As filed with the Securities and Exchange Commission on February 5, 1997
File Nos. 33-81800
811-8644
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 / X/
Pre-Effective Amendment No. 1 / X/
and
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 / X/
Amendment No. 1 / X/
VARIABLE INSURANCE FUNDS
(Exact Name of Registrant as Specified in Charter)
3435 Stelzer Road, Columbus, Ohio 43219
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, including area code: 1-800______
Jeffrey L. Steele, Esq.
Dechert Price & Rhoads
1500 K Street, N.W.
Washington, D.C. 20005
Copies to:
Richard Ille Gregory Maddox
BISYS Fund Services BISYS Fund Services
3435 Stelzer Road 1230 Columbia Street, Suite 500
Columbus, Ohio 43219-3035 San Diego, CA 92101
CALCULATION OF REGISTRATION FEE UNDER THE SECURITIES ACT OF 1933
Proposed Proposed
Title of Maximum Maximum
Securities Amount Offering Aggregate Amount of
Being Being Price Offering Registration
Registered Registered Per Unit Price Fee
Shares of Indefinite* $______ N/A $0
Beneficial
Interest,
No Par Value
* Registrant elects to register an indefinite number of shares of beneficial
interest pursuant to Rule 24f-2 under the Investment Company Act of 1940.
Registrant intends to file the notice required by Rule 24f-2 with respect to
its fiscal year ending December 31, 1997 on or before March 31, 1998.
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this
Registration Statement shall thereafter become effective in accordance with
Section 8(a) of the Securities Act of 1933 or until this Registration
Statement shall become effective on such date as the Commission, acting
pursuant to said Section 8(a), may determine.
<PAGE>
VARIABLE INSURANCE FUNDS
CROSS REFERENCE SHEET
Required by Rule 404
under the Securities Act of 1933
VARIABLE INSURANCE ALLOCATED CONSERVATIVE FUND
VARIABLE INSURANCE ALLOCATED BALANCED FUND
VARIABLE INSURANCE ALLOCATED GROWTH FUND
VARIABLE INSURANCE ALLOCATED AGGRESSIVE FUND
VARIABLE INSURANCE MONEY MARKET FUND
BB&T GROWTH AND INCOME VARIABLE INSURANCE FUND
BB&T CAPITAL MANAGER VARIABLE INSURANCE FUND
Form N-1A Part A Item Prospectus Caption
1. Cover page.................. Cover Page
2. Synopsis.................... Prospectus Summary;
Fund Expenses
3. Condensed Financial
Information................. Not Applicable
4. General Description of
Registrant.................. Investment Objectives and
Policies; Investment
Objectives and Policies -
Underlying Qualivest
Funds; Investment
Objectives and Policies -
Underlying BB&T Funds;
Investment Techniques and
Risk Factors; General
Information
5. Management of the Fund...... Management of the Funds
5A. Management's Discussion of
Fund Performance............ Not Applicable
6. Capital Stock and Other
Securities.................. Taxation; General
Information
7. Purchase of Securities
Being Offered............... Valuation of Shares;
Purchasing Shares;
Management of the Funds
8. Redemption or Repurchase.... Redeeming Shares
9. Pending Legal Proceedings... Not applicable
<PAGE>
VARIABLE INSURANCE FUNDS
CROSS REFERENCE SHEET
Required by Rule 404
under the Securities Act of 1933
VARIABLE INSURANCE ALLOCATED CONSERVATIVE FUND
VARIABLE INSURANCE ALLOCATED BALANCED FUND
VARIABLE INSURANCE ALLOCATED GROWTH FUND
VARIABLE INSURANCE ALLOCATED AGGRESSIVE FUND
VARIABLE INSURANCE MONEY MARKET FUND
BB&T GROWTH AND INCOME VARIABLE INSURANCE FUND
BB&T CAPITAL MANAGER VARIABLE INSURANCE FUND
Statement of Additional
Form N-1A Part B Item Information Caption
10. Cover Page.................. Cover Page
11. Table of Contents........... Table of Contents
12. General Information and
History..................... Not Applicable
13. Investment Objectives and
Policies.................... Investment Objectives and
Policies; Investment
Restrictions
14. Management of the Fund...... Management of the Trust -
Trustees and Officers
15. Control Persons and Principal
Holders of Securities........ Management of the Trust -
Trustees and Officers
16. Investment Advisory and Other
Services.................... Management of the Trust -
Investment Advisers;
Management of the Trust -
Custodians, Transfer Agent
and Fund Accounting
Services; Management of
the Trust - Auditors
17. Brokerage Allocation........ Management of the Trust -
Portfolio Transactions
<PAGE>
18. Capital Stock and other
Securities.................. Additional Information -
Description of Shares;
Additional Information -
Shareholder and Trustee
Liability
19. Purchase, Redemption and
Pricing of Securities
Being Offered............... Additional Purchase and
Redemption Information
20. Tax Status.................. Additional Information -
Additional Tax Informa-
tion
21. Underwriters................ Management of the Trust -
Distributor
22. Calculation of Performance
Data........................ Performance Information
23. Financial Statements........ Performance Information -
Financial Statements
<PAGE>
VARIABLE INSURANCE FUND
3435 Stelzer Road
Columbus, Ohio 43219-3035
1-800-________
Variable Insurance Funds (the "Trust") is an open-end management investment
company which currently offers seven separate diversified investment portfolios
(the "Funds"), each with different investment objectives and policies. These
Funds are:
o Variable Insurance Allocated Conservative Fund;
o Variable Insurance Allocated Balanced Fund;
o Variable Insurance Allocated Growth Fund;
o Variable Insurance Allocated Aggressive Fund (collectively,
the "Allocated Funds");
o Variable Insurance Money Market Fund;
o BB&T Growth and Income Variable Insurance Fund; and
o BB&T Capital Manager Variable Insurance Fund.
Each of the Allocated Funds seeks its investment objective by investing in a
diversified portfolio of certain funds offered by Qualivest Funds, an affiliated
open-end investment company. The BB&T Capital Manager Variable Insurance Fund
seeks its investment objective by investing in a diversified portfolio of
certain funds offered by The BB&T Mutual Funds Group, another affiliated
open-end investment company. The Variable Insurance Money Market Fund and the
BB&T Growth and Income Variable Insurance Fund each seeks its investment
objective by directly investing in portfolio securities consistent with its
investment policies as described herein.
Additional information about the Trust and each of the Funds, contained in a
Statement of Additional Information dated _______, 1997, as amended or
supplemented, has been filed with the Securities and Exchange Commission and is
available upon request without charge by writing to the Trust at its address or
by calling the Trust at the telephone number shown above. The Statement of
Additional Information is incorporated herein by reference.
The Variable Insurance Money Market Fund is not insured or guaranteed by the
U.S. Government. It seeks to maintain a constant net asset value of $1.00 per
Share, but there can be no assurance that net asset value will not vary.
Shares of the Allocated Funds and the Variable Insurance Money Market Fund
currently are sold to a segregated asset account ("Separate Account") of
Nationwide Life and Annuity Insurance Company ("Nationwide") to serve as the
investment medium for variable annuity contracts ("Variable Contracts") issued
by Nationwide. Shares of the BB&T Capital Manager Variable Insurance Fund and
the BB&T Growth and Income Variable Insurance Fund currently are sold to a
segregated asset account (also a "Separate Account") of Hartford Life Insurance
Company ("Hartford") to serve as the investment medium for Variable Contracts
issued by Hartford. Shares of the Funds also are sold to qualified
<PAGE>
pension and retirement plans outside of the separate account context. The
Separate Accounts invest in shares of the Funds in accordance with allocation
instructions received from owners of the Variable Contracts ("Variable Contract
Owners"). Such allocation rights are described further in the accompanying
Separate Account prospectus.
Shares of the Funds are not deposits or obligations of, and are not endorsed,
insured or guaranteed by, any bank, the Federal Deposit Insurance Corporation,
or any other agency. An investment in the Funds involves investment risk,
including the possible loss of principal.
This Prospectus sets forth concisely the information about the Funds that a
prospective investor ought to know before investing. Investors should read this
Prospectus and retain it for future reference.
THIS PROSPECTUS SHOULD BE READ IN CONJUNCTION WITH THE PROSPECTUS OF THE
RELEVANT SEPARATE ACCOUNT, WHICH ACCOMPANIES THIS PROSPECTUS. BOTH PROSPECTUSES
SHOULD BE READ CAREFULLY AND RETAINED FOR FUTURE REFERENCE.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE COMMISSION OR
ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
The date of this Prospectus is _____, 1997.
- 2 -
<PAGE>
TABLE OF CONTENTS Page
PROSPECTUS SUMMARY................................................. 5
Shares Offered............................................ 5
Investment Objectives..................................... 5
Investment Policies....................................... 6
Risk Factors and Special Considerations................... 6
Investment Advisers....................................... 6
Other Information......................................... 7
FUND EXPENSES.......................................................8
INVESTMENT OBJECTIVES AND POLICIES................................ 10
Allocated Funds........................................... 10
Money Market Fund .........................................11
Growth and Income Fund.................................... 12
Capital Manager Fund...................................... 12
INVESTMENT OBJECTIVES AND POLICIES--UNDERLYING QUALIVEST
FUNDS..............................................................13
Qualivest Equity Funds.....................................14
Qualivest Income Funds.....................................17
Qualivest Money Funds......................................20
INVESTMENT OBJECTIVES AND POLICIES--
UNDERLYING BB&T FUNDS..............................................20
BB&T Equity Funds..........................................20
BB&T Income Funds..........................................23
BB&T Money Market Fund.....................................23
INVESTMENT TECHNIQUES AND RISK FACTORS.............................24
VALUATION OF SHARES................................................35
PURCHASING SHARES..................................................36
REDEEMING SHARES...................................................37
MANAGEMENT OF THE FUNDS............................................38
Trustees...................................................38
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<PAGE>
Investment Advisers........................................38
Administrator and Distributor..............................44
Other Service Providers....................................44
Variable Contract Owner Servicing Agents...................45
Expenses...................................................45
Banking Laws...............................................45
TAXATION...........................................................46
GENERAL INFORMATION............................................... 47
Description of the Trust and Its Shares................... 47
Performance Information................................... 48
Account Services.......................................... 49
Miscellaneous............................................. 49
- 4 -
<PAGE>
PROSPECTUS SUMMARY
Shares Offered . . . . . . . Shares of beneficial interest
(the "Shares") of the Variable Insurance Allocated
Conservative Fund (the "Conservative Fund"),
Variable Insurance Allocated Balanced Fund (the
"Balanced Fund"), Variable Insurance Allocated
Growth Fund (the "Growth Fund"), Variable
Insurance Allocated Aggressive Fund (the
"Aggressive Fund") (collectively, the "Allocated
Funds"), Variable Insurance Money Market Fund (the
"Money Market Fund"), BB&T Growth and Income
Variable Insurance Fund (the "Growth and Income
Fund"), and BB&T Capital Manager Variable
Insurance Fund (the "Capital Manager Fund")
(collectively, the "Funds") which are seven
separate diversified investment portfolios of
Variable Insurance Funds, a Massachusetts business
trust (the "Trust") which is registered as an
open-end management investment company.
Shares of the Allocated Funds and the Money Market
Fund currently are offered to a segregated asset
account (a "Separate Account") of Nationwide Life
and Annuity Insurance Company ("Nationwide"),
while shares of the Growth and Income Fund and
Capital Manager Fund are offered to a separate
account (also a "Separate Account") of Hartford
Insurance Company ("Hartford"). Shares also are
offered to qualified pension and retirement plans.
Shares of the Funds may be offered in the future
to other separate accounts of these insurers, or
to separate accounts established by other
affiliated or unaffiliated insurance companies, to
serve as the underlying investment medium for
variable annuity and variable life insurance
contracts, which may pose certain risks discussed
under "PURCHASING SHARES."
Investment Ojectives. . . . .The Conservative Fund
seeks to provide current income with a secondary
objective of long-term capital appreciation.
The Balanced Fund seeks to provide a balance
between long-term capital appreciation and current
income.
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<PAGE>
The Growth Fund seeks to provide capital
appreciation and income growth.
The Aggressive Fund seeks to provide maximum
capital appreciation.
The Money Market Fund seeks current income
consistent with liquidity and stability of
principal.
The Growth and Income Fund seeks to provide
capital growth, current income or both.
The Capital Manager Fund seeks to provide capital
appreciation.
Investment Policies . . . . . The Allocated Funds
seek their investment objectives by investing in
diversified portfolios of certain funds (the
"Underlying Qualivest Funds") offered by Qualivest
Funds, an affiliated open-end investment company.
See "INVESTMENT OBJECTIVES AND POLICIES."
The Money Market Fund. Under normal market
conditions, the Money Market Fund will invest in
high quality (i.e., rated within the two highest
rating categories by a nationally recognized
statistical rating organization ("NRSRO")) money
market instruments and other comparable
investments.
The Growth and Income Fund. Under normal market
conditions, the Growth and Income Fund will invest
at least 65% of its total assets in stocks, which
may include common stock, preferred stock,
warrants, or debt instruments that are convertible
into common stock.
The Capital Manager Fund seeks its investment
objective by investing in diversified portfolios
of certain funds (the "Underlying BB&T Funds")
offered by The BB&T Mutual Funds Group (the
"Group"), another affiliated open-end investment
company. See "INVESTMENT OBJECTIVES AND POLICIES."
- 6 -
<PAGE>
Risk Factors and Special
Considerations . . . . . . . An investment in the Funds involves a certain
amount of risk and may not be suitable for all
investors. See "INVESTMENT TECHNIQUES AND RISK
FACTORS."
Investment Advisers . . . . . Qualivest Capital Management,
Inc. ("Qualivest"), Portland, Oregon, a subsidiary
of the United States National Bank of Oregon
("U.S. Bank"), serves as investment adviser to the
Allocated Funds and the Money Market Fund.
Branch Banking and Trust Company ("BB&T"),
Raleigh, North Carolina, serves and investment
adviser to the Growth and Income Fund as the
Capital Manager Fund.
See "MANAGEMENT OF THE FUNDS - Investment
Advisers."
Other Information . . . . . .U.S. Bank (a
"Custodian") is the custodian for the Allocated
Funds and the Money Market Fund. Fifth Third Bank
(a "Custodian", collectively with U.S. Bank, the
"Custodians") is the custodian for the Growth and
Income Fund and the Capital Manager Fund. BISYS
Fund Services ("BISYS" or "Distributor" or
"Administrator") serves as the distributor and
administrator of the Funds. BISYS Fund Services
Ohio, Inc. serves as transfer agent and dividend
disbursing agent and provides certain accounting
services for the Trust.
- 7 -
<PAGE>
FUND EXPENSES
The following expense table indicates costs and expenses that an investor should
anticipate incurring either directly or indirectly as a Shareholder of a Fund
during its first fiscal year of operation. The numbers reflect estimated levels
of operating expenses.
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C>
Shareholder Money Growth & Capital
Transaction Conservative Balanced Growth Aggressive Market Income Manager
Expenses Fund Fund Fund Fund Fund Fund Fund
------ ------- ------- ------ ------ ------ -----
Maximum Sales Charge
Imposed on Purchases
(as a percentage of
offering price) none none none none none none none
Maximum Sales Charge
Imposed on
Reinvested Dividends
(as a percentage of
offering price) none none none none none none none
Deferred Sales Charge
(as a percentage of
redemption proceeds) none none none none none none none
Redemption Fees
(as a percentage of
redemption proceeds) none none none none none none none
Exchange Fees none none none none none none none
- 8 -
<PAGE>
<C> <C> <C> <C> <C> <C> <C>
Annual Fund
Operating Expenses Money Growth & Capital
(as percentage of annual Conservative Balanced Growth Aggressive Market Income Manager
net assets annualized) Fund Fund Fund Fund Fund Fund Fund
------ ------ ------- ------ ------ ------ -----
Management Fees
After Waiver 1 0.05% 0.05% 0.05% 0.05% 0.35% 0.50% 0.10%
Other Expenses 0.48% 0.48% 0.48% 0.48% 0.53% 0.47% 0.46%
----- ----- ----- ----- ----- ----- -----
Total Fund
Operating Expenses
After Waiver 2 0.53% 0.53% 0.53% 0.53% 0.88% 0.97% 0.56%
===== ===== ===== ===== ===== ===== =====
- --------------------
1 BB&T has agreed to temporarily waive a portion of its investment advisory
fee for the Growth and Income Fund and the Capital Manager Fund. Waived fees
cannot be recovered at a future date. Absent the advisory fee waiver,
"Management Fees" as a percentage of average daily net assets would be 0.74%
for the Growth and Income Fund and 0.25% for the Capital Manager Fund. See
"MANAGEMENT OF THE FUNDS--Investment Advisers."
2 Absent the waiver of the investment advisory fee, "Total Fund Operating
Expenses" as a percentage of average daily net assets would be 1.21% for the
Growth and Income Fund and 0.71% for the Capital Manager Fund.
In addition to the expenses shown above, Shareholders of the Allocated Funds and
the Capital Manager Fund will indirectly bear their pro rata share of fees and
expenses incurred by the Underlying Funds, so that the investment returns of
these Funds will be net of the expenses of the Underlying Funds as discussed
below under "MANAGEMENT OF THE FUNDS--Investment Advisers." Based on the
expenses for the following Funds and the Underlying Funds, the average weighted
expense ratio for each of these Funds, expressed as a percentage of average
daily net assets, is estimated to be as follows:
Expense
Ratio
Conservative Fund ___
Balanced Fund ___
Growth Fund ___
Aggressive Fund ___
Capital Manager Fund ___
The purpose of these tables is to assist the prospective investor in
understanding the various costs and expenses that a Shareholder in the Funds
will bear.
Example*
An investor would pay the following expenses on a $1,000 investment, assuming
(1) 5% annual return, and (2) redemption at the end of each time period:
Money Growth & Capital
Conservative Balanced Growth Aggressive Market Income Manager
Fund Fund Fund Fund Fund Fund Fund
------ ------ ------- ------ ----- ------ -----
1 Year . . . $ __ $ __ $ __ $ __ $ __ $ __ $ __
3 Years. . . $ __ $ __ $ __ $ __ $ __ $ __ $ __
- ---------------
* This example should not be considered a representation of future
expenses, which may be more or less than those shown. The assumed 5%
annual return is hypothetical and should not be considered a
representation of past or future annual return. Actual return may be
greater or less than the assumed amount.
</TABLE>
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<PAGE>
INVESTMENT OBJECTIVES AND POLICIES
The Funds are designed to achieve different investment objectives and to pursue
these objectives by means of different investment strategies. Shareholders
should be aware that the investments made by the Funds at any given time are not
expected to be the same as those made by other mutual funds for which Qualivest
or BB&T acts as investment adviser, including mutual funds with investment
objectives and policies similar to the Funds. Investors should carefully
consider their investment goals and willingness to tolerate investment risk
before allocating their investment to the Funds.
Allocated Funds
The Conservative Fund. The investment objective of the Conservative Fund is to
seek to provide current income with a secondary objective of long-term capital
appreciation.
The Conservative Fund is designed for investors who want a source of steady
investment income with limited Share price fluctuation, and who are willing to
bear limited investment risk. This fund will concentrate its investments in
Underlying Qualivest Funds that invest primarily in fixed income securities
("Qualivest Income Funds") and Underlying Qualivest Funds that invest primarily
in short-term money market instruments ("Qualivest Money Funds"). However, for
purposes of achieving capital appreciation and investment income, the
Conservative Fund also may invest a portion of its assets in Underlying
Qualivest Funds that invest primarily in equity securities ("Qualivest Equity
Funds").
The Balanced Fund. The investment objective of the Balanced Fund is to seek to
provide a balance between long-term capital appreciation and current income.
The Balanced Fund seeks this objective by broadly diversifying its assets among
most or all of the Underlying Qualivest Funds, with emphasis placed on
investments in the Qualivest Equity Funds and the Qualivest Income Funds. Under
normal market conditions, the Balanced Fund will invest at least 25% of its
total assets in the Qualivest Income Funds. This Fund offers investors greater
potential for capital appreciation than does the Conservative Fund by virtue of
its larger investments in the Qualivest Equity Funds, while also offering
investors the potential for investment income. This Fund may be suitable for
investors seeking capital appreciation in addition to income, and who are
willing to bear some risk of loss and Share price fluctuation inherent in equity
securities.
The Growth Fund. The investment objective of the Growth Fund is to seek to
provide capital appreciation and income growth.
The Growth Fund is designed for investors seeking capital appreciation primarily
through an equity-oriented investment. This Fund focuses on investments in the
Qualivest Equity Funds, although it also will invest in the Qualivest Income
Funds and Qualivest Money Funds. However, this Fund emphasizes the potential
rewards and risks of an investment in equity securities.
- 11 -
<PAGE>
The Aggressive Fund. The investment objective of the Aggressive Fund is to seek
to provide maximum capital appreciation.
The Aggressive Fund seeks to achieve this objective by investing substantially
all of its assets in those Underlying Qualivest Funds that invest primarily in
equity securities. Under normal market conditions, this Fund's investments will
be most heavily weighted toward the Qualivest Large Companies Value Fund and the
Qualivest Optimized Stock Fund. Accordingly, this Fund is oriented toward those
investors seeking long-term capital appreciation, with the potential for greater
gains but with greater risk of loss.
General
Each Allocated Fund's investments are concentrated in the Underlying Qualivest
Funds, and the investment performance of each Allocated Fund is directly related
to the performance of the Underlying Qualivest Funds. The Allocated Funds will
invest in shares of the Underlying Qualivest Funds which are sold at net asset
value per share with no front-end sales charge or contingent deferred sales
charge. See "INVESTMENT OBJECTIVES AND POLICIES - UNDERLYING QUALIVEST FUNDS"
for a description of the Underlying Qualivest Funds in which the Allocated Funds
invest.
In addition to shares of the Underlying Qualivest Funds, for temporary cash
management purposes, each Allocated Fund may invest in short-term obligations
(with maturities of 12 months or less) consisting of commercial paper (including
variable amount master demand notes) and obligations issued or guaranteed by the
U.S. Government or its agencies or instrumentalities. See "INVESTMENT TECHNIQUES
AND RISK FACTORS" for a description of these investments.
Money Market Fund
The investment objective of the Money Market Fund is to seek current income
consistent with liquidity and stability of principal. The Money Market Fund
invests in high quality rated money market instruments and other money market
instruments that, although not rated, are deemed to be of comparable high
quality as determined by Qualivest pursuant to guidelines adopted by the Board
of Trustees.
General
The Money Market Fund invests exclusively in United States dollar denominated
instruments which the Fund's investment adviser, acting pursuant to guidelines
adopted by the Board of Trustees, determines present minimal credit risks and
which at the time of acquisition are rated by one or more appropriate NRSROs
(e.g., Standard & Poor's Corporation ("S&P"), Moody's Investors Service, Inc.
("Moody's") and Fitch Investors Service ("Fitch")) within one of the two highest
rating categories for short-term debt obligations or, if unrated, are of
comparable quality. In addition, the Money Market Fund diversifies its
investments so that, with minor exceptions and except for U.S. Government
securities, not more than five percent of its total assets is invested in the
securities of any one issuer, not more than five percent of its total assets is
- 12 -
<PAGE>
in securities of all issuers rated by the NRSRO at the time of investment in the
second highest rating category for short-term debt obligations or in unrated
securities deemed to be of comparable quality to securities rated in the second
highest rating categories for short-term debt obligations ("Second Tier
Securities") and not more than the greater of 1% of total assets or one million
dollars is invested in the securities of one issuer that are Second Tier
Securities. In addition, the Money Market Fund will not invest more than 10% of
its net assets in securities that are deemed to be illiquid at the time of
purchase. All securities or instruments in which the Money Market Fund invests
have remaining maturities of 397 calendar days (thirteen months) or less. The
dollar-weighted average maturity of the obligations in the Money Market Fund
will not exceed 90 days.
Subject to the foregoing general limitations, the Money Market Fund expects to
invest in the types of securities discussed below under "INVESTMENT TECHNIQUES
AND RISK FACTORS." These securities include short-term obligations issued or
guaranteed by the U.S. Government or its agencies or instrumentalities,
short-term mortgage-related securities, bankers' acceptances, certificates of
deposit and time deposits (including Eurodollar Certificates of Deposit,
Eurodollar Time Deposits ("ETDs"), Canadian Time Deposits ("CTDs"), and Yankee
Certificates of Deposit ("Yankee CDs")), commercial paper (including variable
amount master demand notes), securities issued by other money market investment
companies, debt obligations with remaining maturities of 397 calendar days or
less, taxable obligations issued by municipalities, Guaranteed Investment
Contracts ("GICs"), repurchase agreements, reverse repurchase agreements and
dollar roll agreements.
Growth and Income Fund
The Growth and Income Fund's investment objective is to seek capital growth,
current income or both, primarily through investment in stocks. Under normal
market conditions, the Growth and Income Fund will invest at least 65% of its
total assets in stocks, which for this purpose may be either common stock,
preferred stock, warrants, or debt instruments that are convertible to common
stock. The remainder of the Fund's assets, if not invested in stocks, will be
invested as described under "INVESTMENT TECHNIQUES AND RISK FACTORS."
Equity securities purchased by the Growth and Income Fund will be either traded
on a domestic securities exchange or quoted in the NASDAQ/NYSE system. While
some stocks may be purchased primarily to achieve the Growth and Income Fund's
investment objective for income, most stocks will be purchased by the Growth and
Income Fund primarily in furtherance of its investment objective for growth. The
Growth and Income Fund will favor stocks of issuers which over a five year
period have achieved cumulative income in excess of the cumulative dividends
paid to shareholders.
Capital Manager Fund
The investment objective of the Capital Manager Fund is to seek capital
appreciation. Under normal market conditions, it invests primarily in a group of
diversified Underlying BB&T Funds that invest primarily in equity securities.
However, it may also invest a portion of its assets in Underlying BB&T Funds
that invest primarily in fixed income securities or money market instruments.
- 13 -
<PAGE>
The Capital Manager Fund's net asset value will fluctuate with changes in the
equity markets and the value of the Underlying BB&T Funds in which it invests.
The Capital Manager Fund's investment return is diversified by its investment in
the Underlying BB&T Funds, which invest in growth and income stocks, foreign
securities, debt securities, and cash and cash equivalents.
The allocation of the Capital Manager Fund's among the Underlying BB&T Funds
will be made by BB&T under the supervision of the Board of Trustees. BB&T will
make allocation decisions according to its outlook for the economy, financial
markets, and relative market valuation of the Underlying BB&T Funds. There is no
assurance that the Capital Manager Fund will achieve its stated objective.
For temporary cash management and liquidity purposes, the Capital Manager Fund
may also hold cash and invest in short-term obligations (with maturities of 12
months or less) consisting of commercial paper (including variable amount master
demand notes) and obligations issued or guaranteed by the U.S. Government or its
agencies or instrumentalities. The Capital Manager Fund and the Underlying BB&T
Funds are permitted for temporary defensive purposes to invest up to 100% of
their assets in short-term fixed income securities. Such securities include
obligations of the U.S. Government and its agencies and instrumentalities,
commercial paper, bank certificates of deposit, repurchase agreements, bankers'
acceptances, variable amount master demand notes, and bank money market deposit
accounts. To the extent the Capital Manager Fund or an Underlying BB&T Fund is
engaged in a temporary defensive position, it will not be pursuing its
investment objective. See "INVESTMENT TECHNIQUES AND RISK FACTORS" for a
description of these investments.
The investments of the Capital Manager Fund are concentrated in the Underlying
BB&T Funds, so the Capital Manager Fund's performance is directly related to the
performance of the Underlying BB&T Funds. The Capital Manager Fund will invest
in shares of the Underlying BB&T Funds which are sold at net asset value per
share with no front-end sales charge or contingent deferred sales charge. See
"INVESTMENT OBJECTIVES AND POLICIES - UNDERLYING BB&T FUNDS" for a description
of the Underlying BB&T Funds in which the Capital Manager Fund invests.
* * * *
The investment objective of each Fund is a fundamental policy and as such may
not be changed without a vote of the holders of a majority of the outstanding
Shares of that Fund. Other policies of a Fund may be changed without a vote of
the holders of a majority of outstanding Shares of that Fund unless (i) the
policy is expressly deemed to be a fundamental policy or (ii) the policy is
expressly deemed to be changeable only by such majority vote. There can be no
assurance that the investment objective of any Fund will be achieved.
INVESTMENT OBJECTIVES AND POLICIES--UNDERLYING QUALIVEST FUNDS
The following is a description of the investment objectives and policies of the
Underlying Qualivest Funds. Additional investment practices are described in
"INVESTMENT TECHNIQUES AND RISK FACTORS," in the Statement of Additional
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Information, and the Prospectus for each of the Underlying Qualivest Funds.
Qualivest Equity Funds
Qualivest Large Companies Value Fund and Qualivest Small Companies Value Fund
Qualivest Large Companies Value Fund (the "Qualivest Large Companies Fund"). The
investment objective of the Qualivest Large Companies Fund is to seek long-term
capital appreciation. It invests primarily in common stocks and securities
convertible into common stocks of large capitalization companies. For purposes
of this policy, large capitalization companies are those with capitalization of
$1 billion or more at the time of purchase.
Qualivest Small Companies Value Fund (the "Qualivest Small Companies Fund"). The
investment objective of the Qualivest Small Companies Fund is to seek capital
appreciation. It invests primarily in common stocks and securities convertible
into common stocks of small-sized companies. For purposes of this policy,
small-sized companies are those with capitalization of less than $1 billion at
the time of purchase. Smaller capitalization stocks may be quite volatile and
subject to wide fluctuations in both the short and medium term.
Each of these Underlying Qualivest Funds seeks to achieve its investment
objective by following flexible investment policies emphasizing investment in
common stock and securities convertible into common stocks (without regard to
rating by an NRSRO) that are, in Qualivest's opinion, undervalued relative to
other securities at the time of purchase. In analyzing different securities,
Qualivest will consider various investment oriented ratios as significant
factors in assessing relative value, including market price to book value,
market price to earnings, and market price to assets. Also considered are
estimated liquidating value, earnings growth rate, and cash flow. If, in
Qualivest's opinion, a stock has reached a fully valued position, it will, under
most circumstances, be sold and replaced by securities which are deemed to be
undervalued in the marketplace.
Under normal market conditions, each of these Underlying Qualivest Funds will
invest primarily in common stocks and securities convertible into common stocks
of companies believed by Qualivest to be characterized by sound management and
the potential for long-term capital appreciation. Qualivest also may consider
income and payment of dividends in selecting securities for the Qualivest Large
Companies Fund. Under normal market conditions, the Qualivest Large Companies
Fund intends to invest at least 65% of its total assets in common stocks and
securities convertible into common stocks of companies with a market
capitalization of less than $1 billion at the time of purchase. If the Qualivest
Large Companies Fund owns securities issued by a company whose market
capitalization falls below $1 billion, or the Qualivest Small Companies Fund
owns securities issued by a company whose market capitalization increases above
$1 billion, Qualivest may, but it is not required to, sell such securities.
However, Qualivest will sell such securities if, in its judgment, market
conditions warrant such a sale, or if the Qualivest Large Companies Fund or
Qualivest Small Companies Fund would no longer be primarily invested in common
stocks and securities convertible into common stocks issued by large
capitalization companies and small-sized companies, respectively.
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Each of these Underlying Qualivest Funds may also invest up to 35% of the value
of its total assets in preferred stocks, notes, units of real estate investment
trusts, asset-backed and mortgage-related securities, warrants, and short-term
obligations (with maturities of 12 months or less) consisting of commercial
paper (including variable amount master demand notes), bankers' acceptances,
certificates of deposit, repurchase agreements, obligations issued or guaranteed
by the U.S. Government or its agencies or instrumentalities, and demand and time
deposits of domestic and foreign banks and savings and loan associations. Each
of these Underlying Qualivest Funds may also hold securities of other investment
companies and depositary or custodial receipts representing beneficial interests
in any of the foregoing securities.
Each of these Underlying Funds may invest in corporate debt securities such as
debt obligations with a maturity of at least one year from the date of issue
("bonds") and notes which are rated at the time of purchase within the four
highest rating groups assigned by an NRSRO (e.g., in the case of Moody's
Investors Service, Inc. ("Moody's"), Aaa, Aa, A and Baa, and in the case of
Standard & Poor's Corporation ("S&P"), AAA, AA, A and BBB), which are considered
to be investment grade or, if unrated, which Qualivest deems to present
attractive opportunities and are of comparable quality. For a description of
NRSROs and their rating symbols, see the Appendix to the Statement of Additional
Information. For a discussion of debt securities rated within the fourth highest
rating group assigned by an NRSRO, see "INVESTMENT TECHNIQUES AND RISK FACTORS
- --Medium Grade Securities" herein.
Subject to the foregoing policies, each of these Underlying Qualivest Funds may
also invest up to 25% of its total assets in foreign securities either directly
or through the purchase of American Depositary Receipts and may also invest in
securities issued by foreign branches of U.S. banks and foreign banks, in
Canadian Commercial paper, and in Europaper (U.S. dollar denominated commercial
paper of a foreign issuer). For a discussion of risks associated with foreign
securities, see "INVESTMENT TECHNIQUES AND RISK FACTORS" herein.
Qualivest International Opportunities Fund and Qualivest Optimized Stock Fund
Qualivest International Opportunities Fund (the "Qualivest International Fund").
The investment objective of the Qualivest International Fund is to seek capital
appreciation. It invests primarily in common stocks and securities convertible
into common stocks of companies that are organized under the laws of countries
other than the U.S.
Qualivest Optimized Stock Fund (the "Qualivest Optimized Fund"). The investment
objective of the Qualivest Optimized Fund is to seek capital appreciation and
current income.
The Qualivest International Fund and the Qualivest Optimized Fund each seeks to
achieve its investment objective by investing primarily in common stocks and
securities convertible into common stocks (without regard to NRSRO rating) of
companies whose securities are listed on a specific securities index. While the
performance of the Optimized Fund may be expected to approximate the performance
of the Standard & Poor's 500 Composite Stock Price Index (the "S&P 500 Index"),
Qualivest seeks to outperform the S&P 500 Index through limited management of
the Qualivest Optimized Fund's portfolio.
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<PAGE>
Under normal market conditions, at least 80% of the total assets of the
Qualivest International Fund will be invested in common stocks and securities
convertible into common stocks of foreign companies whose securities are listed
on the Morgan Stanley Capital International EAFE (Europe, Australasia, Far East)
Index (the "EAFE Index"). The Qualivest International Fund will invest in the
securities of issuers from at least three countries other than the U.S.
Investments are selected for inclusion in the Qualivest International Fund's
portfolio primarily on the basis of market capitalization and industry
weightings, and to create an aggregate country weighting similar to that of the
EAFE Index. While Qualivest anticipates that substantially all of the Qualivest
International Fund's assets will be so invested, Qualivest may invest up to 20%
of its total assets in common stocks and securities convertible into common
stocks of large capitalization U.S. companies that Qualivest deems to present
attractive investment opportunities due to such companies' foreign business
operations.
Under normal market conditions, at least 80% of the Qualivest Optimized Fund's
total assets will be invested in common stocks and securities convertible into
common stocks of companies whose securities are listed on the S&P 500 Index.
While Qualivest anticipates that substantially all of the Qualivest Optimized
Fund's assets will be so invested, Qualivest may invest up to 20% of its total
assets as described below.
The Qualivest Optimized Fund does not intend to mirror the performance of the
S&P 500 Index; rather, it seeks to optimize its investments in S&P 500 Index
companies and outperform the S&P 500 Index over time by investing in securities
that, on the basis of computerized modelling and performance optimization
strategies implemented by Qualivest, demonstrate attributes that indicate
performance superior to that of the S&P 500 Index as a whole. The S&P 500 Index
is composed of 500 common stocks chosen by S&P on a statistical basis to be
included in the index. Because of the market-value weighting, the largest
companies in the S&P 500 Index typically account for a disproportionate share of
the index. Qualivest believes that an investment in securities of companies
listed on the S&P 500 Index may be optimized by selecting those securities whose
growth and value characteristics indicate that their performance, relative to
the other securities listed on the S&P 500 Index, will exceed the extent to
which the S&P 500 Index reflects their performance. Qualivest intends to utilize
computer modelling and other strategies to identify those stocks that, in light
of its assessment of general economic conditions, Qualivest believes will
achieve capital appreciation and current income superior to the performance of a
portfolio that merely seeks to replicate the S&P 500 Index.
Each of the Qualivest International Fund and the Qualivest Optimized Fund may
also invest up to 20% of the value of its total assets in short-term obligations
(with maturities of 12 months or less) consisting of commercial paper (including
variable amount master demand notes), bankers' acceptances, certificates of
deposit, repurchase agreements, obligations issued or guaranteed by the U.S.
Government or its agencies or instrumentalities, and demand and time deposits of
domestic and foreign banks and savings and loan associations. These Underlying
Qualivest Funds may also each hold securities of other investment companies and
depositary or custodial receipts representing beneficial interests in any of the
foregoing securities.
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<PAGE>
The portfolio turnover rate for the Qualivest International Fund and the
Qualivest Optimized Fund is expected to be under 50%, a generally lower turnover
rate than for most other investment companies. Qualivest believes that a lower
turnover rate will reduce securities transaction costs incurred by these
Underlying Qualivest Funds.
* * * *
Consistent with the foregoing, each of the Qualivest Equity Funds will focus its
investments in those companies and types of companies that Qualivest believes
will enable such Underlying Qualivest Fund to achieve its investment objective.
No Qualivest Equity Fund will invest more than 15% of its net assets in
securities that are deemed to be illiquid. During temporary defensive periods as
determined by Qualivest, any of the Qualivest Equity Funds may hold up to 100%
of its total assets in high quality (i.e., rated within the top two rating
categories by an NRSRO) short-term debt obligations, including domestic bank
certificates of deposit, bankers' acceptances and repurchase agreements secured
by bank instruments. However, to the extent that an Qualivest Equity Fund is so
invested, its investment objective may not be achieved during that time.
Qualivest Income Funds
Qualivest Intermediate Bond Fund. The investment objective of the Qualivest
Intermediate Bond Fund is to seek current income consistent with preservation of
capital.
Qualivest Diversified Bond Fund (the "Qualivest Bond Fund"). The investment
objective of the Qualivest Bond Fund is to seek current income consistent with
preservation of capital.
Under normal market conditions, at least 65% of the total assets of the
Qualivest Intermediate Bond Fund and Qualivest Bond Fund will be invested in
bonds, which for this purpose include debt obligations with a maturity of at
least one year from the date of issue. Fixed income or debt securities in which
these Underlying Qualivest Funds may invest can have maturities of up to thirty
years or more. Each of these Underlying Qualivest Funds may invest up to 35% of
its total assets in high quality money market instruments such as commercial
paper (including variable amount master demand notes), certificates of deposit
and bankers' acceptances, variable and floating rate notes, and asset-backed
securities without regard to maturity, except as set forth below. In addition,
these Underlying Qualivest Funds may engage in certain loans of portfolio
securities, repurchase agreements and reverse repurchase agreements, and may
also invest in securities of other investment companies. The Qualivest
Intermediate Bond Fund will maintain a dollar-weighted average maturity of three
to seven years under ordinary market conditions, while the Qualivest Bond Fund
will maintain a dollar-weighted average maturity of approximately seven to
eleven years under ordinary market conditions.
