AmSouth Equity Income Fund
Variable Insurance Funds
3435 Stelzer Road
Columbus, Ohio 43219-3035
1-800-257-5872
Variable Insurance Funds (the "Trust") is an open-end management investment
company that currently offers nine separate diversified investment portfolios,
each with different investment objectives and policies. This Prospectus
describes one of those portfolios, the AmSouth Equity Income Fund (the "Fund").
Additional information about the Trust and the Fund, contained in a Statement of
Additional Information dated June 1, 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 Fund currently sells its shares of beneficial interest ("Shares") to a
segregated asset account ("Separate Account") of Hartford Life Insurance Company
("Hartford") to serve as the investment medium for variable annuity contracts
("Variable Contracts") issued by Hartford. Shares of the Fund also may be sold
to qualified pension and retirement plans outside of the separate account
context. The Separate Account invests in Shares of the Fund 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 Fund 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 Fund involves investment risk,
including the possible loss of principal.
This Prospectus sets forth concisely the information about the Fund 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
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 September 16, 1997
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TABLE OF CONTENTS
Page
PROSPECTUS SUMMARY.....................................................3
Shares Offered................................................3
Investment Objective..........................................3
Investment Policies...........................................3
Risk Factors and Special Considerations.......................3
Investment Adviser and Sub-Adviser............................3
Other Information.............................................3
FUND EXPENSES..........................................................4
INVESTMENT OBJECTIVE AND POLICIES......................................5
INVESTMENT TECHNIQUES AND RISK FACTORS.................................6
VALUATION OF SHARES...................................................14
PURCHASING SHARES.....................................................15
REDEEMING SHARES......................................................16
MANAGEMENT OF THE FUND................................................16
Trustees.....................................................16
Investment Adviser and Sub-Adviser...........................16
Administrator and Distributor................................17
Other Service Providers......................................18
Variable Contract Owner Servicing Agents.....................18
Expenses.....................................................18
Banking Laws.................................................19
TAXATION..............................................................19
GENERAL INFORMATION...................................................20
Description of the Trust and Its Shares......................20
Performance Information......................................21
Miscellaneous................................................22
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PROSPECTUS SUMMARY
Shares Offered . . . . . . . . . . . Shares of the Fund, which is a
diversified investment portfolio of
the Trust, a Massachusetts business
trust that is registered as an
open-end management investment
company. Shares of the Fund may be
offered in the future to other
separate accounts of Hartford, 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 Objective. . . . . . . . The Fund seeks to provide above
average income and capital
appreciation.
Investment Policies . . . . . . . The Fund will, under normal market
conditions, invest at least 65% of
its total assets in
income-producing equity securities,
including common stock, preferred
stock and securities convertible
into common stocks, such as
convertible bonds and convertible
preferred stocks.
Risk Factors and Special
Considerations . . . . . . . . . . An investment in the Fund involves
a certain amount of risk and may
not be suitable for all investors.
See "INVESTMENT TECHNIQUES AND RISK
FACTORS."
Investment Adviser
and Sub-Adviser . . . . . . . . . AmSouth Bank ("AmSouth"),
Birmingham, Alabama, serves as
investment adviser to the Fund.
Rockhaven Asset Management, LLC
("Rockhaven"), Pittsburgh,
Pennsylvania, serves as investment
sub-adviser to the Fund. See
"MANAGEMENT OF THE FUND -
Investment Adviser and
Sub-Adviser."
Other Information . . . . . . . . . . . . AmSouth is the custodian for the
Fund. BISYS Fund Services ("BISYS"
or "Distributor" or
"Administrator") serves as the
distributor and administrator of
the Fund. BISYS Fund Services Ohio,
Inc. ("BISYS Ohio") serves as
transfer agent and dividend
disbursing agent and provides
certain accounting services for the
Trust.
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FUND EXPENSES
The following expense table indicates costs and expenses that an investor should
anticipate incurring either directly or indirectly as a Shareholder of the Fund
during its first fiscal year of operation. The numbers reflect estimated levels
of operating expenses.
