As filed with the Securities and Exchange Commission
on May 1, 1996
Registration Nos. 33-87380
811-8912
==============================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
____________________
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [ ]
Pre-Effective Amendment No. [ ]
Post-Effective Amendment No. 1 [X]
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [ ]
Amendment No. 2 [X]
(Check appropriate box or boxes.)
WNL SERIES TRUST
_________________________________________________
(Exact name of registrant as specified in charter)
5555 San Felipe
Suite 900
Houston, Texas 77056
________________________________________ _________
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, Including Area Code (713) 888-7800
Dwight L. Cramer, Esq.
Senior Vice President - Law and Secretary
Western National Life Insurance Company
5555 San Felipe, Suite 900
Houston, Texas 77056
(Name and Address of Agent For Service)
Copies to:
Raymond A. O'Hara III, Esq.
Blazzard, Grodd & Hasenauer, P.C.
P.O. Box 5108
Westport, CT 06881
(203) 226-7866
It is proposed that this filing will become effective (check appropriate box)
__X__ immediately upon filing pursuant to paragraph (b)
_____ on (date) pursuant to paragraph (b)
_____ 60 days after filing pursuant to paragraph (a)(1)
_____ on (date) pursuant to paragraph (a)(1)
_____ 75 days after filing pursuant to paragraph (a)(2)
_____ on (date) pursuant to paragraph (a)(2) of rule 485.
If appropriate, check the following box:
__ this post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
Registrant has declared that it has registered an indefinite number or amount
of securities under the Securities Act of 1933 pursuant to Investment Company
Act Rule 24f-2 and the Rule 24f-2 Notice for Registrant's fiscal year 1995
was filed on March 1, 1996.
WNL SERIES TRUST
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CROSS REFERENCE SHEET
(as required by Rule 404 (c))
PART A
N-1A
- --------
Item No. Location
- -------- ------------------------
1. Cover Page........................... Cover Page
2. Synopsis............................. Summary
3. Condensed Financial Information...... Financial Highlights
4. General Description of Registrant.... Cover Page; The Trust;
Investment Objectives
and Policies of the
Portfolios; Additional
Information; Appendix
5. Management of the Fund............... Management of the Trust;
Additional Information
6. Capital Stock and Other Securities... Sales and Redemptions;
Net Asset Value; Tax
Status, Dividends and
Distributions;
Additional Information
7. Purchase of Securities Being Offered. The Trust; Net Asset
Value; Sales and
Redemptions
8. Redemption or Repurchase............. Sales and Redemptions;
Net Asset Value
9. Pending Legal Proceedings............ Not Applicable
PART B
10. Cover Page........................... Cover Page
11. Table of Contents.................... Cover Page
12. General Information and History...... Not Applicable
13. Investment Objectives and Policies... Investment Objectives
and Policies of the
Trust; Investment
Restrictions;
Portfolio Turnover
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CROSS REFERENCE SHEET (CONT'D)
(as required by Rule 404 (c))
N-1A
- --------
Item No. Location
- -------- -------------------------
Item 14. Management of the Fund............... Management of the Trust
Item 15. Control Persons and Principal Holders
of Securities................... Management of the Trust
Item 16. Investment Advisory and Other
Services........................ Management of the Trust;
Independent Auditors;
Custodian
Item 17. Brokerage Allocation and Other
Practices............................ Management of the Trust
(Brokerage and Research
Services)
Item 18. Capital Stock and Other Securities... Sales and Redemptions;
Net Asset Value; Tax
Status, Dividends and
Distributions; Organiza-
tion and Capitalization;
Additional Information
Item 19. Purchase, Redemption and Pricing of
Securities Being Offered........ Determination of Net
Asset Value; Sales and
Redemptions
Item 20. Tax Status........................... Taxes; Dividends and
Distributions
Item 21. Underwriters......................... Not Applicable
Item 22. Calculations of Performance Data..... Performance Information
Item 23. Financial Statements................. Financial Statements
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PART C
Information required to be included in Part C is set forth under the
appropriate Item, so numbered, in Part C of the Registration Statement.
WNL SERIES TRUST
5555 SAN FELIPE, SUITE 900
HOUSTON, TEXAS 77056
WNL Series Trust (the "Trust") is an open-end, diversified series management
investment company which currently offers shares of beneficial interest of
eight series (the "Portfolios"), each of which has a different investment
objective and represents the entire interest in a separate portfolio of
investments. The Portfolios are: Van Kampen American Capital Emerging Growth
Portfolio (formerly American Capital Emerging Growth Portfolio), BEA Growth
and Income Portfolio, Credit Suisse International Equity Portfolio, BlackRock
Managed Bond Portfolio, EliteValue Asset Allocation Portfolio (formerly Quest
for Value Asset Allocation Portfolio), Salomon Brothers U.S. Government
Securities Portfolio, Global Advisors Growth Equity Portfolio and Global
Advisors Money Market Portfolio. These Portfolios are currently available to
the public only through variable annuity contracts ("VA Contracts") issued by
Western National Life Insurance Company ("Life Company").
This Prospectus sets forth concisely the information about the Trust that a
prospective investor should know before investing. Please read it carefully
and retain it for future reference. A Statement of Additional Information
("SAI") dated May 1, 1996, is available without charge upon request and may be
obtained by calling the Life Company at (800) 910-4455 or by writing to the
Life Company, Attention: Variable Annuity Service Center, P.O. Box 361, 95
Bridge Street, Haddam, Connecticut 06438-0361. Some of the discussions
contained in this Prospectus refer to the more detailed descriptions contained
in the SAI, which is incorporated by reference into this Prospectus and has
been filed with the Securities and Exchange Commission.
INVESTMENTS IN THE TRUST ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR
ENDORSED BY, ANY BANK. SHARES OF THE TRUST ARE NOT FEDERALLY INSURED BY THE
FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER
GOVERNMENTAL AGENCY. AN INVESTMENT IN THE TRUST IS SUBJECT TO RISK THAT MAY
CAUSE THE VALUE OF THE INVESTMENT TO FLUCTUATE, AND WHEN THE INVESTMENT IS
REDEEMED, THE VALUE MAY BE HIGHER OR LOWER THAN THE AMOUNT ORIGINALLY INVESTED
BY THE INVESTOR.
PURCHASERS SHOULD BE AWARE THAT AN INVESTMENT IN THE GLOBAL ADVISORS MONEY
MARKET PORTFOLIO IS NEITHER INSURED NOR GUARANTEED BY THE U.S. GOVERNMENT.
THERE CAN BE NO ASSURANCE THAT THE GLOBAL ADVISORS MONEY MARKET PORTFOLIO WILL
BE ABLE TO MAINTAIN A STABLE NET ASSET VALUE OF $1.00 PER SHARE.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
Prospectus Dated May 1, 1996
TABLE OF CONTENTS
PAGE
SUMMARY
The Trust
Investment Adviser and Sub-Advisers
The Portfolios
Van Kampen American Capital Emerging Growth Portfolio
BEA Growth and Income Portfolio
Credit Suisse International Equity Portfolio
BlackRock Managed Bond Portfolio
EliteValue Asset Allocation Portfolio
Salomon Brothers U.S. Government Securities Portfolio
Global Advisors Growth Equity Portfolio
Global Advisors Money Market Portfolio
Investment Risks
Sales and Redemptions
FINANCIAL HIGHLIGHTS
INVESTMENT OBJECTIVES AND POLICIES OF THE PORTFOLIOS
Van Kampen American Capital Emerging Growth Portfolio
BEA Growth and Income Portfolio
Credit Suisse International Equity Portfolio
BlackRock Managed Bond Portfolio
EliteValue Asset Allocation Portfolio
Salomon Brothers U.S. Government Securities Portfolio
Global Advisors Growth Equity Portfolio
Global Advisors Money Market Portfolio
MANAGEMENT OF THE TRUST
Investment Adviser
Advisory Fee Waiver and Expense Cap
Expenses of the Trust
Sub-Advisers
Sub-Advisory Fees
Sub-Advisory Fee Waiver
SALES AND REDEMPTIONS
NET ASSET VALUE
PERFORMANCE INFORMATION
TAX STATUS, DIVIDENDS, AND DISTRIBUTIONS
ADDITIONAL INFORMATION
APPENDIX
Securities And Investment Practices
American Depository Receipts and European Depository Receipts
Asset-Backed Securities
Bank Obligations
Borrowing
Common Stock and Other Equity Securities
Convertible Securities
Currency Management
Dollar Roll Transactions
Equity and Debt Securities Issued or Guaranteed by Supranational Organizations
Exchange Rate-Related Securities
Fixed-Income Securities
Foreign Currency Exchange Transactions
Foreign Investments
Futures and Options on Futures
Geographical and Industry Concentration
Government Stripped Mortgage-Backed Securities
Interest Rate Transactions
Illiquid Securities
Investment Companies
Lease Obligation Bonds
Lending of Securities
Lower-Rated Securities
Mortgage-Backed Securities
Collateralized Mortgage Obligations and Multiclass Pass-Through Securities
New Issuers
Options on Securities
Options on Foreign Currencies
Options on Indexes
Over the Counter Options
Repurchase Agreements
Reverse Repurchase Agreements
Small Companies
Strategic Transactions
U.S. Government Securities
When-Issued Securities and Delayed-Delivery Transactions
SUMMARY
THE TRUST
The Trust is an open-end diversified management investment company established
as a Massachusetts business trust under a Declaration of Trust dated December
12, 1994, as amended April 19, 1995. Each Portfolio issues a separate class of
shares. The Declaration of Trust permits the Trustees to issue an unlimited
number of full or fractional shares of each class of stock.
Each Portfolio has distinct investment objectives and policies. (See
"Investment Objectives and Policies of the Portfolios.") Additional Portfolios
may be added to the Trust in the future.
INVESTMENT ADVISER AND SUB-ADVISERS
Subject to the authority of the Board of Trustees of the Trust, WNL Investment
Advisory Services, Inc. (the "Adviser") serves as the Trust's investment
adviser and has responsibility for the overall management of the investment
strategies and policies of the Portfolios. The Adviser has engaged
Sub-Advisers for each Portfolio to make investment decisions and place orders.
The Sub-Advisers for the Portfolios are:
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Sub-Adviser Name of Portfolio
- ---------------------------------------------------- ----------------------------------
Van Kampen American Capital Asset Management, Inc. Van Kampen American Capital
Emerging Growth
BEA Associates BEA Growth and Income
Credit Suisse Investment Management Ltd. Credit Suisse International Equity
BlackRock Financial Management BlackRock Managed Bond
OpCap Advisors, formerly Quest for Value Advisors EliteValue Asset Allocation
Salomon Brothers Asset Management Inc Salomon Brothers U.S. Government
Securities
State Street Global Advisors Global Advisors Growth Equity
(A division of State Street Bank and Trust Company) Global Advisors Money Market
</TABLE>
For additional information concerning the Adviser and the Sub-Advisers,
including a description of advisory and sub-advisory fees, see "Management of
the Trust."
THE PORTFOLIOS
VAN KAMPEN AMERICAN CAPITAL EMERGING GROWTH PORTFOLIO
The Portfolio's investment objective is to seek to provide capital
appreciation; any ordinary income received from portfolio securities is
entirely incidental. The Portfolio will, under normal conditions, invest at
least 65% of its total assets in common stocks of small and medium-sized
companies, both domestic and foreign, in the early stages of their life cycle
that the Sub-Adviser believes have the potential to become major enterprises.
While the Portfolio will invest primarily in common stocks, to a limited
extent, it may invest in other securities such as preferred stocks,
convertible securities and warrants. The Portfolio may invest up to 20% of its
assets in securities of foreign issuers. Investing in foreign securities
generally involves risks not ordinarily associated with investing in
securities of domestic issuers. (See "Appendix - Foreign Investments" and the
SAI for a discussion of the risks involved in foreign investing.)
BEA GROWTH AND INCOME PORTFOLIO
The Portfolio's fundamental investment objective is to provide long-term
capital growth, current income and growth of income, consistent with
reasonable investment risk. The Portfolio will invest primarily in domestic
equity as well as domestic debt securities. The proportion of the Portfolio's
assets to be invested in each type of security will vary from time to time in
accordance with the Sub-Adviser's assessment of economic conditions and
investment opportunities. The asset allocation strategy is based on the
premise that, from time to time, certain asset classes are more attractive
long-term than others. The Sub-Adviser anticipates that under normal market
conditions, between 35% and 65% of the Portfolio's total assets will be
invested in equity securities, and between 35% and 65% will be invested in
debt securities.
CREDIT SUISSE INTERNATIONAL EQUITY PORTFOLIO
The Portfolio's fundamental investment objective is long-term capital
appreciation. The Portfolio will seek to achieve its objective primarily by
investing in equity and equity-related securities of companies from at least
five different countries, excluding the United States. This Portfolio is
intended for investors who can accept the risks involved in investments in
equity and equity-related securities of non-U.S. issuers, as well as in
foreign currencies, and in the active management techniques that the Portfolio
generally employs. Under normal conditions, the Portfolio will invest at least
65% of its total assets in equity securities of issuers whose principal places
of business (as determined by location of the issuer's principal headquarters)
are located in countries other than the United States. The balance of the
Portfolio, up to 35% of its total assets, may be invested in equity or debt
securities of U.S. issuers or foreign entities. Investing in foreign
securities generally involves risks not ordinarily associated with investing
in securities of domestic issuers. (See "Appendix - Foreign Investments" and
the SAI for a discussion of the risks involved in foreign investing.)
BLACKROCK MANAGED BOND PORTFOLIO
The Portfolio's fundamental investment objective is to provide a high total
return consistent with moderate risk of capital and maintenance of liquidity.
Total return will consist of income, plus realized and unrealized capital
gains and losses. Although the net asset value of the Portfolio will
fluctuate, the Portfolio attempts to preserve the value of its investments to
the extent consistent with its objective. The Sub-Adviser actively manages the
Portfolio's duration, the allocation of securities across market sectors, and
the selection of specific securities within sectors. The Sub-Adviser also
actively allocates the Portfolio's assets among the broad sectors of the
fixed-income market, including, but not limited to, U.S. Government and agency
securities, corporate securities, private placements, and asset-backed and
mortgage-related securities, including residential and commercial
mortgage-backed securities. Under normal circumstances, the Sub-Adviser
intends to keep the Portfolio essentially fully invested with at least 65% of
the Portfolio's assets invested in bonds.
ELITEVALUE ASSET ALLOCATION PORTFOLIO
The Portfolio's fundamental investment objective is to achieve growth of
capital over time through investment in a portfolio consisting of common
stocks, bonds and cash equivalents, the percentages of which will vary based
on the Sub-Adviser's assessments of the relative outlook for such investments.
In seeking to achieve its investment objective, the types of equity securities
in which the Portfolio may invest are likely to be primarily those of
companies that are believed by the Sub-Adviser to be undervalued in the
marketplace in relation to factors such as the companies' assets or earnings.
Debt securities are expected to be predominantly investment-grade,
intermediate to long-term U.S. Government and corporate debt, although the
Portfolio will also invest in high-quality, short-term money market and cash
equivalent securities and may invest almost all of its assets in such
securities when the Sub-Adviser deems it advisable in order to preserve
capital. In addition, the Portfolio may also purchase foreign securities,
provided that they are listed on a domestic or foreign securities exchange or
are represented by American Depository Receipts ("ADRs") listed on a domestic
securities exchange or traded in domestic or foreign over-the-counter markets.
Investing in foreign securities generally involves risks not ordinarily
associated with investing in securities of domestic issuers. (See "Appendix -
Foreign Investments" and the SAI for a discussion of the risks involved in
foreign investing.) The allocation of the Portfolio's assets among the
different types of permitted investments will vary from time to time based
upon the Sub-Adviser's evaluation of economic and market trends and its
perception of the relative values available from such types of securities at
any given time. There is neither a minimum nor a maximum percentage of the
Portfolio's assets that may, at any given time, be invested in any of the
types of investments identified above.
SALOMON BROTHERS U.S. GOVERNMENT SECURITIES PORTFOLIO
The Portfolio's fundamental investment objective is to seek a high level of
current income. The Portfolio seeks to attain its objective by investing a
substantial portion of its assets in debt obligations and mortgage-backed
securities issued or guaranteed by the U.S. Government, its agencies or
instrumentalities and collateralized mortgage obligations backed by such
securities. The Portfolio may also invest a portion of its assets in U.S.
dollar-denominated corporate debt securities.
GLOBAL ADVISORS GROWTH EQUITY PORTFOLIO
The Portfolio's fundamental investment objective is to provide total returns
that exceed over time the Standard & Poor's 500 Composite Stock Price Index
through investment in equity securities. Equity securities will be selected on
the basis of a proprietary analytical model of the Portfolio's Sub-Adviser.
Each security will be ranked according to two separate and uncorrelated
measures: value and the momentum of Wall Street sentiment. The Portfolio will
invest at least 65% of its total assets in equity securities. However, the
Portfolio may invest temporarily for defensive purposes, without limitation,
in certain short-term, fixed-income securities. Such securities may be used to
invest uncommitted cash balances or to maintain liquidity.
GLOBAL ADVISORS MONEY MARKET PORTFOLIO
The Portfolio's fundamental investment objective is to maximize current
income, to the extent consistent with the preservation of capital and
liquidity, and the maintenance of a stable $1.00 per share net asset value, by
investing in dollar-denominated securities with remaining maturities of one
year or less. The Portfolio attempts to meet its investment objective by
investing in high-quality money market instruments. An investment in this
Portfolio is neither insured nor guaranteed by the U.S. Government.
The investment objectives, policies and restrictions of a Portfolio
specifically cited as fundamental may not be changed without the approval of a
majority of the outstanding shares of that Portfolio. Other investment
policies and practices described in this Prospectus and the SAI are not
fundamental, and the Board of Trustees may change them without shareholder
approval. A complete list of investment restrictions, including those
restrictions which cannot be changed without shareholder approval, is
contained in the SAI. There is no assurance that a Portfolio will meet its
stated objective.
INVESTMENT RISKS
The value of a Portfolio's shares will fluctuate with the value of the
underlying securities in its portfolio, and in the case of debt securities,
with the general level of interest rates. When interest rates decline, the
value of an investment portfolio invested in fixed-income securities can be
expected to rise. Conversely, when interest rates rise, the value of an
investment portfolio invested in fixed-income securities can be expected to
decline. In the case of foreign currency-denominated securities, these trends
may be offset or amplified by fluctuations in foreign currencies. Investments
by a Portfolio in foreign securities may be affected by adverse political,
diplomatic, and economic developments, changes in foreign currency exchange
rates, taxes or other assessments imposed on distributions with respect to
those investments, and other factors generally affecting foreign investments.
High-yielding, high-risk, fixed-income securities, which are commonly known as
"junk bonds," are subject to greater market fluctuations and risk of loss of
income and principal than investments in lower-yielding, fixed-income
securities. The Emerging Growth, Growth Equity and Money Market Portfolios
will not invest in "junk bonds," while each of the other Portfolios may invest
up to 5% of its respective total assets in "junk bonds." Certain Portfolios
intend to employ, from time to time, certain investment techniques which are
designed to enhance income or total return or hedge against market or currency
risks but which themselves involve additional risks. These techniques include
options on securities, futures, options on futures, options on indexes,
options on foreign currencies, foreign currency exchange transactions, lending
of securities and when-issued securities and delayed-delivery transactions.
The Portfolios may have higher-than-average portfolio turnover which may
result in higher-than-average brokerage commissions and transaction costs.
SALES AND REDEMPTIONS
The Trust sells shares only to the separate accounts of the Life Company as a
funding vehicle for the VA Contracts offered by the Life Company. No fee is
charged upon the sale or redemption of the Trust's shares. Expenses of the
Trust will be passed through to the separate accounts of the Life Company, and
therefore, will be ultimately borne by VA Contract owners. In addition, other
fees and expenses will be assessed by the Life Company at the separate account
level. (See the Prospectus for the VA Contract for a description of all fees
and charges relating to the VA Contract.)
FINANCIAL HIGHLIGHTS
The following tables include selected data, derived from the financial
statements, for a share outstanding throughout the period shown for each of
the Portfolios. The tables should be read in conjunction with the financial
statements and notes thereto included in the Trust's Annual Report to
Shareholders which are included in the SAI in reliance upon the report of
Coopers & Lybrand L.L.P., independent auditors.
Further information about the performance of the Trust is contained in the
Trust's December 31, 1995 Annual Report which may be obtained without charge
by calling the Life Company at (800) 910-4455.
WNL SERIES TRUST
FOR A SHARE OUTSTANDING FOR THE PERIOD ENDED
DECEMBER 31, 1995*
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BEA Credit Global Global
Growth Suisse Advisors Advisors
and International Growth Money
Income Equity Equity Market
-------- --------------- ---------- ----------
Net asset value, beginning of period... $ 10.00 $ 10.00 $ 10.00 $ 1.00
-------- --------------- ---------- ----------
Net investment income(1)............... 0.14 0.06 0.05 0.01
Net realized and unrealized gain on
investments......................... 0.51 0.33 0.31 ----
-------- --------------- ---------- ----------
Total from investment operations....... 0.65 0.39 0.36 0.01
-------- --------------- ---------- ----------
Distributions:
From net investment income........... (0.14) (0.06) (0.05) (0.01)
In excess of net realized gains...... (0.05) --- ---` ---
-------- --------------- ---------- ----------
Total distributions.................... (0.19) (0.06) (0.05) (0.01)
-------- --------------- ---------- ----------
Net asset value, end of period......... $ 10.46 $ 10.33 $ 10.31 $ 1.00
-------- --------------- ---------- ----------
TOTAL RETURN(2)........................ 6.57% 3.93% 3.57% 1.17%
RATIOS/SUPPLEMENTAL DATA:
Operating expenses to average net
assets(3)........................... 0.12% 0.12% 0.12% 0.12%
Net investment income to average net
assets(4)........................... 6.99% 2.89% 2.46% 5.25%
Portfolio turnover rate(5)............. 75% 2% 9% N/A
Net assets, at end of period (000's)... $ 2,136 $ 2,083 $ 2,073 $ 126
<FN>
* The Money Market Portfolio commenced investment operations on October 10, 1995. The
Growth and Income, International Equity, and Growth Equity Portfolios commenced investment
operations on October 20, 1995.
(1) Net investment income is after waiver of fees and reimbursement of certain
expenses by the Adviser, State Street Bank and Trust Company, as Sub-Administrator, and
the Life Company, an affiliate of the Adviser (see Note 2 to the financial statements in
the SAI). If the Adviser and State Street Bank and Trust Company, as Sub-Administrator,
had not waived fees and the Life Company had not reimbursed expenses, net investment
income (loss) per share would have been $(0.06) for the BEA Growth and Income Portfolio,
$(0.18) for the Credit Suisse International Equity Portfolio, $(0.15) for the Global
Advisors Growth Equity Portfolio, and $(0.35) for the Global Advisors Money Market
Portfolio.
(2) Total return represents aggregate total return for the period indicated.
(3) If the Adviser and State Street Bank and Trust Company, as Sub-Administrator,
had not waived fees and Life Company had not reimbursed expenses, the ratio of
operating expenses to average net assets would have been 9.95% for the BEA Growth and
Income Portfolio, 11.83% for the Credit Suisse International Equity Portfolio, 9.94%
for the Global Advisors Growth Equity Portfolio, and 161.83% for the Global Advisors
Money Market Portfolio.
(4) Annualized.
(5) Not annualized.
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INVESTMENT OBJECTIVES AND POLICIES OF THE PORTFOLIOS
Each Portfolio of the Trust has a different investment objective or objectives
which it pursues through separate investment policies as described below. The
differences in objectives and policies among the Portfolios can be expected to
affect the return of each Portfolio and the degree of market and financial
risk to which each Portfolio is subject. An investment in a single Portfolio
should not be considered a complete investment program. The investment
objective(s) and policies of each Portfolio, unless otherwise specifically
stated, are non-fundamental and may be changed by the Trustees of the Trust
without a vote of the shareholders. There is no assurance that any Portfolio
will achieve its objective(s). United States Treasury Regulations applicable
to portfolios that serve as the funding vehicles for variable annuity and
variable life insurance contracts generally require that such portfolios
invest no more than 55% of the value of their assets in one investment, 70% in
two investments, 80% in three investments, and 90% in four investments. The
Portfolios intend to comply with the requirements of these Regulations.
In order to comply with regulations which may be issued by the U.S. Treasury,
the Trust may be required to limit the availability, or change the investment
policies, of one or more Portfolios, or to take steps to liquidate one or more
Portfolios. The Trust will not change any fundamental investment policy of a
Portfolio without a vote of shareholders of that Portfolio.
In addition, the State of California currently imposes diversification
requirements on variable insurance products portfolios investing in non-U.S.
securities. Under these requirements, a Portfolio investing at least 80% of
its assets in non-U.S. securities must be invested in at least five countries;
less than 80% but at least 60%, in at least four countries; less than 60% but
at least 40%, in at least three countries; and less than 40% but at least 20%,
in at least two countries, except that up to 35% of a Portfolio's assets may
be invested in securities of issuers located in any of the following
countries: Australia, Canada, France, Japan, the United Kingdom or Germany. A
Portfolio's investments in United States' issuers are not subject to these
diversification requirements. The Trust intends to comply with the California
diversification requirements for the Portfolios which invest in non-U.S.
securities, to the extent applicable.
Except as otherwise noted herein, if the securities rating of a debt security
held by a Portfolio declines below the minimum rating for securities in which
the Portfolio may invest, the Portfolio will not be required to dispose of the
security, but the Portfolio's Sub-Adviser will consider whether continued
investment in the security is consistent with the Portfolio's investment
objective.
In implementing its investment objectives and policies, each Portfolio uses a
variety of instruments, strategies and techniques which are described in more
detail in the Appendix and the SAI. With respect to each Portfolio's
investment policies, use of the term "primarily" means that under normal
circumstances, at least 65% of such Portfolio's assets will be invested as
indicated. A description of the ratings systems used by the following
nationally recognized statistical rating organizations ("NRSROs") is also
contained in the SAI: Moody's Investors Service, Inc. ("Moody's"), Standard &
Poor's Corporation ("S&P"), Duff & Phelps, Inc. ("Duff"), Fitch Investors
Service, Inc. ("Fitch"), Thomson Bankwatch, Inc., IBCA Limited and IBCA Inc.
New instruments, strategies and techniques, however, are evolving continually
and the Trust reserves authority to invest in or implement them to the extent
consistent with its investment objectives and policies. If new instruments,
strategies or techniques would involve a material change to the information
contained herein, they will not be purchased or implemented until this
Prospectus is appropriately supplemented.
VAN KAMPEN AMERICAN CAPITAL EMERGING GROWTH PORTFOLIO
The Portfolio seeks to provide capital appreciation for its shareholders; any
ordinary income received from portfolio securities is entirely incidental.
This objective is not fundamental and may be changed by the Trust's Board of
Trustees without shareholder approval, but no change is anticipated. If there
is a change in the investment objective of the Portfolio, shareholders should
consider whether the Portfolio remains an appropriate investment in light of
their then current financial position and needs. There can, of course, be no
assurance that the objective of capital appreciation will be realized;
therefore, full consideration should be given to the risks inherent in the
investment techniques that the Sub-Adviser may use to achieve such objective.
As a fundamental investment policy, the Portfolio under normal conditions
invests at least 65% of its total assets in common stocks of small and
medium-sized companies, both domestic and foreign, in the early stages of
their life cycle that the Sub-Adviser believes have the potential to become
major enterprises. Investments in such companies may offer greater
opportunities for growth of capital than larger, more established companies,
but also may involve certain special risks. Emerging growth companies often
have limited product lines, markets, or financial resources, and they may be
dependent upon one person or a few key people for management. The securities
of such companies may be subject to more abrupt or erratic market movements
than securities of larger, more established companies or the market averages
in general. While the Portfolio will invest primarily in common stocks, to a
limited extent, it may invest in other securities, such as preferred stocks,
convertible securities and warrants. The Portfolio does not limit its
investment to any single group or type of security. The Portfolio may also
invest in special situations involving new management, special products and
techniques, unusual developments, mergers or liquidations. Investments in
unseasoned companies and special situations often involve much greater risks
than are inherent in ordinary investments, because securities of such
companies may be more likely to experience unexpected fluctuations in price.
The Portfolio's primary approach is to seek what the Sub-Adviser believes to
be unusually attractive growth investments on an individual company basis. The
Portfolio may invest in securities that have above-average volatility of price
movement. Because prices of common stocks and other securities fluctuate, the
value of an investment in the Portfolio will vary based upon the Portfolio's
investment performance. The Portfolio attempts to reduce overall exposure to
risk from declines in securities prices by spreading its investments over many
different companies in a variety of industries. There is, however, no
assurance that the Portfolio will be successful in achieving its objective.
The Portfolio may invest up to 20% of its total assets in securities of
foreign issuers. (See "Appendix - Foreign Investments" and the SAI for a
discussion of the risks involved in foreign investing.) Additionally, the
Portfolio may invest up to 10% of the value of its assets in restricted
securities (i.e., securities which may not be sold without registration under
the Securities Act of 1933 ("1933 Act")) and in other securities not having
readily available market quotations. The Portfolio may enter into repurchase
agreements with domestic banks and broker-dealers which involve certain risks.
The Portfolio does not presently expect to commit as much as 5% of its total
assets to investments in either warrants or restricted securities. The risks
involved in investing in restricted securities, warrants and repurchase
agreements are described under "Investment Objectives and Policies" in the
SAI.
The Portfolio may invest in options, futures contracts and related options.
These investments and transactions are described in greater detail in the
Appendix and SAI.
BEA GROWTH AND INCOME PORTFOLIO
INVESTMENT OBJECTIVE
The Portfolio's goal is to provide long-term capital growth, current
income and growth of income, consistent with reasonable investment risk. This
investment objective is fundamental and may not be changed without the
affirmative vote of a majority of the Portfolio's outstanding shares (as
defined in the Investment Company Act of 1940, as amended ("1940 Act").
MANAGEMENT POLICIES
The Portfolio will invest primarily in domestic equity and debt
securities and cash equivalent instruments. The Portfolio may also invest in
securities of foreign issuers. The proportion of the Portfolio's assets to
be invested in each type of security will vary from time to time in
accordance with the Sub-Adviser's assessment of economic conditions and
investment opportunities. The asset allocation strategy is based on the
premise that, from time to time, certain asset classes are more attractive
long-term investments than others. Timely shifts among equity securities, debt
securities, and cash equivalent instruments, as determined by their relative
over-valuation or under-valuation, should produce superior investment returns
over the long term. In general, the Portfolio will not attempt to predict
short-term market movements or interest rate changes, focusing instead upon a
longer-term outlook. The Sub-Adviser anticipates that under normal market
conditions, between 35% and 65% of the Portfolio's total assets will be
invested in equity securities, and between 35% and 65% will be invested in
debt securities.
In selecting equity securities in which to invest, the Sub-Adviser generally
employs a value-oriented approach that combines "top-down" and "bottom-up"
elements. The process begins with a top-down thematic approach, by which the
Sub-Adviser attempts to identify the three or four macroeconomic variables
most likely to drive equity returns in the medium term, and the sectors,
industries and stocks most likely to benefit as those themes are played out.
This is combined with a bottom-up approach to stock selection which identifies
value through the application of "cash on cash analysis." The Sub-Adviser
looks at the free cash flow produced by a company within the context of the
total cash value of the enterprise. This ratio of cash flow to "enterprise
value" permits a comparative analysis of companies across industries and
sectors, and provides a tool with which to analyze the quality and priorities
of the company's management. The Portfolio's approach is based upon the
observation that a company focusing upon cash flow will generally be one in
which management's overarching concern is the maximization of shareholder
value. Equity securities may include common stocks, preferred stocks, and
securities which are convertible into common stock and readily marketable
securities, such as rights and warrants, which derive their value from common
stock.
In selecting debt securities in which to invest, the Sub-Adviser generally
employs an approach that focuses upon the exploitation of market
inefficiencies, which exist primarily due to the differing objectives of
various investors and to the varying restrictions that limit their investment
choices. In determining whether the Portfolio should invest in a particular
debt security, the Sub-Adviser reviews the terms of the instrument and
evaluates the creditworthiness of the issuer of the instrument, considering
short-term debt, leverage, capitalization, the quality and depth of
management, profitability, return on assets, and economic factors relative to
the issuer's industry or market sector. The Sub-Adviser then performs relative
valuation analysis, comparing the value in sectors and securities with regard
to price as well as yield. The Sub-Adviser generally does not rely on its
ability to correctly predict movements in the direction of interest rates.
Debt securities may include bonds, debentures, notes, equipment lease and
trust certificates, mortgage-related securities, and obligations issued or
guaranteed by the U.S. Government or its agencies or instrumentalities. The
Sub-Adviser's Fixed-Income Management Team will manage the Fixed-Income
portion of the Portfolio, which will invest primarily in domestic fixed-income
securities consistent with comparable broad market fixed-income indexes, such
as the Lehman Brothers Aggregate Bond Index. The Sub-Adviser estimates that
the average weighted maturity of the debt securities held by the Portfolio
will range between 5 and 15 years. Depending upon prevailing market
conditions, the Portfolio may purchase debt securities at a discount from face
value, which produces a yield greater than the coupon rate. Conversely, if
debt securities are purchased at a premium over face value, the yield will be
lower than the coupon rate. An increase in interest rates will generally
reduce the value of the fixed-income investments in the Portfolio and a
decline in interest rates will generally increase the value of those
investments.
The cash equivalent instruments in which the Portfolio may invest consist of
U.S. Government securities, certificates of deposit, time deposits, bankers'
acceptances, short-term investment-grade corporate bonds and short-term debt
instruments, and repurchase agreements. While the Portfolio does not intend to
limit the amount of its assets invested in cash equivalent instruments, except
to the extent believed necessary to achieve its investment objective, it does
not expect under normal market conditions to have a substantial portion of its
assets invested in money market instruments. However, when the Sub-Adviser
determines that adverse market conditions exist, the Portfolio may adopt a
temporary defensive posture and invest its entire portfolio in cash equivalent
instruments. In addition, the Portfolio may invest in cash equivalent
instruments in anticipation of investing cash positions. To the extent the
Portfolio is so invested, the Portfolio's investment objective may not be
achieved. See the Appendix and the SAI for a discussion of these and other
investment policies and strategies with respect to this Portfolio.
CREDIT SUISSE INTERNATIONAL EQUITY PORTFOLIO
The Portfolio's investment objective is long-term capital appreciation. This
investment objective is fundamental and may not be changed without the
affirmative vote of a majority of the Portfolio's outstanding shares (as
defined in the 1940 Act). The Portfolio will seek to achieve its objective
primarily by investing in equity and equity-related securities of companies
from at least five different countries, excluding the United States.
The Portfolio is intended for investors who can accept the risks involved in
investments in equity and equity-related securities of non-U.S. issuers, as
well as in foreign currencies and in the active management techniques that the
Portfolio generally employs.
Under normal conditions, the Portfolio will invest at least 65% of its total
assets in equity securities of issuers whose principal places of business (as
determined by the location of the issuer's principal headquarters) are located
in countries other than the United States.
FOREIGN EQUITY SECURITIES
The Portfolio will invest, under normal conditions, at least 65% of its
total assets in issuers located in at least five different countries,
excluding the United States. The Sub-Adviser expects that the majority of the
Portfolio's investments will be in issuers in the following markets: United
States, Canada, Japan, the United Kingdom, Germany, France, Malaysia, the
Netherlands, Italy, Singapore, Switzerland, Spain, Mexico, Australia, New
Zealand, Hong Kong and Sweden. However, the Portfolio will also invest in
other European, Pacific Rim, African and Latin American markets. As market and
global conditions change, the Portfolio will change its allocations among the
countries of the world and nothing herein will limit the Portfolio's ability
to invest in or avoid any particular countries or regions. The Portfolio may
also invest in the securities of issuers traded on quoted markets of other
countries.
The equity and equity-related securities in which the Portfolio will primarily
invest are common stock, preferred stock, convertible debt obligations,
convertible preferred stock and warrants, or other rights to acquire stock
that the Sub-Adviser believes offer the potential for long-term capital
appreciation. The Portfolio also may invest in securities of foreign issuers
in the form of sponsored and unsponsored ADRs, GDRs, EDRs, IDRs, or other
similar instruments representing securities of foreign issuers. See the
Appendix and the SAI for a description of these investments.
While the investment policy of the Portfolio is to be diversified as to both
countries and individual issuers, the Sub-Adviser selects individual countries
and securities on the basis of several factors. In allocating the Portfolio's
assets among various countries, the Sub-Adviser will seek economic and market
environments favorable for capital appreciation and, with respect to
developing countries, those with economic, political, and stock market
environments with prospects of stabilizing or improving.
In analyzing foreign companies for investment, the Sub-Adviser will ordinarily
look for one or more of the following characteristics in relation to the
prevailing prices of the securities of such companies: prospects for
above-average earnings growth per share; high return on invested capital;
sound balance sheet, financial and accounting policies, and overall financial
strength; strong competitive advantages; effective research, product
development, and marketing; efficient service; pricing flexibility; strength
of management; and general operating characteristics that will enable the
companies to compete successfully in their respective marketplaces. The
Sub-Adviser will aim to invest in companies which have growth prospects or
whose value it believes is not fully reflected in the relevant markets.
TEMPORARY INVESTMENTS
The Portfolio may, when the Sub-Adviser determines that market conditions
warrant, adopt a temporary defensive position and may hold cash (U.S. dollars
or foreign currencies) and may invest up to 100% of its assets in money market
instruments or debt securities of U.S. or foreign issuers. The Portfolio may
also invest cash held to meet redemption requests and expenses in such money
market instruments and debt securities. For these purposes, such money market
instruments are: banker's acceptances, certificates of deposit, time deposits,
commercial paper, short-term government and corporate-obligations. The debt
securities of U.S. issuers or foreign entities in which the Portfolio will
invest primarily will be investment-grade debt securities except that the
Portfolio may invest up to 5% of its total assets in non-investment-grade debt
securities. Investment-grade debt securities include (i) bonds rated in one of
the four highest rating categories by any NRSRO (e.g., BBB or higher by S&P);
(ii)U.S. Government securities; (iii) commercial paper rated in one of the two
highest rating categories of any NRSRO (e.g., A-2 or higher by S&P); (iv) bank
obligations (certificates of deposit, banker's acceptances, and time deposits)
with a long-term rating in one of the four highest categories by any NRSRO
(e.g., BBB or higher by S&P), with respect to bank obligations of more than
one year, or in one of the three highest categories by any NRSRO (e.g., A-3 or
higher by S&P), with respect to bank obligations maturing in one year or less;
(v) repurchase agreements involving these securities; or (vi) unrated debt
securities which are deemed by the Sub-Adviser to be of comparable quality.
All ratings are determined at the time of investment. Securities rated in the
fourth highest category, although considered investment-grade, have
speculative characteristics and may be subject to greater fluctuations in
value than higher-rated securities. Non-investment-grade debt securities
include (i) securities rated as low as C by S&P or their equivalents, which
are commonly known as "junk bonds"; (ii) commercial paper rated as low as A-3
by S&P or their equivalents; and (iii) unrated debt securities determined to
be of comparable quality by the Sub-Adviser. (See "Appendix -- Lower-Rated
Securities" and the SAI for a discussion of the risks involved in investing in
non-investment-grade securities.) U.S. Government securities are securities
issued or guaranteed by the U.S. Government or its agencies or
instrumentalities.
The Portfolio may enter into repurchase agreements to earn a return on
temporarily available cash. The Portfolio will not invest in repurchase
agreements maturing in more than seven days if any such investment, together
with any other illiquid securities held by the Portfolio, exceeds 10% of the
value of the Portfolio's net assets. The Portfolio may also lend portfolio
securities to unaffiliated brokers, dealers and financial institutions
provided that (a) immediately after any such loan, the value of the securities
loaned does not exceed 15% of the total value of the Portfolio's assets, and
(b) any securities loan is collateralized in accordance with applicable
regulatory requirements. The Portfolio may invest in restricted securities
and other illiquid assets. See the Appendix and the SAI for further
information relating to restricted and illiquid securities.
The Portfolio may purchase and sell foreign currencies on a spot basis in
connection with the settlement of transactions in securities traded in such
foreign currencies. The Portfolio may enter into forward foreign currency
contracts and foreign currency futures and option contracts primarily for
hedging purposes. This includes entering into forward foreign currency
contracts and foreign currency futures contracts in anticipation of
investments in companies whose securities are denominated in those currencies.
International investing, in general, may involve greater risks than U.S.
investments. These risks may be intensified in the case of investments in
emerging markets or countries with limited or developing capital markets. (See
"Appendix -- Foreign Investments" and the SAI for a discussion of the risks
involved in foreign investing.)
BLACKROCK MANAGED BOND PORTFOLIO
The Portfolio's investment objective is to provide a high total return
consistent with moderate risk of capital and maintenance of liquidity. This
investment objective is fundamental and may not be changed without the
affirmative vote of a majority of the Portfolio's outstanding shares (as
defined in the 1940 Act). Total return will consist of income, plus realized
and unrealized capital gains and losses. Although the net asset value of the
Portfolio will fluctuate, the Portfolio attempts to preserve the value of its
investments to the extent consistent with its objective.
Portfolio is designed for investors who seek a total return over time that is
higher than that generally available from a portfolio of shorter-term
obligations while recognizing the greater price fluctuation of longer-term
instruments. It may also be a convenient way to add fixed-income exposure to
diversify an existing portfolio.
The Sub-Adviser actively manages the Portfolio's duration, the allocation of
securities across market sectors, and the selection of specific securities
within sectors. The Sub-Adviser also actively allocates the Portfolio's assets
among the broad sectors of the fixed-income market, including but not limited
to, U.S. Government and agency securities, corporate securities, private
placements, and asset-backed and mortgage-related securities, including
residential and commercial mortgage-backed securities. Specific securities
which the Sub-Adviser believes are undervalued are selected for purchase
within the sectors using advanced quantitative tools, analysis of credit risk,
the expertise of a dedicated trading desk, and the judgment of fixed-income
portfolio managers and analysts. Under normal circumstances, the Sub-Adviser
intends to keep the Portfolio essentially fully invested with at least 65% of
the Portfolio's assets invested in bonds.
Duration is a measure of the weighted average maturity of the bonds held in
the Portfolio and can be used as a measure of the sensitivity of the
Portfolio's market value to changes in interest rates. Under normal market
conditions, the Portfolio's duration will range between one year shorter and
one year longer than the duration of the U.S. investment-grade, fixed-income
universe, as represented by Salomon Brothers Broad Investment Grade Bond
Index, the Portfolio's benchmark. Currently, the benchmark's duration is
approximately 4.6 years. The maturities of the individual securities in the
Portfolio may vary widely, however.
The Sub-Adviser intends to manage its portfolio actively in pursuit of its
investment objective. Portfolio transactions are undertaken principally to
accomplish the Portfolio's objective in relation to expected movements in the
general level of interest rates, but the Portfolio may also engage in
short-term trading consistent with its objective. To the extent the Portfolio
engages in short-term trading, it may incur increased transaction costs.
CORPORATE BONDS, ETC. The Portfolio may invest in a broad range of debt
securities of domestic and foreign issuers. These include debt securities of
various types and maturities, e.g., debentures, notes, mortgage securities,
equipment trust certificates and other collateralized securities and zero
coupon securities. Collateralized securities are backed by a pool of assets
such as loans or receivables which generate cash flow to cover the payments
due on the securities. Collateralized securities are subject to certain risks,
including a decline in the value of the collateral backing the security,
failure of the collateral to generate the anticipated cash flow, or in certain
cases, more rapid prepayment because of events affecting the collateral, such
as accelerated prepayment of mortgages or other loans backing these securities
or destruction of equipment subject to equipment trust certificates. In the
event of any such prepayment, the Portfolio will be required to reinvest the
proceeds of prepayments at interest rates prevailing at the time of
reinvestment, which may be lower. In addition, the value of zero coupon
securities that do not pay interest is more volatile than that of
interest-bearing debt securities with the same maturity. The Portfolio does
not intend to invest in common stock but may invest to a limited extent in
convertible debt or preferred stock. The Portfolio does not expect to invest
more than 25% of its assets in securities of foreign issuers. If the Portfolio
invests in non-U.S. dollar-denominated securities, it hedges the foreign
currency exposure into the U.S. dollar. See the Appendix and the SAI for
further information on foreign investments and convertible securities,
including a discussion of risks.
GOVERNMENT OBLIGATIONS, ETC. The Portfolio may invest in obligations
issued or guaranteed by the U.S. Government and backed by the full faith and
credit of the United States. These securities include Treasury securities,
obligations of the Government National Mortgage Association ("GNMA
Certificates"), the Farmers Home Administration and the Export Import Bank.
GNMA Certificates are mortgage-backed securities which evidence an undivided
interest in mortgage pools. These securities are subject to more rapid
repayment than their stated maturity would indicate because prepayments of
principal on mortgages in the pool are passed through to the holder of the
securities. During periods of declining interest rates, prepayments of
mortgages in the pool can be expected to increase. The pass-through of these
prepayments would have the effect of reducing the Portfolio's positions in
these securities and requiring the Portfolio to reinvest the prepayments at
interest rates prevailing at the time of reinvestment. The Portfolio may also
invest in obligations issued or guaranteed by U.S. Government agencies or
instrumentalities where the Portfolio must look principally to the issuing or
guaranteeing agency for ultimate repayment; some examples of agencies or
instrumentalities issuing these obligations are the Federal Farm Credit
System, the Federal Home Loan Banks, the Federal National Mortgage Association
("FNMA") and the Federal Home Loan Mortgage Corporation ("FHLMC"). Although
these governmental issuers are responsible for payments on their obligations,
they do not guarantee their market value.
The Portfolio may invest in debt securities of foreign governments and
governmental entities. International investing may involve greater risks than
U.S. investments. (See "Appendix -- Foreign Investments" and the SAI for a
discussion of the risks involved in foreign investing.)
MONEY MARKET INSTRUMENTS. The Portfolio may purchase money market
instruments to invest temporary cash balances or to maintain liquidity to meet
withdrawals. However, the Portfolio may also invest up to 100% of its total
assets in money market instruments as a temporary defensive measure taken
during, or in anticipation of, adverse market conditions. To the extent that
the Portfolio is invested in temporary defensive instruments, it will not be
pursuing its investment objective. The money market investments permitted for
the Portfolio include obligations of the U.S. Government and its agencies and
instrumentalities, other debt securities, commercial paper, bank obligations
and repurchase agreements. For more detailed information about these money
market investments, see Investment Objectives and Policies in the SAI.
QUALITY INFORMATION. It is a current policy of the Portfolio that under
normal circumstances at least 65% of its total assets will consist of
securities that are rated at least "A" by Moody's or S&P or that are unrated,
and in the Sub-Adviser's opinion, are of comparable quality. In the case of
30% of the Portfolio's investments, the Portfolio may purchase debt securities
that are rated Baa or better by Moody's or BBB or better by S&P or are
unrated, and in the Sub-Adviser's opinion, are of comparable quality. The
remaining 5% of the Portfolio's assets may be invested in debt securities that
are rated Ba or better by Moody's or BB or better by S&P or are unrated, and
in the Sub-Adviser's opinion, are of comparable quality. Securities rated Baa
by Moody's or BBB by S&P, although considered investment-grade, have some
speculative characteristics and such bonds, along with bonds rated below these
ratings, are commonly referred to as "junk bonds." "Investment-grade" debt
securities are those receiving one of the four highest ratings from Moody's,
S&P or another NRSRO or, if unrated by any NRSRO, deemed comparable by the
Sub-Adviser to such rated securities under guidelines established by the Board
of Trustees of the Trust. Bonds in the lowest rating categories may involve a
substantial risk of default or may be in default. Changes in economic
conditions, or developments regarding the individual issuer, are more likely
to cause price volatility and weaken the capacity of the issuers of such
securities to make principal and interest payments than is the case for
higher-grade debt securities. An economic downturn affecting the issuer may
result in an increased incidence of default. The market for lower-rated
securities may be thinner and less active than for higher-rated securities.
The Sub-Adviser will invest in such securities only when it concludes that the
anticipated return to the Portfolio on such an investment warrants exposure to
the additional level of risk. Rating standards must be satisfied at the time
an investment is made. If the quality of the investment later declines, the
Portfolio may continue to hold the investment. See the SAI for more detailed
information on these ratings.
The Portfolio may also purchase obligations on a when-issued or
delayed-delivery basis, enter into repurchase and reverse repurchase
agreements, loan its portfolio securities, purchase certain privately-placed
securities and enter into certain hedging transactions that may involve
options on securities and securities indexes, futures contracts and options on
futures contracts. For a discussion of these investments and investment
techniques, see the Appendix and the SAI.
ELITEVALUE ASSET ALLOCATION PORTFOLIO
The investment objective of the Portfolio is to achieve growth of capital over
time through investment in a portfolio consisting of common stocks, bonds and
cash equivalents, the percentage of which will vary based on the Sub-Adviser's
assessments of the relative outlook for such investments. This investment
objective is fundamental and may not be changed without the affirmative vote
of a majority of the Portfolio's outstanding shares (as defined in the 1940
Act). In seeking to achieve its investment objective, the types of equity
securities in which the Portfolio may invest are likely to be primarily equity
securities of companies that are believed by the Sub-Adviser to be undervalued
in the marketplace in relation to factors such as the companies' assets or
earnings. It is the Sub-Adviser's intention to invest in securities of
companies which in the Sub-Adviser's opinion possess one or more of the
following characteristics: undervalued assets, valuable consumer or commercial
franchises, securities valuation below peer companies, substantial and growing
cash flow and/or a favorable price to book value relationship. Investments for
the equity portion of the Portfolio will primarily consist of equity
securities, such as common stocks, preferred stocks, convertible securities,
rights and warrants in proportions which will vary from time to time. The
equity portion of the Portfolio will be invested primarily in stocks listed on
the New York Stock Exchange. In addition, the Portfolio may also purchase
securities listed on other domestic securities exchanges, securities traded in
the domestic over-the-counter market and foreign securities, provided that
they are listed on a domestic or foreign securities exchange or represented by
American depository receipts listed on a domestic securities exchange or
traded in domestic or foreign over-the-counter markets.