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<PAGE>
Each of these Underlying Qualivest Funds expects to invest in bonds, notes and
debentures of a wide range of U.S. corporate issuers. Such obligations, in the
case of debentures, will represent unsecured promises to pay, in the case of
notes and bonds, may be secured by mortgages on real property or security
interests in personal property and will in most cases differ in their interest
rates, maturities and times of issuance.
Each of these Underlying Qualivest Funds may also invest in corporate debt
securities and convertible debt securities which are rated at the time of
purchase within the four highest rating groups assigned by an NRSRO (e.g., in
the case of Moody's, Aaa, Aa, A and Baa, and in the case of S&P, AAA, AA, A and
BBB), which are considered to be investment grade or, if unrated, which
Qualivest deems to present attractive opportunities and are of comparable
quality. For a description of NRSROs and their rating symbols, see the Appendix
to the Statement of Additional Information. For a discussion of debt securities
rated within the fourth highest rating group assigned by an NRSRO, see
"INVESTMENT TECHNIQUES AND RISK FACTORS -- Medium-Grade Securities" herein.
Each of these Underlying Qualivest Funds may hold short-term obligations (with
maturities of 12 months or less) consisting of domestic and foreign commercial
paper rated at the time of purchase within the top two categories by an NRSRO
(e.g., "A-2" or better by S&P, "Prime-2" or better by Moody's, or "F-2" or
better by Fitch) or, if unrated, which Qualivest deems to present attractive
opportunities and are of comparable quality, including variable amount master
demand notes, bankers' acceptances, certificates of deposit and time deposits of
domestic and foreign branches of U.S. banks and foreign banks, and repurchase
agreements. These Underlying Qualivest Funds may also invest in securities of
other investment companies or in GICs, which are considered to be illiquid
securities.
Each of these Underlying Qualivest Funds may also invest in obligations of the
Export-Import Bank of the United States, in U.S. dollar denominated
international bonds for which the primary trading market is in the U.S. ("Yankee
Bonds"), or for which the primary trading market is abroad ("Eurodollar Bonds"),
and in Canadian Bonds and bonds issued by institutions, such as the World Bank
and the European Economic Community, organized for a specific purpose by two or
more sovereign governments ("Supranational Agency Bonds").
Each of these Underlying Qualivest Funds expects to invest in a variety of U.S.
Treasury obligations, differing in their interest rates, maturities, and times
of issuance, as well as "stripped" U.S. Treasury obligations such as Treasury
Receipts issued by the U.S. Treasury representing either future interest or
principal payments ("Stripped Treasury Obligations"), and mortgage-related
securities issued or guaranteed by the U.S. Government or its agencies or
instrumentalities, such as the Government National Mortgage Association
("GNMA"), the Federal National Mortgage Association ("FNMA"), the Federal Farm
Credit Bureau ("FFCB"), the Tennessee Valley Authority ("TVA"), the Federal Home
Loan Bank ("FHLB"), the Federal Land Bank, the Federal Home Loan Mortgage
Corporation ("FHLMC"), the Student Loan Marketing Association ("SLMA") and in
mortgage-related securities issued by nongovernmental entities.
Each of these Underlying Qualivest Funds may invest in mortgage-related
securities which are rated at the time of purchase within the four highest
rating categories assigned by an NRSRO or, if unrated, which Qualivest deems to
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present attractive opportunities and are of comparable quality, and have
mortgage obligations backing such securities. Each of these Underlying Qualivest
Funds also may invest in mortgage-related securities issued by nongovernmental
entities. Commercial banks, savings and loan institutions, private mortgage
insurance companies, mortgage bankers and other secondary market issuers also
create pass-through pools of conventional residential mortgage loans. Although
the market for such securities is becoming increasingly liquid, securities
issued by certain private organizations may not be readily marketable. Neither
of these Underlying Qualivest Funds will purchase mortgage-related securities or
any other assets which in Qualivest's opinion are illiquid, if as a result, more
than 15% of the value of its net assets will be illiquid.
Mortgage-related securities in which these Underlying Qualivest Funds may invest
may also include collateralized mortgage obligations ("CMOs"), which are debt
obligations issued generally by finance subsidiaries or trusts that are secured
by mortgage-backed certificates, including, in many cases, certificates issued
by government-related guarantors, including GNMA, FNMA and FHLMC, together with
certain funds and other collateral.
Each of these Underlying Qualivest Funds may invest in asset-backed securities
(unrelated to first mortgage loans), which represent fractional interests in
pools of leases, retail installment loans or revolving credit receivables, both
secured (such as Certificates for Automobile Receivables or "CARS") and
unsecured (such as Credit Card Receivable Securities or "CARDS"). These assets
are generally held by a trust and payments of principal and interest or interest
only are passed through monthly or quarterly to certificate holders and may be
guaranteed up to certain amounts by letters of credit issued by a financial
institution affiliated or unaffiliated with the trustee or originator of the
trust. Asset-backed securities will be purchased only if they meet the rating
requirements set forth above or, if unrated, are deemed to be of comparable
quality by Qualivest with respect to these Underlying Qualivest Funds'
investments in fixed-income securities of U.S. corporations and mortgage-related
securities.
An increase in interest rates will generally reduce the value of the investments
in these Underlying Qualivest Funds, and a decline in interest rates will
generally increase the value of those investments. Depending upon the prevailing
market conditions, Qualivest may purchase debt securities at a discount from
face value, which produces a yield greater than the coupon rate. Conversely, if
debt securities are purchased at a premium over face value, the yield will be
lower than the coupon rate.
* * * *
In making investment decisions for the Qualivest Income Funds, Qualivest will
consider many factors, including current yield, maturity, and yield to maturity.
Qualivest will also monitor the financial condition of the issuers of the
Qualivest Income Funds' portfolio investments and may shorten the average
weighted portfolio maturity of a Qualivest Income Fund, in light of each such
Underlying Qualivest Fund's investment objective of preservation of capital, if
economic or market conditions warrant such action.
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Qualivest Money Funds
Although each Qualivest Money Fund has the same investment adviser and a similar
investment objective, its particular portfolio securities and yield may differ
due to differences in the types of permitted investments, cash flow, and the
availability of particular portfolio investments.
Qualivest U.S. Treasury Money Market Fund (the "Qualivest U.S. Treasury Fund").
The investment objective of the Qualivest U.S. Treasury Fund is to seek current
income consistent with liquidity and stability of principal.
Under normal market conditions, the Qualivest U.S. Treasury Fund invests at
least 65% of its total assets in short-term U.S. Treasury bills, notes, and
bonds and in other obligations backed by the full faith and credit of the U.S.
Treasury. The Qualivest U.S. Treasury Fund may invest up to 35% of its total
assets in other types of high quality rated money market instruments and money
market instruments that, although not rated, are deemed to be of comparable high
quality as determined by Qualivest pursuant to guidelines adopted by the Board
of Trustees of Qualivest Funds.
Qualivest Money Market Fund. The investment objective of the Qualivest Money
Market Fund is to seek current income consistent with liquidity and stability of
principal.
The Qualivest Money Market Fund invests in high quality rated money market
instruments and other money market instruments that, although not rated, are
deemed to be of comparable high quality as determined by Qualivest pursuant to
guidelines adopted by the Board of Trustees of Qualivest Funds.
* * * *
Each of the Qualivest Money Funds is subject to the same restrictions, and may
invest in the same instruments, as discussed above in "INVESTMENT OBJECTIVES AND
POLICIES -Money Market Fund-General."
INVESTMENT OBJECTIVES AND POLICIES--
UNDERLYING BB&T FUNDS
BB&T Equity Funds
BB&T Growth and Income Stock Fund (the "BB&T Growth and Income Fund"). The BB&T
Growth and Income Fund's investment objective is to seek capital growth, current
income or both, primarily through investment in stocks. Under normal market
conditions, the BB&T Growth and Income Fund will invest at least 65% of its
total assets in stocks, which for this purpose may be either common stock,
preferred stock, warrants, or debt instruments that are convertible to common
stock.
Equity securities purchased by the BB&T Growth and Income Fund will be either
traded on a domestic securities exchange or quoted in the NASDAQ/NYSE system.
While some stocks may be purchased primarily to achieve the BB&T Growth and
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Income Fund's investment objective for income, most stocks will be purchased by
the BB&T Growth and Income Fund primarily in furtherance of its investment
objective for growth. The BB&T Growth and Income Fund will favor stocks of
issuers which over a given year period have achieved cumulative income in excess
of the cumulative dividends paid to shareholders.
Stocks such as those in which the BB&T Growth and Income Fund may invest are
more volatile and carry more risk than some other forms of investment. Depending
upon the performance of the BB&T Growth and Income Fund's investments, its net
asset value per share may decrease instead of increase.
BB&T Balanced Fund. The BB&T Balanced Fund's investment objective is to seek
long-term capital growth and to produce current income. The BB&T Balanced Fund
seeks to achieve this objective by investing in a broadly diversified portfolio
of securities, including common stocks, preferred stocks and bonds.
The portion of the BB&T Balanced Fund's assets invested in each type of security
will vary in accordance with economic conditions, the general level of common
stock prices, interest rates and other relevant considerations, including the
risks associated with each investment medium. Thus, although the BB&T Balanced
Fund seeks to reduce the risks associated with any one investment medium by
utilizing a variety of investments, performance will depend upon the additional
factors of timing and the ability of BB&T to judge and react to changing market
conditions. The BB&T Balanced Fund may invest in short-term obligations in order
to acquire interest income combined with liquidity. For temporary defensive
purposes, as determined by BB&T, these investments may constitute 100% of the
BB&T Balanced Fund's portfolio and, in such circumstances, will constitute a
temporary suspension of the BB&T Balanced Fund's attempt to achieve its
investment objective.
The BB&T Balanced Fund's equity securities will generally consist of common
stocks but may also consist of other equity-type securities such as warrants,
preferred stocks and convertible debt instruments. The Fund's equity investments
will be in companies with a favorable outlook and which are believed by BB&T to
be undervalued.
The BB&T Balanced Fund's debt securities will consist of securities such as
bonds, notes, debentures and money market instruments. The BB&T Balanced Fund
may also invest in CMOs. The average dollar-weighted maturity of debt securities
held by the BB&T Balanced Fund will vary according to market conditions and
interest rate cycles and will range between 1 year and 30 years under normal
market conditions.
It is a fundamental policy of the BB&T Balanced Fund that it will invest at
least 25% of its total assets in fixed-income senior securities. For this
purpose, fixed-income senior securities include debt securities, preferred stock
and that portion of the value of securities convertible into common stock,
including convertible preferred stock and convertible debt, which is
attributable to the fixed-income characteristics of those securities.
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BB&T Small Company Growth Fund. The BB&T Small Company Growth Fund's investment
objective is to seek long-term capital appreciation through investment primarily
in a diversified portfolio of equity and equity-related securities of small
capitalization growth companies. The BB&T Small Company Growth Fund will invest
in companies that are considered to have favorable and above average earnings
growth prospects and, as a matter of fundamental policy, at least 65% of its
total assets will be invested in small companies with a market capitalization
under $1 billion at the time of purchase. In making portfolio investments, the
BB&T Small Company Growth Fund will assess characteristics such as financial
condition, revenue, growth, profitability, earnings per share growth and trading
liquidity. The remainder of its assets, if not invested in the securities of
small companies, will be invested in the instruments described below and under
"Investment Techniques and Risk Factors."
Smaller, less seasoned companies may be subject to greater business risk than
larger, established companies. They may be more vulnerable to changes in
economic conditions, specific industry conditions, market fluctuations and other
factors affecting the profitability of companies. Therefore, the stock price of
smaller capitalization companies may be subject to greater price fluctuations
than that of larger, established companies. Due to these and other risk factors,
the price movement of the securities held by this Underlying BB&T Fund may be
volatile and the net asset value of a share may fluctuate more than that of a
share of a fund that invests in larger established companies.
BB&T International Equity Fund. The BB&T International Equity Fund's investment
objective is to seek long-term capital appreciation through investment primarily
in equity securities of foreign issuers. During normal market conditions, the
BB&T International Equity Fund will normally invest at least 80%, and, in any
event, at least 65%, of the value of its total assets in equity securities.
Equity securities include common stock and preferred stock (including
convertible preferred stock), bonds, notes and debentures convertible into
common or preferred stock; stock purchase warrants and rights; equity interests
in trusts and partnerships; and depository receipts of companies.
During normal market conditions, the BB&T International Equity Fund will
normally invest at least 90%, and, in any event, at least 65%, of the value of
its total assets in securities of foreign issuers. It will pursue investments in
non-dollar denominated stocks primarily in countries included in the EAFE Index
and may also invest its assets in countries with emerging economies or
securities markets. This Underlying BB&T Fund will be diversified across
countries, industry groups and companies with investment at all times in at
least three foreign countries.
When choosing securities, a value investment style is employed so that the
investment sub-adviser targets equity securities that are believed to be
undervalued. The investment sub-adviser will emphasize stocks with
price/earnings ratios below average for a security's earnings trend and its
price momentum will also be factors considered in security selection. The
investment sub-adviser will also consider macroeconomic factors such as the
prospects for relative economic growth among certain foreign countries, expected
levels of inflation, government policies influencing business conditions, and
the outlook for currency relationships.
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BB&T Income Funds
BB&T Short-Intermediate U.S. Government Income Fund (the "BB&T
Short-Intermediate Fund") and BB&T Intermediate U.S. Government Bond Fund (the
"BB&T Intermediate Bond Fund"). The investment objective of the BB&T
Short-Intermediate Fund and the BB&T Intermediate Bond Fund is to seek current
income consistent with the preservation of capital. The BB&T Short-Intermediate
Fund will invest primarily in securities issued or guaranteed by the U.S.
Government or its agencies or instrumentalities, some of which may be subject to
repurchase agreements, or in high grade CMOs. At least 65% of the BB&T
Short-Intermediate Fund's assets will be invested in such U.S. Government
securities. The dollar-weighted average portfolio maturity of the BB&T
Short-Intermediate Fund will be from two to five years. The BB&T Intermediate
Bond Fund will also invest primarily in such U.S. Government securities, and at
least 65% of its total assets will be invested in bonds. Bonds for this purpose
will include both bonds (maturities of ten years or more) and notes (maturities
of one to ten years) of the U.S. Government. The dollar-weighted average
portfolio maturity of the BB&T Intermediate Bond Fund will be from five to ten
years. CMOs will be considered bonds for this purpose if their expected average
life is comparable to the maturity of other bonds eligible for purchase by the
BB&T Income Funds. The BB&T Income Funds may also invest in short-term
obligations, commercial bonds and the shares of other investment companies.
Bonds, notes, and debentures in which the BB&T Income Funds may differ in
interest rates, maturates and times of issuance. Mortgage-related securities
purchased by the BB&T Income Funds will be either (i) issued by U.S.
Government-owned or sponsored corporations or (ii) rated in the highest category
by an NRSRO at the time of purchase, (for example, rated Aaa by Moody's or AAA
by S&P), or, if not rated, are of comparable quality as determined by BB&T. The
applicable ratings are described in the Appendix to the Statement of Additional
Information.
BB&T Money Fund
BB&T U.S. Treasury Money Market Fund (the "BB&T U.S. Treasury Fund"). The
investment objective of the BB&T U.S. Treasury Fund is to seek current income
with liquidity and stability of principal through investing exclusively in
short-term U.S. dollar-denominated obligations issued or guaranteed by the U.S.
Treasury, some of which may be subject to repurchase agreements.
All instruments in which the BB&T U.S. Treasury Fund invests are valued based on
the amortized cost valuation technique pursuant to Rule 2a-7 under the
Investment Company Act of 1940 (the "1940 Act"). All instruments in which the
Fund invests will have remaining maturities of 397 days or less, although
instruments subject to repurchase agreements and certain variable or floating
rate obligations may bear longer maturities. The dollar-weighted average
maturity of the securities in the BB&T U.S. Treasury Fund will not exceed 90
days. Obligations purchased by the BB&T U.S. Treasury Fund are limited to U.S.
dollar-denominated obligations which BB&T, pursuant to guidelines established by
the Board of Trustees of the Group has determined present minimal credit risks.
See "VALUATION OF SHARES" herein and the Statement of Additional Information for
further explanation of the amortized cost valuation method.
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<PAGE>
INVESTMENT TECHNIQUES AND RISK FACTORS
Like any investment program, an investment in a Fund entails certain risks. The
Share price of each Allocated Fund and the Capital Manager Fund will fluctuate
in response to changes in the share price of one or more of the Underlying
Funds, which are permitted to engage in a wide range of investment techniques.
U.S. Government Obligations
Obligations of certain agencies and instrumentalities of the U.S. Government,
such as the GNMA, are supported by the full faith and credit of the U.S.
Treasury; others, such as those of the FNMA, are supported by the right of the
issuer to borrow from the Treasury; others, such as those of the SLMA, are
supported by the discretionary authority of the U.S. Government to purchase the
agency's obligations; still others, such as those of the FFCB or the FHLMC, are
supported only by the credit of the instrumentality. The BB&T U.S. Treasury Fund
may invest in U.S. Government securities to the extent that they are obligations
issued or guaranteed by the U.S. Treasury. No assurance can be given that the
U.S. Government would provide financial support to U.S. Government-sponsored
agencies or instrumentalities if it is not obligated to do so by law.
The Stripped Treasury Obligations in which the Funds may invest do not include
Certificates of Accrual on Treasury Securities ("CATS") or Treasury Income
Growth Receipts ("TIGRs"). Stripped securities are issued at a discount to their
"face value" and may exhibit greater price volatility than ordinary debt
securities because of the manner in which their principal and interest are
returned to investors.
The Growth and Income Fund, BB&T Short-Intermediate, BB&T Intermediate Bond,
BB&T Growth and Income, BB&T Balanced, and BB&T Small Company Growth Funds may
also invest in "zero coupon" U.S. Government securities. These securities tend
to be more volatile than other types of U.S. Government securities. Zero coupon
securities are debt instruments that do not pay current interest and are
typically sold at prices greatly discounted from par value. The return on a zero
coupon obligation, when held to maturity, equals the difference between the par
value and the original purchase price.
Mortgage-Related and Asset-Backed Securities
Investments in these and other derivative securities will not be made for
purposes of leverage or speculation, but rather primarily for conventional
investment or hedging purposes, liquidity, flexibility and to capitalize on
market inefficiencies. Consistent with its investment objective, restrictions
and policies, each of the Money Market Fund, the Growth and Income Fund, the
Underlying Qualivest Funds (except the Qualivest Optimized Fund and the
Qualivest International Fund), and the Underlying BB&T Funds (except the BB&T
International Equity Fund) may invest in mortgage-related securities, which are
securities representing interests in "pools" of mortgages in which payments of
both interest and principal on the securities are made monthly.
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Early repayment of principal on mortgage-related securities may expose a Fund or
an Underlying Fund to a lower rate of return upon reinvestment of principal.
Like other fixed-income securities, when interest rates rise, the value of a
mortgage-related security generally will decline; however, when interest rates
decline, the value of mortgage-related securities with prepayment features may
not increase as much as other fixed-income securities. For this and other
reasons, the stated maturity of a mortgage-related security may be shortened by
unscheduled prepayments on the underlying mortgages. Alternatively, the rate of
prepayments on underlying mortgages may have the effect of extending the
effective maturity of the security beyond what was anticipated at the time of
purchase. To the extent that unanticipated rates of prepayment on underlying
mortgages increase the effective maturity of a mortgage-related security, the
volatility of such security can be expected to increase. Accordingly, it may not
possible to predict accurately a security's return to a particular Fund or an
Underlying Fund.
Like mortgages underlying mortgage-backed securities, automobile sales contracts
or credit card receivables underlying asset-backed securities are subject to
prepayment, which may reduce the overall return to certificate holders.
Nevertheless, principal prepayment rates tend not to vary much with interest
rates, and the short-term nature of the underlying car loans or other
receivables tends to dampen the impact of any change in the prepayment level.
Certificate holders may also experience delays in prepayment on the certificates
if the full amounts due on underlying sales contracts or receivables are not
realized because of unanticipated legal or administrative costs of enforcing the
contracts or because of depreciation or damage to the collateral (usually
automobiles) securing certain contracts, or other factors. In certain market
conditions, asset-backed securities may experience volatile fluctuations in
value and periods of illiquidity. If consistent with its investment objective
and policies, a Fund or an Underlying Fund may invest in other asset-backed
securities that may be developed in the future.
The Growth and Income Fund, the Qualivest Income Funds and the Underlying BB&T
Funds (except the BB&T U.S. Treasury Fund and the BB&T International Equity
Fund) may invest in Collateralized Mortgage Obligations. CMOs may include
stripped mortgage securities. Such securities are derivative multi-class
mortgage securities issued by agencies or instrumentalities of the U.S.
Government, or by private originators of, or investors in, mortgage loans,
including savings and loan associations, mortgage banks, commercial banks,
investment banks and special purpose subsidiaries of the foregoing. Stripped
mortgage securities are usually structured with two classes that receive
different proportions of the interest and principal distributions on a pool of
mortgage assets. A common type of stripped mortgage security will have one class
receiving all of the interest from the mortgage assets (the interest-only or
"IO" class), while the other class will receive all of the principal (the
principal-only or "PO" class). The yield to maturity on an IO class is extremely
sensitive to the rate of principal payments (including prepayments) on the
related underlying mortgage assets, and a rapid rate of principal payments may
have a material adverse effect on the securities' yield to maturity. Generally,
the market value of the PO class is unusually volatile in response to changes in
interest rates. If the underlying mortgage assets experience greater than
anticipated prepayments of principal, a Fund or an Underlying Fund may fail to
fully recoup its initial investment in these securities even if the security is
rated in the highest rating category.
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Certain issuers of asset-backed securities are considered to be investment
companies under the 1940 Act. The Funds and Underlying Funds intend to conduct
their operations so that they will invest their assets (when combined with
investments in securities of other investment companies, if any) in the
obligations of such issuers within applicable regulatory limits.
Bankers' Acceptances
The Money Market Fund, the Growth and Income Fund, and the Underlying Funds may
invest in bankers' acceptances guaranteed by domestic and foreign banks if at
the time of investment the guarantor bank has capital, surplus, and undivided
profits in excess of $100,000,000 (as of the date of its most recently published
financial statements).
Certificates of Deposit and Time Deposits
The Money Market Fund, the Growth and Income Fund, and the Underlying Funds may
invest in certificates of deposit and time deposits of domestic and foreign
banks and savings and loan associations if (a) at the time of investment the
depository institution has capital, surplus, and undivided profits in excess of
$100,000,000 (as of the date of its most recently published financial
statements), or (b) the principal amount of the instrument is insured in full by
the Federal Deposit Insurance Corporation.
The Money Market Fund and Underlying Qualivest Funds may also invest in
Eurodollar Certificates of Deposit ("ECDs"), which are U.S. dollar denominated
certificates of deposit issued by offices of foreign and domestic banks located
outside the U.S.; ETDs, which are U.S. dollar denominated deposits in a foreign
branch of a U.S. bank or a foreign bank; CTDs, which are essentially the same as
ETDs, except they are issued by Canadian offices of major Canadian banks; and
Yankee CDs, which are certificates of deposit issued by a U.S. branch of a
foreign bank denominated in U.S. dollars and held in the U.S.
The Money Market Fund and the Qualivest Money Funds each will invest no more
than 10% of its net assets in time deposits with maturities in excess of seven
days which are subject to penalties upon early withdrawal. Such time deposits
include ETDs and CTDs but do not include certificates of deposit.
Commercial Paper
Each of the Funds and the Underlying Funds (except for the BB&T U.S. Treasury
Fund) may, within the limitations described above, invest in short-term
promissory notes (including variable amount master demand notes) issued by
corporations and other entities, such as municipalities, rated at the time of
purchase within the two highest categories assigned by an NRSRO (e.g., A-2 or
better by S&P, Prime-2 or better by Moody's or F-2 or better by Fitch) or, if
not rated, determined to be of comparable quality to instruments that are so
rated. The Qualivest Equity Funds may invest in such instruments if rated in the
four highest categories assigned by an NRSRO or, if not rated, found by
Qualivest pursuant to guidelines adopted by the Board of Trustees of Qualivest
Funds to be of comparable quality. The Money Market Fund, Growth and Income
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Fund, each Underlying Qualivest Fund (except the Qualivest U.S. Treasury Fund),
BB&T Balanced Fund, BB&T Growth and Income Fund, and BB&T Small Companies Growth
Fund may also invest in Canadian Commercial Paper, which is commercial paper
issued by a Canadian corporation or a Canadian counterpart of a U.S.
corporation, and in Europaper, which is U.S. dollar denominated commercial paper
of a foreign issuer.
Each of the Funds and the Underlying Funds (except the BB&T U.S. Treasury Fund)
may invest in variable amount master demand notes, which are unsecured demand
notes that permit the indebtedness thereunder to vary, and that provide for
periodic adjustments in the interest rate according to the terms of the
instrument. Although there is no secondary market in the notes, the Funds and
the Underlying Funds may demand payment of principal and accrued interest at any
time. While the notes are not typically rated by credit rating agencies, issuers
of variable amount master demand notes (which are normally manufacturing,
retail, financial, and other business concerns) must satisfy the same criteria
as set forth above for commercial paper. Qualivest, BB&T, and any sub-adviser
each will consider the earning power, cash flow, and other liquidity ratios of
the issuers of such notes and will continuously monitor their financial status
and ability to meet payment on demand. A note will be deemed to have a maturity
equal to the period of time remaining until the principal amount can be
recovered from the issuer through demand. The period of time remaining until the
principal amount can be recovered under a variable master demand note shall not
exceed seven days.
Put and Call Options
The Growth and Income Fund, the Qualivest Equity Funds, the Qualivest Income
Funds, the BB&T Small Company Growth Fund, and the BB&T International Equity
Fund may purchase put and call options on securities. The Growth and Income
Fund, each Qualivest Equity Fund, other than the Optimized Fund, and the BB&T
International Equity Fund may purchase put and call options on foreign
currencies, subject to its applicable investment policies, for the purposes of
hedging against market risks related to its portfolio securities and adverse
movements in exchange rates between currencies, respectively. The Growth and
Income Fund and each of these Underlying Funds may also engage in writing
covered call options (options on securities or currencies owned by the
particular Fund or Underlying Fund). When a portfolio security or currency
subject to a call option is sold, the Growth and Income Fund or Underlying Fund
will effect a "closing purchase transaction"--the purchase of a call option on
the same security or currency with the same exercise price and expiration date
as the call option which such Fund or Underlying Fund previously has written. If
the Growth and Income Fund or Underlying Fund is unable to effect a closing
purchase transaction, it will not be able to sell the underlying security or
currency until the option expires or the Growth and Income Fund or that
Underlying Fund delivers the underlying security or currency upon exercise. In
addition, upon the exercise of a call option by the holder thereof, the Fund or
Underlying Fund will forego the potential benefit represented by market
appreciation over the exercise price. Under normal conditions, it is not
expected that the Growth and Income Fund or any Underlying Fund will cause the
underlying value of portfolio securities and/or currencies subject to such
options to exceed 25% of its total assets. The Growth and Income Fund, the BB&T
Small Company Growth Fund, and the
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BB&T International Equity Fund will not purchase put and call options when the
aggregate premiums on outstanding options exceed 5% of its net assets at the
time of purchase.
A Qualivest Equity Fund, Qualivest Income Fund, and the BB&T International
Equity Fund, as part of its option transactions, also may purchase index put and
call options and write index options. As with options on individual securities,
a Fund or Underlying Fund will write only covered index call options. Options on
securities indices are similar to options on a security except that, rather than
the right to take or make delivery of a security at a specified price, an option
on a securities index gives the holder the right to receive, upon exercise of
the option, an amount of cash if the closing level of the securities index upon
which the option is based is greater than, in the case of a call, or less than,
in the case of a put, the exercise price of the option.
Price movements in securities which an Underlying Fund owns or intends to
purchase may not correlate perfectly with movements in the level of an index
and, therefore, an Underlying Fund bears the risk of a loss on an index option
that it not completely offset by movements in the price of such securities.
Because index options are settled in cash, a call writer cannot determine the
amount of its settlement obligations in advance and, unlike call writing on
specific securities, cannot provide in advance for, or cover, its potential
settlement obligations by acquiring and holding the underlying securities. An
Underlying Fund will segregate assets or otherwise cover index options that
would require it to pay cash upon exercise.
Foreign Securities
Investment in foreign securities is subject to special investment risks that
differ in some respects from those related to investments in securities of U.S.
domestic issuers. Such risks include political, social or economic instability
in the country of the issuer, the difficulty of predicting international trade
patterns, the possibility of the imposition of exchange controls, expropriation,
limits on removal of currency or other assets, nationalization of assets,
foreign withholding and income taxation, and foreign trading practices
(including higher trading commissions, custodial charges and delayed
settlements). Such securities may be subject to greater fluctuations in price
than securities issued by U.S. corporations or issued or guaranteed by the U.S.
Government, its agencies or instrumentalities. The markets on which such
securities trade may have less volume and liquidity, and may be more volatile
than securities markets in the U.S. In addition, there may be less publicly
available information about a foreign company than about a U.S. domiciled
company. Foreign companies generally are not subject to uniform accounting,
auditing and financial reporting standards comparable to those applicable to
U.S. domestic companies. There is generally less government regulation of
securities exchanges, brokers and listed companies abroad than in the U.S.
Confiscatory taxation or diplomatic developments could also affect investment in
those countries. In addition, foreign branches of U.S. banks, foreign banks and
foreign issuers may be subject to less stringent reserve requirements and to
different accounting, auditing, reporting, and recordkeeping standards than
those applicable to domestic branches of U.S. banks and U.S. domestic issuers.
If a security is denominated in foreign currency, the value of the security to
the Growth and Income Fund or an Underlying Fund will be affected by changes in
currency exchange rates and in exchange control regulations, and costs will be
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incurred in connection with conversions between currencies. Currency risks
generally increase in lesser developed markets. Exchange rate movements can be
large and can endure for extended periods of time, affecting either favorably or
unfavorably the value of the Growth and Income Fund's or the Underlying Fund's
assets.
For many foreign securities, U.S. dollar denominated American Depositary
Receipts ("ADRs"), which are traded in the United States on exchanges or
over-the-counter, are issued by domestic banks. ADRs represent the right to
receive securities of foreign issuers deposited in a domestic bank or a
correspondent bank. ADRs do not eliminate all the risk inherent in investing in
the securities of foreign issuers' stock. However, by investing in ADRs rather
than directly in foreign issuers' stock, the Growth and Income Fund and the
Underlying Funds can avoid currency risks during the settlement period for
either purchase or sales.
Subject to its applicable investment policies, each Qualivest Equity Fund other
than the Optimized Fund may invest in debt securities denominated in the
European Currency Unit ("ECU") which is a "basket" consisting of specified
amounts of the currencies of certain of the member 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
relative values of the underlying currencies. Such adjustments may adversely
affect holders of ECU denominated obligations or the marketability of such
securities.
The Growth and Income Fund, the BB&T Balanced Fund, the BB&T Growth and Income
Fund and the BB&T Small Company Growth Fund may invest in foreign securities
through the purchase of ADRs or the purchase of securities on the New York Stock
Exchange ("NYSE"). However, the BB&T Growth and Income Fund and the BB&T
Balanced Fund will not do so if immediately after a purchase and as a result of
the purchase the total value of such foreign securities owned by such Underlying
Fund would exceed 25% of the value of its total assets.
From time to time the BB&T International Equity Fund may invest more than 25% of
its total assets in the securities of issuers located in Japan. Investments of
25% of more of the BB&T International Equity Fund's total assets in this or any
other country will make this Underlying Fund's performance more dependent upon
the political and economic circumstances of a particular country than a mutual
fund that is more widely diversified among issuers in different countries. For
example, in the past events, in the Japanese economy as well as social
developments and natural disasters have affected Japanese securities and
currency markets, and have periodically disrupted the relationship of the
Japanese yen with other currencies and with the U.S. dollar.
The Qualivest Equity Funds (except the Qualivest Optimized Fund) and the BB&T
International Equity Fund may invest in both sponsored and unsponsored ADRs, and
the BB&T International Equity Fund may invest in European Depository Receipts
("EDRs"), Global Depository Receipts ("GDRs") and other similar global
instruments. EDRs, which are sometimes referred to as Continental Depository
Receipts, are receipts issued in Europe, typically by foreign banks and trust
companies, that evidence ownership of either foreign or domestic underlying
securities. GDRs are depository receipts structured like global debt issues to
facilitate trading on an international basis.
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Unsponsored ADR, EDR and GDR programs are organized independently and without
the cooperation of the issuer of the underlying securities. As a result,
available information concerning the issuers may not be as current as for
sponsored ADRs, EDRs, and GDRs may be more volatile than if such instruments
were sponsored by the issuer.
The BB&T International Equity Fund may invest its assets in countries with
emerging economies or securities markets. Political and economic structures in
many of these countries may be undergoing significant evolution and rapid
development, and these countries may lack the social, political and economic
stability characteristics of more developed countries. Some of these countries
may have in the past failed to recognize private property rights and have at
time nationalized or expropriated the assets of private companies. As a result,
the risks described above, including the risks of nationalization or
expropriation of assets, may be heightened. In addition, unanticipated political
or social developments may affect the value of investments in these countries
and the availability to the BB&T International Equity Fund of additional
investments in emerging market countries. The small size and inexperience of the
securities markets in certain of these countries and the limited volume of
trading in securities in these countries may make investments in the countries
illiquid and more volatile than investments in Japan or most Western European
countries. There may be little financial or accounting information available
with respect to issuers located in certain emerging market countries, and it may
be difficult as result to access the value or prospects of an investment in such
issuers. The BB&T International Equity Fund intends to limit its investment in
countries with emerging economies or securities markets to 20% of its total
assets.
Foreign Currency Transactions
The value of the assets of a Qualivest Equity Fund (other than the Optimized
Fund) or the BB&T International Equity Fund as measured in U.S. dollars may be
affected favorably or unfavorably by changes in foreign currency exchange rates
and exchange control regulations, and such Underlying Fund may incur costs in
connection with conversions between various currencies. An Underlying Fund will
conduct its foreign currency exchange transactions either on a spot (i.e., cash)
basis at the spot rate prevailing in the foreign currency exchange market, or
through forward contracts to purchase or sell foreign currencies. A forward
foreign currency exchange contract ("forward currency 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 agreed upon by the
parties, at a price set at the time of the contract. These forward currency
contracts are traded directly between currency traders (usually large commercial
banks) and their customers. These Underlying Funds may enter into forward
currency contracts in order to hedge against adverse movements in exchange rates
between currencies.
By entering into a forward currency contract in U.S. dollars for the purchase or
sale of the amount of foreign currency involved in an underlying security
transaction, an Underlying Fund is able to protect itself against a possible
loss between trade and settlement dates resulting from an adverse change in the
relationship between the U.S. dollar and such foreign currency. However, this
tends to limit potential gains which might result from a positive change in such
currency relationships. An Underlying Fund may also hedge its foreign currency
exchange rate risk by engaging in a currency
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financial futures and options transactions. The forecasting of short-term
currency market movements is extremely difficult and whether such a short-term
heading strategy will be successful is highly uncertain.
It is impossible to forecast with precision the market value of portfolio
securities at the expiration of a forward currency contract. Accordingly, it may
be necessary for an Underlying Fund to purchase additional currency on the spot
market if the market value of the security is less than the amount of foreign
currency such Underlying Fund is obligated to deliver when a decision is made to
sell the security and make delivery of the foreign currency in settlement of a
forward contract. Conversely, it may be necessary to sell on the spot market
some of the foreign currency received upon the sale of the portfolio security if
its market value exceeds the amount of foreign currency such Underlying Fund is
obligated to deliver.
If an Underlying Fund retains the portfolio security and engages in an
offsetting transaction, it will incur a gain or a lost to the extent that there
has been movement in forward currency contract prices. If an Underlying Fund
engages in an offsetting transaction, it may subsequently enter into a new
forward currency contract to sell the foreign currency. Although such contracts
tend to minimize the risk of loss due to a decline in the value of the hedged
currency, they also tend to limit any potential gain which might result should
the value of such currency increase. The Underlying Funds will have to convert
their holdings of foreign currencies into U.S. dollars from time to time.
Although foreign exchange dealers do not charge a fee for conversion, they do
realize a profit based on the difference (the "spread") between the prices at
which they are buying and selling various currencies.
Repurchase Agreements
Securities held by the Money Market Fund, the Growth and Income Fund, or an
Underlying Fund (other than the Qualivest U.S. Treasury Fund) may be subject to
repurchase agreements. Under the terms of a repurchase agreement, a Fund or an
Underlying Fund would acquire securities from financial institutions, subject to
the seller's agreement to repurchase such securities at a mutually agreed upon
date and price, which includes interest negotiated on the basis of current
short-term rates. The seller under a repurchase agreement will be required to
maintain at all times the value of collateral held pursuant to the agreement at
not less than the repurchase price (including accrued interest). If a seller
defaults on its repurchase agreements, a Fund or an Underlying Fund may suffer a
loss in disposing of the security subject to the repurchase agreement. For
further information about repurchase agreements, see "INVESTMENT OBJECTIVES AND
POLICIES--Additional Information on Portfolio Instruments--Repurchase
Agreements" in the Statement of Additional Information.
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Reverse Repurchase Agreements and Dollar Roll Agreements
The Money Market Fund, the Growth and Income Fund, and each Underlying Fund may
borrow funds by entering into reverse repurchase agreements, and the Money
Market Fund and the Underlying Qualivest Funds may also enter into dollar roll
agreements in accordance with applicable investment restrictions. Pursuant to
such reverse repurchase agreements, a Fund or Underlying Fund would sell certain
of its securities to financial institutions such as banks and broker-dealers,
and agree to repurchase them, or substantially similar securities in the case of
a dollar roll agreement, at a mutually agreed upon date and price. A dollar roll
agreement is analogous to a reverse repurchase agreement, with a Fund or
Underlying Fund selling mortgage-backed securities for delivery in the current
month and simultaneously contracting to repurchase substantially similar (same
type, coupon and maturity) securities on a specified future date. At the time a
Fund or an Underlying Fund enters into a reverse repurchase agreement or dollar
roll agreement, it will place in a segregated custodial account assets such as
U.S. Government securities or other liquid securities consistent with its
investment restrictions having a value equal to the repurchase price (including
accrued interest), and will subsequently continually monitor the account to
ensure that such equivalent value is maintained at all times. Reverse repurchase
agreements and dollar roll agreements involve the risk that the market value of
securities to be purchased by a Fund or an Underlying Fund may decline below the
price at which it is obligated to repurchase the securities, or that the other
party may default on its obligation, so that a Fund or Underlying Fund is
delayed or prevented from completing the transaction.