Annual Fund Operating Expenses
(as a percentage of average net assets annualized)
Management Fees After Waiver (1)...........................................0.25%
Other Expenses After Waiver (2)............................................1.00%
Total Fund Operating Expenses After Waivers (3)............................1.25%
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1 AmSouth has undertaken to waive a portion of its investment advisory fee
through December 31, 1997 to the extent that "Total Fund Operating
Expenses" for the Fund would exceed 1.25% of average daily net assets
during this period. Absent this waiver, "Management Fees" as a percentage
of the Fund's average daily net assets would be 0.60%.
2 BISYS has agreed to waive a portion of its administrative fees through
December 31, 1997. Absent this waiver, "Other Expenses" as a percentage of
the Fund's average daily net assets would be 1.10%.
3 Absent waivers, "Total Fund Operating Expenses" as a percentage of the
Fund's average daily net assets would be 1.70%.
The purpose of this table is to assist the prospective investor in understanding
the various costs and expenses that a Shareholder in the Fund will bear. The
following Example illustrates the expenses borne by Fund Shareholders.
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:
1 Year............................................... $13
3 Years.............................................. $40
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* 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.
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INVESTMENT OBJECTIVE AND POLICIES
Shareholders should be aware that the investments made by the Fund at any given
time are not expected to be the same as those made by other mutual funds for
which AmSouth or Rockhaven acts as investment adviser, including mutual funds
with investment objectives and policies similar to the Fund. Investors should
carefully consider their investment goals and willingness to tolerate investment
risk before allocating their investment to the Fund.
The Fund seeks to provide above average income and capital appreciation. It
invests primarily in a diversified portfolio of common stocks, preferred stocks,
and securities that are convertible into common stocks, such as convertible
bonds and convertible preferred stocks. Under normal market conditions, the Fund
invests at least 65% of its total assets in income-producing equity securities,
including common stock, preferred stock, and securities convertible into common
stocks, such as convertible bonds and convertible preferred stocks. The Fund's
stock selection emphasizes those common stocks in each sector that have good
value, attractive yield, and dividend growth potential. The portion of the
Fund's total assets invested in common stock, preferred stock, and convertible
securities varies according to the Fund's assessment of market and economic
conditions and outlook. Most companies in which the Fund invests are listed on
national securities exchanges.
Rockhaven seeks to invest in equity securities which are believed to represent
investment value. Factors which may be considered in selecting equity securities
include industry and company fundamentals, historical price relationships,
and/or underlying asset value.
Under normal market conditions, the Fund may also invest up to 35% of the value
of its total assets in corporate bonds, mortgage-related and asset-backed
securities, real estate investment trusts, notes, money market mutual funds,
warrants, and obligations with maturities of 12 months or less such as
commercial paper (including variable amount master demand notes), bankers'
acceptances, 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. If deemed appropriate for
temporary defensive purposes, the Fund may increase its holdings in short-term
obligations up to 100% of its total assets and may also hold uninvested cash
pending investment. The Fund may also write covered call options. See
"INVESTMENT TECHNIQUES AND RISK FACTORS."
* * * *
The investment objective of the 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 the Fund. Other policies of the Fund may be changed without a vote of the
holders of a majority of outstanding Shares of the 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 the Fund will be achieved.
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INVESTMENT TECHNIQUES AND RISK FACTORS
Like any investment program, an investment in the Fund entails certain risks.
Convertible Securities
Convertible securities are fixed income securities that may be exchanged or
converted into a predetermined number of the issuer's underlying common stock at
the option of the holder during a specified time period. Convertible securities
may take the form of convertible preferred stock, convertible bonds or
debentures, units consisting of "usable" bonds and warrants or a combination of
the features of several of these securities. The Fund may invest in convertible
securities that are rated "BB" by Standard & Poor's Corporation ("S&P") and "Ba"
by Moody's Investors Service, Inc. ("Moody's"), or lower, at the time of
investment, or if unrated, are of comparable quality. The investment
characteristics of each convertible security vary widely, which allows
convertible securities to be employed for different investment objectives.
