OTHER INFORMATION
PART C
OTHER INFORMATION
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS
(A) FINANCIAL STATEMENTS:
The Financial Statements filed as part of this Registration Statement are
as follows:
Statements of Assets and Liabilities as of December 31, 1995*
Statements of Operations, Year Ended December 31, 1995*
Statements of Changes in Net Assets, For the Period Ended December 31,
1994 and For the Year Ended December 31, 1995*
Schedules of Investments, December 31, 1995*
Money Market Portfolio
Mortgage-Backed Securities Portfolio
International Fixed Income Portfolio
OTC Portfolio
Research Portfolio
Total Return Portfolio
Advantage Portfolio
Government Securities Portfolio
International Stock Portfolio
Short-Term Bond Portfolio
Notes to Financial Statements - December 31, 1995*
Financial Highlights**
Report
Report of Independent Auditors - Ernst & Young LLP*
Statements of Assets and Liabilities of the Growth & Income and
Value + Growth Portfolios as of March 20, 1996***
Report
Report of Independent Auditors - Ernst & Young LLP***
_____________
* Included in the Trust's Annual Report, dated December 31, 1995,
filed as Exhibit 12 hereto.
** Included in Part A of this Registration Statement and in the Trust's
Annual Report, dated December 31, 1995 filed as Exhibit 12 hereto.
*** Included in Part B of this Registration Statement.
(B) EXHIBITS
(1) Declaration of Trust
(2) By-laws of Trust
(3) Not Applicable
(4) Not Applicable
(5) (a)(i) Investment Advisory Agreement dated as of October 1, 1994,
between the Registrant and the Adviser.
(ii) Addendum to Investment Advisory Agreement dated as of
April 1, 1996, between the Registrant and the Adviser.
(b)(i) Sub-Advisory Agreement dated July 24, 1994, between
Strong/Corneliuson Capital Management, Inc. and the Adviser.
(ii) Sub-Advisory Agreement dated October 1, 1994, between the
Registrant, the Adviser and Massachusetts Financial
Services Company.
(iii) Sub-Advisory Agreement dated October 1, 1994, between the
Registrant, the Adviser and CS First Boston Investment
Management Corporation.
(iv) Sub-Advisory Agreement dated October 1, 1994, between
the Registrant, the Adviser and CS First Boston Investment
Management Ltd.
(v) Sub-Advisory Agreement dated as of April 1, 1996, between
the Registrant, the Adviser and Robertson, Stephens &
Company Investment Management, L.P.
(6) Not Applicable
(7) Not Applicable
(8) Custodian Contract dated September 30, 1994, between the Registrant
and State Street Bank and Trust Company
(9) (a) Transfer Agency and Service Agreement between the
Registrant and State Street Bank and Trust Company
(b) Subadministration Agreement for Reporting and Accounting
Services between the Registrant, the Adviser and State Street
Bank and Trust Company
(10) Consent and Opinion of Counsel
(11) Consents of Independent Auditors
(12) Financial Statements, incorporated herein by reference to the Trust's
Annual Report dated December 31, 1995, as filed electronically with
the Securities and Exchange Commission on February 29, 1996.
(13) (i) Agreement Governing Initial Contribution to Equi-Select
Series Trust by Equitable Life Insurance Company of Iowa
dated September 15, 1994
(ii) Agreement Governing Contribution of Working Capital to
Equi-Select Series Trust by Equitable Life Insurance
Company of Iowa dated October 4, 1994
(iii) Agreement Governing Initial Contribution to Equi-Select
Series Trust by Equitable Life Insurance Company of Iowa
dated March 20, 1996
(iv) Agreement Governing Contribution of Working Capital to
Equi-Select Series Trust by Equitable Life Insurance
Company of Iowa dated April 1, 1996
(14) Not Applicable
(15) Not Applicable
(16) Not Applicable
(27) Financial Data Schedules
ITEM 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT
The shares of the Trust are currently sold to Equitable Life Insurance Company
of Iowa Separate Account A.
ITEM 26. NUMBER OF HOLDERS OF SECURITIES
The general account of Equitable Life Insurance Company of Iowa and Equitable
Life Insurance Company of Iowa Separate Account A are the shareholders of the
Trust.
ITEM 27. INDEMNIFICATION
Each officer, Trustee or agent of the Trust shall be indemnified by the Trust
to the full extent permitted under the General Laws of The Commonwealth of
Massachusetts and the Investment Company Act of 1940 ("1940 Act"), as amended,
except that such indemnity shall not protect any such person against any
liability to the Trust or any shareholder thereof to which such person would
otherwise be subject by reason of willful misfeasance, bad faith, gross
negligence or reckless disregard of the duties involved in the conduct of his
office ("disabling conduct"). Indemnification shall be made when (i) a final
decision on the merits, by a court or other body before whom the proceeding
was brought, that the person to be indemnified was not liable by reason of
disabling conduct or, (ii) in the absence of such a decision, a reasonable
determination, based upon a review of the facts, that the person to be
indemnified was not liable by reason of disabling conduct, by (a) the vote of
a majority of a quorum of Trustees who are neither "interested persons" of the
company as defined in section 2(a)(19) of the 1940 Act, nor parties to the
proceedings or (b) an independent legal counsel in a written opinion. The
Trust may, by vote of a majority of a quorum of Trustees who are not
interested persons, advance attorneys' fees or other expenses incurred by
officers, Trustees, investment advisers or principal underwriters, in
defending a proceeding upon the undertaking by or on behalf of the person to
be indemnified to repay the advance unless it is ultimately determined that he
is entitled to indemnification. Such advance shall be subject to at least one
of the following: (1) the person to be indemnified shall provide a security
for his undertaking, (2) the Trust shall be insured against losses arising by
reason of any lawful advances, or (3) a majority of a quorum of the
disinterested, non-party Trustees of the Trust, or an independent legal
counsel in a written opinion, shall determine, based on a review of readily
available facts, that there is reason to believe that the person to be
indemnified ultimately will be found entitled to indemnification. The law of
Massachusetts is superseded by the 1940 Act insofar as it conflicts with the
1940 Act or rules published thereunder.
Insofar as indemnification for liability arising under the Securities Act of
1933 may be permitted to trustees, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the registrant of expenses
incurred or paid by a trustee, officer or controlling person of the registrant
in the successful defense of any action, suit or proceeding) is asserted by
such trustee, officer or controlling person in connection with the securities
being registered, the registrant will, unless in the opinion of its counsel
the matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Act and will be governed by the
final adjudication of such issue.
ITEM 28. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER AND
SUB-ADVISERS
There is set forth below information as to any other business, profession,
vocation or employment of a substantial nature in which each director or
officer of the Registrant's Investment Adviser is, or at any time during the
past two years has been, engaged for his own account or in the capacity of
director, officer, employee, partner or trustee.
<TABLE>
<CAPTION>
<S> <C>
Name Business and Other Connections
- ---------------------------------- -------------------------------------------------
Frederick S. Hubbell, Chairman, President and Chief Executive Officer
Director, Chairman of Equitable of Iowa Companies, Equitable
American Insurance Company ("Equitable
American"), Equitable Life Insurance Company of
Iowa ("Equitable Life") and USG Annuity & Life
Company ("USG") (since December, 1995) and
Chairman of the Adviser; Director, Pioneer Hi-
Bred International, Inc.; Director, The Macerich
Company.
Lawrence V. Durland, Jr., Senior Vice President of Equitable of Iowa
Director Companies, Equitable American and Equitable Life.
Susan M. Jordan Vice President and Chief Information Officer
Director of Equitable of Iowa Companies (since July,
1994); Assistant Vice President of Chicago Board
of Options Exchange from August, 1987 to July,
1994.
Beth B. Neppl Vice President of Human Resources of
Director Equitable of Iowa Companies.
Paul E. Larson, Executive Vice President, Treasurer and Chief
Director, Assistant Treasurer Financial Officer of Equitable of Iowa Companies,
and Assistant Secretary Equitable American and USG, and Executive Vice
President and Chief Financial Officer of
Equitable Life.
Thomas L. May Senior Vice President of Marketing of Equitable
Director Life and USG.
John A. Merriman, Secretary and General Counsel of Equitable of
Director, Assistant Secretary Iowa Companies, USG, Equitable American and
and General Counsel Equitable Life.
Paul R. Schlaack, President and Chief Executive Officer of the
President, Chief Executive Adviser.
Officer and Director
Kimberly K. Krumviede, Director - Administration, Treasurer/Secretary of
Secretary and Treasurer the Adviser since June, 1994. Principal -
Research of Adviser from April, 1994 to June,
1994; Chief Financial Officer, Joliet Concrete
Products, Inc., Joliet, Illinois, from September,
1991 to March, 1994; Assistant Vice President -
Equitable Life Insurance Company of Iowa.
David A. Terwilliger, Vice President and Controller of Equitable of
Vice President, Controller, Iowa Companies, Equitable American, the Adviser,
Assistant Treasurer and Equitable Life, and USG.
Assistant Secretary
Robert F. Bowman, Managing Director of the Adviser.
Managing Director
Robert H. Kunnen, Managing Director the Adviser.
Managing Director
Annette F. Shaw, Managing Director the Adviser.
Managing Director
Diane M. Kurt, Managing Director of the Adviser since 1994.
Managing Director Director from October 1990 to April, 1994.
Bryan L. Borchert, Managing Director of the Adviser since February,
Managing Director 1995; Director from February, 1992 to February,
1995.
</TABLE>
The principal address of Registrant's Investment Adviser is 699 Walnut Street,
Des Moines, Iowa 50309.
With respect to information regarding the Sub-Advisers, reference is hereby
made to "Management of the Trust" in the Prospectus. For information as to
the business, profession, vocation or employment of a substantial nature of
each of the officers and directors of the Sub-Advisers, reference is made to
the current Form ADVs of the Sub-Advisers filed under the Investment Advisers
Act of 1940, incorporated herein by reference and file numbers of which are as
follows:
Credit Suisse Investment Management Limited
File No. 801-40177
Strong Capital Management, Inc.
File No. 801-10724
Massachusetts Financial Services Company
File No. 801-17352
Robertson, Stephens & Company Investment Management, L.P.
File No. 801-144125
ITEM 29. PRINCIPAL UNDERWRITER
Not Applicable
ITEM 30. LOCATION OF ACCOUNTS AND RECORDS
Persons maintaining physical possession of accounts, books, and other
documents required to be maintained by Section 31(a) of the Investment Company
Act of 1940 and the Rules promulgated thereunder include the Registrant's
Secretary; the Registrant's investment adviser, Equitable Investment Services,
Inc.; and the Registrant's custodian, State Street Bank and Trust Company.
The address of the Secretary and Equitable Investment Services, Inc. is 604
Locust Street, Des Moines, Iowa 50309; and the address of State Street Bank
and Trust Company is 225 Franklin Street, Boston, Massachusetts 02110.
ITEM 31. MANAGEMENT SERVICES
Other than as set forth in Parts A and B of this Registration Statement, the
Registrant is not a party to any management-related service contract.
ITEM 32. UNDERTAKINGS
The Registrant will furnish each person to whom a prospectus is delivered with
a copy of the Registrant's latest Annual Report upon request and without
charge.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the Investment
Company Act of 1940, the Registrant certifies that it meets the requirements
of Securities Act Rule 485(b) for effectiveness of this Registration Statement
and has duly caused this Registration Statement to be signed on its behalf by
the undersigned, thereunto duly authorized, in the City of Des Moines, and
State of Iowa on the 28th day of March, 1996.
EQUI-SELECT SERIES TRUST
By:/S/ PAUL R. SCHLAACK
_________________________________________
Paul R. Schlaack
President and Trustee
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 date indicated.
<TABLE>
<CAPTION>
<S> <C> <C>
SIGNATURE TITLE DATE
/S/ PAUL R. SCHLAACK President and Trustee 3/28/96
- ------------------------- -------------
Paul R. Schlaack (Principal Executive Officer)
/S/ PAUL E. LARSON Treasurer 3/28/96
- ------------------------- -------------
Paul E. Larson (Principal Financial Officer)
/S/ DAVID A. TERWILLIGER Principal Accounting Officer 3/28/96
- ------------------------- -------------
David A. Terwilliger
/S/ R. BARBARA GITENSTEIN Trustee 3/28/96
- ------------------------- -------------
R. Barbara Gitenstein
- ------------------------- Trustee
Stanley B. Seidler
/S/ J. MICHAEL EARLEY Trustee 3/28/96
- ------------------------- -------------
J. Michael Earley
- ------------------------- Trustee
Thomas W. Bedell
</TABLE>
EXHIBITS
TO
POST-EFFECTIVE AMENDMENT NO. 4
TO
FORM N-1A
FOR
EQUI-SELECT SERIES TRUST
INDEX TO EXHIBITS
EXHIBIT PAGE
EX-99.B1 Declaration of Trust
EX-99.B2 By-laws of Trust
EX-99.B5(a)(i) Investment Advisory Agreement dated as of
October 1, 1994, between the Registrant and
the Adviser.
EX-99.B5(a)(ii) Addendum to Investment Advisory Agreement
dated as of April 1, 1996, between the Registrant
and the Adviser.
EX-99.B5(b)(i) Sub-Advisory Agreement dated July 24, 1994, between
Strong/Corneliuson Capital Management, Inc. and
the Adviser.
EX-99.B5(b)(ii) Sub-Advisory Agreement dated October 1, 1994,
between the Registrant, the Adviser and Massachusetts
Financial Services Company.
EX-99.B5(b)(iii) Sub-Advisory Agreement dated October 1, 1994,
between the Registrant, the Adviser and CS First
Boston Investment Management Corporation.
EX-99.B5(b)(iv) Sub-Advisory Agreement dated October 1, 1994,
between the Registrant, the Adviser and CS First
Boston Investment Management Ltd.
EX-99.B5(b)(v) Sub-Advisory Agreement dated as of April 1, 1996,
between the Registrant, the Adviser and Robertson,
Stephens & Company Investment Management, L.P.
EX-99.B8 Custodian Contract dated September 30, 1994
between the Registrant and State Street Bank and
Trust Company
EX-99.B9(a) Transfer Agency and Service Agreement between the
Registrant and State Street Bank and Trust Company
EX-99.B9(b) Subadministration Agreement for Reporting and
Accounting Services between the Registrant, the
Adviser and State Street Bank and Trust Company
Ex-99.B10 Consent and Opinion of Counsel
EX-99.B11 Consents of Independent Auditors
EX-99.B13(i) Agreement Governing Initial Contribution to
Equi-Select Series Trust by Equitable Life
Insurance Company of Iowa dated September 15, 1994
EX-99.B13(ii) Agreement Governing Contribution of Working Capital
to Equi-Select Series Trust by Equitable Life
Insurance Company of Iowa dated October 4, 1994
EX-99.B13(iii) Agreement Governing Initial Contribution to
Equi-Select Series Trust by Equitable Life Insurance
Company of Iowa dated March 20, 1996
EX-99.B13(iv) Agreement Governing Contribution of Working Capital
to Equi-Select Series Trust by Equitable Life
Insurance Company of Iowa dated April 1, 1996.
EX-27 Financial Data Schedules
EX-27.1 Money Market Portfolio
EX-27.12 Growth & Income Portfolio
EX-27.2 Mortgage-Backed Securities Portfolio
EX-27.3 International Fixed Income Portfolio
EX-27.4 Government Securities Portfolio
EX-27.5 International Stock Portfolio
EX-27.6 Short-Term Bond Portfolio
EX-27.7 OTC Portfolio
EX-27.8 Research Portfolio
EX-27.9 Total Return Portfolio
EX-27.10 Advantage Portfolio
EX-27.11 Value + Growth Portfolio
DECLARATION OF TRUST
EQUI-SELECT SERIES TRUST
MAY 11, 1994
TABLE OF CONTENTS
<TABLE>
<CAPTION>
<S> <C> <C>
PAGE
ARTICLE I
THE TRUST
SECTION 1.1 Name..............................................
SECTION 1.2 Location..........................................
SECTION 1.3 Nature of Trust...................................
SECTION 1.4 Definitions.......................................
ARTICLE II
POWERS OF TRUSTEES
SECTION 2.1 General...........................................
SECTION 2.2 Investments.......................................
SECTION 2.3 Legal Title.......................................
SECTION 2.4 Disposition of Assets.............................
SECTION 2.5 Taxes.............................................
SECTION 2.6 Rights as Holder of Securities....................
SECTION 2.7 Delegation; Committees............................
SECTION 2.8 Collection........................................
SECTION 2.9 Expenses..........................................
SECTION 2.10 Borrowing.........................................
SECTION 2.11 Deposits..........................................
SECTION 2.12 Allocation........................................
SECTION 2.13 Valuation.........................................
SECTION 2.14 Fiscal Year.......................................
SECTION 2.15 Concerning the Trust and Certain Affiliates.......
SECTION 2.16 Power to Contract.................................
SECTION 2.17 Insurance.........................................
SECTION 2.18 Pension and Other Plans...........................
SECTION 2.19 Seal..............................................
SECTION 2.20 Charitable Contributions..........................
SECTION 2.21 Indemnification...................................
SECTION 2.22 Remedies..........................................
SECTION 2.23 Separate Accounting...............................
SECTION 2.24 Further Powers....................................
ARTICLE III
ADVISER AND DISTRIBUTOR
SECTION 3.1 Appointment.......................................
SECTION 3.2 Provisions of Agreement...........................
ARTICLE IV
INVESTMENTS
SECTION 4.1 Statement of Investment Objectives and
Policies.......................................
SECTION 4.2 Restrictions......................................
SECTION 4.3 Percentage Restrictions...........................
SECTION 4.4 Amendment of Investment Objectives and
Policies and of Investment Limitations........
ARTICLE V
LIMITATIONS OF LIABILITY
SECTION 5.1 Liability to Third Persons........................
SECTION 5.2 Liability to Trust or to Shareholders.............
SECTION 5.3 Indemnification...................................
SECTION 5.4 Surety Bonds......................................
SECTION 5.5 Apparent Authority................................
SECTION 5.6 Recitals..........................................
SECTION 5.7 Reliance on Experts, Etc..........................
SECTION 5.8 Liability Insurance...............................
ARTICLE VI
CHARACTERISTICS OF SHARES
SECTION 6.1 General...........................................
SECTION 6.2 Classes of Stock..................................
SECTION 6.3 Evidence of Share Ownership.......................
SECTION 6.4 Death of Shareholders.............................
SECTION 6.5 Repurchase of Shares..............................
SECTION 6.6 Trustees as Shareholders..........................
SECTION 6.7 Redemption and Stop Transfers for Tax
Purposes; Redemption to Maintain Constant
Net Asset Value..............................
SECTION 6.8 Information from Shareholders.....................
SECTION 6.9 Redemptions.......................................
SECTION 6.10 Suspension of Redemption; Postponement
of Payment...................................
ARTICLE VII
RECORD AND TRANSFER OF SHARES
SECTION 7.1 Share Register....................................
SECTION 7.2 Transfer Agent....................................
SECTION 7.3 Owner of Record...................................
SECTION 7.4 Transfers of Shares...............................
SECTION 7.5 Limitation of Fiduciary Responsibility............
SECTION 7.6 Notices...........................................
ARTICLE VIII
SHAREHOLDERS
SECTION 8.1 Meetings of Shareholders..........................
SECTION 8.2 Quorums...........................................
SECTION 8.3 Notice of Meetings................................
SECTION 8.4 Record Date for Meetings..........................
SECTION 8.5 Proxies, Etc......................................
SECTION 8.6 Reports...........................................
SECTION 8.7 Inspection of Records.............................
SECTION 8.8 Shareholder Action by Written Consent.............
SECTION 8.9 Voting Rights of Shareholders.....................
ARTICLE IX
TRUSTEES
SECTION 9.1 Number and Qualification..........................
SECTION 9.2 Term and Election.................................
SECTION 9.3 Resignation and Removal...........................
SECTION 9.4 Vacancies.........................................
SECTION 9.5 Meetings..........................................
SECTION 9.6 Officers..........................................
SECTION 9.7 By-laws...........................................
ARTICLE X
DISTRIBUTIONS TO SHAREHOLDERS AND
DETERMINATION OF NET ASSET VALUE AND NET INCOME
SECTION 10.1 General...........................................
SECTION 10.2 Retained Earnings.................................
SECTION 10.3 Source of Distributions...........................
SECTION 10.4 Net Asset Value...................................
SECTION 10.5 Power to Modify Valuation Procedures..............
ARTICLE XI
CUSTODIAN
SECTION 11.1 APPOINTMENT AND DUTIES............................
SECTION 11.2 CENTRAL CERTIFICATE SYSTEM........................
ARTICLE XII
RECORDING OF DECLARATION OF TRUST
SECTION 12.1 Recording.........................................
ARTICLE XIII
AMENDMENT OR TERMINATION OF TRUST
SECTION 13.1 Amendment or Termination..........................
SECTION 13.2 Power to Effect Reorganization....................
ARTICLE XIV
MISCELLANEOUS
SECTION 14.1 Governing Law.....................................
SECTION 14.2 Counterparts......................................
SECTION 14.3 Reliance by Third Parties.........................
SECTION 14.4 Provisions in Conflict with Law or Regulations....
SECTION 14.5 Section Headings..................................
ARTICLE XV
DURATION OF TRUST
SECTION 15.1 Duration..........................................
</TABLE>
DECLARATION OF TRUST
OF
EQUI-SELECT SERIES TRUST
This Declaration of Trust made the 11th day of May, 1994 by Paul R. Schlaack,
the undersigned Trustee of EQUI-SELECT SERIES TRUST.
WITNESSETH:
WHEREAS, the Trustees desire to establish an unincorporated voluntary
association commonly known as a business trust, as described in the provisions
of Chapter 182 of the General Laws of Massachusetts, for the principal purpose
of the investment and reinvestment of funds contributed thereto; and
WHEREAS, the Trustees desire that such trust be a registered open-end
investment company under the Investment Company Act of 1940; and
WHEREAS, the Trustees have acknowledged the receipt of and investment of One
Hundred Thousand ($100,000.00) Dollars by means of an Agreement Governing
Contribution and have agreed to hold, invest, and dispose of the same and any
property acquired or otherwise added thereto as such Trustees as hereinafter
stated; and
WHEREAS, it is proposed that the beneficial interest in the Trust's assets
shall be divided into transferable shares of beneficial interest, which shall
be evidenced by the Share Register maintained by the Trust or its agent, or,
in the discretion of the Trustees, be evidenced by certificates therefor, as
hereinafter provided;
NOW, THEREFORE, the Trustees hereby declare that they will hold all property
of every type and description which they are acquiring or may hereafter
acquire as such Trustees, together with the proceeds thereof, in trust, to
manage and dispose of the same for the benefit of the holders of record from
time to time of the Shares being issued and to be issued hereunder and in the
manner and subject to the provisions hereof.
ARTICLE I
THE TRUST
1.1 NAME. The name of the trust created by this Declaration of Trust
shall be EQUI-SELECT SERIES TRUST (hereinafter called the "Trust") and so far
as may be practicable the Trustees shall conduct the Trust's activities,
execute all documents and sue or be sued under that name, which name (and the
word "Trust" wherever used in this Declaration of Trust, except where the
context otherwise requires) shall refer to the Trustees in their capacity as
Trustees, and not individually or personally and shall not refer to the
officers, agents, employees or Shareholders of the Trust or of such Trustees.
Should the Trustees determine that the use of such name is not practicable,
legal or convenient, they may use such other designation or they may adopt
such other name for the Trust as they deem proper and the Trust may hold
property and conduct its activities under such designation or name.
1.2 LOCATION. The Trust shall maintain a registered office in Boston,
Massachusetts, and may maintain such other offices or places of business as
the Trustees may from time to time determine.
1.3 NATURE OF TRUST. The Trust shall be of the type commonly termed a
"business" trust. The Trust is not intended to be, shall not be deemed to be
and shall not be treated as, a general partnership, limited partnership, joint
venture, corporation or joint stock company. The Shareholders shall be
beneficiaries and their relationship to the Trustees shall be solely in that
capacity in accordance with the rights conferred upon them hereunder. The
Trust is intended to have the status of a registered open-end investment
company under the Investment Company Act of 1940 and of a "regulated
investment company" as that term is defined in Section 851 of the Internal
Revenue Code of 1986, as amended, and this Declaration of Trust and all
actions of the Trustees hereunder shall be construed in accordance with such
intent.
1.4 DEFINITIONS. As used in this Declaration of Trust, the following
terms shall have the following meanings unless the context hereof otherwise
requires:
"1940 Act" shall mean the Investment Company Act of 1940, as amended from
time to time.
"Adviser" and "Distributor" shall mean any Person or Persons appointed,
employed or contracted with by the Trustees under the applicable provisions of
Section 3.1 hereof.
"Affiliate" shall have the same meaning as the term Affiliated Person
under the 1940 Act.
"Assignment," "Commission," and "Prospectus" shall have the meanings
given them in the 1940 Act.
"Declaration of Trust" shall mean this Declaration of Trust as amended,
restated, or modified from time to time. References in this Declaration of
Trust to "Declaration," "hereof," "herein," "hereby" and "hereunder" shall be
deemed to refer to the Declaration of Trust and shall not be limited to the
particular text, article, or section in which such words appear.
"Person" shall mean and include individuals, corporations, limited
partnerships, general partnerships, joint stock companies or associations,
joint ventures, associations, companies, trusts, banks, trust companies, land
trusts, business trusts or other entities whether or not legal entities and
governments and agencies and political subdivisions thereof.
"Portfolio" shall mean any subdivision of the Trust so designated as such
by the Trustees.
"Securities" shall mean any stock, shares, voting trust certificates,
bonds, debentures, notes, or other evidences of indebtedness, secured or
unsecured, convertible, subordinated or otherwise or, in general, any
instruments commonly known as "securities" or any certificates of interest,
shares or participations in temporary or interim certificates for, guarantees
of, or any right to subscribe to, purchase or acquire any of the foregoing.
"Shareholders" shall mean, as of any particular time, all holders of
record of outstanding Shares at such time.
"Shares" shall mean the shares of beneficial interest of the Trust as
described in Article VI.
"Trust Property" shall mean, as of any particular time, any and all
property, real, personal, or otherwise, tangible or intangible, which is
transferred, conveyed or paid to the Trust or Trustees and all income, profits
and gains therefrom and which at such time is owned or held by, or for the
account of, the Trust or the Trustees.
ARTICLE II
POWERS OF TRUSTEES
2.1 GENERAL. The Trustees shall have, without other or further
authorization, full, exclusive and absolute power, control and authority over
the Trust Property and over the business of the Trust to the same extent as if
the Trustees were the sole and absolute owners of the Trust Property and
business in their own right, and with such powers of delegation as may be
permitted by this Declaration of Trust. The Trustees may do and perform such
acts and things as in their sole judgment and discretion are necessary and
proper for conducting the business and affairs of the Trust or promoting the
interests of the Trust and the Shareholders. The enumeration of any specific
power or authority herein shall not be construed as limiting the aforesaid
power or authority or any specific power or authority. The Trustees shall have
the power to enter into commitments to make any investment, purchase or
acquisition, or to exercise any power authorized by this Declaration of Trust.
Such powers of the Trustees may be exercised without order of or resort to any
court.
2.2 INVESTMENTS. The Trustees shall have power, subject in all respects
to Article IV hereof,
(a) to conduct, operate and carry on the business of an investment
company; and
(b) for such consideration as they may deem proper, to subscribe
for, invest in, reinvest in, purchase or otherwise acquire, hold, pledge,
sell, assign, transfer, exchange, distribute or otherwise deal in or dispose
of negotiable or nonnegotiable instruments, obligations, evidences of
indebtedness, bankers' acceptances, certificates of deposit or indebtedness,
commercial paper, securities subject to repurchase agreements and other money
market securities, including, without limitation, those issued, guaranteed or
sponsored by the United States Government or its agencies or
instrumentalities, or international instrumentalities, or by any of the
several states of the United States of America or their political
subdivisions, agencies or instrumentalities, or any bank or savings
institution, or by any corporation organized under the laws of the United
States or of any state, territory or possession thereof, or by corporations
organized under foreign laws; marketable straight debt securities; securities
(payable in U.S. dollars) of, or guaranteed by, the government of Canada or of
a Province of Canada; common stock, securities convertible into common stock,
purchase rights, warrants and options; and nothing herein shall be construed
to mean the Trustees shall not have the foregoing powers with respect to any
Securities in which the Trust may invest in accordance with Article IV hereof.
In the exercise of their powers, the Trustees shall not be limited,
except as otherwise provided hereunder, to investing in Securities maturing
before the possible termination of the Trust, nor shall the Trustees be
limited by any law now or hereafter in effect limiting the investments which
may be held or retained by trustees or other fiduciaries, but they shall have
full authority and power to make any and all investments within the
limitations of this Declaration of Trust, that they, in their absolute
discretion, shall determine, and without liability for loss, even though such
investments shall be of a character or an amount not considered proper for the
investment of trust funds.
2.3 LEGAL TITLE. Legal title to all the Trust Property shall be vested
in the Trustees as joint tenants and held by and transferred to the Trustees,
except that the Trustees shall have power to cause legal title to any Trust
Property to be held by, or in the name of, one or more of the Trustees with
suitable reference to their trustee status, or in the name of the Trust, or in
the name of any other Person as nominee, on such terms, in such manner and
with such powers as the Trustees may determine, so long as in their judgment
the interest of the Trust is adequately protected.
The right, title and interest of the Trustees in and to the Trust
Property shall vest automatically in all persons who may hereafter become
Trustees upon their due election and qualification without any further act.
Upon the resignation, removal or death of a Trustee, he (and in the event of
his death, his estate) shall automatically cease to have any right, title or
interest in or to any of the Trust Property, and the right, title and interest
of such Trustee in and to the Trust Property shall vest automatically in the
remaining Trustees without any further act.
2.4 DISPOSITION OF ASSETS. Subject in all respects to Article IV
hereof, the Trustees shall have power to sell, lease, exchange or otherwise
dispose of or grant options with respect to any and all Trust Property free
and clear of any and all encumbrances, at public or private sale, for cash or
on terms, without advertisement, and subject to such restrictions,
stipulations, agreements and reservations as they shall deem proper, and to
execute and deliver any deed or other instrument in connection with the
foregoing. The Trustees shall also have the power, subject in all respects to
Article IV hereof, to:
(a) rent, lease or hire from others for terms which may extend
beyond the termination of this Declaration of Trust any property or rights to
property, real, personal or mixed, tangible or intangible, and, except for
real property, to own, manage, use and hold such property and such rights;
(b) give consents and make contracts relating to Trust Property or
its use;
(c) grant security interests in or otherwise encumber Trust Property
in connection with borrowings; and
(d) release any Trust Property.
2.5 TAXES. The Trustees shall have power to pay all taxes or
assessments, of whatever kind or nature, imposed upon or against the Trust or
the Trustees in connection with the Trust Property or upon or against the
Trust Property or income or any part thereof, to settle and compromise
disputed tax liabilities and, for the foregoing purposes, to make such returns
and do all other such acts and things as may be deemed by the Trustees to be
necessary or desirable.
2.6 RIGHTS AS HOLDER OF SECURITIES. The Trustees shall have the power
to exercise all the rights, powers and privileges appertaining to the
ownership of all or any Securities or other property forming part of the Trust
Property to the same extent that any individual might, and, without limiting
the generality of the foregoing, to vote or give any consent, request or
notice or waive any notice either in person or by proxy or power of attorney
with or without power of substitution, to one or more Persons, which proxies
and powers of attorney may be for meetings or action generally or for any
particular meetings or action, and may include the exercise of discretionary
powers.
2.7 DELEGATION; COMMITTEES. The Trustees shall have power, consistent
with their continuing exclusive authority over the management of the Trust,
the conduct of its affairs and the management and disposition of Trust
Property, to delegate from time to time to such one or more of their number
(who may be designated as constituting a Committee of the Trustees) or to
officers, employees or agents of the Trust the doing of such things and the
execution of such instruments either in the name of the Trust or the names of
the Trustees or as their attorney or attorneys or otherwise as the Trustees
may from time to time deem expedient.
2.8 COLLECTION. The Trustees shall have power to collect, sue for,
receive and receipt for all sums of money or other property due to the Trust,
to consent to extensions of the time for payment, or to the renewal of any
Securities or obligations; to engage or intervene in, prosecute, defend,
compound, compromise, abandon or adjust by arbitration or otherwise any
actions, suits, proceedings, disputes, claims, demands or things relating to
the Trust Property; to foreclose any Security or other instrument securing any
notes, debentures, bonds, obligations or contracts, by virtue of which any
sums of money are owed to the Trust; to exercise any power of sale held by
them, and to convey good title thereunder free of any and all trusts, and in
connection with any such foreclosure or sale, to purchase or otherwise acquire
title to any property; to be parties to reorganization and to transfer to and
deposit with any corporation, committee, voting trustee or other Person any
Securities or obligations of any corporation, trust, association or other
organization, the Securities of which form a part of the Trust Property, for
the purpose of any reorganization of any such corporation, trust, association
or other organization, or otherwise, to participate in any arrangement for
enforcing or protecting the interests of the Trustees as the owners or holders
of such Securities or obligations and to pay any assessment levied in
connection with such reorganization or arrangement; to extend the time (with
or without security) for the payment or delivery of any debts or property and
to execute and enter into releases, agreements and other instruments; and to
pay or satisfy any debts or claims upon any evidence that the Trustees shall
think sufficient.
2.9 EXPENSES. The Trustees shall have power to incur and pay any
charges or expenses which, in the opinion of the Trustees, are necessary or
incidental to or proper for carrying out any of the purposes of this
Declaration of Trust, and to reimburse others for the payment therefor, and to
pay appropriate compensation or fees from the funds of the Trust to themselves
as Trustees and to Persons with whom the Trust has contracted or transacted
business. The Trustees shall fix the compensation of all officers, employees
and Trustees. The Trustees may be paid reasonable compensation for their
general services as Trustees and officers hereunder, and the Trustees may pay
themselves or any one or more of themselves such compensation for special
services, including legal services, as they in good faith may deem reasonable
and reimbursement for expenses reasonably incurred by themselves or any one or
more of themselves on behalf of the Trust. Each Portfolio must pay the
expenses directly attributable to it. However, to the extent that the Trustees
can effect cost savings by the sharing of expenses they are authorized to do
so. Such general administrative expenses will be allocated on the basis of the
asset size of the respective Portfolios.
2.10 BORROWING. The Trustees shall have power to borrow money only to
the extent, for the purposes and in the manner authorized by Article IV
hereof.
2.11 DEPOSITS. The Trustees shall have power to deposit any monies or
Securities included in the Trust Property with one or more banks, trust
companies or other banking institutions whether or not such deposits will draw
interest. Such deposits are to be subject to withdrawal in such manner as the
Trustees may determine, and the Trustees shall have no responsibility for any
loss which may occur by reason of the failure of the bank, trust company or
other banking institution with whom the monies or Securities have been
deposited.
2.12 ALLOCATION. The Trustees shall have power to determine whether
monies or other assets received by the Trust shall be charged or credited to
income or capital or allocated between income and capital, including the power
to amortize or fail to amortize any part or all of any premium or discount, to
treat any part or all of the profit resulting from the maturity or sale of any
assets, whether purchased at a premium or at a discount, as income or capital
or apportion the same between income and capital, to apportion the sale price
of any asset between income and capital and to determine in what manner any
expenses or disbursements are to be borne as between income and capital,
whether or not in the absence of the power and authority conferred by this
Section 2.12, such assets would be regarded as income or as capital or such
expense or disbursement would be charged to income or to capital; to treat any
dividend or other distribution on any investment as income or capital or
apportion the same between income and capital; to provide or fail to provide
reserves for depreciation, amortization or obsolescence in respect of any
Trust Property in such amounts and by such methods and for such purposes as
they shall determine, and to allocate to the share of beneficial interest
account less than all of the consideration received for Shares (but not less
than the par value thereof) and to allocate the balance thereof to paid-in
capital, all as the Trustees may reasonably deem proper.