To a lesser extent, the equity portion of the Portfolio will be invested in
equity securities of companies with market capitalizations of less than $1
billion. Smaller-capitalization companies are often under-priced for the
following reasons: (i) institutional investors, which currently represent a
majority of the trading volume in the shares of publicly-traded companies, are
often less interested in such companies, because in order to acquire an equity
position that is large enough to be meaningful to an institutional investor,
such an investor may be required to buy a large percentage of the company's
outstanding equity securities, and (ii) such companies may not be regularly
researched by stock analysts, thereby resulting in greater discrepancies in
valuation. The Portfolio may also purchase securities in initial public
offerings, or shortly after such offerings have been completed, when the
Sub-Adviser believes that such securities have greater-than-average market
appreciation potential. Debt securities invested in by the Portfolio are
expected to be predominantly investment-grade intermediate to long-term U.S.
Government and corporate debt, although the Portfolio will also invest in
high-quality, short-term money market and cash equivalent securities and may
invest almost all of its assets in such securities when the Sub-Adviser deems
it advisable in order to preserve capital.
The allocation of the Portfolio's assets among the different types of
permitted investments will vary from time to time based upon the Sub-Adviser's
evaluation of economic and market trends and its perception of the relative
values available from such types of securities at any given time. There is
neither a minimum nor a maximum percentage of the Portfolio's assets that may,
at any given time, be invested in any of the types of investments identified
above. Consequently, while the Portfolio will earn income to the extent it is
invested in bonds or cash equivalents, the Portfolio does not have any
specific income objective.
The Portfolio may dispose of investments (including money market instruments)
regardless of the holding period if, in the opinion of the Sub-Adviser, an
issuer's creditworthiness or perceived changes in a company's growth prospects
or asset value make selling them advisable. Such an investment decision may
result in capital gains or losses and could result in a high portfolio
turnover rate during a given period, resulting in increased transaction costs
related to equity securities. Disposing of debt securities in these
circumstances should not increase direct transaction costs, since debt
securities are normally traded on a principal basis without brokerage
commissions. However, such transactions do involve a mark-up or mark-down of
the price.
It is anticipated that the Portfolio will have an annual turnover rate
(excluding turnover of securities having a maturity of one year or less) of
100% or less. A 100% annual turnover rate would occur, for example, if all the
securities in the Portfolio's investment portfolio were replaced once in a
period of one year. An investment in the Portfolio will entail both market and
financial risk, the extent of which depends on the amount of the Portfolio's
assets which are committed to equity, longer-term debt or money market
securities at any particular time. As the Portfolio may invest in
mortgage-backed securities, such securities, while similar to other
fixed-income securities, involve the additional risk of prepayment because
mortgage prepayments are passed through to the holder of the mortgage-backed
security and must be reinvested. Prepayments of mortgage principal reduce the
stream of future payments and generate cash which must be reinvested. When
interest rates fall, prepayments tend to rise. As such, the Portfolio may have
to reinvest that portion of its assets invested in such securities more
frequently when interest rates are low than when interest rates are high.
There is no limit to the amount of foreign securities that the Portfolio may
acquire. Certain factors and risks are presented by investment in foreign
securities which are in addition to the usual risks inherent in domestic
securities. (See "Appendix - Foreign Investments" and the SAI for a discussion
of the risks involved in foreign investing.)
It is the present intention of the Sub-Adviser to invest no more than 5% of
the Portfolio's net assets in bonds rated below Baa3 by Moody's or BBB by S&P
(commonly known as "junk bonds"). In the event that the Sub-Adviser intends in
the future to invest more than 5% of the Portfolio's net assets in junk bonds,
appropriate disclosures will be made to existing and prospective shareholders.
For information about the possible risks of investing in junk bonds, see
"Appendix - Lower-Rated Investments" and the SAI.
The Portfolio may also engage in repurchase agreements, lend portfolio
securities (up to 10% of the value of the Portfolio's total assets), enter
into forward foreign currency contracts and invest in modified pass-through
certificates. These investments and transactions are described in greater
detail in the Appendix and the SAI.
SALOMON BROTHERS U.S. GOVERNMENT SECURITIES PORTFOLIO
The investment objective of the Portfolio is to seek a high level of current
income. This investment objective is fundamental and may not be changed
without the affirmative vote of a majority of the Portfolio's outstanding
shares (as defined in the 1940 Act). The Sub-Adviser seeks to attain the
Portfolio's objective by investing a substantial portion of its assets in debt
obligations and mortgage-backed securities issued or guaranteed by the U.S.
Government and its agencies or instrumentalities, and collateralized mortgage
obligations backed by such securities.
At least 80% of the total assets of the Portfolio will be invested in:
(1) U.S. Treasury obligations;
(2) Obligations issued or guaranteed by agencies or instrumentalities of
the U.S. Government which are backed by their own credit and may not be backed
by the full faith and credit of the U.S. Government;
(3) Mortgage-backed securities guaranteed by the Government National
Mortgage Association ("GNMA"), popularly known as "Ginnie Maes," that are
supported by the full faith and credit of the U.S. Government and
mortgage-backed securities guaranteed by agencies or instrumentalities of the
U.S. Government, which are supported by their own credit but not the full
faith and credit of the U.S. Government,such as the Federal Home Loan Mortgage
Corporation ("FHLMC") and the Federal National Mortgage Association ("FNMA");
and
(4) Collateralized mortgage obligations issued by private issuers for
which the underlying mortgage-backed securities serving as collateral are
backed (i) by the credit alone of the U.S. Government agency or
instrumentality which issues or guarantees the mortgage-backed securities, or
(ii) by the full faith and credit of the U.S. Government.
Up to 20% of the total assets of the Portfolio may be invested in U.S.
dollar-denominated marketable corporate debt securities (such as bonds and
debentures) of domestic and foreign issuers rated at the time of purchase "A"
or better by Moody's or S&P, or of comparable quality thereto as determined by
the Sub-Adviser. The risks associated with such investments are described in
greater detail in the Appendix.
From time to time, a significant portion of the Portfolio's assets may be
invested in mortgage-backed securities. The mortgage-backed securities in
which the Portfolio invests represent participating interests in pools of
fixed rate and adjustable rate residential mortgage loans issued or guaranteed
by agencies or instrumentalities of the U.S. Government. However, any
guarantee of these types of securities runs only to the principal and interest
payments on the securities and not to the market value of such securities or
the principal and interest payments on the underlying mortgages. In addition,
the guarantee only runs to the portfolio securities held by the Portfolio and
not to the purchase of shares of the Portfolio.
Mortgage-backed securities are issued by lenders such as mortgage bankers,
commercial banks, and savings and loan associations. Mortgage-backed
securities generally provide monthly payments which are, in effect, a
"pass-through" of the monthly interest and principal payments (including any
prepayments) made by the individual borrowers on the pooled mortgage loans.
Principal prepayments result from the sale of the underlying property or the
refinancing or foreclosure of underlying mortgages.
The yield of mortgage-backed securities is based on the prepayment rates of
the underlying pool of securities. Prepayments tend to increase during periods
of falling interest rates, while during periods of rising interest rates
prepayments will most likely decline. Reinvestments by the Portfolio of
scheduled principal payments and unscheduled prepayments may occur at higher
or lower rates than the original investment, thus affecting the yield of
the Portfolio. Monthly interest payments received by the Portfolio have a
compounding effect which will increase the yield to shareholders as
compared to debt obligations that pay interest semiannually. For a further
description of mortgage-backed securities, see the Appendix and the SAI.
The Portfolio will not knowingly invest in a high-risk mortgage security. The
term "high-risk mortgage security" is defined generally as any mortgage
security that exhibits significantly greater price volatility than a benchmark
security, the FNMA current coupon 30-year mortgage-backed pass-through
security. Shares of the Portfolio are neither insured nor guaranteed by the
U.S. Government, its agencies or instrumentalities. Neither the issuance by,
nor the guarantee of, a U.S. Government agency for a security constitutes
assurance that the security will not significantly fluctuate in value or that
the Portfolio will receive the originally anticipated yield on the security.
The Portfolio may engage in various hedging and other strategic transactions
including that it may: write covered call options and put options on
securities and purchase call and put options on securities, write covered call
and put options on securities indexes and purchase call and put options on
securities indexes, and, may enter into futures contracts on financial
instruments and indexes and write and purchase put and call options on such
futures contracts. It is not presently anticipated that any of these
strategies will be used to a significant degree by the Portfolio. The Appendix
and the SAI contain a description of these strategies and of certain risks
associated therewith.
The Portfolio may purchase debt securities on a "when-issued" or
"forward-delivery" basis, loan portfolio securities (up to 20% of total
Portfolio assets), engage in repurchase agreements, reverse repurchase
agreements and dollar roll transactions, and invest in illiquid securities (up
to 15% of the Portfolio's net assets, not including restricted securities for
which a ready market is available pursuant to exemption provided by Rule 144A
under the 1933 Act.) These investments and transactions are described in
greater detail in the Appendix and the SAI.
GLOBAL ADVISORS GROWTH EQUITY PORTFOLIO
The Portfolio's investment objective is to provide total returns that exceed
over time the S&P 500 Index through investment in equity securities. This
objective may be changed only with the approval of a majority of the
Portfolio's shareholders as defined by the 1940 Act.
Equity securities will be selected by the Portfolio on the basis of a
proprietary analytical model of the Sub-Adviser. Each security will be ranked
according to two separate and uncorrelated measures: value and the momentum of
Wall Street sentiment. The value measure compares a company's assets,
projected earnings growth and cash flow growth with its stock price within the
context of its historical valuation. The measure of Wall Street sentiment
examines changes in Wall Street analysts' earnings estimates and ranks stocks
by the strength and consistency of those changes. These two measures are
combined to create a single composite score of each stock's attractiveness.
These scores are then plotted on a matrix according to their relative
attractiveness. Sector weights are maintained at a similar level to that of
the S&P 500 Index to avoid unintended exposure to factors such as the
direction of the economy, interest rates, energy prices and
inflation.Portfolio will invest at least 65% of its total assets in equity
securities. However, the Portfolio may invest temporarily for defensive
purposes, without limitation, in certain high-quality, short-term,
fixed-income securities. Such securities may be used to invest uncommitted
cash balances or to maintain liquidity to meet shareholder redemptions. These
securities include obligations issued or guaranteed as to principal and
interest by the U.S. Government, its agencies and instrumentalities and
repurchase agreements collateralized by these obligations, commercial paper,
bank certificates of deposit, bankers' acceptances and time deposits.
The Portfolio may invest in U.S. Government securities, which include U.S.
Treasury bills, notes and bonds and other obligations issued or guaranteed as
to interest and principal by the U.S. Government, its agencies and
instrumentalities. Obligations issued or guaranteed as to interest and
principal by the U.S. Government, its agencies and instrumentalities include
securities that are supported by the full faith and credit of the United
States Treasury, securities that are supported by the right of the issuer to
borrow from the United States Treasury, discretionary authority of the U.S.
Government agency or instrumentality, and securities supported solely by the
creditworthiness of the issuer.
The Portfolio may enter into or invest in repurchase agreements, reverse
repurchase agreements, forward commitments, when-issued transactions (up to
25% of the Portfolio's net assets), illiquid securities (up to 15% of the
Portfolio' s net assets), restricted securities (up to 10% of the Portfolio's
net assets) and variable amount master demand notes. The Portfolio also may
enter into futures contracts, options on futures, covered put and call options
on securities in which it may directly invest, and purchase or sell options on
securities indexes that are comprised of securities in which the Portfolio may
directly invest. The Portfolio may lend portfolio securities with a value of
up to 33 1/3% of the Portfolio's total assets.
In addition to the policies noted above, the Portfolio may also invest in
obligations of foreign issuers which are U.S. dollar-denominated, ADRs,
corporate bonds, debentures, notes and warrants. During the coming year,
investment in each of these instruments will not exceed 5% of the Portfolio's
total net assets.
These investments and transactions are described in greater detail in the
Appendix and the SAI.
GLOBAL ADVISORS MONEY MARKET PORTFOLIO
The Portfolio's investment objective is to maximize current income, to the
extent consistent with the preservation of capital and liquidity and the
maintenance of a stable $1.00 per share net asset value, by investing in
dollar-denominated securities with remaining maturities of one year or less.
This investment objective is fundamental and may not be changed without the
affirmative vote of a majority of the Portfolio's outstanding shares (as
defined in the 1940 Act).
The Portfolio attempts to meet its investment objective by investing in
high-quality money market instruments. Such instruments include: (1) U.S.
Treasury bills, notes and bonds; (2) other obligations issued or guaranteed as
to interest and principal by the U.S. Government, its agencies and
instrumentalities; (3) instruments of U.S. and foreign banks, including
certificates of deposit, banker's acceptances and time deposits; these
instruments may include Eurodollar Certificates of Deposit ("ECDs"),
Eurodollar Time Deposits ("ETDs") and Yankee Certificates of Deposit ("YCDs");
(4) commercial paper of U.S. and foreign companies; (5) asset-backed
securities; (6) corporate obligations; (7) variable amount master demand
notes; and (8) repurchase agreements.
The Portfolio will limit its portfolio investments, including puts and
repurchase agreements, if any, to those United States dollar-denominated
instruments which at the time of acquisition the Sub-Adviser determines
present minimal credit risk and which are: (a) rated as a First Tier or Second
Tier security (as defined in Rule 2a-7 under the 1940 Act) by any two NRSROs;
(b) long-term securities with a remaining maturity of 397 days or less and
which have been assigned a short-term rating in the two highest rating
categories by any two NRSROs or whose issuer has outstanding short-term
obligations of comparable priority and security which are rated in the two
highest short-term rating categories by any two NRSROs; (c) if rated by only
one NRSRO, rated by the NRSRO as a First Tier or Second Tier security; or (d)
if unrated, determined by the Sub-Adviser to be of a quality comparable to a
First or Second Tier security.
The Portfolio may invest in U.S. Government securities which include U.S.
Treasury bills, notes and bonds and other obligations issued or guaranteed as
to interest and principal by the U.S. Government, its agencies and
instrumentalities. Obligations issued or guaranteed as to interest and
principal by the U.S. Government, its agencies and instrumentalities include
securities that are supported by the full faith and credit of the United
States Treasury, securities that are supported by the right of the issuer to
borrow from the United States Treasury, discretionary authority of the U.S.
Government agency or instrumentality, and securities supported solely by the
creditworthiness of the issuer.
The Portfolio may enter into or invest in repurchase agreements, reverse
repurchase agreements, forward commitments, when-issued transactions (up to
25% of the Portfolio's net assets), illiquid securities (up to 10% of the
Portfolio's net assets), restricted securities (up to 10% of the Portfolio's
net assets) and variable amount master demand notes.
The Portfolio may also purchase asset-backed securities representing undivided
fractional interests in pools of instruments, such as consumer loans. The
Portfolio may invest in mortgage-related pass-through securities, including
GNMA Certificates ("Ginnie Maes"), FHLMC Mortgage Participation Certificates
("Freddie Macs") and FNMA Guaranteed Mortgage Pass-Through Certificates
("Fannie Maes"). Mortgage pass-through certificates are mortgage-backed
securities representing undivided fractional interests in pools of
mortgage-backed loans. These loans are made by mortgage bankers, commercial
banks, savings and loan associations and other lenders. Ginnie Maes are
guaranteed by the full faith and credit of the U.S. Government, but Freddie
Macs and Fannie Maes are not.
The Portfolio may invest in zero coupon securities and variable and floating
rate securities. As stated above, the Portfolio may invest in ECDs, ETDs, and
YCDs. ECDs are U.S. dollar-denominated certificates of deposit issued by
foreign branches of domestic banks. ETDs are U.S. dollar-denominated deposits
in foreign branches of U.S. banks and foreign banks. YCDs are U.S.
dollar-denominated certificates of deposit issued by U.S. branches of foreign
banks.
The Portfolio may lend portfolio securities with a value of up to 33 1/3% of
its total assets.
These investments and transactions are described in greater detail in the
Appendix and the SAI.
The Portfolio must limit investments to securities with remaining maturities
of 397 days or less and must maintain a dollar-weighted average maturity of 90
days or less. The Portfolio normally holds instruments to maturity but may
dispose of them prior to maturity if the Sub-Adviser finds it advantageous to
do so.
MANAGEMENT OF THE TRUST
INVESTMENT ADVISER
Under an Investment Advisory Agreement dated August 23, 1995, WNL Investment
Advisory Services, Inc., 5555 San Felipe, Suite 900, Houston, Texas 77056 (the
"Adviser"), manages the business and affairs of the Portfolios and the Trust,
subject to the control of the Trustees.
The Adviser is a Delaware corporation which was incorporated in 1994. The
Adviser has had no previous experience in advising a mutual fund. The Adviser
is a subsidiary of Western National Corporation ("Western National"), a
Delaware corporation organized in October 1993 to serve as the holding company
for the Life Company.
On December 23, 1994, AGC Life Insurance Company ("AGC Life"), a Missouri
domiciled life insurer, purchased 24,947,500 shares (the "Shares") of common
stock, par value $.001 per share, of Western National, from Conseco Investment
Holding Company, a wholly-owned subsidiary of Conseco, Inc., representing
approximately 40% of the outstanding common stock of Western National. The
Shares represent all of the common stock of Western National then held by
Conseco and its subsidiaries. AGC Life is a wholly-owned subsidiary of
American General Corporation, a Texas corporation ("AGC"). References to
"American General" are references to AGC and its direct and indirect
majority-controlled subsidiaries. Prior to the above-described transaction,
American General held no voting securities of Western National.
Under the Investment Advisory Agreement, the Adviser is obligated to formulate
a continuing program for the investment of the assets of each Portfolio of the
Trust in a manner consistent with each Portfolio's investment objectives,
policies and restrictions and to determine from time to time securities to be
purchased, sold, retained or lent by the Trust and to implement those
decisions. The Investment Advisory Agreement also provides that the Adviser
shall manage the Trust's business and affairs and shall provide such services
required for effective administration of the Trust as are now provided by
employees or other agents engaged by the Trust. The Investment Advisory
Agreement further provides that the Adviser shall furnish the Trust with
office space and necessary personnel, pay ordinary office expenses, pay all
executive salaries of the Trust and furnish, without expense to the Trust, the
services of such members of its organization as may be duly elected officers
or Trustees of the Trust. The Investment Advisory Agreement provides that
Adviser may retain sub-advisers, at the Adviser's own cost and expense, for
the purpose of managing the investment of the assets of one or more Portfolios
of the Trust.
As full compensation for its services under the Investment Advisory Agreement,
the Trust will pay the Adviser a monthly fee at the following annual rates
shown in the table below based on the average daily net assets of each
Portfolio.
<TABLE>
<CAPTION>
<S> <C>
Portfolio Advisory Fee
- ------------------------------------------- ---------------------------
Van Kampen American Capital Emerging Growth .75% of average net assets
BEA Growth and Income .75% of average net assets
Credit Suisse International Equity .90% of average net assets
BlackRock Managed Bond .55% of average net assets
EliteValue Asset Allocation .65% of average net assets
Salomon Brothers U.S. Government Securities .475% of average net assets
Global Advisors Growth Equity .61% of average net assets
Global Advisors Money Market .45% of average net assets
</TABLE>
ADVISORY FEE WAIVER AND EXPENSE CAP
The Adviser has agreed to waive its entire advisory fee for each of the
Portfolios for the initial six (6) months of each Portfolio's investment
operations. Additionally, the Adviser has agreed to waive that portion of
its advisory fee which is in excess of the amount payable by the Adviser to
each sub-adviser pursuant to the respective sub-advisory agreements for each
Portfolio until May 1, 1997.
For the period ended December 31, 1995, the Adviser waived its advisory fees
in the following amounts with respect to the Portfolios which were operational
for such period:
<TABLE>
<CAPTION>
<S> <C>
PORTFOLIO ADVISORY FEES WAIVED
Growth and Income $ 3,106
International Equity 3,643
Growth Equity 2,490
Money Market 106
</TABLE>
In addition, Western National Life Insurance Company, an affiliate of the
Adviser, has undertaken to bear until May 1, 1997, all operating expenses of
each Portfolio, excluding the compensation of the Adviser, that exceed .12% of
each Portfolio's average daily net assets.
The Adviser and the Life Company have entered into an Investment Advisory
Services Agreement, dated August 23, 1995, the purpose of which is to ensure
that the Adviser, which is minimally capitalized, has adequate facilities and
financing for the carrying on of its business. Under the terms of this
Agreement, the Life Company is obligated to provide the Adviser with adequate
capitalization in order for the Adviser to meet any minimum capital
requirements. The Life Company is further obligated to reimburse the Adviser
or assume payment for any obligation incurred by the Adviser. The Life
Company is also obligated to provide the Adviser with facilities and
personnel sufficient for the Adviser to perform its obligations under the
Investment Advisory Agreement.
The Adviser retains State Street Bank and Trust Company, a Massachusetts
trust company, to supervise various aspects of the Trust's administrative
operations and to perform certain specific services including, but not
limited to, the preparation and filing of Trust reports and tax returns,
pursuant to a Subadministration Agreement for Reporting and Accounting
Services between the Adviser, the Trust and State Street Bank and Trust
Company.
EXPENSES OF THE TRUST
The organizational expenses of the Trust were paid for by the Life
Company. The Life Company also contributed the initial working capital to
the Trust.
SUB-ADVISERS
In accordance with each Portfolio's investment objective and policies and
under the supervision of Adviser and the Trust's Board of Trustees, each
Portfolio's Sub-Adviser is responsible for the day-to-day investment
management of the Portfolio, makes investment decisions for the Portfolio and
places orders on behalf of the Portfolio to effect the investment decisions
made as provided in separate Sub-Advisory Agreements among each Sub-Adviser,
the Adviser and the Trust. The following organizations act as Sub-Advisers to
the Portfolios:
VAN KAMPEN AMERICAN CAPITAL ASSET MANAGEMENT, INC. ("VAN KAMPEN
AMERICAN CAPITAL"), 2800 Post Oak Boulevard, Houston, Texas 77056, is the
Sub-Adviser for the Van Kampen American Capital Emerging Growth Portfolio
of the Trust. Van Kampen American Capital is a diversified asset management
company with more than two million retail investor accounts, extensive
capabilities for managing institutional portfolios, and nearly $50 billion
under management or supervision. Van Kampen American Capital's more
than 40 open-end and 38 closed-end funds and more than 2,800 unit investment
trusts are professionally distributed by leading financial advisers
nationwide.
Van Kampen American Capital is a wholly-owned subsidiary of Van Kampen
American Capital, Inc., which is a wholly-owned subsidiary of VK/AC Holding,
Inc. VK/AC Holding, Inc. is controlled, through the ownership of a substantial
majority of its common stock, by The Clayton & Dubilier Private Equity Fund IV
Limited Partnership ("C&D L.P."), a Connecticut limited partnership. C&D L.P.
is managed by Clayton, Dubilier & Rice, Inc., a New York-based private
investment firm. The General Partner of C&D L.P. is Clayton & Dubilier
Associates IV Limited Partnership ("C&D Associates L.P."). The general
partners of C&D Associates L.P. are Joseph L. Rice III, B. Charles Ames,
Alberto Cribiore, William Barbe, Donald J. Gogel, Leon J. Hendrix, Jr.,
Hubbard C. Howe and Andrell E. Pearson, each of whom is a principal of
Clayton, Dubilier & Rice, Inc.
Gary M. Lewis is primarily responsible for the day-to-day management of the
Portfolio's investment portfolio. Mr. Lewis has been Vice President -
Portfolio Manager of Van Kampen American Capital since December 1987.
BEA ASSOCIATES ("BEA"), One Citicorp Center, 153 East 53rd Street, New
York, New York 10022, is the Sub-Adviser for the BEA Growth and Income
Portfolio of the Trust. BEA is a general partnership organized under the laws
of the State of New York and, together with its predecessor firms, has been
engaged in the investment advisory business for over 50 years. Credit Suisse
Capital Corporation ("CS Capital") is an 80% partner and Basic Appraisals,
Inc. is a 20% partner in BEA. CS Capital is a wholly-owned subsidiary of
Credit Suisse Investment Corporation, which is a wholly-owned subsidiary of
Credit Suisse, the second largest Swiss bank, which in turn is a subsidiary of
CS Holding, a Swiss corporation. No one person or entity possesses a
controlling interest in Basic Appraisals, Inc.
BEA is a diversified asset manager, handling global equity, balanced,
fixed-income and derivative securities accounts for private individuals, as
well as corporate pension and profit-sharing plans, state pension funds, union
funds, endowments and other charitable institutions. As of December 31, 1995,
BEA managed approximately $27 billion in assets.
BEA currently acts as investment adviser for 74 registered investment
companies and 40 offshore funds.
The portfolio is managed by teams of BEA managers, each dedicated to
managing a portion of the Portfolio's assets. The BEA Domestic Equity
Management Team manages the Equity Portion of the Portfolio. The BEA Fixed
Income Management Team manages the Fixed-Income portion of the Portfolio.
CREDIT SUISSE INVESTMENT MANAGEMENT, LTD. ("CSIM"), One Cabot Square,
London, England, is the Sub-Adviser for the Credit Suisse International Equity
Portfolio of the Trust. CSIM is an indirect wholly-owned subsidiary of Credit
Suisse, the largest global financial services group based in Switzerland,
which in turn is a subsidiary of CS Holding, a Swiss corporation.
The firm, which prior to June 1995 was owned by an affiliate of Credit Suisse
and was doing business under the name CS First Boston Investment Management
Limited, has been offering diverse global fixed-income and equity investment
strategies for institutional clients in over 35 countries worldwide since
1983. Clients include central banks and other government entities, insurance
companies, pension funds, multinational corporations, commercial banks and
other institutions. Individual portfolio holdings are denominated in more than
15 currencies. The team of 51 investment professionals is dedicated to adding
value to the investment process by creating and implementing portfolio
strategies tailored to each client's needs.
At December 31, 1995, Credit Suisse Investment Management Group provided
investment advice for approximately $20 billion of assets.
The day-to-day management of the Portfolio is the responsibility of Glenn
Wellman, who joined the firm in 1993 as a Managing Director and Head of Global
Equity Portfolio Management. Mr. Wellman has been investing in international
markets since 1970. He has managed Europe Australia Far East (EAFE) benchmark
mutual funds as well as private accounts for Fortune 100 clients since 1982. A
worldwide equity team of 24 professionals supports Mr. Wellman. Prior to
joining CSIM, Mr. Wellman spent 14 years with Alliance Capital Limited, most
recently as Chief Investment Officer with responsibility for developing
Alliance's global equity management service. He has been an Associate of the
Institute of Investment Management and Research since 1974. Mr. Wellman earned
a BSc (Hons) in Chemistry from the University of London and an MBA from
Manchester Business School.
BLACKROCK FINANCIAL MANAGEMENT ("BLACKROCK"), 345 Park Avenue, New York,
New York, 10154, is the Sub-Adviser for the BlackRock Managed Bond Portfolio
of the Trust. BlackRock is an independent adviser that specializes in managing
high-quality, fixed-income portfolios. BlackRock currently manages over $39
billion of government, mortgage-backed, corporate, asset-backed, and municipal
securities.
BlackRock was founded in 1988 on the belief that experienced professionals
using a disciplined process and advanced analytical tools will consistently
add value to client portfolios. The firm has extensive experience creating,
analyzing and managing high-quality, fixed-income portfolios. BlackRock has
over 110 professionals including 16 portfolio managers and 25 quantitative,
credit and computer analysts. BlackRock provides fixed-income investment
management services to public and private pension plans, insurance companies,
mutual funds and international investors.
On June 16, 1994, BlackRock announced a definitive agreement to merge with a
subsidiary of PNC Bank, the nation's tenth largest banking organization. The
transaction closed on February 28, 1995, and resulted in no change of senior
portfolio management or client service personnel at BlackRock. In addition,
BlackRock professionals retained a significant ongoing economic interest in
the future earnings of BlackRock. BlackRock also retained its name and
location.
The day-to-day portfolio management of the Portfolio is the responsibility of
Keith Anderson and Glenn Henricksen.
Keith Anderson is a Partner at BlackRock, and co-head of the Portfolio
Management Group. Mr. Anderson is a member of both the firm's Management
Committee and its Investment Strategy Committee. Mr. Anderson has primary
responsibility for managing client portfolios and for acting as a specialist
in the government and mortgage sectors. His areas of expertise include
Treasuries, agencies, futures, options, swaps and a wide range of traditional
and non-traditional mortgage securities.
Prior to founding BlackRock in 1988, Mr. Anderson was a Vice President in
Fixed-Income Research at The First Boston Corporation. Mr. Anderson joined
First Boston in 1987 as a mortgage securities and derivative products
strategist working with institutional money managers. From 1983 to 1987, Mr.
Anderson was a Vice President and Portfolio Manager at Criterion Investment
Management Company where he had primary responsibility for a $2.8 billion
fixed-income portfolio and was an integral part of the firm's portfolio
management team.
Mr. Anderson has published numerous articles on fixed-income strategies,
including two articles in THE HANDBOOK OF FIXED INCOME OPTIONS: "Scenario
Analysis and the Use of Options in Total Return Portfolio Management" and
"Measuring, Interpreting, and Applying Volatility within the Fixed Income
Market." Mr. Anderson received a Bachelor of Science in Economics and Finance
from Nichols College in 1981 and an MBA from Rice University in 1983.
Glenn Henricksen is a Vice President and Portfolio Manager at BlackRock. Mr.
Henricksen is a member of both the firm's Investment Strategy Committee and
its Credit Committee. Mr. Henricksen's primary responsibility is the
management of corporate securities in client portfolios.
Prior to joining BlackRock in 1992, Mr. Henricksen was a Portfolio Manager at
New York Life Insurance Company. Mr. Henricksen joined New York Life in 1988,
and was responsible for managing over $6 billion in corporate debt securities
and developing a Latin and emerging markets debt unit. Mr. Henricksen
previously worked as a corporate bond trader at Prudential-Bache Securities
and as an equity research analyst at Value Line.
Mr. Henricksen received a Bachelor of Science in Business in 1981, and an MBA
in Finance in 1982 from the State University of New York at Buffalo.
OPCAP ADVISORS, FORMERLY QUEST FOR VALUE ADVISORS ("ADVISORS"), One World
Financial Center, 200 Liberty Street, New York, New York 10281, is the
Sub-Adviser for the EliteValue Asset Allocation Portfolio of the Trust.
Advisors is a subsidiary of Oppenheimer Capital, a general partnership which
is registered as an investment adviser under the Investment Advisers Act of
1940, by whose employees all investment management services performed under
the Sub-Advisory Agreement are rendered to the Portfolio. Oppenheimer
Financial Corp., a holding company, holds a 33% interest in Oppenheimer
Capital, and Oppenheimer Capital, L.P., a Delaware limited partnership of
which Oppenheimer Financial Corp. is the sole general partner and whose units
are traded on the New York Stock Exchange, owns the remaining 67% interest.
Advisors and its affiliates have operated as investment advisers to both
mutual funds and other clients since 1968, and had over $39 billion under
management as of March 31, 1996.
The investments of the Portfolio are managed by Richard J. Glasebrook II,
Managing Director for Oppenheimer Capital.
SALOMON BROTHERS ASSET MANAGEMENT INC ("SBAM"), 7 World Trade Center, New
York, New York 10048, is the Sub-Adviser for the Salomon Brothers U.S.
Government Securities Portfolio of the Trust. SBAM is an indirect,
wholly-owned subsidiary of Salomon Inc incorporated in 1987, and an affiliate
of Salomon Brothers Inc. Through its office in New York and affiliates in
London, Frankfurt, Hong Kong and Tokyo, SBAM provides a full range of
fixed-income and equity investment advisory services for its individual and
institutional clients around the world, including central banks, pension
funds, endowments, insurance companies, and various investment companies
(including portfolios thereof). As of December 31, 1995, SBAM had investment
advisory responsibility for approximately $13 billion of assets. SBAM has
access to Salomon Brothers Inc's more than 400 economists, mortgage, bond,
sovereign and equity analysts.
Mr. Guterman is primarily responsible for the day-to-day management of the
Portfolio. Mr. Guterman is assisted in the management of the Portfolio by
Roger Lavan.
Mr. Guterman, who joined SBAM in 1990, is a Senior Portfolio Manager, and is
responsible for the day-to-day management of SBAM managed portfolios which
invest primarily in mortgage-backed and U.S. Government securities. Mr.
Guterman joined Salomon Brothers Inc in 1983. He initially worked in the
mortgage research group where he became a Research Director and later traded
derivative mortgage-backed securities for Salomon Brothers Inc.
Mr. Lavan, who joined SBAM in 1990, is a Portfolio Manager, and is responsible
for investment company and institutional portfolios which invest in
mortgage-backed and U.S. Government securities. Prior to joining SBAM, Mr.
Lavan spent four years analyzing portfolios for Salomon Brothers Inc's Fixed
Income Sales Group and Product Support Divisions. Mr. Lavan is a Chartered
Financial Analyst, a member of the New York Society of Security Analysts, and
received his MBA from Fordham University in 1990.
STATE STREET GLOBAL ADVISORS, Two International Place, Boston, MA 02110,
the investment management division of State Street Bank and Trust Company, is
the Sub-Adviser for the Global Advisors Growth Equity and Global Advisors
Money Market Portfolios of the Trust. State Street Bank and Trust Company, one
of the largest providers of securities processing and recordkeeping services
for U.S. mutual funds and pension funds, is a wholly-owned subsidiary of State
Street Boston Corporation, a publicly held bank holding company. State Street
Global Advisors, with over $225 billion (U.S.) under management as of December
31, 1995 provides complete global investment management services from offices
in the United States, London, Sydney, Hong Kong, Tokyo, Toronto, Luxembourg,
Melbourne, Montreal and Paris.
Investment decisions regarding the Global Advisors Growth Equity Portfolio are
made by committee, and no one person is primarily responsible for making
recommendations to that committee.
SUB-ADVISORY FEES
Under the terms of the Sub-Advisory Agreements, the Adviser shall pay to the
Sub-Advisers, as full compensation for services rendered under the respective
Agreements with respect to the various Portfolios, monthly fees at the
following annual rates shown in the table below based on the average daily net
assets of each Portfolio.
<TABLE>
<CAPTION>
<S> <C>
Portfolio Sub-Advisory Fee
- ------------------------------------------- ---------------------------
Van Kampen American Capital Emerging Growth .50% of average net assets
BEA Growth and Income .50% of average net assets
Credit Suisse International Equity .65% of average net assets
BlackRock Managed Bond .30% of average net assets
EliteValue Asset Allocation .40% of average net assets
Salomon Brothers U.S. Government Securities .225% of average net assets
Global Advisors Growth Equity .36% of average net assets
Global Advisors Money Market .20% of average net assets
</TABLE>
SUB-ADVISORY FEE WAIVER
Each of the Sub-Advisers has agreed to waive its sub-advisory fees due under
the Sub-Advisory Agreements for the initial six (6) months of each respective
Portfolio's investment operations. The sub-advisory fee waivers with respect
to the Portfolios sub-advised by BEA Associates, Credit Suisse Investment
Management, Ltd. and State Street Global Advisors have terminated as of May 1,
1996.
SALES AND REDEMPTIONS
The separate account of the Life Company places orders to purchase and redeem
shares of each Portfolio based on, among other things, the amount of premium
payments to be invested and surrender and transfer requests to be effected on
that day pursuant to the VA contracts issued by the Life Company. Orders
received by the Trust are effected on days on which the New York Stock
Exchange is open for trading, at the net asset value per share next determined
after receipt of the order, except that, in the case of the Global Advisors
Money Market Portfolio, purchases will not be effected until the next
determination of net asset value after federal funds have been made available
to the Trust. For orders received before 4:00 p.m. New York time, such
purchases and redemptions of shares of each Portfolio are effected at the
respective net asset values per share determined as of 4:00 p.m. New York time
on that day. See "Net Asset Value," below, and "Determination of Net Asset
Value" in the Trust's Statement of Additional Information. Payment for
redemptions will be made within seven days after receipt of a redemption
request in good order. No fee is charged the separate account of the Life
Company when it redeems Portfolio shares. The Trust may suspend the sale of
shares at anytime and may refuse any order to purchase shares.
The Trust may suspend the right of redemption of shares of any Portfolio and
may postpone payment for any period: (i) during which the New York Stock
Exchange is closed other than for customary weekend and holiday closings or
during which trading on the New York Stock Exchange is restricted; (ii) when
the Securities and Exchange Commission determines that a state of emergency
exists, which makes the sale of portfolio securities or the determination of
net asset value not reasonably practicable; (iii) as the Securities and
Exchange Commission may by order permit for the protection of the security
holders of the Trust; or (iv) at anytime when the Trust may, under applicable
laws and regulations, suspend payment on the redemption of its shares.
NET ASSET VALUE
Each Portfolio calculates the net asset value of a share by dividing the total
value of its assets, less liabilities, by the number of shares outstanding.
Shares are valued as of 4:00 p.m. New York time on each day the New York Stock
Exchange is open.
The Global Advisors Money Market Portfolio's securities are valued at their
amortized cost, which does not take into account unrealized gains or losses on
securities. This method involves initially valuing an instrument at its cost
and thereafter assuming a constant amortization to maturity of any premium
paid or discount received. For a more complete description of amortized cost
valuation, see "Determination of Net Asset Value" in the SAI.
Because foreign securities are quoted in foreign currencies, which will be
translated into U.S. dollars at the New York cable transfer rates or at such
other rates as the Trustees may determine in computing net asset value,
fluctuations in the value of such currencies in relation to the U.S. dollar
will affect the net asset value of shares of a Portfolio investing in foreign
securities even though there has not been any change in the local currency
values of such securities.
PERFORMANCE INFORMATION
Global Advisors Money Market Portfolio: From time to time, the Global Advisors
Money Market Portfolio's annualized "yield" and "effective yield" may be
presented in advertisements and sales literature. These yield figures are
based on historical earnings and are not intended to indicate future
performance. The "yield" of the Global Advisors Money Market Portfolio refers
to the income generated by an investment in the shares of that Portfolio over
a seven-day period (which period will be stated in the advertisement). This
income is then "annualized." That is, the amount of income generated by the
investment during that week is assumed to be generated each week over a
52-week period and is shown as a percentage of the investment. The "effective
yield" is calculated similarly but, when annualized, the income earned by an
investment in the shares of the Global Advisors Money Market Portfolio is
assumed to be reinvested. The "effective yield" will be slightly higher than
the "yield" because of the compounding effect of this assumed reinvestment.
For more information regarding the computation of "yield" and "effective
yield," see "Performance Information" in the SAI.
Other Portfolios: Performance information for each of the other Portfolios may
also be presented from time to time in advertisements and sales literature.
The Portfolios may advertise several types of performance information. These
are the "yield," "average annual total return" and "aggregate total return."
Each of these figures is based upon historical results and is not necessarily
representative of the future performance of any Portfolio.
The yield of a Portfolio's shares is determined by annualizing net investment
income earned per share for a stated period (normally one month or 30 days)
and dividing the result by the net asset value per share at the end of the
valuation period. The average annual total return and aggregate total return
figures measure both the net investment income generated by, and the effect of
any realized or unrealized appreciation or depreciation of the underlying
investments in, the Portfolio's portfolio for the period in question, assuming
the reinvestment of all dividends. Thus, these figures reflect the change in
the value of an investment in a Portfolio's shares during a specified period.
Average annual total return will be quoted for at least the one-, five- and
ten-year periods ending on a recent calendar quarter (or if such periods have
not yet elapsed, at the end of a shorter period corresponding to the life of
the Portfolio). Average annual total return figures are annualized and,
therefore, represent the average annual percentage change over the period in
question. Total return figures are not annualized and represent the aggregate
percentage or dollar value change over the period in question. For more
information regarding the computation of yield, average annual total return
and aggregate total return, see "Performance Information" in the SAI.
Any Portfolio performance information presented will also include performance
information for the insurance company separate accounts investing in the Trust
which will take into account insurance-related charges and expenses under such
insurance policies and contracts.
Advertisements concerning the Trust may from time to time compare the
performance of one or more Portfolios to various indexes. Advertisements may
also contain the performance rankings assigned certain Portfolios or their
advisers by various publications and statistical services, including, for
example, SEI, Lipper Analytical Services Mutual Funds Survey, Lipper Variable
Insurance Products Performance Analysis Service, Morningstar, Intersec
Research Survey of Non U.S. Equity Fund Returns, Frank Russell International
Universe, Kiplinger's Personal Finance, and Financial Services Week. Any such
comparisons or rankings are based on past performance and the statistical
computation performed by publications and services, and are not necessarily
indications of future performance. Because the Portfolios are managed
investment vehicles investing in a wide variety of securities, the securities
owned by a Portfolio will not match those making up an index.
TAX STATUS, DIVIDENDS, AND DISTRIBUTIONS
Each Portfolio of the Trust intends to qualify and elects to be treated as a
regulated investment company that is taxed under the rules of Subchapter M of
the Internal Revenue Code. As an electing regulated investment company, a
Portfolio will not be subject to federal income tax on its net ordinary income
and net realized capital gains to the extent such income and gains are
distributed to the separate account of the Life Company which holds its
shares. For further information concerning federal income tax consequences for
the holders of the VA Contracts of the Life Company, investors should consult
the prospectus used in connection with the issuance of their VA Contracts.
The Global Advisors Money Market Portfolio will declare a dividend of its net
ordinary income daily and distribute such dividend monthly. The Global
Advisors Money Market Portfolio does not anticipate that it will normally
realize any long-term capital gains with respect to its portfolio securities.
Distributions will be made shortly after the first business day of each month
following declaration of the dividend. Each of the other Portfolios will
declare and distribute dividends from net ordinary income at least annually
and will distribute its net realized capital gains, if any, at least annually.
Distributions of ordinary income and capital gains will be made in shares of
such Portfolios unless an election is made on behalf of a separate account to
receive distributions in cash. The Life Company will be informed at least
annually about the amount and character of distributions from the Trust for
federal income tax purposes.
ADDITIONAL INFORMATION
The Trust was established as a Massachusetts business trust under the laws of
Massachusetts by a Declaration of Trust dated December 12, 1994, as amended
April 19, 1995 (the "Declaration of Trust"). Under Massachusetts law,
shareholders of such a trust may, under certain circumstances, be held
personally liable as partners for the obligations of the trust. The
Declaration of Trust contains an express disclaimer of shareholder liability
in connection with Trust property or the acts, obligations, or affairs of the
Trust. The Declaration of Trust also provides for indemnification out of a
Portfolio's property of any shareholder of that Portfolio held personally
liable for the claims and liabilities to which a shareholder may become
subject by reason of being or having been a shareholder. Thus, the risk of a
shareholder's incurring financial loss on account of shareholder liability is
limited to circumstances in which the Portfolio itself would be unable to meet
its obligations. A copy of the Declaration of Trust is on file with the
Secretary of State of The Commonwealth of Massachusetts.
The Trust has an unlimited authorized number of shares of beneficial interest.
Shares of the Trust are entitled to one vote per share (with proportional
voting for fractional shares) and are freely transferable, and, in liquidation
of a Portfolio, shareholders of the Portfolio are entitled to receive pro rata
the net assets of the Portfolio. Although no Portfolio is required to hold
annual meetings of its shareholders, shareholders have the right to call a
meeting to elect or remove Trustees or to take other actions as provided in
the Declaration of Trust. Shareholders have no preemptive rights. The Trust's
custodian, sub-administrator and transfer and dividend-paying agent
is State Street Bank and Trust Company.
To mitigate the possibility that a Portfolio will be adversely affected by
personal trading of employees, the Trust, the Adviser and the Sub-Advisers
have adopted policies that restrict securities trading in personal accounts of
the portfolio managers and others who normally come into possession of
information on portfolio transactions. These policies comply, in all material
respects, with the recommendations of the Investment Company Institute.
APPENDIX
SECURITIES AND INVESTMENT PRACTICES
In attempting to achieve its investment objective or policies each Portfolio
employs a variety of instruments, strategies and techniques, which are
described in greater detail below. Risks and restrictions associated with
these practices are also described. Policies and limitations are considered at
the time a security or instrument is purchased or a practice initiated.
Generally, securities need not be sold if subsequent changes in market value
result in applicable limitations not being met.
A Portfolio might not buy all of these securities or use all of these
techniques to the full extent permitted unless the Sub-Adviser, subject to
oversight by Adviser, believes that doing so will help the Portfolio achieve
its goal. As a shareholder, you will receive Portfolio reports every six
months detailing the Trust's holdings and describing recent investment
practices.
Except where noted otherwise, the investment guidelines set forth
below may be changed at anytime without shareholder consent by vote of the
Board of Trustees of the Trust. A complete list of investment restrictions
that identifies additional restrictions that cannot be changed without the
approval of a majority of an affected Portfolio's outstanding shares is
contained in the SAI.
AMERICAN DEPOSITORY RECEIPTS AND EUROPEAN DEPOSITORY RECEIPTS
Certain Portfolios may invest in securities of foreign issuers directly or in
the form of American Depository Receipts ("ADRs"), European Depository
Receipts ("EDRs") or other similar securities representing securities of
foreign issuers. These securities may not necessarily be denominated in the
same currency as the securities they represent. ADRs are receipts typically
issued by a United States bank or trust company evidencing beneficial
ownership of the underlying foreign securities. EDRs are receipts issued by a
European financial institution evidencing a similar arrangement. Generally,
ADRs, in registered form, are designed for use in the United States securities
markets, and EDRs, in bearer form, are designed for use in European securities
markets.
ASSET-BACKED SECURITIES
Certain Portfolios may purchase asset-backed securities, which represent a
participation in, or are secured by and payable from, a stream of payments
generated by particular assets, most often a pool of assets similar to one
another. Assets generating such payments may include motor vehicle installment
purchase obligations, such as company receivables, truck and auto loans,
leases, credit card receivables and home equity loans. Such securities are
generally issued as pass-through certificates, which represent undivided
fractional ownership interests in the underlying pools of assets. Such
securities also may be debt instruments, which are also known as
collateralized obligations and are generally issued as the debt of a special
purpose entity, such as a trust, organized solely for the purpose of owning
such assets and issuing such debt.
Asset-backed securities are not issued or guaranteed by the United States
Government or its agencies or instrumentalities; however, the payment of
principal and interest on such obligations may be guaranteed up to certain
amounts and for a certain period by a letter of credit issued by a financial
institution (such as a bank or insurance company) unaffiliated with the
issuers of such securities. The purchase of asset-backed securities raises
risk considerations peculiar to the financing of the instruments underlying
such securities. For example, there is a risk that another party could acquire
an interest in the obligations superior to that of the holders of the
asset-backed securities. There also is the possibility that recoveries on
repossessed collateral may not, in some cases, be available to support
payments on those securities. Asset-backed securities entail prepayment risk,
which may vary depending on the type of asset, but is generally less than the
prepayment risk associated with mortgage-backed securities. In addition,
credit card receivables are unsecured obligations of the card holder.
BANK OBLIGATIONS
All of the Portfolios may invest in Bank Obligations, which include
certificates of deposit, time deposits and bankers' acceptances of U.S.
commercial banks or savings and loan institutions which are determined by the
Sub-Advisers to present minimal credit risks. Certain Portfolios may invest in
foreign currency-denominated Bank Obligations, including Eurocurrency
instruments and securities of U.S. and foreign banks and thrifts.
BORROWING
Each of the Portfolios may borrow money (up to 33 1/3% of its assets) for
temporary or emergency purposes. In addition, the Global Advisors Money Market
Portfolio may borrow to facilitate redemptions. If a Portfolio borrows money,
its share price may be subject to greater fluctuation until the borrowing is
paid off. If the Portfolio makes additional investments while borrowings are
outstanding, this may be construed as a form of leverage.
Borrowing, including reverse repurchase agreements and, in certain
circumstances, dollar rolls, creates leverage which increases a Portfolio's
investment risk. If the income and gains on the securities purchased with the
proceeds of borrowings exceed the cost of the arrangements, the Portfolio's
earnings or net asset value will increase faster than would be the case
otherwise. Conversely, if the income and gains fail to exceed the costs,
earnings or net asset value will decline faster than would otherwise be the
case.
As a matter of operating policy, no Portfolio will borrow more than 10% of
its total net asset value when borrowing for general purposes and none will
borrow an amount equal to more than 25% of its total net asset value when
borrowing as a temporary measure or to facilitate redemptions. For these
purposes, net asset value is the market value of all investments or assets
less outstanding liabilities at the time that the new or additional
borrowing is undertaken. Also for these purposes, securities purchased
on a when-issued or delayed delivery basis and short sales of securities are
considered borrowing. A Portfolio will not purchase investments once
borrowed funds (including reverse repurchase agreements) exceed 5% of its
total assets. This 5% limitation is a fundamental investment restriction of
the Trust which may not be changed without shareholder approval.