Securities which are rated "BB" or lower by S&P or "Ba" or lower by Moody's
either have speculative characteristics or are speculative with respect to
capacity to pay interest and repay principal in accordance with the terms of the
obligations. There is no lower limit with respect to rating categories for
convertible securities in which the Fund may invest.
Corporate debt obligations are "investment grade" if they are rated "BBB" or
higher by S&P or "Baa" or higher by Moody's or, if unrated, are determined to be
of comparable quality. Debt obligations that are not determined to be investment
grade are high yield, high risk bonds, typically subject to greater market
fluctuations and greater risk of loss of income and principal due to an issuer's
default. To a greater extent than investment grade securities, lower rated
securities tend to reflect short-term corporate, economic and market
developments, as well as investor perceptions or the issuer's credit quality.
Because investments in lower rated securities involve greater investment risk,
achievement of the Fund's investment objective may be more dependent on
Rockhaven's credit analysis than would be the case if the Fund were investing in
higher rated securities. High yield securities may be more susceptible to real
or perceived adverse economic and competitive industry conditions than
investment grade securities. A projection of an economic downturn, for example,
could cause a decline in high yield prices because the advent of a recession
could lessen the ability of a highly leveraged company to make principal and
interest payments on its debt securities. In addition, the secondary trading
market for high yield securities may be less liquid than the market for higher
grade securities. The market prices of debt securities also generally fluctuate
with changes in interest rates so that the Fund's net asset value can be
expected to decrease as long-term interest rates rise and to increase as
long-term rates fall. In addition, lower rated securities may be more difficult
to dispose of or to value than high-rated, lower-yielding securities. Rockhaven
attempts to reduce the risks described above through diversification of the
Fund's portfolio and by credit analysis of each issuer as well as by monitoring
broad economic trends and corporate and legislative developments.
Convertible bonds and convertible preferred stocks are fixed income securities
that generally retain the investment characteristics of fixed income securities
until they have been converted but also react to movements in the underlying
equity securities. The holder is entitled to receive the fixed income of a bond
or the dividend preference of a preferred stock until the holder elects to
6
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exercise the conversion privilege. Usable bonds are corporate bonds that can be
used in whole or in part, customarily at full face value, in lieu of cash to
purchase the issuer's common stock. When owned as part of a unit along with
warrants, which are options to buy the common stock, they function as
convertible bonds, except that the warrants generally will expire before the
bond's maturity. Convertible securities are senior to equity securities, and,
therefore, have a claim to assets of the corporation prior to the holders of
common stock in the case of liquidation. However, convertible securities are
generally subordinated to similar non-convertible securities of the same
company. The interest income and dividends from convertible bonds and preferred
stocks provide a stream of income with generally higher yields than common
stocks, but lower than non-convertible securities of similar quality.
The Fund will exchange or convert the convertible securities held in its
portfolio into shares of the underlying common stock in instances in which, in
the opinion of Rockhaven, the investment characteristics of the underlying
common shares will assist the Fund in achieving its investment objective.
Otherwise, the Fund will hold or trade the convertible securities. In selecting
convertible securities for the Fund, Rockhaven evaluates the investment
characteristics of the convertible security as a fixed income instrument, and
the investment potential of the underlying equity security for capital
appreciation. In evaluating these matters with respect to a particular
convertible security, Rockhaven considers numerous factors, including the
economic and political outlook, the value of the security relative to other
investment alternatives, trends in the determinants of the issuer's profits, and
the issuer's management capability and practices.
As with all fixed income securities, the market values of convertible securities
tend to increase when interest rates decline and, conversely, tend to decline
when interest rates increase.
Put and Call Options
The Fund may write covered call options (options on securities or currencies
owned by the Fund). When a portfolio security or currency subject to a call
option is sold, the 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 the Fund previously
has written. If the 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 Fund delivers the underlying security or currency upon exercise.
