As filed with the Securities and Exchange Commission on August 3, 2000
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/
Post-Effective Amendment No. 10 /X/
and
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 /X/
Amendment No. 12 /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: 1-800-257-5872
Keith T. Robinson
Dechert
1775 Eye Street, N.W.
Washington, D.C. 20006
Copies to:
Walter Grimm
BISYS Fund Services
3435 Stelzer Road
Columbus, Ohio 43219-3035
It is proposed that this filing will become effective (check appropriate
box):
[] immediately upon filing pursuant to paragraph (b)
[]on [date] pursuant to paragraph (b)
[X] 60 days after filing pursuant to paragraph (a)(1)
[] On (date) pursuant to paragraph (a)(1)
[] 75 days after filing pursuant to paragraph (a)(2)
[] on (date) pursuant to paragraph (a)(2) of Rule 485
If appropriate, check the following box:
[ ] This post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
<PAGE>
EXPLANATORY NOTE
This post-effective amendment no. 10 to the Registrant's registration statement
on Form N-1A (File Nos. 33-81800 and 811-8644) (the "Registration Statement")
incorporates by reference: (i) the prospectuses for the BB&T Growth and Income
Fund, AmSouth Select Equity Fund, and AmSouth Equity Income Fund, each dated May
1, 2000, as filed with the Securities and Exchange Commission (the "SEC")
pursuant to Rule 497 under the Securities Act of 1933 on May 5, 2000; (ii) the
prospectuses for BB&T Capital Manager Fund and AmSouth Regional Equity Fund,
each dated May 1, 2000, as filed with the SEC pursuant to Rule 485(b) under the
Securities Act of 1933 on April 28, 2000; (iii) the statements of additional
information describing the BB&T Growth and Income Fund, BB&T Capital Manager
Fund, AmSouth Regional Equity Fund, AmSouth Select Equity Fund, and AmSouth
Equity Income Fund, dated May 1, 2000, as filed with the SEC pursuant to Rule
485(b) under the Securities Act of 1933 on April 28, 2000; and (iv) the
prospectus and statement of additional information describing the HSBC Variable
Growth and Income Fund, HSBC Variable Fixed Income Fund, and HSBC Variable Cash
Management Fund dated May 22, 2000, as filed with the SEC pursuant to Rule 497
under the Securities Act of 1933 on June 2, 2000.
<PAGE>
Kent Aggressive Growth Fund
Variable Insurance Funds
3435 Stelzer Road
Columbus, Ohio 43219-3035
1-800-__________
The Kent Aggressive Growth Fund seeks long-term capital appreciation by
investing primarily in equity securities of U.S. companies. The Fund's goals and
investment program are described in more detail inside. Lyon Street Asset
Management Company ("Lyon Street") serves as the Fund's investment adviser.
The Fund sells its shares to insurance company separate accounts, so that the
Fund may serve as an investment option under variable life insurance policies
and variable annuity contracts issued by insurance companies. The Fund also may
sell its shares to certain other investors, such as qualified pension and
retirement plans, insurance companies, and Lyon Street.
This prospectus should be read in conjunction with the separate account's
prospectus describing the variable insurance contract. Please read both
prospectuses and retain them for future reference.
The Securities and Exchange Commission has not approved the Fund's shares or
determined whether this prospectus is accurate or complete. Anyone who tells you
otherwise is committing a crime.
The date of this prospectus is October 2, 2000.
TABLE OF CONTENTS
RISK/RETURN SUMMARY AND FUND EXPENSES
Investment Objective
Principal Investment Strategies
Principal Investment Risks
Fund Performance
Fund Expenses
INVESTMENT OBJECTIVE, STRATEGIES AND RISKS
VALUATION OF SHARES
PURCHASING AND REDEEMING SHARES
MANAGEMENT OF THE FUND
Investment Adviser
Administrator and Distributor
Servicing Agents
TAXATION
GENERAL INFORMATION
Description of the Trust and Its Shares
Miscellaneous
<PAGE>
RISK/RETURN SUMMARY AND FUND EXPENSES
Investment Objective
The Fund seeks long-term capital appreciation.
Principal Investment Strategies
Under normal market conditions, the Fund will invest in equity securities of
U.S. companies each having at least $1 billion in market capitalization at the
time of purchase. The Fund intends to primarily invest its assets in equity
securities that Lyon Street believes have above-average potential for growth in
revenues, earnings or assets. While the Fund generally anticipates investing in
common stocks, a portion of the Fund's assets may be invested in preferred
stocks or bonds convertible into common stock. The Fund also may invest a
portion of its assets in foreign securities or American Depositary Receipts
("ADRs").
Principal Investment Risks
An investment in the Fund entails investment risk, including possible loss of
the principal amount invested. The Fund is subject to market risk, which is the
risk that the market value of a portfolio security may move up and down,
sometimes rapidly and unpredictably. This risk may be greatest for the Fund's
investments in equity securities. The Fund is subject to risks posed by foreign
investments, including the risk that fluctuations in foreign exchange rates
could affect the value of the Fund's investments. The Fund also is subject to
interest rate risk, which is the risk that changes in interest rates will affect
the value of the Fund's investments. In particular, the Fund's investments in
fixed income securities, such as convertible bonds and preferred stocks,
generally will change in value inversely with changes in interest rates. Also,
the Fund's investments, and particularly its investments in fixed income
securities, may expose it to credit risk, which is the risk that the issuer of a
security will default or not be able to meet its financial obligations.
An investment in the Fund is not a bank deposit and is not insured or guaranteed
by the Federal Deposit Insurance Corporation or any other government agency.
Fund Performance
Because the Fund has no investment track record, it has no performance
information to compare against other mutual funds or a broad measure of
securities market performance, such as an index.
Fund Expenses
The following expense table indicates the estimated expenses that an investor
will incur as a shareholder of the Fund during the current fiscal year. These
expenses are reflected in the share price of the Fund.
Annual Fund Operating Expenses
(expenses that are deducted from Fund assets)
Management Fees..............................................0.70%
Other Expenses...............................................1.15%
Total Annual Fund Operating Expenses.........................1.85%
------------------
Expense Example
Use the following table to compare fees and expenses of the Fund to other
investment companies. It illustrates the amount of fees and expenses an investor
would pay, assuming (1) a $10,000 investment, (2) 5% annual return, (3)
redemption at the end of each time period, and (4) no changes in the Fund's
total operating expenses. It does not reflect separate account or insurance
contract fees and charges. An investor's actual costs may be different.
1 Year 3 Years
$188 $582
<PAGE>
INVESTMENT OBJECTIVE, STRATEGIES AND RISKS
Investors should be aware that the investments made by the Fund and the results
achieved by the Fund at any given time are not expected to be the same as those
made by other mutual funds for which Lyon Street acts as investment adviser,
including mutual funds with names, 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's investment objective is long-term capital appreciation. The
investment objective is not fundamental, and may be changed without shareholder
approval. Under normal market conditions, the Fund will invest primarily in
equity securities of U.S. companies having at least $1 billion in market
capitalization.
Lyon Street uses a flexible investment approach under which the Fund will invest
primarily in "growth" stocks, but may also invest in "value" stocks. Growth
stocks typically offer strong revenue and earnings potential and accompanying
capital growth, with less dividend income than value stocks. Value stocks are
those that appear to be underpriced based upon valuation measures. In evaluating
prospective investments, Lyon Street may consider broad economic, industry or
market trends, company-specific factors such as the market price of a company's
securities relative to its evaluation of the company's long-term earnings, asset
value and cash flow potential, and historical value measures such as
price-earnings ratios, profit margins and liquidation values. Subject to its
stated investment policy, the Fund may invest in companies of any size.
The Fund also utilizes convertible securities and preferred stocks, which
typically offer higher yields and good potential for capital appreciation. The
portion of the Fund's total assets invested in common stock, preferred stock,
and convertible securities varies according to Lyon Street's assessment of
market and economic conditions and outlook.
The Fund may invest in securities issued by foreign companies, as well as ADRs,
which are U.S. dollar-denominated receipts (typically issued by a U.S. bank or
trust company) evidencing ownership of underlying foreign securities. The Fund
may enter into currency swaps (an exchange of rights to make or receive payments
in specified currencies) or engage in forward foreign currency exchange
contracts in an attempt to hedge its exposure to currency risks associated with
its foreign investments, or to try to enhance its return.
Lyon Street also may use derivative instruments for risk management purposes or
as part of the Fund's investment strategies. Derivative instruments are
financial contracts whose value depends on, or is derived from, the value of an
underlying asset, reference rate or index, and may relate to stocks, bonds,
interest rates, currencies or currency exchange rates, commodities, or related
indexes. The types of derivative instruments that Lyon Street may use include,
but are not limited to, futures contracts (an agreement to buy or sell an asset
in the future at an agreed-upon price), options (which represent a right or
obligation to buy or sell an asset at a predetermined price in the future), and
hybrid instruments (which combine the characteristics of securities, futures and
options).
<PAGE>
In addition to the above, the Fund has the flexibility to make portfolio
investments and engage in other investment techniques. More information on the
Fund's investment strategies may be found in the Statement of Additional
Information (see back cover).
The Fund's investment strategies may subject it to a number of risks, including
the following.
Market Risk. Although equities historically have outperformed other asset
classes over the long term, their prices tend to fluctuate more dramatically
over the shorter term. These movements may result from factors affecting
individual companies, or from broader influences like changes in interest rates,
market conditions, investor confidence or announcements of economic, political
or financial information. While potentially offering greater opportunities for
capital growth than larger, more established companies, the stocks of smaller
companies may be particularly volatile, especially during periods of economic
uncertainty. These companies may face less certain growth prospects, or depend
heavily on a limited line of products and services or the efforts of a small
number of key management personnel.
To the extent the Fund concentrates its investments in growth stocks, it will be
subject to the risks particular to growth stocks, as well as the risk that
growth stocks may underperform other types of stocks. Growth stocks may be
particularly susceptible to rapid price swings during periods of economic
uncertainty or in the event of earnings disappointments, and they typically have
less dividend income to cushion the effect of adverse market conditions. The
Fund also may invest in value stocks, which in theory limit downside risk
because they are underpriced. Of course, Lyon Street's success in moderating
market risk cannot be assured. There is no guarantee that a value stock is, in
fact, undervalued, or that the market will ever recognize its true value. In
addition, to the extent the Fund invests in value stocks, the Fund may produce
more modest gains than stock funds with more aggressive investment profiles.
<PAGE>
Foreign Investment Risk. The securities of foreign companies may pose risks in
addition to, or to a greater degree than, the risks described above. Foreign
companies may be subject to disclosure, accounting, auditing and financial
reporting standards and practices that are different from those to which U.S.
issuers are subject. Accordingly, the Fund may not have access to adequate or
reliable company information. Further, transaction costs in foreign
jurisdictions may be higher, which can result in lower returns or decreased
liquidity. In addition, political, economic and social developments in foreign
countries and fluctuations in currency exchange rates may affect the operations
of foreign companies or the value of their stocks. While investment in ADRs do
not eliminate all of the risks inherent in foreign investing, investing in ADRs
rather than directly in a foreign issuer's stock avoids currency risks during
the settlement period for purchases and sales.