2.13 VALUATION. The Trustees shall have power to determine in good
faith, conclusively, the value of any of the Trust Property and of any
services, Securities, assets or other consideration hereafter to be acquired
or disposed of by the Trust, and to revalue the Trust Property.
2.14 FISCAL YEAR. The Trustees shall have power to determine the fiscal
year of the Trust and the method or form in which its accounts shall be kept
and, from time to time, to change the fiscal year or method or form of
accounts.
2.15 CONCERNING THE TRUST AND CERTAIN AFFILIATES.
(a) The Trust may enter into transactions with any Affiliate of the
Trust or of the Adviser or any Affiliate of any Trustee, director, officer or
employee of the Trust or of the Adviser if (i) each such transaction has,
after disclosure of such affiliation, been approved or ratified by the
affirmative vote of a majority of the Trustees, including a majority of the
Trustees who are not Affiliates of any Person (other than the Trust) who is a
party to the transaction with the Trust, (ii) such transaction is, in the
opinion of the Trustees, on terms fair and reasonable to the Trust and the
Shareholders and at least as favorable to them as similar arrangements for
comparable transactions (of which the Trustees have knowledge) with
organizations unaffiliated with the Trust or with the Person who is a party to
the transaction with the Trust, and (iii) such transaction is in accordance
with the 1940 Act or an exemption granted thereunder.
(b) Except as otherwise provided by this Declaration of Trust and
in the absence of fraud, a contract, act or other transaction, between the
Trust and any other Person, or in which the Trust is interested, is valid and
no Trustee, officer, employee or agent of the Trust shall have any liability
as a result of entering into any such contract, act or transaction even though
(a) one or more of the Trustees, officers, employees or agents of the Trust is
directly or indirectly interested in or affiliated with, or are trustees,
partners, directors, employees, officers or agents of such other Person, or
(b) one or more of the Trustees, officers, employees or agents of the Trust,
individually or jointly with others, is a party or are parties to, or directly
interested in, or affiliated with, such contract, act or transaction, provided
that (i) such interest or affiliation is disclosed to the Trustees and the
Trustees authorized such contract, act or other transaction by a vote of a
majority of the unaffiliated Trustees, or (ii) such interest or affiliation is
disclosed to the Shareholders, and such contract, act or transaction is
approved by the Shareholders.
(c) Any Trustee or officer, employee or agent of the Trust may
acquire, own, hold and dispose of Shares for his individual account, and may
exercise all rights of a holder of such Shares to the same extent and in the
same manner as if he were not such a Trustee or officer, employee or agent.
The Trustees shall use their best efforts to obtain through the Adviser or
other Persons a continuing and suitable investment program, consistent with
the investment policies and objectives of the Trust, and the Trustees shall be
responsible for reviewing and approving or rejecting investment opportunities
presented by the Adviser or such other Persons. Any Trustee or officer,
employee or agent of the Trust may, in his personal capacity, or in a capacity
as trustee, officer, director, stockholder, partner, member, adviser or
employee of any Person, have business interests and engage in business
activities in addition to those relating to the Trust, which interests and
activities may be similar to those of the Trust and include the acquisition,
syndication, holding, management, operation or disposition, of his own account
or for the account of such Person, and each Trustee, officer, employee and
agent of the Trust shall be free of any obligation to present to the Trust any
investment opportunity which comes to him in any capacity other than solely as
Trustee, officer, employee or agent of the Trust, even if such opportunity is
of a character which, if presented to the Trust, could be taken by the Trust.
Subject to the provisions of Article III hereof, any Trustee or
officer, employee or agent of the Trust may be interested as Trustee, officer,
director, stockholder, partner, member, adviser or employee of, or otherwise
have a direct or indirect interest in, any Person who may be engaged to render
advice or services to the Trust, and may receive compensation from such Person
as well as compensation as Trustee, officer, employee or agent of the Trust or
otherwise hereunder. None of the activities referred to in this paragraph
shall be deemed to conflict with his duties and powers as Trustee, officer,
employee or agent of the Trust. To the extent that any other provision of this
Declaration of Trust conflicts with, or is otherwise contrary to, the
provisions of this Section 2.15, the provisions of this Section shall be
deemed controlling.
2.16 POWER TO CONTRACT. Subject to the provisions of Section 3.1 hereof
with respect to delegation of authority by the Trustees, the Trustees shall
have power to appoint, employ or contract with any Person (including one or
more of themselves and any corporation, partnership or trust of which one or
more of them may be an Affiliate, subject to the applicable requirements of
Section 2.15 hereof) as the Trustees may deem necessary or desirable for the
transaction of the business of the Trust, including any Person who, under the
supervision of the Trustees, may, among other things: serve as the Trust's
investment adviser and consultant in connection with policy decisions made by
the Trustees; furnish reports to the Trustees and provide research, economic
and statistical data in connection with the Trust's investments; act as
consultants, accountants, technical advisers, attorneys, brokers,
underwriters, corporation fiduciaries, escrow agents, depositaries, custodians
or agents for collection, insurers or insurance agents, transfer agents or
registrars for Shares or in any other capacity deemed by the Trustees
necessary or desirable; investigate, select, and, on behalf of the Trust,
conduct relations with Persons acting in such capacities and pay appropriate
fees to, and enter into appropriate contracts with, or employ, or retain
services performed or to be performed by, any of them in connection with the
investments acquired, sold, or otherwise disposed of, or committed,
negotiated, or contemplated to be acquired, sold or otherwise disposed of;
substitute any other Person for any such Person; act as attorney-in-fact or
agent in the purchase or sale or other disposition of investments, and in the
handling, prosecuting or settling of any claims of the Trust, including the
foreclosure or other enforcement of any lien or security securing investments;
and assist in the performance of such ministerial functions necessary in the
management of the Trust as may be agreed upon with the Trustees or officers of
the Trust.
2.17 INSURANCE. The Trustees shall have the power to purchase and pay
for, entirely out of Trust Property, insurance policies insuring the
Shareholders, Trustees, officers, employees, agents, investment advisers,
including the Adviser or independent contractors of the Trust, individually
against all claims and liabilities of every nature arising by reason of
holding, being or having held any such office or position, or by reason of any
action alleged to have been taken or omitted by any such person as
Shareholder, Trustee, officer, employee, agent, investment adviser or
independent contractor, including any action taken or omitted that may be
determined to constitute negligence. However, such policies shall not pay or
reimburse any director, officer, investment adviser or principal underwriter
for any liability arising by reason of willful misfeasance, bad faith, gross
negligence or reckless disregard of duties. Such policies are to set forth a
reasonable and fair means for determining whether payment or reimbursement
shall be made.
2.18 PENSION AND OTHER PLANS. The Trustees shall have the power to pay
pensions for faithful service, as deemed appropriate by the Trustees, and to
adopt, establish and carry out pension, profit-sharing, savings, thrift and
other retirement, incentive and benefit plans, trusts and provisions,
including, without limitation, the purchasing of life insurance and annuity
contracts as a means of providing such retirement and other benefits, for any
or all of the Trustees, officers, employees and agents of the Trust.
2.19 SEAL. The Trustees shall have the power to adopt and use a seal
for the Trust, but, unless otherwise required by the Trustees, it shall not be
necessary for the seal to be placed on, and its absence shall not impair the
validity of, any document, instrument or other paper executed and delivered by
or on behalf of the Trust.
2.20 CHARITABLE CONTRIBUTIONS. The Trustees shall have the power to
make donations, irrespective of benefit to the Trust, for the public welfare
or for community fund, hospital, charitable, religious, educational,
scientific, literary, civic or similar purpose and, in time of war or other
national emergency, in aid thereof.
2.21 INDEMNIFICATION. In addition to the mandatory indemnification
provided for in Section 5.3 hereof, the Trustees shall have power, to the
extent permitted by law, to indemnify or enter into agreements with respect to
indemnification with any Person with whom the Trust has dealings, including,
without limitation, any investment adviser, including the Adviser, or
independent contractor, to such extent as the Trustees shall determine.
2.22 REMEDIES. Notwithstanding any provision in this Declaration of
Trust, when the Trustees deem that there is a significant risk that an obligor
to the Trust may default or is in default under the terms of any obligation to
the Trust, the Trustees shall have power to pursue any remedies permitted by
law which, in their sole judgment, are in the best interests of the Trust, and
the Trustees shall have the power to enter into any investment, commitment or
obligation of the Trust resulting from the pursuit of such remedies as is
necessary or desirable to dispose of property acquired in the pursuit of such
remedies.
2.23 SEPARATE ACCOUNTING. The Trustees shall establish the books and
records for each Portfolio and maintain such records separately as if each
Portfolio were a separate legal entity.
2.24 FURTHER POWERS. The Trustees shall have power to do all such other
matters and things and execute all such instruments as they deem necessary,
proper or desirable in order to carry out, promote or advance the interests of
the Trust although such matters or things are not herein specifically
mentioned. Any determination as to what is in the best interests of the Trust
made by the Trustees in good faith shall be conclusive. In construing the
provisions of this Declaration of Trust, the presumption shall be in favor of
a grant of power to the Trustees. The Trustees will not be required to obtain
any court order to deal with the Trust Property.
ARTICLE III
ADVISER AND DISTRIBUTOR
3.1 APPOINTMENT. The Trustees are responsible for the general
investment policy of the Trust, the distribution of its Shares and for the
general supervision of the business of the Trust conducted by officers,
agents, employees, investment advisers, distributors or independent
contractors of the Trust. However, the Trustees are not required personally to
conduct all of the business of the Trust and, consistent with their ultimate
responsibility as stated herein, the Trustees may appoint, employ or contract
with an investment adviser (the "Adviser") and/or a distributor and
underwriter for the Trust's Shares (the "Distributor"), and may grant or
delegate such authority to the Adviser and/or Distributor (pursuant to the
terms of Section 2.16 hereof) or to any other Person the services of whom are
obtained by the Adviser or Distributor, as the Trustees may, in their sole
discretion, deem to be necessary or desirable, without regard to whether such
authority is normally granted or delegated by trustees.
3.2 PROVISIONS OF AGREEMENT. The Trustees shall not enter into any
agreement with the Adviser or Distributor pursuant to the provisions of
Section 3.1 hereof unless such agreement is consistent with the provisions of
Section 15 of the 1940 Act.
ARTICLE IV
INVESTMENTS
4.1 STATEMENT OF INVESTMENT OBJECTIVES AND POLICIES. The Trustees shall
be guided in their actions by the Investment Objectives and Policies as set
forth in the most current effective registration statement for the Trust as
filed with the Securities and Exchange Commission. Because the Trust is
divided into separate Portfolios, the Trustees shall supervise the investments
and the recordkeeping for each Portfolio within the Trust as if it was a
separate legal entity. In addition to any other power granted to the Trustees,
the Trustees may, as they deem appropriate, provide for additional Portfolios
in a manner consistent with the 1940 Act.
4.2 RESTRICTIONS. Notwithstanding anything in this Declaration of Trust
which may be deemed to authorize the contrary, the Trust, with respect to each
Portfolio, shall conduct its affairs in accordance with the Investment
Limitations (Restrictions) as set forth in the most current, effective
registration statement for the Trust as filed with the Securities and Exchange
Commission.
4.3 PERCENTAGE RESTRICTIONS. If the percentage restrictions as set forth
in the Investment Limitations described in Section 4.2 above are adhered to at
the time of each investment, a later increase or decrease in percentage
resulting from a change in the value of the Trust's assets is not a violation
of such investment restrictions.
4.4 AMENDMENT OF INVESTMENT OBJECTIVES AND POLICIES AND OF INVESTMENT
LIMITATIONS. The Investment Objectives and Policies and the Investment
Limitations are deemed to be fundamental policies and may not be changed
without the approval of the holders of a majority of the outstanding voting
shares of each Portfolio affected which, for purposes herein, shall mean the
lesser of (i) 67% of the shares represented at a meeting at which more than
50% of the outstanding shares are present or represented by proxy and (ii)
more than 50% of the outstanding shares. A change in policy affecting only one
Portfolio may be affected only with the approval of a majority of the
outstanding shares of such Portfolio.
ARTICLE V
LIMITATIONS OF LIABILITY
5.1 LIABILITY TO THIRD PERSONS. No Shareholder shall be subject to any
personal liability whatsoever, in tort, contract or otherwise, to any other
Person or Persons in connection with the Trust Property or the affairs of the
Trust; and no Trustee, officer, employee or agent of the Trust shall be
subject to any personal liability whatsoever, in tort, contract or otherwise;
to any other Person or Persons in connection with Trust Property or the
affairs of the Trust, except for that arising from his bad faith, willful
misconduct, gross negligence or reckless disregard of his duties or for his
failure to act in good faith in the reasonable belief that his action was in
the best interest of the Trust; and all such other Persons shall look solely
to the Trust Property for satisfaction of claims of any nature arising in
connection with the affairs of the Trust. If any Shareholder, Trustee,
officer, employee or agent, as such, of the Trust is made a party to any suit
or proceedings to enforce any such liability, he shall not on account thereof
be held to any personal liability.
5.2 LIABILITY TO TRUST OR TO SHAREHOLDERS. No Trustee, officer,
employee or agent of the Trust shall be liable to the Trust or to any
Shareholder, Trustee, officer, employee or agent of the Trust for any action
or failure to act (including, without limitation, the failure to compel in any
way any former or acting Trustee to redress any breach of trust) except for
his own bad faith, willful misfeasance, gross negligence or reckless disregard
for his duties.
5.3 INDEMNIFICATION. The Trust shall indemnify and hold each
Shareholder harmless from and against all claims and liabilities, whether they
proceed to judgment or are settled or otherwise brought to a conclusion, to
which such Shareholder may become subject by reason of his being or having
been a Shareholder, and shall reimburse such Shareholder for all legal and
other expenses reasonably incurred by him in connection with any such claim or
liability. The rights accruing to a Shareholder under this Section 5.3 shall
not exclude any other right to which such Shareholder may be lawfully
entitled, nor shall anything herein contained restrict the right of the Trust
to indemnify or reimburse a Shareholder in any appropriate situation even
though not specifically provided herein; provided, however, that the Trust
shall have no liability to reimburse Shareholders for taxes assessed against
them by reason of their ownership of Shares, nor for any losses suffered by
reason of changes in the market value of Shares.
Each officer, Trustee or agent of the Trust shall be indemnified by the
Trust to the full extent permitted under the General Laws of the Commonwealth
of Massachusetts and the 1940 Act, except that such indemnity shall not
protect any such person against any liability to the Trust or any Shareholder
thereof to which such person would otherwise be subject by reason of willful
misfeasance, bad faith, gross negligence or reckless disregard of the duties
involved in the conduct of his office ("disabling conduct"). Indemnification
shall be made when (i) a final decision on the merits, by a court or other
body before whom the proceeding was brought, that the person to be indemnified
was not liable by reason of disabling conduct, or (ii) in the absence of such
a decision, a reasonable determination, based upon a review of the facts, that
the person to be indemnified was not liable by reason of disabling conduct, by
(a) the vote of a majority of a quorum of Trustees who are neither "interested
persons" of the Trust as defined in section 2(a)(19) of the 1940 Act, nor
parties to the proceedings or (b) an independent legal counsel in a written
opinion. The Trust may, by vote of a majority of a quorum of Trustees who are
not interested persons, advance attorneys' fees or other expenses incurred by
officers, Trustees, investment advisers or principal underwriters, in
defending a proceeding upon the undertaking by or on behalf of the person to
be indemnified to repay the advance unless it is ultimately determined that he
is entitled to indemnification. Such advance shall be subject to at least one
of the following: (1) the person to be indemnified shall provide a security
for his undertaking, (2) the Trust shall be insured against losses arising by
reason of any lawful advances, or (3) a majority of a quorum of the
disinterested, non-party Trustees of the Trust, or an independent legal
counsel in a written opinion, shall determine, based on a review of readily
available facts, that there is reason to believe that the person to be
indemnified ultimately will be found entitled to indemnification. The law of
Massachusetts is superseded by the 1940 Act insofar as it conflicts with the
1940 Act or rules published thereunder.
5.4 SURETY BONDS. No Trustee shall, as such, be obligated to give any
bond or surety or other security for the performance of his duties.
5.5 APPARENT AUTHORITY. No purchaser, lender, transfer agent or other
Person dealing with the Trustees or any officer, employee or agent of the
Trust shall be bound to make any inquiry concerning the validity of any
transaction purporting to be made by the Trustees or by such officer, employee
or agent or make inquiry concerning or be liable for the application of money
or property paid, loaned or delivered to or on the order of the Trustees or of
such officer, employee or agent.
5.6 RECITALS. Any written instrument creating an obligation of the
Trust shall be conclusively taken to have been executed or done by a Trustee
or Trustees or an officer, employee or agent of the Trust only in their or his
capacity as Trustees or Trustee under this Declaration of Trust or in the
capacity of officer, employee or agent of the Trust. Any written instrument
creating an obligation of the Trust shall refer to this Declaration of Trust
and contain a recital to the effect that the obligations thereunder are not
personally binding upon, nor shall resort be had to the private property of,
any of the Trustees, Shareholders, officers, employees or agents of the Trust,
but the Trust Property or a specific portion thereof only shall be bound, and
may contain any further recital which they or he may deem appropriate, but the
omission of such recital shall not operate to impose personal liability on any
of the Trustees, Shareholders, officers, employees or agents of the Trust.
5.7 RELIANCE ON EXPERTS, ETC. Each Trustee and each officer of the
Trust shall, in the performance of his duties, be fully and completely
justified and protected with regard to any act or any failure to act resulting
from reliance in good faith upon the books of account or other records of the
Trust, upon an opinion of counsel or upon reports made to the Trust by any of
its officers or employees or by the Adviser, accountants, appraisers or other
experts or consultants selected with reasonable care by the Trustees or
officers of the Trust, regardless of whether such counsel or expert may also
be a Trustee.
5.8 LIABILITY INSURANCE. The Trustees shall, at all times, maintain
insurance for the protection of the Trust Property, its Shareholders,
Trustees, officers, employees and agents in such amount as the Trustees shall
deem adequate to cover all foreseeable tort liability to the extent available
at reasonable rates.
ARTICLE VI
CHARACTERISTICS OF SHARES
6.1 GENERAL. The interest of the Shareholders hereunder shall be
divided into Shares, all of one class and having a par value of $.01 per
Share. The number of Shares authorized hereunder is unlimited. All Shares
shall have equal noncumulative voting and other rights, shall be fully paid
and non-assessable, and shall not entitle the holder to preference,
preemptive, appraisal, conversion or exchange rights of any kind. The
ownership of the Trust Property of every description and the right to conduct
any business hereinbefore described are vested exclusively in the Trustees,
and the Shareholders shall have no interest therein other than the beneficial
interest conferred by their Shares, and they shall have no right to call for
any partition or division of any property, profits, rights or interests of the
Trust nor can they be called upon to share or assume any losses of the Trust
or suffer an assessment of any kind by virtue of their ownership of Shares,
except as provided in Section 10.5 hereof. The Shares shall be personal
property giving only the rights specifically set forth in this Declaration of
Trust.
6.2 CLASSES OF STOCK.
(a) The Shares shall be divided into ten classes of common stock and
designated Classes A, B, C, D, E, F, G, H, I and J, respectively.
(b) The holders of each Share of stock of the Trust shall be
entitled to one vote for each full Share, and a fractional vote for each
fractional Share of stock, irrespective of the Class, then standing in his
name on the books of the Trust. On any matter submitted to a vote of
Shareholders, all Shares of the Trust then issued and outstanding and entitled
to vote shall be voted in the aggregate and not by class except that (1) when
otherwise expressly required by Massachusetts Law, the 1940 Act, or this
Declaration of Trust, Shares shall be voted by individual class; (2) Shares of
the respective Classes are entitled to vote in matters concerning only that
Class; (3) fundamental policies, as specified in Article IV hereof, may not be
changed, unless a change affects only one Class, without the approval of the
holders of a majority of the Trust's outstanding voting shares, including a
majority (as defined under the 1940 Act) of the Shares of each Class.
(c) Each Class of stock of the Trust shall have the following
powers, preferences or other special rights, and qualifications, restrictions,
and limitations thereof shall be as follows:
(1) The Trustees may from time to time declare and pay
dividends or distributions, in stock or in cash, on any or all Classes of
stock, the amount of such dividends and distributions and the payment of them
being wholly in the discretion of the Trustees.
(i) Dividends or distributions on shares of any Class of
stock shall be paid only out of earned surplus or other lawfully available
assets belonging to such Class.
(ii) Inasmuch as one goal of the Trust is to qualify as a
"regulated investment company" under the Internal Revenue Code of 1986, as
amended, or any successor or comparable statute thereto, and Regulations
promulgated thereunder, and inasmuch as the computation of net income and
gains for Federal income tax purposes may vary from the computation thereof on
the books of the Trust, the Trustees shall have the power in their discretion
to distribute in any fiscal years as dividends, including dividends designated
in whole or in part as capital gains distributions, amounts sufficient in the
opinion of the Trustees, to enable the Trust to qualify as a regulated
investment company and to avoid liability for the Trust for Federal income tax
in respect of that year. In furtherance, and not in limitation of the
foregoing, in the event that a Class of shares has a net capital loss for a
fiscal year, and to the extent that a net capital loss for a fiscal year
offsets net capital gains from one or more of the other classes, the amount to
be deemed available for distribution to the Class or Classes with the net
capital gain may be reduced by the amount offset.
(2) The assets belonging to any Class of stock shall be charged
with the liabilities in respect to such Class, and shall also be charged with
its share of the general liabilities of the Trust in proportion to the asset
values of the respective Classes. The determination of the Trustees shall be
conclusive as to the amount of liabilities, the allocation of the same as to a
given Class and as to whether the same or general assets of the Trust are
allocable to one or more Classes.
(3) Prior to the issuance of any shares of a Class, the
Trustees may by resolution change the designation of such Class to the name of
the Portfolio of the Trust with respect to which such shares will be issued.
(4) The assets belonging to any Class of stock shall be
available only to the Shareholders of that Class in the event of a
liquidation.
6.3 EVIDENCE OF SHARE OWNERSHIP. Evidence of Share ownership shall be
reflected in the Share Register maintained by or on behalf of the Trust
pursuant to Section 7.1 hereof, and the Trust shall not be required to issue
certificates as evidence of Share ownership; provided, however, that the
Trustees may, in their discretion, authorize the use of certificates as a
means of evidencing the ownership of Shares by setting forth in the Trust's
By-laws or in a resolution, provisions for the form of certificates and
regulations governing their execution, issuance and transfer. Subject to
Section 6.7 hereof, such certificates shall be treated as negotiable and title
thereto and to the Shares represented thereby shall be transferred by delivery
thereof to the same extent in all respects as a stock certificate, and the
Shares represented thereby, of a Massachusetts business corporation.
6.4 DEATH OF SHAREHOLDERS. The death of a Shareholder during the
continuance of the Trust shall not terminate this Declaration of Trust nor
give such Shareholder's legal representatives a right to an accounting or to
take any action in the courts or otherwise against other Shareholders or the
Trustees or the Trust Property, but shall simply entitle the legal
representatives of the deceased Shareholder to require the recordation of such
legal representative's ownership of or rights in the deceased Shareholder's
Shares, and, upon the acceptance thereof, such legal representative shall
succeed to all the rights of the deceased Shareholder under this Declaration
of Trust.
6.5 REPURCHASE OF SHARES. The Trustees may, on behalf of the Trust,
purchase or otherwise acquire outstanding Shares from time to time for such
consideration and on such terms as they may deem proper. Shares so purchased
or acquired by the Trustees for the account of the Trust shall not, so long as
they belong to the Trust, receive distributions (other than, at the option of
the Trustees, distributions in Shares) or be entitled to any voting rights.
Such Shares may, in the discretion of the Trustees, be cancelled and the
number of Shares issued thereby reduced, or such Shares may, in the discretion
of the Trustees, be held in the treasury and may be disposed of by the
Trustees at such time or times, to such party or parties and for such
considerations as the Trustees may determine.
6.6 TRUSTEES AS SHAREHOLDERS. Any Trustee in his individual capacity
may purchase and otherwise acquire or sell and otherwise dispose of Shares or
other Securities issued by the Trust, and may exercise all the rights of a
Shareholder to the same extent as though he were not a Trustee.
6.7 REDEMPTION AND STOP TRANSFERS FOR TAX PURPOSES; REDEMPTION TO
MAINTAIN CONSTANT NET ASSET VALUE. If the Trustees shall, at any time and in
good faith, be of the opinion that direct or indirect ownership of Shares or
other Securities of the Trust has or may become concentrated in any person to
an extent which would disqualify the Trust as a regulated investment company
under the Internal Revenue Code, then the Trustees shall have the power by lot
or other means deemed equitable by them (i) to call for redemption a number,
or principal amount, of Shares or other Securities of the Trust sufficient, in
the opinion of the Trustees, to maintain or bring the direct or indirect
ownership of Shares or other Securities of the Trust into conformity with the
requirements for such qualification and (ii) to refuse to transfer or issue
Shares or other Securities of the Trust to any Person whose acquisition of the
Shares or other Securities of the Trust in question which would, in the
opinion of the Trustees, result in such disqualification. The redemption shall
be effected at a redemption price determined in accordance with Section 6.9.
The Shares of one or more Classes of stock may also be subject to
redemption pursuant to the procedure for reduction of outstanding Shares set
forth in Section 10.5 hereof in order to maintain the constant net asset value
per share.
6.8 INFORMATION FROM SHAREHOLDERS. The holders of Shares or other
Securities of the Trust shall, upon demand, disclose to the Trustees in
writing such information with respect to direct and indirect ownership of
Shares or other Securities of the Trust, as the Trustees reasonably deem
necessary, to comply with the provisions of the Internal Revenue Code, or to
comply with the requirements of any other taxing authority.
6.9 REDEMPTIONS. All outstanding Shares may be redeemed at the option
of the holders thereof, upon and subject to the terms and conditions provided
in this Declaration of Trust. The Trust shall, upon application of any
Shareholder, redeem or repurchase from such Shareholder outstanding Shares for
an amount per share determined by the application of a formula adopted for
such purpose by the Trustees (which formula shall be consistent with the 1940
Act and the rules and regulations promulgated thereunder); provided that such
amount per Share shall not exceed the cash equivalent of the proportionate
interest of each Share in the assets of the Portfolio of the Trust at the time
of the purchase or redemption. The procedures for effecting redemption shall
be as adopted by the Trustees and set forth in the Prospectus for the Trust
from time to time.
6.10 SUSPENSION OF REDEMPTION; POSTPONEMENT OF PAYMENT. The Trustees
may suspend the right of redemption or postpone the date of payment for the
whole or any part of any period (i) during which the New York Stock Exchange
is closed other than customary weekend and holiday closings, (ii) during which
trading on the New York Stock Exchange is restricted, (iii) during which an
emergency exists as a result of which disposal by the Trust of Securities
owned by it is not reasonably practicable or it is not reasonably practicable
for the Trust to determine fairly the value of its net assets, or (iv) during
any other period when the Securities and Exchange Commission (or any
succeeding governmental authority) may for the protection of security holders
of the Trust by order permit suspension of the right of redemption or
postponement of the date of payment on redemption; provided that applicable
rules and regulations of the Commission (or any succeeding governmental
authority) shall govern as to whether the conditions prescribed in (ii), (iii)
or (iv) exist. Such suspensions shall take effect at such time as the Trustees
shall specify but not later than the close of business on the business day
next following the declaration of suspension, and thereafter there shall be no
right of redemption or payment until the Trustees shall declare the suspension
at an end, except that the suspension shall terminate in any event on the
first day on which said stock exchange shall have reopened or the period
specified in (ii), (iii) or (iv) shall have expired (as to which in the
absence of an official ruling by said Commission or succeeding authority, the
determination of the Trustees shall be conclusive). In the case of a
suspension of the right of redemption, a Shareholder may either withdraw his
request for redemption or receive payment based on the net asset value
existing after the termination of the suspension.
ARTICLE VII
RECORD AND TRANSFER OF SHARES
7.1 SHARE REGISTER. A register shall be kept by or on behalf of the
Trustees, under the direction of the Trustees, which shall contain the names
and addresses of the Shareholders and the number and Class of Shares held by
them respectively and a record of all transfers thereof. Such register shall
be conclusive as to who are the holders of the Shares. Only Shareholders whose
ownership of Shares is recorded on such register shall be entitled to vote or
to receive distributions or otherwise to exercise or enjoy the rights of
Shareholders. No Shareholder shall be entitled to receive any distribution,
nor to have notice given to him as herein provided, until he has given his
address to a transfer agent or such other officer or agent of the Trust as
shall keep the register for entry thereon.
7.2 TRANSFER AGENT. The Trustees shall have power to employ, within or
without the Commonwealth of Massachusetts, a transfer agent or transfer agents
and, if they so determine, a registrar or registrars. The transfer agent or
transfer agents may keep the registrar and record therein the original issues
and transfers of Shares. Any such transfer agents and registrars shall perform
the duties usually performed by transfer agents and registrars of certificates
and shares of stock in a corporation, except as modified by the Trustees.
7.3 OWNER OF RECORD. Any person becoming entitled to any Share in
consequence of the death, bankruptcy or insolvency of any Shareholder, or
otherwise, by operation of law, shall be recorded as holder of such Shares.
But until such record is made, the Shareholder of record shall be deemed to be
the holder of such Shares for all purposes hereof and neither the Trustees nor
any transfer agent or registrar nor any officer or agent of the Trust shall be
affected by any notice of such death, bankruptcy, insolvency or other event.
7.4 TRANSFERS OF SHARES. Shares shall be transferable on the records of
the Trust (other than by operation of law) only by the record holder thereof
or by his agent thereunto duly authorized in writing upon delivery to the
Trust or a transfer agent of the Trust of a duly executed instrument of
transfer, together with such evidence of the genuineness of execution and
authorization and of other matters as may reasonably be required by the Trust
or the transfer agent. Upon such delivery, the transfer shall be recorded on
the register of the Trust. But until such record is made, the Shareholder of
record shall be deemed to be the holder of such Shares for all purposes hereof
and neither the Trustees nor the Trust nor any transfer agent or registrar nor
any officer or agent of the Trust shall be affected by any notice of the
proposed transfer. This Section 7.4 and Section 7.3 hereof are subject in all
respects to the provisions of Section 6.7 hereof.
7.5 LIMITATION OF FIDUCIARY RESPONSIBILITY. The Trustees shall not, nor
shall the Shareholders or any officer, transfer agent or other agent of the
Trust, be bound to see to the execution of any trust, express, implied or
constructive, or of any charge, pledge or equity to which any of the Shares or
any interest therein are subject, or to ascertain or inquire whether any sale
or transfer of any such Shares or interest therein by any such Shareholder or
his personal representative is authorized by such trust, charge, pledge or
equity, or to recognize any Person as having any interest therein except the
Persons recorded as such Shareholders. The receipt of the Person in whose name
any Share is recorded, or, if such Share is recorded in the names of more than
one Person, the receipt of any one such Persons or of the duly authorized
agent of any such Person shall be a sufficient discharge for all money,
Securities and other property payable, issuable or deliverable in respect of
such Share and from all liability to see the proper application thereof.
7.6 NOTICES. Any and all notices to which Shareholders hereunder may be
entitled, and any and all communications, shall be deemed duly served or given
if mailed, postage prepaid, addressed to Shareholders of record at their last
known post office addresses as recorded on the Share register provided for in
Section 7.1 hereof.
ARTICLE VIII
SHAREHOLDERS
8.1 MEETINGS OF SHAREHOLDERS. Meetings of the Shareholders may be
called at any time by a majority of the Trustees and shall be called by any
Trustee upon written request of Shareholders holding in the aggregate not less
than ten (10%) percent of the outstanding Shares having voting rights, such
request specifying the purpose or purposes for which such meeting is to be
called. Any such meeting shall be held within or without the Commonwealth of
Massachusetts on such day and at such time as the Trustees shall designate. In
the event that the number of Trustees elected by vote of the Shareholders
shall, at any time, fall below a majority, a Special Meeting shall be called
at the earliest practicable time for the election of Trustees; provided,
however, that such meeting shall, in any event be held within sixty (60) days
of the date on which the number of Trustees elected by vote of the
Shareholders falls below a majority.
8.2 QUORUMS. The holders of a majority of outstanding Shares, entitled
to vote at such a meeting, present in person or by proxy shall constitute a
quorum at any meeting of Shareholders.
8.3 NOTICE OF MEETINGS. Notice of all meetings of the Shareholders
entitled to vote at such a meeting, stating the time, place and purposes of
the meeting, shall be given by the Trustees by mail to each Shareholder at his
registered address, mailed at least ten (10) days and not more than sixty (60)
days before the meeting. Only the business stated in the notice of the meeting
shall be considered at such meeting. Any adjourned meeting may be held as
adjourned without further notice.
8.4 RECORD DATE FOR MEETINGS. For the purposes of determining the
Shareholders who are entitled to vote or act at any meeting or any adjournment
thereof, or who are entitled to participate in any dividend or distribution,
or for the purpose of any other action, the Trustees may from time to time
close the transfer books for such period, not exceeding thirty (30) days, as
the Trustees may determine; or without closing the transfer books, the
Trustees may fix a date not more than sixty (60) days prior to the date of any
meeting of Shareholders or other actions as a record date for the
determination of Shareholders entitled to vote at such meeting or any
adjournment thereof or to be treated as Shareholders of record for purposes of
such other action, except for dividend payments which shall be governed by
Section 10.1, and any Shareholder who was a Shareholder at the time so fixed
shall be entitled to vote at such meeting or any adjournment thereof, even
though he has since that date disposed of his Shares, and no Shareholder
becoming such after that date shall be so entitled to vote at such meeting or
any adjournment thereof or to be treated as a Shareholder of record for
purposes of such other action.
8.5 PROXIES, ETC. At any meeting of Shareholders, any holder of Shares
entitled to vote thereat may vote by proxy, provided that no proxy shall be
voted at any meeting unless it shall have been placed on file with the
Secretary, or with such other officer or agent of the Trust as the Secretary
may direct, for the verification prior to the time at which such vote shall be
taken. Pursuant to a resolution of a majority of the Trustees, proxies may be
solicited in the name of one or more Trustees or one or more of the officers
of the Trust. Only Shareholders of record shall be entitled to vote and each
full Share shall be entitled to one vote and fractional Shares shall be
entitled to fractional votes. When any Share is held jointly by several
persons, any one of them may vote at any meeting in person or by proxy in
respect of such Share, but if more than one of them shall be present at such
meeting in person or by proxy, and such joint owners or their proxies so
present disagree as to any vote to be cast, such vote shall not be received in
respect of such Share. A proxy purporting to be executed by or on behalf of a
Shareholder shall be deemed valid unless challenged at or prior to its
exercise, and the burden of proving invalidity shall rest on the challenger.
If the holder of any such Share is a minor or a person of unsound mind, and
subject to guardianship or to the legal control of any other person as regards
the charge or management of such Share, he may vote by his guardian or such
other person appointed or having such control, and such vote may be given in
person or by proxy.
8.6 REPORTS. The Trustees shall cause to be prepared at least annually
a report of operations containing a balance sheet and statements of income and
undistributed income of the Trust prepared in conformity with generally
accepted accounting principles and an opinion of an independent certified
public accountant on such financial statements based on an examination of the
books and records of the Trust, and made in accordance with generally accepted
auditing standards. A signed copy of such report and opinion shall be filed
with the Trustees within sixty (60) days after the close of the period covered
thereby. Copies of such reports shall be mailed to all Shareholders of record
within the time required by the 1940 Act and in any event within a reasonable
period preceding the annual meeting of Shareholders. The Trustees shall, in
addition, furnish to the Shareholders, at least semi-annually, an interim
report containing an unaudited balance sheet of the Trust as at the end of
such semi-annual period and a statement of income and surplus for the period
from the beginning of the current fiscal year to the end of such semi-annual
period.