In addition, upon the exercise of a call option by the holder thereof, the Fund
will forego the potential benefit represented by market appreciation over the
exercise price. Under normal conditions, it is not expected that the Fund will
cause the underlying value of portfolio securities and/or currencies subject to
such options to exceed 25% of its total assets.
Foreign Securities
The Fund may invest in foreign securities through the purchase of American
Depository Receipts ("ADRs") or the purchase of securities of the Toronto Stock
Exchange, but 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 the Fund would
exceed 25% of the value of the total assets of the Fund. The Fund may also
invest in securities issued by foreign branches of the U.S. banks and foreign
banks and in Canadian Commercial Paper and Europaper, which is U.S. dollar
denominated commercial paper of a foreign issuer.
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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 Fund will be affected by changes in currency exchange rates and in exchange
control regulations, and costs will be 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 Fund's assets.
For many foreign securities, U.S. dollar denominated 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 Fund can avoid currency risks during the settlement period for either
purchase or sales.
Unsponsored ADR 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, and the
prices of unsponsored depository receipts may be more volatile than if such
instruments were sponsored by the issuer.
Foreign Currency Transactions
The value of the assets of the 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 the Fund may incur costs in connection with
conversions between various currencies. The 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. The Fund may enter into forward currency contracts in order to
hedge against adverse movements in exchange rates between currencies.
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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, the 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. The Fund may also hedge its foreign currency exchange rate risk
by engaging in currency financial futures and options transactions. The
forecasting of short-term currency market movements is extremely difficult and
whether such a short-term hedging 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 the Fund to purchase additional currency on the spot market if
the market value of the security is less than the amount of foreign currency the
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 the Fund is obligated to deliver.
If the Fund retains the portfolio security and engages in an offsetting
transaction, it will incur a gain or a loss to the extent that there has been
movement in forward currency contract prices. If the 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 Fund will have to convert its 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.
Medium-Grade Securities
The Fund may invest up to 10% of its total assets in debt securities within the
fourth highest rating group assigned by a nationally recognized statistical
rating organization ("NRSRO") (i.e., BBB or Baa by S&P and Moody's,
respectively) and comparable unrated securities. This limitation does not apply
to convertible securities, which are discussed above. 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.
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Should subsequent events cause the rating of a debt security purchased by the
Fund to fall below BBB or Baa, as the case may be, Rockhaven will consider such
an event in determining whether the Fund should continue to hold that security.
In no event, however, would the Fund be required to liquidate any such portfolio
security where the Fund would suffer a loss on the sale of such security.
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, the 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.
Early repayment of principal on mortgage-related securities may expose the 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 the 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, the Fund may invest in other asset-backed securities that may be
developed in the future.
Certain issuers of asset-backed securities are considered to be investment
companies under the Investment Company Act of 1940 (the "1940 Act"). The Fund
intends to conduct its operations so that it will invest its assets (when
combined with investments in securities of other investment companies, if any)
in the obligations of such issuers within applicable regulatory limits.
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U.S. Government Obligations
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; still others are supported only by the credit 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.
The Stripped Treasury Obligations in which the Fund 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.
Bankers' Acceptances
The Fund 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 Fund 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.
Commercial Paper
The 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, if not rated, determined to be
of comparable quality to instruments that are so rated. The 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.
The 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 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. Rockhaven 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.
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Repurchase Agreements
Securities held by the Fund may be subject to repurchase agreements. Under the
terms of a repurchase agreement, the 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,
the 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.
Reverse Repurchase Agreements and Dollar Roll Agreements
The Fund may borrow funds by entering into reverse repurchase agreements and
dollar roll agreements. Pursuant to such reverse repurchase agreements, the 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 the 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 the 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 the 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 the Fund is delayed or prevented from completing the
transaction.