COMMON STOCK AND OTHER EQUITY SECURITIES
Common Stocks represent an equity (ownership) interest in a corporation. This
ownership interest generally gives a Portfolio the right to vote on measures
affecting the company's organization and operations.
Certain Portfolios may also buy securities such as convertible debt, preferred
stock, warrants or other securities exchangeable for shares of Common Stock.
In selecting equity investments for a Portfolio, each Portfolio's Sub-Adviser
will generally invest the Portfolio's assets in industries and companies that
it believes are experiencing favorable demand for their products and services
and which operate in a favorable competitive and regulatory climate.
Investments in equity securities in general are subject to market risks that
may cause their prices to fluctuate over time. The value of convertible equity
securities is also affected by prevailing interest rates, the credit quality
of the issuer and any call provision. Fluctuations in the value of equity
securities in which a Portfolio invests will cause the net asset value of a
Portfolio to fluctuate.
CONVERTIBLE SECURITIES
Convertible securities are corporate securities that are exchangeable for a
set number of another security at a prestated price. Convertible securities
typically have characteristics similar to both fixed income and equity
securities.
Because of the conversion feature, the market value of convertible securities
tends to move with the market value of the underlying stock. The value of a
convertible security is also affected by prevailing interest rates, the credit
quality of the issuer, and any call provisions.
CURRENCY MANAGEMENT
A Portfolio's flexibility to participate in higher-yielding debt markets
outside of the United States may allow the Portfolio to achieve higher yields
than those generally obtained by domestic money market funds and short-term
bond investments. When a Portfolio invests significantly in securities
denominated in foreign currencies, however, movements in foreign currency
exchange rates vs. the U.S. dollar are likely to impact the Portfolio's share
price stability relative to domestic short-term income funds. Fluctuations in
foreign currencies can have a positive or negative impact on returns.
Normally, to the extent that the Portfolio is invested in foreign securities,
a weakening in the U.S. dollar relative to the foreign currencies underlying a
Portfolio's investments should help increase the net asset value of the
Portfolio. Conversely, a strengthening in the U.S. dollar vs. the foreign
currencies in which a Portfolio's securities are denominated will generally
lower the net asset value of the Portfolio. Each Portfolio's Sub-Adviser
attempts to minimize exchange rate risk through active portfolio management,
including hedging currency exposure through the use of futures, options and
forward currency transactions and attempting to identify bond markets with
strong or stable currencies. There can be no assurance that such hedging will
be successful and such transactions, if unsuccessful, could result in
additional losses or expenses to a Portfolio.
DOLLAR ROLL TRANSACTIONS
Certain Portfolios seeking a high level of current income may enter into
dollar rolls and "covered rolls" in which the Portfolio sells securities
(usually Mortgage-Backed Securities) and simultaneously contracts to purchase,
typically in 30 to 60 days, substantially similar, but not identical
securities, on a specified future date. The proceeds of the initial sale of
securities in such transactions may be used to purchase long-term securities
which will be held during the roll period. During the roll period, the
Portfolio forgoes principal and interest paid on the securities sold at the
beginning of the roll period. The Portfolio is compensated by the difference
between the current sales price and the forward price for the future purchase
(often referred to as the "drop") as well as by the interest earned on the
cash proceeds of the initial sale. A "covered roll" is a specific type of
dollar roll for which there is an offsetting cash position or cash equivalent
securities position that matures on or before the forward settlement date of
the dollar roll transaction. As used herein the term "dollar roll" refers to
dollar rolls that are not "covered rolls." At the end of the roll commitment
period, the Portfolio may or may not take delivery of the securities the
Portfolio has contracted to purchase.
A Portfolio will establish a segregated account with its custodian in which it
will maintain cash, U.S. Government Securities or other liquid high-grade debt
obligations equal in value at all times to its obligations in respect of
dollar rolls, and, accordingly, the Portfolio will not treat such obligations
as senior securities for purposes of the 1940 Act. "Covered rolls" are not
subject to these segregation requirements. Dollar rolls and covered rolls may
be considered borrowings and are, therefore, subject to the borrowing
limitations applicable to the Portfolios. Dollar rolls involve the risk that
the market value of the securities the Portfolio is obligated to repurchase
under the agreement may decline below the repurchase price. In the event the
buyer of securities under a dollar roll files for bankruptcy or becomes
insolvent, the Portfolio's use of proceeds of the dollar roll may be
restricted pending a determination by the other party, or its trustee or
receiver, whether to enforce the Portfolio's obligation to repurchase the
securities.
EQUITY AND DEBT SECURITIES ISSUED OR GUARANTEED BY SUPRANATIONAL ORGANIZATIONS
Portfolios authorized to invest in securities of foreign issuers may invest
assets in equity and debt securities issued or guaranteed by Supranational
Organizations, such as obligations issued or guaranteed by the Asian
Development Bank, InterAmerican Development Bank, International Bank for
Reconstruction and Development (World Bank), African Development Bank,
European Coal and Steel Community, European Economic Community, European
Investment Bank and the Nordic Investment Bank.
EXCHANGE RATE-RELATED SECURITIES
Certain Portfolios may invest in securities which are indexed to certain
specific foreign currency exchange rates. The terms of such security would
provide that the principal amount or interest payments are adjusted upwards or
downwards (but not below zero) at payment to reflect fluctuations in the
exchange rate between two currencies while the obligation is outstanding,
depending on the terms of the specific security. A Portfolio will purchase
such security with the currency in which it is denominated and will receive
interest and principal payments thereon in the currency, but the amount of
principal or interest payable by the issuer will vary in proportion to the
change (if any) in the exchange rate between the two specific currencies
between the date the instrument is issued and the date the principal or
interest payment is due. The staff of the SEC is currently considering whether
a mutual fund's purchase of this type of security would result in the issuance
of a "senior security" within the meaning of the 1940 Act. The Trust believes
that such investments do not involve the creation of such a senior security,
but nevertheless undertakes, pending the resolution of this issue by the
staff, to establish a segregated account with respect to such investments and
to maintain in such account cash not available for investment or U.S.
Government Securities or other liquid, high-quality debt securities having a
value equal to the aggregate principal amount of outstanding securities of
this type.
Investment in Exchange Rate-Related Securities entails certain risks. There is
the possibility of significant changes in rates of exchange between the U.S.
dollar and any foreign currency to which an Exchange Rate-Related Security is
linked. In addition, there is no assurance that sufficient trading interest to
create a liquid secondary market will exist for a particular Exchange
Rate-Related Security due to conditions in the debt and foreign currency
markets. Illiquidity in the forward foreign exchange market and the high
volatility of the foreign exchange market may from time to time combine to
make it difficult to sell an Exchange Rate-Related Security prior to maturity
without incurring a significant price loss.
FIXED-INCOME SECURITIES
Fixed income securities consist of bonds, notes, debentures and other
interest-bearing securities that represent indebtedness. The market value of
fixed-income obligations held by the Portfolios and, consequently, the net
asset value per share of the Portfolios can be expected to vary inversely to
changes in prevailing interest rates. Investors should also recognize that, in
periods of declining interest rates, the yields of the fixed-income Portfolios
will tend to be somewhat higher than prevailing market rates and, in periods
of rising interest rates, the fixed-income Portfolios' yields will tend to be
somewhat lower. Also, when interest rates are falling, the inflow of net new
money to the fixed-income Portfolios from the continuous sales of their shares
will likely be invested in instruments producing lower yields than the balance
of their assets, thereby reducing current yields. In periods of rising
interest rates, the opposite can be expected to occur. Prices of longer-term
securities generally increase or decrease more sharply than those of
shorter-term securities in response to interest rate changes. In addition,
obligations purchased by certain of the fixed-income Portfolios that are rated
in the lower of the top four ratings (Baa by Moody's or BBB by S&P, Duff or
Fitch) are considered to have speculative characteristics and changes in
economic conditions or other circumstances are more likely to lead to a
weakened capacity to make principal and interest payments than is the case
with higher-grade securities. (See "Lower-Rated Securities" in this Appendix.)
FOREIGN CURRENCY EXCHANGE TRANSACTIONS
Certain Portfolios may engage in foreign currency exchange transactions.
Portfolios that buy and sell securities denominated in currencies other than
the U.S. dollar, and receive interest, dividends and sale proceeds in
currencies other than the U.S. dollar, may enter into foreign currency
exchange transactions to convert to and from different foreign currencies and
to convert foreign currencies to and from the U.S. dollar. A Portfolio can
either enter into these transactions on a spot (i.e., cash) basis at the spot
rate prevailing in the foreign currency exchange market, or use forward
contracts to purchase or sell foreign currencies.
A forward foreign currency exchange contract is an obligation by a Portfolio
to purchase or sell a specific currency at a future date, which may be any
fixed number of days from the date of the contract. Forward foreign currency
exchange contracts establish an exchange rate at a future date. These
contracts are transferable in the interbank market conducted directly between
currency traders (usually large commercial banks) and their customers. A
forward foreign currency exchange contract generally has no deposit
requirement, and is traded at a net price without a commission. The Portfolio
maintains with its Custodian, in a segregated account, high-grade liquid
assets in an amount at least equal to its obligations under each forward
foreign currency exchange contract. Neither spot transactions nor forward
foreign currency exchange contracts eliminate fluctuations in the prices of
the Portfolio's portfolio securities or in foreign exchange rates, or prevent
loss if the prices of these securities should decline.
A Portfolio may enter into foreign currency exchange transactions for hedging
purposes as well as for non-hedging purposes. Transactions are entered into
for hedging purposes in an attempt to protect against changes in foreign
currency exchange rates between the trade and settlement dates of specific
securities transactions or changes in foreign currency exchange rates that
would adversely affect a portfolio position or an anticipated portfolio
position. Although these transactions tend to minimize the risk of loss due to
a decline in the value of the hedged currency, at the same time they tend to
limit any potential gain that might be realized should the value of the hedged
currency increase. The precise matching of the forward contract amounts and
the value of the securities involved will not generally be possible because
the future value of these securities in foreign currencies will change as a
consequence of market movements in the value of those securities between the
date the forward contract is entered into and the date it matures. The
projection of currency market movements is extremely difficult, and the
successful execution of a hedging strategy is highly uncertain. In addition,
when the Sub-Adviser believes that the currency of a specific country may
deteriorate against another currency, it may enter into a forward contract to
sell the less attractive currency and buy the more attractive one. The amount
in question could be less than or equal to the value of the Portfolio's
securities denominated in the less attractive currency. The Portfolio may also
enter into a forward contract to sell a currency which is linked to a currency
or currencies in which some or all of the Portfolio's portfolio securities are
or could be denominated, and to buy U.S. dollars. These practices are referred
to as "cross hedging" and "proxy hedging."
A Portfolio may enter into foreign currency exchange transactions for other
than hedging purposes which presents greater profit potential but also
involves increased risk. For example, if the Sub-Adviser believes that the
value of a particular foreign currency will increase or decrease relative to
the value of the U.S. dollar, the Portfolio may purchase or sell such
currency, respectively, through a forward foreign currency exchange contract.
If the expected changes in the value of the currency occur, the Portfolio will
realize profits which will increase its gross income. Where exchange rates do
not move in the direction or to the extent anticipated, however, the Portfolio
may sustain losses which will reduce its gross income. Such transactions,
therefore, could be considered speculative.
Forward currency exchange contracts are agreements to exchange one currency
for another -- for example, to exchange a certain amount of U.S. dollars for a
certain amount of Japanese yen -- at a future date and specified price.
Typically, the other party to a currency exchange contract will be a
commercial bank or other financial institution. Because there is a risk of
loss to the Portfolio if the other party does not complete the transaction,
the Portfolio's Sub-Adviser will enter into foreign currency exchange
contracts only with parties approved by the Trust's Board of Trustees.
A Portfolio may maintain "short" positions in forward currency exchange
transactions in which the Portfolio agrees to exchange currency that it
currently does not own for another currency -- for example, to exchange an
amount of Japanese yen that it does not own for a certain amount of U.S.
dollars -- at a future date and specified price in anticipation of a decline
in the value of the currency sold short relative to the currency that the
Portfolio has contracted to receive in the exchange.
While such actions are intended to protect the Portfolio from adverse currency
movements, there is a risk that currency movements involved will not be
properly anticipated. Use of this technique may also be limited by
management's need to protect the status of the Portfolio as a regulated
investment company under the Internal Revenue Code of 1986, as amended. The
projection of currency market movements is extremely difficult, and the
successful execution of currency strategies is highly uncertain.
FOREIGN INVESTMENTS
Certain Portfolios may invest in securities of foreign issuers. There are
certain risks involved in investing in foreign securities, including those
resulting from fluctuations in currency exchange rates, devaluation of
currencies, future political or economic developments and the possible
imposition of currency exchange blockages or other foreign governmental laws
or restrictions, reduced availability of public information concerning
issuers, and the fact that foreign companies are not generally subject to
uniform accounting, auditing and financial reporting standards or to other
regulatory practices and requirements comparable to those applicable to
domestic companies. Moreover, securities of many foreign companies may be less
liquid and the prices more volatile than those of securities of comparable
domestic companies. With respect to certain foreign countries, there is the
possibility of expropriation, nationalization, confiscatory taxation and
limitations on the use or removal of funds or other assets of the Portfolios,
including the withholding of dividends.
Because foreign securities generally are denominated and pay dividends or
interest in foreign currencies, and the Portfolios hold various foreign
currencies from time to time, the value of the net assets of the Portfolios as
measured in U.S. dollars will be affected favorably or unfavorably by changes
in exchange rates. The cost of the Portfolio's currency exchange transactions
will generally be the difference between the bid and offer spot rate of the
currency being purchased or sold. In order to protect against uncertainty in
the level of future foreign currency exchange rates, the Portfolios are
authorized to enter into certain foreign currency exchange transactions.
Investors should be aware that exchange rate movements can be significant and
can endure for long periods of time. Extensive research of the economic,
political and social factors that influence global markets is conducted by the
Sub-Advisers. Particular attention is given to country-specific analysis,
reviewing the strengths or weaknesses of a country's overall economy, the
government policies influencing business conditions and the outlook for the
country's currency. Certain Portfolios are authorized to engage in foreign
currency options, futures, options on futures and forward currency contract
transactions for hedging and/or other permissible purposes.
In addition, while the volume of transactions effected on foreign stock
exchanges has increased in recent years, in most cases it remains appreciably
below that of the NYSE. Accordingly, the Portfolios' foreign investments may
be less liquid and their prices may be more volatile than comparable
investments in securities of U.S. companies. Moreover, the settlement periods
for foreign securities, which are often longer than those for securities of
U.S. issuers, may affect portfolio liquidity. In buying and selling securities
on foreign exchanges, the Portfolio normally pays fixed commissions that are
generally higher than the negotiated commissions charged in the United States.
In addition, there is generally less governmental supervision and regulation
of securities exchanges, brokers and issuers in foreign countries than in the
United States.
Certain Portfolios may invest a portion of their assets in developing markets.
The risks of investing in foreign markets are generally intensified for
investments in developing markets. Additional risks of investing in such
markets include: (i) less social, political, and economic stability; (ii) the
smaller size of the securities markets in such countries and the lower volume
of trading, which may result in a lack of liquidity and in greater price
volatility; (iii) certain national policies which may restrict a Portfolio's
investment opportunities, including restrictions on investment in issuers or
industries deemed sensitive to national interest; and (iv) less developed
legal structures governing private or foreign investment or allowing for
judicial redress for injury to private property.
FUTURES AND OPTIONS ON FUTURES
When deemed appropriate by its Sub-Adviser, certain Portfolios may enter into
financial or currency futures and related options that are traded on a U.S.
exchange or board of trade or, to the extent permitted under applicable law,
on exchanges located outside the United States, for hedging purposes or for
non-hedging purposes to the extent permitted by applicable law. A Portfolio
may not enter into futures and options contracts for which aggregate initial
margin deposits and premiums paid for unexpired futures options entered into
for purposes other than "bona fide hedging" positioning as defined in
regulations adopted by the Commodities Futures Trading Commission exceed 5% of
the fair market value of the Portfolio's net assets, after taking into account
unrealized profits and unrealized losses on futures contracts into which it
has entered. With respect to each long position in a futures contract or
option thereon, the underlying commodity value of such contract will always be
covered by cash and cash equivalents set aside plus accrued profits held at
the futures commission merchant.
A financial or currency futures contract provides for the future sale by one
party and the purchase by the other party of a specified amount of a
particular financial instrument or currency (e.g.,debt security or currency)
at a specified price, date, time and place. An index futures contract is an
agreement pursuant to which two parties agree to take or make delivery of an
amount of cash equal to the difference between the value of the index at the
close of the last trading day of the contract and the price at which the index
contract was originally written. An option on a futures contract generally
gives the purchaser the right, in return for the premium paid, to assume a
position in a futures contract at a specified exercise price at anytime prior
to the expiration date of the option.
The purpose of entering into a futures contract by a Portfolio is to either
enhance return or to protect the Portfolio from fluctuations in the value of
its securities caused by anticipated changes in interest rates, currency or
market conditions without necessarily buying or selling the securities. The
use of futures contracts and options on futures contracts involves several
risks. There can be no assurance that there will be a correlation between
price movements in the underlying securities, currencies or index, on the one
hand, and price movements in the securities which are the subject of the
futures contract or option on futures contract, on the other hand. Positions
in futures contracts and options on futures contracts may be closed out only
on the exchange or board of trade on which they were entered into, and there
can be no assurance that an active market will exist for a particular contract
or option at any particular time. If a Portfolio has hedged against the
possibility of an increase in interest rates or bond prices adversely
affecting the value of securities held in its portfolio, and rates or prices
decrease instead, a Portfolio will lose part or all of the benefit of the
increased value of securities that it has hedged because it will have
offsetting losses in its futures positions. In addition, in such situations,
if a Portfolio had insufficient cash, it may have to sell securities to meet
daily variation margin requirements at a time when it may be disadvantageous
to do so. These sales of securities may, but will not necessarily, be at
increased prices that reflect the decline in interest rates or bond prices, as
the case may be. In addition, the Portfolio would pay commissions and other
costs in connection with such investments, which may increase the Portfolio's
expenses and reduce its return. While utilization of options, futures
contracts and similar instruments may be advantageous to the Portfolio, if the
Portfolio's Sub-Adviser is not successful in employing such instruments in
managing the Portfolio's investments, the Portfolio's performance will be
worse than if the Portfolio did not make such investments.
Losses incurred in futures contracts and options on futures contracts and the
costs of these transactions will adversely affect a Portfolio's performance.
GEOGRAPHICAL AND INDUSTRY CONCENTRATION
Where a Portfolio invests at least 25% of its assets in Bank Obligations, the
Portfolio's investments may be subject to greater risk than a Portfolio that
does not concentrate in the banking industry. In particular, Bank Obligations
may be subject to the risks associated with interest rate volatility, changes
in federal and state laws and regulations governing banking and the inability
of borrowers to pay principal and interest when due. In addition, foreign
banks present the risks of investing in foreign securities generally and are
not subject to reserve requirements and other regulations comparable to those
of U.S. Banks.
GOVERNMENT STRIPPED MORTGAGE-BACKED SECURITIES
Certain Portfolios may invest in Government Stripped Mortgage-Backed
Securities issued or guaranteed by GNMA, FNMA and FHLMC. These securities
represent beneficial ownership interests in either periodic principal
distributions ("principal-only") or interest distributions ("interest-only")
on mortgage-backed certificates issued by GNMA, FNMA or FHLMC, as the case may
be. The certificates underlying the Government Stripped Mortgage-Backed
Securities represent all or part of the beneficial interest in pools of
mortgage loans. The Portfolios will invest in interest-only Government
Stripped Mortgage-Backed Securities in order to enhance yield or to benefit
from anticipated appreciation in value of the securities at times when the
appropriate Sub-Adviser believes that interest rates will remain stable or
increase. In periods of rising interest rates, the value of interest-only
Government Stripped Mortgage-Backed Securities may be expected to increase
because of the diminished expectation that the underlying mortgages will be
prepaid. In this situation the expected increase in the value of interest-only
Government Stripped Mortgage-Backed Securities may offset all or a portion of
any decline in value of the portfolio securities of the Portfolios. Investing
in Government Stripped Mortgage-Backed Securities involves the risks normally
associated with investing in mortgage-backed securities issued by government
or government-related entities. See "Mortgage-Backed Securities" below. In
addition, the yields on interest-only and principal-only Government Stripped
Mortgage-Backed Securities are extremely sensitive to the prepayment
experience on the mortgage loans underlying the certificates collateralizing
the securities. If a decline in the level of prevailing interest rates results
in a rate of principal prepayments higher than anticipated, distributions of
principal will be accelerated, thereby reducing the yield to maturity on
pped Mortgage-Backed Securities and increasing the yield to maturity on
principal-only Government Stripped Mortgage-Backed Securities. Conversely, if
an increase in the level of prevailing interest rates results in a rate of
principal prepayments lower than anticipated, distributions of principal will
be deferred, thereby increasing the yield to maturity on interest-only
Government Stripped Mortgage-Backed Securities and decreasing the yield to
maturity on principal-only Government Stripped Mortgage-Backed Securities.
Sufficiently high prepayment rates could result in the Portfolio not fully
recovering its initial investment in an interest-only Government Stripped
Mortgage-Backed Security. Government Stripped Mortgage-Backed Securities are
currently traded in an over-the-counter market maintained by several large
investment banking firms. There can be no assurance that the Portfolio will be
able to effect a trade of a Government Stripped Mortgage-Backed Security at a
time when it wishes to do so. The Portfolios will acquire Government Stripped
Mortgage-Backed Securities only if a liquid secondary market for the
securities exists at the time of acquisition.
INTEREST RATE TRANSACTIONS
Certain Portfolios may engage in certain Interest Rate Transactions, such as
swaps, caps, floors and collars. Interest rate swaps involve the exchange with
another party of commitments to pay or receive interest (e.g., an exchange of
floating rate payments for fixed rate payments). The purchase of an interest
rate cap entitles the purchaser, to the extent that a specified index exceeds
a predetermined interest rate, to receive payments of interest on a notional
principal amount from the party selling such interest rate cap. The purchase
of an interest rate floor entitles the purchaser, to the extent that a
specified index falls below a predetermined interest rate, to receive payments
of interest on a notional principal amount from the party selling such
interest rate floor. An interest rate collar combines the elements of
purchasing a cap and selling a floor. The collar protects against an interest
rate rise above the maximum amount but gives up the benefits of an interest
rate decline below the minimum amount. The net amount of the excess, if any,
of a Portfolio's obligations over its entitlements with respect to each
interest rate swap will be accrued on a daily basis and an amount of cash or
liquid securities having an aggregate net asset value at least equal to the
accrued excess will be maintained in a segregated account with the Trust's
custodian. If there is a default by the other party to the transaction, the
Portfolio will have contractual remedies pursuant to the agreements related to
the transactions.
ILLIQUID SECURITIES
Up to 15% (10% for Credit Suisse International Equity Portfolio and for Global
Advisors Money Market Portfolio) of the net assets of a Portfolio may be
invested in securities that are not readily marketable, including, where
applicable: (1) Repurchase Agreements with maturities greater than seven
calendar days; (2) time deposits maturing in more than seven calendar days;
(3) to the extent a liquid secondary market does not exist for the
instruments, futures contracts and options thereon (except for the Global
Advisors Money Market Portfolio); (4) certain over-the-counter options, as
described below and in the SAI; (5) certain variable rate demand notes having
a demand period of more than seven days; and (6) securities the disposition of
which is restricted under Federal securities laws (excluding Rule 144A
Securities, described below). The Portfolios will not include for purposes of
the restrictions on illiquid investments, securities sold pursuant to Rule
144A under the Securities Act of 1933, as amended, so long as such securities
meet liquidity guidelines established by the Trust's Board of Trustees. Under
Rule 144A, securities which would otherwise be restricted may be sold by
persons other than issuers or dealers to qualified institutional buyers.
INVESTMENT COMPANIES
When a Portfolio's Sub-Adviser believes that it would be beneficial for the
Portfolio and appropriate under the circumstances, the Sub-Adviser may invest
up to 10% of the Portfolio's assets in securities of mutual funds. As a
shareholder in any such mutual fund, the Portfolio will bear its ratable share
of the mutual fund's expenses, including management fees, and will remain
subject to the Portfolio's advisory and administration fees with respect to
the assets so invested.
LEASE OBLIGATION BONDS
Lease Obligation Bonds are mortgages on a facility that is secured by the
facility and are paid by a lessee over a long term. The rental stream to
service the debt as well as the mortgage are held by a collateral trustee on
behalf of the public bondholders. The primary risk of such instrument is the
risk of default. Under the lease indenture, the failure to pay rent is an
event of default. The remedy to cure default is to rescind the lease and sell
the assets. If the lease obligation is not readily marketable or market
quotations are not readily available, such lease obligations will be subject
to a Portfolio's limit on Illiquid Securities.
LENDING OF SECURITIES
All of the Portfolios have the ability to lend portfolio securities to brokers
and other financial organizations. By lending its securities, a Portfolio can
increase its income by continuing to receive interest on the loaned securities
as well as by either investing the cash collateral in short-term instruments
or obtaining yield in the form of interest paid by the borrower when U.S.
Government Securities are used as collateral. These loans, if and when made,
may not exceed 20% (except 10% with respect to the EliteValue Asset
Allocation Portfolio, 15% with respect to the Credit Suisse International
Equity Portfolio and 33 1/3% with respect to the Global Advisors Money Market
Portfolio) of a Portfolio's total assets taken at value. Loans of portfolio
securities by a Portfolio will be collateralized by cash, letters of credit or
U.S. Government Securities that are maintained at all times in an amount at
least equal to the current market value of the loaned securities. Any gain or
loss in the market price of the securities loaned that might occur during the
term of the loan would be for the account of the Portfolio involved. Each
Portfolio's Sub-Adviser will monitor on an ongoing basis the creditworthiness
of the institutions to which the Portfolio lends securities.
LOWER-RATED SECURITIES
Certain Portfolios may invest in debt securities rated lower than BBB by S&P
or Baa by Moody's, or of equivalent quality as determined by the Sub-Adviser.
Securities rated BB, Ba or lower are commonly referred to as "junk bonds."
Securities rated below investment-grade as well as unrated securities are
often considered to be speculative and usually entail greater risk (including
the possibility of default or bankruptcy of the issuers). Such securities
generally involve greater price volatility and risk of principal and income,
and may be less liquid than securities in higher-rated categories. Both price
volatility and illiquidity may make it difficult for the Portfolio to value
certain of these securities at certain times and these securities may be
difficult to sell under certain market conditions. Prices for securities rated
below investment-grade may be affected by legislative and regulatory
developments. (See SAI for additional information pertaining to lower-rated
securities including risks.)
MORTGAGE-BACKED SECURITIES
Certain Portfolios may invest in Mortgage-Backed Securities, which represent
an interest in a pool of mortgage loans. The primary government issuers or
guarantors of Mortgage-Backed Securities are GNMA, FHMA and FHLMC.
Mortgage-Backed Securities generally provide a monthly payment consisting of
interest and principal payments. Additional payments may be made out of
unscheduled repayments of principal resulting from the sale of the underlying
residential property, refinancing or foreclosure, net of fees or costs that
may be incurred. Prepayments of principal on Mortgage-Backed Securities may
tend to increase due to refinancing of mortgages as interest rates decline.
Prompt payment of principal and interest on GNMA mortgage pass-through
certificates is backed by the full faith and credit of the U.S. Government.
FNMA guaranteed mortgage pass-through certificates and FHLMC participation
certificates are solely the obligations of those entities but are supported by
the discretionary authority of the U.S. Government to purchase the agencies'
obligations.
If Mortgage-Backed Securities are purchased at a premium, faster than expected
prepayments will reduce yield to maturity, while slower than expected
prepayments will increase yield to maturity. Conversely, if Mortgage-Backed
Securities are purchased at a discount, faster than expected prepayments will
increase yield to maturity, while slower than expected prepayments will reduce
yield to maturity. Accelerated prepayments on securities purchased at a
premium also impose a risk of loss of principal because the premium may not
have been fully amortized at the time the principal is prepaid in full.
Because of the reinvestment of prepayments of principal at current rates,
Mortgage-Backed Securities may be less effective than Treasury bonds of
similar maturity at maintaining yields during periods of declining interest
rates. When interest rates rise, the value and liquidity of Mortgage-Backed
Securities may decline sharply and generally will decline more than would be
the case with other fixed-income securities; however, when interest rates
decline, the value of Mortgage-Backed Securities may not increase as much as
other fixed-income securities due to the prepayment feature. Certain market
conditions may result in greater than expected volatility in the prices of
Mortgage-Backed Securities. For example, in periods of supply and demand
imbalances in the market for such securities and/or in periods of sharp
interest rate movements, the prices of Mortgage-Backed Securities may
fluctuate to a greater extent than would be expected from interest rate
movements alone.
To the extent that a Portfolio invests in adjustable rate Mortgage-Backed
Securities, the Portfolio will not benefit from increases in interest rates to
the extent that interest rates rise to the point where they cause the current
coupon of the underlying adjustable rate mortgages to exceed any maximum
allowable annual or lifetime reset limits (or "cap rates") for a particular
mortgage. In this event, the value of the Mortgage-Backed Securities in a
Portfolio would likely decrease. Also, a Portfolio's net asset value could
vary to the extent that current yields on adjustable rate mortgage securities
are different than market yields during interim periods between coupon reset
dates or if the timing of changes to the index upon which the rate for the
underlying mortgages is based lags behind changes in market rates. During
periods of declining interest rates, income to a Portfolio derived from
adjustable rate mortgages which remain in a mortgage pool will decrease in
contrast to the income on fixed rate mortgages, which will remain constant.
Adjustable rate mortgages also have less potential for appreciation in value
as interest rates decline than do fixed rate investments.
COLLATERALIZED MORTGAGE OBLIGATIONS AND MULTICLASS PASS-THROUGH SECURITIES
A Portfolio may invest in collateralized mortgage obligations. Collateralized
mortgage obligations or "CMOs" are debt obligations collateralized by mortgage
loans or mortgage pass-through securities. Typically, CMOs are collateralized
by Ginnie Mae, Fannie Mae or Freddie Mac Certificates, but also may be
collateralized by whole loans or private pass-throughs (such collateral
collectively hereinafter referred to as "Mortgage Assets"). Multiclass
pass-through securities are interests in a trust composed of Mortgage Assets.
Unless the context indicates otherwise, all references herein to CMOs include
multiclass pass-through securities. Payments of principal and of interest on
the Mortgage Assets, and any reinvestment income thereon, provide the funds to
pay debt service on the CMOs or make scheduled distributions on the multiclass
pass-through securities. CMOs may be issued by agencies or instrumentalities
of the U.S. Government, or by private originators of, or investors in,
mortgage loans, including savings and loan associations, mortgage banks,
commercial banks, investment banks and special purpose subsidiaries of the
foregoing. CMOs acquired by the Salomon Brothers U.S. Government Securities
Portfolio will be limited to those issued or guaranteed by agencies or
instrumentalities of the U.S. Government and, if available in the future, the
U.S. Government.
In a CMO, a series of bonds or certificates is issued in multiple classes.
Each class of CMOs, often referred to as a "tranche," is issued at a specified
fixed or floating coupon rate and has a stated maturity or final distribution
date. Principal prepayments on the Mortgage Assets may cause the CMOs to be
retired substantially earlier than their stated maturities or final
distribution dates. Interest is paid or accrues on all classes of the CMOs on
a monthly, quarterly or semi-annual basis. The principal of and interest on
the Mortgage Assets may be allocated among the several classes of a series of
a CMO in innumerable ways. In one structure, payments of principal, including
any principal prepayments, on the Mortgage Assets are applied to the classes
of a CMO in the order of their respective stated maturities or final
distribution dates, so that no payment of principal will be made on any class
of CMOs until all other classes having an earlier stated maturity or final
distribution date have been paid in full. The Salomon Brothers U.S. Government
Securities Portfolio has no present intention to invest in CMO residuals. As
market conditions change, and particularly during periods of rapid or
unanticipated changes in market interest rates, the attractiveness of the CMO
classes and the ability of the structure to provide the anticipated investment
characteristics may be significantly reduced. Such changes can result in
volatility in the market value, and in some instances reduced liquidity, of
the CMO class.
A Portfolio may also invest in, among others, parallel pay CMOs and Planned
Amortization Class CMOs ("PAC Bonds"). Parallel pay CMOs are structured to
provide payments of principal on each payment date to more than one class.
These simultaneous payments are taken into account in calculating the stated
maturity date or final distribution date of each class, which, as with other
CMO structures, must be retired by its stated maturity date or a final
distribution date but may be retired earlier. PAC Bonds are a type of CMO
tranche or series designed to provide relatively predictable payments of
principal provided that, among other things, the actual prepayment experience
on the underlying mortgage loans falls within a predefined range. If the
actual prepayment experience on the underlying mortgage loans is at a rate
faster or slower than the predefined range, or if deviations from other
assumptions occur, principal payments on the PAC Bond may be earlier or later
than predicted. The magnitude of the predefined range varies from one PAC Bond
to another; a narrower range increases the risk that prepayments on the PAC
Bond will be greater or smaller than predicted. Because of these features, PAC
Bonds generally are less subject to the risks of prepayment than are other
types of Mortgage-Backed Securities.
NEW ISSUERS
A Portfolio may invest up to 5% of its assets in the securities of issuers
which have been in continuous operation for less than three years.
OPTIONS ON SECURITIES
OPTION PURCHASE. Certain Portfolios may purchase put and call options on
portfolio securities in which they may invest that are traded on a U.S. or
foreign securities exchange or in the over-the-counter market. A Portfolio may
utilize up to 10% of its assets to purchase put options on portfolio
securities and may do so at or about the same time that it purchases the
underlying security or at a later time and may also utilize up to 10% of its
assets to purchase call options on securities in which it is authorized to
invest. By buying a put, the Portfolios limit their risk of loss from a
decline in the market value of the security until the put expires. Any
appreciation in the value of the underlying security, however, will be
partially offset by the amount of the premium paid for the put option and any
related transaction costs. Call options may be purchased by the Portfolio in
order to acquire the underlying securities for the Portfolio at a price that
avoids any additional cost that would result from a substantial increase in
the market value of a security. The Portfolios may also purchase call options
to increase their return to investors at a time when the call is expected to
increase in value due to anticipated appreciation of the underlying security.
Prior to their expiration, put and call options may be sold in closing sale
transactions (sales by the Portfolio, prior to the exercise of options that it
has purchased, of options of the same series), and profit or loss from the
sale will depend on whether the amount received is more or less than the
premium paid for the option, plus the related transaction costs.
COVERED OPTION WRITING. Certain Portfolios may write put and call options
on securities for hedging purposes. The Portfolios realize fees (referred to
as "premiums") for granting the rights evidenced by the options. A put option
embodies the right of its purchaser to compel the writer of the option to
purchase from the option holder an underlying security at a specified price at
anytime during the option period. In contrast, a call option embodies the
right of its purchaser to compel the writer of the option to sell to the
option holder an underlying security at a specified price at anytime during
the option period.
Upon the exercise of a put option written by a Portfolio, the Portfolio may
suffer a loss equal to the difference between the price at which the Portfolio
is required to purchase the underlying security and its market value at the
time of the option exercise, less the premium received for writing the option.
Upon the exercise of a call option written by the Portfolio, the Portfolio may
suffer a loss equal to the excess of the security's market value at the time
of the option exercise over the Portfolio's acquisition cost of the security,
less the premium received for writing the option.
The Portfolios will comply with regulatory requirements of the SEC and the
Commodities Futures Trading Commission with respect to coverage of options and
futures positions by registered investment companies and, if the guidelines so
require, will set aside cash and/or appropriate liquid assets in a segregated
custodial account in the amount prescribed. Securities held in a segregated
account cannot be sold while the futures or options position is outstanding,
unless replaced with other permissible assets. As a result, there is a
possibility that the segregation of a large percentage of a Portfolio's assets
may force the Portfolio to close out futures and options positions and/or
liquidate other portfolio securities, any of which may occur at
disadvantageous prices, in order for the Portfolio to meet redemption requests
or other current obligations.
The principal reason for writing covered call and put options on a securities
portfolio is to attempt to realize, through the receipt of premiums, a greater
return than would be realized on the securities alone. In return for a
premium, the writer of a covered call option forfeits the rights to any
appreciation in the value of the underlying security above the strike price
for the life of the option (or until a closing purchase transaction can be
effected). Nevertheless, the call writer retains the risk of a decline in the
price of the underlying security. Similarly, the principal reason for writing
covered put options is to realize income in the form of premiums. The writer
of the covered put option accepts the risk of a decline in the price of the
underlying security. The size of the premiums that the Portfolios may receive
may be adversely affected as new or existing institutions, including other
investment companies, engage in or increase their option writing activities.
The Portfolios may engage in closing purchase transactions to realize a
profit, to prevent an underlying security from being called or put or, in the
case of a call option, to unfreeze an underlying security (thereby permitting
its sale or the writing of a new option on the security prior to the
outstanding option's expiration). To effect a closing purchase transaction,
the Portfolios would purchase, prior to the holder's exercise of an option
that the Portfolio has written, an option of the same series as that on which
the Portfolio desires to terminate its obligation. The obligation of the
Portfolio under an option that it has written would be terminated by a closing
purchase transaction, but the Portfolio would not be deemed to own an option
as the result of the transaction. There can be no assurance that the Portfolio
will be able to effect closing purchase transactions at a time when it wishes
to do so. The ability of the Portfolio to engage in closing transactions with
respect to options depends on the existence of a liquid secondary market.
While the Portfolio will generally purchase or write options only if there
appears to be a liquid secondary market for the options purchased or sold, for
some options no such secondary market may exist or the market may cease to
exist. To facilitate closing purchase transactions, however, the Portfolio
will ordinarily write options only if a secondary market for the options
exists on a U.S. securities exchange or in the over-the-counter market.
Option writing for the Portfolios may be limited by position and exercise
limits established by U.S. securities exchanges and the National Association
of Securities Dealers, Inc. and by requirements of the Internal Revenue Code
of 1986, as amended, for qualification as a regulated investment company. In
addition to writing covered put and call options to generate current income,
the Portfolios may enter into options transactions as hedges to reduce
investment risk, generally by making an investment expected to move in the
opposite direction of a portfolio position. A hedge is designed to offset a
loss on a portfolio position with a gain on the hedge position; at the same
time, however, a properly correlated hedge will result in a gain on the
portfolio position's being offset by a loss on the hedge position. The
Portfolios bear the risk that the prices of the securities being hedged will
not move in the same amount as the hedge. A Portfolio will engage in hedging
transactions only when deemed advisable by its Sub-Adviser. Successful use by
a Portfolio of options will depend on its Sub-Adviser's ability to correctly
predict movements in the direction of the stock underlying the option used as
a hedge. Losses incurred in hedging transactions and the costs of these
transactions will adversely affect the Portfolio's performance.
OPTIONS ON FOREIGN CURRENCIES
A Portfolio may purchase and write put and call options on foreign currencies
for the purpose of hedging against declines in the U.S. dollar value of
foreign currency-denominated portfolio securities and against increases in the
U.S. dollar cost of such securities to be acquired. Generally, transactions
relating to Options on Foreign Currencies occur in the over-the-counter
market. As in the case of other kinds of options, however, the writing of an
option on a foreign currency constitutes only a partial hedge, up to the
amount of the premium received, and the Portfolio could be required to
purchase or sell foreign currencies at disadvantageous exchange rates, thereby
incurring losses. The purchase of an option on a foreign currency may
constitute an effective hedge against fluctuations in exchange rates,
although, in the event of rate movements adverse to the Portfolio's position,
it may forfeit the entire amount of the premium plus related transaction
costs. There is no specific percentage limitation on the Portfolio's
investments in Options on Foreign Currencies. See the SAI for further
discussion of the use, risks and costs of Options on Foreign Currencies and
Over the Counter Options.
OPTIONS ON INDEXES
A Portfolio may, subject to applicable securities regulations, purchase and
write put and call options on stock and fixed- income indexes listed on
foreign and domestic stock exchanges. A stock index fluctuates with changes in
the market values of the stocks included in the index. An example of a
domestic stock index is the Standard and Poor's 500 Stock Index. Examples of
foreign stock indexes are the Canadian Market Portfolio Index (Montreal Stock
Exchange), The Financial Times -- Stock Exchange 100 (London Stock Exchange)
and the Toronto Stock Exchange Composite 300 (Toronto Stock Exchange).
Examples of fixed-income indexes include the Lehman Government/Corporate Bond
Index and the Lehman Treasury Bond Index. Options on Indexes are generally
similar to options on securities except that the delivery requirements are
different. Instead of giving the right to take or make delivery of a security
at a specified price, an option on an index gives the holder the right to
receive a cash "exercise settlement amount" equal to (a) the amount, if any,
by which the fixed exercise price of the option exceeds (in the case of a put)
or is less than (in the case of a call) the closing value of the underlying
index on the date of exercise, multiplied by (b) a fixed "index multiplier."
Receipt of this cash amount will depend upon the closing level of the index
upon which the option is based being greater than, in the case of a call, or
less than, in the case of a put, the exercise price of the option. The amount
of cash received will be equal to such difference between the closing price of
the index and the exercise price of the option expressed in dollars or a
foreign currency, as the case may be, times a specified multiple. The writer
of the option is obligated, in return for the premium received, to make a
delivery of this amount. The writer may offset its position in index options
prior to expiration by entering into a closing transaction on an exchange or
the option may expire unexercised.
The effectiveness of purchasing or writing options as a hedging technique will
depend upon the extent to which price movements in the portion of the
securities portfolio of a Portfolio correlate with price movements of the
stock index selected. Because the value of an index option depends upon
movements in the level of the index rather than the price of a particular
stock, whether a Portfolio will realize a gain or loss from the purchase or
writing of options on an index depends upon movements in the level of stock
prices in the stock market generally or, in the case of certain indexes, in an
industry or market segment, rather than movements in the price of a particular
stock. Accordingly, successful use of Options on Indexes by a Portfolio will
be subject to its Sub-Adviser's ability to predict correctly movements in the
direction of the market generally or of a particular industry. This requires
different skills and techniques than predicting changes in the price of
individual stocks.
Options on securities indexes entail risks in addition to the risks of options
on securities. Because exchange trading of options on securities indexes is
relatively new, the absence of a liquid secondary market to close out an
option position is more likely to occur, although a Portfolio generally will
only purchase or write such an option if the Sub-Adviser believes the option
can be closed out. Because options on securities indexes require settlement in
cash, a Portfolio may be forced to liquidate portfolio securities to meet
settlement obligations. A Portfolio will engage in stock index options
transactions only when determined by its Sub-Adviser to be consistent with its
efforts to control risk. There can be no assurance that such judgement will be
accurate or that the use of these portfolio strategies will be successful.
OVER THE COUNTER OPTIONS
Certain Portfolios may write or purchase options in privately negotiated
domestic or foreign transactions ("OTC Options"), as well as exchange traded
or "listed" options. OTC Options can be closed out only by agreement with the
other party to the transaction, and thus any OTC Options purchased by a
Portfolio will be considered an illiquid security. In addition, certain OTC
Options on foreign currencies are traded through financial institutions acting
as market makers in such options and the underlying currencies.
The staff of the SEC has taken the position that purchased over-the-counter
options and assets used to cover written over-the-counter options are illiquid
and, therefore, together with other illiquid securities, cannot exceed the
maximum percentage of a Portfolio's assets allowed to be invested in illiquid
securities (the "illiquidity ceiling"). (See "Illiquid Securities" in this
Appendix.) Except as provided below, the Portfolios intend to write
over-the-counter options only with primary U.S. Government securities dealers
recognized by the Federal Reserve Bank of New York. Also, the contracts which
such Portfolios have in place with such primary dealers will provide that each
Portfolio has the absolute right to repurchase any option it writes at anytime
at a price which represents the fair market value, as determined in good faith
through negotiation between the parties, but which in no event will exceed a
price determined pursuant to a formula in the contract. Although the specific
formula may vary between contracts with different primary dealers, the formula
will generally be based on a multiple of the premium received by the Portfolio
for writing the option, plus the amount, if any, of the option's intrinsic
value (i.e., the amount that the option is in the money). The formula may also
include a factor to account for the difference between the price of the
security and the strike price of the option if the option is written
out-of-the-money. A Portfolio will treat all or a part of the formula price as
illiquid for purposes of the illiquidity ceiling. Certain Portfolios may also
write over-the-counter options with nonprimary dealers, including foreign
dealers, and will treat the assets used to cover these options as illiquid for
purposes of such illiquidity ceiling.
OTC Options entail risks in addition to the risks of exchange traded options.
Exchange traded options are in effect guaranteed by the Options Clearing
Corporation, while a Portfolio relies on the party from whom it purchases an
OTC Option to perform if the Portfolio exercises the option. With OTC Options,
if the transacting dealer fails to make or take delivery of the securities or
amount of foreign currency underlying an option it has written, in accordance
with the terms of that option, the Portfolio will lose the premium paid for
the option as well as any anticipated benefit of the transaction. Furthermore,
OTC Options are less liquid than exchange traded options.
REPURCHASE AGREEMENTS
Repurchase Agreements are agreements to purchase underlying debt obligations
from financial institutions, such as banks and broker-dealers, subject to the
seller's agreement to repurchase the obligations at an established time and
price. The collateral for such Repurchase Agreements will be held by the
Portfolio's custodian or a duly appointed sub-custodian. The Portfolio will
enter into Repurchase Agreements only with banks and broker-dealers that have
been determined to be creditworthy by the Trust's Board of Trustees under
criteria established in consultation with the Adviser and the Sub-Adviser. The
seller under a Repurchase Agreement would be required to maintain the value of
the obligations subject to the Repurchase Agreement at not less than the
repurchase price. Default by the seller would, however, expose the Portfolio
to possible loss because of advers market action or delay in connection with
the disposition of the underlying obligations. In addition, if bankruptcy
proceedings are commenced with respect to the seller of the obligations, the
Portfolio may be delayed or limited in its ability to sell the collateral.
REVERSE REPURCHASE AGREEMENTS
Reverse Repurchase Agreements are the same as repurchase agreements except
that, in this instance, the Portfolios would assume the role of
seller/borrower in the transaction. The Portfolios will maintain segregated
accounts with the Custodian consisting of U.S. Government Securities, cash or
money market instruments that at all times are in an amount equal to their
obligations under Reverse Repurchase Agreements. Reverse Repurchase Agreements
involve the risk that the market value of the securities sold by a Portfolio
may decline below the repurchase price of the securities and, if the proceeds
from the reverse repurchase agreement are invested in securities, that the
market value of the securities sold may decline below the repurchase price of
the securities sold. Each Portfolio's Sub-Adviser, acting under the
supervision of the Board of Trustees, reviews on an ongoing basis the
creditworthiness of the parties with which it enters into Reverse Repurchase
Agreements. Under the 1940 Act, Reverse Repurchase Agreements may be
considered borrowings by the seller. Whenever borrowings by a Portfolio,
including Reverse Repurchase Agreements, exceed 5% of the value of a
Portfolio's total assets, the Portfolio will not purchase any securities.
SMALL COMPANIES
Certain Portfolios may invest in small companies, some of which may be
unseasoned. While smaller companies generally have potential for rapid growth,
investments in such companies often involve higher risks because the companies
may lack the management experience, financial resources, product
diversification and competitive strengths of larger corporations. Moreover,
the markets for the shares of such companies typically are less liquid than
those for the shares of larger companies.
STRATEGIC TRANSACTIONS
Subject to the investment limitations and restrictions for each of the
Portfolios as stated elsewhere in the Prospectus and SAI of the Trust, each of
the Portfolios may, but is not required to, utilize various investment
strategies as described in this Appendix to hedge various market risks, to
manage the effective maturity or duration of fixed-income securities, or to
seek potentially higher returns. Utilizing these investment strategies, the
Portfolio may purchase and sell, to the extent not otherwise limited or
restricted for such Portfolio, exchange-listed and over-the-counter put and
call options on securities, equity and fixed-income indexes and other
financial instruments; purchase and sell financial futures contracts and
options thereon; enter into various Interest Rate Transactions such as swaps,
caps, floors or collars; and enter into various currency transactions such as
currency forward contracts, currency futures contracts, currency swaps or
options on currencies or currency futures (collectively, all the above are
called "Strategic Transactions").
Strategic Transactions may be used to attempt to protect against possible
changes in the market value of securities held in or to be purchased for the
Portfolio's portfolio resulting from securities markets or currency exchange
rate fluctuations, to protect the Portfolio's unrealized gains in the value of
its portfolio securities, to facilitate the sale of such securities for
investment purposes, to manage the effective maturity or duration of the
Portfolio's portfolio, or to establish a position in the derivatives markets
as a temporary substitute for purchasing or selling particular securities.
Some Strategic Transactions may also be used to seek potentially higher
returns, although no more than 5% of the Portfolio's assets will be used as
the initial margin or purchase price of options for Strategic Transactions
entered into for purposes other than "bona fide hedging" positions as defined
in the regulations adopted by the Commodities Futures Trading Commission. Any
or all of these investment techniques may be used at any time, as use of any
Strategic Transaction is a function of numerous variables, including market
conditions. The ability of the Portfolio to utilize these Strategic
Transactions successfully will depend on the Sub-Adviser's ability to predict,
which cannot be assured, pertinent market movements. The Portfolio will comply
with applicable regulatory requirements when utilizing Strategic Transactions.
Strategic Transactions involving financial futures and options thereon will be
purchased, sold or entered into only for bona fide hedging, risk management or
portfolio management purposes.