Futures Contracts
The Growth and Income Fund, each Qualivest Equity Fund and Qualivest Income
Fund, the BB&T Small Company Growth Fund, and the BB&T International Equity Fund
may also enter into contracts for the future delivery of securities or foreign
currencies and futures contracts based on a specific security, class of
securities, foreign currency or an index, purchase or sell options on any such
futures contracts and engage in related closing transactions. A futures contract
on a securities index in an agreement obligating either party to pay, and
entitling the other party to receive, while the contract is outstanding, cash
payments based on the level of a specified securities index. Each of these Funds
and Underlying Funds may engage in such futures contracts in an effort to hedge
against market risks and to manage its cash position, but not for leveraging
purposes.
Aggregate initial margin deposits for futures contracts, and premiums paid for
related options, may not exceed 5% of a Qualivest Equity Fund's or Qualivest
Income Fund's total assets, and the value of securities that are the subject of
such futures and options (both for receipt and delivery) may not exceed 33 1/3%
of the market value of an Underlying Qualivest Fund's total assets. The value of
each of the Growth and Income, the BB&T Small Company Growth, and the BB&T
International Equity Funds' contracts may equal or exceed 100% of its total
assets, although each will not purchase or sell a futures contract unless
immediately afterwards the aggregate amount of margin deposits on its existing
futures positions plus the amount of premiums paid for related futures options
entered into for other than bona fide hedging purposes is 5% or less of its net
assets. Futures transactions will be limited to the extent necessary to maintain
the qualification of each Fund and Underlying Fund as a regulated investment
company.
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When-Issued and Delayed-Delivery Transactions
Each of the Money Market Fund, the Growth and Income Fund, and the Underlying
Funds (except the BB&T U.S. Treasury Fund) may purchase securities on a
when-issued or delayed-delivery basis. In addition, the Growth and Income Fund
and the BB&T Small Company Growth Fund may sell, and the BB&T International
Equity Fund may purchase and sell, securities on a "forward commitment" basis. A
Fund will engage in when-issued and delayed-delivery transactions only for the
purpose of acquiring portfolio securities consistent with its investment
objective and policies, not for investment leverage. When-issued securities are
securities purchased for delivery beyond the normal settlement date at a stated
price and yield and thereby involve a risk that the yield obtained in the
transaction will be less than that available in the market when delivery takes
place. A Fund or Underlying Fund will not pay for such securities or start
earning interest on them until they are received. When a Fund or Underlying Fund
agrees to purchase such securities, its Custodian will set aside cash or liquid
securities equal to the amount of the commitment in a segregated account. In
when-issued and delayed-delivery transactions, a Fund or Underlying Fund relies
on the seller to complete the transaction; the seller's failure to do so may
cause such Fund to miss a price or yield considered to be advantageous.
Lending of Portfolio Securities
In order to generate additional income, the Growth and Income Fund and all
Underlying Funds (except the Qualivest Money Fund) may from time to time lend
portfolio securities to broker-dealers, banks or institutional borrowers of
securities. The Underlying Qualivest Funds must receive 102% and the Growth and
Income and the Underlying BB&T Funds must receive 100% collateral, in the form
of cash or U.S. Government securities. This collateral must be valued daily, and
should the market value of the loaned securities increase, the borrower must
furnish additional collateral to the lender. During the time portfolio
securities are on loan, the borrower pays the lender any dividends or interest
paid on such securities. Loans are subject to termination by the lender or the
borrower at any time. While a lending Fund or Underlying Fund does not have the
right to vote securities on loan, each lender intends to terminate the loan and
regain the right to vote if that is considered important with respect to the
investment. In the event the borrower defaults on its obligation to a Fund or
Underlying Fund, the lender could experience delays in recovering its securities
and possible capital losses. The Growth and Income Fund and the Underlying Funds
will only enter into loan arrangements with broker-dealers, banks or other
institutions determined to be creditworthy under guidelines established by the
relevant Board of Trustees that permit the Growth and Income Fund, the eligible
Underlying Qualivest Funds, and the BB&T International Equity Fund to loan up to
33 1/3% of the value of its total assets. The remaining Underlying BB&T Funds
may lend only up to 30% of each such Underlying Fund's assets.
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Short-Term Obligations
The Growth and Income Fund and the Underlying BB&T Funds (except the BB&T U.S.
Treasury Fund) may invest in high quality, short-term obligations (with
maturities of 12 months or less) such as domestic and foreign commercial paper
(including variable amount master demand notes), bankers' acceptances,
certificates of deposit and demand and time deposits of domestic and foreign
branches of U.S. banks and foreign banks, and repurchase agreements, in order to
acquire interest income combined with liquidity. Such investments will be
limited to those obligations which, at the time of purchase, (i) possess one of
the two highest short-term ratings from NRSROs or (ii) do not possess a rating
(i.e., are unrated) but are determined to be of comparable quality to rated
instruments eligible for purchase. Under normal market conditions, the Growth
and Income Fund and each of the eligible Underlying BB&T Funds will limit its
investment in short-term obligations to 35% of its total assets. Pending
investment or to meet anticipated redemption requests, the BB&T International
Equity Fund may also invest without limitation in short-term obligations. For
temporary defensive purposes, as determined by BB&T (or an Underlying Fund's
sub-adviser), these investments may constitute 100% of the Growth and Income
Fund's or a BB&T Underlying Fund's portfolio and, in such circumstances, will
constitute a temporary suspension of their attempts to achieve their investment
objectives.
Short-Term Trading
In order to generate income, the Growth and Income and the Underlying BB&T Funds
(except the BB&T U.S. Treasury Fund) may engage in the technique of short-term
trading. Such trading involves the selling of securities held for a short time,
ranging from several months to less than a day. The object of such short-term
trading is to increase the potential for capital appreciation and/or income of
the Funds in order to take advantage of what BB&T (or an Underlying Fund's
sub-adviser) believes are changes in market, industry or individual company
conditions or outlook. Any such trading would increase the portfolio turnover
rate of the Funds and their transaction costs.
Medium-Grade Securities
Each of the Qualivest Income Funds, the Qualivest Large Companies Fund and the
Qualivest Small Companies Fund may invest up to 10% of its total assets in debt
securities within the fourth highest rating group assigned by an NRSRO (i.e.,
BBB or Baa by S&P and Moody's, respectively) and comparable unrated securities.
These types of debt securities are considered by Moody's and S&P to have some
speculative characteristics, and are more vulnerable to changes in economic
conditions, higher interest rates or adverse issuer-specific developments which
are more likely to lead to a weaker capacity to make principal and interest
payments than comparable higher rated debt securities.
Should subsequent events cause the rating of a debt security purchased by one of
the eligible Underlying Qualivest Funds to fall below BBB or Baa, as the case
may be, Qualivest will consider such an event in determining whether an
Underlying Qualivest Fund should continue to hold that security. In no event,
however, would an Underlying Qualivest Fund be required to liquidate any such
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portfolio security where the Underlying Fund would suffer a loss on the sale of
such security.
Securities Issued by Other Investment Companies
Each of the Growth and Income Fund, Qualivest Equity Funds, Qualivest Income
Funds, and the Underlying BB&T Funds (except the BB&T U.S. Treasury Fund) may
invest up to 10% of its total assets, and each of the Money Market Fund and the
Qualivest Money Funds may invest up to 25% of its total assets, in shares of
money market mutual funds for cash management purposes. The Qualivest U.S.
Treasury Fund expects to make such purchase only in money market funds that
restrict their investments to U.S. Government securities. In addition, the BB&T
International Equity Fund may purchase shares of investment companies investing
primarily in foreign securities, including so-called "country funds," which have
portfolios consisting exclusively of securities of issuers located in one
country. A Fund or Underlying Fund will incur additional expenses due to the
duplication of expense as a result of investing in other investment companies.
Restricted Securities
Securities in which the Money Market Fund, the Growth and Income Fund, and the
Underlying Funds may invest include securities issued by corporations without
registration under the Securities Act of 1933, as amended (the "1933 Act"), in
reliance on the so-called "private placement" exemption from registration which
is afforded by Section 4(2) of the 1933 Act ("Section 4(2) securities"). Section
4(2) securities are restricted as to disposition under the federal securities
laws, and generally are sold to institutional investors such as the Funds and
Underlying Funds who agree that they are purchasing the securities for
investment and not with a view to public distribution. Any resale must also
generally be made in an exempt transaction. Section 4(2) securities are normally
resold to other institutional investors through or with the assistance of the
issuer or investment dealers who make a market in such Section 4(2) securities,
thus providing liquidity. Pursuant to procedures adopted by the Board of
Trustees of the Trust, Qualivest, BB&T, or a sub-adviser of an Underlying BB&T
Fund may determine Section 4(2) securities to be liquid if such securities are
readily marketable. These securities may include securities eligible for resale
under Rule 144A under the 1933 Act.
VALUATION OF SHARES
The net asset value of the Money Market Fund is determined and its Shares are
priced as of 12:00 noon Pacific Time and as of the close of regular trading on
the NYSE on each Business Day (also "Valuation Times"). The net asset value of
the other Funds is determined and their Shares are priced as of the closing of
the NYSE (generally 1:00 p.m. Pacific Time) on each Business Day ("Valuation
Time"). As used herein, Business Day is a day on which the NYSE is open for
trading, and any other day except days on which there are insufficient changes
in the value of a Fund's portfolio securities to materially affect the Fund's
net asset value or days on which no Shares are tendered for redemption and no
order to purchase any Shares is received. Currently, the NYSE is closed on the
following holidays: New Year's Day, Presidents' Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving and Christmas.
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Net asset value per Share for purposes of pricing sales and redemptions is
calculated by dividing the value of all securities and other assets belonging to
a Fund, less the liabilities charged to that Fund and any liabilities allocable
to that Fund, by the number of such Fund's outstanding Shares.
The net asset value per Share of the each Fund except the Money Market Fund will
fluctuate as the value of the investment portfolio of a Fund changes.
The securities in each Fund other than the Money Market Fund will be valued at
market value. If market quotations are not available, the securities will be
valued by a method which the Board of Trustees believes accurately reflects fair
value. The assets in the Money Market Fund are valued using the amortized cost
method. For further information about valuation of investments, see "NET ASSET
VALUE" in the Statement of Additional Information.
PURCHASING SHARES
As of the date of this Prospectus, Shares of the Funds are offered for purchase
by the Separate Accounts to serve as an investment medium for the Variable
Contracts issued by insurance companies, and to qualified pension and retirement
plans outside of the separate account context. Shares of the Funds may be
offered in the future to other separate accounts established by Nationwide or
Hartford or sold to separate accounts of other affiliated or unaffiliated
insurance companies, and may be offered in the future to serve as an investment
medium for variable life insurance policies.
While the Funds currently do not foresee any disadvantages to Variable Contract
Owners if the Funds served as an investment medium for both variable annuity
contracts and variable life insurance policies, due to differences in tax
treatment or other considerations, it is theoretically possible that the
interest of owners of annuity contracts and insurance policies for which the
Funds served as an investment medium might at some time be in conflict. However,
the Trust's Board of Trustees and each insurance company with a separate account
allocating assets to the Funds would be required to monitor events to identify
any material conflicts between variable annuity contract owners and variable
life insurance policy owners, and would have to determine what action, if any
should be taken in the event of such a conflict. If such a conflict occurred, an
insurance company participating in the Funds might be required to redeem the
investment of one or more of its separate accounts from the Funds, which might
force the Funds to sell securities at disadvantageous prices.
Shares of each Fund are purchased at the net asset value per Share (see
"VALUATION OF SHARES") next determined after receipt by the Distributor of an
order to purchase Shares. Purchases of Shares of the Funds will be effected only
on a Business Day of the Funds. An order received prior to a Valuation Time on
any Business Day will be executed at the net asset value determined as of the
next Valuation Time on the date of receipt. An order received after the final
Valuation Time on any Business Day will be executed at the net asset value
determined as of the next Valuation Time on the next Business Day of that Fund.
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Each Fund reserves the right to discontinue offering Shares at any time. In the
event that a Fund ceases offering its Shares, any investments allocated to the
Fund will, subject to any necessary regulatory approvals, be invested in another
fund of the Trust deemed appropriate by the Trustees.
Exchange Privilege
Shares of a Fund may be exchanged at net asset value for Shares offered by any
of the other Funds. Exchanges are treated as a redemption of Shares and a
purchase of Shares of one or more of the other Funds and are effected at the
respective net asset values per Share of the Funds on the date of the exchange.
The Funds reserve the right to modify or discontinue the exchange privilege at
any time without notice.
REDEEMING SHARES
Shares may be redeemed without charge on any day that net asset value is
calculated (see "VALUATION OF SHARES"). All redemption orders are effected at
the net asset value per Share next determined after receipt by the Distributor
of a redemption request. Payment for Shares redeemed normally will be made
within seven days.
The Trust intends to pay cash for all Shares redeemed, but under abnormal
conditions which make payment in cash unwise, payment may be made wholly or
partly in portfolio securities at their then market value equal to the
redemption price. In such cases, a Shareholder may incur brokerage costs in
converting such securities to cash.
See the Statement of Additional Information ("ADDITIONAL PURCHASE AND REDEMPTION
INFORMATION") for examples of when the right of redemption may be suspended.
Variable Contract Owners do not deal directly with the Funds to purchase,
redeem, or exchange Shares, and Variable Contract Owners should refer to the
prospectus for the applicable Separate Account for information on the allocation
of premiums and on transfers of accumulated value among sub-accounts of the
pertinent Separate Account that invests in the Funds.
MANAGEMENT OF THE FUNDS
Trustees
Overall responsibility for management of the Trust rests with its Board of
Trustees. The Trust will be managed by the Trustees in accordance with the laws
of the Commonwealth of Massachusetts governing business trusts. The Trustees, in
turn, elect the officers of the Trust to supervise its day-to-day operations.
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Investment Advisers
Qualivest. Qualivest Capital Management, Inc., P.O. Box 2758, Portland, Oregon
97208, is the investment adviser of the Allocated Funds and the Money Market
Fund. Qualivest, a registered investment adviser, is an affiliate of U.S. Bank,
which is a wholly owned subsidiary of U.S. Bancorp. U.S. Bancorp is
super-regional financial services holding company organized under the laws of
Oregon in 1968. U.S. Bank, headquartered in Portland, is a national banking
association, chartered in 1891. It offers a wide variety of full-service and
commercial banking operations in over 200 locations in Oregon. Other services of
U.S. Bancorp and its subsidiaries include mortgage banking, lease financing,
consumer financing, commercial finance, international banking, investment
advisory, insurance agency and credit life insurance services, brokerage and
venture capital. As of October 31, 1996, Qualivest had under management nearly
$10 billion in assets. It also is investment adviser to Tax-Free Trust of
Oregon, a tax-free municipal bond fund, whose assets were approximately $304
million at that date, as well as the Qualivest Funds, an open-end management
investment company offering multiple series of shares, whose assets were
approximately $1.8 billion at that date.
Qualivest invests the assets of each Fund advised by it according to the Fund's
investment objective and policies set forth above and pursuant to guidelines
established by the Board of Trustees for each such Fund. Allocation decisions
for the Allocated Funds are made by the Qualivest Investment Strategy Committee
(the "Committee"). Timothy Leach, President and Chief Investment Officer of
Qualivest, acts as Chairman of the Committee. For the services provided and
expenses assumed pursuant to its investment advisory agreement with the Trust,
Qualivest receives a fee from each Fund advised by it, computed daily and paid
monthly, at an annual rate of 0.05% of each Allocated Fund's average daily net
assets, and 0.35% of the Money Market Fund's average daily net assets. Each
Allocated Fund, as a Shareholder in an Underlying Qualivest Fund, also will
indirectly bear its proportionate share of any investment advisory fees and
other expenses paid by the Underlying Qualivest Fund. The ratios of operating
expenses to average daily net assets of the Underlying Qualivest Funds for the
period ended July 31, 1996 were as follows: Qualivest Large Companies Fund --
0.93%; Qualivest Small Companies Fund -- 1.08%; Qualivest International Fund --
0.81%; Qualivest Optimized Fund -- 0.60%; Qualivest Intermediate Bond Fund --
0.76%; Qualivest Bond Fund -- 0.61%; Qualivest U.S. Treasury Fund -- 0.31%; and
Qualivest Money Market Fund -- 0.51%.
Subject to the general supervision of the Trust's Board of Trustees and in
accordance with each of the Underlying Qualivest Funds' investment objective,
policies and restrictions, Qualivest has agreed in its Investment Advisory
Agreement with the Trust to provide or arrange for the provision of a continuous
investment program for each Underlying Qualivest Fund, including investment
research and management with respect to the Underlying Qualivest Funds'
portfolio securities, investments and cash. Qualivest has implemented a team
approach to the management of the Underlying Qualivest Funds, under which a
"Lead Manager" has primary portfolio management responsibility for an Underlying
Qualivest Fund and is assisted by a "Co-Manager."
John R. Dozier, who joined U.S. Bank in 1976 and Qualivest at the time of its
inception as a registered investment adviser in 1984, is the Equity Manager
primarily responsible for managing the Qualivest Large Companies Fund. Mr.
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Dozier has twenty-six years of investment management experience and received a
Bachelor of Arts degree in Economics from Claremont Men's College. John R.
Swank, an Equity Manager with twenty years of experience in portfolio
management, including seventeen years of combined employment by U.S. Bank and
Qualivest, assists Mr. Dozier in managing the Qualivest Large Companies Fund.
Mr. Swank has a Bachelor of Science degree in Finance and a Master of Business
Administration degree, both from Long Beach State University. He is also a
Chartered Financial Analyst.
Dale E. Benson, an Equity Manager at Qualivest, has primary responsibility for
management of the Qualivest Small Companies Fund. Mr. Benson has twenty-four
years of investment management experience and has been employed by U.S. Bank
since 1973 and by Qualivest since its inception. He received a Bachelor of Arts
degree from Pacific Lutheran University and a Doctorate in History from the
University of Maine. Mr. Benson is also a Chartered Financial Analyst. Frank
Magdlen assists Mr. Benson in managing the Qualivest Small Companies Fund. Mr.
Magdlen, who also is a Chartered Financial Analyst, analyzes closely held
companies for Qualivest and has twenty-three years of investment experience. He
received a Bachelor of Arts degree in Finance from the University of Portland
and a Master of Business Administration degree from the University of Southern
California. Mr. Magdlen has been employed by U.S. Bank since 1979 and by
Qualivest since 1984.
Daniel J. Rauchle has primary responsibility for managing the Qualivest
International Fund. Prior to joining Qualivest as an Equity Manager, Mr. Rauchle
was an independent consultant to small business and financial institutions
specializing in finance and investments. Mr. Rauchle received his Bachelor of
Business Administration, Master of Business Administration, and Juris Doctor
degrees from the University of Wisconsin. Timothy Leach, President and Chief
Investment Officer of Qualivest, assists Mr. Rauchle in managing the Qualivest
International Fund. He has fourteen years of investment management experience,
both at Qualivest and at other investment management organizations, and is
responsible for the management of Qualivest. Mr. Leach has a Bachelor of Science
degree in Business Management and Agricultural Science and a Master of Business
Administration degree from the University of California, Berkeley. Mr. Leach has
primary responsibility for managing the Qualivest Optimized Fund, and Mr.
Rauchle assists Mr. Leach in managing that Underlying Qualivest Fund.
Portfolio management of the Qualivest Intermediate Bond Fund is the primary
responsibility of Curry A. Garvin, a Fixed-Income Manager who has been employed
by U.S. Bank since 1981 and by Qualivest since 1985. Mr. Garvin, who is a
Chartered Financial Analyst, received a Bachelor of Science degree in Finance
from the University of Oregon. John McCune, a Fixed-Income Manager with ten
years of investment management experience, assists Mr. Garvin in managing the
Qualivest Intermediate Bond Fund. Mr. McCune joined the Qualivest team in 1996
as part of the U.S. Bancorp/West One Bancorp merger. Prior to 1996, Mr. McCune
had been employed as a Senior Portfolio Manager at West One Bancorp and AMR
Corporation. Mr. McCune received a Bachelor of Science degree in Finance from
Brigham Young University and a Master of Business Administration degree from the
University of California at Los Angeles. Mr. McCune has primary responsibility
for managing the Qualivest Bond Fund, and Mr. Garvin assists Mr. McCune in
managing that Underlying Qualivest Fund.
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For the services provided and expenses assumed pursuant to an investment
advisory agreement with the Qualivest Funds, Qualivest receives a fee from each
of the Underlying Qualivest Funds, computed daily and paid monthly, at the
following annual rates of each Underlying Qualivest Fund's average daily net
assets: Qualivest Large Companies Fund -- 0.75%; Qualivest Small Companies Fund
- -- 0.80%; Qualivest International Fund -- 0.60%; Qualivest Optimized Fund --
0.50%; Qualivest Intermediate Bond Fund -- 0.60%; Qualivest Bond Fund -- 0.60%;
Qualivest U.S. Treasury Fund -- 0.35%; and Qualivest Money Market Fund -- 0.35%.
While the fees for the Qualivest Large Companies and Qualivest Small Companies
Funds are higher than the advisory fees paid by most investment companies, the
Board of Trustees of Qualivest Funds believes them to be comparable to advisory
fees paid by many funds having similar objectives and policies. Qualivest may
periodically voluntarily reduce all or a portion of its advisory fee with
respect to an Underlying Qualivest Fund to increase the net income of that
Underlying Qualivest Fund available for distribution as dividends. The voluntary
fee reduction will cause the return of that Underlying Qualivest Fund to be
higher than it would otherwise be in the absence of such reduction.
BB&T. Branch Banking and Trust Company, 434 Fayetteville Street Mall, Raleigh,
N.C. 27601, is the investment adviser of the Growth and Income Fund, the Capital
Manager Fund, and the Underlying BB&T Funds. BB&T is the oldest bank in North
Carolina and is the principal bank affiliate of Southern National Corporation
("SNC"), a bank holding company that is a North Carolina corporation,
headquartered in Winston-Salem, North Carolina, which merged with Southern
National Corporation, the former parent company of BB&T. As of September 30,
1996, SNC had assets in excess of $21.1 billion. Through its subsidiaries, SNC
operates over 425 banking offices in North Carolina, South Carolina and
Virginia, providing a broad range of financial services to individuals and
businesses.
In addition to general commercial, mortgage and retail banking services, BB&T
also provides trust, investment, insurance and travel services. BB&T has
provided investment management services through its Trust and Investment
Services Division since 1912. While BB&T has not provided investment advisory
services to registered investment companies other than the Group and the Trust,
it has experience in managing collective investment funds with investment
portfolios and objectives comparable to those of the Group and the Growth and
Income Fund and Underlying Funds of the Trust. BB&T employs an experienced staff
of professional portfolio managers and traders who use a disciplined investment
process that focuses on maximization of risk-adjusted investment returns. BB&T
has managed common and collective investment funds for its fiduciary accounts
for more than 15 years and currently manages assets of more than $4.5 billion.
Subject to the general supervision of the Group's Board of Trustees and in
accordance with the investment objectives and restrictions of a Fund, BB&T (and,
with respect to the BB&T Small Company Growth Fund and the BB&T International
Equity Fund, the sub-advisers discussed below) manages the Funds, makes
decisions with respect to, and places orders for, all purchases and sales of its
investment securities, and maintains its records relating to such purchases and
sales.
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Under an investment advisory agreement between the Trust and BB&T, the Trust
pays BB&T an investment advisory fee, computed daily and payable monthly, at an
annual rate equal to the lessor of: (a) 0.74% of the Growth and Income Fund's
average daily net assets and 0.25% of the Capital Manager Fund's average daily
net assets; or (b) such fee as may from time to time be agreed upon in writing
by the Trust and BB&T. As a Shareholder of an Underlying BB&T Fund, the Capital
Manager Fund will also indirectly bear its proportionate share of any investment
advisory fees and other expenses paid by the Underlying BB&T Fund. The ratios of
operating expenses to average daily net assets of the operational Underlying
BB&T Funds for the period ended September 30, 1996 were as follows: BB&T U.S.
Treasury Fund -- 0.75%; BB&T Growth and Income Fund -- 0.86%; BB&T Intermediate
Bond Fund -- 0.87%; BB&T Balanced Fund -- 0.95%; BB&T Short-Intermediate Fund --
0.93%; and BB&T Small Company Growth Fund -- 1.79%. The ratio of estimated
operating expenses to average daily net assets of the BB&T International Equity
Fund, which had not commenced operations as of September 30, 1996, is 1.87%.
Under an investment advisory agreement between the Group and BB&T, the fee
payable to BB&T for investment advisory services provided to the Underlying BB&T
Funds is the lesser of: (a) a fee computed daily and paid monthly at the annual
rate of 0.40% of the BB&T U.S. Treasury Fund's average daily net assets; 0.60%
of each BB&T Income Funds' average daily net assets; 0.74% of the BB&T Growth
and Income Fund's and BB&T Balanced Fund's average daily net assets; and 1.00%
of the BB&T Small Company Growth Fund's and BB&T International Equity Fund's
average daily net assets; or (b) such fee as may from time to time be agreed
upon in writing by the Group and BB&T. A fee agreed to in writing from time to
time by the Group and BB&T may be significantly lower than the fee calculated at
the annual rate and the effect of such lower fee would be to lower a Fund's
expenses and increase the net income of the fund during the period when such
lower fee is in effect.
For the fiscal year ended September 30, 1996, the Underlying BB&T Funds paid the
following investment advisory fees: the BB&T U.S. Treasury Fund paid 0.40% of
its average daily net assets; each of the BB&T Short-Intermediate, BB&T
Intermediate Bond, BB&T Growth and Income, and BB&T Balanced Funds, after
voluntary fee reductions, paid 0.50% of its average daily net assets; and the
BB&T Small Company Growth Fund paid 1.00% of its average daily net assets. The
BB&T International Equity Fund had not commenced operations as of September 30,
1996.
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The persons primarily responsible for the management of certain of the Growth
and Income fund, the Capital Manager Fund, and the Underlying BB&T Funds (other
than the BB&T Small Company Growth and BB&T International Equity Funds which are
managed by sub-advisers, described below), as well as their previous business
experience, are as follows:
Portfolio Manager Business Experience
Keith F. Karlawish Manager of the BB&T Intermediate Bond
Fund and BB&T Short- Intermediate Fund since
September, 1994. From June, 1993 to September,
1994, Mr. Karlawish was Assistant Manager of the
BB&T Intermediate Bond Fund and the BB&T
Short-Intermediate Fund. From September, 1991 to
June, 1993, Mr. Karlawish was a Financial Analyst
Team Leader for Branch Banking and Trust Co. Mr.
Karlawish earned a B.S. in Business Administration
from the University of Richmond, and an MBA from
the University of North Carolina at Chapel Hill.
Richard B. Jones Manager of the Growth and Income Fund
since inception, and BB&T Growth and Income Fund
since February 1, 1993. Since 1987, Mr. Jones has
been a portfolio manager in the BB&T Trust
Division. He holds a B.S. in Business
Administration from Miami (Ohio) University and
MBA from Ohio State University.
David R. Ellis Manager of the Capital Manager Fund and
BB&T Balanced Fund since inception of each. Since
1986, Mr. Ellis has been a portfolio manager in
the BB&T Trust Division. He holds a B.S. degree in
Business Administration from the University of
North Carolina at Chapel Hill.
BB&T Sub-Advisers. PNC Equity Advisors Company ("PNC"), a wholly owned
subsidiary of PNC Bank, N.A., serves as the investment sub-adviser to the BB&T
Small Company Growth Fund pursuant to a sub-advisory agreement with BB&T. Under
the sub-advisory agreement, PNC manages the BB&T Small Company Growth Fund,
selects investments and places all orders for purchases and sales of its
portfolio securities, subject to the general supervision of the Group's Board of
Trustees and BB&T and in accordance with the BB&T Small Company Growth Fund's
investment objective, policies and restrictions.
The person primarily responsible for the management of the BB&T Small Company
Growth Fund is William J. Wykle. Mr. Wykle has served as the Manager of the BB&T
Small Company Growth Fund since its inception. He has been Vice President and
Small Cap Growth Equity Fund portfolio manager for PNC Bank, N.A. since 1992. He
has been a portfolio manager at PNC Bank, N.A. and its predecessor, Provident
National Bank, since 1986. Mr. Wykle has also been an investment manager with
PNC since 1995 and has been the portfolio manager of the Compass Capital
Funds(sm) Small Cap Growth Equity Portfolio since its inception.
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PNC Bank, with offices located at 1600 Market Street, Philadelphia, Pennsylvania
19103, is a wholly owned indirect subsidiary of PNC Bank Corp. PNC Bank Corp., a
bank holding company headquartered in Pittsburgh, Pennsylvania, was the 13th
largest bank holding company in the United States based on total assets at
September 30, 1996. PNC Bank Corp. operates banking subsidiaries in
Pennsylvania, Delaware, Florida, Indiana, Kentucky, Massachusetts, New Jersey
and Ohio and conducts certain non-banking operations throughout the United
States. Its major businesses include consumer banking, corporate banking, real
estate banking, mortgage banking and asset management. With $104.5 billion in
discretionary assets under management and $310.9 billion of assets under
administration at September 30, 1996, PNC Bank Corp. is one of the largest bank
money managers as well as one of the largest institutional mutual fund managers
in the United States. Of such amounts at September 30, 1996, PNC Bank had $94
billion in discretionary assets under management and $132.1 billion in assets
under administration. In addition to asset management and trust services, PNC
Bank also provides a wide range of domestic and international commercial banking
and consumer banking services. PNC Bank's origins, and in particular its trust
administration services, date back to the mid-to-late 1800s.
For its services and expenses incurred under the sub-advisory agreement, PNC
Bank is entitled to a fee, payable by BB&T. The fee is computed daily and paid
monthly at the following annual rates (as a percentage of the BB&T Small Company
Growth Fund's average daily net assets), which vary according to the level of
BB&T Small Company Growth Fund assets:
Fund Assets Annual Fee
Up to $50 million............................................. .50%
Next $50 million.............................................. .45%
Over $100 million............................................. .40%
CastleInternational Asset Management Limited ("CastleInternational") serves as
the investment sub-adviser to the BB&T International Equity Fund pursuant to a
sub-advisory agreement with BB&T. Under the sub-advisory agreement,
CastleInternational manages the BB&T International Equity Fund, selects
investments and places all orders for purchases and sales of the its securities,
subject to the general supervision of the Group's Board of Trustees and BB&T and
in accordance with the BB&T International Equity Fund's investment objective,
policies and restrictions.
CastleInternational, formed in 1996, with its primary office at 7 Castle Street,
Edinburgh, Scotland, EH2 3AH, is an indirect wholly owned subsidiary of PNC Bank
Corp. As of September 30, 1996, CastleInternational had approximately $1.6
billion in discretionary assets under management, including three mutual fund
portfolios, one bank common trust fund and a tax exempt institutional portfolio.
For its services and expenses incurred under the sub-advisory agreement,
CastleInternational is entitled to a fee, payable by BB&T. The fee is computed
daily and paid quarterly at the following
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annual rates (as a percentage of the BB&T International Equity Fund's average
daily net assets), which vary according to the level of BB&T International
Equity Fund assets:
Fund Assets Annual Fee
Up to $50 million............................................. .50%
Next $50 million.............................................. .45%
Over $100 million............................................. .40%
The person primarily responsible for the management of the BB&T International
Equity Fund is Gordon Anderson. Mr. Anderson has served as Managing and
Investment Director of CastleInternational Asset Management Limited since 1996.
Prior to joining CastleInternational, Mr. Anderson was the Investment Director
of Dunedin Fund Managers, Ltd. Mr. Anderson has served as the Portfolio Manager
for the Compass Capital Funds (SM) International Equity Portfolio since 1996.
Administrator and Distributor
BISYS Fund Services, 3435 Stelzer Road, Columbus, Ohio 43219-3035, a division of
BISYS Group, Inc., is the administrator for each Fund, and also acts as the
Trust's principal underwriter and distributor.
The Administrator generally assists in all aspects of the Funds' administration
and operation. For expenses assumed and services provided as administrator
pursuant to its Management and Administration Agreement with the Trust, the
Administrator receives a fee from each Fund equal to the lesser of a fee,
computed daily and paid periodically, at the following annual rates of each
Fund's average daily net assets, or such other fee as may be agreed upon from
time to time by the Trust and the Administrator: each Allocated Fund -- 0.07%;
Money Market Fund -- 0.13%; and Growth and Income Fund and Capital Manager Fund
- -- 0.20%. The Administrator may periodically voluntarily reduce all or a portion
of its administrative fee with respect to any Fund to increase the net income of
such Fund available for distribution as dividends. The voluntary fee reduction
will cause the yield of that Fund to be higher than it would otherwise be in the
absence of such a reduction.
The Distributor acts as agent for the Funds in the distribution of each of their
Shares and, in such capacity, advertises and pays the cost of advertising,
office space and its personnel involved in such activities. The Distributor
serves in such capacity without remuneration from the Funds.
Other Service Providers
BISYS Fund Services Ohio, Inc., 3435 Stelzer Road, Columbus, Ohio 43219-3035,
serves as the Trust's transfer agent and dividend disbursing agent and provides
certain accounting services for each of the Funds, and receives a fee for such
services. Coopers & Lybrand LLP serves as independent auditors for the Trust.
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United States National Bank of Oregon is the custodian of the Allocated Funds
and the Money Market Fund. Fifth Third Bank is the custodian for the Growth and
Income Fund and the Capital Manager Fund. See "MANAGEMENT OF THE TRUST" in the
Statement of Additional Information for further information.
While BISYS Fund Services Ohio, Inc. is a distinct legal entity from BISYS (the
Trust's administrator and distributor), BISYS Fund Services Ohio, Inc. is
considered to be an affiliated person of BISYS under the 1940 Act due to, among
other things, the fact that BISYS Fund Services Ohio, Inc. is owned by
substantially the same persons that directly or indirectly own BISYS.
Variable Contract Owner Servicing Agents
Pursuant to Variable Contract Owner Servicing Agreements between certain
financial institutions and their affiliates ("Participating Organizations") and
the Funds, each Participating Organization serves as a Variable Contract Owner
Servicing Agent to each of the Funds. As a Variable Contract Owner Servicing
Agent, a Participating Organization generally provides support services to its
clients who are Variable Contract Owners by establishing and maintaining
accounts and records, providing account information, arranging for bank wires,
responding to routine inquiries, forwarding Variable Contract Owner
communications, assisting in the processing of purchase, exchange and redemption
requests, and assisting Variable Contract Owners in changing account
designations and addresses. For expenses incurred and services provided as a
Variable Contract Owner Servicing Agent, each Participating Organization
receives a fee from each of the Funds, computed daily and paid monthly, at an
annual rate of up to 0.25% of the average daily net assets of each Fund
allocable to Variable Contracts owned by customers of the Participating
Organization. A Participating Organization may periodically waive all or a
portion of its servicing fees with respect to a Fund to increase the net income
of such Fund available for distribution as dividends.
Expenses
Qualivest, BB&T, and the Administrator each bear all expenses in connection with
the performance of its services other than the cost of securities (including
brokerage commissions) purchased for the Trust. Each Fund will bear the
following expenses relating to its operation: taxes, interest, fees of the
Trustees of the Trust, Securities and Exchange Commission fees, outside auditing
and legal expenses, advisory and administration fees, fees and out-of-pocket
expenses of the Custodian and fund accountant, certain insurance premiums, costs
of maintenance of the Trust's existence, costs of Shareholders' reports and
meetings, and any extraordinary expenses incurred in each Fund's operation.
Banking Laws
Federal banking laws and regulations presently prohibit a national bank or any
affiliate thereof from sponsoring, organizing or controlling a registered
open-end investment company continuously engaged in the issuance of its shares,
and generally from underwriting, selling or distributing securities, such as
Shares of the Funds.
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<PAGE>
Qualivest and BB&T each believes that it may perform advisory services for the
Funds as described herein and, provided that they do not engage in underwriting,
selling or distribution of the Fund's shares, Qualivest's national bank
affiliates believe that they may perform Variable Contract Owner servicing
activities and may receive compensation without violating federal banking laws
and regulations.
In the event that, due to future events, either adviser is prohibited from
acting as the investment adviser of the Funds and the Underlying Funds, it is
probable that the Board of Trustees would either recommend to Shareholders the
selection of another qualified adviser or, if that course of action appeared
impractical, that the Funds and Underlying Funds be liquidated.
TAXATION
Each Fund intends to qualify each year as a regulated investment company under
Subchapter M of the Internal Revenue Code (the "Code"). Accordingly, a Fund so
qualifying generally will not be subject to federal income taxes to the extent
that it distributed on a timely basis its investment company taxable income and
its net capital gains.
To comply with regulations under section 817(h) of the Code, each Fund is
required to diversify its investments. Generally, a Fund will be required to
diversify its investments so that on the last day of each quarter of a calendar
year no more than 55% of the value of its total assets is represented by any one
investment, no more than 70% is represented by any two investments, no more than
80% is represented by any three investments, and no more than 90% is represented
by any four investments. For this purpose, securities of a given issuer
generally are treated as one investment, but each U.S. Government agency and
instrumentality is treated as a separate issuer. Any security issued,
guaranteed, or insured (to the extent so guaranteed or insured) by the U.S. or
an agency or instrumentality of the U.S. is treated as a security issued by the
U.S. Government or its agency or instrumentality, whichever is applicable.
Compliance with the diversification rules under Section 817(h) of the Code
generally will limit the ability of a Fund to invest greater than 55% of its
total assets in direct obligations of the U.S. Treasury (or any other issuer) or
to invest primarily in securities issued by a single agency or instrumentality
of the U.S. Government. If a Fund fails to meet the diversification requirement
under Section 817(h) of the Code, income with respect to Variable Contracts
invested in the Fund at any time during the calendar quarter in which the
failure occurred could become currently taxable to the owners of such Variable
Contracts and income for prior periods with respect to such contracts also could
be taxable, most likely in the year of the failure to achieve the required
diversification. Other adverse tax consequences could also ensue. If a Fund
failed to qualify as a regulated investment company, the results would be
substantially the same as a failure to meet the diversification requirements
under Section 817(h) of the Code.
The Treasury Department announced that it would issue future regulations or
rulings addressing the circumstances in which a variable contract owner's
control of the investments of the separate account may cause the contract owner,
rather than the insurance company, to be treated as the owner of the
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<PAGE>
assets held by the separate account. If the contract owner is considered the
owner of the securities underlying the separate account, income and gains
produced by those securities would be included currently in the contract owner's
gross income. It is not known what standards will be set forth in the
regulations or rulings.
In the event that rules or regulations are adopted, there can be no assurance
that the Funds will be able to operate as currently described, or that the Trust
will not have to change one or more Fund's investment objective or investment
policies. While each Fund's investment objective is fundamental and may be
changed only by a vote of a majority of its outstanding Shares, the investment
policies of a Fund may be modified as necessary to prevent any such prospective
rules and regulations from causing Variable Contract Owners to be considered the
owners of the Shares of a Fund underlying a Separate Account.