8.7 INSPECTION OF RECORDS. The records of the Trust shall be open to
inspections by Shareholders to the same extent as is permitted shareholders of
a Massachusetts business corporation.
8.8 SHAREHOLDER ACTION BY WRITTEN CONSENT. Any action taken by
Shareholders may be taken without a meeting if a majority of Shareholders
entitled to vote on the matter (or such larger proportion thereof as shall be
required by any express provision of this Declaration of Trust) consent to the
action in writing and the written consents are filed with the records of the
meetings of Shareholders. Such consent shall be treated for all purposes as a
vote taken at a meeting of Shareholders.
8.9 VOTING RIGHTS OF SHAREHOLDERS. The Shareholders shall be entitled
to vote only upon the following matters: (a) election of Trustees as provided
in Sections 9.2, 9.3 and 9.4 hereof; (b) amendment of the Declaration of Trust
or termination of this Trust as provided in Section 4.4 and Section 13.1
hereof; (c) reorganization of this Trust as provided in Section 13.2 hereof;
and (d) all matters for which the approval of the Shareholders of the Trust is
required by the 1940 Act, as amended. Except with respect to the foregoing
matters specified in this Section 8.9, no action taken by the Shareholders at
any meeting shall in any way bind the Trustees.
ARTICLE IX
TRUSTEES
9.1 NUMBER AND QUALIFICATION. The number of Trustees shall be fixed
from time to time by resolution of a majority of the Trustees then in office,
provided, however, that subsequent to any sale of Shares pursuant to a public
offering, there shall not be fewer than three (3) Trustees. Any vacancy
created by an increase in Trustees may be filled by the appointment of an
individual having the qualifications described in this Section 9.1 made by a
resolution of a majority of the Trustees then in office. Any such appointment
shall not become effective, however, until the individual named in the
resolution of appointment shall have accepted in writing such appointment and
agreed in writing to be bound by the terms of this Declaration of Trust. No
reduction in the number of Trustees shall have the effect of removing any
Trustee from office prior to the expiration of his term. Whenever a vacancy in
the number of Trustees shall occur, until such vacancy is filled as provided
in Section 9.4 hereof, the Trustees or Trustee continuing in office,
regardless of their number, shall have all the powers granted to the Trustees
and shall discharge all the duties imposed upon the Trustees by this
Declaration of Trust. A Trustee shall be an individual at least twenty-one
(21) years of age who is not under legal disability. The Trustees, in their
capacity as Trustees, shall not be required to devote their entire time to the
business and affairs of the Trust.
9.2 TERM AND ELECTION. Each Trustee named herein, or elected or
appointed as provided in Section 9.1 and 9.4 hereof shall (except in the event
of resignations or removals or vacancies pursuant to Sections 9.3 or 9.4
hereof) hold office until his successor has been elected and has qualified to
serve as Trustee. Election of Trustees shall be by the affirmative vote of the
holders of at least a majority of the Shares entitled to vote present in
person or by proxy at such meeting. The election of any Trustee (other than an
individual who was serving as a Trustee immediately prior to such election)
pursuant to this Section 9.2 shall not become effective unless and until such
person shall have in writing accepted his election and agreed to be bound by
the terms of this Declaration of Trust. Trustees may, but need not, own
Shares.
9.3 RESIGNATION AND REMOVAL. Any Trustee may resign (without need for
prior or subsequent accounting) by an instrument in writing signed by him and
delivered or mailed to the Chairman, the President or the Secretary (referred
to in Section 9.6 hereof) and such resignation shall be effective upon such
delivery, or at a later date according to the terms of the notice. Any of the
Trustees may be removed (provided the aggregate number of Trustees after such
removal shall not be less than the number required by Section 9.1 hereof) with
cause, by the action of two-thirds (2/3) of the remaining Trustees. Upon the
resignation or removal of a Trustee, or his otherwise ceasing to be a Trustee,
he shall execute and deliver such documents as the remaining Trustees shall
require for the purpose of conveying to the Trust or the remaining Trustees
any Trust Property held in the name of the resigning or removed Trustee. Upon
the incapacity or death of any Trustee, his legal representative shall execute
and deliver on his behalf such documents as the remaining Trustees shall
require as provided in the preceding sentence.
No natural person shall serve as Trustee after the holders of record of
not less than two-thirds of the outstanding Shares of beneficial interest in
the Trust have declared that he be removed from that office either by
declaration in writing filed with the Custodian of the securities of the Trust
or by votes cast in person or by proxy at a meeting called for the purpose.
The Trustees shall promptly call a meeting of Shareholders for the
purpose of voting upon the question of removal if any such Trustee or Trustees
are requested in writing to do so by the recordholders of not less than ten
(10) per centum of the outstanding Shares.
Whenever ten or more Shareholders of record, who have been such for at
least six months preceding the date of application, and who hold in the
aggregate either Shares having a net asset value of at least $50,000 or at
least one (1) per centum of the outstanding Shares, whichever is less, shall
apply to the Trustees in writing, stating that they wish to communicate with
other Shareholders with a view to obtaining signatures to a request for a
meeting for the purposes of removing Trustee(s) and accompanied by a form of
communication and request which they wish to transmit, the Trustees shall
within five (5) business days after receipt of such application either:
(1) afford to such applicants access to a list of the names and addresses
of all Shareholders as recorded on the books of the Trust; or
(2) inform such applicants as to the approximate number of Shareholders
of record, and the approximate cost of mailing to them the proposed
communication and form of request.
If the Trustees elect to follow the course specified in (2) above, upon
the written request of such applicants, accompanied by a tender of the
material to be mailed and of the reasonable expenses of mailing, the Trustees
shall, with reasonable promptness, mail such material to all Shareholders of
record at their addresses as recorded on the books, unless within five (5)
business days after such tender the Trustees shall mail to such applicants and
file with the Securities and Exchange Commission, together with a copy of the
material to be mailed, a written statement signed by at least a majority of
the Trustees to the effect that in their opinion either such material contains
untrue statements of fact or omits to state facts necessary to make the
statements contained therein not misleading, or would be in violation of
applicable law, and specifying the basis of such opinion.
9.4 VACANCIES. The term of office of a Trustee shall terminate and a
vacancy shall occur in the event of the death, resignation, bankruptcy,
adjudicated incompetence or other incapacity to exercise the duties of the
office, or removal of a Trustee. No such vacancy shall operate to annul this
Declaration of Trust or to revoke any existing agency created pursuant to the
terms of this Declaration of Trust, and title to any Trust Property held in
the name of any Trustee alone, jointly with one or more of the other Trustees
or otherwise, shall, in the event of the death, resignation, removal,
bankruptcy, adjudicated incompetence or other incapacity to exercise the
duties of the office of such Trustee, vest in the continuing or surviving
Trustees without necessity of any further act or conveyance. In the case of an
existing vacancy (other than by reason of increase in the number of Trustees)
the holders of at least a majority of the Shares entitled to vote, acting at
any meeting of Shareholders called for the purpose, or a majority of the
Trustees continuing in office acting by resolution, may fill such vacancy, and
any Trustee so elected by the Trustees shall hold office until his successor
has been elected and has qualified to serve as Trustee. Upon the effectiveness
of any such appointment as provided in this Section, the Trust Property shall
vest in such new Trustee jointly with the continuing or surviving Trustees
without the necessity of any further act or conveyance; provided, however,
that no such election or appointment as provided in this Section 9.4 shall
become effective unless or until the new Trustee shall have accepted in
writing his appointment and agreed to be bound by the terms of this
Declaration of Trust.
9.5 MEETINGS. Meetings of the Trustees shall be held from time to time
upon the call of the Chairman, the President, the Secretary or any two
Trustees. Regular meetings of the Trustees may be held without call or notice
at a time and place fixed by the By-laws or by resolution of the Trustees.
Notice of any other meeting shall be mailed or otherwise given not less than
forty-eight (48) hours before the meeting but may be waived in writing by any
Trustee either before or after such meeting. The attendance of a Trustee at a
meeting shall constitute a waiver of such notice except where a Trustee
attends a meeting for the express purpose of objecting to the transaction of
any business on the grounds that the meeting has not been lawfully called or
convened. The Trustees may act with or without a meeting. A quorum for all
meetings of the Trustees shall be a majority of the Trustees. Subject to
Section 2.15 hereof and unless specifically provided otherwise in this
Declaration of Trust, any action of the Trustees may be taken at a meeting by
vote of a majority of the Trustees present (a quorum being present) or,
without a meeting, by written consents of a majority of the Trustees. Any
agreement, or other instrument or writing executed by one or more of the
Trustees or by any authorized Person shall be valid and binding upon the
Trustees and upon the Trust when authorized or ratified by action of the
Trustees as provided in this Declaration of Trust.
Any committee of the Trustees, including an Executive Committee, if any,
may act with or without a meeting. A quorum for all meetings of any such
committee shall be a majority of the members thereof. Unless otherwise
specifically provided in this Declaration of Trust, any action of any such
committee may be taken at a meeting by vote of a majority of the members
present (a quorum being present) or, without a meeting, by written consent of
a majority of the members.
With respect to actions of the Trustees and any committee thereof,
Trustees who are affiliated within the meaning of Section 2.15 hereof or
otherwise interested in any action to be taken may be counted for quorum
purposes under this Section 9.5 and shall be entitled to vote to the extent
permitted by the 1940 Act.
All or any one or more Trustees may participate in a meeting of the
Trustees or any committee thereof by utilizing conference, telephone or
similar communications equipment by means of which all persons participating
in the meeting can hear each other and participation in a meeting pursuant to
such communications shall constitute presence in person at such meeting. The
minutes of any meeting of Trustees held by utilizing such communications
equipment shall be prepared in the same manner as those of a meeting of
Trustees held in person.
9.6 OFFICERS. The Trustees shall elect a Chairman from among their
number and shall appoint a President, Secretary and Treasurer and such other
officers as they deem necessary or appropriate to carry out the business of
the Trust. Such officers shall be appointed and hold office in accordance with
By-law provisions.
9.7 BY-LAWS. The Trustees may adopt and, from time to time, amend or
repeal By-laws for the conduct of the business of the Trust, and in such
By-laws may define the duties of the respective officers, agents, employees
and representatives.
ARTICLE X
DISTRIBUTIONS TO SHAREHOLDERS AND
DETERMINATION OF NET ASSET VALUE AND NET INCOME
10.1 GENERAL. The Trustees may, from time to time, declare and pay to
the Shareholders, in proportion to their respective ownership of Shares in
each class, out of the earnings, net profits or surplus (including paid-in
capital), capital or assets of the respective Portfolio in the hands of the
Trustees, such dividends or other distributions as they may determine. The
declaration and payment of such dividends or other distributions and the
determination of earnings, profits, surplus (including paid-in capital) and
capital available for dividends and other purposes shall lie wholly in the
discretion of the Trustees and no Shareholder shall be entitled to receive or
be paid any dividends or to receive any distributions except as determined by
the Trustees in the exercise of said discretion. The Trustees may, in
addition, from time to time in their discretion, declare and pay as dividends
or other distributions such additional amounts, whether or not out of
earnings, profits and surplus available therefor, sufficient to enable the
Trust to avoid or reduce its liability for Federal income taxes, inasmuch as
the computations of net income and gains for Federal income tax purposes may
vary from the computations thereof on the books of the Trust. Any or all such
dividends or other distributions may be made, in whole or in part, in cash,
property or other assets or obligations of the Trust, as the Trustees may in
their sole discretion from time to time determine. The Trustees may also
distribute to the Shareholders of a class, in proportion to their respective
ownership of Shares in the class, additional Shares issuable hereunder in such
manner and on such terms as they may deem proper. Any or all such dividends or
distributions may be made among the Shareholders of the class of record at the
time of declaring a distribution or among the Shareholders of record at such
later date as the Trustees shall determine.
10.2 RETAINED EARNINGS. The Trustees, except as provided in Section
10.1 hereof, may retain from the net profits such amount as they may deem
necessary to pay the debts or expenses of the Trust, to meet obligations of
the Trust, to establish reserves or as they may deem desirable to use in the
conduct of its affairs or to retain for future requirements or extensions of
the business of the Trust.
10.3 SOURCE OF DISTRIBUTIONS. Shareholders shall receive annually a
statement in writing advising the Shareholders of the source of the funds so
distributed so that distributions of ordinary income, return of capital and
capital gains income will be clearly distinguished.
10.4 NET ASSET VALUE. The net asset value of each outstanding Share of
the Trust shall be determined once on each business day, as of the close of
trading on the New York Stock Exchange or at any other time as the Trustees,
by resolution, may determine and which is in compliance with the 1940 Act. The
method of determination of net asset value shall be determined by the Trustees
and shall be set forth in the Prospectus. The power and duty to make the daily
calculations may be delegated by the Trustees to the Adviser, the Custodian,
the Transfer Agent, the Distributor or such other person as the Trustees by
resolution may determine. The Trustees may suspend the daily determination of
net asset value to the extent permitted by the 1940 Act.
10.5 POWER TO MODIFY VALUATION PROCEDURES. Notwithstanding any of the
foregoing provisions of this Article X, the Trustees may prescribe, in their
absolute discretion, such other bases and times for determining the per Share
net asset value of the Trust's Shares or net income, or the declaration and
payment of dividends and distributions as they may deem necessary or desirable
to enable the Trust to comply with any provision of the 1940 Act, or any rule
or regulation thereunder, including any rule or regulation adopted pursuant to
Section 22 of the 1940 Act by the Commission or any securities association
registered under the Securities Exchange Act of 1934, or any order of
exemption issued by said Commission, all as in effect now or as hereafter
amended or modified.
ARTICLE XI
CUSTODIAN
11.1 APPOINTMENT AND DUTIES. The Trustees shall, at all times, employ a
bank or trust company organized under the laws of the United States of America
or one of the several states thereof having a capital, surplus and undivided
profits of at least two million dollars ($2,000,000) as Custodian with
authority as its agent, but subject to such restrictions, limitations and
other requirements, if any, as may be contained in the By-laws of the Trust
and the 1940 Act:
(a) to hold the securities owned by the Trust and deliver the same
upon written order;
(b) to receive and receipt for any monies due to the Trust and
deposit the same in its own banking department or elsewhere as the Trustees
may direct;
(c) to disburse such funds upon orders or vouchers;
(d) if authorized by the Trustees, to keep the books and accounts of
the Trust and furnish clerical and accounting services;
(e) if authorized to do so by the Trustees, to compute the net
income of the Trust;
all upon such basis of compensation as may be agreed upon between the Trustees
and Custodian.
The Trust may also employ the Custodian as its agent for other purposes.
The Trustees may also authorize the Custodian to employ one or more
Sub-Custodians (including a foreign Sub-Custodian(s)) from time to time to
perform such of the acts and services of the Custodian and upon such terms and
conditions, as may be agreed upon between the Custodian and such Sub-Custodian
and approved by the Trustees, provided that, in every case, such Sub-Custodian
shall meet the applicable requirements under the 1940 Act, and the regulations
thereunder to act as such.
11.2 CENTRAL CERTIFICATE SYSTEM. Subject to such rules, regulations and
orders as the Commission may adopt, the Trustees may direct the Custodian to
deposit all or any part of the Securities owned by the Trust in a system for
the central handling of Securities established by a national securities
exchange or a national securities association registered with the Commission
under the Securities Exchange Act of 1934, or such other person as may be
permitted by the Commission, or otherwise in accordance with the 1940 Act,
pursuant to which system all securities of any particular class or series of
any issuer deposited within the system are treated as fungible and may be
transferred or pledged by bookkeeping entry without physical delivery of such
securities, provided that all such deposits shall be subject to withdrawal
only upon the order of the Trust.
ARTICLE XII
RECORDING OF DECLARATION OF TRUST
12.1 RECORDING. This Declaration of Trust and any amendment hereto
shall be filed in the office of the Secretary of the Commonwealth of
Massachusetts and may also be filed or recorded in such other places as the
Trustees deem appropriate. Each amendment so filed shall be accompanied by a
certificate signed and acknowledged by a Trustee stating that such action was
duly taken in a manner provided herein; and unless such amendment or such
certificate filed with the Secretary of the Commonwealth of Massachusetts sets
forth some earlier or later time for the effectiveness of such amendment, such
amendment shall be effective upon its filing with the Secretary of said
Commonwealth. An amended Declaration, containing the original Declaration and
all amendments theretofore made, may be executed any time or from time to time
by a majority of the Trustees and shall, upon filing with the Secretary of the
Commonwealth of Massachusetts, be conclusive evidence of all amendments
contained therein and may thereafter be referred to in lieu of the original
Declaration and the various amendments thereto.
ARTICLE XIII
AMENDMENT OR TERMINATION OF THE TRUST
13.1 AMENDMENT OR TERMINATION. The provisions of this Declaration of
Trust may be amended or altered (except as to the limitations on personal
liability of the Shareholders and Trustees and the prohibition of assessments
upon Shareholders), or the Trust may be terminated, at any meeting of the
Shareholders called for the purpose, by the affirmative vote of the holders of
a majority of the Shares then outstanding and entitled to vote, or by an
instrument or instruments in writing, without a meeting, signed by a majority
of the Trustees and the holders of a majority of such Shares; provided,
however, that the Trustees may, from time to time by a two-thirds (2/3) vote
of the Trustees, and after fifteen (15) days prior written notice to the
Shareholders, amend or alter the provisions of this Declaration of Trust,
without the vote or assent of the Shareholders, to the extent deemed by the
Trustees in good faith to be necessary to conform this Declaration to the
requirements of the regulated investment company provisions of the Internal
Revenue Code or the requirements of applicable federal laws or regulations or
any interpretation thereof by a court or other governmental agency of
competent jurisdiction but the Trustees shall not be liable for failing so to
do. Notwithstanding the foregoing, (i) no amendment may be made pursuant to
this Section 13.1 which would change any rights with respect to any
outstanding Shares of the Trust by reducing the amount payable thereon upon
liquidation of the Trust or by diminishing or eliminating any voting rights
pertaining thereto, except with the vote or written consent of the holders of
two-thirds (2/3) of the outstanding Shares entitled to vote thereon; and (ii)
no amendment may be made with respect to the investment restrictions contained
in Section 4.2 hereof without the affirmative vote of the holders of a
majority (as defined in the 1940 Act) of the Shares of the Class of stock
affected by such change. Upon the termination of the Trust pursuant to this
Section 13.1:
(a) The Trust shall carry on no business except for the purpose of
winding up its affairs.
(b) The Trustees shall proceed to wind up the affairs of the Trust
and all of the powers of the Trustees under this Declaration of Trust shall
continue until the affairs of the Trust shall have been wound up, including
the power to fulfill or discharge the contracts of the Trust, collect its
assets, sell, convey, assign, exchange, transfer or otherwise dispose of all
or any part of the remaining Trust Property to one or more persons at public
or private sale for consideration which may consist in whole or in part of
cash, securities or other property of any kind, discharge or pay its
liabilities, and do all other acts appropriate to liquidate its business;
provided that any sale, conveyance, assignment, exchange, transfer or other
disposition of all or substantially all of the Trust Property shall require
approval of the principal terms of the transaction and the nature and amount
of the consideration by affirmative vote of not less than a majority of all
outstanding Shares entitled to vote.
(c) After paying or adequately providing for the payment of all
liabilities, and upon receipt of such releases, indemnities and refunding
agreements, as they deem necessary for their protection, the Trustees may
distribute the remaining Trust Property, in cash or in kind or partly of each,
among the Shareholders according to their respective rights.
Upon termination of the Trust and distribution to the Shareholders as
herein provided, a majority of the Trustees shall execute and lodge among the
records of the Trust an instrument in writing setting forth the fact of such
termination, and the Trustees shall thereupon be discharged from all further
liabilities and duties hereunder, and the right, title and interest of all
Shareholders shall cease and be cancelled and discharged.
A certification in recordable form signed by a majority of the Trustees
setting forth an amendment and reciting that it was duly adopted by the
Shareholders or by the Trustees as aforesaid or a copy of the Declaration, as
amended, in recordable form, and executed by a majority of the Trustees, shall
be conclusive evidence of such amendment when lodged among the records of the
Trust.
Notwithstanding any other provision hereof, until such time as a
Registration Statement under the Securities Act of 1933, as amended, covering
the first public offering of Shares shall have become effective, this
Declaration of Trust may be terminated or amended in any respect by the
affirmative vote of a majority of the Trustees or by an instrument signed by a
majority of the Trustees.
13.2 POWER TO EFFECT REORGANIZATION. The Trustees, by vote or written
approval of a majority of the Trustees, may select or direct the organization
of a corporation, association, trust or other organization with which the
Trust may merge, or which shall take over the Trust Property and carry on the
affairs of the Trust, and after receiving an affirmative vote of not less than
a majority of the outstanding Shares entitled to vote at any meeting of
Shareholders, the notice for which included a statement of such proposed
action, the Trustees may effect such merger or may sell, convey and transfer
the Trust Property to any such corporation, association, trust or organization
in exchange for cash or shares or securities thereof, or beneficial interest
therein with the assumption by such transferee of the liabilities of the
Trust; and thereupon the Trustees shall terminate the Trust and deliver such
cash, shares, securities or beneficial interest ratably among the Shareholders
of this Trust in redemption of their Shares.
ARTICLE XIV
MISCELLANEOUS
14.1 GOVERNING LAW. This Declaration of Trust is executed by the
Trustees and delivered in the Commonwealth of Massachusetts and with reference
to the laws thereof, and the rights of all parties and the validity,
construction and effect of every provision hereof shall be subject to and
construed according to the laws of said Commonwealth and reference shall be
specifically made to the Business Corporation Law of the Commonwealth of
Massachusetts as to the construction of matters not specifically covered
herein or as to which an ambiguity exists.
14.2 COUNTERPARTS. This Declaration of Trust may be simultaneously
executed in several counterparts, each of which so executed shall be deemed to
be an original, and such counterparts, together, shall constitute but one and
the same instrument, which shall be sufficiently evidenced by any such
original counterpart.
14.3 RELIANCE BY THIRD PARTIES. Any certificate executed by an
individual who, according to the records of the Trust, or of any recording
office in which this Declaration may be recorded, appears to be a Trustee
hereunder, certifying to: (a) the number or identity of Trustees or
Shareholders, (b) the due authorization of the execution of any instrument or
writing, (c) the form of any vote passed at a meeting of Trustees or
Shareholders, (d) the fact that the number of Trustees or Shareholders present
at any meeting or executing any written instrument satisfies the requirements
of this Declaration of Trust, (e) the form of any By-law adopted by or the
identity of any officers elected by the Trustees, or (f) the existence of any
fact or facts which in any manner relate to the affairs of the Trust, shall be
conclusive evidence as to the matters so certified in favor of any person
dealing with the Trustees or any of them and the successors of such person.
14.4 PROVISIONS IN CONFLICT WITH LAW OR REGULATIONS.
(a) The provisions of this Declaration of Trust are severable and
if the Trustees shall determine, with the advice of counsel, that any one or
more of such provisions (the "Conflicting Provisions") are in conflict with
the regulated investment company provisions of the Internal Revenue Code or
with other applicable federal or state laws and regulations, the Conflicting
Provisions shall be deemed never to have constituted a part of this
Declaration of Trust; provided, however, that such determination by the
Trustees shall not affect or impair any of the remaining provisions of this
Declaration of Trust or render invalid or improper any action taken or omitted
(including, but not limited to, the election of Trustees) prior to such
determination.
(b) If any provisions of this Declaration of Trust shall be held
invalid or unenforceable in any jurisdiction, such invalidity or
unenforceability shall attach only to such provision in such jurisdiction and
shall not in any manner affect or render invalid or unenforceable such
provision in any other jurisdiction or any other provision of this Declaration
of Trust in any jurisdiction.
14.5 SECTION HEADINGS. Section headings have been inserted for
convenience only and are not a part of this Declaration of Trust.
ARTICLE XV
DURATION OF TRUST
15.1 DURATION. Subject to possible termination in accordance with the
provisions of Article XIII hereof, the Trust shall be of unlimited duration.
IN WITNESS WHEREOF, the undersigned majority of all of the Trustees of the
Trust have caused these presents to be executed as of the 11th day of May,
1994.
<TABLE>
<CAPTION>
<S> <C> <C>
Position with
Name Trust Address
- ------------------- --------------------- -----------------------
/S/PAUL R. SCHLAACK President and Trustee 604 Locust Street
- -------------------
Paul R. Schlaack Des Moines, Iowa 50309
</TABLE>
BY-LAWS
These By-laws are made and adopted pursuant to the Declaration of Trust
establishing EQUI-SELECT SERIES TRUST (the "Trust"), as from time to time
amended, restated or modified (the "Declaration"). All words and terms
capitalized in these By-laws shall have the meaning or meanings set forth for
such words or terms in the Declaration. If any term or provision of these
By-laws shall be in conflict with any term or provision of the Declaration,
the terms and provisions of the Declaration shall be controlling.
ARTICLE I
SHAREHOLDERS' MEETINGS AND RECORD DATES
SECTION 1.1 GENERAL. All meetings of the Shareholders shall be held, pursuant
to written notice, within or without The Commonwealth of Massachusetts and on
such day and at such time as the Trustees shall designate. Notice shall be
given by mail not less than ten (10) nor more than sixty (60) days prior to
the day named for the meeting, and shall be deemed to have been properly given
to a Shareholder when deposited in the United States mail with first class
postage prepaid or in a telegraph office with charges prepaid, directed to the
Shareholder's address as given to a transfer agent or such other officer or
agent of the Trust as shall keep the register for entry thereon. A certificate
or affidavit by the Secretary or an Assistant Secretary or a transfer agent
shall be prima facie evidence of the giving of any notice required by the
Declaration.
SECTION 1.2 NOTICE OF ADJOURNMENTS. Upon adjournment of any meeting of
Shareholders, it shall not be necessary to give any notice of the adjourned
meeting or of the business to be transacted thereat, other than by
announcement at the meeting at which such adjournment is taken. At any
adjourned meeting at which a quorum shall be present or represented, only such
business may be transacted which might have been transacted at the meeting
originally called. If after the adjournment, the Trustees fix a new record
date for the adjourned meeting, a notice of the adjourned meeting shall be
given to each Shareholder of record on the new record date entitled by law to
receive such notice.
SECTION 1.3 CHAIRMAN. The Chairman shall act as chairman at all meetings of
the Shareholders; in his absence, the President shall act as chairman; and in
the absence of the Chairman and President, the Trustee or Trustees present at
each meeting may elect a temporary chairman for the meeting, who may be one of
themselves.
SECTION 1.4 PROXIES; VOTING. Shareholders may vote at any meeting, or by
consent in writing without a meeting pursuant to the Declaration, either in
person or by proxy. Every proxy shall be executed in writing by the
Shareholder, or by his duly authorized attorney-in-fact, with each full share
represented at the meeting being entitled to one vote and fractional shares to
fractional votes. A proxy, unless coupled with an interest, shall be revocable
at will, notwithstanding any other agreement or any provision in the proxy to
the contrary, but the revocation of a proxy shall not be effective until
notice thereof has been given to the Secretary, or such other officer or agent
of the Trust as the Secretary may direct. No proxy shall be valid after eleven
(11) months from the date of its execution, unless a longer time is expressly
stated in such proxy, but in no event shall a proxy, unless coupled with an
interest, be voted on after three (3) years from the date of its execution. A
proxy shall not be revoked by the death or incapacity of the maker unless,
before the vote is counted or the authority is exercised, written notice of
such death or incapacity is given to the Secretary or to such other officer or
agent of the Trust as the Secretary may direct.
SECTION 1.5 CLOSING OF TRANSFER BOOKS AND FIXING RECORD DATES. For the
purpose of determining the Shareholders who are entitled to notice of or to
vote or act at any meeting, including any adjournment thereof, or who are
entitled to participate in any dividend or distribution, or for any other
proper purpose, the Trustees may from time to time close the transfer books or
fix a record date in the manner provided in the Declaration. If the Trustees
do not, prior to any meeting of Shareholders, so fix a record date or close
the transfer books, then the record date shall be the close of business of the
day next preceding the date of mailing of notice of the meeting, or in the
case of a dividend or other distribution, the close of business on the day
upon which the dividend or distribution resolution is adopted, or on such
later day as the Trustees may determine.
SECTION 1.6 INSPECTORS OF ELECTION. In advance of any meeting of
Shareholders, the Trustees may appoint Inspectors of Election, who may but
need not be Shareholders, to act at such meeting or any adjournment thereof.
If Inspectors of Election are not so appointed, the chairman of any such
meeting may, and upon the request of any Shareholder or his proxy shall, make
such appointments at the meeting. The number of Inspectors shall be either one
(1) or three (3). If appointed at the meeting on the request of one or more
Shareholders or proxies, a majority of shares present shall determine whether
one or three Inspectors are to be appointed, but failure to allow such
determination by the Shareholders or proxies shall not affect the validity of
the appointment of Inspectors of Election. In case any person appointed as
Inspector fails to appear or fails or refuses to act, the vacancy must be
filled by appointment made by the Trustees in advance of the convening of the
meeting, or at the meeting by the person acting as chairman. The Inspectors of
Election shall determine the number of shares outstanding, the shares
represented at the meeting, the existence of a quorum, the authenticity,
validity and effect of proxies; shall receive votes, ballots or consents;
shall hear and determine all challenges and questions in any way arising in
connection with the right to vote; shall count and tabulate all votes or
consents, determine the results, and do such other acts as may be proper to
conduct the election or vote with impartiality and fairness to all
Shareholders. If there are three Inspectors of election, the decision, act or
certificate of a majority shall be effective in all respects as the decision,
act or certificate of all. On request of the chairman of the meeting, or of
any Shareholder or his proxy, the Inspectors of Election shall make a written
report of any challenge or question or matter determined by them and execute a
certificate of any fact found by them.
ARTICLE II
TRUSTEES
SECTION 2.1 REGULAR MEETINGS. Regular meetings of the Trustees may be held at
such time and place as the Trustees may by resolution from time to time
determine without call or notice. If any day fixed for a regular meeting shall
be a legal holiday in The Commonwealth of Massachusetts or the place
designated for regular meetings, then the meeting shall be held at the same
hour and place on the next succeeding business day.
SECTION 2.2 SPECIAL MEETINGS. Special Meetings of the Trustees shall be held
upon the call of the Chairman, the President, or the Secretary, or any two
Trustees, at such time, on such day, and at such place, as shall be designated
in the notice of the meeting.
SECTION 2.3 NOTICE OF SPECIAL MEETINGS. Notice of any special meeting,
specifying the place, day and hour of the meeting, shall be given to a Trustee
either personally or by sending a copy thereof through the mail, with first
class postage prepaid, or by telegram, charges prepaid, to his address
appearing on the books of the Trust or supplied by him to the Trust for the
purpose of notice, at least forty-eight (48) hours prior to the time named for
such meeting. If the notice is sent by mail or by telegraph, it shall be
deemed to have been given to the person entitled thereto when deposited in the
United States mail, postage prepaid, or with a telegraph office, charges
prepaid, for transmission to such person. Notice by telephone shall constitute
personal delivery for these purposes. Neither the business to be transacted
at, nor the purpose of, any meeting of the Board of Trustees need be stated in
the notice or waiver of notice of such meeting, and no notice need be given of
action proposed to be taken by unanimous consent.
SECTION 2.4 WAIVER OF NOTICE. Whenever any notice is required by the
Declaration or these By-laws to be given to a Trustee, a waiver thereof in
writing, whether signed by him before or after the meeting, shall be deemed
equivalent to the giving of due notice. Attendance of any Trustee at any
meeting shall constitute a waiver of notice of such meeting except where such
Trustee attends the meeting for the express purpose of objecting to the
transaction of any business because the meeting was not lawfully called or
convened.
SECTION 2.5 ADJOURNMENT. Adjournment or adjournments of any meeting may be
taken, and it shall not be necessary to give any notice of the adjourned
meeting or of the business to be transacted thereat other than by announcement
at the meeting at which such adjournment is taken. At any adjourned meeting at
which a quorum shall be present, any business may be transacted which might
have been transacted at the meeting originally called.
SECTION 2.6 EXECUTIVE COMMITTEE. Subject to the provisions of Section 3.4
hereof, the Trustees may, by resolution adopted by a majority thereof,
designate one or more of their number to constitute an Executive Committee,
and may designate one or more of their number as alternate members of the
Executive Committee, who may replace any absent or disqualified member at any
meeting of the Committee. The President shall be notified in advance of all
Executive Committee meetings, and whenever feasible or convenient for him, the
President shall attend meetings of the Executive Committee and serve ex
officio, as a non-voting advisory member. Any such Committee, to the extent
provided in such resolution and the Declaration, shall have and exercise the
authority of the Trustees in the management of the business and affairs of the
Trust and the management and disposition of Trust Property. Vacancies in the
membership of the Committee shall be filled by the Trustees. In the absence or
disqualification of any member of such Committee, the member or members
thereof present at any meeting and not disqualified from voting, whether or
not he or they constitute a quorum, may unanimously appoint another Trustee to
act at the meeting in the place of any such absent or disqualified member. The
Executive Committee shall keep regular minutes of its proceedings and report
the same to the Trustees.
SECTION 2.7 CHAIRMAN; RECORDS. The Chairman shall act as chairman at all
meetings of the Trustees; in his absence the Trustees present may elect one of
their number to act as temporary chairman. The results of all actions taken at
a meeting of the Trustees, or by written consents of the Trustees without a
meeting, shall be recorded by the Secretary.
SECTION 2.8 MEETING OF SHAREHOLDERS. Meetings of Shareholders shall be held
at such times and in such places as the Trustees shall, by resolution, direct.
ARTICLE III
OFFICERS, AGENTS AND EMPLOYEES
SECTION 3.1 OFFICERS OF THE TRUST. The officers of the Trust shall be a
Chairman chosen from among the Trustees and a President, a Secretary and a
Treasurer or persons who shall act as such regardless of the name or title by
which they may be designated, elected or appointed. One or more
Vice-Presidents, one or more Assistant Secretaries and Assistant Treasurers,
and such other officers or agents as the Trustees shall deem necessary or
appropriate to carry out the business of the Trust also may be elected or
appointed. Any two or more offices may be held by the same person, except
those of President and Secretary and provided that no officer shall execute,
acknowledge or verify any instrument in more than one capacity if such
instrument is required to be executed, acknowledged or verified by two or more
officers. In addition to the powers and duties prescribed by the Declaration
and these By-laws, the officers and assistant officers shall have such
authority and shall perform such duties as from time to time shall be
prescribed by the Trustees. The officers and assistant officers of the Trust
shall hold office until their successors are chosen and have qualified, unless
their term of office is sooner terminated, by death, resignation or removal.
The Trustees may amend the title of any officer or assistant officer or create
a new office, by utilizing a word or words descriptive of his powers or the
general character of his duties. If the office of any officer or assistant
officer becomes vacant for any reason, the vacancy may be filled by the
Trustees at any time.
SECTION 3.2 REMOVAL OF OFFICERS, AGENTS OR EMPLOYEES. Any officer, assistant
officer, agent or employee may be removed or have his authority revoked at any
time, with or without cause, by a majority of the Trustees, whenever in their
judgment the best interests of the Trust will be served thereby, but such
removal or revocation shall be without prejudice to the rights, if any, of the
person so removed to receive compensation or other benefits in accordance with
the terms of existing contracts. Any agent or employee likewise may be removed
by the President or, subject to the supervision of the President, by the
person having authority with respect to the appointment of such agent or
employee. Any officer may resign at any time by written notice signed by such
officer and delivered or mailed to the Chairman, President, or Secretary, and
such resignation shall take effect upon receipt by the Chairman, President, or
Secretary, or at a later date according to the terms of such notice.
SECTION 3.3 BONDS AND SURETY. Any officer may be required by the Trustees to
be bonded for the faithful performance of his duties in such amount and with
such sureties as the Trustees may determine.
SECTION 3.4 CHAIRMAN OF THE BOARD OF TRUSTEES; POWERS AND DUTIES. The
Chairman shall, if present, preside at all meetings of the Shareholders and of
the Trustees. He shall perform such other powers and duties as may from time
to time be assigned to him by the Trustees.