Interest Rate Risk. Although the Fund's primary investment focus is stocks, it
may invest in fixed income securities, such as convertible bonds and preferred
stocks. Generally, the value of these securities will change inversely with
changes in interest rates. In addition, changes in interest rates may affect the
operations of the issuers of stocks in which the Fund invests. Rising interest
rates, which may be expected to lower the value of fixed income instruments and
negatively impact the operations of many issuers, generally exist during periods
of inflation or strong economic growth.
Credit Risk. The Fund's investments, and particularly investments in fixed
income securities, may be affected by the creditworthiness of issuers in which
the Fund invests. Changes in the financial strength, or perceived financial
strength, of a company may affect the value of its securities and, therefore,
impact the value of the Fund's shares.
The Fund may invest in lower rated convertible bonds. To a greater extent than
more highly rated securities, lower rated securities tend to reflect short-term
corporate, economic and market developments, as well as investor perceptions of
the issuer's credit quality. Lower rated securities may be especially
susceptible to real or perceived adverse economic and competitive industry
conditions. In addition, lower rated securities may be less liquid than higher
quality investments. Reduced liquidity may prevent the Fund from selling a
security at the time and price that would be most beneficial to the Fund.
Derivatives Risk. The Fund's use of derivative instruments may involve risks
different from, or greater than, the risks associated with investing directly in
securities or other traditional investments. Derivatives may be subject to
market risk, interest rate risk, and credit risk, as discussed above. Certain
derivatives may be illiquid, which may reduce the return of the Fund if it
cannot sell or terminate the derivative instrument at an advantageous time or
price. Some derivatives may involve the risk of mispricing or improper
valuation, or the risk that changes in the value of the instrument may not
correlate well with the underlying asset, rate or index. The Fund could lose the
entire amount of its investment in a hybrid instrument or other derivative and,
in some cases, could lose more than the principal amount invested. Also,
suitable derivative instruments may not be available in all circumstances, and
there is no assurance that the Fund will be able to engage in these transaction
to reduce exposure to other risks.
<PAGE>
Active Trading. The Fund will not generally trade in securities for short-term
profits. However, the Fund is actively managed and, under appropriate
circumstances, may purchase and sell securities without regard to the length of
time held. A high portfolio turnover rate may increase transaction costs, which
may negatively impact the Fund's performance.
Temporary Investments. Lyon Street may temporarily invest up to 100% of the
Fund's assets in high quality, short-term money market instruments if it
believes adverse economic or market conditions, such as excessive volatility or
sharp market declines, justify taking a defensive investment posture. If the
Fund attempts to limit investment risk by temporarily taking a defensive
investment position, it may be unable to pursue its investment objectives during
that time, and it may miss out on some or all of an upswing in the securities
markets.
Please see the Statement of Additional Information for more detailed information
about the Fund, its investment strategies, and its risks.
VALUATION OF SHARES
The Fund prices its shares on the basis of the net asset value of the Fund,
which is determined as of the close of the New York Stock Exchange ("NYSE")
(generally 4:00 p.m. Eastern Time) on each Business Day (other than a day 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 a day on which no
shares are tendered for redemption and no order to purchase any shares is
received). A Business Day is a day on which the NYSE is open for trading.
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. 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 of Variable Insurance Funds (the "Trust") believes accurately reflects
fair value. For further information about valuation of investments, see the
Statement of Additional Information.
PURCHASING AND REDEEMING SHARES
Shares of the Fund are available for purchase by insurance company separate
accounts to serve as an investment medium for variable insurance contracts, and
by qualified pension and retirement plans, certain insurance companies, and Lyon
Street. The Fund reserves the right to reject or refuse, in its discretion, any
order for the purchase of the Fund's shares, in who
le or in part.
Shares of the Fund are purchased or redeemed at the net asset value per share
next determined after receipt by the Fund's distributor (or other agent) of a
purchase order or redemption request. Transactions in shares of the Fund will be
effected only on a Business Day of the Fund.
Payment for shares redeemed normally will be made within seven days. The Fund
intends to pay cash for all shares redeemed, but under 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. A
shareholder may incur brokerage costs in converting such securities to cash.
Payment for shares may be delayed under extraordinary circumstances or as
permitted by the Securities and Exchange Commission in order to protect
remaining investors.
Investors do not deal directly with the Fund to purchase or redeem shares.
Please 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.
<PAGE>
The Fund currently does not foresee any disadvantages to investors if the Fund
served as an investment medium for both variable annuity contracts and variable
life insurance policies. However, 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 due to differences in
tax treatment or other considerations. The Board of Trustees and each
participating insurance company 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.
The Fund reserves the right to discontinue offering shares at any time, or to
cease investment operations entirely. In such an event, 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 Board of
Trustees, or in another mutual fund.
MANAGEMENT OF THE FUND
Investment Adviser
Lyon Street is the investment adviser of the Fund. Through its portfolio
management team, Lyon Street makes the day-to-day investment decisions for the
Fund and continuously reviews, supervises and administers the Fund's investment
program.
Lyon Street, a wholly owned subsidiary of Old Kent Bank, maintains offices at
111 Lyon Street, NW, Grand Rapids, Michigan 49503. Old Kent Bank is a wholly
owned subsidiary of Old Kent Financial Corporation, which is a financial
services company with total assets as of December 31, 1999 of approximately
$18.1 billion. Lyon Street employs an experienced staff of professional
investment analysts, portfolio managers and traders, and uses several
proprietary computer-based systems in conjunction with fundamental analysis to
identify investment opportunities.
Under an investment advisory agreement between the Trust and Lyon Street, the
Trust pays Lyon Street an investment advisory fee, computed daily and payable
monthly, at an annual rate equal to the lesser of: (a) 0.70% of the Fund's
average daily net assets; or (b) such amount as may from time to time be agreed
upon in writing by the Trust and Lyon Street.
Allan J. Meyers, CFA, the Chief Equity Officer at Lyon Street, and Daniel
Skubiz, a Portfolio Manager at Lyon Street, are the persons who are primarily
responsible for the management of the Fund. Mr. Meyers has over twenty-four
years of portfolio management experience, including fifteen years with Old Kent
Bank and Lyon Street. Prior to joining Lyon Street in 2000, Mr. Skubiz was a
Vice President with Trade Street Investment Associates, Inc., a wholly-owned
subsidiary of Bank of America.
<PAGE>
Joseph T. Keating, President and Chief Investment Officer at Lyon Street, is
responsible for developing and implementing the Fund's investment policies. Mr.
Keating has over twenty years of portfolio management experience, including
twelve years with Old Kent Bank and Lyon Street.
Administrator and Distributor
BISYS Fund Services Ohio, Inc. is the administrator for the Fund, and BISYS Fund
Services acts as the Fund's principal underwriter and distributor. The address
of each is 3435 Stelzer Road, Columbus, Ohio 43219-3035.
See the Statement of Additional Information for further information about the
Fund's service providers.
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 for support services to investors, such as
establishing and maintaining accounts and records, providing account
information, arranging for bank wires, responding to routine inquiries,
forwarding investor communications, assisting in the processing of purchase,
exchange and redemption requests, and assisting investors in changing account
designations and addresses. For expenses incurred and services provided, a
financial institution (or its affiliate) providing these services ("Servicing
Agent") may receive 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 insurance contracts owned by customers of the Servicing Agent. A
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.
TAXATION
The Fund intends to diversify its investments in a manner intended to comply
with tax requirements generally applicable to mutual funds. In addition, the
Fund will 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 single
issuer are treated as one investment and each U.S. Government agency or
instrumentality is treated as a separate issuer. Any security issued,
guaranteed, or insured (to the extent so guaranteed or insured) by the U.S.
Government or an agency or instrumentality of the U.S. Government is treated as
a security issued by the U.S. Government or its agency or instrumentality,
whichever is applicable.
<PAGE>
If the Fund fails to meet this diversification requirement, income with respect
to variable insurance 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 the contracts. Similarly, 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.
Since the shareholders of the Fund will be separate accounts, no discussion is
included here as to the federal income tax consequences at the shareholder
level. For information concerning the federal income tax consequences to
purchasers of the variable life insurance policies and variable annuity
contracts, see the prospectus for the relevant variable insurance contract. See
the Statement of Additional Information for more information on taxes.
GENERAL INFORMATION
Description of the Trust and Its Shares
Variable Insurance Funds was organized as a Massachusetts business trust in 1994
and currently consists of nine portfolios. The Board of Trustees of the Trust
may establish additional portfolios in the future. Under Massachusetts law,
shareholders could be held personally liable for the obligations of the Trust
under certain circumstances. However, the Trust's declaration of trust disclaims
liability of its shareholders and provides for indemnification out of Trust
property for all loss and expense of any shareholder held personally liable for
the obligations of the Trust. Accordingly, the risk of a shareholder incurring
financial loss on account of shareholder liability should be considered remote.
Miscellaneous
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. 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 its
distributor in any jurisdiction in which such offering may not be lawfully made.
<PAGE>
For more information about the Fund, the following document is available free
upon request:
Statement of Additional Information (SAI): The SAI provides more detailed
information about the Fund, including its operations and investment policies. It
is incorporated by reference and is legally considered a part of this
prospectus.
--------------------------------------------------------------------------------
An investor can get free copies of the SAI, or request other information and
discuss any questions about the Fund, by contacting a broker or bank that sells
an insurance contract that offers the Fund as an investment option. Or contact
the Fund at:
Variable Insurance Funds
3435 Stelzer Road
Columbus, Ohio 43219-3035
Telephone: 1-800-__________
--------------------------------------------------------------------------------
Investors can review and copy the SAI and other information about the Fund at
the Public Reference Room of the Securities and Exchange Commission. Investors
may call 1-202-942-8090 for more information about the Public Reference Room.
Investors can get text-only copies of information about the Fund:
. For a fee, by writing the Public Reference Section of the Commission,
Washington, D.C. 20549-0102 or by electronic request at [email protected].
. Free from the Commission's Website at http://www.sec.gov.
Investment Company Act file no. 811-8644.
<PAGE>
Variable Insurance Funds
3435 Stelzer Road
Columbus, Ohio 43219-3035
(800) __________
STATEMENT OF ADDITIONAL INFORMATION
October 2, 2000
This Statement of Additional Information ("SAI") describes the Kent Aggressive
Growth Fund (the "Fund"), a diversified investment portfolio of Variable
Insurance Funds (the "Trust").