Reference is made to the prospectus for the appropriate Separate Account and
Variable Contract for information regarding the federal income tax treatment of
distributions to the Separate Account. See "ADDITIONAL INFORMATION - Additional
Tax Information" in the Funds' Statement of Additional Information for more
information on taxes.
GENERAL INFORMATION
Description of the Trust and Its Shares
The Trust was organized as a Massachusetts business trust in 1994 and consists
of seven Funds. Each Share represents an equal proportionate interest in a Fund
with other Shares of the same Fund, and is entitled to such dividends and
distributions out of the income earned on the assets belonging to that fund as
are declared at the discretion of the Trustees. Shares are without par value.
Shareholders are entitled to one vote for each dollar of value invested and a
proportionate fractional vote for any fraction of a dollar invested.
Shareholders will vote in the aggregate and not by Fund except as otherwise
expressly required by law.
An annual or special meeting of Shareholders to conduct necessary business is
not required by the Trust's Declaration of Trust, the 1940 Act or other
authority except, under certain circumstances, to elect Trustees, amend the
Declaration of Trust, approve an investment advisory agreement and to satisfy
certain other requirements. To the extent that such a meeting is not required,
the Trust may elect not to have an annual or special meeting.
The Trust will call a special meeting of Shareholders for purposes of
considering the removal of one or more Trustees upon written request therefor
from Shareholders holding not less than 10% of the outstanding votes of the
Trust. At such a meeting, a quorum of Shareholders (constituting a majority of
votes attributable to all outstanding Shares of the Trust), by majority vote,
has the power to remove one or more Trustees. In accordance with current laws,
it is anticipated that an insurance company issuing a variable contract that
participates in the Fund will request voting instructions from variable contract
owners and will vote shares or other voting interests in the separate account in
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<PAGE>
proportion of the voting instructions received. The Separate Accounts and
qualified pension and retirement plans are currently the only Shareholders of
the Fund, although other separate accounts of Nationwide or Hartford, or of
other insurance companies, may become Shareholders in the future.
Performance Information
From time to time performance information for the Funds showing their average
annual total return, aggregate total return and/or yield may be presented in
advertisements, sales literature and shareholder reports. Such performance
figures are based on historical earnings and are not intended to indicate future
performance. Average annual total return of a Fund will be calculated for the
period since the establishment of the Fund. Average annual total return is
measured by comparing the value of an investment in a Fund at the beginning of
the relevant period to the redemption value of the investment at the end of the
period (assuming immediate reinvestment of any dividends or capital gains
distributions and analyzing the result). Aggregate total return is calculated
similarly to average annual total return except that the return figure is
aggregated over the relevant period instead of annualized. Yield of a Fund will
be computed by dividing the net investment income per Share earned during a
recent one-month period by the per Share maximum offering price (reduced by any
undeclared earned income expected to be paid shortly as a dividend) on the last
day of the period and analyzing the result. Performance information for the
Funds will not be advertised or included in sales literature unless accompanied
by comparable performance information for a Separate Account.
In addition, from time to time each Fund may present its respective distribution
rates in supplemental sales literature which is accompanied or preceded by a
prospectus and in Shareholder reports. Distribution rates will be computed by
dividing the distribution per Share made by a Fund over a twelve-month period by
the maximum offering price per Share. The calculation of income in the
distribution rate includes both income and capital gain dividends and does not
reflect unrealized gains or losses, although a Fund may also present a
distribution rate excluding the effect of capital gains. The distribution rate
differs from the yield, because it includes capital gains which are often
non-recurring in nature, whereas yield does not include such items.
Total return and yield are functions of the type and quality of instruments held
in the portfolio, operating expenses, and market conditions. Consequently, total
return and yield will fluctuate and are not necessarily representative of future
results. Quotations of yield or total return for a Fund will not take into
account charges or deductions against any Separate Account to which the Fund's
Shares are sold or Variable Contract specific deductions for cost of insurance
charges, premium load, administrative fees, maintenance fees, premium tax,
mortality and expense risks, or other charges that may be incurred under a
Variable Contract for which the Fund serves as an underlying investment vehicle.
A Fund's yield and total return should not be compared with mutual funds that
sell their shares directly to the public since the figures provided do not
reflect charges against the Separate Accounts or the Variable Contracts.
Performance information for a Fund reflects only the performance of a
hypothetical investment in the Fund during the particular time period on which
the calculations are based. In addition, if Qualivest, BB&T, PNC,
CastleInternational, or BISYS voluntarily reduce all or a part of their
respective fees, the total return of a Fund will be higher than it would
otherwise be in the absence of such voluntary fee reductions.
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<PAGE>
Account Services
Current yield and other performance information on the Funds may be obtained 24
hours a day by calling (800) ___________ from any touch-tone telephone.
Miscellaneous
Inquiries regarding the Trust may be directed in writing to Variable Insurance
Funds at 3435 Stelzer Road, Columbus, Ohio 43219-3035, or by calling toll free
(800) ________.
No person has been authorized to give any information or to make any
representations not contained in this Prospectus in connection with the offering
made by this Prospectus and, if given or made, such information or
representations must not be relied upon as having been authorized by the Funds
or their Distributor. This Prospectus does not constitute an offering by the
Funds or by their Distributor in any jurisdiction in which such offering may not
lawfully be made.
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<PAGE>
Variable Insurance Funds
3435 Stelzer Road
Columbus, Ohio 43219-3035
(800) _______________
STATEMENT OF ADDITIONAL INFORMATION
___________, 1997
This Statement of Additional Information ("SAI") describes the seven diversified
investment portfolios (the "Funds") of Variable Insurance Funds (the "Trust").
The Funds are:
o Variable Insurance Allocated Conservative Fund;
o Variable Insurance Allocated Balanced Fund;
o Variable Insurance Allocated Growth Fund;
o Variable Insurance Allocated Aggressive Fund;
o Variable Insurance Money Market Fund;
o BB&T Growth and Income Variable Insurance Fund; and
o BB&T Capital Manager Variable Insurance Fund.
The Trust offers an indefinite number of transferable units ("Shares") of each
Fund. Shares of the Allocated Funds and the Variable Insurance Money Market Fund
currently are sold to a segregated asset account (a "Separate Account") of
Nationwide Life and Annuity Insurance Company ("Nationwide") to serve as the
investment medium for variable annuity contracts ("Variable Contracts") issued
by Nationwide, while Shares of the BB&T Growth and Income Variable Insurance
Fund and the BB&T Capital Manager Variable Insurance Fund currently are sold to
a segregated asset account (also a "Separate Account") of Hartford Life
Insurance Company ("Hartford") to serve as the investment medium for Variable
Contracts issued by Hartford. Shares of the Funds also are sold to qualified
pension and retirement plans outside of the separate account context. The
Separate Accounts invest in shares of the Funds in accordance with allocation
instructions received from owners of the Variable Contracts ("Variable Contract
Owners").
This SAI is not a Prospectus and is authorized for distribution only when
preceded or accompanied by the Prospectus of the Funds, dated or supplemented
the date hereof. This SAI contains more detailed information than that set forth
in the Prospectus and should be read in conjunction with the Prospectus. This
SAI is incorporated by reference in its entirety into the Prospectus. Copies of
the Prospectus may be obtained by writing the Trust at 3435 Stelzer Road,
Columbus, Ohio 43219-3035, or by telephoning toll free (800) ________.
<PAGE>
TABLE OF CONTENTS
INVESTMENT OBJECTIVES AND POLICIES.................................. 1
Additional Information on Portfolio Instruments............ 2
INVESTMENT RESTRICTIONS............................................. 13
Portfolio Turnover......................................... 15
NET ASSET VALUE..................................................... 16
Valuation of the Money Market Fund......................... 16
Valuation of Other Funds................................... 17
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION...................... 17
MANAGEMENT OF THE TRUST............................................. 18
Trustees and Officers...................................... 18
Investment Advisers........................................ 19
Portfolio Transactions..................................... 21
Glass-Steagall Act......................................... 22
Administrator.............................................. 23
Expenses................................................... 24
Distributor................................................ 24
Custodians, Transfer Agent and Fund Accounting Services.....24
Auditors....................................................25
Legal Counsel...............................................25
ADDITIONAL INFORMATION...............................................25
Description of Shares.......................................25
Vote of a Majority of the Outstanding Shares................26
Shareholder and Trustee Liability...........................26
Additional Tax Information..................................26
PERFORMANCE INFORMATION............................................. 28
Miscellaneous...............................................30
FINANCIAL STATEMENTS.................................................30
APPENDIX............................................................. i
<PAGE>
The Trust is an open-end management investment company which offers seven
separate diversified Funds, each with different investment objectives. This SAI
contains information about the following five Funds which, along with the
"Underlying Qualivest Funds" described below, are advised by Qualivest Capital
Management, Inc. ("Qualivest"): the Variable Insurance Allocated Conservative
Fund (the "Conservative Fund"), the Variable Insurance Allocated Balanced Fund
(the "Balanced Fund"), the Variable Insurance Allocated Growth Fund (the "Growth
Fund"), the Variable Insurance Allocated Aggressive Fund (the "Aggressive Fund")
(collectively, the "Allocated Funds"), and Variable Insurance Money Market Fund
(the "Money Market Fund"). This SAI also contains information about the
following two Funds which, along with the "Underlying BB&T Funds" described
below, are advised by Branch Banking and Trust Company ("BB&T"): the BB&T Growth
and Income Variable Insurance Fund (the "Growth and Income Fund") and the BB&T
Capital Manager Variable Insurance Fund (the "Capital Manager Fund").
Much of the information contained in this SAI expands upon subjects discussed in
the Prospectus of the seven Funds described above. Capitalized terms not defined
herein are defined in such Prospectus. No investment in Shares of a Fund should
be made without first reading the Funds' Prospectus.
INVESTMENT OBJECTIVES AND POLICIES
Additional Information on the Allocated Funds' and the Capital Manager Fund's
Investment Policies
Each Allocated Fund seeks its investment objective by investing in a diversified
portfolio of one or more of the following funds (the "Underlying Qualivest
Funds"), all of which are series of Qualivest Funds, an affiliated open-end
management investment company: the Qualivest Large Companies Value Fund (the
"Qualivest Large Companies Fund"), the Qualivest Small Companies Value Fund (the
"Qualivest Small Companies Fund"), the Qualivest International Opportunities
Fund (the "Qualivest International Fund"), and the Qualivest Optimized Stock
Fund (the "Qualivest Optimized Fund") (collectively, the "Qualivest Equity
Funds"); the Qualivest Intermediate Bond Fund and the Qualivest Diversified Bond
Fund (the "Qualivest Bond Fund") (collectively, the "Qualivest Income Funds");
and the Qualivest U.S. Treasury Money Market Fund (the "Qualivest U.S. Treasury
Fund") and the Qualivest Money Market Fund (collectively, the "Qualivest Money
Funds"). Accordingly, the investment performance of each Allocated Fund is
directly related to the performance of the Underlying Qualivest Funds, which may
engage in the investment techniques described below. The Capital Manager Fund
seeks its investment objective by investing in a diversified portfolio of one or
more of the following funds (the "Underlying BB&T Funds" and collectively with
the Underlying Qualivest Funds, the "Underlying Funds") all of which are series
of The BB&T Mutual Funds Group, another affiliated open-end management
investment company: the BB&T Growth and Income Stock Fund (the "BB&T Growth and
Income Fund"), the BB&T Balanced Fund, the BB&T Small Company Growth Fund, the
BB&T International Equity Fund, the BB&T Short-Intermediate U.S. Government
Income Fund (the "BB&T Short-Intermediate Fund"), the BB&T Intermediate U.S.
Government Bond Fund (the "BB&T Intermediate Bond Fund"), and the BB&T U.S.
Treasury Money Market Fund (the "BB&T U.S. Treasury Fund"). Accordingly, the
investment performance of the Capital Manager Fund is directly related to the
performance of the Underlying BB&T Funds, which may engage in the investment
techniques described below. In addition to shares of the Underlying Funds, for
temporary cash management purposes, each Allocated Fund and the Capital Manager
Fund may
<PAGE>
invest in short-term obligations (with maturities of 12 months or less)
consisting of commercial paper (including variable amount master demand notes)
and obligations issued or guaranteed by the U.S. Government or its agencies or
instrumentalities. These investments are described below under "Additional
Information on Portfolio Instruments."
Additional Information on Portfolio Instruments
The following policies supplement the investment objectives and policies of the
Money Market Fund and the Underlying Funds as set forth in the Prospectus.
General. The Money Market Fund, Qualivest Equity Funds, Qualivest Income Funds
and Qualivest Money Funds will not acquire portfolio securities issued by, make
savings deposits in, or enter into repurchase, reverse repurchase, or dollar
roll agreements with affiliates of the Qualivest Funds, except that the
Qualivest Optimized Fund may invest in such securities if they are included in
the S&P 500 Index.
Bank Obligations. The Money Market Fund, the Stock and Income Fund, and the
Underlying Funds may invest in bank obligations consisting of bankers'
acceptances, certificates of deposit, and time deposits.
Bankers' acceptances are negotiable drafts or bills of exchange typically drawn
by an importer or exporter to pay for specific merchandise, which are "accepted"
by a bank, meaning, in effect, that the bank unconditionally agrees to pay the
face value of the instrument on maturity. Bankers' acceptances invested in by
the Funds and the Underlying Funds will be those guaranteed by domestic and
foreign banks having, at the time of investment, capital, surplus, and undivided
profits in excess of $100,000,000 (as of the date of their most recently
published financial statements).
Certificates of deposit are negotiable certificates issued against funds
deposited in a commercial bank or a savings and loan association for a definite
period of time and earning a specified return. Certificates of deposit and time
deposits will be those of domestic and foreign banks and savings and loan
associations, if (a) at the time of investment the depository institution has
capital, surplus, and undivided profits in excess of $100,000,000 (as of the
date of its most recently published financial statements), or (b) the principal
amount of the instrument is insured in full by the Federal Deposit Insurance
Corporation.
The Money Market Fund and the Underlying Qualivest Funds may also invest in
Eurodollar Certificates of Deposit, which are U.S. dollar denominated
certificates of deposit issued by offices of foreign and domestic banks located
outside the United States; Yankee Certificates of Deposit, which are
certificates of deposit issued by a U.S. branch of a foreign bank denominated in
U.S. dollars and held in the United States; Eurodollar Time Deposits ("ETDs"),
which are U.S. dollar denominated deposits in a foreign branch of a U.S. bank or
a foreign bank; and Canadian Time Deposits, which are basically the same as ETDs
except they are issued by Canadian offices of major Canadian banks.
Commercial Paper. Commercial paper consists of unsecured promissory notes issued
by corporations. Except as noted below with respect to variable amount master
demand notes, issues of commercial paper normally have maturities of less than
nine months and fixed rates of return.
2
<PAGE>
Variable Amount Master Demand Notes. Variable amount master demand notes, in
which the Funds and the Underlying Funds (except for the BB&T U.S. Treasury
Fund) may invest, are unsecured demand notes that permit the indebtedness
thereunder to vary and provide for periodic adjustments in the interest rate
according to the terms of the instrument. Because master demand notes are direct
lending arrangements between a Fund or Underlying Fund and the issuer, they are
not normally traded. Although there is no secondary market in the notes, a Fund
or Underlying Fund may demand payment of principal and accrued interest at any
time. While the notes are not typically rated by credit rating agencies, issuers
of variable amount master demand notes (which are normally manufacturing,
retail, financial, and other business concerns) must satisfy the same criteria
as set forth above for commercial paper. Qualivest, BB&T, and any sub-adviser
each will consider the earning power, cash flow, and other liquidity ratios of
the issuers of such notes and will continuously monitor their financial status
and ability to meet payment on demand. In determining dollar weighted average
portfolio maturity, a variable amount master demand note will be deemed to have
a maturity equal to the longer of the period of time remaining until the next
interest rate adjustment or the period of time remaining until the principal
amount can be recovered from the issuer through demand.
Foreign Investments. Investment in foreign securities is subject to special
investment risks that differ in some respects from those related to investments
in securities of U.S. domestic issuers.
Because foreign companies are not subject to uniform accounting, auditing and
financial reporting standards, practices and requirements comparable to those
applicable to U.S. companies, there may be less publicly available information
about a foreign company than about a U.S. company. Volume and liquidity in most
foreign bond markets are less than in the U.S., and securities of many foreign
companies are less liquid and more volatile than securities of comparable U.S.
companies. Fixed commissions on foreign securities exchanges are generally
higher than negotiated commissions on U.S. exchanges, although the Money Market
Fund, the Growth and Income Fund, and the Underlying Funds endeavor to achieve
the most favorable net results on portfolio transactions. There is generally
less government supervision and regulation of securities exchanges, brokers,
dealers and listed companies than in the U.S., thus increasing the risk of
delayed settlements of portfolio transactions or loss of certificates for
portfolio securities.
Foreign markets also have different clearance and settlement procedures, and in
certain markets, there have been times when settlements have been unable to keep
pace with the volume of securities transactions, making it difficult to conduct
such transactions. Such delays in settlement could result in temporary periods
when a portion of the assets of a Fund or Underlying Fund investing in foreign
markets is uninvested and no return is earned thereon. The inability of such a
Fund or Underlying Fund to make intended security purchases due to settlement
problems could cause the Fund or Underlying Fund to miss attractive investment
opportunities. Losses to a Fund or Underlying Fund due to subsequent declines in
the value of portfolio securities, or losses arising out of an inability to
fulfill a contract to sell such securities, could result in potential liability
to the Fund or Underlying Fund. In addition, with respect to certain foreign
countries, there is the possibility of expropriation or confiscatory taxation,
political or social instability, or diplomatic developments which could affect
the investments in those countries. Moreover, individual foreign economies may
differ favorably or unfavorably from the U.S. economy in such respects as growth
of gross national product, rate of inflation, capital reinvestment, resource
self-sufficiency and balance of payments position.
In many instances, foreign debt securities may provide higher yields than
securities of domestic issuers which have similar maturities and quality. Under
certain market conditions these investments may
3
<PAGE>
be less liquid than the securities of U.S. corporations and are certainly less
liquid than securities issued or guaranteed by the U.S. Government or its
agencies or instrumentalities. Finally, in the event of a default of any such
foreign debt obligations, it may be more difficult to obtain or to enforce a
judgment against the issuers of such securities.
A change in the value of any foreign currency against the U.S. dollar will
result in a corresponding change in the U.S. dollar value of securities
denominated in that currency. Such changes will also affect the income and
distributions to Shareholders of the Growth and Income Fund and the Underlying
Funds investing in foreign markets. In addition, although the Growth and Income
Fund or Underlying Fund will receive income on foreign securities in such
currencies, the Growth and Income Fund or Underlying Fund will be required to
compute and distribute income in U.S. dollars. Therefore, if the exchange rate
for any such currency declines materially after income has been accrued and
translated into U.S. dollars, the Growth and Income Fund or Underlying Fund
could be required to liquidate portfolio securities to make required
distributions. Similarly, if an exchange rate declines between the time the
Growth and Income Fund or Underlying Fund incurs expenses in U.S. dollars and
the time such expenses are paid, the amount of such currency required to be
converted into U.S. dollars in order to pay such expenses in U.S. dollars will
be greater.
In general, there is a large, liquid market in the United States for many
American Depositary Receipts ("ADRs"). The information available for ADRs is
subject to the accounting, auditing and financial reporting standards of the
domestic market or exchange on which they are traded, which standards are more
uniform and more exacting than those to which many foreign issuers may be
subject. Certain of the ADRs in which the BB&T International Equity Fund and the
Qualivest Equity Funds (except for the Qualivest Optimized Fund) may invest,
typically those denominated as unsponsored, require the holders thereof to bear
most of the costs of such facilities, while issuers of sponsored facilities
normally pay more of the costs thereof. The depositary 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 the voting rights to facility holders with respect to the deposited
securities, whereas the depositary of a sponsored facility typically distributes
shareholder communications and passes through the voting rights.
Variable and Floating Rate Notes. The Money Market Fund and the Qualivest Money
Funds may acquire variable and floating rate notes, subject to the investment
objective, policies and restrictions applicable to each. A variable rate note is
one whose terms provide for the adjustment of its interest rate on set dates and
which, upon such adjustment, can reasonably be expected to have a market value
that approximates its par value. A floating rate note is one whose terms provide
for the adjustment of its interest rate whenever a specified interest rate
changes and which, at any time, can reasonably be expected to have a market
value that approximates its par value. Such notes are frequently not rated by
credit rating agencies; however, unrated variable and floating rate notes will
be determined by Qualivest, under guidelines established by the Board of
Trustees of the Trust or Qualivest Funds, as appropriate, to be of comparable
quality at the time of purchase to rated instruments eligible for purchase under
the Money Market Fund's investment policies. In making such determinations, the
investment adviser will consider the earning power, cash flow and other
liquidity ratios of the issuers of such notes (such issuers include financial,
merchandising, bank holding and other companies) and will continuously monitor
their financial condition. Although there may be no active secondary market with
respect to a particular variable or floating rate note purchased by the Money
Market Fund or Underlying Fund, it may resell the note at any time to a third
party. The absence of an active secondary market, however, could make it
difficult for the Money Market Fund or Underlying Fund to dispose of a variable
4
<PAGE>
or floating rate note in the event the issuer of the note defaulted on its
payment obligations and the Money Market Fund or Underlying Fund could, as a
result or for other reasons, suffer a loss to the extent of the default. To the
extent that the Money Market Fund or Underlying Fund is not entitled to receive
the principal amount of a note within seven days, such note will be treated as
an illiquid security for purposes of calculation of the limitation on investment
in illiquid securities as set forth in the Fund or Underlying Fund's investment
restrictions. Variable or floating rate notes may be secured by bank letters of
credit.
Variable or floating rate notes invested in by the Money Market Fund or the
Qualivest Money Funds may have maturities of more than 397 days, as follows:
1. An instrument that is issued or guaranteed by the U.S. Government or any
agency thereof which has a variable rate of interest readjusted no less
frequently than every 397 days will be deemed to have a maturity equal to the
period remaining until the next readjustment of the interest rate.
2. A variable rate note, the principal amount of which is scheduled on the face
of the instrument to be paid in 397 days or less, will be deemed to have a
maturity equal to the period remaining until the next readjustment of the
interest rate.
3. A variable rate note that is subject to a demand feature will be deemed to
have a maturity equal to the longer of the period remaining until the next
readjustment of the interest rate or the period remaining until the principal
amount can be recovered through demand.
4. A floating rate note that is subject to a demand feature will be deemed to
have a maturity equal to the period remaining until the principal amount can be
recovered through demand.
As used above, a note is "subject to a demand feature" where the Money Market
Fund or an Underlying Fund is entitled to receive the principal amount of the
note either at any time on no more than 30 days' notice or at specified
intervals not exceeding 397 days.
Money Market Funds. Each of the Growth and Income Fund, the Qualivest Equity
Funds, the Qualivest Income Funds, and the Underlying BB&T Funds (except for the
BB&T U.S. Treasury Fund) may invest up to 5% of the value of its total assets in
the securities of any one money market fund (including shares of certain
affiliated money market funds pursuant to an order from the Securities and
Exchange Commission), provided that no more than 10% of such Fund's total assets
may be invested in the securities of money market funds in the aggregate. The
Money Market Fund and each of the Qualivest Money Funds may invest up to 25% of
its total assets in the securities of money market funds.
In order to avoid the imposition of additional fees as a result of investments
by the Growth and Income Fund, the Qualivest Equity Funds, the Qualivest Income
Funds, and the Underlying BB&T Funds (except for the BB&T U.S. Treasury Fund) in
shares of affiliated money market funds, Qualivest, BB&T, BISYS Fund Services
("BISYS" or "Distributor" or "Administrator"), and their affiliates will not
retain any portion of their usual service fees from the Funds that are
attributable to investments in shares of the affiliated money market funds. No
sales charges, contingent deferred sales charges, 12b-1 fees, or other
underwriting or distribution fees will be incurred in connection with their
investments in the affiliated money market funds. These Funds will vote their
shares of each of the affiliated money market funds in proportion to the vote by
all other shareholders of such fund.
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Moreover, no single Fund or Underlying Fund may own more than 3% of the
outstanding shares of a single affiliated money market fund.
U.S. Government Obligations. The BB&T U.S. Treasury Fund may invest in U.S.
Government securities to the extent that they are obligations issued or
guaranteed by the U.S. Treasury. The Money Market Fund, the Growth and Income
Fund, and each of the other Underlying Funds may invest in obligations issued or
guaranteed by the U.S. Government, its agencies and instrumentalities, including
bills, notes and bonds issued by the U.S. Treasury, as well as "stripped" U.S.
Treasury obligations such as Treasury Receipts issued by the U.S. Treasury
representing either future interest or principal payments. Stripped securities
are issued at a discount to their "face value," and may exhibit greater price
volatility than ordinary debt securities because of the manner in which their
principal and interest are returned to investors. The stripped Treasury
obligations in which the Funds and Underlying Funds may invest do not include
Certificates of Accrual on Treasury Securities ("CATS") or Treasury Income
Growth Receipts ("TIGRs").
Obligations of certain agencies and instrumentalities of the U.S. Government are
supported by the full faith and credit of the U.S. Treasury; others are
supported by the right of the issuer to borrow from the Treasury; others are
supported by the discretionary authority of the U.S. Government to purchase the
agency's obligations; and still others are supported only by the
creditworthiness of the instrumentality. No assurance can be given that the U.S.
Government would provide financial support to U.S. Government-sponsored agencies
or instrumentalities if it is not obligated to do so by law. Each Fund or
Underlying Fund will invest in the obligations of such agencies or
instrumentalities only when Qualivest, BB&T, or a sub-adviser believes that the
credit risk with respect thereto is minimal.
Options Trading. The Growth and Income Fund, the Qualivest Equity Funds, the
Qualivest Income Funds, the BB&T Small Company Growth Fund, and the BB&T
International Equity Fund may purchase put and call options. A call option gives
the purchaser the right to buy, and a writer has the obligation to sell, the
underlying security or foreign currency at the stated exercise price at any time
prior to the expiration of the option, regardless of the market price or
exchange rate of the security or foreign currency, as the case may be. The
premium paid to the writer is consideration for undertaking the obligations
under the option contract. A put option gives the purchaser the right to sell
the underlying security or foreign currency at the stated exercise price at any
time prior to the expiration date of the option, regardless of the market price
or exchange rate of the security or foreign currency, as the case may be. Put
and call options will be valued at the last sale price, or in the absence of
such a price, at the mean between bid and asked price.
When a Fund or Underlying Fund writes an option, an amount equal to the net
premium (the premium less the commission) received by the Fund or Underlying
Fund is included in the liability section of its statement of assets and
liabilities as a deferred credit. The amount of the deferred credit will be
subsequently marked-to-market to reflect the current value of the option
written. The current value of the traded option is the last sale price or, in
the absence of a sale, the average of the closing bid and asked prices. If an
option expires on the stipulated expiration date, or if a Fund or Underlying
Fund enters into a closing purchase transaction, it will realize a gain (or a
loss if the cost of a closing purchase transaction exceeds the net premium
received when the option is sold) and the deferred credit related to such option
will be eliminated. If an option is exercised, the Fund or Underlying Fund may
deliver the underlying security in the open market. In either event, the
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proceeds of the sale will be increased by the net premium originally received
and the Fund or Underlying Fund will realize a gain or loss.
The Qualivest Equity Funds, the Qualivest Income Funds, and the BB&T
International Equity Fund also may purchase or sell index options. Index options
(or options on securities indices) are similar in many respects to options on
securities except that an index option gives the holder the right to receive,
upon exercise, cash instead of securities, if the closing level of the
securities index upon which the option is based is greater than, in the case of
a call, or less than, in the case of a put, the exercise price of the option.
When-Issued and Delayed-Delivery Securities. The Money Market Fund, the Growth
and Income Fund, and the Underlying Funds (except the BB&T U.S. Treasury Fund)
may purchase securities on a "when-issued" or "delayed-delivery" basis (i.e.,
for delivery beyond the normal settlement date at a stated price and yield).
When a Fund or Underlying Fund agrees to purchase securities on a "when-issued"
or "delayed-delivery" basis, its custodian will set aside cash or liquid
securities equal to the amount of the commitment in a separate account.
Normally, the custodian will set aside securities to satisfy the purchase
commitment, and in such a case, the Fund or Underlying Fund may be required
subsequently to place additional assets in the separate account in order to
assure that the value of the account remains equal to the amount of its
commitment. It may be expected that a Fund or Underlying Fund investing in
securities on a when-issued or delayed delivery basis, net assets will fluctuate
to a greater degree when it sets aside securities to cover such purchase
commitments than when it sets aside cash. In addition, because the Fund or
Underlying Fund will set aside cash or liquid securities to satisfy its purchase
commitments in the manner described above, its liquidity and the ability of its
investment adviser to manage it might be affected in the event its commitments
to purchase "when-issued" or "delayed-delivery" securities ever exceeded 25% of
the value of its assets. Under normal market conditions, however, the Fund or
Underlying Fund's commitment to purchase "when-issued" or "delayed-delivery"
securities will not exceed 25% of the value of each Fund or Underlying Fund's
total assets.
When a Fund or Underlying Fund engages in "when-issued" or "delayed-delivery"
transactions, it relies on the seller to consummate the trade. Failure of the
seller to do so may result in the Fund or Underlying Fund incurring a loss or
missing the opportunity to obtain a price considered to be advantageous.
Mortgage-Related Securities. The Money Market Fund, the Growth and Income Fund,
the Underlying Qualivest Funds (except the Qualivest Optimized Fund and the
Qualivest International Fund), the BB&T Short-Intermediate Fund, the BB&T
Intermediate Bond Fund, the BB&T Balanced Fund, and the BB&T Small Company
Growth Fund each may consistent with its investment objective and policies,
invest in mortgage-related securities issued or guaranteed by the U.S.
Government, its agencies and instrumentalities. In addition, each may invest in
mortgage-related securities issued by nongovernmental entities, provided,
however, that to the extent the Fund or Underlying Fund purchases
mortgage-related securities from such issuers which may, solely for purposes of
the Investment Company Act of 1940, as amended ("1940 Act"), be deemed to be
investment companies, the Fund or Underlying Fund's investment in such
securities will be subject to the limitations on its investment in investment
company securities.
Mortgage-related securities, for purposes of the Funds' Prospectus and this SAI,
represent pools of mortgage loans assembled for sale to investors by various
governmental agencies such as the Government National Mortgage Association
("GNMA")
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and government-related organizations such as the Federal National Mortgage
Association ("FNMA") and the Federal Home Loan Mortgage Corporation ("FHLMC"),
as well as by nongovernmental issuers such as commercial banks, savings and loan
institutions, mortgage bankers and private mortgage insurance companies.
Although certain mortgage-related securities are guaranteed by a third party or
otherwise similarly secured, the market value of the security, which may
fluctuate, is not so secured. If a Fund or Underlying Fund purchases a
mortgage-related security at a premium, that portion may be lost if there is a
decline in the market value of the security whether resulting from changes in
interest rates or prepayments in the underlying mortgage collateral. As with
other interest-bearing securities, the prices of such securities are inversely
affected by changes in interest rates. However, though the value of a
mortgage-related security may decline when interest rates rise, the converse is
not necessarily true, since in periods of declining interest rates the mortgages
underlying the securities are prone to prepayment, thereby shortening the
average life of the security and shortening the period of time over which income
at the higher rate is received. When interest rates are rising, though, the rate
of prepayment tends to decrease, thereby lengthening the period of time over
which income at the lower rate is received. For these and other reasons, a
mortgage-related security's average maturity may be shortened or lengthened as a
result of interest rate fluctuations and, therefore, it is not possible to
predict accurately the security's return. In addition, regular payments received
in respect of mortgage-related securities include both interest and principal.
No assurance can be given as to the return the Funds or Underlying Funds will
receive when these amounts are reinvested.
There are a number of important differences among the agencies and
instrumentalities of the U.S. Government that issue mortgage related securities
and among the securities that they issue. Mortgage-related securities issued by
GNMA include GNMA Mortgage Pass-Through Certificates (also known as "Ginnie
Maes") which are guaranteed as to the timely payment of principal and interest
by GNMA and such guarantee is backed by the full faith and credit of the United
States. GNMA is a wholly-owned U.S. Government corporation within the Department
of Housing and Urban Development. GNMA certificates also are supported by the
authority of GNMA to borrow funds from the U.S. Treasury to make payments under
its guarantee. Mortgage-related securities issued by FNMA include FNMA
Guaranteed Mortgage Pass-Through Certificates (also known as "Fannie Maes")
which are solely the obligations of FNMA and are not backed by or entitled to
the full faith and credit of the United States. FNMA is a government-sponsored
organization owned entirely by private stockholders. Fannie Maes are guaranteed
as to the timely payment of the principal and interest by FNMA. Mortgage-related
securities issued by FHLMC include FHLMC Mortgage Participation Certificates
(also known as "Freddie Macs" or "Pcs"). FHLMC is a corporate instrumentality of
the United States, created pursuant to an Act of Congress, which is owned
entirely by Federal Home Loan Banks. Freddie Macs are not guaranteed by the
United States or by any Federal Home Loan Banks and do not constitute a debt or
obligation of the United States or of any Federal Home Loan Bank. Freddie Macs
entitle the holder to the timely payment of interest, which is guaranteed by
FHLMC. FHLMC guarantees either ultimate collection or the timely payment of all
principal payments on the underlying mortgage loans. When FHLMC does not
guarantee timely payment of principal, FHLMC may remit the amount due on account
of its guarantee of ultimate payment of principal at any time after default on
an underlying mortgage, but in no event later than one year after it becomes
payable.
Restricted Securities. "Section 4(2) securities," as described in the
Prospectus, are securities which are issued in reliance on the "private
placement" exemption from registration which is afforded by Section 4(2) of the
Securities Act of 1933 (the "1933 Act"). The Money Market Fund, the BB&T
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U.S. Treasury Fund, and each Qualivest Money Fund will not purchase Section 4(2)
securities which have not been determined to be liquid in excess of 10% of its
net assets. The Growth and Income Fund, the Underlying BB&T Funds other than the
BB&T U.S. Treasury Fund, and each Qualivest Equity Fund and Qualivest Income
Fund will not purchase section 4(2) securities which have not been determined to
be liquid in excess of 15% of its net assets. Qualivest, BB&T, and each
sub-adviser to an Underlying BB&T Fund has been delegated the day-to-day
authority to determine whether a particular issue of Section 4(2) securities
that are eligible for resale under Rule 144A under the 1933 Act should be
treated as liquid. Rule 144A provides a safe-harbor exemption from the
registration requirements of the 1933 Act for resales to "qualified
institutional buyers" as defined in Rule 144A. With the exception of registered
broker-dealers, a qualified institutional buyer must generally own and invest on
a discretionary basis at least $100 million in securities.
Qualivest, BB&T, or a sub-adviser may deem Section 4(2) securities liquid if it
believes that, based on the trading markets for such security, such security can
be disposed of within seven days in the ordinary course of business at
approximately the amount at which the Fund or Underlying Fund has valued the
security. In making such determination, the following factors, among others, may
be deemed relevant: (i) the credit quality of the issuer; (ii) the frequency of
trades and quotes for the security; (iii) the number of dealers willing to
purchase or sell the security and the number of other potential purchasers; (iv)
dealer undertakings to make a market in the security; and (v) the nature of the
security and the nature of market-place trades.
Treatment of Section 4(2) securities as liquid could have the effect of
decreasing the level of a Fund's or Underlying Fund's liquidity to the extent
that qualified institutional buyers become, for a time, uninterested in
purchasing these securities.
Medium-Grade Debt Securities. The Qualivest Large Companies Fund, the Qualivest
Small Companies Fund, and each of the Qualivest Income Funds may invest in debt
securities which are within the fourth highest rating group assigned by an NRSRO
(e.g., including securities rated BBB by Standard & Poor's Corporation ("S&P")
or Baa by Moody's Investors Service, Inc. ("Moody's")) or, if not rated, or are
of comparable quality as determined by Qualivest ("Medium-Grade Securities").
As with other fixed-income securities, Medium-Grade Securities are subject to
credit risk and market risk. Market risk relates to changes in a security's
value as a result of changes in interest rates. Credit risk relates to the
ability of the issuer to make payments of principal and interest. Medium-Grade
Securities are considered by Moody's to have speculative characteristics.
Medium-Grade Securities are generally subject to greater credit risk than
comparable higher-rated securities because issuers are more vulnerable to
economic downturns, higher interest rates or adverse issuer-specific
developments. In addition, the prices of Medium-Grade Securities are generally
subject to greater market risk and therefore react more sharply to changes in
interest rates. The value and liquidity of Medium-Grade Securities may be
diminished by adverse publicity and investor perceptions.
Because certain Medium-Grade Securities are traded only in markets where the
number of potential purchasers and sellers, if any, is limited, the ability of
those Underlying Qualivest Funds to sell such securities at their fair market
value either to meet redemption requests or to respond to changes in the
financial markets may be limited.
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Particular types of Medium-Grade Securities may present special concerns. The
prices of payment-in-kind or zero-coupon securities may react more strongly to
changes in interest rates than the prices of other Medium-Grade Securities. Some
Medium-Grade Securities in which such Underlying Qualivest Funds may invest may
be subject to redemption or call provisions that may limit increases in market
value that might otherwise result from lower interest rates while increasing the
risk that those Underlying Qualivest Funds may be required to reinvest
redemption or call proceeds during a period of relatively low interest rates.
The credit ratings issued by NRSROs are subject to various limitations. For
example, while such ratings evaluate credit risk, they ordinarily do not
evaluate the market risk of Medium-Grade Securities. In certain circumstances,
the ratings may not reflect in a timely fashion adverse developments affecting
an issuer. For these reasons, Qualivest conducts its own independent credit
analysis of Medium-Grade Securities.
Guaranteed Investment Contracts. When investing in Guaranteed Investment
Contracts ("GICs"), the Money Market Fund and each of the Qualivest Income Funds
and the Qualivest Money Funds make cash contributions to a deposit fund of an
insurance company's general account. The insurance company then credits to the
deposit fund on a monthly basis guaranteed interest. The GICs provide that this
guaranteed interest will not be less than a certain minimum rate. The insurance
company may assess periodic charges against a GIC for expense and service costs
allocable to it, and the charges will be deducted from the value of the deposit
fund. The Qualivest Income Funds may invest in GICs without regard to the
ratings, if any, assigned to the issuing insurance companies' outstanding debt
securities. The Money Market Fund and Qualivest Money Funds may invest in GICs
issued by insurance companies whose outstanding debt securities are rated in the
first two rating categories by an NRSRO or, if not rated, that Qualivest deems
to be of comparable quality. Because the principal amount of a GIC may not be
received from the insurance company on seven days' notice or less, the GIC is
considered an illiquid investment, and, together with other instruments which
are deemed to be illiquid, will not exceed the Money Market Fund's or an
Underlying Qualivest Fund's restriction on investment in illiquid securities. In
determining average weighted portfolio maturity, GICs will be deemed to have a
maturity equal to the period of time remaining until the next readjustment of
the guaranteed interest rate.
