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As filed with the Securities and Exchange Commission on July 2, 1996
Registration Nos. 33-83432
811-8742
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SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 /X/
Pre-Effective Amendment No. / /
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Post-Effective Amendment No. 1 /X/
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and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 /X/
Amendment No. 2
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(Check appropriate box or boxes)
Pacifica Variable Trust (formerly Westcore Variable Trust)
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(Exact Name of Registrant as Specified in Charter)
237 Park Avenue, Suite 910, New York, New York 10017
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(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, including Area Code: (212) 808-3900
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Jeffrey A. Dalke, Esquire
Drinker Biddle & Reath
1100 Philadelphia National Bank Building
1345 Chestnut Street
Philadelphia, Pennsylvania 19107-3496
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(Name and Address of Agent for Service)
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.
Registrant has registered an indefinite number of shares of beneficial
interest, which include Emerging Growth Shares, Equity Value Shares, Balanced
Shares, Intermediate Bond Shares and Money Market Shares under the Securities
Act of 1933 pursuant to Rule 24f-2 under the Investment Company Act of 1940.
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PACIFICA VARIABLE TRUST
(Emerging Growth Portfolio, Equity Value Portfolio, Balanced Portfolio,
Intermediate Bond Portfolio and Money Market Portfolio)
Cross Reference Sheet
<TABLE>
<CAPTION>
Form N-1A Item Prospectus Caption
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1. Cover Page . . . . . . . . . . . . . . . . . . Cover Page.
2. Synopsis . . . . . . . . . . . . . . . . . . . Not Applicable.
3. Condensed Financial
Information . . . . . . . . . . . . . . . . . Financial Highlights, General--Performance Information.
4. General Description of
Registrant . . . . . . . . . . . . . . . . . . Cover Page, Investment Objectives and Policies, Investment Limitations,
General--Management of the Portfolios, --Description of the Trust,
Prospectus Appendix.
5. Management of the Fund . . . . . . . . . . . . General--Management of the Portfolios.
5A. Management's Discussion
of Fund Performance . . . . . . . . . . . . . Not Applicable.
6. Capital Stock and Other
Securities . . . . . . . . . . . . . . . . . . Investor Guide--Purchase and Redemption of Shares, Miscellaneous,
General--Dividends and Distributions, --Taxes, --Management of the
Portfolios.
7. Purchase of Securities
Being Offered . . . . . . . . . . . . . . . . Investor Guide--Purchase and Redemption of Shares, General--Management
of the Portfolios, --Fund Share Valuation, --Description of the Trust.
8. Redemption or Repurchase . . . . . . . . . . . Investor Guide--Purchase and Redemption of Shares.
9. Pending Legal Proceedings . . . . . . . . . . Not Applicable.
</TABLE>
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PACIFICA VARIABLE TRUST
EMERGING GROWTH PORTFOLIO
EQUITY VALUE PORTFOLIO
BALANCED PORTFOLIO
INTERMEDIATE BOND PORTFOLIO
MONEY MARKET PORTFOLIO
SUPPLEMENT DATED SEPTEMBER __, 1996 TO THE
PROSPECTUS DATED DECEMBER 1, 1995
On April 1, 1996, First Interstate Bancorp was merged with and into
Wells Fargo & Company ("Wells Fargo") and First Interstate Capital Management,
Inc. ("FICM"), the Portfolios' investment adviser, became an indirect
wholly-owned subsidiary of Wells Fargo. In connection with this merger, FICM
has changed its name to Wells Fargo Investment Management, Inc. ("WFIM").
Pursuant to an order of the Securities and Exchange Commission, the Portfolios
have entered into a new investment advisory agreement with WFIM dated April 1,
1996, which has the same terms and fee rates as the Portfolios' prior
investment advisory agreement with FICM that automatically terminated on that
date. The Portfolios' new investment advisory arrangements with WFIM will be
submitted to a vote of the Portfolios' shareholders at a meeting scheduled for
July 26, 1996.
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The following "Financial Highlights" are to be inserted on page 6 before
"Investment Limitations."
FINANCIAL HIGHLIGHTS
The financial information shown below is to assist investors in
evaluating the performance of the Portfolios since their commencement of
operation through March 31, 1996. The information should be read in
conjunction with the related financial statements and notes thereto contained
in the Portfolios' Semi-Annual Report to Shareholders, which may be obtained
without charge by calling 1-800-PVA-0628.
For a share outstanding throughout the period * (unaudited)
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Emerging Intermediate
Growth Equity Value Balanced Bond
Portfolio Portfolio Portfolio Portfolio
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Period Ended March 31, 1996
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Net Asset Value, Beginning of Period $10.00 $10.00 $10.00 $10.00
----------- ----------- ----------- -----------
Income from Investment Operations:
Net investment income * * 0.01 0.03 0.05 0.10
Net gain on securities (both realized and unrealized)* * 0.82 0.54 0.28 (0.22)
------------ ------------ ------------ -------------
Total from Investment Operations 0.83 0.57 0.33 (0.12)
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Less Distributions:
Dividends from net investment income (0.01) (0.03) (0.05) (0.10)
Distributions from net realized gains 0.00 0.00 0.00 0.00
------------ ------------ ------------ ------------
Total Distributions (0.01) (0.03) (0.05) (0.10)
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Net Asset Value, End of Period $10.82 $10.54 $10.28 $9.78
============= ============= ============ =============
Total Return (not reflecting sales load) 8.25% 5.65% 3.26% -1.50%
Ratios/Supplemental Data:
Net Assets, End of Period (in thousands) $6,184 $5,979 $5,538 $5,056
Ratio of Expenses to Average Net Assets * * * 1.20% 1.20% 1.20% 1.10%
Ratio of Net Investment Income to Average Net Assets * * * 0.22% 1.08% 1.95% 4.22%
Effect of Waivers on above Ratios * * * 0.85% 0.84% 0.85% 0.81%
Portfolio Turnover Rate 11.70% 7.32% 7.92% 80.77%
Average Commission Rate * * * * $0.064 $0.059 $0.060 -
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Money
Market
Portfolio
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Period Ended March 31, 1996
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Net Asset Value, Beginning of Period $1.000
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Income from Investment Operations:
Net investment income * * 0.011
Net gain on securities (both realized and unrealized)* * 0.000
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Total from Investment Operations 0.011
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Less Distributions:
Dividends from net investment income (0.011)
Distributions from net realized gains 0.000
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Total Distributions (0.011)
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Net Asset Value, End of Period $1.000
============
Total Return (not reflecting sales load) 0.70%
Ratios/Supplemental Data:
Net Assets, End of Period (in thousands) $5,070
Ratio of Expenses to Average Net Assets * * * 1.05%
Ratio of Net Investment Income to Average Net Assets * * * 4.37%
Effect of Waivers on above Ratios * * * 0.78%
Portfolio Turnover Rate -
Average Commission Rate * * * * -
</TABLE>
* The Portfolios commenced operation on January 2, 1996.
* * Per share data based upon average monthly shares outstanding.
* * * Annualized.
* * * * For fiscal years beginning on or after September 1, 1995, a portfolio
is required to disclose its average commission rate per share for
security trades on which commissions are charged. This amount may
vary from period to period and portfolio to portfolio depending on
the mix of trades executed in various markets where trading practices
and commission rate structures may differ.
For the period January 2, 1996 (commencement of operations) through
March 31, 1996, the Adviser waived its entire advisory fee with respect to each
Portfolio.
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Since May of 1996, the individuals listed below have been responsible
for the day-to-day management of the Funds:
Bob Bissell (Equity Value Portfolio and equity portion of the Balanced
Portfolio)
Mr. Bissell joined Wells Fargo at the time of its acquisition of Crocker
National Bank in 1986 and has been with the combined organization for over 22
years. Prior to joining Wells Fargo, he was a vice president and investment
counselor with M.H. Edie Investment Counseling, where he managed institutional
and high-net worth portfolios. Mr. Bissell holds a finance degree from the
University of Virginia. He is a chartered financial analyst and a member of
the Los Angeles Society of Financial Analysts.
Allen Wisniewski (Equity Value Portfolio)
Mr. Wisniewski joined Wells Fargo at the time of its acquisition of Bank of
America's consumer trust services in April 1987, where he was a portfolio
manager. He received his B.A. and M.B.A. in economics and finance from the
University of California at Los Angeles. He is a chartered financial analyst
and a member of the Los Angeles Society of Financial Analysts.
Tamyra Thomas (Fixed-income portion of the Balanced Portfolio)
Ms. Thomas is a senior vice president and the chief fixed income investment
officer of the Investment Management Group of Wells Fargo Bank. She is also
Chair of the Investment Management Group Policy Committee. Ms. Thomas has
managed bond portfolios for over a decade. She currently manages in excess of
$1 billion of long-term taxable bond portfolios for various foundations,
defined benefit plans and other clients. Prior to joining Wells Fargo in early
1988, she held a number of senior investment positions for the Valley Bank &
Trust Company of Utah, including vice president and manager of the investment
department and chairman of the Trust Investment Committee. She holds a B.S.
from the University of Utah and was the past president of the Utah Bond Club.
Ms. Thomas is a chartered financial analyst.
Jon Hickman (Emerging Growth Portfolio)
Mr. Hickman has over sixteen years experience in the investment management
field. He joined Wells Fargo in 1986 managing equity and balanced portfolios
for individuals and employee benefit plans. He is a senior member of Wells
Fargo's Equity Strategy Committee. Mr. Hickman has a B.A. and an M.B.A. in
finance from Brigham Young University.
<PAGE> 6
Sandra Thornton (Emerging Growth Portfolio)
Ms. Thornton manages equity portfolios and is a member of the Wells Fargo
Growth Stock Team. Prior to joining Wells Fargo in 1993, she worked in the
research department of RCM Capital Management. She obtained her CPA from the
State of California while performing tax/financial planning services at Price
Waterhouse. She holds a B.A. from Albertus Magnus College and is a chartered
financial analyst.
MISCELLANEOUS
SunAmerica Inc. ("SunAmerica"), the ultimate parent of Anchor National
Life Insurance Company, provided the initial seed capital for each Portfolio on
January 2, 1996, in the amount of $5,000,000 per Portfolio. As of May 31,
1996, SunAmerica owned the following percentages of each Portfolio attributable
to its seed capital investment: Emerging Growth Portfolio (86.9%), Equity
Value Portfolio (87.1%), Balanced Portfolio (92.5%), Intermediate Bond
Portfolio (95.9%), and Money Market Portfolio (99.7%). For purposes of the
Investment Company Act of 1940, any person who owns directly or through one or
more controlled companies more than 25% of the voting securities of a company
is presumed to "control" such company. Accordingly, SunAmerica may be presumed
to control each Portfolio.
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PACIFICA VARIABLE TRUST
237 PARK AVENUE
SUITE 910
NEW YORK, NY 10017
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PROSPECTUS
DECEMBER 1, 1995
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Pacifica Variable Trust (the "Trust") is an open-end, management investment
company, shares of which are currently offered only to separate accounts
("Separate Accounts") funding variable annuity contracts issued by Anchor
National Life Insurance Company (the "Participating Insurance Company"). Shares
of the Trust are not offered to the general public.
The Trust currently offers five separate funds:
- EMERGING GROWTH PORTFOLIO -- This Portfolio seeks long-term capital
appreciation by investing primarily in common stocks of medium-sized
companies.
- EQUITY VALUE PORTFOLIO -- This Portfolio seeks long-term capital
appreciation by investing in common stocks of large, well-established
companies and smaller companies with market capitalizations exceeding $50
million.
- BALANCED PORTFOLIO -- This Portfolio seeks both capital
appreciation and current income resulting in a high total investment return
by investing in a balanced and diversified program of equity securities and
debt instruments.
- INTERMEDIATE BOND PORTFOLIO -- This Portfolio seeks a high level of
current income consistent with the preservation of capital and maintenance
of liquidity through investments in a broad range of investment grade debt
instruments.
- MONEY MARKET PORTFOLIO -- This Portfolio seeks current income and
stability of principal by investing in high-quality "money market"
instruments.
This Prospectus sets forth concisely certain information about the Trust that
you should know before making an investment decision. You are encouraged to read
this Prospectus carefully and retain it for future reference. Additional
information about the Trust is contained in a Statement of Additional
Information dated December 1, 1995, that is available free of charge by calling
(800)-FIB-1223, or by contacting your Participating Insurance Company. The
Statement of Additional Information has been filed with the Securities and
Exchange Commission ("SEC") and is incorporated by reference into this
Prospectus.
SHARES OF THE PORTFOLIOS ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED,
ENDORSED OR OTHERWISE SUPPORTED BY, ANY FIRST INTERSTATE OR OTHER BANK, AND ARE
NOT FEDERALLY INSURED OR GUARANTEED BY THE U.S. GOVERNMENT, THE FEDERAL DEPOSIT
INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD OR ANY OTHER GOVERNMENTAL
AGENCY. THERE CAN BE NO ASSURANCE THAT THE MONEY MARKET PORTFOLIO WILL BE ABLE
TO MAINTAIN A STABLE NET ASSET VALUE OF $1.00 PER SHARE. AN INVESTMENT IN THE
PORTFOLIOS INVOLVES INVESTMENT RISKS, INCLUDING POSSIBLE LOSS OF PRINCIPAL.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
<PAGE> 8
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TABLE OF CONTENTS
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PAGE
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INVESTMENT OBJECTIVES AND POLICIES................................................... 3
The Emerging Growth Portfolio...................................................... 3
The Equity Value Portfolio......................................................... 3
The Balanced Portfolio............................................................. 4
The Intermediate Bond Portfolio.................................................... 4
The Money Market Portfolio......................................................... 5
INVESTMENT LIMITATIONS............................................................... 7
GENERAL.............................................................................. 8
MANAGEMENT OF THE PORTFOLIOS....................................................... 8
FUND SHARE VALUATION............................................................... 9
DIVIDENDS AND DISTRIBUTIONS........................................................ 10
TAXES.............................................................................. 10
PERFORMANCE INFORMATION............................................................ 11
DESCRIPTION OF THE TRUST........................................................... 12
INVESTOR GUIDE....................................................................... 12
PURCHASE AND REDEMPTION OF SHARES.................................................. 12
MISCELLANEOUS...................................................................... 13
PROSPECTUS APPENDIX.................................................................. A-1
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INVESTMENT OBJECTIVES AND POLICIES
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This Prospectus describes five diversified investment portfolios. Each Fund has
distinct investment objective policies. The Trust offers five investment options
with the following investment objectives:
The Emerging Growth Portfolio. The investment objective of the Emerging Growth
Portfolio is to provide investors with long-term capital appreciation. In
pursuing its investment objective the Portfolio will invest, under normal market
conditions, at least 65% of the value of its total assets in a diversified group
of small to medium-sized companies using a research intensive approach and
valuation techniques that emphasize earnings growth. "Small to medium-sized"
companies are (1) domestic companies that are not included in (a) the top 100 of
the 500 largest industrial corporations as ranked by Fortune Magazine
("Fortune") or (b) in the top 20% of Fortune's separate rankings for other
industries or (2) foreign companies with market capitalizations of less than $10
billion. In addition, to qualify as a small to medium-sized company, both
domestic and foreign companies must have either revenues or market
capitalizations of at least $50 million. The Portfolio may also invest a portion
of its assets in larger companies that offer improved growth possibilities
because of rejuvenated management, product changes or some other development
that might stimulate earnings growth, and in smaller companies that have limited
product lines, markets or financial resources, or are dependent upon one-person
management. The securities of smaller companies in which the Portfolio may
invest may have limited marketability, may be subject to more abrupt or erratic
market movements than securities of larger companies or the market averages in
general and may involve greater risk than is customarily associated with more
established companies. However, to qualify for investment by the Portfolio, a
company will be expected to demonstrate the potential for reasonable long-term
annual earnings growth. No assurance can be given that any of these expectations
will be met.
In addition to common stocks, the Portfolio may invest in preferred stocks,
convertible securities and common stock warrants, and may invest up to 25% of
its total assets directly, or indirectly through investments in American
Depository Receipts ("ADRs") and European Depository Receipts ("EDRs"), in
securities issued by foreign companies ("foreign securities"). Further, the
Portfolio may invest in securities issued by other investment companies within
the limits prescribed by the Investment Company Act of 1940 (the "1940 Act").
In accordance with its investment policies, the Portfolio may hold uninvested
cash reserves, which do not earn income, pending investment, to meet anticipated
redemption requests and during defensive periods. In addition, the Portfolio may
invest in short-term instruments that are eligible for purchase by the Money
Market Portfolio in such proportions as, in the opinion of the adviser, existing
conditions warrant.
The Equity Value Portfolio. The investment objective of the Equity Value Fund is
to provide investors with long-term capital appreciation. This Portfolio pursues
its investment objective by investing primarily in common stocks of both
domestic and foreign companies. The Portfolio may invest in large,
well-established companies and smaller companies with market capitalizations
exceeding $50 million. Income generation is a secondary consideration for the
Portfolio. However, the Portfolio may purchase dividend paying stocks of
particular issuers when the issuer's dividend record may, in the opinion of the
adviser, have a favorable influence on the market value of the securities.
In selecting equity investments, the adviser uses both quantitative and
qualitative analysis to identify those issuers that, in its opinion, exhibit
below-average valuation multiples, above-average financial strength, a strong
position in their industry and a history of steady profit growth. In addition to
common stocks, the Portfolio may invest in preferred stocks, investment grade
convertible securities and common stock warrants, and may invest either directly
or indirectly, through investments in ADRs and EDRs, in foreign securities.
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Normally, the Portfolio will invest at least 65% of its total assets in common
stocks or securities convertible into common stocks. For temporary defensive
purposes, however, the Portfolio may invest, in accordance with its investment
policies, in short-term instruments that are eligible for purchase by the Money
Market Portfolio and in debt obligations of corporations (corporate bonds,
debentures, notes and other similar corporate debt instruments) which are rated
investment grade or better (within the four highest rating categories assigned
by an unaffiliated nationally recognized statistical rating organization (an
"NRSRO"), or, if unrated, of comparable quality as determined by the adviser).
The Balanced Portfolio. The investment objective of the Balanced Fund is to
realize both capital appreciation and current income. This Portfolio invests
between 30% to 70% of its assets in common stocks that are considered by the
adviser to have better than average prospects for growth of capital and income.
The Portfolio will invest primarily in domestic equity securities, but may
invest up to 5% of its assets in equity securities listed or traded exclusively
on a foreign exchange excluding ADRs and EDRs. The remaining 30% to 70% balance
of the Portfolio's assets will be invested in senior fixed income securities,
including corporate debt securities, commercial paper and mortgage and asset-
backed securities. The debt instruments in which the Portfolio invests will be
rated at least investment grade (within the four highest rating categories
assigned by an NRSRO, or, if unrated, of comparable quality as determined by the
adviser).
In selecting equity investments, the adviser uses both quantitative and
qualitative analysis to identify those issuers that, in its opinion, exhibit
below-average valuation multiples, above-average financial strength, a strong
position in their industry and a history of steady profit growth. In addition to
common stocks, the Portfolio may invest in preferred stocks, investment grade
convertible securities and common stock warrants.
In selecting senior fixed income securities, the adviser seeks debt instruments
that appear best calculated to achieve the Portfolio's investment objective
within the credit and risk tolerances established for the Portfolio. In
accordance with those policies, the Portfolio may purchase commercial paper and
mortgage and asset-backed securities rated by an NRSRO within the two highest
rating categories and corporate debt securities rated by an NRSRO within the
four highest rating categories. The Portfolio also may invest in other debt
instruments which are of comparable quality as determined by the adviser.
The Intermediate Bond Portfolio. The investment objective of the Intermediate
Bond Portfolio is to provide investors with a high level of current income
consistent with the preservation of capital and maintenance of liquidity. This
Portfolio pursues its investment objective by investing in a broad range of
corporate debt obligations such as fixed and variable-rate bonds, zero coupon
bonds, debentures, obligations convertible into common stock and various types
of demand instruments, obligations issued or guaranteed by the U.S. Government,
its agencies or instrumentalities, dollar-denominated debt obligations of
foreign issuers, including foreign corporations and foreign governments, and
money market instruments. The Portfolio is also permitted to acquire obligations
issued by state and local governments ("Municipal Obligations"). The purchase of
Municipal Obligations may be advantageous when, as a result of prevailing
economic, regulatory or other circumstances, the yield of such securities, on a
pre-tax basis, is comparable to that of corporate or U.S. Government
obligations. The Portfolio will maintain an average weighted maturity between
three and ten years.
In acquiring particular portfolio securities, the adviser will consider, among
other things, historical yield relationships between corporate and government
bonds, intermarket yield relationships among various industry sectors, current
economic cycles and the attractiveness and creditworthiness of particular
issuers. Depending upon its analysis to these and other factors, the Portfolio's
holdings in issuers in particular industry sectors may be overweighted when
compared to the relative industry weightings in the Shearson Lehman Brothers
Intermediate-Term Index or other recognized indexes.
The policy of the Portfolio is to invest at least 65% of the total value of its
assets in corporate and government bonds during normal market conditions. Debt
obligations acquired by the Portfolio will be rated investment grade at the time
of purchase. Debt obligations may also be unrated but deemed by
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the adviser to be comparable in quality to instruments that are so rated. The
Portfolio's dollar weighted average portfolio quality of the corporate bond
portion of the Portfolio's holdings is expected to be "A" or better. Obligations
rated in the lowest of the top four NRSRO rating categories are considered to
have speculative characteristics.
The Portfolio may also invest in obligations convertible into common stocks, and
may purchase common stocks, warrants or other rights to buy shares if they are
attached to a fixed income obligation. As a general matter, however, the
Portfolio will not invest in common stocks. Common stock received through the
conversion of convertible debt obligations will normally be sold in an orderly
manner as soon as possible.
Up to 20% of the total assets of the Portfolio may be invested directly in
dollar-denominated debt obligations of foreign issuers. These obligations may
include obligations of foreign corporations as well as obligations of foreign
governments and their political sub-divisions (which will be limited to direct
government obligations and government-guaranteed securities).
The value of the Portfolio's holdings can be expected to fall when interest
rates rise and vice-versa, according to changes in prevailing interest rates.
Zero coupon bonds (i.e., discount debt obligations that do not make periodic
interest payments) may be subject to greater market fluctuations from changing
interest rates than debt obligations having comparable maturities that pay
interest currently.
The Portfolio may also hold other types of securities, including money market
instruments, repurchase agreements, securities issued by other investment
companies within the limits prescribed by the 1940 Act, and cash, pending
investment, to meet anticipated redemption requests or if, in the opinion of the
adviser, suitable investments are unavailable. These investments may be made in
such proportions as, in the opinion of the adviser, existing circumstances
warrant, and may include obligations of foreign banks and foreign branches of
U.S. banks.
The Money Market Portfolio. The investment objective of the Money Market
Portfolio is to provide investors with current income and stability of
principal. In seeking to achieve its investment objective, this Portfolio
invests, under normal market conditions, at least 80% of its assets in "money
market" instruments. These securities will have remaining maturities of 13
months or less (although certain variable and floating rate instruments and
securities subject to collateralized repurchase agreements may have longer
maturities). The average weighted maturity of the securities held by the
Portfolio will not exceed 90 days.
In particular, the Portfolio may invest in:
(A) Certificates of deposit and time deposits of U.S. banks or other U.S.
financial institutions which are members of the Federal Reserve System or the
Federal Deposit Insurance Corporation having total assets at the time of
purchase in excess of $1.5 billion (including up to 25% of its total assets in
obligations of foreign branches of such banks and institutions);
(B) Bankers acceptances guaranteed by U.S. commercial banks having total
assets at the time of purchase in excess of $1.5 billion;
(C) Interest-bearing savings deposits in commercial and savings banks (up
to 5% of its total assets);
(D) Commercial paper (including variable and floating rate instruments) and
other short-term obligations and variable rate master demand notes, bonds,
debentures and notes issued or guaranteed by U.S. and foreign corporations;
(E) Securities issued or guaranteed as to principal and interest by the
U.S. Government or by any of its agencies or instrumentalities;
(F) "Stripped securities" which include participations in trusts that hold
U.S. Treasury obligations (including TIGRs and CATS) and interests in U.S.
Treasury obligations reflected in the Federal Reserve Book Entry System;
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(G) Asset-backed securities (including interests in pools of assets such as
mortgages, installment purchase obligations and credit card receivables);
(H) Unrated notes, paper and other instruments that are of comparable
quality as determined by the adviser under guidelines established by the Trust's
Board of Trustees; and
(I) Repurchase agreements relating to the above instruments.
All securities acquired by the Portfolio will be determined by the adviser,
under guidelines established by the Trust's Board of Trustees, to present
minimal credit risks, and will be "First Tier Securities" as defined by the
Securities and Exchange Commission (the "SEC"). The Portfolio may purchase
commercial paper issued pursuant to Section 4(2) of the Securities Act of 1933
(the "1933 Act") and securities that are not registered under the 1933 Act but
can be sold to "qualified institutional buyers" in accordance with Rule 144A
under the 1933 Act. See "Illiquid Securities" in the Appendix. First Tier
Securities are (a) securities that either (i) have short-term debt ratings at
the time of purchase in the highest rating category by at least two NRSROs (or
one NRSRO if the security is rated by only one NRSRO), or (ii) are comparable in
priority and security with an instrument issued by an issuer which has such
ratings, and (b) securities that are unrated (including securities of issuers
that have long-term but not short-term ratings) but are of comparable quality as
determined in accordance with guidelines approved by the Board of Trustees. The
purchase of single-rated and unrated securities will be ratified by the Board of
Trustees.
Securities in which the Portfolio may invest may not earn as high a level of
income as longer term or lower quality securities, which generally have greater
market risk and more fluctuation in market value.
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INVESTMENT LIMITATIONS
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Each Portfolio is subject to certain fundamental investment restrictions. A
Portfolio's investment objective may be changed by the Board of Trustees without
shareholder approval. Shareholders will, however, be notified of any changes.
Any such change may result in a Portfolio having an investment objective
different from the objective which the shareholder considered appropriate at the
time of investment in the Portfolio. No assurance can be provided that a
Portfolio will achieve its investment objective.
Each Portfolio has also adopted the fundamental investment restrictions stated
below that may be changed only with the approval of a majority of the
Portfolio's outstanding shares. Additional fundamental restrictions are set
forth in the Statement of Additional Information.
No Portfolio may:
1. Purchase securities of any one issuer (other than securities issued or
guaranteed by the U.S. Government, its agencies or instrumentalities) if,
immediately after such purchase, more than 5% of the value of the Portfolio's
total assets would be invested in the securities of such issuer, or more than
10% of the issuer's outstanding voting securities would be owned by the
Portfolio or the Trust, except that up to 25% of the value of the Portfolio's
total assets may be invested without regard to these limitations.
2. Purchase any securities that would cause 25% or more of the Portfolio's total
assets at the time of purchase to be invested in the 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, its agencies or instrumentalities or, with
respect to the Money Market Portfolio, obligations (other than commercial paper)
of domestic branches of U.S. banks, and repurchase agreements secured by such
instruments; (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 the 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.
3. Make loans, except that each Portfolio may purchase and hold debt
instruments, enter into repurchase agreements in accordance with its investment
objective and policies and lend portfolio securities.
If a percentage limitation is met at the time a Portfolio makes an investment, a
later change in that percentage due to a change in the value of the Portfolio's
holdings will not result in a violation of the limitation.
In order to permit the sale of a Portfolio's shares in certain states, the Trust
may agree to certain restrictions that may be stricter than the investment
policies and limitations described above. Should the Trust determine that any
such restriction is no longer in the Portfolio's best interest, it will revoke
its agreement by no longer selling Portfolio shares in the state involved.
In accordance with current SEC regulations, the Money Market Portfolio intends,
as a non-fundamental policy, to limit investments in the securities of any
single issuer (other than securities issued or guaranteed by the U.S.
Government, its agencies or instrumentalities) to not more than 5% of the value
of its total assets at the time of purchase, except for 25% of the value of its
total assets which may be invested in any one issuer for a period of up to three
business days.
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GENERAL
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MANAGEMENT OF THE PORTFOLIOS
The business and affairs of the Portfolios are managed under the direction of
the Trust's Board of Trustees. The Statement of Additional Information contains
information about the Board of Trustees.
THE ADVISER: FIRST INTERSTATE CAPITAL MANAGEMENT, INC.
First Interstate Capital Management, Inc., 7501 E. McCormick Parkway,
Scottsdale, Arizona 85258, serves as investment adviser to the Trust ("FICM" or
the "Adviser"). The Adviser manages the investment and reinvestment of the
assets of the Portfolios and continuously reviews, supervises and administers
the Portfolios' investments. The Adviser is responsible for placing orders for
the purchase and sale of the Portfolios' investments directly with brokers and
dealers selected by it in its discretion. Mr. David Underwood serves as the
Adviser's Director of Funds Management.
Mr. Underwood joined the Adviser in 1995. From 1993 to 1995 Mr. Underwood was
employed by Integra Trust Company as Director of Research. From 1990 to 1993 he
was Portfolio Manager with the firm of C.S. McKee Investment Advisors. Mr. G.
Edward Means serves as the Adviser's Director of Fixed Income Management. Mr.
Means joined the Adviser in January, 1995. From 1992 to 1994 he was employed by
Clayton Brown & Associates as Senior Vice President, Fixed Income Sales. From
1984 to 1992 he was employed by First National Bank of Chicago as Senior Vice
President.
Mr. Leon Newcomb has been employed by First Interstate since 1994 and will
be responsible for the day-to-day management of the Equity Value Portfolio and
the equity portion of the Balanced Portfolio. From 1989 through 1993 Mr. Newcomb
was employed by Knights of Columbus, a Connecticut life insurance company, as an
equity portfolio manager. Mr. Michael Hughes will be responsible for the
day-to-day management of the fixed-income portion of the Balanced Portfolio. Mr.
Hughes has been employed by First Interstate since 1988. He currently serves as
a Fixed Income Fund Manager. Mr. Robert Daviduk will be responsible for the
day-to-day management of the Intermediate Bond Portfolio. Mr. Daviduk has been a
fixed-income portfolio manager with the First Interstate since April, 1993. From
1992 to 1993, Mr. Daviduk was employed by Payden & Rygel Investment Counselors
as a Fixed Income Portfolio Analyst. Mr. Richard A. Ferguson will be responsible
for the day-to-day management of the Emerging Growth Portfolio. Mr. Ferguson has
been employed in various managerial positions with First Interstate Bank of
Arizona, N.A. since 1974 and joined First Interstate in March, 1995.
The Adviser is a wholly-owned subsidiary of First Interstate Bank of California,
which is the largest banking subsidiary of First Interstate Bancorp, a
multi-bank holding company. First Interstate Bancorp provides financial products
and services marketed at the local level to nearly five million households in
over 500 communities and 13 western states.
The Adviser is entitled to receive an advisory fee, calculated daily and payable
monthly, at the annual rate of .75% of the average daily net assets of each of
the Emerging Growth, Equity Value and Balanced Portfolios; .65% of the average
daily net assets of the Intermediate Bond Portfolio; and .60% of the average
daily net assets of the Money Market Portfolio. The Adviser may from time to
time voluntarily waive all or any portion of its fees.
DISTRIBUTOR
Furman Selz LLC ("Furman Selz"), 230 Park Avenue, New York, New York 10169, acts
as distributor of the Portfolios. Furman Selz is primarily an institutional
brokerage firm with member-
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ship on the New York, American, Boston, Midwest, Pacific and Philadelphia Stock
Exchanges. The Distributor receives no distribution fees from the Portfolios for
its distribution services.
ADMINISTRATIVE SERVICES
Furman Selz also provides certain management and administrative services
necessary for the Portfolios' operations pursuant to an Administrative Services
Contract. These services include: (i) general supervision of the operation of
the Portfolios including coordination of the services performed by the
Portfolios' transfer agent, custodian, independent accountants and legal
counsel, regulatory compliance, including the compilation of information for
documents such as reports to, and filings with, the SEC and state securities
commissions and preparation of shareholder reports for the Portfolios; (ii)
general supervision relative to the compilation of data required for the
preparation of periodic reports distributed to the Trust's officers and Board of
Trustees; and (iii) furnishing office space and certain facilities required for
conducting the business of the Trust. For these services, Furman Selz is
entitled to receive a fee from each Portfolio, calculated daily and payable
monthly, at the annual rate of .15% of each Portfolio's average daily net
assets. In addition, pursuant to a Fund Accounting Agreement between the Trust
and Furman Selz, Furman Selz assists the Trust in calculating net asset values
and provides certain other accounting services for each Portfolio for an annual
fee of $30,000 per Portfolio plus out-of-pocket expenses.
CUSTODIAN AND TRANSFER AGENT
First Interstate Bank of California, 707 Wilshire Boulevard, Los Angeles,
California 90017, serves as Custodian for the Portfolios. Furman Selz serves as
Transfer Agent for the Portfolios.
OTHER EXPENSES
Except as noted below, the Adviser and Furman Selz bear all expenses in
connection with the performance of their services for the Portfolios. The Trust
bears the expenses in connection with the Portfolios' operations, whether
incurred directly or on its behalf by the Adviser, Furman Selz or the
Participating Insurance Company, including taxes; interest; fees (including fees
paid to its Trustees and officers who are not affiliated with Furman Selz); SEC
fees; state securities qualification fees; costs of preparing and printing
prospectuses for regulatory purposes and for distribution to existing
shareholders; advisory, administration, fund accounting and custody fees;
certain insurance premiums; outside auditing and legal expenses; costs of
shareholders' reports and shareholder meetings; and any extraordinary expenses.
The Portfolios also pay for brokerage fees and commissions in connection with
the purchase of portfolio securities.
FUND SHARE VALUATION
Net asset value per share for purposes of pricing sales and redemptions is
calculated by dividing the value of all securities and other assets belonging to
a Portfolio, less liabilities, by the number of its outstanding shares. Net
asset value is determined as of the close of regular trading on the New York
Stock Exchange (the "Exchange"), currently 4:15 p.m. except for the Money Market
Fund which is 3:00 p.m. (Eastern Time), on each weekday that the Exchange is
open. Currently, the Exchange is closed on New Year's Day, Presidents' Day, Good
Friday, Memorial Day, Independence Day (observed), Labor Day, Thanksgiving Day
and Christmas Day (observed).
The investments of the Emerging Growth, Equity Value, Balanced and Intermediate
Bond Portfolios are valued at market value or, where market quotations are not
readily available, at fair value as determined in good faith by or under the
direction of the Board of Trustees. Debt securities with maturities of sixty
days or less are valued at amortized cost, unless the Board of Trustees
determines that this does not constitute fair value.
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The assets in the Money Market Portfolio are valued based upon the amortized
cost method. Although the Money Market Portfolio seeks to maintain net asset
value per share at $1.00, there can be no assurance that net asset value will
not vary.
For further information about valuing Portfolio investments, see the Statement
of Additional Information.
DIVIDENDS AND DISTRIBUTIONS
Each Portfolio expects to distribute substantially all of its net investment
income and capital gains each year. Dividends for the Money Market Portfolio are
declared daily and paid monthly. Dividends for the Intermediate Bond Portfolio
are declared and paid monthly. Dividends for the Emerging Growth, Equity Value
and Balanced Portfolios are declared and paid quarterly. Net capital gains, if
any, will be distributed at least annually. All dividends and capital gain
distributions of a Portfolio will be automatically reinvested in additional
shares of the same Portfolio at the net asset value of such shares on the
payment date.
TAXES
Generally, each Portfolio will not be subject to Federal income taxes. Each
Portfolio intends to qualify as a "regulated investment company" under the
Internal Revenue Code of 1986, as amended (the "Code"), which generally will
relieve a Portfolio of liability for Federal income taxes to the extent the
Portfolio's earnings are distributed in accordance with the Code. In order to so
qualify, a Portfolio must comply with certain distribution, diversification,
source of income and other applicable requirements. If for any taxable year a
Portfolio does not qualify for the special Federal tax treatment afforded
regulated investment companies, all of the Portfolio's taxable income would be
subject to tax at regular corporate rates without any deduction for
distributions to shareholders. In such event, a Portfolio's distributions to
segregated asset accounts holding shares of the Portfolio would be taxable as
ordinary income to the extent of the Portfolio's current and accumulated
earnings and profits. A failure of a Portfolio to qualify as a regulated
investment company also could result in the loss of the tax-favored status of
variable annuity contracts based on a segregated asset account which invests in
the Portfolio.
Under Code Section 817(h), a segregated asset account upon which a variable
annuity contract is based must be "adequately diversified." A segregated asset
account will be adequately diversified if it complies with certain
diversification tests set forth in Treasury regulations. If a regulated
investment company satisfies certain conditions relating to the ownership of its
shares, a segregated asset account investing in such investment company will be
entitled to treat its pro rata portion of each asset of the investment company
as an asset for purposes of these diversification tests. The Portfolios intend
to meet these ownership conditions and to comply with the diversification tests
noted above. Accordingly, a segregated asset account investing solely in shares
of a Portfolio will be adequately diversified. However, a failure of the
Portfolio to meet such conditions and to comply with such tests could cause the
owners of variable annuity contracts based on such account to recognize ordinary
income each year in the amount of any net appreciation of such contract or
policy during the year (including the annual cost of life insurance, if any,
provided under such policy).
Provided that a Portfolio and a segregated asset account investing in a
Portfolio satisfy the above requirements, any distributions from the Portfolio
to such account will be exempt from current Federal income taxation to the
extent that such distributions accumulate in a variable annuity contract.
Persons investing in a variable annuity contract offered by a segregated asset
account investing in a Portfolio should refer to the prospectus with respect to
such contract for further tax information.
The foregoing discussion of Federal income tax consequences is based on tax laws
and regulations in effect on the date of this Prospectus and is subject to
change by legislative or administrative action.
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Each prospective investor should consult his or her own tax adviser as to the
tax consequences of investments in the Portfolios.