When-Issued and Delayed-Delivery Transactions
The Fund may purchase securities on a when-issued or delayed-delivery basis. The
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. The Fund will not pay for such securities or start earning interest on
them until they are received. When the 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, the Fund relies on the seller to complete the transaction; the
seller's failure to do so may cause the Fund to miss a price or yield considered
to be advantageous.
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Lending of Portfolio Securities
In order to generate additional income, the Fund may from time to time lend
portfolio securities to broker-dealers, banks or institutional borrowers of
securities. The Fund 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 the Fund does not have the right to vote securities on loan, it
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 the Fund, the lender could experience delays in recovering its
securities and possible capital losses. The Fund will only enter into loan
arrangements with broker-dealers, banks or other institutions determined to be
creditworthy under guidelines established by the Board of Trustees that permit
the Fund to loan up to 33 1/3% of the value of its total assets.
Short-Term Obligations
The 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 Fund will limit its
investment in short-term obligations to 35% of its total assets. For temporary
defensive purposes, as determined by Rockhaven, these investments may constitute
100% of the Fund's portfolio and, in such circumstances, will constitute a
temporary suspension of the Fund's attempts to achieve its investment objective.
Short-Term Trading
In order to generate income, the 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 Fund in order to take advantage of what Rockhaven believes are changes in
market, industry or individual company conditions or outlook. Any such trading
would increase the portfolio turnover rate of the Fund and its transaction
costs.
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Securities Issued by Other Investment Companies
The Fund may invest up to 10% of its total assets in shares of money market
mutual funds for cash management purposes. The Fund will incur additional
expenses due to the duplication of expense as a result of investing in other
investment companies.
Real Estate Investment Trusts
The Fund may invest in real estate investment trusts. Real estate investment
trusts are sensitive to factors such as changes in real estate values and
property taxes, interest rates, cash flow of underlying real estate assets,
overbuilding, and the management skill and creditworthiness of the issuer. Real
estate may also be affected by tax and regulatory requirements, such as those
relating to the environment.
Restricted Securities
Securities in which the Fund 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 Fund 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, Rockhaven 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 Fund is determined and its Shares are priced as of
the closing of the NYSE (generally 4:00 p.m. Eastern Time) on each Business Day
("Valuation Time"). As used herein, Business Day is a day on which the New York
Stock Exchange ("NYSE") is open for trading, and any other day except days on
which there are insufficient changes in the value of the 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, Martin Luther King, Jr. Day, Presidents' Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving and Christmas.
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
the Fund, less the liabilities charged to the Fund and any liabilities allocable
to the Fund, by the number of the Fund's outstanding Shares.
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The net asset value per Share of the Fund will fluctuate as the value of the
investment portfolio of the Fund changes.
The securities in the 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. 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 Fund are offered for purchase
by the Separate Account to serve as an investment medium for the Variable
Contracts issued by Hartford, and to qualified pension and retirement plans
outside of the separate account context. Shares of the Fund may be offered in
the future to other separate accounts established by 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 Fund currently does not foresee any disadvantages to Variable Contract
Owners if the Fund serves 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
Fund 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 Fund 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 Fund might be required to redeem the
investment of one or more of its separate accounts from the Fund, which might
force the Fund to sell securities at disadvantageous prices.
Shares of the 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 Fund will be effected only
on a Business Day of the Fund. An order received prior to the Valuation Time on
any Business Day will be executed at the net asset value determined as of the
Valuation Time on the date of receipt. An order received after the Valuation
Time on any Business Day will be executed at the net asset value determined as
of the Valuation Time on the next Business Day of the Fund.
The Fund reserves the right to discontinue offering Shares at any time. In the
event that the 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.
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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 Fund to purchase or
redeem Shares, and Variable Contract Owners should refer to the prospectus for
the Separate Account for information on the allocation of premiums and on
transfers of accumulated value among sub-accounts of the Separate Account that
invests in the Fund.
MANAGEMENT OF THE FUND
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.