Repurchase Agreements. Securities held by the Money Market Fund, the Growth and
Income Fund, and the Underlying Funds (except the Qualivest U.S. Treasury Fund)
may be subject to repurchase agreements. Under the terms of a repurchase
agreement, a Fund or Underlying Fund would acquire securities from member banks
of the Federal Deposit Insurance Corporation and registered broker-dealers that
Qualivest deems creditworthy under guidelines approved by the Board of Trustees,
subject to the seller's agreement to repurchase such securities at a mutually
agreed-upon date and price. If the seller were to default on its repurchase
obligation or become insolvent, a Fund or Underlying Fund holding such
obligation would suffer a loss to the extent that the proceeds from a sale of
the underlying portfolio securities were less than the repurchase price under
the agreement. Securities subject to repurchase agreements will be held by the
relevant Fund's or Underlying Fund's custodian or another qualified custodian,
as appropriate, or in the Federal Reserve/Treasury book-entry system.
Futures Contracts. The Growth and Income Fund, the Qualivest Equity Funds, the
Qualivest Income Funds, the BB&T Small Company Growth Fund, and the BB&T
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International Equity Fund may enter into futures contracts. This investment
technique is designed primarily to hedge against anticipated future changes in
market conditions or foreign exchange rates which otherwise might adversely
affect the value of securities which a Fund or Underlying Fund holds or intends
to purchase. For example, when interest rates are expected to rise or market
values of portfolio securities are expected to fall, a Fund or an Underlying
Fund can seek through the sale of futures contracts to offset a decline in the
value of its portfolio securities. When interest rates are expected to fall or
market values are expected to rise, a Fund or Underlying Fund, through the
purchase of such contracts, can attempt to secure better rates or prices than
might later be available in the market when it effects anticipated purchases.
The acquisition of put and call options on futures contracts will, respectively,
give a Fund or an Underlying Fund the right (but not the obligation), for a
specified price, to sell or to purchase the underlying futures contract, upon
exercise of the option, at any time during the option period.
Futures transactions involve brokerage costs and require a Fund or an Underlying
Fund to segregate liquid assets, such as cash, U.S. Government securities or
other liquid securities to cover its obligation under such contracts. A Fund or
an Underlying Fund may lose the expected benefit of futures transactions if
interest rates, securities prices or foreign exchange rates move in an
unanticipated manner. Such unanticipated changes may also result in poorer
overall performance than if the Fund had not entered into any futures
transactions. In addition, the value of a Fund's futures positions may not prove
to be perfectly or even highly correlated with the value of its portfolio
securities and foreign currencies, limiting the Fund's ability to hedge
effectively against interest rate, foreign exchange rate and/or market risk and
giving rise to additional risks. There is no assurance of liquidity in the
secondary market for purposes of closing out futures positions.
Forward Foreign Currency Exchange Contracts. The Qualivest Equity Funds (other
than the Qualivest Optimized Fund) and the BB&T International Equity Fund may
engage in foreign currency exchange transactions. 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 ("Term") from the date
of the contract agreed upon by the parties, at a price set at the time of the
contract. These contracts are traded directly between currency traders (usually
large commercial banks) and their customers.
No Underlying Fund intends to enter into such forward contracts if it would have
more than 10% of the value of its total assets committed to such contracts on a
regular or continuous basis. An Underlying Fund also will not enter into such
forward contracts or maintain a net exposure in such contracts where it would be
obligated to deliver an amount of foreign currency in excess of the value of
such Underlying Fund's securities or other assets denominated in that currency.
An Underlying Fund's custodian bank segregates cash or liquid securities in an
amount not less than the value of the Underlying Fund's total assets committed
to forward foreign currency exchange contracts entered into for the purchase of
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a foreign security. If the value of the securities segregated declines,
additional cash or securities are added so that the segregated amount is not
less than the amount of such Underlying Fund's commitments with respect to such
contracts. The Underlying Funds generally do not enter into a forward contract
with a Term longer than one year.
Foreign Currency Options. A foreign currency option provides the Growth and
Income Fund, Qualivest Large Companies Fund, Qualivest Small Companies Fund,
Qualivest International Fund, BB&T Small Company Growth Fund, or BB&T
International Equity Fund, as the option buyer, with the right to buy or sell a
stated amount of foreign currency at the exercise price at a specified date or
during the option period. A call option gives its owner the right, but not the
obligation, to buy the currency, while a put option gives its owner the right,
but not the obligation, to sell the currency. The option seller (writer) is
obligated to fulfill the terms of the option sold if it is exercised. However,
either seller or buyer may close its position during the option period in the
secondary market for such options any time prior to expiration.
A call rises in value if the underlying currency appreciates. Conversely, a put
rises in value if the underlying currency depreciates. While purchasing a
foreign currency option can protect a Fund or Underlying Fund against an adverse
movement in the value of a foreign currency, it does not limit the gain which
might result from a favorable movement in the value of such currency. For
example, if a Fund or Underlying Fund were holding securities denominated in an
appreciating foreign currency and had purchased a foreign currency put to hedge
against a decline in the value of the currency, it would not have to exercise
its put. Similarly, if a Fund or Underlying Fund has entered into a contract to
purchase a security denominated in a foreign currency and had purchased a
foreign currency call to hedge against a rise in the value of the currency but
instead the currency had depreciated in value between the date of purchase and
the settlement date, such Fund or Underlying Fund would not have to exercise its
call but could acquire in the spot market the amount of foreign currency needed
for settlement.
Foreign Currency Futures Transactions. As part of its financial futures
transactions, the Growth and Income Fund, each Qualivest Equity Fund (except the
Qualivest Optimized Fund), the BB&T Small Company Growth Fund, and the BB&T
International Equity Fund may use foreign currency futures contracts and options
on such futures contracts. Through the purchase or sale of such contracts, a
Fund or Underlying Fund may be able to achieve many of the same objectives as
through forward foreign currency exchange contracts more effectively and
possibly at a lower cost.
Unlike forward foreign currency exchange contracts, foreign currency futures
contracts and options on foreign currency futures contracts are standardized as
to amount and delivery period and may be traded on boards of trade and
commodities exchanges or directly with a dealer which makes a market in such
contracts and options. It is anticipated that such contracts may provide greater
liquidity and lower cost than forward foreign currency exchange contracts.
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Regulatory Restrictions. As required by the Securities and Exchange Commission,
when purchasing or selling a futures contract or writing a put or call option or
entering into a forward foreign currency exchange purchase, a Fund or an
Underlying Fund will maintain in a segregated account cash or liquid securities
equal to the value of such contracts.
To the extent required to comply with Commodity Futures Trading Commission
Regulation 4.5 and thereby avoid being classified as a "commodity pool
operator," a Fund or an Underlying Fund will not enter into a futures contract
or purchase an option thereon if immediately thereafter the initial margin
deposits for futures contracts held by such Fund plus premiums paid by it for
open options on futures would exceed 5% of such Fund's total assets. Such Fund
or Underlying Fund will not engage in transactions in financial futures
contracts or options thereon for speculation, but only to attempt to hedge
against changes in market conditions affecting the values of securities which
such Fund holds or intends to purchase. When futures contracts or options
thereon are purchased to protect against a price increase on securities intended
to be purchased later, it is anticipated that at least 25% of such intended
purchases will be completed. When other futures contracts or options thereon are
purchased, the underlying value of such contracts will at all times not exceed
the sum of: (1) accrued profit on such contracts held by the broker; (2) cash or
high quality money market instruments set aside in an identifiable manner; and
(3) cash proceeds from investments due in 30 days.
INVESTMENT RESTRICTIONS
Each Fund's investment objective is fundamental and may not be changed without a
vote of the holders of a majority of the Fund's outstanding Shares. In addition,
the following investment restrictions may be changed with respect to a
particular Fund only by a vote of a majority of the outstanding Shares of that
Fund (as defined under "ADDITIONAL INFORMATION -- Vote of a Majority of the
Outstanding Shares" in this SAI).
None of the Funds will:
1. Purchase any securities which would cause more than 25% of the value of
the Fund's total assets at the time of purchase to be invested in securities of
one or more issuers conducting their principal business activities in the same
industry, provided that: (a) there is no limitation with respect to obligations
issued or guaranteed by the U.S. Government or its agencies or
instrumentalities, domestic bank certificates of deposit or bankers' acceptances
issued by United States branches of domestic banks (for the Money Market Fund),
and repurchase agreements secured by obligations of the U.S. Government or its
agencies or instrumentalities; (b) wholly owned finance companies will be
considered to be in the industries of their parents if their activities are
primarily related to financing the activities of their parents; (c) an Allocated
Fund and the Capital Manager Fund may invest more than 25% of its total assets
in investment companies, or portfolios thereof, that are
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Underlying Funds of such Fund; and (d) utilities will be divided according to
their services. For example, gas, gas transmission, electric and gas, electric
and telephone will each be considered a separate industry.
2. Purchase securities of any one issuer, other than obligations issued or
guaranteed by the U.S. Government or its agencies or instrumentalities, if,
immediately after such purchase, more than 5% of the value of the Fund's total
assets would be invested in such issuer, or the Fund would hold more than 10% of
the outstanding voting securities of the issuer, except that 25% or less of the
value of a Fund's total assets may be invested without regard to such
limitations. There is no limit to the percentage of assets that may be invested
in U.S. Treasury bills, notes, or other obligations issued or guaranteed by the
U.S. Government or its agencies or instrumentalities. In addition, there is no
limit to the percentage of assets that an Allocated Fund or the Capital Manager
Fund may invest in any investment company;
3. Borrow money or issue senior securities, except that a Fund may borrow
from banks or brokers, in amounts up to 10% of the value of its total assets at
the time of such borrowing. A Fund will not purchase securities while its
borrowings exceed 5% of its total assets;
4. Make loans, except that a Fund may purchase or hold debt instruments and
lend portfolio securities (in an amount not to exceed one-third of its total
assets), in accordance with its investment objective and policies, make time
deposits with financial institutions and enter into repurchase agreements;
5. Underwrite the securities issued by other persons, except to the extent
that a Fund may be deemed to be an underwriter under certain securities laws in
the disposition of "restricted securities;"
6. Purchase or sell commodities or commodities contracts, except to the
extent disclosed in the current Prospectus of the Fund; and
7. Purchase or sell real estate (although investments in marketable
securities of companies engaged in such activities and securities secured by
real estate or interests therein, or in Underlying Funds investing in such
securities, are not prohibited by this restriction).
Irrespective of investment restriction number 2 above and pursuant to Rule 2a-7
under the 1940 Act, the Money Market Fund will, with respect to 100% of its
total assets, limit its investment in the securities of any one issuer in the
manner provided by such Rule.
The following additional investment restrictions are not fundamental policies
and therefore may be changed without the vote of a majority of the outstanding
Shares of a Fund. None of the Funds may:
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1. Engage in any short sales (except for short sales "against the
box");
2. Purchase securities of other investment companies, except (a) in
connection with a merger, consolidation, acquisition or reorganization, (b)
to the extent permitted by the 1940 Act or pursuant to any exemptions
therefrom, and (c) as consistent with the investment policies of an
Allocated Fund or the Capital Manager Fund;
3. Mortgage or hypothecate the Fund's assets in excess of one-third of
the Fund's total assets; and
4. Purchase or otherwise acquire any securities if, as a result, more
than 15% (10% of the case of the Money Market Fund) of the Fund's net
assets would be invested in securities that are illiquid.
If any percentage restriction described above is satisfied at the time of
purchase, a later increase or decrease in such percentage resulting from a
change in net asset value will not constitute a violation of such restriction.
However, should a change in net asset value or other external events cause a
Fund's investments in illiquid securities to exceed the limitation set forth in
such Fund's Prospectus, that Fund will act to cause the aggregate amount of
illiquid securities to come within such limit as soon as reasonably practicable.
In such an event, however, that Fund would not be required to liquidate any
portfolio securities where the Fund would suffer a loss on the sale of such
securities.
Due to the investment policies of the Allocated Funds and the Capital Manager
Fund, each of these Funds will concentrate more than 25% of its total assets in
the investment company industry. However, no Underlying Fund in which such Funds
invest will concentrate more than 25% of its total assets in any one industry.
Portfolio Turnover
Changes may be made in a Fund's portfolio consistent with the investment
objective and policies of the Fund whenever such changes are believed to be in
the best interests of the Fund and its Shareholders. The portfolio turnover
rates for all of the Funds may vary greatly from year to year as well as within
a particular year, and may be affected by cash requirements for redemptions of
Shares and by requirements which enable the Funds to receive certain favorable
tax treatments. High portfolio turnover rates will generally result in higher
transaction costs to a Fund, including brokerage commissions.
The portfolio turnover rate of each Allocated Fund and Capital Manager Fund is
expected to be low, as such Fund will purchase or sell shares of the Underlying
Qualivest Funds or Underlying BB&T Funds, respectively, to (i) accommodate
purchases and sales of such Fund's Shares, and (ii) change the percentage of its
assets invested in each Underlying Fund in which it invests in response to
market conditions. The portfolio turnover rate for the Growth and Income Fund is
not expected to exceed ___%. It is anticipated that the annual portfolio
turnover rate for an Underlying Fund normally will not exceed the amount stated
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in such Fund's Prospectus.
The portfolio turnover rate for each of the Funds is calculated by dividing the
lesser of a Fund's purchases or sales of portfolio securities for the year by
the monthly average value of the securities. The Securities and Exchange
Commission requires that the calculation exclude all securities whose remaining
maturities at the time of acquisition are one year or less.
NET ASSET VALUE
As indicated in the Prospectus, the net asset value of each Fund is determined
and the Shares of each Fund are priced as of the Valuation Times on each
Business Day of the Trust. A "Business Day" is a day on which the New York Stock
Exchange ("NYSE") is open for trading, and any other day (other than a day on
which there are insufficient changes in the value of a Fund's portfolio
securities to materially affect the Fund's net asset value or days on which no
Shares of the Fund are tendered for redemption and no order to purchase any
Shares is received). Currently, the NYSE is closed on the following holidays:
New Year's Day, Presidents' Day, Good Friday, Memorial Day, Independence Day,
Labor Day, Thanksgiving, and Christmas.
Valuation of the Money Market Fund
The Money Market Fund has elected to use the amortized cost method of valuation
pursuant to Rule 2a-7 under the 1940 Act. This involves valuing an instrument at
its cost initially 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. This method may result in periods
during which value, as determined by amortized cost, is higher or lower than the
price the Money Market Fund would receive if it sold the instrument. The value
of securities in this Fund can be expected to vary inversely with changes in
prevailing interest rates.
Pursuant to Rule 2a-7, the Money Market Fund will maintain a dollar-weighted
average maturity appropriate for its objective of maintaining a stable net asset
value per Share, provided that the Money Market Fund will not purchase any
security with a remaining maturity of more than 397 days (thirteen months)
(securities subject to repurchase agreements may bear longer maturities) nor
maintain a dollar-weighted average maturity which exceeds 90 days. The Board of
Trustees has also undertaken to establish procedures reasonably designed, taking
into account current market conditions and the investment objective of this
Fund, to stabilize the net asset value per share of the Money Market Fund for
purposes of sales and redemptions at $1.00. These procedures include review by
the Trustees, at such intervals as they deem appropriate, to determine the
extent, if any, to which the net asset value per Share of the Fund calculated by
using available market quotations deviates from $1.00 per Share. In the event
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such deviation exceeds one-half of one percent, Rule 2a-7 requires that the
Board of Trustees promptly consider what action, if any, should be initiated. If
the Trustees believe that the extent of any deviation from the Money Market
Fund's $1.00 amortized cost price per Share may result in material dilution or
other unfair results to new or existing investors, they will take such steps as
they consider appropriate to eliminate or reduce, to the extent reasonably
practicable, any such dilution or unfair results. These steps may include
selling portfolio instruments prior to maturity, shortening the dollar-weighted
average maturity, withholding or reducing dividends, reducing the number of the
Money Market Fund's outstanding Shares without monetary consideration, or
utilizing a net asset value per Share determined by using available market
quotations.
Valuation of Other Funds
Portfolio securities, the principal market for which is a securities exchange,
will be valued at the closing sales price on that exchange on the day of
computation, or, if there have been no sales during such day, at the latest bid
quotation. Portfolio securities, the principal market for which is not a
securities exchange, will be valued at their latest bid quotation in such
principal market. If no such bid price is available, then such securities will
be valued in good faith at their respective fair market values using methods
determined by or under the supervision of the Board of Trustees. Foreign
securities are valued based on quotations from the primary market in which they
are traded and are translated from the local currency into U.S. dollars using
current exchange rates. Portfolio securities with a remaining maturity of 60
days or less will be valued either at amortized cost or original cost plus
accrued interest, which approximates current value.
All other assets and securities, including securities for which market
quotations are not readily available, will be valued at their fair market value
as determined in good faith under the general supervision of the Board of
Trustees.
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION
The Shares of each Fund are sold on a continuous basis by the Distributor, and
the Distributor has agreed to use appropriate efforts to solicit all purchase
orders. As stated in the Prospectus, the public offering price of Shares of the
Funds is their net asset value per Share.
The Trust may suspend the right of redemption or postpone the date of payment
for Shares during any period when (a) trading on the NYSE is restricted by
applicable rules and regulations of the Securities and Exchange Commission, (b)
the NYSE is closed for other than customary weekend and holiday closings, (c)
the Securities and Exchange Commission has by order permitted such suspension,
or (d) an emergency exists as a result of which (i)
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disposal by the Trust of securities owned by it is not reasonably practical or
(ii) it is not reasonably practical for the Trust to determine the fair market
value of its net assets.
Variable Contract Owners do not deal directly with the Funds to purchase,
redeem, or exchange Shares, and Variable Contract Owners should refer to the
prospectus for the applicable Separate Account for information on the allocation
of premiums and on transfers of accumulated value among sub-accounts of the
pertinent Separate Account that invests in the Funds.
Each Fund reserves the right to discontinue offering Shares at any time. In the
event that a Fund ceases offering its Shares, any investments allocated to the
Fund will, subject to any necessary regulatory approvals, be invested in another
portfolio of the Trust deemed appropriate by the Trustees.
MANAGEMENT OF THE TRUST
Trustees and Officers
Overall responsibility for management of the Trust rests with its Board of
Trustees, who are elected by the Shareholders of the Trust. The Trustees elect
the officers of the Trust to supervise actively its day-to-day operations.
The names of the Trustees, their addresses, and principal occupations during the
past five years are set forth below:
Name and Address Principal Occupation
During Past 5 Years
[TO BE PROVIDED]
The Trust pays each Trustee $_____ for each meeting of the Board of Trustees
attended and reasonable out-of-pocket expenses. For the fiscal year ending
December 31, 1997, the Trust anticipates paying the following compensation to
the Trustees of the Trust:
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Aggregate Compensation Total Compensation from
Name from Trust* Trust and Fund Complex**
[TO BE PROVIDED]
* The Trust does not accrue pension or retirement benefits as part of
Fund expenses, and Trustees of the Trust are not entitled to benefits
upon retirement from the Board of Trustees.
** The Fund Complex consists of the Trust, Qualivest Funds, and The BB&T
Mutual Funds Group.
The officers of the Trust, their addresses, and principal occupations during the
past five years are as follows:
Name and Address Position(s) Held Principal Occupation
With the Trust During Past 5 Years
[TO BE PROVIDED]
The officers of the Trust receive no compensation directly from the Trust for
performing the duties of their offices. BISYS receives fees from the Trust for
acting as Administrator. BISYS Fund Services Ohio, Inc. receives fees from the
Trust for providing certain fund accounting services.
As of ____________, 1997, the Trustees and officers of the Trust, as a group,
owned less than one percent of the Shares of any Fund of the Trust.
Investment Advisers
Subject to the general supervision of the Trust's Board of Trustees and in
accordance with the Funds' investment objectives and restrictions, investment
advisory services are provided to the Allocated Funds and the Money Market Fund
by Qualivest, P.O. Box 2758, Portland, Oregon 97208, pursuant to an Investment
Advisory Agreement dated ____________, 1997 (the "Qualivest Investment Advisory
Agreement").
Qualivest is a wholly owned subsidiary of United States National Bank of Oregon,
which in turn is a wholly owned subsidiary of U.S. Bancorp, a publicly held bank
holding company.
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Subject to the general supervision of the Trust's Board of Trustees and in
accordance with the Funds' investment objectives and restrictions, investment
advisory services are provided to the Growth and Income Fund and the Capital
Manager Fund by BB&T, 434 Fayetteville Street Mall, Raleigh, NC 27601, pursuant
to an Investment Advisory Agreement dated ____________, 1997 (the "BB&T
Investment Advisory Agreement").
BB&T is the oldest bank in North Carolina and is the principal bank affiliate of
Southern National Corporation ("SNC"), a bank holding company that is a North
Carolina corporation, headquartered in Winston-Salem, North Carolina.
Under the Investment Advisory Agreements, Qualivest and BB&T (the "Investment
Advisers") have agreed to provide, either directly or through one or more
sub-advisers, investment advisory services for each of the Funds as described in
the Prospectus. For the services provided and expenses assumed pursuant to the
Qualivest Investment Advisory Agreement, each of the following Funds pays
Qualivest a fee, computed daily and paid monthly, at the following annual rates
calculated as a percentage of the average daily net assets of such Fund: 0.35%
for the Money Market Fund; 0.05% for the Conservative Fund; 0.05% for the
Balanced Fund; 0.05% for the Growth Fund; and 0.05% for the Aggressive Fund. For
the services provided and expenses assumed pursuant to the BB&T Investment
Advisory Agreement, each of the following Funds pays BB&T a fee, computed daily
and paid monthly, at the following annual rates, calculated as a percentage of
the average daily net assets of such Fund: 0.74% for the Growth and Income Fund,
and 0.25% for the Capital Manager Fund.
Unless sooner terminated, each Investment Advisory Agreement continues in effect
as to a particular Fund until __________, 1999, and thereafter for successive
one-year periods ending _________________ of each year if such continuance is
approved at least annually by the Board of Trustees or by vote of a majority of
the outstanding Shares of such Fund and a majority of the Trustees who are not
parties to the Investment Advisory Agreement or interested persons (as defined
in the 1940 Act) of any party to the Investment Advisory Agreement by votes cast
in person at a meeting called for such purpose. Each Investment Advisory
Agreement is terminable as to a particular Fund at any time on 60 days' written
notice without penalty by the Trustees, by vote of a majority of the outstanding
Shares of that Fund, or by the Investment Adviser. Each Investment Advisory
Agreement also terminates automatically in the event of any assignment, as
defined in the 1940 Act.
Each Investment Advisory Agreement provides that the Investment Adviser 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 performance of its duties, except a
loss resulting from a breach of fiduciary duty with respect to the receipt of
compensation for services or a loss resulting from willful misfeasance, bad
faith, or gross negligence on the part of the Investment Adviser or any
sub-advisers in the performance of their duties, or from reckless disregard of
their duties and obligations thereunder.
From time to time, advertisements, supplemental sales literature, and
information furnished to present or prospective Shareholders of the Funds may
include descriptions of an Investment Adviser including, but not limited to, (i)
descriptions of the Investment Adviser's operations; (ii) descriptions of
certain personnel and their functions; and (iii) statistics and rankings related
to the Investment Adviser's operations.
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Portfolio Transactions
The Investment Advisers determine, subject to the general supervision of the
Board of Trustees and in accordance with each Fund's investment objective and
restrictions, which securities are to be purchased and sold by a Fund, and which
brokers or dealers are to be eligible to execute such Fund's portfolio
transactions.
Purchases and sales of portfolio securities which are debt securities usually
are principal transactions in which portfolio securities are normally purchased
directly from the issuer or from an underwriter or market maker for the
securities. Purchases from underwriters of portfolio securities generally
include a commission or concession paid by the issuer to the underwriter, and
purchases from dealers serving as market makers may include the spread between
the bid and asked price. Transactions on stock exchanges involve the payment of
negotiated brokerage commissions. Transactions in the over-the-counter market
are generally principal transactions with dealers. With respect to the
over-the--counter market, the Trust, where possible, will deal directly with
dealers who make a market in the securities involved except in those
circumstances where better price and execution are available elsewhere.
Allocation of transactions, including their frequency, to various brokers and
dealers is determined by each Investment Adviser in its best judgment and in a
manner deemed fair and reasonable to Shareholders. In selecting a broker, each
Investment Adviser evaluates a wide range of criteria, including the broker's
commission rate and execution capability, the broker's positioning and
distribution capabilities, back office efficiency, ability to handle difficult
trades, financial stability, reputation, prior performance, and research. The
primary consideration is the broker's ability to provide prompt execution of
orders in an effective manner at the most favorable price for the security.
Subject to this consideration, brokers and dealers who provide supplemental
investment research to an Investment Adviser may receive orders for transactions
on behalf of the Trust. Research may include brokers' analyses of specific
securities, performance and technical statistics, and information databases. It
may also include maintenance research, which is the information that keeps an
Investment Adviser informed concerning overall economic, market, political and
legal trends. Under some circumstances, an Investment Adviser's evaluation of
research and other broker selection criteria may result in one or a few brokers
executing a substantial percentage of a Fund's trades. This might occur, for
example, where a broker can provide best execution at a cost that is reasonable
in relation to its services and the broker offers unique or superior research
facilities, special knowledge or expertise in a Fund's relevant markets, or
access to proprietary information about companies that are a majority of a
Fund's investments.
Research information so received is in addition to and not in lieu of services
required to be performed by each Investment Adviser and does not reduce the fees
payable to an Investment Adviser by the Trust. Such information may be useful to
an Investment Adviser in serving both the Trust and other clients and,
conversely, supplemental information obtained by the placement of business of
other clients may be useful in carrying out its obligations to the Trust. While
each Investment Adviser generally seeks competitive commissions, the Trust may
not necessarily pay the lowest commission available on each brokerage
transaction for reasons discussed above.
Investment decisions for each Fund are made independently from those for the
other Funds or any other portfolio, investment company or account managed by
Qualivest or BB&T. Any such other portfolio, investment company or account may
also invest in the same securities as the Trust. When a purchase or sale of the
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same security is made at substantially the same time on behalf of a Fund and
another Fund, portfolio, investment company or account, the transaction will be
averaged as to price and available investments will be allocated as to amount in
a manner which the Investment Adviser believes to be equitable to the Fund(s)
and such other portfolio, investment company or account. In some instances, this
investment procedure may adversely affect the price paid or received by a Fund
or the size of the position obtained by a Fund. To the extent permitted by law,
the Investment Adviser may aggregate the securities to be sold or purchased for
a Fund with those to be sold or purchased for the other Funds or for other
portfolio, investment companies or accounts in order to obtain best execution.
In making investment recommendations for the Trust, an Investment Adviser will
not inquire or take into consideration whether an issuer of securities proposed
for purchase or sale by the Trust is a customer of the Investment Adviser or
BISYS, their parents or their subsidiaries or affiliates and, in dealing with
its customers, Qualivest, BB&T, their parents, subsidiaries, and affiliates will
not inquire or take into consideration whether securities of such customers are
held by the Trust.
Glass-Steagall Act
In 1971, the United States Supreme Court held that the Federal statute commonly
referred to as the "Glass-Steagall Act" prohibits a national bank from operating
a mutual fund for the collective investment of managing agency accounts.
Subsequently, the Board of Governors of the Federal Reserve System (the "Board")
issued a regulation and interpretation to the effect that the Glass-Steagall Act
and such decision: (a) forbid a bank holding company registered under the
Federal Bank Holding Company Act of 1956 (the "Holding Company Act") or any
non-bank affiliate thereof from sponsoring, organizing, or controlling a
registered, open-end investment company continuously engaged in the issuance of
its shares, but (b) do not prohibit such a holding company or affiliate from
acting as investment adviser, transfer agent, and custodian to such an
investment company. In 1981, the United States Supreme Court determined that the
Board did not exceed its authority under the Holding Company Act when it adopted
its regulation and interpretation authorizing bank holding companies and their
nonbank affiliates to act as investment advisers to registered closed-end
investment companies. The Supreme Court also stated that if a national bank
complied with the restrictions imposed by the Board in its regulation and
interpretation authorizing bank holding companies and their nonbank affiliates
to act as investment advisers to investment companies, a national bank
performing investment advisory services for an investment company would not
violate the Glass-Steagall Act.
The Investment Advisers believe that they possess the legal authority to perform
the services for the Funds contemplated by the Prospectus, this SAI and the
Investment Advisory Agreements without violation of applicable statutes and
regulations. Future changes in either federal or state statutes and regulations
relating to the permissible activities of banks or bank holding companies and
the subsidiaries or affiliates of those entities, as well as further judicial or
administrative decisions or interpretations of present and future statutes and
regulations, could prevent an Investment Adviser from continuing to serve as
investment adviser to the Funds or could restrict the services which it is
permitted to perform for the Funds. In addition, such changes, decisions or
interpretations could prevent an Investment Adviser's national bank affiliates
from performing Variable Contract Owner servicing activities or from receiving
compensation therefor or could restrict the types of services such entities are
permitted to provide and the amount of compensation they are permitted to
receive for such services. Depending upon the nature of any changes in the
services which could be provided
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by the Investment Advisers, the Board of Trustees would review the Trust's
relationship with the Investment Advisers and consider taking all action
necessary in the circumstances.
Administrator
BISYS serves as general manager and administrator to the Trust pursuant to a
Management and Administration Agreement dated ___________, 1997 (the
"Administration Agreement"). The Administrator assists in supervising all
operations of each Fund (other than those performed by Qualivest and BB&T under
the Investment Advisory Agreements, by BISYS Fund Services Ohio, Inc. as fund
accountant and dividend disbursing agent, and by the Trust's custodian(s)). The
Administrator is a broker-dealer registered with the Securities and Exchange
Commission, and is a member of the National Association of Securities Dealers,
Inc. The Administrator provides financial services to institutional clients.
Under the Administration Agreement, the Administrator has agreed to maintain
office facilities for the Trust; furnish statistical and research data, clerical
and certain bookkeeping services and stationery and office supplies; prepare the
periodic reports to the Securities and Exchange Commission on Form N-SAR or any
replacement forms therefor; compile data for, prepare for execution by the Funds
and file certain federal and state tax returns and required tax filings; prepare
compliance filings pursuant to state securities laws with the advice of the
Trust's counsel; keep and maintain the financial accounts and records of the
Funds, including calculation of daily expense accruals; in the case of the Money
Market Fund, determine the actual variance from $1.00 of its net asset value per
Share; and generally assist in all aspects of the Trust's operations other than
those performed by the Investment Advisers under the Investment Advisory
Agreements, by the fund accountant and dividend disbursing agent, and by the
Trust's custodian(s). Under the Administration Agreement, the Administrator may
delegate all or any part of its responsibilities thereunder.
The Administrator receives a fee from each Fund for its services as
Administrator and expenses assumed pursuant to the Administration Agreement,
calculated daily and paid periodically, equal to the lesser of (a) the fee
calculated at the indicated annual rate of each Fund's average daily net assets,
or (b) such other fee as may from time to time be agreed upon by the Trust and
the Administrator: each Allocated Fund -- 0.07%; Money Market Fund -- 0.13%; and
Growth and Income Fund and Capital Manager Fund -- 0.20%. The Administrator may
voluntarily reduce all or a portion of its fee with respect to any Fund in order
to increase the net income of one or more of the Funds available for
distribution as dividends.
Unless sooner terminated as provided therein, the Administration Agreement will
continue in effect until __________________. The Administration Agreement is
terminable with respect to a particular Fund only upon mutual agreement of the
parties to the Administration Agreement and for cause (as defined in the
Administration Agreement) by the party alleging cause, on no less than 60 days'
written notice by the Board of Trustees or by the Administrator.
The Administration Agreement provides that the Administrator shall not be liable
for any error of judgment or mistake of law or any loss suffered by the Trust in
connection with the matters to which the Administration Agreement relates,
except a loss resulting from willful misfeasance, bad faith, or gross negligence
in the performance of its duties, or from the reckless disregard by the
Administrator of its obligations and duties thereunder.
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Expenses
Any expense reimbursements will be estimated daily and reconciled and paid on a
monthly basis. Fees imposed upon customer accounts for cash management services
are not included within Trust expenses for purposes of any such expense
limitation.
Distributor
BISYS serves as distributor to the Trust pursuant to the Distribution Agreement
dated ______________, 1997 (the "Distribution Agreement"). Unless otherwise
terminated, the Distribution Agreement will remain in effect until
______________, and thereafter continues for successive one-year periods ending
______________ of each year if approved at least annually (i) by the Board of
Trustees or by the vote of a majority of the outstanding Shares of the Trust,
and (ii) by the vote of a majority of the Trustees who are not parties to the
Distribution Agreement or interested persons (as defined in the 1940 Act) of any
party to the Distribution Agreement, cast in person at a meeting called for the
purpose of voting on such approval. The Distribution Agreement may be terminated
in the event of any assignment, as defined in the 1940 Act.
Custodians, Transfer Agent and Fund Accounting Services
United States National Bank of Oregon, 321 S.W. 6th, Portland, Oregon 97204,
serves as custodian to the Trust with respect to each Allocated Fund and the
Money Market Fund pursuant to a Custody Agreement dated as of ___________, 1997.
Fifth Third Bank, [Address], serves as custodian to the Trust with respect to
the Growth and Income Fund and the Capital Manager Fund pursuant to as Custody
Agreement dated as of _____________, 1997. Each custodian's responsibilities
include safeguarding and controlling the Funds' cash and securities, handling
the receipt and delivery of securities, and collecting interest and dividends on
such Funds' investments.
BISYS Fund Services Ohio Inc., 3435 Stelzer Road, Columbus, Ohio 43219-3035,
serves as transfer agent and dividend disbursing agent for all Funds of the
Trust pursuant to an agreement dated as of _________, 1997. Under this
agreement, BISYS Fund Services Ohio, Inc. performs the following services, among
others: maintenance of Shareholder records for each of the Trust's Shareholders
of record; processing Shareholder purchase and redemption orders; processing
transfers and exchanges of Shares on the Shareholder files and records;
processing dividend payments and reinvestments; and assistance in the mailing of
Shareholder reports and proxy solicitation materials. For such services, BISYS
Fund Services Ohio, Inc. receives a fee equal to ______________.
In addition, BISYS Fund Services Ohio, Inc. provides certain fund accounting
services to the Trust pursuant to a Fund Accounting Agreement dated
_______________, 1997. BISYS Fund Services Ohio, Inc. receives a fee for such
services, computed daily and paid periodically at an annual rate of ___% of the
average daily net assets of each Fund. Under the Fund Accounting Agreement,
BISYS Fund Services Ohio, Inc. maintains the accounting books and records for
the Funds, including journals containing an itemized daily record of all
purchases and sales of portfolio securities, all receipts and disbursements of
cash and all other debits and credits, general and auxiliary ledgers reflecting
all asset, liability, reserve, capital, income and expense accounts, including
interest accrued and interest received, and other required separate ledger
accounts; maintains a monthly trial balance of all ledger accounts; performs
certain accounting services for the Funds, including calculation of the daily
net asset value per Share, calculation of the dividend and capital gain
distributions, if any, and
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of yield, reconciliation of cash movements with custodians, affirmation to
custodians of portfolio trades and cash settlements, verification and
reconciliation with custodians of daily trade activity; provides certain
reports; obtains dealer quotations, prices from a pricing service or matrix
prices on all portfolio securities in order to mark the portfolio to the market;
and prepares an interim balance sheet, statement of income and expense, and
statement of changes in net assets for the Funds.
Auditors
The firm of Coopers & Lybrand LLP, 100 East Broad Street, Columbus, Ohio 43215,
serves as independent auditors for the Trust. Its services comprise auditing the
Trust's financial statements and advising the Trust as to certain accounting and
tax matters.
Legal Counsel
Dechert Price & Rhoads, 1500 K Street, N.W., Washington, D.C. 20005 is counsel
to the Trust and has passed upon the legality of the Shares offered hereby.
ADDITIONAL INFORMATION
Description of Shares
The Trust is a Massachusetts business trust. The Trust was organized on July 20,
1994, and the Trust's Declaration of Trust was filed with the Secretary of State
of the Commonwealth of Massachusetts on the same date. The Declaration of Trust,
as amended, authorizes the Board of Trustees to issue an unlimited number of
Shares, which are units of beneficial interest, without par value. The Trust
currently has seven series of Shares which represent interests in each series of
the Trust. The Trust's Declaration of Trust authorizes the Board of Trustees to
divide or redivide any unissued Shares of the Trust into one or more additional
series or classes by setting or changing in any one or more respects their
respective preferences, conversion or other rights, voting power, restrictions,
limitations as to dividends, qualifications, and terms and conditions of
redemption.
Shares have no subscription or preemptive rights and only such conversion or
exchange rights as the Board of Trustees may grant in its discretion. When
issued for payment as described in the Prospectus and this SAI, the Trust's
Shares will be fully paid and non-assessable by the Trust. In the event of a
liquidation or dissolution of the Trust, Shareholders of a Fund are entitled to
receive the assets available for distribution belonging to that Fund, and a
proportionate distribution, based upon the relative asset values of the
respective series, of any general assets not belonging to any particular series
which are available for distribution.
Rule 18f-2 under the 1940 Act provides that any matter required to be submitted
to the holders of the outstanding voting securities of an investment company
such as the Trust shall not be deemed to have been effectively acted upon unless
approved by the holders of a majority of the outstanding Shares of each Fund
affected by the matter. For purposes of determining whether the approval of a
majority of the outstanding Shares of a Fund will be required in connection with
a matter, a Fund will be deemed to be affected by a matter unless it is clear
that the interests of each Fund in the matter are identical, or that the matter
does not affect any interest of the Fund. Under Rule 18f-2, the approval of an
investment advisory agreement or any change in investment policy submitted to
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Shareholders would be effectively acted upon with respect to a series only if
approved by a majority of the outstanding Shares of such Fund. However, Rule
18f-2 also provides that the ratification of independent public accountants, the
approval of principal underwriting contracts, and the election of Trustees may
be effectively acted upon by Shareholders of the Trust voting without regard to
Fund.
Vote of a Majority of the Outstanding Shares
As used in the Funds' Prospectus and the SAI, "vote of a majority of the
outstanding Shares of the Trust or the Fund" means the affirmative vote, at an
annual or special meeting of Shareholders duly called, of the lesser of (a) 67%
or more of the votes of Shareholders of the Trust or the Fund present at such
meeting at which the holders of more than 50% of the votes attributable to the
Shareholders of record of the Trust or the Fund are represented in person or by
proxy, or (b) the holders of more than 50% of the outstanding votes of
Shareholders of the Trust or the Fund.