The Trust offers an indefinite number of transferable units ("Shares") of the
Fund. Shares of the Fund may be sold to segregated asset accounts ("Separate
Accounts") of insurance companies to serve as the investment medium for variable
life insurance policies and variable annuity contracts ("Variable Contracts")
issued by the insurance companies. Shares of the Fund also may be sold to
qualified pension and retirement plans, certain insurance companies, and the
investment adviser of the Fund. The Separate Accounts invest in Shares of the
Fund 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 Fund, dated October 2, 2000, as
supplemented from time to time. 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 the toll free
numbers set forth above.
<PAGE>
TABLE OF CONTENTS
INVESTMENT OBJECTIVES AND POLICIES...........................................1
Bank Obligations....................................................1
Commercial Paper....................................................2
Variable Amount Master Demand Notes.................................2
Variable And Floating Rate Demand Notes.............................3
Short-Term Obligations..............................................3
Corporate Debt Securities...........................................3
Foreign Investments.................................................5
Securities Of Foreign Governments And Supranational Organizations...7
Currency Swaps......................................................8
Foreign Currency Transactions.......................................8
Hybrid Instruments..................................................9
Standard & Poor's Depository Receipts..............................11
U.S. Government Obligations........................................12
Options............................................................12
Forward Commitments, When-Issued and Delayed-Delivery Securities...15
Mortgage-Related and Asset-Backed Securities.......................16
Illiquid and Restricted Securities.................................18
Investment Companies...............................................18
Lending of Portfolio Securities....................................19
Convertible Securities.............................................19
Warrants...........................................................20
Repurchase Agreements..............................................20
Reverse Repurchase Agreements......................................20
Futures Contracts and Options Thereon..............................21
Regulatory Restrictions............................................22
INVESTMENT RESTRICTIONS.....................................................22
Portfolio Turnover.................................................23
NET ASSET VALUE.............................................................24
Valuation of the Fund..............................................24
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION..............................25
MANAGEMENT OF THE TRUST.....................................................26
Trustees and Officers..............................................26
Investment Adviser.................................................28
Portfolio Transactions.............................................30
Federal Banking Law................................................31
Administrator......................................................31
Expenses...........................................................32
Distributor........................................................33
Custodian, Transfer Agent and Fund Accounting Services.............33
Independent Accountants............................................34
Legal Counsel......................................................34
Code of Ethics.....................................................34
ADDITIONAL INFORMATION......................................................35
Description of Shares..............................................35
Vote of a Majority of the Outstanding Shares.......................36
Shareholder and Trustee Liability..................................36
Additional Tax Information.........................................37
Performance Information............................................40
Miscellaneous......................................................42
FINANCIAL STATEMENTS........................................................42
APPENDIX ....................................................................i
<PAGE>
The Trust is an open-end management investment company which currently offers
nine separate funds, each with different investment objectives. This SAI
contains information about the Kent Aggressive Growth Fund, which is advised by
Lyon Street Asset Management Company ("Lyon Street").
Much of the information contained in this SAI expands upon subjects discussed in
the Prospectus of the Fund. Capitalized terms not defined herein are defined in
the Prospectus. No investment in the Fund should be made without first reading
the Fund's Prospectus.
INVESTMENT OBJECTIVES AND POLICIES
The following information supplements the investment objectives and policies of
the Fund as set forth in the Prospectus.
Bank Obligations. The Fund 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.
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.
Fixed time deposits are obligations of foreign branches of United States banks
or foreign banks which are payable on a stated maturity date and bear a fixed
rate of interest. Although fixed time deposits do not have a market, there are
no contractual restrictions on the right to transfer a beneficial interest in
the deposit to a third party.
The Fund may invest a portion of its assets in the obligations of foreign banks
and foreign branches of domestic banks. Such obligations include 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
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; Canadian Time Deposits ("CTDs") which are essentially the same as ETDs
except they are issued by Canadian offices of major Canadian banks; Schedule Bs,
which are obligations issued by Canadian branches of foreign or domestic banks;
Yankee Certificates of Deposit ("Yankee CDs") which are U.S. dollar-denominated
certificates of deposit issued by a U.S. branch of a foreign bank and held in
the United States; and Yankee Bankers' Acceptances ("Yankee BAs") which are U.S.
dollar-denominated bankers' acceptances issued by a U.S. branch of a foreign
bank and held in the United States.
<PAGE>
Although the Fund may invest in obligations of foreign banks or foreign branches
of U.S. banks only when the investment adviser deems the instrument to present
minimal credit risk, such investments nevertheless entail risks that are
different from those of investments in domestic obligations of U.S. banks. These
additional risks include future political and economic developments, the
possible imposition of withholding taxes on interest income, possible seizure or
nationalization of foreign deposits, the possible establishment of exchange
controls, or the adoption of other foreign governmental restrictions which might
adversely affect the payment of principal and interest on such obligations. In
addition, foreign branches of U.S. banks and U.S. branches of foreign banks may
be subject to less stringent reserve requirements and to different accounting,
auditing, reporting and record keeping standards than those applicable to
domestic branches of U.S. 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.
The Fund may 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 two nationally recognized statistical rating organizations
("NRSROs") (e.g., A-2 or better by Standard & Poor's Ratings Service ("S&P"),
Prime-2 or better by Moody's Investors Service, Inc. ("Moody's") or F-2 or
better by Fitch Investors Service ("Fitch")) or, if not rated, determined to be
of comparable quality to instruments that are so rated.
Commercial paper may include variable and floating rate instruments. Commercial
paper issues include securities issued by corporations without registration
under the Securities Act of 1933, as amended (the "1933 Act"), in reliance on
the exemption in Section 3(a)(3), and commercial paper issued in reliance on the
so-called "private placement" exemption in Section 4(2) ("Section 4(2) Paper").
Section 4(2) Paper is restricted as to disposition under the federal securities
laws in that any resale must similarly be made in an exempt transaction. Section
4(2) Paper is normally resold to other institutional investors through or with
the assistance of investment dealers which make a market in Section 4(2) Paper,
thus providing liquidity. For purposes of the Fund's limitation on purchases of
illiquid instruments, Section 4(2) Paper will not be considered illiquid if the
investment adviser has determined, in accordance with guidelines approved by the
Board of Trustees, that an adequate trading market exists for such securities.
Variable Amount Master Demand Notes. The Fund may invest in variable amount
master demand notes, which 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 the Fund and the issuer, they are
not normally traded. 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. Lyon Street 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.
<PAGE>
Variable And Floating Rate Demand Notes. The Fund may, from time to time, buy
variable or floating rate demand notes issued by corporations, bank holding
companies and financial institutions and similar taxable and tax-exempt
instruments issued by government agencies and instrumentalities. These
securities will typically have a maturity over one year but carry with them the
right of the holder to put the securities to a remarketing agent or other entity
at designated time intervals and on specified notice. The obligation of the
issuer of the put to repurchase the securities may be backed by a letter of
credit or other obligation issued by a financial institution. The purchase price
is ordinarily par plus accrued and unpaid interest. Generally, the remarketing
agent will adjust the interest rate every seven days (or at other specified
intervals) in order to maintain the interest rate at the prevailing rate for
securities with a seven-day or other designated maturity.
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, 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. Pending investment or
to meet anticipated redemption requests, the Fund may invest without limitation
in short-term obligations. For temporary defensive purposes, these investments
may constitute 100% of a Fund's portfolio and, in such circumstances, will
constitute a temporary suspension of its attempts to achieve its investment
objective.
Corporate Debt Securities. The Fund may invest in U.S. dollar-denominated debt
obligations issued or guaranteed by U.S. corporations or U.S. commercial banks,
U.S. dollar-denominated obligations of foreign issuers and debt obligations of
foreign issuers denominated in foreign currencies. Such debt obligations
include, among others, bonds, notes, debentures and variable rate demand notes.
In choosing corporate debt securities on behalf of a Fund, its investment
adviser may consider (i) general economic and financial conditions; (ii) the
specific issuer's (a) business and management, (b) cash flow, (c) earnings
coverage of interest and dividends, (d) ability to operate under adverse
economic conditions, (e) fair market value of assets, and (f) in the case of
foreign issuers, unique political, economic or social conditions applicable to
such issuer's country; and, (iii) other considerations deemed appropriate.
The Fund will not purchase corporate debt securities rated below Baa by Moody's
or BBB by S&P or to the extent certain U.S. or foreign debt obligations are
unrated or rated by other rating agencies, are determined to be of comparable
quality ("Medium-Grade Securities"). While "Baa"/"BBB" and comparable unrated
securities may produce a higher return than higher rated securities, they are
subject to a greater degree of market fluctuation and credit risk than the
higher quality securities in which the Fund may invest and may be regarded as
having speculative characteristics as well.
<PAGE>
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 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
the Fund 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.
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 the Fund 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
the Fund 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, an investment adviser will conduct their own
independent credit analysis of Medium-Grade Securities.
After purchase, a security may cease to be rated or its rating may be reduced
below the minimum required for purchase by the Fund. Neither event will require
a sale of such security. However, Lyon Street will consider such event in its
determination of whether a Fund should continue to hold the security. A security
which has had its rating downgraded or revoked may be subject to greater risk to
principal and income, and often involve greater volatility of price, than
securities in the higher rating categories. Such securities are also subject to
greater credit risks (including, without limitation, the possibility of default
by or bankruptcy of the issuers of such securities) than securities in higher
rating categories.
<PAGE>
Foreign Investments. The Fund may invest in 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.
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 Fund will
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 the Fund is uninvested and no return is earned
thereon. The inability of the Fund to make intended security purchases due to
settlement problems could cause the Fund to miss attractive investment
opportunities. Losses to a 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. 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.
<PAGE>
Additionally, the Fund may invest 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
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 more developed
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 a result to assess the value or prospects of an investment in
such issuers.
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 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.
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 value of the
Fund's assets. 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.
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 Fund investing in securities that are not
U.S. dollar-denominated. In addition, although the Fund will receive income on
foreign securities in such currencies, the 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 Fund could be required to liquidate portfolio securities to
make required distributions. Similarly, if an exchange rate declines between the
time the 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.
<PAGE>
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 and trust companies. 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.
In general, there is a large, liquid market in the United States for many 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 ADRs, 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 depository of an unsponsored facility frequently
is under no obligation to distribute shareholder communications received from
the issuer of the deposited securities or to pass through the voting rights to
facility holders with respect to the deposited securities, whereas the
depository of a sponsored facility typically distributes shareholder
communications and passes through the voting rights.
The Fund may invest in both sponsored and unsponsored ADRs and European
Depositary Receipts ("EDRs"), Global Depositary Receipts ("GDRs") and other
similar global instruments. EDRs, which are sometimes referred to as Continental
Depositary 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 depositary receipts structured like global debt
issues to facilitate trading on an international basis. 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, and the prices of unsponsored depositary receipts may be more volatile
than if such instruments were sponsored by the issuer.
Securities Of Foreign Governments And Supranational Organizations. The Fund may
invest in U.S. dollar - denominated debt securities issued by foreign
governments, their political subdivisions, governmental authorities, agencies
and instrumentalities and supranational organizations. A supranational
organization is an entity designated or supported by the national government of
one or more countries to promote economic reconstruction or development.