SECTION 3.5 THE PRESIDENT. Subject to such supervisory powers, if any, as may
be given by the Trustees, the President shall be the chief executive officer
of the Trust and, subject to the control of the Trustees, shall have general
supervision, direction and control of the business of the Trust and of its
employees and shall exercise such general powers of management as are usually
vested in the office of president of a Massachusetts business corporation. In
the absence of the Chairman, the President shall preside at all meetings of
the Shareholders and of the Trustees. Subject to direction of the Trustees,
the President shall have power in the name and on behalf of the Trust to
execute any and all loan documents, contracts, agreements, deeds, mortgages,
and other instruments in writing, and to employ and discharge employees and
agents of the Trust. Unless otherwise directed by the Trustees, the President
shall have full authority and power, on behalf of all of the Trustees, to
attend and to act and to vote, on behalf of the Trust at any meetings of
business organizations in which the Trust holds an interest, or to confer such
powers upon any other persons, by executing any proxies duly authorizing such
persons. The President shall have such further authorities and duties as the
Trustees shall from time to time determine and shall be an ex officio member
of the Executive Committee and of all standing committees (if any) appointed
by the Trustees.
SECTION 3.6 VICE-PRESIDENT: POWERS AND DUTIES. The Vice-President, if any,
shall, in the absence or disability of the President, perform all the duties
of the President, and when so acting shall have all the powers and be subject
to all of the restrictions upon the President. If there be more than one
Vice-President, their seniority in performing such duties and exercising such
powers shall be in order of their rank as fixed by the Trustees, or, if more
than one and not ranked, then by determination of the Trustees, or, in the
absence of such determination, by the order in which they were first elected.
Subject to the direction of the Trustees, and the President, each
Vice-President shall have the power in the name and on behalf of the Trust to
execute any and all loan documents, contracts, agreements, deeds, mortgages
and other instruments in writing, and, in addition, shall have such other
duties and powers as shall be designated from time to time by the Trustees or
the President and as by general usage appertain to the office.
SECTION 3.7 SECRETARY: POWERS AND DUTIES. The Secretary shall keep the
minutes of all meetings of, and record all votes of, Shareholders, Trustees
and the executive or other committees, if any. He shall give, or cause to be
given, as required by the Declaration or these By-laws, notice of meetings of
the Shareholders and of the Trustees, and shall perform such other duties as
may be prescribed by the Trustees, or the President. The Secretary shall also
perform any other duties commonly incident to such office in a Massachusetts
business corporation, and shall have such other authorities and duties as the
Trustees or the President shall from time to time determine.
SECTION 3.8 TREASURER; POWERS AND DUTIES. Except as otherwise directed by the
Trustees, the Treasurer shall have the general supervision of the monies,
funds, securities, notes receivable and other valuable papers and documents of
the Trust, and shall have and exercise under the supervision of the Trustees
and President all powers and duties normally incident to his office. He may
endorse for deposit or collection all notes, checks and other instruments
payable to the Trust or to its order. He shall deposit all funds of the Trust
in such depositories as the Trustees shall designate. He shall be responsible
for such disbursement of the funds of the Trust as may be ordered by the
Trustees, or the President. He shall keep accurate account of the books of the
Trust's transactions which shall be the property of the Trust, and which,
together with all other property of the Trust in his possession, shall be
subject at all times to the inspection and control of the Trustees. Unless the
Trustees shall otherwise determine, the Treasurer shall be the principal
financial and accounting officer of the Trust. He shall have such other duties
and authorities as the Trustees or the President shall from time to time
determine. Notwithstanding anything to the contrary herein contained, the
Trustees may authorize the Investment Adviser, the Custodian, or the Transfer
Agent to maintain bank accounts and deposit and disburse funds of the Trust on
behalf of the Trust.
SECTION 3.9 DELEGATION OF OFFICERS' DUTIES. The Trustees may appoint such
other officers and assistant officers as they shall from time to time
determine to be necessary or desirable in order to conduct the business of the
Trust. Assistant officers shall act generally in the absence of the officer
whom they assist, shall assist that officer in the duties of his office and
shall have such other duties and authority as may be conferred upon them by
the Trustees or delegated to them by the President. In case of the absence or
disability of any officer or assistant officer of the Trust or for any other
reason that the Trustees may deem sufficient, the Trustees may delegate or
authorize the delegation of his powers or duties, for the time being, to any
person.
ARTICLE IV
SHARES
SECTION 4.1 EVIDENCE OF SHARE OWNERSHIP. Certificates representing the
Trust's shares shall not be physically issued. Shares in the Trust shall be
recorded on a register maintained for the Trust by the Transfer Agent
appointed by the Trustees. The holders of shares so maintained shall have the
same rights of ownership with respect to such shares as if certificates had
been issued. The Trustees shall, from time to time, by appropriate resolution,
establish such rules for authentication of Shareholders for purposes of
purchase and redemption as they shall deem necessary.
ARTICLE V
MISCELLANEOUS
SECTION 5.1 DEPOSITORIES. The funds of the Trust shall be deposited in such
depositories as the Trustees shall designate in accordance with the provisions
of the Declaration, and shall be drawn out on checks, drafts or other orders
signed by such officer, officers, agent or agents (including the Adviser), as
the Trustees may from time to time authorize.
SECTION 5.2 SIGNATURES. All contracts and other instruments shall be executed
on behalf of the Trust by such officer, officers, agent or agents, as provided
in the Declaration or these By-laws or as the Trustees may from time to time
by resolution provide.
ARTICLE VI
AMENDMENT OF BY-LAWS
SECTION 6.1 AMENDMENT AND REPEAL OF BY-LAWS. In accordance with the
Declaration, the Trustees have the power to alter, amend or repeal the by-laws
or adopt new by-laws at any time. Action by the Trustees with respect to the
By-laws shall be taken by an affirmative vote of a majority of the Trustees.
The Trustees shall in no event adopt By-laws which are in conflict with the
Declaration, and any apparent inconsistency shall be construed in favor of the
related provisions in the Declaration.
* * * * *
The Declaration of Trust establishing Equi-Select Series Trust, dated May 11,
1994, a copy of which, together with all amendments thereto (the
"Declaration"), is on file in the office of the Secretary of The Commonwealth
of Massachusetts, provides that the name "Equi-Select Series Trust" refers to
the Trustees under the Declaration collectively as Trustees, but not as
individuals or personally; and no Trustee, shareholder, officer, employee or
agent of Equi-Select Series Trust shall be held to any personal liability, nor
shall resort be had to their private property for the satisfaction of any
obligation or claim or otherwise in connection with the affairs of said
Equi-Select Series Trust but the Trust Property only shall be liable.
INVESTMENT ADVISORY AGREEMENT
AGREEMENT, made as of the 1st day of October, 1994 between Equi-Select Series
Trust, an unincorporated business trust organized under the laws of the
Commonwealth of Massachusetts (the "Trust"), and Equitable Investment
Services, Inc., an Iowa corporation (the "Adviser").
W I T N E S S E T H :
WHEREAS, the Trust is engaged in business as an open-end management investment
company and is registered as such under the Investment Company Act of 1940, as
amended (the "Act");
WHEREAS, the Trust is authorized to issue separate series, each of which
offers a separate class of shares of common stock, each having its own
investment objective or objectives, policies and limitations;
WHEREAS, the Trust currently offers shares in ten series, designated as the
Advantage Portfolio, OTC Portfolio, Government Securities Portfolio,
International Fixed Income Portfolio, International Stock Portfolio, Money
Market Portfolio, Mortgage-Backed Securities Portfolio, Research Portfolio,
Short-Term Bond Portfolio and Total Return Portfolio ("Current Series"), and
the Trust may offer shares of one or more additional series in the future;
WHEREAS, the Adviser is registered as an investment adviser under the
Investment Advisers Act of 1940; and
WHEREAS, the Trust desires to retain the Adviser to render investment
management and administrative services to the Trust with respect to each
Current Series as indicated on the signature page in the manner and on the
terms and conditions hereinafter set forth;
NOW, THEREFORE, the parties hereto agree as follows:
1. SERVICES OF THE ADVISER.
1.1 INVESTMENT MANAGEMENT SERVICES. The Adviser shall act as the
investment adviser to the Trust and, as such, shall (i) obtain and evaluate
such information relating to the economy, industries, business, securities
markets and securities as it may deem necessary or useful in discharging its
responsibilities hereunder, (ii) formulate a continuing program for the
investment of the assets of the Trust in a manner consistent with its
investment objectives, policies and restrictions, and (iii) determine from
time to time securities to be purchased, sold, retained or lent by the Trust,
and implement those decisions, including the selection of entities with or
through which such purchases, sales or loans are to be effected; provided,
that the Adviser will place orders pursuant to its investment determinations
either directly with the issuer or with a broker or dealer, and if with a
broker or dealer, (a) will attempt to obtain the best net price and most
favorable execution of its orders, and (b) may nevertheless in its discretion
purchase and sell portfolio securities from and to brokers and dealers who
provide the Adviser with research, analysis, advice and similar services and
pay such brokers and dealers in return a higher commission or spread than may
be charged by other brokers or dealers.
The Trust hereby authorizes any entity or person associated with the Adviser
or any Sub-Adviser retained by Adviser pursuant to Section 7 of this
Agreement, which is a member of a national securities exchange, to effect any
transaction on the exchange for the account of the Trust which is permitted by
Section 11(a) of the Securities Exchange Act of 1934 and Rule 11a2-2(T)
thereunder, and the Trust hereby consents to the retention of compensation for
such transactions in accordance with Rule 11a2-2(T)(a)(iv).
The Adviser shall carry out its duties with respect to the Trust's investments
in accordance with applicable law and the investment objectives, policies and
restrictions set forth in the Trust's then-current Prospectus and Statement of
Additional Information, and subject to such further limitations as the Trust
may from time to time impose by written notice to the Adviser.
1.2 ADMINISTRATIVE SERVICES. The Adviser shall manage the Trust's
business and affairs and shall provide such services required for effective
administration of the Trust as are not provided by employees or other agents
engaged by the Trust; provided, that the Adviser shall not have any obligation
to provide under this Agreement any direct or indirect services to Trust
shareholders, any services related to the distribution of Trust shares, or any
other services which are the subject of a separate agreement or arrangement
between the Trust and the Adviser. Subject to the foregoing, in providing
administrative services hereunder, the Adviser shall:
1.2.1 OFFICE SPACE, EQUIPMENT AND FACILITIES. Furnish without cost to
the Trust, or pay the cost of, such office space, office equipment and office
facilities as are adequate for the Trust's needs.
1.2.2 PERSONNEL. Provide, without remuneration from or other cost to
the Trust, the services of individuals competent to perform all of the Trust's
executive, administrative and clerical functions which are not performed by
employees or other agents engaged by the Trust or by the Adviser acting in
some other capacity pursuant to a separate agreement or arrangement with the
Trust.
1.2.3 AGENTS. Assist the Trust in selecting and coordinating the
activities of the other agents engaged by the Trust, including the Trust's
shareholder servicing agent, custodian, independent auditors and legal
counsel.
1.2.4 TRUSTEES AND OFFICERS. Authorize and permit the Advisers,
directors, officers and employees who may be elected or appointed as Trustees
or officers of the Trust to serve in such capacities, without remuneration
from or other cost to the Trust.
1.2.5 BOOKS AND RECORDS. Assure that all financial, accounting and
other records required to be maintained and preserved by the Trust are
maintained and preserved by it or on its behalf in accordance with applicable
laws and regulations.
1.2.6 REPORTS AND FILINGS. Assist in the preparation of (but not pay
for) all periodic reports by the Trust to its shareholders and all reports and
filings required to maintain the registration and qualification of the Trust
and Trust shares, or to meet other regulatory or tax requirements applicable
to the Trust, under federal and state securities and tax laws.
1.3 ADDITIONAL SERIES. In the event that the Trust from time to time
designates one or more series in addition to the Current Series ("Additional
Series"), it shall notify the Adviser in writing. If the Adviser is willing to
perform services hereunder to the Additional Series, it shall so notify the
Trust in writing. Thereupon, the Trust and the Adviser shall enter into an
Addendum to this Agreement for the Additional Series and the Additional Series
shall be subject to this Agreement.
2. EXPENSES OF THE TRUST.
2.1 EXPENSES TO BE PAID BY ADVISER. The Adviser shall pay all salaries,
expenses and fees of the officers, Trustees and employees of the Trust who are
officers, directors or employees of the Adviser.
In the event that the Adviser pays or assumes any expenses of the Trust not
required to be paid or assumed by the Adviser under this Agreement, the
Adviser shall not be obligated hereby to pay or assume the same or any similar
expense in the future; provided, that nothing herein contained shall be deemed
to relieve the Adviser of any obligation to the Trust under any separate
agreement or arrangement between the parties.
2.2 EXPENSES TO BE PAID BY THE TRUST. The Trust shall bear all expenses
of its operation, except those specifically allocated to the Adviser under
this Agreement or under any separate agreement between the Trust and the
Adviser. Subject to any separate agreement or arrangement between the Trust
and the Adviser, the expenses hereby allocated to the Trust, and not to the
Adviser, include, but are not limited to:
2.2.1 CUSTODY. All charges of depositories, custodians, and other
agents for the transfer, receipt, safekeeping, and servicing of its cash,
securities, and other property.
2.2.2 SHAREHOLDER SERVICING. All expenses of maintaining and servicing
shareholder accounts, including but not limited to the charges of any
shareholder servicing agent, dividend disbursing agent or other agent engaged
by the Trust to service shareholder accounts.
2.2.3 SHAREHOLDER REPORTS. All expenses of preparing, setting in type,
printing and distributing reports and other communications to shareholders.
2.2.4 PROSPECTUSES. All expenses of preparing, setting in type,
printing and mailing annual or more frequent revisions of the Trust's
Prospectus and Statement of Additional Information and any supplements thereto
and of supplying them to shareholders.
2.2.5 PRICING AND PORTFOLIO VALUATION. All expenses of computing the
Trust's net asset value per share, including any equipment or services
obtained for the purpose of pricing shares or valuing the Trust's investment
portfolio.
2.2.6 COMMUNICATIONS. All charges for equipment or services used for
communications between the Adviser or the Trust and any custodian, shareholder
servicing agent, portfolio accounting services agent, or other agent engaged
by the Trust.
2.2.7 LEGAL AND ACCOUNTING FEES. All charges for services and expenses
of the Trust's legal counsel and independent auditors.
2.2.8 TRUSTEES' FEES AND EXPENSES. All compensation of Trustees other
than those affiliated with the Adviser, all expenses incurred in connection
with such unaffiliated Trustees' services as Trustees, and all other expenses
of meetings of the Trustees and committees of the Trustees.
2.2.9 SHAREHOLDER MEETINGS. All expenses incidental to holding meetings
of shareholders, including the printing of notices and proxy materials, and
proxy solicitation therefor.
2.2.10 FEDERAL REGISTRATION FEES. All fees and expenses of registering
and maintaining the registration of the Trust under the Act and the
registration of the Trust's shares under the Securities Act of 1933 (the "1933
Act"), including all fees and expenses incurred in connection with the
preparation, setting in type, printing, and filing of any Registration
Statement, Prospectus and Statement of Additional Information under the 1933
Act or the Act, and any amendments or supplements that may be made from time
to time.
2.2.11 STATE REGISTRATION FEES. All fees and expenses of qualifying and
maintaining the qualification of the Trust and of the Trust's shares for sale
under securities laws of various states or jurisdictions, and of registration
and qualification of the Trust under all other laws applicable to the Trust or
its business activities (including registering the Trust as a broker-dealer,
or any officer of the Trust or any person as agent or salesman of the Trust in
any state).
2.2.12 SHARE CERTIFICATES. All expenses of preparing and transmitting
the Trust's share certificates.
2.2.13 CONFIRMATIONS. All expenses incurred in connection with the
issue and transfer of Trust shares, including the expenses of confirming all
share transactions.
2.2.14 BONDING AND INSURANCE. All expenses of bond, liability, and
other insurance coverage required by law or regulation or deemed advisable by
the Trustees of the Trust, including, without limitation, such bond, liability
and other insurance expenses that may from time to time be allocated to the
Trust in a manner approved by its Trustees.
2.2.15 BROKERAGE COMMISSIONS. All brokers' commissions and other
charges incident to the purchase, sale or lending of the Trust's portfolio
securities.
2.2.16 TAXES. All taxes or governmental fees payable by or with respect
to the Trust to federal, state or other governmental agencies, domestic or
foreign, including stamp or other transfer taxes.
2.2.17 TRADE ASSOCIATION FEES. All fees, dues and other expenses
incurred in connection with the Trust's membership in any trade association or
other investment organization.
2.2.18 NONRECURRING AND EXTRAORDINARY EXPENSES. Such nonrecurring and
extraordinary expenses as may arise including the costs of actions, suits, or
proceedings to which the Trust is a party and the expenses the Trust may incur
as a result of its legal obligation to provide indemnification to its
officers, Trustees and agents.
3. ADVISORY FEE.
3.1 FEE. As compensation for all services rendered facilities provided
and expenses paid or assumed by the Adviser under this Agreement, the Trust
shall pay the Adviser on the last day of each month, or as promptly as
possible thereafter, a fee calculated at the annual rate of the average daily
net assets during such month of each series of the Trust as set forth below:
3.1.1 ADVANTAGE PORTFOLIO. 0.50% of the first $100 million of average
net assets and 0.35% of average net assets over and above $100 million.
3.1.2 OTC PORTFOLIO. 0.80% of the first $300 million of average net
assets and 0.55% of average net assets over and above $300 million.
3.1.3 GOVERNMENT SECURITIES PORTFOLIO. 0.75% of the first $200 million
of average net assets, 0.55% of average net assets over and above $200
million.
3.1.4 INTERNATIONAL FIXED INCOME PORTFOLIO. 0.85% of the first $200
million of average net assets, 0.75% of next $300 million, 0.60% of average
net asset of next $500 million, 0.55% of average net assets of next $1 billion
and 0.40% of average net assets over and above $2 billion.
3.1.5 INTERNATIONAL STOCK PORTFOLIO. 0.80 % of the first $300 million
of average net assets and 0.55% of average net assets over and above $300
million.
3.1.6 MONEY MARKET PORTFOLIO. 0.375% of the first $50 million of
average net assets and 0.35 % of average net assets over and above $50
million.
3.1.7 MORTGAGE-BACKED SECURITIES PORTFOLIO. 0.75% of the first $200
million of average net assets, 0.65% of average net assets of next $300
million, 0.55% of average net assets of next $500 million, 0.50% of average
net assets of next $1 billion and 0.40% of average net assets over and above
$2 billion.
3.1.8 RESEARCH PORTFOLIO. 0.80% of the first $300 million of average
net assets and 0.55% of average net assets over and above $300 million.
3.1.9 SHORT-TERM BOND PORTFOLIO. 0.65% of the first $100 million of
average net assets, 0.50% of average net assets of next $100 million, 0.45% of
average net assets of next $300 million and 0.40% of average net assets over
and above $500 million.
3.1.10 TOTAL RETURN PORTFOLIO. 0.80% of the first $300 million of
average net assets and 0.55% of average net assets over and above $300
million.
4. RECORDS.
4.1 TAX TREATMENT. The Adviser shall maintain the books and records of
the Trust in such a manner that treats each series as a separate entity for
federal income tax purposes.
4.2 OWNERSHIP. All records required to be maintained and preserved by
the Trust pursuant to the provisions or rules or regulations of the Securities
and Exchange Commission under Section 31(a) of the Act and maintained and
preserved by the Adviser on behalf of the Trust are the property of the Trust
and shall be surrendered by the Adviser promptly on request by the Trust;
provided, that the Adviser may at its own expense make and retain copies of
any such records.
5. REPORTS TO ADVISER.
The Trust shall furnish or otherwise make available to the Adviser such copies
of the Trust's Prospectus, Statement of Additional Information, financial
statements, proxy statements, reports, and other information relating to its
business and affairs as the Adviser may, at any time or from time to time,
reasonably require in order to discharge its obligations under this Agreement.
6. REPORTS TO THE TRUST.
The Adviser shall prepare and furnish to the Trust such reports, statistical
data and other information in such form and at such intervals as the Trust may
reasonably request.
7. RETENTION OF SUB-ADVISER.
Subject to the Trust's obtaining the initial and periodic approvals required
under Section 15 of the Act, the Adviser may retain one or more sub-advisers,
at the Adviser's own cost and expense, for the purpose of managing the
investments of the assets of one or more Series of the Trust. Retention of
one or more sub-advisers shall in no way reduce the responsibilities or
obligations of the Adviser under this Agreement and the Adviser shall be
responsible to the Trust for all acts or omissions of any sub-adviser in
connection with the performance of the Adviser's duties hereunder.
8. SERVICES TO OTHER CLIENTS.
Nothing herein contained shall limit the freedom of the Adviser or any
affiliated person of the Adviser to render investment management and
administrative services to other investment companies, to act as investment
adviser or investment counselor to other persons, firms or corporations, or to
engage in other business activities.
9. LIMITATION OF LIABILITY OF ADVISER AND ITS PERSONNEL.
Neither the Adviser nor any director, officer or employee of the Adviser
performing services for the Trust at the direction or request of the Adviser
in connection with the Adviser's discharge of its obligations hereunder shall
be liable for any error of judgment or mistake of law or for any loss suffered
by the Trust in connection with any matter to which this Agreement relates,
and the Adviser shall not be responsible for any action of the Trustees of the
Trust in following or declining to follow any advice or recommendation of the
Adviser; provided, that nothing herein contained shall be construed (i) to
protect the Adviser against any liability to the Trust or its shareholders to
which the Adviser would otherwise be subject by reason of willful misfeasance,
bad faith, or gross negligence in the performance of the Adviser's duties, or
by reason of the Adviser's reckless disregard of its obligations and duties
under this Agreement, or (ii) to protect any director, officer or employee of
the Adviser who is or was a Trustee or officer of the Trust against any
liability of the Trust or its shareholders to which such person would
otherwise be subject by reason of willful misfeasance, bad faith, gross
negligence or reckless disregard of the duties involved in the conduct of such
person's office with the Trust.
10. NO PERSONAL LIABILITY OF TRUSTEES OR SHAREHOLDERS.
This Agreement is made by the Trust on behalf of its various Current Series
pursuant to authority granted by the Trustees, and the obligations created
hereby are not binding on any of the Trustees or shareholders of the Trust
individually, but bind only the property of each Current Series of the Trust.
11. EFFECT OF AGREEMENT.
Nothing herein contained shall be deemed to require the Trust to take any
action contrary to its Declaration of Trust or its By-Laws or any applicable
law, regulation or order to which it is subject or by which it is bound, or to
relieve or deprive the Trustees of the Trust of their responsibility for and
control of the conduct of the business and affairs of the Trust.
12. TERM OF AGREEMENT.
The term of this Agreement shall begin on the date first above written, and
unless sooner terminated as hereinafter provided, this Agreement shall remain
in effect through October 1, 1996. Thereafter, this Agreement shall continue
in effect with respect to the Trust from year to year, subject to the
termination provisions and all other terms and conditions hereof; provided,
such continuance with respect to the Trust is approved at least annually by
vote of the holders of a majority of the outstanding voting securities of the
Trust or by the Trustees of the Trust; provided, that in either event such
continuance is also approved annually by the vote, cast in person at a meeting
called for the purpose of voting on such approval, of a majority of the
Trustees of the Trust who are not parties to this Agreement or interested
persons of either party hereto; and provided further that the Adviser shall
not have notified the Trust in writing at least sixty (60) days prior to
October 1, 1996, or at least sixty (60) days prior to October 1 of any year
thereafter that it does not desire such continuation. The Adviser shall
furnish to the Trust, promptly upon its request, such information as may
reasonably be necessary to evaluate the terms of this Agreement or any
extension, renewal or amendment thereof.
13. AMENDMENT OR ASSIGNMENT OF AGREEMENT.
Any amendment to this Agreement shall be in writing signed by the parties
hereto; provided, that no such amendment shall be effective unless authorized
on behalf of the Trust (i) by resolution of the Trust's Trustees, including
the vote or written consent of a majority of the Trust's Trustees who are not
parties to this Agreement or interested persons of either party hereto, and
(ii) by vote of a majority of the outstanding voting securities of the Trust.
This Agreement shall terminate automatically and immediately in the event of
its assignment.
14. TERMINATION OF AGREEMENT.
This Agreement may be terminated at any time by either party hereto, without
the payment of any penalty, upon sixty (60) days' prior written notice to the
other party; provided, that in the case of termination by the Trust, such
action shall have been authorized (i) by resolution of the Trust's Board of
Trustees, including the vote or written consent of Trustees of the Trust who
are not parties to this Agreement or interested persons of either party
hereto, or (ii) by vote of a majority of the outstanding voting securities of
the Trust.
15. INTERPRETATION AND DEFINITION OF TERMS.
Any question of interpretation of any term or provision of this Agreement
having a counterpart in or otherwise derived from a term or provision of the
Act shall be resolved by reference to such term or provision of the Act and to
interpretation thereof, if any, by the United States courts, or, in the
absence of any controlling decision of any such court, by rules, regulations
or orders of the Securities and Exchange Commission validly issued pursuant to
the Act. Specifically, the terms "vote of a majority of the outstanding
voting securities," "interested persons," "assignment" and "affiliated
person," as used in this Agreement shall have the meanings assigned to them by
Section 2(a) of the Act. In addition, when the effect of a requirement of the
Act reflected in any provision of this Agreement is modified, interpreted or
relaxed by a rule, regulation or order of the Securities and Exchange
Commission, whether of special or of general application, such provision shall
be deemed to incorporate the effect of such rule, regulation or order.
16. CAPTIONS.
The captions in this Agreement are included for convenience of reference only
and in no way define or delineate any of the provisions hereof or otherwise
affect their construction or effect.
17. EXECUTION IN COUNTERPARTS.
This Agreement may be executed simultaneously in counterparts, each of which
shall be deemed an original, but all of which together shall constitute one
and the same instrument.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be signed
by their respective officers thereunto duly authorized and their respective
seals to be hereunto affixed, as of the date and year first above written.
<TABLE>
<CAPTION>
<S> <C>
EQUI-SELECT SERIES TRUST for its
Advantage Portfolio, OTC Portfolio,
Government Securities Portfolio,
International Fixed Income Portfolio,
International Stock Portfolio, Money
Market Portfolio, Mortgage-Backed
Securities Portfolio, Research
Portfolio, Short-Term Bond Portfolio and
Total Return Portfolio
Attest:
/s/ John A. Merriman By:/s/ Paul R. Schlaack
- -------------------- ----------------------------------------
Secretary Paul R. Schlaack,
President
EQUITABLE INVESTMENT SERVICES, INC.
Attest:
/s/ Diane M. Kurt By:/s/ Paul R. Schlaack
- -------------------- ----------------------------------------
Secretary Paul R. Schlaack,
President
</TABLE>
ADDENDUM TO INVESTMENT ADVISORY AGREEMENT
EQUI-SELECT SERIES TRUST
AND
EQUITABLE INVESTMENT SERVICES, INC.
The Investment Advisory Agreement ("Agreement") between Equi-Select Series
Trust (the "Trust") and Equitable Investment Services, Inc. (the "Adviser")
dated October 1, 1994, is hereby amended to add two Additional Series to the
Trust in accordance with Section 1.3 of the Agreement. The two Additional
Series being added pursuant to this Addendum are Growth & Income Portfolio and
the Value + Growth Portfolio. The fees to be paid to the Adviser, with
respect to each Additional Series, are as follows:
Growth & Income Portfolio: 0.95% of the first $200 million average net
assets; and
0.75% of average net assets over and above
$200 million.
Value + Growth Portfolio: 0.95% of the first $500 million average net
assets; and
0.75% of average net assets over and above
$500 million.
IN WITNESS WHEREOF, the parties hereto have caused this Addendum to be signed
by their respective officers thereunto duly authorized as of this 1st day of
April, 1996.
<TABLE>
<CAPTION>
<S> <C>
EQUI-SELECT SERIES TRUST
for its Growth & Income Portfolio and
Value + Growth Portfolio
Attest:
/s/ John A. Merriman By:/s/ Paul R. Schlaack
- -------------------------------- -------------------------------------
John A. Merriman, Secretary Paul R. Schlaack, President
EQUITABLE INVESTMENT SERVICES, INC.
/s/ Kimberly K. Krumviede By:/s/ Paul R. Schlaack
- -------------------------------- -------------------------------------
Kimberly K. Krumviede, Secretary Paul R. Schlaack, President
</TABLE>
SUBADVISORY AGREEMENT
This Subadvisory Agreement is made and entered into on this 24th day of July,
1994, by and between Strong/Corneliuson Capital Management, Inc., a Wisconsin
corporation (the "Subadviser"), and Equitable Investment Services, Inc., an
Iowa corporation (the "Adviser").
WITNESSETH:
WHEREAS, the Adviser is engaged in the investment of the Equi-Select Series
Trust's (the "Trust") assets in accordance with the Trust's Prospectus and
Statement of Additional Information (collectively the "Prospectus"); and
WHEREAS, the Adviser may delegate its responsibilities for the management of
the investment of the assets of one or more portfolios of the Trust to one or
more subadvisers; and
WHEREAS, Adviser desires to so delegate responsibility for management of the
investments of one or more portfolios to Subadviser, and Subadviser agrees to
manage the investment of one or more portfolios in accordance with this
Subadvisory Agreement and the Prospectus;
NOW, THEREFORE, in consideration of the premises and mutual promises
hereinafter set forth, the parties hereto agree as follows:
1. The Adviser hereby retains the Subadviser to act as the investment
advisor for and to manage certain portfolios as identified in "Schedule A",
which is attached hereto and by this reference is incorporated herein, (singly
or collectively the "Portfolio"). Subadviser hereby accepts such appointment
and agrees to render the services herein set forth, for the compensation
herein provided.
2. Subject to the supervision of the Trustees of the Trust and the Adviser,
Subadviser will manage the securities and investments (including cash) of the
Portfolio, including the purchase, retention and disposition thereof, and the
execution of agreements relating thereto in accordance with the Portfolio's
and Trust's investment objectives, policies and restrictions as those are
stated in the Prospectus and further subject to the following understandings:
(a) The Subadviser shall furnish a continuous investment program for the
Portfolio and in so doing shall determine from time to time what investments
or securities will be purchased, retained or sold by the Portfolio
("Investments"), and what portion of the assets will be invested or held
uninvested as cash;
(b) The Subadviser shall use its best judgment in the performance of its
duties under this Agreement;
(c) The Subadviser in the performance of its duties and obligations
under this Agreement shall act in conformity with the Declaration of Trust,
Bylaws and the Prospectus of the Trust, and with the instructions and
directions of the Trustees of the Trust and the Adviser, and will conform to
and comply with the requirements of the Investment Company Act of 1940 (the
"1940 Act") applicable to Subadviser's express duties hereunder, and all other
federal and state laws and regulations applicable to Subadviser's express
duties hereunder;
(d) The Subadviser shall determine the Investments to be purchased or
sold by the Portfolio and, as agent for the Portfolio, and is hereby
authorized to purchase, hold, sell and effect transactions for the Portfolio
pursuant to its determinations either directly with an issuer or with any
broker and/or dealer in such securities;
(e) The Subadviser will maintain all books and records required to be
maintained pursuant to the 1940 Act and the rules and regulations promulgated
thereunder with respect to transactions made by it on behalf of the Portfolio
including, without limitation, the books and records required by Subsections
(b)(1), (5), (6), (7), (9), (10) and (11) and Subsection (f) of Rule 31a-1
under the 1940 Act and shall timely furnish to the Adviser all information
relating to the Subadviser's services hereunder needed by the Adviser to keep
such other books and records of the Portfolio required by Rule 31a-1 under the
1940 Act. The Subadviser will also preserve all such books and records for
the periods prescribed in Rule 31a-2 under the 1940 Act, and agrees that such
books and records shall remain the sole property of the Trust and shall be
immediately surrendered to the Trust upon request. The Subadviser further
agrees that all books and records maintained hereunder shall be made available
to the Trust or the Adviser at any time upon request, including telecopy
without unreasonable delay, during any business day. From time to time as the
Adviser or the Trustees of the Trust may reasonably request, the Subadviser
will furnish the requesting party reports on Portfolio transactions and
reports on Investments held in the Portfolio, all in such detail as the
Adviser or Trustees of the Trust may reasonably request;
(f) The Subadviser shall provide the Trust's custodian with all
requested information relating to all transactions concerning the assets of
the Portfolio as the custodian may reasonably request;
(g) The investment advisory services of Subadviser to the Portfolio
under this Subadvisory Agreement are not exclusive, and the Subadviser shall
be free to render similar service to others;
(h) The Subadviser shall provide marketing support to the Adviser in
connection with the sale of Trust shares for the Portfolio and/or Equitable
Life Insurance Company of Iowa variable insurance contracts, as reasonably
requested by the Adviser. Such support shall include, but not necessarily be
limited to, presentations by representatives of the Subadviser at investment
seminars, conferences and other industry meetings as may be mutually agreed
upon between Adviser and Subadviser. Notwithstanding the foregoing, nothing
contained in this Agreement shall obligate the Subadviser to provide any
funding or financial support for the purpose of directly or indirectly
promoting investments in the Trust. Any materials utilized by the Adviser
which contain any information relating to the Subadviser shall be submitted to
the Subadviser for approval prior to use, not less than five (5) business days
before such approval is needed by the Adviser. Any materials utilized by the
Subadviser which contain any information relating to the Adviser, Equitable
Life Insurance Company of Iowa (including any information relating to its
separate accounts or variable annuity contracts) or the Trust shall be
submitted to the Adviser for approval prior to use, not less than five (5)
business days before such approval is needed by the Subadviser;
(i) The Subadviser is authorized, subject to the supervision of the
Adviser and the Trustees of the Trust, to place orders for the purchase and
sale of the Portfolio's Investments with or through such persons, brokers or
dealers, including the Subadviser or affiliates thereof, and to negotiate
commissions to be paid on such transactions in accordance with the Portfolio's
policy with respect to brokerage as set forth in the Prospectus. The
Subadviser may, on behalf of the Portfolio, pay brokerage commissions to a
broker which provides brokerage and research services to the Subadviser in
excess of the amount another broker would have charged for effecting the
transaction, provided (i) the Subadviser determines in good faith that the
amount is reasonable in relation to the value of the brokerage and research
services provided by the executing broker in terms of the particular
transaction or in terms of the Subadviser's overall responsibilities with
respect to the Portfolio and the accounts as to which the Subadviser exercises
investment discretion, (ii) such payment is made in compliance with Section
28(e) of the Securities Exchange Act of 1934, as amended, and any other
applicable laws and regulations, and (iii) in the opinion of the Subadviser,
the total commissions paid by the Portfolio will be reasonable in relation to
the benefits to the Portfolio over the long term. It is recognized that the
services provided by such brokers may be useful to the Subadviser in
connection with the Subadviser's service to other clients. On occasions when
the Subadviser deems the purchase or sale of a security to be in the best
interests of the Portfolio as well as other clients of the Subadviser, the
Subadviser, to the extent permitted by applicable laws and regulations, may,
but shall be under no obligation to, aggregate the securities to be sold or
purchased in order to obtain the most favorable price or lower brokerage
commissions and efficient execution. In such event, allocation of securities
so sold or purchased, as well as the expenses incurred in the transaction,
will be made by the Subadviser in the manner the Subadviser considers to be
the most equitable and consistent with its fiduciary obligations to the
Portfolio and to such other clients;
(j) The Adviser hereby agrees to provide to the Subadviser any
amendments, supplements or other changes to the Trust's Declaration of Trust,
By-Laws, currently effective registration statement under the Investment
Company Act, including any amendments or supplements thereto, and Notice of
Eligibility under Rule 4.5 of the Commodity Exchange Act, if applicable,
(collectively, "Governing Instruments and Regulatory Filings") as soon as
practicable after such materials become available and, upon receipt by the
Subadviser, the Subadviser will act in accordance with such amended,
supplemented or otherwise changed Governing Instruments and Regulatory
Filings;
(k) Except for the restrictions necessary to comply with Section 817(h)
of the Internal Revenue Code of 1986, as amended and Treasury Regulations
Section 1.817-5 (the "Tax Restrictions"), Adviser represents and warrants that
the investment objective of each Portfolio is identical to, and that
investment policies, restrictions and limitations of each Portfolio are no
more restrictive or limiting than, those contained in the current prospectus
and statement of additional information of the Corresponding Strong Fund
identified opposite each Portfolio on Schedule A hereto. Except to the extent
of the Tax Restrictions, and to the extent that the parties hereto may
otherwise agree in writing, Adviser shall cause the Trust to file such
amendments, supplements and stickers to the Prospectus as are necessary to
ensure that the investment policies, restrictions and limitations applicable
to each Portfolio are at all times no more restrictive than those contained in
the prospectus and statement of additional information, as the same may be
amended or supplemented from time to time, of the Corresponding Strong Fund.