Investment Adviser and Sub-Adviser
AmSouth. AmSouth is the investment adviser of the Fund. AmSouth is the principal
bank affiliate of AmSouth Bancorporation, one of the largest banking
institutions headquartered in the mid-south region. AmSouth Bancorporation
reported assets as of December 31, 1996 of $18.4 billion and operated 272
banking offices in Alabama, Florida, Georgia and Tennessee. AmSouth has provided
investment management services through its Trust Investment Department since
1915. As of December 31, 1996, AmSouth and its affiliates had over $7.1 billion
in assets under discretionary management and provided custody services for an
additional $13.4 billion in securities. AmSouth, whose principal business
address is 1901 Sixth Avenue North, Birmingham, Alabama 35203 is the largest
provider of trust services in Alabama. AmSouth serves as administrator for over
$12 billion in bond issues, and its Trust Natural Resources and Real Estate
Department is a major manager of timberland, mineral, oil and gas properties and
other real estate interests.
Subject to the general supervision of the Trust's Board of Trustees and in
accordance with the investment objective and restrictions of the Fund, AmSouth
is authorized to manage the Fund, make decisions with respect to and place
orders for all purchases and sales of its investment securities, and maintain
its records relating to such purchases and sales.
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Under an investment advisory agreement between the Trust and AmSouth, the fee
payable to AmSouth by the Fund for investment advisory services is the lesser of
(a) a fee computed daily and paid monthly at the annual rate of 0.60% of the
Fund's daily net assets or (b) such fee as may from time to time be agreed upon
in writing by the Trust and AmSouth. A fee agreed to in writing from time to
time by the Trust and AmSouth may be lower than the fee calculated at the
contractual annual rate and the effect of such lower fee would be to lower the
Fund's expenses and increase the net income of the Fund during the period when
such lower fee is in effect.
Rockhaven. Rockhaven serves as investment sub-adviser to the Fund pursuant to a
sub-advisory agreement with AmSouth. Under the sub-advisory agreement, Rockhaven
manages the Fund, selects investments and places all orders for purchases and
sales of securities, subject to the general supervision of the Trust's Board of
Trustees and AmSouth in accordance with the Fund's investment objective,
policies and restrictions.
Rockhaven is 50% owned by AmSouth and 50% owned by Mr. Christopher H. Wiles.
Rockhaven was organized in 1997 to perform advisory services for investment
companies and has its principal offices at 100 First Avenue, Suite 1050,
Pittsburgh, PA 15222.
For its services and expenses incurred under the sub-advisory agreement,
Rockhaven is entitled to a fee payable by AmSouth. The fee is computed daily and
paid monthly at an annual rate of 0.36% of the Fund's average daily net assets
or such lower fee as may be agreed upon in writing by AmSouth and Rockhaven,
provided that if AmSouth waives a portion of its investment advisory fee,
Rockhaven has agreed that its sub-advisory fee shall not exceed 60% of AmSouth's
net investment advisory fee.
Mr. Wiles is the portfolio manager for the Fund, and, as such, has the primary
responsibility for the day-to-day portfolio management of the Fund. Mr. Wiles is
the President and Chief Investment Officer of Rockhaven. From May, 1991 to
January, 1997, he was portfolio manager of the Federated Equity Income Fund.
Administrator and Distributor
BISYS, 3435 Stelzer Road, Columbus, Ohio 43219-3035, a division of BISYS Group,
Inc., is the administrator for the Fund, and also acts as the Trust's principal
underwriter and distributor.
The Administrator generally assists in all aspects of the Fund's 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 the Fund equal to the lesser of a fee,
computed daily and paid periodically, at the annual rate of 0.20% of the 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. The Administrator may periodically
voluntarily reduce all or a portion of its administrative fee with respect to
the Fund to increase the net income of the Fund available for distribution as
dividends. The voluntary fee reduction will cause the yield of the Fund to be
higher than it would otherwise be in the absence of such a reduction.
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The Distributor acts as agent for the Fund in the distribution of its 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 Fund.