U.S. GOVERNMENT SECURITIES
U.S. Government Securities include direct obligations of the U.S. Treasury
(such as U.S. Treasury bills, notes and bonds) and obligations directly issued
or guaranteed by U.S. Government agencies or instrumentalities. Some
obligations issued or guaranteed by agencies or instrumentalities of the U.S.
Government are backed by the full faith and credit of the U.S. Government
(such as GNMA certificates). Others are backed only by the right of the issuer
to borrow from the U.S. Treasury (such as securities of Federal Home Loan
Banks) and still others are backed only by the credit of the instrumentality
(such as FNMA and FHLMC certificates). Guarantees of principal by agencies or
instrumentalities of the U.S. Government may be a guarantee of payment at the
maturity of the obligation so that in the event of a default prior to maturity
there might not be a market and thus no means of realizing on the obligation
prior to maturity. Guarantees as to the timely payment of principal and
interest do not extend to the value or yield of these securities nor to the
value of a Portfolio's shares.
WHEN-ISSUED SECURITIES AND DELAYED-DELIVERY TRANSACTIONS
In order to secure yields or prices deemed advantageous at the time, certain
Portfolios may purchase or sell securities on a when-issued or a
delayed-delivery basis. The Portfolios will enter into a when-issued
transaction for the purpose of acquiring portfolio securities and not for the
purpose of leverage, although a Portfolio may dispose of a when-issued
security or forward commitment prior to settlement if it is deemed appropriate
to do so. In such transactions, delivery of the securities occurs beyond the
normal settlement periods, but no payment or delivery is made by, and no
interest accrues to, the Portfolios prior to the actual delivery or payment by
the other party to the transaction. Due to fluctuations in the value of
securities purchased on a when-issued or a delayed-delivery basis, the yields
obtained on such securities may be higher or lower than the yields available
in the market on the dates when the investments are actually delivered to the
buyers. Similarly, the sale of securities for delayed delivery can involve the
risk that the prices available in the market when delivery is made may
actually be higher than those obtained in the transaction itself. The
Portfolios will establish a segregated account with the Custodian consisting
of cash, U.S. Government securities or other high-grade debt obligations in an
amount equal to the amount of its when-issued and delayed-delivery
commitments.
WNL SERIES TRUST
FORM N-1A
PART B
STATEMENT OF ADDITIONAL INFORMATION
May 1, 1996
This Statement of Additional Information (this "Statement") contains
information which may be of interest to investors but which is not included in
the Prospectus of WNL Series Trust (the "Trust"). This Statement is not a
prospectus and is only authorized for distribution when accompanied or
preceded by the Prospectus of the Trust dated May 1, 1996. This Statement
should be read together with the Prospectus. Investors may obtain a free copy
of the Prospectus by calling Western National Life Insurance Company ("Life
Company") at (800) 910-4455.
TABLE OF CONTENTS
PAGE
DEFINITIONS
INVESTMENT OBJECTIVES AND POLICIES OF THE TRUST
Options
Futures Contracts
Special Risks of Transactions in Futures Contracts and Related Options
Forward Commitments
Repurchase Agreements
Reverse Repurchase Agreements
When-Issued Securities
Loans of Portfolio Securities
Foreign Securities
Foreign Currency Transactions
Commercial Mortgage-Backed Securities
Zero-Coupon Securities
Variable- or Floating-Rate Securities
Lower-Grade Securities
INVESTMENT RESTRICTIONS
Fundamental Investment Restrictions
Non-Fundamental Investment Restrictions
MANAGEMENT OF THE TRUST
Substantial Shareholders
Sub-Advisers
Brokerage and Research Services
Investment decisions
DETERMINATION OF NET ASSET VALUE
TAXES
DIVIDENDS AND DISTRIBUTIONS
PERFORMANCE INFORMATION
SHAREHOLDER COMMUNICATIONS
TURNOVER
CUSTODIAN
LEGAL COUNSEL
INDEPENDENT AUDITORS
SHAREHOLDER LIABILITY
DESCRIPTION OF NRSRO RATINGS
Description of Moody's Corporate Ratings
Description of S&P's Corporate Ratings
Description of Duff Corporate Ratings
Description of Fitch Corporate Ratings
Description of Thomson Bankwatch, Inc. Corporate Ratings
Description of IBCA Limited and IBCA Inc. Corporate Ratings
Description of S&P's Commercial Paper Ratings
Description of Moody's Commercial Paper Ratings
Description of Duff Commercial Paper Ratings
Description of Fitch Commercial Paper Ratings
Description of IBCA Limited and IBCA Inc. Commercial Paper Ratings
Description of Thomson Bankwatch, Inc. Commercial Paper Ratings
FINANCIAL STATEMENTS
WNL SERIES TRUST
STATEMENT OF ADDITIONAL INFORMATION
DEFINITIONS
THE "TRUST" -- WNL Series Trust.
"ADVISER" -- WNL Investment Advisory Services, Inc., the Trust's investment
adviser.
INVESTMENT OBJECTIVES AND POLICIES OF THE TRUST
The Trust currently offers shares of beneficial interest of eight series (the
"Portfolios") with separate investment objectives and policies. The investment
objectives and policies of each of the Portfolios of the Trust are described
in the Prospectus. This Statement contains additional information concerning
certain investment practices and investment restrictions of the Trust.
Except as described below under "Investment Restrictions," the investment
objectives and policies described in the Prospectus and in this Statement are
not fundamental, and the Trustees may change the investment objectives and
policies of a Portfolio without an affirmative vote of shareholders of the
Portfolio.
Except as otherwise noted below, the following descriptions of certain
investment policies and techniques are applicable to all of the Portfolios.
OPTIONS
Each Portfolio other than the Global Advisors Money Market Portfolio may
purchase put and call options on portfolio securities in which they may invest
that are traded on a U.S. or foreign securities exchange or in the
over-the-counter market.
COVERED CALL OPTIONS. Each Portfolio other than the Global Advisors Money
Market Portfolio may write covered call options on portfolio securities to
realize a greater current return through the receipt of premiums than it would
realize on portfolio securities alone. Such option transactions may also be
used as a limited form of hedging against a decline in the price of securities
owned by the Portfolio.
A call option gives the holder the right to purchase, and obligates the writer
to sell, a security at the exercise price at any time before the expiration
date. A call option is "covered" if the writer, at all times while obligated
as a writer, either owns the underlying securities (or comparable securities
satisfying the cover requirements of the securities exchanges), or has the
right to acquire such securities through immediate conversion of portfolio
securities.
In return for the premium received when it writes a covered call option, the
Portfolio gives up some or all of the opportunity to profit from an increase
in the market price of the securities covering the call option during the life
of the option. The Portfolio retains the risk of loss should the price of such
securities decline. If the option expires unexercised, the Portfolio realizes
a gain equal to the premium, which may be offset by a decline in price of the
underlying security. If the option is exercised, the Portfolio realizes a gain
or loss equal to the difference between the Portfolio's cost for the
underlying security and the proceeds of sale (exercise price minus
commissions) plus the amount of the premium.Portfolio may terminate a call
option that it has written before it expires by entering into a closing
purchase transaction. A Portfolio may enter into closing purchase transactions
in order to free itself to sell the underlying security or to write another
call on the security, realize a profit on a previously written call option, or
protect a security from being called in an unexpected market rise. Any profits
from a closing purchase transaction may be offset by a decline in the value of
the underlying security. Conversely, because increases in the market price of
a call option will generally reflect increases in the market price of the
underlying security, any loss resulting from a closing purchase transaction is
likely to be offset in whole or in part by unrealized appreciation of the
underlying security owned by the Trust.
COVERED PUT OPTIONS. Each Portfolio other than the Global Advisors Money
Market Portfolio may write covered put options in order to enhance its current
return. Such options transactions may also be used as a limited form of
hedging against an increase in the price of securities that the Portfolio
plans to purchase. A put option gives the holder the right to sell, and
obligates the writer to buy, a security at the exercise price at any time
before the expiration date. A put option is "covered" if the writer segregates
cash and high-grade short-term debt obligations or other permissible
collateral equal to the price to be paid if the option is exercised.
In addition to the receipt of premiums and the potential gains from
terminating such options in closing purchase transactions, the Portfolio also
receives interest on the cash and debt securities maintained to cover the
exercise price of the option. By writing a put option, the Portfolio assumes
the risk that it may be required to purchase the underlying security for an
exercise price higher than its then current market value, resulting in a
potential capital loss unless the security later appreciates in value.
A Portfolio may terminate a put option that it has written before it expires
by a closing purchase transaction. Any loss from this transaction may be
partially or entirely offset by the premium received on the terminated option.
PURCHASING PUT AND CALL OPTIONS. Each Portfolio other than the Global
Advisors Money Market Portfolio may also purchase put options to protect
portfolio holdings against a decline in market value. This protection lasts
for the life of the put option because the Portfolio, as a holder of the
option, may sell the underlying security at the exercise price regardless of
any decline in its market price. In order for a put option to be profitable,
the market price of the underlying security must decline sufficiently below
the exercise price to cover the premium and transaction costs that the
Portfolio must pay. These costs will reduce any profit the Portfolio might
have realized had it sold the underlying security instead of buying the put
option.
Each Portfolio other than the Global Advisors Money Market Portfolio may
purchase call options to hedge against an increase in the price of securities
that the Portfolio wants ultimately to buy. Such hedge protection is provided
during the life of the call option since the Portfolio, as holder of the call
option, is able to buy the underlying security at the exercise price
regardless of any increase in the underlying security's market price. In order
for a call option to be profitable, the market price of the underlying
security must rise sufficiently above the exercise price to cover the premium
and transaction costs. These costs will reduce any profit the Portfolio might
have realized had it bought the underlying security at the time it purchased
the call option.
OPTIONS ON FOREIGN SECURITIES. The Trust may, on behalf of each of the
Portfolios other than the Global Advisors Money Market Portfolio, purchase and
sell options on foreign securities if in the opinion of the Sub-Adviser of the
particular Portfolio the investment characteristics of such options, including
the risks of investing in such options, are consistent with the Portfolio's
investment objectives. It is expected that risks related to such options will
not differ materially from risks related to options on U.S. securities.
However, position limits and other rules of foreign exchanges may differ from
those in the United States. In addition, options markets in some countries,
many of which are relatively new, may be less liquid than comparable markets
in the United States.
RISKS INVOLVED IN THE SALE OF OPTIONS. Options transactions involve
certain risks, including the risks that a Portfolio's Sub-Adviser will not
forecast interest rate or market movements correctly, that a Portfolio may be
unable at times to close out such positions, or that hedging transactions may
not accomplish their purpose because of imperfect market correlations. The
successful use of these strategies depends on the ability of a Portfolio's
Sub-Adviser to forecast market and interest rate movements correctly.
An exchange-listed option may be closed out only on an exchange which provides
a secondary market for an option of the same series. There is no assurance
that a liquid secondary market on an exchange will exist for any particular
option or at any particular time. If no secondary market were to exist, it
would be impossible to enter into a closing transaction to close out an option
position. As a result, a Portfolio may be forced to continue to hold, or to
purchase at a fixed price, a security on which it has sold an option at a time
when a Portfolio's Sub-Adviser believes it is inadvisable to do so.
Higher than anticipated trading activity or order flow or other unforeseen
events might cause The Options Clearing Corporation or an exchange to
institute special trading procedures or restrictions that might restrict the
Trust's use of options. The exchanges have established limitations on the
maximum number of calls and puts of each class that may be held or written by
an investor or group of investors acting in concert. It is possible that the
Trust and other clients of a Sub-Adviser may be considered such a group. These
position limits may restrict the Trust's ability to purchase or sell options
on particular securities.
Options which are not traded on national securities exchanges may be closed
out only with the other party to the option transaction. For that
reason, it may be more difficult to close out unlisted options than listed
options. Furthermore, unlisted options are not subject to the protection
afforded purchasers of listed options by The Options Clearing Corporation.
Government regulations, particularly the requirements for qualification as a
"regulated investment company" under the Internal Revenue Code, may also
restrict the Trust's use of options.
FUTURES CONTRACTS
The Trust may, on behalf of each Portfolio that may invest in debt securities,
other than the Global Advisors Money Market Portfolio, buy and sell futures
contracts on debt securities of the type in which the Portfolio may invest and
on indexes of debt securities. In addition, the Trust may, on behalf of each
Portfolio that may invest in equity securities, purchase and sell stock index
futures for hedging and non-hedging purposes. The Trust may also, for hedging
and non-hedging purposes, purchase and write options on futures contracts of
the type which such Portfolios are authorized to buy and sell and may engage
in related closing transactions. All futures and related options which are
traded in the United States will, as may be required by applicable law, be
traded on exchanges that are licensed and regulated by the Commodities Futures
Trading Commission ("CFTC"). Trading on foreign commodity exchanges is not
regulated by the CFTC.
FUTURES ON DEBT SECURITIES AND RELATED OPTIONS. A futures contract on a
debt security is a binding contractual commitment which, if held to maturity,
will result in an obligation to make or accept delivery, during a particular
month, of securities having a standardized face value and rate of return. By
purchasing futures on debt securities -- assuming a "long" position -- the
Trust will legally obligate itself on behalf of the Portfolios to accept the
future delivery of the underlying security and pay the agreed price. By
selling futures on debt securities -- assuming a "short" position -- it will
legally obligate itself to make the future delivery of the security against
payment of the agreed price. Open futures positions on debt securities will be
valued at the most recent settlement price, unless that price does not in the
judgment of persons acting at the direction of the Trustees as to the
valuation of the Trust's assets reflect the fair value of the contract, in
which case the positions will be valued by or under the direction of the
Trustees or such persons.
Positions taken in the futures markets are not normally held to maturity, but
are instead liquidated through offsetting transactions which may result in a
profit or a loss. While futures positions taken by the Trust on behalf of a
Portfolio will usually be liquidated in this manner, the Trust may instead
make or take delivery of the underlying securities whenever it appears
economically advantageous to the Portfolio to do so. A clearing corporation
associated with the exchange on which futures are traded assumes
responsibility for such closing transactions and guarantees that the Trust's
sale and purchase obligations under closed-out positions will be performed at
the termination of the contract.
Hedging by use of futures on debt securities seeks to establish more certainly
than would otherwise be possible the effective rate of return on portfolio
securities. A Portfolio may, for example, take a "short" position in the
futures market by selling contracts for the future delivery of debt securities
held by the Portfolio (or securities having characteristics similar to those
held by the Portfolio) in order to hedge against an anticipated rise in
interest rates that would adversely affect the value of the Portfolio's
portfolio securities. When hedging of this character is successful, any
depreciation in the value of portfolio securities may substantially be offset
by appreciation in the value of the futures position.
On other occasions, the Portfolio may take a "long" position by purchasing
futures on debt securities. This would be done, for example, when the Trust
expects to purchase for the Portfolio particular securities when it has the
necessary cash, but expects the rate of return available in the securities
markets at that time to be less favorable than rates currently available in
the futures markets. If the anticipated rise in the price of the securities
should occur (with its concomitant reduction in yield), the increased cost to
the Portfolio of purchasing the securities may be offset, at least to some
extent, by the rise in the value of the futures position taken in anticipation
of the subsequent securities purchase.
Successful use by the Trust of futures contracts on debt securities is subject
to the ability of a Portfolio's Sub-Adviser to predict correctly movements in
the direction of interest rates and other factors affecting markets for debt
securities. For example, if a Portfolio has hedged against the possibility of
an increase in interest rates which would adversely affect the market prices
of debt securities held by it, and the prices of such securities increase
instead the Portfolio will lose part or all of the benefit of the increased
value of its securities which it has hedged because it will have offsetting
losses in its futures positions. In addition, in such situations, if the
Portfolio has insufficient cash, it may have to sell securities to meet daily
maintenance margin requirements, and thus the Portfolio may have to sell
securities at a time when it may be disadvantageous to do so.Trust may
purchase and write put and call options on certain debt futures contracts, as
they become available. Such options are similar to options on securities
except that options on futures contracts give the purchaser the right, in
return for the premium paid, to assume a position in a futures contract (a
long position if the option is a call and a short position if the option is a
put) at a specified exercise price at any time during the period of the
option. As with options on securities, the holder or writer of an option may
terminate his position by selling or purchasing an option of the same series.
There is no guarantee that such closing transactions can be effected. The
Trust will be required to deposit initial margin and maintenance margin with
respect to put and call options on futures contracts written by it pursuant to
brokers' requirements, and, in addition, net option premiums received will be
included as initial margin deposits. See "Margin Payments" below. Compared to
the purchase or sale of futures contracts, the purchase of call or put options
on futures contracts involves less potential risk to the Trust because the
maximum amount at risk is the premium paid for the options plus transactions
costs. However, there may be circumstances when the purchase of call or put
options on a futures contract would result in a loss to the Trust when the
purchase or sale of the futures contracts would not, such as when there is no
movement in the prices of debt securities. The writing of a put or call option
on a futures contract involves risks similar to those risks relating to the
purchase or sale of futures contracts.
INDEX FUTURES CONTRACTS AND OPTIONS. The Trust may invest in debt index
futures contracts and stock index futures contracts, and in related options. A
debt index futures contract is a contract to buy or sell units of a specified
debt index at a specified future date at a price agreed upon when the contract
is made. A unit is the current value of the index. Debt index futures in which
the Trust presently expects to invest are not now available, although the
Trust expects such futures contracts to become available in the future. A
stock index futures contract is a contract to buy or sell units of a stock
index at a specified future date at a price agreed upon when the contract is
made. A unit is the current value of the stock index.
The following example illustrates generally the manner in which index futures
contracts operate. The Standard & Poor's 100 Stock Index is composed of 100
selected common stocks, most of which are listed on the New York Stock
Exchange. The S&P 100 Index assigns relative weightings to the common stocks
included in the Index, and the Index fluctuates with changes in the market
values of those common stocks. In the case of the S&P 100 Index, contracts are
to buy or sell 100 units. Thus, if the value of the S&P 100 Index were $180,
one contract would be worth $18,000 (100 units x $180). The stock index
futures contract specifies that no delivery of the actual stocks making up the
index will take place. Instead, settlement in cash must occur upon the
termination of the contract, with the settlement being the difference between
the contract price and the actual level of the stock index at the expiration
of the contract. For example, if a Portfolio enters into a futures contract to
buy 100 units of the S&P 100 Index at a specified future date at a contract
price of $180 and the S&P 100 Index is at $184 on that future date, the
Portfolio will gain $400 (100 units x gain of $4). If the Portfolio enters
into a futures contract to sell 100 units of the stock index at a specified
future date at a contract price of $180 and the S&P 100 Index is at $182 on
that future date, the Portfolio will lose $200 (100 units x loss of $2).
The Trust does not presently expect to invest in debt index futures contracts.
Stock index futures contracts are currently traded with respect to
the S&P 100 Index on the Chicago Mercantile Exchange, and with respect to
other broad stock market indexes, such as the New York Stock Exchange
Composite Stock Index, which is traded on the New York Futures Exchange, and
the Value Line Composite Stock Index, which is traded on the Kansas City Board
of Trade, as well as with respect to narrower "sub-indexes" such as the S&P
100 Energy Stock Index and the New York Stock Exchange Utilities Stock Index.
To the extent permitted under applicable law, a Portfolio may trade futures
contracts and options on futures contracts on exchanges created outside the
United States, such as the London International Financial Futures Exchange and
the Sydney Futures Exchange Limited. Foreign markets may offer advantages such
as trading in commodities that are not currently traded in the United States
or arbitrage possibilities not available in the United States. Foreign
markets, however, may have greater risk potential than domestic markets. A
Portfolio may purchase or sell futures contracts with respect to any stock.
Positions in index futures may be closed out only on an exchange or board of
trade which provides a secondary market for such futures.
In order to hedge a Portfolio's investments successfully using futures
contracts and related options, the Trust must invest in futures contracts with
respect to indexes or sub-indexes, the movements of which will, in its
judgment, have a significant correlation with movements in the prices of the
Portfolio's securities.
Options on index futures contracts are similar to options on securities except
that options on index futures contracts give the purchaser the right, in
return for the premium paid, to assume a position in an index futures contract
(a long position if the option is a call and a short position if the option is
a put) at a specified exercise price at any time during the period of the
option. Upon exercise of the option, the holder would assume the underlying
futures position and would receive a variation margin payment of cash or
securities approximating the increase in the value of the holder's option
position. If an option is exercised on the last trading day prior to the
expiration date of the option, the settlement will be made entirely in cash
based on the difference between the exercise price of the option and the
closing level of the index on which the futures contract is based on the
expiration date. Purchasers of options who fail to exercise their options
prior to the exercise date suffer a loss of the premium paid.
As an alternative to purchasing and selling call and put options on index
futures contracts, each of the Portfolios which may purchase and sell index
futures contracts may purchase and sell call and put options on the underlying
indexes themselves to the extent that such options are traded on national
securities exchanges. Index options are similar to options on individual
securities in that the purchaser of an index option acquires the right to buy
(in the case of a call) or sell (in the case of a put), and the writer
undertakes the obligation to sell or buy (as the case may be), units of an
index at a stated exercise price during the term of the option. Instead of
giving the right to take or make actual delivery of securities, the holder of
an index option has the right to receive a cash "exercise settlement amount."
This amount is equal to the amount by which the fixed exercise price of the
option exceeds (in the case of a put) or is less than (in the case of a call)
the closing value of the underlying index on the date of the exercise,
multiplied by a fixed "index multiplier."
A Portfolio may purchase or sell options on stock indexes in order to close
out its outstanding positions in options on stock indexes which it has
purchased. A Portfolio may also allow such options to expire unexercised.
Compared to the purchase or sale of futures contracts, the purchase of call or
put options on an index involves less potential risk to the Trust because the
maximum amount at risk is the premium paid for the options plus transactions
costs. The writing of a put or call option on an index involves risks similar
to those risks relating to the purchase or sale of index futures contracts.
MARGIN PAYMENTS. When a Portfolio purchases or sells a futures contract,
it is required to deposit with the Custodian an amount of cash, U.S. Treasury
bills, or other permissible collateral equal to a small percentage of the
amount of the futures contract. This amount is known as "initial margin." The
nature of initial margin is different from that of margin in security
transactions in that it does not involve borrowing money to finance
transactions. Rather, initial margin is similar to a performance bond or good
faith deposit that is returned to the Trust upon termination of the contract,
assuming the Trust satisfies its contractual obligations.
Subsequent payments to and from the broker occur on a daily basis in a process
known as "marking to market". These payments are called "variation margin" and
are made as the value of the underlying futures contract fluctuates. For
example, when a Portfolio sells a futures contract and the price of the
underlying debt security rises above the delivery price, the Portfolio's
position declines in value. The Portfolio then pays the broker a variation
margin payment equal to the difference between the delivery price of the
futures contract and the market price of the securities underlying the futures
contract. Conversely, if the price of the underlying security falls below the
delivery price of the contract, the Portfolio's futures position increases in
value. The broker then must make a variation margin payment equal to the
difference between the delivery price of the futures contract and the market
price of the securities underlying the futures contract.
When a Portfolio terminates a position in a futures contract, a final
determination of variation margin is made, additional cash is paid by or to
the Portfolio, and the Portfolio realizes a loss or a gain. Such closing
transactions involve additional commission costs.
SPECIAL RISKS OF TRANSACTIONS IN FUTURES CONTRACTS AND RELATED OPTIONS
LIQUIDITY RISKS. Positions in futures contracts may be closed out only on
an exchange or board of trade which provides a secondary market for such
futures. Although the Trust intends to purchase or sell futures only on
exchanges or boards of trade where there appears to be an active secondary
market, there is no assurance that a liquid secondary market on an exchange or
board of trade will exist for any particular contract or at any particular
time. If there is not a liquid secondary market at a particular time, it may
not be possible to close a futures position at such time and, in the event of
adverse price movements, the Trust would continue to be required to make daily
cash payments of variation margin. However, in the event financial futures are
used to hedge portfolio securities, such securities will not generally be sold
until the financial futures can be terminated. In such circumstances, an
increase in the price of the portfolio securities, if any, may partially or
completely offset losses on the financial futures.
In addition to the risks that apply to all options transactions, there are
several special risks relating to options on futures contracts. The ability to
establish and close out positions in such options will be subject to the
development and maintenance of a liquid secondary market. It is not certain
that such a market will develop. Although the Trust generally will purchase
only those options for which there appears to be an active secondary market,
there is no assurance that a liquid secondary market on an exchange will exist
for any particular option or at any particular time. In the event that no such
market exists for particular options, it might not be possible to effect
closing transactions in such options with the result that the Trust would have
to exercise the options in order to realize any profit.
HEDGING RISKS. There are several risks in connection with the use by a
Portfolio of futures contracts and related options as a hedging device. One
risk arises because of the imperfect correlation between movements in the
prices of the futures contracts and options and movements in the underlying
securities or index or movements in the prices of the Trust's securities which
are the subject of the hedge. A Portfolio's Sub-Adviser will, however, attempt
to reduce this risk by purchasing and selling, to the extent possible, futures
contracts and related options on securities and indexes the movements of which
will, in its judgment, correlate closely with movements in the prices of the
underlying securities or index and the Trust's portfolio securities sought to
be hedged.
Successful use of futures contracts and options by a Portfolio for hedging
purposes is also subject to a Portfolio's Sub-Adviser's ability to predict
correctly movements in the direction of the market. It is possible that, where
a Portfolio has purchased puts on futures contracts to hedge its portfolio
against a decline in the market, the securities or index on which the puts are
purchased may increase in value and the value of securities held in the
portfolio may decline. If this occurred, the Portfolio would lose money on the
puts and also experience a decline in value in its portfolio securities. In
addition, the prices of futures, for a number of reasons, may not correlate
perfectly with movements in the underlying securities or index due to certain
market distortions. First, all participants in the futures market are subject
to margin deposit requirements. Such requirements may cause investors to close
futures contracts through offsetting transactions which could distort the
normal relationship between the underlying security or index and futures
markets. Second, the margin requirements in the futures markets are less
onerous than margin requirements in the securities markets in general, and as
a result the futures markets may attract more speculators than the securities
markets do. Increased participation by speculators in the futures markets may
also cause temporary price distortions. Due to the possibility of price
distortion, even a correct forecast of general market trends by a Portfolio's
Sub-Adviser may still not result in a successful hedging transaction over a
very short time period.
FOREIGN TRANSACTION RISKS. Unlike trading on domestic commodity
exchanges, trading on foreign commodity exchanges is not regulated by the CFTC
and may be subject to greater risks than trading on domestic exchanges. For
example, some foreign exchanges are principal markets so that no common
clearing facility exists and a trader may look only to the broker for
performance of the contract. In addition, unless a Portfolio hedges against
fluctuations in the exchange rate between the U.S. dollar and the currencies
in which trading is done on foreign exchanges, any profits that the Portfolio
might realize in trading could be eliminated by adverse changes in the
exchange rate, or the Portfolio could incur losses as a result of those
changes. Transactions on foreign exchanges may include both commodities which
are traded on domestic exchanges and those which are not.
OTHER RISKS. Portfolios will incur brokerage fees in connection with
their futures and options transactions. In addition, while futures contracts
and options on futures will be purchased and sold to reduce certain risks,
those transactions themselves entail certain other risks. Thus, while a
Portfolio may benefit from the use of futures and related options,
unanticipated changes in interest rates or stock price movements may result in
a poorer overall performance for the Portfolio than if it had not entered into
any futures contracts or options transactions. Moreover, in the event of an
imperfect correlation between the futures position and the portfolio position
which is intended to be protected, the desired protection may not be obtained
and the Portfolio may be exposed to risk of loss.
FORWARD COMMITMENTS
The Trust may, on behalf of each Portfolio, enter into contracts to purchase
securities for a fixed price at a future date beyond customary settlement time
("forward commitments") if the Portfolio holds, and maintains until the
settlement date in a segregated account maintained by the Custodian with
assets selected by the Custodian, cash or high-grade debt obligations in an
amount sufficient to meet the purchase price, or if the Portfolio enters into
offsetting contracts for the forward sale of other securities it owns. Forward
commitments may be considered securities in themselves, and involve a risk of
loss if the value of the security to be purchased declines prior to the
settlement date, which risk is in addition to the risk of decline in the value
of the Portfolio's other assets. Where such purchases are made through
dealers, the Portfolio relies on the dealer to consummate the sale. The
dealer's failure to do so may result in the loss to the Portfolio of an
advantageous yield or price.
Although a Portfolio will generally enter into forward commitments with the
intention of acquiring securities for its portfolio or for delivery pursuant
to options contracts it has entered into, a Portfolio may dispose of a
commitment prior to settlement if a Portfolio's Sub-Adviser deems it
appropriate to do so. A Portfolio may realize short-term profits or losses
upon the sale of forward commitments.
REPURCHASE AGREEMENTS
On behalf of each Portfolio, the Trust may enter into repurchase agreements. A
repurchase agreement is a contract under which the Portfolio acquires a
security for a relatively short period (usually not more than one week)
subject to the obligation of the seller to repurchase and the Portfolio to
resell such security at a fixed time and price (representing the Portfolio's
cost plus interest). It is the Trust's present intention to enter into
repurchase agreements only with member banks of the Federal Reserve System and
securities dealers meeting certain criteria as to creditworthiness and
financial condition established by the Trustees of the Trust and only with
respect to obligations of the U.S. Government or its agencies or
instrumentalities or other high quality short term debt obligations.
Repurchase agreements may also be viewed as loans made by the Trust which are
collateralized by the securities subject to repurchase. The Sub-Advisers will
monitor such transactions to ensure that the value of the underlying
securities will be at least equal at all times to the total amount of the
repurchase obligation, including the interest factor. If the seller defaults,
the Trust could realize a loss on the sale of the underlying security to the
extent that the proceeds of sale including accrued interest are less than the
resale price provided in the agreement including interest. In addition, if the
seller should be involved in bankruptcy or insolvency proceedings, the Trust
may incur delay and costs in selling the underlying security or may suffer a
loss of principal and interest if the Trust is treated as an unsecured
creditor and required to return the underlying collateral to the seller's
estate.
REVERSE REPURCHASE AGREEMENTS
The Trust may, on behalf of each of the Portfolios, enter into reverse
repurchase agreements, which involve the sale by the Portfolio of securities
held by it with an agreement to repurchase the securities at an agreed upon
price, date, and interest payment. The Portfolios will use the proceeds of the
reverse repurchase agreements to purchase securities either maturing, or under
an agreement to resell, at a date simultaneous with or prior to the expiration
of the reverse repurchase agreement. A Portfolio will use reverse repurchase
agreements when the interest income to be earned from the investment of the
proceeds of the transaction is greater than the interest expense of the
reverse repurchase transaction. Reverse repurchase agreements into which the
Portfolios will enter require that the market value of the underlying security
and other collateral equal or exceed the repurchase price (including interest
accrued on the security), and require the Portfolios to provide additional
collateral if the market value of such security falls below the repurchase
price at any time during the term of the reverse repurchase agreement. At all
times that a reverse repurchase agreement is outstanding, the Portfolio will
maintain cash, liquid high-grade debt obligations, or U.S. Government
Securities, as the case may be, in a segregated account at its custodian with
a value at least equal to its obligations under the agreement.
WHEN-ISSUED SECURITIES
The Trust may, on behalf of each Portfolio, from time to time purchase
securities on a "when-issued" basis. Debt securities are often issued on this
basis. The price of such securities, which may be expressed in yield terms, is
fixed at the time a commitment to purchase is made, but delivery and payment
for the when-issued securities take place at a later date. Normally, the
settlement date occurs within one month of the purchase. During the period
between purchase and settlement, no payment is made by a Portfolio and no
interest accrues to the Portfolio. To the extent that assets of a Portfolio
are held in cash pending the settlement of a purchase of securities, that
Portfolio would earn no income. While the Trust may sell its right to acquire
when-issued securities prior to the settlement date, the Trust intends
actually to acquire such securities unless a sale prior to settlement appears
desirable for investment reasons. At the time a Portfolio makes the commitment
to purchase a security on a when-issued basis, it will record the transaction
and reflect the amount due and the value of the security in determining the
Portfolio's net asset value. The market value of the when-issued securities
may be more or less than the purchase price payable at the settlement date.
Each Portfolio will establish a segregated account in which it will maintain
cash and U.S. Government Securities or other high-grade debt obligations at
least equal in value to commitments for when-issued securities. Such
segregated securities either will mature or, if necessary, be sold on or
before the settlement date.
LOANS OF PORTFOLIO SECURITIES
The Trust may lend the portfolio securities of any Portfolio, provided: (1)
the loan is secured continuously by collateral consisting of U.S. Government
Securities, cash, or cash equivalents adjusted daily to have market value at
least equal to the current market value of the securities loaned; (2) the
Trust may at any time call the loan and regain the securities loaned; (3) the
Trust will receive any interest or dividends paid on the loaned securities;
and (4) the aggregate market value of securities of any Portfolio loaned will
not at any time exceed 20% (except 10% with respect to the EliteValue
Asset Allocation Portfolio, 15% with respect to the Credit Suisse
International Equity Portfolio and 33 1/3% with respect to the Global Advisors
Money Market Portfolio and the Global Advisors Growth Equity Portfolio) of the
total assets of the Portfolio taken at value. In addition, it is anticipated
that the Portfolio may share with the borrower some of the income received on
the collateral for the loan or that it will be paid a premium for the loan.
Before the Portfolio enters into a loan, a Portfolio's Sub-Adviser considers
all relevant facts and circumstances including the creditworthiness of the
borrower. The risks in lending portfolio securities, as with other extensions
of credit, consist of possible delay in recovery of the securities or possible
loss of rights in the collateral should the borrower fail financially.
Although voting rights, or rights to consent, with respect to the loaned
securities pass to the borrower, the Trust retains the right to call the loans
at any time on reasonable notice, and it will do so in order that the
securities may be voted by the Trust if the holders of such securities are
asked to vote upon or consent to matters materially affecting the investment.
The Trust will not lend portfolio securities to borrowers affiliated with the
Trust.
FOREIGN SECURITIES
Investments in foreign securities may involve considerations different from
investments in domestic securities due to limited publicly available
information, non-uniform accounting standards, lower trading volume and
possible consequent illiquidity, greater volatility in price, the possible
imposition of withholding or confiscatory taxes, the possible adoption of
foreign governmental restrictions affecting the payment of principal and
interest, expropriation of assets, nationalization, or other adverse political
or economic developments. Foreign companies may not be subject to auditing and
financial reporting standards and requirements comparable to those which apply
to U.S. companies. Foreign brokerage commissions and other fees are generally
higher than in the United States. It may also be more difficult to obtain and
enforce a judgment against a foreign issuer.
In addition, to the extent that any Portfolio's foreign investments are not
U.S. dollar-denominated, the Portfolio may be affected favorably or
unfavorably by changes in currency exchange rates or exchange control
regulations and may incur costs in connection with conversion between
currencies.
In determining whether to invest in securities of foreign issuers, the
Sub-Adviser of a Portfolio will consider the likely impact of foreign taxes on
the net yield available to the Portfolio and its shareholders. Income received
by a Portfolio from sources within foreign countries may be reduced by
withholding and other taxes imposed by such countries. Tax conventions between
certain countries and the United States may reduce or eliminate such taxes. It
is impossible to determine the effective rate of foreign tax in advance since
the amount of a Portfolio's assets to be invested in various countries is not
known, and tax laws and their interpretations may change from time to time and
may change without advance notice. Any such taxes paid by a Portfolio will
reduce its net income available for distribution to shareholders.
FOREIGN CURRENCY TRANSACTIONS
The Trust may engage in currency exchange transactions, on behalf of its
Portfolios which may invest in foreign securities, to protect against
uncertainty in the level of future foreign currency exchange rates and to
increase current return. The Trust may engage in both "transaction hedging"
and "position hedging."
When it engages in transaction hedging, the Trust enters into foreign currency
transactions with respect to specific receivables or payables of a Portfolio
generally arising in connection with the purchase or sale of its portfolio
securities. The Trust will engage in transaction hedging when it desires to
"lock-in" the U.S. dollar price of a security it has agreed to purchase or
sell, or the U.S. dollar equivalent of a dividend or interest payment in a
foreign currency. By transaction hedging the Trust will attempt to protect a
Portfolio against a possible loss resulting from an adverse change in the
relationship between the U.S. dollar and the applicable foreign currency
during the period between the date on which the security is purchased or sold
or on which the dividend or interest payment is declared, and the date on
which such payments are made or received.
The Trust may purchase or sell a foreign currency on a spot (or cash) basis at
the prevailing spot rate in connection with transaction hedging. The Trust may
also enter into contracts to purchase or sell foreign currencies at a future
date ("forward contracts") and purchase and sell foreign currency futures
contracts.
transaction hedging purposes the Trust may also purchase exchange-listed and
over-the-counter call and put options on foreign currency futures contracts
and on foreign currencies. A put option on a futures contract gives the Trust
the right to assume a short position in the futures contract until expiration
of the option. A put option on currency gives the Trust the right to sell a
currency at an exercise price until the expiration of the option. A call
option on a futures contract gives the Trust the right to assume a long
position in the futures contract until the expiration of the option. A call
option on currency gives the Trust the right to purchase a currency at the
exercise price until the expiration of the option. The Trust will engage in
over-the-counter transactions only when appropriate exchange-traded
transactions are unavailable and when, in the opinion of the Portfolio's
Sub-Adviser, the pricing mechanism and liquidity are satisfactory and the
participants are responsible parties likely to meet their contractual
obligations.
When it engages in position hedging, the Trust enters into foreign currency
exchange transactions to protect against a decline in the values of the
foreign currencies in which securities held by a Portfolio are denominated or
are quoted in their principle trading markets or an increase in the value of
currency for securities which a Portfolio expects to purchase. In connection
with position hedging, the Trust may purchase put or call options on foreign
currency and foreign currency futures contracts and buy or sell forward
contracts and foreign currency futures contracts. The Trust may also purchase
or sell foreign currency on a spot basis.
The precise matching of the amounts of foreign currency exchange transactions
and the value of the portfolio securities involved will not generally be
possible since the future value of such securities in foreign currencies will
change as a consequence of market movements in the values of those securities
between the dates the currency exchange transactions are entered into and the
dates they mature.
It is impossible to forecast with precision the market value of a Portfolio's
portfolio securities at the expiration or maturity of a forward or futures
contract. Accordingly, it may be necessary for the Trust to purchase
additional foreign currency on behalf of a Portfolio on the spot market (and
bear the expense of such purchase) if the market value of the security or
securities being hedged is less than the amount of foreign currency the Trust
is obligated to deliver and if a decision is made to sell the security or
securities and make delivery of the foreign currency. Conversely, it may be
necessary to sell on the spot market some of the foreign currency received
upon the sale of the portfolio security or securities of a Portfolio if the
market value of such security or securities exceeds the amount of foreign
currency the Trust is obligated to deliver on behalf of the Portfolio.
To offset some of the costs to a Portfolio of hedging against fluctuations in
currency exchange rates, the Trust may write covered call options on those
currencies.
Transaction and position hedging do not eliminate fluctuations in the
underlying prices of the securities which a Portfolio owns or intends to
purchase or sell. They simply establish a rate of exchange which one can
achieve at some future point in time.
Additionally, although these techniques tend to minimize the risk of loss due
to a decline in the value of the hedged currency, they tend to limit any
potential gain which might result from the increase in the value of such
currency.
Portfolio may also seek to increase its current return by purchasing and
selling foreign currency on a spot basis, and by purchasing and selling
options on foreign currencies and on foreign currency futures contracts, and
by purchasing and selling foreign currency forward contracts.
CURRENCY FORWARD AND FUTURES CONTRACTS. A forward foreign currency
exchange contract involves an obligation to purchase or sell a specific
currency at a future date, which may be any fixed number of days from the date
of the contract as agreed by the parties, at a price set at the time of the
contract. In the case of a cancelable forward contract, the holder has the
unilateral right to cancel the contract at maturity by paying a specified fee.
The contracts are traded in the interbank market conducted directly between
currency traders (usually large commercial banks) and their customers. A
forward contract generally has no deposit requirement, and no commissions are
charged at any stage for trades. A foreign currency futures contract is a
standardized contract for the future delivery of a specified amount of a
foreign currency at a future date at a price set at the time of the contract.
Foreign currency futures contracts traded in the United States are designed by
and traded on exchanges regulated by the CFTC, such as the New York Mercantile
Exchange.
Forward foreign currency exchange contracts differ from foreign currency
futures contracts in certain respects. For example, the maturity date of a
forward contract may be any fixed number of days from the date of the contract
agreed upon by the parties, rather than a predetermined date in a given month.
Forward contracts may be in any amounts agreed upon by the parties rather than
predetermined amounts. Also, forward foreign exchange contracts are traded
directly between currency traders so that no intermediary is required. A
forward contract generally requires no margin or other deposit.
At the maturity of a forward or futures contract, the Trust may either accept
or make delivery of the currency specified in the contract, or at or prior to
maturity enter into a closing transaction involving the purchase or sale of an
offsetting contract. Closing transactions with respect to forward contracts
are usually effected with the currency trader who is a party to the original
forward contract. Closing transactions with respect to futures contracts are
effected on a commodities exchange; a clearing corporation associated with the
exchange assumes responsibility for closing out such contracts.
Positions in foreign currency futures contracts and related options may be
closed out only on an exchange or board of trade which provides a secondary
market in such contracts or options. Although the Trust intends to purchase or
sell foreign currency futures contracts and related options only on exchanges
or boards of trade where there appears to be an active secondary market, there
is no assurance that a secondary market on an exchange or board of trade will
exist for any particular contract or option or at any particular time. In such
event, it may not be possible to close a futures or related option position
and, in the event of adverse price movements, the Trust would continue to be
required to make daily cash payments of variation margin on its futures
positions.
FOREIGN CURRENCY OPTIONS. Options on foreign currencies operate similarly
to options on securities, and are traded primarily in the over-the-counter
market, although options on foreign currencies have recently been listed on
several exchanges. Such options will be purchased or written only when a
Portfolio's Sub-Adviser believes that a liquid secondary market exists for
such options. There can be no assurance that a liquid secondary market will
exist for a particular option at any specific time. Options on foreign
currencies are affected by all of those factors which influence exchange rates
and investments generally.
The value of a foreign currency option is dependent upon the value of the
foreign currency and the U.S. dollar, and may have no relationship to the
investment merits of a foreign security. Because foreign currency transactions
occurring in the interbank market involve substantially larger amounts than
those that may be involved in the use of foreign currency options,investors
may be disadvantaged by having to deal in an odd lot market (generally
consisting of transactions of less than $1 million) for the underlying foreign
currencies at prices that are less favorable than for round lots.
There is no systematic reporting of last sale information for foreign
currencies and there is no regulatory requirement that quotations available
through dealers or other market sources be firm or revised on a timely basis.
Available quotation information is generally representative of very large
transactions in the interbank market and thus may not reflect relatively
smaller transactions (less than $1 million) where rates may be less favorable.
The interbank market in foreign currencies is a global, around-the-clock
market. To the extent that the U.S. options markets are closed while the
markets for the underlying currencies remain open, significant price and rate
movements may take place in the underlying markets that cannot be reflected in
the U.S. options markets.
FOREIGN CURRENCY CONVERSION. Although foreign exchange dealers do not
charge a fee for currency conversion, they do realize a profit based on the
difference (the "spread") between prices at which they buy and sell various
currencies. Thus, a deal may offer to sell a foreign currency to the Trust at
one rate, while offering a lesser rate of exchange should the Trust desire to
resell that currency to the dealer.
SWAPS, CAPS, FLOORS AND COLLARS. Among the Strategic Transactions into
which certain Portfolios may enter are interest rate, currency and index swaps
and other types of available swap agreements, such as caps, floors and
collars. A Portfolio will enter into these transactions primarily to preserve
a return or spread on a particular investment or portion of its portfolio, to
protect against currency fluctuations, as a duration management technique or
to protect against any increase in the price of securities a Portfolio
anticipates purchasing at a later date. A Portfolio will use these
transactions as hedges and not as speculative investments and will not sell
interest rate caps or floors where it does not own securities or other
instruments providing the income stream the Portfolio may be obligated to pay.
Interest rate swaps involve the exchange by the Portfolio with another party
of their respective commitments to pay or receive interest, e.g., an exchange
of floating rate payments for fixed rate payments with respect to a notional
amount of principal. A currency swap is an agreement to exchange cash flows on
a notional amount of two or more currencies based on the relative value
differential among them. An index swap is an agreement to swap cash flows on a
notional amount based on changes in the values of the reference indices. The
purchase of a cap entitles the purchaser to receive payments on a notional
principal amount from the party selling such cap to the extent that a
specified index exceeds a predetermined interest rate or amount. The purchase
of a floor entitles the purchaser to receive payments on a notional principal
amount from the party selling such floor to the extent that a specified index
falls below a predetermined interest rate or amount. A collar is a combination
of a cap and a floor that preserves a certain return within a predetermined
range of interest rates or values.
A Portfolio will usually enter into swaps on a net basis, i.e., the two
payment streams are netted out in a cash settlement on the payment date or
dates specified in the instrument, with the Portfolio receiving or paying, as
the case may be, only the net amount of the two payments. Inasmuch as these
swaps, caps, floors and collars are entered into for good faith hedging
purposes, the Sub-Advisers and the Portfolios believe such obligations do not
constitute senior securities under the Investment Company Act of 1940, as
amended, and, accordingly, will not treat them as being subject to its
borrowing restrictions. If there is a default by the counterparty, the
Portfolio may have contractual remedies pursuant to the agreements related to
the transaction. The swap market has grown substantially in recent years with
a large number of banks and investment banking firms acting both as principals
and agents utilizing standardized swap documentation. As a result, the swap
market has become relatively liquid. Caps, floors and collars are more recent
innovations for which standardized documentation has not yet been fully
developed and, accordingly, they are less liquid than swaps.
With respect to swaps, the Portfolio will accrue the net amount of the excess,
if any, of its obligations over its entitlements with respect to each swap on
a daily basis and will segregate with its custodian an amount of cash or
liquid high-grade securities having a value equal to the accrued excess. Caps,
floors and collars require segregation of assets with a value equal to a
Portfolio's net obligation, if any.
COMMERCIAL MORTGAGE-BACKED SECURITIES
The BlackRock Managed Bond Portfolio may invest in Commercial Mortgage-Backed
Securities. Commercial Mortgage-Backed Securities are generally multi-class
debt or pass-through securities backed by a mortgage loan or pool of mortgage
loans secured by commercial property, such as industrial and warehouse
properties, office buildings, retail space and shopping malls, multifamily
properties and cooperative apartments, hotels and motels, nursing homes,
hospitals, senior living centers and agricultural property. The commercial
mortgage loans that underlie Commercial Mortgage-Backed Securities have
certain distinct characteristics. Commercial mortgage loans are generally not
amortizing or not fully amortizing. At their maturity date, repayment of the
remaining principal balance or "balloon" is due and is repaid through the
attainment of an additional loan or sale of the property. Unlike most single
family residential mortgages, commercial real property loans often contain
provisions which substantially reduce the likelihood that such securities will
be prepaid. The provisions generally impose significant prepayment penalties
on loans and, in some cases there may be prohibitions on principal prepayments
for several years following origination. This difference in prepayment
exposure is significant due to extraordinarily high levels of refinancing of
traditional residential mortgages experienced over the past year as mortgage
rates have reached a 25-year low. Assets underlying Commercial Mortgage-Backed
Securities may relate to only a few properties or to a single property.
Commercial Mortgage-Backed Securities have been issued in public and private
transactions by a variety of public and private issuers. Non-governmental
entities that have issued or sponsored Commercial Mortgage-Backed Securities
offerings include owners of commercial properties, originators of and
investors in mortgage loans, savings and loan associations, mortgage banks,
commercial banks, insurance companies, investment banks and special purpose
subsidiaries of the foregoing. The BlackRock Managed Bond Portfolio may from
time to time purchase Commercial Mortgage-Backed Securities directly from
issuers in negotiated transactions or from a holder of such Commercial
Mortgage-Backed Securities in the secondary market.
Commercial Mortgage-Backed Securities generally are structured to protect the
senior class investors against potential losses on the underlying mortgage
loans. This is generally provided by the subordinated class investors, which
may be included in the Portfolio, by taking the first loss if there are
defaults on the underlying commercial mortgage loans. Other protection, which
may benefit all of the classes, including the subordinated classes in which
the Portfolio intends to invest, may include issuer guarantees, reserve funds,
additional subordinated securities, cross-collateralization,
over-collateralization and the equity investors in the underlying properties.
By adjusting the priority of interest and principal payments on each class of
a given Commercial Mortgage-Backed Security, issuers are able to issue senior
investment-grade securities and lower-rated or non-rated subordinated
securities tailored to meet the needs of sophisticated institutional
investors. In general, subordinated classes of Commercial Mortgage-Backed
Securities are entitled to receive repayment of principal only after all
required principal payments have been made to more senior classes and have
subordinate rights as to receipt of interest distributions. Such subordinated
classes are subject to a substantially greater risk of nonpayment than are
senior classes of Commercial Mortgage-Backed Securities. Even within a class
of subordinate securities, most Commercial Mortgage-Backed Securities are
structured with a hierarchy of levels (or "loss positions"). Loss positions
are the order in which nonrecoverable losses of principal are applied to the
securities within a given structure. For instance, a first-loss subordinate
security will absorb any principal losses before any higher-loss position
subordinate security. This type of structure allows a number of classes of
securities to be created with varying degrees of credit exposure, prepayment
exposure and potential total return.
Subordinated classes of Commercial Mortgage-Backed Securities have more
recently been structured to meet specific investor preferences and issuer
constraints and have different priorities for cash flow and loss absorption.