Shareholder and Trustee Liability
Under Massachusetts law, holders of units of interest in a business trust may,
under certain circumstances, be held personally liable as partners for the
obligations of the trust. However, the Trust's Declaration of Trust provides
that Shareholders shall not be subject to any personal liability for the
obligations of the Trust. The Declaration of Trust provides for indemnification
out of the trust property of any Shareholder held personally liable solely by
reason of his or her being or having been a Shareholder. The Declaration of
Trust also provides that the Trust shall, upon request, reimburse any
Shareholder for all legal and other expenses reasonably incurred in the defense
of any claim made against the Shareholder for any act or obligation of the
Trust, and shall satisfy any judgment thereon. Thus, the risk of a Shareholder
incurring financial loss on account of Shareholder liability is limited to
circumstances in which the Trust itself would be unable to meet its obligations.
The Declaration of Trust states further that no Trustee, officer, or agent of
the Trust shall be personally liable in connection with the administration or
preservation of the assets of the Trust or the conduct of the Trust's business;
nor shall any Trustee, officer, or agent be personally liable to any person for
any action or failure to act except for his own bad faith, willful misfeasance,
gross negligence, or reckless disregard of his duties. The Declaration of Trust
also provides that all persons having any claim against the Trustees or the
Trust shall look solely to the assets of the Trust for payment.
Additional Tax Information
The following discussion summarizes certain U.S. federal tax considerations
incidental to an investment in a Fund. Each Fund intends to qualify annually and
to elect to be treated as a regulated investment company under the Internal
Revenue Code of 1986 , as amended (the "Code").
To qualify as a regulated investment company, each Fund generally must, among
other things: (i) derive in each taxable year at least 90% of its gross income
from dividends, interest, payments with respect to securities loans, and gains
from the sale or other disposition of stock, securities or foreign currencies,
or other income derived with respect to its business in such stock, securities
or currencies; (ii) derive in each taxable year less than 30% of its gross
income from the sale or other disposition of certain assets held less than three
months including stocks, securities, and certain foreign currencies, futures,
26
<PAGE>
options, and forward contracts; (iii) diversify its holdings so that, at the end
of each quarter of the taxable year (a) at least 50% of the market value of the
Fund's assets is represented by cash, U.S. Government securities, the securities
of other regulated investment companies and other securities, with such other
securities of any one issuer limited for the purposes of this calculation to an
amount not greater than 5% of the value of the Fund's total assets and 10% of
the outstanding voting securities of such issuer, and (b) not more than 25% of
the value of its total assets is invested in the securities of any one issuer
(other than U.S. Government securities or the securities of other regulated
investment companies); and (iv) distribute at least 90% of its investment
company taxable income (which includes, among other items, dividends, interest,
and net short-term capital gains in excess of any net long-term capital losses)
each taxable year.
As a regulated investment company, a Fund generally will not be subject to U.S.
federal income tax on its investment company taxable income and net capital
gains (any net long-term capital gains in excess of the sum of net short-term
capital losses and capital loss carryovers from prior years), if any, that it
distributes to Shareholders. Each Fund intends to distribute to its
Shareholders, at least annually, substantially all of its investment company
taxable income and any net capital gains. In addition, amounts not distributed
by a Fund on a timely basis in accordance with a calendar year distribution
requirement may be subject to a nondeductible 4% excise tax. To avoid the tax, a
Fund may be required to distribute (or be deemed to have distributed) during
each calendar year, (i) at least 98% of its ordinary income (not taking into
account any capital gains or losses) for the calendar year, (ii) at least 98% of
its capital gains in excess of its capital losses for the twelve month period
ending on October 31 of the calendar year (adjusted for certain ordinary
losses), and (iii) all ordinary income and capital gains for previous years that
were not distributed during such years. To avoid application of the excise tax,
each Fund intends to make its distributions in accordance with the calendar year
distribution requirement. A distribution will be treated as paid on December 31
of the calendar year if it is declared by a Fund during October, November, or
December of that year to Shareholders of record on a date in such a month and
paid by the Fund during January of the following calendar year. Such
distributions will be taxable to Shareholders (such as the Separate Accounts)
for the calendar year in which the distributions are declared, rather than the
calendar year in which the distributions are actually received.
If a Fund invests in shares of a foreign investment company, the Fund may be
subject to U.S. federal income tax on a portion of an "excess distribution"
from, or of the gain from the sale of part or all of the shares in, such
company. In addition, an interest charge may be imposed with respect to deferred
taxes arising from such distributions or gains.
Under the Code, gains or losses attributable to fluctuations in exchange rates
which occur between the time a Fund accrues income or other receivables or
accrues expenses or other liabilities denominated in a foreign currency and the
time that Fund actually collects such receivables or pays such liabilities
generally are treated as ordinary income or ordinary loss. Similarly, on
disposition of debt securities denominated in a foreign currency and on
disposition of certain futures contracts, forward contracts, and options, gains
or losses attributable to fluctuations in the value of foreign currency between
the date of acquisition of the security or contract and the date of disposition
also are treated as ordinary gain or loss. These gains or losses, referred to
under the Code as "Section 988" gains or losses, may increase or decrease the
amount of a Fund's investment company taxable income to be distributed to its
Shareholders as ordinary income.
27
<PAGE>
Distributions
Distributions of any investment company taxable income (which includes among
other items, dividends, interest, and any net realized short-term capital gains
in excess of net realized long-term capital losses) are treated as ordinary
income for tax purposes in the hands of a Shareholder (such as a Separate
Account). Net capital gains (the excess of any net long-term capital gains over
net short term capital losses) will, to the extend distributed, be treated as
long-term capital gains in the hands of the Separate Accounts regardless of the
length of time a Separate Account may have held the Shares.
Hedging Transactions
The 30% limitation and the diversification requirements applicable to a Fund's
assets may limit the extent to which a Fund will be able to engage in
transactions in options, futures contracts, or forward contracts.
Other Taxes
Distributions may also be subject to additional state, foreign and local taxes,
depending on each shareholder's situation. Shareholders are advised to consult
their own tax advisers with respect to the particular tax consequences to them
of an investment in a Fund.
PERFORMANCE INFORMATION
Each Fund may, from time to time, include its yield or total return in
advertisements or reports to Shareholders or prospective investors. Performance
information for the Funds will not be advertised or included in sales literature
unless accompanied by comparable performance information for a separate account
to which the Funds offer their Shares.
Standardized seven-day yield for the Money Market Fund is computed by
determining the net change, exclusive of capital changes, in the value of a
hypothetical pre-existing account in that Fund having a balance of one Share at
the beginning of the period, subtracting a hypothetical charge reflecting
deductions from Shareholder accounts, and dividing the difference by the value
of the account at the beginning of the base period to obtain the base period
return, and then multiplying the base period return by (365/base period). The
net change in the account value of the Money Market Fund includes the value of
additional Shares purchased with dividends from the original Share, dividends
declared on both the original Share and any such additional Shares, and all
fees, other than nonrecurring account charges, that are charged to all
Shareholder accounts in proportion to the length of the base period and assuming
that Fund's average account size. The capital changes to be excluded from the
calculation of the net change in account value are net realized gains and losses
from the sale of securities and unrealized appreciation and depreciation. The
30-day yield is calculated as described above except that the base period is 30
days rather than seven days.
Yields of the other Funds are computed by analyzing net investment income per
Share for a recent 30-day period and dividing that amount by a Share's maximum
offering price (reduced by any undeclared earned income expected to be paid
shortly as a dividend) on the last trading day of that period. Net investment
income will reflect amortization of any market value premium or discount of
fixed income securities (except for obligations backed by mortgages or other
assets) and may include recognition of a pro rata portion of the stated dividend
28
<PAGE>
stated dividend rate of dividend paying portfolio securities. The yield of each
of these Funds will vary from time to time depending upon market conditions, the
composition of a Fund's portfolio and operating expenses of the Trust allocated
to each Fund. Yield should also be considered relative to changes in the value
of a Fund's Shares and to the relative risks associated with the investment
objective and policies of each of the Funds.
At any time in the future, yields may be higher or lower than past yields and
there can be no assurance that any historical results will continue.
Standardized quotations of average annual total return for Fund Shares will be
expressed in terms of the average annual compounded rate of return for a
hypothetical investment in Shares over periods of 1, 5 and 10 years or up to the
life of the Fund), calculated pursuant to the following formula: P(1 + T)n = ERV
(where P = a hypothetical initial payment of $1,000, T = the average annual
total return, n = the number of years, and ERV = the ending redeemable value of
a hypothetical $1,000 payment made at the beginning of the period). All total
return figures reflect the deduction of expenses (on an annual basis), and
assume that all dividends and distributions on Shares are reinvested when paid.
Performance information for the Funds may be compared in reports and promotional
literature to the performance of other mutual funds with comparable investment
objectives and policies through various mutual fund or market indices such as
the Morgan Stanley Capital International EAFE Index and those prepared by Dow
Jones & Co., Inc., Standard & Poor's Corporation, Shearson Lehman Brothers, Inc.
and The Russell 2000 Index and to data prepared by Lipper Analytical Services,
Inc., a widely recognized independent service which monitors the performance of
mutual funds, Morningstar, Inc. and the Consumer Price Index. Comparisons may
also be made to indices or data published in Money Magazine, Forbes, Barron's,
The Wall Street Journal, The Bond Buyer's Weekly 20-Bond Index, The Bond Buyer's
Index, The Bond Buyer, The New York Times, Business Week, Pensions and
Investments, and U.S.A. Today. In addition to performance information, general
information about these Funds that appears in a publication such as those
mentioned above may be included in advertisements and in reports to Variable
Contract Owners.
Each Fund may also compute aggregate total return for specified periods. The
aggregate total return is determined by dividing the net asset value of this
account at the end of the specified period by the value of the initial
investment and is expressed as a percentage. Calculation of aggregate total
return assumes reinvestment of all income dividends and capital gain
distributions during the period.
The Funds also may quote annual, average annual and annualized total return and
aggregate total return performance data for various periods other than those
noted above. Such data will be computed as described above, except that the
rates of return calculated will not be average annual rates, but rather, actual
annual, annualized or aggregate rates of return.
Quotations of yield or total return for the Funds will not take into account
charges and deductions against a Separate Account to which the Funds' Shares are
sold or charges and deductions against the Variable Contracts. The Funds' yield
and total return should not be compared with mutual funds that sell their shares
directly to the public since the figures provided do not reflect charges against
the Separate Accounts or the Variable Contracts. Performance information for any
Fund reflects only the performance of a hypothetical investment in the Fund
during the particular time period in which the calculations are based.
Performance information should be considered in light of the Funds' investment
29
<PAGE>
objectives and policies, characteristics and quality of the portfolios and the
market conditions during the given time period, and should not be considered as
a representation of what may be achieved in the future.
Miscellaneous
Individual Trustees are elected by the Shareholders and, subject to removal by
the vote of two-thirds of the Board of Trustees, serve for a term lasting until
the next meeting of Shareholders at which Trustees are elected. Such meetings
are not required to be held at any specific intervals. Individual Trustees may
be removed by vote of the Shareholders voting not less than a majority of the
Shares then outstanding, cast in person or by proxy at any meeting called for
that purpose, or by a written declaration signed by Shareholders voting not less
than two-thirds of the Shares then outstanding. In accordance with current laws,
it is anticipated that an insurance company issuing a variable contract that
participates in the Funds will request voting instructions from variable
contract owners and will vote shares or other voting interests in the separate
account in proportion of the voting instructions received. The Separate Accounts
and qualified pension and retirement plans currently are the only Shareholders
of the Funds, although other separate accounts of Nationwide or Hartford, or
other insurance companies, may become Shareholders in the future.
The Trust is registered with the Securities and Exchange Commission as a
management investment company. Such registration does not involve supervision by
the Securities and Exchange Commission of the management or policies of the
Trust.
The Prospectus and this SAI omit certain of the information contained in the
Registration Statement filed with the Securities and Exchange Commission. Copies
of such information may be obtained from the Securities and Exchange Commission
upon payment of the prescribed fee.
The Prospectus and this SAI are not an offering of the securities herein
described in any state in which such offering may not lawfully be made. No
salesman, dealer, or other person is authorized to give any information or make
any representation other than those contained in the Prospectus and this SAI.
FINANCIAL STATEMENTS
The Trust's financial statements for the Funds, including the related notes
thereto, dated as of _____________, 1997, are included herein.
30
<PAGE>
APPENDIX
DESCRIPTION OF BOND RATINGS
Description of Moody's bond ratings:
Excerpts from Moody's description of its bond ratings are listed as
follows: Aaa - judged to be the best quality and they carry the smallest degree
of investment risk; Aa - judged to be of high quality by all standards -
together with the Aaa group, they comprise what are generally known as
high-grade bonds; A - possess many favorable investment attributes and are to be
considered as "upper medium grade obligations"; Baa - considered to be 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; Ba - judged to have speculative
elements, their future cannot be considered as well assured; B - generally lack
characteristics of the desirable investment; 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 - speculative in a high degree, often in default; C
- - lowest rated class of bonds, regarded as having extremely poor prospects.
Moody's also supplies numerical indicators 1, 2 and 3 to rating categories.
The modifier 1 indicates that the security is in the higher end of its rating
category; the modifier 2 indicates a mid-range ranking; and modifier 3 indicates
a ranking toward the lower end of the category.
Description of S&P's bond ratings:
Excerpts from S&P's description of its bond ratings are listed as follows:
AAA - highest grade obligations, in which capacity to pay interest and repay
principal is extremely strong; AA - has a very strong capacity to pay interest
and repay principal, and differs from AAA issues only in a small degree; A - has
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 debt in higher rated categories; BBB - regarded as
having an adequate capacity to pay interest and repay principal; whereas it
normally exhibits adequate protection parameters, adverse economic conditions or
changing circumstances are more likely to lead to a weakened capacity to pay
interest and repay principal for debt in this category than in higher rated
categories. This group is the lowest which qualifies for commercial bank
investment. BB, B, CCC, CC, C - predominantly speculative with respect to
capacity to pay interest and repay principal in accordance with terms of the
obligations; BB indicates the highest grade and C the lowest within the
speculative rating categories. D - interest or principal payments are in
default.
S&P applies indicators "+," no character, and "-" to its rating categories.
The indicators show relative standing within the major rating categories.
Description of Moody's ratings of short-term municipal obligations:
Moody's ratings for state and municipal short-term obligations will be
designated Moody's Investment Grade or MIG. Such ratings recognize the
differences between short-term credit and long-term risk. Short-term ratings on
issues with demand features (variable rate demand obligations) are
differentiated by the use of the VMIG symbol to reflect such characteristics as
payment upon
i
<PAGE>
periodic demand rather than fixed maturity dates and payments relying on
external liquidity. Ratings categories for securities in these groups are as
follows: MIG 1/VMIG 1 - denotes best quality, there is present strong protection
by established cash flows, superior liquidity support or demonstrated
broad-based access to the market for refinancing; MIG 2/VMIG 2 - denotes high
quality, margins of protection are ample although not as large as in the
preceding group; MIG 3/VMIG 3 - denotes high quality, all security elements are
accounted for but there is lacking the undeniable strength of the preceding
grades; MIG 4/VMIG 4 - denotes adequate quality, protection commonly regarded as
required of an investment security is present, but there is specific risk; SQ -
denotes speculative quality, instruments in this category lack margins of
protection.
Description of Moody's commercial paper ratings:
Excerpts from Moody's commercial paper ratings are listed as follows: Prime
- - 1 - issuers (or supporting institutions) have a superior ability for repayment
of senior short-term promissory obligations; Prime - 2 - issuers (or supporting
institutions) have a strong ability for repayment of senior short-term
promissory obligations; Prime - 3 - issuers (or supporting institutions) have an
acceptable ability for repayment of senior short-term promissory obligations;
Not Prime - issuers do not fall within any of the Prime categories.
Description of S&P's ratings for corporate and municipal bonds:
Investment grade ratings: AAA - the highest rating assigned by S&P,
capacity to pay interest and repay principal is extremely strong; AA - has a
very strong capacity to pay interest and repay principal and differs from the
highest rated issues only in a small degree; A - has strong capacity to pay
interest and repay principal although it is somewhat more susceptible to the
adverse effects of changes in circumstances and economic conditions than debt in
higher rated categories; BBB regarded as having an adequate capacity to pay
interest and repay principal - whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than in higher rated categories.
Speculative grade ratings: BB, B, CCC, CC, C - debt rated in these
categories is regarded as having predominantly speculative characteristics with
respect to capacity to pay interest and repay principal - while such debt will
likely have some quality and protective characteristics, these are outweighed by
large uncertainties or major risk exposures to adverse conditions; CI - reserved
for income bonds on which no interest is being paid; D -in default, and payment
of interest and/or repayment of principal is in arrears. Plus (+) or Minus (-) -
the ratings from "AA" to "CCC" may be modified by the addition of a plus or
minus sign to show relative standing within the major rating categories.
Description of S&P's rating for municipal notes and short-term municipal demand
obligations:
Rating categories are as follows: SP-1 - has a very strong or strong
capacity to pay principal and interest - those issues determined to possess
overwhelming safety characteristics will be given a plus (+) designation; SP-2 -
has a satisfactory capacity to pay principal and interest; SP-3 - issues
carrying this designation have a speculative capacity to pay principal and
interest.
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<PAGE>
Description of S&P's ratings for short-term corporate demand obligations and
commercial paper:
An S&P commercial paper rating is a current assessment of the likelihood of
timely repayment of debt having an original maturity of no more than 365 days.
Excerpts from S&P's description of its commercial paper ratings are listed as
follows: A-1 - the degree of safety regarding timely payment is strong - those
issues determined to possess extremely strong safety characteristics will be
denoted with a plus (+) designation; A-2 - capacity for timely payment is
satisfactory however, the relative degree of safety is not as high as for issues
designated "A-1;" A-3 - has adequate capacity for timely payment - however, is
more vulnerable to the adverse effects of changes in circumstances than
obligations carrying the higher designations; B - regarded as having only
speculative capacity for timely payment; C - a doubtful capacity for payment; D
- - in payment default - the "D" rating category is used when interest payments or
principal payments are not made on the date due, even if the applicable grace
period has not expired, unless S&P believes that such payments will be made
during such grace period.
iii
<PAGE>
PART C
OTHER INFORMATION
Item 24. Financial Statements and Exhibits
(a) Included in Part A:
Included in Part B:
Report of Independent Accoutnants
Statements of Assets and Liabilities
(b) Exhibits
(1) (a) Amended and Restated Declaration of
Trust dated July 20, 1994, as amended
and restated February 5, 1997
(b) Establishment and Designation of Series
effective February 5, 1997
(2) By-Laws
(3) Not Applicable
(4) Articles IV and V of the Registrant's
Amended and Restated Declaration of Trust
define rights of holders of Shares.
(5) (a) Form of Investment Advisory Agreement
between Registrant and Qualivest Capital
Management Inc.*
(b) Form of Investment Advisory Agreement
between Registrant and Branch Banking
and Trust Company*
(6) Form of Distribution Agreement between
Registrant and BISYS Fund Services*
(7) Not Applicable
(8) (a) Form of Custodian Agreement between
Registrant and U.S. Bank*
(b) Form of Custodian Agreement between
Registrant and Fifth Third Bank*
C-1
<PAGE>
(9) (a) Form of Management and Administration
Agreement between the Registrant and
BISYS Fund Services*
(b) Form of Fund Accounting Agreement
between the Registrant and BISYS Fund
Services Ohio, Inc.*
(c) Form of Transfer Agency Agreement
between the Registrant and BISYS Fund
Services Ohio, Inc.*
(d) Form of Fund Participation Agreement*
(10) Opinion and Consent of Counsel*
(11) Consent of Independent Auditors*
(12) Not Applicable
(13) Letters concerning Initial Capital*
(14) Not Applicable
(15) Not Applicable
(16) Schedule of Computation of Performance Information*
(17) Financial Data Schedule Pursuant to Rule 483
(filed as Exhibit 27)*
(18) Not Applicable
(19) (a) Secretary's Certificate Pursuant to Rule
483(b)*
(b) Powers of Attorney*
- ----------
* To be filed by amendment.
C-2
<PAGE>
Item 25. Persons Controlled by or Under Common Control with
Registrant
Not applicable
Item 26. Number of Record Holders
None
Item 27. Indemnification
Reference is made to Article IV of the Registrant's Agreement
and Declaration of Trust (Exhibit 1(a)) which is incorporated
by reference herein.
Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to trustees, officers
and controlling persons of the Registrant by the Registrant
pursuant to the Fund's Declaration of Trust, its By-Laws or
otherwise, the Registrant is aware that in the opinion of the
Securities and Exchange Commission, such indemnification is
against public policy as expressed in the Act and, therefore,
is 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
trustees, officers or controlling persons of the Registrant in
connection with the successful defense of any act, suit or
proceeding) is asserted by such trustees, officers or
controlling persons in connection with shares being
registered, the Registrant will, unless in the opinion of its
counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question
whether such indemnification by it is against public policy as
expressed in the Act and will be governed by the final
adjudication of such issues.
Item 28. Business and Other Connections of Investment Advisers
and their Officers and Directors
The business of each of the Investment Advisers is summarized
under "MANAGEMENT OF THE TRUST - Investment Advisers" in the
Prospectus constituting Part A of this Registration Statement,
which summaries are incorporated herein by reference. The
business or other connections of each director and officer of
Qualivest Capital Management, Inc. is currently listed in its
investment adviser registration on Form ADV (File No.
801-22741) and is hereby incorporated herein by reference
thereto.
C-3
<PAGE>
Set forth below is information as to any other business,
vocation or employment of a substantial nature (other than
service in wholly owned subsidiaries or the parent corporation
of Branch Banking and Trust Company) in which each director or
senior officer of Branch Banking and Trust Company is, or at
any time during the past two fiscal years has been, engaged
for his own account or in the capacity of director, officer,
employee, partner or trustee.
Name and Position with Branch Other business, profession,
Banking and Trust Company vocation, or employment
John A. Allison IV None
Chairman of the Board and
Chief Executive Officer
Paul B. Barringer President and Chief Executive
Director Officer
Coastal Lumber Company
Weldon, N.C.
W. R. Cuthbertson, Jr. None
Director
Ronald E. Deal Investor, Chairman Wesley Hall
Director Hickory, N.C.
Albert J. Dooley, Sr. Dooley, Dooley, Spence &
Director Parker
Lexington, S.C.
Joseph L. Dudley, Sr. Owner
Director Dudley Products
Kernersville, S.C.
Tom D. Efird President Standard
Director Distributors, Inc.
Gastonia, N.C.
O. William Fenn, Jr. NC Department of Commerce
Director Furniture Export Office
High Point, N.C.
Paul S. Goldsmith BB&T Insurance Services, Inc.
Director Greenville, S.C.
Dr. Lloyd Vincent Hackley President NC System of
Director Community Colleges
Raleigh, N.C.
Ernest F. Hardee Ernest Francis Realty Corp.,
Director Hardee Realty Corporation
Portsmouth, V.A.
C-4
<PAGE>
James A. Hardison None
Director
Dr. Richard Janeway Executive Vice President for
Director Health Affairs
Bowman Gray School of Medicine
Winston-Salem, N.C.
J. Ernest Lathem, M.D. Urology Specialist,
Director Prostate/Diagnostics
Greenville, S.C.
James H. Maynard Chairman & CEO
Director Investors Management
Corporation
Raleigh, N.C.
Joseph A. McAleer, Jr. Chief Executive Officer and
Director Director
Krispy Kreme Doughnut Corp.
Winston-Salem, N.C.
Albert O. McCauley Secretary and Treasurer
Director Quick Stop Food Marts, Inc.,
McCauley Moving & Storage of
Fayetteville, Inc.
Fayetteville, N.C.
James Dickson McLean, Jr. Attorney at Law, President
Director McLean, Stacy, Henry & McLean,
P.A.
Lumberton, N.C.
Charles E. Nichols Attorney at Law, North
Carolina Trust Center
Greensboro, N.C.
L. Glenn Orr, Jr. Orr Management Company
Director Winston-Salem, N.C.
A. Winniett Peters Standard Commercial Tobacco
Director Company
Wilson, N.C.
Richard L. Player, Jr. President
Director Player, Inc.
Fayetteville, N.C.
C. Edward Pleasants, Jr. President, CEO & Director
Director Pleasants Hardware Company
Winston-Salem, N.C.
Nido R. Qubein Chief Executive Officer
Director Creative Services, Inc.
High Point, N.C.
C-5
<PAGE>
A. Tab Wiliams, Jr. Chairman & CEO
Director A.T. Williams Oil Company
Winston-Salem, N.C.
Item 29. Principal Underwriter
(a) BISYS Fund Services ("BISYS") acts as distributor and
administrator for Registrant. BISYS also distributes the
securities of Qualivest Funds, The Victory Portfolios, The
Highmark Group, The AmSouth Mutual Funds, The Sessions
Group, The Coventry Group, The BB&T Mutual Funds Group, The
American Performance Funds, The ARCH Funds, Inc., MMA Praxis
Mutual Funds, The MarketWatch Funds, The Pacific Capital
Funds, The Parkstone Group of Funds, The Riverfront Funds,
Inc., The Summit Investment Trust, The Fountain Square
Funds, The Kent Group of Funds, The HSBC Funds, The Infinity
Mutual Funds, Inc., The Time Horizon Funds, Pegasus Funds,
The Parkstone Advantage Funds, SBSF Funds, Inc. d.b.a. Key
Mutual Funds, Inc., The Republic Funds and First Choice
Funds Trust, each of which is an investment management
company.
(b) Partners of BISYS Fund Services are as follows:
Positions and Positions and
Name and Principal Offices with Offices with
Business Address BISYS Fund Services Registrant
BISYS Fund Services, Inc. Sole General Partner None
3435 Stelzer Road
Columbus, Ohio 43219-3035
WC Subsidiary Corporation Sole Limited Partner None
3435 Stelzer Road
Columbus, Ohio 43219-3035
(c) Not Applicable
Item 30. Location of Accounts and Records
The accounts, books, and other documents required to be
maintained by Registrant pursuant to Section 31(a) of
the Investment Company Act of 1940 and rules
promulgated thereunder are in the possession of
Qualivest Capital Management, Inc. 111 S.W. Fifth
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<PAGE>
Avenue, Portland, Oregon 97204 and Branch Banking and Trust
Company, 434 Fayetteville Street Mall, Raleigh, NC 27601
(records relating to their functions as advisers for
Registrant), BISYS Fund Services, 3435 Stelzer Road, Columbus,
Ohio 43219-3035 (records relating to its functions as general
manager, administrator and distributor), and BISYS Fund
Services Ohio, Inc., 3435 Stelzer Road, Columbus, Ohio 43219-
3035 (records relating to its functions as transfer agent).
Item 31. Management Services
Not Applicable
Item 32. Undertakings
(a) Not Applicable
(b) Registrant undertakes to file a post-effective
amendment, using financial statements which need not
be certified, within four to six months from the
latter of the effective date of Registrant's
Registration Statement under the Securities Act of
1933 or the date on which shares of the Funds are
first offered (other than for initial capital).
(c) Registrant undertakes to furnish each person to whom
a prospectus is delivered with a copy of the
Registrant's latest Annual Report to Shareholders,
upon request and without charge.
(d) Registrant undertakes to call a meeting of
Shareholders for the purpose of voting upon the
question of removal of a Trustee or Trustees when
requested to do so by the holders of at least 10%
of the Registrant's outstanding shares of
beneficial interest and in connection with such
meeting to comply with the shareholders
communications provisions of Section 16(c) of the
Investment Company Act of 1940.
C-7
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant has duly caused this Registration
Statement to be signed on its behalf by the undersigned thereunto duly
authorized in the city of Columbus, and the State of Ohio on the 5th day of
February, 1997.
VARIABLE INSURANCE FUNDS
By: /s/ William J. Tomko
William J. Tomko
President and Trustee
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement on Form N-1A has been signed below by the following
persons on behalf of Variable Insurance Funds in the capacity and on the date
indicated:
Signatures Title Date
/s/ William J. Tomko Trustee and February 5, 1997
William J. Tomko President (Prin-
cipal Executive
Officer)
/s/ Scott A. Englehart Trustee, February 5, 1997
Scott A. Englehart Treasurer (Prin-
cipal Accounting
Officer), and
Chief Financial
Officer
C-8
<PAGE>
EXHIBIT LIST
Exhibit No. Exhibit Name EDGAR Exhibit No.
1(a) Amended and Restated EX-99B1a
Declaration of Trust
1(b) Establishment and EX-99B1b
Designation of Series
2 By-Laws EX-99B2
VARIABLE INSURANCE FUNDS
AMENDED AND RESTATED
DECLARATION OF TRUST
July 20, 1994
amended and restated February 5, 1997
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TABLE OF CONTENTS
Page
ARTICLE I -- Name and Definitions......................................... 1
Section 1.1 Name and Address....................... 1
Section 1.2 Definitions............................ 1
ARTICLE II -- Trustees..................................................... 2
Section 2.1 Address................................ 2
Section 2.2 General Powers......................... 2
Section 2.3 Investments............................ 3
Section 2.4 Legal Title............................ 4
Section 2.5 Issuance and Repurchase
of Securities......................... 5
Section 2.6 Delegation; Committees................. 5
Section 2.7 Collection and Payment................. 5
Section 2.8 Expenses............................... 5
Section 2.9 Manner of Acting; By-Laws.............. 6
Section 2.10 Miscellaneous Powers................... 6
Section 2.11 Principal Transactions................. 7
Section 2.12 Number of Trustees..................... 7
Section 2.13 Election and Term...................... 7
Section 2.14 Resignation and Removal................ 7
Section 2.15 Vacancies.............................. 8
Section 2.16 Delegation of Power to Other
Trustees.............................. 8
ARTICLE III -- Contracts................................................... 8
Section 3.1 Underwriting Contract.................. 8
Section 3.2 Advisory or Management Contract........ 9
Section 3.3 Affiliations of Trustees or
Officers, Etc......................... 9
Section 3.4 Compliance with 1940 Act............... 10
ARTICLE IV -- Limitations of Liability
of Shareholders, Trustees and Others....................... 10
Section 4.1 No Personal Liability of Shareholders,
Trustees, Etc......................... 10
Section 4.2 Non-Liability of Trustees, Etc......... 10
Section 4.3 Indemnification........................ 11
Section 4.4 No Bond Required of Trustees........... 13
Section 4.5 No Duty of Investigation; Notice in
Trust Instruments, Etc................ 13
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ARTICLE V -- Shares of Beneficial Interest................................. 14
Section 5.1 Beneficial Interest.................... 14
Section 5.2 Rights of Shareholders................. 14
Section 5.3 Trust Only............................. 14
Section 5.4 Issuance of Shares..................... 14
Section 5.5 Register of Shares..................... 15
Section 5.6 Transfer of Shares..................... 15
Section 5.7 Notices................................ 16
Section 5.8 Treasury Shares........................ 16
Section 5.9 Voting Powers.......................... 16
Section 5.10 Meetings of Shareholders............... 17
Section 5.11 Series Designation..................... 17
Section 5.12 Class Designation...................... 19
ARTICLE VI -- Redemption and Repurchase of Shares.......................... 21
Section 6.1 Redemption of Shares................... 21
Section 6.2 Price.................................. 21
Section 6.3 Payment................................ 21
Section 6.4 Effect of Suspension of
Determination of Net Asset
Value................................. 21
Section 6.5 Repurchase by Agreement................ 22
Section 6.6 Redemption of Shareholder's
Interest.............................. 22
Section 6.7 Redemption of Shares in Order
to Qualify as Regulated
Investment Company; Disclosure
of Holding............................ 22
Section 6.8 Reductions in Number of
Outstanding Shares Pursuant
to Net Asset Value Formula............ 23
Section 6.9 Suspension of Right of
Redemption............................ 23
ARTICLE VII -- Determination of Net Asset Value,
Net Income and Distributions ....................... 23
Section 7.1 Net Asset Value........................ 23
Section 7.2 Distributions to Shareholders.......... 24
Section 7.3 Daily Dividends; Determination
of Net Income; Constant Net
Asset Value; Reduction of
Outstanding Shares.................... 25
Section 7.4 Allocation Between Principal
and Income............................ 26
Section 7.5 Power to Modify Foregoing
Procedures............................ 26
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ARTICLE VIII -- Duration, Termination of Trust;
Amendment; Mergers, Etc. ............................. 26
Section 8.1 Duration............................... 26
Section 8.2 Termination of Trust or Series
of the Trust.......................... 26
Section 8.3 Amendment Procedure ................... 27
Section 8.4 Merger, Consolidation and Sale
of Assets ............................. 28
Section 8.5 Incorporation ......................... 29
ARTICLE IX -- Reports to Shareholders...................................... 29
ARTICLE X -- Miscellaneous................................................. 30
Section 10.1 Filing................................. 30
Section 10.2 Governing Law.......................... 30
Section 10.3 Counterparts........................... 30
Section 10.4 Reliance by Third Parties.............. 30
Section 10.5 Provisions in Conflict with Law
or Regulations........................ 31
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ARTICLE I
NAME AND DEFINITIONS
Section 1.1. Name and Address. The name of the trust created hereby, until
and unless changed by the Trustees as provided in Section 8.3(a) hereof, is
"Variable Insurance Funds." The address of the trust is 3435 Stelzer Road,
Columbus, Ohio 43219-3035.
Section 1.2. Definitions. Wherever they are used herein, the following
terms have the following respective meanings:
(a) "By-laws" means the By-laws referred to in Section 2.9
hereof, as from time to time amended.
(b) The terms "Commission" and "Interested Person," have the
meanings given them in the 1940 Act. Except as otherwise defined by the
Trustees in conjunction with the establishment of any Series of Shares, the term
"vote of a majority of the Shares outstanding and entitled to vote" shall
have the same meaning as the term "vote of a majority of the outstanding
voting securities" given it in the 1940 Act.
(c) "Custodian" means any Person other than the Trust who has
custody of any Trust Property as required by Section 17(f) of the 1940 Act, but
does not include a system for the central handling of securities described in
said Section 17(f).
(d) "Declaration" means this Declaration of Trust as amended from
time to time. Reference in this Declaration of Trust to "Declaration", "hereof"
and "hereunder" shall be deemed to refer to this Declaration rather than
exclusively to the article or section in which such words appear.
(e) "Distributor" means the party, other than the Trust, to the
contract described in Section 3.1 hereof.
(f) "His" shall include the feminine and neuter, as well as the
masculine, genders.
(g) "Municipal Bonds" means obligations issued by or on behalf of
states, territories and of the United States and the District of Columbia and
their political subdivisions, agencies and instrumentalities, the interest from
which is exempt from Federal income tax.
(h) The "1940 Act" means the Investment Company Act of 1940, as
amended from time to time.
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(i) "Person" means and includes individuals, corporations,
partnerships, trusts, associations, joint ventures and other entities,
whether or not legal entities, and governments and agencies and political
subdivisions thereof.
(j) "Shareholder" means a record owner of Outstanding Shares.
(k) "Shares" means the equal proportionate units of interest into
which the beneficial interest in the Trust shall be divided from time to
time, including the Shares of any and all Series which may be established by the
Trustees, and includes fractions of Shares as well as whole Shares.
"Outstanding" Shares means those Shares shown from time to time on the books of
the Trust or its Transfer Agent as then issued and outstanding, but shall not
include Shares which have been redeemed or repurchased by the Trust and which
are at the time held in the Treasury of the Trust.
(l) "Transfer Agent" means any Person other than the Trust who
maintains the Shareholder records of the Trust, such as the list of
Shareholders, the number of Shares credited to each account, and the like.
(m) The "Trust" means the Variable Insurance Funds.
(n) The "Trust Property" means any and all property, real or
personal, tangible or intangible, which is owned or held by or for the account
of the Trust or the Trustees.
(o) The "Trustees" means the Persons who have signed this
Declaration, so long as they shall continue in office in accordance with the
terms hereof, and all other Persons who may from time to time be duly elected,
qualified and serving as Trustees in accordance with the provisions of Article
II hereof, and reference herein to a Trustee or the Trustees shall refer to
such Person or Persons in this capacity or their capacities as trustees
hereunder.
ARTICLE II
TRUSTEES
Section 2.1 Address. The address of the Trustees is Ten Post Office
Square-South, Boston, MA 02109.
Section 2.2 General Powers. The Trustees shall have exclusive and absolute
control over the Trust Property and over the business of the Trust to the same
extent as if the Trustees were the sole owners of the Trust Property and
business in their own right, but with such powers of delegation as may be
permitted by this Declaration. The Trustees shall have power to conduct
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the business of the Trust and carry on its operations in any and all of its
branches and maintain offices both within and without the Commonwealth of
Massachusetts, in any and all states of the United States of America, in the
District of Columbia, and in any and all commonwealths, territories,
dependencies, colonies, possessions, agencies or instrumentalities of the United
States of America and of foreign governments, and to do all such other things
and execute all such instruments as they may deem necessary, proper or desirable
in order to promote the interests of the Trust although such things are not
herein specifically mentioned. Any determination as to what is in the interests
of the Trust made by the Trustees in good faith shall be conclusive. In
construing the provisions of this Declaration, the presumption shall be in favor
of a grant of power to the Trustees.
The enumeration of any specific power herein shall not be construed as
limiting the aforesaid power. Such powers of the Trustees may be executed
without order of or resort to any court.
Section 2.3 Investments. The Trustees shall have the power:
(a) To operate as and carry on the business of an investment
company, and exercise all the powers necessary and appropriate to the
conduct of such operations.
(b) To invest in, hold for investment, or reinvest in,
securities, including common and preferred stocks; warrants; bonds;
debentures; bills; time notes and all other evidences of indebtedness;
negotiable or non-negotiable instruments; government securities, including
securities of any state, municipality or other political subdivision, or any
governmental or quasi-governmental agency or instrumentality; and money market
instruments including bank certificates of deposit, finance paper, commercial
paper, bankers' acceptances and all kinds of repurchase agreements, of any
corporation, company, trust, association, firm or other business organization
however established, and of any country, state, municipality or other political
subdivisions, or any governmental or quasi-governmental agency or
instrumentality.
(c) To acquire (by purchase, subscription or otherwise), to hold,
to trade in and deal in, to acquire or write any rights or options to
purchase or sell, to sell or otherwise dispose of, to lend, and to pledge any
such securities and repurchase agreements and forward foreign currency exchange
contracts, to purchase and sell futures contracts on securities, securities
indices and foreign currencies, to purchase or sell options on such contracts,
foreign currency contracts and foreign currencies and to engage in all types of
hedging and risk management transactions.
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(d) To exercise all rights, powers and privileges of ownership or
interest in all securities and repurchase agreements included in the Trust
Property, including the right to vote thereon and otherwise act with respect
thereto and to do all acts for the preservation, protection, improvements and
enhancement in value of all such securities and repurchase agreements.
(e) To acquire (by purchase, lease or otherwise) and to hold,
use, maintain, develop and dispose of (by sale or otherwise) any property, real
or personal, including cash, and any interest therein.