Adviser shall not permit the investment objective of any Portfolio to change
without the prior written consent of the Subadviser unless such change is in
response to a change made to the Corresponding Strong Fund and then, only to
the extent necessary to make the investment objective of the Portfolio
identical to that of the Corresponding Strong Fund;
(l) The Subadviser shall direct the Trust's Custodian as to how to vote
such proxies as may be necessary or advisable in connection with any matters
submitted to a vote of shareholders of securities held by the Portfolio.
3. The Subadviser agrees that all records which it maintains for the
Portfolio pursuant to 2(e) are the property of the Trust and will promptly
surrender any of such records to Adviser upon the Trustees' or Adviser's
request. The Subadviser shall preserve for periods prescribed by Rule 31a-2
of the 1940 Act any such records as are required to be maintained by the
Subadviser with respect to the Portfolio by Rule 31a-1 of the 1940 Act.
4. The Adviser shall pay the Subadviser pursuant to the Fee Schedule
contained in "Schedule B", which is attached hereto and by this reference is
incorporated herein. The fee prescribed in Schedule B shall be calculated
daily and payable monthly in arrears by the 15th day of the immediately
succeeding month at an annual rate per Schedule B of the Portfolio's average
daily net assets.
5. The Subadviser shall not be subject to any liability to the Adviser,
the Trust or any of the Portfolio's beneficial owners for any loss suffered by
the Trust in connection with the matters to which this Subadvisory Agreement
relates, except for a loss resulting from willful misfeasance, bad faith or
gross negligence on its part in the performance of its duties or from reckless
disregard by it of its obligations and duties under this Subadvisory
Agreement.
6. The term of this Subadvisory Agreement shall begin on the date first
above written, and unless sooner terminated as hereinafter provided, this
Subadvisory Agreement shall remain in effect through July 24, 1996.
Thereafter, this Subadvisory Agreement shall continue in effect with respect
to the Portfolios from year to year, subject to the termination provisions and
all other terms and conditions hereof; PROVIDED, such continuance with respect
to the Portfolios is approved at least annually by vote of the holders of a
majority of the outstanding voting securities of the Portfolio or by the
Trustees of the Trust; PROVIDED, that in either event such continuance is also
approved annually by the vote, cast in person at a meeting called for the
purpose of voting on such approval, of a majority of the Trustees of the Trust
who are not parties to this Subadvisory Agreement or interested persons of
either party hereto; and PROVIDED FURTHER that the Subadviser shall not have
notified the Trust in writing at least sixty (60) days prior to July 24, 1996,
or at least sixty (60) days prior to July 24 of any year thereafter that it
does not desire such continuation. The Subadviser shall furnish to the Trust,
promptly upon its request, such information as may reasonably be necessary to
evaluate the terms of this Subadvisory Agreement or any extension, renewal or
amendment thereof. This Subadvisory Agreement may be terminated at any time
by either party hereto, without the payment of any penalty, upon sixty (60)
days' prior written notice to the other party; PROVIDED, that in the case of
termination by the Trust, such action shall have been authorized (i) by
resolution of the Trust's Board of Trustees, including the vote or written
consent of Trustees of the Trust who are not parties to this Subadvisory
Agreement or interested persons of either party hereto, or (ii) by vote of a
majority of the outstanding voting securities of the Portfolio. This
Agreement may not be assigned by Adviser or Subadviser without the prior
written consent of the parties hereto and shall automatically terminate in the
event of any assignment without such consent.
7. The Subadviser shall for all purposes herein be deemed to be an
independent contractor and shall not, unless otherwise expressly provided
herein or authorized by the Trustees of Trust from time to time, have any
authority to act for or represent the Portfolio or Trust in any way or
otherwise be deemed to be an agent of the Portfolio or the Trust.
8. Subject to the duties of the Adviser, the Trust and the Subadviser to
comply with applicable law, including any demand of any regulatory or taxing
authority having jurisdiction, the parties hereto shall treat as confidential
all information pertaining to the Portfolio and the actions of the Subadviser,
the Adviser and the Trust in respect thereof.
9. This Subadvisory Agreement may be amended only in accordance with the
1940 Act.
10. This Subadvisory Agreement shall be governed and construed in accordance
with the laws of The Commonwealth of Massachusetts.
11. This Agreement may be executed in one or more counterparts, each of
which shall be deemed an original.
12. Any notice that is required to be given by the parties to each other
under the terms of this Agreement shall be in writing, delivered, or mailed
postpaid to the other party, or transmitted by facsimile with acknowledgement
of receipt, to the parties at the following addresses or facsimile numbers,
which may from time to time be changed by the parties by notice to the other
party:
(a) If to the Subadviser:
Strong/Corneliuson Capital Management, Inc.
100 Heritage Reserve
Milwaukee, Wisconsin 53051
Attention: General Counsel
Facsimile: (414) 359-3949
(b) If to the Adviser:
Equitable Investment Services, Inc.
699 Walnut Street
Des Moines, Iowa 50309
Attention: Paul R. Schlaack
Facsimile: (515) 282-9538
(c) If to the Trust:
Equi-Select Series Trust
604 Locust Street
Des Moines, Iowa 50309
Attention: Paul R. Schlaack
Facsimile: (515) 282-9538
13. The Adviser acknowledges that it received a copy of the Subadviser's
Form ADV at least 48 hours prior to the execution of this Agreement.
IN WITNESS WHEREOF, the parties hereto have caused this Subadvisory Agreement
to be executed by their respective officers designated below as of the day and
year first above written.
ADVISER:
EQUITABLE INVESTMENT SERVICES, INC.
By: /S/ PAUL R. SCHLAACK
_______________________________________
Its President
SUBADVISER:
STRONG/CORNELIUSON CAPITAL MANAGEMENT, INC.
By: /S/ ILLEGIBLE
______________________________________
Its President
SCHEDULE A
CORRESPONDING
PORTFOLIO STRONG FUND
Advantage Portfolio Strong Advantage Fund, Inc.
Government Securities Portfolio Strong Government Securities Fund, Inc.
International Stock Portfolio Strong International Stock Fund, Inc.
Short-Term Bond Portfolio Strong Short-Term Bond Fund, Inc.
SCHEDULE B
FEE SCHEDULE
Advantage Portfolio .20% of first $100 million
.10% of average net assets over and above
$100 million
Government Securities Portfolio .35% of first $200 million
.25% of average net assets over and above
$200 million
International Stock Portfolio .40% of first $300 million
.25% of average net assets over and above
$300 million
Short-Term Bond Portfolio .25% of first $100 million
.20% of next $100 million
.15% of next $300 million
.10% of average net assets over and above
$500 million
SUBADVISORY AGREEMENT
This Subadvisory Agreement is made and entered into on this 1st day of
October, 1994, by and between Massachusetts Financial Services Company, a
Delaware corporation (the "Subadviser"), Equitable Investment Services, Inc.,
an Iowa corporation (the "Adviser"), and Equi-Select Series Trust, a
Massachusetts business trust (the "Trust").
WITNESSETH:
WHEREAS, the Adviser is engaged in the investment of the Trust's assets in
accordance with the Trust's current Prospectus and Statement of Additional
Information (collectively the "Prospectus"); and
WHEREAS, the Adviser and the Trust have entered into an Investment Advisory
Agreement dated October 1, 1994 ("Investment Advisory Agreement"), a copy of
which is attached hereto as Exhibit A; and
WHEREAS, under the terms of the Investment Advisory Agreement, the Adviser may
delegate its responsibilities for the management of the investment of the
assets of one or more portfolios of the Trust to one or more subadvisers; and
WHEREAS, Adviser desires to so delegate responsibility for management of the
investments of one or more portfolios to Subadviser, and Subadviser agrees to
manage the investment of one or more portfolios in accordance with this
Subadvisory Agreement and the Prospectus;
NOW, THEREFORE, in consideration of the premises and mutual promises
hereinafter set forth, the parties hereto agree as follows:
1. The Adviser hereby appoints Subadviser to act as the investment advisor
with respect to one or more portfolios as identified in "Exhibit B", which is
attached hereto and by this reference is incorporated herein (singly or
collectively the "Portfolio"). Subadviser hereby accepts such appointment and
agrees to render the services herein set forth, for the compensation herein
provided.
2. Subject to the supervision of the Trustees of Trust and the Adviser,
Subadviser will manage the securities and investments (including cash) of the
Portfolio, including the purchase, retention and disposition thereof, and the
execution of agreements relating thereto in accordance with the Portfolio's
and Trust's investment objectives, policies and restrictions as those are
stated in the Prospectus and further subject to the following understandings:
(a) The Subadviser shall furnish a continuous investment program for the
Portfolio and in so doing shall determine from time to time what investments
or securities will be purchased, retained or sold by the Portfolio, and what
portion of the assets will be invested or held uninvested as cash;
(b) The Subadviser in the performance of its duties and obligations
under this Agreement shall act in conformity with the terms of the Declaration
of Trust, Bylaws and the Prospectus of the Trust, and any amendments thereto,
each of which shall be promptly furnished to the Subadviser by the Trust, and
with the instructions and directions of the Trustees of the Trust and the
Board of Directors and officers of the Adviser, and will conform to and comply
with the requirements of the Investment Company Act of 1940 (the "1940 Act"),
and all other applicable federal and state laws and regulations;
(c) The Subadviser shall determine the securities to be purchased or sold
by the Portfolio and, as agent for the Portfolio, will effect transactions
pursuant to its determinations either directly with the issuer or with any
broker and/or dealer in such securities;
(d) The Subadviser shall maintain books and records with respect to the
securities transactions of the Portfolio and shall render to the Adviser or
Adviser's designees, such periodic and special reports as the Adviser may
reasonably request;
(e) The Subadviser shall provide the Trust's Custodian with all
requested information relating to all transactions concerning the assets of
the Portfolio; and
(f) The investment advisory services of Subadviser to the Portfolio
under this Subadvisory Agreement are not to be deemed exclusive, and the
Subadviser shall be free to render similar service to others so long as the
services required hereunder are not impaired thereby.
(g) The Subadviser shall provide such additional services to the Adviser
in connection with the sale of Trust shares and/or Equitable Life Insurance
Company of Iowa variable insurance contracts, as reasonably requested by the
Adviser. Such services shall include, but not necessarily be limited to,
presentations by representatives of the Subadviser at investment seminars,
conferences and other industry meetings. No parties to the Agreement will use
any materials describing any other party without the prior written approval of
the party being described. Any materials utilized by the Adviser which
contain any information relating to the Subadviser and/or its affiliates shall
be submitted to the Subadviser for written approval prior to use, not less
than five (5) business days before such approval is requested by the Adviser.
Any materials utilized by the Subadviser which contain any information
relating to the Adviser, Equitable Life Insurance Company of Iowa (including
any information relating to its separate accounts or variable insurance
contracts) or the Trust shall be submitted to the Adviser for written approval
prior to use, not less than five (5) business days before such approval is
requested by the Subadviser.
(h) The Subadviser is authorized, subject to the supervision of the
Adviser and the Trustees of the Trust, to place orders for the purchase and
sale of the Portfolio's Investments with or through such persons, brokers or
dealers, including the Subadviser or affiliates thereof, and to negotiate
commissions to be paid on such transactions in accordance with the Portfolio's
policy with respect to brokerage as set forth in the Prospectus. The
Subadviser may, on behalf of the Portfolio, pay brokerage commissions to a
broker which provides brokerage and research services to the Subadviser in
excess of the amount another broker would have charged for effecting the
transaction, provided (i) the Subadviser determines in good faith that the
amount is reasonable in relation to the value of the brokerage and research
services provided by the executing broker in terms of the particular
transaction or in terms of the Subadviser's overall responsibilities with
respect to the Portfolio and the accounts as to which the Subadviser exercises
investment discretion, (ii) such payment is made in compliance with Section
28(e) of the Securities Exchange Act of 1934, as amended, and any other
applicable laws and regulations, and (iii) in the opinion of the Subadviser,
the total commissions paid by the Portfolio will be reasonable in relation to
the benefits to the Portfolio over the long term. It is recognized that the
services provided by such brokers may be useful to the Subadviser in
connection with the Subadviser's service to other clients. On occasions when
the Subadviser deems the purchase or sale of a security to be in the best
interests of the Portfolio as well as other clients of the Subadviser, the
Subadviser, to the extent permitted by applicable laws and regulations, may,
but shall be under no obligation to, aggregate the securities to be sold or
purchased in order to obtain the most favorable price or lower brokerage
commissions and efficient execution. In such event, allocation of securities
so sold or purchased, as well as the expenses incurred in the transaction,
will be made by the Subadviser in the manner the Subadviser considers to be
the most equitable and consistent with its fiduciary obligations to the
Portfolio and to such other clients;
3. The Subadviser agrees that all records which it maintains for the
Portfolio pursuant to Paragraph 2(d) are the property of the Trust and will
promptly surrender any of such records to Adviser upon the Trustees' or
Adviser's request. The Subadviser shall preserve for periods prescribed by
Rule 31a-2 of the 1940 Act any such records as are required to be maintained
by the Subadviser with respect to the Portfolio by Rule 31a-1 of the 1940 Act.
4. The Adviser shall pay the Subadviser pursuant to the Fee Schedule
contained in "Exhibit C", which is attached hereto and by this reference is
incorporated herein. The fee prescribed in Exhibit C shall be calculated
daily and payable monthly in arrears at an annual rate per Exhibit C of the
Portfolio's average daily net assets.
5. The Subadviser shall not be liable for any error of judgment or mistake
of law or for any loss suffered by the Trust in connection with the matters to
which this Subadvisory Agreement relates, except a loss resulting from willful
misfeasance, bad faith or gross negligence on its part in the performance of
its duties or from reckless disregard by it of its obligations and duties
under this Subadvisory Agreement.
6. The term of this Subadvisory Agreement shall begin on the date first
above written, and unless sooner terminated as hereinafter provided, this
Subadvisory Agreement shall remain in effect through October 1, 1996.
Thereafter, this Subadvisory Agreement shall continue in effect with respect
to the Portfolios from year to year, subject to the termination provisions and
all other terms and conditions hereof; PROVIDED, such continuance with respect
to the Portfolios is approved at least annually by vote of the holders of a
majority of the outstanding voting securities of the Portfolio or by the
Trustees of the Trust; PROVIDED, that in either event such continuance is also
approved annually by the vote, cast in person at a meeting called for the
purpose of voting on such approval, of a majority of the Trustees of the Trust
who are not parties to this Subadvisory Agreement or interested persons of any
party hereto; and PROVIDED FURTHER that the Subadviser shall not have notified
the Trust in writing at least sixty (60) days prior to October 1, 1996, or at
least sixty (60) days prior to October 1 of any year thereafter that is does
not desire such continuation. The Subadviser shall furnish to the Trust,
promptly upon its request, such information as may reasonably be necessary to
evaluate the terms of this Subadvisory Agreement or any extension, renewal or
amendment thereof. This Subadvisory Agreement may be terminated at any time
by any party hereto, without the payment of any penalty, upon sixty (60) days'
prior written notice to the other parties; PROVIDED, that in the case of
termination by the Trust, such action shall have been authorized (i) by
resolution of the Trust's Board of Trustees, including the vote or written
consent of Trustees of the Trust who are not parties to this Subadvisory
Agreement or interested persons of any party hereto, or (ii) by vote of a
majority of the outstanding voting securities of the Portfolio. This
Agreement shall automatically terminate in the event of its "assignment" (as
defined in the 1940 Act).
7. The Subadviser shall for all purposes herein be deemed to be an
independent contractor and shall not, unless otherwise expressly provided
herein or authorized by the Trustees of Trust from time to time, have any
authority to act for or represent the Portfolio or Trust in any way or
otherwise be deemed to be an agent of the Portfolio or the Trust.
8. This Subadvisory Agreement is entered into by the Trust on behalf of one
or more Portfolios identified in Exhibit B pursuant to authority granted by
the Trustees, and the obligations created hereby are not binding on any of the
Trustees or shareholders of the Trust individually, but bind only the property
of such Portfolios of the Trust.
9. This Subadvisory Agreement may be amended only in accordance with the
1940 Act.
10. Any notice that is required to be given by the parties to each other
under the terms of this Subadvisory Agreement shall be in writing, delivered,
or mailed postpaid to the other party, or transmitted by facsimile with
acknowledgement of receipt, to the parties at the following addresses or
facsimile numbers, which may from time to time be changed by the parties by
notice to the other party:
(a) If to the Subadviser:
Massachusetts Financial Services Company
500 Boylston Street
Boston, MA 02116
Attention: Stephen E. Cavan
Facsimile: (617) 954-6624
(b) If to the Manager:
Equitable Investment Services, Inc.
699 Walnut Street
Des Moines, IA 50309
Attention: Paul R. Schlaack
Facsimile: (515) 282-9538
(c) If to the Trust:
Equi-Select Series Trust
604 Locust Street
Des Moines, IA 50309
Attention: Paul R. Schlaack
Facsimile: (515) 282-9538
11. This Subadvisory Agreement shall be governed and construed in accordance
with the laws of The Commonwealth of Massachusetts.
12. This Agreement may be executed in one or more counterparts, each of which
shall be deemed an original.
IN WITNESS WHEREOF, the parties hereto have caused this Subadvisory Agreement
to be executed by their respective officers designated below as of the day and
year first above written.
ADVISER: TRUST:
EQUITABLE INVESTMENT EQUI-SELECT SERIES TRUST
SERVICES, INC.
By: /S/ PAUL R. SCHLAACK By: /S/ PAUL R. SCHLAACK
__________________________ _______________________________
Its President Its Trustee
SUBADVISER:
MASSACHUSETTS FINANCIAL
SERVICES COMPANY
By: /S/ ILLEGIBLE
__________________________
Its Chairman
EXHIBIT A
INVESTMENT ADVISORY AGREEMENT
AGREEMENT, made as of the 1st day of October, 1994 between Equi-Select Series
Trust, an unincorporated business trust organized under the laws of the
Commonwealth of Massachusetts (the "Trust"), and Equitable Investment
Services, Inc., an Iowa corporation (the "Adviser").
W I T N E S S E T H :
WHEREAS, the Trust is engaged in business as an open-end management investment
company and is registered as such under the Investment Company Act of 1940, as
amended (the "Act");
WHEREAS, the Trust is authorized to issue separate series, each of which
offers a separate class of shares of common stock, each having its own
investment objective or objectives, policies and limitations;
WHEREAS, the Trust currently offers shares in ten series, designated as the
Advantage Portfolio, OTC Portfolio, Government Securities Portfolio,
International Fixed Income Portfolio, International Stock Portfolio, Money
Market Portfolio, Mortgage-Backed Securities Portfolio, Research Portfolio,
Short-Term Bond Portfolio and Total Return Portfolio ("Current Series"), and
the Trust may offer shares of one or more additional series in the future;
WHEREAS, the Adviser is registered as an investment adviser under the
Investment Advisers Act of 1940; and
WHEREAS, the Trust desires to retain the Adviser to render investment
management and administrative services to the Trust with respect to each
Current Series as indicated on the signature page in the manner and on the
terms and conditions hereinafter set forth;
NOW, THEREFORE, the parties hereto agree as follows:
1. SERVICES OF THE ADVISER.
1.1 INVESTMENT MANAGEMENT SERVICES. The Adviser shall act as the
investment adviser to the Trust and, as such, shall (i) obtain and evaluate
such information relating to the economy, industries, business, securities
markets and securities as it may deem necessary or useful in discharging its
responsibilities hereunder, (ii) formulate a continuing program for the
investment of the assets of the Trust in a manner consistent with its
investment objectives, policies and restrictions, and (iii) determine from
time to time securities to be purchased, sold, retained or lent by the Trust,
and implement those decisions, including the selection of entities with or
through which such purchases, sales or loans are to be effected; provided,
that the Adviser will place orders pursuant to its investment determinations
either directly with the issuer or with a broker or dealer, and if with a
broker or dealer, (a) will attempt to obtain the best net price and most
favorable execution of its orders, and (b) may nevertheless in its discretion
purchase and sell portfolio securities from and to brokers and dealers who
provide the Adviser with research, analysis, advice and similar services and
pay such brokers and dealers in return a higher commission or spread than may
be charged by other brokers or dealers.
The Trust hereby authorizes any entity or person associated with the Adviser
or any Sub-Adviser retained by Adviser pursuant to Section 7 of this
Agreement, which is a member of a national securities exchange, to effect any
transaction on the exchange for the account of the Trust which is permitted by
Section 11(a) of the Securities Exchange Act of 1934 and Rule 11a2-2(T)
thereunder, and the Trust hereby consents to the retention of compensation for
such transactions in accordance with Rule 11a2-2(T)(a)(iv).
The Adviser shall carry out its duties with respect to the Trust's investments
in accordance with applicable law and the investment objectives, policies and
restrictions set forth in the Trust's then-current Prospectus and Statement of
Additional Information, and subject to such further limitations as the Trust
may from time to time impose by written notice to the Adviser.
1.2 ADMINISTRATIVE SERVICES. The Adviser shall manage the Trust's
business and affairs and shall provide such services required for effective
administration of the Trust as are not provided by employees or other agents
engaged by the Trust; provided, that the Adviser shall not have any obligation
to provide under this Agreement any direct or indirect services to Trust
shareholders, any services related to the distribution of Trust shares, or any
other services which are the subject of a separate agreement or arrangement
between the Trust and the Adviser. Subject to the foregoing, in providing
administrative services hereunder, the Adviser shall:
1.2.1 OFFICE SPACE, EQUIPMENT AND FACILITIES. Furnish without cost to
the Trust, or pay the cost of, such office space, office equipment and office
facilities as are adequate for the Trust's needs.
1.2.2 PERSONNEL. Provide, without remuneration from or other cost to
the Trust, the services of individuals competent to perform all of the Trust's
executive, administrative and clerical functions which are not performed by
employees or other agents engaged by the Trust or by the Adviser acting in
some other capacity pursuant to a separate agreement or arrangement with the
Trust.
1.2.3 AGENTS. Assist the Trust in selecting and coordinating the
activities of the other agents engaged by the Trust, including the Trust's
shareholder servicing agent, custodian, independent auditors and legal
counsel.
1.2.4 TRUSTEES AND OFFICERS. Authorize and permit the Advisers,
directors, officers and employees who may be elected or appointed as Trustees
or officers of the Trust to serve in such capacities, without remuneration
from or other cost to the Trust.
1.2.5 BOOKS AND RECORDS. Assure that all financial, accounting and
other records required to be maintained and preserved by the Trust are
maintained and preserved by it or on its behalf in accordance with applicable
laws and regulations.
1.2.6 REPORTS AND FILINGS. Assist in the preparation of (but not pay
for) all periodic reports by the Trust to its shareholders and all reports and
filings required to maintain the registration and qualification of the Trust
and Trust shares, or to meet other regulatory or tax requirements applicable
to the Trust, under federal and state securities and tax laws.
1.3 ADDITIONAL SERIES. In the event that the Trust from time to time
designates one or more series in addition to the Current Series ("Additional
Series"), it shall notify the Adviser in writing. If the Adviser is willing to
perform services hereunder to the Additional Series, it shall so notify the
Trust in writing. Thereupon, the Trust and the Adviser shall enter into an
Addendum to this Agreement for the Additional Series and the Additional Series
shall be subject to this Agreement.
2. EXPENSES OF THE TRUST.
2.1 EXPENSES TO BE PAID BY ADVISER. The Adviser shall pay all salaries,
expenses and fees of the officers, Trustees and employees of the Trust who are
officers, directors or employees of the Adviser.
In the event that the Adviser pays or assumes any expenses of the Trust not
required to be paid or assumed by the Adviser under this Agreement, the
Adviser shall not be obligated hereby to pay or assume the same or any similar
expense in the future; provided, that nothing herein contained shall be deemed
to relieve the Adviser of any obligation to the Trust under any separate
agreement or arrangement between the parties.
2.2 EXPENSES TO BE PAID BY THE TRUST. The Trust shall bear all expenses
of its operation, except those specifically allocated to the Adviser under
this Agreement or under any separate agreement between the Trust and the
Adviser. Subject to any separate agreement or arrangement between the Trust
and the Adviser, the expenses hereby allocated to the Trust, and not to the
Adviser, include, but are not limited to:
2.2.1 CUSTODY. All charges of depositories, custodians, and other
agents for the transfer, receipt, safekeeping, and servicing of its cash,
securities, and other property.
2.2.2 SHAREHOLDER SERVICING. All expenses of maintaining and servicing
shareholder accounts, including but not limited to the charges of any
shareholder servicing agent, dividend disbursing agent or other agent engaged
by the Trust to service shareholder accounts.
2.2.3 SHAREHOLDER REPORTS. All expenses of preparing, setting in type,
printing and distributing reports and other communications to shareholders.
2.2.4 PROSPECTUSES. All expenses of preparing, setting in type,
printing and mailing annual or more frequent revisions of the Trust's
Prospectus and Statement of Additional Information and any supplements thereto
and of supplying them to shareholders.
2.2.5 PRICING AND PORTFOLIO VALUATION. All expenses of computing the
Trust's net asset value per share, including any equipment or services
obtained for the purpose of pricing shares or valuing the Trust's investment
portfolio.
2.2.6 COMMUNICATIONS. All charges for equipment or services used for
communications between the Adviser or the Trust and any custodian, shareholder
servicing agent, portfolio accounting services agent, or other agent engaged
by the Trust.
2.2.7 LEGAL AND ACCOUNTING FEES. All charges for services and expenses
of the Trust's legal counsel and independent auditors.
2.2.8 TRUSTEES' FEES AND EXPENSES. All compensation of Trustees other
than those affiliated with the Adviser, all expenses incurred in connection
with such unaffiliated Trustees' services as Trustees, and all other expenses
of meetings of the Trustees and committees of the Trustees.
2.2.9 SHAREHOLDER MEETINGS. All expenses incidental to holding meetings
of shareholders, including the printing of notices and proxy materials, and
proxy solicitation therefor.
2.2.10 FEDERAL REGISTRATION FEES. All fees and expenses of registering
and maintaining the registration of the Trust under the Act and the
registration of the Trust's shares under the Securities Act of 1933 (the "1933
Act"), including all fees and expenses incurred in connection with the
preparation, setting in type, printing, and filing of any Registration
Statement, Prospectus and Statement of Additional Information under the 1933
Act or the Act, and any amendments or supplements that may be made from time
to time.
2.2.11 STATE REGISTRATION FEES. All fees and expenses of qualifying and
maintaining the qualification of the Trust and of the Trust's shares for sale
under securities laws of various states or jurisdictions, and of registration
and qualification of the Trust under all other laws applicable to the Trust or
its business activities (including registering the Trust as a broker-dealer,
or any officer of the Trust or any person as agent or salesman of the Trust in
any state).
2.2.12 SHARE CERTIFICATES. All expenses of preparing and transmitting
the Trust's share certificates.
2.2.13 CONFIRMATIONS. All expenses incurred in connection with the
issue and transfer of Trust shares, including the expenses of confirming all
share transactions.
2.2.14 BONDING AND INSURANCE. All expenses of bond, liability, and
other insurance coverage required by law or regulation or deemed advisable by
the Trustees of the Trust, including, without limitation, such bond, liability
and other insurance expenses that may from time to time be allocated to the
Trust in a manner approved by its Trustees.
2.2.15 BROKERAGE COMMISSIONS. All brokers' commissions and other
charges incident to the purchase, sale or lending of the Trust's portfolio
securities.
2.2.16 TAXES. All taxes or governmental fees payable by or with respect
to the Trust to federal, state or other governmental agencies, domestic or
foreign, including stamp or other transfer taxes.
2.2.17 TRADE ASSOCIATION FEES. All fees, dues and other expenses
incurred in connection with the Trust's membership in any trade association or
other investment organization.
2.2.18 NONRECURRING AND EXTRAORDINARY EXPENSES. Such nonrecurring
and extraordinary expenses as may arise including the costs of actions, suits,
or proceedings to which the Trust is a party and the expenses the Trust may
incur as a result of its legal obligation to provide indemnification to its
officers, Trustees and agents.
3. ADVISORY FEE.
3.1 FEE. As compensation for all services rendered facilities provided
and expenses paid or assumed by the Adviser under this Agreement, the Trust
shall pay the Adviser on the last day of each month, or as promptly as
possible thereafter, a fee calculated at the annual rate of the average daily
net assets during such month of each series of the Trust as set forth below:
3.1.1 ADVANTAGE PORTFOLIO. 0.50% of the first $100 million of average
net assets and 0.35% of average net assets over and above $100 million.
3.1.2 OTC PORTFOLIO. 0.80% of the first $300 million of average net
assets and 0.55% of average net assets over and above $300 million.
3.1.3 GOVERNMENT SECURITIES PORTFOLIO. 0.75% of the first $200 million
of average net assets, 0.55% of average net assets over and above $200
million.
3.1.4 INTERNATIONAL FIXED INCOME PORTFOLIO. 0.85% of the first $200
million of average net assets, 0.75% of next $300 million, 0.60% of average
net asset of next $500 million, 0.55% of average net assets of next $1 billion
and 0.40% of average net assets over and above $2 billion.
3.1.5 INTERNATIONAL STOCK PORTFOLIO. 0.80 % of the first $300 million
of average net assets and 0.55% of average net assets over and above $300
million.
3.1.6 MONEY MARKET PORTFOLIO. 0.375% of the first $50 million of
average net assets and 0.35 % of average net assets over and above $50
million.
3.1.7 MORTGAGE-BACKED SECURITIES PORTFOLIO. 0.75% of the first $200
million of average net assets, 0.65% of average net assets of next $300
million, 0.55% of average net assets of next $500 million, 0.50% of average
net assets of next $1 billion and 0.40% of average net assets over and above
$2 billion.
3.1.8 RESEARCH PORTFOLIO. 0.80% of the first $300 million of average
net assets and 0.55% of average net assets over and above $300 million.
3.1.9 SHORT-TERM BOND PORTFOLIO. 0.65% of the first $100 million of
average net assets, 0.50% of average net assets of next $100 million, 0.45% of
average net assets of next $300 million and 0.40% of average net assets over
and above $500 million.
3.1.10 TOTAL RETURN PORTFOLIO. 0.80% of the first $300 million of
average net assets and 0.55% of average net assets over and above $300
million.
4. RECORDS.
4.1 TAX TREATMENT. The Adviser shall maintain the books and records of
the Trust in such a manner that treats each series as a separate entity for
federal income tax purposes.
4.2 OWNERSHIP. All records required to be maintained and preserved by
the Trust pursuant to the provisions or rules or regulations of the Securities
and Exchange Commission under Section 31(a) of the Act and maintained and
preserved by the Adviser on behalf of the Trust are the property of the Trust
and shall be surrendered by the Adviser promptly on request by the Trust;
provided, that the Adviser may at its own expense make and retain copies of
any such records.
5. REPORTS TO ADVISER.
The Trust shall furnish or otherwise make available to the Adviser such copies
of the Trust's Prospectus, Statement of Additional Information, financial
statements, proxy statements, reports, and other information relating to its
business and affairs as the Adviser may, at any time or from time to time,
reasonably require in order to discharge its obligations under this Agreement.
6. REPORTS TO THE TRUST.
The Adviser shall prepare and furnish to the Trust such reports, statistical
data and other information in such form and at such intervals as the Trust may
reasonably request.
7. RETENTION OF SUB-ADVISER.
Subject to the Trust's obtaining the initial and periodic approvals required
under Section 15 of the Act, the Adviser may retain one or more sub-advisers,
at the Adviser's own cost and expense, for the purpose of managing the
investments of the assets of one or more Series of the Trust. Retention of
one or more sub-advisers shall in no way reduce the responsibilities or
obligations of the Adviser under this Agreement and the Adviser shall be
responsible to the Trust for all acts or omissions of any sub-adviser in
connection with the performance of the Adviser's duties hereunder.
8. SERVICES TO OTHER CLIENTS.
Nothing herein contained shall limit the freedom of the Adviser or any
affiliated person of the Adviser to render investment management and
administrative services to other investment companies, to act as investment
adviser or investment counselor to other persons, firms or corporations, or to
engage in other business activities.
9. LIMITATION OF LIABILITY OF ADVISER AND ITS PERSONNEL.
Neither the Adviser nor any director, officer or employee of the Adviser
performing services for the Trust at the direction or request of the Adviser
in connection with the Adviser's discharge of its obligations hereunder shall
be liable for any error of judgment or mistake of law or for any loss suffered
by the Trust in connection with any matter to which this Agreement relates,
and the Adviser shall not be responsible for any action of the Trustees of the
Trust in following or declining to follow any advice or recommendation of the
Adviser; PROVIDED, that nothing herein contained shall be construed (i) to
protect the Adviser against any liability to the Trust or its shareholders to
which the Adviser would otherwise be subject by reason of willful misfeasance,
bad faith, or gross negligence in the performance of the Adviser's duties, or
by reason of the Adviser's reckless disregard of its obligations and duties
under this Agreement, or (ii) to protect any director, officer or employee of
the Adviser who is or was a Trustee or officer of the Trust against any
liability of the Trust or its shareholders to which such person would
otherwise be subject by reason of willful misfeasance, bad faith, gross
negligence or reckless disregard of the duties involved in the conduct of such
person's office with the Trust.
10. NO PERSONAL LIABILITY OF TRUSTEES OR SHAREHOLDERS.
This Agreement is made by the Trust on behalf of its various Current Series
pursuant to authority granted by the Trustees, and the obligations created
hereby are not binding on any of the Trustees or shareholders of the Trust
individually, but bind only the property of each Current Series of the Trust.
11. EFFECT OF AGREEMENT.
Nothing herein contained shall be deemed to require the Trust to take any
action contrary to its Declaration of Trust or its By-Laws or any applicable
law, regulation or order to which it is subject or by which it is bound, or to
relieve or deprive the Trustees of the Trust of their responsibility for and
control of the conduct of the business and affairs of the Trust.
12. TERM OF AGREEMENT.
The term of this Agreement shall begin on the date first above written, and
unless sooner terminated as hereinafter provided, this Agreement shall remain
in effect through October 1, 1996. Thereafter, this Agreement shall continue
in effect with respect to the Trust from year to year, subject to the
termination provisions and all other terms and conditions hereof; PROVIDED,
such continuance with respect to the Trust is approved at least annually by
vote of the holders of a majority of the outstanding voting securities of the
Trust or by the Trustees of the Trust; PROVIDED, that in either event such
continuance is also approved annually by the vote, cast in person at a meeting
called for the purpose of voting on such approval, of a majority of the
Trustees of the Trust who are not parties to this Agreement or interested
persons of either party hereto; and PROVIDED FURTHER that the Adviser shall
not have notified the Trust in writing at least sixty (60) days prior to
October 1, 1996, or at least sixty (60) days prior to October 1 of any year
thereafter that it does not desire such continuation. The Adviser shall
furnish to the Trust, promptly upon its request, such information as may
reasonably be necessary to evaluate the terms of this Agreement or any
extension, renewal or amendment thereof.