As previously discussed, from a credit perspective, they are structured to
absorb any credit-related losses prior to the senior class. The principal cash
flow characteristics of subordinated classes are designed to be among the most
stable in the Mortgage-Backed Securities market, the probability of prepayment
being much lower than with traditional Residential Mortgage-Backed Securities.
This characteristic is primarily due to the structural feature that directs
the application of principal payments first to the senior classes until they
are retired before the subordinated classes receive any prepayments. While
this serves to enhance the credit protection of the senior classes, it
produces subordinated classes with more stable average lives. Subject to the
applicable provisions of the 1940 Act, there are no limitations on the classes
of Commercial Mortgage-Backed Securities in which the Portfolio may invest.
Accordingly, in certain circumstances, the Portfolio may recover
proportionally less of its investment in a Commercial Mortgage-Backed Security
than the holders of more senior classes of the same Commercial Mortgage-Backed
Security.
The rating assigned to a given issue and class of Commercial Mortgage-Backed
Securities is a product of many factors, including, the structure of the
security, the level of subordination, the quality and adequacy of the
collateral, and the past performance of the originators and servicing
companies. The rating of any Commercial Mortgage-Backed Security is determined
to a substantial degree by the debt service coverage ratio (i.e., the ratio of
current net operating income from the commercial properties, in the aggregate,
to the current debt service obligations on the properties) and the LTV ratio
of the pooled properties. The amount of the securities issued in any one
rating category is determined by the rating agencies after a rigorous credit
rating process which includes analysis of the issuer, servicer and property
manager, as well as verification of the LTV and debt service coverage ratios.
LTV ratios may be particularly important in the case of commercial mortgages
because most commercial mortgage loans provide that the lender's sole remedy
in the event of a default is against the mortgaged property, and the lender is
not permitted to pursue remedies with respect to other assets of the borrower.
Accordingly, loan-to-value ratios may, in certain circumstances, determine the
amount realized by the holder of the Commercial Mortgage-Backed Security.
ZERO-COUPON SECURITIES
Zero-coupon securities in which a Portfolio may invest are debt obligations
which are generally issued at a discount and payable in full at maturity, and
which do not provide for current payments of interest prior to maturity.
Zero-coupon securities usually trade at a deep discount from their face or par
value and are subject to greater market value fluctuations from changing
interest rates than debt obligations of comparable maturities which make
current distributions of interest. As a result, the net asset value of shares
of a Portfolio investing in zero-coupon securities may fluctuate over a
greater range than shares of other Portfolios of the Trust and other mutual
funds investing in securities making current distributions of interest and
having similar maturities.
Zero-coupon securities may include U.S. Treasury bills issued directly by the
U.S. Treasury or other short-term debt obligations, and longer-term bonds or
notes and their unmatured interest coupons which have been separated by their
holder, typically a custodian bank or investment brokerage firm. A number of
securities firms and banks have stripped the interest coupons from the
underlying principal (the "corpus") of U.S. Treasury securities and resold
them in custodial receipt programs with a number of different names, including
Treasury Income Growth Receipts ("TIGRS") and Certificates of Accrual on
Treasuries ("CATS"). The underlying U.S. Treasury bonds and notes themselves
are held in book-entry form at the Federal Reserve Bank or, in the case of
bearer securities (i.e., unregistered securities which are owned ostensibly by
the bearer or holder thereof), in trust on behalf of the owners thereof.
In addition, the Treasury has facilitated transfers of ownership of
zero-coupon securities by accounting separately for the beneficial ownership
of particular interest coupons and corpus payments on Treasury securities
through the Federal Reserve book-entry record-keeping system. The Federal
Reserve program as established by the Treasury Department is known as "STRIPS"
or "Separate Trading of Registered Interest and Principal of Securities."
Under the STRIPS program, a Portfolio will be able to have its beneficial
ownership of U.S. Treasury zero-coupon securities recorded directly in the
book-entry record-keeping system in lieu of having to hold certificates or
other evidences of ownership of the underlying U.S. Treasury securities.
When debt obligations have been stripped of their unmatured interest coupons
by the holder, the stripped coupons are sold separately. The principal or
corpus is sold at a deep discount because the buyer receives only the right to
receive a future fixed payment on the security and does not receive any rights
to periodic cash interest payments. Once stripped or separated, the corpus and
coupons may be sold separately. Typically, the coupons are sold separately or
grouped with other coupons with like maturity dates and sold in such bundled
form. Purchasers of stripped obligations acquire, in effect, discount
obligations that are economically identical to the zero-coupon securities
issued directly by the obligor.
VARIABLE- OR FLOATING-RATE SECURITIES
Certain Portfolios may invest in securities which offer a variable or floating
rate of interest. Variable-rate securities provide for automatic establishment
of a new interest rate at fixed intervals (e.g., daily, monthly,
semi-annually, etc.). Floating-rate securities provide for automatic
adjustment of the interest rate whenever some specified interest rate index
changes. The interest rate on variable- or floating-rate securities is
ordinarily determined by reference to, or is a percentage of, a bank's prime
rate, the 90-day U.S. Treasury bill rate, the rate of return on commercial
paper or bank certificates of deposit, an index of short-term interest rates,
or some other objective measure.
Variable- or floating-rate securities frequently include a demand feature
entitling the holder to sell the securities to the issuer at par. In many
cases, the demand feature can be exercised at any time on seven days' notice;
in other cases, the demand feature is exercisable at any time on 30 days'
notice or on similar notice at intervals of not more than one year. Some
securities which do not have variable or floating interest rates may be
accompanied by puts producing similar results and price characteristics.
Variable-rate demand notes include master demand notes which are obligations
that permit a Portfolio to invest fluctuating amounts, which may change daily
without penalty, pursuant to direct arrangements between the Portfolio as
lender, and the borrower. The interest rates on these notes fluctuate from
time to time. The issuer of such obligations normally has a corresponding
right, after a given period, to prepay in its discretion the outstanding
principal amount of the obligations plus accrued interest upon a specified
number of days' notice to the holders of such obligations. The interest rate
on a floating-rate demand obligation is based on a known lending rate, such as
a bank's prime rate, and is adjusted automatically each time such rate is
adjusted. The interest rate on a variable-rate demand obligation is adjusted
automatically at specified intervals. Frequently, such obligations are secured
by letters of credit or other credit support arrangements provided by banks.
Because these obligations are direct lending arrangements between the lender
and borrower, it is not contemplated that such instruments will generally be
traded, and there generally is not an established secondary market for these
obligations, although they are redeemable at face value. Accordingly, where
these obligations are not secured by letters of credit or other credit support
arrangements, the Portfolio's right to redeem is dependent on the ability of
the borrower to pay principal and interest on demand. Such obligations
frequently are not rated by credit rating agencies. If not so rated, a
Portfolio may invest in them only if the Portfolio's Sub-Adviser determines
that, at the time of investment, the obligations are of comparable quality to
the other obligations in which the Portfolio may invest. The Sub-Adviser, on
behalf of a Portfolio, will consider on an ongoing basis the creditworthiness
of the issuers of the floating- and variable-rate demand obligations in the
Portfolio's portfolio.
LOWER-GRADE SECURITIES
Certain Portfolios may invest in lower-grade income securities. Such
lower-grade securities are commonly referred to as "junk bonds." Investment in
such securities involves special risks, as described herein. Liquidity relates
to the ability of a Portfolio to sell a security in a timely manner at a price
which reflects the value of that security. As discussed below, the market for
lower-grade securities is considered generally to be less liquid than the
market for investment-grade securities. The relative illiquidity of some of a
Portfolio's portfolio securities may adversely affect the ability of the
Portfolio to dispose of such securities in a timely manner and at a price
which reflects the value of such security in the Sub-Adviser's judgment. The
market for less liquid securities tends to be more volatile than the market
for more liquid securities and market values of relatively illiquid securities
may be more susceptible to change as a result of adverse publicity and
investor perceptions than are the market values of higher-grade, more liquid
securities.
A Portfolio's net asset value will change with changes in the value of its
portfolio securities. If a Portfolio invests in fixed-income securities, the
Portfolio's net asset value can be expected to change as general levels of
interest rates fluctuate. When interest rates decline, the value of a
portfolio invested in fixed-income securities can be expected to rise.
Conversely, when interest rates rise, the value of a portfolio invested in
fixed-income securities can be expected to decline. Net asset value and market
value may be volatile due to a Portfolio's investment in lower-grade and less
liquid securities. Volatility may be greater during periods of general
economic uncertainty.
A Portfolio's investments are valued pursuant to guidelines adopted and
periodically reviewed by the Board of Trustees. To the extent that there is no
established retail market for some of the securities in which a Portfolio may
invest, there may be relatively inactive trading in such securities and the
ability of the Sub-Adviser to accurately value such securities may be
adversely affected. During periods of reduced market liquidity and in the
absence of readily available market quotations for securities held in a
Portfolio's portfolio, the responsibility of the Sub-Adviser to value the
Portfolio's securities becomes more difficult and the Sub-Adviser's judgment
may play a greater role in the valuation of the Portfolio's securities due to
the reduced availability of reliable objective data. To the extent that a
Portfolio invests in illiquid securities and securities which are restricted
as to resale, the Portfolio may incur additional risks and costs.
Lower-grade securities generally involve greater credit risk than higher-grade
securities. A general economic downturn or a significant increase in interest
rates could severely disrupt the market for lower-grade securities and
adversely affect the market value of such securities. In addition, in such
circumstances, the ability of issuers of lower-grade securities to repay
principal and to pay interest, to meet projected financial goals and to obtain
additional financing may be adversely affected. Such consequences could lead
to an increased incidence of default for such securities and adversely affect
the value of the lower-grade securities in a Portfolio's portfolio and thus a
Portfolio's net asset value. The secondary market prices of lower-grade
securities are less sensitive to changes in interest rates than are those for
higher-rated securities, but are more sensitive to adverse economic changes
or individual issuer developments. Adverse publicity and investor perceptions,
whether or not based on rational analysis, may also affect the value and
liquidity of lower-grade securities.
Yields on a Portfolio's portfolio securities can be expected to fluctuate over
time. In addition, periods of economic uncertainty and changes in interest
rates can be expected to result in increased volatility of the market prices
of the lower-grade securities in a Portfolio's portfolio and thus in the net
asset value of a Portfolio. Net asset value and market value may be volatile
due to a Portfolio's investment in lower-grade and less liquid securities.
Volatility may be greater during periods of general economic uncertainty. The
Portfolios may incur additional expenses to the extent they are required to
seek recovery upon a default in the payment of interest or a repayment of
principal on their portfolio holdings, and the Portfolios may be unable to
obtain full recovery thereof. In the event that an issuer of securities held
by a Portfolio experiences difficulties in the timely payment of principal or
interest and such issuer seeks to restructure the terms of its borrowings,
such Portfolio may incur additional expenses and may determine to invest
additional capital with respect to such issuer or the project or projects to
which the Portfolio's portfolio securities relate.
The Portfolios will rely on each Sub-Adviser's judgment, analysis and
experience in evaluating the creditworthiness of an issuer. In this
evaluation, the Sub-Adviser will take into consideration, among other things,
the issuer's financial resources, its sensitivity to economic conditions and
trends, its operating history, the quality of the issuer's management and
regulatory matters. The Sub-Adviser also may consider, although it does not
rely primarily on, the credit ratings of S&P and Moody's in evaluating
fixed-income securities. Such ratings evaluate only the safety of principal
and interest payments, not market value risk. Additionally, because the
creditworthiness of an issuer may change more rapidly than is able to be
timely reflected in changes in credit ratings, the Sub-Adviser continuously
monitors the issuers of such securities held in the Portfolio's portfolio. A
Portfolio may, if deemed appropriate by the Sub-Adviser, retain a security
whose rating has been downgraded below B by S&P or below B by Moody's, or
whose rating has been withdrawn.
INVESTMENT RESTRICTIONS
FUNDAMENTAL INVESTMENT RESTRICTIONS
The following investment restrictions are fundamental and may not be changed
with respect to any Portfolio without the approval of a majority of the
outstanding voting securities of that Portfolio. Under the Investment Company
Act of 1940 and the rules thereunder, "majority of the outstanding voting
securities" of a Portfolio means the lesser of (1) 67% of the shares of that
Portfolio present at a meeting if the holders of more than 50% of the
outstanding shares of that Portfolio are present in person or by proxy, and
(2) more than 50% of the outstanding shares of that Portfolio. Any investment
restrictions which involve a maximum percentage of securities or assets shall
not be considered to be violated unless an excess over the percentage occurs
immediately after, and is caused by, an acquisition or encumbrance of
securities or assets of, or borrowings by or on behalf of, a Portfolio, as the
case may be.
The Trust may not, on behalf of a Portfolio:
(1) With respect to 75% of its total assets, purchase the securities of
any issuer if such purchase would cause more than 5% of the value of a
Portfolio's total assets to be invested in securities of any one issuer
(except securities issued or guaranteed by the U.S. Government or any agency
or instrumentality thereof), or purchase more than 10% of the outstanding
voting securities of any one issuer;
(2) invest more than 25% of the value of its net assets in the
securities (other than U.S. Government Securities), of issuers in a single
industry, except that this policy shall not limit investment by the Global
Advisors Money Market Portfolio in obligations of U.S. banks (excluding their
foreign branches);
(3) borrow money (including reverse repurchase agreements), except as a
temporary measure for extraordinary or emergency purposes or, with respect to
the Global Advisors Money Market Portfolio, to facilitate redemptions, (and
not for leveraging or investment, except with respect to reverse repurchase
agreements and dollar roll transactions, to the extent such investments are
permitted under a Portfolio's investment objectives and policies), provided
that borrowings do not exceed an amount equal to 33-1/3% of the current value
of the Portfolio's assets taken at market value, less liabilities other than
borrowings. If at any time a Portfolio's borrowings exceed this limitation due
to a decline in net assets, such borrowings will within three days be reduced
to the extent necessary to comply with this limitation. A Portfolio will not
purchase investments once borrowed funds (including reverse repurchase
agreements) exceed 5% of its total assets;
(4) make loans to other persons, except loans of portfolio securities
and except to the extent that the purchase of debt obligations in accordance
with its investment objectives and policies or entry into repurchase
agreements may be deemed to be loans;
(5) purchase or sell any commodity contract, except that each Portfolio
(other than the Global Advisors Money Market Portfolio), to the extent
permitted by its investment objectives and policies, may purchase and sell
futures contracts based on debt securities, indexes of securities, and foreign
currencies and purchase and write options on securities, futures contracts
which it may purchase, securities indexes, and foreign currencies and purchase
forward contracts. (Securities denominated in gold or other precious metals or
whose value is determined by the value of gold or other precious metals are
not considered to be commodity contracts.)
(6) underwrite securities issued by other persons except to the extent
that, in connection with the disposition of its portfolio investments, it may
be deemed to be an underwriter under federal securities laws;
(7) purchase or sell real estate, although (with respect to Portfolios
other than the Global Advisors Money Market Portfolio) it may purchase and
sell securities which are secured by or represent interests in real estate,
mortgage-related securities, securities of companies principally engaged in
the real estate industry and participation interests in pools of real estate
mortgage loans, and it may liquidate real estate acquired as a result of
default on a mortgage;
(8) issue any class of securities which is senior to a Portfolio's
shares of beneficial interest except as permitted under the Investment Company
Act of 1940 or by order of the SEC.
NON-FUNDAMENTAL INVESTMENT RESTRICTIONS
The following investment restrictions are non-fundamental and may be changed
by the Trustees of the Trust without shareholder approval. Although
shareholder approval is not necessary, the Trust intends to notify its
shareholders before implementing any material change in any non-fundamental
investment restriction.
The Trust may not, on behalf of a Portfolio:
(1) invest more than 15% (except 10% with respect to the Credit Suisse
International Equity Portfolio and the Global Advisors Money Market Portfolio)
of the net assets of a Portfolio (taken at market value) in illiquid
securities, including repurchase agreements maturing in more than seven days;
(2) purchase securities on margin, except (with respect to all
Portfolios other than the Global Advisors Money Market Portfolio) such
short-term credits as may be necessary for the clearance of purchases and
sales of securities, and except (with respect to all Portfolios other than the
Global Advisors Money Market Portfolio) that it may make margin payments in
connection with options, futures contracts, options on futures contracts and
forward foreign currency contracts and in connection with swap agreements;
(3) make short sales of securities unless such Portfolio (other than the
Global Advisors Money Market Portfolio) owns an equal amount of such
securities or owns securities which, without payment of any further
consideration, are convertible into or exchangeable for securities of the same
issue as, and equal in amount to, the securities sold short;
(4) make investments for the purpose of gaining control of a company's
management.
MANAGEMENT OF THE TRUST
<TABLE>
<CAPTION>
<S> <C> <C>
Principal Occupation During
Name, Address and Age Position Held with the Trust Past Five Years
- ----------------------------- ------------------------------ ---------------------------------------
Richard W. Scott* President (Principal Executive Executive Vice President, General
5555 San Felipe, Suite 900 Officer)and Trustee Counsel and Chief Investment Officer
Houston, Texas 77056 of Western National Corporation and
Age: 42 Western National Life Insurance Company
since February, 1994; prior thereto, a
partner with Vinson & Elkins L.L.P.
John A. Graf* Trustee Executive Vice President and Chief
5555 San Felipe, Suite 900 Marketing Officer of Western National
Houston, Texas 77056 Corporation since December, 1993
Age: 36 and of Western National Life Insurance
Company since March, 1993; prior
thereto, Senior, Second or Assistant
Vice President or Vice President,
Marketing of Conseco, Inc. and Western
National Corporation.
Alden W. Brosseau* Trustee Owner, Sonoma Group, Consulting
16670 Arnold Drive to Management, since March, 1993;
Sonoma, CA 95476 prior thereto, Vice President,
Age: 68 Investment Administration & Planning,
American General Corporation.
S. Tevis Grinstead Trustee Retired since 1993; prior thereto,
c/o Vinson & Elkins L.L.P. a partner with Vinson & Elkins L.L.P.
2300 First City Tower
1001 Fannin
Houston, Texas 77002-6760
Age: 57
Hugh L. Hyde Trustee Owner, HLH Consulting Inc. since
12 Greenway Plaza, Suite 1350 November, 1994; from March 1, 1993 -
Houston, Texas 77046-1201 September 15, 1994, President and
Age: 53 Director of Texas Capital Bancshares,
Inc. and its subsidiary bank, Texas
Capital Bank, N.A.; prior thereto,
a partner with KPMG Peat Marwick.
Melvin C. Payne Trustee President and Chief Executive Officer
Three Riverway, Suite 1375 of Carriage Services since 1991; prior
Houston, Texas 77045 thereto, an independent consultant to
Age: 53 various companies.
Patrick F. Grady Vice President, Treasurer, Vice President, Treasurer, Principal
5555 San Felipe, Suite 900 Principal Financial Officer and Principal
Houston, Texas 77056 Accounting Officer of Western National
Age: 38 Life Insurance Company since
February, 1994; prior thereto, Vice
President, Second Vice President,
Assistant Vice President - Financial
Reporting, Conseco, Inc., Carmel,
Indiana.
Dwight L. Cramer Vice President and Secretary Senior Vice President - Law and
5555 San Felipe, Suite 900 Secretary of Western National
Houston, Texas 77056 Life and Western National Corporation
Age: 43 since February, 1996; prior thereto,
from November 1993 until February 1996,
Vice President, Secretary and Associate
General Counsel of Western National
Life; prior thereto, from January, 1993
until November, 1993, private law
practice, Houston, Texas; prior
thereto, from August, 1988 until
January, 1993, partner and shareholder,
Chamberlain, Hrdlicka, White, Williams,
Martin, a law firm, Houston, Texas.
Kurt R. Fredland Vice President and Assistant Assistant Vice President - Variable
5555 San Felipe, Suite 900 Treasurer Annuity Administration, Western
Houston, Texas 77056 National Life, since
Age: 47 April, 1994; prior thereto, from
February, 1993 to April, 1994, a
financial consultant; prior thereto,
from April, 1977 to February, 1993,
Senior Vice President (and a number of
other positions at the same employer
preceding that position), First City
Bancorporation of Texas, Inc., Houston,
Texas.
Evelyn M. Curran Assistant Secretary Staff Attorney, Western National Life,
5555 San Felipe, Suite 900 since March 1994; prior thereto,
Houston, Texas 77056 from January 1991 to March 1994,
Age: 30 law student, South Texas College of
Law, Houston, Texas; prior
thereto, from August, 1990 to August,
1992, Underwriter and Claims
Representative, Farmers Insurance
Company, Santa Ana, California.
<FN>
* Interested person of the Trust within the meaning of the 1940 Act.
</TABLE>
Each Trustee of the Trust who is not an employee, officer or director of
the Life Company, the Adviser or a Sub-Adviser receives an annual fee of
$7,500 and an additional fee of $750 for each Trustees' meeting attended.
In addition, disinterested Trustees who are members of any Board committees
will receive a separate $750 fee for attendance of any committee meeting
that is held on a day on which no Board meeting is held. None of the Trustees
or officers of the Trust own any of the oustanding shares of the Trust as of
May 1, 1996. With respect to the period ended December 31, 1995, the Trust
paid Trustees' fees aggregating $32,812.50. The following table shows the
1995 compensation by Trustee.
COMPENSATION TABLE
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
(1) (2) (3) (4) (5)
Pension or Total
Aggregate Retirement Estimated Compensation
Compensation Benefits Accrued Annual From Registrant
Name of Person, From As Part of Fund Benefits Upon and Fund Complex
Position Registrant(1) Expenses Retirement Paid to Trustees
- ------------------- ------------- ----------------- -------------- -----------------
Richard W. Scott None None None None
President and
Trustee
John A. Graf None None None None
Trustee
Alden W. Brosseau $9,750.00 None None $9,750.00
Trustee
Hugh L. Hyde $9,750.00 None None $9,750.00
Trustee
Melvin C. Payne $9,750.00 None None $9,750.00
Trustee
S. Tevis Grinstead $3,562.50 None None $3,562.50
Trustee
<FN>
(1) The information provided in the Compensation Table represents the actual
payments for the period May 18, 1995 (date of organizational meeting of Trustees)
through December 31, 1995. a portion of such compensation was paid by the Life
Company as part of the organizational expenses of the Trust.
</TABLE>
SUBSTANTIAL SHAREHOLDERS
Shares of the Portfolios are issued and redeemed in connection with
investments in and payments under certain variable annuity contracts issued
through a separate account of the Life Company. As of May 1, 1996, the
separate account of the Life Company was known to the Board of Trustees
and the management of the Trust to own of record 100% of the shares of each
Portfolio of the Trust.
The Declaration of Trust provides that the Trust will indemnify its Trustees
and officers against liabilities and expenses incurred in connection with
litigation in which they may be involved because of their offices with the
Trust, except if it is determined in the manner specified in the Declaration
of Trust that they have not acted in good faith in the reasonable belief that
their actions were in the best interests of the Trust or that such
indemnification would relieve any officer or Trustee of any liability to the
Trust or its shareholders by reason of willful misfeasance, bad faith, gross
negligence, or reckless disregard of his or her duties. The Trust, at its
expense, may provide liability insurance for the benefit of its Trustees and
officers.
Under the Investment Advisory Agreement between the Trust and the Adviser (the
"Investment Advisory Agreement"), the Adviser, at its expense, provides the
Portfolios with investment advisory services and advises and assists the
officers of the Trust in taking such steps as are necessary or appropriate to
carry out the decisions of its Trustees regarding the conduct of business of
the Trust and each Portfolio. The fees to be paid under the Investment
Advisory Agreement are set forth in the Trust's prospectus.
Under the Investment Advisory Agreement, the Adviser is obligated to formulate
a continuing program for the investment of the assets of each Portfolio of the
Trust in a manner consistent with each Portfolio's investment objectives,
policies and restrictions and to determine from time to time securities to be
purchased, sold, retained or lent by the Trust and implement those decisions,
subject always to the provisions of the Trust's Declaration of Trust and
By-laws, and of the Investment Company Act of 1940, and subject further to
such policies and instructions as the Trustees may from time to time
establish.
The Investment Advisory Agreement further provides that the Adviser shall
furnish the Trust with office space and necessary personnel, pay
ordinary office expenses, pay all executive salaries of the Trust and furnish,
without expense to the Trust, the services of such members of its organization
as may be duly elected officers or Trustees of the Trust.
Under the Investment Advisory Agreement, the Trust is responsible for all its
other expenses including, but not limited to, the following expenses: legal,
auditing or accounting expenses, Trustees' fees and expenses, insurance
premiums, brokers' commissions, taxes and governmental fees, expenses of issue
or redemption of shares, expenses of registering or qualifying shares for
sale, reports and notices to shareholders, and fees and disbursements of
custodians, transfer agents, registrars, shareholder servicing agents and
dividend disbursing agents, and certain expenses with respect to membership
fees of industry associations.
Investment Advisory Agreement provides that the Adviser may retain
sub-advisers, at Adviser's own cost and expense, for the purpose of managing
the investment of the assets of one or more Portfolios.
The Investment Advisory Agreement provides that neither the Adviser nor any
director, officer or employee of Adviser will be liable for any loss suffered
by the Trust in the absence of willful misfeasance, bad faith, gross
negligence or reckless disregard of obligations and duties. In addition, the
Agreement provides for indemnification of the Adviser by the Trust.
The Investment Advisory Agreement may be terminated without penalty by vote of
the Trustees, as to any Portfolio by the shareholders of that Portfolio, or by
Adviser on 60 days written notice. The Agreement also terminates without
payment of any penalty in the event of its assignment. In addition, the
Investment Advisory Agreement may be amended only by a vote of the
shareholders of the affected Portfolio(s), and provides that it will continue
in effect from year to year only so long as such continuance is approved at
least annually with respect to each Portfolio by vote of either the Trustees
or the shareholders of the Portfolio, and, in either case, by a majority of
the Trustees who are not "interested persons" of the Adviser. In each of the
foregoing cases, the vote of the shareholders is the affirmative vote of a
"majority of the outstanding voting securities" as defined in the Investment
Company Act of 1940.
The Adviser has agreed to waive its entire advisory fee for each of the
Portfolios for the initial six (6) months of each Portfolio's investment
operations. Additionally, the Adviser has agreed to waive that portion of its
advisory fee which is in excess of the amount payable by the Adviser to each
sub-adviser pursuant to the respective sub-advisory agreements for each
Portfolio until May 1, 1997. In addition, the Adviser has undertaken to bear
all operating expenses of each Portfolio, excluding the compensation of the
Adviser, that exceed .12% of each Portfolio's average daily net assets until
May 1, 1997. Information concerning the dollar amounts of advisory fees waived
and expenses reimbursed for the period ended December 31, 1995 is contained in
the Prospectus.
State Street Bank and Trust Company provides certain accounting, transfer
agency, and other services to the Trust.
SUB-ADVISERS
Each of the Sub-Advisers described in the Prospectus serves as Sub-Adviser to
one or more of the Portfolios of the Trust pursuant to separate written
agreements. Certain services provided by, and the fees paid to, the
Sub-Advisers are described in the Prospectus under "Management of the
Trust--Sub-Advisers."
INVESTMENT DECISIONS
Investment decisions for the Trust and for the other investment advisory
clients of the Sub-Advisers are made with a view to achieving their respective
investment objectives and after consideration of such factors as their current
holdings, availability of cash for investment, and the size of their
investments generally. Frequently, a particular security may be bought or sold
for only one client or in different amounts and at different times for more
than one but less than all clients. Likewise, a particular security may be
bought for one or more clients when one or more other clients are selling the
security. In addition, purchases or sales of the same security may be made for
two or more clients of a Sub-Adviser on the same day. In such event, such
transactions will be allocated among the clients in a manner believed by the
Sub-Adviser to be equitable to each. In some cases, this procedure could have
an adverse effect on the price or amount of the securities purchased or sold
by the Trust. Purchase and sale orders for the Trust may be combined with
those of other clients of a Sub-Adviser in the interest of achieving the most
favorable net results for the Trust.
BROKERAGE AND RESEARCH SERVICES
Transactions on U.S. stock exchanges and other agency transactions involve the
payment by the Trust of negotiated brokerage commissions. Such commissions
vary among different brokers. Also, a particular broker may charge different
commissions according to such factors as the difficulty and size of the
transaction. Transactions in foreign securities often involve the payment of
fixed brokerage commissions, which are generally higher than those in the
United States. There is generally no stated commission in the case of
securities traded in the over-the-counter markets, but the price paid by the
Trust usually includes an undisclosed dealer commission or mark-up. In
underwritten offerings, the price paid by the Trust includes a disclosed,
fixed commission or discount retained by the underwriter or dealer.
is currently intended that the Sub-Advisers will place all orders for the
purchase and sale of portfolio securities for the Trust and buy and sell
securities for the Trust through a substantial number of brokers and dealers.
In so doing, the Sub-Advisers will use their best efforts to obtain for the
Trust the best price and execution available. In seeking the best price and
execution, the Sub-Advisers, having in mind the Trust's best interests, will
consider all factors they deem relevant, including, by way of illustration,
price, the size of the transaction, the nature of the market for the security,
the amount of the commission, the timing of the transaction taking into
account market prices and trends, the reputation, experience, and financial
stability of the broker-dealer involved, and the quality of service rendered
by the broker-dealer in other transactions.
It has for many years been a common practice in the investment advisory
business for advisers of investment companies and other institutional
investors to receive research, statistical, and quotation services from
broker-dealers who execute portfolio transactions for the clients of such
advisers. Consistent with this practice, the Sub-Advisers may receive
research, statistical, and quotation services from any broker-dealers with
whom they place the Trust's portfolio transactions. These services, which in
some cases may also be purchased for cash, include such matters as general
economic and security market reviews, industry and company reviews,
evaluations of securities, and recommendations as to the purchase and sale of
securities. Some of these services may be of value to the Sub-Advisers and/or
their affiliates in advising various other clients (including the Trust),
although not all of these services are necessarily useful and of value in
managing the Trust. The management fees paid by the Trust are not reduced
because the Sub-Advisers and/or their affiliates may receive such services.
As permitted by Section 28(e) of the Securities Exchange Act of 1934, a
Sub-Adviser may cause a Portfolio to pay a broker-dealer who provides
brokerage and research services to the Sub-Adviser an amount of disclosed
commission for effecting a securities transaction for the Portfolio in excess
of the commission which another broker- dealer would have charged for
effecting that transaction provided that the Sub-Adviser determines in good
faith that such commission was reasonable in relation to the value of the
brokerage and research services provided by such broker-dealer viewed in terms
of that particular transaction or in terms of all of the accounts over which
investment discretion is so exercised. A Sub-Adviser's authority to cause a
Portfolio to pay any such greater commissions is also subject to such policies
as the Adviser or the Trustees may adopt from time to time.
DETERMINATION OF NET ASSET VALUE
The net asset value per share of each Portfolio is determined daily as of 4:00
p.m. New York time on each day the New York Stock Exchange is open for
trading. The New York Stock Exchange is normally closed on the following
national holidays: New Year's Day, President's Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving, and Christmas.
The value of a foreign security is determined in its national currency as of
the close of trading on the foreign exchange on which it is traded or as of
4:00 p.m. New York time, if that is earlier, and that value is then converted
into its U.S. dollar equivalent at the foreign exchange rate in effect at
noon, New York time, on the day the value of the foreign security is
determined.
The valuation of the Global Advisors Money Market Portfolio's portfolio
securities is based upon their amortized cost, which does not take into
account unrealized securities gains or losses. This method involves initially
valuing an instrument at its cost and thereafter assuming a constant
amortization to maturity of any discount or premium, regardless of the impact
of fluctuating interest rates on the market value of the instrument. By using
amortized cost valuation, the Trust seeks to maintain a constant net asset
value of $1.00 per share for the Global Advisors Money Market Portfolio,
despite minor shifts in the market value of its portfolio securities. While
this method provides certainty in valuation, it may result in periods during
which value, as determined by amortized cost, is higher or lower than the
price the Global Advisors Money Market Portfolio would receive if it sold the
instrument. During periods of declining interest rates, the quoted yield on
shares of the Global Advisors Money Market Portfolio may tend to be higher
than a like computation made by a fund with identical investments utilizing a
method of valuation based on market prices and estimates of market prices for
all of its portfolio instruments. Thus, if the use of amortized cost by the
Portfolio resulted in a lower aggregate portfolio value on a particular day, a
prospective investor in the Global Advisors Money Market Portfolio would be
able to obtain a somewhat higher yield if he or she purchased shares of the
Global Advisors Money Market Portfolio on that day, than would result from
investment in a fund utilizing solely market values, and existing investors in
the Global Advisors Money Market Portfolio would receive less investment
income. The converse would apply on a day when the use of amortized cost by
the Portfolio resulted in a higher aggregate portfolio value. However, as a
result of certain procedures adopted by the Trust, the Trust believes any
difference will normally be minimal.
The net asset value of the shares of each of the Portfolios other than the
Global Advisors Money Market Portfolio is determined by dividing the total
assets of the Portfolio, less all liabilities, by the total number of shares
outstanding. Securities traded on a national securities exchange or quoted on
the NASDAQ National Market System are valued at their last-reported sale price
on the principal exchange or reported by NASDAQ or, if there is no reported
sale, and in the case of over-the-counter securities not included in the
NASDAQ National Market System, at a bid price estimated by a broker or dealer.
Debt securities, including zero-coupon securities, and certain foreign
securities will be valued by a pricing service. Other foreign securities will
be valued by the Trust's custodian. Securities for which current market
quotations are not readily available and all other assets are valued at fair
value as determined in good faith by the Trustees, although the actual
calculations may be made by persons acting pursuant to the direction of the
Trustees.
If any securities held by a Portfolio are restricted as to resale, their fair
value is generally determined as the amount which the Trust could reasonably
expect to realize from an orderly disposition of such securities over a
reasonable period of time. The valuation procedures applied in any specific
instance are likely to vary from case to case. However, consideration is
generally given to the financial position of the issuer and other fundamental
analytical data relating to the investment and to the nature of the
restrictions on disposition of the securities (including any registration
expenses that might be borne by the Trust in connection with such
disposition). In addition, specific factors are also generally considered,
such as the cost of the investment, the market value of any unrestricted
securities of the same class (both at the time of purchase and at the time of
valuation), the size of the holding, the prices of any recent transactions or
offers with respect to such securities, and any available analysts' reports
regarding the issuer.
Generally, trading in certain securities (such as foreign securities) is
substantially completed each day at various times prior to the close of the
New York Stock Exchange. The values of these securities used in determining
the net asset value of the Trust's shares are computed as of such times. Also,
because of the amount of time required to collect and process trading
information as to large numbers of securities issues, the values of certain
securities (such as convertible bonds and U.S. Government Securities) are
determined based on market quotations collected earlier in the day at the
latest practicable time prior to the close of the Exchange. Occasionally,
events affecting the value of such securities may occur between such times and
the close of the Exchange which will not be reflected in the computation of
the Trust's net asset value. If events materially affecting the value of such
securities occur during such period, then these securities will be valued at
their fair value, in the manner described above.
The proceeds received by each Portfolio for each issue or sale of its shares,
and all income, earnings, profits, and proceeds thereof, subject only to the
rights of creditors, will be specifically allocated to such Portfolio, and
constitute the underlying assets of that Portfolio. The underlying assets of
each Portfolio will be segregated on the Trust's books of account, and will be
charged with the liabilities in respect of such Portfolio and with a share of
the general liabilities of the Trust. Expenses with respect to any two or more
Portfolios may be allocated in proportion to the net asset values of the
respective Portfolios except where allocations of direct expenses can
otherwise be fairly made.
TAXES
Each Portfolio of the Trust intends to qualify each year and elect to be taxed
as a regulated investment company under Subchapter M of the United States
Internal Revenue Code of 1986, as amended (the "Code"). As a regulated
investment company qualifying to have its tax liability determined under
Subchapter M, a Portfolio will not be subject to federal income tax on any of
its net investment income or net realized capital gains that are distributed
to the separate account of the Life Company. As a Massachusetts business
trust, a Portfolio under present law will not be subject to any excise or
income taxes in Massachusetts.
In order to qualify as a "regulated investment company," a Portfolio must,
among other things, (a) derive at least 90% of its gross income from
dividends, interest, payments with respect to securities loans, gains from the
sale or other disposition of stock, securities, or foreign currencies, and
other income (including gains from options, futures, or forward contracts)
derived with respect to its business of investing in such stock, securities,
or currencies; (b) derive less than 30% of its gross income from the sale or
other disposition of certain assets (including stock and securities) held less
than three months; (c) diversify its holdings so that, at the close of each
quarter of its taxable year, (i) at least 50% of the value of its total assets
consists of cash, cash items, U.S. Government Securities, and other securities
limited generally with respect to any one issuer to not more than 5% of the
total assets of the Portfolio and not more than 10% of the outstanding voting
securities of such issuer, and (ii) not more than 25% of the value of its
assets is invested in the securities of any issuer (other than U.S. Government
Securities). In order to receive the favorable tax treatment accorded
regulated investment companies and their shareholders, moreover, a Portfolio
must in general distribute at least 90% of its interest, dividends, net
short-term capital gain, and certain other income each year.
With respect to investment income and gains received by a Portfolio from
sources outside the United States, such income and gains may be subject to
foreign taxes which are withheld at the source. The effective rate of foreign
taxes in which a Portfolio will be subject depends on the specific countries
in which its assets will be invested and the extent of the assets invested in
each such country and therefore cannot be determined in advance.
A Portfolio's ability to use options, futures, and forward contracts and other
hedging techniques, and to engage in certain other transactions, may be
limited by tax considerations. A Portfolio's transactions in
foreign-currency-denominated debt instruments and its hedging activities will
likely produce a difference between its book income and its taxable income.
This difference may cause a portion of the Portfolio's distributions of book
income to constitute returns of capital for tax purposes or require the
Portfolio to make distributions exceeding book income in order to permit the
Trust to continue to qualify, and be taxed under Subchapter M of the Code, as
a regulated investment company.
Under federal income tax law, a portion of the difference between the purchase
price of zero-coupon securities in which a Portfolio has invested and their
face value ("original issue discount") is considered to be income to the
Portfolio each year, even though the Portfolio will not receive cash interest
payments from these securities. This original issue discount (imputed income)
will comprise a part of the net investment income of the Portfolio which must
be distributed to shareholders in order to maintain the qualification of the
Portfolio as a regulated investment company and to avoid federal income tax at
the level of the Portfolio.
It is the policy of each of the Portfolios to meet the requirements of the
Code to qualify as a regulated investment company that is taxed pursuant to
Subchapter M of the Code. One of these requirements is that less than 30% of a
Portfolio's gross income must be derived from gains from sale or other
disposition of securities held for less than three months (with special rules
applying to so-called designated hedges). Accordingly, a Portfolio will be
restricted in selling securities held or considered under Code rules to have
been held less than three months, and in engaging in hedging or other
activities (including entering into options, futures, or short-sale
transactions) which may cause the Trust's holding period in certain of its
assets to be less than three months.
This discussion of the federal income tax and state tax treatment of the Trust
and its shareholders is based on the law as of the date of this Statement of
Additional Information. It does not describe in any respect the tax treatment
of any insurance or other product pursuant to which investments in the Trust
may be made. For further information concerning federal income tax
consequences for the holders of the VA Contracts of the Life company,
investors should consult the prospectus used in connection with the issuance
of their VA Contracts.
DIVIDENDS AND DISTRIBUTIONS
GLOBAL ADVISORS MONEY MARKET PORTFOLIO. The net investment income of the
Global Advisors Money Market Portfolio is determined as of the close of
trading on the New York Stock Exchange (generally 4:00 p.m. New York time) on
each day on which the Exchange is open for business. All of the net investment
income so determined normally will be declared as a dividend daily to
shareholders of record as of the close of trading on the Exchange after the
purchase and redemption of shares. Unless the business day before a weekend or
holiday is the last day of an accounting period, the dividend declared on that
day will include an amount in respect of the Portfolio's income for the
subsequent non-business day or days. No daily dividend will include any amount
of net income in respect of a subsequent semi-annual accounting period.
Dividends commence on the next business day after the date of purchase.
Dividends declared during any month will be invested as of the close of
business on the last calendar day of that month (or the next business day
after the last calendar day of the month if the last calendar day of the month
is a non-business day) in additional shares of the Portfolio at the net asset
value per share, normally $1.00, determined as of the close of business on
that day, unless payment of the dividend in cash has been requested.
Net income of the Global Advisors Money Market Portfolio consists of all
interest income accrued on portfolio assets less all expenses of the Portfolio
and amortized market premium. Amortized market discount is included in
interest income. The Portfolio does not anticipate that it will normally
realize any long-term capital gains with respect to its portfolio securities.
Normally the Global Advisors Money Market Portfolio will have a positive net
income at the time of each determination thereof. Net income may be negative
if an unexpected liability must be accrued or a loss realized. If the net
income of the Portfolio determined at any time is a negative amount, the net
asset value per share will be reduced below $1.00 unless one or more of the
following steps, for which the Trustees have authority, are taken: (1) reduce
the number of shares in each shareholder's account, (2) offset each
shareholder's pro rata portion of negative net income against the
shareholder's accrued dividend account or against future dividends, or (3)
combine these methods in order to seek to maintain the net asset value per
share at $1.00. The Trust may endeavor to restore the Portfolio's net asset
value per share to $1.00 by not declaring dividends from net income on
subsequent days until restoration, with the result that the net asset value
per share will increase to the extent of positive net income which is not
declared as a dividend.
Should the Global Advisors Money Market Portfolio incur or anticipate, with
respect to its portfolio, any unusual or unexpected significant expense or
loss which would affect disproportionately the Portfolio's income for a
particular period, the Trustees would at that time consider whether to adhere
to the dividend policy described above or to revise it in light of the then
prevailing circumstances in order to ameliorate to the extent possible the
disproportionate effect of such expense or loss on then existing shareholders.
Such expenses or losses may nevertheless result in a shareholder's receiving
no dividends for the period during which the shares are held and receiving
upon redemption a price per share lower than that which was paid.
OTHER PORTFOLIOS. Each of the Portfolios other than the Global Advisors
Money Market Portfolio will declare and distribute dividends from net
investment income, if any, and will distribute its net realized capital gains,
if any, at least annually. Both dividends and capital gain distributions will
be made in shares of such Portfolios unless an election is made on behalf of a
separate account to receive dividends and capital gain distributions in cash.
PERFORMANCE INFORMATION
GLOBAL ADVISORS MONEY MARKET PORTFOLIO: The Portfolio's yield is computed
by determining the percentage net change, excluding capital changes, in the
value of an investment in one share of the Portfolio over the base period, and
multiplying the net change by 365/7 (or approximately 52 weeks). The
Portfolio's effective yield represents a compounding of the yield by adding 1
to the number representing the percentage change in value of the investment
during the base period, raising that sum to a power equal to 365/7, and
subtracting 1 from the result.
OTHER PORTFOLIOS:
(a) A Portfolio's yield is presented for a specified 30-day period (the
"base period"). Yield is based on the amount determined by (i) calculating the
aggregate of dividends and interest earned by the Portfolio during the base
period less expenses accrued for that period, and (ii) dividing that amount by
the product of (A) the average daily number of shares of the Portfolio
outstanding during the base period and entitled to receive dividends and (B)
the net asset value per share of the Portfolio on the last day of the base
period. The result is annualized on a compounding basis to determine the
Portfolio's yield. For this calculation, interest earned on debt obligations
held by a Portfolio is generally calculated using the yield to maturity (or
first expected call date) of such obligations based on their market values
(or, in the case of receivables-backed securities such as Ginnie Maes, based
on cost). Dividends on equity securities are accrued daily at their stated
dividend rates.
As required by regulations of the Securities and Exchange Commission, the
annualized total return of a Portfolio for a period is computed by assuming a
hypothetical initial payment of $1,000. It is then assumed that all of the
dividends and distributions by the Portfolio over the period are reinvested.
It is then assumed that at the end of the period, the entire amount is
redeemed. The annualized total return is then calculated by determining the
annual rate required for the initial payment to grow to the amount which
would have been received upon redemption.
Investment operations for the Portfolios depicted in the chart below commenced
on October 10, 1995 for the Money Market Portfolio and on October 20, 1995
for the BEA Growth and Income, Credit Suisse International Equity Portfolio
and Global Advisors Growth Equity Portfolio. The performance figures shown
for the Portfolios in the chart below reflect the actual fees and expenses
paid by the Portfolios.
Average Total Return for the Periods ended December 31, 1995
Portfolio Performance
Portfolio Return Since Inception
BEA Growth and Income 6.57%
Credit Suisse International Equity 3.93%
Global Advisors Growth Equity 3.57%
Global Advisors Money Market 1.17%
From time to time, Adviser may reduce its compensation or assume expenses in
respect of the operations of a Portfolio in order to reduce the Portfolio's
expenses. Any such waiver or assumption would increase a Portfolio's yield and
total return during the period of the waiver or assumption.
SHAREHOLDER COMMUNICATIONS
Owners of Variable Annuity contracts issued by the Life Company for which
shares of one or more Portfolios are the investment vehicle are entitled to
receive from the Life Company unaudited semi-annual financial statements and
audited year-end financial statements certified by the Trust's independent
public accountants. Each report will show the investments owned by the
Portfolio and the market value thereof and will provide other information
about the Portfolio and its operations.
ORGANIZATION AND CAPITALIZATION
The Trust is an open-end investment company established under the laws of The
Commonwealth of Massachusetts by a Declaration of Trust dated December 12,
1994, as amended April 19, 1995.
Shares entitle their holders to one vote per share, with fractional shares
voting proportionally; however, a separate vote will be taken by each
Portfolio on matters affecting an individual Portfolio. For example, a change
in a fundamental investment policy for the BEA Growth and Income Portfolio
would be voted upon only by shareholders of that Portfolio. Additionally,
approval of the Investment Advisory Agreement is a matter to be determined
separately by each Portfolio. Approval by the shareholders of one Portfolio is
effective as to that Portfolio. Shares have noncumulative voting rights.
Although the Trust is not required to hold annual meetings of its
shareholders, shareholders have the right to call a meeting to elect or remove
Trustees or to take other actions as provided in the Declaration of Trust.
Shares have no preemptive or subscription rights, and are transferable. Shares
are entitled to dividends as declared by the Trustees, and if a Portfolio were
liquidated, the shares of that Portfolio would receive the net assets of that
Portfolio. The Trust may suspend the sale of shares at any time and may refuse
any order to purchase shares.
Additional Portfolios may be created from time to time with different
investment objectives or for use as funding vehicles for different variable
life insurance policies or variable annuity contracts. Any additional
Portfolios may be managed by investment advisers or sub-advisers other than
the current Adviser and Sub-Advisers. In addition, the Trustees have the
right, subject to any necessary regulatory approvals, to create more than one
class of shares in a Portfolio, with the classes being subject to different
charges and expenses and having such other different rights as the Trustees
may prescribe and to terminate any Portfolio of the Trust.
PORTFOLIO TURNOVER
The portfolio turnover rate of a Portfolio is defined by the Securities and
Exchange Commission as the ratio of the lesser of annual sales or purchases to
the monthly average value of the portfolio, excluding from both the numerator
and the denominator securities with maturities at the time of acquisition of
one year or less. Under that definition, the Global Advisors Money Market
Portfolio would not calculate portfolio turnover. Portfolio turnover generally
involves some expense to a Portfolio, including brokerage commissions or
dealer mark-ups and other transaction costs on the sale of securities and
reinvestment in other securities. The portfolio turnover rate of each of the
Portfolios for the period ended December 31, 1995 is set forth under
"Financial Highlights" in the Prospectus.
CUSTODIAN
State Street Bank and Trust Company is the custodian of the Trust's assets.
The custodian's responsibilities include safeguarding and controlling the
Trust's cash and securities, handling the receipt and delivery of securities,
and collecting interest and dividends on the Trust's investments. The Trust
may employ foreign sub-custodians that are approved by the Board of Trustees
to hold foreign assets.
LEGAL COUNSEL
Legal matters in connection with the offering are being passed upon by
Blazzard, Grodd & Hasenauer, P.C., Westport, Connecticut.
INDEPENDENT AUDITORS
The Trust has selected Coopers & Lybrand L.L.P. as the independent auditors
who will audit the annual financial statements of the Trust.
SHAREHOLDER LIABILITY
Under Massachusetts law, shareholders could, under certain circumstances, be
held personally liable for the obligations of the Trust. However, the
Declaration of Trust disclaims shareholder liability for acts or obligations
of the Trust and requires that notice of such disclaimer be given in each
agreement, obligation, or instrument entered into or executed by the Trust or
the Trustees. The Declaration of Trust provides for indemnification out of a
Portfolio's property for all loss and expense of any shareholder held
personally liable for the obligations of a Portfolio. Thus the risk of a
shareholder's incurring financial loss on account of shareholder liability is
limited to circumstances in which the Portfolio would be unable to meet its
obligations.
DESCRIPTION OF NRSRO RATINGS
DESCRIPTION OF MOODY'S CORPORATE RATINGS
Aaa -- Bonds which are rated Aaa are judged to be of the best quality.
They carry the smallest degree of investment risk and are generally referred
to as "gilt-edge." Interest payments are protected by a large or by an
exceptionally stable margin and principal is secure. While the various
protective elements are likely to change, such changes as can be visualized
are most unlikely to impair the fundamentally strong position of such issues.
Aa -- Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally known
as high-grade bonds. They are rated lower than the best bonds because margins
of protection may not be as large as in Aaa securities or fluctuation of
protective elements may be of greater amplitude or there may be other elements
present which make the long-term risks appear somewhat larger than in Aaa
securities.