PERFORMANCE INFORMATION
From time to time, in advertisements or in reports to shareholders, the
performance of the Portfolios may be quoted and compared to those of other
mutual funds with similar investment objectives and to stock or other relevant
bond indexes or to rankings prepared by independent services or other financial
or industry publications that monitor the performance of mutual funds. For
example, the performance of the Portfolios may be compared to data prepared by
Lipper Analytical Services, Inc., a widely recognized independent service which
monitors the performance of mutual funds, the S&P 500, the Consumer Price Index,
the Dow Jones Industrial Average, a recognized unmanaged index of common stocks
of 30 industrial companies listed on the NYSE, the Small Company Index or the
U.S. Treasury Index.
Performance data as reported in national financial publications including, but
not limited to, Money Magazine, Forbes, Barron's, The Wall Street Journal and
The New York Times, or publications of a local or regional nature may also be
used in comparing the performance of the Portfolios.
The standardized yield of the Money Market Portfolio refers to the income
generated over a seven-day period. This income is annualized, i.e. the income
during the particular period is assumed to be generated each week over a 52-week
period, and is shown as a percentage of the investment. The Money Market
Portfolio may also advertise its effective yield which is calculated similarly
but, when annualized, the income from an investment in the Portfolio is assumed
to be reinvested. Consequently, the "effective yield" will be slightly higher
because of the compounding effect.
The standardized yield for the other Portfolios is computed by dividing a
Portfolio's average daily net investment income per share during a 30-day (or
one month) base period by the net asset value per share on the last day of the
period, and annualizing the result on a semi-annual basis. The Portfolios may
also advertise their "effective yield" which is calculated similarly but, when
annualized, the income earned by an investment in a Portfolio is assumed to be
reinvested.
The Portfolios may also advertise their performance using "average annual total
return" over various periods of time. Such total return figures reflect the
average percentage change in the value of an investment in a Portfolio from the
beginning date of the measuring period to the end of the measuring period.
Average total return figures will be given for the most recent one-, five- and
ten-year periods (if available), and may be given for other periods as well,
such as from the commencement of a Portfolio's operations, or on a year-by-year
basis. Each Portfolio may also use "aggregate total return" figures for various
periods, representing the cumulative change in the value of an investment in a
Portfolio for the specified period. Both methods of calculating total return
assume that dividends and capital gain distributions made by a Portfolio during
the period are reinvested in Portfolio shares.
Performance of the Portfolios will fluctuate and any quotation of performance
should not be considered as representative of future performance. Since yields
fluctuate, yield data cannot necessarily be used to compare an investment in a
Portfolio's shares with bank deposits, savings accounts and similar investment
alternatives which often provide an agreed or guaranteed fixed yield for a
stated period of time. Shareholders should remember that performance is
generally a function of the kind and quality of the instruments held in a
portfolio, portfolio maturity, operating expenses and market conditions.
Yields and total returns quoted for the Portfolios include the effect of
deducting the Portfolios' expenses, but may not include charges and expenses
attributable to a particular variable annuity contract. Since shares of the
Portfolios can be purchased only through a variable annuity contract, you should
carefully review the prospectus of the variable annuity contract you have chosen
for information on relevant charges and expenses. Including these charges in the
quotations of the Portfolios' yield and total return would have the effect of
decreasing performance. Performance information for
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the Portfolios must always be accompanied by, and be reviewed with, performance
information for the insurance product which invests in the Portfolios.
DESCRIPTION OF THE TRUST
The Trust was organized on August 26, 1994 as a Delaware business trust. The
Trust offers shares of beneficial interest, par value $.0001 per share, in five
separate Portfolios, each of which is classified as a diversified investment
company under the 1940 Act. Each share represents an equal proportionate
interest in a particular Portfolio with other shares of the same series, and is
entitled to such dividends and distributions out of the income earned on the
assets belonging to such Portfolio as are declared in the discretion of the
Board of Trustees. The Board of Trustees is authorized to classify or reclassify
any series of shares into one or more additional series of shares and to create
new investment portfolios.
Shareholders are entitled to one vote for each full share held, and a
proportionate fractional vote for each fractional share held, and will vote in
the aggregate and not by series, except as otherwise expressly required by law
or when the Board of Trustees determines that the matter to be voted on affects
only the interests of shareholders of a particular series. The rights
accompanying Portfolio shares are legally vested in the Separate Accounts
offered by the Participating Insurance Company. However, the Participating
Insurance Company will vote Portfolio shares held in its Separate Accounts in a
manner consistent with timely voting instructions received from the holders of
variable annuity contracts. The Participating Insurance Company will vote
Portfolio shares held in its Separate Accounts for which no timely instructions
are received from the holders of variable annuity contracts, as well as shares
it owns, in the same proportion as those shares for which voting instructions
are received. Additional information concerning voting rights of the
participants in the Separate Accounts are more fully set forth in the
prospectuses relating to those accounts issued by the Participating Insurance
Company.
The Trust is not required under Delaware law to hold annual shareholder meetings
and intends to do so only if required by the 1940 Act. Shareholders have the
right to call a meeting of shareholders to consider the removal of one or more
trustees and such meeting will be called when requested by the holders of record
of 10% or more of the Trust's outstanding shares. To the extent required by law,
the Trust will assist in shareholder communications in such matters.
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INVESTOR GUIDE
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PURCHASE AND REDEMPTION OF SHARES
Investors may not purchase or redeem shares of the Portfolios directly, but only
through variable annuity contracts offered through the Separate Accounts of the
Participating Insurance Company. You should refer to the prospectus of the
Participating Insurance Company's Separate Account for information on how to
purchase a variable annuity contract, how to select specific Portfolios of the
Trust as investment options for your contract and how to redeem monies from the
Trust. The Trust assumes no responsibility for such prospectus.
The Separate Accounts of the Participating Insurance Company place orders to
purchase and redeem shares of the Portfolios based on, among other things, the
amount of premium payments to be invested and the amount of surrender and
transfer requests (as defined in the prospectus describing the variable annuity
contracts issued by the Participating Insurance Company) to be effected on that
day pursuant to variable annuity contracts. Orders received by the Trust are
effected on days on which the Exchange is open for trading. Orders for the
purchase of shares of a Portfolio are effected at the net asset value per share
next calculated after an order is received in good order by the Company from an
investor, provided the order is promptly transmitted by the Company to the
Portfolio. Similarly,
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redemptions are effected at the net asset value per share next calculated after
a redemption request is received in good order by the Company from an investor,
provided the order is promptly transmitted by the Company to the Portfolio.
Payment for redemptions will be normally made by a Portfolio within 7 days after
the request is received. The Trust may suspend the right of redemption under
certain extraordinary circumstances in accordance with SEC rules.
The Portfolios do not assess any fees, either when they sell or redeem their
shares. Surrender charges, mortality and expense risk fees and other charges may
be assessed by the Participating Insurance Company under its variable annuity
contracts as described in the Participating Insurance Company's prospectus.
As of the date of this Prospectus, shares of the Trust are offered only to
Separate Accounts funding variable annuity contracts issued by Anchor National
Life Insurance Company.
MISCELLANEOUS
The Trust Instrument provides that the obligations of the Trust entered into in
the name or on behalf thereof by any of the Trustees, representatives or agents
are made not individually, but in such capacities, and are not binding upon any
of the Trustees, shareholders or representatives of the Trust personally, but
bind only the property of the Portfolio to which the obligations relate. All
persons dealing with any Portfolio of the Trust must look solely to the Trust
property belonging to such Portfolio for the enforcement of any claims against
the Trust.
Inquiries regarding the Trust should be made to the Trust's office at 237 Park
Avenue, Suite 910, New York, New York 10017. Holders of variable annuity
contracts issued by the Participating Insurance Company for which shares of the
Portfolios are the investment vehicle will receive from the Participating
Insurance Company unaudited semi-annual financial statements and year-end
financial statements audited by the Portfolios' independent certified public
accountants. Each report will show the investments owned by the Portfolios and
the market values of the investments and will provide other information about
the Portfolios and their operations.
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PROSPECTUS APPENDIX
INFORMATION ON INVESTMENT POLICIES
INVESTMENTS BY THE PORTFOLIOS
The equity securities of smaller and unseasoned companies purchased by the
Emerging Growth, Equity Value and Balanced Portfolios may be subject to more
abrupt or erratic market movements than securities of larger, more established
companies because such securities typically are traded in lower volume and the
issuers typically are subject to a greater degree to changes in earnings and
prospects. The net asset value per share of these Portfolios may, therefore, be
subject to rapid and substantial changes. Additionally, such securities may not
be traded every day or in the volume typical of trading on a national securities
exchange. As a result, the disposition by a Portfolio of portfolio securities,
to meet redemptions or otherwise, may require the Portfolio to sell these
securities at a discount from market prices, to sell during periods when such
disposition is not desirable or to make many small sales over a lengthy period
of time.
Generally, the market value of fixed income securities held by the
Portfolios can be expected to vary inversely to changes in prevailing interest
rates. In periods of declining interest rates, the yields of a Portfolio
comprised primarily of fixed income securities will tend to be somewhat lower.
Debt securities with longer maturities, which tend to produce higher yields, are
subject to potentially greater capital appreciation and depreciation than
obligations with shorter maturities. Changes in financial strength of an issuer
or changes in the ratings of any particular security may also affect the value
of these investments. The Portfolios may purchase zero-coupon bonds (i.e.,
discount debt obligations that do not make periodic interest payments).
Zero-coupon bonds are subject to greater market fluctuations from changing
interest rates than debt obligations of comparable maturities which make current
distributions of interest.
PORTFOLIO TRANSACTIONS AND TURNOVER
All orders for the purchase or sale of securities on behalf of a Portfolio
are placed by the Adviser with broker/dealers that the Adviser selects. Although
the Trust cannot accurately predict a Portfolio's portfolio turnover rate, it
expects that the annual turnover rates of the Emerging Growth, Equity Value,
Balanced and Intermediate Bond Portfolios will not exceed 150%. Short-term
capital gains realized from portfolio transactions are taxable to shareholders
as ordinary income. In addition, high portfolio turnover rates can result in
corresponding increases in brokerage commissions and other transaction costs.
The Adviser will not consider portfolio turnover rate a limiting factor in
making investment decisions consistent with the Portfolios' respective
objectives and policies.
FOREIGN SECURITIES
There are risks and costs involved in investing in securities of foreign
issuers, which are in addition to the usual risks inherent in U.S. investments.
Investments in foreign securities may involve higher costs than investments in
U.S. securities, including higher transaction costs as well as the imposition of
additional taxes for foreign governments. In addition, foreign investments may
involve further risks associated with the level of currency exchange rates, less
complete financial information about issuers, less market liquidity and
political instability. Future political and economic developments, the possible
imposition of withholding taxes on investment income, the possible seizure or
nationalization of foreign holdings, the possible establishment of exchange
controls or the adoption of other governmental restrictions might adversely
affect the payment of principal and interest on foreign obligations.
Additionally, foreign banks and foreign branches of domestic banks may be
subject to less stringent reserve requirements, and to different accounting,
auditing and recordkeeping requirements.
Investments in foreign securities may be in the form of American Depository
Receipts ("ADRs"), European Depository Receipts ("EDRs") and similar securities.
These securities may not be denominated in the same currency as the securities
they represent. ADRs are receipts typically issued
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by a United States bank or trust company, and EDRs are receipts issued by a
European financial institution evidencing ownership of the underlying foreign
securities. ADRs, in registered form, are designed for use in the United States
securities markets, while EDRs, in bearer form, are generally designed for use
in the European securities markets. Certain institutions issuing ADRs may not be
sponsored by the issuer. A non-sponsored depository may not provide the same
information that a sponsored depository is required to provide under its
contractual arrangements with the issuer.
Although the Portfolios (except the Money Market and Intermediate Bond
Portfolios) may invest in securities denominated in foreign currencies,
portfolio securities and other assets are valued in U.S. dollars. Currency
exchange rates may fluctuate significantly over short periods of time causing,
together with other factors, a Portfolio's net asset value to fluctuate.
Currency exchange rates generally are determined by the forces of supply and
demand in the foreign exchange markets and the relative merits of investments in
different countries, actual or anticipated changes in interest rates and other
complex factors, as seen from an international perspective. Currency exchange
rates also may be affected unpredictably by the intervention or the failure to
intervene by U.S. or foreign governments or central banks, or by currency
controls or political developments in the U.S. or abroad. To the extent that a
Portfolio's total assets, adjusted to reflect the Portfolio's net position after
giving effect to currency transactions, are denominated in the currencies of
foreign countries, the Portfolio will be more susceptible to the risk of adverse
economic and political developments within those countries.
The Equity Value and Balanced Portfolios may enter into forward foreign
currency exchange contracts in order to protect against uncertainty in the level
of future foreign exchange rates. See the Statement of Additional Information
for further information concerning foreign currency transactions.
U.S GOVERNMENT OBLIGATIONS
Each Portfolio may invest in obligations issued or guaranteed by the U.S.
Government, its agencies or instrumentalities. 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 Export-Import Bank of the United
States, and supported by the right of the issuer to borrow from the Treasury;
others, such as those of the Federal National Mortgage Association ("FNMA"), are
supported by the discretionary authority of the U.S. Government to purchase the
agency's obligations; still others, such as those of the Student Loan Marketing
Association, 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 instrumentalities if it is not obligated to do so
by law.
STRIPPED SECURITIES
The Portfolios may purchase "stripped securities," which include
participations in trusts that hold U.S. Treasury obligations (such as TIGRs and
CATS) and interests in U.S. Treasury obligations reflected in the Federal
Reserve-Book Entry System which represent ownership in either the future
interest payments or the future principal payments on U.S. Treasury obligations.
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 paid to investors.
REPURCHASE AGREEMENTS
Each Portfolio may agree to purchase U.S. Government obligations or other
debt securities subject to the seller's agreement to repurchase them at a
mutually agreed upon date and price. A Portfolio will enter into such repurchase
agreements only with financial institutions that are deemed to be creditworthy
by the Adviser, pursuant to guidelines established by the Trust's Board of
Trustees. During the term of any repurchase agreement, the Adviser will continue
to monitor the creditworthiness of the seller. The Portfolios will not enter
into repurchase agreements with the Adviser or its affiliates. Although the
securities subject to repurchase agreements may bear maturities exceeding
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397 days, the Portfolios do not presently intend to enter into repurchase
agreements with deemed maturities in excess of seven days. If a Portfolio enters
into repurchase agreements with deemed maturities in excess of seven days, such
agreements would be subject to the Portfolio's limitation on illiquid investment
discussed below.
The seller under a repurchase agreement will be required to maintain the
value of the securities that are subject to the agreement at not less than the
repurchase price. Default or bankruptcy of the seller would, however, expose a
Portfolio to possible delay in connection with the disposition of the underlying
securities or loss to the extent that proceeds from a sale of the underlying
securities were less than the repurchase price under the agreement.
VARIABLE AND FLOATING RATE DEMAND AND MASTER DEMAND NOTES
The Portfolios may purchase rated and unrated variable and floating rate
instruments, which may have stated maturities in excess of 397 days but will, in
the case of the Money Market Portfolio, permit a Portfolio to demand payment of
the principal of the instrument at least once every 397 days upon not more than
30 days' notice (unless the instrument is guaranteed by the U.S. Government or
an agency or instrumentality thereof). Such instruments may include variable
amount master demand notes that permit periodic adjustments in the principal
amounts. Any such instruments which do not permit a Portfolio to demand payment
within seven days after notice will be subject to the Portfolio's limitation on
investments in illiquid securities discussed below (unless the Adviser
determines under the supervision of the Board of Trustees that a liquid trading
market exists). The absence of any active secondary market for a particular
variable and floating rate instrument could make it difficult for a Portfolio to
dispose of a variable or floating rate instrument if the issuer defaulted on its
payment obligation or during periods that the Portfolio is not entitled to
exercise its demand rights, and a Portfolio could, for these or other reasons,
suffer a loss with respect to such instruments.
MORTGAGE-RELATED SECURITIES
The Portfolios may purchase mortgage-related securities. Mortgage
pass-through securities are securities representing interests in "pools" of
mortgages on which payments of both interest and principal on the securities are
made monthly, in effect "passing through" monthly payments made by the
individual borrowers on the mortgage loans which underlie the securities (net of
fees paid to the issuer or guarantor of the securities). Early repayment of
principal on mortgage pass-through securities (arising from prepayments of
principal due to sale of the underlying property, refinancing, or foreclosure,
net of fees and costs which may be incurred) may expose a Portfolio to a lower
rate of return upon reinvestment of principal. Also, if a security subject to
prepayment has been purchased at a premium, in the event of prepayment the value
of the premium would be lost. Like other fixed-income securities, when interest
rates rise, the value of a mortgage-related security generally will decline;
however, when interest rates decline, the value of mortgage-related securities
with prepayment features may not increase as much as other fixed-income
securities. In recognition of this prepayment risk to investors, the Public
Securities Association (the "PSA") has standardized the method of measuring the
rate of mortgage loan principal prepayments. The PSA formula, the Constant
Prepayment Rate (the "CPR") or other similar models that are standard in the
industry will be used by a Portfolio in calculating maturity for purposes of its
investment in mortgage-related securities. Because the average life of
mortgage-related securities may lengthen with increases in interest rates, the
portfolio-weighted average life of the securities in which a Portfolio is
invested may at times lengthen due to this effect. Under these circumstances,
the Adviser may, but is not required to, sell securities in order to maintain an
appropriate portfolio-weighted average life.
Payment of principal and interest on some mortgage pass-through securities
(but not the market value of the securities themselves) may be guaranteed by the
full faith and credit of the U.S. Government (in the case of securities
guaranteed by GNMA); or guaranteed by agencies or instrumentalities of the U.S.
Government (in the case of securities guaranteed by FNMA or the Federal Home
Loan Mortgage Corporation ("FHLMC"), which are supported only by the
discretionary authority of the U.S. Government to purchase the agency's
obligations). Mortgage pass-through
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securities created by non-governmental issuers (such as commercial banks,
savings and loan institutions, private mortgage insurance companies, mortgage
bankers and other secondary market issuers) may be supported by various forms of
insurance or guarantees, including individual loan, title, pool and hazard
insurance, and letters of credit, which may be issued by governmental entities,
private insurers or the mortgage poolers.
A Portfolio may also invest in investment grade Collateralized Mortgage
Obligations ("CMOs") which are hybrid instruments with characteristics of both
mortgage-backed bonds and mortgage pass-through securities. Similar to a bond,
interest and prepaid principal on a CMO are paid, in most cases, semi-annually.
CMOs may be collateralized by whole mortgage loans but are more typically
collateralized by portfolios of mortgage pass-through securities guaranteed by
GNMA, FHLMC or FNMA. CMOs are structured into multiple classes, with each class
bearing a different stated maturity. Monthly payments of principal, including
prepayments, are first returned to investors holding the shortest maturity
class; investors holding the longer maturity classes receive principal only
after the first class has been retired.
Assumptions generally accepted by the industry concerning the probability
of early payment may be used in the calculation of maturities for debt
securities that contain put or call provisions, sometimes resulting in a
calculated maturity different than the stated maturity of the security.
The Adviser expects that governmental, government-related or private
entities may create mortgage loan pools and other mortgage-related securities
offering mortgage pass-through and mortgage-collateralized investments in
addition to those described above. As new types of mortgage-related securities
are developed and offered to investors, the Adviser will, consistent with a
Portfolio's investment objective, policies and quality standards, consider
making investments in such new types of mortgage-related securities.
OTHER ASSET-BACKED SECURITIES
The Portfolios may also purchase other types of asset-backed securities,
unrelated to mortgage loans. These asset-backed securities may consist of
undivided fractional interests in pools of consumer loans (unrelated to mortgage
loans) or receivables held in a trust. Examples include certificates for
automobile receivables ("CARS") and credit card receivables ("CARDS"). Payments
of principal and interest on these asset-backed securities are "passed through"
on a monthly or other periodic basis to certificate holders and are typically
supported by some form of credit enhancement, such as a letter of credit,
surety-bond, limited guaranty or subordination. The extent of credit enhancement
varies, but usually amounts to only a fraction of the asset-backed security's
par value until exhausted. Ultimately, asset-backed securities are dependent
upon payment of the consumer loans or receivables by individuals, and the
certificate holder frequently has no recourse to the entity that originated the
loans or receivables.
The underlying assets may be prepaid with the result of shortening the
certificates' weighted average life. Prepayment rates vary widely and may be
affected by changes in market interest rates. It is not possible to accurately
predict the average life of a particular pool of loans or receivables. The
proceeds of prepayments received by a Portfolio must be reinvested in securities
whose yields reflect interest rates prevailing at the time. Thus, a Portfolio's
ability to maintain an investment portfolio which includes high-yielding
asset-backed securities will be adversely affected to the extent reinvestments
are in lower yielding securities. The actual maturity and realized yield will
therefore vary based upon the prepayment experience of the underlying asset pool
and prevailing interest rates at the time of prepayment. Asset-backed securities
are relatively new instruments and may be subject to greater risk of default
during periods of economic downturn than other instruments. Also, the secondary
market for certain asset-backed securities may not be as liquid as the market
for other types of securities, which could result in a Portfolio's experiencing
difficulty in valuing or liquidating such securities. For asset-backed
securities, the industry standard uses a principal prepayment model, the "ABS
Model," which is similar to the PSA described previously under "Mortgage-Related
Securities."
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Either the PSA model, the ABS model or other similar models that are standard in
the industry will be used by a Portfolio in calculating maturity for purposes of
its investment in asset-backed securities.
CONVERTIBLE SECURITIES
The Equity Value, Balanced and Intermediate Bond Portfolios intend to
purchase only those convertible securities that are "investment grade" at the
time of purchase. Although the Emerging Growth Portfolio may acquire convertible
securities that are rated below investment grade by an NRSRO, the Portfolio
expects that investments in lower-rated convertible securities will not exceed
10% of the value of its total assets at the time of purchase. Securities that
are rated Ba or BB have speculative characteristics with respect to the capacity
to pay interests and repay principal. Securities that are rated B generally lack
characteristics of a desirable investment, and assurance of interest and
principal payments over any long period of time may be small. Securities that
are rated Caa or CCC are of poor standing. These issues may be in default or
present elements of danger that may exist with respect to principal or interest.
In light of the risks, the Adviser, in evaluating the creditworthiness of an
issue, will take various factors into consideration, which may include, as
applicable, the issuer's financial resources, its sensitivity to economic
conditions and trends, the ability of the issuer's management and regulatory
matters. To the extent a Portfolio purchases convertibles rated below investment
grade or convertibles that are not rated, a greater risk exists as to the timely
repayment of the principal of, and the timely payment of interest or dividends
on, such securities. Particular risks include (a) the sensitivity of such
securities to interest rate and economic changes, (b) the lower degree of
protection of principal and interest payments, (c) the relatively low trading
market liquidity for the securities, (d) the impact that legislation may have on
the market for these securities (and, in turn, on the Portfolio's net asset
value) and (e) the creditworthiness of the issuers of such securities. During an
economic downturn or substantial period of rising interest rates, highly
leveraged issuers may experience financial stress which would negatively affect
their ability to meet their principal and interest payment obligations, to meet
projected business goals and to obtain additional financing. An economic
downturn could also disrupt the market for lower rated convertible securities
and negatively affect the value of outstanding securities and the ability of the
issuers to repay principal and interest. If the issuer of a convertible security
held by a Portfolio defaulted, the Portfolio could incur additional expenses to
seek recovery. Adverse publicity and investor perceptions, whether or not based
on fundamental analysis, may also decrease the values and liquidity of
lower-rated convertible securities held by the Portfolio, especially in a thinly
traded market. These high yield, high risk securities are commonly referred to
as junk bonds.
ILLIQUID SECURITIES
The Portfolios will not knowingly invest more than 15% of the value of
their net assets (10% for the Money Market Portfolio) in securities that are
illiquid because of restrictions on transferability or other reasons. If, after
the time of acquisition, events cause its limit to be exceeded, the Portfolio
involved will take steps to reduce the amount of illiquid securities as soon as
reasonably practicable in accordance with the policies of the SEC. Repurchase
agreements and time deposits with deemed maturities in excess of seven days,
Section 4(2) commercial paper and securities that are not registered under the
Securities Act of 1933 but that may be purchased by institutional buyers under
SEC Rule 144A are subject to this limit (unless such securities are variable
amount master demand notes with maturities of nine months or less or unless the
Adviser determines that a liquid trading market exists).
SEC Rule 144A allows for a broader institutional trading market for
securities otherwise subject to restriction on resale to the general public. SEC
Rule 144A establishes a "safe harbor" from the registration requirements of the
Securities Act of 1933 for resales of certain securities to qualified
institutional buyers. The Trust believes that the market for certain restricted
securities such as institutional commercial paper may expand further as a result
of this regulation and the development of automated systems for the trading,
clearance and settlement of unregistered securities of domestic
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<PAGE> 25
and foreign issuers, such as the PORTAL System sponsored by the National
Association of Securities Dealers, Inc. ("NASD").
The Adviser monitors the liquidity of restricted securities held by the
Portfolios under the supervision of the Board of Trustees. In reaching liquidity
decisions, the Adviser will consider such factors as: (a) the frequency of
trades and quotes for the security; (b) the number of dealers wishing to
purchase or sell the security and the number of other potential purchasers; (c)
dealer undertakings to make a market in the security; and (d) the nature of the
security and the nature of the marketplace trades (the time needed to dispose of
the security, the method of soliciting offers and the mechanics of the
transfer). The purchase of securities which can be sold only under SEC Rule 144A
could have the effect of increasing the level of illiquidity in a Portfolio
during any period that qualified institutional buyers become uninterested in
purchasing these restricted securities.
SECURITIES LENDING
To increase return on portfolio securities, each Portfolio may lend its
portfolio securities to broker/dealers and other institutional investors
pursuant to agreements requiring that the loans be continuously secured by
collateral equal at all times in value to at least the market value of the
securities loaned. Such loans will not be made if, as a result, the aggregate of
all outstanding loans exceeds 30% of the value of a Portfolio's total assets in
the case of the Emerging Growth, Intermediate Bond and Money Market Portfolios
and 5% in the case of the Balanced and Equity Value Portfolios. There may be
risks of delay in receiving additional collateral or in recovering the
securities loaned or even a loss of rights in the collateral should the borrower
of the securities fail financially. However, loans are made only to borrowers
deemed by the Adviser to be of good standing and when, in its judgment, the
income to be earned from the loan justifies the attendant risks.
OPTIONS
The Emerging Growth, Equity Value, Balanced and Intermediate Bond
Portfolios may purchase put and call options listed on a national securities
exchange and issued by the Options Clearing Corporation in an amount not
exceeding 5% of their respective net assets as described further in the
Statement of Additional Information. Purchasing options is a specialized
investment technique that entails a substantial risk of a complete loss of the
amounts paid as premiums to the writer of the option.
These Portfolios may also engage in writing call options from time to time.
A Portfolio will write only covered call options (options on securities owned by
the Portfolio). A Portfolio will forego any capital appreciation above the
exercise price on securities on which it has written a call option. In order to
close out a call option it has written, a Portfolio will enter into a "closing
purchase transaction," the purchase of a call option on the same security with
the same exercise price and expiration date as the call option which the
Portfolio previously wrote. When a portfolio security subject to a call option
is sold, a Portfolio will effect a closing purchase transaction to close out any
existing call option on that security. If a Portfolio is unable to effect a
closing purchase transaction, it will not be able to sell the underlying
security until the option expires or the Portfolio delivers the underlying
security upon exercise. Under normal conditions, it is not expected that the
underlying value of portfolio securities subject to such options would exceed
25% of the net assets of a Portfolio.
A Portfolio will realize a gain (or loss) on a closing purchase transaction
with respect to a call previously written by that Portfolio if the premium, plus
commission costs, paid to purchase the call is less (or greater) than the
premium, less commission costs, received on the sale of the call. A gain also
will be realized if a call which a Portfolio has written lapses unexercised,
because the Portfolio would retain the premium.
The use of covered call options will not be a primary investment technique
of the Portfolios, and they are expected to be used infrequently. If the Adviser
is incorrect in its forecast of market value or other factors when writing the
foregoing options, a Portfolio would be in a worse position than it would have
been had the foregoing investment techniques not been used.
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<PAGE> 26
STOCK INDEX FUTURE CONTRACTS AND RELATED OPTIONS
The Equity Value and Balanced Portfolios may enter into stock index futures
contracts in order to protect the value of common stock investments, provided
that not more than 5% of a Portfolio's assets are committed to such
transactions. These Portfolios may purchase put options on stock index futures
as another method of protecting their assets against market declines.
There can be no assurance that a liquid market will exist at a time when a
Portfolio seeks to close out a futures contract or a futures option position.
Most futures exchanges and boards of trade limit the amount of fluctuation
permitted in futures contract prices during a single day; once the daily limit
has been reached on a particular contract, no trades may be made that day at a
price beyond that limit. In addition, certain of these instruments are
relatively new and without a significant trading history. As a result, there is
no assurance that an active secondary market will develop or continue to exist.
Lack of a liquid market for any reason may prevent a Portfolio from liquidating
an unfavorable position and the Portfolio would remain obligated to meet margin
requirements until the position is closed.
The use of the techniques listed above which involve the segregation of
assets to cover future obligations may impair the liquidity of a Portfolio's
assets and its ability to operate as an open-end investment company. The Adviser
will monitor the use of such techniques and report to the Trustees concerning
their impact, if any, on liquidity and a Portfolio's ability to meet
redemptions.
For additional information relating to futures trading, including
particular risks thereof, see Appendix B to the Statement of Additional
Information.
WHEN-ISSUED PURCHASES AND FORWARD COMMITMENTS
A Portfolio may purchase securities on a "when-issued" basis and may
purchase or sell securities on a "forward commitment" basis. These transactions,
which involve a commitment by the Portfolio to purchase or sell particular
securities with payment and delivery taking place at a future date (perhaps one
or two months later), permit the Portfolio to lock-in a price or yield on a
security it owns or intends to purchase, regardless of future changes in
interest rates. When-issued and forward commitment transactions involve the
risk, however, that the yield obtained in a transaction may be less favorable
than the yield available in the market when delivery of the security takes
place. A Portfolio's forward commitments and when-issued purchases are not
expected to exceed 25% of the value of its total assets absent unusual market
conditions. The Portfolios do not intend to engage in when-issued purchases and
forward commitments for speculative purposes.
SECURITIES ISSUED BY OTHER INVESTMENT COMPANIES
The Portfolios may invest in securities issued by other investment
companies within the limits prescribed by the 1940 Act. Each Portfolio currently
intends to limit its investments so that, as determined immediately after a
securities purchase is made: (a) not more than 5% of the value of its total
assets will be invested in the securities of any one investment company; (b) not
more than 10% of the value of its total assets will be invested in the aggregate
in securities of investment companies as a group; (c) not more than 3% of the
outstanding voting stock of any one investment company will be owned by the
Portfolio; and (d) not more than 10% of the outstanding voting stock of any one
investment company will be owned in the aggregate by the Portfolio and other
investment companies advised by the Adviser or its affiliates. As a shareholder
of another investment company, a Portfolio would bear, along with other
shareholders, its proportionate share 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 Portfolio bears directly in connection with
its own operations. A Portfolio will invest in securities issued by other
investment companies to increase its yield when its excess cash might otherwise
remain idle or produce non-competitive returns.
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BORROWINGS
Each Portfolio may borrow funds for temporary purposes and may enter into
reverse repurchase agreements in accordance with the investment restrictions as
described in the Statement of Additional Information. Pursuant to such
agreements, a Portfolio would sell portfolio securities to financial
institutions and agree to purchase them at an agreed upon date and price. A
Portfolio would consider entering into reverse repurchase agreements to avoid
otherwise selling securities during unfavorable market conditions to meet
redemptions. Reverse repurchase agreements involve the risk that the market
value of the portfolio securities sold by a Portfolio may decline below the
price of the securities the Portfolio is obligated to repurchase.
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<PAGE> 28
PACIFICA VARIABLE TRUST
Statement of Additional Information
for
Emerging Growth Portfolio
Equity Value Portfolio
Balanced Portfolio
Intermediate Bond Portfolio
Money Market Portfolio
December 1, 1995
(as revised August __, 1996)
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
THE TRUST . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
INVESTMENT OBJECTIVES AND POLICIES . . . . . . . . . . . . . . . . . . . . 1
NET ASSET VALUE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION . . . . . . . . . . . . . . 24
DESCRIPTION OF SHARES . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
ADDITIONAL INFORMATION CONCERNING TAXES . . . . . . . . . . . . . . . . . . 26
MANAGEMENT OF THE PORTFOLIOS . . . . . . . . . . . . . . . . . . . . . . . 28
AUDITORS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
COUNSEL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
ADDITIONAL INFORMATION ON PERFORMANCE CALCULATIONS . . . . . . . . . . . . 34
FINANCIAL STATEMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
APPENDIX A . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-1
APPENDIX B . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . B-1
</TABLE>
This Statement of Additional Information is meant to be read
in conjunction with the Prospectus dated December 1, 1995, as the same may be
revised from time to time, and is incorporated by reference in its entirety
into the related Prospectus. Because this Statement of Additional Information
is not itself a prospectus, no investment in shares of the Portfolios should be
made solely based upon the information contained herein. Copies of the
Portfolios' Prospectus may be obtained by calling 1-800-FIB-1223 or by writing
Furman Selz LLC, 237 Park Avenue, New York, New York 10017, or by contacting
the Participating Insurance Company. Capitalized terms used but not defined
herein have the same meanings as in the Prospectus.
<PAGE> 29
THE TRUST
Pacifica Variable Trust (the "Trust") is a Delaware business
trust which was organized on August 26, 1994 as an open-end management
investment company. The Trust offers shares representing interests in the
following five separate, diversified investment portfolios: Emerging Growth
Portfolio, Equity Value Portfolio, Balanced Portfolio, Intermediate Bond
Portfolio and Money Market Portfolio.
INVESTMENT OBJECTIVES AND POLICIES
The following policies supplement the discussion of the
Portfolios' respective investment objectives and policies as set forth in the
Prospectus.
Portfolio Transactions
Wells Fargo Investment Management, Inc. ("WFIM" or the
"Adviser") serves as the investment adviser to the Portfolios. Subject to the
general supervision of the Trust's Board of Trustees and the provisions of the
Trust's Advisory Agreement relating to the Portfolios, the Adviser is
responsible for making decisions with respect to, and placing orders for, all
purchases and sales of portfolio securities.
The annualized portfolio turnover rate for each Portfolio
(other than the Money Market Portfolio) is calculated by dividing the lesser of
purchases or sales of portfolio securities for the year by the monthly average
value of the portfolio securities. The calculation excludes all securities,
including options, that have maturities or expiration dates at the time of
acquisition of one year or less. Portfolio turnover may vary greatly from year
to year as well as within a particular year, and may be affected by cash
requirements for redemption of shares and by requirements which enable the
Portfolios to receive favorable tax treatment. Portfolio turnover will not be
a limiting factor in making portfolio decisions, and each Portfolio may engage
in short-term trading to achieve its investment objective.
The Money Market Portfolio does not intend to seek profits
from short-term trading. Its annual portfolio turnover rate will be relatively
high, but brokerage commissions are normally not paid on money market
instruments, and portfolio turnover is not expected to have a material effect
on the Portfolio's net income. For regulatory purposes the portfolio turnover
rate for the Portfolio is expected to be zero.
Transactions on U.S. stock exchanges involve the payment of
negotiated brokerage commissions. On exchanges on which commissions are
negotiated, the cost of transactions may
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vary among different brokers. Transactions in the over-the-counter market are
generally principal transactions with dealers and the costs of such
transactions involve dealer spreads rather than brokerage commissions. With
respect to over-the-counter transactions, the Adviser will normally deal
directly with the dealers who make a market in the securities involved, except
in those circumstances where better prices and execution terms are available
elsewhere or as described below. The cost of securities purchased from
underwriters includes an underwriting commission or concession, and the prices
at which securities are purchased from and sold to dealers include a dealer's
mark-up or mark-down.
The Portfolios may participate, if and when practicable, in
bidding for the purchase of portfolio securities directly from an issuer in
order to take advantage of the lower purchase price available to members of a
bidding group. A Portfolio will engage in this practice, however, only when
the Adviser, in its sole discretion, believes such practice to be otherwise in
a Portfolio's interests.
The Advisory Agreement for the Portfolios provide that, in
executing portfolio transactions and selecting brokers or dealers, the Adviser
will seek to obtain the best overall terms available. In assessing the best
overall terms available for any transaction, the Adviser will consider factors
it deems relevant, including the breadth of the market in the security, the
price of the security, the financial condition and execution capability of the
broker or dealer, and the reasonableness of the commission, if any, both for
the specific transaction and on a continuing basis. In addition, the Agreement
authorizes the Adviser to cause any of the Portfolios to pay a broker-dealer
which furnishes brokerage and research services a higher commission than that
which might be charged by another broker-dealer for effecting the same
transaction, provided that they determine in good faith that such commission is
reasonable in relation to the value of the brokerage and research services
provided by such broker-dealer, viewed in terms of either that particular
transaction or the overall responsibilities of the Adviser to the Portfolios.
Such brokerage and research services might consist of reports and statistics of
specific companies or industries, general summaries of groups of stocks or
bonds and their comparative earnings and yields, or broad overviews of the
stock, bond and government securities markets and the economy.
Supplementary research information so received is in addition
to, and not in lieu of, services required to be performed by the Adviser and
does not reduce the advisory fees payable by the Portfolios. The Trustees will
periodically review the commissions paid by the Portfolios to consider whether
the commissions paid over representative periods of time appear to be
reasonable in relation to the benefits inuring to the Portfolios.
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<PAGE> 31
It is possible that certain of the supplementary research or other services
received will primarily benefit one or more other investment companies or other
accounts for which investment discretion is exercised. Conversely, a Portfolio
may be the primary beneficiary of the research or services received as a result
of portfolio transactions effected for such other account or investment
company.