Examples of supranational organizations include, among others, the International
Bank for Reconstruction and Development (World Bank), the European Economic
Community, the European Coal and Steel Community, the European Investment Bank,
the Inter- American Development Bank, the Asian Development Bank, and the
African Development Bank. The Fund may also invest in "quasi-government
securities" which are debt obligations issued by entities owned by either a
national, state or equivalent government or are obligations of such a government
jurisdiction which are not backed by its full faith and credit and general
taxing powers.
<PAGE>
Investing in foreign government and quasi-government securities involves
considerations and possible risks not typically associated with investing in
obligations issued by the U.S. Government. The values of foreign investments are
affected by changes in governmental administration or economic or monetary
policy (in the U.S. or other countries) or changed circumstances in dealings
between countries. In addition, investments in foreign countries could be
affected by other factors not present in the United States, including
expropriation, confiscatory taxation and lack of uniform accounting and auditing
standards.
Currency Swaps. The Fund may also enter into currency swaps for hedging purposes
or to increase total return. Currency swaps involve the exchange of the rights
of the Fund and another party to make or receive payments in specific
currencies. The net amount of the excess, if any, of the Fund's obligations over
its entitlements with respect to each currency swap will be accrued on a daily
basis and an amount of liquid assets, such as cash, U.S. Government securities
or other liquid securities, having an aggregate net asset value at least equal
to such accrued excess will be segregated by the Fund. Inasmuch as these
transactions are entered into for good faith hedging purposes, Lyon Street
believes that such obligations do not constitute senior securities as defined in
the Investment Company Act of 1940, as amended ("1940 Act") and, accordingly,
will not treat them as being subject to the Fund's borrowing restrictions.
The use of currency swaps is a highly specialized activity which involves
investment techniques and risks different from those associated with ordinary
portfolio securities transactions. If Lyon Street is incorrect in its forecasts
of market values, interest rates and currency exchange rates, the investment
performance of the Fund would be less favorable than it would have been if this
investment technique was not used.
The Fund will not enter into a currency swap unless the unsecured commercial
paper, senior debt or the claims-paying ability of the other party thereto is
rated either A or A-1 or better by S&P or Moody's. If there is a default by the
other party to such transaction, the Fund will have contractual remedies
pursuant to the agreements related to the transaction.
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 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.
<PAGE>
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 also may hedge foreign currency exchange rate risk by
engaging in currency financial futures and options transactions, which are
described below. 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 currency
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 a 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.
Hybrid Instruments. The Fund may invest in Hybrid Instruments. Hybrid
Instruments (a type of potentially high-risk derivative) combine the elements of
futures contracts or options with those of debt, preferred equity, or a
depository instrument. Generally, a Hybrid Instrument will be a debt security,
preferred stock, depository share, trust certificate, certificate of deposit, or
other evidence of indebtedness on which a portion of or all interest payments,
and/or the principal or stated amount payable at maturity, redemption, or
retirement, is determined by reference to prices, changes in prices, or
differences between prices, of securities, currencies, intangibles, goods,
articles or commodities (collectively "Underlying Assets") or by another
objective index, economic factor, or other measure, such as interest rates,
currency exchange rates, commodity indices, and securities indices (collectively
"Benchmarks"). Thus, Hybrid Instruments may take a variety of forms, including
but not limited to, debt instruments with interest or principal payments or
redemption terms determined by reference to the value of a currency or commodity
or securities index at a future point in time, preferred stock with dividend
rates determined by reference to the value of a currency, or convertible
securities with the conversion terms related to a particular commodity.
Hybrid Instruments can be an efficient means of creating exposure to a
particular market, or segment of a market, with the objective of enhancing total
return. For example, the Fund may wish to take advantage of expected declines in
interest rates in several European countries, but avoid the transaction costs
associated with buying and currency-hedging its securities. One solution would
be to purchase a U.S. dollar-denominated Hybrid Instrument whose redemption
price is linked to the average three-year interest rate in a designated group of
countries. The redemption price formula would provide for payoffs of greater
than par if the average interest rate was lower than a specified level, and
payoffs of less than par if rates were above the specified level. Furthermore,
the Fund could limit the downside risk of the security by establishing a minimum
redemption price so that the principal paid at maturity could not be below a
predetermined minimum level if interest rates were to rise significantly. The
purpose of this arrangement, known as structured security with an embedded put
option, would be to give the Fund the desired European security exposure while
avoiding currency risk, limiting downside market risk, and lowering transactions
costs. Of course, there is no guarantee that the strategy will be successful,
and the Fund could lose money, if, for example, interest rates do not move as
anticipated or credit problems develop with the issuer of the Hybrid.
<PAGE>
The risks of investing in Hybrid Instruments reflect a combination of the risks
of investing in securities, options, futures and currencies. Thus, an investment
in a Hybrid Instrument may entail significant risks that are not associated with
a similar investment in a traditional debt instrument that has a fixed principal
amount, is denominated in U.S. dollars, or bears interest either at a fixed rate
or a floating rate determined by reference to a common, nationally published
benchmark. The risks of a particular Hybrid Instrument will, of course, depend
upon the terms of the instrument, but may include, without limitation, the
possibility of significant changes in the Benchmarks or the prices of Underlying
Assets to which the instrument is linked. Such risks generally depend upon
factors which are unrelated to the operations or credit quality of the issuer of
the Hybrid Instrument and which may not be readily foreseen by the purchaser,
such as economic and political events, the supply and demand for the Underlying
Assets, and interest rate movements. In recent years, various Benchmarks and
prices for Underlying Assets have been highly volatile, and such volatility may
be expected in the future. Reference is also made to the discussion of futures,
options, and forward contracts herein for a discussion of the risks associated
with such investments.
Hybrid Instruments are potentially more volatile and carry greater market risks
than traditional debt instruments. Depending on the structure of the particular
Hybrid Instrument, changes in a Benchmark may be magnified by the terms of the
Hybrid Instrument and have an even more dramatic and substantial effect upon the
value of the Hybrid Instrument. Also, the prices of the Instrument and the
Benchmark or Underlying Asset may not move in the same direction or at the same
time. Hybrid Instruments may bear interest or pay preferred dividends at below
market (or even relatively nominal) rates. Alternatively, Hybrid Instruments may
bear interest at above market rates but bear an increased risk of principal loss
(or gain). The latter scenario may result if "leverage" is used to structure the
Hybrid Instrument. Leverage risk occurs when the Hybrid Instrument is structured
so that a given change in a Benchmark or Underlying Asset is multiplied to
produce greater value change in the Hybrid Instrument, thereby magnifying the
risk of loss as well as the potential for gain. Hybrid Instruments may also
carry liquidity risk since the instruments are often "customized" to meet the
portfolio needs of a particular investor, and therefore, the number of investors
that are willing and able to buy such instruments in the secondary market may be
smaller than that for more traditional debt securities. In addition, because the
purchase and sale of the Hybrid Instruments could take place in an
over-the-counter market without the guarantee of a central clearing organization
or in a transaction between the Fund and the issuer of the Hybrid Instrument,
the creditworthiness of the counter party or issuer of the Hybrid Instrument
would be an additional risk factor which the Fund would have to consider and
monitor. Hybrid Instruments also may not be subject to regulation of the
Commodities Futures Trading Commission, which generally regulates the trading of
commodity futures by U.S. persons, the Securities and Exchange Commission, which
regulates the offer and sale of securities by and to U.S. persons, or any other
governmental regulatory authority.
The various risks discussed above, particularly the market risk of such
instruments, may in turn cause significant fluctuations in the net asset value
of the Fund. Accordingly, the Fund will limit its investments in Hybrid
Instruments to 10% of total assets. However, because of their volatility, it is
possible that the Fund's investment in Hybrid Instruments will account for more
than 10% of the Fund's return (positive or negative).
Standard & Poor's Depository Receipts. The Fund may invest in Standard & Poor's
Depository Receipts ("SPDRs"). SPDRs represent interests in trusts sponsored by
a subsidiary of the American Stock Exchange, Inc. and are structured to provide
investors proportionate undivided interests in a securities portfolio
constituting substantially all the common stocks (in substantially the same
weighting) as the component common stocks of a particular Standard & Poor's
Index ("S&P Index"), such as the S&P 500. SPDRs are not redeemable, but are
exchange traded. SPDRs represent interests in an investment company that is not
actively managed, and instead holds securities in an effort to track the
performance of the pertinent S&P Index and not for the purpose of selecting
securities that are considered superior investments. The results of SPDRs will
not replicate exactly the performance of the pertinent S&P Index due to
reductions in the SPDRs' performance attributable to transaction and other
expenses, including fees to service providers, borne by the SPDRs. SPDRs
distribute dividends on a quarterly basis. The Fund must limit investments in an
SPDR to 5% of its total assets and 3% of the outstanding voting securities of
the SPDR issuer. Moreover, the Fund's investments in SPDRs, when aggregated with
all other investments in investment companies, may not exceed 10% of the total
assets of the Fund.
<PAGE>
U.S. Government Obligations. The Fund 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 Fund 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,
such as the Government National Mortgage Association ("GNMA"), are supported by
the full faith and credit of the U.S. Treasury; others, such as those of the
Federal National Mortgage Association ("FNMA"), are supported by the right of
the issuer to borrow from the Treasury; others, such as those of the Student
Loan Marketing Association ("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 Federal Farm Credit Bureau or the Federal Home Loan
Mortgage Corporation ("FHLMC"), 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 Fund will invest
in the obligations of such agencies or instrumentalities only when Lyon Street
believes that the credit risk with respect thereto is minimal.
The Fund 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.
Options. The Fund may purchase put and call options on securities, securities
indices and foreign currencies and may write (sell) covered 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. A call option is covered if the Fund owns the underlying security
covered by the call or has an absolute and immediate right to acquire that
security without additional cash consideration (or for additional cash
consideration if the underlying security is held in a segregated account by its
custodian) upon conversion or exchange of other securities held in its
portfolio. A put option is covered if the Fund maintains cash, or other liquid
assets with a value equal to the exercise price in a segregated account with its
custodian. 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.
<PAGE>
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 a 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.
When the Fund writes an option, an amount equal to the net premium (the premium
less the commission) received by the 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 the
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 may deliver the
underlying security in the open market. In either event, the proceeds of the
sale will be increased by the net premium originally received and the Fund will
realize a gain or loss.
Covered call options must be listed on a national securities exchange and issued
by the Options Clearing Corporation. The purpose of writing covered call options
is to generate additional premium income for the Fund. This premium income will
serve to enhance the Fund's total return and will reduce the effect of any price
decline of the security involved in the option. Covered call options will
generally be written on securities which are not expected to make any major
price moves in the near future but which, over the long term, are deemed to be
attractive investments for the Fund.