A -- Bonds which are rated A possess many favorable investment attributes
and are to be considered as upper medium-grade obligations. Factors giving
security to principal and interest are considered adequate but elements may be
present which suggest a susceptibility to impairment sometime in the future.
Baa -- Bonds which are rated Baa are considered as medium-grade
obligations, i.e., they are neither highly protected nor poorly secured.
Interest payments and principal security appear adequate for the present, but
certain protective elements may be lacking or may be characteristically
unreliable over any great length of time. Such bonds lack outstanding
investment characteristics and in fact have speculative characteristics as
well.
Ba -- Bonds which are rated Ba are judged to have speculative elements;
their future cannot be considered as well assured. Often the protection of
interest and principal payments may be very moderate and thereby not
well-safeguarded during both good and bad times over the future. Uncertainty
of position characterizes bonds in this class.
B -- Bonds which are rated B generally lack characteristics of the
desirable investment. Assurance of interest and principal payments or of
maintenance of other terms of the contract over any long period of time may be
small.
Caa -- Bonds which are rated Caa are of poor standing. Such issues may be
in default or there may be present elements of danger with respect to
principal or interest.
Ca -- Bonds which represent obligations which are speculative in a high
degree. Such issues are often in default or have other marked shortcomings.
C -- Bonds which are the lowest-rated class of bonds. Issues so rated can
be regarded as having extremely poor prospects of ever attaining any real
investment standing.
DESCRIPTION OF S&P'S CORPORATE RATINGS
AAA -- Bonds rated AAA have the highest rating assigned by Standard &
Poor's to a debt obligation. Capacity to pay interest and repay principal is
extremely strong.
AA -- Bonds rated AA have a very strong capacity to pay interest and
repay principal and differ from the highest-rated issues only in small degree.
A -- Bonds rated A have a strong capacity to pay interest and repay
principal although they are somewhat more susceptible to the adverse effects
of changes in circumstances and economic conditions than bonds in higher-rated
categories.
BBB -- Bonds rated BBB are regarded as having an adequate capacity to pay
interest and repay principal. Whereas they normally exhibit adequate
protection parameters, adverse economic conditions or changing circumstances
are more likely to lead to a weakened capacity to pay interest and repay
principal for bonds in this category than for bonds in higher-rated
categories.
BB, B, CCC, CC and C-- Bonds rated BB, B, CCC, CC and C are regarded, on
balance, as predominantly speculative with respect to the issuer's capacity to
pay interest and repay principal in accordance with the terms of the
obligation. BB indicates the least degree of speculation and C the highest
degree of speculation. While such debt will likely have some quality and
protective characteristics, these are outweighed by large uncertainties or
major risk exposures to adverse conditions. A C rating is typically applied to
debt subordinated to senior debt which is assigned an actual or implied CCC
rating. It may also be used to cover a situation where a bankruptcy petition
has been filed, but debt service payments are continued.
DESCRIPTION OF DUFF CORPORATE RATINGS
AAA -- Highest credit quality. The risk factors are negligible being only
slightly more than for risk-free U.S. Treasury debt.
AA -- Risk is modest but may vary slightly from time to time because of
economic conditions.
A -- Protection factors are average but adequate. However, risk factors
are more variable and greater in periods of economic stress.
BBB -- Investment-grade. Considerable variability in risk during economic
cycles.
BB -- Below investment-grade but deemed likely to meet obligations when
due. Present or prospective financial protection factors fluctuate according
to industry conditions or company fortunes. Overall quality may move up or
down frequently within this category.
B -- Below investment-grade and possessing risk that obligations will not
be met when due. Financial protection factors will fluctuate widely according
to economic cycles, industry conditions and/or company fortunes. Potential
exists for frequent changes in quality rating within this category or into a
higher- or lower-quality rating grade.
Substantial Risk -- Well below investment-grade securities. May be in
default or have considerable uncertainty as to timely payment of interest,
preferred dividends and/or principal. Protection factors are narrow and risk
can be substantial with unfavorable economic/industry conditions, and/or with
favorable company developments.
DESCRIPTION OF FITCH CORPORATE RATINGS
AAA -- Bonds considered to be investment-grade and of the highest credit
quality. The obligor has an exceptionally strong ability to pay interest and
repay principal, which is unlikely to be affected by reasonably foreseeable
events.
AA-- Bonds considered to be investment-grade and of very high credit
quality. The obligor's ability to pay interest and repay principal is very
strong, although not quite as strong as bonds rated AAA. Because bonds rated
in the AAA and AA categories are not significantly vulnerable to foreseeable
future developments, short-term debt of these issues is generally rated
"[-]+."
A -- Bonds considered to be investment-grade and of high credit quality.
The obligor's ability to pay interest and to repay principal is considered to
be strong, but may be more vulnerable to adverse changes in economic
conditions and circumstances than bonds with higher ratings.
BBB -- Bonds considered to be investment-grade and of satisfactory credit
quality. The obligor's ability to pay interest and to repay principal is
considered to be adequate. Adverse changes in economic conditions and
circumstances, however, are more likely to have an adverse impact on these
bonds, and therefore impair timely payment. The likelihood that the ratings of
these bonds will fall below investment-grade is higher than for bonds with
higher ratings.
BB -- Bonds considered speculative and of low investment grade. The
obligor's ability to pay interest and repay principal is not strong and is
considered likely to be affected over time by adverse economic changes.
B -- Bonds considered highly speculative. Bonds in this class are lightly
protected as to the obligor's ability to pay interest over the life of the
issue and repay principal when due.
CCC -- Bonds which may have certain identifiable characteristics which,
if not remedied, could lead to the possibility of default in either principal
or interest payments.
CC -- Bonds which are minimally protected. Default in payment of interest
and/or principal seems probable.
C -- Bonds which are in imminent default in payment of interest or
principal.
DESCRIPTION OF THOMSON BANKWATCH, INC. CORPORATE RATINGS
AAA -- Long-term fixed-income securities that are rated AAA indicate that
the ability to repay principal and interest on a timely basis is very high.
AA -- Long-term fixed-income securities that are rated AA indicate a
superior ability to repay principal and interest on a timely basis with
limited incremental risk vs. issues rated in the highest category.
TBW may apply plus ("+") and minus ("-") modifiers in the AAA and AA
categories to indicate where within the respective category the issued is
placed.
DESCRIPTION OF IBCA LIMITED AND IBCA INC. CORPORATE RATINGS
AAA -- Obligations which are rated AAA are considered to be of the lowest
expectation of investment risk. Capacity for timely repayment of principal and
interest is substantial such that adverse changes in business, economic, or
financial conditions are unlikely to increase investment risk significantly.
AA -- Obligations which are rated AA are considered to be of a very low
expectation of investment risk. Capacity for timely repayment of principal and
interest is substantial. Adverse changes in business, economic, or financial
conditions may increase investment risk albeit not very significantly.
DESCRIPTION OF S&P'S COMMERCIAL PAPER RATINGS
Commercial paper rated A-1 by S&P indicates that the degree of safety
regarding timely payments is either over-whelming or very strong. Those issues
determined to possess overwhelming safety characteristics are denoted A-1+.
Capacity for timely payment on commercial paper rated A-2 is strong, but the
relative degree of safety is not as high as for issues designated A-1. An A-3
designation indicates an adequate capacity for timely payment. Issues with
this designation, however, are more vulnerable to the adverse effects of
changes in circumstances than obligations carrying the higher designations. B
issues are regarded as having only speculative capacity for timely payment. C
issues have a doubtful capacity for payment. D issues are in payment default.
The D rating category is used when interest payments or principal payments are
not made on the due date, even if the applicable grace period has not expired,
unless Standard & Poor's believes that such payments will be made during such
grace period.
DESCRIPTION OF MOODY'S COMMERCIAL PAPER RATINGS
The rating Prime-1 is the highest commercial paper rating assigned by
Moody's. Issuers rated Prime-1 (or related supporting institutions) are
considered to have a superior capacity for repayment of short-term promissory
obligations. Issuers rated Prime-2 (or related supporting institutions) are
considered to have a strong capacity for repayment of short-term promissory
obligations. This will normally be evidenced by many of the characteristics of
issuers rated Prime-1 but to a lesser degree. Earnings trend and coverage
ratios, while sound, will be more subject to variation. Capitalization
characteristics, while still appropriate, may be more affected by external
conditions. Ample alternative liquidity is maintained. P-3 issuers have an
acceptable capacity for repayment of short-term promissory obligations. The
effect of industry characteristics and market composition may be more
pronounced. Variability in earnings and profitability may result in changes in
the level of debt protection measurements and the requirement for relatively
high financial leverage. Adequate alternate liquidity is maintained. Not Prime
issuers do not fall within any of the Prime rating categories.
DESCRIPTION OF DUFF COMMERCIAL PAPER RATINGS
The rating Duff-1 is the highest commercial paper rating assigned by Duff
& Phelps. Paper rated Duff-1 is regarded as having very high certainty of
timely payment with excellent liquidity factors which are supported by ample
asset protection. Risk factors are minor. Paper rated Duff-2 is regarded as
having good certainty of timely payment, good access to capital markets and
sound liquidity factors and company fundamentals. Risk factors are small.
DESCRIPTION OF FITCH COMMERCIAL PAPER RATINGS
The rating Fitch-1 (Highest Grade) is the highest commercial paper rating
assigned by Fitch. Paper rated Fitch-1 is regarded as having the strongest
degree of assurance for timely payment. The rating Fitch-2 (Very Good Grade)
is the second highest commercial paper rating assigned by Fitch which reflects
an assurance of timely payment only slightly less in degree than the strongest
issues.
DESCRIPTION OF IBCA LIMITED AND IBCA INC. COMMERCIAL PAPER RATINGS
A1 - Short-term obligations rated A1 are supported by a very strong
capacity for timely repayment. A plus ("+") sign is added to those issues
determined to possess the highest capacity for timely payment.
A2 - Short-term obligations rated A2 are supported by a strong capacity
for timely repayment, although such capacity may be susceptible to adverse
changes in business, economic or financial conditions.
DESCRIPTION OF THOMSON BANKWATCH, INC. COMMERCIAL PAPER RATINGS
TBW-1 - Short-term obligations rated TBW-1 indicate a very high degree of
likelihood that principal and interest will be paid on a timely basis.
TBW-2 - Short-term obligations rated TBW-2 indicate that while the degree
of safety regarding timely payment of principal and interest is strong, the
relative degree of safety is not as high as for issues rated TBW-1.
FINANCIAL STATEMENTS
The Trust's financial statements and notes thereto for the period ended
December 31, 1995, and the report of Coopers & Lybrand L.L.P., Independent
Auditors, with respect thereto, are set forth below.
<PAGE>
WESTERN NATIONAL LIFE INSURANCE COMPANY
ELITEPLUS BONUS VARIABLE ANNUITY
TO ELITEPLUS CONTRACT OWNERS:
Thank you for choosing the Western National ElitePlus Bonus Variable
Annuity. ElitePlus offers a number of excellent features and includes a variety
of investment options managed by a group of highly-respected professional money
managers. Accordingly, ElitePlus gives you the ability to tailor a program
suited for your long-term financial plans, yet provides you the flexibility to
change investment options later, should your requirements change.
The enclosed Annual Report for WNL Series Trust contains detailed financial
information to help you understand your annuity contract's past performance.
We look forward to serving you in the future. Please contact us if you
have any questions concerning your account. Our toll-free telephone number is
(800) 910-4455.
Sincerely,
/s/ Michael J. Poulos
Michael J. Poulos
Chairman and
Chief Executive Officer
<PAGE>
WNL SERIES TRUST
ANNUAL REPORT
DECEMBER 31, 1995
<PAGE>
BEA GROWTH AND INCOME PORTFOLIO
SCHEDULE OF INVESTMENTS
DECEMBER 31, 1995
<TABLE>
<CAPTION>
SECURITY DESCRIPTION SHARES VALUE
- -------------------- ------ --------
<S> <C> <C>
COMMON STOCKS - 47.4%
AEROSPACE - 0.7%
Lockheed Martin Corporation....................... 200 $ 15,800
--------
AIR TRAVEL - 1.7%
AMR Corporation (a)............................... 500 37,125
--------
BANKS - 2.7%
Astoria Financial Corporation..................... 700 31,938
Southern National Corporation..................... 1,000 26,250
--------
58,188
--------
BUSINESS SERVICES - 4.5%
Automatic Data Processing Incorporated............ 400 29,700
GTECH HOLDINGS CORPORATION (A).................... 1,000 26,000
HUMANA INCORPORATED (A)........................... 1,500 41,062
--------
96,762
--------
COMPUTERS & BUSINESS EQUIPMENT - 5.7%
DST Systems Incorporated (a)...................... 2,500 71,250
Seagate Technology (a)............................ 700 33,250
Western Digital Corporation (a)................... 1,000 17,875
--------
122,375
--------
CONSTRUCTION MATERIALS - 1.4%
USG Corporation (New) (a)......................... 1,000 30,000
--------
CONTAINERS & GLASS - 1.4%
Owens Illinois Incorporated (New) (a)............. 2,000 29,000
--------
COSMETICS & TOILETRIES - 3.3%
Estee Lauder Companies Incorporated, Class A (a).. 2,000 69,750
--------
DRUGS & HEALTH CARE - 4.3%
Barr Labs Incorporated (a)........................ 1,000 29,750
i-STAT Corporation (a)............................ 500 16,250
McKesson Corporation.............................. 500 25,313
Pharmacia & Upjohn Incorporated (a)............... 500 19,375
--------
90,688
--------
ELECTRICAL EQUIPMENT - 1.4%
General Electric Company.......................... 400 28,800
--------
ELECTRONICS - 2.3%
Intel Corporation................................. 400 22,700
Teledyne Incorporated............................. 1,000 25,625
--------
48,325
--------
</TABLE>
The accompanying notes are an integral part of the financial statements
2
<PAGE>
BEA GROWTH AND INCOME PORTFOLIO
SCHEDULE OF INVESTMENTS (CONTINUED)
DECEMBER 31, 1995
<TABLE>
<CAPTION>
SECURITY DESCRIPTION SHARES VALUE
- -------------------- ------ ----------
<S> <C> <C>
COMMON STOCKS - (CONTINUED)
FINANCIAL SERVICES - 1.7%
Federal National Mortgage Association.. 300 $ 37,237
----------
INSURANCE - 1.2%
CapMAC Holdings Incorporated (a)....... 1,000 25,125
----------
INTERNATIONAL OIL - 3.1%
Exxon Corporation...................... 400 32,050
Mobil Corporation...................... 300 33,600
----------
65,650
----------
MINING - 0.6%
Phelps Dodge Corporation............... 200 12,450
----------
PUBLISHING - 1.5%
Dun & Bradstreet Corporation........... 500 32,375
----------
PHOTOGRAPHY - 1.6%
Eastman Kodak Company.................. 500 33,500
----------
PETROLEUM SERVICES - 1.0%
McDermott International Incorporated... 1,000 22,000
----------
TOYS & AMUSEMENTS - 1.4%
Mattel Incorporated.................... 1,000 30,750
----------
TOBACCO - 1.7%
Philip Morris Companies Incorporated... 400 36,200
----------
TRUCKING & FREIGHT FORWARDING - 1.5%
Tidewater Incorporated................. 1,000 31,500
----------
TELEPHONE - 2.7%
AT&T Corporation....................... 500 32,375
MCI Communications Corporation......... 1,000 26,125
----------
58,500
----------
TOTAL COMMON STOCKS - (Cost $919,339) 1,012,100
----------
PREFERRED STOCK - 0.0%
(Cost $150)
ELECTRONICS - 0.0%
Teledyne Incorporated, Series E....... 10 144
----------
</TABLE>
The accompanying notes are an integral part of the financial statements
3
<PAGE>
BEA GROWTH AND INCOME PORTFOLIO
SCHEDULE OF INVESTMENTS (CONTINUED)
DECEMBER 31, 1995
<TABLE>
<CAPTION>
PRINCIPAL
SECURITY DESCRIPTION AMOUNT VALUE
- -------------------- --------- ----------
<S> <C> <C>
FOREIGN GOVERNMENT BOND - 0.5%
(Cost $9,171)
Republic of Italy
6.875%, 09/27/2023........................................... $ 10,000 $ 9,766
----------
U.S. GOVERNMENT AND AGENCY SECURITIES - 46.9%
U.S. GOVERNMENT - 30.7%
United States Treasury Bonds
7.125%, 02/15/2023........................................... 40,000 45,738
7.875%, 02/15/2021........................................... 80,000 98,513
10.750%, 08/15/2005.......................................... 70,000 96,174
United States Treasury Notes
5.375%, 05/31/1998........................................... 200,000 200,656
6.250%, 02/15/2003........................................... 40,000 41,731
7.750%, 11/30/1999........................................... 160,000 173,374
----------
656,186
----------
FEDERAL AGENCIES - 16.2%
Federal Home Loan PC
6.000%, 12/01/1998........................................... 29,964 30,066
7.000%, 11/01/2010........................................... 48,850 49,781
Federal National Mortgage Association
6.000%, 10/01/2025........................................... 48,738 47,108
6.500%, 11/01/2002........................................... 29,377 29,680
7.500%, 11/01/2002........................................... 29,380 30,069
8.000%, 07/01/2025........................................... 78,257 81,045
Government National Mortgage Association
7.000%, 07/15/2008........................................... 29,197 29,872
8.000%, 08/15/2025........................................... 29,972 31,227
9.000%, 10/15/2017........................................... 16,912 18,056
----------
346,904
----------
TOTAL U.S. GOVERNMENT AND AGENCY SECURITIES - (Cost $982,181) 1,003,090
----------
TOTAL INVESTMENTS - (COST $1,910,841*) - 94.8%................. 2,025,100
OTHER ASSETS LESS LIABILITIES - 5.2%........................... 111,219
----------
NET ASSETS - 100.0%........................................... $2,136,319
==========
</TABLE>
(a) Non-income producing security.
*-Aggregate cost for Federal tax purposes. Aggregate gross unrealized
appreciation for all securities in which there is an excess of value over tax
cost and aggregate gross unrealized depreciation for all securities in which
there is an excess of tax cost over value were $119,477 and $5,218,
respectively, resulting in net unrealized appreciation of $114,259.
The accompanying notes are an integral part of the financial statements
4
<PAGE>
CREDIT SUISSE INTERNATIONAL EQUITY PORTFOLIO
SCHEDULE OF INVESTMENTS
DECEMBER 31, 1995
<TABLE>
<CAPTION>
SECURITY DESCRIPTION SHARES VALUE
- -------------------- ------ --------
<S> <C> <C>
COMMON STOCKS - 83.7%
ARGENTINA - 1.3%
Telefonica De Argentina Class B ADR (a).. 1,000 $ 27,250
--------
CZECH REPUBLIC - 1.4%
SPT Telecom AS (a)....................... 300 28,351
--------
FRANCE - 5.6%
AXA...................................... 470 31,672
BIC...................................... 290 29,492
LVMH Moet Hennessy....................... 140 29,161
Sanofi................................... 420 26,922
--------
117,247
--------
GERMANY - 6.6%
Adidas AG (a)............................ 600 31,746
Altana AG................................ 45 26,194
Bayer AG................................. 100 26,385
Mannesmann AG............................ 80 25,470
Siemens AG............................... 50 27,361
--------
137,156
--------
HONG KONG - 2.6%
HSBC Holdings Limited.................... 2,000 30,262
Hutchison Whampoa........................ 4,000 24,365
--------
54,627
--------
HUNGARY - 1.7%
Gedeon Richter GDR (a)................... 600 11,538
MOL Magyar Olarj-es Gazipari GDR (a)..... 2,900 23,490
--------
35,028
--------
INDONESIA - 1.3%
Astra International...................... 6,000 12,465
HM Sampoerna............................. 1,500 15,613
--------
28,078
--------
IRELAND - 1.2%
Bank of Ireland.......................... 3,500 25,496
--------
ISRAEL - 1.3%
Koors Industries Limited ADR (a)......... 1,300 26,325
--------
ITALY - 2.0%
Ente Nazionale Idrocarburi SPA (a)....... 3,925 13,717
Telecom Italia Mobile SPA (a)............ 15,500 27,279
--------
40,996
--------
</TABLE>
The accompanying notes are an integral part of the financial statements
5
<PAGE>
CREDIT SUISSE INTERNATIONAL EQUITY PORTFOLIO
SCHEDULE OF INVESTMENTS (CONTINUED)
DECEMBER 31, 1995
<TABLE>
<CAPTION>
SECURITY DESCRIPTION SHARES VALUE
- -------------------- ------ --------
<S> <C> <C>
COMMON STOCKS - (CONTINUED)
JAPAN - 22.2%
Amada Company............................................ 4,000 $ 39,516
Daiwa Securities......................................... 3,000 45,908
East Japan Railway....................................... 8 38,896
Hitachi Zosen Corporation................................ 6,000 31,090
Japan Airport Terminal................................... 3,000 36,320
Japan Associates Finance Company......................... 1,000 105,569
Maeda Road Construction.................................. 2,000 36,998
NEC Corporation.......................................... 6,000 73,220
Santen Pharmaceutical Company............................ 1,000 22,663
Sumitomo Osaka Cement Company Limited.................... 7,000 32,542
--------
462,722
--------
KOREA - 1.2%
Samsung Electronics Limited 144A (a)..................... 250 24,500
--------
NETHERLANDS - 6.7%
Ahold NV................................................. 700 28,572
Heineken NV.............................................. 150 26,612
International Nederlanden................................ 450 30,062
Nutricia Verenigde Bedrijven NV.......................... 350 28,311
Verenigde Nederlandse Uitgeversbedrijven Verenigd Bezit.. 190 26,084
--------
139,641
--------
SINGAPORE - 1.2%
Development Bank of Singapore............................ 2,000 24,885
--------
SPAIN - 3.8%
Banco Popular Espana..................................... 140 25,819
Gas Natural Sociedad Distribuidora de Gas SA............. 165 25,709
Iberdrola SA............................................. 3,000 27,452
--------
78,980
--------
SWEDEN - 0.9%
Astra AB................................................. 500 19,956
--------
SWITZERLAND - 5.8%
Ciba Geigy AG............................................ 31 27,278
Roche Holdings AG........................................ 5 39,553
Schweizerische Bankverein................................ 130 26,541
Schweizerische Rueckversicherungs-Gesellschaft........... 24 27,922
--------
121,294
--------
THAILAND - 3.8%
Advanced Information Services............................ 1,500 26,558
Bangkok Bank............................................. 2,500 30,369
Finance One Public Company Limited....................... 3,500 22,092
--------
79,019
--------
</TABLE>
The accompanying notes are an integral part of the financial statements
6
<PAGE>
CREDIT SUISSE INTERNATIONAL EQUITY PORTFOLIO
SCHEDULE OF INVESTMENTS (CONTINUED)
DECEMBER 31, 1995
<TABLE>
<CAPTION>
SECURITY DESCRIPTION SHARES VALUE
- -------------------- --------- ----------
<S> <C> <C>
COMMON STOCKS - (CONTINUED)
UNITED KINGDOM - 13.1%
Abbey National............................................. 3,100 $ 30,620
Asda Group................................................. 17,600 30,340
Courtaulds................................................. 4,400 27,778
De La Rue.................................................. 1,850 18,704
Dixons Group............................................... 4,300 29,651
Electrocomponents.......................................... 5,100 28,474
General Accident........................................... 2,600 26,266
GKN........................................................ 2,100 25,406
Pearson.................................................... 2,700 26,145
Wolseley................................................... 4,150 29,067
----------
272,451
----------
TOTAL COMMON STOCKS - (Cost $1,676,022) 1,744,002
----------
WARRANTS - 4.1%
UNITED KINGDOM
Fleming Japan Investor (a)................................. 40,000 65,849
Schroder Japan GWT (a)..................................... 30,000 18,869
----------
TOTAL WARRANTS - (Cost $83,489).............................. 84,718
----------
PRINCIPAL
AMOUNT
---------
REPURCHASE AGREEMENT - 14.1%
(Cost $294,000)
State Street Bank and Trust Company, 2.250% dated
12/29/95, to be repurchased at $294,074 on 01/02/96,
collateralized by $270,000 par value U.S. Treasury Notes,
8.000% due 08/15/1999, with a value of $301,312............ $294,000 294,000
----------
TOTAL INVESTMENTS - (COST $2,053,511*) - 101.9%.............. 2,122,720
OTHER ASSETS LESS LIABILITIES - (1.9)%....................... (39,696)
----------
NET ASSETS - 100.0%......................................... $2,083,024
==========
</TABLE>
(a) Non-income producing security.
ADR - American Depositary Receipts.
GDR - Global Depositary Receipts.
*-Aggregate cost for Federal tax purposes. Aggregate gross unrealized
appreciation for all securities in which there is an excess of value over tax
cost and aggregate gross unrealized depreciation for all securities in which
there is an excess of tax cost over value were $92,402 and $23,193,
respectively, resulting in net unrealized appreciation of $69,209.
The accompanying notes are an integral part of the financial statements
7
<PAGE>
CREDIT SUISSE INTERNATIONAL EQUITY PORTFOLIO
ANALYSIS OF INDUSTRY CLASSIFICATION
DECEMBER 31, 1995
<TABLE>
<CAPTION>
PERCENT OF
INDUSTRY NET ASSETS
- -------- -----------
<S> <C>
Auto Parts...................................... 1.2%
Banks........................................... 10.8
Chemicals....................................... 3.9
Conglomerates................................... 3.2
Construction Materials.......................... 4.7
Electric Utilities.............................. 2.6
Electrical Equipment............................ 4.8
Electronics..................................... 2.5
Financial Services.............................. 11.5
Food & Beverages................................ 1.4
Industrial Machinery............................ 4.6
Insurance....................................... 4.1
Leisure Time.................................... 1.7
Liquor.......................................... 2.7
Miscellaneous................................... 0.9
Oil & Gas....................................... 1.8
Pharmaceuticals................................. 7.0
Publishing...................................... 3.4
Railroads & Equipment........................... 1.9
Retail Grocery.................................. 1.5
Retail Trade.................................... 2.8
Shoes........................................... 1.5
Telecommunications.............................. 3.9
Telephone....................................... 2.6
Tobacco......................................... 0.8
----
TOTAL INVESTMENTS BY INDUSTRY CLASSIFICATION.. 87.8
Repurchase Agreement.......................... 14.1
------
TOTAL INVESTMENTS 101.9%
======
</TABLE>
The accompanying notes are an integral part of the financial statements
8
<PAGE>
GLOBAL ADVISORS GROWTH EQUITY PORTFOLIO
SCHEDULE OF INVESTMENTS
DECEMBER 31, 1995
<TABLE>
<CAPTION>
SECURITY DESCRIPTION SHARES VALUE
- -------------------- ------ --------
<S> <C> <C>
COMMON STOCKS - 97.7%
AEROSPACE - 2.0%
General Dynamics Corporation............. 700 $ 41,388
--------
AIR TRAVEL - 0.9%
UAL Corporation (a)...................... 100 17,850
--------
BANKS - 6.7%
Chemical Banking Corporation............. 800 47,000
Nationsbank Corporation.................. 700 48,737
Wells Fargo & Company.................... 200 43,200
--------
138,937
--------
CHEMICALS - 4.6%
IMC Global Incorporated.................. 1,200 49,050
Terra Industries Incorporated............ 3,200 45,200
--------
94,250
--------
COMPUTERS & BUSINESS EQUIPMENT - 4.2%
Compaq Computer Corporation (a).......... 900 43,200
Seagate Technology (a)................... 900 42,750
--------
85,950
--------
COSMETICS & TOILETRIES - 1.0%
Alberto Culver Company, Class B (conv.).. 600 20,625
--------
DRUGS & HEALTH CARE - 11.0%
Bristol Myers Squibb Company............. 700 60,112
Eli Lilly & Company...................... 1,000 56,250
Guidant Corporation...................... 400 16,900
Medtronic Incorporated................... 800 44,700
Schering Plough Corporation.............. 900 49,275
--------
227,237
--------
DOMESTIC OIL - 1.3%
Sun Incorporated......................... 1,000 27,375
--------
ELECTRONICS - 6.9%
KLA Instruments Corporation (a).......... 1,000 26,062
LAM Research Corporation (a)............. 700 32,025
Teradyne Incorporated (a)................ 1,100 27,500
Texas Instruments Incorporated........... 700 36,225
Thomas & Betts Corporation............... 300 22,125
--------
143,937
--------
ELECTRIC UTILITIES - 4.1%
Illinova Corporation..................... 1,400 42,000
Unicom Corporation....................... 1,300 42,575
--------
84,575
--------
</TABLE>
The accompanying notes are an integral part of the financial statements
9
<PAGE>
GLOBAL ADVISORS GROWTH EQUITY PORTFOLIO
SCHEDULE OF INVESTMENTS (CONTINUED)
DECEMBER 31, 1995
<TABLE>
<CAPTION>
SECURITY DESCRIPTION SHARES VALUE
- -------------------- ------ --------
<S> <C> <C>
COMMON STOCKS - (CONTINUED)
FOOD & BEVERAGES - 4.7%
IBP Incorporated.......................... 700 $ 35,350
Pepsico Incorporated...................... 1,100 61,462
--------
96,812
--------
FINANCIAL SERVICES - 6.7%
Bankers Life Holding Corporation.......... 900 18,225
Case Corporation.......................... 1,100 50,325
Paine Webber Group Incorporated........... 1,200 24,000
Student Loan Marketing Association........ 700 46,112
--------
138,662
--------
GAS EXPLORATION - 1.5%
Sonat Offshore Drilling Incorporated...... 700 31,325
--------
GAS & PIPELINE UTILITIES - 3.9%
Consolidated Natural Gas Company.......... 900 40,838
National Fuel Gas Company New Jersey...... 1,200 40,350
--------
81,188
--------
HOUSEHOLD PRODUCTS - 1.0%
Clorox Company............................ 300 21,488
--------
HOTELS & RESTAURANTS - 1.5%
Mirage Resorts Incorporated (a)........... 900 31,050
--------
INSURANCE - 4.5%
Aetna Life & Casualty Company............. 300 20,775
Conseco Incorporated...................... 100 6,262
Marsh & McLennan Companies Incorporated... 500 44,375
Old Republic International Corporation.... 600 21,300
--------
92,712
--------
INTERNATIONAL OIL - 4.0%
Exxon Corporation......................... 200 16,025
Mobil Corporation......................... 600 67,200
--------
83,225
--------
LEISURE TIME - 1.4%
Callaway Golf Company..................... 1,300 29,413
--------
NEWSPAPERS - 2.7%
Central Newspapers Incorporated, Class A.. 400 12,550
Tribune Company........................... 700 42,788
--------
55,338
--------
PAPER - 0.2%
Champion International Corporation........ 100 4,200
--------
</TABLE>
The accompanying notes are an integral part of the financial statements
10
<PAGE>
GLOBAL ADVISORS GROWTH EQUITY PORTFOLIO
SCHEDULE OF INVESTMENTS (CONTINUED)
DECEMBER 31, 1995
<TABLE>
<CAPTION>
SECURITY DESCRIPTION SHARES VALUE
- -------------------- ------ ----------
<S> <C> <C>
COMMON STOCKS - (CONTINUED)
RETAIL TRADE - 3.7%
Eckerd Corporation (a)........................ 1,000 $ 44,625
Walgreen Company.............................. 1,100 32,863
----------
77,488
----------
RETAIL GROCERY - 1.7%
Safeway Incorporated (a)...................... 700 36,050
----------
RAILROADS & EQUIPMENT - 1.8%
CSX Corporation............................... 800 36,500
----------
SOFTWARE - 3.0%
Compuware Corporation (a)..................... 2,200 40,700
Read Rite Corporation (a)..................... 900 20,925
----------
61,625
----------
TOBACCO - 2.6%
Philip Morris Companies Incorporated.......... 600 54,300
----------
TRUCKING & FREIGHT FORWARDING - 0.7%
Polaris Industries Incorporated............... 500 14,688
----------
TELEPHONE - 9.4%
Ameritech Corporation......................... 600 35,400
GTE Corporation............................... 1,400 61,600
Pacific Telesis Group......................... 1,500 50,437
Sprint Corporation............................ 1,200 47,850
----------
195,287
----------
TOTAL COMMON STOCKS - (Cost $1,954,695) 2,023,475
----------
SHORT TERM INVESTMENT
(Cost $40,214)
MUTUAL FUNDS - 1.9%
Dreyfus Cash Management....................... 40,214 40,214
----------
TOTAL INVESTMENTS - (COST $1,994,909*) - 99.6%.. 2,063,689
OTHER ASSETS LESS LIABILITIES - 0.4%............ 8,950
----------
NET ASSETS - 100.0%............................ $2,072,639
==========
</TABLE>
(a) Non-income producing securities
*-Aggregate cost for Federal tax purposes. Aggregate gross unrealized
appreciation for all securities in which there is an excess of value over tax
cost and aggregate gross unrealized depreciation for all securities in which
there is an excess of tax cost over value were $132,504 and $63,724,
respectively, resulting in net unrealized appreciation of $68,780.
The accompanying notes are an integral part of the financial statements
11
<PAGE>
GLOBAL ADVISORS MONEY MARKET PORTFOLIO
SCHEDULE OF INVESTMENTS
DECEMBER 31, 1995
<TABLE>
<CAPTION>
PRINCIPAL
SECURITY DESCRIPTION AMOUNT VALUE
- -------------------- --------- --------
<S> <C> <C>
U.S. GOVERNMENT AND AGENCY SECURITIES - 86.7%
U.S. GOVERNMENT - 27.5%
United States Treasury Bills
5.100%, 03/07/1996.................................... $35,000 $ 34,673
--------
FEDERAL AGENCIES - 59.2%
Federal Farm Credit Bank Discount Notes
5.460%, 01/22/1996.................................... 25,000 24,920
Federal Home Loan Mortgage Discount Notes
5.600%, 01/09/1996.................................... 25,000 24,969
Federal National Mortgage Association Discount Notes
5.580%, 01/19/1996.................................... 25,000 24,930
--------
74,819
--------
TOTAL INVESTMENTS - (COST $109,492*) - 86.7%............ 109,492
OTHER ASSETS LESS LIABILITIES - 13.3%................... 16,787
--------
NET ASSETS - 100.0%.................................... $126,279
========
</TABLE>
*-Aggregate cost for Federal tax purposes.
The accompanying notes are an integral part of the financial statements
12
<PAGE>
WNL SERIES TRUST
STATEMENTS OF ASSETS AND LIABILITIES
DECEMBER 31, 1995
<TABLE>
<CAPTION>
BEA CREDIT GLOBAL GLOBAL
GROWTH SUISSE ADVISORS ADVISORS
AND INTERNATIONAL GROWTH MONEY
INCOME EQUITY EQUITY MARKET
----------- ------------- --------- ------------
<S> <C> <C> <C> <C>
ASSETS
Investments in securities,
at value.................. $2,025,100 $1,828,720 $2,063,689 $109,492
Repurchase agreements, at
value..................... -- 294,000 -- --
---------- ---------- ---------- ---------
TOTAL INVESTMENTS (A)
(NOTE 1)............... 2,025,100 2,122,720 2,063,689 109,492
Cash, including foreign
currency, at value........ 93,340 79,376 3,857 14,653
Receivable for currency
sold...................... -- 84,227 -- --
Interest receivable........ 11,486 55 -- --
Dividends receivable....... 12,259 2,358 4,447 --
Receivable for fund shares
sold...................... -- -- -- 1,094
Due from affiliate of the
Adviser (Note 2).......... 23,479 29,625 23,480 23,518
---------- ---------- ---------- ---------
TOTAL ASSETS.............. 2,165,664 2,318,361 2,095,473 148,757
LIABILITIES
Payable for securities
purchased................. 6,505 121,645 -- --
Payable for currency
purchased................. -- 84,442 -- --
Payable for fund shares
repurchased............... -- -- -- 17
Accounts payable and
accrued expenses.......... 22,840 29,250 22,834 22,461
---------- ---------- ---------- ---------
TOTAL LIABILITIES......... 29,345 235,337 22,834 22,478
---------- ---------- ---------- ---------
NET ASSETS................ $2,136,319 $2,083,024 $2,072,639 $126,279
========== ========== ========== =========
NET ASSETS CONSIST OF:
Par value (Note 4)......... $ 2,042 $ 2,016 $ 2,011 $ 1,263
Paid-in capital (Note 4)... 2,041,563 2,014,090 2,009,286 125,016
Undistributed net
investment income......... -- (278) -- --
Accumulated net realized
loss on investments and
foreign currency
transactions.............. (21,545) (835) (7,438) --
Net unrealized
appreciation
(depreciation) of:
Investments.............. 114,259 69,209 68,780 --
Foreign currency......... -- (1,178) -- --
========== ========== ========== =========
NET ASSETS................ $2,136,319 $2,083,024 $2,072,639 $126,279
========== ========== ========== =========
NET ASSET VALUE PER SHARE
Net assets................. $2,136,319 $2,083,024 $2,072,639 $126,279
Total shares outstanding 204,163 201,560 201,097 126,279
at end of period..........
Net asset value per
share (b)................. $10.46 $10.33 $10.31 $1.00
(a) Investments in
securities and repurchase $1,910,841 $2,053,511 $1,994,909 $109,492
agreements, at cost......
(b) Net assets divided by
shares outstanding.
</TABLE>
The accompanying notes are an integral part of the financial statements
13
<PAGE>
WNL SERIES TRUST
STATEMENTS OF OPERATIONS
FOR THE PERIOD ENDED DECEMBER 31, 1995*
<TABLE>
<CAPTION>
BEA CREDIT GLOBAL GLOBAL
GROWTH SUISSE ADVISORS ADVISORS
AND INTERNATIONAL GROTH MONEY
INCOME EQUITY EQUITY MARKET
-------- -------------- --------- -------
<S> <C> <C> <C> <C>
INVESTMENT INCOME
Interest income............ $ 13,206 $ 9,742 $ 2,215 $ 1,263
Dividend income**.......... 16,239 2,425 8,309 --
TOTAL INVESTMENT INCOME... 29,445 12,167 10,524 1,263
EXPENSES
Investment Advisory fee
(Note 2).................. 3,106 3,643 2,490 106
Sub-Administration fee..... 13,402 13,401 13,401 13,401
Audit fee.................. 10,200 10,200 10,200 10,200
Custodian fees and expenses 7,656 13,796 7,653 7,461
Trustee's fees (Note 2).... 2,625 2,625 2,625 2,625
Registration and filing
expenses.................. 56 56 57 56
Legal fees................. 3,750 3,750 3,750 3,750
Transfer Agent fees........ 415 415 415 415
------- -------- ------- -------
Total operating expenses
before waivers and
reimbursement........... 41,210 47,886 40,591 38,014
Fees waived and expenses
reimbursed (Note 2)....... (40,713) (47,400) (40,101) (37,985)
------- -------- ------- -------
NET EXPENSES.............. 497 486 490 29
------- -------- ------- -------
NET INVESTMENT INCOME..... 28,948 11,681 10,034 1,234
------- -------- ------- -------
NET REALIZED AND
UNREALIZED GAIN (LOSS)
FROM INVESTMENTS AND
FOREIGN CURRENCY
Net realized gain (loss)
on:
Investments............... (11,754) (669) (7,438) --
Foreign currency
transactions............. -- (444) -- --
Unrealized appreciation
(depreciation) of:
Investments............... 114,259 69,209 68,780 --
Foreign currency.......... -- (1,178) -- --
------- -------- ------- -------
NET REALIZED AND
UNREALIZED GAIN (LOSS).... 102,505 66,918 61,342 --
------- -------- ------- -------
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS.. $131,453 $ 78,599 $ 71,376 $ 1,234
------- -------- ------- -------
** Net of foreign
withholding taxes of...... -- $ 342 -- --
======= ======== ======= =======
</TABLE>
* The Money Market Portfolio commenced investment operations on October 10,
1995. The Growth and Income, International Equity, and Growth Equity
Portfolios commenced investment operations on October 20, 1995.
The accompanying notes are an integral part of the financial statements
14
<PAGE>
WNL SERIES TRUST
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE PERIOD ENDED DECEMBER 31, 1995*
<TABLE>
<CAPTION>
BEA CREDIT GLOBAL GLOBAL
GROWTH SUISSE ADVISORS ADVISORS
AND INTERNATIONAL GROWTH MONEY
INCOME EQUITY EQUITY MARKET
---------- ------------- -------- --------
<S> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET
ASSETS
From operations:
Net investment income..... $ 28,948 $ 11,681 $ 10,034 $ 1,234
Net realized gain (loss)
on:
Investments............... (11,754) (669) (7,438) --
Foreign currency
transactions............. -- (444) -- --
Net unrealized
appreciation
(depreciation) of:
Investments............... 114,259 69,209 68,780 --
Foreign currency.......... -- (1,178) -- --
---------- ----------- -------- --------
Net increase in net
assets resulting from
operations............. 131,453 78,599 71,376 1,234
Distributions to
shareholders:
From net investment income (28,948) (11,681) (10,034) (1,234)
In excess of net realized
gains.................... (9,791) -- -- --
Fund share transactions
(Note 4).................. 2,043,605 2,016,106 2,011,297 126,279
---------- ----------- -------- --------
Total increase in net
assets.................... 2,136,319 2,083,024 2,072,639 126,279
NET ASSETS:
Beginning of period........ -- -- -- --
---------- ----------- ---------- --------
END OF PERIOD.............. $2,136,319 $2,083,024 $2,072,639 $126,279
========== =========== ========== ========
</TABLE>
* The Money Market Portfolio commenced investment operations on October 10,
1995. The Growth and Income, International Equity, and Growth Equity
Portfolios commenced investment operations on October 20, 1995.
The accompanying notes are an integral part of the financial statements
15
<PAGE>
WNL SERIES TRUST
FINANCIAL HIGHLIGHTS
FOR A SHARE OUTSTANDING FOR THE PERIOD ENDED
DECEMBER 31, 1995*
<TABLE>
<CAPTION>
BEA CREDIT GLOBAL GLOBAL
GROWTH SUISSE ADVISORS ADVISORS
AND INTERNATIONAL GROWTH MONEY
INCOME EQUITY EQUITY MARKET
------ ------ ------ ------
<S> <C> <C> <C> <C>
Net asset value, beginning
of period................. $10.00 $10.00 $10.00 $ 1.00
------ ------ ------ ------
Net investment income(1)... 0.14 0.06 0.05 0.01
Net realized and
unrealized gain on
investments.............. 0.51 0.33 0.31 --
------ ------ ------ ------
Total from investment
operations................ 0.65 0.39 0.36 0.01
------ ------ ------ ------
Distributions:
From net investment
income.................. (0.14) (0.06) (0.05) (0.01)
In excess of net
realized gains.......... (0.05) -- -- --
------ ------ ------ ------
Total distributions........ (0.19) (0.06) (0.05) (0.01)
------ ------ ------ ------
Net asset value, end of
period.................... $10.46 $10.33 $10.31 $ 1.00
====== ====== ====== ======
TOTAL RETURN(2)............ 6.57% 3.93% 3.57% 1.17%
RATIOS/SUPPLEMENTAL DATA:
OPERATING EXPENSES TO
AVERAGE NET ASSETS(3)..... 0.12% 0.12% 0.12% 0.12%
NET INVESTMENT INCOME TO
AVERAGE NET ASSETS(4)..... 6.99% 2.89% 2.46% 5.25%
PORTFOLIO TURNOVER RATE(5). 75% 2% 9% N/A
NET ASSETS, AT END OF
PERIOD (000S)............. $2,136 $2,083 $2,073 $ 126
</TABLE>
* The Money Market Portfolio commenced investment operations on October 10,
1995. The Growth and Income, International Equity, and Growth Equity
Portfolios commenced investment operations on October 20, 1995.
(1) Net investment income is after waiver of fees and reimbursement of certain
expenses by the Investment Adviser, the Sub-Administrator and Western National
Life Insurance Company, an affiliate of the Adviser (see Note 2 to the financial
statements). If the Investment Adviser and the Sub-Administrator had not waived
fees and Western National Life Insurance Company had not reimbursed expenses,
net investment income (loss) per share would have been $(0.06) for the BEA
Growth and Income Portfolio, $(0.18) for the Credit Suisse International Equity
Portfolio, $(0.15) for the Global Advisors Growth Equity Portfolio, and $(0.35)
for the Global Advisors Money Market Portfolio.
(2) Total return represents aggregate total return for the period indicated.
(3) If the Investment Adviser and the Sub-Administrator had not waived fees and
Western National Life Insurance Company had not reimbursed expenses, the ratio
of operating expenses to average net assets would have been 9.95% for the BEA
Growth and Income Portfolio, 11.83% for the Credit Suisse International Equity
Portfolio, 9.94% for the Global Advisors Growth Equity Portfolio, and 161.83%
for the Global Advisors Money Market Portfolio.
(4) Annualized.
(5) Not annualized.
The accompanying notes are an integral part of the financial statements
16
<PAGE>
WNL SERIES TRUST
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995
1. SIGNIFICANT ACCOUNTING POLICIES
WNL Series Trust (the "Trust") is an open-end, diversified series management
investment company which currently offers shares of beneficial interest in eight
series (the "Portfolios"), each of which has a different investment objective
and represents the entire interest in a separate portfolio of investments. The
Portfolios are: American Capital Emerging Growth Portfolio (the "Emerging
Growth Portfolio"), BEA Growth and Income Portfolio (the "Growth and Income
Portfolio"), Credit Suisse International Equity Portfolio (the "International
Equity Portfolio"), BlackRock Managed Bond Portfolio (the "Managed Bond
Portfolio"), Quest for Value Asset Allocation Portfolio (the "Asset Allocation
Portfolio"), Salomon Brothers U.S. Government Securities Portfolio (the
"Government Securities Portfolio"), Global Advisors Growth Equity Portfolio (the
"Growth Equity Portfolio"), and Global Advisors Money Market Portfolio (the
"Money Market Portfolio"). These financial statements report on the Money
Market Portfolio, which commenced operations on October 10, 1995; the Growth and
Income, the International Equity and the Growth Equity Portfolios, which
commenced operations on October 20, 1995. The Emerging Growth, Managed Bond and
Asset Allocation Portfolios commenced operations on January 2, 1996, and the
Government Securities Portfolio commenced operations on February 6, 1996. The
Portfolios are currently available to the public only through variable annuity
contracts ("VA Contracts") issued by Western National Life Insurance Company, a
wholly-owned subsidiary of Western National Corporation. The preparation of
financial statements in accordance with generally accepted accounting principles
requires management to make estimates and assumptions that affect the reported
amounts and disclosures in the financial statements. Actual results could
differ from those estimates. The following is a summary of significant
accounting policies followed by each Portfolio in the preparation of its
financial statements in accordance with generally accepted accounting
principles.
(A) VALUATION OF SECURITIES - All securities are valued as of the close of
regular trading on the New York Stock Exchange (normally 4:00 p.m. New York
time). Securities traded on a national securities exchange or quoted on the
NASDAQ National Market System are valued at their last-reported sale price on
the principal exchange or reported by NASDAQ or, if there is no reported sale,
and in the case of over-the-counter securities not included in the NASDAQ
National Market System, at a bid price estimated by a broker or dealer. Debt
securities, including zero-coupon securities, and certain foreign securities
will be valued by a pricing service approved by the Trustees. other foreign
securities will be valued by the Trust's custodian. The value of a foreign
security is determined in its national currency as of the close of trading on
the foreign exchange on which it is traded or as of 4:00 p.m. New York time, if
that is earlier, and that value is then converted into its U.S. dollar
equivalent at the foreign exchange rate in effect at noon, New York time, on the
day the value of the foreign security is determined. Securities for which
current market quotations are not readily available and all other assets are
valued at fair value as determined in good faith by the Trustees.
The Money Market Portfolio values all securities using the amortized cost method
which approximates market value. Under this method, which does not take into
account realized securities gains or losses, an instrument is initially valued
at its cost and thereafter assumes a constant amortization or accretion to
maturity of any discount or premium.
(B) REPURCHASE AGREEMENTS - A repurchase agreement is a contract under which
the Portfolio acquires a security for a relatively short period (usually not
more than a week) subject to the obligation of the seller to repurchase and the
Portfolio to resell such security at a fixed time and price. The collateral for
such agreements will be held by the Portfolio's custodian. The Portfolio will
enter into repurchase agreements only with banks and broker-dealers that have
been determined to be creditworthy by the Trust's Board of Trustees. The seller
under a repurchase agreement would be required to maintain the value of the
obligations subject to the repurchase agreement at not less than the repurchase
price. Default by the seller would expose the Portfolio to possible loss
because of adverse market action or delay in connection with the disposition of
the underlying obligations. In addition, if bankruptcy proceedings are
commenced with respect to the seller of the obligations, the Portfolio may be
delayed or limited in its ability to sell the collateral.
17
<PAGE>
(C) FOREIGN INVESTMENTS - Certain Portfolios may invest in securities of
foreign issuers. There are certain risks involved in investing in foreign
securities, including those resulting from fluctuations in currency exchange
rates, devaluation of currencies, future political or economic developments and
the possible imposition of currency exchange blockages or other foreign
governmental laws or restrictions, reduced availability of public information
concerning issuers, and the fact that foreign companies are not generally
subject to uniform accounting, auditing and financial reporting standards or to
other regulatory practices and requirements comparable to those applicable to
domestic companies. The Portfolios' foreign investments may be less liquid and
their prices may be more volatile than comparable investments in securities of
U.S. companies.