The Portfolios may from time to time purchase securities
issued by the Trust's regular broker/dealers. Portfolio securities will not,
however, be purchased from or sold to (and savings deposits will not be made in
and repurchase and reverse repurchase agreements will not be entered into with)
the Adviser, Furman Selz LLC, the Participating Insurance Company or an
affiliated person (as such term is defined in the Investment Company Act of
1940 (the "1940 Act")) of any of them acting as principal, except to the extent
permitted by the Securities and Exchange Commission. In addition, the
Portfolios will not purchase securities during the existence of any
underwriting or selling group relating thereto of which Furman Selz LLC, the
Adviser, the Participating Insurance Company or an affiliated person of any of
them, is a member, except to the extent permitted by the Securities and
Exchange Commission.
Investment decisions for each Portfolio are made independently
from those for the other Portfolios and from those made for other investment
companies and accounts advised or managed by the Adviser. Such other
investment companies and accounts may also invest in the same securities as the
Portfolios. When a purchase or sale of the same security is made at
substantially the same time on behalf of a Portfolio and another investment
company or account, those transactions will be averaged as to price, and
available securities will be allocated between the Portfolio and the other
purchaser in a manner which the Adviser believes to be equitable to the
Portfolio and such other investment company or account. In some instances,
this investment procedure may adversely affect the price paid or received by a
Portfolio or the size of the position obtained by the Portfolio. To the extent
permitted by law, the Adviser may aggregate the securities to be sold or
purchased for a Portfolio with those to be sold or purchased for other
investment companies or accounts in executing transactions.
Debt Ratings
The ratings of Moody's Investors Service, Inc. ("Moody's"),
Standard & Poor's Corporation ("S&P"), Duff & Phelps Credit Rating Co. ("D&P"),
Fitch Investors Service, Inc. ("Fitch"), Thomson Bank Watch ("Thomson") and
IBCA Inc. ("IBCA") represent their opinions as to the quality of debt
securities. It should be emphasized, however, that ratings are general and are
not absolute standards of quality, and debt securities with
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<PAGE> 32
the same maturity, interest rate and rating may have different yields while
debt securities of the same maturity and interest rate with different ratings
may have the same yield. Subsequent to purchase by a Portfolio, an issue of
debt securities may cease to be rated or its rating may be reduced below the
minimum rating required for purchase by a Portfolio. The Adviser will consider
such an event in determining whether the Portfolio involved should continue to
hold the obligation.
The payment of principal and interest on most securities
purchased by the Portfolios will depend upon the ability of the issuers to meet
their obligations. An issuer's obligations under its debt securities are
subject to the provisions of bankruptcy, insolvency, and other laws affecting
the rights and remedies of creditors, such as the Federal Bankruptcy Code, and
laws, if any, which may be enacted by Federal or state legislatures extending
the time for payment of principal or interest, or both, or imposing other
constraints upon enforcement of such obligations or, in the case of
governmental entities, upon the ability of such entities to levy taxes. The
power or ability of an issuer to meet its obligations for the payment of
interest and principal of its debt securities may be materially adversely
affected by litigation or other conditions.
Options Trading
As stated in the Prospectus, the Emerging Growth, Equity
Value, Balanced and Intermediate Bond Portfolios may purchase put and call
options listed on a national securities exchange and issued by the Options
Clearing Corporation. This is a highly specialized activity which may entail
greater than ordinary investment risks. Regardless of how much the market
price of the underlying security increases or decreases, the option buyer's
risk is limited to the amount of the original investment for the purchase of
the option. However, options may be more volatile than their underlying
securities and, therefore, on a percentage basis, an investment in options may
be subject to greater fluctuation than an investment in their underlying
securities. A listed call option gives the purchaser of the option the right
to buy from a clearing corporation, and a writer has the obligation to sell to
the clearing corporation, the underlying security at the stated exercise price
at any time prior to the expiration of the option, regardless of the market
price of the security. The premium paid to the writer is in consideration for
undertaking the obligations under the option contract. A listed put option
gives the purchaser the right to sell to a clearing corporation the underlying
security at the stated exercise price at any time prior to the expiration date
of the option, regardless of the market price of the security.
The Portfolios will write only "covered" call options on
securities. The option is "covered" if a Portfolio owns the
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<PAGE> 33
security underlying the call or has an absolute and immediate right to acquire
that security without additional cash consideration (or, if additional cash
consideration is required, cash or cash equivalents in such amount as are held
in a segregated account by its custodian) upon conversion or exchange of other
securities held by it. A call option is also covered if a Portfolio holds a
call on the same security as the call written where the exercise price of the
call held is (i) equal to or less than the exercise price of the call written,
or (ii) greater than the exercise price of the call written provided the
difference is maintained by the Portfolio in cash or cash equivalents in a
segregated account with its custodian.
A Portfolio's obligation to sell a security subject to a
covered call option written by it, or to purchase a security subject to a
secured put option written by it, may be terminated prior to the expiration
date of the option by the Portfolio's executing a closing purchase transaction,
which is effected by purchasing on an exchange an option of the same series
(i.e., same underlying security, exercise price and expiration date) as the
option previously written. Such a purchase does not result in the ownership of
an option. A closing purchase transaction will ordinarily be effected to
realize a profit on an outstanding option, to prevent an underlying security
from being called, to permit the sale of the underlying security or to permit
the writing of a new option containing different terms on such underlying
security. The cost of such a liquidation purchase plus transaction costs may
be greater than the premium received upon the original option, in which event
the Portfolio will have incurred a loss in the transaction. An option position
may be closed out only on an exchange which provides a secondary market for an
option of the same series. There is no assurance that a liquid secondary
market on an exchange will exist for any particular option. A covered call
option writer, unable to effect a closing purchase transaction, will not be
able to sell the underlying security until the option expires or the underlying
security is delivered upon exercise with the result that the writer in such
circumstances will be subject to the risk of market decline in the underlying
security during such period. A Portfolio will write an option on a particular
security only if the Adviser believes that a liquid secondary market will exist
on an exchange for options of the same series which will permit the Portfolio
to make a closing purchase transaction in order to close out its position.
When a Portfolio purchases a put or call option, the premium
paid by it is recorded as an asset of the Portfolio. When a Portfolio writes
an option, an amount equal to the net premium (the premium less the commission)
received by the Portfolio is included in the liability section of the
Portfolio's statement of assets and liabilities as a deferred credit. The
amount of this asset or deferred credit will be subsequently
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marked-to-market to reflect the current value of the option purchased or
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 purchased by a Portfolio expires unexercised the Portfolio realizes a
loss equal to the premium paid. If a Portfolio enters into a closing sale
transaction on an option purchased by it, the Portfolio will realize a gain if
the premium received by the Portfolio on the closing transaction is more than
the premium paid to purchase the option, or a loss if it is less. If an option
written by a Portfolio expires on the stipulated expiration date or if a
Portfolio enters into a closing purchase transaction, it will realize a gain
(or 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 written by a Portfolio is exercised,
the proceeds of the sale will be increased by the net premium originally
received and the Portfolio will realize a gain or loss.
As noted previously, there are several risks associated with
transactions in options on securities. For example, there are significant
differences between the securities and options markets which could result in an
imperfect correlation between the markets, causing a given transaction not to
achieve its objectives. In addition, a liquid secondary market for particular
options, whether traded over-the-counter or on a national securities exchange
("Exchange") may be absent for reasons which include the following: there may
be insufficient trading interest in certain options; restrictions may be
imposed by an Exchange on opening transactions, closing transactions or both;
trading halts, suspensions or other restrictions may be imposed with respect to
particular classes or series of options or underlying securities; unusual or
unforeseen circumstances may interrupt normal operations on an Exchange; the
facilities of an Exchange or the Options Clearing Corporation may not at all
times be adequate to handle current trading volume; or one or more Exchanges
could, for economic or other reasons, decide or be compelled at some future
date to discontinue the trading of options (or a particular class or series of
options), in which event the secondary market on that Exchange (or in that
class or series of options) would cease to exist, although outstanding options
that had been issued by the Options Clearing Corporation as a result of trades
on that Exchange would continue to be exercisable in accordance with their
terms. A Portfolio will likely be unable to control losses by closing its
position where a liquid secondary market does not exist. A decision as to
whether, when and how to use options involves the exercise of skill and
judgment, and even a well-conceived transaction may be unsuccessful to some
degree because of market behavior or unexpected events.
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Futures Contracts and Related Options
The Equity Value and Balanced Portfolios may invest in futures
contracts and options thereon as described in Appendix B to this Statement of
Additional Information.
Warrants
To the extent described in the Prospectus, the Emerging
Growth, Equity Value, Balanced and Intermediate Bond Portfolios may purchase
warrants, 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 a Portfolio 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. A
Portfolio will not invest more than 5% of its total assets, taken at market
value, in warrants, or more than 2% of its total assets, taken at market value,
in warrants not listed on the New York or American Stock Exchanges. Warrants
acquired by a Portfolio in units or attached to other securities are not
subject to this restriction.
Foreign Currency Exchange Transactions
The Equity Value and Balanced Portfolios may enter into
foreign currency exchange transactions to convert United States currency to
foreign currency and foreign currency to United States currency as well as
convert foreign currency to other foreign currencies. Each Portfolio will
either enter into these transactions on a spot (i.e., cash) basis at the spot
rate prevailing in the foreign currency exchange market, or use forward
contracts to purchase or sell foreign currencies.
A forward foreign currency exchange contract is an obligation
by a Portfolio to purchase or sell a specific currency at a specified price and
future date, which may be any fixed number of days from the date of the
contract. Forward foreign currency exchange contracts establish an exchange
rate at a future date. These contracts are transferable in the interbank
market conducted directly between currency traders (usually large commercial
banks) and their customers. A forward foreign currency exchange contract
generally has no deposit requirement, and is traded at a net price without
commission. Neither spot transactions nor forward foreign currency exchange
contracts eliminate fluctuations in the prices of a Portfolio's securities
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or in foreign exchange rates, or prevent loss if the prices of these securities
should decline.
The Equity Value and Balanced Portfolios may enter into
foreign currency hedging transactions in an attempt to protect against changes
in foreign currency exchange rates between the trade and settlement dates of
specific securities transactions or changes in foreign currency exchange rates
that would adversely affect a portfolio position or an anticipated portfolio
position. Since consideration of the prospect for currency parities will be
incorporated into a Portfolio's long-term investment decisions, the Portfolio
will not routinely enter into foreign currency hedging transactions with
respect to portfolio security transactions; however, it is important to have
the flexibility to enter into foreign currency hedging transactions when it is
determined that the transactions would be in a Portfolio's best interest.
Although these transactions tend to minimize the risk of loss due to a decline
in the value of the hedged currency, at the same time they tend to limit any
potential gain that might be realized should the value of the hedged currency
increase. The precise matching of the forward contract amounts and the value
of the securities involved will not generally be possible because the future
value of these securities in foreign currencies will change as a consequence of
market movements in the value of those securities between the date the forward
contract is entered into and the date it matures. The projection of currency
market movements is extremely difficult, and the successful execution of a
hedging strategy is highly uncertain.
Lending Securities
Collateral for securities loans may include cash, securities
of the U.S. Government, its agencies or instrumentalities, or an irrevocable
letter of credit issued by a bank that meets the investment standards for the
Money Market Portfolio, or any combination thereof. When a Portfolio lends its
securities, it continues to receive interest or dividends on the securities
loaned and may simultaneously earn interest on the collateral received from the
borrower or from the investment of cash collateral in readily marketable,
high-quality, short-term obligations. Although voting rights, or rights to
consent, attendant to securities on loan pass to the borrower, such loans may
be called at any time and will be called so that the securities may be voted by
a Portfolio if a material event affecting the investment is to occur.
Repurchase Agreements
The repurchase price under repurchase agreements described in
the Portfolios' Prospectus generally equals the price paid by a Portfolio plus
interest negotiated on the basis of current short-term rates (which may be more
or less than the
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rate on the securities underlying the repurchase agreement). Securities
subject to repurchase agreements are held by the Portfolios' custodian (or a
sub-custodian) or in the Federal Reserve/Treasury book-entry system.
Repurchase agreements are considered to be loans under the 1940 Act.
Bank Obligations
For purposes of each Portfolio's investment policies with
respect to bank obligations, the assets of a bank will be deemed to include the
assets of its domestic and foreign branches. Each Portfolio's investments in
the obligations of foreign branches of U.S. banks and of foreign banks may
subject the Portfolio to investment risks that are different in some respects
from those of investments in obligations of U.S. domestic issuers. Such 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 foreign banks 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. Each Portfolio will acquire securities issued by foreign branches of
U.S. banks or foreign banks only when the Adviser believes that the risks
associated with such instruments are minimal.
Government Obligations
The Portfolios may invest in obligations issued or guaranteed
by the U.S. Government, its agencies and instrumentalities. Examples of the
types of U.S. Government obligations that may be held by the Portfolios include
U.S. Treasury bonds, notes and bills and the obligations of Federal Home Loan
Banks, Federal Farm Credit Banks, Federal Land Banks, the Federal Housing
Administration, Farmers Home Administration, Export-Import Bank of the United
States, Small Business Administration, Government National Mortgage
Association, Federal National Mortgage Association, General Services
Administration, Student Loan Marketing Association, Central Bank for
Cooperatives, Federal Home Loan Mortgage Corporation, Federal Intermediate
Credit Banks and Maritime Administration. Obligations of certain agencies and
instrumentalities of the U.S. Government, such as those of the Government
National Mortgage Association, are supported by the full faith and credit of
the U.S. Treasury; others, such as the Export-Import Bank of the United States,
are supported by the right of the issuer to borrow from the Treasury; others,
such as those of the Federal National Mortgage Association, are supported by
the discretionary
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authority of the U.S. Government to purchase the agency's obligations; still
others, such as those of the Student Loan Marketing Association, 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
instrumentalities if it is not obligated to do so by law.
American Depository Receipts ("ADRs") and European Depository Receipts ("EDRs")
The Emerging Growth, Equity Value, Intermediate Bond and
Balanced Portfolios may invest their assets in ADRs, which are receipts issued
by a U.S. bank or trust company evidencing ownership of underlying securities
issued by a foreign issuer, and, except for the Intermediate Bond Portfolio,
EDRs, which are receipts issued by European financial institutions evidencing
ownership of underlying securities issued by a foreign issuer. ADRs may be
listed on a national securities exchange or may trade in the over-the-counter
market. ADR prices are denominated in United States dollars while EDR prices
are generally denominated in foreign currencies. The securities underlying an
ADR or EDR will also normally be denominated in a foreign currency. The
underlying security may be subject to foreign government taxes which could
reduce the yield on such securities.
Foreign Securities
The Portfolios have undertaken to comply with California
Department of Insurance guidelines relating to investments in foreign
securities, which provide as follows: To the extent consistent with its
investment objective, a Portfolio will be invested in a minimum of five
different foreign countries at all times, provided that this minimum is reduced
to four when foreign country investments comprise less than 80% of the
Portfolio's net asset value; to three when less than 60% of the Portfolio's net
asset value; to two when less than 40% of the Portfolio's net asset value; and
to one when less than 20%. In addition, a Portfolio will invest no more than
20% of its net asset value in the securities of issuers located in any one
country, except that a Portfolio may have an additional 15% of its value
invested in securities of issuers in any one of Australia, Canada, France,
Japan, the United Kingdom or West Germany. A Portfolio's investments in United
States issuers are not subject to the above guidelines.
Exchange Rate-Related Securities
The Balanced Fund may invest in securities for which the
principal repayment at maturity, while paid in U.S. dollars, is determined by
reference to the exchange rate between the U.S. dollar and the currency of one
or more foreign countries
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("Exchange Rate-Related Securities"). The interest payable on these securities
is denominated in U.S. dollars and is not subject to foreign currency risk and,
in most cases, is paid at rates higher than most other similarly rated
securities in recognition of the foreign currency risk component of Exchange
Rate-Related Securities.
Investments in Exchange Rate-Related Securities entail certain
risks. There is the possibility of significant changes in rates of exchange
between the U.S. dollar and any foreign currency to which an Exchange
Rate-Related Security is linked. In addition, there is no assurance that
sufficient trading interest to create a liquid secondary market will exist for
a particular Exchange Rate-Related Security due to conditions in the debt and
foreign currency markets. Illiquidity in the forward foreign exchange market
and the high volatility of the foreign exchange market may, from time to time,
combine to make it difficult to sell an Exchange Rate-Related Security prior to
maturity without incurring a significant price loss. The Balanced Fund does
not intend to invest more than 5% of its net assets in Exchange Rate-Related
Securities.
Borrowing
At the time a Portfolio enters into a reverse repurchase
agreement (an agreement under which the Portfolio sells portfolio securities
and agrees to repurchase them at an agreed-upon date and price), it will place
in a segregated custodial account liquid assets such as U.S. Government
securities or other liquid high-grade debt securities having a value equal to
or greater than the repurchase price (including accrued interest) and will
subsequently monitor the account to ensure that such value is maintained.
Reverse repurchase agreements involve the risk that the market value of the
securities sold by a Portfolio may decline below the price at which the
Portfolio it is obligated to repurchase the securities. Reverse repurchase
agreements are considered to be borrowings under the 1940 Act. Each Portfolio
intends to limit its borrowings (including reverse repurchase agreements)
during the current fiscal year to not more than 5% of its net assets.
When-Issued Purchases and Forward Commitments
When a Portfolio agrees to purchase securities on a
when-issued basis or enters into a forward commitment to purchase securities,
its custodian will set aside cash, U.S. government securities or other liquid
high grade debt obligations equal to the amount of the purchase or the
commitment in a separate account. Normally, the custodian will set aside
portfolio securities to meet this requirement. The market value of the
separate account will be monitored and if such market value declines, the
Portfolio will be required to place additional
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assets in the separate account in order to ensure that the value of the account
remains equal to the amount of the Portfolio's commitment. Because a Portfolio
will set aside cash or liquid high grade debt securities in the manner
described, the Portfolio's liquidity and ability to manage its portfolio might
be affected in the event its when-issued purchases or forward commitments ever
exceeded 25% of the value of its assets. In the case of a forward commitment
to sell portfolio securities, the Portfolios' custodian will hold the portfolio
securities themselves in a segregated account while the commitment is
outstanding.
A Portfolio will generally make commitments to purchase
securities on a when-issued basis or to purchase or sell securities on a
forward commitment basis only with the intention of completing the transaction
and actually purchasing or selling the securities. If deemed advisable as a
matter of investment strategy, however, a Portfolio may dispose of or
renegotiate a commitment after it is entered into, and may sell securities it
has committed to purchase before those securities are delivered to the
Portfolio on the settlement date. In these cases the Portfolio may realize a
capital gain or loss.
When a Portfolio engages in when-issued and forward commitment
transactions, it relies on the other party to consummate the trade. Failure of
such party to do so may result in the Portfolio's incurring a loss or missing
an opportunity to obtain a price considered to be advantageous.
The value of the securities underlying a when-issued purchase
or a forward commitment to purchase securities, and any subsequent fluctuations
in their value, is taken into account when determining a Portfolio's net asset
value starting on the day the Portfolio agrees to purchase the securities. The
Portfolio does not earn interest on the securities it has committed to purchase
until they are paid for and delivered on the settlement date. When a Portfolio
makes a forward commitment to sell securities it owns, the proceeds to be
received upon settlement are included in the Portfolio's assets, and
fluctuations in the value of the underlying securities are not reflected in the
Portfolio's net asset value as long as the commitment remains in effect.
Convertible Securities
Convertible securities entitle the holder to receive interest
paid or accrued on debt or the dividend paid on preferred stock until the
convertible securities mature or are redeemed, converted or exchanged. Prior
to conversion, convertible securities have characteristics similar to ordinary
debt securities in that they normally provide a stable stream of income with
generally higher yields than those of common stock of
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the same or similar issuers. Convertible securities rank senior to common
stock in a corporation's capital structure and therefore generally entail less
risk than the corporation's common stock, although the extent to which such
risk is reduced depends in large measure upon the degree to which the
convertible security sells above its value as a fixed income security.
In selecting convertible securities for a Portfolio, the
Adviser will consider, among other factors, its evaluation of the
creditworthiness of the issuers of the securities; the interest or dividend
income generated by the securities; the potential for capital appreciation of
the securities and the underlying common stocks; the prices of the securities
relative to other comparable securities and to the underlying common stocks;
whether the securities are entitled to the benefits of sinking funds or other
protective conditions; the diversification of the Portfolio as to issuers; and
whether the securities are rated by a rating agency and, if so, the ratings
assigned.
The value of convertible securities is a function of their
investment value (determined by yield in comparison with the yields of other
securities of comparable maturity and quality that do not have a conversion
privilege) and their conversion value (their worth, at market value, if
converted into the underlying common stock). The investment value of
convertible securities is influenced by changes in interest rates, with
investment value declining as interest rates increase and increasing as
interest rates decline, and by the credit standing of the issuer and other
factors. The conversion value of convertible securities is determined by the
market price of the underlying common stock. If the conversion value is low
relative to the investment value, the price of the convertible securities is
governed principally by their investment value. To the extent the market price
of the underlying common stock approaches or exceeds the conversion price, the
price of the convertible securities will be increasingly influenced by their
conversion value. In addition, convertible securities generally sell at a
premium over their conversion value determined by the extent to which investors
place value on the right to acquire the underlying common stock while holding
fixed income securities.
Capital appreciation for a Portfolio may result from an
improvement in the credit standing of an issuer whose securities are held in
the Portfolio or from a general lowering of interest rates, or a combination of
both. Conversely, a reduction in the credit standing of an issuer whose
securities are held by a Portfolio or a general increase in interest rates may
be expected to result in capital depreciation to the Portfolio.
In general, investments in non-investment grade convertible
securities are subject to a significant risk of a change in the credit rating
or financial condition of the issuing
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entity. Investments in convertible securities of medium or lower quality are
also likely to be subject to greater market fluctuation and to greater risk of
loss of income and principal due to default than investments in higher rated
fixed-income securities. Such lower-rated securities generally tend to reflect
short-term corporate and market developments to a greater extent than higher
rated securities, which react more to fluctuations in the general level of
interest rates. A Portfolio will generally reduce risk to the investor by
diversification, credit analysis and attention to current developments in
trends of both the economy and financial markets. However, while
diversification reduces the effect on a Portfolio of any single investment, it
does not reduce the overall risk of investing in lower-rated securities.
While any investment carries some risk, certain risks
associated with lower-rated securities are different than those for
investment-grade securities. The risk of loss through default is greater
because lower-rated securities are usually unsecured and are often subordinate
to an issuer's other obligations. Additionally, the issuers of these
securities frequently have high debt levels and are thus more sensitive to
difficult economic conditions, individual corporate developments and rising
interest rates. Consequently, the market price of these securities may be quite
volatile and may result in wider fluctuations of a Portfolio's net asset value
per share.
There remains some uncertainty about the performance level of
the market for lower-rated securities under adverse market and economic
environments. An economic downturn or increase in interest rates could have a
negative impact on both the markets for lower-rated securities (resulting in a
greater number of bond defaults) and the value of lower-rated securities held
in the portfolio of investments.
The economy and interest rates can affect lower-rated
securities differently than other securities. For example, the prices of
lower-rated securities are more sensitive to adverse economic changes or
individual corporate developments than are the prices of higher-rated
investments. In addition, during an economic downturn or period in which
interest rates are rising significantly, highly leveraged issuers may
experience financial difficulties, which, in turn, would adversely affect their
ability to service their principal and interest payment obligations, meet
projected business goals and obtain additional financing.
If an issuer of a security defaults, a Portfolio may incur
additional expenses to seek recovery. In addition, periods of economic
uncertainty would likely result in increased volatility for the market prices
of lower-rated securities as
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well as a Portfolio's net asset value. In general, both the prices and yields
of lower-rated securities will fluctuate.
In certain circumstances it may be difficult to determine a
security's fair value due to a lack of reliable objective information. Such
instances occur where there is not an established secondary market for the
security or the security is lightly traded. As a result, a Portfolio's
valuation of a security and the price it is actually able to obtain when it
sells the security could differ.
Adverse publicity and investor perceptions, whether or not
based on fundamental analysis, may decrease the value and liquidity of
lower-rated convertible securities held by a Portfolio, especially in a thinly
traded market. Illiquid or restricted securities held by a Portfolio may
involve special registration responsibilities, liabilities and costs, and could
involve other liquidity and valuation difficulties.
Current laws, such as those requiring federally-insured
savings and loan associations to remove investments in lower-rated securities
from their portfolios, as well as other pending proposals, may have a material
impact on the market for lower-rated securities.
The rating assigned by a rating agency evaluates the safety of
a lower-rated security's principal and interest payments, but does not address
market value risk. Because the ratings of the rating agencies may not always
reflect current conditions and events, in addition to using recognized rating
agencies and other sources, the Adviser performs its own analysis of the
issuers whose lower-rated securities a Portfolio holds. Because of this, a
Portfolio's performance may depend more on the Adviser's credit analysis than
is the case of mutual funds investing in higher-rated securities.
Restricted Securities
The purchase of securities which are traded pursuant to Rule
144A, as described in the Portfolios' Prospectus, could have the effect of
increasing the level of illiquidity of a Portfolio during periods when
qualified institutional buyers become uninterested in purchasing restricted
securities.
Variable and Floating Rate Instruments
With respect to the variable and floating rate instruments
that may be acquired by the Portfolios as described in the Prospectus, the
Adviser will consider the earning power, cash flows and other liquidity ratios
of the issuers and guarantors of such instruments and, if the instruments are
subject to demand features, will monitor their financial status
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to meet payment on demand. In determining weighted average portfolio maturity,
an instrument will usually be deemed to have a maturity equal to the longer of
the period remaining until the next interest rate adjustment or the time a
Portfolio can recover payment of principal as specified in the instrument.
Variable rate U.S. Government obligations held by the Portfolios, however, will
be deemed to have maturities equal to the period remaining until the next
interest rate adjustment. Where necessary to ensure that a variable or
floating rate instrument is of the minimum required credit quality for a
Portfolio, the issuer's obligation to pay the principal of the instrument will
be backed by an unconditional bank letter or line of credit, guarantee or
commitment to lend.
Municipal Obligations
Municipal obligations that may be acquired by the Intermediate
Bond Portfolio include debt obligations issued by governmental entities to
obtain funds for various public purposes, including the construction of a wide
range of public facilities, the refunding of outstanding obligations, the
payment of general operating expenses and the extension of loans to public
institutions and facilities.
The two principal classifications of municipal obligations
which may be held by the Intermediate Bond Portfolio are "general obligation"
securities and "revenue" securities. General obligation securities are secured
by the issuer's pledge of its full faith, credit and taxing power for the
payment of principal and interest. Revenue securities are payable only from
the revenues derived from a particular facility or class of facilities or, in
some cases, from the proceeds of a special excise tax or other specific revenue
source such as the issuer of the facility being financed. The Portfolio may
also hold "moral obligation" securities, which are normally issued by special
purpose public authorities. If the issuer of moral obligation securities is
unable to meet its debt service obligations from current revenues, it may draw
on a reserve fund, the restoration of which is a moral commitment but not a
legal obligation of the state or municipality which created the issuer.
Further, the Intermediate Bond Portfolio may purchase
municipal obligations known as "certificates of participation" which represent
undivided proportional interests in lease payments by a governmental or
nonprofit entity. The lease payments and other rights under the lease provide
for and secure the payments on the certificates. Lease obligations may be
limited to applicable municipal charter provisions or the nature of the
appropriation for the lease. In particular, lease obligations may be subject
to periodic appropriation. If the entity does not appropriate funds for future
lease payments, the entity cannot be compelled to make such payments.
Furthermore, a
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lease may or may not provide that the certificate trustee can accelerate lease
obligations upon default. If the trustee could not accelerate lease
obligations upon default, the trustee would only be able to enforce lease
payments as they became due. In the event of a default or failure of
appropriation, it is unlikely that the trustee would be able to obtain an
acceptable substitute source of payment. Certificates of participation are
generally subject to redemption by the issuing municipal entity under specified
circumstances. If a specified event occurs, a certificate is callable at par
either at any interest payment date or, in some cases, at any time. As a
result, certificates of participation are not as liquid or marketable as other
types of municipal obligations and are generally valued at par or less than par
in the open market.
There are, of course, variations in the quality of municipal
obligations both within a particular classification and between
classifications, and the yields on municipal obligations depend upon a variety
of factors, including general money market conditions, the financial condition
of the issuer, general conditions of the municipal bond market, the size of a
particular offering, the maturity of the obligation and the rating of the
issue.
Private activity bonds are issued to obtain funds to provide
privately operated housing facilities, pollution control facilities, convention
or trade show facilities, mass transit, airport, port or parking facilities and
certain local facilities for water supply, gas, electricity or sewage or solid
waste disposal. Private activity bonds are also issued to privately held or
publicly owned corporations in the financing of commercial or industrial
facilities. State and local governments are authorized in most states to issue
private activity bonds for such purposes in order to encourage corporations to
locate within their communities. Private activity bonds are in most cases
revenue securities and are not payable from the unrestricted revenues of the
issuer. The credit quality of such bonds is usually directly related to the
credit standing of the corporate user of the facility involved.
Certain of the municipal obligations held by the Intermediate
Bond Portfolio may be insured as to the timely payment of principal and
interest. The insurance policies will usually be obtained by the issuer of the
municipal obligation at the time of its original issuance. In the event that
the issuer defaults on interest or principal payment, the insurer will be
notified and will be required to make payment to the bondholders. There is,
however, no guarantee that the insurer will meet its obligations. In addition,
such insurance will not protect against market fluctuations caused by changes
in interest rates and other factors.
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Stripped Government Obligations
Within the past several years, the Treasury Department has
facilitated transfers of ownership of zero coupon securities by accounting
separately for the beneficial ownership of particular interest coupon and
principal payments on Treasury securities through the Federal Reserve
book-entry record-keeping system. The Federal Reserve program as established
by the Treasury Department is known as "STRIPS" or "Separate Trading of
Registered Interest and Principal of Securities." The Portfolios may purchase
securities registered in the STRIPS program. Under the STRIPS program, the
Portfolios will be able to have their beneficial ownership of zero coupon
securities recorded directly in the book-entry record-keeping system in lieu of
having to hold certificates or other evidences of ownership of the underlying
U.S. Treasury securities.
In addition, the Portfolios may acquire U.S. Government
obligations and their unmatured interest coupons that have been separated
("stripped") by their holder, typically a custodian bank or investment
brokerage firm. Having separated the interest coupons from the underlying
principal of the U.S. Government obligations, the holder will resell the
stripped securities in custodial receipt programs with a number of different
names, including "Treasury Income Growth Receipts" ("TIGRs") and "Certificate
of Accrual on Treasury Securities" ("CATS"). The stripped coupons are sold
separately from the underlying principal, which is usually sold at a deep
discount because the buyer receives only the right to receive a future fixed
payment on the security and does not receive any rights to periodic interest
(cash) payments. The underlying U.S. Treasury bonds and notes themselves are
held in book-entry form at the Federal Reserve Bank or, in the case of bearer
securities (i.e., unregistered securities which are ostensibly owned by the
bearer or holder), in trust on behalf of the owners. Counsel to the
underwriters of these certificates or other evidences of ownership of U.S.
Treasury securities have stated that, in their opinion, purchasers of the
stripped securities most likely will be deemed the beneficial holders of the
underlying U.S. Government obligations for Federal tax purposes. The Trust is
unaware of any binding legislative, judicial or administrative authority on
this issue. Investments by a Portfolio in these securities will not exceed 5%
of the value of the Portfolio's total assets.
The Prospectus discusses other types of stripped securities
that may be purchased by the Portfolios.
Asset-Backed Securities
To the extent described in the Prospectus, the Portfolios may
purchase asset-backed securities, which are
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<PAGE> 47
securities backed by mortgages, installment contracts, credit card receivables
or other assets. Asset-backed securities represent interests in "pools" of
assets in which payments of both interest and principal on the securities are
made monthly, thus in effect "passing through" monthly payments made by the
individual borrowers on the assets that underlie the securities, net of any
fees paid to the issuer or guarantor of the securities. The average life of
asset-backed securities varies with the maturities of the underlying
instruments, and the average life of a mortgage-backed instrument, in
particular, is likely to be substantially less than the original maturity of
the mortgage pools underlying the securities as a result of mortgage
prepayments. For this and other reasons, an asset-backed security's stated
maturity may be shortened, and the security's total return may be difficult to
predict precisely. Asset-backed securities acquired by the Portfolios may
include collateralized mortgage obligations ("CMOs") issued by private
companies.
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 guaranteed by the 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 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-backed
securities issued by the FNMA include FNMA Guaranteed Mortgage Pass-Through
Certificates (also known as "Fannie Maes") which are solely the obligations of
the FNMA and are not backed by or entitled to the full faith and credit of the
United States, but are supported by the right of the issuer to borrow from the
Treasury. FNMA is a government-sponsored organization owned entirely by
private stockholders. Fannie Maes are guaranteed as to timely payment of the
principal and interest by FNMA. Mortgage-related securities issued by the
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 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 timely payment of interest, which is guaranteed by FHLMC.
FHLMC guarantees either ultimate collection or 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.
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<PAGE> 48
Additional Investment Limitations
In addition to the investment limitations disclosed in the
Prospectus, the Portfolios are subject to the investment limitations enumerated
below which may be changed with respect to a particular Portfolio only by a
vote of a majority of the holders of such Portfolio's outstanding shares (as
defined under "Miscellaneous" below).
No Portfolio may:
1. Purchase or sell real estate, except that each
Portfolio may purchase securities of issuers which deal in real estate and may
purchase securities which are secured by interests in real estate.
2. Purchase securities of companies for the purpose of
exercising control.
3. Acquire any other investment company or investment
company security except in connection with a merger, consolidation,
reorganization or acquisition of assets or where otherwise permitted by the
Investment Company Act of 1940.
4. Act as an underwriter of securities within the
meaning of the Securities Act of 1933 except insofar as a Portfolio might be
deemed to be an underwriter upon disposition of portfolio securities acquired
within the limitation on purchases of restricted securities and except to the
extent that the purchase and sale of obligations in accordance with the
Portfolio's investment objective, policies and limitations may be deemed to be
underwriting.
5. Write or sell put options, call options, straddles,
spreads, or any combination thereof, except for transactions in options on
securities, financial instruments, currencies and indices of securities;
futures contracts and options on futures contracts; and forward currency
exchange contracts.
6. Purchase securities on margin, make short sales of
securities or maintain a short position, except that (a) this investment
limitation shall not apply to a Portfolio's transactions in futures contracts
and related options, and (b) a Portfolio may obtain short-term credit as may be
necessary for the clearance of purchases and sales of portfolio securities.
7. Purchase or sell commodity contracts, or invest in
oil, gas or mineral exploration or development programs, except that the
Portfolio may, to the extent appropriate to its investment objective, purchase
publicly traded securities of companies engaging in whole or in part in such
activities and may enter into futures contracts and related options.
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<PAGE> 49
8. Borrow money (other than pursuant to reverse
repurchase agreements), except (a) as a temporary measure, and then only in
amounts not exceeding 5% of the value of a Portfolio's total assets or (b) from
banks, provided that immediately after any such borrowing all borrowings of the
Portfolio do not exceed one-third of the Portfolio's total assets. The
exceptions in (a) and (b) to this restriction are not for investment leverage
purposes but are solely for extraordinary or emergency purposes or to
facilitate management of a Portfolio by enabling the Portfolio to meet
redemption requests when the liquidation of portfolio instruments is deemed to
be disadvantageous or not possible. If due to market fluctuations or other
reasons the total assets of a Portfolio fall below 300% of its borrowings, the
Trust will reduce the borrowings of such Portfolio in accordance with the 1940
Act. In addition, as a matter of fundamental policy, the Portfolios may not
enter into reverse repurchase agreements exceeding in the aggregate one-third
of their respective total assets.
9. Mortgage, pledge or hypothecate any assets (other
than pursuant to reverse repurchase agreements) except to secure permitted
borrowings.
In order to comply with California Department of Insurance
guidelines, as a non-fundamental investment restriction, a Portfolio may not
borrow money in excess of (i) 10% of its net asset value when borrowing for any
general purpose or (ii) 25% of its net asset value when borrowing as a
temporary measure to facilitate redemptions.
Securities held in escrow or separate accounts in connection
with the Portfolios' investment practices described in this Statement of
Additional Information and in the Prospectus are not deemed to be mortgaged,
pledged or hypothecated for purposes of the foregoing Investment Limitations.
Any restriction which involves a maximum percentage will not
be considered violated unless an excess over the percentage occurs immediately
after, and is caused by, an acquisition or encumbrance of securities or assets
of, or borrowings by, the Portfolio.
In order to permit the sale of the Portfolios' shares in
certain states, the Trust may make commitments with respect to the Portfolios
more restrictive than the investment policies listed above and in the
Prospectus. Should the Trust determine that any commitment made to permit the
sale of a Portfolio's shares in any state is no longer in the best interests of
the Portfolio, it will revoke the commitment by terminating sales of a
Portfolio's shares in the state involved.
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<PAGE> 50
NET ASSET VALUE
The net asset value per share of a Portfolio is calculated by
adding the value of all portfolio securities and other assets belonging to the
Portfolio, subtracting the liabilities charged to the Portfolio, and dividing
the result by the number of shares of the Portfolio outstanding. "Assets
belonging to" a Portfolio consists of the consideration received upon the
issuance of shares of the Portfolio together with all income, earnings, profits
and proceeds derived from the investment thereof, including any proceeds from
the sale, exchange or liquidation of such investments, any funds or payments
derived from any reinvestment of such proceeds, and a portion of any general
assets of the Trust not belonging to a particular investment portfolio that are
allocated to that portfolio by the Trust's Board of Trustees. The Board of
Trustees may allocate such general assets in any manner it deems fair and
equitable. It is anticipated that the general assets will normally be
allocated to particular portfolios based on their relative net asset values at
the time of allocation. Assets belonging to a particular portfolio are charged
with the direct liabilities and expenses of that portfolio and with a share of
the general liabilities and expenses of the Trust which are normally allocated
in proportion to the relative net asset values of all of the Trust's investment
portfolios at the time of allocation. The allocations of general assets and
general liabilities and expenses of the Trust to particular portfolios will be
determined in accordance with generally accepted accounting principles.