Once the decision to write a call option has been made, Lyon Street, in
determining whether a particular call option should be written on a particular
security, will consider the reasonableness of the anticipated premium and the
likelihood that a liquid secondary market will exist for those options. Closing
transactions will be effected in order to realize a profit on an outstanding
call option, to prevent an underlying security from being called, or to permit
the sale of the underlying security. Furthermore, effecting a closing
transaction will permit the Fund to write another call option on the underlying
security with either a different exercise price or expiration date or both. If
the Fund desires to sell a particular security from its portfolio on which it
has written a call option, it will seek to effect a closing transaction prior
to, or concurrently with, the sale of the security. There is, of course, no
assurance that the Fund will be able to effect such closing transactions at a
favorable price. If the Fund cannot enter into such a transaction, it may be
required to hold a security that it might otherwise have sold, in which case it
would continue to be at market risk on the security. This could result in higher
transaction costs. The Fund will pay transaction costs in connection with the
writing of options to close out previously written options. Such transaction
costs are normally higher than those applicable to purchases and sales of
portfolio securities.
<PAGE>
Exercise prices of options may be below, equal to, or above the current market
values of the underlying securities at the time the options are written. From
time to time, the Fund may purchase an underlying security for delivery in
accordance with an exercise notice of a call option assigned to it, rather than
delivering such security from its portfolio. In such cases, additional costs
will be incurred. The Fund will realize a profit or loss from a closing purchase
transaction if the cost of the transaction is less or more than the premium
received from the writing of the option. Because increases in the market price
of a call option will generally reflect increases in the market price of the
underlying security, any loss resulting from the repurchase of a call option is
likely to be offset in whole or in part by appreciation of the underlying
security owned by the Fund.
Where the Fund may purchase put options, the Fund is purchasing the right to
sell a specified security (or securities) within a specified period of time at a
specified exercise price. Puts may be acquired to facilitate the liquidity of
the portfolio assets. Puts may also be used to facilitate the reinvestment of
assets at a rate of return more favorable than that of the underlying security.
The Fund may sell, transfer, or assign a put only in conjunction with the sale,
transfer, or assignment of the underlying security or securities. The amount
payable to the Fund upon its exercise of a "put" is normally (i) the Fund's
acquisition cost of the securities subject to the put (excluding any accrued
interest which the Fund paid on the acquisition), less any amortized market
premium or plus any accreted market or original issue discount during the period
the Fund owned the securities, plus (ii) all interest accrued on the securities
since the last interest payment date during that period. The Fund generally will
acquire puts only where the puts are available without the payment of any direct
or indirect consideration. However, if necessary or advisable, the Fund may pay
for puts either separately in cash or by paying higher price for portfolio
securities which are acquired subject to the puts (thus reducing the yield to
maturity otherwise available for the same securities).
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.
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. The
Fund will segregate assets or otherwise cover index options that would require
it to pay cash upon exercise.
A principal reason for writing put and call options is to attempt to realize,
through the receipt of premiums, a greater current return than would be realized
on the underlying securities alone. In return for the premium received for a
call option, the Fund foregoes the opportunity for profit from a price increase
in the underlying security above the exercise price so long as the option
remains open, but retains the risk of loss should the price of the security
decline. In return for the premium received for a put option, the Fund assumes
the risk that the price of the underlying security will decline below the
exercise price, in which case the put would be exercised and the Fund would
suffer a loss. The Fund may purchase put options in an effort to protect the
value of a security it owns against a possible decline in market value.
<PAGE>
Forward Commitments, When-Issued and Delayed-Delivery Securities. The 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). In
addition, the Fund may purchase and sell securities on a "forward commitment"
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 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 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 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 the 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
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, a Fund's commitment to
purchase "when-issued" or "delayed-delivery" securities will not exceed 25% of
the value of the Fund's total assets.
When the 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 incurring a loss or missing the opportunity to obtain a price
or yield considered to be advantageous.
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. The Fund 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 that
the Fund purchases mortgage-related securities from such issuers which may,
solely for purposes of the 1940 Act, be deemed to be investment companies, the
Fund's investment in such securities will be subject to the limitations on its
investment in investment company securities.
<PAGE>
Mortgage-related securities in which the Fund may invest, represent pools of
mortgage loans assembled for sale to investors by various governmental agencies
such as GNMA and government-related organizations such as FNMA and 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 the 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 Fund 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.
<PAGE>
The Fund may invest in Collateralized Mortgage Obligations ("CMOs"). 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, the Fund may fail to fully recoup its
initial investment in these securities even if the security is rated in the
highest rating category.
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.
Illiquid and Restricted Securities. "Section 4(2) securities" are securities
which are issued in reliance on the "private placement" exemption from
registration which is afforded by Section 4(2) of the 1933 Act. The Fund will
not purchase Section 4(2) securities which have not been determined to be liquid
in excess of 15% of its net assets. 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 which 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. Rule 144A, a rule promulgated
under Section 4(2) of the 1933 Act, 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.
<PAGE>
Lyon Street 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 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 the Fund's liquidity to the extent that qualified
institutional buyers become, for a time, uninterested in purchasing these
securities.
Investment Companies. The Fund may invest in securities issued by other
investment companies, including, but not limited to, money market investment
companies, within the limits prescribed by the 1940 Act. As a shareholder of
another investment company, the Fund would bear, along with other shareholders,
its pro rata portion of the expenses of such other investment company, including
advisory fees. These expenses would be in addition to the advisory and other
expenses that the Fund bears directly in connection with its own operations, and
may represent a duplication of fees to Shareholders of the Fund.
Lending of Portfolio Securities. The Fund, from time to time, may 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, or other collateral. 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, each 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, it 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.
Convertible Securities. The Fund may invest in 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 will invest in convertible
securities that are rated "BBB" by S&P and "Baa" by Moody's, or higher, at the
time of investment, or if unrated, are of comparable quality.
<PAGE>
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
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 Lyon Street, 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, Lyon Street 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, Lyon Street may consider 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.
Warrants. The Fund may purchase warrants and similar rights, which are
privileges issued by corporations enabling the owners to subscribe to and
purchase a specified number of shares of the corporation at a specified price
during a specified period of time. The purchase of warrants involves the risk
that the Fund could lose the purchase value of a warrant if the right to
subscribe to additional shares is not exercised prior to the warrant's
expiration. Also, the purchase of warrants involves the risk that the effective
price paid for the warrant added to the subscription price of the related
security may exceed the value of the subscribed security's market price such as
when there is no movement in the level of the underlying security.
<PAGE>
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 member banks of the Federal Deposit Insurance Corporation and
registered broker-dealers that Lyon Street 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, 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 the seller were to default on
its repurchase obligation or become insolvent, the Fund 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 Fund's custodian or another qualified
custodian, as appropriate, or in the Federal Reserve/Treasury book-entry system.
Reverse Repurchase Agreements. The Fund may also enter into reverse repurchase
agreements in accordance with applicable investment restrictions. 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 at a mutually agreed upon date and price. At the time the
Fund enters into a reverse repurchase 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 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.
Futures Contracts and Options Thereon. The Fund may enter into contracts for the
future delivery of securities or foreign currencies and futures contracts based
on a specific security, class of securities, interest rate, 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 is 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. The Fund may engage in such futures transactions
in an effort to hedge against market risks and to manage its cash position, but
not for leveraging purposes. 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 the 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, the 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, the 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.
<PAGE>
The acquisition of put and call options on futures contracts will, respectively,
give the 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.
The value of the Fund's contracts may equal or exceed 100% of its total assets,
although it will not purchase or sell a futures contract unless immediately
following such sale or purchase 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
the its net assets. Futures transactions will be limited to the extent necessary
to maintain the qualification of the Fund as a regulated investment company.
The Fund also may purchase and sell put and call options on futures contracts.
An option on a futures contract gives the purchaser the right, but not the
obligation, in return for the premium paid, to assume (in the case of a call) or
sell (in the case of a put) a position in a specified underlying futures
contract (which position may be a long or short position) a specified exercise
price at any time during the option exercise period. Sellers of options on
futures contracts, like buyers and sellers of futures contracts, make an initial
margin deposit and are subject to calls for variation margin.
Futures transactions involve brokerage costs and require the Fund to segregate
liquid assets, such as cash, U.S. Government securities or other liquid
securities to cover its obligation under such contracts. There is a possibility
that the 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 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.
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, the 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," the 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 the Fund plus premiums paid by it for open options on futures
would exceed 5% of the Fund's total assets. The 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 the 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.
<PAGE>
INVESTMENT RESTRICTIONS
The following investment restrictions may be changed with respect to the Fund
only by a vote of a majority of the outstanding Shares of the Fund (as defined
under "ADDITIONAL INFORMATION -- Vote of a Majority of the Outstanding Shares"
in this SAI).
The Fund will not:
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 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;
and (c) 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. Borrow money or issue senior securities, except as permitted under
the Investment Company Act of 1940, as amended, and as interpreted, modified or
otherwise permitted by regulatory authority having jurisdiction from time to
time;
3. Make loans, except as permitted under the Investment Company Act of
1940, as amended, and as interpreted, modified or otherwise permitted by
regulatory authority having jurisdiction from time to time;
4. Underwrite securities issued by other persons, except to the extent
that the Fund may be deemed to be an underwriter under certain securities laws
in the disposition of "restricted securities";
5. Purchase or sell commodities or commodities contracts, except to the
extent disclosed in the current Prospectus and/or SAI of the Fund; and
6. 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 are not prohibited by this restriction).
The following additional investment restriction is not a fundamental policy and
therefore may be changed without the vote of a majority of the outstanding
Shares of the Fund. Except as provided in the fundamental policies described
above, the Fund may not:
1. Purchase or otherwise acquire any securities if, as a result, more
than 15% 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 the
Fund's investments in illiquid securities to exceed the limitation set forth in
the Fund's Prospectus, the 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, the Fund would not be required to liquidate any
portfolio securities where the Fund would suffer a loss on the sale of such
securities.
Portfolio Turnover
Changes may be made in the 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, and the Fund will be
managed without regard to its portfolio turnover rate. The portfolio turnover
rate for the Fund 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. High portfolio turnover rates will generally result in higher
transaction costs to the Fund, including brokerage commissions.
<PAGE>
The portfolio turnover rate for the Fund is calculated by dividing the lesser of
the 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
The net asset value of the Fund is determined and the Shares of the Fund are
priced on each Business Day of the Trust (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 a day on which no Shares of the Fund are
tendered for redemption and no order to purchase any Shares is received). A
"Business Day" is a day on which the New York Stock Exchange, Inc. ("NYSE") is
open for trading. 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.
Valuation of the Fund
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. The value of foreign securities may be affected
significantly on a day that the NYSE is closed and an investor is not able to
purchase or redeem shares. Shares of investment companies are valued on the
basis of their net asset values, subject to any applicable sales charge.
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.