(f) To borrow money an in this connection issue notes or other
evidence of indebtedness; to secure borrowings by mortgaging, pledging or
otherwise subjecting as security the Trust Property; to endorse, guarantee, or
undertake the performance of any obligation or engagement of any other Person
and to lend Trust Property.
(g) To aid by further investment any corporation, company, trust,
association or firm, any obligation of or interest in which is included in the
Trust Property or in the affairs of which the Trustees have any direct or
indirect interest; to do all acts and things designed to protect, preserve,
improve or enhance the value of such obligation or interest; to guarantee or
become surety on any or all of the contracts, stocks, bonds, notes, debentures
and other obligations of any such corporation, company, trust, association or
firm.
(h) In general to carry on any other business in connection with or
incidental to any of the foregoing powers, to do everything necessary, suitable
or proper for the accomplishment of any purpose or the attainment of any object
or the furtherance of any power hereinbefore set forth, either alone or in
association with others, and to do every other act or thing incidental or
appurtenant to or growing out of or connected with the aforesaid business or
purposes, objects or powers.
The foregoing clauses shall be construed both as objects and powers, and
the foregoing enumeration of specific powers shall not be held to limit or
restrict in any manner the general powers of the Trustees.
The Trustees shall not be limited to investing in obligations maturing
before the possible termination of the Trust, nor shall the Trustees be limited
by any law limiting the investments which may be made by fiduciaries.
Section 2.4 Legal Title. Legal title to all the Trust Property, including
the property of any Series of the Trust, shall be vested in the Trustees as
joint tenants except that the Trustees shall have power to cause legal title
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to any Trust Property to be held by or in the name of one or more of the
Trustees, or in the name of the Trust, or in the name of any other Person as
nominee, on such terms as the Trustees may determine, provided that the interest
of the Trust therein is deemed appropriately protected. The right, title and
interest of the Trustees in the Trust Property and the property of each Series
of the Trust shall vest automatically in each Person who may hereafter become a
Trustee. Upon the termination of the term of office, resignation, removal or
death of a Trustee he shall automatically cease to have any right, title or
interest in any of the Trust Property or the property of any Series of the
Trust, and the right, title and interest of such Trustee in all such property
shall vest automatically in the remaining Trustees. Such vesting and cessation
of title shall be effective whether or not conveying documents have been
executed and delivered.
Section 2.5 Issuance and Repurchase of Securities. The Trustees shall have
the power to issue, sell, repurchase, redeem, retire, cancel, acquire, hold,
resell, reissue, dispose of, transfer, and otherwise deal in Shares and, subject
to the provisions set forth in Articles VI and VII and Section 5.11 hereof, to
apply to any such repurchase, redemption, retirement, cancellation or
acquisition of Shares any funds or property of the particular Series of the
Trust with respect to which such Shares are issued, whether capital or surplus
or otherwise, to the full extent now or hereafter permitted by the laws of the
Commonwealth of Massachusetts governing business corporations.
Section 2.6. Delegation; Committees. The Trustees shall have power to
delegate from time to time to such of their number 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
otherwise as the Trustees may deem expedient, to the same extent as such
delegation is permitted by the 1940 Act.
Section 2.7. Collection and Payment. The Trustees shall have power to
collect all property due to the Trust; to pay all claims, including taxes,
against the Trust Property; to prosecute, defend, compromise or abandon any
claims relating to the Trust Property; to foreclose any security interest
securing any obligations, by virtue of which any property interest securing any
obligations, by virtue of which any property is owed to the Trust; and to enter
into releases, agreements and other instruments.
Section 2.8. Expenses. The Trustees shall have the power to incur and pay
any expenses which in the opinion of the Trustees are necessary or incidental to
carry out any of the purposes of this Declaration, and to pay reasonable
compensation from the funds of the Trust to themselves as Trustees. The
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Trustees shall fix the compensation of all officers, employees and Trustees.
Section 2.9. Manner of Acting; By-Laws. Except as otherwise provided herein
or in the By-Laws, any action to be taken by the Trustees may be taken by a
majority of the Trustees present at a meeting of Trustees (a quorum being
present), including any meeting held by means of a conference telephone circuit
or similar communications equipment by means of which all persons participating
in the meeting can hear each other, or by written consents of the entire number
of Trustees then in office. The Trustees may adopt By-laws not inconsistent with
this Declaration to provide for the conduct of the business of the Trust and may
amend or repeal such By-laws to the extent such power is not reserved to the
Shareholders.
Notwithstanding the foregoing provisions of this Section 2.8 and in
addition to such provisions or any other provision of this Declaration or of the
By-laws, the Trustees may by resolution appoint a committee consisting of less
than the whole number of Trustees then in office, which committee may be
empowered to act for and bind the Trustees and the Trust, as if the acts of such
committee were the acts of all the Trustees then in office, with respect to the
institution, prosecution, dismissal, settlement, review or investigation of any
action, suit or proceeding which shall be pending or threatened to be brought
before any court, administrative agency or other adjudicatory body.
Section 2.10 Miscellaneous Powers. The Trustees shall have the power to:
(a) employ or contract with such Persons as the Trustees may deem desirable for
the transaction of the business of the Trust; (b) enter into joint ventures,
partnerships and any other combinations or associations; (c) remove Trustees or
fill vacancies in or add to their number, elect and remove such officers and
appoint and terminate such agents or employees as they consider appropriate, and
appoint from their own number, and terminate, any one or more committees which
may exercise some or all of the power and authority of the Trustees as the
Trustees may determine; (d) purchase, and pay for out of Trust Property,
insurance policies insuring the Shareholders, Trustees, officers, employees,
agents, investment advisers, distributors, selected dealers or independent
contractors of the Trust against all claims arising by reason of holding any
such position or by reason of any action taken or omitted by any such Person in
such capacity, whether or not constituting negligence, or whether or not the
Trust would have the power to indemnify such Person against such liability; (e)
establish pension, profit-sharing, Share purchase, and other retirement,
incentive and benefit plans for any Trustees, officers, employees and agents of
the Trust; (f) to the extent permitted by law, indemnify any person with whom
the Trust has dealings, including the Investment Adviser, Distributor,
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Transfer Agent and selected dealers, to such extent as the Trustees shall
determine; (g) guarantee indebtedness or contractual obligations of others; (h)
determine and change the fiscal year of the Trust and the method by which its
accounts shall be kept; and (i) adopt a seal for the Trust, but the absence of
such seal shall not impair the validity of any instrument executed on behalf of
the Trust.
Section 2.11. Principal Transactions. Except in transactions not permitted
by the 1940 Act or rules and regulations adopted by the Commission, the Trustees
may, on behalf of the Trust, buy any securities from or sell any securities to,
or lend any assets of the Trust to, any Trustee or officer of the Trust or any
firm of which any such Trustee or officer is a member acting as principal, or
have any such dealings with the Investment Adviser, Distributor or Transfer
Agent or with any Interested Person of such Person; and the Trust may employ any
such Person, or firm or company in which such Person is an Interested Person, as
broker, legal counsel, registrar, transfer agent, dividend disbursing agent or
custodian upon customary terms.
Section 2.12. Number of Trustees. The number of Trustees shall initially be
two (2), and thereafter shall be such number as shall be fixed from time to time
by a written instrument signed by a majority of the Trustees, provided, however,
that the number of Trustees shall in no event be less than one (1) nor more than
fifteen (15).
Section 2.13. Election and Term. Except for the Trustees named herein,
designated by such Trustees prior to the issuance of Shares, or appointed to
fill vacancies pursuant to Section 2.15 hereof, the Trustees shall be elected by
the Shareholders owning of record a plurality of the Shares voting at a meeting
of Shareholders called for that purpose. Except in the event of resignation or
removals pursuant to Section 2.14 hereof, each Trustee shall hold office until
the next such meeting of Shareholders and until his successor is duly elected
and qualified.
Section 2.14. Resignation and Removal. Any Trustee may resign his trust
(without need for prior or subsequent accounting) by an instrument in writing
signed by him and delivered to the other Trustees and such resignation shall be
effective upon such delivery, or at a later date according to the terms of the
instrument. Any of the Trustees may be removed (provided the aggregate number of
Trustees after such removal shall not be less than three (3)) with cause, by the
action of two-thirds 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
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Trustees shall require for the purpose of conveying to the Trust or the
remaining Trustees any Trust Property or property of any Series of the Trust
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 Trustee shall require as provided in the
preceding sentence.
Section 2.15. Vacancies. The term of office of a Trustee shall terminate
and a vacancy shall occur in the event of the death, resignation, removal,
bankruptcy, adjudicated incompetence or other incapacity to perform the duties
of the office of a Trustee. No such vacancy shall operate to annul the
Declaration or to revoke any existing vacancy, including a vacancy existing by
reason of an increase in the number of Trustees. Subject to the provisions of
Section 16(a) of the 1940 Act, the remaining Trustees shall fill such vacancy by
the appointment of such other person as they in their discretion shall see fit,
made by a written instrument signed by a majority of the Trustees then in
office. Any such appointment shall not become effective, however, until the
person named in the written instrument of appointment shall have accepted in
writing such appointment and agreed in writing to be bound by the terms of the
Declaration. An appointment of a Trustee may be made in anticipation of a
vacancy to occur at a later date by reason of retirement, resignation or
increase in the number of Trustees, provided that such appointment shall not
become effective prior to such retirement, resignation or increase in the number
of Trustees. Whenever a vacancy in the number of Trustees shall occur, until
such vacancy is filled as provided in this Section 2.15, the Trustees 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 the Declaration.
A written instrument certifying the existence of such vacancy signed by a
majority of the Trustees in office shall be conclusive evidence of the existence
of such vacancy.
Section 2.16. Delegation of Power to Other Trustees. Any Trustee may, by
power of attorney, delegate his power for a period not exceeding six (6) months
at any one time to any other Trustee or Trustees; provided that in no case shall
less than two (2) Trustees personally exercise the powers granted to the
Trustees under this Declaration, except as herein otherwise expressly provided.
ARTICLE III
CONTRACTS
Section 3.1. Underwriting Contract. The Trustees may in their discretion
from time to time enter into an exclusive or non-exclusive underwriting contract
or contracts providing for the sale of the Shares to net the Trust not less than
the amount provided for in Section 7.1 of Article VII hereof, whereby the
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Trustees may either agree to sell the Shares to the other party to the
contract or appoint such other party their sales agent for the Shares, and in
either case on such terms and conditions as may be prescribed in the By-laws, if
any, and such further terms and conditions as the Trustees may in their
discretion determine not inconsistent with the provisions of this Article III or
of the By-laws; and such contract may also provide for the repurchase of the
Shares by such other party as agent of the Trustees.
Section 3.2. Advisory or Management Contract. The Trustees may in their
discretion from time to time enter into an investment advisory or management
contract whereby the other party to such contract shall undertake to furnish to
the Trust such management, investment advisory, statistical and research
facilities and services and such other facilities and services, if any, and all
upon such terms and conditions as the Trustees may in their discretion
determine, including the grant of authority to such other party to determine
what securities shall be purchased or sold by the Trust and what portion of its
assets shall be uninvested, which authority shall include the power to make
changes in the Trust's investments.
Section 3.3. Affiliations of Trustees or Officers, Etc. The fact that:
(i) any of the Shareholders, Trustees or officers
of the Trust is a shareholder, director, officer,
partner, trustee, employee, manager, adviser or
distributor of or for any partnership, corporation,
trust, association or other organization or of or for
any parent or affiliate of any organization, with which
a contract of the character described in Sections 3.1
or 3.2 above or for services as Custodian, Transfer
Agent or disbursing agent or for related services may
have been or may hereafter be made, or that any such
organization, or any parent or affiliate thereof, is a
Shareholder of or has an interest in the Trust, or that
(ii) any partnership, corporation, trust,
association or other organization with which a contract
or the character described in Sections 3.1 or 3.2 above
or for services as Custodian, Transfer Agent or
disbursing agent or for related services may have been
or may hereafter be made also has any one or more of
such contracts with one or more other partnerships,
corporations, trusts, associations or other
organizations, or has other business or interests,
shall not affect the validity of any such contract or disqualify any
Shareholder, Trustee or officer of the Trust from voting upon or executing the
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same or create any liability or accountability to this Trust or its
Shareholders.
Section 3.4. Compliance with 1940 Act. Any contract entered into pursuant
to Sections 3.1 or 3.2 shall be consistent with and subject to the requirements
of Section 15 of the Investment Company Act of 1940 (including any amendment
thereof or other applicable Act of Congress hereafter enacted) with respect to
its continuance in effect, its termination and the method of authorization and
approval of such contract or renewal thereof.
ARTICLE IV
LIMITATIONS OF LIABILITY OF
SHAREHOLDERS, TRUSTEES AND OTHERS
Section 4.1. No Personal Liability of Shareholders, Trustees, Etc. No
Shareholder shall be subject to any personal liability whatsoever to any Person
in connection with Trust Property or the acts, obligations or affairs of the
Trust. No Trustee, officer, employee or agent of the Trust shall be subject to
any personal liability whatsoever to any Person, other than to the Trust or its
Shareholders, in connection with Trust Property or the affairs of the Trust,
save only that arising from bad faith, willful misfeasance, gross negligence or
reckless disregard of his duties with respect to such Person; and all such
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 proceeding to enforce any such liability of the Trust, he
shall not, on account thereof, be held to any personal liability. The Trust
shall indemnify and hold each Shareholder harmless from and against all claims
and liabilities, 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, provided that any such expenses shall be paid solely out of
the funds and property of the Series of the Trust with respect to which such
Shareholder's Shares are issued. The rights accruing to a Shareholder under this
Section 4.1 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.
Section 4.2. Non-Liability of Trustees, Etc. No Trustee, officer, employee
or agent of the Trust shall be liable to the Trust, its Shareholders, or to any
Shareholder, Trustee, officer, employee, agent or service provider thereof for
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any action or failure to act by him (her) or any other such Trustee,
officer, employee, agent or service provider (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 of the duties involved in the conduct of his office. The term
"service provider" as used in this Section 4.2 shall include any investment
adviser, principal underwriter or other person with whom the Trust has an
agreement for provision of services.
Section 4.3. Indemnification.
(a) Trustees, Officers, etc. The Trust shall indemnify each of its
Trustees and officers (including persons who serve at the Trust's request
as directors, officers or trustees of another organization in which the Trust
has any interest as a shareholder, creditor or otherwise) (hereinafter referred
to as a "Covered Person") against all liabilities and expenses, including but
not limited to amounts paid in satisfaction of judgments, in compromise or as
fines and penalties, and counsel fees reasonably incurred by any Covered Person
in connection with the defense or disposition of any action, suit or other
proceeding, whether civil or criminal, before any court or administrative or
legislative body, in which such Covered Person may be or may have been involved
as a party or otherwise or with which such Covered Person may be or may have
been threatened, while in office or thereafter, by reason of being or having
been such a Covered Person except with respect to any matter as to which such
Covered Person shall have been finally adjudicated in any such action, suit or
other proceeding (a) not to have acted in good faith in the reasonable belief
that such Covered Person's action was in or not opposed to the best interest of
the Trust or (b) to be liable to the Trust or its Shareholders by reason of
willful misfeasance, bad faith, gross negligence or reckless disregard of the
duties involved in the conduct of such Covered Person's office. Expenses,
including counsel fees incurred by any such Covered Person (but excluding
amounts paid in satisfaction of judgments, in compromise or as fines or
penalties), shall be paid from time to time by the Trust in advance of the final
disposition of any such action, suit or proceeding upon receipt of any
undertaking by or on behalf of such Covered Person to repay amounts so paid to
the Trust if it is ultimately determined that indemnification of such expenses
is not authorized under this Article, provided, however, that either (a) such
Covered person shall have provided appropriate security for such undertaking,
(b) the Trust shall be insured against losses arising from any such advance
payments or (c) either a majority of the disinterested Trustees acting on the
matter (provided that a majority of the disinterested Trustees then in office
act on the matter), or independent legal counsel in a written opinion, shall
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have determined, based upon a review of readily available facts (as opposed
to a full trial type inquiry) that there is reason to believe that such covered
Person will be found entitled to indemnification under this Article.
(b) Compromise Payment. As to any matter disposed of (whether
by a compromise payment, pursuant to a consent decree or otherwise) without
an adjudication by a court, or by any other body before which the proceeding was
brought, that such Covered Person (a) did not act in good faith in the
reasonable belief that his or her action was in or not opposed to the best
interest of the Trust or (b) is liable to the Trust or its Shareholders by
reason of willful misfeasance, bad faith, gross negligence or reckless disregard
of the duties involved in the conduct of his or her office, indemnification
shall be provided if (a) approved as in or not opposed to the best interests of
the Trust by at least a majority of the disinterested Trustees acting on the
matter (provided that a majority of the disinterested Trustees then in office
act on the matter) upon a determination, based upon a review of readily
available facts (as opposed to a full trial type inquiry) that such Covered
Person acted in good faith in the reasonable belief that his or her action was
in or not opposed to the best interests of the Trust and is not liable to the
Trust or its Shareholders by reason of willful misfeasance, bad faith, gross
negligence or reckless disregard of the duties involved in the conduct of his or
her office, or (b) there has been obtained an opinion in writing of independent
legal counsel, based upon a review of readily available facts (as opposed to a
full trial type inquiry) to the effect that such Covered Person appears to have
acted in good faith in the reasonable belief that his or her action was in the
best interests of the Trust and that such indemnification would not protect such
Covered Person against any liability to the Trust to which he or she 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 or
her office. Any approval pursuant to this Section shall not prevent the recovery
from any Covered Person of any amount paid to such Covered Person in accordance
with this Section as indemnification if such Covered Person is subsequently
adjudicated by a court of competent jurisdiction not to have acted in good faith
in the reasonable belief that such Covered Person's action was in the best
interests of the Trust or to have been liable to the Trust or its Shareholders
by reason of willful misfeasance, bad faith, gross negligence or reckless
disregard of the duties involved in the conduct of such Covered Person's office.
(c) Indemnification Not Exclusive. The right of indemnification
hereby provided shall not be exclusive of or affect any other rights to
which such Covered Person may be entitled. As used in this Article IV, the term
"Covered Person" shall include such person's heirs, executors and
administrators, and a "disinterested Trustee" is a Trustee who is not an
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"interested person" of the Trust as defined in Section 2(a)(19) of the 1940
Act (or who has been exempted from being an "interested person" by any rule or
regulation or order of the Commission) and against whom none of such actions,
suits or other proceedings or another action, suit or other proceeding on the
same or similar grounds is then or has been pending. Nothing contained in this
Article shall affect any rights to indemnification to which personnel of the
Trust, other than Trustees or officers, and other persons may be entitled by
contract or otherwise under law, nor the power of the Trust to purchase and
maintain liability insurance on behalf of any such person; provided, however,
that the Trust shall not purchase or maintain any such liability insurance in
contravention of applicable law, including without limitation the 1940 Act.
(d) Shareholders. In case any Shareholder or former Shareholder
shall be held to be personally liable solely by reason of his or her being
or having been a Shareholder or former Shareholder (or his or her heirs,
executors, administrators or other legal representative or, in the case of a
corporation or other entity, its corporate or other general successor) shall be
entitled to be held harmless from and indemnified against all loss and expense
arising from such liability, but only out of the assets of the particular Series
of Shares of which he or she is or was a Shareholder.
Section 4.4. No Bond Required of Trustees. No Trustee shall be obligated to
give any bond or other security for the performance of any of his duties
hereunder.
Section 4.5. No Duty of Investigation; Notice in Trust Instruments, Etc. 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 said officer, employee or agent or be liable for the application of money
or property paid, loaned, or delivered to or on the order of the Trustees or of
said officer, employee or agent. Every obligation, contract, instrument,
certificate, Share, other security of the Trust or undertaking, and every other
act or thing whatsoever executed in connection with the Trust shall be
conclusively presumed to have been executed or done by the executors thereof
only in their capacity as Trustees under this Declaration or in their capacity
as officers, employees or agents of the Trust. Every written obligation,
contract, instrument, certificate, Share, other security of the Trust or
undertaking made or issued by the Trustees may recite that the same is executed
or made by them not individually, but as Trustees under the Declaration, and
that the obligations of the Trust under any such instrument are not binding upon
any of the Trustees or Shareholders individually, but bind only the estate of
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the Trust or Series, as applicable, and may contain any former recital
which they or he may deem appropriate, but the omission of such recital shall
not operate to bind the Trustees individually. 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 possible tort liability, and such other insurance as the
Trustees in their sole judgement shall deem advisable.
ARTICLE V
SHARES OF BENEFICIAL INTEREST
Section 5.1. Beneficial Interest. The interest of the beneficiaries
hereunder shall be divided into transferable Shares of beneficial interest with
no par value per Share. The number of Shares of beneficial interest authorized
hereunder is unlimited. All Shares issued hereunder including, without
limitation, Shares issued in connection with a dividend in Shares or a split of
Shares, shall be fully paid and non-assessable by the Trust.
Section 5.2. Rights of Shareholders. The ownership of the Trust Property
and the property of each Series of the Trust 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. The Shares shall be personal property giving only the rights in this
Declaration specifically set forth. The Shares shall not entitle the holder of
preference, preemptive, appraisal, conversion or exchange rights, except as the
Trustees may determine with respect to any Series of Shares.
Section 5.3. Trust Only. It is the intention of the Trustees to create only
the relationship of Trustee and beneficiary between the Trustees and each
Shareholder from time to time. It is not the intention of the Trustees to create
a general partnership, limited partnership, joint stock association,
corporation, bailment or any form of legal relationship other than a trust.
Nothing in this Declaration of Trust shall be construed to make the
Shareholders, either by themselves or with the Trustees, partners or members of
a joint stock association.
Section 5.4. Issuance of Shares. The Trustees in their discretion may, from
time to time without vote of the Shareholders, issue Shares, in addition to
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the then issued and outstanding Shares and Shares held in the treasury, to
such party or parties and for such amount and type of consideration, including
cash or property, at such time or times and on such terms as the Trustees may
deem best, and may in such manner acquire other assets (including the
acquisition of assets subject to, and in connection with the assumption of
liabilities) and businesses. In connection with any issuance of Shares, the
Trustees may issue fractional Shares and Shares held in the treasury, and Shares
may be issued in separate Series as provided in Section 5.11 hereof or in
separate Classes as provided in Section 5.12 hereof. The Trustee may from time
to time divide or combine the Shares into a greater or lesser number without
thereby changing the proportionate beneficial interests in the Trust or any
Series. Contributions to the Trust may be accepted for, and Shares shall be
redeemed as, whole Shares and/or 1/1,000ths of a Share or integral multiple
thereof.
Section 5.5. Register of Shares. A register shall be kept at the principal
office of the Trust, or an office of the Transfer Agent or other designee of the
Trust which shall contain the names and addresses of the Shareholders and the
number 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 and who shall be entitled to receive dividends or distributions or
otherwise to exercise or enjoy the rights of Shareholders. No Shareholder shall
be entitled to receive payment of any dividend or distribution, nor to have
notice given to him as herein or in the By-laws provided, until he has given his
address to the Transfer Agent or such other officer or agent of the Trustees as
shall keep the said register for entry thereon. It is not contemplated that
certificates will be issued for the Shares; however, the Trustees, in their
discretion, may authorize the issuance of share certificates and promulgate
appropriate rules and regulations as to their use.
Section 5.6. Transfer of Shares. Shares shall be transferable on the
records of the Trust only by the record holder thereof or by his agent thereunto
duly authorized in writing, upon delivery to the Trustees or the Transfer Agent
of a duly executed instrument of transfer, together with such evidence of the
genuineness of each such execution and authorization and of other matters as may
reasonably be required. Upon such delivery the transfer shall be recorded on the
register of the Trust. Until such record is made, the Shareholder of record
shall be deemed to be the holder of such Shares for all purposes hereunder and
neither the Trustees nor any Transfer Agent or registrar nor any officer,
employee or agent of the Trust shall be affected by any notice of the proposed
transfer.
Any Person becoming entitled to any Shares in consequence of the death,
bankruptcy, or incompetence of any Shareholder, or otherwise by operation
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of law, shall be recorded on the register of Shares as the holder of such
Shares upon production of the proper evidence thereof to the Trustees or the
Transfer Agent, but until such record is made, the Shareholder of record shall
be deemed to be the holder of such Shares for all purposes hereunder 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 or incompetence,
or other operation of law.
Section 5.7. Notices. Any and all notices to which any Shareholder may be
entitled and any and all communications shall be deemed duly served or given if
mailed, postage pre-paid, addressed to any Shareholder of record at his last
known address as recorded on the register of the Trust.
Section 5.8. Treasury Shares. Shares held in the treasury shall, until
reissued pursuant to Section 5.4, not confer any voting rights on the Trustees,
nor shall such Shares be entitled to any dividends or other distributions
declared with respect to the Shares.
Section 5.9. Voting Powers. The Shareholders shall have power to vote only
(i) for the election of Trustees as provided in Section 2.12; (ii) with respect
to any investment advisory or management contract entered into pursuant to
Section 3.2; (iii) with respect to termination of the Trust as provided in
Section 8.2; (iv) with respect to any amendment of this Declaration to the
extent and as provided in Section 8.3; (v) with respect to any merger,
consolidation or sale of assets as provided in Section 8.4; (vi) with respect to
incorporation of the Trust to the extent and as provided in Section 8.5; (vii)
to the same extent as the stockholders of a Massachusetts business corporation
as to whether or not a court action, proceeding or claim should or should not be
brought or maintained derivatively or as a class action on behalf of the Trust
or the Shareholders; and (viii) with respect to such additional matters relating
to the Trust as may be required by this Declaration, the By-laws or any
registration of the Trust as an investment company under the 1940 Act with the
Commission (or any successor agency) or as the Trustees may consider necessary
or desirable. Each whole Share shall be entitled to one vote for each dollar
value invested as to any matter on which it is entitled to vote and each
fractional Share shall be entitled to a proportionate fractional vote, except
that the Trustees may, in conjunction with the establishment of any series of
Shares, establish conditions under which the several Series shall have separate
voting rights or no voting rights. There shall be no cumulative voting in the
election of Trustees. Until Shares are issued, the Trustees may exercise all
rights of Shareholders and may take any action required by law, this Declaration
or the By-laws to be taken by Shareholders. The By-laws may include further
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provisions for Shareholders' votes and meetings and related matters.
Section 5.10. Meetings of Shareholders. A meeting of the Shareholders shall
be held at such times, on such day and at such hour as the Trustees may from
time to time determine, or at the written request of the holder or holders of
ten percent (10%) or more of the total number of Shares then issued and
outstanding of the Trust entitled to vote as such meeting. Any such request
shall state the purpose of the proposed meeting. The meeting shall be held
either at the principal office of the Trust, or at such other place as may be
designated by the Trustees, for the purposes specified in Section 2.13 and for
such other purposes as may be specified by the Trustees.
Section 5.11. Series Designation. The Trustees, in their discretion, may
authorize one division of Shares into two or more Series, and the different
Series shall be established and designated and the variations in the relative
rights and preferences as between the different Series shall be fixed and
determined, by the Trustees; provided, that all Shares shall be identical except
that there may be variations so fixed and determined between different Series as
to investment objective, purchase price, right of redemption, special and
relative rights as to dividends and on liquidation, conversion and exchange
rights, and conditions under which the several Series shall have separate voting
rights. All references to Shares in this Declaration shall be deemed to be
Shares of any or all Series as the context may require.
If the Trustees shall divide the Shares of the Trust into two or more
Series, the following provisions shall be applicable:
(a) All provisions herein relating to the Trust shall apply equally to
each Series of the Trust except as the context requires otherwise.
(b) The number of authorized Shares and the number of Shares of each
Series that may be issued shall be unlimited. The Trustees may classify or
reclassify any unissued Shares or any Shares previously issued and reacquired of
any Series into one or more Series that may be established and designated from
time to time. The Trustees may hold as treasury shares (of the same or some
other Series), reissue for such consideration and on such terms as they may
determine, or cancel any Shares of any Series acquired by the Trust at their
discretion from time to time.
(c) All consideration received by the Trust for the issue or sale of
Shares of a particular Series, together with all assets in which such
consideration is invested or reinvested, all income, earnings, profits, and
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proceeds thereof, including any proceeds derived from the sale, exchange or
liquidation of such assets, and any funds or payments derived from any
reinvestment of such proceeds in whatever form the same may be, shall
irrevocably belong to that Series for all purposes, subject only to the rights
of creditors of such Series and except as may otherwise be required by
applicable tax laws, and shall be so recorded upon the books of account of the
Trust. In the event that there are any assets, income, earnings, profits, and
proceeds thereof, funds, or payments which are not readily identifiable as
belonging to any particular Series, the Trustees shall allocate them among any
one or more of the Series established and designated from time to time in such
manner and on such basis as they, in their sole discretion, deem fair and
equitable. Each such allocation by the Trustees shall be conclusive and binding
upon all persons for all purposes. No holder of Shares of any Series shall have
any claim on or right to any assets allocated or belonging to any other Series.
(d) The assets belonging to each particular Series shall be charged
with the liabilities of the Trust in respect of that Series and all
expenses, costs, charges and reserves attributable to that Series, and any
general liabilities, expenses, costs, charges or reserves of the Trust which are
not readily identifiable as belonging to any particular Series shall be
allocated and charged by the Trustees to and among any one or more of the Series
established and designated from time to time in such manner and on such basis as
the Trustees in their sole discretion deem fair and equitable and no Series
shall be liable to any person except for its allocated share. Each allocation of
liabilities, expenses, costs, charges and reserves by the Trustees shall be
conclusive and binding upon all persons for all purposes. The Trustees shall
have full discretion, to the extent not inconsistent with the 1940 Act, to
determine which items are capital; and each such determination and allocation
shall be conclusive and binding upon all persons. The assets of a particular
Series of the Trust shall, under no circumstances, be charged with liabilities
attributable to any other Series of the Trust. All persons extending credit to,
or contracting with or having any claim against a particular Series of the Trust
shall look only to the assets of that particular Series for payment of such
credit, contract or claim.
(e) The power of the Trustees to pay dividends and make distributions
shall be governed by Section 7.2 of this Declaration with respect to any
one or more Series or classes which represents the interests in the assets of
the Trust immediately prior to the establishment of two or more Series or
classes. With respect to any other Series or class, dividends and distributions
on Shares of a particular Series or class may be paid with such frequency as the
Trustees may determine, which may be daily or otherwise, pursuant to a standing
resolution or
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resolutions adopted only once or with such frequency as the Trustees may
determine, to the holders of Shares of the Series or class, from such of the
income and capital gains, accrued or realized, from the assets belonging to that
Series or class, as the Trustees may determine, after providing for actual and
accrued liabilities belonging to that Series or class. All dividends and
distributions on Shares of a particular Series or class shall be distributed pro
rata to the Shareholders of that Series or class in proportion to the number of
Shares of that Series or class held by such Shareholders at the time of record
established for the payment of such dividends or distribution.
(f) Each Share of a Series of the Trust shall represent a
beneficial interest in the net assets of such Series. Each holder of Shares
of a Series shall be entitled to receive his pro rata share of distributions of
income and capital gains made with respect to such Series. Upon redemption of
his Shares or indemnification for liabilities incurred by reason of his being or
having been a Shareholder of a Series, such Shareholder shall be paid solely out
of the funds and property of such Series of the Trust. Upon liquidation or
termination of a Series of the Trust, Shareholders of such Series shall be
entitled to receive a pro rata share of the net assets of such Series. A
Shareholder of a particular Series of the Trust shall not be entitled to
participate in a derivative or class action on behalf of any other Series or the
Shareholders of any other Series of the Trust.
(g) Notwithstanding any other provision hereof, on any matter
submitted to a vote of Shareholders of the Trust, all Shares then entitled
to vote shall be voted by individual Series, except that (i) when required by
the 1940 Act, Shares shall be voted in the aggregate and not by individual
Series, and (ii) when the Trustees have determined that the matter affects only
the interests of Shareholders of a limited number of Series, then only the
Shareholders of such Series shall be entitled to vote thereon.
The establishment and designation of any Series of Shares shall be
effective upon the execution by a majority of the then Trustees of an instrument
setting forth such establishment and designation and the relative rights and
preferences of such Series, or as otherwise provided in such instrument. At any
time that there are no Shares outstanding of any particular Series previously
established and designated, the Trustees may by an instrument executed by a
majority of their number abolish that Series and the establishment and
designation thereof. Each instrument referred to in this paragraph shall have
the status of an amendment to this Declaration.
Section 5.12. Class Designation. The Trustees, in their discretion, may
authorize the division of the Shares of the Trust, or, if any Series be
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established, the Shares of any Series, into two or more Classes, and the
different Classes shall be established and designated, and the variations in the
relative rights and preferences as between the different Classes shall be fixed
and determined, by the Trustees; provided, that all Shares of the Trust or of
any Series shall be identical to all other Shares of the Trust or the same
Series, as the case may be, except that there may be variations between
different Classes as to allocation of expenses, right of redemption, special and
relative rights as to dividends and on liquidation, conversion rights and
conditions under which the several Classes shall have separate voting rights.
All references to Shares in this Declaration shall be deemed to be Shares of any
or all Classes as the context may require.
If the Trustees shall divide the Shares of the Trust or any Series into two
or more Classes, the following provisions shall be applicable:
(a) All provisions herein relating to the Trust, or any Series
of the Trust, shall apply equally to each Class of Shares of the Trust or of any
Series of the Trust, except as the context requires otherwise.
(b) The number of shares of each Class that may be issued shall be
unlimited. The Trustees may classify or reclassify any unissued Shares of the
Trust or any Series or any Shares previously issued and reacquired of any
Class of the Trust or any Series into one or more Classes that may be
established and designated from time to time. The Trustees may hold as treasury
Shares (of the same or some other Class), reissue for such consideration and on
such terms as they may determine, or cancel any Shares of any Class reacquired
by the Trust at their discretion from time to time.
(c) Liabilities, expenses, costs, charges and reserves related
to the distribution of, and other identified expenses that should properly
be allocated to, the Shares of a particular Class may be charged to and borne
solely by such Class and the bearing of expenses solely by a Class of Shares may
be appropriately reflected (in a manner determined by the Trustees) and cause
differences in the net asset value attributable to, and the dividend, redemption
and liquidation rights of, the Shares of different Classes. Each allocation of
liabilities, expenses, costs, charges and reserves by the Trustees shall be
conclusive and binding upon the Shareholders of all Classes for all purposes.
(d) The establishment and designation of any Class of Shares shall be
effective upon the execution of a majority of the then Trustees of an instrument
setting forth such establishment and designation and the relative rights and
preferences of such Class, or as otherwise provided in such instrument. The
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Trustees, may, by an instrument executed by a majority of their number,
abolish any Class and the establishment and designation thereof. Each instrument
referred to in this paragraph shall have the status of an amendment to this
Declaration.
ARTICLE VI
REDEMPTION AND REPURCHASE OF SHARES
Section 6.1. Redemption of Shares. All Shares of the Trust shall be
redeemable, at the redemption price determined in the manner set out in this
Declaration. Redeemed or repurchased Shares may be resold by the Trust.
The Trust shall redeem the Shares at the price determined as hereinafter
set forth, upon the appropriately verified written application of the record
holder thereof (or upon such other form of request as the Trustees may
determine) at such office or agency as may be designated from time to time for
that purpose by the Trustees. The Trustees may from time to time specify
additional conditions, not inconsistent with the 1940 Act, regarding the
redemption of Shares in the Trust's then effective registration statement or
prospectus under the Securities Act of 1933.
Section 6.2. Price. Shares will be redeemed at their net asset value
determined as set forth in Section 7.1 hereof as of such time as the Trustees
shall have theretofore prescribed by resolution. In the absence of such
resolution, the redemption price of Shares deposited shall be the net asset
value of such Shares next determined as set forth in Section 7.1 hereof after
receipt of such application.
Section 6.3. Payment. Payment for such Shares shall be made in cash or in
property out of the assets of the relevant Series of the Trust to the
Shareholder of record at such time and in the manner, not inconsistent with the
1940 Act or other applicable laws, as may be specified from time to time in the
Trust's then effective registration statement or prospectus under the Securities
Act of 1933, subject to the provisions of Section 6.4 hereof.
Section 6.4. Effect of Suspension of Determination of Net Asset Value. If,
pursuant to Section 6.9 hereof, the Trustees shall declare a suspension of the
determination of net asset value, the rights of Shareholders (including those
who shall have applied for redemption pursuant to Section 6.1 hereof but who
shall not yet have received payment) to have Shares redeemed and paid for by the
Trust shall be suspended until the termination of such suspension is declared.
Any record holder who shall have his redemption right so suspended may, during
the
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period of such suspension, by appropriate written notice of revocation at
the office or agency where application was made, revoke any application for
redemption not honored and withdraw any certificates on deposit. The redemption
price of Shares for which redemption applications have not been revoked shall be
the net asset value of such Shares next determined as set forth in Section 7.1
after the termination of such suspension, and payment shall be made within seven
(7) days after the date upon which the application was made plus the period
after such application during which the determination of net asset value was
suspended.
Section 6.5. Repurchase by Agreement. The Trust may repurchase Shares
directly, or through the Distributor or another agent designated for the
purpose, by agreement with the owner thereof at a price not exceeding the net
asset value per Share determined as of the time when the purchase or contract of
purchase is made or the net asset value as of any time which may be later
determined pursuant to Section 7.1 hereof, provided payment is not made for the
Shares prior to the time as of which such net asset value is determined.
Section 6.6. Redemption of Shareholder's Interest. The Trust shall have the
right at any time without prior notice to the Shareholder to redeem Shares of
any Shareholder for their then current net asset value per Share if at such time
the Shareholder owns Shares having an aggregate net asset value of less than
$500 subject to such terms and conditions as the Trustees may approve, and
subject to the Trust's giving general notice to all Shareholders of its
intention to avail itself of such right, either by publication in the Trust's
prospectus, if any, or by such other means as the Trustees may determine.
Section 6.7. Redemption of Shares in Order to Qualify as Regulated
Investment Company; Disclosure of Holding. 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 or any Series of 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 by any such Person a number, or principal amount, of Shares or
other securities of the Trust or any Series of the Trust sufficient to maintain
or bring the direct or indirect ownership of Shares or other securities of the
Trust or any Series 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 or any Series of the Trust to any Person whose acquisition of the
Shares or other securities of the Trust or any Series of the Trust in question
would result from such disqualification. The redemption shall be effected at the
redemption price and in the manner provided in Section 6.1.
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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
deem necessary to comply with the provisions of the Internal Revenue Code, or to
comply with the requirements of any other taxing authority.
Section 6.8. Reductions in Number of Outstanding Shares Pursuant to Net
Asset Value Formula. The Trust may also reduce the number of outstanding Shares
pursuant to the provisions of Section 7.3.