Subject to the provisions of the Trust Instrument, determinations by the Board
of Trustees as to the direct and allocable liabilities and the allocable
portion of any general assets with respect to the Portfolio are conclusive.
Emerging Growth, Equity Value, Balanced and Intermediate Bond Portfolios
Securities which are traded on a recognized stock exchange are
valued at the last sale price occurring prior to the close of regular trading
on the securities exchange on which such securities are primarily traded or at
the last sale price occurring prior to the close of regular trading on the
national securities market. Securities traded on only over-the-counter markets
are valued on the basis of closing over-the-counter bid prices. Securities for
which there were no transactions are valued at the average of the current bid
and asked prices. Restricted securities, securities for which market
quotations are not readily available, and other assets are valued at fair value
under the supervision of the Board of Trustees. In computing net asset value,
the current value of a Portfolio's open futures contracts and options will be
"marked to market."
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<PAGE> 51
Money Market Portfolio
The Trust uses the amortized cost method of valuation to value
the Money Market Portfolio's portfolio securities, pursuant to which an
instrument is valued at its cost initially and thereafter a constant
amortization to maturity of any discounts or premium is assumed, regardless of
the impact of fluctuating interest rates on the market value of the instrument.
This method may result in periods during which value, as determined by
amortized cost, is higher or lower than the price the Portfolio would receive
if it sold the instrument. The market value of portfolio securities held by
the Portfolio can be expected to vary inversely with changes in prevailing
interest rates.
The Money Market Portfolio maintains a dollar-weighted average
portfolio maturity appropriate to its policy of maintaining a stable net asset
value per share. In this regard, the Portfolio will neither purchase any
security deemed to have a remaining maturity of more than 13 months (397 days)
within the meaning of the 1940 Act nor maintain a dollar-weighted average
maturity which exceeds 90 days. The Trust's Board of Trustees has also
established procedures that are intended to stabilize the net asset value per
share of the Portfolio for purposes of sales and redemptions at $1.00. These
procedures include the determination, at such intervals as the trustees deem
appropriate, of the extent, if any, to which the net asset value per share of
the Portfolio calculated by using available market quotations deviates from
$1.00 per share. In the event such deviation exceeds one-half of one percent,
the Board will promptly consider what action, if any, should be initiated. If
the Board believes that the extent of any deviation from a $1.00 amortized cost
price per share may result in material dilution or other unfair results to new
or existing investors, it has agreed to take such steps as it considers
appropriate to eliminate or reduce to the extent reasonably practicable any
such dilution or unfair results. These steps may include selling portfolio
instruments prior to maturity; shortening the average portfolio maturity;
withholding or reducing dividends; redeeming shares in kind; reducing the
number of outstanding shares without monetary consideration; or utilizing a net
asset value per share determined by using available market quotations.
Net income of the Money Market Portfolio for dividend purposes
consists of (i) interest accrued and discount earned on the Portfolio's assets,
less (ii) amortization of market premium on such assets, accrued expenses
directly attributable to the Portfolio, and the Portfolio's allocable share of
the general expenses.
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<PAGE> 52
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION
Shares of the Portfolios are sold on a continuous basis by
Furman Selz LLC ("Furman Selz"). Each purchase is confirmed to the Separate
Account in a written statement of the number of shares purchased and the
aggregate number of shares currently held.
The Trust may suspend the right of redemption or postpone the
date of payment for shares of any Portfolio for more than seven days during any
period when (a) trading in the markets the Portfolio normally utilizes is
restricted, or an emergency, as defined by the rules and regulations of the
SEC, exists making disposal of the Portfolio's investments or determination of
its net asset value not reasonably practicable; (b) the New York Stock Exchange
is closed (other than customary weekend and holiday closings); or (c) the SEC
has by order permitted such suspension.
DESCRIPTION OF SHARES
The Trust is a Delaware business trust. Under the Trust
Instrument, the beneficial interest in the Trust may be divided into an
unlimited number of full and fractional transferable shares. The Trust
Instrument authorizes the Board of Trustees to classify or reclassify any
unissued shares of the Trust into one or more additional series by setting or
changing in any one or more respects, their respective designations,
preferences, voting powers, rights and privileges. Pursuant to such authority,
the Board of Trustees has authorized the issuance of five series of shares,
each series representing interests in a separate investment portfolio. The
Trustees may similarly classify or reclassify any particular series of shares
into one or more classes.
Each share of the Trust has a par value of $0.0001, represents
an equal proportionate interest in a Portfolio, and is entitled to such
dividends and distributions of the income earned on the Portfolio's assets as
are declared at the discretion of the Trustees. Shares of the Portfolios have
no preemptive rights and only such conversion or exchange rights as the Board
of Trustees may grant in its discretion. When issued for payment as described
in the Prospectus, a Portfolio's shares will be fully paid and non-assessable
by the Trust. In the event of the termination of the Trust or an individual
Portfolio, shareholders of a particular Portfolio would be entitled to receive
the assets available for distribution belonging to such Portfolio.
Shareholders of a Portfolio are entitled to participate in the net
distributable assets of the particular Portfolio involved on termination, based
on the number of shares of the Portfolio that are held by each of them,
respectively.
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<PAGE> 53
Unless the Board of Trustees determines otherwise,
shareholders of the Portfolios, as well as those of the other investment
portfolios offered by the Trust, will vote together in the aggregate and not
separately on a Portfolio-by-Portfolio basis, except as otherwise required by
law or when the Board of Trustees determines that the matter to be voted upon
affects only the interests of the shareholders of a particular Portfolio. Rule
18f-2 under the 1940 Act provides that any matter required to be submitted to
the holders of the outstanding voting securities of an investment company such
as the Trust shall not be deemed to have been effectively acted upon unless
approved by the holders of a majority of the outstanding shares of each
Portfolio affected by the matter. A Portfolio is affected by a matter unless
it is clear that the interests of each Portfolio in the matter are
substantially identical or that the matter does not affect any interest of the
Portfolio. Under the Rule, the approval of an investment advisory agreement or
any change in a fundamental investment policy would be effectively acted upon
with respect to a Portfolio only if approved by a majority of the outstanding
shares of such Portfolio. However, the Rule also provides that the
ratification of the appointment 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
particular Portfolios.
There will normally be no meetings of shareholders for the
purpose of electing trustees unless and until such time as less than a majority
of the trustees holding office have been elected by shareholders, at which time
the trustees then in office will call a shareholders meeting for the election
of trustees. Shares of the Trust have noncumulative voting rights and,
accordingly, the holders of more than 50% of the Trust's outstanding shares
(irrespective of class) may elect all of the Trustees. The Board of Trustees
will call meetings of the shareholders of the Trust upon the written request of
shareholders owning at least 10% of the outstanding shares entitled to vote.
Except as set forth above, the Trustees will continue to hold office and may
appoint successor trustees.
The Trust Instrument authorizes the Board of Trustees, without
shareholder approval, to issue shares to a party or parties and for such amount
and type of consideration and on such terms, subject to applicable law, as the
Trustees may deem appropriate. The Board of Trustees may issue fractional
shares and shares held in the treasury. The Board of Trustees has full power
and authority, in their sole discretion, and without obtaining shareholder
approval, to divide or combine the shares or any class or series thereof into a
greater or lesser number, to classify or reclassify any issued shares or any
class or series thereof into one or more classes or series of shares, and
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<PAGE> 54
to take such other action with respect to the Trust's shares as the Board of
Trustees may deem desirable.
The Trust Instrument provides that the Trustees, when acting
in their capacity as such, will not be personally liable to any person other
than the Trust or a beneficial owner for any act, omission or obligation of the
Trust or any Trustee. A Trustee shall not be liable for any act or omission in
his capacity as Trustee, or for any act or omission of any officer or employee
of the Trust or of any other person or party, provided that nothing contained
in the Trust Instrument or in the Delaware Business Trust Act shall protect any
Trustee against any liability to the Trust or to shareholders to which he would
otherwise be subject by reason of willful misfeasance, bad faith, gross
negligence or reckless disregard of the duties involved in the conduct of the
office of Trustee.
ADDITIONAL INFORMATION CONCERNING TAXES
Shares of the Portfolios are offered only to Separate Accounts
that fund variable annuity contracts. See the prospectus for the variable
annuity contracts for a discussion of the special taxation of insurance
companies with respect to the Separate Accounts and the variable annuity
contracts, and the holders thereof.
The following is only a summary of certain tax considerations
generally affecting the Portfolios that are not described in the Portfolios'
Prospectus. No attempt is made to present a detailed explanation of the tax
treatment of the Portfolios, and the discussions here and in the Prospectus are
not intended as a substitute for careful tax planning. This discussion is
based on tax laws and regulations which are in effect on the date hereof; such
laws and regulations may be changed by legislative or administrative action.
Investors are urged to consult their tax advisors with reference to their own
situation.
Federal
Each Portfolio is treated as a separate corporate entity under
the Code and intends to qualify as a regulated investment company. In order to
so qualify, each Portfolio must satisfy certain requirements with respect to
the distribution and sources of its income for a taxable year. At least 90% of
the gross income of each Portfolio must be derived from dividends, interest,
payments with respect to securities loans, gains from the sale or other
disposition of stocks, securities or foreign currencies, and other income
(including, but not limited to, gains from options, futures, or forward
contracts) derived with respect to the Portfolio's business of investing in
such stock, securities or currencies. The Treasury Department may by
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<PAGE> 55
regulation exclude from qualifying income foreign currency gains which are not
directly related to the Portfolio's principal business of investing in stock or
securities, or options and futures with respect to stock or securities. Any
income derived by a Portfolio from a partnership or trust is treated for this
purpose as derived with respect to the Portfolio's business of investing in
stock, securities or currencies only to the extent that such income is
attributable to items of income which would have been qualifying income if
realized by the Portfolio in the same manner as by the partnership or trust.
Qualification as a regulated investment company under the Code
also requires that in each taxable year a Portfolio distribute to its
shareholders an amount equal to at least the sum of 90% of its investment
company taxable income for such year. In general, a Portfolio's investment
company taxable income will be its taxable income, subject to certain
adjustments and excluding the excess of any net long-term capital gain for the
taxable year over the net short-term capital loss, if any, for such year. Each
Portfolio intends to distribute as dividends substantially all of its
investment company taxable income each year.
Another requirement for qualification as a regulated
investment company under the Code is that less than 30% of a Portfolio's gross
income for a taxable year must be derived from gains realized on the sale or
other disposition of the following investments held for less than three months:
(1) stock and securities (as defined in Section 2(a)(36) of the 1940 Act); (2)
options, futures and forward contracts other than those on foreign currencies;
and (3) foreign currencies (and options, futures and forward contracts on
foreign currencies) that are not directly related to a Portfolio's principal
business of investing in stock and securities (and options and futures with
respect to stocks and securities). Interest (including original issue discount
and accrued market discount) received by a Portfolio upon maturity or
disposition of a security held for less than three months will not be treated
as gross income derived from the sale or other disposition of such security
within the meaning of this requirement. However, any other income which is
attributable to realized market appreciation will be treated as gross income
from the sale or other disposition of securities for this purpose. See
Appendix B -- "Accounting and Tax Treatment" - - for a general discussion of
the Federal tax treatment of futures contracts, related options thereon and
other financial instruments, including their treatment under the 30% test.
As noted in the Prospectus, each Portfolio must, and intends
to, comply with the diversification requirements imposed by Section 817(h) of
the Code and the regulations thereunder. For information concerning the
consequences of failure to meet
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<PAGE> 56
the requirements of Section 817(h), see the prospectus for the variable
contracts.
A 4% non-deductible excise tax is imposed on regulated
investment companies that fail to currently distribute an amount equal to
specified percentages of their ordinary taxable income and capital gain net
income (excess of capital gains over capital losses). Each Portfolio intends
to make sufficient distributions or deemed distributions of its ordinary
taxable income and any capital gain net income prior to the end of each
calendar year to avoid liability for this excise tax.
If for any taxable year a Portfolio does not qualify for tax
treatment as a regulated investment company, all of the taxable income of the
Portfolio will be subject to tax at regular corporate rates, without any
deduction for distributions to shareholders, and the Portfolio's distributions
to shareholders will be taxable as ordinary dividends to the extent of the
current and accumulated earnings and profits of the particular Portfolio.
State
Depending upon the extent of the Portfolios' activities in
states and localities in which their offices are maintained, in which their
agents or independent contractors are located or in which they are otherwise
deemed to be conducting business, the Portfolios may be subject to the tax laws
of such states or localities. In addition, in those states and localities
which have income tax laws, the treatment of the Portfolios and their
shareholders under such laws may differ from their treatment under federal
income tax laws.
MANAGEMENT OF THE PORTFOLIOS
Trustees and Officers
The trustees and officers of the Trust, their addresses, ages,
principal occupations during the past five years and other affiliations are as
follows:
<TABLE>
<CAPTION>
=============================================================================================================
POSITION(S) HELD
NAME, ADDRESS, AND AGE WITH THE TRUST PRINCIPAL OCCUPATION(S) DURING THE PAST 5 YEARS
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Dennis W. Draper; School of Trustee Associate Professor of Finance, at University of
Business, Hoffman 701-F, Southern California since 1978; Director of Data
University of Southern Analysis, Inc. (financial services); and Editorial
California, Los Angeles, Board Member of Chicago Board of Trade.
California 90089; 46.
- -------------------------------------------------------------------------------------------------------------
</TABLE>
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<PAGE> 57
<TABLE>
<CAPTION>
=============================================================================================================
POSITION(S) HELD
NAME, ADDRESS, AND AGE WITH THE TRUST PRINCIPAL OCCUPATION(S) DURING THE PAST 5 YEARS
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Joseph N. Hankin; Trustee President, Westchester Community College since 1971;
Westchester Community President of Hartford Junior College from 1967 to
College, 75 Grasslands Road, 1971; Adjunct Professor of Columbia University
Valhalla, New York 10595; Teachers College since 1976.
55.
- -------------------------------------------------------------------------------------------------------------
John E. Heilmann; Old Trustee Retired; former Chairman, President and Chief
Norwood Plantation, Route 1, Executive Officer of Distillers Somerset, Inc. and
Box II A, Wingina, Virginia Norwood Enterprises, Inc. from 1987-1992.
24599; 64.
- -------------------------------------------------------------------------------------------------------------
Jack D. Henderson; 1600 Trustee Attorney--sole practitioner; Partner of the law firm
Broadway, Denver, Colorado of Clanahan, Tanner, Downing & Knowlton, P.C. until
80202; 68. November, 1995. He is a Trustee of Westcore Trust (a
mutual fund family).
- -------------------------------------------------------------------------------------------------------------
Richard A. Wedemeyer; 17 Trustee Vice President of Performance Advantage, Inc., since
High Street, Norwalk, 1992; Vice President of Jim Henson Productions from
Connecticut 06851; 59. 1979 to 1992; Author of In Transition (Harper
Collins); co-founder and co-conductor of Harvard
Business School Club of New York Career Seminar;
Trustee of Jim Henson Legacy Trust.
- -------------------------------------------------------------------------------------------------------------
Michael C. Petrycki; 230 President Executive Vice President and Director of Furman Selz
Park Avenue, New York, NY since 1984.
10169; 53.
- -------------------------------------------------------------------------------------------------------------
Steven D. Blecher; 230 Park Executive Vice Executive Vice President and Director of Furman Selz
Avenue, New York, NY 10169; President since 1983; Vice President, Secretary and Treasurer
52. of Furman Selz Capital Management, Inc. since 1984.
- -------------------------------------------------------------------------------------------------------------
John J. Pileggi; 237 Park Vice President Managing Director of Furman Selz, from 1984 to 1992;
Avenue, New York, NY 10017; and Treasurer Senior Managing Director since 1992 and Director of
36. Furman Selz since 1994.
- -------------------------------------------------------------------------------------------------------------
Joan V. Fiore; 237 Park Vice President Managing Director and Counsel of Furman Selz since
Avenue, New York, NY 10017; and Secretary 1991; Staff Attorney at the U.S. Securities and
39. Exchange Commission, Division of Investment
Management, from 1986 to 1991.
- -------------------------------------------------------------------------------------------------------------
Donald E. Brostrom; 237 Park Assistant Director, Fund Services, Furman Selz Incorporated
Avenue, New York, NY 10017; Treasurer since 1986; Managing Director of Furman Selz since
37 1995.
- -------------------------------------------------------------------------------------------------------------
</TABLE>
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<PAGE> 58
<TABLE>
<CAPTION>
=============================================================================================================
POSITION(S) HELD
NAME, ADDRESS, AND AGE WITH THE TRUST PRINCIPAL OCCUPATION(S) DURING THE PAST 5 YEARS
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Eric Rubin; Assistant Mr. Rubin joined Furman Selz as a Managing Director
7501 East McCormick Parkway, Secretary in the Mutual Fund Division in June of 1995.
110N Scottsdale, AZ 85258 Previous to that, Mr. Rubin was a Vice President and
Managing Director at Banc One Investment Advisers in
Columbus, Ohio. In that role, he was responsible for
sales, marketing, product development and
administration for Banc One's proprietary Fund
family. From January 1989 to November 1993 Mr. Rubin
was employed by Furman Selz as an Associate Director.
Throughout those years he was responsible for the
administration and fund accounting of several
proprietary bank mutual fund groups. He also served
as an officer or several of those fund complexes.
=============================================================================================================
</TABLE>
Each trustee receives an annual fee of $1000 plus $250 for
each Board meeting attended and reimbursement of expenses incurred in attending
meetings.
For the last fiscal year, the Trustees will receive the
following compensation from the Trust and from certain other investment
companies (as indicated) that have the same investment adviser as the Trust or
an investment adviser that is an affiliate person of the Trust's investment
adviser:
<TABLE>
<CAPTION>
====================================================================================================================
PENSION OR
RETIREMENT TOTAL
BENEFITS ESTIMATED COMPENSATION
AGGREGATE ACCRUED AS ANNUAL FROM
COMPENSATION PART OF BENEFITS REGISTRANT
FROM THE TRUST UPON AND FUND
NAME OF TRUSTEE TRUST EXPENSE RETIREMENT COMPLEX
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Dennis W. Draper $2000* $0 $0 $12,500**
- --------------------------------------------------------------------------------------------------------------------
Joseph N. Hankin $2000* $0 $0 $12,500**
- --------------------------------------------------------------------------------------------------------------------
John E. Heilmann $2000* $0 $0 $12,500**
- --------------------------------------------------------------------------------------------------------------------
Jack D. Henderson $2000* $0 $ $11,707**
- --------------------------------------------------------------------------------------------------------------------
Richard A. Wedemeyer $2000* $0 $0 $11,707**
====================================================================================================================
</TABLE>
* Estimated compensation for the Trust's 1996 fiscal year.
** Includes amounts received for service as a member of the Board of
Trustees of Pacific Funds Trust which is also advised by WFIM.
As of the date of this Statement of Additional Information,
the Trust's Trustees and officers as a group own less than 1% of the
outstanding shares of each Portfolio.
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<PAGE> 59
Adviser
WFIM serves as Adviser to the Portfolios. In the Advisory
Agreement, the Adviser has agreed to provide a continuous investment program
for the respective Portfolios and to pay all expenses it incurs in connection
with its advisory activities, other than the cost of securities and other
investments, including brokerage commissions and other transaction charges, if
any, purchased or sold for the Portfolios.
For the period January 2, 1996 (commencement of operations)
through March 31, 1996, the Adviser was entitled to receive advisory fees in
the following amounts: Emerging Growth Portfolio -- $10,077; Equity Value
Portfolio -- $9,873; Balanced Portfolio -- $9,537; Intermediate Bond Portfolio
- -- $7,928; Money Market Portfolio -- $7,332. During such time period, the
Adviser voluntarily waived all of such advisory fees.
The Adviser has agreed that if, in any fiscal year, the
expenses borne by a Portfolio exceed the applicable expense limitations imposed
by the securities regulations of any state in which shares of a Portfolio are
registered or qualified for sale to the public, it will reimburse the Portfolio
for any excess to the extent required by such regulations. To the Trust's
knowledge, as of the date of this Statement of Additional Information the most
restrictive expense limitations for any fiscal year imposed by state securities
regulations which were applicable to the Portfolios were as follows: two and
one-half percent of the first $30 million of a Portfolio's average net assets,
two percent of the next $70 million of average net assets, and one and one-half
percent of a Portfolio's remaining average net assets.
The Advisory Agreement provides that the Adviser shall not be
liable for any error of judgment or mistake of law or for any loss suffered by
the Portfolios in connection with the performance of such agreements, except a
loss resulting from a breach of fiduciary duty with respect to the receipt of
compensation for services or a loss resulting from willful misfeasance, bad
faith or gross negligence on the part of the Adviser in the performance of its
duties or from its reckless disregard of its duties and obligations under the
agreements.
Authority to Act as Adviser
Banking laws and regulations, including the Glass-Steagall Act
as presently interpreted by the Board of Governors of the Federal Reserve
System, presently (a) prohibit a bank holding company registered under the
Federal Bank Holding Company Act of 1956 or any bank or non-bank affiliate
thereof from sponsoring, organizing, controlling or distributing the shares of
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<PAGE> 60
a registered, open-end investment company continuously engaged in the issuance
of its shares, and prohibit banks generally from underwriting securities, but
(b) do not prohibit such a bank holding company or affiliate or banks generally
from acting as investment adviser, transfer agent or custodian to such an
investment company or from purchasing shares of such a company as agent and
upon order of a customer. The Adviser is subject to such banking laws and
regulations.
The Adviser believes that it may perform the services for the
Portfolios contemplated by the Portfolios' Advisory Agreement without
violation of the Glass-Steagall Act or other applicable banking laws or
regulations. It should be noted, however, that future changes in either
Federal or state statutes and regulations relating to permissible activities of
banks or trust companies and their subsidiaries or affiliates, as well as
further judicial or administrative decisions or interpretations of present and
future statutes and regulations, could prevent the Adviser from continuing to
perform such services for the Portfolios. If the Adviser were prohibited from
continuing to perform advisory and sub-advisory services for the Portfolios, it
is expected that the Board of Trustees would recommend that the Portfolios
enter into new agreements or would consider the possible dissolution of the
Portfolios. Any new advisory agreement would be subject to shareholder
approval.
On the other hand, legislation has been proposed in Congress
from time to time, which, if enacted, would permit a bank holding company
subsidiary to organize, sponsor and distribute shares of an investment company
such as the Trust notwithstanding present banking law restrictions. As
described herein, the Portfolios are currently distributed by Furman Selz,
which also provides certain administrative services. If the current
restrictions preventing a bank holding company subsidiary from legally
sponsoring, organizing, controlling and distributing shares of an investment
company were relaxed, the Trust expects that the Adviser or any of its
affiliates would consider the possibility of offering to perform additional
services for the Trust. It is not possible to predict whether or in what form
such legislation might be enacted or the terms upon which the Adviser might
offer to provide such services for consideration by the Trust's Board of
Trustees.
State securities laws on the aforementioned issue may differ
from the interpretations of federal laws expressed herein, and banks and
financial institutions such as the Adviser may be required to register as
dealers pursuant to state law.
Distribution of Shares
The Trust retains Furman Selz to serve as principal
underwriter for the shares of the Portfolios pursuant to a
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Distribution Contract. The Distribution Contract provides that the Furman Selz
will maintain the distribution of the Portfolios' shares to bona fide
investors. Furman Selz is not obligated to sell any specific amount of shares.
Administrative Services
Furman Selz also provides management and administrative
services necessary for the operation of the Portfolios, including among other
things, (i) preparation of shareholder reports and communications, (ii)
regulatory compliance, such as reports to and filings with the Securities and
Exchange Commission ("SEC") and state securities commissions and (iii) general
supervision of the operation of the Portfolios, including coordination of the
services performed by the Portfolios' Adviser, distributor, transfer agent,
custodian, independent accountants, legal counsel and others. In addition,
Furman Selz furnishes office space and facilities required for conducting the
business of the Portfolios and pays the compensation of the Trust's officers
affiliated with Furman Selz. For these services, Furman Selz is entitled to
receive from the Portfolios a fee, payable monthly, at the annual rate of .15%
of each Portfolio's average daily net assets.
For the period January 2, 1996 (commencement of operations)
through March 31, 1996, Furman Selz was entitled to receive administrative fees
in the following amounts: Emerging Growth Portfolio -- $2,016; Equity Value
Portfolio -- $1,974; Balanced Portfolio -- $1,908; Intermediate Bond Portfolio
- -- $1,830; Money Market Portfolio -- $1,833. During such time period, Furman
Selz voluntarily waived its administrative fees in the following amounts:
Emerging Growth Portfolio -- $1,344; Equity Value Portfolio -- $1,316; Balanced
Portfolio -- $1,272; Intermediate Bond Portfolio -- $1,830; Money Market
Portfolio -- $1,833.
The Administrative Services Contract between Furman Selz and
the Trust is terminable with respect to any Portfolio without penalty, at any
time, by vote of a majority of the Trustees who are not "interested persons" of
the Trust and who have no direct or indirect financial interest in the
operation of the Administrative Services Contract upon not more than 60 days
written notice to Furman Selz or by vote of the holders of a majority of the
shares of the Portfolio involved, or, upon 60 days notice, by Furman Selz. The
Administrative Services Contract will terminate automatically in the event of
its assignment.
Custodian and Transfer Agent
Wells Fargo Bank, N.A. (the "Custodian") serves as custodian
of the Portfolios' assets pursuant to the Custody Agreement. Under the Custody
Agreements, the Custodian has
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agreed to (a) maintain a separate account in the name of each Portfolio; (b)
make receipts and disbursements of money on behalf of each Portfolio; (c)
collect and receive all income and other payments and distributions on account
of each Portfolio's portfolio securities; (d) respond to correspondence from
shareholders, security brokers and others relating to its duties; and (e) make
periodic reports to the Trust's Board of Trustees concerning each Portfolio's
operations. The Custodian may, at its own expense, open and maintain a custody
account or accounts on behalf of any Portfolio with other banks or trust
companies, provided that the Custodian shall remain liable for the performance
of all of its duties under the Custody Agreement notwithstanding any
delegation. For its services as custodian, the Custodian is entitled to
receive compensation from each Portfolio based on the aggregate market value of
the portfolio securities of the Portfolio as follows: 0.0210% on the first $5
billion of the average net assets; 0.0175% on the next $5 billion; and 0.0150%
on assets in excess of $10 billion. The minimum annual custody fee payable by
each Portfolio is $500. In addition, the Custodian is entitled to certain
transaction charges at the rate of $20 for each transaction involving a
domestic security, $25 for each transaction involving a foreign security, and
$45 per option (including issuance of an escrow receipt), and to reimbursement
for its out-of-pocket expenses in connection with the above services.
Furman Selz acts as the Trust's transfer agent. The Trust
compensates Furman Selz for providing personnel and facilities to perform
transfer agency related services for the Trust at a rate intended to represent
the cost of providing such services.
AUDITORS
Ernst & Young LLP, 515 South Flower Street, Los Angeles,
California, have been selected to serve as the Portfolios' independent
auditors.
COUNSEL
Drinker Biddle & Reath, Philadelphia National Bank Building,
1345 Chestnut Street, Philadelphia, Pennsylvania 19107-3496, serves as counsel
to the Trust and will pass upon certain legal matters relating to the
Portfolios.
ADDITIONAL INFORMATION ON PERFORMANCE CALCULATIONS
Yield Quotations -- Money Market Portfolio
The standardized annualized seven-day yield for the Money
Market Portfolio is computed by: (1) determining the net change, exclusive of
capital changes, in the value of a
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hypothetical pre-existing account in the Portfolio having a balance of one
share at the beginning of a seven-day period, for which the yield is to be
quoted, (2) dividing the net change in account value by the value of the
account at the beginning of the base period to obtain the base period return,
and (3) annualizing the results (i.e., multiplying the base period return by
(365/7)). The net change in the value of the account in the Portfolio includes
the value of additional shares purchased with dividends from the original share
and dividends declared on both the original share and any such additional
shares, and all fees that are charged by the Portfolio to all shareholder
accounts in proportion to the length of the base period, other than
nonrecurring account and sales charges. For any account fees that vary with
the size of the account, the amount of fees charged is computed with respect to
the Portfolio's mean (or median) account size. The capital changes to be
excluded from the calculation of the net change in account value are realized
gains and losses from the sale of securities and unrealized appreciation and
depreciation. The effective compound yield quotation for the Portfolio is
computed by adding 1 to the unannualized base period return (calculated as
described above), raising the sum to a power equal to 365 divided by 7, and
subtracting 1 from the result.
For the seven-day period ended March 31, 1996, the Money
Market Portfolio had an annualized seven-day yield of _____% and an effective
seven-day yield of _____%.
Yield and Total Return of the Emerging Growth, Equity Value, Balanced and
Intermediate Bond Portfolios
The 30-day (or one month) standard yield of the Balanced and
Intermediate Bond Portfolios described in the Prospectus is calculated for each
Portfolio in accordance with the method prescribed by the SEC for mutual funds:
a - b
YIELD = 2[( - - - - +1 )6 - 1]
cd
Where: a = dividends and interest earned by a Portfolio during
the period;
b = expenses accrued for the period (net of
reimbursements);
c = average daily number of shares outstanding during the
period, entitled to receive dividends; and
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d = maximum offering price per share on the last day of
the period.
For the purpose of determining net investment income earned during the period
(variable "a" in the formula), dividend income on equity securities held by a
Portfolio is recognized by accruing 1/360 of the stated dividend rate of the
security each day that the security is in the Portfolio. Except as noted
below, interest earned on debt obligations held by a Portfolio is calculated by
computing the yield to maturity of each obligation based on the market value of
the obligation (including actual accrued interest) at the close of business on
the last business day of each month, or, with respect to obligations purchased
during the month, the purchase price (plus actual accrued interest) and
dividing the result by 360 and multiplying the quotient by the market value of
the obligation (including actual accrued interest) in order to determine the
interest income on the obligation for each day of the subsequent month that the
obligation is held by the Portfolio. For purposes of this calculation, it is
assumed that each month contains 30 days. The maturity of an obligation with a
call provision is the next call date on which the obligation reasonably may be
expected to be called or, if none, the maturity date. With respect to debt
obligations purchased at a discount or premium, the formula generally calls for
amortization of the discount or premium. The amortization schedule will be
adjusted monthly to reflect changes in the market value of such debt
obligations. Expenses accrued for the period (variable "b" in the formula)
include all recurring fees charged by a Portfolio to all shareholder accounts
in proportion to the length of the base period and the Portfolio's mean (or
median) account size. Undeclared earned income will be subtracted from the
offering price per share (variable "d" in the formula).
For the one-month period ended March 31, 1996, the Balanced
Portfolio and the Intermediate Bond Portfolio had 30-day yields of _____% and
_____%, respectively.
With respect to mortgage or other receivables-backed
obligations which are expected to be subject to monthly payments of principal
and interest ("pay-downs") (i) gain or loss attributable to actual monthly pay
downs are accounted for as an increase or decrease to interest income during
the period and (ii) each Portfolio may elect either (a) to amortize the
discount and premium on the remaining security, based on the cost of the
security, to the weighted average maturity date, if such information is
available, or to the remaining term of the security, if any, if the weighted
average date is not available or (b) not to amortize discount or premium on the
remaining security.
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<PAGE> 65
Each Portfolio that advertises its "average annual total
return" computes such return by determining the average annual compounded rate
of return during specified periods that equates the initial amount invested to
the ending redeemable value of such investment according to the following
formula:
ERV l/n
T = [(-----) - 1]
P
Where: T = average annual total return;
ERV = ending redeemable value of a hypothetical
$1,000 payment made at the beginning of the
l, 5 or 10 year (or other) periods at the end
of the applicable period (or a fractional
portion thereof);
P = hypothetical initial payment of $1,000; and
n = period covered by the computation, expressed
in years.
Each Portfolio that advertises its "aggregate total return"
computes such returns by determining the aggregate compounded rates of return
during specified periods that likewise equate the initial amount invested to
the ending redeemable value of such investment. The formula for calculating
aggregate total return is as follows:
ERV
Aggregate Total Return = [(-----) - l]
P
The calculations are made assuming that (1) all dividends and
capital gain distributions are reinvested on the reinvestment dates at the
price per share existing on the reinvestment date, (2) all recurring fees
charged to all shareholder accounts are included, and (3) for any account fees
that vary with the size of the account, a mean (or median) account size in the
Portfolio during the periods is reflected. The ending redeemable value
(variable "ERV" in the formula) is determined by assuming complete redemption
of the hypothetical investment after deduction of all nonrecurring charges at
the end of the measuring period.
For the period from January 2, 1996 (commencement of
operations) through March 31, 1996, the total returns for the Portfolios were
as follows:
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<TABLE>
<CAPTION>
=============================================================
FUND TOTAL RETURN
-------------------------------------------------------------
<S> <C>
Emerging Growth Portfolio
-------------------------------------------------------------
Equity Value Portfolio
-------------------------------------------------------------
Balanced Portfolio
-------------------------------------------------------------
Intermediate Bond Portfolio
=============================================================
</TABLE>
FINANCIAL STATEMENTS
The Financial Statements included in the Portfolios' March 31,
1996 Semi-Annual Report to Shareholders are incorporated by reference into this
SAI. Copies of the Financial Statements may be obtained upon request and
without charge by calling 1-800-FIB-1223 or by writing Furman Selz, 237 Park
Avenue, New York, New York 10017, or by contacting the Participating Insurance
Company.
MISCELLANEOUS
As used in this Statement of Additional Information and the
Portfolios' Prospectus, a "majority of the outstanding shares" of a Portfolio
or a series of shares, with respect to the approval of an investment advisory
agreement or a change in a fundamental investment policy, means the lesser of
(1) 67% of the shares of the particular Portfolio or series represented at a
meeting at which the holders of more than 50% of the outstanding shares of such
Portfolio or series are present in person or by proxy, or (2) more than 50% of
the outstanding shares of such Portfolio or series.
SunAmerica Inc. ("SunAmerica"), the ultimate parent of Anchor
National Life Insurance Company ("Anchor"), provided the initial seed capital
for each Portfolio on January 2, 1996, in the amount of $5,000,000 per
Portfolio. SunAmerica's principal business address is 1 SunAmerica Center, Los
Angeles, California 90067-6022. As of May 31, 1996, no person or "group" (as
such term is defined in the Securities Exchange Act of 1934, as amended, and
the rules thereunder) was known to Pacifica to have allocated contributions
under annuity contracts such that, upon pass-through of voting rights by
Anchor, the person or group would have the right to give voting instructions
with respect to more than 5% of the outstanding shares of a Portfolio. As of
May 31, 1996, SunAmerica owned the following percentages of each Portfolio
attributable to its seed capital investment in Pacifica: Emerging Growth
Portfolio (86.9%), Equity Value Portfolio (87.1%), Balanced Portfolio (92.5%),
Intermediate Bond Portfolio (95.9%), and Money Market Portfolio (99.7%).
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APPENDIX A
DESCRIPTION OF SECURITIES RATINGS
Commercial Paper Ratings
A Standard & Poor's commercial paper rating is a current
assessment of the likelihood of timely payment of debt considered short-term in
the relevant market. The following summarizes the rating categories used by
Standard and Poor's for commercial paper:
"A-1" - Issue's degree of safety regarding timely payment is
strong. Those issues determined to possess extremely strong safety
characteristics are denoted "A-1+."
"A-2" - Issue's capacity for timely payment is satisfactory.
However, the relative degree of safety is not as high as for issues designated
"A-1."
"A-3" - Issue has an adequate capacity for timely payment. It
is, however, somewhat more vulnerable to the adverse effects of changes in
circumstances than an obligation carrying a higher designation.
"B" - Issue has only a speculative capacity for timely
payment.
"C" - Issue has a doubtful capacity for payment.
"D" - Issue is in payment default.
Moody's commercial paper ratings are opinions of the ability
of issuers to repay punctually promissory obligations not having an original
maturity in excess of 9 months. The following summarizes the rating categories
used by Moody's for commercial paper:
"Prime-1" - Issuer or related supporting institutions are
considered to have a superior capacity for repayment of short-term promissory
obligations. Prime-1 repayment capacity will normally be evidenced by the
following characteristics: leading market positions in well established
industries; high rates of return on funds employed; conservative capitalization
structures with moderate reliance on debt and ample asset protection; broad
margins in earning coverage of fixed financial charges and high internal cash
generation; and well established access to a range of financial markets and
assured sources of alternate liquidity.
A-1
<PAGE> 68
"Prime-2" - Issuer or related supporting institutions are
considered to have a strong capacity for repayment of short-term promissory
obligations. This will normally be evidenced by many of the characteristics
cited above but to a lesser degree. Earnings trends and coverage ratios, while
sound, will be more subject to variation. Capitalization characteristics,
while still appropriate, may be more affected by external conditions. Ample
alternative liquidity is maintained.
"Prime-3" - Issuer or related supporting institutions have an
acceptable capacity for repayment of short-term promissory obligations. The
effects of industry characteristics and market composition may be more
pronounced. Variability in earnings and profitability may result in changes in
the level of debt protection measurements and the requirement for relatively
high financial leverage. Adequate alternate liquidity is maintained.
"Not Prime" - Issuer does not fall within any of the Prime
rating categories.
The three rating categories of Duff & Phelps for investment
grade commercial paper and short-term debt are "D-1," "D-2" and "D-3." Duff &
Phelps employs three designations, "D-1+," "D-1" and "D-1-," within the highest
rating category. The following summarizes the rating categories used by Duff &
Phelps for commercial paper:
"D-1+" - Debt possesses highest certainty of timely payment.
Short-term liquidity, including internal operating factors and/or access to
alternative sources of funds, is outstanding, and safety is just below
risk-free U.S. Treasury short-term obligations.
"D-1" - Debt possesses very high certainty of timely payment.
Liquidity factors are excellent and supported by good fundamental protection
factors. Risk factors are minor.
"D-1-" - Debt possesses high certainty of timely payment.
Liquidity factors are strong and supported by good fundamental protection
factors. Risk factors are very small.
"D-2" - Debt possesses good certainty of timely payment.