13. AMENDMENT OR ASSIGNMENT OF AGREEMENT.
Any amendment to this Agreement shall be in writing signed by the parties
hereto; PROVIDED, that no such amendment shall be effective unless authorized
on behalf of the Trust (i) by resolution of the Trust's Trustees, including
the vote or written consent of a majority of the Trust's Trustees who are not
parties to this Agreement or interested persons of either party hereto, and
(ii) by vote of a majority of the outstanding voting securities of the Trust.
This Agreement shall terminate automatically and immediately in the event of
its assignment.
14. TERMINATION OF AGREEMENT.
This Agreement may be terminated at any time by either party hereto, without
the payment of any penalty, upon sixty (60) days' prior written notice to the
other party; PROVIDED, that in the case of termination by the Trust, such
action shall have been authorized (i) by resolution of the Trust's Board of
Trustees, including the vote or written consent of Trustees of the Trust who
are not parties to this Agreement or interested persons of either party
hereto, or (ii) by vote of a majority of the outstanding voting securities of
the Trust.
15. INTERPRETATION AND DEFINITION OF TERMS.
Any question of interpretation of any term or provision of this Agreement
having a counterpart in or otherwise derived from a term or provision of the
Act shall be resolved by reference to such term or provision of the Act and to
interpretation thereof, if any, by the United States courts, or, in the
absence of any controlling decision of any such court, by rules, regulations
or orders of the Securities and Exchange Commission validly issued pursuant to
the Act. Specifically, the terms "vote of a majority of the outstanding
voting securities," "interested persons," "assignment" and "affiliated
person," as used in this Agreement shall have the meanings assigned to them by
Section 2(a) of the Act. In addition, when the effect of a requirement of the
Act reflected in any provision of this Agreement is modified, interpreted or
relaxed by a rule, regulation or order of the Securities and Exchange
Commission, whether of special or of general application, such provision shall
be deemed to incorporate the effect of such rule, regulation or order.
16. CAPTIONS.
The captions in this Agreement are included for convenience of reference only
and in no way define or delineate any of the provisions hereof or otherwise
affect their construction or effect.
17. EXECUTION IN COUNTERPARTS.
This Agreement may be executed simultaneously in counterparts, each of which
shall be deemed an original, but all of which together shall constitute one
and the same instrument.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be signed
by their respective officers thereunto duly authorized and their respective
seals to be hereunto affixed, as of the date and year first above written.
<TABLE>
<CAPTION>
<S> <C>
EQUI-SELECT SERIES TRUST for its
Advantage Portfolio, OTC Portfolio,
Government Securities Portfolio,
International Fixed Income Portfolio,
International Stock Portfolio, Money
Market Portfolio, Mortgage-Backed
Securities Portfolio, Research
Portfolio, Short-Term Bond Portfolio and
Total Return Portfolio
Attest:
/s/ John A. Merriman By:/s/ Paul R. Schlaack
- -------------------- ----------------------------------------
Secretary Paul R. Schlaack,
President
EQUITABLE INVESTMENT SERVICES, INC.
Attest:
/s/ Diane M. Kurt By:/s/ Paul R. Schlaack
- -------------------- ----------------------------------------
Secretary Paul R. Schlaack,
President
</TABLE>
EXHIBIT B
PORTFOLIO LISTING
OTC PORTFOLIO
RESEARCH PORTFOLIO
TOTAL RETURN PORTFOLIO
EXHIBIT C
FEE SCHEDULE
OTC Portfolio .40% of first $300 million
.25% of average net assets over and above $300
million
Research Portfolio .40% of first $300 million
.25% of average net assets over and above $300
million
Total Return Portfolio .40% of first $300 million
.25% of average net assets over and above $300
million
SUBADVISORY AGREEMENT
This Subadvisory Agreement is made and entered into on this 1st day of
October, 1994, by CS First Boston Investment Management Corporation, a New
York corporation (the "Subadviser"), Equitable Investment Services, Inc., an
Iowa corporation (the "Adviser"), and Equi-Select Series Trust, a
Massachusetts business trust (the "Trust").
WITNESSETH:
WHEREAS, the Adviser is engaged pursuant to an Investment Advisory Agreement
(the "Advisory Agreement") with the Trust in the investment of the Trust's
assets in accordance with the Trust's Prospectus and Statement of Additional
Information (collectively the "Prospectus"); and
WHEREAS, pursuant to the Advisory Agreement the Adviser may delegate its
responsibilities for the management of the investment of the assets of one or
more portfolios of the Trust to one or more subadvisers; and
WHEREAS, Adviser desires to so delegate responsibility for management of the
investments of one or more portfolios to Subadviser, and Subadviser agrees to
manage the investment of one or more portfolios in accordance with this
Subadvisory Agreement and the Prospectus;
NOW, THEREFORE, in consideration of the premises and mutual promises
hereinafter set forth, the parties hereto agree as follows:
1. The Adviser hereby appoints Subadviser to act as the investment advisor
to Adviser with respect to one or more portfolios as identified in "Schedule
A", which is attached hereto and by this reference is incorporated herein,
(singly or collectively the "Portfolio"). Subadviser hereby accepts such
appointment and agrees to render the services herein set forth, for the
compensation set forth on Schedule B, which is attached hereto and by this
reference is incorporated herein. Adviser represents to Subadviser that it is
authorized pursuant to the Advisory Agreement to delegate to the Subadviser
all of the services to be performed by the Subadviser pursuant hereto.
2. Subject to the supervision of the Trustees of the Trust and the Adviser,
Subadviser will manage the securities and investments (including cash) of the
Portfolio, including the purchase, retention and disposition thereof, and the
execution of agreements relating thereto in accordance with the Portfolio's
investment objectives, policies and restrictions as those are stated in the
Prospectus and further subject to the following understandings:
(a) The Subadviser shall furnish a continuous investment program for the
Portfolio and in so doing shall determine from time to time what investments
or securities will be purchased, retained or sold by the Portfolio, and what
portion of the assets will be invested or held uninvested as cash;
(b) The Subadviser in the performance of its duties and obligations
under this Agreement shall act in conformity with the Declaration of Trust,
Bylaws and the Prospectus of the Trust, and with the instructions and
directions of the Trustees of the Trust and, to the extent consistent
therewith and herewith, of the Adviser, and will conform to and comply with
the requirements of the Investment Company Act of 1940 (the "1940 Act"), and
all other applicable federal and state laws and regulations;
(c) The Subadviser shall determine the securities to be purchased or
sold by the Portfolio and, as agent for the Portfolio, will effect
transactions pursuant to its determinations either directly with the issuer or
with any broker and/or dealer in such securities. The Subadviser shall also
determine whether or not the Portfolio shall enter into repurchase or reverse
repurchase agreements or engage in any other investment transactions or
techniques that are consistent with subsection (b) above;
(d) The Subadviser shall maintain all books and records with respect to
the securities transactions of the Portfolio and shall render to the Adviser
or Adviser's designees, such periodic and special reports as the Adviser may
reasonably request;
(e) The Subadviser shall, to the extent the information is within its
control, provide or cause to be provided to the Trust's Custodian all
requested information relating to all transactions concerning the assets of
the Portfolio (other than share transactions of the Portfolio);
(f) The investment advisory services of Subadviser to the Portfolio
under this Subadvisory Agreement are not to be deemed exclusive, and the
Subadviser shall be free to render similar service to others;
(g) The Subadviser is authorized, subject to the supervision of the
Adviser and the Trustees of the Trust, to place orders for the purchase and
sale of the Portfolio's investments with or through such persons, brokers or
dealers, including the Subadviser or affiliates thereof, and to negotiate
commissions to be paid on such transactions in accordance with the Portfolio's
policy with respect to brokerage as set forth in the Prospectus. The
Subadviser may, on behalf of the Portfolio, pay brokerage commissions to a
broker which provides brokerage and research services to the Subadviser in
excess of the amount another broker would have charged for effecting the
transaction, provided the Subadviser determines in good faith that the amount
is reasonable in relation to the value of the brokerage and research services
provided by the executing broker in terms of the particular transaction or in
terms of the Subadviser's overall responsibilities with respect to the
Portfolio and the accounts as to which the Subadviser exercises investment
discretion. It is recognized that the services provided by such brokers may
be useful to the Subadviser in connection with the Subadviser's service to
other clients. On occasions when Subadviser deems the purchase or sale of a
security to be in the best interest of the Portfolio as well as other
customers, the Subadviser may, to the extent permitted by applicable laws and
regulations, but shall not be obligated to, aggregate the securities to be so
sold or purchased in order to obtain the best execution and lower brokerage
commissions, if any. In such event, allocation of the securities so purchased
or sold, as well as the expenses incurred in the transaction, will be made by
Subadviser in the manner it considers to be the most equitable and consistent
with its fiduciary obligations to the Portfolio and, if applicable, to such
other customers. The Trust and the Adviser acknowledge that in order to
comply with Federal Securities laws and related regulatory requirements, there
may be periods when the Subadviser will not be permitted to initiate or
recommend certain types of transactions in the securities of issuers for which
affiliates of the Subadviser are performing investment banking services, and
neither the Trust nor the Adviser will be advised of that fact. For example,
during certain periods when affiliates of the Subadviser are engaged in an
underwriting or other distribution of a company's securities, the Subadviser
may be prohibited from purchasing or recommending the purchase of certain
securities of that company for its clients. Similarly, the Subadviser may on
occasion be prohibited from selling or recommending the sale of securities of
a company for which affiliates are providing investment banking services.
(h) The Subadviser shall provide marketing support to the Adviser in
connection with the sale of Trust shares and/or Equitable Life Insurance
Company of Iowa variable insurance contracts, as reasonably requested by the
Adviser. Such support shall include, but not necessarily be limited to,
presentations by representatives of the Subadviser at investment seminars,
conferences and other industry meetings. Any materials utilized by the
Adviser which contain any information relating to the Subadviser shall be
submitted to the Subadviser for approval prior to use, not less than five (5)
business days before such approval is needed by the Adviser. Any materials
utilized by the Subadviser which contain any information relating to the
Adviser, Equitable Life Insurance Company of Iowa (including any information
relating to its separate accounts or variable annuity contracts) or the Trust
shall be submitted to the Adviser for approval prior to use, not less than
five (5) business days before such approval is needed by the Subadviser, which
approval shall not be unreasonably withheld.
(i) The Trust represents that it has delivered true and correct copies
to the Subadviser of, and agrees to promptly notify and deliver to the
Subadviser all future amendments and supplements to, the Prospectus, the
Trust's Declaration of Trust, the Trust's Bylaws, resolutions or other
instructions of the Trustees relevant to the Subadviser's performance of its
duties under this Agreement, the Advisory Agreement and the Trust's
Registration Statement on Form N-1A.
3. The Subadviser agrees that all records which it maintains for the
Portfolio pursuant to 2(d) are the property of the Trust and will promptly
surrender any of such records to Adviser upon the Trustees' or Adviser's
request. The Subadviser shall preserve for periods prescribed by Rule 31a-2
of the 1940 Act any such records as are required to be maintained by the
Subadviser with respect to the Portfolio by Rule 31a-1 of the 1940 Act.
4. For performance of the services hereunder with respect to the Portfolios,
the Adviser shall pay the Subadviser pursuant to the Fee Schedule contained in
Schedule B. The fee prescribed in Schedule B shall be calculated daily and
payable monthly in arrears at an annual rate per Schedule B of the Portfolio's
average daily net assets.
5. The Subadviser shall not be liable for any error of judgment or mistake
of law or for any loss suffered by the Trust, Portfolio or the Adviser in
connection with the matters to which this Subadvisory Agreement relates,
except for a loss resulting from willful misfeasance, bad faith or gross
negligence on its part in the performance of its duties or from reckless
disregard by it of its obligations and duties under this Subadvisory
Agreement.
6. The term of this Subadvisory Agreement shall begin on the date first
above written, and unless sooner terminated as hereinafter provided, this
Subadvisory Agreement shall remain in effect through October 1, 1996.
Thereafter, this Subadvisory Agreement shall continue in effect with respect
to the Portfolios from year to year, subject to the termination provisions and
all other terms and conditions hereof; PROVIDED, such continuance with respect
to the Portfolios is approved at least annually by vote of the holders of a
majority of the outstanding voting securities of the Portfolio or by the
Trustees of the Trust; PROVIDED, that in either event such continuance is also
approved annually by the vote, cast in person at a meeting called for the
purpose of voting on such approval, of a majority of the Trustees of the Trust
who are not parties to this Subadvisory Agreement or interested persons of any
party hereto; and PROVIDED FURTHER that the Subadviser shall not have notified
the Trust in writing at least sixty (60) days prior to October 1, 1996, or at
least sixty (60) days prior to October 1 of any year thereafter that it does
not desire such continuation. The Subadviser shall furnish to the Trust,
promptly upon its request, such information as may reasonably be necessary to
evaluate the terms of this Subadvisory Agreement or any extension, renewal or
amendment thereof. This Subadvisory Agreement may be terminated at any time
by any party hereto, without the payment of any penalty, upon sixty (60) days'
prior written notice to the other parties; PROVIDED, that in the case of
termination by the Trust, such action shall have been authorized (i) by
resolution of the Trust's Board of Trustees, including the vote or written
consent of Trustees of the Trust who are not parties to this Subadvisory
Agreement or interested persons of any party hereto, or (ii) by vote of a
majority of the outstanding voting securities of the Portfolio. This
Agreement shall automatically terminate in the event of its "assignment" (as
defined in the 1940 Act).
7. The Subadviser shall for all purposes herein be deemed to be an
independent contractor and shall not, unless otherwise expressly provided
herein or authorized by the Trustees of the Trust from time to time, have any
authority to act for or represent the Portfolio or Trust in any way or
otherwise be deemed to be an agent of the Portfolio or the Trust.
8. This Subadvisory Agreement is entered into by the Trust pursuant to
authority granted by the Trustees, and the obligations created hereby are not
binding on any of the Trustees or shareholders of the Trust individually, but
bind only the property of the Trust and the Portfolios.
9. This Subadvisory Agreement may be amended only in accordance with the
1940 Act.
10. Any notice that is required to be given by the parties to each other
under the terms of this Subadvisory Agreement shall be in writing, delivered,
or mailed postpaid to the other party, or transmitted by facsimile with
acknowledgement of receipt, to the parties at the following addresses or
facsimile numbers, which may from time to time be changed by the parties by
notice to the other party:
(a) If to the Subadviser:
CS First Boston Investment Management Corporation
599 Lexington Avenue
New York, New York 10022
Attention: John J. Cook, Jr.
(b) If to the Manager:
Equitable Investment Services, Inc.
699 Walnut Street
Des Moines, Iowa 50309
Attention: Paul R. Schlaack
Facsimile: (515) 282-9538
(c) If to the Trust:
Equi-Select Series Trust
604 Locust Street
Des Moines, Iowa 50309
Attention: Paul R. Schlaack
Facsimile: (515) 282-9538
11. This Subadvisory Agreement shall be governed and construed in accordance
with the laws of The Commonwealth of Massachusetts.
12. This Agreement may be executed in one or more counterparts, each of which
shall be deemed an original.
IN WITNESS WHEREOF, the parties hereto have caused this Subadvisory Agreement
to be executed by their respective officers designated below as of the day and
year first above written.
ADVISER: TRUST:
EQUITABLE INVESTMENT EQUI-SELECT SERIES TRUST
SERVICES, INC.
By: /S/ PAUL R. SCHLAACK By: /S/ PAUL R. SCHLAACK
_____________________________ ______________________________
Its President Its Trustee
SUBADVISER:
CS FIRST BOSTON INVESTMENT
MANAGEMENT CORPORATION
By: /S/ JAMES P. PAPP
_____________________________
Its____________________
SCHEDULE A
PORTFOLIO LISTING
MONEY MARKET PORTFOLIO
MORTGAGE-BACKED SECURITIES PORTFOLIO
SCHEDULE B
FEE SCHEDULE
Money Market Portfolio .125% of first $50 million
.10% of average net assets over
and above $50 million
Mortgage-Backed Securities Portfolio .35% of first $200 million
.30% of next $300 million
.25% of next $500 million
.20% of next $1 billion
.10% of average net assets over
and above $2 billion
SUBADVISORY AGREEMENT
This Subadvisory Agreement is made and entered into on this 1st day of
October, 1994, by CS First Boston Investment Management Ltd., a company
incorporated in England (the "Subadviser"), Equitable Investment Services,
Inc., an Iowa corporation (the "Adviser"), and Equi-Select Series Trust, a
Massachusetts business trust (the "Trust").
WITNESSETH:
WHEREAS, the Adviser is engaged pursuant to an Investment Advisory Agreement
(the "Advisory Agreement") with the Trust in the investment of the Trust's
assets in accordance with the Trust's Prospectus and Statement of Additional
Information (collectively the "Prospectus"); and
WHEREAS, pursuant to the Advisory Agreement the Adviser may delegate its
responsibilities for the management of the investment of the assets of one or
more portfolios of the Trust to one or more subadvisers; and
WHEREAS, Adviser desires to so delegate responsibility for management of the
investments of one or more portfolios to Subadviser, and Subadviser agrees to
manage the investment of one or more portfolios in accordance with this
Subadvisory Agreement and the Prospectus;
NOW, THEREFORE, in consideration of the premises and mutual promises
hereinafter set forth, the parties hereto agree as follows:
1. The Adviser hereby appoints Subadviser to act as the investment advisor to
Adviser with respect to one or more portfolios as identified in "Schedule A",
which is attached hereto and by this reference is incorporated herein, (singly
or collectively the "Portfolio"). Subadviser hereby accepts such appointment
and agrees to render the services herein set forth, for the compensation set
forth on Schedule B, which is attached hereto and by this reference is
incorporated herein. Adviser represents to Subadviser that it is authorized
pursuant to the Advisory Agreement to delegate to the Subadviser all of the
services to be performed by the Subadviser pursuant hereto.
2. Subject to the supervision of the Trustees of the Trust and the Adviser,
Subadviser will manage the securities and investments (including cash) of the
Portfolio, including the purchase, retention and disposition thereof, and the
execution of agreements relating thereto in accordance with the Portfolio's
investment objectives, policies and restrictions as those are stated in the
Prospectus and further subject to the following understandings:
(a) The Subadviser shall furnish a continuous investment program for the
Portfolio and in so doing shall determine from time to time what investments
or securities will be purchased, retained or sold by the Portfolio, and what
portion of the assets will be invested or held uninvested as cash;
(b) The Subadviser in the performance of its duties and obligations
under this Agreement shall act in conformity with the Declaration of Trust,
Bylaws and the Prospectus of the Trust, and with the instructions and
directions of the Trustees of the Trust and, to the extent consistent
therewith and herewith, of the Adviser, and will conform to and comply with
the requirements of the Investment Company Act of 1940 (the "1940 Act"), and
all other applicable federal and state laws and regulations;
(c) The Subadviser shall determine the securities to be purchased or
sold by the Portfolio and, as agent for the Portfolio, will effect
transactions pursuant to its determinations either directly with the issuer or
with any broker and/or dealer in such securities. The Subadviser shall also
determine whether or not the Portfolio shall enter into repurchase or reverse
repurchase agreements or engage in any other investment transactions or
techniques that are consistent with subsection (b) above;
(d) The Subadviser shall maintain all books and records with respect to
the securities transactions of the Portfolio and shall render to the Adviser
or Adviser's designees, such periodic and special reports as the Adviser may
reasonably request;
(e) The Subadviser shall, to the extent the information is within its
control, provide or cause to be provided to the Trust's Custodian all
requested information relating to all transactions concerning the assets of
the Portfolio (other than share transactions of the Portfolio);
(f) The investment advisory services of Subadviser to the Portfolio
under this Subadvisory Agreement are not to be deemed exclusive, and the
Subadviser shall be free to render similar service to others;
(g) The Subadviser is authorized, subject to the supervision of the
Adviser and the Trustees of the Trust, to place orders for the purchase and
sale of the Portfolio's investments with or through such persons, brokers or
dealers, including the Subadviser or affiliates thereof, and to negotiate
commissions to be paid on such transactions in accordance with the Portfolio's
policy with respect to brokerage as set forth in the Prospectus. The
Subadviser may, on behalf of the Portfolio, pay brokerage commissions to a
broker which provides brokerage and research services to the Subadviser in
excess of the amount another broker would have charged for effecting the
transaction, provided the Subadviser determines in good faith that the amount
is reasonable in relation to the value of the brokerage and research services
provided by the executing broker in terms of the particular transaction or in
terms of the Subadviser's overall responsibilities with respect to the
Portfolio and the accounts as to which the Subadviser exercises investment
discretion. It is recognized that the services provided by such brokers may
be useful to the Subadviser in connection with the Subadviser's service to
other clients. On occasions when Subadviser deems the purchase or sale of a
security to be in the best interest of the Portfolio as well as other
customers, the Subadviser may, to the extent permitted by applicable laws and
regulations, but shall not be obligated to, aggregate the securities to be so
sold or purchased in order to obtain the best execution and lower brokerage
commissions, if any. In such event, allocation of the securities so purchased
or sold, as well as the expenses incurred in the transaction, will be made by
Subadviser in the manner it considers to be the most equitable and consistent
with its fiduciary obligations to the Portfolio and, if applicable, to such
other customers. The Trust and the Adviser acknowledge that in order to
comply with Federal Securities laws and related regulatory requirements, there
may be periods when the Subadviser will not be permitted to initiate or
recommend certain types of transactions in the securities of issuers for which
affiliates of the Subadviser are performing investment banking services, and
neither the Trust nor the Adviser will be advised of that fact. For example,
during certain periods when affiliates of the Subadviser are engaged in an
underwriting or other distribution of a company's securities, the Subadviser
may be prohibited from purchasing or recommending the purchase of certain
securities of that company for its clients. Similarly, the Subadviser may on
occasion be prohibited from selling or recommending the sale of securities of
a company for which affiliates are providing investment banking services.
(h) The Subadviser shall provide marketing support to the Adviser in
connection with the sale of Trust shares and/or Equitable Life Insurance
Company of Iowa variable insurance contracts, as reasonably requested by the
Adviser. Such support shall include, but not necessarily be limited to,
presentations by representatives of the Subadviser at investment seminars,
conferences and other industry meetings. Any materials utilized by the
Adviser which contain any information relating to the Subadviser shall be
submitted to the Subadviser for approval prior to use, not less than five (5)
business days before such approval is needed by the Adviser. Any materials
utilized by the Subadviser which contain any information relating to the
Adviser, Equitable Life Insurance Company of Iowa (including any information
relating to its separate accounts or variable annuity contracts) or the Trust
shall be submitted to the Adviser for approval prior to use, not less than
five (5) business days before such approval is needed by the Subadviser, which
approval shall not be unreasonably withheld.
(i) The Trust represents that it has delivered true and correct copies
to the Subadviser of, and agrees to promptly notify and deliver to the
Subadviser all future amendments and supplements to, the Prospectus, the
Trust's Declaration of Trust, the Trust's Bylaws, resolutions or other
instructions of the Trustees relevant to the Subadviser's performance of its
duties under this Agreement, the Advisory Agreement and the Trust's
Registration Statement on Form N-1A.
3. The Subadviser agrees that all records which it maintains for the
Portfolio pursuant to 2(d) are the property of the Trust and will promptly
surrender any of such records to Adviser upon the Trustees' or Adviser's
request. The Subadviser shall preserve for periods prescribed by Rule 31a-2
of the 1940 Act any such records as are required to be maintained by the
Subadviser with respect to the Portfolio by Rule 31a-1 of the 1940 Act.
4. For performance of the services hereunder with respect to the Portfolios,
the Adviser shall pay the Subadviser pursuant to the Fee Schedule contained in
Schedule B. The fee prescribed in Schedule B shall be calculated daily and
payable monthly in arrears at an annual rate per Schedule B of the Portfolio's
average daily net assets.
5. The Subadviser shall not be liable for any error of judgment or mistake of
law or for any loss suffered by the Trust, Portfolio or the Adviser in
connection with the matters to which this Subadvisory Agreement relates,
except for a loss resulting from willful misfeasance, bad faith or gross
negligence on its part in the performance of its duties or from reckless
disregard by it of its obligations and duties under this Subadvisory
Agreement.
6. The term of this Subadvisory Agreement shall begin on the date first above
written, and unless sooner terminated as hereinafter provided, this
Subadvisory Agreement shall remain in effect through October 1, 1996.
Thereafter, this Subadvisory Agreement shall continue in effect with respect
to the Portfolios from year to year, subject to the termination provisions and
all other terms and conditions hereof; PROVIDED, such continuance with respect
to the Portfolios is approved at least annually by vote of the holders of a
majority of the outstanding voting securities of the Portfolio or by the
Trustees of the Trust; PROVIDED, that in either event such continuance is also
approved annually by the vote, cast in person at a meeting called for the
purpose of voting on such approval, of a majority of the Trustees of the Trust
who are not parties to this Subadvisory Agreement or interested persons of any
party hereto; and PROVIDED FURTHER that the Subadviser shall not have notified
the Trust in writing at least sixty (60) days prior to October 1, 1996, or at
least sixty (60) days prior to October 1 of any year thereafter that it does
not desire such continuation. The Subadviser shall furnish to the Trust,
promptly upon its request, such information as may reasonably be necessary to
evaluate the terms of this Subadvisory Agreement or any extension, renewal or
amendment thereof. This Subadvisory Agreement may be terminated at any time
by any party hereto, without the payment of any penalty, upon sixty (60) days'
prior written notice to the other parties; PROVIDED, that in the case of
termination by the Trust, such action shall have been authorized (i) by
resolution of the Trust's Board of Trustees, including the vote or written
consent of Trustees of the Trust who are not parties to this Subadvisory
Agreement or interested persons of any party hereto, or (ii) by vote of a
majority of the outstanding voting securities of the Portfolio. This
Agreement shall automatically terminate in the event of its "assignment" (as
defined in the 1940 Act).
7. The Subadviser shall for all purposes herein be deemed to be an
independent contractor and shall not, unless otherwise expressly provided
herein or authorized by the Trustees of the Trust from time to time, have any
authority to act for or represent the Portfolio or Trust in any way or
otherwise be deemed to be an agent of the Portfolio or the Trust.
8. This Subadvisory Agreement is entered into by the Trust pursuant to
authority granted by the Trustees, and the obligations created hereby are not
binding on any of the Trustees or shareholders of the Trust individually, but
bind only the property of the Trust and the Portfolios.
9. This Subadvisory Agreement may be amended only in accordance with the
1940 Act.
10. Any notice that is required to be given by the parties to each other
under the terms of this Subadvisory Agreement shall be in writing, delivered,
or mailed postpaid to the other party, or transmitted by facsimile with
acknowledgement of receipt, to the parties at the following addresses or
facsimile numbers, which may from time to time be changed by the parties by
notice to the other party:
(a) If to the Subadviser:
CS First Boston Investment Management Ltd.
One Cabot Square
London England E14 4QJ
Attention: Mark J. Morris
(b) If to the Manager:
Equitable Investment Services, Inc.
699 Walnut Street
Des Moines, Iowa 50309
Attention: Paul R. Schlaack
Facsimile: (515) 282-9538
(c) If to the Trust:
Equi-Select Series Trust
604 Locust Street
Des Moines, Iowa 50309
Attention: Paul R. Schlaack
Facsimile: (515) 282-9538
11. This Subadvisory Agreement shall be governed and construed in accordance
with the laws of The Commonwealth of Massachusetts.
12. This Agreement may be executed in one or more counterparts, each of which
shall be deemed an original.
13. Under the rules of the Investment Management Regulatory Organization
("IMRO"), clients must be placed in specific categories which are dictated by
different considerations including the nature and financial description of the
client, the experience of the client in certain investments and other factors.
On the basis of the information which the Adviser has given, it is a
Non-Private Customer in relation to the services to be provided in accordance
with this Agreement.
14. The Subadviser understands that the Adviser does not require transaction
confirmation notes from Subadviser. The information which would have been
contained in the Adviser's confirmation notes will be included in the periodic
statements specified below. The Subadviser will deliver or send to the
Adviser on a monthly basis and after the date of termination, a statement of
the contents and value of the Investment Portfolio and an assessment of its
performance.
Each statement will include:
a) the number of units of each asset comprising the Portfolio, the
aggregate of the initial value of each and the aggregate of their value at the
time the statement is made up; and
b) the basis on which such values have been calculated with a note of
any change in such basis from that used in the immediately preceding
statement. This basis shall be:
i) taken from mid-market price indications from a representative
sample of market makers, or
ii) where, in the opinion of the Subadviser, the investment concerned
is not readily realizable then it shall be taken at such fair valuation as may
be determined on each occasion by the Subadviser.
15. The Subadviser may undertake transactions in options, future, or
contracts for differences ("Relevant Transactions") in accordance with the
Prospectus. The markets on which Relevant Transactions are executed can be
highly volatile. Such investments carry a high risk of loss and, in the case
of futures, contracts for differences and the grant of options, a relatively
small adverse market movement may result not only in the loss of the original
investment but also in unquantifiable further loss exceeding any margin
deposited. The Subadviser may pay margin, or (subject to the rules of the
exchange concerned) deposit investments by way of margin or collateral, on any
Relevant Transaction out of the funds or investments in the Portfolio. The
Subadviser may enter into Relevant Transactions under which the Trust may be
required to pay amounts, or deposit investments, in respect of margin or
collateral in excess of (as the case may be) the funds or the investments held
in the Portfolio. Subject to the limits specified in the Prospectus, the
Subadviser may borrow on the Trust's behalf in order to meet any calls for
margin or collateral and the Subadviser and the Trust acknowledge that the
amounts which may be so committed are unquantifiable, due to the nature of the
commitments. In connection with Relevant Transactions, the Subadviser may,
without reference to the Adviser, make contractual or other arrangements to
settle or close out outstanding obligations in circumstances required by any
exchange or intermediate broker with or through which the Subadviser effects
such transactions.
16. The Subadviser, the Adviser and the Trust may record telephone
conversations with each other. Any recordings made by the Subadviser shall be
the property of the Subadviser.
17. The Subadviser has in operation a written procedure in accordance with
the rules of IMRO for the effective consideration and proper handling of
complaints from clients. Any complaint by the Adviser and/or the Trust
hereunder should be sent in writing to the Compliance Officer of the
Subadviser at the address specified in Section 10. The Adviser and/or the
Trust are also entitled to make any complaint about the Subadviser to IMRO.
IN WITNESS WHEREOF, the parties hereto have caused this Subadvisory Agreement
to be executed by their respective officers designated below as of the day and
year first above written.
ADVISER: TRUST:
EQUITABLE INVESTMENT EQUI-SELECT SERIES TRUST
SERVICES, INC.
By: /S/ PAUL R. SCHLAACK By: /S/ PAUL R. SCHLAACK
___________________________ __________________________________
Its President Its Trustee
SUBADVISER:
CS FIRST BOSTON INVESTMENT
MANAGEMENT LTD.
By: /S/ VALERIE M. LEYDE
___________________________
Its Director
SCHEDULE A
PORTFOLIO LISTING
INTERNATIONAL FIXED INCOME PORTFOLIO
SCHEDULE B
FEE SCHEDULE
International Fixed Income .45% of first $200 million
Portfolio .40% of next $300 million
.30% of next $500 million
.25% of next $1 billion
.10% of average net assets over and above $2
billion
SUBADVISORY AGREEMENT
This Subadvisory Agreement is made and entered into on this 1st day of April,
1996, by and between Robertson, Stephens & Company Investment Management,
L.P., a California limited partnership (the "Subadviser"), Equitable
Investment Services, Inc., an Iowa corporation (the "Adviser"), and
Equi-Select Series Trust, a Massachusetts business trust (the "Trust").
WITNESSETH:
WHEREAS, the Adviser is engaged in the investment of the Trust's assets in
accordance with the Trust's current Prospectus and Statement of Additional
Information (collectively the "Prospectus"); and
WHEREAS, the Adviser and the Trust have entered into an Investment Advisory
Agreement dated October 1, 1994 ("Investment Advisory Agreement"), a copy of
which is attached hereto as Exhibit A; and
WHEREAS, under the terms of the Investment Advisory Agreement, the Adviser may
delegate its responsibilities for the management of the investment of the
assets of one or more portfolios of the Trust to one or more subadvisers; and
WHEREAS, Adviser desires to so delegate responsibility for management of the
investments of one or more portfolios to Subadviser, and Subadviser agrees to
manage the investment of one or more portfolios in accordance with this
Subadvisory Agreement and the Prospectus;
NOW, THEREFORE, in consideration of the premises and mutual promises
hereinafter set forth, the parties hereto agree as follows:
1. The Adviser hereby appoints Subadviser to act as the investment advisor
with respect to one or more portfolios as identified in "Exhibit B", which is
attached hereto and by this reference is incorporated herein (singly or
collectively the "Portfolio"). Subadviser hereby accepts such appointment and
agrees to render the services herein set forth, for the compensation herein
provided.
2. Subject to the supervision of the Trustees of Trust and the Adviser,
Subadviser will manage the securities and investments (including cash) of the
Portfolio, including the purchase, retention and disposition thereof, and the
execution of agreements relating thereto in accordance with the Portfolio's
and Trust's investment objectives, policies and restrictions as those are
stated in the Prospectus and further subject to the following understandings:
(a) The Subadviser shall furnish a continuous investment program for the
Portfolio and in so doing shall determine from time to time what investments
or securities will be purchased, retained or sold by the Portfolio, and what
portion of the assets will be invested or held uninvested as cash;
(b) The Subadviser in the performance of its duties and obligations
under this Agreement shall act in conformity with the terms of the Declaration
of Trust, Bylaws and the Prospectus of the Trust, and any amendments thereto,
each of which shall be promptly furnished to the Subadviser by the Trust, and
with the instructions and directions of the Trustees of the Trust and the
Board of Directors and officers of the Adviser, and will conform to and comply
with the requirements of the Investment Company Act of 1940 (the "1940 Act"),
and all other applicable federal and state laws and regulations;
(c) The Subadviser shall determine the securities to be purchased or
sold by the Portfolio and, as agent for the Portfolio, will effect
transactions pursuant to its determinations either directly with the issuer or
with any broker and/or dealer in such securities;
(d) The Subadviser shall maintain books and records with respect to the
securities transactions of the Portfolio and shall render to the Adviser or
Adviser's designees, such periodic and special reports as the Adviser may
reasonably request;
(e) The Subadviser shall provide the Trust's Custodian with all
requested information relating to all transactions concerning the assets of
the Portfolio; and
(f) The Subadviser shall not render similar services involving the
Portfolio with respect to any other variable annuity contracts without prior
notice to the Adviser or the Trust.
(g) The Subadviser shall provide such additional services to the Adviser
in connection with the sale of Trust shares and/or Equitable Life Insurance
Company of Iowa variable insurance contracts, as reasonably requested by the
Adviser. Such services shall include, but not necessarily be limited to,
presentations by representatives of the Subadviser at investment seminars,
conferences and other industry meetings. No parties to the Agreement will use
any materials describing any other party without the prior written approval of
the party being described. Any materials utilized by the Adviser which
contain any information relating to the Subadviser and/or its affiliates shall
be submitted to the Subadviser for written approval prior to use, not less
than three (3) business days before such approval is requested by the Adviser.
Such materials shall be deemed approved if not otherwise objected to prior to
the approval date requested by the Adviser. Any materials utilized by the
Subadviser which contain any information relating to the Adviser, Equitable
Life Insurance Company of Iowa (including any information relating to its
separate accounts or variable insurance contracts) or the Trust shall be
submitted to the Adviser for written approval prior to use, not less than
three (3) business days before such approval is requested by the Subadviser.
Such materials shall be deemed approved if not otherwise objected to prior to
the approval date requested by the Subadviser.