(D) FOREIGN CURRENCY EXCHANGE TRANSACTIONS - Certain Portfolios may engage in
foreign currency exchange transactions. Portfolios may enter into foreign
currency exchange transactions to convert to and from different foreign
currencies. A Portfolio can either enter into these transactions on a spot
(i.e., cash) basis at the spot rate prevailing in the foreign currency exchange
market, or use forward contracts to purchase or sell foreign currencies.
Realized and unrealized gains and losses arising from such transactions are
included in net realized and unrealized gains and losses from foreign currency
related transactions.
A forward foreign exchange contract is an obligation by a Portfolio to purchase
or sell a specific currency at a future date. The Portfolio maintains with its
custodian, in a segregated account, high-grade liquid assets in an amount at
least equal to its obligations under each contract. Neither spot transactions
nor forward foreign currency exchange contracts eliminate fluctuations in the
prices of the Portfolio's securities or in foreign exchange rates, or prevent
loss if the prices of these securities should decline.
A Portfolio may enter into foreign currency exchange transactions for hedging
purposes as well as for non-hedging purposes. Transactions are entered into for
hedging purposes in an attempt to protect against changes in foreign currency
exchange rates that would adversely affect a portfolio position or an
anticipated portfolio position. Although these transactions tend to minimize
the risk of loss due to a decline in the value of the hedged currency, at the
same time they tend to limit any potential gain that might be realized should
the value of the hedged currency increase.
A Portfolio may enter into foreign currency exchange transactions for other than
hedging purposes which present greater profit potential but also involves
increased risk.
(E) FOREIGN CURRENCY - The books and records of the Trust are maintained in
U.S. dollars. Foreign currencies, investments and other assets and liabilities
are translated into U.S. dollars at the exchange rates prevailing at the end of
the period, and purchases and sales of investment securities, income and
expenses are translated on the respective dates of such transactions. The
eligible Portfolios do not isolate that portion of the results of operations
from changes in foreign exchange rates on investments from the fluctuations
arising from changes in market prices of securities held. Such fluctuations are
included with net realized and unrealized gain or loss from investments. Foreign
exchange gain (loss) is treated as ordinary income for federal income tax
purposes to the extent constituting "Section 988 Transactions" pursuant to the
Internal Revenue Code, including currency gains (losses) related to the sale of
debt securities, forward foreign currency exchange contracts, payments of
liabilities, and collections of receivables.
(F) FUTURES CONTRACTS - Certain Portfolios may enter into futures contracts.
Upon entering into a futures contract, the Portfolio is required to deposit with
the broker an amount of cash or cash equivalents equal to a certain percentage
of the contract amount. This is known as the initial margin. Subsequent
payments ("variation margin") are made or received by the Portfolio each day,
depending on the daily fluctuation of the value of the contract. The daily
changes in the contract are recorded as unrealized gains or losses. The
Portfolio recognizes a realized gain or loss when the contract is closed.
The use of futures contracts as a hedging device involves several risks. The
change in value of futures contracts primarily corresponds with the value of
their underlying instruments, which may not correlate with the change in value
of the hedged investments. In addition, the Portfolio may not be able to enter
into a closing transaction because of an illiquid secondary market.
18
<PAGE>
(G) SECURITIES TRANSACTIONS AND INVESTMENT INCOME - Securities transactions are
recorded as of the trade date. Realized gains and losses on sales of
investments are recorded on the identified cost basis. Interest income is
recorded daily on the accrual basis. Dividend income is recorded on the ex-
date.
(H) EXPENSE ALLOCATION - Expenses with respect to any two or more Portfolios
may be allocated in proportion to the net assets of the respective Portfolios
except where allocations of direct expenses can otherwise be fairly made.
(I) DIVIDENDS AND DISTRIBUTIONS - The Money Market Portfolio will declare a
dividend of its net ordinary income daily and distribute such dividend monthly.
Each of the other Portfolios will declare and distribute dividends from net
ordinary income at least annually and will distribute its net realized capital
gains, if any, at least annually.
Income dividends and capital gain distributions are determined in accordance
with Federal tax regulations which may differ from generally accepted accounting
principles. These differences are primarily due to differing treatments of
income and gains on various investment securities held by the Portfolios, timing
differences and differing characterization of distributions made by the
Portfolios. As a result, net investment income (loss) and net realized gain
(loss) on investment transactions for a reporting period may differ
significantly from distributions during such period. Accordingly, each
Portfolio may periodically make reclassifications among certain of its capital
accounts without impacting the net asset value of the Portfolio.
(J) FEDERAL INCOME TAXES - Each Portfolio of the Trust intends to qualify and
elects to be treated as a regulated investment company that is taxed under the
rules of Subchapter M of the Internal Revenue Code. As an electing regulated
investment company, a Portfolio will not be subject to federal income tax on its
net ordinary income and net realized capital gains to the extent such income and
gains are distributed to the separate account of the life Company which holds
its shares.
2. INVESTMENT ADVISORY FEES AND OTHER TRANSACTIONS WITH AFFILIATES
Under an Investment Advisory Agreement (the "Agreement"), WNL Investment
Advisory Services, Inc. (the "Adviser"), a subsidiary of Western National
Corporation, manages the business and affairs of the Portfolios and the Trust,
subject to the control of the Trustees. Under the Agreement, the Adviser is
obligated to formulate a continuing program for the investment of the assets of
each Portfolio of the Trust in a manner consistent with each Portfolio's
investment objectives, policies and restrictions and to determine from time to
time securities to be purchased, sold, retained or lent by the Trust and to
implement those decisions. The Agreement also provides that the Adviser shall
provide such services required for effective administration of the Trust.
As full compensation for its services under the Agreement, the Trust will pay
the Adviser a monthly fee at the following rates based on the average daily net
assets of each Portfolio:
<TABLE>
<CAPTION>
<S> <C>
BEA Growth and Income Portfolio 0.75%
Credit Suisse International Equity
Portfolio 0.90%
Global Advisors Growth Equity Portfolio 0.61%
Global Advisors Money Market Portfolio 0.45%
</TABLE>
The Adviser has agreed to waive its advisory fee for each of the Portfolios for
the initial six months of each Portfolio's investment operations. In addition,
Western National Life Insurance Company, an affiliate of the Adviser, has
undertaken to bear until May 1, 1996, all operating expenses of each Portfolio,
excluding the compensation of the Adviser, that exceed 0.12% of each Portfolio's
average daily net assets.
In accordance with each Portfolio's investment objective and policies and under
the supervision of the Adviser and the Trust's Board of Trustees, each
Portfolio's Sub-Adviser is responsible for the day-to-day investment management
of the Portfolio, to make investment decisions for the Portfolio and to place
orders on behalf of the Portfolio to effect the investment decisions made as
provided in separate Sub-Advisory Agreements. The Sub-Advisers to the
Portfolios are: Van Kampen American Capital Asset Management, Inc. for the
Emerging Growth Portfolio; BEA Associates for the Growth and Income Portfolio;
Credit Suisse Investment Management, Ltd. for the International Equity
Portfolio; BlackRock Financial Management for the Managed Bond Portfolio; Quest
for Value Advisors for the Asset Allocation Portfolio; Salomon Brothers Asset
Management Inc. for the Government
19
<PAGE>
Securities Portfolio; and State Street Global Advisors for the Growth Equity
and Money Market Portfolios. The Sub-Advisers receive their fees directly from
the Adviser, and receive no compensation from the Trust.
For the period ended December 31, 1995, the Adviser waived advisory fees, the
Sub-Administrator waived the Sub-Administration fee, and Western National Life
Insurance Company reimbursed operating expenses as follows:
<TABLE>
<CAPTION>
Advisory Sub-
Fees Administration Expenses
Waived Fees Waived Reimbursed Total
---------- ----------------- ------------- -------
<S> <C> <C> <C> <C>
BEA Growth and Income $3,106 $12,253 $25,354 $40,713
Credit Suisse International Equity 3,643 12,258 31,499 47,400
Global Advisors Growth Equity 2,490 12,256 25,355 40,101
Global Advisors Money Market 106 12,486 25,393 37,985
</TABLE>
WNL Brokerage Services, Inc., a subsidiary of Western National Corporation, is
the distributor and underwriter of the VA Contracts.
Each Trustee of the Trust who is not an interested person of the Trust or
Adviser or Sub-Adviser receives an annual fee of $7,500 and an additional fee of
$750 for each Trustees' meeting attended. In addition, disinterested Trustees
who are members of any Board committees will receive a separate $750 fee for
attendance at any committee meeting that is held on a day on which no Board
meeting is held.
The Trust's Sub-administrator, custodian, transfer and dividend-paying agent is
State Street Bank and Trust Company.
3. SECURITY TRANSACTIONS
The aggregate cost of purchases and proceeds from sales of securities, excluding
short-term investments, for the period ended December 31, 1995 were as follows:
<TABLE>
<CAPTION>
Purchases Sales
---------- ----------
<S> <C> <C>
BEA Growth and Income Portfolio (1) $3,017,692 $1,094,387
Credit Suisse International Equity
Portfolio 1,772,398 12,052
Global Advisors Growth Equity Portfolio 2,092,311 130,177
</TABLE>
(1) Includes purchases and sales of U.S. Government securities of $1,006,155 and
$23,346, respectively.
4. SHARES OF BENEFICIAL INTEREST
The Trust has an unlimited authorized number of shares of beneficial interest
with a par value of $.01. The tables below summarize transactions in Trust
shares.
<TABLE>
<CAPTION>
BEA GROWTH AND INCOME PORTFOLIO
Period Ended December 31, 1995*
Shares Amount
------------- ----------------
<S> <C> <C>
Sold................................. 200,461 $2,004,865
Issued as reinvestment of dividends
and distributions.................. 3,702 38,740
------- ----------
Net increase......................... 204,163 $2,043,605
======= ==========
</TABLE>
20
<PAGE>
<TABLE>
<CAPTION>
CREDIT SUISSE INTERNATIONAL EQUITY PORTFOLIO
Period Ended December 31, 1995*
Shares Amount
-------- -------
<S> <C> <C>
Sold................................. 200,429 $2,004,424
Issued as reinvestment of dividends.. 1,131 11,682
------- ----------
Net increase......................... 201,560 $2,016,106
======= ==========
GLOBAL ADVISORS GROWTH EQUITY PORTFOLIO
Period Ended December 31, 1995*
Shares Amount
-------- -------
Sold................................. 200,124 $2,001,261
Issued as reinvestment of dividends.. 973 10,036
------- ----------
Net increase......................... 201,097 $2,011,297
======= ==========
GLOBAL ADVISORS MONEY MARKET PORTFOLIO
Period Ended December 31, 1995#
Shares Amount
-------- -------
Sold................................. 140,324 $140,324
Issued as reinvestment of dividends.. 1,233 1,233
Repurchased.......................... (15,278) (15,278)
------- --------
Net increase......................... 126,279 $126,279
======= ========
</TABLE>
* - Portfolio commenced operations on October 20, 1995.
# - Portfolio commenced operations on October 10, 1995.
21
<PAGE>
Report of Independent Auditors
To the Trustees and Shareholders
WNL Series Trust
We have audited the accompanying statements of assets and liabilities of the WNL
Series Trust which is comprised of BEA Growth and Income Portfolio, Credit
Suisse International Equity Portfolio, Global Advisors Growth Equity Portfolio
and Global Advisors Money Market Portfolio, including the schedules of
investments as of December 31, 1995 and the related statements of operations,
the statements of changes in net assets, and the financial highlights for the
period October 10, 1995 (commencement of operations) through December 31, 1995
for Global Advisors Money Market Portfolio and October 20, 1995 (commencement of
operations) through December 31, 1995 for BEA Growth and Income Portfolio,
Credit Suisse International Equity Portfolio and Global Advisors Growth Equity
Portfolio. These financial statements and financial highlights are the
responsibility of the Trusts management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
December 31, 1995 by correspondence with the custodian and brokers. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of the
WNL Series Trust which is comprised of BEA Growth and Income Portfolio, Credit
Suisse International Equity Portfolio, Global Advisors Growth Equity Portfolio
and Global Advisors Money Market Portfolio as of December 31, 1995, the results
of its operations, the changes in its net assets and the financial highlights
for the period October 10, 1995 (commencement of operations) through December
31, 1995 for Global Advisors Money Market Portfolio and October 20, 1995
(commencement of operations) through December 31, 1995 for BEA Growth and Income
Portfolio, Credit Suisse International Equity Portfolio and Global Advisors
Growth Equity Portfolio in conformity with generally accepted accounting
principles.
Boston, Massachusetts COOPERS & LYBRAND L.L.P.
February 7, 1996
22
PART C
OTHER INFORMATION
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS
(A) FINANCIAL STATEMENTS:
The following financial statements of the Trust are included in Part A
hereof:
Financial Highlights
The following financial statements of the Trust are included in Part B hereof:
Audited Financial Statements:
1. Report of Independent Auditors.
2. Schedules of Investments as of December 31, 1995 for BEA Growth and
Income Portfolio, Credit Suisse International Equity Portfolio,
Global Advisors Growth Equity Portfolio and Global Advisors Money
Market Portfolio.
3. Statements of Assets and Liabilities For the period ended
December 31, 1995.
4. Statements of Operations For the period ended December 31, 1995.
5. Statements of Changes in Net Assets For the period ended December 31,
1995.
6. Financial Highlights for a Share Outstanding For the period ended
December 31, 1995.
7. Notes to Financial Statements - December 31, 1995.
(B) EXHIBITS
(1) Declaration of Trust.
(2) By-laws of Trust.
(3) Not Applicable
(4) Not Applicable
(5) (a) Investment Advisory Agreement dated August 23, 1995, between
the Registrant and the Adviser.
(b)(i) Sub-Advisory Agreement dated as of August 23, 1995, among
Van Kampen American Capital Asset Management Inc., the
Adviser and the Registrant.
(b)(ii) Sub-Advisory Agreement dated as of August 23, 1995, among
BEA Associates, the Adviser and the Registrant.
(b)(iii) Sub-Advisory Agreement dated as of August 23, 1995, among
Credit Suisse Investment Management Limited, the Adviser
and the Registrant.
(b)(iv) Sub-Advisory Agreement dated as of August 23, 1995, among
BlackRock Financial Management, Inc., the Adviser and the
Registrant.
(b)(v) Sub-Advisory Agreement dated August 23, 1995, among Quest for
Value Advisors, the Adviser and the Registrant.
(b)(vi) Sub-Advisory Agreement dated as of August 23, 1995, among
Salomon Brothers Asset Management Inc., the Adviser and the
Registrant.
(b)(vii) Sub-Advisory Agreement dated as of August 23, 1995, among
State Street Bank and Trust Company, the Adviser and the
Registrant.
(6) Not Applicable
(7) Not Applicable
(8) Form of Custodian Agreement between the Registrant and State
Street Bank and Trust Company.*
(9) (a) Form of Transfer Agency and Service Agreement between
the Registrant and State Street Bank and Trust Company.*
(b) Form of Subadministration Agreement for Reporting and
Accounting Services between the Registrant and State
Street Bank and Trust Company.*
(10) Consent and Opinion of Counsel.
(11) Consent of Independent Auditors.
(12) Not Applicable
(13) Not Applicable
(14) Not Applicable
(15) Not Applicable
(16) Calculation of Performance Information
(27) Financial Data Schedules
* Incorporated by reference to Pre-Effective Amendment No. 1 to
Registrant's Form N-1A, File Nos. 33-87380 and 811-8912.
ITEM 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT
The shares of the Trust are currently sold to WNL Separate Account A.
ITEM 26. NUMBER OF HOLDERS OF SECURITIES
The WNL Separate Account A is the sole shareholder of the Trust.
ITEM 27. INDEMNIFICATION
Each officer, Trustee or agent of the Trust shall be indemnified by the Trust
to the full extent permitted under the General Laws of The Commonwealth of
Massachusetts and the Investment Company Act of 1940 ("1940 Act"), as amended,
except that such indemnity shall not protect any such person against any
liability to the Trust or any shareholder thereof to which such person would
otherwise be subject by reason of willful misfeasance, bad faith, gross
negligence or reckless disregard of the duties involved in the conduct of his
office ("disabling conduct"). Indemnification shall be made when (i) a final
decision on the merits, by a court or other body before whom the proceeding
was brought, that the person to be indemnified was not liable by reason of
disabling conduct or, (ii) in the absence of such a decision, a reasonable
determination, based upon a review of the facts, that the person to be
indemnified was not liable by reason of disabling conduct, by (a) the vote of
a majority of a quorum of Trustees who are neither "interested persons" of the
company as defined in section 2(a)(19) of the 1940 Act, nor parties to the
proceedings or (b) an independent legal counsel in a written opinion. The
Trust may, by vote of a majority of a quorum of Trustees who are not
interested persons, advance attorneys' fees or other expenses incurred by
officers, Trustees, investment advisers or principal underwriters, in
defending a proceeding upon the undertaking by or on behalf of the person to
be indemnified to repay the advance unless it is ultimately determined that he
is entitled to indemnification. Such advance shall be subject to at least one
of the following: (1) the person to be indemnified shall provide a security
for his undertaking, (2) the Trust shall be insured against losses arising by
reason of any lawful advances, or (3) a majority of a quorum of the
disinterested, non-party Trustees of the Trust, or an independent legal
counsel in a written opinion, shall determine, based on a review of readily
available facts, that there is reason to believe that the person to be
indemnified ultimately will be found entitled to indemnification. The law of
Massachusetts is superseded by the 1940 Act insofar as it conflicts with the
1940 Act or rules published thereunder.
Insofar as indemnification for liability arising under the Securities Act of
1933 may be permitted to trustees, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the registrant of expenses
incurred or paid by a trustee, officer or controlling person of the registrant
in the successful defense of any action, suit or proceeding) is asserted by
such trustee, officer or controlling person in connection with the securities
being registered, the registrant will, unless in the opinion of its counsel
the matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Act and will be governed by the
final adjudication of such issue.
ITEM 28. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER AND
SUB-ADVISERS
There is set forth below information as to any other business, profession,
vocation or employment of a substantial nature in which each director or
officer of the Registrant's Investment Adviser is, or at any time during the
past two years has been, engaged for his own account or in the capacity of
director, officer, employee, partner or trustee.
<TABLE>
<CAPTION>
<S> <C>
Name Business and Other Connections
- ---------------- ------------------------------------------------
Richard W. Scott President, Principal Executive Officer and
Trustee of the Trust; Executive Vice President,
General Counsel and Chief Investment Officer of
Western National Corporation and Western
National Life Insurance Company since February,
1994; prior thereto, a partner with Vinson &
Elkins L.L.P.
Kurt R. Fredland Vice President and Assistant Treasurer of the
Trust; Assistant Vice President - Variable
Annuity Administration, Western National Life
Insurance Company, since April, 1994; prior
thereto, from February, 1993 to April, 1994, a
financial consultant.
Dwight L. Cramer Senior Vice President - Law & Secretary of
Western National Life and Western National
Corporation since February, 1996; prior thereto,
from November, 1993 until February, 1996, Vice
President, Secretary and Associate General
Counsel of Western National Life.
Evelyn M. Curran Staff Attorney, Western National Life since
March, 1994; prior thereto, from January, 1991
to March, 1994, law student, South Texas College
of Law, Houston, Texas.
</TABLE>
The principal address of Registrant's Investment Adviser is 5555 San Felipe
Road, Suite 900, Houston, Texas 77056.
With respect to information regarding the Sub-Advisers, reference is hereby
made to "Management of the Trust" in the Prospectus. For information as to
the business, profession, vocation or employment of a substantial nature of
each of the officers and directors of the Sub-Advisers, reference is made to
the current Form ADVs of the Sub-Advisers filed under the Investment Advisers
Act of 1940, incorporated herein by reference, the file numbers of which are
as follows:
Van Kampen American Capital Asset Management, Inc.
File No. 801-1669
BEA Associates
File No. 801-37170
Credit Suisse Investment Management Limited
File No. 801-40177
BlackRock Financial Management
File No. 801-48433
OpCap Advisors, formerly Quest For Value Advisors
File No. 801-27180
Salomon Brothers Asset Management Inc.
File No. 801-32046
ITEM 29. PRINCIPAL UNDERWRITER
Not Applicable
ITEM 30. LOCATION OF ACCOUNTS AND RECORDS
Persons maintaining physical possession of accounts, books, and other
documents required to be maintained by Section 31(a) of the Investment Company
Act of 1940 and the Rules promulgated thereunder include the Registrant's
Secretary; the Registrant's investment adviser, WNL Investment Advisory
Services, Inc.; and the Registrant's custodian, State Street Bank and Trust
Company. The address of the Secretary and WNL Investment Advisory Services,
Inc. is 5555 San Felipe Road, Suite 900, Houston, Texas 77056
ITEM 31. MANAGEMENT SERVICES
Other than as set forth in Parts A and B of this Registration Statement, the
Registrant is not a party to any management-related service contract.
ITEM 32. UNDERTAKINGS
Not Applicable
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the Investment
Company Act of 1940, the Registrant certifies that it meets the requirements
of Securities Act Rule 485(b) for effectiveness of this Registration Statement
and has duly caused this 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 Houston, and State of Texas on the 25th day of
April, 1996.
WNL SERIES TRUST
By: /S/ RICHARD W. SCOTT
-----------------------
Richard W. Scott
President and Trustee
Pursuant to the requirements of the Securities Act of 1933, this
Post-Effective Amendment No. 1 has been signed below by the following persons
in the capacities and on the date indicated.
<TABLE>
<CAPTION>
<S> <C> <C>
SIGNATURE TITLE DATE
/S/ RICHARD W. SCOTT President and Trustee 4-25-96
- -------------------------- ---------
Richard W. Scott (Principal Executive Officer)
/S/ PATRICK F. GRADY Vice President and Treasurer 4-25-96
- -------------------------- ---------
Patrick F. Grady (Principal Financial Officer
and Principal Accounting
Officer)
Trustee
- -------------------------- ---------
John A. Graf
/S/ ALDEN W. BROSSEAU Trustee 4-25-96
- -------------------------- ---------
Alden W. Brosseau
/S/ HUGH L. HYDE Trustee 4-25-96
- -------------------------- ---------
Hugh L. Hyde
/S/ MELVIN C. PAYNE Trustee 4-25-96
- -------------------------- ---------
Melvin C. Payne
/S/ S. TEVIS GRINSTEAD Trustee 4-25-96
- -------------------------- ---------
S. Tevis Grinstead
</TABLE>
EXHIBITS
TO
POST-EFFECTIVE AMENDMENT NO. 1
TO
FORM N-1A
FOR
WNL SERIES TRUST
INDEX TO EXHIBITS
PAGE
EX.99.B1 Declaration of Trust.
EX.99.B2 By-laws of Trust.
EX.99.B5(a) Investment Advisory Agreement dated August 23, 1995,
between the Registrant and the Adviser.
EX.99.B5(b)(i) Sub-Advisory Agreement dated as of August 23, 1995,
among Van Kampen American Capital Asset Management Inc.,
the Adviser and the Registrant.
EX.99.B5(b)(ii) Sub-Advisory Agreement dated as of August 23, 1995, among
BEA Associates, the Adviser and the Registrant.
EX.99.B5(b)(iii) Sub-Advisory Agreement dated as of August 23, 1995, among
Credit Suisse Investment Management Limited, the Adviser
and the Registrant.
EX.99.B5(b)(iv) Sub-Advisory Agreement dated as of August 23, 1995, among
BlackRock Financial Management, Inc., the Adviser and the
Registrant.
EX.99.B5(b)(v) Sub-Advisory Agreement dated August 23, 1995, among Quest
for Value Advisors, the Adviser and the Registrant.
EX.99.B5(b)(vi) Sub-Advisory Agreement dated as of August 23, 1995, among
Salomon Brothers Asset Management Inc., the Adviser and the
Registrant.
EX.99.B5(b)(vii) Sub-Advisory Agreement dated as of August 23, 1995, among
State Street Bank and Trust Company, the Adviser and the
Registrant.
EX.99.B10 Consent and Opinion of Counsel.
EX.99.B11 Consent of Independent Auditors.
EX.99B16 Calculation of Performance Information
Ex.27 Financial Data Schedules
AMENDED DECLARATION OF TRUST
WNL SERIES TRUST
APRIL 19, 1995
TABLE OF CONTENTS
Page
ARTICLE I
THE TRUST
1.1 Name
1.2 Location
1.3 Nature of Trust
1.4 Definitions
ARTICLE II
POWERS OF TRUSTEES
2.1 General
2.2 Investments
2.3 Legal Title
2.4 Disposition of Assets
2.5 Taxes
2.6 Rights as Holder of Securities
2.7 Delegation; Committees
2.8 Collection
2.9 Expenses
2.10 Borrowing
2.11 Deposits
2.12 Allocation
2.13 Valuation
2.14 Fiscal Year
2.15 Concerning the Trust and Certain Affiliates
2.16 Power to Contract
2.17 Insurance
2.18 Pension and Other Plans
2.19 Seal
2.20 Charitable Contributions
2.21 Indemnification
2.22 Remedies
2.23 Separate Accounting
2.24 Further Powers
ARTICLE III
ADVISER AND DISTRIBUTOR
3.1 Appointment
3.2 Provisions of Agreement
ARTICLE IV
INVESTMENTS
4.1 Statement of Investment Objectives and Policies
4.2 Restrictions
4.3 Percentage Restrictions
4.4 Amendment of Investment Objectives and Policies and of Investment
Limitations
ARTICLE V
LIMITATIONS OF LIABILITY
5.1 Liability to Third Persons
5.2 Liability to Trust or to Shareholders
5.3 Indemnification
5.4 Surety Bonds
5.5 Apparent Authority
5.6 Recitals
5.7 Reliance on Experts, Etc.
5.8 Liability Insurance
ARTICLE VI
CHARACTERISTICS OF SHARES
6.1 General
6.2 Classes of Stock
6.3 Evidence of Share Ownership
6.4 Death of Shareholders
6.5 Repurchase of Shares
6.6 Trustees as Shareholders
6.7 Redemption and Stop Transfers for Tax Purposes; Redemption to Maintain
Constant Net Asset Value
6.8 Information from Shareholders
6.9 Redemptions
6.10 Suspension of Redemption; Postponement of Payment
ARTICLE VII
RECORD AND TRANSFER OF SHARES
7.1 Share Register
7.2 Transfer Agent
7.3 Owner of Record
7.4 Transfers of Shares
7.5 Limitation of Fiduciary Responsibility
7.6 Notices
ARTICLE VIII
SHAREHOLDERS
8.1 Meetings of Shareholders
8.2 Quorums
8.3 Notice of Meetings
8.4 Record Date for Meetings
8.5 Proxies, Etc.
8.6 Reports
8.7 Inspection of Records
8.8 Shareholder Action by Written Consent
8.9 Voting Rights of Shareholders
ARTICLE IX
TRUSTEES
9.1 Number and Qualification
9.2 Term and Election
9.3 Resignation and Removal
9.4 Vacancies
9.5 Meetings
9.6 Officers
9.7 By-laws
ARTICLE X
DISTRIBUTIONS TO SHAREHOLDERS AND DETERMINATION OF NET ASSET VALUE AND
NET INCOME
10.1 General
10.2 Retained Earnings
10.3 Source of Distributions
10.4 Net Asset Value
10.5 Power to Modify Valuation Procedures
ARTICLE XI
CUSTODIAN
11.1 Appointment and Duties
11.2 Central Certificate System
ARTICLE XII
RECORDING OF DECLARATION OF TRUST
12.1 Recording
ARTICLE XIII
AMENDMENT OR TERMINATION OF THE TRUST
13.1 Amendment or Termination
13.2 Power to Effect Reorganization
ARTICLE XIV
MISCELLANEOUS
14.1 Governing Law
14.2 Counterparts
14.3 Reliance by Third Parties
14.4 Provisions in Conflict with Law or Regulations
14.5 Section Headings
ARTICLE XV
DURATION OF TRUST
15.1 Duration
ARTICLE I
THE TRUST
AMENDED DECLARATION OF TRUST
OF
WNL SERIES TRUST
This Amended Declaration of Trust made the 19th day of April, 1995 by Richard
W. Scott, John A. Graf, Alden W. Brosseau, Hugh L. Hyde and Melvin C. Payne,
the undersigned Trustees of WNL SERIES TRUST.
WITNESSETH:
WHEREAS, the Trustees desire to establish an unincorporated voluntary
association commonly known as a business trust, as described in the provisions
of Chapter 182 of the General Laws of Massachusetts, for the principal purpose
of the investment and reinvestment of funds contributed thereto; and
WHEREAS, the Trustees desire that such trust be a registered open-end
investment company under the Investment Company Act of 1940; and
WHEREAS, the Trustees have acknowledged that an investment of One Hundred
Thousand ($100,000.00) Dollars will be made in the Trust by means of an
Agreement Governing Contribution and have agreed to hold, invest, and dispose
of the same and any property acquired or otherwise added thereto as such
Trustees as hereinafter stated; and
WHEREAS, it is proposed that the beneficial interest in the Trust's assets
shall be divided into transferable shares of beneficial interest, which shall
be evidenced by the Share Register maintained by the Trust or its agent, or,
in the discretion of the Trustees, be evidenced by certificates therefor, as
hereinafter provided;
NOW, THEREFORE, the Trustees hereby declare that they will hold all property
of every type and description which they are acquiring or may hereafter
acquire as such Trustees, together with the proceeds thereof, in trust, to
manage and dispose of the same for the benefit of the holders of record from
time to time of the Shares being issued and to be issued hereunder and in the
manner and subject to the provisions hereof.
ARTICLE I
THE TRUST
1.1 NAME . The name of the trust created by this Declaration of Trust shall
be WNL SERIES TRUST (hereinafter called the "Trust") and so far as may be
practicable the Trustees shall conduct the Trust's activities, execute all
documents and sue or be sued under that name, which name (and the word "Trust"
wherever used in this Declaration of Trust, except where the context otherwise
requires) shall refer to the Trustees in their capacity as Trustees, and not
individually or personally and shall not refer to the officers, agents,
employees or Shareholders of the Trust or of such Trustees. Should the
Trustees determine that the use of such name is not practicable, legal or
convenient, they may use such other designation or they may adopt such other
name for the Trust as they deem proper and the Trust may hold property and
conduct its activities under such designation or name.
1.2 LOCATION . The Trust shall maintain a registered office in Boston,
Massachusetts, and may maintain such other offices or places of business as
the Trustees may from time to time determine.
1.3 NATURE OF TRUST . The Trust shall be of the type commonly termed a
"business" trust. The Trust is not intended to be, shall not be deemed to be
and shall not be treated as, a general partnership, limited partnership, joint
venture, corporation or joint stock company. The Shareholders shall be
beneficiaries and their relationship to the Trustees shall be solely in that
capacity in accordance with the rights conferred upon them hereunder. The
Trust is intended to have the status of a registered open-end investment
company under the Investment Company Act of 1940 and of a "regulated
investment company" as that term is defined in Section 851 of the Internal
Revenue Code of 1986, as amended, and this Declaration of Trust and all
actions of the Trustees hereunder shall be construed in accordance with such
intent.
1.4 DEFINITIONS . As used in this Declaration of Trust, the following terms
shall have the following meanings unless the context hereof otherwise
requires:
"1940 Act" shall mean the Investment Company Act of 1940, as amended from
time to time.
"Adviser" and "Distributor" shall mean any Person or Persons appointed,
employed or contracted with by the Trustees under the applicable provisions of
Section 3.1 hereof.
"Affiliate" shall have the same meaning as the term Affiliated Person
under the 1940 Act.
"Assignment," "Commission," and "Prospectus" shall have the meanings
given them in the 1940 Act.
"Declaration of Trust" shall mean this Declaration of Trust as amended,
restated, or modified from time to time. References in this Declaration of
Trust to "Declaration," "hereof," "herein," "hereby" and "hereunder" shall be
deemed to refer to the Declaration of Trust and shall not be limited to the
particular text, article, or section in which such words appear.
"Person" shall mean and include individuals, corporations, limited
partnerships, general partnerships, joint stock companies or associations,
joint ventures, associations, companies, trusts, banks, trust companies, land
trusts, business trusts or other entities whether or not legal entities and
governments and agencies and political subdivisions thereof.
"Portfolio" shall mean any subdivision of the Trust so designated as such
by the Trustees.
"Securities" shall mean any stock, shares, voting trust certificates,
bonds, debentures, notes, or other evidences of indebtedness, secured or
unsecured, convertible, subordinated or otherwise or, in general, any
instruments commonly known as "securities" or any certificates of interest,
shares or participations in temporary or interim certificates for, guarantees
of, or any right to subscribe to, purchase or acquire any of the foregoing.
"Shareholders" shall mean, as of any particular time, all holders of
record of outstanding Shares at such time.
"Shares" shall mean the shares of beneficial interest of the Trust as
described in Article VI.
"Trust Property" shall mean, as of any particular time, any and all
property, real, personal, or otherwise, tangible or intangible, which is
transferred, conveyed or paid to the Trust or Trustees and all income, profits
and gains therefrom and which at such time is owned or held by, or for the
account of, the Trust or the Trustees.
ARTICLE II
POWERS OF TRUSTEES
2.1 GENERAL . The Trustees shall have, without other or further
authorization, full, exclusive and absolute power, control and authority over
the Trust Property and over the business of the Trust to the same extent as if
the Trustees were the sole and absolute owners of the Trust Property and
business in their own right, and with such powers of delegation as may be
permitted by this Declaration of Trust. The Trustees may do and perform such
acts and things as in their sole judgment and discretion are necessary and
proper for conducting the business and affairs of the Trust or promoting the
interests of the Trust and the Shareholders. The enumeration of any specific
power or authority herein shall not be construed as limiting the aforesaid
power or authority or any specific power or authority. The Trustees shall
have the power to enter into commitments to make any investment, purchase or
acquisition, or to exercise any power authorized by this Declaration of Trust.
Such powers of the Trustees may be exercised without order of or resort to
any court.
2.2 INVESTMENTS . The Trustees shall have power, subject in all respects to
Article IV hereof,
(a) to conduct, operate and carry on the business of an investment
company; and
(b) for such consideration as they may deem proper, to subscribe for,
invest in, reinvest in, purchase or otherwise acquire, hold, pledge, sell,
assign, transfer, exchange, distribute or otherwise deal in or dispose of
negotiable or nonnegotiable instruments, obligations, evidences of
indebtedness, bankers' acceptances, certificates of deposit or indebtedness,
commercial paper, securities subject to repurchase agreements and other money
market securities, including, without limitation, those issued, guaranteed or
sponsored by the United States Government or its agencies or
instrumentalities, or international instrumentalities, or by any of the
several states of the United States of America or their political
subdivisions, agencies or instrumentalities, or any bank or savings
institution, or by any corporation organized under the laws of the United
States or of any state, territory or possession thereof, or by corporations
organized under foreign laws; marketable straight debt securities; securities
(payable in U.S. dollars) of, or guaranteed by, the government of Canada or of
a Province of Canada; common stock, securities convertible into common stock,
purchase rights, warrants and options; and nothing herein shall be construed
to mean the Trustees shall not have the foregoing powers with respect to any
Securities in which the Trust may invest in accordance with Article IV hereof.
In the exercise of their powers, the Trustees shall not be limited, except as
otherwise provided hereunder, to investing in Securities maturing before the
possible termination of the Trust, nor shall the Trustees be limited by any
law now or hereafter in effect limiting the investments which may be held or
retained by trustees or other fiduciaries, but they shall have full authority
and power to make any and all investments within the limitations of this
Declaration of Trust, that they, in their absolute discretion, shall
determine, and without liability for loss, even though such investments shall
be of a character or an amount not considered proper for the investment of
trust funds.
2.3 LEGAL TITLE . Legal title to all the Trust Property shall be vested in
the Trustees as joint tenants and held by and transferred to the Trustees,
except that the Trustees shall have power to cause legal title to any Trust
Property to be held by, or in the name of, one or more of the Trustees with
suitable reference to their trustee status, or in the name of the Trust, or in
the name of any other Person as nominee, on such terms, in such manner and
with such powers as the Trustees may determine, so long as in their judgment
the interest of the Trust is adequately protected.
The right, title and interest of the Trustees in and to the Trust Property
shall vest automatically in all persons who may hereafter become Trustees upon
their due election and qualification without any further act. Upon the
resignation, removal or death of a Trustee, he (and in the event of his death,
his estate) shall automatically cease to have any right, title or interest in
or to any of the Trust Property, and the right, title and interest of such
Trustee in and to the Trust Property shall vest automatically in the remaining
Trustees without any further act.
2.4 DISPOSITION OF ASSETS . Subject in all respects to Article IV hereof,
the Trustees shall have power to sell, lease, exchange or otherwise dispose of
or grant options with respect to any and all Trust Property free and clear of
any and all encumbrances, at public or private sale, for cash or on terms,
without advertisement, and subject to such restrictions, stipulations,
agreements and reservations as they shall deem proper, and to execute and
deliver any deed or other instrument in connection with the foregoing. The
Trustees shall also have the power, subject in all respects to Article IV
hereof, to:
(a) rent, lease or hire from others for terms which may extend beyond
the termination of this Declaration of Trust any property or rights to
property, real, personal or mixed, tangible or intangible, and, except for
real property, to own, manage, use and hold such property and such rights;
(b) give consents and make contracts relating to Trust Property or its
use;
(c) grant security interests in or otherwise encumber Trust Property in
connection with borrowings; and
(d) release any Trust Property.
2.5 TAXES . The Trustees shall have power to pay all taxes or assessments,
of whatever kind or nature, imposed upon or against the Trust or the Trustees
in connection with the Trust Property or upon or against the Trust Property or
income or any part thereof, to settle and compromise disputed tax liabilities
and, for the foregoing purposes, to make such returns and do all other such
acts and things as may be deemed by the Trustees to be necessary or desirable.
2.6 RIGHTS AS HOLDER OF SECURITIES . The Trustees shall have the power to
exercise all the rights, powers and privileges appertaining to the ownership
of all or any Securities or other property forming part of the Trust Property
to the same extent that any individual might, and, without limiting the
generality of the foregoing, to vote or give any consent, request or notice or
waive any notice either in person or by proxy or power of attorney with or
without power of substitution, to one or more Persons, which proxies and
powers of attorney may be for meetings or action generally or for any
particular meetings or action, and may include the exercise of discretionary
powers.
2.7 DELEGATION; COMMITTEES . The Trustees shall have power, consistent with
their continuing exclusive authority over the management of the Trust, the
conduct of its affairs and the management and disposition of Trust Property,
to delegate from time to time to such one or more of their number (who may be
designated as constituting a Committee of the Trustees) or to officers,
employees or agents of the Trust the doing of such things and the execution of
such instruments either in the name of the Trust or the names of the Trustees
or as their attorney or attorneys or otherwise as the Trustees may from time
to time deem expedient.
2.8 COLLECTION . The Trustees shall have power to collect, sue for, receive
and receipt for all sums of money or other property due to the Trust, to
consent to extensions of the time for payment, or to the renewal of any
Securities or obligations; to engage or intervene in, prosecute, defend,
compound, compromise, abandon or adjust by arbitration or otherwise any
actions, suits, proceedings, disputes, claims, demands or things relating to
the Trust Property; to foreclose any Security or other instrument securing any
notes, debentures, bonds, obligations or contracts, by virtue of which any
sums of money are owed to the Trust; to exercise any power of sale held by
them, and to convey good title thereunder free of any and all trusts, and in
connection with any such foreclosure or sale, to purchase or otherwise acquire
title to any property; to be parties to reorganization and to transfer to and
deposit with any corporation, committee, voting trustee or other Person any
Securities or obligations of any corporation, trust, association or other
organization, the Securities of which form a part of the Trust Property, for
the purpose of any reorganization of any such corporation, trust, association
or other organization, or otherwise, to participate in any arrangement for
enforcing or protecting the interests of the Trustees as the owners or holders
of such Securities or obligations and to pay any assessment levied in
connection with such reorganization or arrangement; to extend the time (with
or without security) for the payment or delivery of any debts or property and
to execute and enter into releases, agreements and other instruments; and to
pay or satisfy any debts or claims upon any evidence that the Trustees shall
think sufficient.
2.9 EXPENSES . The Trustees shall have power to incur and pay any charges or
expenses which, in the opinion of the Trustees, are necessary or incidental to
or proper for carrying out any of the purposes of this Declaration of Trust,
and to reimburse others for the payment therefor, and to pay appropriate
compensation or fees from the funds of the Trust to themselves as Trustees and
to Persons with whom the Trust has contracted or transacted business. The
Trustees shall fix the compensation of all officers, employees and Trustees.
The Trustees may be paid reasonable compensation for their general services as
Trustees and officers hereunder, and the Trustees may pay themselves or any
one or more of themselves such compensation for special services, including
legal services, as they in good faith may deem reasonable and reimbursement
for expenses reasonably incurred by themselves or any one or more of
themselves on behalf of the Trust. Each Portfolio must pay the expenses
directly attributable to it. However, to the extent that the Trustees can
effect cost savings by the sharing of expenses they are authorized to do so.
Such general administrative expenses will be allocated on the basis of the
asset size of the respective Portfolios.
2.10 BORROWING . The Trustees shall have power to borrow money only to the
extent, for the purposes and in the manner authorized by Article IV hereof.
2.11 DEPOSITS . The Trustees shall have power to deposit any monies or
Securities included in the Trust Property with one or more banks, trust
companies or other banking institutions whether or not such deposits will draw
interest. Such deposits are to be subject to withdrawal in such manner as the
Trustees may determine, and the Trustees shall have no responsibility for any
loss which may occur by reason of the failure of the bank, trust company or
other banking institution with whom the monies or Securities have been
deposited.
2.12 ALLOCATION . The Trustees shall have power to determine whether monies
or other assets received by the Trust shall be charged or credited to income
or capital or allocated between income and capital, including the power to
amortize or fail to amortize any part or all of any premium or discount, to
treat any part or all of the profit resulting from the maturity or sale of any
assets, whether purchased at a premium or at a discount, as income or capital
or apportion the same between income and capital, to apportion the sale price
of any asset between income and capital and to determine in what manner any
expenses or disbursements are to be borne as between income and capital,
whether or not in the absence of the power and authority conferred by this
Section 2.12, such assets would be regarded as income or as capital or such
expense or disbursement would be charged to income or to capital; to treat any
dividend or other distribution on any investment as income or capital or
apportion the same between income and capital; to provide or fail to provide
reserves for depreciation, amortization or obsolescence in respect of any
Trust Property in such amounts and by such methods and for such purposes as
they shall determine, and to allocate to the share of beneficial interest
account less than all of the consideration received for Shares (but not less
than the par value thereof) and to allocate the balance thereof to paid_in
capital, all as the Trustees may reasonably deem proper.
2.13 VALUATION . The Trustees shall have power to determine in good faith,
conclusively, the value of any of the Trust Property and of any services,
Securities, assets or other consideration hereafter to be acquired or disposed
of by the Trust, and to revalue the Trust Property.
2.14 FISCAL YEAR . The Trustees shall have power to determine the fiscal
year of the Trust and the method or form in which its accounts shall be kept
and, from time to time, to change the fiscal year or method or form of
accounts.
2.15 CONCERNING THE TRUST AND CERTAIN AFFILIATES .
(a) The Trust may enter into transactions with any Affiliate of the
Trust or of the Adviser or any Affiliate of any Trustee, director, officer
or employee of the Trust or of the Adviser if (i) each such transaction has,
after disclosure of such affiliation, been approved or ratified by the
affirmative vote of a majority of the Trustees, including a majority of the
Trustees who are not Affiliates of any Person (other than the Trust) who is a
party to the transaction with the Trust, (ii) such transaction is, in the
opinion of the Trustees, on terms fair and reasonable to the Trust and the
Shareholders and at least as favorable to them as similar arrangements for
comparable transactions (of which the Trustees have knowledge) with
organizations unaffiliated with the Trust or with the Person who is a party to
the transaction with the Trust, and (iii) such transaction is in accordance
with the 1940 Act or an exemption granted thereunder.
(b) Except as otherwise provided by this Declaration of Trust and in the
absence of fraud, a contract, act or other transaction, between the Trust and
any other Person, or in which the Trust is interested, is valid and no
Trustee, officer, employee or agent of the Trust shall have any liability as a
result of entering into any such contract, act or transaction even though (a)
one or more of the Trustees, officers, employees or agents of the Trust is
directly or indirectly interested in or affiliated with, or are trustees,
partners, directors, employees, officers or agents of such other Person, or
(b) one or more of the Trustees, officers, employees or agents of the Trust,
individually or jointly with others, is a party or are parties to, or directly
interested in, or affiliated with, such contract, act or transaction, provided
that (i) such interest or affiliation is disclosed to the Trustees and the
Trustees authorized such contract, act or other transaction by a vote of a
majority of the unaffiliated Trustees, or (ii) such interest or affiliation is
disclosed to the Shareholders, and such contract, act or transaction is
approved by the Shareholders.
(c) Any Trustee or officer, employee or agent of the Trust may acquire,
own, hold and dispose of Shares for his individual account, and may exercise
all rights of a holder of such Shares to the same extent and in the same
manner as if he were not such a Trustee or officer, employee or agent. The
Trustees shall use their best efforts to obtain through the Adviser or other
Persons a continuing and suitable investment program, consistent with the
investment policies and objectives of the Trust, and the Trustees shall be
responsible for reviewing and approving or rejecting investment opportunities
presented by the Adviser or such other Persons. Any Trustee or officer,
employee or agent of the Trust may, in his personal capacity, or in a capacity
as trustee, officer, director, stockholder, partner, member, adviser or
employee of any Person, have business interests and engage in business
activities in addition to those relating to the Trust, which interests and
activities may be similar to those of the Trust and include the acquisition,
syndication, holding, management, operation or disposition, of his own account
or for the account of such Person, and each Trustee, officer, employee and
agent of the Trust shall be free of any obligation to present to the Trust any
investment opportunity which comes to him in any capacity other than solely as
Trustee, officer, employee or agent of the Trust, even if such opportunity is
of a character which, if presented to the Trust, could be taken by the Trust.
Subject to the provisions of Article III hereof, any Trustee or officer,
employee or agent of the Trust may be interested as Trustee, officer,
director, stockholder, partner, member, adviser or employee of, or otherwise
have a direct or indirect interest in, any Person who may be engaged to render
advice or services to the Trust, and may receive compensation from such Person
as well as compensation as Trustee, officer, employee or agent of the Trust or
otherwise hereunder. None of the activities referred to in this paragraph
shall be deemed to conflict with his duties and powers as Trustee, officer,
employee or agent of the Trust. To the extent that any other provision of
this Declaration of Trust conflicts with, or is otherwise contrary to, the
provisions of this Section 2.15, the provisions of this Section shall be
deemed controlling.
2.16 POWER TO CONTRACT . Subject to the provisions of Section 3.1 hereof
with respect to delegation of authority by the Trustees, the Trustees shall
have power to appoint, employ or contract with any Person (including one or
more of themselves and any corporation, partnership or trust of which one or
more of them may be an Affiliate, subject to the applicable requirements of
Section 2.15 hereof) as the Trustees may deem necessary or desirable for the
transaction of the business of the Trust, including any Person who, under the
supervision of the Trustees, may, among other things: serve as the Trust's
investment adviser and consultant in connection with policy decisions made by
the Trustees; furnish reports to the Trustees and provide research, economic
and statistical data in connection with the Trust's investments; act as
consultants, accountants, technical advisers, attorneys, brokers,
underwriters, corporation fiduciaries, escrow agents, depositaries, custodians
or agents for collection, insurers or insurance agents, transfer agents or
registrars for Shares or in any other capacity deemed by the Trustees
necessary or desirable; investigate, select, and, on behalf of the Trust,
conduct relations with Persons acting in such capacities and pay appropriate
fees to, and enter into appropriate contracts with, or employ, or retain
services performed or to be performed by, any of them in connection with the
investments acquired, sold, or otherwise disposed of, or committed,
negotiated, or contemplated to be acquired, sold or otherwise disposed of;
substitute any other Person for any such Person; act as attorney-in-fact or
agent in the purchase or sale or other disposition of investments, and in the
handling, prosecuting or settling of any claims of the Trust, including the
foreclosure or other enforcement of any lien or security securing investments;
and assist in the performance of such ministerial functions necessary in the
management of the Trust as may be agreed upon with the Trustees or officers of
the Trust.
2.17 INSURANCE . The Trustees shall have the power to purchase and pay for,
entirely out of Trust Property, insurance policies insuring the Shareholders,
Trustees, officers, employees, agents, investment advisers, including the
Adviser or independent contractors of the Trust, individually against all
claims and liabilities of every nature arising by reason of holding, being or
having held any such office or position, or by reason of any action alleged to
have been taken or omitted by any such person as Shareholder, Trustee,
officer, employee, agent, investment adviser or independent contractor,
including any action taken or omitted that may be determined to constitute
negligence. However, such policies shall not pay or reimburse any director,
officer, investment adviser or principal underwriter for any liability arising
by reason of willful misfeasance, bad faith, gross negligence or reckless
disregard of duties. Such policies are to set forth a reasonable and fair
means for determining whether payment or reimbursement shall be made.
2.18 PENSION AND OTHER PLANS . The Trustees shall have the power to pay
pensions for faithful service, as deemed appropriate by the Trustees, and to
adopt, establish and carry out pension, profit_sharing, savings, thrift and
other retirement, incentive and benefit plans, trusts and provisions,
including, without limitation, the purchasing of life insurance and annuity
contracts as a means of providing such retirement and other benefits, for any
or all of the Trustees, officers, employees and agents of the Trust.