Liquidity factors and company fundamentals are sound. Although ongoing funding
needs may enlarge total financing requirements, access to capital markets is
good. Risk factors are small.
"D-3" - Debt possesses satisfactory liquidity, and other
protection factors qualify issue as investment grade. Risk
A-2
<PAGE> 69
factors are larger and subject to more variation. Nevertheless, timely payment
is expected.
"D-4" - Debt possesses speculative investment characteristics.
Liquidity is not sufficient to ensure against disruption in debt service.
Operating factors and market access may be subject to a high degree of
variation.
"D-5" - Issuer has failed to meet scheduled principal and/or
interest payments.
Fitch short-term ratings apply to debt obligations that are
payable on demand or have original maturities of generally up to three years.
The following summarizes the rating categories used by Fitch for short-term
obligations:
"F-1+" - Securities possess exceptionally strong credit
quality. Issues assigned this rating are regarded as having the strongest
degree of assurance for timely payment.
"F-1" - Securities possess very strong credit quality. Issues
assigned this rating reflect an assurance of timely payment only slightly less
in degree than issues rated "F-1+."
"F-2" - Securities possess good credit quality. Issues
assigned this rating have a satisfactory degree of assurance for timely
payment, but the margin of safety is not as great as the "F-1+" and "F-1"
categories.
"F-3" - Securities possess fair credit quality. Issues
assigned this rating have characteristics suggesting that the degree of
assurance for timely payment is adequate; however, near-term adverse changes
could cause these securities to be rated below investment grade.
"F-S" - Securities possess weak credit quality. Issues
assigned this rating have characteristics suggesting a minimal degree of
assurance for timely payment and are vulnerable to near-term adverse changes in
financial and economic conditions.
"D" - Securities are in actual or imminent payment default.
Fitch may also use the symbol "LOC" with its short-term
ratings to indicate that the rating is based upon a letter of credit issued by
a commercial bank.
Thomson BankWatch short-term ratings assess the likelihood of
an untimely or incomplete payment of principal or interest of unsubordinated
instruments having a maturity of one
A-3
<PAGE> 70
year or less which are issued by United States commercial banks, thrifts and
non-bank banks; non-United States banks; and broker-dealers. The following
summarizes the ratings used by Thomson BankWatch:
"TBW-1" - This designation represents Thomson BankWatch's
highest rating category and indicates a very high degree of likelihood that
principal and interest will be paid on a timely basis.
"TBW-2" - This designation indicates that while the degree of
safety regarding timely payment of principal and interest is strong, the
relative degree of safety is not as high as for issues rated "TBW-1."
"TBW-3" - This designation represents the lowest investment
grade category and indicates that while the debt is more susceptible to adverse
developments (both internal and external) than obligations with higher ratings,
capacity to service principal and interest in a timely fashion is considered
adequate.
"TBW-4" - This designation indicates that the debt is regarded
as non-investment grade and therefore speculative.
IBCA assesses the investment quality of unsecured debt with an
original maturity of less than one year which is issued by bank holding
companies and their principal bank subsidiaries. The following summarizes the
rating categories used by IBCA for short-term debt ratings:
"A1+" - Obligations supported by the highest capacity for
timely repayment.
"A1" - Obligations are supported by the highest capacity for
timely repayment.
"A2" - Obligations are supported by a satisfactory capacity
for timely repayment.
"A3" - Obligations are supported by a satisfactory capacity
for timely repayment.
"B" - Obligations for which there is an uncertainty as to the
capacity to ensure timely repayment.
"C" - Obligations for which there is an inadequate capacity to
ensure timely repayment.
"D" - Obligations for which there is a high risk of default or
which are currently in default.
A-4
<PAGE> 71
Corporate and Municipal Long-Term Debt Ratings
The following summarizes the ratings used by Standard & Poor's
for corporate and municipal debt:
"AAA" - This designation represents the highest rating
assigned by Standard & Poor's to a debt obligation and indicates an extremely
strong capacity to pay interest and repay principal.
"AA" - Debt is considered to have a very strong capacity to
pay interest and repay principal and differs from AAA issues only in small
degree.
"A" - Debt is considered to have a strong capacity to pay
interest and repay principal although such issues are somewhat more susceptible
to the adverse effects of changes in circumstances and economic conditions than
debt in higher-rated categories.
"BBB" - Debt is regarded as having an adequate capacity to pay
interest and repay principal. Whereas such issues normally exhibit adequate
protection parameters, adverse economic conditions or changing circumstances
are more likely to lead to a weakened capacity to pay interest and repay
principal for debt in this category than in higher-rated categories.
"BB," "B," "CCC," "CC" and "C" - Debt is regarded, on balance,
as predominantly speculative with respect to capacity to pay interest and repay
principal in accordance with the terms of the obligation. "BB" indicates the
lowest degree of speculation and "C" the highest degree of speculation. While
such debt will likely have some quality and protective characteristics, these
are outweighed by large uncertainties or major risk exposures to adverse
conditions.
"BB" - Debt has less near-term vulnerability to default than
other speculative issues. However, it faces major ongoing uncertainties or
exposure to adverse business, financial or economic conditions which could lead
to inadequate capacity to meet timely interest and principal payments. The
"BB" rating category is also used for debt subordinated to senior debt that is
assigned an actual or implied "BBB-" rating.
"B" - Debt has a greater vulnerability to default but
currently has the capacity to meet interest payments and principal repayments.
Adverse business, financial or economic conditions will likely impair capacity
or willingness to pay interest and repay principal. The "B" rating category is
also used for debt subordinated to senior debt that is assigned an actual or
implied "BB" or "BB-" rating.
A-5
<PAGE> 72
"CCC" - Debt has a currently identifiable vulnerability to
default, and is dependent upon favorable business, financial and economic
conditions to meet timely payment of interest and repayment of principal. In
the event of adverse business, financial or economic conditions, it is not
likely to have the capacity to pay interest and repay principal. The "CCC"
rating category is also used for debt subordinated to senior debt that is
assigned an actual or implied "B" or "B-" rating.
"CC" - This rating is typically applied to debt subordinated
to senior debt that is assigned an actual or implied "CCC" rating.
"C" - This rating is typically applied to debt subordinated to
senior debt which is assigned an actual or implied "CCC-" debt rating. The "C"
rating may be used to cover a situation where a bankruptcy petition has been
filed, but debt service payments are continued.
"CI" - This rating is reserved for income bonds on which no
interest is being paid.
"D" - Debt is in payment default. This rating 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. "D" rating is also used upon
the filing of a bankruptcy petition if debt service payments are jeopardized.
PLUS (+) OR MINUS (-) - The ratings from "AA" through "CCC"
may be modified by the addition of a plus or minus sign to show relative
standing within the major rating categories.
"r" - This rating is attached to highlight derivative, hybrid,
and certain other obligations that S & P believes may experience high
volatility or high variability in expected returns due to non-credit risks.
Examples of such obligations are: securities whose principal or interest return
is indexed to equities, commodities, or currencies; certain swaps and options;
and interest only and principal only mortgage securities.
The following summarizes the ratings used by Moody's for corporate and
municipal long-term debt:
"Aaa" - Bonds are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to as
"gilt edged." Interest payments are protected by a large or by an
exceptionally stable margin and principal is secure. While the various
protective elements are likely to change, such changes as can be visualized are
most unlikely to impair the fundamentally strong position of such issues.
A-6
<PAGE> 73
"Aa" - Bonds are judged to be of high quality by all
standards. Together with the "Aaa" group they comprise what are generally
known as high-grade bonds. They are rated lower than the best bonds because
margins of protection may not be as large as in "Aaa" securities or fluctuation
of protective elements may be of greater amplitude or there may be other
elements present which make the long-term risks appear somewhat larger than in
"Aaa" securities.
"A" - Bonds possess many favorable investment attributes and
are to be considered as upper medium-grade obligations. Factors giving
security to principal and interest are considered adequate but elements may be
present which suggest a susceptibility to impairment sometime in the future.
"Baa" - Bonds considered medium-grade obligations, i.e., they
are neither highly protected nor poorly secured. Interest payments and
principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
"Ba," "B," "Caa," "Ca," and "C" - Bonds that possess one of
these ratings provide questionable protection of interest and principal ("Ba"
indicates some speculative elements; "B" indicates a general lack of
characteristics of desirable investment; "Caa" represents a poor standing; "Ca"
represents obligations which are speculative in a high degree; and "C"
represents the lowest rated class of bonds). "Caa," "Ca" and "C" bonds may be
in default.
Con. (---) - Bonds for which the security depends upon the
completion of some act or the fulfillment of some condition are rated
conditionally. These are bonds secured by (a) earnings of projects under
construction, (b) earnings of projects unseasoned in operation experience, (c)
rentals which begin when facilities are completed, or (d) payments to which
some other limiting condition attaches. Parenthetical rating denotes probable
credit stature upon completion of construction or elimination of basis of
condition.
(P)... - When applied to forward delivery bonds, indicates
that the rating is provisional pending delivery of the bonds. The rating may
be revised prior to delivery if changes occur in the legal documents or the
underlying credit quality of the bonds.
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The following summarizes the long-term debt ratings used by
Duff & Phelps for corporate and municipal long-term debt:
"AAA" - Debt is considered to be of the highest credit
quality. The risk factors are negligible, being only slightly more than for
risk-free U.S. Treasury debt.
"AA" - Debt is considered of high credit quality. Protection
factors are strong. Risk is modest but may vary slightly from time to time
because of economic conditions.
"A" - Debt possesses protection factors which are average but
adequate. However, risk factors are more variable and greater in periods of
economic stress.
"BBB" - Debt possesses below average protection factors but
such protection factors are still considered sufficient for prudent investment.
Considerable variability in risk is present during economic cycles.
"BB," "B," "CCC," "DD," and "DP" - Debt that possesses one of
these ratings is considered to be below investment grade. Although below
investment grade, debt rated "BB" is deemed likely to meet obligations when
due. Debt rated "B" possesses the risk that obligations will not be met when
due. Debt rated "CCC" is well below investment grade and has considerable
uncertainty as to timely payment of principal, interest or preferred dividends.
Debt rated "DD" is a defaulted debt obligation, and the rating "DP" represents
preferred stock with dividend arrearages.
To provide more detailed indications of credit quality, the
"AA," "A," "BBB," "BB" and "B" ratings may be modified by the addition of a
plus (+) or minus (-) sign to show relative standing within these major
categories.
The following summarizes the highest four ratings used by
Fitch for corporate and municipal bonds:
"AAA" - Bonds considered to be investment grade and of the
highest credit quality. The obligor has an exceptionally strong ability to pay
interest and repay principal, which is unlikely to be affected by reasonably
foreseeable events.
"AA" - Bonds considered to be investment grade and of very
high credit quality. The obligor's ability to pay interest and repay principal
is very strong, although not quite as strong as bonds rated "AAA." Because
bonds rated in the "AAA" and "AA" categories are not significantly vulnerable
to foreseeable future developments, short-term debt of these issuers is
generally rated "F-1+."
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"A" - Bonds considered to be investment grade and of high
credit quality. The obligor's ability to pay interest and repay principal is
considered to be strong, but may be more vulnerable to adverse changes in
economic conditions and circumstances than bonds with higher ratings.
"BBB" - Bonds considered to be investment grade and of
satisfactory credit quality. The obligor's ability to pay interest and repay
principal is considered to be adequate. Adverse changes in economic conditions
and circumstances, however, are more likely to have an adverse impact on these
bonds, and therefore, impair timely payment. The likelihood that the ratings
of these bonds will fall below investment grade is higher than for bonds with
higher ratings.
"BB," "B," "CCC," "CC," "C," "DDD," "DD," and "D" - Bonds that
possess one of these ratings are considered by Fitch to be speculative
investments. The ratings "BB" to "C" represent Fitch's assessment of the
likelihood of timely payment of principal and interest in accordance with the
terms of obligation for bond issues not in default. For defaulted bonds, the
rating "DDD" to "D" is an assessment of the ultimate recovery value through
reorganization or liquidation.
To provide more detailed indications of credit quality, the
Fitch ratings from and including "AA" to "C" may be modified by the addition of
a plus (+) or minus (-) sign to show relative standing within these major
rating categories.
IBCA assesses the investment quality of unsecured debt with an
original maturity of more than one year which is issued by bank holding
companies and their principal bank subsidiaries. The following summarizes the
rating categories used by IBCA for long-term debt ratings:
"AAA" - Obligations for which there is the lowest expectation
of investment risk. Capacity for timely repayment of principal and interest is
substantial such that adverse changes in business, economic or financial
conditions are unlikely to increase investment risk substantially.
"AA" - Obligations for which there is a very low expectation
of investment risk. Capacity for timely repayment of principal and interest is
substantial. Adverse changes in business, economic or financial conditions may
increase investment risk albeit not very significantly.
"A" - Obligations for which there is a low expectation of
investment risk. Capacity for timely repayment of principal and interest is
strong, although adverse changes in business,
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economic or financial conditions may lead to increased investment risk.
"BBB" - Obligations for which there is currently a low
expectation of investment risk. Capacity for timely repayment of principal and
interest is adequate, although adverse changes in business, economic or
financial conditions are more likely to lead to increased investment risk than
for obligations in other categories.
"BB," "B," "CCC," "CC," and "C" - Obligations are assigned one
of these ratings where it is considered that speculative characteristics are
present. "BB" represents the lowest degree of speculation and indicates a
possibility of investment risk developing. "C" represents the highest degree
of speculation and indicates that the obligations are currently in default.
IBCA may append a rating of plus (+) or minus (-) to a rating
to denote relative status within major rating categories.
Thomson BankWatch assesses the likelihood of an untimely
repayment of principal or interest over the term to maturity of long term debt
and preferred stock which are issued by United States commercial banks, thrifts
and non-bank banks; non-United States banks; and broker-dealers. The following
summarizes the rating categories used by Thomson BankWatch for long-term debt
ratings:
"AAA" - This designation represents the highest category
assigned by Thomson BankWatch to long-term debt and indicates that the ability
to repay principal and interest on a timely basis is extremely high.
"AA" - This designation indicates a very strong ability to
repay principal and interest on a timely basis with limited incremental risk
compared to issues rated in the highest category.
"A" - This designation indicates that the ability to repay
principal and interest is strong. Issues rated "A" could be more vulnerable to
adverse developments (both internal and external) than obligations with higher
ratings.
"BBB" - This designation represents Thomson BankWatch's lowest
investment grade category and indicates an acceptable capacity to repay
principal and interest. Issues rated "BBB" are, however, more vulnerable to
adverse developments (both internal and external) than obligations with higher
ratings.
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"BB," "B," "CCC," and "CC," - These designations are assigned
by Thomson BankWatch to non-investment grade long-term debt. Such issues are
regarded as having speculative characteristics regarding the likelihood of
timely payment of principal and interest. "BB" indicates the lowest degree of
speculation and "CC" the highest degree of speculation.
"D" - This designation indicates that the long-term debt is in
default.
PLUS (+) OR MINUS (-) - The ratings from "AAA" through "CC"
may include a plus or minus sign designation which indicates where within the
respective category the issue is placed.
Municipal Note Ratings
A Standard and Poor's rating reflects the liquidity concerns
and market access risks unique to notes due in three years or less. The
following summarizes the ratings used by Standard & Poor's Ratings Group for
municipal notes:
"SP-1" - The issuers of these municipal notes exhibit very
strong or strong capacity to pay principal and interest. Those issues
determined to possess overwhelming safety characteristics are given a plus (+)
designation.
"SP-2" - The issuers of these municipal notes exhibit
satisfactory capacity to pay principal and interest.
"SP-3" - The issuers of these municipal notes exhibit
speculative capacity to pay principal and interest.
Moody's ratings for state and municipal notes and other
short-term loans are designated Moody's Investment Grade ("MIG") and variable
rate demand obligations are designated Variable Moody's Investment Grade
("VMIG"). Such ratings recognize the differences between short-term credit
risk and long-term risk. The following summarizes the ratings by Moody's
Investors Service, Inc. for short-term notes:
"MIG-1"/"VMIG-1" - Loans bearing this designation are of the
best quality, enjoying strong protection by established cash flows, superior
liquidity support or demonstrated broad-based access to the market for
refinancing.
"MIG-2"/"VMIG-2" - Loans bearing this designation are of high
quality, with margins of protection ample although not so large as in the
preceding group.
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"MIG-3"/"VMIG-3" - Loans bearing this designation are of
favorable quality, with all security elements accounted for but lacking the
undeniable strength of the preceding grades. Liquidity and cash flow
protection may be narrow and market access for refinancing is likely to be less
well established.
"MIG-4"/"VMIG-4" - Loans bearing this designation are of
adequate quality, carrying specific risk but having protection commonly
regarded as required of an investment security and not distinctly or
predominantly speculative.
"SG" - Loans bearing this designation are of speculative
quality and lack margins of protection.
Fitch and Duff & Phelps use the short-term ratings described
under Commercial Paper Ratings for municipal notes.
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APPENDIX B
As stated in the Prospectus, the Equity Value and Balanced
Portfolios may enter into futures contracts and options for hedging purposes.
Such transactions are described in this Appendix.
I. Stock Index Futures Contracts.
General. A stock index assigns relative values to the stocks
included in the index and the index fluctuates with changes in the market
values of the stocks included. A stock index futures contract is a bilateral
agreement pursuant to which two parties agree to take or make delivery of an
amount of cash equal to a specified dollar amount times the difference between
the stock index value (which assigns relative values to the common stocks
included in the index) at the close of the last trading day of the contract and
the price at which the futures contract is originally struck. No physical
delivery of the underlying stocks in the index is made. Some stock index
futures contracts are based on broad market indexes, such as the Standard &
Poor's 500 or the New York Stock Exchange Composite Index. In contrast,
certain exchanges offer futures contracts on narrower market indexes, such as
the Standard & Poor's 100 or indexes based on an industry or market segment,
such as oil and gas stocks. Futures contracts are traded on organized
exchanges regulated by the Commodity Futures Trading Commission. Transactions
on such exchanges are cleared through a clearing corporation, which guarantees
the performance of the parties to each contract. The price of a single futures
contract is determined by multiplying the relevant index's value by $500. For
example, if the value of an index were 125, one contract would be worth $62,500
(125 x $500). If the value of such index increased to 130, the value of one
contract would increase by $2,500 (5 x $500) to $65,000. Conversely, if the
value of such index dropped to 115, the value of one contract bought at the
original value of 125 would fall by $5,000 (10 x $500) to $57,500.
Examples of Stock Index Futures Transactions. The following
are examples of transactions in stock index futures (net of commissions and
premiums, if any).
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ANTICIPATORY PURCHASE HEDGE: Buy the Future
Hedge Objective: Protect Against Increasing Price
<TABLE>
<CAPTION>
Portfolio Futures
--------- -------
<S> <C>
-Day Hedge is Placed-
Anticipate Buying $62,500 Buying 1 Index Futures at 125
in Equity Securities Value of Futures =
$62,500/Contract
-Day Hedge is Lifted-
Buy Equity Securities with Actual Cost = Sell 1 Index Futures at 130
$65,000 Increase in Value of Futures =
Purchase Price = $65,000/Contract
$2,500 Gain on Futures = $2,500
</TABLE>
HEDGING A STOCK PORTFOLIO: Sell the Future
Hedge Objective: Protect Against Declining
Value of the Portfolio
Factors:
Value of Stock Portfolio = $1,000,000
Value of Futures Contract = 125 x $500 = $62,500
Portfolio Beta Relative to the Index = 1.0
<TABLE>
<CAPTION>
Portfolio Futures
--------- -------
<S> <C>
-Day Hedge is Placed-
Anticipate Selling $1,000,000 Sell 16 Index Futures at 125
in Equity Securities Value of Futures = $1,000,000
-Day Hedge is Lifted-
Equity Securities-Own Buy 16 Index Futures at 120
Stock with Value = $960,000 Value on Futures = $960,000
Loss in Portfolio Value = Gain on Futures = $40,000
$40,000
</TABLE>
If, however, the market moved in the opposite direction, that
is, market value decreased and the Portfolio had entered into an anticipatory
purchase hedge, or market value increased and the Portfolio had hedged its
stock portfolio, the results of the Portfolio's transactions in stock index
futures would be as set forth below.
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ANTICIPATORY PURCHASE HEDGE: Buy the Future
Hedge Objective: Protect Against Increasing Price
<TABLE>
<CAPTION>
Portfolio Futures
--------- -------
<S> <C>
-Day Hedge is Placed-
Anticipate Buying $62,500 Buying 1 Index Futures
in Equity Securities at 125
Value of Futures =
$62,500/Contract
-Day Hedge is Lifted-
Buy Equity Securities Sell 1 Index Futures at 120
Actual Cost = $60,000 Value of Futures =
Decrease in Purchase Price = $60,000/Contract
$2,500 Loss on Futures = $2,500
</TABLE>
HEDGING A STOCK PORTFOLIO: Sell the Future
Hedge Objective: Protect Against Declining
Value of the Portfolio
Factors:
Value of Stock Portfolio = $1,000,000
Value of Futures Contract = 125 x $500 = $62,500
Portfolio Beta Relative to the Index = 1.0
<TABLE>
<CAPTION>
Portfolio Futures
--------- -------
<S> <C>
-Day Hedge is Placed-
Anticipate Selling $1,000,000 Sell 16 Index Futures at 125
in Equity Securities Value of Futures = $1,000,000
-Day Hedge is Lifted-
Equity Securities-Own Buy 16 Index Futures at 130
Stock with Value = Value on Futures = $1,040,000
$1,040,000 Loss on Futures = $40,000
Gain in Portfolio =
$40,000
</TABLE>
II. Margin Payments.
Unlike when a Portfolio purchases or sells a security, no
price is paid or received by a Portfolio upon the purchase or sale of a futures
contract. Initially, a Portfolio will be required to deposit with the broker
or in a segregated account with the Portfolio's custodian an amount of cash or
cash equivalents, the value of which may vary but is generally equal
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to 10% or less of the value of the contract. This amount is known as initial
margin. The nature of initial margin in futures transactions is different from
that of margin in security transactions in that futures contract margin does
not involve the borrowing of funds by the customer to finance the transactions.
Rather, the initial margin is in the nature of a performance bond or good faith
deposit on the contract which is returned to the Portfolio upon termination of
the futures contract assuming all contractual obligations have been satisfied.
Subsequent payments, called variation margin, to and from the broker, will be
made on a daily basis as the price of the underlying instrument fluctuates
making the long and short positions in the futures contract more or less
valuable, a process known as "marking-to-market." For example, when a
Portfolio has purchased a futures contract and the price of the contract has
risen in response to a rise in the underlying instruments, that position will
have increased in value and the Portfolio will be entitled to receive from the
broker a variation margin payment equal to that increase in value. Conversely,
where a Portfolio has purchased a futures contract and the price of the futures
contract has declined in response to a decrease in the underlying instruments,
the position would be less valuable and the Portfolio would be required to make
a variation margin payment to the broker. At any time prior to expiration of
the futures contract, the Adviser may elect to close the position by taking an
opposite position, subject to the availability of a secondary market, which
will operate to terminate the Portfolio's position in the futures contract. A
final determination of variation margin is then made, additional cash is
required to be paid by or released to the Portfolio, and the Portfolio realizes
a loss or gain.
III. Risks of Transactions in Futures Contracts.
There are several risks in connection with the use of futures
by a Portfolio as a hedging device. One risk arises because of the imperfect
correlation between movements in the price of the future and movements in the
price of the securities which are the subject of the hedge. The price of the
future may move more than or less than the price of the securities being
hedged. If the price of the future moves less than the price of the securities
which are the subject of the hedge, the hedge will not be fully effective but,
if the price of the securities being hedged has moved in an unfavorable
direction, the Portfolio would be in a better position than if it had not
hedged at all. If the price of the securities being hedged has moved in a
favorable direction, this advantage will be partially offset by the loss on the
future. If the price of the future moves more than the price of the hedged
securities, the Portfolio involved will experience either a loss or gain on the
future which will not be completely offset by movements in the price of the
securities which are the subject of the hedge. To compensate for the imperfect
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correlation of movements in the price of securities being hedged and movements
in the price of futures contracts, a Portfolio may buy or sell futures
contracts in a greater dollar amount than the dollar amount of securities being
hedged if the volatility over a particular time period of the prices of such
securities has been greater than the volatility over such time period of the
future, or if otherwise deemed to be appropriate by the Adviser. Conversely, a
Portfolio may buy or sell fewer futures contracts if the volatility over a
particular time period of the prices of the securities being hedged is less
than the volatility over such time period of the futures contract being used,
or if otherwise deemed to be appropriate by the Adviser. It is also possible
that, where a Portfolio has sold futures to hedge its portfolio against a
decline in the market, the market may advance and the value of securities held
by the Portfolio may decline. If this occurred, the Portfolio would lose money
on the future and also experience a decline in value in its portfolio
securities.
Where futures are purchased to hedge against a possible
increase in the price of securities before a Portfolio is able to invest its
cash (or cash equivalents) in securities (or options) in an orderly fashion, it
is possible that the market may decline instead; if the Portfolio then
concludes not to invest in securities or options at that time because of
concern as to possible further market decline or for other reasons, the
Portfolio will realize a loss on the futures contract that is not offset by a
reduction in the price of securities purchased.
In addition to the possibility that there may be an imperfect
correlation, or no correlation at all, between movements in the futures and the
securities being hedged, the price of futures may not correlate perfectly with
movement in the cash market due to certain market distortions. Rather than
meeting additional margin deposit requirements, investors may close futures
contracts through off-setting transactions which could distort the normal
relationship between the cash and futures markets. Second, with respect to
financial futures contracts, the liquidity of the futures market depends on
participants entering into off-setting transactions rather than making or
taking delivery. To the extent participants decide to make or take delivery,
liquidity in the futures market could be reduced thus producing distortions.
Third, from the point of view of speculators, the deposit requirements in the
futures market are less onerous than margin requirements in the securities
market. Therefore, increased participation by speculators in the futures
market may also cause temporary price distortions. Due to the possibility of
price distortion in the futures market, and because of the imperfect
correlation between the movements in the cash market and movements in the price
of futures, a correct forecast of general market trends or interest rate
movements by the Adviser may still not result in a successful hedging
transaction over a short time frame.
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Positions in futures may be closed out only on an exchange or
board of trade which provides a secondary market for such futures. Although
the Equity Value and Balance Portfolios intend to purchase or sell futures only
on exchanges or boards of trade where there appear to be active secondary
markets, there is no assurance that a liquid secondary market on any exchange
or board of trade will exist for any particular contract or at any particular
time. In such event, it may not be possible to close a futures investment
position, and in the event of adverse price movements, the Portfolios would
continue to be required to make daily cash payments of variation margin.
However, in the event futures contracts have been used to hedge portfolio
securities, such securities will not be sold until the futures contract can be
terminated. In such circumstances, an increase in the price of the securities,
if any, may partially or completely offset losses on the futures contract.
However, as described above, there is no guarantee that the price of the
securities will in fact correlate with the price movements in the futures
contract and thus provide an offset on a futures contract.
Further, it should be noted that the liquidity of a secondary
market in a futures contract may be adversely affected by "daily price
fluctuation limits" established by commodity exchanges which limit the amount
of fluctuation in a futures contract price during a single trading day. Once
the daily limit has been reached in the contract, no trades may be entered into
at a price beyond the limit, thus preventing the liquidation of open futures
positions. The trading of futures contracts is also subject to the risk of
trading halts, suspensions, exchange or clearing house equipment failures,
government intervention, insolvency of a brokerage firm or clearing house or
other disruptions of normal trading activity, which could at times make it
difficult or impossible to liquidate existing positions or to recover excess
variation margin payments.
Successful use of futures by a Portfolio is also subject to
the ability of the Adviser to predict correctly movements in the direction of
the market. For example, if a Portfolio has hedged against the possibility of
a decline in the market adversely affecting securities held in its portfolio
and securities prices increase instead, the Portfolio will lose part or all of
the benefit to the increased value of its securities which it has hedged
because it will have offsetting losses in its futures positions. In addition,
in such situations, if a Portfolio has insufficient cash, it may have to sell
securities to meet daily variation margin requirements. Such sales of
securities may be, but will not necessarily be, at increased prices which
reflect the rising market. A Portfolio may have to sell securities at a time
when it may be disadvantageous to do so.
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IV. Put Options on Stock Index Futures Contracts.
The Equity Value and Balanced Portfolios may purchase put
options on stock index futures contracts that would give the Portfolio, in
return for the premium paid, the right to sell (put) to the writer of the
option a stock index futures contract at a specified price at any time during
the period of the option. Upon exercise, the writer of the option is obligated
to pay the difference between the cash value of the futures contract and the
exercise price. Like the buyer of a futures contract, the holder of a put
option has the right to terminate its position prior to the scheduled
expiration of the option by selling an option of the same series, at which time
the person entering into the closing transaction will realize a gain or loss.
Investments in futures options involve some of the same
considerations that are involved in connection with investments in futures
contracts (for example, the existence of a liquid secondary market). The
purchase of an option also entails the risk that changes in the value of the
underlying futures contract will not be fully reflected in the value of the
option purchased. Depending on the pricing of the option compared to either
the futures contract upon which it is based, or upon the price of the
securities being hedged, an option may or may not be less risky than ownership
of the futures contract or such securities. In general, the market prices of
options can be expected to be more volatile than the market prices on the
underlying futures contract. Compared to the sale of futures contracts,
however, the purchase of put options on futures contracts may frequently
involve less potential risk to a Portfolio because the maximum amount at risk
is the premium paid for the options (plus transaction costs).
V. Other Hedging Transactions.
The Equity Value and Balanced Portfolios may use stock index
futures contracts (and related options) in connection with their hedging
activities. The Portfolios also are authorized to enter into hedging
transactions in any other futures or options contracts which are currently
traded or which may subsequently become available for trading. Such
instruments may be employed in connection with the Portfolios' hedging
strategies if, in the judgment of the Adviser, transactions therein are
necessary or advisable.
VI. Accounting and Tax Treatment.
Accounting for futures contracts and options will be in
accordance with generally accepted accounting principles.
Generally, futures contracts held by a Portfolio at the close
of the Portfolio's taxable year will be treated for federal
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income tax purposes as sold for their fair market value on the last business
day of such year, a process known as "marking-to-market." Forty percent of any
gain or loss resulting from such constructive sale will be treated as
short-term capital gain or loss and 60% of such gain or loss will be treated as
long-term capital gain or loss without regard to the length of time the
Portfolio holds the futures contract ("the 40-60 rule"). The amount of any
capital gain or loss actually realized by a Portfolio in a subsequent sale or
other disposition of those futures contracts will be adjusted to reflect any
capital gain or loss taken into account by the Portfolio in a prior year as a
result of the constructive sale of the contracts. With respect to futures
contracts to sell, which will be regarded as parts of a "mixed straddle"
because their values fluctuate inversely to the values of specific securities
held by the Portfolio, losses as to such contracts to sell will be subject to
certain loss deferral rules which limit the amount of loss currently deductible
on either part of the straddle to the amount thereof which exceeds the
unrecognized gain (if any) with respect to the other part of the straddle, and
to certain wash sales regulations. Under short sales rules, which will also be
applicable, the holding period of the securities forming part of the straddle
will (if they have not been held for the long-term holding period) be deemed
not to begin prior to termination of the straddle. With respect to certain
futures contracts, deductions for interest and carrying charges will not be
allowed. Notwithstanding the rules described above, with respect to futures
contracts to sell which are properly identified as such, a Portfolio may make
an election which will exempt (in whole or in part) those identified futures
contracts from being treated for federal income tax purposes as sold on the
last business day of the Portfolio's taxable year, but gains and losses will be
subject to such short sales, wash sales, loss deferral rules and the
requirement to capitalize interest and carrying charges. Under temporary
regulations, a Portfolio would be allowed (in lieu of the foregoing) to elect
either (1) to offset gains or losses from portions which are part of a mixed
straddle by separately identifying each mixed straddle to which such treatment
applies, or (2) to establish a mixed straddle account for which gains and
losses would be recognized and offset on a periodic basis during the taxable
year. Under either election, the 40-60 rule will apply to the net gain or loss
attributable to the futures contracts, but in the case of a mixed straddle
account election, not more than 50% of any net gain may be treated as long-term
and no more than 40% of any net loss may be treated as short-term. Options on
futures contracts generally receive federal tax treatment similar to that
described above.
Under the federal income tax provisions applicable to
regulated investment companies, less than 30% of a company's gross income must
be derived from gains realized on the sale or other disposition of securities
held for less than three months.
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With respect to futures contracts and other financial instruments subject to
the "marking-to-market" rules, the Internal Revenue Service has ruled in
private letter rulings that a gain realized from such a futures contract or
financial instrument will be treated as being derived from a security held for
three months or more (regardless of the actual period for which the contract or
instrument is held) if the gain arises as a result of a constructive sale under
the "marking-to-market" rules, and will be treated as being derived from a
security held for less than three months only if the contract or instrument is
terminated (or transferred) during the taxable year (other than by reason of
marking-to-market) and less than three months have elapsed between the date the
contract or instrument is acquired and the termination date. In determining
whether the 30% test is met for a taxable year, increases and decreases in the
value of a Portfolio's futures contracts and other investments that qualify as
part of a "designated hedge," as defined in the Code, may be netted.
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PART C - OTHER INFORMATION
Item 24. Financial Statements and Exhibits
(a) Financial Statements:
(1) Unaudited Financial Highlights are included in Part A.
(2) Unaudited Financial Statements and related notes
thereto included as part of the Semi-Annual Report to
Shareholders for the fiscal period ended March 31, 1996
are incorporated herein by reference to such
Semi-Annual Report as filed with the Securities and
Exchange Commission pursuant to Rule
30b2-1 of the Investment Company Act of 1940
(Registration No. 811-8742).
(b) Exhibits
(1) (a) Amended and Restated Certificate of Trust dated
December 29, 1995.
(b) Amended and Restated Trust Instrument dated
December 29, 1995.
(2) Amended and Restated By-Laws are incorporated
herein by reference to Exhibit 2 to Pre-Effective
Amendment No. 1 to Registrant's Registration
Statement filed on July 7, 1995.
(3) Not Applicable.
(4) Not Applicable.
(5) Advisory Agreement dated April 1, 1996 between
Registrant and Wells Fargo Investment Management,
Inc.
(6) Form of Distribution Agreement between Registrant
and Furman Selz Incorporated is incorporated
herein by reference to Exhibit 6 to Pre-Effective
Amendment No. 1 to Registrant's Registration
Statement filed on July 7, 1995.
(7) Not Applicable.
(8) Form of Custody Agreement between Registrant and
First Interstate Bank of California is
C-1
<PAGE> 89
incorporated herein by reference to Exhibit 8 to
Pre-Effective Amendment No. 1 to Registrant's
Registration Statement filed on July 7, 1995.
(9) (a) Forms of Administrative Services Contract and
Administrative Services Contract Supplements
between Registrant and Furman Selz Incorporated
is incorporated herein by reference to Exhibit
9(a) to Pre-Effective Amendment No. 1 to
Registrant's Registration Statement filed on July
7, 1995.
(b) Form of Transfer Agency and Service Agreement
between Registrant and Furman Selz Incorporated
is incorporated herein by reference to Exhibit
9(b) to Pre-Effective Amendment No. 1 to
Registrant's Registration Statement filed on July
7, 1995.
(c) Form of Fund Accounting Agreement between
Registrant and Furman Selz Incorporated is
incorporated herein by reference to Exhibit 9(c)
to Pre-Effective Amendment No. 1 to Registrant's
Registration Statement filed on July 7, 1995.
(10) Opinion and consent of counsel.*
(11) (a) Consent of Drinker Biddle & Reath.
(b) Consent of Ernst & Young LLP.
(12) Not Applicable.
(13) Not Applicable.
(14) Not Applicable.
(15) Not Applicable.
(16) Schedules for Computation of Performance
Quotations to be filed in a subsequent Post-
Effective Amendment.
(17) Financial Data Schedules.
- ----------------------------------
* Will be filed under Rule 24f-2 as part of Registrant's Rule 24f-2 Notice.
C-2
<PAGE> 90
(18) Not Applicable.
Item 25. Persons Controlled By or Under Common Control with Registrant
Registrant is controlled by its Board of Trustees the members
of which also serve as members of the Board of Trustees of Pacifica Funds
Trust.
Item 26. Number of Holders of Securities
Registrant was organized primarily for the purpose of
providing a vehicle for the investment of assets received by separate
investment accounts ("Separate Accounts") established by participating life
insurance companies. The assets in such Separate Accounts are, under state
law, assets of the life insurance companies which have established such
Separate Accounts. Thus, at any time such life insurance companies will own
such of Registrant's outstanding shares as are purchased with Separate Account
assets; however, where required to do so, such life insurance companies will
either vote such shares in accordance with instructions received from owners of
the contracts pursuant to which monies are invested in such Separate Accounts
or, with respect to shares for which no instructions are received, vote such
shares in the same proportion as it votes shares for which it has received
instructions.