Other Service Providers
BISYS Ohio, 3435 Stelzer Road, Columbus, Ohio 43219-3035, serves as the Trust's
transfer agent and dividend disbursing agent and provides certain accounting
services for the Fund. BISYS Ohio receives an annual fee of $14 per Variable
Contract Owner account, subject to certain per-Fund base fees, for its services
as transfer agent, and, for its services as fund accountant, BISYS Ohio receives
a fee, computed daily and paid periodically, at an annual rate equal to the
greater of 0.03% of average daily net assets or $30,000 for the Fund. Coopers &
Lybrand L.L.P. serves as independent auditors for the Trust. AmSouth is the
custodian of the Fund. See "MANAGEMENT OF THE TRUST" in the Statement of
Additional Information for further information.
While BISYS Ohio is a distinct legal entity from BISYS (the Trust's
administrator and distributor), BISYS Ohio is considered to be an affiliated
person of BISYS under the 1940 Act due to, among other things, the fact that
BISYS Ohio is owned by substantially the same persons that directly or
indirectly own BISYS.
Variable Contract Owner Servicing Agents
The Trust has adopted a plan under which up to 0.25% of the Fund's average daily
net assets may be expended to procure Variable Contract Owner services. Pursuant
to agreements with the Fund, certain financial institutions and their affiliates
serve as Variable Contract Owner Servicing Agents to the Fund. A Variable
Contract Owner Servicing Agent 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, each
Variable Contract Owner Servicing Agent receives a fee from the Fund, computed
daily and paid monthly, at an annual rate of up to 0.25% of the average daily
net assets of the Fund allocable to Variable Contracts owned by customers of the
Variable Contract Owner Servicing Agent. A Variable Contract Owner Servicing
Agent may periodically waive all or a portion of its servicing fees with respect
to the Fund to increase the net income of the Fund available for distribution as
dividends.
Expenses
AmSouth, Rockhaven, 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. The 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 the Fund's operation.
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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 Fund.
AmSouth and Rockhaven each believes that it may perform advisory services for
the Fund as described herein and, provided that they do not engage in
underwriting, selling or distribution of the Fund's Shares, their 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 an investment adviser of the Fund, 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
Fund be liquidated.
TAXATION
The Fund intends to qualify each year as a regulated investment company under
Subchapter M of the Internal Revenue Code (the "Code"). Accordingly, the Fund
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, the Fund is
required to diversify its investments. Generally, the 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 the 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 the 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
the 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.
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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 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 Fund will be able to operate as currently described, or that the Trust
will not have to change the Fund's investment objective or investment policies.
While the 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 the
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 the Fund.
Reference is made to the prospectus for the 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 Fund's 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 currently
consists of nine portfolios. Each Share represents an equal proportionate
interest in the Fund with other Shares of the Fund, and is entitled to such
dividends and distributions out of the income earned on the assets belonging to
the 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 portfolio 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
proportion of the voting instructions received. The Separate Account and
qualified pension and retirement plans are currently the only Shareholders of
the Fund, although other separate accounts of Hartford, or of other insurance
companies, may become Shareholders in the future.
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Performance Information
From time to time performance information for the Fund showing its 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 the 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 the 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 the 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 Fund
will not be advertised or included in sales literature unless accompanied by
comparable performance information for the Separate Account.
In addition, from time to time the Fund may present its distribution rate 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 the 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 the 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 the Fund will not take into
account charges or deductions against the Separate Account 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. The 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 Account
or the Variable Contracts. Performance information for the 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 AmSouth or
BISYS voluntarily reduce all or a part of their respective fees, the total
return of the Fund will be higher than it would otherwise be in the absence of
such voluntary fee reductions.
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Miscellaneous
Inquiries regarding the Trust may be directed in writing to the Trust at 3435
Stelzer Road, Columbus, Ohio 43219-3035, or by calling toll free (800) 257-5872.
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 Fund or
its Distributor. This Prospectus does not constitute an offering by the Fund or
by its Distributor in any jurisdiction in which such offering may not lawfully
be made.
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