<PAGE>
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION
The Shares of the Fund are sold on a continuous basis by the Fund's distributor,
and the distributor has agreed to use appropriate efforts to solicit all
purchase orders. The public offering price of Shares of the Fund is its 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) 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.
Shares may be redeemed without charge on any day that net asset value is
calculated. 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 conditions
which make payment in cash unwise, such as large-scale redemptions or market
illiquidity, 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.
Variable Contract Owners do not deal directly with the Fund 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 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.
<PAGE>
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, ages, and principal occupations
during the past five years are set forth below:
<TABLE>
<S> <C>
Name, Address, and Age Principal Occupation During Past 5 Years
---------------------- ----------------------------------------
James H. Woodward Chancellor, University of North Carolina at Charlotte.
University of North Carolina
at Charlotte
Charlotte, NC 28223
Age: 60
Michael Van Buskirk Chief Executive Officer, Ohio Bankers Association
37 West Broad Street (industry trade association).
Suite 1001
Columbus, OH 43215
Age: 53
Walter B. Grimm* Employee of BISYS Fund Services (6/92-present).
3435 Stelzer Road
Columbus, Oh 43219
Age: 54
------------------------
* Mr. Grimm is an "interested person" of the Trust as that term is defined in the 1940 Act.
</TABLE>
The Trust pays each Trustee who is not an employee of BISYS or its affiliates a
retainer fee at the rate of $500 per calendar quarter, reasonable out-of-pocket
expenses, $500 for each regular meeting of the Board of Trustees attended in
person, and $250 for each regular meeting of the Board of Trustees attended by
telephone. The Trust also pays each such Trustee $500 for each special meeting
of the Board of Trustees attended in person, and $250 for each special meeting
of the Board of Trustees attended by telephone. For the fiscal year ended
December 31, 1999, the Trust paid the following compensation to the Trustees of
the Trust:
<PAGE>
<TABLE>
<S> <C> <C>
Aggregate Compensation Total Compensation from
Name from Trust* Fund Complex**
James H. Woodward $4,000 $ 20,750
Michael Van Buskirk $4,000 $ 4,000
Walter B. Grimm $0 $ 0
</TABLE>
* 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 consisted of the Trust, The BB&T Funds, AmSouth Funds,
HSBC Mutual Funds Trust, HSBC Funds Trust, and Kent Funds.
The officers of the Trust, their addresses, ages, and principal occupations
during the past five years are as follows (unless otherwise indicated, the
address of each officer is 3435 Stelzer Road, Columbus, OH 43219):
<TABLE>
<S> <C> <C>
Position(s) Held Principal Occupation
Name, Address, and Age With the Trust During Past 5 Years
---------------------- -------------- -------------------
Walter Grimm President and Chairman of the Employee of BISYS Fund Services
Age: 54 Board (6/92-present).
Frank Deutchki Vice President Employee of BISYS Fund Services (4/96 -
Age: 46 present); Vice President, Audit Director
at Mutual Funds Services Company, a
subsidiary of United States Trust Company
of New York (2/89 - 3/96).
Gregory Maddox Vice President and Assistant Employee of BISYS Fund Services (4/91 -
Columbia Square Secretary present).
Suite 500
1230 Columbia Street
San Diego, CA 92101
Age: 32
Charles L. Booth Vice President and Assistant Employee of BISYS Fund Services (4-91 -
Secretary Present).
Alaina Metz Secretary Employee of BISYS Fund Services (6/95 -
Age: 33 present); Supervisor, Mutual Fund Legal
Department, Alliance Capital Management
(5/89 - 6/95).
Gary Tenkman Treasurer Employee of BISYS Fund Services (4/98 -
Age: 29 present); Audit Manager, Ernst & Young LLP
(1990 - 4/98).
Nimish Bhatt Principal Financial and Employee of BISYS Fund Services (7/96 -
Age: 36 Accounting Officer and present); Assistant Vice President,
Comptroller
Evergreen Funds/First Union Bank
(1995 to 7/96); Senior Tax Consultant,
Price Waterhouse, LLP (1990 - 12/94).
</TABLE>
<PAGE>
The officers of the Trust receive no compensation directly from the Trust for
performing the duties of their offices. BISYS Fund Services Ohio, Inc. receives
fees from the Trust for providing certain administration, fund accounting and
transfer agency services.
As of August 1, 2000, the Trustees and officers of the Trust, as a group, owned
Variable Contracts that entitled them to give voting instructions with respect
to less than one percent of the Shares of any fund of the Trust.
Investment Adviser
Subject to the general supervision of the Trust's Board of Trustees and in
accordance with the Fund's investment objective and restrictions, investment
advisory services are provided to the Fund by Lyon Street pursuant to an
Investment Advisory Agreement dated October 1, 1999 (the "Investment Advisory
Agreement"). Lyon Street is a wholly-owned subsidiary of Old Kent Bank ("Old
Kent"). As of December 31, 1999, Lyon Street managed assets of approximately
$6.2 billion. Lyon Street is located at 111 Lyon Street, N.W., Grand Rapids, MI
49503.
Old Kent is a Michigan banking corporation which, with its affiliates, provides
commercial and retail banking and trust services through more than 230 banking
offices in Michigan, Indiana and Illinois. Old Kent offers a broad range of
financial services, including commercial and consumer loans, corporate and
personal trust services, demand and time deposit accounts, letters of credit and
international financial services.
Old Kent is a subsidiary of Old Kent Financial Corporation, a bank holding
company headquartered in Grand Rapids, Michigan, with approximately $18 billion
in total consolidated assets as of December 31, 1999. Through offices in
numerous states, Old Kent Financial Corporation and its subsidiaries provide a
broad range of financial services to individuals and businesses.
Under the Investment Advisory Agreement, Lyon Street has agreed to provide,
either directly or through one or more sub-advisers, investment advisory
services for the Fund as described in the Prospectus. For the services provided
and expenses assumed pursuant to the Investment Advisory Agreement, the Fund is
obligated to pay Lyon Street a fee, computed daily and paid monthly, at the
annual rate of 0.70%, calculated as a percentage of the average daily net assets
of the Fund.
Unless sooner terminated, the Investment Advisory Agreement continues in effect
as to the Fund for an initial term of two years, and thereafter for successive
one-year periods if such continuance is approved at least annually by the Board
of Trustees or by vote of a majority of the outstanding Shares of the 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. The Investment Advisory Agreement is terminable as to the Fund at
any time on 60 days' written notice without penalty by the Trustees, by vote of
a majority of the outstanding Shares of the Fund, or by Lyon Street. The
Investment Advisory Agreement also terminates automatically in the event of any
assignment, as defined in the 1940 Act.
The Investment Advisory Agreement provides that Lyon Street 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 Lyon Street 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 Fund may
include descriptions of Lyon Street including, but not limited to, (i)
descriptions of Lyon Street's operations; (ii) descriptions of certain personnel
and their functions; and (iii) statistics and rankings related to Lyon Street's
operations.
<PAGE>
Portfolio Transactions
Lyon Street determines, subject to the general supervision of the Board of
Trustees and in accordance with the Fund's investment objective and
restrictions, which securities are to be purchased and sold by the 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 Lyon Street in its best judgment and in a manner deemed
fair and reasonable to Shareholders. In selecting a broker or dealer, Lyon
Street evaluates a wide range of criteria, including the commission rate or
dealer mark-up, execution capability, the broker's/dealer's positioning and
distribution capabilities, back office efficiency, ability to handle difficult
trades, financial stability, reputation, prior performance, and, in the case of
brokerage commissions, 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 Lyon Street may receive
orders for transactions on behalf of the Fund. 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 Lyon Street informed concerning overall economic, market,
political and legal trends. Under some circumstances, Lyon Street'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 the Fund's relevant
markets, or access to proprietary information about companies that are a
majority of the Fund's investments.
Research information so received is in addition to and not in lieu of services
required to be performed by Lyon Street and does not reduce the fees payable to
Lyon Street by the Fund. Such information may be useful to Lyon Street in
serving both the Fund 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 Fund. While Lyon Street generally seeks
competitive commissions, the Fund may not necessarily pay the lowest commission
available on each brokerage transaction for reasons discussed above.
<PAGE>
Investment decisions for the Fund are made independently from those for any
other portfolio, investment company or account managed by Lyon Street. Any such
other portfolio, investment company or account may also invest in the same
securities as the Fund. When a purchase or sale of the same security is made at
substantially the same time on behalf of the Fund and another 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 Lyon
Street believes to be equitable to the Fund and such other portfolio, investment
company or account. In some instances, this investment procedure may adversely
affect the price paid or received by the Fund or the size of the position
obtained by the Fund. To the extent permitted by law, Lyon Street may aggregate
the securities to be sold by or purchased for the Fund with those to be sold or
purchased for other portfolios, investment companies or accounts in order to
obtain best execution. In making investment recommendations for the Fund, Lyon
Street will not inquire or take into consideration whether an issuer of
securities proposed for purchase or sale by the Fund is a customer of Lyon
Street or the Fund's distributor, their parents or their subsidiaries or
affiliates and, in dealing with its customers, Lyon Street, its parent,
subsidiaries, and affiliates will not inquire or take into consideration whether
securities of such customers are held by the Trust.
Federal Banking Law
The Gramm-Leach-Bliley Act of 1999 repealed certain provisions of the
Glass-Steagall Act that had previously restricted the ability of banks and their
affiliates to engage in certain mutual fund activities. Nevertheless, as a
wholly owned subsidiary of Old Kent Financial Corporation, Lyon Street's
activities remain subject to, and may be limited by, applicable federal banking
law and regulations. Lyon Street believes that it possesses the legal authority
to perform the services for the Fund contemplated by the Prospectus, this SAI,
and the Investment Advisory Agreement without violation of applicable statutes
and regulations. If future changes in these laws and regulations were to limit
the ability of Lyon Street to perform these services, the Board of Trustees
would review the Trust's relationship with Lyon Street and consider taking all
action necessary in the circumstances, which could include recommending to
Shareholders the selection of another qualified advisor or, if that course of
action appeared impractical, that the Fund be liquidated.
Administrator
BISYS Fund Services Ohio, Inc. ("BISYS Ohio" or "Administrator"), 3435 Stelzer
Road, Columbus, Ohio 43219-3035, serves as general manager and administrator to
the Trust pursuant to a Management and Administration Agreement dated March 1,
1999 (the "Administration Agreement"). Prior to that date, BISYS Fund Services
("BISYS") served as general manager and administrator to the Trust. The
Administrator assists in supervising all operations of the Fund (other than
those performed by Lyon Street under the Investment Advisory Agreement, by BISYS
Ohio as fund accountant and dividend disbursing agent, and by the Fund's
custodians. The Administrator provides financial services to institutional
clients.