Item 27. Indemnification
Indemnification of Registrant's principal underwriter against
certain losses is provided for in Section 1.9 of the Distribution Agreement
incorporated herein as Exhibit 6. Indemnification of First Interstate Bank of
California as Custodian against certain losses is provided in Section 23 of the
Custody Agreements incorporated herein as Exhibit 8. Indemnification of
Registrant's Transfer Agent and Fund Accounting Agent against certain losses is
provided for in Section 18 of the Transfer Agency and Service Agreement
incorporated herein as Exhibit 9(b) and Section 12 of the Fund Accounting
Agreement incorporated herein as Exhibit 9(c). Registrant has obtained from a
major insurance carrier a trustees' and officers' liability policy covering
certain types of errors and omissions. In addition, Section 8.1 of the
Registrant's Amended and Restated Trust Instrument dated December 29, 1995,
incorporated herein as Exhibit 1(b), provides as follows:
Section 8.2 Indemnification. The Trust shall indemnify each
of its Trustees and officers and persons who serve at the Trust's
request as directors, officers or trustees of another organization in
which the Trust has any
C-3
<PAGE> 91
interest as a shareholder, creditor, or otherwise ("Covered Person")
against all liabilities and expenses (including amounts paid in
satisfaction of judgments, in compromise, as fines and penalties, and
expenses including reasonable accountants' and counsel fees)
reasonably incurred in connection with the defense or disposition of
any action, suit or other proceeding, whether civil or criminal,
before any court or administrative or legislative body, in which he
may be involved or with which he may be threatened, while as a Covered
Person or thereafter, by reason of being or having been such a Covered
Person, except that no Covered Person shall be indemnified against any
liability to the Trust or its Shareholders to which such Covered
Person would otherwise be subject by reason of bad faith, willful
misfeasance, gross negligence or reckless disregard of his duties
involved in the conduct of such Covered Person's office (such willful
misfeasance, bad faith, gross negligence or reckless disregard being
referred to herein as "Disabling Conduct"). Expenses, including
accountants' and counsel fees so incurred by any such Covered Person
(but excluding amounts paid in satisfaction of judgments, in
compromise or as fines or penalties), may be paid from time to time by
the Trust in advance of the final disposition of any such action, suit
or proceeding upon receipt of (a) an undertaking by or on behalf of
such Covered Person to repay amounts so paid to the Trust if it is
ultimately determined that indemnification of such expenses is not
authorized under this Article VIII and either (b) such Covered Person
provides security for such undertaking,(c) the Trust is insured
against losses arising by reason of such payment, or (d) a majority of
a quorum of disinterested, non-party Trustees, or independent legal
counsel in a written opinion, determines, based on a review of readily
available facts, that there is reason to believe that such Covered
Person ultimately will be found entitled to indemnification.
Section 8.5 of the Registrant's Amended and Restated Trust
Instrument dated December 29, 1995, filed herein as Exhibit 1(b), provides for
the indemnification of shareholders of the Registrant. Section 8.5 states as
follows:
Section 8.5 Shareholders. Each Shareholder of the Trust and
of each Series shall not be personally liable for the debts,
liabilities, obligations and expenses incurred by, contracted for, or
otherwise existing with respect to, the Trust or by or on behalf of
any Series. The Trustees shall have no power to bind any Shareholder
personally or to call upon any Shareholder for the payment of any sum
of money or assessment whatsoever other than such as the Shareholder
may at any time personally agree to pay by way of subscription for
any Shares or otherwise.
C-4
<PAGE> 92
In case any Shareholder or former Shareholder of any Series
shall be held to be personally liable solely by reason of his being or
having been a Shareholder of such Series and not because of his acts
or omissions or for some other reason, the Shareholder or former
Shareholder (or his heirs, executors, administrators or other legal
representatives, or, in the case of a corporation or other entity, its
corporate or other general successor) shall be entitled out of the
assets belonging to the applicable Series to be held harmless from and
indemnified against all loss and expense arising from such liability.
The Trust, on behalf of the affected Series, shall, upon request by
the Shareholder, assume the defense of any claim made against the
Shareholder for any act or obligation of the Series and satisfy any
judgment thereon from the assets of the Series. The indemnification
and reimbursement required by the preceding sentence shall be made
only out of assets of the one or more Series whose Shares were held by
said Shareholder at the time the act or event occurred which gave rise
to the claim against or liability of said Shareholder. The rights
accruing to a Shareholder under this Section shall not impair any
other right to which such Shareholder may be lawfully entitled, nor
shall anything herein contained restrict the right of the Trust or any
Series thereof to indemnify or reimburse a Shareholder in any
appropriate situation even though not specifically provided herein.
Insofar as indemnification for liability arising under the
Securities Act of 1933 may be permitted to Trustees, officers and controlling
persons of Registrant pursuant to the foregoing provisions, or otherwise,
Registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by Registrant
of expenses incurred or paid by a Trustee, officer or controlling person of
Registrant in the successful defense of any action, suit or proceeding) is
asserted by such Trustee, officer or controlling person in connection with the
securities being registered, Registrant will, unless in the opinion of its
counsel the matter has been settled by controlling precedent, submit to a court
of appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
Item 28. Business and Other Connections of Investment Adviser
To Registrant's knowledge, none of the directors or senior
executive officers of Wells Fargo Investment Management,
C-5
<PAGE> 93
Inc., except those set forth below, is, or has been at any time during
Registrant's past two fiscal years, engaged in any other business, profession,
vocation or employment of a substantial nature. Set forth below are the names
and principal businesses of the directors and certain of the senior executive
officers of Wells Fargo Investment Management, Inc. who are or have been
engaged in any other business, profession, vocation or employment of a
substantial nature.
<TABLE>
<CAPTION>
Name and Position at Wells Fargo
Investment Management, Inc. Other Business(es) and Address(es)
--------------------------- ----------------------------------
<S> <C>
Michael Niedermeyer, Director Executive Vice-President and
Chief Investment Officer
Wells Fargo Bank, N.A. 444 Market Street, 17th Floor
San Francisco, CA 94163
Guy Rounsaville, Executive Vice President and
Director and Secretary Chief Counsel
Wells Fargo Bank, N.A.
420 Montgomery Street
12th Floor
San Francisco, CA 94163
Clyde Ostler, Vice Chairman, Investment Group
Director Wells Fargo Bank, N.A.
420 Montgomery Street
12th Floor
San Francisco, CA 94163
Edward Claunch, Senior Vice President and
President Manager Trust Investment Group
First Interstate Bank of Denver, N.A.
633 Seventeenth Street
Denver, CO 80270
</TABLE>
Item 29. Principal Underwriter
(a) Registrant's distributor and administrator, Furman Selz
Incorporated, acts as the distributor for the following investment companies:
Bhirud Mid-Capt Fund, The Centura Funds, The Clemente Global Growth Fund, The
Empire Builder Fund, The ESC Strategic Funds, The FFB Funds, The FMB Funds, The
Funds IV Funds, The Gabelli Funds, The Hanover Funds, The Minerva Funds, The
Offitfunds, Pacifica Funds Trust, The Performance Funds, The Gabelli/O'Connor
Treasurers' Funds and The Westwood Funds.
(b)
C-6
<PAGE> 94
<TABLE>
<CAPTION>
Name and Principal Positions and Offices Positions and Offices
Business Address(1) with Underwriter with Registrant
- ---------------- -- --------------------- ---------------------
<S> <C> <C>
Michael C. Petrycki President and Director President
Steven D. Blecher Vice President, Secretary, Executive Vice President
Treasurer
Robert J. Miller Chief Financial Officer, None
Vice President
Elizabeth Q. Solazzo Assistant Secretary None
</TABLE>
- -----------------------
(1) The address of all directors and officers is 237 Park Avenue, New
York, New York 10017.
(c) Not applicable.
Item 30. Location of Accounts and Records
(1) Wells Fargo Investment Management Inc., 7501 E.
McCormick Parkway, Scottsdale, Arizona 85258 (records
relating to its function as investment adviser for
each of Registrant's investment portfolios).
(2) Furman Selz Incorporated, 237 Park Avenue, New York,
New York 10017, (records relating to its functions
as transfer agent, distributor, administrator and
fund accountant for each of Registrant's investment
portfolios).
(3) Drinker Biddle & Reath, Philadelphia National Bank
Building, 1345 Chestnut Street, Philadelphia,
Pennsylvania 19107- 3496 (Registrant's Trust
Instrument, Code of Regulations and Minute Books).
Item 31. Management Services
None.
Item 32. Undertakings
(a) Registrant undertakes to provide its Annual Report
upon request without charge to any recipient of a Prospectus for its
Portfolios.
C-7
<PAGE> 95
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. 1 to its Registration Statement to be signed on
its behalf by the undersigned, thereunto duly authorized, in the City of
Philadelphia, and the Commonwealth of Pennsylvania, on the 1st day of July,
1996.
PACIFICA VARIABLE TRUST
Registrant
*Michael C. Petrycki
-----------------------
Michael C. Petrycki, President
Pursuant to the requirements of the Securities Act of 1933, this
Post-Effective Amendment No. 1 to Registrant's Registration Statement has been
signed below by the following persons in the capacities and on the date
indicated.
<TABLE>
<CAPTION>
Signature Title Date
<S> <C> <C>
*Jack D. Henderson Trustee July 1, 1996
- ---------------------
Jack D. Henderson
*Dennis W. Draper Trustee July 1, 1996
- --------------------
Dennis W. Draper
*Joseph N. Hankin Trustee July 1, 1996
- --------------------
Joseph N. Hankin
*John E. Heilmann Trustee July 1, 1996
- --------------------
John E. Heilmann
*John J. Pileggi Vice President July 1, 1996
- ------------------- and Treasurer
John J. Pileggi
*Richard A. Wedemeyer Trustee July 1, 1996
- ------------------------
Richard A. Wedemeyer
*By: /s/Jeffrey A. Dalke
-------------------
Jeffrey A. Dalke
Attorney-in-Fact
</TABLE>
C-8
<PAGE> 96
PACIFICA VARIABLE TRUST
SECRETARY'S CERTIFICATE
The undersigned, Joan V. Fiore, Vice President and Secretary of
Pacifica Variable Trust (the "Trust") hereby certifies that set forth below is
a copy of the resolutions adopted by the Board of Trustees authorizing the
signing of John J. Pileggi and Jeffrey A. Dalke on behalf of the officers of
the Trust pursuant to a power-of-attorney:
FURTHER RESOLVED, that Jeffrey A. Dalke be, and he hereby is,
designated to act on behalf of the Trust as its agent for service for matters
relating to the Trust's Registration Statement on Form N-1A with the powers
enumerated in Rule 478 of the Rules and Regulations of the Securities and
Exchange Commission under the Securities Act of 1933, as amended; and
FURTHER RESOLVED, that each of the officers of the Trust who
may be required to execute any amendments to the Trust's Registration Statement
be, and each of them hereby is, authorized to execute a power of attorney
appointing Jeffrey A. Dalke and John J. Pileggi, and either of them, his or
her true and lawful attorney and agent, with power of substitution or
resubstitution, to do any and all acts and things and to execute any and all
instruments which said attorney and agent may deem necessary or advisable or
which may be required to enable the Trust to comply with the Investment Company
Act of 1940, as amended, and the Securities Act of 1933, as amended, any rules,
regulations, or requirements of the Securities and Exchange Commission in
respect thereof, in connection with the filing and effectiveness of the Trust's
Registration Statement and of any and all amendments (including pre-effective
and post-effective amendments to the Trust's Registration Statement on Form
N-1A pursuant to either of said acts, including specifically, but without
limiting the generality of the foregoing, the power and authority to sign in
the name and on behalf of such officer as an officer of the Trust any and all
such amendments filed with the Securities and Exchange Commission under either
of said acts, and any other instruments or documents related thereto, said acts
of said attorney and agents or either of them by virtue of said appointment
being hereby ratified and approved.
IN WITNESS THEREOF, I have hereunto signed my name and affixed
the seal of the Trust on June 27, 1996.
/s/ Joan V. Fiore
------------------------------
Joan V. Fiore
Vice President and Secretary
<PAGE> 97
PACIFICA VARIABLE TRUST
POWER OF ATTORNEY
Know All Men by These Presents, that the undersigned, Jack D.
Henderson, hereby constitutes and appoints Jeffrey A. Dalke, John J. Pileggi
and Robert A. Hering, and any of them, his true and lawful attorneys, to
execute in his name, place, and stead, in his capacity as Trustee or officer,
or both, of the Trust, the Registration Statement and any amendments thereto
and all instruments necessary or incidental in connection therewith, and to
file the same with the Securities and Exchange Commission; and each of said
attorneys shall have full power of substitution and resubstitution; and each of
said attorneys shall have full power and authority to do and perform in his
name and on his behalf, in any and all capacities, every act whatsoever
requisite or necessary to be done, as fully and to all intents and purposes as
he might or could do in person, said acts of said attorneys, or any of them,
being hereby ratified and approved.
DATED:
/s/Jack D. Henderson
- ---------------------------
Jack D. Henderson
<PAGE> 98
PACIFICA VARIABLE TRUST
POWER OF ATTORNEY
Know All Men by These Presents, that the undersigned, Dennis
W. Draper, hereby constitutes and appoints Jeffrey A. Dalke, John J. Pileggi
and Robert A. Hering, and any of them, his true and lawful attorneys, to
execute in his name, place, and stead, in his capacity as Trustee or officer,
or both, of the Trust, the Registration Statement and any amendments thereto
and all instruments necessary or incidental in connection therewith, and to
file the same with the Securities and Exchange Commission; and each of said
attorneys shall have full power of substitution and resubstitution; and each of
said attorneys shall have full power and authority to do and perform in his
name and on his behalf, in any and all capacities, every act whatsoever
requisite or necessary to be done, as fully and to all intents and purposes as
he might or could do in person, said acts of said attorneys, or any of them,
being hereby ratified and approved.
DATED:
/s/Dennis W. Draper
- ---------------------------
Dennis W. Draper
<PAGE> 99
PACIFICA VARIABLE TRUST
POWER OF ATTORNEY
Know All Men by These Presents, that the undersigned, Joseph
N. Hankin, hereby constitutes and appoints Jeffrey A. Dalke, John J. Pileggi
and Robert A. Hering, and any of them, his true and lawful attorneys, to
execute in his name, place, and stead, in his capacity as Trustee or officer,
or both, of the Trust, the Registration Statement and any amendments thereto
and all instruments necessary or incidental in connection therewith, and to
file the same with the Securities and Exchange Commission; and each of said
attorneys shall have full power of substitution and resubstitution; and each of
said attorneys shall have full power and authority to do and perform in his
name and on his behalf, in any and all capacities, every act whatsoever
requisite or necessary to be done, as fully and to all intents and purposes as
he might or could do in person, said acts of said attorneys, or any of them,
being hereby ratified and approved.
DATED:
/s/Joseph N. Hankin
- ---------------------------
Joseph N. Hankin
<PAGE> 100
PACIFICA VARIABLE TRUST
POWER OF ATTORNEY
Know All Men by These Presents, that the undersigned, John E.
Heilmann, hereby constitutes and appoints Jeffrey A. Dalke, John J. Pileggi and
Robert A. Hering, and any of them, his true and lawful attorneys, to execute in
his name, place, and stead, in his capacity as Trustee or officer, or both, of
the Trust, the Registration Statement and any amendments thereto and all
instruments necessary or incidental in connection therewith, and to file the
same with the Securities and Exchange Commission; and each of said attorneys
shall have full power of substitution and resubstitution; and each of said
attorneys shall have full power and authority to do and perform in his name and
on his behalf, in any and all capacities, every act whatsoever requisite or
necessary to be done, as fully and to all intents and purposes as he might or
could do in person, said acts of said attorneys, or any of them, being hereby
ratified and approved.
DATED:
/s/John E. Heilmann
- ---------------------------
John E. Heilmann
<PAGE> 101
PACIFICA VARIABLE TRUST
POWER OF ATTORNEY
Know All Men by These Presents, that the undersigned, Richard
A. Wedemeyer, hereby constitutes and appoints Jeffrey A. Dalke, John J. Pileggi
and Robert A. Hering, and any of them, his true and lawful attorneys, to
execute in his name, place, and stead, in his capacity as Trustee or officer,
or both, of the Trust, the Registration Statement and any amendments thereto
and all instruments necessary or incidental in connection therewith, and to
file the same with the Securities and Exchange Commission; and each of said
attorneys shall have full power of substitution and resubstitution; and each of
said attorneys shall have full power and authority to do and perform in his
name and on his behalf, in any and all capacities, every act whatsoever
requisite or necessary to be done, as fully and to all intents and purposes as
he might or could do in person, said acts of said attorneys, or any of them,
being hereby ratified and approved.
DATED:
/s/Richard A. Wedemeyer
- ---------------------------
Richard A. Wedemeyer
<PAGE> 102
PACIFICA VARIABLE TRUST
POWER OF ATTORNEY
Know All Men by These Presents, that the undersigned, Michael
C. Petrycki, hereby constitutes and appoints Jeffrey A. Dalke, John J. Pileggi
and Robert A. Hering, and any of them, his true and lawful attorneys, to
execute in his name, place, and stead, in his capacity as Trustee or officer,
or both, of the Trust, the Registration Statement and any amendments thereto
and all instruments necessary or incidental in connection therewith, and to
file the same with the Securities and Exchange Commission; and each of said
attorneys shall have full power of substitution and resubstitution; and each of
said attorneys shall have full power and authority to do and perform in his
name and on his behalf, in any and all capacities, every act whatsoever
requisite or necessary to be done, as fully and to all intents and purposes as
he might or could do in person, said acts of said attorneys, or any of them,
being hereby ratified and approved.
DATED: June 8, 1995
/s/Michael C. Petrycki
- ---------------------------
Michael C. Petrycki
<PAGE> 103
PACIFICA VARIABLE TRUST
POWER OF ATTORNEY
Know All Men by These Presents, that the undersigned, John J.
Pileggi, hereby constitutes and appoints Jeffrey A. Dalke and Robert A. Hering,
and either of them, his true and lawful attorneys, to execute in his name,
place, and stead, in his capacity as Trustee or officer, or both, of the Trust,
the Registration Statement and any amendments thereto and all instruments
necessary or incidental in connection therewith, and to file the same with the
Securities and Exchange Commission; and each of said attorneys shall have full
power of substitution and resubstitution; and each of said attorneys shall have
full power and authority to do and perform in his name and on his behalf, in
any and all capacities, every act whatsoever requisite or necessary to be done,
as fully and to all intents and purposes as he might or could do in person,
said acts of said attorneys, or any of them, being hereby ratified and
approved.
DATED: June 8, 1995
/s/John J. Pileggi
- ---------------------------
John J. Pileggi
<PAGE> 104
EXHIBIT INDEX
<TABLE>
<CAPTION>
============================================================================================================
EXHIBIT NO. DESCRIPTION PAGE NO.
------------------------------------------------------------------------------------------------------------
<S> <C>
99.1(a) Amended and Restated Certificate of Trust dated December
29, 1995
------------------------------------------------------------------------------------------------------------
99.1(b) Amended and Restated Trust Instrument dated December 29,
1995
------------------------------------------------------------------------------------------------------------
99.5 Advisory Agreement between Registrant and Wells Fargo
Investment Management, Inc. dated April 1, 1996
------------------------------------------------------------------------------------------------------------
99.11(a) Consent of Drinker Biddle & Reath
------------------------------------------------------------------------------------------------------------
99.11(b) Consent of Ernst & Young LLP
------------------------------------------------------------------------------------------------------------
99. 27 Financial Data Schedules
============================================================================================================
</TABLE>
<PAGE> 1
Exhibit 1(a)
RESTATED CERTIFICATE OF TRUST
OF
PACIFICA VARIABLE TRUST
(Originally formed under the name Westcore Variable Trust)
THIS RESTATED CERTIFICATE OF TRUST of Pacifica Variable Trust
(originally formed under the name Westcore Variable Trust), a Delaware business
trust (the "Trust"), is being executed as of December 29, 1995 for the purpose
of restating in its entirety, as hereinafter set forth, the Certificate of
Trust of the Trust (the "Certificate"), which certificate was originally filed
in the Office of the Secretary of State of the State of Delaware on August 26,
1994.
It is, therefore, certified that the Certificate is hereby
restated in its entirety as follows:
1. Name. The name of the business trust is Pacifica
Variable Trust.
2. Registered Investment Company. The Trust is or will
become a registered investment company under the Investment Company Act of
1940, as amended.
3. Registered Office and Registered Agent. The
registered office of the Trust in the State of Delaware is located at 1013
Centre Road, Wilmington, New Castle County, Delaware 19805. The name of the
registered agent of the Trust for service of process at such location is
Corporation Service Company.
4. Notice of Limitation of Liabilities of Series.
Notice is hereby given that the Trust is or may hereafter be constituted a
series trust. The debts, liabilities, obligations and expenses incurred,
contracted for or otherwise existing with respect to any particular series
shall be enforceable against the assets of such series only, and not against
the assets of the Trust generally.
IN WITNESS WHEREOF, the undersigned, being a trustee of the
Trust, has duly executed this Restated Certificate of Trust as of the day and
year first above written.
TRUSTEE
/s/ Dennis W. Draper
----------------------------------
<PAGE> 2
RESTATED CERTIFICATE OF TRUST
OF
PACIFICA VARIABLE TRUST
(Originally formed under the name Westcore Variable Trust)
THIS RESTATED CERTIFICATE OF TRUST of Pacifica Variable Trust
(originally formed under the name Westcore Variable Trust), a Delaware business
trust (the "Trust"), is being executed as of December 29, 1995 for the purpose
of restating in its entirety, as hereinafter set forth, the Certificate of
Trust of the Trust (the "Certificate"), which certificate was originally filed
in the Office of the Secretary of State of the State of Delaware on August 26,
1994.
It is, therefore, certified that the Certificate is hereby
restated in its entirety as follows:
1. Name. The name of the business trust is Pacifica
Variable Trust.
2. Registered Investment Company. The Trust is or will
become a registered investment company under the Investment Company Act of
1940, as amended.
3. Registered Office and Registered Agent. The
registered office of the Trust in the State of Delaware is located at 1013
Centre Road, Wilmington, New Castle County, Delaware 19805. The name of the
registered agent of the Trust for service of process at such location is
Corporation Service Company.
4. Notice of Limitation of Liabilities of Series.
Notice is hereby given that the Trust is or may hereafter be constituted a
series trust. The debts, liabilities, obligations and expenses incurred,
contracted for or otherwise existing with respect to any particular series
shall be enforceable against the assets of such series only, and not against
the assets of the Trust generally.
IN WITNESS WHEREOF, the undersigned, being a trustee of the
Trust, has duly executed this Restated Certificate of Trust as of the day and
year first above written.
TRUSTEE
/s/ Joseph N. Hankin
-----------------------------------
<PAGE> 3
RESTATED CERTIFICATE OF TRUST
OF
PACIFICA VARIABLE TRUST
(Originally formed under the name Westcore Variable Trust)
THIS RESTATED CERTIFICATE OF TRUST of Pacifica Variable Trust
(originally formed under the name Westcore Variable Trust), a Delaware business
trust (the "Trust"), is being executed as of December 29, 1995 for the purpose
of restating in its entirety, as hereinafter set forth, the Certificate of
Trust of the Trust (the "Certificate"), which certificate was originally filed
in the Office of the Secretary of State of the State of Delaware on August 26,
1994.
It is, therefore, certified that the Certificate is hereby
restated in its entirety as follows:
1. Name. The name of the business trust is Pacifica
Variable Trust.
2. Registered Investment Company. The Trust is or will
become a registered investment company under the Investment Company Act of
1940, as amended.
3. Registered Office and Registered Agent. The
registered office of the Trust in the State of Delaware is located at 1013
Centre Road, Wilmington, New Castle County, Delaware 19805. The name of the
registered agent of the Trust for service of process at such location is
Corporation Service Company.
4. Notice of Limitation of Liabilities of Series.
Notice is hereby given that the Trust is or may hereafter be constituted a
series trust. The debts, liabilities, obligations and expenses incurred,
contracted for or otherwise existing with respect to any particular series
shall be enforceable against the assets of such series only, and not against
the assets of the Trust generally.
IN WITNESS WHEREOF, the undersigned, being a trustee of the
Trust, has duly executed this Restated Certificate of Trust as of the day and
year first above written.
TRUSTEE
/s/ John E. Heilmann
-----------------------------------
<PAGE> 4
RESTATED CERTIFICATE OF TRUST
OF
PACIFICA VARIABLE TRUST
(Originally formed under the name Westcore Variable Trust)
THIS RESTATED CERTIFICATE OF TRUST of Pacifica Variable Trust
(originally formed under the name Westcore Variable Trust), a Delaware business
trust (the "Trust"), is being executed as of December 29, 1995 for the purpose
of restating in its entirety, as hereinafter set forth, the Certificate of
Trust of the Trust (the "Certificate"), which certificate was originally filed
in the Office of the Secretary of State of the State of Delaware on August 26,
1994.
It is, therefore, certified that the Certificate is hereby
restated in its entirety as follows:
1. Name. The name of the business trust is Pacifica
Variable Trust.
2. Registered Investment Company. The Trust is or will
become a registered investment company under the Investment Company Act of
1940, as amended.
3. Registered Office and Registered Agent. The
registered office of the Trust in the State of Delaware is located at 1013
Centre Road, Wilmington, New Castle County, Delaware 19805. The name of the
registered agent of the Trust for service of process at such location is
Corporation Service Company.
4. Notice of Limitation of Liabilities of Series.
Notice is hereby given that the Trust is or may hereafter be constituted a
series trust. The debts, liabilities, obligations and expenses incurred,
contracted for or otherwise existing with respect to any particular series
shall be enforceable against the assets of such series only, and not against
the assets of the Trust generally.
IN WITNESS WHEREOF, the undersigned, being a trustee of the
Trust, has duly executed this Restated Certificate of Trust as of the day and
year first above written.
TRUSTEE
/s/ Jack D. Henderson
--------------------------------
<PAGE> 5
RESTATED CERTIFICATE OF TRUST
OF
PACIFICA VARIABLE TRUST
(Originally formed under the name Westcore Variable Trust)
THIS RESTATED CERTIFICATE OF TRUST of Pacifica Variable Trust
(originally formed under the name Westcore Variable Trust), a Delaware business
trust (the "Trust"), is being executed as of December 29, 1995 for the purpose
of restating in its entirety, as hereinafter set forth, the Certificate of
Trust of the Trust (the "Certificate"), which certificate was originally filed
in the Office of the Secretary of State of the State of Delaware on August 26,
1994.
It is, therefore, certified that the Certificate is hereby
restated in its entirety as follows:
1. Name. The name of the business trust is Pacifica
Variable Trust.
2. Registered Investment Company. The Trust is or will
become a registered investment company under the Investment Company Act of
1940, as amended.
3. Registered Office and Registered Agent. The
registered office of the Trust in the State of Delaware is located at 1013
Centre Road, Wilmington, New Castle County, Delaware 19805. The name of the
registered agent of the Trust for service of process at such location is
Corporation Service Company.
4. Notice of Limitation of Liabilities of Series.
Notice is hereby given that the Trust is or may hereafter be constituted a
series trust. The debts, liabilities, obligations and expenses incurred,
contracted for or otherwise existing with respect to any particular series
shall be enforceable against the assets of such series only, and not against
the assets of the Trust generally.
IN WITNESS WHEREOF, the undersigned, being a trustee of the
Trust, has duly executed this Restated Certificate of Trust as of the day and
year first above written.
TRUSTEE
/s/ Richard A. Wedemeyer
-----------------------------------
<PAGE> 1
Exhibit 1(b)
PACIFICA VARIABLE TRUST
TRUST INSTRUMENT
AMENDED AND RESTATED AS OF
DECEMBER 29, 1995
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
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<S> <C>
ARTICLE I - NAME AND DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Section 1.1 Name . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Section 1.2 Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
ARTICLE II - BENEFICIAL INTEREST . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Section 2.1 Shares of Beneficial Interest . . . . . . . . . . . . . . . . . . . 2
Section 2.2 Issuance of Shares . . . . . . . . . . . . . . . . . . . . . . . . 3
Section 2.3 Register of Shares and Share Certificates . . . . . . . . . . . . . 3
Section 2.4 Transfer of Shares . . . . . . . . . . . . . . . . . . . . . . . . 4
Section 2.5 Treasury Shares . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Section 2.6 Establishment of Series and Classes . . . . . . . . . . . . . . . . 4
Section 2.7 Investment in the Trust . . . . . . . . . . . . . . . . . . . . . . 5
Section 2.8 Assets and Liabilities Belonging to
Series . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Section 2.9 No Preemptive Rights . . . . . . . . . . . . . . . . . . . . . . . 7
Section 2.10 Conversion Rights . . . . . . . . . . . . . . . . . . . . . . . . . 7
Section 2.11 Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . 7
Section 2.12 Status of Shares . . . . . . . . . . . . . . . . . . . . . . . . . 7
ARTICLE III - THE TRUSTEES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Section 3.1 Management of the Trust . . . . . . . . . . . . . . . . . . . . . . 7
Section 3.2 Term of Office of Trustees . . . . . . . . . . . . . . . . . . . . 8
Section 3.3 Vacancies and Appointment of Trustees . . . . . . . . . . . . . . . 8
Section 3.4 Temporary Absence of Trustee . . . . . . . . . . . . . . . . . . . 9
Section 3.5 Number of Trustees . . . . . . . . . . . . . . . . . . . . . . . . 9
Section 3.6 Effect of Death, Resignation, Etc. of a Trustee . . . . . . . . . . 9
Section 3.7 Ownership of Assets of the Trust . . . . . . . . . . . . . . . . . 9
Section 3.8 No Accounting . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
ARTICLE IV - POWERS OF THE TRUSTEES . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Section 4.1 Powers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Section 4.2 Issuance and Repurchase of Shares . . . . . . . . . . . . . . . . . 14
Section 4.3 Trustees and Officers as Shareholders . . . . . . . . . . . . . . . 14
Section 4.4 Action by the Trustees and Committees . . . . . . . . . . . . . . . 14
Section 4.5 Chairman of the Trustees . . . . . . . . . . . . . . . . . . . . . 15
Section 4.6 Principal Transactions . . . . . . . . . . . . . . . . . . . . . . 15
ARTICLE V - INVESTMENT ADVISER, PRINCIPAL UNDERWRITER,
ADMINISTRATOR, TRANSFER AGENT, CUSTODIAN AND OTHER
CONTRACTORS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Section 5.1 Certain Contracts . . . . . . . . . . . . . . . . . . . . . . . . . 15
ARTICLE VI - SHAREHOLDER VOTING POWERS AND MEETINGS . . . . . . . . . . . . . . . . . . . 18
Section 6.1 Voting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Section 6.2 Meetings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Section 6.3 Quorum and Required Vote . . . . . . . . . . . . . . . . . . . . . 19
</TABLE>
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<TABLE>
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Section 6.4 Action by Written Consent . . . . . . . . . . . . . . . . . . . . . 19
ARTICLE VII - DISTRIBUTIONS AND REDEMPTIONS . . . . . . . . . . . . . . . . . . . . . . . 20
Section 7.1 Distributions . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Section 7.2 Redemption by Shareholder . . . . . . . . . . . . . . . . . . . . . 20
Section 7.3 Redemption by Trust . . . . . . . . . . . . . . . . . . . . . . . . 21
Section 7.4 Net Asset Value . . . . . . . . . . . . . . . . . . . . . . . . . . 21
ARTICLE VIII - LIMITATION OF LIABILITY AND INDEMNIFICATION . . . . . . . . . . . . . . . 22
Section 8.1 Limitation of Liability . . . . . . . . . . . . . . . . . . . . . . 22
Section 8.2 Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Section 8.3 Indemnification Determinations . . . . . . . . . . . . . . . . . . 23
Section 8.4 Indemnification Not Exclusive . . . . . . . . . . . . . . . . . . . 23
Section 8.5 Shareholders . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
ARTICLE IX - MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Section 9.1 Trust Not a Partnership . . . . . . . . . . . . . . . . . . . . . . 24
Section 9.2 Trustees' Good Faith Action, Expert
Advice, No Bond or Surety . . . . . . . . . . . . . . . . . . . . 25
Section 9.3 Establishment of Record Dates . . . . . . . . . . . . . . . . . . . 25
Section 9.4 Termination of Trust or Series . . . . . . . . . . . . . . . . . . 26
Section 9.5 Merger, Consolidation, Incorporation . . . . . . . . . . . . . . . 27
Section 9.6 Filing of Copies, References, Headings . . . . . . . . . . . . . . 27
Section 9.7 Applicable Law . . . . . . . . . . . . . . . . . . . . . . . . . . 28
Section 9.8 Amendments . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
Section 9.9 Fiscal Year . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
Section 9.10 Provisions in Conflict with Law . . . . . . . . . . . . . . . . . . 29
</TABLE>
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<PAGE> 4
Pacifica Variable Trust
TRUST INSTRUMENT, originally made August 26, 1994 under the name
Westcore Variable Trust by Jeffrey A. Dalke (the "Trustee"), 1100 Philadelphia
National Bank Building, 1345 Chestnut Street, Philadelphia PA 19107 and amended
and restated as of December 29, 1995.
WHEREAS, the Trustees desire to establish a business trust under the
Delaware Business Trust Act for the investment and reinvestment of funds
contributed thereto;
NOW, THEREFORE, the Trustees declare that all money and property
contributed to the trust hereunder shall be held and managed in trust under
this Trust Instrument as herein set forth below.
ARTICLE I
NAME AND DEFINITIONS
Section 1.1 Name. The name of the trust created hereby is the
"Pacifica Variable Trust."
Section 1.2 Definitions. Wherever used herein, unless otherwise
required by the context or specifically provided:
(a) "By-laws" means the by-laws referred to in Section
4.1(e) hereof, as from time to time amended;
(b) The terms "Affiliated Person," "Assignment,"
"Commission," "Interested Person" and "Principal Underwriter" shall have the
meanings given them in the 1940 Act. "Majority Shareholder Vote" shall have
the same meaning as the term "vote of a majority of the outstanding voting
securities" is given in the 1940 Act;
(c) "Class" means any division of Shares within a Series,
which Class is or has been established in accordance with the provisions of
Article II.
(d) "Net Asset Value" means the net asset value of each
Series of the Trust determined in the manner provided in Section 7.4 hereof;
(e) "Outstanding Shares" means those Shares recorded from
time to time in the books of the Trust or its Transfer Agent as then issued and
outstanding, but shall not include Shares which have been redeemed or
repurchased by the Trust and which are at the time held in the treasury of the
Trust;
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<PAGE> 5
(f) "Series" means a series of Shares of the Trust
established in accordance with the provisions of Section 2.6 hereof;
(g) "Shareholder" means a record owner of Outstanding
Shares of the Trust;
(h) "Shares" means the equal proportionate transferable
units of beneficial interest into which the beneficial interest of each Series
of the Trust or Class thereof shall be divided and may include fractions of
Shares as well as whole Shares;
(i) The "Trust" refers to Pacifica Variable Trust and
reference to the Trust, when applicable to one or more Series of the Trust,
shall refer to any such Series;
(j) The "Trustee" or "Trustees" means the person or
persons who has or have signed this Trust Instrument, so long as such person or
persons shall continue in office in accordance with the terms hereof, and all
other persons who may from time to time be duly qualified and serving as
Trustees in accordance with the provisions of Article III hereof and reference
herein to a Trustee or to the Trustees shall refer to the individual Trustees
in their capacity as Trustees hereunder;
(k) "Trust Property" means any and all property, real or
personal, tangible or intangible, which is owned or held by or for the account
of one or more of the Trust or any Series, or the Trustees on behalf of the
Trust or any Series.
(l) The "1940 Act" refers to the Investment Company Act
of 1940 and the Rules and Regulations thereunder, all as may be amended from
time to time.
ARTICLE II
BENEFICIAL INTEREST
Section 2.1 Shares of Beneficial Interest. The beneficial interest
in the Trust shall be divided into such transferable Shares of one or more
separate and distinct Series or Classes as the Trustees shall from time to time
create and establish. The number of Shares of each Series and Class authorized
hereunder is unlimited. Each Share shall have a par value of $.0001 per Share,
unless otherwise determined by the Trustees in connection with the creation and
establishment of a Series. All Shares issued hereunder, including without
limitation Shares issued in connection with a dividend in Shares or a split or
reverse split of Shares, shall be fully paid and nonassessable.
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<PAGE> 6
Section 2.2 Issuance of Shares. The Trustees in their discretion
may, from time to time, without vote of the Shareholders, issue Shares of each
Series and Class to such party or parties and for such amount and type of
consideration (or for no consideration if pursuant to a Share dividend or
split-up), subject to applicable law, including cash or securities (including
Shares of a different Series or Class), at such time or times and on such terms
as the Trustees may deem appropriate, and may in such manner acquire other
assets (including the acquisitions of assets subject to, and in connection
with, the assumption of liabilities) and businesses. In connection with any
issuance of Shares, the Trustees may issue fractional Shares and Shares held in
the treasury. The Trustees may from time to time divide or combine the Shares
into a greater or lesser number without thereby changing the proportionate
beneficial interests in the Trust. The Trustees may classify or reclassify any
unissued Shares or any Shares previously issued and reacquired of any Series or
Class into one or more Series or Classes that may be established and designated
from time to time.
Any Trustee, officer or other agent of the Trust, and any
organization in which any such person is interested, may acquire, own, hold and
dispose of Shares of any Series or Class of the Trust to the same extent as if
such person were not a Trustee, officer or other agent of the Trust; and the
Trust may issue and sell or cause to be issued and sold and may purchase Shares
of any Series or Class from any such person or any such organization subject
only to the general limitations, restrictions or other provisions applicable to
the sale or purchase of Shares of such Series or Class generally.
Section 2.3 Register of Shares and Share Certificates. A register
shall be kept at the principal office of the Trust or an office of the Trust's
transfer agent which shall contain the names and addresses of the Shareholders
of each Series and Class, the number of Shares of that Series and Class thereof
held by them respectively and a record of all transfers thereof. As to Shares
for which no certificate has been issued, such register shall be conclusive as
to who are the holders of the Shares and who shall be entitled to receive
dividends or other distributions or otherwise to exercise or enjoy the rights
of Shareholders. No Shareholder shall be entitled to receive payment of any
dividend or other distribution, nor to have notice given to him as herein or in
the By-laws provided, until he has given his address to the transfer agent or
such other officer or agent of the Trustees as shall keep the said register for
entry thereon. The Trustees, in their discretion, may authorize the issuance
of share certificates and promulgate appropriate rules and regulations as to
their use. In the event that one or more certificates are issued, whether in
the name of a Shareholder or a nominee, such certificate or certificates shall
constitute evidence of ownership of Shares for all purposes, including
transfer,
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<PAGE> 7
assignment or sale of such Shares, subject to such limitations as the Trustees
may, in their discretion, prescribe.
Section 2.4 Transfer of Shares. Except as otherwise provided by the
Trustees, Shares shall be transferable on the records of the Trust only by the
record holder thereof or by his agent thereunto duly authorized in writing,
upon delivery to the Trustees or the Trust's transfer agent of a duly executed
instrument of transfer, together with a Share certificate, if one is
outstanding, and such evidence of the genuineness of each such execution and
authorization and of such other matters as may be required by the Trustees.