(h) The Subadviser is authorized, subject to the supervision of the
Adviser and the Trustees of the Trust, to place orders for the purchase and
sale of the Portfolio's Investments with or through such persons, brokers or
dealers, including the Subadviser or affiliates thereof, and to negotiate
commissions to be paid on such transactions in accordance with the Portfolio's
policy with respect to brokerage as set forth in the Prospectus. The
Subadviser may, on behalf of the Portfolio, pay brokerage commissions to a
broker which provides brokerage and research services to the Subadviser in
excess of the amount another broker would have charged for effecting the
transaction, provided (i) the Subadviser determines in good faith that the
amount is reasonable in relation to the value of the brokerage and research
services provided by the executing broker in terms of the particular
transaction or in terms of the Subadviser's overall responsibilities with
respect to the Portfolio and the accounts as to which the Subadviser exercises
investment discretion, (ii) such payment is made in compliance with Section
28(e) of the Securities Exchange Act of 1934, as amended, and any other
applicable laws and regulations, and (iii) in the opinion of the Subadviser,
the total commissions paid by the Portfolio will be reasonable in relation to
the benefits to the Portfolio over the long term. It is recognized that the
services provided by such brokers may be useful to the Subadviser in
connection with the Subadviser's service to other clients. On occasions when
the Subadviser deems the purchase or sale of a security to be in the best
interests of the Portfolio as well as other clients of the Subadviser, the
Subadviser, to the extent permitted by applicable laws and regulations, may,
but shall be under no obligation to, aggregate the securities to be sold or
purchased in order to obtain the most favorable price or lower brokerage
commissions and efficient execution. In such event, allocation of securities
so sold or purchased, as well as the expenses incurred in the transaction,
will be made by the Subadviser in the manner the Subadviser considers to be
the most equitable and consistent with its fiduciary obligations to the
Portfolio and to such other clients;
(i) The Adviser and the Trust consent and agree that Subadviser may
aggregate securities sale and purchase orders for the Portfolio with similar
orders being made contemporaneously for other accounts managed by Subadviser
or with accounts of affiliates of Subadviser if, in Subadviser's reasonable
judgment, such aggregation is reasonably likely to result in an overall
economic benefit to the Portfolio, based on an evaluation that the Portfolio
is benefitted by relatively better purchase or sale prices, lower commission
expenses or beneficial timing of transactions, or a combination of these and
other factors. In many instances, the purchase or sale of securities for the
Portfolio will be affected substantially simultaneously with the purchase or
sale of like securities for the accounts of other clients of Subadviser and
its affiliates. Such transactions may be made at slightly different prices,
due to the volume of securities purchased or sold. In such event, the average
price of all securities purchased or sold in such transactions may be
determined, and the Portfolio may be charged or credited, as the case may be,
the average transaction price.
(j) Robertson, Stephens & Company LLC ("RS & Co."), an affiliate of
Subadviser, may execute agency (but not principal) transactions on behalf of
the Portfolio. Subadviser has a conflict of interest in recommending RS & Co.
to execute such transactions and RS & Co. will receive commissions in
connection therewith.
(k) The Adviser and the Trust agree that RS & Co. may act as broker for
both the Portfolio and for another person on the other side of any transaction
involving funds or securities in the Portfolio ("Agency Cross Transactions").
The Adviser and the Trust recognize that Subadviser or its affiliates may
receive commissions, and have a potentially conflicting division of loyalties
and responsibilities regarding, both parties to such Agency Cross
Transactions. If Subadviser engages in an Agency Cross Transaction,
Subadviser will send to the Adviser and the Trust a written confirmation at or
before the completion of each such Agency Cross Transaction, which
confirmation will include (a) a statement of the nature of such Agency Cross
Transaction, (b) the date such Agency Cross Transaction shall have taken
place, (c) an offer to furnish, on request, the time when such Agency Cross
Transaction shall have taken place, and (d) the source and amount of any other
remuneration received or to be received by Subadviser on any of its affiliates
in connection with such Agency Cross Transaction. Subadviser shall also send
to the Adviser and the Trust, at least annually, a written statement
identifying the total amount of such Agency Cross Transactions during the
period included in the statement, and the total commissions or other
remuneration received or to be received by Subadviser or any of its affiliates
in connection with such Agency Cross Transactions included in the statement.
The consent to Agency Cross Transactions set forth in this paragraph may be
revoked by the Adviser or the Trust at any time by notifying Subadviser in
writing.
3. The Subadviser agrees that all records which it maintains for the
Portfolio pursuant to Paragraph 2(d) are the property of the Trust and will
promptly surrender any of such records to Adviser upon the Trustees' or
Adviser's request. The Subadviser shall preserve for periods prescribed by
Rule 31a-2 of the 1940 Act any such records as are required to be maintained
by the Subadviser with respect to the Portfolio by Rule 31a-1 of the 1940 Act.
4. The Adviser shall pay the Subadviser pursuant to the Fee Schedule contained
in "Exhibit C", which is attached hereto and by this reference is incorporated
herein. The fee prescribed in Exhibit C shall be calculated daily and payable
monthly in arrears at an annual rate per Exhibit C of the Portfolio's average
daily net assets.
5. The Subadviser shall not be liable for any error of judgment or mistake
of law or for any loss suffered by the Trust in connection with the matters to
which this Subadvisory Agreement relates, except a loss resulting from willful
misfeasance, bad faith or gross negligence on its part in the performance of
its duties or from reckless disregard by it of its obligations and duties
under this Subadvisory Agreement.
6. The Adviser and the Trust acknowledge and understand that Subadviser
engages in an investment advisory business apart from managing the Portfolio.
This will create conflicts of interest with the Portfolio over Subadviser's
time devoted to managing the Portfolio and the allocation of investment
opportunities among accounts (including the Portfolio) managed by Subadviser.
Subadviser will attempt to resolve all such conflicts in a manner that is
generally fair to all of its clients. The Adviser and the Trust confirm that
Subadviser may give advice and take action with respect to any of its other
clients that may differ from advice given or the timing or nature of action
taken with respect to the Portfolio so long as it is Subadviser's policy, to
the extent practicable, to allocate investment opportunities to the Portfolio
over a period of time on a fair and equitable basis relative to other clients.
Nothing in this Agreement shall be deemed to obligate Subadviser to acquire
for the Portfolio any security that Subadviser or its officers or employees
may acquire for its or their own accounts or for the account of any other
client if, in the absolute discretion of Subadviser, it is not practical or
desirable to acquire a position in such security for the Portfolio.
7. The term of this Subadvisory Agreement shall begin on the date first
above written, and unless sooner terminated as hereinafter provided, this
Subadvisory Agreement shall remain in effect through April 1, 1998.
Thereafter, this Subadvisory Agreement shall continue in effect with respect
to the Portfolio from year to year, subject to the termination provisions and
all other terms and conditions hereof; PROVIDED, such continuance with respect
to the Portfolio is approved at least annually by vote of the holders of a
majority of the outstanding voting securities of the Portfolio or by the
Trustees of the Trust; PROVIDED, that in either event such continuance is also
approved annually by the vote, cast in person at a meeting called for the
purpose of voting on such approval, of a majority of the Trustees of the Trust
who are not parties to this Subadvisory Agreement or interested persons of any
party hereto; and PROVIDED FURTHER that the Subadviser shall not have notified
the Trust in writing at least sixty (60) days prior to April 1, 1998, or at
least sixty (60) days prior to April 1 of any year thereafter that is does not
desire such continuation. The Subadviser shall furnish to the Trust, promptly
upon its request, such information as may reasonably be necessary to evaluate
the terms of this Subadvisory Agreement or any extension, renewal or amendment
thereof. This Subadvisory Agreement may be terminated at any time by any
party hereto, without the payment of any penalty, upon sixty (60) days' prior
written notice to the other parties; PROVIDED, that in the case of termination
by the Trust, such action shall have been authorized (i) by resolution of the
Trust's Board of Trustees, including the vote or written consent of Trustees
of the Trust who are not parties to this Subadvisory Agreement or interested
persons of any party hereto, or (ii) by vote of a majority of the outstanding
voting securities of the Portfolio. This Agreement shall automatically
terminate in the event of its "assignment" (as defined in the 1940 Act).
8. The Subadviser shall for all purposes herein be deemed to be an
independent contractor and shall not, unless otherwise expressly provided
herein or authorized by the Trustees of Trust from time to time, have any
authority to act for or represent the Portfolio or Trust in any way or
otherwise be deemed to be an agent of the Portfolio or the Trust.
9. This Subadvisory Agreement is entered into by the Trust on behalf of one
or more Portfolios identified in Exhibit B pursuant to authority granted by
the Trustees, and the obligations created hereby are not binding on any of the
Trustees or shareholders of the Trust individually, but bind only the property
of such Portfolios of the Trust.
10. This Subadvisory Agreement may be amended only in accordance with the
1940 Act.
11. The Adviser and the Trust acknowledge that the Adviser and the Trust have
received Subadviser's brochure required to be delivered under the Investment
Adviser's Act of 1940 (including the information in Part II of Subadviser's
Form ADV). If the Adviser or the Trust received such information less than
forty-eight hours prior to signing this Agreement, this Agreement may be
terminated by the Adviser or the Trust without penalty within five business
days from the date of this Agreement. Upon written request by the Adviser or
the Trust, Subadviser agrees to deliver annually, without charge, Subadviser's
brochure required by the Investment Advisers Act of 1940.
12. Any notice that is required to be given by the parties to each other
under the terms of this Subadvisory Agreement shall be in writing, delivered,
or mailed postpaid to the other party, or transmitted by facsimile with
acknowledgement of receipt, to the parties at the following addresses or
facsimile numbers, which may from time to time be changed by the parties by
notice to the other party:
(a) If to the Subadviser:
Robertson, Stephens & Company Investment Management, L.P.
555 California Street
San Francisco, CA 94104
Attention: Ms. Dana _. Welch, Esq.
Facsimile: (415) 693-3302
(b) If to the Manager:
Equitable Investment Services, Inc.
699 Walnut Street
Des Moines, IA 50309
Attention: Paul R. Schlaack
Facsimile: (515) 282-9538
(c) If to the Trust:
Equi-Select Series Trust
699 Walnut Street
Des Moines, IA 50309
Attention: Paul R. Schlaack
Facsimile: (515) 282-9538
13. This Subadvisory Agreement shall be governed and construed in accordance
with the laws of The Commonwealth of Massachusetts.
14. This Agreement may be executed in one or more counterparts, each of which
shall be deemed an original.
IN WITNESS WHEREOF, the parties hereto have caused this Subadvisory Agreement
to be executed by their respective officers designated below as of the day and
year first above written.
ADVISER: TRUST:
EQUITABLE INVESTMENT EQUI-SELECT SERIES TRUST
SERVICES, INC.
By: /S/ PAUL R. SCHLAACK By: /S/ PAUL R. SCHLAACK
___________________________ _______________________________
Paul R. Schlaack Paul R. Schlaack
Its President Its President
SUBADVISER:
ROBERTSON, STEPHENS & COMPANY
INVESTMENT MANAGEMENT, L.P.
By: /S/ ILLEGIBLE
____________________________
Its____________________
EXHIBIT A
INVESTMENT ADVISORY AGREEMENT
AGREEMENT, made as of the 1st day of October, 1994 between Equi-Select Series
Trust, an unincorporated business trust organized under the laws of the
Commonwealth of Massachusetts (the "Trust"), and Equitable Investment
Services, Inc., an Iowa corporation (the "Adviser").
W I T N E S S E T H :
WHEREAS, the Trust is engaged in business as an open-end management investment
company and is registered as such under the Investment Company Act of 1940, as
amended (the "Act");
WHEREAS, the Trust is authorized to issue separate series, each of which
offers a separate class of shares of common stock, each having its own
investment objective or objectives, policies and limitations;
WHEREAS, the Trust currently offers shares in ten series, designated as the
Advantage Portfolio, OTC Portfolio, Government Securities Portfolio,
International Fixed Income Portfolio, International Stock Portfolio, Money
Market Portfolio, Mortgage-Backed Securities Portfolio, Research Portfolio,
Short-Term Bond Portfolio and Total Return Portfolio ("Current Series"), and
the Trust may offer shares of one or more additional series in the future;
WHEREAS, the Adviser is registered as an investment adviser under the
Investment Advisers Act of 1940; and
WHEREAS, the Trust desires to retain the Adviser to render investment
management and administrative services to the Trust with respect to each
Current Series as indicated on the signature page in the manner and on the
terms and conditions hereinafter set forth;
NOW, THEREFORE, the parties hereto agree as follows:
1. SERVICES OF THE ADVISER.
1.1 INVESTMENT MANAGEMENT SERVICES. The Adviser shall act as the
investment adviser to the Trust and, as such, shall (i) obtain and evaluate
such information relating to the economy, industries, business, securities
markets and securities as it may deem necessary or useful in discharging its
responsibilities hereunder, (ii) formulate a continuing program for the
investment of the assets of the Trust in a manner consistent with its
investment objectives, policies and restrictions, and (iii) determine from
time to time securities to be purchased, sold, retained or lent by the Trust,
and implement those decisions, including the selection of entities with or
through which such purchases, sales or loans are to be effected; provided,
that the Adviser will place orders pursuant to its investment determinations
either directly with the issuer or with a broker or dealer, and if with a
broker or dealer, (a) will attempt to obtain the best net price and most
favorable execution of its orders, and (b) may nevertheless in its discretion
purchase and sell portfolio securities from and to brokers and dealers who
provide the Adviser with research, analysis, advice and similar services and
pay such brokers and dealers in return a higher commission or spread than may
be charged by other brokers or dealers.
The Trust hereby authorizes any entity or person associated with the Adviser
or any Sub-Adviser retained by Adviser pursuant to Section 7 of this
Agreement, which is a member of a national securities exchange, to effect any
transaction on the exchange for the account of the Trust which is permitted by
Section 11(a) of the Securities Exchange Act of 1934 and Rule 11a2-2(T)
thereunder, and the Trust hereby consents to the retention of compensation for
such transactions in accordance with Rule 11a2-2(T)(a)(iv).
The Adviser shall carry out its duties with respect to the Trust's investments
in accordance with applicable law and the investment objectives, policies and
restrictions set forth in the Trust's then-current Prospectus and Statement of
Additional Information, and subject to such further limitations as the Trust
may from time to time impose by written notice to the Adviser.
1.2 ADMINISTRATIVE SERVICES. The Adviser shall manage the Trust's
business and affairs and shall provide such services required for effective
administration of the Trust as are not provided by employees or other agents
engaged by the Trust; provided, that the Adviser shall not have any obligation
to provide under this Agreement any direct or indirect services to Trust
shareholders, any services related to the distribution of Trust shares, or any
other services which are the subject of a separate agreement or arrangement
between the Trust and the Adviser. Subject to the foregoing, in providing
administrative services hereunder, the Adviser shall:
1.2.1 OFFICE SPACE, EQUIPMENT AND FACILITIES. Furnish without cost to
the Trust, or pay the cost of, such office space, office equipment and office
facilities as are adequate for the Trust's needs.
1.2.2 PERSONNEL. Provide, without remuneration from or other cost to
the Trust, the services of individuals competent to perform all of the Trust's
executive, administrative and clerical functions which are not performed by
employees or other agents engaged by the Trust or by the Adviser acting in
some other capacity pursuant to a separate agreement or arrangement with the
Trust.
1.2.3 AGENTS. Assist the Trust in selecting and coordinating the
activities of the other agents engaged by the Trust, including the Trust's
shareholder servicing agent, custodian, independent auditors and legal
counsel.
1.2.4 TRUSTEES AND OFFICERS. Authorize and permit the Advisers,
directors, officers and employees who may be elected or appointed as Trustees
or officers of the Trust to serve in such capacities, without remuneration
from or other cost to the Trust.
1.2.5 BOOKS AND RECORDS. Assure that all financial, accounting and
other records required to be maintained and preserved by the Trust are
maintained and preserved by it or on its behalf in accordance with applicable
laws and regulations.
1.2.6 REPORTS AND FILINGS. Assist in the preparation of (but not pay
for) all periodic reports by the Trust to its shareholders and all reports and
filings required to maintain the registration and qualification of the Trust
and Trust shares, or to meet other regulatory or tax requirements applicable
to the Trust, under federal and state securities and tax laws.
1.3 ADDITIONAL SERIES. In the event that the Trust from time to time
designates one or more series in addition to the Current Series ("Additional
Series"), it shall notify the Adviser in writing. If the Adviser is willing to
perform services hereunder to the Additional Series, it shall so notify the
Trust in writing. Thereupon, the Trust and the Adviser shall enter into an
Addendum to this Agreement for the Additional Series and the Additional Series
shall be subject to this Agreement.
2. EXPENSES OF THE TRUST.
2.1 EXPENSES TO BE PAID BY ADVISER. The Adviser shall pay all salaries,
expenses and fees of the officers, Trustees and employees of the Trust who are
officers, directors or employees of the Adviser.
In the event that the Adviser pays or assumes any expenses of the Trust not
required to be paid or assumed by the Adviser under this Agreement, the
Adviser shall not be obligated hereby to pay or assume the same or any similar
expense in the future; provided, that nothing herein contained shall be deemed
to relieve the Adviser of any obligation to the Trust under any separate
agreement or arrangement between the parties.
2.2 EXPENSES TO BE PAID BY THE TRUST. The Trust shall bear all expenses
of its operation, except those specifically allocated to the Adviser under
this Agreement or under any separate agreement between the Trust and the
Adviser. Subject to any separate agreement or arrangement between the Trust
and the Adviser, the expenses hereby allocated to the Trust, and not to the
Adviser, include, but are not limited to:
2.2.1 CUSTODY. All charges of depositories, custodians, and other
agents for the transfer, receipt, safekeeping, and servicing of its cash,
securities, and other property.
2.2.2 SHAREHOLDER SERVICING. All expenses of maintaining and servicing
shareholder accounts, including but not limited to the charges of any
shareholder servicing agent, dividend disbursing agent or other agent engaged
by the Trust to service shareholder accounts.
2.2.3 SHAREHOLDER REPORTS. All expenses of preparing, setting in type,
printing and distributing reports and other communications to shareholders.
2.2.4 PROSPECTUSES. All expenses of preparing, setting in type,
printing and mailing annual or more frequent revisions of the Trust's
Prospectus and Statement of Additional Information and any supplements thereto
and of supplying them to shareholders.
2.2.5 PRICING AND PORTFOLIO VALUATION. All expenses of computing the
Trust's net asset value per share, including any equipment or services
obtained for the purpose of pricing shares or valuing the Trust's investment
portfolio.
2.2.6 COMMUNICATIONS. All charges for equipment or services used for
communications between the Adviser or the Trust and any custodian, shareholder
servicing agent, portfolio accounting services agent, or other agent engaged
by the Trust.
2.2.7 LEGAL AND ACCOUNTING FEES. All charges for services and expenses
of the Trust's legal counsel and independent auditors.
2.2.8 TRUSTEES' FEES AND EXPENSES. All compensation of Trustees other
than those affiliated with the Adviser, all expenses incurred in connection
with such unaffiliated Trustees' services as Trustees, and all other expenses
of meetings of the Trustees and committees of the Trustees.
2.2.9 SHAREHOLDER MEETINGS. All expenses incidental to holding meetings
of shareholders, including the printing of notices and proxy materials, and
proxy solicitation therefor.
2.2.10 FEDERAL REGISTRATION FEES. All fees and expenses of registering
and maintaining the registration of the Trust under the Act and the
registration of the Trust's shares under the Securities Act of 1933 (the "1933
Act"), including all fees and expenses incurred in connection with the
preparation, setting in type, printing, and filing of any Registration
Statement, Prospectus and Statement of Additional Information under the 1933
Act or the Act, and any amendments or supplements that may be made from time
to time.
2.2.11 STATE REGISTRATION FEES. All fees and expenses of qualifying and
maintaining the qualification of the Trust and of the Trust's shares for sale
under securities laws of various states or jurisdictions, and of registration
and qualification of the Trust under all other laws applicable to the Trust or
its business activities (including registering the Trust as a broker-dealer,
or any officer of the Trust or any person as agent or salesman of the Trust in
any state).
2.2.12 SHARE CERTIFICATES. All expenses of preparing and transmitting
the Trust's share certificates.
2.2.13 CONFIRMATIONS. All expenses incurred in connection with the
issue and transfer of Trust shares, including the expenses of confirming all
share transactions.
2.2.14 BONDING AND INSURANCE. All expenses of bond, liability, and
other insurance coverage required by law or regulation or deemed advisable by
the Trustees of the Trust, including, without limitation, such bond, liability
and other insurance expenses that may from time to time be allocated to the
Trust in a manner approved by its Trustees.
2.2.15 BROKERAGE COMMISSIONS. All brokers' commissions and other
charges incident to the purchase, sale or lending of the Trust's portfolio
securities.
2.2.16 TAXES. All taxes or governmental fees payable by or with respect
to the Trust to federal, state or other governmental agencies, domestic or
foreign, including stamp or other transfer taxes.
2.2.17 TRADE ASSOCIATION FEES. All fees, dues and other expenses
incurred in connection with the Trust's membership in any trade association or
other investment organization.
2.2.18 NONRECURRING AND EXTRAORDINARY EXPENSES. Such nonrecurring and
extraordinary expenses as may arise including the costs of actions, suits, or
proceedings to which the Trust is a party and the expenses the Trust may incur
as a result of its legal obligation to provide indemnification to its
officers, Trustees and agents.
3. ADVISORY FEE.
3.1 FEE. As compensation for all services rendered facilities provided
and expenses paid or assumed by the Adviser under this Agreement, the Trust
shall pay the Adviser on the last day of each month, or as promptly as
possible thereafter, a fee calculated at the annual rate of the average daily
net assets during such month of each series of the Trust as set forth below:
3.1.1 ADVANTAGE PORTFOLIO. 0.50% of the first $100 million of average
net assets and 0.35% of average net assets over and above $100 million.
3.1.2 OTC PORTFOLIO. 0.80% of the first $300 million of average net
assets and 0.55% of average net assets over and above $300 million.
3.1.3 GOVERNMENT SECURITIES PORTFOLIO. 0.75% of the first $200 million
of average net assets, 0.55% of average net assets over and above $200
million.
3.1.4 INTERNATIONAL FIXED INCOME PORTFOLIO. 0.85% of the first $200
million of average net assets, 0.75% of next $300 million, 0.60% of average
net asset of next $500 million, 0.55% of average net assets of next $1 billion
and 0.40% of average net assets over and above $2 billion.
3.1.5 INTERNATIONAL STOCK PORTFOLIO. 0.80 % of the first $300 million
of average net assets and 0.55% of average net assets over and above $300
million.
3.1.6 MONEY MARKET PORTFOLIO. 0.375% of the first $50 million of
average net assets and 0.35 % of average net assets over and above $50
million.
3.1.7 MORTGAGE-BACKED SECURITIES PORTFOLIO. 0.75% of the first $200
million of average net assets, 0.65% of average net assets of next $300
million, 0.55% of average net assets of next $500 million, 0.50% of average
net assets of next $1 billion and 0.40% of average net assets over and above
$2 billion.
3.1.8 RESEARCH PORTFOLIO. 0.80% of the first $300 million of average
net assets and 0.55% of average net assets over and above $300 million.
3.1.9 SHORT-TERM BOND PORTFOLIO. 0.65% of the first $100 million of
average net assets, 0.50% of average net assets of next $100 million, 0.45% of
average net assets of next $300 million and 0.40% of average net assets over
and above $500 million.
3.1.10 TOTAL RETURN PORTFOLIO. 0.80% of the first $300 million of
average net assets and 0.55% of average net assets over and above $300
million.
4. RECORDS.
4.1 TAX TREATMENT. The Adviser shall maintain the books and records of
the Trust in such a manner that treats each series as a separate entity for
federal income tax purposes.
4.2 OWNERSHIP. All records required to be maintained and preserved by
the Trust pursuant to the provisions or rules or regulations of the Securities
and Exchange Commission under Section 31(a) of the Act and maintained and
preserved by the Adviser on behalf of the Trust are the property of the Trust
and shall be surrendered by the Adviser promptly on request by the Trust;
provided, that the Adviser may at its own expense make and retain copies of
any such records.
5. REPORTS TO ADVISER.
The Trust shall furnish or otherwise make available to the Adviser such copies
of the Trust's Prospectus, Statement of Additional Information, financial
statements, proxy statements, reports, and other information relating to its
business and affairs as the Adviser may, at any time or from time to time,
reasonably require in order to discharge its obligations under this Agreement.
6. REPORTS TO THE TRUST.
The Adviser shall prepare and furnish to the Trust such reports, statistical
data and other information in such form and at such intervals as the Trust may
reasonably request.
7. RETENTION OF SUB-ADVISER.
Subject to the Trust's obtaining the initial and periodic approvals required
under Section 15 of the Act, the Adviser may retain one or more sub-advisers,
at the Adviser's own cost and expense, for the purpose of managing the
investments of the assets of one or more Series of the Trust. Retention of
one or more sub-advisers shall in no way reduce the responsibilities or
obligations of the Adviser under this Agreement and the Adviser shall be
responsible to the Trust for all acts or omissions of any sub-adviser in
connection with the performance of the Adviser's duties hereunder.
8. SERVICES TO OTHER CLIENTS.
Nothing herein contained shall limit the freedom of the Adviser or any
affiliated person of the Adviser to render investment management and
administrative services to other investment companies, to act as investment
adviser or investment counselor to other persons, firms or corporations, or to
engage in other business activities.
9. LIMITATION OF LIABILITY OF ADVISER AND ITS PERSONNEL.
Neither the Adviser nor any director, officer or employee of the Adviser
performing services for the Trust at the direction or request of the Adviser
in connection with the Adviser's discharge of its obligations hereunder shall
be liable for any error of judgment or mistake of law or for any loss suffered
by the Trust in connection with any matter to which this Agreement relates,
and the Adviser shall not be responsible for any action of the Trustees of the
Trust in following or declining to follow any advice or recommendation of the
Adviser; PROVIDED, that nothing herein contained shall be construed (i) to
protect the Adviser against any liability to the Trust or its shareholders to
which the Adviser would otherwise be subject by reason of willful misfeasance,
bad faith, or gross negligence in the performance of the Adviser's duties, or
by reason of the Adviser's reckless disregard of its obligations and duties
under this Agreement, or (ii) to protect any director, officer or employee of
the Adviser who is or was a Trustee or officer of the Trust against any
liability of the Trust or its shareholders to which such person would
otherwise be subject by reason of willful misfeasance, bad faith, gross
negligence or reckless disregard of the duties involved in the conduct of such
person's office with the Trust.
10. NO PERSONAL LIABILITY OF TRUSTEES OR SHAREHOLDERS.
This Agreement is made by the Trust on behalf of its various Current Series
pursuant to authority granted by the Trustees, and the obligations created
hereby are not binding on any of the Trustees or shareholders of the Trust
individually, but bind only the property of each Current Series of the Trust.
11. EFFECT OF AGREEMENT.
Nothing herein contained shall be deemed to require the Trust to take any
action contrary to its Declaration of Trust or its By-Laws or any applicable
law, regulation or order to which it is subject or by which it is bound, or to
relieve or deprive the Trustees of the Trust of their responsibility for and
control of the conduct of the business and affairs of the Trust.
12. TERM OF AGREEMENT.
The term of this Agreement shall begin on the date first above written, and
unless sooner terminated as hereinafter provided, this Agreement shall remain
in effect through October 1, 1996. Thereafter, this Agreement shall continue
in effect with respect to the Trust from year to year, subject to the
termination provisions and all other terms and conditions hereof; PROVIDED,
such continuance with respect to the Trust is approved at least annually by
vote of the holders of a majority of the outstanding voting securities of the
Trust or by the Trustees of the Trust; PROVIDED, that in either event such
continuance is also approved annually by the vote, cast in person at a meeting
called for the purpose of voting on such approval, of a majority of the
Trustees of the Trust who are not parties to this Agreement or interested
persons of either party hereto; and PROVIDED FURTHER that the Adviser shall
not have notified the Trust in writing at least sixty (60) days prior to
October 1, 1996, or at least sixty (60) days prior to October 1 of any year
thereafter that it does not desire such continuation. The Adviser shall
furnish to the Trust, promptly upon its request, such information as may
reasonably be necessary to evaluate the terms of this Agreement or any
extension, renewal or amendment thereof.
13. AMENDMENT OR ASSIGNMENT OF AGREEMENT.
Any amendment to this Agreement shall be in writing signed by the parties
hereto; PROVIDED, that no such amendment shall be effective unless authorized
on behalf of the Trust (i) by resolution of the Trust's Trustees, including
the vote or written consent of a majority of the Trust's Trustees who are not
parties to this Agreement or interested persons of either party hereto, and
(ii) by vote of a majority of the outstanding voting securities of the Trust.
This Agreement shall terminate automatically and immediately in the event of
its assignment.
14. TERMINATION OF AGREEMENT.
This Agreement may be terminated at any time by either party hereto, without
the payment of any penalty, upon sixty (60) days' prior written notice to the
other party; PROVIDED, that in the case of termination by the Trust, such
action shall have been authorized (i) by resolution of the Trust's Board of
Trustees, including the vote or written consent of Trustees of the Trust who
are not parties to this Agreement or interested persons of either party
hereto, or (ii) by vote of a majority of the outstanding voting securities of
the Trust.
15. INTERPRETATION AND DEFINITION OF TERMS.
Any question of interpretation of any term or provision of this Agreement
having a counterpart in or otherwise derived from a term or provision of the
Act shall be resolved by reference to such term or provision of the Act and to
interpretation thereof, if any, by the United States courts, or, in the
absence of any controlling decision of any such court, by rules, regulations
or orders of the Securities and Exchange Commission validly issued pursuant to
the Act. Specifically, the terms "vote of a majority of the outstanding
voting securities," "interested persons," "assignment" and "affiliated
person," as used in this Agreement shall have the meanings assigned to them by
Section 2(a) of the Act. In addition, when the effect of a requirement of the
Act reflected in any provision of this Agreement is modified, interpreted or
relaxed by a rule, regulation or order of the Securities and Exchange
Commission, whether of special or of general application, such provision shall
be deemed to incorporate the effect of such rule, regulation or order.
16. CAPTIONS.
The captions in this Agreement are included for convenience of reference only
and in no way define or delineate any of the provisions hereof or otherwise
affect their construction or effect.
17. EXECUTION IN COUNTERPARTS.
This Agreement may be executed simultaneously in counterparts, each of which
shall be deemed an original, but all of which together shall constitute one
and the same instrument.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be signed
by their respective officers thereunto duly authorized and their respective
seals to be hereunto affixed, as of the date and year first above written.
<TABLE>
<CAPTION>
<S> <C>
EQUI-SELECT SERIES TRUST for its
Advantage Portfolio, OTC Portfolio,
Government Securities Portfolio,
International Fixed Income Portfolio,
International Stock Portfolio, Money
Market Portfolio, Mortgage-Backed
Securities Portfolio, Research
Portfolio, Short-Term Bond Portfolio and
Total Return Portfolio
Attest:
/s/ John A. Merriman By:/s/ Paul R. Schlaack
- -------------------- ----------------------------------------
Secretary Paul R. Schlaack,
President
EQUITABLE INVESTMENT SERVICES, INC.
Attest:
/s/ Diane M. Kurt By:/s/ Paul R. Schlaack
- -------------------- ----------------------------------------
Secretary Paul R. Schlaack,
President
</TABLE>
ADDENDUM TO INVESTMENT ADVISORY AGREEMENT
EQUI-SELECT SERIES TRUST
AND
EQUITABLE INVESTMENT SERVICES, INC.
The Investment Advisory Agreement ("Agreement") between Equi-Select Series
Trust (the "Trust") and Equitable Investment Services, Inc. (the "Adviser")
dated October 1, 1994, is hereby amended to add two Additional Series to the
Trust in accordance with Section 1.3 of the Agreement. The two Additional
Series being added pursuant to this Addendum are Growth & Income Portfolio and
the Value + Growth Portfolio. The fees to be paid to the Adviser, with
respect to each Additional Series, are as follows:
Growth & Income Portfolio: 0.95% of the first $200 million average net
assets; and 0.75% of average net assets over
and above $200 million.
Value + Growth Portfolio: 0.95% of the first $500 million average net
assets; and 0.75% of average net assets over
and above $500 million.
IN WITNESS WHEREOF, the parties hereto have caused this Addendum to be signed
by their respective officers thereunto duly authorized as of this 1st day of
April, 1996.
<TABLE>
<CAPTION>
<S> <C>
EQUI-SELECT SERIES TRUST
for its Growth & Income Portfolio and
Value + Growth Portfolio
Attest:
/s/ John A. Merriman By:/s/ Paul R. Schlaack
- -------------------------------- -------------------------------------
John A. Merriman, Secretary Paul R. Schlaack, President
EQUITABLE INVESTMENT SERVICES, INC.
/s/ Kimberly K. Krumviede By:/s/ Paul R. Schlaack
- -------------------------------- -------------------------------------
Kimberly K. Krumviede, Secretary Paul R. Schlaack, President
</TABLE>
EXHIBIT B
PORTFOLIO LISTING
GROWTH & INCOME PORTFOLIO
VALUE + GROWTH PORTFOLIO
EXHIBIT C
FEE SCHEDULE
Growth & Income Portfolio 0.55% of first $200 million
0.45% of average net assets over and above $200
million.
Value + Growth Portfolio 0.55% of first $500 million;
0.45% of average net assets over and above $500
million.
CUSTODIAN CONTRACT
BETWEEN
EQUI-SELECT SERIES TRUST
AND
STATE STREET BANK AND TRUST COMPANY
TABLE OF CONTENTS
PAGE
1. Employment of Custodian and Property to be Held by It
2. Duties of the Custodian with Respect to Property of the Fund Held By the
Custodian in the United States
2.1 Holding Securities
2.2 Delivery of Securities
2.3 Registration of Securities
2.4 Bank Accounts
2.5 Availability of Federal Funds
2.6 Collection of Income
2.7 Payment of Fund Monies
2.8 Liability for Payment in Advance of Receipt of Securities Purchased
2.9 Appointment of Agents
2.10 Deposit of Fund Assets in Securities Systems
2.11 Fund Assets Held in the Custodian's Direct Paper System
2.13 Ownership Certificates for Tax Purposes
2.14 Proxies
2.15 Communications Relating to Portfolio Securities
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
3.2 Assets to be Held
3.3 Foreign Securities Depositories
3.4 Agreements with Foreign Banking Institutions
3.5 Access of Independent Public Accountants of the Fund
3.6 Reports by Custodian
3.7 Transactions in Foreign Custody Account
3.8 Liability of Foreign Sub-Custodians
3.9 Liability of Custodian
3.10 Reimbursement for Advances
3.11 Monitoring Responsibilities
3.12 Branches of U.S. Banks
3.13 Tax Law
4. Payments for Sales or Repurchases or Redemptions of Shares of the Fund.
5. Proper Instructions
6. Actions Permitted without Express Authority
7. Evidence of Authority
8. Duties of Custodian with Respect to the Books of Account and Calculation
of Net Asset Value and Net Income
9. Records
10. Opinion of Fund's Independent Public Accountants
11. Reports to Fund by Independent Public Accountants.
12. Compensation of Custodian
13. Responsibility of Custodian.
14. Effective Period, Termination and Amendment
15. Successor Custodian
16. Interpretive and Additional Provisions.
17. Additional Funds
18. Massachusetts Law to Apply
19. Prior Contracts
20. Shareholder Communications Election
CUSTODIAN CONTRACT
This Contract between EQUI-SELECT SERIES TRUST, a business trust organized and
existing under the laws of Massachusetts, having its principal place of
business at 699 Walnut Street, Des Moines, Iowa 50309 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 ten series,
Advantage Portfolio, Government Securities Portfolio, International Fixed
Income Portfolio, International Stock Portfolio, Money Market Portfolio,
Mortgage-Backed Securities Portfolio, OTC Portfolio, Research Portfolio,
Short-Term Bond Portfolio and Total Return Portfolio (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
Declaration of Trust. 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
beneficial interest 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.
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 Trustees 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;
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;
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
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
Trustees 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 1. 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
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
Trustees 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 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;
4) 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;
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 Trustees 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 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:
1) The Custodian may keep 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 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 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 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 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 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 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 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 Trustees 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.