<PAGE>
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 Fund
and file certain federal and state tax returns and required tax filings; prepare
compliance filings pursuant to state laws with the advice of the Trust's
counsel; keep and maintain the financial accounts and records of the Fund,
including calculation of daily expense accruals; and generally assist in all
aspects of the Trust's operations other than those performed by Lyon Street
under the Investment Advisory Agreement, by the other investment advisers of the
Trust's portfolios, by the fund accountant and dividend disbursing agent, and by
the Fund's custodians. Under the Administration Agreement, the Administrator may
delegate all or any part of its responsibilities thereunder.
The Administrator receives a fee from the 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) a fee calculated at the annual
rate of 0.045% of the 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. The
Administrator may voluntarily reduce all or a portion of its fee with respect to
the Fund in order to increase the net income of one or more of the Fund
available for distribution as dividends. For the period from June 3, 1997
(commencement of operations) through December 31, 1997, the Trust incurred
administration fees equal to $17,985, of which $13,549 was waived or reimbursed
by BISYS. For the fiscal years ended December 31, 1998 and December 31, 1999,
the Trust incurred administration fees equal to $105,793 and $157,948,
respectively, of which $77,410 and $107,516, respectively, was waived or
reimbursed by BISYS.
The Administration Agreement is terminable with respect to the Fund upon mutual
agreement of the parties to the Administration Agreement, upon notice given at
least 60 days prior to the expiration of the Agreement's then-current term, 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.
Expenses
Lyon Street and the Administrator bears all expenses in connection with the
performance of its services other than the cost of securities (including
brokerage commissions) purchased for the Fund. The Fund will bear the following
expenses relating to their operations: 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 custodians 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 operations. 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.
<PAGE>
Distributor
BISYS serves as distributor to the Trust pursuant to the Distribution Agreement
dated June 1, 1997 (the "Distribution Agreement"). As distributor, BISYS 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 personnel involved
in such activities. BISYS serves as distributor without remuneration from the
Fund. Unless otherwise terminated, the Distribution Agreement will remain in
effect for an initial term of two years, and thereafter continues for successive
one-year periods 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.
Custodian, Transfer Agent and Fund Accounting Services
The Bank of New York has been retained, pursuant to a Custodian Agreement, to
act as custodian for the Fund. The Bank of New York's address is 90 Washington
Street, New York, New York 10286. Under the Custodian Agreement, the Custodian
maintains a custody account or accounts in the name of the Fund; receives and
delivers all assets for the Fund upon purchase and upon sale or maturity;
collects and receives all income and other payments and distributions on account
of the assets of the Fund; pays all expenses of the Fund; and receives and pays
out cash for purchases and redemptions of shares of the Fund and pays out cash
if requested for dividends on shares of the Fund. Under the Custodian Agreement,
the Fund has agreed to pay the Custodian for furnishing custodian services a fee
for certain administration and transaction charges and out-of-pocket expenses.
The Board of Trustees has authorized The Bank of New York in its capacity as
custodian of each Fund to enter into Subcustodian Agreements with banks and
other entities that qualify under the 1940 Act to act as subcustodians with
respect to certain portfolio investments of the Fund.
BISYS Ohio serves as transfer agent and dividend disbursing agent for the Trust
pursuant to an agreement dated as of March 1, 1999. Under this agreement, BISYS
Ohio 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.
<PAGE>
In addition, BISYS Ohio provides certain fund accounting services to the Trust
pursuant to a Fund Accounting Agreement dated March 1, 1999. Under the Fund
Accounting Agreement, BISYS Ohio maintains the accounting books and records for
the Fund, 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 Fund, including calculation of the daily net
asset value per Share, calculation of the dividend and capital gain
distributions, if any, and 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 Fund.
BISYS Ohio receives an annual fee 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 0.02% of the Fund's
average daily net assets or $15,000.
Independent Accountants
The firm of PricewaterhouseCoopers 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, 1775 Eye Street, N.W., Washington, D.C. 20006, is counsel to the Trust
and has passed upon the legality of the Shares offered hereby.
Code of Ethics
The Trust, Lyon Street and BISYS each have adopted a code of ethics, as required
by applicable law, which is designed to prevent affiliated persons of the Trust,
Lyon Street and BISYS from engaging in deceptive, manipulative, or fraudulent
activities in connection with securities held or to be acquired by the Fund
(which may also be held by persons subject to a code). There can be no assurance
that the codes will be effective in preventing such activities.
<PAGE>
ADDITIONAL INFORMATION
Description of Shares
The Trust is a Massachusetts business trust that was organized on July 20, 1994.
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 and restated, 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 nine 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 Prospectuses 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 the Fund are entitled
to receive the assets available for distribution belonging to the 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.
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.
<PAGE>
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 the Fund
affected by the matter. For purposes of determining whether the approval of a
majority of the outstanding Shares of the Fund will be required in connection
with a matter, the 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 Shareholders would be effectively acted upon with respect to a series only if
approved by a majority of the outstanding Shares of the 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
the Fund.
Vote of a Majority of the Outstanding Shares
As used in the Fund's 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 the Fund. This discussion does not purport to be
complete or to deal with all aspects of federal income taxation that may be
relevant. This discussion is based upon present provisions of the Internal
Revenue Code of 1986, as amended (the "Code"), the regulations promulgated
thereunder, and judicial and administrative ruling authorities, all of which are
subject to change, which change may be retroactive. Prospective investors should
consult their own tax advisors with regard to the federal, state, local and
foreign tax aspects of an investment in the Fund.
<PAGE>
The Fund intends to qualify annually and to elect to be treated as a regulated
investment company under Subchapter M of the Code. If the Fund so qualifies, it
generally will not be subject to federal income taxes to the extent that it
distributes on a timely basis its investment company taxable income and its net
capital gains.
To qualify as a regulated investment company, the 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) 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 (iii) 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, the 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. The 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 the 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, the 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, the 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 the 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.
<PAGE>
The Fund also intends to comply with the separate diversification requirements
imposed by Section 817(h) of the Code and the regulations thereunder on certain
insurance company separate accounts. These requirements, which are in addition
to the diversification requirements imposed on a Fund by the 1940 Act and
Subchapter M of the Code, place certain limitations on assets of each insurance
company separate account used to fund variable contracts. Because Section 817(h)
and those regulations treat the assets of a Fund as assets of the related
separate account, these regulations are imposed on the assets of the Fund.
Specifically, the regulations provide that, after a one year start-up period or
except as permitted by the "safe harbor" described below, as of the end of each
calendar quarter or within 30 days thereafter no more than 55% of the total
assets of a Fund may be represented by any one investment, no more than 70% by
any two investments, no more than 80% by any three investments and no more than
90% by any four investments. For this purpose, all securities of the same issuer
are considered a single investment, and each U.S. Government agency and
instrumentality is considered a separate issuer. Section 817(h) provides, as a
safe harbor, that a separate account will be treated as being adequately
diversified if the diversification requirements under Subchapter M are satisfied
and no more than 55% of the value of the account's total assets is attributable
to cash and cash items (including receivables), U.S. Government securities and
securities of other regulated investment companies. Failure by a Fund to both
qualify as a regulated investment company and satisfy the Section 817(h)
requirements would generally cause the variable contracts to lose their
favorable tax status and require a contract holder to include in ordinary income
any income accrued under the contracts for the current and all prior taxable
years. Under certain circumstances described in the applicable Treasury
regulations, inadvertent failure to satisfy the applicable diversification
requirements may be corrected, but such a correction would require a payment to
the Internal Revenue Service based on the tax contract holders would have
incurred if they were treated as receiving the income on the contract for the
period during which the diversification requirements were not satisfied. Any
such failure may also result in adverse tax consequences for the insurance
company issuing the contracts. Failure by a Fund to qualify as a regulated
investment company would also subject the Fund to federal and state income
taxation on all of its taxable income and gain, whether or not distributed to
shareholders.
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 a 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.
If the Fund invests in shares of a passive 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. The Fund may, however,
be able to elect alternative tax treatment for such investments that would avoid
this unfavorable result.
Under the Code, gains or losses attributable to fluctuations in exchange rates
which occur between the time the Fund accrues income or other receivables or
accrues expenses or other liabilities denominated in a foreign currency and the
time the 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.
<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 extent distributed, be treated as
long-term capital gains in the hands of a Shareholder regardless of the length
of time the Shareholder may have held the Shares.
Hedging Transactions
The diversification requirements applicable to the Fund's assets may limit the
extent to which the 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 (such as Separate
Accounts) are advised to consult their own tax advisers with respect to the
particular tax consequences to them of an investment in the Fund.
Performance Information
The 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 Fund will not be advertised or included in sales literature
unless accompanied by comparable performance information for a separate account
to which the Fund offer its Shares.
Yields of the Fund 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 rate of
dividend paying portfolio securities.
The yield of the Fund will vary from time to time depending upon market
conditions, the composition of the Fund's portfolio and operating expenses of
the Trust allocated to the Fund. Yield should also be considered relative to
changes in the value of the Fund's Shares and to the relative risks associated
with the investment objective and policies of the Fund.
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.
<PAGE>
Performance information for the Fund 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
those prepared by Dow Jones & Co., Inc., S&P, Shearson Lehman Brothers, Inc.,
the Russell 2000 Index, the Consumer Price Index, and to data prepared by Lipper
Analytical Services, Inc., a widely recognized independent service which
monitors the performance of mutual funds, or Morningstar, Inc. 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 the Fund that appears in a publication such as those mentioned
above may be included in advertisements and in reports to Variable Contract
Owners.
The 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 Fund 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 Fund will not take into account
charges and deductions against a Separate Account to which the Fund's Shares are
sold or charges and deductions against the Variable Contracts. 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 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 Fund's investment
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 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 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 Prospectuses 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 Prospectuses 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 Prospectuses and this SAI.
FINANCIAL STATEMENTS
Since the Fund had not commenced operations as of the date of this SAI, there
are no financial statements to include in the SAI.
<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.
<PAGE>
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 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.
<PAGE>
PART C
OTHER INFORMATION
Item 23. Exhibits
(a) (1) Amended and Restated Declaration of Trust dated July 20,
1994, as amended and restated February 5, 1997(1)
(2) Establishment and Designation of Series effective
February 5, 1997(1)
(3) Redesignation of Two Existing Series and Establishment
and Designation of Two Additional Series effective
August 13, 1997(3)
(4) Establishment and Designation of Series effective
February 25, 1999(6)
(5) Form of Establishment and Designation of Four Additional
Series(8)
(6) Form of Amended Designation of Series(8)
(7) Form of Amended Designation of Series
(b) By-Laws(1)
(c) Articles V and VI of the Registrant's Amended and Restated
Declaration of Trust define rights of holders of Shares.