Upon such delivery the transfer shall be recorded on the register of the Trust.
Until such record is made, the Shareholder of record shall be deemed to be the
holder of such Shares for all purposes hereunder and neither the Trustees nor
the Trust, nor any transfer agent or registrar nor any officer, employee or
agent of the Trust shall be affected by any notice of the proposed transfer.
Section 2.5 Treasury Shares. Shares held in the treasury shall,
until reissued pursuant to Section 2.2 hereof, not confer any voting rights on
the Trustees, nor shall such Shares be entitled to any dividends or other
distributions declared with respect to the Shares.
Section 2.6 Establishment of Series and Classes. The Trust created
hereby shall consist of one or more Series and Classes and separate and
distinct records shall be maintained by the Trust for each Series and Class.
The Trustees shall have full power and authority, in their sole discretion, and
without obtaining any prior authorization or vote of the Shareholders of any
Series or Class of the Trust, to establish and designate and to change in any
manner any initial or additional Series or Classes and to fix such preferences,
voting powers, rights and privileges of such Series or Classes as the Trustees
may from time to time determine, to divide or combine the Shares or any Series
or Classes into a greater or lesser number, to classify or reclassify any
issued Shares or any Series or Classes into one or more Series or Classes of
Shares, and to take such other action with respect to the Shares as the
Trustees may deem desirable. Unless another time is specified by the Trustees,
the establishment and designation of any Series or Class shall be effective
upon the adoption of a resolution by the Trustees setting forth such
establishment and designation and the preferences, powers, rights and
privileges of the Shares of such Series or Class. The Trust may issue any
number of Shares of each Series or Class and need not issue Shares.
All references to Shares in this Trust Instrument shall be deemed to
be Shares of any or all Series or Classes as the context may require. All
provisions herein relating to the Trust
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<PAGE> 8
shall apply equally to each Series and Class of the Trust except as the context
otherwise requires.
All Shares of each Class of a particular Series shall represent an
equal proportionate interest in the assets belonging to that Series (subject to
the liabilities belonging to that Class), and each Share of any Class of a
particular Series shall be equal to each other Share of that Class; but the
provisions of this sentence shall not restrict any distinctions permissible
under this Section 2.6.
Section 2.7 Investment in the Trust. The Trustees shall accept
investments in any Series of the Trust from such persons and on such terms as
they may from time to time authorize. At the Trustees' discretion, such
investments, subject to applicable law, may be in the form of cash or
securities in which the affected Series is authorized to invest, valued as
provided in Section 7.4 hereof. Unless the Trustees otherwise determine,
investments in a Series shall be credited to each Shareholder's account in the
form of full Shares at the Net Asset Value per Share next determined after the
investment is received. Without limiting the generality of the foregoing, the
Trustees may, in their sole discretion, (a) fix the Net Asset Value per Share
of the initial capital contribution, (b) impose sales or other charges upon
investments in the Trust or (c) issue fractional Shares.
Section 2.8 Assets and Liabilities Belonging to Series. All
consideration received by the Trust for the issue or sale of Shares of a
particular Series, together with all assets in which such consideration is
invested or reinvested, all income, earnings, profits, and proceeds thereof,
including any proceeds derived from the sale, exchange or liquidation of such
assets, and any funds or payments derived from any reinvestment of such
proceeds in whatever form the same may be, shall be held and accounted for
separately from the other assets of the Trust and of every other Series and may
be referred to herein as "assets belonging to" that Series. The assets
belonging to a particular Series shall belong to that Series for all purposes,
and to no other Series, subject only to the rights of creditors of that Series.
In addition, any assets, income, earnings, profits or funds, or payments and
proceeds with respect thereto, which are not readily identifiable as belonging
to any particular Series shall be allocated by the Trustees between and among
one or more of the Series in such manner as the Trustees, in their sole
discretion, deem fair and equitable. Each such allocation shall be conclusive
and binding upon the Shareholders of all Series for all purposes, and such
assets, income, earnings, profits or funds, or payments and proceeds with
respect thereto shall be assets belonging to that Series. The assets belonging
to a particular Series shall be so recorded upon the books of the
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<PAGE> 9
Trust, and shall be held by the Trustees in trust for the benefit of the
holders of Shares of that Series.
The assets belonging to each particular Series shall be
charged with the liabilities of that Series and all expenses, costs, charges
and reserves attributable to that Series. Any general liabilities, expenses,
costs, charges or reserves of the Trust which are not readily identifiable as
belonging to any particular Series shall be allocated and charged by the
Trustees between or among any one or more of the Series in such manner as the
Trustees in their sole discretion deem fair and equitable. Each such
allocation shall be conclusive and binding upon the Shareholders of all Series
for all purposes. The liabilities, expenses, costs, charges and reserves
allocated and so changed to a Series are herein referred to as "liabilities
belonging to" that Series. Except as provided in the next sentence or
otherwise required or permitted by applicable law or any rule or order of the
Commission, each Class of a Series shall bear a pro rata portion of the
"liabilities belonging to" such Series. To the extent permitted by rule or
order of the Commission the Trustees may allocate all or a portion of any
liabilities, expenses, costs, charges and reserves belonging to a Series to a
particular Class or Classes (collectively, "Class Expenses") as the Trustees
may from time to time determine is appropriate.
Without limitation of the foregoing provisions of this Section 2.8,
but subject to the right of the Trustees in their discretion to allocate
general liabilities, expenses, costs, charges or reserves as herein provided,
the debts, liabilities, obligations and expenses incurred, contracted for or
otherwise existing with respect to a particular Series shall be enforceable
against the assets belonging to such Series only, and not against the assets of
the Trust generally. Notice of this contractual limitation on inter-Series
liabilities shall be set forth in the certificate of trust of the Trust
(whether originally or by amendment) as filed or to be filed in the Office of
the Secretary of State of the State of Delaware pursuant to the Delaware
Business Trust Act, and upon the giving of such notice in the certificate of
trust, the statutory provisions of Section 3804 of the Delaware Business Trust
Act relating to limitations on inter-Series liabilities (and the statutory
effect under Section 3804 of setting forth such notice in the certificate of
trust) shall become applicable to the Trust and each Series. Any person
extending credit to, contracting with or having any claim against any Series
may satisfy or enforce any debt, liability, obligation or expense incurred,
contracted for or otherwise existing with respect to that Series from the
assets of that Series only. No Shareholder or former Shareholder of any Series
shall have a claim on or any right to any assets allocated or belonging to any
other Series.
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<PAGE> 10
Section 2.9 No Preemptive Rights. Shareholders shall have no
preemptive or other right to subscribe to any additional Shares or other
securities issued by the Trust or the Trustees, whether of the same or another
Series or Class.
Section 2.10 Conversion Rights. The Trustees shall have the
authority to provide from time to time that the holders of Shares of any Series
or Class shall have the right to convert or exchange said Shares for or into
Shares of one or more other Series or Classes in accordance with such
requirements and procedures as may be established from time to time by the
Trustees.
Section 2.11 Legal Proceedings. No person, other than the Trustees,
who is not a Shareholder of a particular Series or Class shall be entitled to
bring any derivative action, suit or other proceeding on behalf of or with
respect to such Series or Class. No Shareholder of a Series or a Class may
maintain a derivative action with respect to such Series or Class unless
holders of a least ten percent (10%) of the outstanding Shares of such Series
or Class join in the bringing of such action.
Section 2.12 Status of Shares. Shares shall be deemed to be personal
property giving only the rights provided in this instrument. Every Shareholder
by virtue of having become a Shareholder shall be held to have expressly
assented and agreed to the terms hereof. The death of a Shareholder during the
continuance of the Trust shall not operate to terminate the Trust nor entitle
the representative of any deceased Shareholder to an accounting or to take any
action in court or elsewhere against the Trust or the Trustees, but only to the
rights of said decedent under this Trust. Ownership of Shares shall not
entitle the Shareholder to any title in or to the whole or any part of the
Trust property or right to call for a partition or division of the same or for
an accounting, nor shall the ownership of Shares constitute the Shareholders
partners.
ARTICLE III
THE TRUSTEES
Section 3.1 Management of the Trust. The Trustees shall have
exclusive and absolute control over the Trust Property and over the business of
the Trust to the same extent as if the Trustees were the sole owners of the
Trust Property and business in their own right, but with such powers of
delegation as may be permitted by this Trust Instrument. The Trustees shall
have power to conduct the business of the Trust and carry on its operations in
any and all of its branches and maintain offices both within and without the
State of Delaware, in any and all states of the United States of America, in
the District of
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<PAGE> 11
Columbia, in any and all commonwealths, territories, dependencies, colonies, or
possessions of the United States of America, and in any foreign jurisdiction
and to do all such other things and execute all such instruments as they deem
necessary, proper or desirable in order to promote the interests of the Trust
although such things are not herein specifically mentioned. Any determination
as to what is in the interests of the Trust made by the Trustees in good faith
shall be conclusive. In construing the provisions of this Trust Instrument,
the presumption shall be in favor of a grant of power to the Trustees.
The enumeration of any specific power in this Trust Instrument shall
not be construed as limiting the aforesaid power. The powers of the Trustees
may be exercised without order of or resort to any court.
Except for the Trustees named herein or Trustees appointed to fill
vacancies pursuant to Section 3.4 hereof, the Trustees shall be elected by the
Shareholders owning of record a plurality of the Shares voting at a meeting of
Shareholders.
Section 3.2 Term of Office of Trustees. Each Trustee shall hold
office during the existence of this Trust, and until its termination as herein
provided; except: (a) that any Trustee may resign his trust by written
instrument signed by him and delivered to the Chairman, President, Secretary,
or other Trustee of the Trust, which shall take effect upon such delivery or
upon such later date as is specified therein; (b) that any Trustee may be
removed at any time by written instrument, signed by at least two-thirds of the
number of Trustees prior to such removal, specifying the date when such removal
shall become effective; (c) that any Trustee who requests in writing to be
retired or who has died, become physically or mentally incapacitated by reason
of disease or otherwise, or is otherwise unable to serve, may be retired by
written instrument signed by a majority of the other Trustees, specifying the
date of his retirement; and (d) that a Trustee may be removed at any meeting of
the Shareholders of the Trust by a vote of Shareholders owning at least
two-thirds of the outstanding Shares.
Section 3.3 Vacancies and Appointment of Trustees. In case of the
declination to serve, death, resignation, retirement, removal, physical or
mental incapacity by reason of disease or otherwise of a Trustee, or a Trustee
is otherwise unable to serve, or an increase in the number of Trustees, a
vacancy shall occur. Whenever a vacancy in the Board of Trustees shall occur,
until such vacancy is filled, the other Trustees shall have all the powers
hereunder and the certificate of the other Trustees of such vacancy shall be
conclusive. In the case of an existing vacancy, the remaining Trustee or
Trustees shall fill such vacancy by appointing such other person as such
Trustee or Trustees in their discretion shall see fit consistent with the
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limitations under the 1940 Act, unless such Trustee or Trustees determine, in
accordance with Section 3.5, to decrease the size of the Board to the number of
remaining Trustees.
An appointment of a Trustee may be made by the Trustees then in office
in anticipation of a vacancy to occur by reason of retirement, resignation or
increase in number of Trustees effective at a later date, provided that said
appointment shall become effective only at or after the effective date of said
retirement, resignation or increase in number of Trustees.
An appointment of a Trustee shall be effective upon the acceptance of
the person so appointed to serve as trustee, except that any such appointment
in anticipation of a vacancy shall become effective at or after the date such
vacancy occurs.
Section 3.4 Temporary Absence of Trustee. Any Trustee may, by power
of attorney, delegate his power for a period not exceeding six months at any
one time to any other Trustee or Trustees, provided that in no case shall less
than two Trustees personally exercise the other powers hereunder except as
herein otherwise expressly provided or unless there are only two Trustees.
Section 3.5 Number of Trustees. The number of Trustees shall be one,
or such other number as shall be fixed from time to time by the Trustees.
Section 3.6 Effect of Death, Resignation, Etc. of a Trustee. The
declination to serve, death, resignation, retirement, removal, incapacity, or
inability of the Trustees, or any one of them, shall not operate to terminate
the Trust or to revoke any existing agency created pursuant to the terms of
this Trust Instrument.
Section 3.7 Ownership of Assets of the Trust. Legal title in and
beneficial ownership of all of the assets of the Trust shall at all times be
considered as vested in the Trust, except that the Trustees may cause legal
title in and beneficial ownership of any Trust Property to be held by, or in
the name of one or more of the Trustees acting for and on behalf of the Trust,
or in the name of any person as nominee acting for and on behalf of the Trust.
No Shareholder shall be deemed to have a severable ownership interest in any
individual asset of the Trust or of any Series or Class, or any right of
partition or possession thereof, but each Shareholder shall have, except as
otherwise provided for herein, a proportionate undivided beneficial interest in
the Trust or a Series. The Shares shall be personal property giving only the
rights specifically set forth in this Trust Instrument. The Trust, or at the
determination of the Trustees one or more of the Trustees or a nominee acting
for and on behalf of the Trust, shall be deemed to hold legal title and
beneficial ownership of
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any income earned on securities of the Trust issued by any business entities
formed, organized, or existing under the laws of any jurisdiction, including
the laws of any foreign country.
Section 3.8 No Accounting. Except to the extent required by the 1940
Act or, if determined to be necessary or appropriate by the other Trustees
under circumstances which would justify his or her removal for cause, no person
ceasing to be a Trustee for reasons including, but not limited to, death,
resignation, retirement, removal or incapacity (nor the estate of any such
person) shall be required to make an accounting to the Shareholders or
remaining Trustees upon such cessation.
ARTICLE IV
POWERS OF THE TRUSTEES
Section 4.1 Powers. The Trustees in all instances shall act as
principals, and are and shall be free from the control of the Shareholders.
The Trustees shall have full power and authority to do any and all acts and to
make and execute any and all contracts and instruments that they may consider
necessary or appropriate in connection with the management of the Trust. The
Trustees shall have full authority and power to make any and all investments
which they, in their sole discretion, shall deem proper to accomplish the
purpose of this Trust. Subject to any applicable limitation in this Trust
Instrument, the Trustees shall have power and authority:
(a) To invest and reinvest cash and other property, and
to hold cash or other property uninvested, and to sell, exchange, lend, pledge,
mortgage, hypothecate, write options on and lease any or all of the assets of
the Trust;
(b) To operate as and carry on the business of an
investment company, and exercise all the powers necessary and appropriate to
the conduct of such operators, including the power to invest all or any part of
its assets in the securities of another investment company;
(c) To borrow money and in this connection issue notes or
other evidence of indebtedness; to secure borrowings by mortgaging, pledging or
otherwise subjecting as security the Trust Property; to endorse, guarantee, or
undertake the performance of an obligation, liability or engagement of any
person and to lend Trust Property;
(d) To provide for the distribution of interests of the
Trust either through a Principal Underwriter in the manner hereinafter provided
for or by the Trust itself, or both, or otherwise pursuant to a plan of
distribution of any kind;
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(e) To adopt By-laws not inconsistent with this Trust
Instrument providing for the conduct of the business of the Trust and to amend
and repeal them to the extent that they do not reserve that right to the
Shareholders, which By-laws shall be deemed a part of this Trust Instrument and
are incorporated herein by reference;
(f) To elect and remove such officers and appoint and
terminate such agents and contractors as they consider appropriate, any of whom
may be a Trustee, and may provide for the compensation of all of the foregoing;
(g) To employ one or more banks, trust companies or
companies that are members of a national securities exchange or such other
entities as custodians of any assets of the Trust, subject to the 1940 Act and
to any conditions set forth in this Trust Instrument;
(h) To retain one or more transfer agents and shareholder
servicing agents, or both;
(i) To set record dates in the manner provided herein or
in the By-laws;
(j) To delegate such authority (which delegation may
include the power to subdelegate) as they consider desirable to any officers of
the Trust and to any investment adviser, manager, administrator, custodian,
underwriter or other agent or independent contractor;
(k) To join with other holders of any securities or debt
instruments in acting through a committee, depository, voting trustee or
otherwise, and in that connection to deposit any security or debt instrument
with, or transfer any security or debt instrument to, any such committee,
depository or trustee, and to delegate to them such power and authority with
relation to any security or debt instrument (whether or not so deposited or
transferred) as the Trustees shall deem proper and to agree to pay, and to pay,
such portion of the expenses and compensation of such committee, depository or
trustee as the Trustees shall deem proper;
(l) To enter into joint ventures, general or limited
partnerships and any other combinations or associations;
(m) To pay pensions for faithful service, as deemed
appropriate by the Trustees, and to adopt, establish and carry out pension,
profit-sharing, share bonus, share purchase, savings, thrift and other
retirement, incentive and benefit plans, trusts and provisions, including the
purchasing of life insurance and annuity contracts as a means of providing such
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retirement and other benefits, for any or all of the Trustees, officers,
employees and agents of the Trust.
(n) To the extent permitted by law, indemnify any person
with whom the Trust or any Series or Class has dealings.
(o) To engage in and to prosecute, defend, compromise,
abandon, or adjust by arbitration, or otherwise, any actions, suits,
proceedings, disputes, claims and demands relating to the Trust, and out of the
assets of the Trust or any Series or Class thereof to pay or to satisfy any
debts, claims or expenses incurred in connection therewith, including those of
litigation, and such power shall include without limitation the power of the
Trustees or any appropriate committee thereof, in the exercise of their or its
good faith business judgment, to dismiss any action, suit, proceeding, dispute,
claim or demand, derivative or otherwise, brought by any person, including a
Shareholder in its own name or the name of the Trust, whether or not the Trust
or any of the Trustees may be named individually therein or the subject matter
arises by reason of business for or on behalf of the Trust.
(p) To purchase and pay for entirely out of Trust Property
such insurance as they may deem necessary or appropriate for the conduct of the
business of the Trust, including, without limitation, insurance policies
insuring the Trust Property and payment of distributions and principal on its
investments, and insurance policies insuring the Shareholders, Trustees,
officers, representatives, employees, agents, investment advisers, managers,
administrators, custodians, underwriters, or independent contractors of the
Trust individually against all claims and liabilities of every nature arising
by reason of holding, being or having held any such office or position, or by
reason of any action alleged to have been taken or omitted by any such person
in such capacity, including any action taken or omitted that may be determined
to constitute negligence, whether or not the Trust would have the power to
indemnify such person against such liability.
(q) To sell, exchange, lend, pledge, mortgage,
hypothecate, write options on and lease any or all of the assets of the Trust,
subject to the provisions of Section 9.4(b) hereof;
(r) To vote or give assent, or exercise any rights of
ownership, with respect to stock or other securities, debt instruments or
property; and to execute and deliver powers of attorney to such person or
persons as the Trustees shall deem proper, granting to such person or persons
such power and discretion with relation to securities, debt instruments or
property as the Trustees shall deem proper;
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(s) To exercise powers and rights of subscription or
otherwise which in any manner arise out of ownership of securities or debt
instruments;
(t) To hold any security or property in a form not
indicating any trust, whether in bearer, book entry, unregistered or other
negotiable form; or either in the name of the Trustees or of the Trust or in
the name of a custodian, subcustodian or other depository or a nominee or
nominees or otherwise;
(u) To establish separate and distinct Series with
separately defined investment objectives and policies and distinct investment
purposes in accordance with the provisions of Article II hereof and to
establish Classes thereof having relative rights, powers and duties as they may
provide consistent with applicable law;
(v) To consent to or participate in any plan for the
reorganization, consolidation or merger of any corporation, issuer or concern,
any security or debt instrument of which is held in the Trust; to consent to
any contract, lease, mortgage, purchase or sale of property by such
corporation, issuer or concern, and to pay calls or subscriptions with respect
to any security or debt instrument held in the Trust;
(w) To compromise, arbitrate, or otherwise adjust claims
in favor of or against the Trust or any matter in controversy including, but
not limited to, claims for taxes;
(x) To make distributions of income and of capital gains
to Shareholders in the manner herein provided;
(y) To establish, from time to time, a minimum investment
for Shareholders in the Trust or in one or more Series or Classes, and to
require the redemption of the Shares of any Shareholders whose investment is
less than such minimum upon giving notice to such Shareholder;
(z) To establish one or more committees comprised of one
or more of the Trustees, and to delegate any of the powers of the Trustees to
said committees;
(aa) To interpret the investment policies, practices or
limitations of any Series or Class;
(bb) To establish a registered office and have a
registered agent in the state of Delaware;
(cc) To compensate or provide for the compensation of the
Trustees, officers, advisers, administrators, custodians, other agents,
consultants, contractors and employees of the Trust or the Trustees on such
terms as they deem appropriate; and
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(dd) In general, to carry on any other business in
connection with or incidental to any of the foregoing powers, to do everything
necessary, suitable or proper for the accomplishment of any purpose or the
attainment of any object or the furtherance of any power herein set forth,
either alone or in association with others, and to do every other act or thing
incidental or appurtenant to or growing out of or connected with the aforesaid
business or purposes, objects or powers.
The foregoing clauses shall be construed both as objects and powers,
and the foregoing enumeration of specific powers shall not be held to limit or
restrict in any manner the general powers of the Trustees. Any action by one
or more of the Trustees in their capacity as such hereunder shall be deemed an
action on behalf of the Trust or the applicable Series or Class, and not an
action in an individual capacity.
No one dealing with the Trustees shall be under any obligation to make
any inquiry concerning the authority of the Trustees, or to see to the
application of any payments made or property transferred to the Trustees or
upon their order.
Section 4.2 Issuance and Repurchase of Shares. The Trustees shall
have the power to issue, sell, repurchase, redeem, retire, cancel, acquire,
hold, resell, reissue, dispose of, exchange, and otherwise deal in Shares and,
subject to the provisions set forth in Article II and Article VII, to apply to
any such repurchase, redemption, retirement, cancellation or acquisition of
Shares any funds or property of the Trust, or the particular Series or Class of
the Trust, with respect to which such Shares are issued.
Section 4.3 Trustees and Officers as Shareholders. Any Trustee,
officer or other agent of the Trust may acquire, own and dispose of Shares to
the same extent as if such person were not a Trustee, officer or agent; and the
Trustees may issue and sell or cause to be issued and sold Shares to and buy
such Shares from any such person or any firm or company in which such person
interested, subject to the general limitations herein contained as to the sale
and purchase of such Shares.
Section 4.4 Action by the Trustees and Committees. The Trustees (and
any committee thereof) may act at a meeting held in person or in whole or in
part by conference telecommunications equipment. One-third, but no less than
two, of the Trustees shall constitute a quorum at any meeting unless there is
only one Trustee. Except as the Trustees may otherwise determine, one-third of
the members of any committee shall constitute a quorum at any meeting. The
vote of a majority of the Trustees (or committee members) present at a meeting
at which a quorum is present shall be the act of the Trustees (or any committee
thereof). The Trustees (and any committee thereof) may also act
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by written consent signed by a majority of the Trustees (or committee members).
Regular meetings of the Trustees may be held at such places and at such times
as the Trustees may from time to time determine. Special meetings of the
Trustees (and meetings of any committee thereof) may be called orally or in
writing by the Chairman of the Board of Trustees (or the chairman of any
committee thereof) or by any two other Trustees. Notice of the time, date and
place of all meetings of the Trustees (or any committee thereof) shall be given
by the party calling the meeting to each Trustee (or committee member) by
telephone, telefax, or telegram sent to the person's home or business address
at least twenty-four hours in advance of the meeting or by written notice
mailed to the person's home or business address at least seventy-two hours in
advance of the meeting. Notice of all proposed written consents of Trustees
(or committees thereof) shall be given to each Trustee (or committee member) by
telephone, telefax, telegram, or first class mail sent to the person's home or
business address. Notice need not be given to any person who attends a meeting
without objecting to the lack of notice or who executes a written consent or a
written waiver of notice with respect to a meeting. Written consents or
waivers may be executed in one or more counterparts. Execution of a written
consent or waiver and delivery thereof may be accomplished by telefax.
Section 4.5 Chairman of the Trustees. The Trustees may appoint one
of their number to be Chairman of the Board of Trustees. The Chairman shall
preside at all meetings of the Trustees at which he is present and may be (but
is not required to be) the chief executive officer of the Trust.
Section 4.6 Principal Transactions. Except to the extent
prohibited by applicable law, the Trustees may, on behalf of the Trust, buy any
securities from or sell any securities to, or lend any assets of the Trust to,
any Trustee or officer of the Trust or any firm of which any such Trustee or
officer is a member acting as principal, or have any such dealings with any
investment adviser, distributor or transfer agent for the Trust or with any
Interested Person of such person; and the Trust may employ any such person, or
firm or company in which such person is an Interested Person, as broker, legal
counsel, registrar, investment adviser, distributor, transfer agent, dividend
disbursing agent, custodian or in any other capacity upon customary terms.
ARTICLE V
INVESTMENT ADVISER, PRINCIPAL UNDERWRITER,
ADMINISTRATOR, TRANSFER AGENT,
CUSTODIAN AND OTHER CONTRACTORS
Section 5.1 Certain Contracts. Subject to compliance with the
provisions of the 1940 Act, but notwithstanding any
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limitations of present and future law or custom in regard to delegation of
powers by trustees generally, the Trustees may, at any time and from time to
time and without limiting the generality of their powers and authority
otherwise set forth herein, enter into one or more contracts with any one or
more corporations, trusts, associations, partnerships, limited partnerships,
other type of organizations, or individuals to provide for the performance and
assumption of some or all of the following services, duties and
responsibilities to, for or of the Trust and/or the Trustees, and to provide
for the performance and assumption of such other services, duties and
responsibilities in addition to those set forth below as the Trustees may
determine to be appropriate:
(a) Investment Adviser. The Trustees may in their
discretion, from time to time, enter into an investment advisory or management
contract or contracts with respect to the Trust or any Series whereby the other
party or parties to such contract or contracts shall undertake to furnish the
Trust with such management, investment advisory, statistical and research
facilities and services and such other facilities and services, if any, and all
upon such terms and conditions, as the Trustees may in their discretion
determine. Notwithstanding any other provision of this Trust Instrument, the
Trustees may authorize any investment adviser (subject to such general or
specific instructions as the Trustees may from time to time adopt) to effect
purchases, sales or exchanges of portfolio securities, other investment
instruments of the Trust, or other Trust Property on behalf of the Trustees, or
may authorize any officer, agent, or Trustee to effect such purchases, sales or
exchanges pursuant to recommendations of the investment adviser (and all
without further action by the Trustees). Any such purchases, sales and
exchanges shall be deemed to have been authorized by the Trustees.
The Trustees may authorize, subject to applicable requirements of the
1940 Act, the investment adviser to employ, from time to time, one or more
sub-advisers to perform such of the acts and services of the investment
adviser, and upon such terms and conditions, as may be agreed upon between the
investment adviser and sub-adviser. Any reference in this Trust Instrument to
the investment adviser shall be deemed to include such sub-advisers, unless the
context otherwise requires.
(b) Principal Underwriter. The Trustees may in their
discretion from time to time enter into an exclusive or non-exclusive
underwriting contract or contracts providing for the sale of Shares, whereby
the Trust may either agree to sell Shares to the other party to the contract or
appoint such other party its sales agent for such Shares. In either case, the
contract may also provide for the repurchase or sale of Shares by such other
party as principal or as agent of the Trust.
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(c) Administrator. The Trustees may in their discretion
from time to time enter into one or more contracts whereby the other party or
parties shall undertake to furnish the Trust with administrative services. The
contract or contracts shall be on such terms and conditions as the Trustees may
in their discretion determine.
(d) Transfer Agent. The Trustees may in their
discretion from time to time enter into one or more transfer agency and
Shareholder service contracts whereby the other party or parties shall
undertake to furnish the Trustees with transfer agency and Shareholder
services. The contract or contracts shall be on such terms and conditions as
the Trustees may in their discretion determine.
(e) Service and Distribution Plans. The Trustees may, on
such terms and conditions as they may in their discretion determine, adopt one
or more plans pursuant to which compensation may be paid directly or indirectly
by the Trust for Shareholder servicing, administration and/or distribution
services with respect to one or more Series or Classes including without
limitation, plans subject to Rule 12b-1 under the 1940 Act, and the Trustees
may enter into agreements pursuant to such Plans.
(f) Fund Accounting. The Trustees may in their
discretion from time to time enter into one or more contracts whereby the other
party or parties undertakes to handle all or any part of the Trust's accounting
responsibilities, whether with respect to the Trust's properties, Shareholders
or otherwise.
(g) Custodian and Depository. The Trustees may in their
discretion from time to time enter into one or more contracts whereby the other
party or parties undertakes to act as depository for and to maintain custody of
the property of the Trust or any Series or Class and accounting records in
connection therewith.
(h) Parties to Contract. Any contract described in this
Article V hereof may be entered into with any corporation, firm, partnership,
trust or association, although one or more of the Trustees or officers of the
Trust may be an officer, director, trustee, shareholder, or member of such
other party to the contract, and no such contract shall be invalidated or
rendered void or voidable by reason of the existence of any relationship, nor
shall any person holding such relationship be disqualified from voting on or
executing the same in his capacity as Shareholder and/or Trustee, nor shall any
person holding such relationship be liable merely by reason of such
relationship for any loss or expense to the Trust under or by reason of said
contract or accountable for any profit realized directly or indirectly
therefrom, provided that the contract when entered into was not inconsistent
with the provisions of this Article V.
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The same person (including a firm, corporation, partnership, trust, or
association) may be the other party to contracts entered into pursuant to this
Article V, and any individual may be financially interested or otherwise
affiliated with persons who are parties to any or all of the contracts
mentioned in this Section 5.1.
ARTICLE VI
SHAREHOLDER VOTING POWERS AND MEETINGS
Section 6.1 Voting. The Shareholders shall have power to vote only:
(a) for the election of one or more Trustees in order to comply with the
provisions of the 1940 Act (including Section 16(a) thereof); (b) with respect
to any contract entered into pursuant to Article V to the extent required by
the 1940 Act; (c) with respect to termination of the Trust or a Series or Class
thereof to the extent required by applicable law; (d) with respect to any plan
adopted pursuant to Rule 12b-1 (or any successor rule) under the 1940 Act, and
related matters, to the extent required under the 1940 Act; and (e) with
respect to such additional matters relating to the Trust as may be required by
this Trust Instrument, the By-laws or any registration of the Trust or Series
as an investment company under the 1940 Act with the Commission (or any
successor agency) or as the Trustees may consider necessary or desirable.
On each matter submitted to a vote of Shareholders, unless the
Trustees determine otherwise, all Shares of all Series and Classes shall vote
as a single class; provided, however, that: (a) as to any matter with respect
to which a separate vote of any Series or Class is required by the 1940 Act or
other applicable law or is required by attributes applicable to any Series or
Class, such requirements as to a separate vote by that Series or Class shall
apply; (b) unless the Trustees determine that this clause (b) shall not apply
in a particular case, to the extent that a matter referred to in clause (a)
above affects more than one Series or Class and the interests of each such
Series or Class in the matter are identical, then the Shares of all such
affected Series or Classes shall vote as a single class; and (c) as to any
matter which does not affect the interests of a particular Series or Class,
only the holders of Shares of the one or more affected Series or Classes shall
be entitled to vote. Each whole Share shall be entitled to one vote as to any
matter on which it is entitled to vote, and each fractional Share shall be
entitled to a proportionate fractional vote. There shall be no cumulative
voting in the election of Trustees. Shares may be voted in person or by proxy
or in any manner provided for in the By-laws. A proxy may be given in writing,
by telefax, or in any other manner provided for in the By-laws. Anything in
this Trust Instrument to the contrary notwithstanding, in the event a proposal
by anyone other than the officers or Trustees of the
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Trust is submitted to a vote of the Shareholders of the Trust or one or more
Series or Classes thereof, or in the event of any proxy contest or proxy
solicitation or proposal in opposition to any proposal by the officers or
Trustees of the Trust, Shares may be voted only in person or by written proxy.
Until Shares are issued, the Trustees may exercise all rights of Shareholders
and may take any action required or permitted by law, this Trust Instrument or
any of the By-laws of the Trust to be taken by Shareholders.
Section 6.2 Meetings. Meetings of Shareholders (including meetings
involving only the holders of shares of one or more but less than all Series or
Classes) may be called by the Trustees from time to time to be held at such
place within or without the State of Delaware, and on such date as may be
designated in the call thereof for the purpose of taking action upon any matter
as to which the vote or authority of the Shareholders is required or permitted
as provided in Section 6.1. Special meetings of the Shareholders of any Series
may be called by the Trustees and shall be called by the Trustees upon the
written request of Shareholders owning at least a majority of the Outstanding
Shares entitled to vote, except to the extent that a lesser percentage is
prescribed by the 1940 Act. Notice shall be sent, postage prepaid, by mail or
such other means determined by the Trustees, at least 7 days prior to any such
meeting.
Section 6.3 Quorum and Required Vote. Unless a larger percentage is
required by law, by any provision of this Trust Instrument or by the Trustees,
one-third of the Shares entitled to vote in person or by proxy on a particular
matter shall be a quorum for the transaction of business at a Shareholders'
meeting with respect to that matter. Any lesser number shall be sufficient for
adjournments. Any adjourned session or sessions may be held without the
necessity of further notice. Except when a larger vote is required by law, by
any provision of this Trust Instrument or by the Trustees, a majority of the
Shares voted in person or by proxy on a particular matter at a meeting at which
a quorum is present shall decide any questions with respect to that matter and
a plurality shall elect a Trustee.
Section 6.4 Action by Written Consent. Subject to the provisions of
the 1940 Act and other applicable law, any action taken by Shareholders may be
taken without a meeting if a majority of the Shares entitled to vote on the
matter (or such larger proportion thereof as shall be required by law, by any
provision of this Trust Instrument or by the Trustees) consent to the action in
writing. Such consent shall be treated for all purposes as a vote taken at a
meeting of Shareholders.
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ARTICLE VII
DISTRIBUTIONS AND REDEMPTIONS
Section 7.1 Distributions.
(a) The Trustees may from time to time declare and pay
dividends or other distributions with respect to any Series or Class. The
amount of such dividends or distributions and the payment of them and whether
they are in cash or any other Trust Property shall be wholly in the discretion
of the Trustees.
(b) Dividends and other distributions may be paid or made
to the Shareholders of record at the time of declaring a dividend or other
distribution or among the Shareholders of record at such other date or time or
dates or times as the Trustees shall determine, which dividends or
distributions, at the election of the Trustees, may be paid pursuant to a
standing resolution or resolutions adopted only once or with such frequency as
the Trustees may determine. All dividends and other distributions on Shares of
a particular Class shall be distributed pro rata to the Shareholders of that
Class in proportion to the number of Shares of that Class they held on the
record date established for such payment, except that in connection with any
dividend or distribution program or procedure the Trustees may determine that
no dividend or distribution shall be payable on Shares as to which the
Shareholder's purchase order and/or payment in the prescribed form has not been
received by the time or times established by the Trustees under such program or
procedure. The Trustees may adopt and offer to Shareholders such dividend
reinvestment plans, cash dividend payout plans or related plans as the Trustees
shall deem appropriate.
(c) Anything in this Trust Instrument to the contrary
notwithstanding, the Trustees may at any time declare and distribute a stock
dividend pro rata among the Shareholders of a particular Series, or Class
thereof, as of the record date of that Series or Class fixed as provided in
Section (b) hereof. The Trustees shall have full discretion, to the extent not
inconsistent with the 1940 Act, to determine which items shall be treated as
income and which items as capital; and each such determination and allocation
shall be conclusive and binding upon the Shareholders.
Section 7.2 Redemption by Shareholder. Unless the Trustees otherwise
determine with respect to a particular Series or Class at the time of
establishing and designating the same, each holder of Shares of a particular
Series or Class thereof shall have the right at such times as may be permitted
by the Trust, but no less frequently than once each week, to require the Trust
to redeem all or any part of his Shares at a redemption price equal to the Net
Asset Value per Share of that Series or Class next determined
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in accordance with Section 7.4 after the Shares are properly tendered for
redemption, less such redemption fee or other charge, if any, as may be fixed
by the Trustees. Except as otherwise provided in this Trust Instrument,
payment of the redemption price shall be in cash; provided, however, that to
the extent permitted by applicable law, the Trustees may authorize the Trust to
make payment wholly or partly in securities or other assets belonging to the
applicable Series at the value of such securities or assets used in such
determination of Net Asset Value.
Notwithstanding the foregoing, the Trust may postpone payment
of the redemption price and may suspend the right of the holders of Shares of
any Series or Class to require the Trust to redeem Shares of that Series or
Class during any period or at any time when and to the extent permissible under
the 1940 Act.
Section 7.3 Redemption by Trust. Unless the Trustees otherwise
determine with respect to a particular Series or Class at the time of
establishing and designating the same, each Share of each Series or Class
thereof that has been established and designated is subject to redemption by
the Trust at the redemption price which would be applicable if such Share was
then being redeemed by the Shareholder pursuant to Section 7.2 at any time if
the Trustees determine in their sole discretion that failure to so redeem may
have materially adverse consequences to the holders of the Shares, or any
Series or Class of the Trust, and upon such redemption the holders of the
Shares so redeemed shall have no further right with respect thereto other than
to receive payment of such redemption price. In addition, the Trustees, in
their sole discretion, may cause the Trust to redeem all of the Shares of one
or more Series or Classes held by (a) any Shareholder if the value of such
Shares held by such Shareholder is less than the minimum amount established
from time to time by the Trustees, (b) all Shareholders of one or more Series
or Classes if the value of such Shares held by all Shareholders is less than
the minimum amount established from time to time by the Trustees or (c) any
Shareholder to reimburse the Trust for any loss it has sustained by reason of
the failure of such Shareholder to make full payment for Shares purchased by
such Shareholder or to collect any charge relating to a transaction effected
for the benefit of such Shareholder as provided in the prospectus relating to
such Shares.