Section 6.9. Suspension of Right of Redemption. The Trust may declare a
suspension of the right of redemption or postpone the date of payment or
redemption 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 fairly to determine the value of its net assets, or
(iv)during any other period when the Commission 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 or redemption; provided that
applicable rules and regulations of the Commission shall govern as to whether
the conditions prescribed in (ii), (iii), or (iv) exist. Such suspension shall
take effect at such time as the Trust 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 on redemption
until the Trust 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) or (iii) shall have
expired (as to which, in the absence of an official ruling by the Commission,
the determination of the Trust 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
DETERMINATION OF NET ASSET VALUE,
NET INCOME AND DISTRIBUTIONS
Section 7.1. Net Asset Value. The value of the assets of any Series of the
Trust shall be determined by appraisal of the securities allocated to such
Series, such appraisal to be on the basis of the amortized cost of such
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securities or market value in the case of equity securities, or, consistent
with the rules and regulations of the Commission, by such other method as shall
be deemed to reflect the fair value thereof, determined in good faith by or
under the direction of the Trustees. From the total value of said assets, there
shall be deducted all indebtedness, interest, taxes, payable or accrued,
including estimated taxes on unrealized book profits, expenses and management
charges accrued to the appraisal date, net income determined and declared as a
distribution and all other items in the nature of liabilities attributable to
such Series which shall be deemed appropriate. The resulting amount which shall
represent the total net assets of the Series shall be divided by the number of
Shares of such Series outstanding at the time and the quotient so obtained shall
be deemed to be the net asset value of the Shares of such Series. The net asset
value of the Shares shall be determined at least once on each business day, as
of the close of trading on the New York Stock Exchange or as of such other time
or times as the Trustees shall determine. The power and duty to make the daily
calculations may be delegated by the Trustees to the Investment Adviser, the
Custodian, the Transfer Agent 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.
Section 7.2. Distributions to Shareholders. The Trustees shall from time to
time distribute ratably among the Shareholders of a Series such proportion of
the net profits, surplus (including paid-in surplus), capital, or assets of such
Series held by the Trustees as they may deem proper. Such distributions may be
made in cash or property (including without limitation any type of obligations
of such Series or any assets thereof), and the Trustees may distribute ratably
among the Shareholders additional Shares of such Series issuable hereunder in
such manner, at such times, and on such terms as the Trustees may deem proper.
Such distributions may be among the Shareholders of record at the time of
declaring a distribution or among the Shareholders of record at such other date
or time or dates or times as the Trustees shall determine. The Trustees may in
their discretion determine that, solely for the purposes of such distributions,
Outstanding Shares shall exclude Shares for which orders have been placed
subsequent to a specified time on the date the distribution is declared or on
the next preceding day if the distribution is declared as of a day on which
Boston banks are not open for business, all as described in the then effective
registration statement or prospectus under the Securities Act of 1933. The
Trustees may always retain from the net profits such amount as they may deem
necessary to pay the debts or expenses of the Series or to meet obligations of
the Series, or as they may deem desirable to use in the conduct of its affairs
or to retain for future requirements or extensions of
24
<PAGE>
the business. The Trustees may adopt and offer to Shareholders such
dividend reinvestment plans, cash dividend payout plans or related plans as the
Trustees shall deem appropriate.
Inasmuch as the computation of net income and gains for Federal income tax
purposes may vary from the computation thereof on the books, the above
provisions shall be interpreted to give the Trustees the power in their
discretion to distribute for any fiscal year as ordinary dividends and as
capital gains distributions, respectively, additional amounts sufficient to
enable the Trust or the Series to avoid or reduce liability for taxes.
Section 7.3. Daily Dividends; Determination of Net Income; Constant Net
Asset Value; Reduction of Outstanding Shares. The net income of any Series may
consist of (i) all interest income accrued on portfolio assets of the Series,
less (ii) all actual and accrued liabilities determined in accordance with
generally accepted accounting principles and plus or minus (iii) net realized or
net unrealized gains and losses on the assets of the Series. Interest income may
include discount earned (including both original issue and market discount) on
discount paper accrued ratably to the date of maturity or determined in such
other manner as the Trustees may determine. Expenses of the Series, including
the advisory or management fee, shall be accrued each day. Such net income may
be determined by or under the direction of the Trustees as of the close of
trading on the New York Stock Exchange on each day on which such market is open
or as of such other time or times as the Trustees shall determine, and, except
as provided herein, all the net income of the Series, so determined, may be
declared as a dividend on the Outstanding Shares of such Series. If, for any
reason, the net income of the Series determined at any time is a negative
amount, the Trustees shall have the power (i) to offset each Shareholder's pro
rata share of such negative amount from the accrued dividend account of such
Shareholder, or (ii) to reduce the number of Outstanding Shares of the Series by
reducing the number of Shares in the account of such Shareholder by that number
of full and factional Shares which represents the amount of such excess negative
net income, or (iii) to cause to be recorded on the books of the Series an asset
account in the amount of such negative income, which account may be reduced by
the amount, provided that the same shall thereupon become the property of the
Series and shall not be paid to any Shareholder, of dividends declared
thereafter upon the Outstanding Shares on the day such negative net income is
experienced, until such asset account is reduced to zero; or (iv) to combine the
methods described in clauses (i), (ii) and (iii) of this sentence, in order to
cause the net asset value per Share of the Series to remain at a constant amount
per Outstanding Share immediately after each such determination and declaration.
The Trustees shall also have the power to fail to declare a dividend out of
25
<PAGE>
net income for the purpose of causing the net asset value per Share of the
Series to be increased to a constant amount. The Trustees shall not be required
to adopt, but may at any time adopt, discontinue or amend the practice of
maintaining the net asset value per Share of a Series at a constant amount.
Section 7.4. Allocation Between Principal and Income. The Trustees shall
have full discretion to determine whether any cash or property received shall be
treated as income or as principal and whether any item of expense shall be
charged to the income or the principal account, and their determination made in
good faith shall be conclusive upon the Shareholders. In the case of stock
dividends received, the Trustees shall have full discretion to determine, in the
light of the particular circumstances, how much if any of the value thereof
shall be treated as income, the balance, if any, to be treated as principal.
Section 7.5. Power to Modify Foregoing Procedures. Notwithstanding any of
the foregoing provisions of this Article VII, the Trustees may prescribe, in
their absolute discretion, such other bases and times for determining the per
Share net asset value of the Series' Shares or net income, or the declaration
and payment of dividends and distributions as they may deem necessary or
desirable. Without limiting the generality of the foregoing, the Trustees may
establish several Series of Shares in accordance with Section 5.11, and declare
dividends thereon in such manner as they shall determine.
ARTICLE VIII
DURATION; TERMINATION OF TRUST;
AMENDMENT; MERGERS, ETC.
Section 8.1. Duration. The Trust or the Series (or Classes thereof) of the
Trust shall continue without limitation of time but subject to the provisions of
this Article VIII.
Section 8.2. Termination of Trust or Series of the Trust. (a) The Trust or
any Series (or Class thereof) of the Trust may be terminated by the affirmative
vote of the holders of not less than a majority of the Shares outstanding and
entitled to vote, at any meeting of the Shareholders or by an instrument in
writing, without a meeting, signed by a majority of the Trustees, or by such
other vote as may be established by the Trustees with respect to any Series or
Class of Shares. Upon the termination of the Trust or any Series (or Class
thereof) of the Trust,
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(i) The Trust or the Series (or Class thereof) of
the Trust shall carry on no business except for the
purpose of winding up its affairs.
(ii) The Trustees shall proceed to wind up the
affairs of the Trust or the Series (or Class thereof)
of the Trust and all of the powers of the Trustees
under this Declaration shall continue until the affairs
of the Trust or the Series (or Class thereof) of the
Trust shall have been wound up, including the power to
fulfill or discharge the contracts of the Trust or the
Series (or Class thereof) of the Trust, collect its
assets, sell, convey, assign, exchange, transfer or
otherwise dispose of all or any part of the remaining
Trust Property or property of the Series (or Class
thereof) of the Trust 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 the Trust Property or property of the
Series (or Class thereof) of the Trust shall require
Shareholder approval in accordance with Section 8.4
hereof.
(iii) 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 or property
of the Series (or Class thereof) of the Trust, in cash
or in kind or partly each, among the Shareholders
according to their respective rights.
(b) After termination of the Trust or any Series (or Class thereof) 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
or the Series (or Class thereof) 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 rights and
interests of all Shareholders shall thereupon cease.
Section 8.3. Amendment Procedure. (a) This Declaration may be amended by a
vote of the holders of a majority of the Shares outstanding and entitled to vote
or by any instrument in writing, without a meeting, signed by a majority of the
Trustees and consented to by the holders of a majority of the Shares outstanding
and entitled to vote. Amendments shall be effective upon the taking of action
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<PAGE>
as provided in this section or at such later time as shall be specified in
the applicable vote or instrument. The Trustees may also amend this Declaration
without the vote or consent of Shareholders to change the name of the Trust, to
supply any omission, to cure, correct or supplement any ambiguous, defective or
inconsistent provision hereof, if they deem it necessary to conform this
Declaration to the requirements of applicable federal laws or regulations or the
requirements of the regulated investment company provisions of the Internal
Revenue Code (including those provisions of such Code relating to the retention
of the exemption from federal income tax with respect to dividends paid by the
Trust out of interest income received on Municipal Bonds), or to make any other
changes in the Declaration which do not materially adversely affect the rights
of shareholders hereunder, but the Trustees shall not be liable for failing to
do so.
(b) No amendment may be made under this Section 8.3 which would
change any rights with respect to any 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
consent of the holders of two-thirds of the Shares outstanding and entitled to
vote, or by such other vote as may be established by the Trustees with respect
to any Series (or Class thereof) of Shares. Nothing contained in this
Declaration shall permit the amendment of this Declaration to impair the
exemption from personal liability of the Shareholders, Trustees, officers,
employees and agents of the Trust or to permit assessments upon Shareholders.
(c) A certificate 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, 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 securities of the Trust shall become effective,
this Declaration 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.
Section 8.4. Merger, Consolidation and Sale of Assets. The Trust, as the
surviving entity, may merge or consolidate with any other corporation,
association, trust or other organization. The Trust, as the acquired entity, may
merge or consolidate with any other corporation, association, trust or other
organization, or may sell, lease or exchange all or substantially all of the
Trust Property, including its good will, upon such terms and conditions and for
28
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such consideration when and as authorized at any meeting of Shareholders called
for the purpose by the affirmative vote of the holders of a majority of the
Shares outstanding and entitled to vote, or by an instrument or instruments
in writing without a meeting, consented to by the holders of a majority of the
Shares or by such other vote as may be established by the Trustees with respect
to any Series of Shares.
Section 8.5. Incorporation. With the approval of the holders of a majority
of the Shares outstanding and entitled to vote, or by such other vote as may be
established by the Trustees with respect to any Series of Shares, the Trustees
may cause to be organized or assist in organizing a corporation or corporations
under the laws of any jurisdiction or any other trust, partnership, association
or other organization to take over all of the Trust Property or to carry on any
business in which the Trust shall directly or indirectly have any interest, and
to sell, convey and transfer the Trust Property to any such corporation, trust,
association or organization in exchange for the Shares or securities thereof or
otherwise, and to lend money to, subscribe for the Shares or securities of, and
enter into any contracts with any such corporation, trust, partnership,
association or organization, or any corporation, partnership, trust, association
or organization in which the Trust holds or is about to acquire shares or any
other interest. The Trustees may also cause a merger or consolidation between
the Trust or any successor thereto and any such corporation, trust, partnership,
association or other organization if and to the extent permitted by law, as
provided under the law then in effect. Nothing contained herein shall be
construed as requiring approval of Shareholders for the Trustees to organize or
assist in organizing one or more corporations, trusts, partnerships,
associations or other organizations and selling, conveying or transferring a
portion of the Trust Property to such organizations or entities.
ARTICLE IX
REPORTS TO SHAREHOLDERS
The Trustees shall at least semiannually submit to the Shareholders a
written financial report, which may be included in the Trust's prospectus, of
the transactions of the Trust, including financial statements which shall at
least annually be certified by independent public accountants.
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ARTICLE X
MISCELLANEOUS
Section 10.1. Filing. This Declaration and any amendment hereto shall be
filed in the office of the Secretary of the Commonwealth of Massachusetts and in
such other places as may be required under the laws 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 sets forth some
later time for the effectiveness of such amendment, such amendment shall be
effective upon its filing. A restated Declaration, integrating into a single
instrument all of the provisions of the Declaration which are then in effect and
operative, may be executed 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 hereafter be
referred to in lieu of the original Declaration and the various amendments
thereto. The restated Declaration may include any amendment which the Trustees
are empowered to adopt, whether or not such amendment has been adopted prior to
the execution of the restated Declaration.
Section 10.2. Governing Law. This Declaration 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 and construction of
every provision hereof shall be subject to and construed according to the laws
of said State without regard to the choice of law rules thereof.
Section 10.3. Counterparts. This Declaration may be simultaneously executed
in several counterparts, each of which shall be deemed to be an original, and
such counterparts, together, shall constitute one and the same instrument, which
shall be sufficiently evidenced by any such original counterpart.
Section 10.4. Reliance by Third Parties. Any certificate executed by an
individual who, according to the records of the Trust 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, (e) the form of any By-laws adopted by or the identity of any
officers elected by the Trustees, or (f) the existence of any fact or facts
30
<PAGE>
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 and their successors.
Section 10.5. Provisions in Conflict with Law or Regulations. (a) The
provisions of this Declaration are severable, and if the Trustees shall
determine, with the advice of counsel, that any of such provisions is in
conflict with the 1940 Act, the regulated investment company provisions of the
Internal Revenue Code or with other applicable laws and regulations, the
conflicting provision shall be deemed never to have constituted a part of this
Declaration; provided, however, that such determination shall not affect any of
the remaining provisions of this Declaration or render invalid or improper any
action taken or omitted prior to such determination.
(b) If any provision of this Declaration 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 such provisions in any other jurisdiction or any other provision of this
Declaration in any jurisdiction.
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IN WITNESS WHEREOF, the undersigned has executed this
instrument this ____ day of _______, 1997.
_____________________________________,
Scott A. Englehart,
as Trustee and not individually
____________________________________,
William J. Tomko,
as Trustee and not individually
32
VARIABLE INSURANCE FUNDS
Establishment and Designation of Series
The undersigned, being all of the Trustees of Variable Insurance Funds (the
"Trust"), a Massachusetts business trust, acting pursuant to Section 5.11 of the
Declaration of Trust dated July 20, 1994, as amended the date hereof (the
"Declaration of Trust"), hereby divides the shares of beneficial interest of the
Trust into seven separate Series (the "Funds"), each of a single Class, the
Funds hereby created having the following special and relative rights:
1. The Funds shall be designated as follows:
Variable Insurance Allocated Conservative Fund
(formerly, the "Qualivest Variable Insurance Large
Companies Value Fund");
Variable Insurance Allocated Balanced Fund
(formerly, the "Qualivest Variable Insurance Small
Companies Value Fund");
Variable Insurance Allocated Growth Fund
(formerly, the "Qualivest Variable Insurance
Income Equity Value Fund");
Variable Insurance Allocated Aggressive Fund
(formerly, the "Qualivest Variable Insurance
Intermediate Bond Fund");
Variable Insurance Money Market Fund;
BB&T Growth and Income Variable Insurance Fund; and
BB&T Capital Manager Variable Insurance Fund.
2. Each Fund shall be authorized to invest in cash, securities,
instruments and other property as from time to time described in the then
current effective prospectus and registration statement for that Fund under the
Securities Act of 1933. Each share of beneficial interest of each Fund ("Share")
shall be redeemable, shall represent a pro rata beneficial interest in the
assets of the Fund, and shall be entitled to receive its pro rata share of net
assets allocable to such shares of the Fund upon liquidation of that Fund, all
as provided in the Declaration of Trust. The proceeds of sales of Shares of each
Fund, together with any income and gain thereon, less any diminution or expenses
thereof, shall irrevocably belong to that Fund, unless otherwise required by
law.
3. Each share of beneficial interest of each Fund shall be entitled to
one vote for each dollar of value invested (or fraction thereof in respect of a
fractional share) on matters which such Shares shall be entitled to vote except
to the extent otherwise required by the Investment Company Act of 1940 or when
the Trustees have determined that the matter affects only the interest of
Shareholders of certain Funds, in which case only the Shareholders of such Funds
shall be entitled to vote thereon.
<PAGE>
Any matter shall be deemed to have been effectively acted upon with respect to
the Funds if acted upon as provided in Rule 18f-2 under such Act or any
successor rule and in the Declaration of Trust.
4. The assets and liabilities of the Trust shall be allocated among the
above-referenced Funds, as set forth in Section 5.11 of the Declaration of
Trust, except as described below.
(a) Costs incurred by the Trust on behalf of the Funds in
connection with the organization and initial registration and
public offering of Shares of the Funds shall be amortized for
the Funds over the lesser of the life of the Fund or the five
year period beginning with the month that each Fund commences
operations.
(b) The Trustees may from time to time in particular cases make
specific allocations of assets or liabilities among the Funds
and each allocation of liabilities, expense costs, charges and
reserves by the Trustees shall be conclusive and binding upon
the Shareholders of all Funds for all purposes.
5. The Trustees (including any successor Trustee) shall have the right
at any time and from time to time to reallocate assets and expenses or to change
the designation of any Fund now or hereafter created or to otherwise change the
special and relative rights of any such Fund, provided that such change shall
not adversely affect the rights of the Shareholders of such Fund.
<PAGE>
Date: ___________, 1997 _____________________________
Scott A. Englehart, as Trustee
_____________________________
William J. Tomko, as Trustee
BY-LAWS
OF
VARIABLE INSURANCE FUNDS
(effective February 5, 1997)
<PAGE>
TABLE OF CONTENTS
Page
ARTICLE I - DEFINITIONS 1
ARTICLE II - OFFICES 1
Section 1. Resident Agent 1
Section 2. Offices 1
ARTICLE III - SHAREHOLDERS 2
Section 1. Meetings 2
Section 2. Special Meetings 2
Section 3. Notice of Meetings 3
Section 4. Record Date for Meetings
and Other Purposes 3
Section 5. Proxies 4
Section 6. Action without Meeting 5
ARTICLE IV - TRUSTEES 5
Section 1. Meetings of the Trustees 5
Section 2. Quorum and Manner of Acting 7
Section 3. Removal 7
ARTICLE V - COMMITTEES 7
Section 1. Executive and Other Committees 7
Section 2. Meetings, Quorum and Manner of Acting 8
ARTICLE VI - OFFICERS 9
Section 1. General Provisions 9
Section 2. Term of Office and Qualifications 9
Section 3. Removal 10
Section 4. Powers and Duties of the President 10
Section 5. Powers and Duties of Vice Presidents 10
Section 6. Powers and Duties of the Treasurer 11
Section 7. Powers and Duties of the Secretary 11
Section 8. Powers and Duties of Assistant
Treasurers 12
Section 9. Powers and Duties of Assistant
Secretaries 12
Section 10. Compensation of Officers and Trustees
and Members of the Advisory Board 12
ARTICLE VII - FISCAL YEAR 13
ARTICLE VIII - SEAL 13
ARTICLE IX - WAIVERS OF NOTICE 13
<PAGE>
TABLE OF CONTENTS (continued)
Page
ARTICLE X - CUSTODY OF SECURITIES 14
Section 1. Employment of a Custodian 14
Section 2. Action Upon Termination of
Custodian Agreement 14
Section 3. Provisions of Custodian Agreement 15
Section 4. Central Certificate System 16
Section 5. Acceptance of Receipts in Lieu of
Certificates 16
ARTICLE XI - AMENDMENTS 17
ARTICLE XII - INSPECTION OF BOOKS 17
ARTICLE XIII - MISCELLANEOUS 18
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<PAGE>
BY-LAWS
OF
VARIABLE INSURANCE FUNDS
ARTICLE I
DEFINITIONS
Any terms defined in the Declaration of Trust of Variable Insurance Funds
dated July 20, 1994, as amended February 5, 1997, and from time to time
thereafter, shall have the same meaning when used herein.
ARTICLE II
OFFICES
Section 1. Resident Agent. The Trust shall maintain a resident agent in the
Commonwealth of Massachusetts, which agent shall initially be CT Corporation
System, 2 Oliver Street, Boston, Massachusetts 02109. The Trustees may designate
a successor resident agent, provided, however, that such appointment shall not
become effective until written notice thereof is delivered to the office of the
Secretary of the Commonwealth.
Section 2. Offices. The Trust may have its principal office and other
offices in such places within as well as without the Commonwealth as the
Trustees may from time to time determine.
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<PAGE>
ARTICLE III
SHAREHOLDERS
Section 1. Meetings. Meetings of the Shareholders shall be held as provided
in the Declaration of Trust at such place within or without the Commonwealth of
Massachusetts as the Trustees shall designate. The holders of a majority of
outstanding Shares present in person or by proxy shall constitute a quorum at
any meeting of the Shareholders.
Section 2. Special Meetings. A special meeting of the Shareholders may be
called at any time by the Board of Trustees, the chairman of the board, the
president, or by holders of Shares entitled to cast not less than 10% of the
votes at such meeting.
If a special meeting is called by any person or persons other than the
Board of Trustees, the request shall be in writing, specifying the time of such
meeting and the general nature of the business proposed to be transacted, and
shall be delivered personally or sent by registered mail or by telegraphic or
other facsimile transmission to the chairman of the Board of Trustees, the
president, any vice president, or the secretary of the Trust. The officer
receiving the request shall cause notice to be promptly given to the
Shareholders entitled to vote that a meeting will be held at the time requested
by the person or persons calling the meeting, not less than 35 nor more than 60
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<PAGE>
days after the receipt of the request. If the notice is not given with 20
days after receipt of the request, the person or persons requesting the meeting
may give the notice. Nothing contained in this paragraph shall be construed as
limiting, fixing or affecting the time when a meeting of Shareholders called by
action of the Board of Trustees may be held.
Section 3. Notice of Meetings. Notice of all meetings of the Shareholders,
stating the time, place and purposes of the meeting, shall be given by the
Trustees by mail to each Shareholder at his address as recorded on the register
of the Trust 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. No notice need be given to any Shareholder who shall
have failed to inform the Trust of his current address or if a written waiver of
notice, executed before or after the meeting by the Shareholder or his attorney
thereunto authorized, is filed with the records of the meeting.
Section 4. Record Date for Meetings and Other Purposes. For the purpose of
determining the Shareholders who are entitled to notice of and to vote at any
meeting, or to participate in any 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 distribution
or other action as a record date for the determination of the persons to be
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<PAGE>
treated as Shareholders of record for such purposes, except for dividend
payments which shall be governed by the Declaration of Trust.
Section 5. Proxies. 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 verification prior to the time at which such vote shall be taken.
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. Each whole share shall be entitled to one vote as to any matter on which
it is entitled by the Declaration to vote, and each fractional Share shall be
entitled to a proportionate fractional vote. 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,
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<PAGE>
and the burden of proving invalidity shall rest on the challenger. If the holder
of any such Share is a minor or legally incompetent, and subject to guardianship
or 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.
Section 6. Action Without Meeting. Any action which may be 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 law, the Declaration of Trust or these By-Laws for approval of such
matter) consent to the action in writing and the written consents are filed with
the records of the meetings of Shareholders. Such consents shall be treated for
all purposes as a vote taken at a meeting of Shareholders.
ARTICLE IV
TRUSTEES
Section 1. Meetings of the Trustees. The Trustees may in their discretion
provide for regular or stated meetings of the Trustees. Notice of regular or
stated meetings need not be given. Meetings of the Trustees other than regular
or stated meetings shall be held whenever called by the President, or by any one
of the Trustees, at the time being in office. Notice of the time and place of
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<PAGE>
each meeting other than regular or stated meetings shall be given by the
Secretary or an Assistant Secretary or by the officer or Trustee calling the
meeting and shall be mailed to each Trustee at least two days before the
meeting, or shall be telegraphed, cabled, or wirelessed to each Trustee at his
business address, or personally delivered to him at least one day before the
meeting. Such notice may, however, be waived by any Trustee. Notice of a meeting
need not be given to any Trustee if a written waiver of notice, executed by him
before or after the meeting, is filed with the records of the meeting, or to any
Trustee who attends the meeting without protesting prior thereto or at its
commencement the lack of notice to him. A notice or waiver of notice need not
specify the purpose of any meeting. The Trustees may meet by means of a
telephone conference circuit or similar communications equipment by means of
which all persons participating in the meeting shall be deemed to have been held
at a place designated by the Trustees at the meeting. Participation in a
telephone conference meeting shall constitute presence in person at such
meeting. Any action required or permitted to be taken at any meeting of the
Trustees may be taken by the Trustees without a meeting if all the Trustees
consent to the action in writing and the written consents are filed with the
records of the Trustees' meetings. Such consents shall be treated as a vote for
all purposes.
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<PAGE>
Section 2. Quorum and Manner of Acting. A majority of the Trustees shall be
present in person at any regular or special meeting of the Trustees in order to
constitute a quorum for the transaction of business at such meeting and (except
as otherwise required by law, the Declaration or these By-Laws) the act of a
majority of the Trustees present at any such meeting, at which a quorum is
present, shall be the act of the Trustees. In the absence of a quorum, a
majority of the Trustees present may adjourn the meeting from time to time until
a quorum shall be present. Notice of an adjourned meeting need not be given.
Section 3. Removal. The Trustees, at any regular or special meeting of the
Trustees, may remove a Trustee with or without cause, by a vote of a majority of
the Trustees then in office.
ARTICLE V
COMMITTEES
Section 1. Executive and Other Committees. The Trustees by vote of a
majority of all the Trustees may elect from their own number an Executive
Committee to consist of not less than three (3) to hold office at the pleasure
of the Trustees, which shall have the power to conduct the current and ordinary
business of the Trust while the Trustees are not in session, including the
purchase and sale of securities and the designation of securities to be
delivered upon redemption of Shares of the Trust, and such other powers of the
Trustees as the Trustees may, from time to time, delegate to them except those
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powers which by law, the Declaration or these By-Laws they are prohibited
from delegating. The Trustees may also elect from their own number other
Committees from time to time, the number composing such Committees, the powers
conferred upon the same (subject to the same limitations as with respect to the
Executive Committee) and the term of membership on such Committees to be
determined by the Trustees. The Trustees may designate a chairman of any such
Committee. In the absence of such designation, the Committee may elect its own
Chairman
Section 2. Meetings, Quorum and Manner of Acting. The Trustees may (1)
provide for stated meetings of any Committee, (2) specify the manner of calling
and notice required for special meetings of any Committee, (3) specify the
number of members of a Committee required to constitute a quorum and the number
of members of a Committee required to exercise specified powers delegated to
such Committee, (4) authorize the making of decisions to exercise specified
powers by written assent of the requisite number of members of a Committee
without a meeting, and (5) authorize the members of a Committee to meet by means
of a telephone conference circuit.
The Executive Committee shall keep regular minutes of its meetings and
records of decisions taken without a meeting and cause them to be recorded in a
book designated for that purpose and kept in the Office of the Trust.
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ARTICLE VI
OFFICERS
Section 1. General Provisions. The officers of the Trust shall be a
President, a Treasurer and a Secretary, who shall be elected by the Trustees.
The Trustees may elect or appoint such other officers or agents as the business
of the Trust may require, including one or more Executive Vice Presidents, one
or more Vice Presidents, one or more Assistant Secretaries, and one or more
Assistant Treasurers. The Trustees may delegate to any officer or Committee the
power to appoint any subordinate officers or agents.
Section 2. Term of Office and Qualifications. Except as otherwise provided
by law, the Declaration or these By-Laws, the President, the Treasurer and the
Secretary shall each hold office until his successor shall have been duly
elected and qualified, and all other officers shall hold office at the pleasure
of the Trustees. The Secretary and Treasurer may be the same person. A Vice
President and the Treasurer or Assistant Treasurer or a Vice President and the
Secretary or Assistant Secretary may be the same person, but the offices of Vice
President and Secretary and Treasurer shall not be held by the same person. The
President shall hold no other office. Except as above provided, any two offices
may be held by the same person. Any officer may be, but none need be, a Trustee
or Shareholder.
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Section 3. Removal. The Trustees, at any regular or special meeting of the
Trustees, may remove any officer without cause, by a vote of a majority of the
Trustees then in office. Any officer or agent appointed by an officer or
Committee may be removed with or without cause by such appointing officer or
Committee.
Section 4. Powers and Duties of the President. The President may call
meetings of the Trustees and of any Committee thereof when he deems it necessary
and shall preside at all meetings of the Shareholders. Subject to the control of
the Trustees and to the control of any Committees of the Trustees, within their
respective spheres, as provided by the Trustees, he shall at all times exercise
a general supervision and direction over the affairs of the Trust. He shall have
the power to employ attorneys and counsel for the Trust and to employ such
subordinate officers, agents, clerks and employees as he may find necessary to
transact the business of the Trust. He shall also have the power to grant,
issue, execute or sign such powers of attorney, proxies or other documents as
may be deemed advisable or necessary in furtherance of the interests of the
Trust. The President shall have such other powers and duties as from time to
time may be conferred upon or assigned to him by the Trustees.
Section 5. Powers and Duties of Vice Presidents. In the absence or
disability of the President, any Vice President designated by the Trustees shall
perform all the duties and may
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exercise any of the powers of the President, subject to the control of the
Trustees. Each Vice President shall perform such other duties as may be assigned
to him from time to time by the Trustees and the President.
Section 6. Powers and Duties of the Treasurer. The Treasurer shall be the
principal financial and accounting officer of the Trust. He shall deliver all
funds of the Trust which may come into his hands to such Custodian as the
Trustees may employ pursuant to Article X of these By-Laws. He shall in general
perform all the duties incident to the office of Treasurer and such other duties
as from time to time may be assigned to him by the Trustees.
Section 7. Powers and Duties of the Secretary. The Secretary shall keep the
minutes of all meetings of the Trustees and of the Shareholders in proper books
provided for that purpose; he shall have custody of the seal of the Trust; he
shall have charge of the Share transfer books, lists and records unless the same
are in the charge of the Transfer Agent. He shall attend to the giving and
serving of all notices by the Trust in accordance with the provisions of these
By-Laws and as required by law; and subject to these By-Laws, he shall in
general perform all duties incident to the office of Secretary and such other
duties as from time to time may be assigned to him by the Trustees.
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Section 8. Powers and Duties of Assistant Treasurers. In the absence or
disability of the Treasurer, any Assistant Treasurer designated by the Trustees
shall perform all the duties, and may exercise any of the powers, of the
Treasurer. Each Assistant Treasurer shall perform such other duties as from time
to time may be assigned to him by the Trustees.
Section 9. Powers and Duties of Assistant Secretaries. In the absence or
disability of the Secretary, any Assistant Secretary designated by the Trustees
shall perform all the duties, and may exercise any of the powers, of the
Secretary. Each Assistant Secretary shall perform such other duties as from time
to time may be assigned to him by the Trustees.
Section 10. Compensation of Officers and Trustees and Members of the
Advisory Board. Subject to any applicable provisions of the Declaration, the
compensation of the officers and Trustees and members of any Advisory Board
shall be fixed from time to time by the Trustees or, in the case of officers, by
any Committee or officer upon whom such power may be conferred by the Trustees.
No officer shall be prevented from receiving such compensation as such officer
by reason of the fact that he is also a Trustee.
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ARTICLE VII
FISCAL YEAR
The fiscal year of the Trust shall begin on the first day of January in
each year and shall end on the 31st day of December in each year, provided,
however, that the Trustees may from time to time change the fiscal year.
ARTICLE VIII
SEAL
The Trustees may adopt a seal which shall be in such form and shall have
such inscription thereon as the Trustees may from time to time prescribe.
ARTICLE IX
WAIVERS OF NOTICE
Whenever any notice is required to be given by law, the Declaration or
these By-Laws, a waiver thereof in writing, signed by the person or persons
entitled to said notice, whether before or after the time stated therein, shall
be deemed equivalent thereto. A notice shall be deemed to have been telegraphed,
cabled or wirelessed for the purposes of these By-Laws when it has been
delivered to a representative of any telegraph, cable or wireless company with
instructions that it be telegraphed, cabled or wirelessed.
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ARTICLE X
CUSTODY OF SECURITIES
Section 1. Employment of a Custodian. The Trust shall place and at all
times maintain in the custody of a Custodian (including any sub-custodian for
the Custodian, which may be a foreign bank which meets applicable requirements
of law) all trusts, securities and similar investments included in the Trust
Property. The Custodian (and any sub-custodian) shall be a bank having not less
than $2,000,000 aggregate capital, surplus and undivided profits and shall be
appointed from time to time by the Trustees, who shall fix its remuneration.
Section 2. Action Upon Termination of Custodian Agreement. Upon termination
of a Custodian Agreement or inability of the Custodian to continue to serve, the
Trustees shall promptly appoint a successor custodian, but in the event that no
successor custodian can be found who has the required qualifications and is
willing to serve, the Trustees shall call as promptly as possible a special
meeting of the Shareholders to determine whether the Trust shall function
without a custodian or shall be liquidated. If so directed by vote of the
holders of a majority of the outstanding voting securities, the Custodian shall
deliver and pay over all Trust Property held by it as specified in such vote.
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Section 3. Provisions of Custodian Agreement. The following provisions
shall apply to the employment of a Custodian and to any contract entered into
with the Custodian so employed:
The Trustees shall cause to be delivered to the Custodian all
securities included in the Trust Property or to which the
Trust may become entitled, and shall order the same to be
delivered by the Custodian only in completion of a sale,
exchange, transfer, pledge, loan of portfolio securities to
another person, or other disposition thereof, all as the
Trustees may generally or from time to time require or approve
or to a successor Custodian; and the Trustees shall cause all
trusts included in the Trust Property or to which it may
become entitled to be paid to the Custodian, and shall order
the same disbursed only for investment against delivery of the
securities acquired, or the return of cash held as collateral
for loans of portfolio securities, or in payment of expenses,
including management compensation, and liabilities of the
Trust, including distributions to Shareholders, or to a
successor Custodian. In connection with the Trust's purchase
or sale of futures contracts, the Custodian shall transmit,
prior to receipt on behalf of the Trust of any securities or
other property, funds from the Trust's custodian account in
order to furnish
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to and maintain funds with brokers as margin to guarantee the
performance of the Trust's futures obligations in accordance
with the applicable requirements of commodities exchanges and
brokers.
Section 4. 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.
Section 5. Acceptance of Receipts in Lieu of Certificates. Subject to such
rules, regulations and orders as the Commission may adopt, the Trustees may
direct the Custodian to accept written receipts or other written evidences
indicating purchases of securities held in book-entry form in the Federal
Reserve System in accordance with regulations promulgated by the
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Board of Governors of the Federal Reserve System and the local Federal Reserve
Banks in lieu of receipt of certificates representing such securities.
ARTICLE XI
AMENDMENTS
These By-Laws, or any of them, may be altered, amended or repealed, or new
By-Laws may be adopted by (a) vote of a majority of the Shares outstanding and
entitled to vote or (b) the Trustees, provided, however, that no By-Law may be
amended, adopted or repealed by the Trustees if such amendment, adoption or
repeal requires, pursuant to law, the Declaration or these ByLaws, a vote of the
Shareholders.
ARTICLE XII
INSPECTION OF BOOKS
The Trustees shall from time to time determine whether and to what extent,
and at what times and places, and under what conditions and regulations the
accounts and books of the Trust or any of them shall be open to the inspection
of the Shareholders; and no Shareholder shall have any right of inspecting any
account or book or document of the Trust except as conferred by laws or
authorized by the Trustees or by resolution of the Shareholders.
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ARTICLE XIII
MISCELLANEOUS
(A) Except as hereinafter provided, no officer or Trustee of
the Trust and no partner, officer, director or shareholder of the investment
adviser of the Trust or of the Distributor of the Trust, and no investment
adviser or Distributor of the Trust, shall take long or short positions in the
securities issued by the Trust.
(1) The foregoing provisions shall not prevent the
Distributor from purchasing Shares from the Trust if such purchases
are limited (except for reasonable allowances for clerical errors,
delays and errors of transmission and cancellation of orders) to
purchases for the purpose of filling orders for such Shares received
by the Distributor, and provided that orders to purchase from the
Trust are entered with the Trust or the Custodian promptly upon
receipt by the Distributor of purchase orders for such Shares,
unless the Distributor is otherwise instructed by its customer.
(2) The foregoing provision shall not prevent the
Distributor from purchasing Shares of the Trust as agent for the
account of the Trust.
(3) The foregoing provision shall not prevent the purchase
from the Trust or from the Distributor of Shares issued by the Trust,
by any officer, or Trustee of the Trust or by any partner, officer,
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director or shareholder of the investment adviser of the Trust or
of the Distributor of the Trust at the price available to the public
generally at the moment of such purchase, or as described in the then
currently effective prospectus of the Trust.
(4) The foregoing shall not prevent the Distributor, or any
affiliate thereof, of the Trust from purchasing Shares prior to the
effectiveness of the first registration statement relating to the
Shares under the Securities Act of 1933.
(B) The Trust shall not lend assets of the Trust to any officer or Trustee
of the Trust, or to any partner, officer, director or shareholder of, or person
financially interested in, the investment adviser of the Trust, or the
Distributor of the Trust, or to the investment adviser of the Trust or to the
Distributor of the Trust.
(C) The Trust shall not impose any restrictions upon the transfer of the
Shares of the Trust except as provided in the Declaration, but this requirement
shall not prevent the charging of customary transfer agent fees.
(D) The Trust shall not permit any officer or Trustee of the Trust, or any
partner, officer or director of the investment adviser or Distributor of the
Trust to deal for or on behalf of the Trust with himself as principal or agent,
or with any partnership, association or corporation in which he has a
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financial interest; provided that the foregoing provisions shall not prevent (a)
officers and Trustees of the Trust or partners, officers or directors of the
investment adviser or Distributor of the Trust from buying, holding or selling
shares in the Trust, or from being partners, officers or directors or otherwise
financially interested in the investment adviser or Distributor of the Trust;
(b) purchases or sales of securities or other property by the Trust from or to
an affiliated person or to the investment adviser or Distributor of the Trust if
such transaction is exempt from the applicable provisions of the 1940 Act; (c)
purchases of investments for the portfolio of the Trust or sales of investments
owned by the Trust through a security dealer who is, or one or more of whose
partners, shareholders, officers or directors is, an officer or Trustee of the
Trust, or a partner, officer or director of the investment adviser or
Distributor of the Trust, if such transactions are handled in the capacity of
broker only and commissions charged do not exceed customary brokerage charges
for such services; (d) employment of legal counsel, registrar, Transfer Agent,
dividend disbursing agent or Custodian who is, or has a partner, shareholder,
officer, or director who is, an officer or Trustee of the Trust, or a partner,
officer or director of the investment adviser or Distributor of the Trust, if
only customary fees are charged for services to the Trust; (e) sharing
statistical research, legal and management expenses and office hire and expenses
with any other investment company in which an officer or Trustee of the
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Trust, or a or director of the investment adviser or Distributor of the
partner, officer Trust, is an officer or director or otherwise financially
interested.
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