(d) (1) Form of Investment Advisory Agreement between
Registrant and Branch Banking and Trust Company(2)
(2) Form of Investment Advisory Agreement between
Registrant and AmSouth Bank(4)
(3) Form of Sub-Advisory Agreement between AmSouth Bank and
Rockhaven Asset Management, LLC(4)
(4) Form of Sub-Advisory Agreement between AmSouth Bank and
OakBrook Investments, LLC(6)
(5) Form of Investment Advisory Agreement between Registrant
and HSBC Asset Management (Americas) Inc.(7)
(6) Form of Investment Advisory Agreement between Registrant
and Lyon Street Asset Management Company(7)
(e) Form of Distribution Agreement between Registrant and BISYS
Fund Services(3)
(f) Not Applicable
(g) (1) Form of Custodian Agreement between Registrant and
Fifth Third Bank(2)
(2) Form of Custodian Agreement between Registrant and
AmSouth Bank(4)
(3) Form of Custodian Agreement between Registrant and The
Bank of New York(8)
(h) (1) Form of Management and Administration Agreement between
Registrant and BISYS Fund Services Ohio, Inc. (6)
<PAGE>
(2) Form of Fund Accounting Agreement between
Registrant and BISYS Fund Services Ohio, Inc. (6)
(3) Form of Transfer Agency Agreement between
Registrant and BISYS Fund Services Ohio, Inc. (6)
(4) Form of Fund Participation Agreement with Hartford Life
Insurance Company(4)
(5) Form of Fund Participation Agreement with Allstate
Insurance Company
(6) Form of Fund Participation Agreement with Hartford
Life Insurance Company (with respect to Kent Aggressive
Growth Fund)
(7) Form of Variable Contract Owner Servicing Agreement(6)
(i) Opinion and Consent of Counsel(2)
(j) Consent of Independent Auditors
(k) Not Applicable
(l) Purchase Agreement(2)
(m) Not Applicable
(n) Not Applicable
<TABLE>
<S> <C>
(p)(1) Form of Code of Ethics of the Registrant(8)
(2) Form of Code of Ethics of AmSouth Bank(8)
(3) Form of Code of Ethics of Branch Banking and Trust Company(8)
(4) Form of Code of Ethics of HSBC Asset Management(8)
(5) Form of Code of Ethics of Lyon Street Asset Management(8)
(6) Form of Code of Ethics of OakBrook Investments, LLC(8)
(7) Form of Code of Ethics of Rockhaven Asset Management, LLC(8)
</TABLE>
(q) (1) Secretary's Certificate Pursuant to Rule 483(b)(2)
(2) Powers of Attorney(2)
(3) Power of Attorney (Gary Tenkman)(5)
(4) Power of Attorney (Nimish Bhatt) (6)
----------
* To be filed by amendment
1 Filed with Pre-Effective Amendment No. 1 to Registrant's Registration
Statement on February 5, 1997.
2 Filed with Pre-Effective Amendment No. 2 to Registrant's Registration
Statement on May 29, 1997.
3 Filed with Post-Effective Amendment No. 1 to Registrant's Registration
Statement on July 3, 1997.
4 Filed with Post-Effective Amendment No. 2 to Registrant's Registration
Statement on September 15, 1997.
5 Filed with Post-Effective Amendment No. 5 to Registrant's Registration
Statement on January 20, 1999.
6 Filed with Post-Effective Amendment No. 6 to Registrant's Registration
Statement on April 1, 1999.
7 Filed with Post-Effective Amendment No. 7 to Registrant's Registration
Statement on July 16, 1999.
8 Filed with Post-Effective Amendment No. 9 to Registrant's Registration
Statement on April 28, 2000.
<PAGE>
Item 24. Persons Controlled by or Under Common Control with Registrant
Not applicable
Item 25. Indemnification
Reference is made to Article IV of the Registrant's Agreement and
Declaration of Trust (Exhibit (a)(1)) 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 26. 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 Fund(s)" or "Fund Management" in the Prospectuses
constituting Part A and "Management of the Trust" in the Statement of
Additional Information constituting Part B of this Registration
Statement, which summaries are incorporated herein by reference.
Information relating to the business and other connections of Branch
Banking and Trust Company ("BB&T") and each director, officer or
partner of BB&T is hereby incorporated by reference to disclosure in
Item 26 of the registration statement of Form N-1A of BB&T Mutual
Funds Group (File Nos. 33-49098 and 811-06719). Information relating
to the business and other connections of AmSouth Bank, Rockhaven Asset
Management, LLC, and OakBrook Investments, LLC, and each director,
officer or partner of each, is hereby incorporated by reference to
disclosure in Item 26 of the registration statement of Form N-1A of
AmSouth Mutual Funds (File Nos. 33-21660 and 811-5551). Information
relating to the business and other connections of HSBC Asset
Management (Americas) Inc. ("HSBC") and each director, officer or
partner of HSBC is hereby incorporated by reference to disclosure in
Item 26 of the registration statement of Form N-1A of HSBC Mutual
Funds Trust (File Nos. 33-33739 and 811-06057). Information relating
to the business and other connections of each director, officer or
partner of Lyon Street Asset Management Company ("Lyon Street") is set
forth below.
Joseph T. Keating is President and Chief Investment Officer of Lyon
Street Asset Management Company and Senior Vice President, Chief
Investment Officer of Old Kent Bank; Kenneth Charles Krei is Chairman
of the Board and Chief Executive Officer of Lyon Street Asset
Management Company and Executive Vice President, Trust Investment
Management of Old Kent Bank; Dana R. Dawe is Vice President, Director
of Compliance of Lyon Street Asset Management Company and Vice
President, Director of Compliance Old Kent Securities Corporation;
Thomas H. Irish is Treasurer and Chief Financial Officer of Lyon
Street Asset Management Company and Vice President, Financial
Reporting Manager of Old Kent Bank; Gregg R. Steamer is Senior Vice
President, Director of Institutional Money Management of Lyon Street
Asset Management and Senior Vice President, Director of Institutional
Investment Management of Old Kent Bank. From October 1989 to October
1998, Mr. Steamer was Vice President, Institutional Sales of Bank of
America (Chicago, Illinois). Mitchell L. Stapley is Senior Vice
President, Chief Fixed Income Offerings of Lyon Street Asset
Management Company and Senior Vice President, Chief Fixed Income
Offerings of Old Kent Bank; Allan J. Meyers is Senior Vice President,
Chief Equity Officer of Lyon Street Asset Management Company and
Senior Vice President, Chief Equity Officer of Old Kent Bank; Michael
J. Martin is Vice President, Director of Tax Free Income of Lyon
Street Asset Management Company and Vice President, Director of Tax
Free Income of Old Kent Bank; David C. Eder is Vice President,
Director of Structured Equity Management of Lyon Street Asset
Management Company and Vice President, Director of Structured Equity
Management of Old Kent Bank; and Robert Cummisford is Vice President,
Director of Small Company Stock Management of Lyon Street Asset
Management Company and Vice President, Director of Small Company Stock
Management of Old Kent Bank, Lyon Street Asset Management Company and
Old Kent Bank are located in Grand Rapids, Michigan.
Item 27. Principal Underwriter
(a) BISYS Fund Services ("BISYS") acts as distributor for Registrant.
BISYS also distributes the securities of Alpine Equity Trust,
American Independence Funds Trust, American Performance Funds,
AmSouth Funds, The BB&T Mutual Funds Group, The Coventry Group,
The Eureka Funds, Fifth Third Funds, Governor Funds, Hirtle
Callaghan Trust, HSBC Funds Trust, HSBC Mutual Funds Trust, The
Infinity Mutual Funds, Inc., Magna Funds, Mercantile Mutual
Funds, Inc., Metamarkets.com, Meyers Investment Trust, MMA Praxis
Mutual Funds, M.S.D.&T. Funds, Pacific Capital Funds, Republic
Advisor Funds Trust, Republic Funds Trust, Sefton Funds Trust,
Summit Investment Trust, USAllianz Funds, USAllianz Funds
Variable Insurance Products Trust, The Victory Portfolios, The
Victory Variable Insurance Funds, Vintage Mutual Funds, Inc. and
Whatifi Funds, each of which is a management investment 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
WC Subsidiary Corporation Sole Limited Partner None
150 Clove Road
Little Falls, NJ 07424
BISYS Fund Services, Inc. Sole General Partner None
3435 Stelzer Road
Columbus, OH 43219
(c) Not Applicable
<PAGE>
Item 28. 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: AmSouth
Bank, 1901 Sixth Avenue North, Birmingham, Alabama 35203, Rockhaven
Asset Management, LLC, 100 First Avenue, Suite 1050, Pittsburgh, PA
15222, and OakBrook Investments, LLC, 701 Warrenville Road, Suite 135,
Lisle, IL 60532; Banking and Trust Company, 434 Fayetteville Street
Mall, Raleigh, NC 27601; HSBC Asset Management Americas, Inc., 140
Broadway, New York, NY 10005; and Lyon Street Asset Management Company,
111 Lyon Street, N.W., Grand Rapids, MI 49503; BISYS Fund Services,
3435 Stelzer Road, Columbus, Ohio 43219-3035 (records relating to its
functions as distributor); and BISYS Fund Services Ohio, Inc., 3435
Stelzer Road, Columbus, Ohio 43219-3035 (records relating to its
functions as administrator, transfer agent, and fund accountant).
Item 29. Management Services
Not Applicable
Item 30. Undertakings
(a) 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.
(b) 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.
<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
Post-Effective Amendment No. 10 to its Registration Statement to be signed on
its behalf by the undersigned thereunto duly authorized in the city of
Washington, D.C. on the 3rd day of August, 2000.
VARIABLE INSURANCE FUNDS
By: ________*_________
Walter Grimm
President
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
________*__________ President, Chairman August 3, 2000
Walter Grimm of the Board, and Trustee
________*__________ Principal Financial August 3, 2000
Nimish Bhatt and Accounting Officer
and Comptroller
________*__________ Trustee August 3, 2000
Michael Van Buskirk
________*________ Trustee August 3, 2000
James Woodward
* By: /s/ Keith T. Robinson
-----------------
Keith T. Robinson as attorney-in-fact, pursuant to powers of attorney
filed as Exhibit 19(b) (since redesignated as Exhibit q(2)) to
Pre-Effective Amendment No.2 to the Registrant's Registration
Statement, and, with respect to Nimish Bhatt, pursuant to a power of
attorney filed as Exhibit p(4)(since redesignated as Exhibit q(4)) to
Post-Effective Amendment No. 6 to the Registrant's Registration
Statement.
<PAGE>
VARIABLE INSURANCE FUNDS
INDEX TO EXHIBITS FILED
WITH POST-EFFECTIVE AMENDMENT NO. 10
Exhibit Description
(a)(7) (filed as EX-99.B1(a)(7)) Form of Amended Designation of Series
(h)(5) (filed as EX-99.B9(h)(5)) Form of Participation Agreement with
Allstate Insurance Company of New York
(h)(6) (filed as EX-99.B9(h)(6)) Form of Fund Participation Agreement
Hartford Life Insurance Company (with
respect to Kent Aggressive Growth Fund)
(j) (filed as EX-99.B11(j)) Consent of PricewaterhouseCoopers LLP