Section 7.4 Net Asset Value. The Net Asset Value per Share of any
Series or Class thereof shall be the quotient obtained by dividing the value of
the net assets of that Series or Class (being the value of the assets belonging
to that Series or Class less the liabilities belonging to that Series or Class)
by the total number of Shares of that Series or Class outstanding, all
determined in accordance with the methods and procedures,
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including without limitation those with respect to rounding, established by the
Trustees from time to time.
The Trustees may determine to maintain the Net Asset Value per
Share of any Series at a designated constant dollar amount and in connection
therewith may adopt procedures not inconsistent with the 1940 Act for the
continuing declarations of income attributable to that Series or Class thereof
as dividends payable in additional Shares of that Series or Class thereof at
the designated constant dollar amount and for the handling of any losses
attributable to that Series or Class thereof. Such procedures may provide that
in the event of any loss each Shareholder of a Series or Class thereof shall be
deemed to have contributed to the capital of the Trust attributable to that
Series or Class thereof his pro rata portion of the total number of Shares
required to be cancelled in order to permit the Net Asset Value per Share of
that Series or Class thereof to be maintained, after reflecting such loss, at
the designated constant dollar amount. Each Shareholder of the Trust shall be
deemed to have agreed, by his investment in the Trust, to make the contribution
referred to in the preceding sentence in the event of any such loss.
ARTICLE VIII
LIMITATION OF LIABILITY AND INDEMNIFICATION
Section 8.1 Limitation of Liability. A Trustee, when acting in such
capacity, shall not be personally liable to any person other than the Trust or
a beneficial owner for any act, omission or obligation of the Trust or any
Trustee. A Trustee shall not be liable for any act or omission in his capacity
as Trustee, or for any act or omission of any officer or employee of the Trust
or of any other person or party, provided that nothing contained herein or in
the Delaware Business Trust Act shall protect any Trustee against any liability
to the Trust or to Shareholders to which he would otherwise be subject by
reason of willful misfeasance, bad faith, gross negligence or reckless
disregard of the duties involved in the conduct of the office of Trustee.
Section 8.2 Indemnification. The Trust shall indemnify each of its
Trustees and officers and persons who serve at the Trust's request as
directors, officers or trustees of another organization in which the Trust has
any interest as a shareholder, creditor, or otherwise ("Covered Person")
against all liabilities and expenses (including amounts paid in satisfaction of
judgments, in compromise, as fines and penalties, and expenses including
reasonable accountants' and counsel fees) reasonably incurred in connection
with the defense or disposition of any action, suit or other proceeding,
whether civil or
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<PAGE> 26
criminal, before any court or administrative or legislative body, in which he
may be involved or with which he may be threatened, while as a Covered Person
or thereafter, by reason of being or having been such a Covered Person, except
that no Covered Person shall be indemnified against any liability to the Trust
or its Shareholders to which such Covered Person would otherwise be subject by
reason of bad faith, willful misfeasance, gross negligence or reckless
disregard of his duties involved in the conduct of such Covered Person's office
(such willful misfeasance, bad faith, gross negligence or reckless disregard
being referred to herein as "Disabling Conduct"). Expenses, including
accountants' and counsel fees so incurred by any such Covered Person (but
excluding amounts paid in satisfaction of judgments, in compromise or as fines
or penalties), may be paid from time to time by the Trust in advance of the
final disposition of any such action, suit or proceeding upon receipt of (a) an
undertaking by or on behalf of such Covered Person to repay amounts so paid to
the Trust if it is ultimately determined that indemnification of such expenses
is not authorized under this Article VIII and either (b) such Covered Person
provides security for such undertaking,(c) the Trust is insured against losses
arising by reason of such payment, or (d) a majority of a quorum of
disinterested, non-party Trustees, or independent legal counsel in a written
opinion, determines, based on a review of readily available facts, that there
is reason to believe that such Covered Person ultimately will be found entitled
to indemnification.
Section 8.3 Indemnification Determinations. Indemnification of a
Covered Person pursuant to Section 8.2 shall be made if (a) the court or body
before whom the proceeding is brought determines, in a final decision on the
merits, that such Covered Person was not liable by reason of Disabling Conduct
or (b) in the absence of such a determination, a majority of a quorum of
disinterested, non-party Trustees or independent legal counsel in a written
opinion make a reasonable determination, based upon a review of the facts, that
such Covered Person was not liable by reason of Disabling Conduct.
Section 8.4 Indemnification Not Exclusive. The right of
indemnification provided by this Article VIII shall not be exclusive of or
affect any other rights to which any such Covered Person may be entitled. As
used in this Article VIII, "Covered Person" shall include such person's heirs,
executors and administrators, and a "disinterested, non-party Trustee" is a
Trustee who is neither an Interested Person of the Trust nor a party to the
proceeding in question.
Section 8.5 Shareholders. Each Shareholder of the Trust and of each
Series shall not be personally liable for the debts, liabilities, obligations
and expenses incurred by, contracted for, or otherwise existing with respect
to, the Trust or by or on
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<PAGE> 27
behalf of any Series. The Trustees shall have no power to bind any Shareholder
personally or to call upon any Shareholder for the payment of any sum of money
or assessment whatsoever other than such as the Shareholder may at any time
personally agree to pay by way of subscription for any Shares or otherwise.
In case any Shareholder or former Shareholder of any Series shall be
held to be personally liable solely by reason of his being or having been a
Shareholder of such Series and not because of his acts or omissions or for some
other reason, the Shareholder or former Shareholder (or his heirs, executors,
administrators or other legal representatives, or, in the case of a corporation
or other entity, its corporate or other general successor) shall be entitled
out of the assets belonging to the applicable Series to be held harmless from
and indemnified against all loss and expense arising from such liability. The
Trust, on behalf of the affected Series, shall, upon request by the
Shareholder, assume the defense of any claim made against the Shareholder for
any act or obligation of the Series and satisfy any judgment thereon from the
assets of the Series. The indemnification and reimbursement required by the
preceding sentence shall be made only out of assets of the one or more Series
whose Shares were held by said Shareholder at the time the act or event
occurred which gave rise to the claim against or liability of said Shareholder.
The rights accruing to a Shareholder under this Section shall not impair any
other right to which such Shareholder may be lawfully entitled, nor shall
anything herein contained restrict the right of the Trust or any Series thereof
to indemnify or reimburse a Shareholder in any appropriate situation even
though not specifically provided herein.
ARTICLE IX
MISCELLANEOUS
Section 9.1 Trust Not a Partnership. It is hereby expressly declared
that a trust and not a partnership is created hereby. All persons extending
credit to, contracting with or having any claim against any Series of the Trust
shall look only to the assets of such Series for payment under such credit,
contract or claim; and neither the Shareholders nor the Trustees, nor any of
the Trust's officers, employees or agents, whether past, present or future,
shall be personally liable therefor. Every note, bond, contract or other
undertaking issued by or on behalf of the Trust or the Trustees relating to the
Trust or to a Series shall include a recitation limiting the obligations
represented thereby to the Trust or to one or more Series and its or their
assets (but the omission of such a recitation shall not operate to bind any
Shareholder, Trustee, officer, employee or agent of the Trust).
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<PAGE> 28
Section 9.2 Trustees' Good Faith Action, Expert Advice, No Bond or
Surety. The exercise by the Trustees of their powers and discretions hereunder
shall be binding upon everyone interested. Subject to the provisions of
Article VIII: (a) the Trustees shall not be responsible or liable in any event
for any neglect or wrongdoing of any officer, agent, employee, consultant,
adviser, administrator, distributor or principal underwriter, custodian or
transfer, dividend disbursing, Shareholder servicing or accounting agent of the
Trust, nor shall any Trustee be responsible for the act or omission of any
other Trustee; (b) the Trustees may take advice of counsel or other experts
with respect to the meaning and operation of this Trust Instrument and their
duties as Trustees, and shall be under no liability for any act or omission in
accordance with such advice or for failing to follow such advice; and (c) in
discharging their duties, the Trustees, when acting in good faith, shall be
entitled to rely upon the books of account of the Trust and upon written
reports made to the Trustees by any officer appointed by them, any independent
public accountant, and (with respect to the subject matter of the contract
involved) any officer, partner or responsible employee of a contracting party
appointed by the Trustees. The Trustees as such shall not be required to give
any bond or surety or any other security for the performance of their duties.
Section 9.3 Establishment of Record Dates. The Trustees may close
the Share transfer books of the Trust for a period not exceeding one hundred
twenty (120) days preceding the date of any meeting of Shareholders, or the
date for the payment of any dividends or other distributions, or the date for
the allotment of rights, or the date when any change or conversion or exchange
of Shares shall go into effect; or in lieu of closing the stock transfer books
as aforesaid, the Trustees may fix in advance a date, not exceeding one hundred
twenty (120) days preceding the date of any meeting of Shareholders, or the
date for payment of any dividend or other distribution, or the date for the
allotment of rights, or the date when any change or conversion or exchange of
Shares shall go into effect, as a record date for the determination of the
Shareholders entitled to notice of, and to vote at, any such meeting, or
entitled to receive payment of any such dividend or other distribution, or to
any such allotment of rights, or to exercise the rights in respect of any such
change, conversion or exchange of Shares, and in such case such Shareholders
and only such Shareholders as shall be Shareholders of record on the date so
fixed shall be entitled to such notice of, and to vote at, such meeting, or to
receive payment of such dividend or other distribution, or to receive such
allotment or rights, or to exercise such rights, as the case may be,
notwithstanding any transfer of any Shares on the books of the Trust after any
such record date fixed as aforesaid.
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<PAGE> 29
Section 9.4 Termination of Trust or Series.
(a) This Trust shall continue without limitation of time
but subject to the provisions of sub-sections (b) and (c) of this Section 9.4.
(b) The Trustees may
(i) sell and convey all or substantially all of
the assets of the Trust or any Series or Class to another
trust, partnership, association or corporation, or to a
separate Series or Class of shares thereof, organized under
the laws of any state, for adequate consideration which may
include the assumption of all outstanding obligations, taxes
and other liabilities, accrued or contingent, of the Trust or
any Series or Class, and which may include shares of
beneficial interest, stock or other ownership interests of
such trust, partnership, association or corporation or of a
series thereof; or
(ii) at any time sell and convert into money all of
the assets of the Trust or any Series or Class.
Upon reasonable provision, in the determination of the Trustees, for
the payment of all such liabilities in either (i) or (ii), by such assumption
or otherwise, the Shareholders of each Class of a Series involved in such sale
or conversion shall be entitled to receive, as a Class, when and as declared by
the Trustees, the excess of the assets belonging to that Series that are
allocated to such Class over the liabilities belonging to that Series that are
allocated to such Class. The assets so distributable to the Shareholders of
any particular Class of a Series shall be distributed among such Shareholders
in proportion to the number of Shares of that Class held by them and recorded
on the books of the Trust.
(c) Upon completion of the distribution of the remaining
proceeds or the remaining assets as provided in sub-section (b), the Trust or
any affected Series or Class shall terminate and the Trustees and the Trust
shall be discharged of any and all further liabilities and duties hereunder and
the right, title and interest of all parties with respect to the Trust or such
affected Series or Class shall be cancelled and discharged.
Upon termination of the Trust, following completion of winding up of
its business, the Trustees shall cause a certificate of cancellation of the
Trust's certificate of trust to be filed in accordance with the Delaware
Business Trust Act, which certificate of cancellation may be signed by any one
Trustee.
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<PAGE> 30
Section 9.5 Merger, Consolidation, Incorporation. Anything in this
Trust Instrument to the contrary notwithstanding, the Trustees, in order to
change the form of organization and/or domicile of the Trust, may, without
prior Shareholder approval, (i) cause the Trust to merge or consolidate with or
into one or more trusts, partnerships, associations or corporations which is
formed, organized or existing under the laws of a state, commonwealth
possession or colony of the United States, or (ii) cause the Trust to
incorporate under the laws of Delaware. Any agreement of merger or
consolidation or certificate of merger may be signed by a majority of the
Trustees. Pursuant to and in accordance with the provisions of Section 3815(f)
of the Delaware Business Trust Act, and notwithstanding anything to the
contrary contained in this Trust Instrument, an agreement of any merger or
consolidation approved in accordance with this Section 9.5 may effect any
amendment to the Trust Instrument or effect the adoption of a new trust
instrument of the Trust if it is the surviving or resulting trust in the merger
or consolidation. Any merger or consolidation of the Trust other than as
described in the foregoing provisions of this Section 9.5 shall, in addition to
the approval of the Trustees, require the approval of the holders of a majority
of the Outstanding Shares. Nothing in this Section 9.5 shall require, however,
Shareholder approval of any transaction whereby the Trust or any Series thereof
acquires or assumes all or any part of the assets and liabilities of any other
entity.
Section 9.6 Filing of Copies, References, Headings. The original or
a copy of this Trust Instrument and of each amendment hereof or Trust
Instrument supplemental hereto shall be kept at the office of the Trust where
it may be inspected by any Shareholder. Anyone dealing with the Trust may rely
on a certificate by an officer or Trustee of the Trust as to whether or not any
such amendments or supplements have been made and as to any matters in
connection with the Trust hereunder, and with the same effect as if it were the
original, may rely on a copy certified by an officer or Trustee of the Trust to
be a copy of this Trust Instrument or of any such amendment or supplemental
Trust Instrument. In this Trust Instrument or in any such amendment or
supplemental Trust Instrument, references to this Trust Instrument, and all
expressions like "herein," "hereof" and "hereunder," shall be deemed to refer
to this Trust Instrument as amended or affected by any such supplemental Trust
Instrument. All expressions like "his", "he" and "him", shall be deemed to
include the feminine and neuter, as well as masculine, genders. Headings are
placed herein for convenience of reference only and in case of any conflict,
the text of this Trust Instrument rather than the headings, shall control.
This Trust Instrument may be executed in any number of counterparts each of
which shall be deemed an original.
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<PAGE> 31
Section 9.7 Applicable Law. The trust set forth in this instrument
is made in the State of Delaware, and the Trust and this Trust Instrument, and
the rights and obligations of the Trustees and Shareholders hereunder, are to
be governed by and construed and administered according to the Delaware
Business Trust Act and the laws of said State; provided, however, that there
shall not be applicable to the Trust, the Trustees or this Trust Instrument (a)
the provisions of Section 3540 of Title 12 of the Delaware Code or (b) any
provisions of the laws (statutory or common) of the State of Delaware (other
than the Delaware Business Trust Act) pertaining to trusts which relate to or
regulate: (i) the filing with any court or governmental body or agency of
trustee accounts or schedules of trustee fees and charges, (ii) affirmative
requirements to post bonds for trustees, officers, agents or employees of a
trust, (iii) the necessity for obtaining court or other governmental approval
concerning the acquisition, holding or disposition of real or personal
property, (iv) fees or other sums payable to trustees, officers, agents or
employees of a trust, (v) the allocation of receipts and expenditures to income
or principal, (vi) restrictions or limitations on the permissible nature,
amount or concentration of trust investments or requirements relating to the
titling, storage or other manner of holding of trust assets, or (vii) the
establishment of fiduciary or other standards or responsibilities or
limitations on the acts or powers of trustees, which are inconsistent with the
limitations or liabilities or authorities and powers of the Trustees set forth
or referenced in this Trust Instrument. The Trust shall be of the type
commonly called a "business trust", and without limiting the provisions hereof,
the Trust may exercise all powers which are ordinarily exercised by such a
trust under Delaware law. The Trust specifically reserves the right to
exercise any of the powers or privileges afforded to trusts or actions that may
be engaged in by trusts under the Delaware Business Trust Act, and the absence
of a specific reference herein to any such power, privilege or action shall not
imply that the Trust may not exercise such power or privilege or take such
actions.
Section 9.8 Amendments. Except as specifically provided herein, the
Trustees may, without shareholder vote, amend or otherwise supplement this
Trust Instrument by making an amendment, a Trust Instrument supplemental hereto
or an amended and restated trust instrument. Shareholders shall have the right
to vote: (i) on any amendment which would affect their right to vote granted in
Section 6.1 of Article VI hereof, (ii) on any amendment to this Section 9.8,
(iii) on any amendment as may be required by law and (iv) on any amendment
submitted to them by the Trustees. Any amendment required or permitted to be
submitted to Shareholders which, as the Trustees determine, shall affect the
Shareholders of one or more Series or Classes shall be authorized by vote of
the Shareholders of each Series or Class affected and no vote of shareholders
of a Series or Class not
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<PAGE> 32
affected shall be required. Anything in this Trust Instrument to the contrary
notwithstanding, any amendment to Article VIII hereof shall not limit the
rights to indemnification or insurance provided therein with respect to action
or omission of any persons protected thereby prior to such amendment.
Section 9.9 Fiscal Year. The fiscal year of the Trust shall end on a
specified date as determined from time to time by the Trustees.
Section 9.10 Provisions in Conflict with Law. The provisions of this
Trust Instrument are severable, and if the Trustees shall determine, with the
advice of counsel, that any of such provisions is in conflict with the 1940
Act, the regulated investment company provisions of the Internal Revenue Code
or with other applicable laws and regulations, the conflicting provision shall
be deemed never to have constituted a part of this Trust Instrument; provided,
however, that such determination shall not affect any of the remaining
provisions of this Trust Instrument or render invalid or improper any action
taken or omitted prior to such determination. If any provision of this Trust
Instrument shall be held invalid or unenforceable in any jurisdiction, such
invalidity or unenforceability shall attach only to such provision in such
jurisdiction and shall not in any manner affect such provisions in any other
jurisdiction or any other provision of this Trust Instrument in any
jurisdiction.
IN WITNESS WHEREOF, the undersigned, being the Trustees of the Trust,
have executed this Amended and Restated Instrument as of the 29th day of
December, 1995.
/s/ Dennis W. Draper
---------------------------------------
Dennis W. Draper
/s/ Joseph N. Hankin
---------------------------------------
Joseph N. Hankin
/s/ John E. Heilmann
---------------------------------------
John E. Heilmann
/s/ Jack D. Henderson
---------------------------------------
Jack D. Henderson
/s/ Richard A. Wedemeyer
---------------------------------------
Richard A. Wedemeyer
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<PAGE> 1
Exhibit 5
ADVISORY AGREEMENT
AGREEMENT made as of April 1, 1996, between PACIFICA VARIABLE
TRUST, a Delaware business trust (the "Trust"), and FIRST INTERSTATE CAPITAL
MANAGEMENT, INC., to be renamed "Wells Fargo Investment Management, Inc.," (the
"Investment Advisor").
WHEREAS, the Trust is registered as an open-end, series
investment company under the Investment Company Act of 1940, as amended ("1940
Act"); and
WHEREAS, the Trust desires to retain the Investment Advisor to
furnish investment advisory and other services to the Trust for its Emerging
Growth Portfolio, Equity Value Portfolio, Balanced Portfolio, Intermediate Bond
Portfolio and Money Market Portfolio (the "Portfolios"), and the Investment
Advisor is willing to so furnish such services;
NOW, THEREFORE, in consideration of the premises and mutual
covenants herein contained, it is agreed between the parties hereto as follows:
1. APPOINTMENT.
The Trust hereby appoints the Investment Advisor to act as
investment adviser to the Trust's Emerging Growth Portfolio, Equity Value
Portfolio, Balanced Portfolio, Intermediate Bond Portfolio and Money Market
Portfolio for the period and on the terms set forth in this Agreement. The
Investment Advisor accepts such appointment and agrees to furnish the services
herein set forth for the compensation herein provided. The Investment Advisor
may, in its discretion, provide such services through its own employees or the
employees of one or more affiliated companies that are qualified to act as
investment adviser to the Trust under applicable law and are under the common
control of Wells Fargo & Company provided (i) that all persons, when providing
services hereunder, are functioning as part of an organized group of persons,
and (ii) that such organized group of persons is managed at all times by
authorized officers of the Investment Advisor.
2. DELIVERY OF DOCUMENTS.
The Trust has furnished the Investment Advisor with copies
properly certified or authenticated of each of the following:
(a) The Trust Instrument of the Trust,
as filed with the State Secretary of the State of
Delaware on August 26, 1994, and all amendments
<PAGE> 2
thereto (such Trust Instrument, as presently in
effect and as it shall from time to time be amended,
is herein called the "Trust Instrument");
(b) The Trust's By-Laws and all
amendments thereto;
(c) The Trust Registration Statement on
Form N-1A as initially filed with the Securities and
Exchange Commission on August 30, 1994 under the
Securities Act of 1933, as amended and the 1940 Act,
and all amendments thereto.
(d) The most recent prospectuses of the
Portfolios (such prospectus together with the related
statement of additional information, as presently in
effect and all amendments and supplements thereto,
are herein call "Prospectus").
The Trust will furnish the Investment Advisor from time to time with copies of
all amendments of or supplements to the foregoing, if any.
3. MANAGEMENT.
Subject to the supervision of the Trust's Board of Trustees,
the Investment Advisor will provide a continuous investment program for the
Emerging Growth Portfolio, Equity Value Portfolio, Balanced Portfolio,
Intermediate Bond Portfolio and Money Market Portfolio including investment
research and management with respect to all securities, investments, cash and
cash equivalents in the Portfolios. The Investment Advisor will determine from
time to time what securities and other investments will be purchased, retained
or sold by the Portfolios. The Investment Advisor will provide the services
rendered by it under this Agreement in accordance with each Portfolio's
investment objective, policies and restrictions as stated in the Prospectus for
such Portfolio and resolutions of the Trust's Board of Trustees. Without
limiting the generality of the foregoing, the Investment Advisor further agrees
that it shall:
(a) Update each Portfolio's cash availability
throughout the day as required;
(b) Maintain historical tax lots for each
portfolio security held by the Portfolios;
(c) Transmit trades to the Trust's custodian for
proper settlement;
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<PAGE> 3
(d) Maintain all books and records with respect
to each Portfolio's securities transactions;
(e) Supply the Trust and its Board of Trustees
with reports and statistical data as requested; and
(f) Prepare a quarterly broker security
transaction summary and monthly security transaction listing
for each Portfolio.
4. OTHER COVENANTS.
The Investment Advisor agrees that it:
(a) will comply with all applicable Rules and Regulations
of the Securities and Exchange Commission and will in addition conduct its
activities under this Agreement in accordance with other applicable law;
(b) will use the same skill and care in providing such
services as it uses in providing services to fiduciary accounts for which it
has investment responsibilities;
(c) will place orders pursuant to its investment
determinations for each Portfolio either directly with the issuer or with any
broker or dealer. In executing portfolio transactions and selecting brokers or
dealers, the Investment Advisor will use its best efforts to seek on behalf of
the Portfolio the best overall terms available. In assessing the best overall
terms available for any transaction, the Investment Advisor shall consider all
factors that it deems relevant, including the breadth of the market in the
security, the price of the security, the financial condition and execution
capability of the broker or dealer, and the reasonableness of the commission,
if any, both for the specific transaction and on a continuing basis. In
evaluating the best overall terms available, and in selecting the broker-dealer
to execute a particular transaction the Investment Advisor may also consider
the brokerage and research services (as those terms are defined in Section
28(e) of the Securities Exchange Act of 1934) provided to the Portfolios and/or
other accounts over which the Investment Advisor or an affiliate of the
Investment Advisor exercises investment discretion. The Investment Advisor is
authorized, subject to the prior approval of the Trust's Board of Trustees, to
pay to a broker or dealer who provides such brokerage and research services a
commission for executing a portfolio transaction for any of the Portfolios
which is in excess of the amount of commission another broker or dealer would
have charged for effecting that transaction if, but only if, the Investment
Advisor determines in good faith that such commission was reasonable in
relation to the value of the brokerage and research services provided by such
broker or dealer -- viewed in terms of
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<PAGE> 4
that particular transaction or in terms of the overall responsibilities of the
Investment Advisor to the Portfolios. In addition, the Investment Advisor is
authorized to allocate purchase and sale orders for portfolio securities to
brokers or dealers (including brokers and dealers that are affiliated with the
Investment Advisor or the Trust's principal underwriter) to take into account
the sale of shares of the Trust if the Investment Advisor believes that the
quality of the transaction and the commission are comparable to what they would
be with other qualified firms. In no instance, however, will portfolio
securities be purchased from or sold to the Investment Advisor, the Trust's
principal underwriter, or any affiliated person of either the Trust, the
Investment Advisor, or the principal underwriter, acting as principal in the
transaction, except to the extent permitted by the Securities and Exchange
Commission; and
(d) will maintain a policy and practice of conducting its
investment advisory services hereunder independently of its commercial banking
operations. When the Investment Advisor makes investment recommendations for a
Portfolio, its investment advisory personnel will not inquire or take into
consideration whether the issuer of securities proposed for purchase or sale
for the Portfolio's account are customers of its commercial department. In
dealing with commercial customers, the Investment Advisor's commercial
department will not inquire or take into consideration whether securities of
those customers are held by a Portfolio.
5. SERVICES NOT EXCLUSIVE.
The services furnished by the Investment Advisor hereunder are
deemed not to be exclusive, and the Investment Advisor shall be free to furnish
similar services to others so long as its services under this Agreement are not
impaired thereby. To the extent that the purchase or sale of securities or
other investments of the same issuer may be deemed by the Investment Advisor to
be suitable for two or more accounts managed by the Investment Advisor, the
available securities or investments may be allocated in a manner believed by
the Investment Advisor to be equitable to each account. It is recognized that
in some cases this procedure may adversely affect the price paid or received by
a Portfolio or the size of the position obtainable for or disposed of by the
Portfolio.
6. BOOKS AND RECORDS.
In compliance with the requirements of Rule 31a-3 under the
1940 Act, the Investment Advisor hereby agrees that all records which it
maintains for the Portfolios are the property of the Trust and further agrees
to surrender promptly to the Trust any of such records upon the Trust's
request. The Investment
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<PAGE> 5
Advisor further agrees to preserve for the periods prescribed by Rule 31a-2
under the 1940 Act the records required to be maintained by Rule 31a-1 under
the 1940 Act.
7. EXPENSES.
During the term of this Agreement, the Investment Advisor will
pay all expenses incurred by it in connection with its activities under this
Agreement other than the cost of securities, commodities and other investments
(including brokerage commissions and other transaction charges, if any)
purchased or sold for the Portfolios. In addition, if the expenses borne by a
Portfolio in any fiscal year exceed the applicable expense limitations imposed
by the securities regulations of any state in which its shares are registered
or qualified for sale to the public, the Investment Advisor shall reimburse the
Portfolio an annual amount equal to a percentage of that excess as set forth in
the following table, provided, however, that the Investment Advisor shall not
be required to pay any amount in excess of fees received by the Investment
Advisor from the Trust under this Agreement. Such expense reimbursement, if
any, will be estimated, reconciled and paid on a monthly basis.
<TABLE>
<CAPTION>
==========================================================================================
PORTFOLIO REIMBURSEMENT PERCENTAGE
- ------------------------------------------------------------------------------------------
<S> <C>
Emerging Growth Portfolio 84%
- ------------------------------------------------------------------------------------------
Equity Value Portfolio 84%
- ------------------------------------------------------------------------------------------
Balanced Portfolio 84%
- ------------------------------------------------------------------------------------------
Intermediate Bond Portfolio 81%
- ------------------------------------------------------------------------------------------
Money Market Portfolio 80%
==========================================================================================
</TABLE>
8. COMPENSATION.
For the services provided and the expenses assumed pursuant to
this Agreement, the Trust will pay the Investment Advisor and the Investment
Advisor will accept as full compensation therefor a fee, computed daily and
payable monthly, at the annual rate of .75% of the Emerging Growth Portfolio's
average daily net assets; .75% of the Equity Value Portfolio's average daily
net assets; .75% of the Balanced Portfolio's average daily net assets; .65% of
the Intermediate Bond Portfolio's average daily net assets; and .60% of the
Money Market Portfolio's average daily net assets. Such fee shall be a
separate charge to each Portfolio and shall be the several (and not joint or
joint and several) obligation of the Portfolio.
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<PAGE> 6
9. LIMITATION OF LIABILITY.
The Investment Advisor 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 this Agreement, except a loss resulting from a breach
of fiduciary duty with respect to the receipt of compensation for services or a
loss resulting from willful misfeasance, bad faith or gross negligence on the
part of the Investment Advisor in the performance of its duties or from
reckless disregard by them of its obligations and duties under this Agreement.
10. DURATION AND TERMINATION.
This Agreement shall become effective as of the date hereof
and, unless sooner terminated as provided herein, shall continue in effect
until March 31, 1997. Thereafter, if not terminated, this Agreement shall
automatically continue in effect as to the Portfolio for successive annual
periods, provided such continuance is specifically approved at least annually
(a) by the vote of a majority of those members of the Trust's Board of Trustees
who are not interested persons of any party to this Agreement, cast in person
at a meeting called for the purpose of voting on such approval, and (b) by the
Trust's Board of Trustees or by vote of a majority of the outstanding voting
securities of the Portfolio. Notwithstanding the foregoing, this Agreement may
be terminated as to the Portfolio at any time, without the payment of any
penalty, by the Trust (by vote of the Trust's Board of Trustees or by vote of a
majority of the outstanding voting securities of the Portfolio), or by the
Investment Advisor on sixty days' written notice. This Agreement will
immediately terminate in the event of its assignment. (As used in this
Agreement, the terms "majority of the outstanding voting securities,"
interested persons" and "assignment" shall have the same meaning as such terms
have in the 1940 Act.)
11. AMENDMENT OF THIS AGREEMENT.
No provision of this Agreement may be changed, waived,
discharged or terminated orally, but only by an instrument in writing signed by
the party against which enforcement of the change, waiver, discharge or
termination is sought. To the extent required by the 1940 Act, no amendment of
this Agreement shall be effective as to a Portfolio until approved by vote of a
majority of the outstanding voting securities of the Portfolio.
12. MISCELLANEOUS.
The captions in this Agreement are included for convenience of
reference only and in no way define or delimit any of the provisions hereof or
otherwise affect their construction or effect. If any provision of this
Agreement shall be held or
-6-
<PAGE> 7
made invalid by a court decision, statute, rule or otherwise, the remainder of
this Agreement shall not be affected thereby. This Agreement shall be binding
upon and shall inure to the benefit of the parties hereto and their respective
successors and shall be governed by California law.
13. NAMES.
The Trust Instrument establishing the Trust, filed on August
26, 1994, as amended, a copy of which, together with all amendments thereto
(the "Trust Instrument"), is on file in the Office of the Secretary of the
State of Delaware, provides that the name "Pacifica Variable Trust" refers to
the trustees under the Trust Instrument collectively as trustees and not as
individuals or personally, and that no shareholder, trustee, officer, employee
or agent of the Trust shall be subject to claims against or obligations of the
Trust to any extent whatsoever, but that the Trust estate only shall be liable.
Any persons dealing with any series of shares of the Trust must look solely to
the Trust property belonging to such series for the enforcement of any claims
against the Trust.
IN WITNESS WHEREOF, the parties hereto have caused this
instrument to be executed by their officers designated below as of the day and
year first above written.
<TABLE>
<S> <C>
PACIFICA VARIABLE TRUST
Attest: By: /s/ Joan V. Fiore
------------------------------------
/s/ Sheryl Hirschfeld Title: Vice President and Secretary
- --------------------- ---------------------------------
FIRST INTERSTATE CAPITAL MANAGEMENT, INC.
Attest: By: /s/ E.S. Claunch
-------------------------------------
/s/ Thomas Hooker Title: President
- --------------------- ----------------------------------
</TABLE>
-7-
<PAGE> 1
Exhibit 11(a)
CONSENT OF COUNSEL
We hereby consent to the use of our name and to the references
to our Firm under the caption "Counsel" in the Statement of Additional
Information included in Post-Effective Amendment No. 1 to the Registration
Statement (1933 Act No. 33-83432; 1940 Act No. 811-8742) on Form N-1A under the
Securities Act of 1933, as amended, of Pacifica Variable Trust.
/s/ Drinker Biddle & Reath
--------------------------
Drinker Biddle & Reath
Philadelphia, Pennsylvania
July 1, 1996
<PAGE> 1
Exhibit 11(b)
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Auditors" in
Post-Effective Amendment No. 1 of this Registration Statement (Form N-1A No.
33-83432) of Pacifica Variable Trust.
/s/ Ernst & Young LLP
ERNST & YOUNG LLP
New York, New York
June 26, 1996
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 01
<NAME> PACIFICA EMERGING GROWTH PORTFOLIO
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> SEP-30-1996
<PERIOD-END> MAR-31-1996
<INVESTMENTS-AT-COST> 5555
<INVESTMENTS-AT-VALUE> 6078
<RECEIVABLES> 101
<ASSETS-OTHER> 101
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 6280
<PAYABLE-FOR-SECURITIES> 83
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 13
<TOTAL-LIABILITIES> 96
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 5733
<SHARES-COMMON-STOCK> 571
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (73)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 523
<NET-ASSETS> 6184
<DIVIDEND-INCOME> 2
<INTEREST-INCOME> 19
<OTHER-INCOME> 0
<EXPENSES-NET> 16
<NET-INVESTMENT-INCOME> 3
<REALIZED-GAINS-CURRENT> (73)
<APPREC-INCREASE-CURRENT> 523
<NET-CHANGE-FROM-OPS> 453
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 3
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 571
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 6184
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 10
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 23
<AVERAGE-NET-ASSETS> 5941
<PER-SHARE-NAV-BEGIN> 10.00
<PER-SHARE-NII> .01
<PER-SHARE-GAIN-APPREC> .82
<PER-SHARE-DIVIDEND> .01
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.82
<EXPENSE-RATIO> .012
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 02
<NAME> PACIFICA EQUITY VALUE PORTFOLIO
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> SEP-30-1996
<PERIOD-END> MAR-31-1996
<INVESTMENTS-AT-COST> 5408
<INVESTMENTS-AT-VALUE> 5692
<RECEIVABLES> 4
<ASSETS-OTHER> 297
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 5993
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 14
<TOTAL-LIABILITIES> 14
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 5679
<SHARES-COMMON-STOCK> 567
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 16
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 284
<NET-ASSETS> 5979
<DIVIDEND-INCOME> 30
<INTEREST-INCOME> 0
<OTHER-INCOME> 0
<EXPENSES-NET> 16
<NET-INVESTMENT-INCOME> 14
<REALIZED-GAINS-CURRENT> 16
<APPREC-INCREASE-CURRENT> 284
<NET-CHANGE-FROM-OPS> 314
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 14
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 566
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 1
<NET-CHANGE-IN-ASSETS> 5979
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 10
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 23
<AVERAGE-NET-ASSETS> 5783
<PER-SHARE-NAV-BEGIN> 10.00
<PER-SHARE-NII> .03
<PER-SHARE-GAIN-APPREC> .54
<PER-SHARE-DIVIDEND> .03
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.54
<EXPENSE-RATIO> .012
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 03
<NAME> PACIFICA BALANCED PORTFOLIO
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> SEP-30-1996
<PERIOD-END> MAR-30-1996
<INVESTMENTS-AT-COST> 5179
<INVESTMENTS-AT-VALUE> 5322
<RECEIVABLES> 30
<ASSETS-OTHER> 199
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 5551
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 13
<TOTAL-LIABILITIES> 13
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 5387
<SHARES-COMMON-STOCK> 539
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 8
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 143
<NET-ASSETS> 5538
<DIVIDEND-INCOME> 20
<INTEREST-INCOME> 20
<OTHER-INCOME> 0
<EXPENSES-NET> 15
<NET-INVESTMENT-INCOME> 25
<REALIZED-GAINS-CURRENT> 8
<APPREC-INCREASE-CURRENT> 143
<NET-CHANGE-FROM-OPS> 176
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 25
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 536
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 3
<NET-CHANGE-IN-ASSETS> 5538
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 10
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 23
<AVERAGE-NET-ASSETS> 5414
<PER-SHARE-NAV-BEGIN> 10.00
<PER-SHARE-NII> .05
<PER-SHARE-GAIN-APPREC> .28
<PER-SHARE-DIVIDEND> .05
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.28
<EXPENSE-RATIO> .012
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 04
<NAME> PACIFICA INTERMEDIATE BOND PORTFOLIO
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> SEP-3O-1996
<PERIOD-END> MAR-31-1996
<INVESTMENTS-AT-COST> 5038
<INVESTMENTS-AT-VALUE> 4943
<RECEIVABLES> 68
<ASSETS-OTHER> 57
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 5067
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 11
<TOTAL-LIABILITIES> 11
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 5165
<SHARES-COMMON-STOCK> 517
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (13)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (96)
<NET-ASSETS> 5056
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 65
<OTHER-INCOME> 0
<EXPENSES-NET> 13
<NET-INVESTMENT-INCOME> 52
<REALIZED-GAINS-CURRENT> (13)
<APPREC-INCREASE-CURRENT> (96)
<NET-CHANGE-FROM-OPS> 57
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 52
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 512
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 5
<NET-CHANGE-IN-ASSETS> 5056
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 8
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 21
<AVERAGE-NET-ASSETS> 4998
<PER-SHARE-NAV-BEGIN> 10.00
<PER-SHARE-NII> .10
<PER-SHARE-GAIN-APPREC> (.22)
<PER-SHARE-DIVIDEND> .10
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 9.78
<EXPENSE-RATIO> .011
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 05
<NAME> PACIFICA MONEY MARKET PORTFOLIO
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> SEP-30-1996
<PERIOD-END> MAR-31-1996
<INVESTMENTS-AT-COST> 5070
<INVESTMENTS-AT-VALUE> 5070
<RECEIVABLES> 0
<ASSETS-OTHER> 11
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 5081
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 11
<TOTAL-LIABILITIES> 11
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 5070
<SHARES-COMMON-STOCK> 5070
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 5070
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 60
<OTHER-INCOME> 0
<EXPENSES-NET> 13
<NET-INVESTMENT-INCOME> 53
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 53
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 53
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 5017
<NUMBER-OF-SHARES-REDEEMED> 1
<SHARES-REINVESTED> 54
<NET-CHANGE-IN-ASSETS> 5070
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 7
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 21
<AVERAGE-NET-ASSETS> 5047
<PER-SHARE-NAV-BEGIN> 1.000
<PER-SHARE-NII> .011
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> .011
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 1.000
<EXPENSE-RATIO> .011
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