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 Trustees, 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 to: (a)
"foreign securities", as defined in paragraph (c)(1) 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 1 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 PUBLIC ACCOUNTANTS OF THE FUND . Upon request of
the Fund, the Custodian will use its best efforts to arrange for the
independent public 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 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 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 Portfolio's 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 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 1 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 SALES OR REPURCHASES OR REDEMPTIONS 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 Declaration of Trust and any applicable votes of the Board
of Trustees of the Fund pursuant thereto, the 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 Trustees 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 Trustees of the Fund accompanied by a detailed description of
procedures approved by the Board of Trustees, Proper Instructions may include
communications effected directly between electro-mechanical or electronic
devices provided that the Board of Trustees 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;
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 Trustees 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 Trustees 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 Trustees pursuant to the Declaration of Trust 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 Trustees 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 directed in writing
to do so by the Fund on behalf of the Portfolio, shall itself keep such books
of account and/or compute such net asset value per share. 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.
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 PUBLIC ACCOUNTANTS.
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 public 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 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 1 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 or 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.
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 sixty (60)
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 Trustees of the Fund has approved the
initial use of a particular Securities System by such Portfolio, as required
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 Trustees has approved the initial use
of the Direct Paper System by such Portfolio ; 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 Declaration
of Trust, 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 Trustees (i) substitute
another bank or trust company for the Custodian by giving notice as described
above to the Custodian, or (ii) immediately terminate 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 Trustees 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
Trustees 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 Trustees 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 Trustees 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 Declaration of Trust 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 Advantage Portfolio, Government Securities Portfolio,
International Fixed Income Portfolio, International Stock Portfolio, Money
Market Portfolio, Mortgage-Backed Securities Portfolio, OTC Portfolio,
Research Portfolio, Short-Term Bond Portfolio and Total Return Portfolio 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.
20. SHAREHOLDER COMMUNICATIONS ELECTION.
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 it 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.
[ ] 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 September, 1994.
ATTEST EQUI-SELECT SERIES TRUST
/S/ JOHN A. MERRIMAN By: /S/ PAUL R. SCHLAACK
______________________ __________________________________
John A. Merriman, Secretary Paul R. Schlaack, President
ATTEST STATE STREET BANK AND TRUST COMPANY
/S/ E. SOLOMON By: /S/ RONALD E. LOGNE
______________________ __________________________________
Executive Vice President
SCHEDULE A
The following foreign banking institutions and foreign securities depositories
have been approved by the Board of Trustees of Equi-Select Series Trust for
use as sub-custodians for the Fund's securities and other assets:
(Insert banks and securities depositories)
Certified:
/S/ PAUL R. SCHLAACK
______________________________________
Fund's Authorized Officer
Date: September 30, 1994
________________________________
TRANSFER AGENCY AND SERVICE AGREEMENT
between
EQUI-SELECT SERIES TRUST
and
STATE STREET BANK AND TRUST COMPANY
TABLE OF CONTENTS
PAGE
Article l Terms of Appointment; Duties of the Bank
Article 2 Fees and Expenses
Article 3 Representations and Warranties of the Bank
Article 4 Representations and Warranties of the Fund
Article 5 Data Access and Proprietary Information
Article 6 Indemnification
Article 7 Standard of Care
Article 8 Covenants of the Fund and the Bank
Article 9 Termination of Agreement
Article 10 Additional Funds
Article 11 Assignment
Article 12 Amendment
Article 13 Massachusetts Law to Apply
Article 14 Force Majeure
Article 15 Consequential Damages
Article 16 Merger of Agreement
Article 17 Limitations of Liability of the Trustees and Shareholders
Article 18 Counterparts
TRANSFER AGENCY AND SERVICE AGREEMENT
AGREEMENT made as of the ___ day of __________, 199__, by and between
EQUI-SELECT SERIES TRUST, a Massachusetts business trust, having its principal
office and place of business at 699 Walnut Street, Des Moines, Iowa 50306
(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 10 series, the
Advantage Portfolio, Government Securities Portfolio, International Fixed
Income Portfolio, International Stock Portfolio, Money Market Portfolio,
Mortgage-Backed Securities Portfolio, OTC Portfolio, Research Portfolio,
Short-Term Bond Portfolio and Total Return Portfolio (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, 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:
ARTICLE L TERMS OF APPOINTMENT; DUTIES OF THE BANK
1.01 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 authorized and
issued shares of beneficial interest of the Fund representing interests in
each of the respective Portfolios ("Shares"), dividend disbursing agent, 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.
1.02 The Bank agrees that it will perform the following services:
(a) In accordance with procedures established from time to 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 Declaration of Trust 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) In respect to the transactions in items (i), (ii) and (iii)
above, the Bank shall execute transactions directly with broker-dealers
authorized by the Fund who shall thereby be deemed to be acting on behalf of
the Fund;
(v) 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;
(vi) Effect transfers of Shares by the registered owners thereof
upon receipt of appropriate instructions;
(vii) Prepare and transmit payments for dividends and
distributions declared by the Fund on behalf of the applicable Portfolio;
(viii) Issue replacement certificates for those certificates
alleged to have been lost, stolen or destroyed upon receipt by the Bank of
indemnification satisfactory to the Bank and protecting the Bank and the Fund,
and the Bank at its option, may issue replacement certificates in place of
mutilated stock certificates upon presentation thereof and without such
indemnity;
(ix) Maintain records of account for and advise the Fund and its
Shareholders as to the foregoing; and
(x) 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 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, and, as
relevant, agent in 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
Article 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.
ARTICLE 2 FEES AND EXPENSES
2.01 For 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 2.02 below may be changed from time to time subject to mutual written
agreement between the Fund and the Bank.
2.02 In addition to the fee paid under Section 2.01 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.
2.03 The Fund agrees on behalf of each of the Portfolios to pay all fees and
reimbursable expenses within five days following the mailing 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.
ARTICLE 3 REPRESENTATIONS AND WARRANTIES OF THE BANK
The Bank represents and warrants to the Fund that:
3.01 It is a trust company duly organized and existing and in good standing
under the laws of the Commonwealth of Massachusetts.
3.02 It is duly qualified to carry on its business in the Commonwealth of
Massachusetts.
3.03 It is empowered under applicable laws and by its Charter and By-Laws to
enter into and perform this Agreement.
3.04 All requisite corporate proceedings have been taken to authorize it to
enter into and perform this Agreement.
It has and will continue to have access to the necessary facilities,
equipment and personnel to perform its duties and obligations under this
Agreement.
ARTICLE 4 REPRESENTATIONS AND WARRANTIES OF THE FUND
The Fund represents and warrants to the Bank that:
4.01 It is a business trust duly organized and existing and in good standing
under the laws of Massachusetts.
4.02 It is empowered under applicable laws and by its Declaration of Trust
and By-Laws to enter into and perform this Agreement.
4.03 All corporate proceedings required by said Declaration of Trust and
By-Laws have been taken to authorize it to enter into and perform this
Agreement.
4.04 It is an open-end diversified management investment company registered
under the Investment Company Act of 1940, as amended.
4.05 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 have been made and
will continue to be made, with respect to all Shares of the Fund being offered
for sale.
ARTICLE 5 DATA ACCESS AND PROPRIETARY INFORMATION
5.01 The Fund acknowledges that the data bases, computer programs, screen
format, 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 required
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;
(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 Article 5. The obligations of this Article shall
survive any earlier termination of this Agreement.
5.02 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.
5.03 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 (such transactions constituting a "COEFI"),
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.
ARTICLE 6 INDEMNIFICATION
6.01 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
hereunder.
(c) The reasonable reliance on or reasonable 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 reasonable reliance on, or the reasonable 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.
6.02 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.
6.03 In order that the indemnification provisions contained in this Article 6
shall apply, upon the assertion of a claim for which the Fund may be required
to indemnify the Bank, the Bank shall 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.
ARTICLE 7 STANDARD OF CARE
7.01 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.
ARTICLE 8 COVENANTS OF THE FUND AND THE BANK
8.01 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 Trustees of the Fund
authorizing the appointment of the Bank and the execution and delivery of this
Agreement.
(b) A copy of the Declaration of Trust and By-Laws of the Fund and all
amendments thereto.
8.02 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.
8.03 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.
8.04 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.
8.05 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.
ARTICLE 9 TERMINATION OF AGREEMENT
9.01 This Agreement may be terminated by either party upon sixty (60) days
written notice to the other.
9.02 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.
ARTICLE 10 ADDITIONAL FUNDS
10.01 In the event that the Fund establishes one or more series of Shares in
addition to the Advantage Portfolio, Government Securities Portfolio,
International Fixed Income Portfolio, International Stock Portfolio, Money
Market Portfolio, Mortgage-Backed Securities Portfolio, OTC Portfolio,
Research Portfolio, Short-Term Bond Portfolio and Total Return Portfolio 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.
ARTICLE 11 ASSIGNMENT
11.01 Except as provided in Section 11.03 below, neither this Agreement nor
any rights or obligations hereunder may be assigned by either party without
the written consent of the other party.
11.02 This Agreement shall inure to the benefit of and be binding upon the
parties and their respective permitted successors and assigns.
11.03 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 omissions of any subcontractor as it is for its own
acts and omissions.
ARTICLE 12 AMENDMENT
12.01 This Agreement may be amended or modified by a written agreement
executed by both parties and authorized or approved by a resolution of the
Trustees of the Fund.
ARTICLE 13 MASSACHUSETTS LAW TO APPLY
13.01 This Agreement shall be construed and the provisions thereof
interpreted under and in accordance with the laws of the Commonwealth of
Massachusetts.
ARTICLE 14 FORCE MAJEURE
14.01 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.
ARTICLE 15 CONSEQUENTIAL DAMAGES
15.01 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.
ARTICLE 16 MERGER OF AGREEMENT
16.01 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.
ARTICLE 17 LIMITATIONS OF LIABILITY OF THE TRUSTEES AND SHAREHOLDERS
17.01 A copy of the Declaration of Trust of the Trust is on file with the
Secretary of the Commonwealth of Massachusetts, and notice is hereby given
that this instrument is executed on behalf of the Trustees of the Trust as
Trustees and not individually and that the obligations of this instrument are
not binding upon any of the Trustees or Shareholders individually but are
binding only upon the assets and property of the Fund.
ARTICLE 18 COUNTERPARTS
18.01 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.
<TABLE>
<CAPTION>
<S> <C>
EQUI-SELECT SERIES TRUST
BY:/S/ PAUL R. SCHLAACK
_________________________________
ATTEST:
/S/ JOHN R. MERRIMAN
__________________________
Jonh R. Merriman, Secretary
STATE STREET BANK AND TRUST COMPANY
BY: /S/ RONALD E. LOGNE
________________________________
Executive Vice President
ATTEST:
___________________________
</TABLE>
STATE STREET BANK & TRUST COMPANY
FUND SERVICE RESPONSIBILITIES*
Responsibility Bank Fund
1. Receives orders for the purchase
of Shares.
2. Issue Shares and hold Shares in
Shareholders accounts.
3. Receive redemption requests.
4. Effect transactions 1-3 above
directly with broker-dealers.
5. Pay over monies to redeeming
Shareholders.
6. Effect transfers of Shares.
7. Prepare and transmit dividends
and distributions.
8. Issue Replacement Certificates.
9. Reporting of abandoned property.
10. Maintain records of account.
11. Maintain and keep a current and
accurate control book for each
issue of securities.
12. Mail proxies.
13. Mail Shareholder reports.
14. Mail prospectuses to current
Shareholders.
15. Withhold taxes on U.S. resident
and non-resident alien accounts.
16. Prepare and file U.S. Treasury
Department forms.
17. Prepare and mail account and
confirmation statements for
Shareholders.
18. Provide Shareholder account
information.
19. Blue sky reporting.
* Such services are more fully described in Article 1.02 (a), (b) and (c) of
the Agreement.
<TABLE>
<CAPTION>
<S> <C>
EQUI-SELECT SERIES TRUST
BY:/S/ PAUL R. SCHLAACK
_________________________________
ATTEST:
/S/ JOHN R. MERRIMAN
__________________________
Jonh R. Merriman, Secretary
STATE STREET BANK AND TRUST COMPANY
BY: /S/ RONALD E. LOGNE
________________________________
Executive Vice President
ATTEST:
____________________________
</TABLE>
SUBADMINISTRATION AGREEMENT
FOR
REPORTING AND ACCOUNTING SERVICES
Agreement between EQUITABLE INVESTMENT SERVICES INC. (the "Investment
Adviser"), STATE STREET BANK AND TRUST COMPANY, a Massachusetts trust company
(the "Bank") and EQUI-SELECT SERIES TRUST, a Massachusetts business trust (the
"Fund").
WHEREAS, the Investment Adviser 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 Investment Adviser has accepted such appointment;
WHEREAS, the Investment Adviser and the Fund have entered into a investment
advisery agreement (the "Management Agreement") pursuant to which the
Investment Adviser 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, sub-administrative, and other services
to investment companies and others; and
WHEREAS, the Investment Adviser 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 Investment Adviser 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 Investment Adviser 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 Investment Adviser 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 Investment
Adviser 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 Declaration of Trust of the
Fund as presently in effect and as amended from time to time;
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 Trustees of the Fund authorizing the original
issue of its shares;
e. Certified copies of the resolutions of the Fund's Trustees
authorizing: (1) this Agreement, (2) certain officers and employees of the
Investment Adviser and the Fund to give instructions to the Bank pursuant to
this Agreement and (3) certain officers and employees of the Investment
Adviser or the Fund to sign checks and pay expenses on behalf of the
Investment Adviser or the Fund, respectively;
f. A copy of the investment advisory agreement between the Fund and the
Investment Adviser;
g. A copy of the Custodian Agreement between the Fund and its custodian;
h. A copy of the Transfer Agency and Services Agreement between the Fund
and its transfer agent; and
i. 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 Investment Adviser 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
under this Agreement.
3. AUTHORIZED SHARES
The Investment Adviser 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
beneficial interest, and that the Trustees 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 Investment Adviser in accordance with procedures
established from time to time between the Investment Adviser and the Bank.
It is the responsibility of the Investment Adviser 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 Investment Adviser 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 INVESTMENT ADVISER OR THE FUND
The Investment Adviser 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 Investment Adviser 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, 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 Trustees' meetings,
including fees and expenses of Trustees;
j. The salary and expenses of any officer or employee of the Fund or the
Investment Adviser;
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 Investment Adviser or the Fund 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
Investment Adviser for the reasonable out-of-pocket costs incurred by it at
rates determined in accordance with the fee schedule in connection with this
Agreement.
7. INSTRUCTIONS
At any time the Bank may apply to any officer of the Investment Adviser or the
Fund for instructions and may consult with legal counsel for the Fund or the
Investment Adviser as directed by the Investment Adviser, 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 Investment
Adviser and the Fund 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 Investment Adviser or the Fund.
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 for losses,
costs, damages and expenses, including reasonable expenses for counsel, 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
twenty-four months for any liability suffered by the Investment Adviser 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 Investment Adviser and the Fund 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 Investment Adviser 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 negligence or willful misconduct.
c. The Investment Adviser and the Fund 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 Investment Adviser 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 Investment Adviser or the Fund, as the case may be,
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.
10. COMPLIANCE WITH GOVERNMENTAL RULES AND REGULATIONS
The Investment Adviser 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 Investment Adviser 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 Investment Adviser 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 Investment
Adviser or the Fund, as the case may be from time to time, have no authority
to act or represent either the Investment Adviser or the Fund in any way or
otherwise be deemed an agent of either the Investment Adviser or of the Fund.
12. PRINTED MATTER
Neither the Investment Adviser 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 Investment Adviser 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 Investment Adviser or
the Fund 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 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
Investment Adviser, 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.
19. LIMITATIONS OF LIABILITY TO THE TRUSTEES AND SHAREHOLDERS
A copy of the Declaration of Trust of the Fund is on file with the Secretary
of the Commonwealth of Massachusetts, and notice is hereby given that this
instrument is executed on behalf of the Trustees of the Trust as Trustees and
not individually and that the obligations of this instrument are not binding
upon any of the Trustees or Shareholders individually but are binding only
upon the assets and property of the Fund.
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 ____
day of September, 1994.
EQUITABLE INVESTMENT SERVICES INC.
By: /S/ PAUL R. SCHLAACK
___________________________
Name: Paul R. Schlaack
Title: President
STATE STREET BANK AND TRUST COMPANY
By: /S/ RONALD E. LOGNE
_________________________
Name: Ronald E. Logne
Title: Executive Vice President
EQUI-SELECT SERIES TRUST
By: /S/ PAUL R. SCHLAACK
__________________________
Name: Paul R. Schlaack
Title: President
SCHEDULE A
TO
SUBADMINISTRATION AGREEMENT
Trust Authorized Shares and Class
(Unlimited authorization
and a single class unless
otherwise noted.)
Advantage Portfolio
Government Securities Portfolio
International Fixed Income Portfolio
International Stock Portfolio
Money Market Portfolio
Mortgage-Backed Securities Portfolio
OTC Portfolio
Research Portfolio
Short-Term Bond Portfolio
Total Return Portfolio
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 Investment
Adviser;
(b) Oversee the maintenance by the Bank and Fund of certain books and
records of the Fund as required under Rule 31a-1(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 Investment Adviser 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 Trustees concerning the
performance of the independent accountants as the Trustees may reasonably
request or deem appropriate;
(j) Make such reports and recommendations to the Trustees concerning the
performance and fees of the Fund's custodian and transfer and dividend
disbursing agent as the Trustees may reasonably request or deem appropriate;
(k) Oversee and review calculations of fees paid to the Investment
Adviser, the investment adviser, the custodian, and the transfer agent;
(l) Consult with the Fund's officers, independent accountants, 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 Trustees;
(n) Provide such assistance to the Investment Adviser, 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
Investment Adviser, the Fund, and the Bank from time to time.
Blazzard, Grodd & Hasenauer, P.C.
943 Post Road East
Westport, CT 06880
(203) 226-7866
March __, 1996
Board of Trustees
Equi-Select Series Trust
604 Locust Street
Des Moines, Iowa 50309
RE: Opinion of Counsel - Equi-Select Series Trust
Gentlemen:
You have requested our Opinion of Counsel in connection with the filing with
the Securities and Exchange Commission of Post-Effective Amendment No. 4 to a
Registration Statement on Form N-1A with respect to Equi-Select Series Trust.
We have made such examination of the law and have examined such records and
documents as in our judgment are necessary or appropriate to enable us to
render the opinions expressed below.
We are of the following opinions:
1. Equi-Select Series Trust ("Trust") is a valid and existing
unincorporated voluntary association, commonly known as a business trust.
2. The Trust is a business Trust created and validly existing pursuant
to the Massachusetts Laws.
3. All of the prescribed Trust procedures for the issuance of the shares
have been followed, and, when such shares are issued in accordance with the
Prospectus contained in the Registration Statement for such shares, all state
requirements relating to such Trust shares will have been complied with.
4. Upon the acceptance of purchase payments made by shareholders in
accordance with the Prospectus contained in the Registration Statement and
upon compliance with applicable law, such shareholders will have
legally-issued, fully paid, non-assessable shares of the Trust.
You may use this opinion letter, or a copy thereof, as an exhibit to the
Registration.
We consent to the reference to our Firm under the caption "Legal Counsel"
contained in the Statement of Additional Information which forms a part of the
Registration Statement.
Sincerely,
BLAZZARD, GRODD & HASENAUER, P.C.
By: /s/ RAYMOND A. O'HARA III
_____________________________________
Raymond A. O'Hara III
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the references to our firm under the captions "Financial
Highlights" in the Prospectus and "Independent Auditors" and "Financial
Statements" in the Statement of Additional Information included in
Post-Effective Amendment No. 4 to the Registration Statement (Form N-1A, No.
33-79166) of Equi-Select Series Trust.
We also consent to the incorporation by reference of our report dated February
9, 1996 on the Money Market, Mortgage-Backed Securities, International Fixed
Income, Government Securities, International Stock, Short-Term Bond, OTC,
Research, Total Return, and Advantage Portfolios of Equi-Select Series Trust,
included in the 1995 Annual Report to Contractholders.
ERNST & YOUNG LLP
Boston, Massachusetts
March 28, 1996
ERNST & YOUNG LLP [logo]
Suite 3400
801 Grand Avenue
Des Moines, Iowa 50309-2764
Phone: 515-243-2727
Consent of Independent Auditors
The Board of Trustees and Shareholder
Growth & Income Portfolio and Value + Growth
Portfolio of the Equi-Select Series Trust
We consent to the reference to our firm under the caption "Independent
Auditors" and "Financial Statements" in Part B and to the inclusion of our
report dated March 20, 1996 on the Statements of Assets and Liabilities of the
Growth & Income Portfolio and Value + Growth Portfolio of the Equi-Select
Series Trust in this Post-Effective Amendment No. 4 to Form N-1A Registration
Statement under the Securities Act of 1933 (No. 33-79166) and Registration
Statement under the Investment Company Act of 1940 (No. 811-8522) of
Equi-Select Series Trust.
ERNST & YOUNG LLP
Des Moines, Iowa
March 28, 1996
AGREEMENT GOVERNING INITIAL CONTRIBUTION
TO
EQUI-SELECT SERIES TRUST
BY
EQUITABLE LIFE INSURANCE COMPANY OF IOWA
THIS AGREEMENT is made by and between Equi-Select Series Trust ('Trust")
a Massachusetts Business Trust, and Equitable Life Insurance Company of Iowa
("Insurance Company") on behalf of Equitable Life Insurance Company of Iowa
Separate Account A (the "Separate Account"), a separate account of Insurance
Company.
WHEREAS, Insurance Company has established the Separate Account and
proposes to contribute to it the sum of $100,000; and
WHEREAS, the Insurance Company on behalf of the Separate Account proposes
to contribute $100,000 ("Contribution") to the Trust in the manner hereinafter
described; and
WHEREAS, The Parties hereto intend that the Contribution satisfy the
requirement that the Trust have a net worth of at least $100,000 prior to
making a public offering of securities of the Trust; and
WHEREAS, it is necessary and desirable that the terms under which said
Contribution is made and the respective rights of the Insurance Company and
the Trust with respect thereto be determined;
NOW, THEREFORE, it is hereby agreed between Insurance Company on behalf
of the Separate Account and the Trust as follows:
Insurance Company will provide for the contribution to the Trust by the
Separate Account the sum of $100,000. Insurance Company hereby represents and
agrees that such Contribution is for investment purposes and not for the
purpose of redeeming or disposing of any interest in the Trust resulting from
such Contribution. Contribution is intended to satisfy the requirement that
the Trust have a net worth of at least S 100,000 prior to making public
offering of the securities of the Trust.
II
In consideration for such Contribution and without deduction of any sales
or other charges, the Trust shall credit Insurance Company with shares, of
which Insurance Company, on behalf of the Separate Account, shall be the
owner. Such shares shall share pro rata in the investment performance of each
Portfolio of Trust as selected by Insurance Company and shall be subject to
the same valuation procedures and the same periodic charges as are other
shares of such Portfolios.
III
Insurance Company hereby acknowledges that by the making of such
Contribution by Separate Account, neither Insurance Company nor Separate
Account is and shall not be regarded as a creditor of the Trust and that the
relationship of debtor-creditor between the Trust and the Separate Account
does not exist with respect to the amount so contributed. Insurance Company
agrees that the Separate Account's interest in the Trust as a result of such
Contribution shall be neither senior to nor subordinate to the interests of
owners of variable annuity contracts issued with respect to the Separate
Account and that, in the event of liquidation of the Trust or the Separate
Account, however occurring, the Separate Account shall have no preferential
rights of any kind over such contract owner's but hall share ratably with
them.
IV
All commitments of the Insurance Company hereunder shall be forever
binding upon its successor or successors.
V
Insurance Company shall not withdraw the Contribution prior to five years
from the date hereof unless its annuity program is terminated and no more
variable annuity contracts are outstanding.
VI
The Trust hereby accepts such Contribution subject to the Terms of the
Agreement.
Executed this 15th day of September, 1994.
EQUITABLE LIFE INSURANCE COMPANY OF IOWA
BY: /s/ FRED S. HUBBELL
--------------------------
Fred S. Hubbell, President
EQUI-SELECT SERIES TRUST
BY: /s/ PAUL R. SCHLAACK
--------------------------
Paul R Schlaack, President
AGREEMENT GOVERNING CONTRIBUTION OF WORKING CAPITAL
TO
EQUI-SELECT SERIES TRUST
BY
EQUITABLE LIFE INSURANCE COMPANY OF IOWA
THIS AGREEMENT is made by and between Equi-Select Series Trust ("Trust),
a Massachusetts Business Trust, and Equitable Life Insurance Company of Iowa
('Insurance Company").
WHEREAS, Insurance Company has established a variable annuity program
which will utilize Trust as an underlying investment; and
WHEREAS, Insurance Company desires that Trust have sufficient assets to
be able to efficiently invest in a diversified portfolio of securities; and
WHEREAS, the Insurance Company proposes to contribute $23,000,000
("Working Capital") to the Trust in the manner hereinafter described; and
WHEREAS, it is necessary and desirable that the teens under which said
Working Capital is contributed and the respective rights of the Insurance
Company and the Trust with respect there to be determined;
NOW, THEREFORE, it is hereby agreed between Insurance Company on behalf
of the Separate Account and the Trust as follows:
I
Insurance Company will provide for the contribution to the Trust the sum
of $23,000,000. Insurance Company hereby represents and agrees that such
Working Capital is for investment purposes and not for the purpose of
redeeming or disposing of any interest in the Trust resulting from such
contribution. This Working Capital is in addition to any minimum capital
requirements imposed upon the Trust.
II
In consideration for the contribution of the Working Capital and without
deduction of any sales or other charges, the Trust shall credit Insurance
Company with shares. Such shares shall share pro rata in the investment
performance of each Portfolio of Trust as selected by Insurance Company and
shall be subject to the same valuation procedures and the same periodic
charges as are other shares of such Portfolios.
III
Insurance Company hereby acknowledges that by the contribution of such
Working Capital, Insurance Company is not and shall not be regarded as a
creditor of the Trust and that the relationship of debtor-creditor between the
Trust and the Insurance Company does not exist with respect to the amount so
contributed. Insurance Company agrees that the contribution of the Working
Capital does not now and shall not in the future deem the Insurance Company,
the holder of any interest other than as provided in Section II of this
Agreement. Insurance Company agrees that its interest in the Trust as a result
of such Contribution shall be neither senior to nor subordinate to the
interests of owners of variable annuity contracts issued with respect to the
Separate Accounts of Insurance Company and that, in the event of liquidation
of the Trust, the Insurance Company shall have no preferential rights of any
kind over such contract owner's but shall share ratably with them.
IV
All Commitments of the Insurance Company hereunder shall be forever
binding upon its successor or successors.
V
Insurance Company may, at any time withdraw one dollar of contributed
Working Capital for each dollar of assets allocated to the Trust in the form
of purchase payments from annuity contracts owners or owners of other variable
insurance contracts offered by Insurance Company or an affiliated insurance
company of Insurance company.
VI
The Trust hereby accepts the contribution of such Working Capital subject
to the terms of the Agreement.
Executed this 4th day of October, 1994.
EQUITABLE LIFE INSURANCE COMPANY OF IOWA
BY: /s/ FRED S. HUBBELL
--------------------------
Fred S. Hubbell, President
EQUI-SELECT SERIES TRUST
BY: /s/ PAUL R. SCHLAACK
---------------------------
Paul R Schlaack, President
AGREEMENT GOVERNING INITIAL CONTRIBUTION
TO
EQUI-SELECT SERIES TRUST
BY
EQUITABLE LIFE INSURANCE COMPANY OF IOWA
THIS AGREEMENT is made by and between Equi-Select Series Trust ("Trust"), a
Massachusetts Business Trust, and Equitable Life Insurance Company of Iowa
("Insurance Company") on behalf of Equitable Life Insurance Company of Iowa
Separate Account A (the "Separate Account"), a separate account of Insurance
Company.
WHEREAS, Insurance Company has established two additional Sub-Accounts of the
Separate Account and proposes to contribute to the Sub-Accounts the sum of
$20,000; and
WHEREAS, Insurance Company on behalf of the Separate Account proposes to
contribute $20,000 ("Contribution") to the Trust in the manner hereinafter
described; and
WHEREAS, it is necessary and desirable that the terms under which said
Contribution is made and the respective rights of the Insurance Company and
the Trust with respect thereto be determined;
NOW, THEREFORE, it is hereby agreed between Insurance Company on behalf of the
Separate Account and the Trust as follows:
I
Insurance Company will provide for the contribution to the Trust by the
Separate Account the sum of $20,000. Insurance Company hereby represents and
agrees that such Contribution is for investment purposes and not for the
purpose of redeeming or disposing of any interest in the Trust resulting from
such Contribution.
II
In consideration for such Contribution and without deduction of any sales or
other charges, the Trust shall credit Insurance Company with shares, of which
Insurance Company, on behalf of the Separate Account, shall be the owner.
Such shares shall share pro rata in the investment performance of each of the
two additional Portfolios of Trust as selected by Insurance Company and shall
be subject to the same valuation procedures and the same periodic charges as
are other shares of such other Portfolios of Trust.
III
Insurance Company hereby acknowledges that by the making of such Contribution
by Separate Account, neither Insurance Company nor Separate Account is and
shall not be regarded as a creditor of the Trust and that the relationship of
debtor-creditor between the Trust and the Separate Account does not exist with
respect to the amount so contributed. Insurance Company agrees that the
Separate Account's interest in the Trust as a result of such Contribution
shall be neither senior to nor subordinate to the interests of owners of
variable annuity contracts issued with respect to the Separate Account and
that, in the event of liquidation of the Trust or the Separate Account,
however occurring, the Separate Account shall have no preferential rights of
any kind over such contract owners but shall share ratably with them.
IV
All commitments of the Insurance Company hereunder shall be forever binding
upon its successor or successors.
V
Insurance Company shall not withdraw the Contribution prior to five years from
the date hereof unless its annuity program is terminated and no more variable
annuity contracts are outstanding.
VI
The Trust hereby accepts such Contribution subject to the Terms of the
Agreement.
Executed this 20thday of March, 1996.
EQUITABLE LIFE INSURANCE COMPANY OF IOWA
By: /s/ FRED S. HUBBELL
__________________________________________
Fred S. Hubbell, Chairman, President and
Chief Executive Officer
EQUI-SELECT SERIES TRUST
By: /s/ PAUL R. SCHLAACK
_________________________________________
Paul R. Schlaack, President
AGREEMENT GOVERNING CONTRIBUTION OF WORKING CAPITAL
TO
EQUI-SELECT SERIES TRUST
BY
EQUITABLE LIFE INSURANCE COMPANY OF IOWA
THIS AGREEMENT is made by and between Equi-Select Series Trust ("Trust"), a
Massachusetts Business Trust, and Equitable Life Insurance Company of Iowa
("Insurance Company").
WHEREAS, Insurance Company has established a variable annuity program which
will utilize Trust as an underlying investment; and
WHEREAS, Insurance Company desires that Trust have sufficient assets to be
able to efficiently invest in a diversified portfolio of securities; and
WHEREAS, the Insurance Company proposes to contribute $9,980,000 ("Working
Capital") to the Trust in the manner hereinafter described; and
WHEREAS, it is necessary and desirable that the terms under which said Working
Capital is contributed and the respective rights of the Insurance Company and
the Trust with respect thereto be determined;
NOW, THEREFORE, it is hereby agreed between Insurance Company for itself, and
on behalf of the Equitable Life Insurance Company of Iowa Separate Account A,
and the Trust as follows:
I
Insurance Company will provide for the contribution to the Trust the sum of
$9,980,000 to be divided equally between the Trust's Growth & Income Portfolio
and Value + Growth Portfolio (collectively the "Portfolios"). Insurance
Company hereby represents and agrees that such Working Capital is for
investment purposes and not for the purpose of redeeming or disposing of any
interest in the Trust resulting from such contribution. This Working Capital
is in addition to any minimum capital requirements imposed upon the Trust.
II
In consideration for the contribution of the Working Capital and without
deduction of any sales or other charges, the Trust shall credit Insurance
Company with shares. Such shares shall share pro rata in the investment
performance of each of the Portfolios and shall be subject to the same
valuation procedures and the same periodic charges as are other shares of such
portfolios of Trust.
III
Insurance Company hereby acknowledges that by the contribution of such Working
Capital, Insurance Company is not and shall not be regarded as a creditor of
the Trust and that the relationship of debtor-creditor between the Trust and
the Insurance Company does not exist with respect to the amount so
contributed. Insurance Company agrees that the contribution of the Working
Capital does not now and shall not in the future deem the Insurance Company,
the holder of any interest other than as provided in Section II of this
Agreement. Insurance Company agrees that its interest in the Trust as a
result of such Contribution shall be neither senior to nor subordinate to the
interests of owners of variable annuity contracts issued with respect to the
separate accounts of Insurance Company and that, in the event of liquidation
of the Trust, the Insurance Company shall have no preferential rights of any
kind over such contract owner's but shall share ratably with them.
IV
All Commitments of the Insurance Company hereunder shall be forever binding
upon its successor or successors.
V
Insurance Company may, at any time withdraw one dollar of contributed Working
Capital for each dollar of assets allocated to the Trust in the form of
purchase payments from annuity contracts owners or owners of other variable
insurance contracts offered by Insurance Company or an affiliated insurance
company of Insurance Company.
VI
The Trust hereby accepts the contribution of such Working Capital subject to
the terms of the Agreement.
Executed this 1st day of April, 1996.
EQUITABLE LIFE INSURANCE COMPANY OF IOWA
By: /s/ FRED S. HUBBELL
_________________________________________
Fred S. Hubbell, Chairman, President and
Chief Executive Officer
EQUI-SELECT SERIES TRUST
By: /s/ PAUL R. SCHLAACK
_________________________________________
Paul R. Schlaack, President
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<CIK> 0000923494
<NAME> EQUI-SELECT SERIES TRUST
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<NAME> INTERNATIONAL FIXED INCOME PORTFOLIO
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<TABLE> <S> <C>
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<CIK> 0000923494
<NAME> EQUI-SELECT SERIES TRUST
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<NAME> GOVERNMENT SECURITIES PORTFOLIO
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<TABLE> <S> <C>
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<CIK> 0000923494
<NAME> EQUI-SELECT SERIES TRUST
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<NAME> INTERNATIONAL STOCK PORTFOLIO
<S> <C>
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<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000923494
<NAME> EQUI-SELECT SERIES TRUST
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<NUMBER> 6
<NAME> SHORT-TERM BOND PORTFOLIO
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<TABLE> <S> <C>
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<CIK> 0000923494
<NAME> EQUI-SELECT SERIES TRUST
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<NAME> OTC PORTFOLIO
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<CIK> 0000923494
<NAME> EQUI-SELECT SERIES TRUST
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<NAME> RESEARCH PORTFOLIO
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<TABLE> <S> <C>
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<CIK> 0000923494
<NAME> EQUI-SELECT SERIES TRUST
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<NAME> TOTAL RETURN PORTFOLIO
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<CIK> 0000923494
<NAME> EQUI-SELECT SERIES TRUST
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<CIK> 0000923494
<NAME> EQUI-SELECT SERIES TRUST
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<NET-ASSETS> 10,000
<DIVIDEND-INCOME> 0
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<EXPENSES-NET> 0
<NET-INVESTMENT-INCOME> 0
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<PER-SHARE-NAV-END> 10.00
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<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000923494
<NAME> EQUI-SELECT SERIES TRUST
<SERIES>
<NUMBER> 12
<NAME> GROWTH & INCOME PORTFOLIO
<S> <C>
<PERIOD-TYPE> OTHER
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> MAR-20-1996
<PERIOD-END> MAR-20-1996
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<TOTAL-ASSETS> 17,628
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<OTHER-ITEMS-LIABILITIES> 7,628
<TOTAL-LIABILITIES> 7,628
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<AVG-DEBT-PER-SHARE> 0
</TABLE>