2.19 SEAL . The Trustees shall have the power to adopt and use a seal for
the Trust, but, unless otherwise required by the Trustees, it shall not be
necessary for the seal to be placed on, and its absence shall not impair the
validity of, any document, instrument or other paper executed and delivered by
or on behalf of the Trust.
2.20 CHARITABLE CONTRIBUTIONS . The Trustees shall have the power to make
donations, irrespective of benefit to the Trust, for the public welfare or for
community fund, hospital, charitable, religious, educational, scientific,
literary, civic or similar purpose and, in time of war or other national
emergency, in aid thereof.
2.21 INDEMNIFICATION . In addition to the mandatory indemnification provided
for in Section 5.3 hereof, the Trustees shall have power, to the extent
permitted by law, to indemnify or enter into agreements with respect to
indemnification with any Person with whom the Trust has dealings, including,
without limitation, any investment adviser, including the Adviser, or
independent contractor, to such extent as the Trustees shall determine.
2.22 REMEDIES . Notwithstanding any provision in this Declaration of Trust,
when the Trustees deem that there is a significant risk that an obligor to the
Trust may default or is in default under the terms of any obligation to the
Trust, the Trustees shall have power to pursue any remedies permitted by law
which, in their sole judgment, are in the best interests of the Trust, and the
Trustees shall have the power to enter into any investment, commitment or
obligation of the Trust resulting from the pursuit of such remedies as is
necessary or desirable to dispose of property acquired in the pursuit of such
remedies.
2.23 SEPARATE ACCOUNTING . The Trustees shall establish the books and
records for each Portfolio and maintain such records separately as if each
Portfolio were a separate legal entity.
2.24 FURTHER POWERS . The Trustees shall have power to do all such other
matters and things and execute all such instruments as they deem necessary,
proper or desirable in order to carry out, promote or advance the interests of
the Trust although such matters or things are not herein specifically
mentioned. Any determination as to what is in the best interests of the Trust
made by the Trustees in good faith shall be conclusive. In construing the
provisions of this Declaration of Trust, the presumption shall be in favor of
a grant of power to the Trustees. The Trustees will not be required to obtain
any court order to deal with the Trust Property.
ARTICLE III
ADVISER AND DISTRIBUTOR
3.1 APPOINTMENT . The Trustees are responsible for the general investment
policy of the Trust, the distribution of its Shares and for the general
supervision of the business of the Trust conducted by officers, agents,
employees, investment advisers, distributors or independent contractors of the
Trust. However, the Trustees are not required personally to conduct all of
the business of the Trust and, consistent with their ultimate responsibility
as stated herein, the Trustees may appoint, employ or contract with an
investment adviser (the "Adviser") and/or a distributor and underwriter for
the Trust's Shares (the "Distributor"), and may grant or delegate such
authority to the Adviser and/or Distributor (pursuant to the terms of Section
2.16 hereof) or to any other Person the services of whom are obtained by the
Adviser or Distributor, as the Trustees may, in their sole discretion, deem to
be necessary or desirable, without regard to whether such authority is
normally granted or delegated by trustees.
3.2 PROVISIONS OF AGREEMENT . The Trustees shall not enter into any
agreement with the Adviser or Distributor pursuant to the provisions of
Section 3.1 hereof unless such agreement is consistent with the provisions of
Section 15 of the 1940 Act.
ARTICLE IV
INVESTMENTS
4.1 STATEMENT OF INVESTMENT OBJECTIVES AND POLICIES . The Trustees shall be
guided in their actions by the Investment Objectives and Policies as set forth
in the most current effective registration statement for the Trust as filed
with the Securities and Exchange Commission. Because the Trust is divided
into separate Portfolios, the Trustees shall supervise the investments and the
recordkeeping for each Portfolio within the Trust as if it was a separate
legal entity. In addition to any other power granted to the Trustees, the
Trustees may, as they deem appropriate, provide for additional Portfolios in a
manner consistent with the 1940 Act.
4.2 RESTRICTIONS . Notwithstanding anything in this Declaration of Trust
which may be deemed to authorize the contrary, the Trust, with respect to each
Portfolio, shall conduct its affairs in accordance with the Investment
Limitations (Restrictions) as set forth in the most current, effective
registration statement for the Trust as filed with the Securities and Exchange
Commission.
4.3 PERCENTAGE RESTRICTIONS . If the percentage restrictions as set forth in
the Investment Limitations described in Section 4.2 above are adhered to at
the time of each investment, a later increase or decrease in percentage
resulting from a change in the value of the Trust's assets is not a violation
of such investment restrictions.
4.4 AMENDMENT OF INVESTMENT OBJECTIVES AND POLICIES AND OF INVESTMENT
LIMITATIONS . The Investment Objectives and Policies and the Investment
Limitations, if deemed by the Trustees to be fundamental policies, may not be
changed without the approval of the holders of a majority of the outstanding
voting shares of each Portfolio affected which, for purposes herein, shall
mean the lesser of (i) 67% of the shares represented at a meeting at which
more than 50% of the outstanding shares are present or represented by proxy
and (ii) more than 50% of the outstanding shares. A change in a fundamental
policy affecting only one Portfolio may be affected only with the approval of
a majority of the outstanding shares of such Portfolio.
ARTICLE V
LIMITATIONS OF LIABILITY
5.1 LIABILITY TO THIRD PERSONS . No Shareholder shall be subject to any
personal liability whatsoever, in tort, contract or otherwise, to any other
Person or Persons in connection with the Trust Property or the affairs of the
Trust; and no Trustee, officer, employee or agent of the Trust shall be
subject to any personal liability whatsoever, in tort, contract or otherwise;
to any other Person or Persons in connection with Trust Property or the
affairs of the Trust, except for that arising from his bad faith, willful
misconduct, gross negligence or reckless disregard of his duties or for his
failure to act in good faith in the reasonable belief that his action was in
the best interest of the Trust; and all such other Persons shall look solely
to the Trust Property for satisfaction of claims of any nature arising in
connection with the affairs of the Trust. If any Shareholder, Trustee,
officer, employee or agent, as such, of the Trust is made a party to any suit
or proceedings to enforce any such liability, he shall not on account thereof
be held to any personal liability.
5.2 LIABILITY TO TRUST OR TO SHAREHOLDERS . No Trustee, officer, employee or
agent of the Trust shall be liable to the Trust or to any Shareholder,
Trustee, officer, employee or agent of the Trust for any action or failure to
act (including, without limitation, the failure to compel in any way any
former or acting Trustee to redress any breach of trust) except for his own
bad faith, willful misfeasance, gross negligence or reckless disregard for his
duties.
5.3 INDEMNIFICATION . The Trust shall indemnify and hold each Shareholder
harmless from and against all claims and liabilities, whether they proceed to
judgment or are settled or otherwise brought to a conclusion, to which such
Shareholder may become subject by reason of his being or having been a
Shareholder, and shall reimburse such Shareholder for all legal and other
expenses reasonably incurred by him in connection with any such claim or
liability. The rights accruing to a Shareholder under this Section 5.3 shall
not exclude any other right to which such Shareholder may be lawfully
entitled, nor shall anything herein contained restrict the right of the Trust
to indemnify or reimburse a Shareholder in any appropriate situation even
though not specifically provided herein; provided, however, that the Trust
shall have no liability to reimburse Shareholders for taxes assessed against
them by reason of their ownership of Shares, nor for any losses suffered by
reason of changes in the market value of Shares.
Each officer, Trustee or agent of the Trust shall be indemnified by the Trust
to the full extent permitted under the General Laws of the Commonwealth of
Massachusetts and the 1940 Act, except that such indemnity shall not protect
any such person against any liability to the Trust or any Shareholder thereof
to which such person would otherwise be subject by reason of willful
misfeasance, bad faith, gross negligence or reckless disregard of the duties
involved in the conduct of his office ("disabling conduct"). Indemnification
shall be made when (i) a final decision on the merits, by a court or other
body before whom the proceeding was brought, that the person to be indemnified
was not liable by reason of disabling conduct, or (ii) in the absence of such
a decision, a reasonable determination, based upon a review of the facts, that
the person to be indemnified was not liable by reason of disabling conduct, by
(a) the vote of a majority of a quorum of Trustees who are neither "interested
persons" of the Trust as defined in section 2(a)(19) of the 1940 Act, nor
parties to the proceedings or (b) an independent legal counsel in a written
opinion. The Trust may, by vote of a majority of a quorum of Trustees who are
not interested persons, advance attorneys' fees or other expenses incurred by
officers, Trustees, investment advisers or principal underwriters, in
defending a proceeding upon the undertaking by or on behalf of the person to
be indemnified to repay the advance unless it is ultimately determined that he
is entitled to indemnification. Such advance shall be subject to at least one
of the following: (1) the person to be indemnified shall provide a security
for his undertaking, (2) the Trust shall be insured against losses arising by
reason of any lawful advances, or (3) a majority of a quorum of the
disinterested, non-party Trustees of the Trust, or an independent legal
counsel in a written opinion, shall determine, based on a review of readily
available facts, that there is reason to believe that the person to be
indemnified ultimately will be found entitled to indemnification. The law of
Massachusetts is superseded by the 1940 Act insofar as it conflicts with the
1940 Act or rules published thereunder.
5.4 SURETY BONDS . No Trustee shall, as such, be obligated to give any bond
or surety or other security for the performance of his duties.
5.5 APPARENT AUTHORITY . No purchaser, lender, transfer agent or other
Person dealing with the Trustees or any officer, employee or agent of the
Trust shall be bound to make any inquiry concerning the validity of any
transaction purporting to be made by the Trustees or by such officer, employee
or agent or make inquiry concerning or be liable for the application of money
or property paid, loaned or delivered to or on the order of the Trustees or of
such officer, employee or agent.
5.6 RECITALS . Any written instrument creating an obligation of the Trust
shall be conclusively taken to have been executed or done by a Trustee or
Trustees or an officer, employee or agent of the Trust only in their or his
capacity as Trustees or Trustee under this Declaration of Trust or in the
capacity of officer, employee or agent of the Trust. Any written instrument
creating an obligation of the Trust shall refer to this Declaration of Trust
and contain a recital to the effect that the obligations thereunder are not
personally binding upon, nor shall resort be had to the private property of,
any of the Trustees, Shareholders, officers, employees or agents of the Trust,
but the Trust Property or a specific portion thereof only shall be bound, and
may contain any further recital which they or he may deem appropriate, but the
omission of such recital shall not operate to impose personal liability on any
of the Trustees, Shareholders, officers, employees or agents of the Trust.
5.7 RELIANCE ON EXPERTS, ETC. Each Trustee and each officer of the Trust
shall, in the performance of his duties, be fully and completely justified and
protected with regard to any act or any failure to act resulting from reliance
in good faith upon the books of account or other records of the Trust, upon an
opinion of counsel or upon reports made to the Trust by any of its officers or
employees or by the Adviser, accountants, appraisers or other experts or
consultants selected with reasonable care by the Trustees or officers of the
Trust, regardless of whether such counsel or expert may also be a Trustee.
5.8 LIABILITY INSURANCE . The Trustees shall, at all times, maintain
insurance for the protection of the Trust Property, its Shareholders,
Trustees, officers, employees and agents in such amount as the Trustees shall
deem adequate to cover all foreseeable tort liability to the extent available
at reasonable rates.
ARTICLE VI
CHARACTERISTICS OF SHARES
6.1 GENERAL . The interest of the Shareholders hereunder shall be divided
into Shares, all of one class and having a par value of $.01 per Share. The
number of Shares authorized hereunder is unlimited. All Shares shall have
equal noncumulative voting and other rights, shall be fully paid and
non_assessable, and shall not entitle the holder to preference, preemptive,
appraisal, conversion or exchange rights of any kind. The ownership of the
Trust Property of every description and the right to conduct any business
hereinbefore described are vested exclusively in the Trustees, and the
Shareholders shall have no interest therein other than the beneficial interest
conferred by their Shares, and they shall have no right to call for any
partition or division of any property, profits, rights or interests of the
Trust nor can they be called upon to share or assume any losses of the Trust
or suffer an assessment of any kind by virtue of their ownership of Shares,
except as provided in Section 10.5 hereof. The Shares shall be personal
property giving only the rights specifically set forth in this Declaration of
Trust.
6.2 CLASSES OF STOCK .
(a) The Shares shall be divided into ten classes of common stock and
designated Classes A, B, C, D, E, F, G, H, I and J, respectively.
(b) The holders of each Share of stock of the Trust shall be entitled to one
vote for each full Share, and a fractional vote for each fractional Share of
stock, irrespective of the Class, then standing in his name on the books of
the Trust. On any matter submitted to a vote of Shareholders, all Shares of
the Trust then issued and outstanding and entitled to vote shall be voted in
the aggregate and not by class except that (1) when otherwise expressly
required by Massachusetts Law, the 1940 Act, or this Declaration of Trust,
Shares shall be voted by individual class; (2) Shares of the respective
Classes are entitled to vote in matters concerning only that Class; (3)
fundamental policies, as specified in Article IV hereof, may not be changed,
unless a change affects only one Class, without the approval of the holders of
a majority of the Trust's outstanding voting shares, including a majority (as
defined under the 1940 Act) of the Shares of each Class.
(c) Each Class of stock of the Trust shall have the following powers,
preferences or other special rights, and qualifications, restrictions, and
limitations thereof shall be as follows:
(1) The Trustees may from time to time declare and pay dividends or
distributions, in stock or in cash, on any or all Classes of stock, the amount
of such dividends and distributions and the payment of them being wholly in
the discretion of the Trustees.
(i) Dividends or distributions on shares of any Class of stock
shall be paid only out of earned surplus or other lawfully available assets
belonging to such Class.
(ii) Inasmuch as one goal of the Trust is to qualify as a
"regulated investment company" under the Internal Revenue Code of 1986, as
amended, or any successor or comparable statute thereto, and Regulations
promulgated thereunder, and inasmuch as the computation of net income and
gains for Federal income tax purposes may vary from the computation thereof on
the books of the Trust, the Trustees shall have the power in their discretion
to distribute in any fiscal years as dividends, including dividends designated
in whole or in part as capital gains distributions, amounts sufficient in the
opinion of the Trustees, to enable the Trust to qualify as a regulated
investment company and to avoid liability for the Trust for Federal income tax
in respect of that year. In furtherance, and not in limitation of the
foregoing, in the event that a Class of shares has a net capital loss for a
fiscal year, and to the extent that a net capital loss for a fiscal year
offsets net capital gains from one or more of the other classes, the amount to
be deemed available for distribution to the Class or Classes with the net
capital gain may be reduced by the amount offset.
(2) The assets belonging to any Class of stock shall be charged with the
liabilities in respect to such Class, and shall also be charged with its share
of the general liabilities of the Trust in proportion to the asset values of
the respective Classes. The determination of the Trustees shall be conclusive
as to the amount of liabilities, the allocation of the same as to a given
Class and as to whether the same or general assets of the Trust are allocable
to one or more Classes.
(3) Prior to the issuance of any shares of a Class, the Trustees may by
resolution change the designation of such Class to the name of the Portfolio
of the Trust with respect to which such shares will be issued.
(4) The assets belonging to any Class of stock shall be available only
to the Shareholders of that Class in the event of a liquidation.
6.3 EVIDENCE OF SHARE OWNERSHIP . Evidence of Share ownership shall be
reflected in the Share Register maintained by or on behalf of the Trust
pursuant to Section 7.1 hereof, and the Trust shall not be required to issue
certificates as evidence of Share ownership; provided, however, that the
Trustees may, in their discretion, authorize the use of certificates as a
means of evidencing the ownership of Shares by setting forth in the Trust's
By_laws or in a resolution, provisions for the form of certificates and
regulations governing their execution, issuance and transfer. Subject to
Section 6.7 hereof, such certificates shall be treated as negotiable and title
thereto and to the Shares represented thereby shall be transferred by delivery
thereof to the same extent in all respects as a stock certificate, and the
Shares represented thereby, of a Massachusetts business corporation.
6.4 DEATH OF SHAREHOLDERS . The death of a Shareholder during the
continuance of the Trust shall not terminate this Declaration of Trust nor
give such Shareholder's legal representatives a right to an accounting or to
take any action in the courts or otherwise against other Shareholders or the
Trustees or the Trust Property, but shall simply entitle the legal
representatives of the deceased Shareholder to require the recordation of such
legal representative's ownership of or rights in the deceased Shareholder's
Shares, and, upon the acceptance thereof, such legal representative shall
succeed to all the rights of the deceased Shareholder under this Declaration
of Trust.
6.5 REPURCHASE OF SHARES . The Trustees may, on behalf of the Trust,
purchase or otherwise acquire outstanding Shares from time to time for such
consideration and on such terms as they may deem proper. Shares so purchased
or acquired by the Trustees for the account of the Trust shall not, so long as
they belong to the Trust, receive distributions (other than, at the option of
the Trustees, distributions in Shares) or be entitled to any voting rights.
Such Shares may, in the discretion of the Trustees, be cancelled and the
number of Shares issued thereby reduced, or such Shares may, in the discretion
of the Trustees, be held in the treasury and may be disposed of by the
Trustees at such time or times, to such party or parties and for such
considerations as the Trustees may determine.
6.6 TRUSTEES AS SHAREHOLDERS . Any Trustee in his individual capacity may
purchase and otherwise acquire or sell and otherwise dispose of Shares or
other Securities issued by the Trust, and may exercise all the rights of a
Shareholder to the same extent as though he were not a Trustee.
6.7 REDEMPTION AND STOP TRANSFERS FOR TAX PURPOSES; REDEMPTION TO MAINTAIN
CONSTANT NET ASSET VALUE . If the Trustees shall, at any time and in good
faith, be of the opinion that direct or indirect ownership of Shares or other
Securities of the Trust has or may become concentrated in any person to an
extent which would disqualify the Trust as a regulated investment company
under the Internal Revenue Code, then the Trustees shall have the power by lot
or other means deemed equitable by them (i) to call for redemption a number,
or principal amount, of Shares or other Securities of the Trust sufficient, in
the opinion of the Trustees, to maintain or bring the direct or indirect
ownership of Shares or other Securities of the Trust into conformity with the
requirements for such qualification and (ii) to refuse to transfer or issue
Shares or other Securities of the Trust to any Person whose acquisition of the
Shares or other Securities of the Trust in question which would, in the
opinion of the Trustees, result in such disqualification. The redemption
shall be effected at a redemption price determined in accordance with Section
6.9.
The Shares of one or more Classes of stock may also be subject to redemption
pursuant to the procedure for reduction of outstanding Shares set forth in
Section 10.5 hereof in order to maintain the constant net asset value per
share.
6.8 INFORMATION FROM SHAREHOLDERS . The holders of Shares or other
Securities of the Trust shall, upon demand, disclose to the Trustees in
writing such information with respect to direct and indirect ownership of
Shares or other Securities of the Trust, as the Trustees reasonably deem
necessary, to comply with the provisions of the Internal Revenue Code, or to
comply with the requirements of any other taxing authority.
6.9 REDEMPTIONS . All outstanding Shares may be redeemed at the option of
the holders thereof, upon and subject to the terms and conditions provided in
this Declaration of Trust. The Trust shall, upon application of any
Shareholder, redeem or repurchase from such Shareholder outstanding Shares for
an amount per share determined by the application of a formula adopted for
such purpose by the Trustees (which formula shall be consistent with the 1940
Act and the rules and regulations promulgated thereunder); provided that such
amount per Share shall not exceed the cash equivalent of the proportionate
interest of each Share in the assets of the Portfolio of the Trust at the time
of the purchase or redemption. The procedures for effecting redemption shall
be as adopted by the Trustees and set forth in the Prospectus for the Trust
from time to time.
6.10 SUSPENSION OF REDEMPTION; POSTPONEMENT OF PAYMENT . The Trustees may
suspend the right of redemption or postpone the date of payment for the whole
or any part of any period (i) during which the New York Stock Exchange is
closed other than customary weekend and holiday closings, (ii) during which
trading on the New York Stock Exchange is restricted, (iii) during which an
emergency exists as a result of which disposal by the Trust of Securities
owned by it is not reasonably practicable or it is not reasonably practicable
for the Trust to determine fairly the value of its net assets, or (iv) during
any other period when the Securities and Exchange Commission (or any
succeeding governmental authority) may for the protection of security holders
of the Trust by order permit suspension of the right of redemption or
postponement of the date of payment on redemption; provided that applicable
rules and regulations of the Commission (or any succeeding governmental
authority) shall govern as to whether the conditions prescribed in (ii), (iii)
or (iv) exist. Such suspensions shall take effect at such time as the
Trustees shall specify but not later than the close of business on the
business day next following the declaration of suspension, and thereafter
there shall be no right of redemption or payment until the Trustees shall
declare the suspension at an end, except that the suspension shall terminate
in any event on the first day on which said stock exchange shall have reopened
or the period specified in (ii), (iii) or (iv) shall have expired (as to which
in the absence of an official ruling by said Commission or succeeding
authority, the determination of the Trustees shall be conclusive). In the
case of a suspension of the right of redemption, a Shareholder may either
withdraw his request for redemption or receive payment based on the net asset
value existing after the termination of the suspension.
ARTICLE VII
RECORD AND TRANSFER OF SHARES
7.1 SHARE REGISTER . A register shall be kept by or on behalf of the
Trustees, under the direction of the Trustees, which shall contain the names
and addresses of the Shareholders and the number and Class of Shares held by
them respectively and a record of all transfers thereof. Such register shall
be conclusive as to who are the holders of the Shares. Only Shareholders
whose ownership of Shares is recorded on such register shall be entitled to
vote or to receive distributions or otherwise to exercise or enjoy the rights
of Shareholders. No Shareholder shall be entitled to receive any
distribution, nor to have notice given to him as herein provided, until he has
given his address to a transfer agent or such other officer or agent of the
Trust as shall keep the register for entry thereon.
7.2 TRANSFER AGENT . The Trustees shall have power to employ, within or
without the Commonwealth of Massachusetts, a transfer agent or transfer agents
and, if they so determine, a registrar or registrars. The transfer agent or
transfer agents may keep the registrar and record therein the original issues
and transfers of Shares. Any such transfer agents and registrars shall
perform the duties usually performed by transfer agents and registrars of
certificates and shares of stock in a corporation, except as modified by the
Trustees.
7.3 OWNER OF RECORD . Any person becoming entitled to any Share in
consequence of the death, bankruptcy or insolvency of any Shareholder, or
otherwise, by operation of law, shall be recorded as holder of such Shares.
But until such record is made, the Shareholder of record shall be deemed to be
the holder of such Shares for all purposes hereof and neither the Trustees nor
any transfer agent or registrar nor any officer or agent of the Trust shall be
affected by any notice of such death, bankruptcy, insolvency or other event.
7.4 TRANSFERS OF SHARES . Shares shall be transferable on the records of the
Trust (other than by operation of law) only by the record holder thereof or by
his agent thereunto duly authorized in writing upon delivery to the Trust or a
transfer agent of the Trust of a duly executed instrument of transfer,
together with such evidence of the genuineness of execution and authorization
and of other matters as may reasonably be required by the Trust or the
transfer agent. Upon such delivery, the transfer shall be recorded on the
register of the Trust. But until such record is made, the Shareholder of
record shall be deemed to be the holder of such Shares for all purposes hereof
and neither the Trustees nor the Trust nor any transfer agent or registrar nor
any officer or agent of the Trust shall be affected by any notice of the
proposed transfer. This Section 7.4 and Section 7.3 hereof are subject in all
respects to the provisions of Section 6.7 hereof.
7.5 LIMITATION OF FIDUCIARY RESPONSIBILITY . The Trustees shall not, nor
shall the Shareholders or any officer, transfer agent or other agent of the
Trust, be bound to see to the execution of any trust, express, implied or
constructive, or of any charge, pledge or equity to which any of the Shares or
any interest therein are subject, or to ascertain or inquire whether any sale
or transfer of any such Shares or interest therein by any such Shareholder or
his personal representative is authorized by such trust, charge, pledge or
equity, or to recognize any Person as having any interest therein except the
Persons recorded as such Shareholders. The receipt of the Person in whose
name any Share is recorded, or, if such Share is recorded in the names of more
than one Person, the receipt of any one such Persons or of the duly authorized
agent of any such Person shall be a sufficient discharge for all money,
Securities and other property payable, issuable or deliverable in respect of
such Share and from all liability to see the proper application thereof.
7.6 NOTICES . Any and all notices to which Shareholders hereunder may be
entitled, and any and all communications, shall be deemed duly served or given
if mailed, postage prepaid, addressed to Shareholders of record at their last
known post office addresses as recorded on the Share register provided for in
Section 7.1 hereof.
ARTICLE VIII
SHAREHOLDERS
8.1 MEETINGS OF SHAREHOLDERS . Meetings of the Shareholders may be called at
any time by a majority of the Trustees and shall be called by any Trustee upon
written request of Shareholders holding in the aggregate not less than ten
(10%) percent of the outstanding Shares having voting rights, such request
specifying the purpose or purposes for which such meeting is to be called.
Any such meeting shall be held within or without the Commonwealth of
Massachusetts on such day and at such time as the Trustees shall designate.
In the event that the number of Trustees elected by vote of the Shareholders
shall, at any time, fall below a majority, a Special Meeting shall be called
at the earliest practicable time for the election of Trustees; provided,
however, that such meeting shall, in any event be held within sixty (60) days
of the date on which the number of Trustees elected by vote of the
Shareholders falls below a majority.
8.2 QUORUMS . The holders of a majority of outstanding Shares, entitled to
vote at such a meeting, present in person or by proxy shall constitute a
quorum at any meeting of Shareholders.
8.3 NOTICE OF MEETINGS . Notice of all meetings of the Shareholders entitled
to vote at such a meeting, stating the time, place and purposes of the
meeting, shall be given by the Trustees by mail to each Shareholder at his
registered address, mailed at least ten (10) days and not more than sixty (60)
days before the meeting. Only the business stated in the notice of the
meeting shall be considered at such meeting. Any adjourned meeting may be
held as adjourned without further notice.
8.4 RECORD DATE FOR MEETINGS . For the purposes of determining the
Shareholders who are entitled to vote or act at any meeting or any adjournment
thereof, or who are entitled to participate in any dividend or distribution,
or for the purpose of any other action, the Trustees may from time to time
close the transfer books for such period, not exceeding thirty (30) days, as
the Trustees may determine; or without closing the transfer books, the
Trustees may fix a date not more than sixty (60) days prior to the date of any
meeting of Shareholders or other actions as a record date for the
determination of Shareholders entitled to vote at such meeting or any
adjournment thereof or to be treated as Shareholders of record for purposes of
such other action, except for dividend payments which shall be governed by
Section 10.1, and any Shareholder who was a Shareholder at the time so fixed
shall be entitled to vote at such meeting or any adjournment thereof, even
though he has since that date disposed of his Shares, and no Shareholder
becoming such after that date shall be so entitled to vote at such meeting or
any adjournment thereof or to be treated as a Shareholder of record for
purposes of such other action.
8.5 PROXIES, ETC. At any meeting of Shareholders, any holder of Shares
entitled to vote thereat may vote by proxy, provided that no proxy shall be
voted at any meeting unless it shall have been placed on file with the
Secretary, or with such other officer or agent of the Trust as the Secretary
may direct, for the verification prior to the time at which such vote shall be
taken. Pursuant to a resolution of a majority of the Trustees, proxies may be
solicited in the name of one or more Trustees or one or more of the officers
of the Trust. Only Shareholders of record shall be entitled to vote and each
full Share shall be entitled to one vote and fractional Shares shall be
entitled to fractional votes. When any Share is held jointly by several
persons, any one of them may vote at any meeting in person or by proxy in
respect of such Share, but if more than one of them shall be present at such
meeting in person or by proxy, and such joint owners or their proxies so
present disagree as to any vote to be cast, such vote shall not be received in
respect of such Share. A proxy purporting to be executed by or on behalf of a
Shareholder shall be deemed valid unless challenged at or prior to its
exercise, and the burden of proving invalidity shall rest on the challenger.
If the holder of any such Share is a minor or a person of unsound mind, and
subject to guardianship or to the legal control of any other person as regards
the charge or management of such Share, he may vote by his guardian or such
other person appointed or having such control, and such vote may be given in
person or by proxy.
8.6 REPORTS. The Trustees shall cause to be prepared at least annually a
report of operations containing a balance sheet and statements of income and
undistributed income of the Trust prepared in conformity with generally
accepted accounting principles and an opinion of an independent certified
public accountant on such financial statements based on an examination of the
books and records of the Trust, and made in accordance with generally accepted
auditing standards. A signed copy of such report and opinion shall be filed
with the Trustees within sixty (60) days after the close of the period covered
thereby. Copies of such reports shall be mailed to all Shareholders of record
within the time required by the 1940 Act and in any event within a reasonable
period preceding the annual meeting of Shareholders. The Trustees shall, in
addition, furnish to the Shareholders, at least semi-annually, an interim
report containing an unaudited balance sheet of the Trust as at the end of
such semi-annual period and a statement of income and surplus for the period
from the beginning of the current fiscal year to the end of such semi-annual
period.
8.7 INSPECTION OF RECORDS . The records of the Trust shall be open to
inspections by Shareholders to the same extent as is permitted shareholders of
a Massachusetts business corporation.
8.8 SHAREHOLDER ACTION BY WRITTEN CONSENT . Any action taken by Shareholders
may be taken without a meeting if a majority of Shareholders entitled to vote
on the matter (or such larger proportion thereof as shall be required by any
express provision of this Declaration of Trust) consent to the action in
writing and the written consents are filed with the records of the meetings of
Shareholders. Such consent shall be treated for all purposes as a vote taken
at a meeting of Shareholders.
8.9 VOTING RIGHTS OF SHAREHOLDERS . The Shareholders shall be entitled to
vote only upon the following matters: (a) election of Trustees as provided in
Sections 9.2, 9.3 and 9.4 hereof; (b) amendment of the Declaration of Trust or
termination of this Trust as provided in Section 4.4 and Section 13.1 hereof;
(c) reorganization of this Trust as provided in Section 13.2 hereof; and (d)
all matters for which the approval of the Shareholders of the Trust is
required by the 1940 Act, as amended. Except with respect to the foregoing
matters specified in this Section 8.9, no action taken by the Shareholders at
any meeting shall in any way bind the Trustees.
ARTICLE IX
TRUSTEES
9.1 NUMBER AND QUALIFICATION . The number of Trustees shall be fixed from
time to time by resolution of a majority of the Trustees then in office,
provided, however, that subsequent to any sale of Shares pursuant to a public
offering, there shall not be fewer than three (3) Trustees. Any vacancy
created by an increase in Trustees may be filled by the appointment of an
individual having the qualifications described in this Section 9.1 made by a
resolution of a majority of the Trustees then in office. Any such appointment
shall not become effective, however, until the individual named in the
resolution of appointment shall have accepted in writing such appointment and
agreed in writing to be bound by the terms of this Declaration of Trust. No
reduction in the number of Trustees shall have the effect of removing any
Trustee from office prior to the expiration of his term. Whenever a vacancy
in the number of Trustees shall occur, until such vacancy is filled as
provided in Section 9.4 hereof, the Trustees or Trustee continuing in office,
regardless of their number, shall have all the powers granted to the Trustees
and shall discharge all the duties imposed upon the Trustees by this
Declaration of Trust. A Trustee shall be an individual at least twenty_one
(21) years of age who is not under legal disability. The Trustees, in their
capacity as Trustees, shall not be required to devote their entire time to the
business and affairs of the Trust.
9.2 TERM AND ELECTION . Each Trustee named herein, or elected or appointed
as provided in Section 9.1 and 9.4 hereof shall (except in the event of
resignations or removals or vacancies pursuant to Sections 9.3 or 9.4 hereof)
hold office until his successor has been elected and has qualified to serve as
Trustee. Election of Trustees shall be by the affirmative vote of the holders
of at least a majority of the Shares entitled to vote present in person or by
proxy at such meeting. The election of any Trustee (other than an individual
who was serving as a Trustee immediately prior to such election) pursuant to
this Section 9.2 shall not become effective unless and until such person shall
have in writing accepted his election and agreed to be bound by the terms of
this Declaration of Trust. Trustees may, but need not, own Shares.
9.3 RESIGNATION AND REMOVAL . Any Trustee may resign (without need for prior
or subsequent accounting) by an instrument in writing signed by him and
delivered or mailed to the Chairman, the President or the Secretary (referred
to in Section 9.6 hereof) and such resignation shall be effective upon such
delivery, or at a later date according to the terms of the notice. Any of the
Trustees may be removed (provided the aggregate number of Trustees after such
removal shall not be less than the number required by Section 9.1 hereof) with
cause, by the action of two-thirds (2/3) of the remaining Trustees. Upon the
resignation or removal of a Trustee, or his otherwise ceasing to be a Trustee,
he shall execute and deliver such documents as the remaining Trustees shall
require for the purpose of conveying to the Trust or the remaining Trustees
any Trust Property held in the name of the resigning or removed Trustee. Upon
the incapacity or death of any Trustee, his legal representative shall execute
and deliver on his behalf such documents as the remaining Trustees shall
require as provided in the preceding sentence.
No natural person shall serve as Trustee after the holders of record of not
less than two-thirds of the outstanding Shares of beneficial interest in the
Trust have declared that he be removed from that office either by declaration
in writing filed with the Custodian of the securities of the Trust or by votes
cast in person or by proxy at a meeting called for the purpose.
The Trustees shall promptly call a meeting of Shareholders for the purpose of
voting upon the question of removal if any such Trustee or Trustees are
requested in writing to do so by the recordholders of not less than ten (10)
per centum of the outstanding Shares.
Whenever ten or more Shareholders of record, who have been such for at least
six months preceding the date of application, and who hold in the aggregate
either Shares having a net asset value of at least $50,000 or at least one (1)
per centum of the outstanding Shares, whichever is less, shall apply to the
Trustees in writing, stating that they wish to communicate with other
Shareholders with a view to obtaining signatures to a request for a meeting
for the purposes of removing Trustee(s) and accompanied by a form of
communication and request which they wish to transmit, the Trustees shall
within five (5) business days after receipt of such application either:
(1) afford to such applicants access to a list of the names and addresses
of all Shareholders as recorded on the books of the Trust; or
(2) inform such applicants as to the approximate number of Shareholders
of record, and the approximate cost of mailing to them the proposed
communication and form of request.
If the Trustees elect to follow the course specified in (2) above, upon the
written request of such applicants, accompanied by a tender of the material to
be mailed and of the reasonable expenses of mailing, the Trustees shall, with
reasonable promptness, mail such material to all Shareholders of record at
their addresses as recorded on the books, unless within five (5) business days
after such tender the Trustees shall mail to such applicants and file with the
Securities and Exchange Commission, together with a copy of the material to be
mailed, a written statement signed by at least a majority of the Trustees to
the effect that in their opinion either such material contains untrue
statements of fact or omits to state facts necessary to make the statements
contained therein not misleading, or would be in violation of applicable law,
and specifying the basis of such opinion.
9.4 VACANCIES . The term of office of a Trustee shall terminate and a
vacancy shall occur in the event of the death, resignation, bankruptcy,
adjudicated incompetence or other incapacity to exercise the duties of the
office, or removal of a Trustee. No such vacancy shall operate to annul this
Declaration of Trust or to revoke any existing agency created pursuant to the
terms of this Declaration of Trust, and title to any Trust Property held in
the name of any Trustee alone, jointly with one or more of the other Trustees
or otherwise, shall, in the event of the death, resignation, removal,
bankruptcy, adjudicated incompetence or other incapacity to exercise the
duties of the office of such Trustee, vest in the continuing or surviving
Trustees without necessity of any further act or conveyance. In the case of
an existing vacancy (other than by reason of increase in the number of
Trustees) the holders of at least a majority of the Shares entitled to vote,
acting at any meeting of Shareholders called for the purpose, or a majority of
the Trustees continuing in office acting by resolution, may fill such vacancy,
and any Trustee so elected by the Trustees shall hold office until his
successor has been elected and has qualified to serve as Trustee. Upon the
effectiveness of any such appointment as provided in this Section, the Trust
Property shall vest in such new Trustee jointly with the continuing or
surviving Trustees without the necessity of any further act or conveyance;
provided, however, that no such election or appointment as provided in this
Section 9.4 shall become effective unless or until the new Trustee shall have
accepted in writing his appointment and agreed to be bound by the terms of
this Declaration of Trust.
9.5 MEETINGS . Meetings of the Trustees shall be held from time to time upon
the call of the Chairman, the President, the Secretary or any two Trustees.
Regular meetings of the Trustees may be held without call or notice at a time
and place fixed by the By-laws or by resolution of the Trustees. Notice of
any other meeting shall be mailed or otherwise given not less than forty-eight
(48) hours before the meeting but may be waived in writing by any Trustee
either before or after such meeting. The attendance of a Trustee at a meeting
shall constitute a waiver of such notice except where a Trustee attends a
meeting for the express purpose of objecting to the transaction of any
business on the grounds that the meeting has not been lawfully called or
convened. The Trustees may act with or without a meeting. A quorum for all
meetings of the Trustees shall be a majority of the Trustees. Subject to
Section 2.15 hereof and unless specifically provided otherwise in this
Declaration of Trust, any action of the Trustees may be taken at a meeting by
vote of a majority of the Trustees present (a quorum being present) or,
without a meeting, by written consents of a majority of the Trustees. Any
agreement, or other instrument or writing executed by one or more of the
Trustees or by any authorized Person shall be valid and binding upon the
Trustees and upon the Trust when authorized or ratified by action of the
Trustees as provided in this Declaration of Trust.
Any committee of the Trustees, including an Executive Committee, if any, may
act with or without a meeting. A quorum for all meetings of any such
committee shall be a majority of the members thereof. Unless otherwise
specifically provided in this Declaration of Trust, any action of any such
committee may be taken at a meeting by vote of a majority of the members
present (a quorum being present) or, without a meeting, by written consent of
a majority of the members.
With respect to actions of the Trustees and any committee thereof, Trustees
who are affiliated within the meaning of Section 2.15 hereof or otherwise
interested in any action to be taken may be counted for quorum purposes under
this Section 9.5 and shall be entitled to vote to the extent permitted by the
1940 Act.
All or any one or more Trustees may participate in a meeting of the Trustees
or any committee thereof by utilizing conference, telephone or similar
communications equipment by means of which all persons participating in the
meeting can hear each other and participation in a meeting pursuant to such
communications shall constitute presence in person at such meeting. The
minutes of any meeting of Trustees held by utilizing such communications
equipment shall be prepared in the same manner as those of a meeting of
Trustees held in person.
9.6 OFFICERS . The Trustees shall elect a Chairman from among their number
and shall appoint a President, Secretary and Treasurer and such other officers
as they deem necessary or appropriate to carry out the business of the Trust.
Such officers shall be appointed and hold office in accordance with By-law
provisions.
9.7 BY-LAWS . The Trustees may adopt and, from time to time, amend or repeal
By-laws for the conduct of the business of the Trust, and in such By-laws may
define the duties of the respective officers, agents, employees and
representatives.
ARTICLE X
DISTRIBUTIONS TO SHAREHOLDERS AND
DETERMINATION OF NET ASSET VALUE AND NET INCOME
10.1 GENERAL . The Trustees may, from time to time, declare and pay to the
Shareholders, in proportion to their respective ownership of Shares in each
class, out of the earnings, net profits or surplus (including paid-in
capital), capital or assets of the respective Portfolio in the hands of the
Trustees, such dividends or other distributions as they may determine. The
declaration and payment of such dividends or other distributions and the
determination of earnings, profits, surplus (including paid-in capital) and
capital available for dividends and other purposes shall lie wholly in the
discretion of the Trustees and no Shareholder shall be entitled to receive or
be paid any dividends or to receive any distributions except as determined by
the Trustees in the exercise of said discretion. The Trustees may, in
addition, from time to time in their discretion, declare and pay as dividends
or other distributions such additional amounts, whether or not out of
earnings, profits and surplus available therefor, sufficient to enable the
Trust to avoid or reduce its liability for Federal income taxes, inasmuch as
the computations of net income and gains for Federal income tax purposes may
vary from the computations thereof on the books of the Trust. Any or all such
dividends or other distributions may be made, in whole or in part, in cash,
property or other assets or obligations of the Trust, as the Trustees may in
their sole discretion from time to time determine. The Trustees may also
distribute to the Shareholders of a class, in proportion to their respective
ownership of Shares in the class, additional Shares issuable hereunder in such
manner and on such terms as they may deem proper. Any or all such dividends
or distributions may be made among the Shareholders of the class of record at
the time of declaring a distribution or among the Shareholders of record at
such later date as the Trustees shall determine.
10.2 RETAINED EARNINGS . The Trustees, except as provided in Section 10.1
hereof, may retain from the net profits such amount as they may deem necessary
to pay the debts or expenses of the Trust, to meet obligations of the Trust,
to establish reserves or as they may deem desirable to use in the conduct of
its affairs or to retain for future requirements or extensions of the business
of the Trust.
10.3 SOURCE OF DISTRIBUTIONS . Shareholders shall receive annually a
statement in writing advising the Shareholders of the source of the funds so
distributed so that distributions of ordinary income, return of capital and
capital gains income will be clearly distinguished.
10.4 NET ASSET VALUE . The net asset value of each outstanding Share of the
Trust shall be determined once on each business day, as of the close of
trading on the New York Stock Exchange or at any other time as the Trustees,
by resolution, may determine and which is in compliance with the 1940 Act.
The method of determination of net asset value shall be determined by the
Trustees and shall be set forth in the Prospectus. The power and duty to make
the daily calculations may be delegated by the Trustees to the Adviser, the
Custodian, the Transfer Agent, the Distributor or such other person as the
Trustees by resolution may determine. The Trustees may suspend the daily
determination of net asset value to the extent permitted by the 1940 Act.
10.5 POWER TO MODIFY VALUATION PROCEDURES . Notwithstanding any of the
foregoing provisions of this Article X, the Trustees may prescribe, in their
absolute discretion, such other bases and times for determining the per Share
net asset value of the Trust's Shares or net income, or the declaration and
payment of dividends and distributions as they may deem necessary or desirable
to enable the Trust to comply with any provision of the 1940 Act, or any rule
or regulation thereunder, including any rule or regulation adopted pursuant to
Section 22 of the 1940 Act by the Commission or any securities association
registered under the Securities Exchange Act of 1934, or any order of
exemption issued by said Commission, all as in effect now or as hereafter
amended or modified.
ARTICLE XI
CUSTODIAN
11.1 APPOINTMENT AND DUTIES . The Trustees shall, at all times, employ a
bank or trust company organized under the laws of the United States of America
or one of the several states thereof having a capital, surplus and undivided
profits of at least two million dollars ($2,000,000) as Custodian with
authority as its agent, but subject to such restrictions, limitations and
other requirements, if any, as may be contained in the By-laws of the Trust
and the 1940 Act:
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(a) to hold the securities owned by the Trust and deliver the same
upon written order;
(b) to receive and receipt for any monies due to the Trust and
deposit the same in its own banking department or elsewhere as
the Trustees may direct;
(c) to disburse such funds upon orders or vouchers;
(d) if authorized by the Trustees, to keep the books and accounts of
the Trust and furnish clerical and accounting services;
(e) if authorized to do so by the Trustees, to compute the net
income of the Trust;
</TABLE>
all upon such basis of compensation as may be agreed upon between the Trustees
and Custodian.
The Trust may also employ the Custodian as its agent for other purposes.
Trustees may also authorize the Custodian to employ one or more Sub-Custodians
(including a foreign Sub-Custodian(s)) from time to time to perform such of
the acts and services of the Custodian and upon such terms and conditions, as
may be agreed upon between the Custodian and such Sub-Custodian and approved
by the Trustees, provided that, in every case, such Sub-Custodian shall meet
the applicable requirements under the 1940 Act, and the regulations thereunder
to act as such.
11.2 CENTRAL CERTIFICATE SYSTEM . Subject to such rules, regulations and
orders as the Commission may adopt, the Trustees may direct the Custodian to
deposit all or any part of the Securities owned by the Trust in a system for
the central handling of Securities established by a national securities
exchange or a national securities association registered with the Commission
under the Securities Exchange Act of 1934, or such other person as may be
permitted by the Commission, or otherwise in accordance with the 1940 Act,
pursuant to which system all securities of any particular class or series of
any issuer deposited within the system are treated as fungible and may be
transferred or pledged by bookkeeping entry without physical delivery of such
securities, provided that all such deposits shall be subject to withdrawal
only upon the order of the Trust.
ARTICLE XII
RECORDING OF DECLARATION OF TRUST
12.1 RECORDING . This Declaration of Trust and any amendment hereto shall be
filed in the office of the Secretary of the Commonwealth of Massachusetts and
may also be filed or recorded in such other places as the Trustees deem
appropriate. Each amendment so filed shall be accompanied by a certificate
signed and acknowledged by a Trustee stating that such action was duly taken
in a manner provided herein; and unless such amendment or such certificate
filed with the Secretary of the Commonwealth of Massachusetts sets forth some
earlier or later time for the effectiveness of such amendment, such amendment
shall be effective upon its filing with the Secretary of said Commonwealth.
An amended Declaration, containing the original Declaration and all amendments
theretofore made, may be executed any time or from time to time by a majority
of the Trustees and shall, upon filing with the Secretary of the Commonwealth
of Massachusetts, be conclusive evidence of all amendments contained therein
and may thereafter be referred to in lieu of the original Declaration and the
various amendments thereto.
ARTICLE XIII
AMENDMENT OR TERMINATION OF THE TRUST
13.1 AMENDMENT OR TERMINATION . The provisions of this Declaration of Trust
may be amended or altered (except as to the limitations on personal liability
of the Shareholders and Trustees and the prohibition of assessments upon
Shareholders), or the Trust may be terminated, at any meeting of the
Shareholders called for the purpose, by the affirmative vote of the holders of
a majority of the Shares then outstanding and entitled to vote, or by an
instrument or instruments in writing, without a meeting, signed by a majority
of the Trustees and the holders of a majority of such Shares; provided,
however, that the Trustees may, from time to time by a two-thirds (2/3) vote
of the Trustees, and after fifteen (15) days prior written notice to the
Shareholders, amend or alter the provisions of this Declaration of Trust,
without the vote or assent of the Shareholders, to the extent deemed by the
Trustees in good faith to be necessary to conform this Declaration to the
requirements of the regulated investment company provisions of the Internal
Revenue Code or the requirements of applicable federal laws or regulations or
any interpretation thereof by a court or other governmental agency of
competent jurisdiction but the Trustees shall not be liable for failing so to
do. Notwithstanding the foregoing, (i) no amendment may be made pursuant to
this Section 13.1 which would change any rights with respect to any
outstanding Shares of the Trust by reducing the amount payable thereon upon
liquidation of the Trust or by diminishing or eliminating any voting rights
pertaining thereto, except with the vote or written consent of the holders of
two-thirds (2/3) of the outstanding Shares entitled to vote thereon; and (ii)
no amendment may be made with respect to the investment restrictions contained
in Section 4.2 hereof without the affirmative vote of the holders of a
majority (as defined in the 1940 Act) of the Shares of the Class of stock
affected by such change. Upon the termination of the Trust pursuant to this
Section 13.1:
(a) The Trust shall carry on no business except for the purpose of
winding up its affairs.
(b) The Trustees shall proceed to wind up the affairs of the Trust and
all of the powers of the Trustees under this Declaration of Trust shall
continue until the affairs of the Trust shall have been wound up, including
the power to fulfill or discharge the contracts of the Trust, collect its
assets, sell, convey, assign, exchange, transfer or otherwise dispose of all
or any part of the remaining Trust Property to one or more persons at public
or private sale for consideration which may consist in whole or in part of
cash, securities or other property of any kind, discharge or pay its
liabilities, and do all other acts appropriate to liquidate its business;
provided that any sale, conveyance, assignment, exchange, transfer or other
disposition of all or substantially all of the Trust Property shall require
approval of the principal terms of the transaction and the nature and amount
of the consideration by affirmative vote of not less than a majority of all
outstanding Shares entitled to vote.
(c) After paying or adequately providing for the payment of all
liabilities, and upon receipt of such releases, indemnities and refunding
agreements, as they deem necessary for their protection, the Trustees may
distribute the remaining Trust Property, in cash or in kind or partly of each,
among the Shareholders according to their respective rights.
Upon termination of the Trust and distribution to the Shareholders as herein
provided, a majority of the Trustees shall execute and lodge among the records
of the Trust an instrument in writing setting forth the fact of such
termination, and the Trustees shall thereupon be discharged from all further
liabilities and duties hereunder, and the right, title and interest of all
Shareholders shall cease and be cancelled and discharged.
A certification in recordable form signed by a majority of the Trustees
setting forth an amendment and reciting that it was duly adopted by the
Shareholders or by the Trustees as aforesaid or a copy of the Declaration, as
amended, in recordable form, and executed by a majority of the Trustees, shall
be conclusive evidence of such amendment when lodged among the records of the
Trust.
Notwithstanding any other provision hereof, until such time as a Registration
Statement under the Securities Act of 1933, as amended, covering the first
public offering of Shares shall have become effective, this Declaration of
Trust may be terminated or amended in any respect by the affirmative vote of a
majority of the Trustees or by an instrument signed by a majority of the
Trustees.
13.2 POWER TO EFFECT REORGANIZATION . The Trustees, by vote or written
approval of a majority of the Trustees, may select or direct the organization
of a corporation, association, trust or other organization with which the
Trust may merge, or which shall take over the Trust Property and carry on the
affairs of the Trust, and after receiving an affirmative vote of not less than
a majority of the outstanding Shares entitled to vote at any meeting of
Shareholders, the notice for which included a statement of such proposed
action, the Trustees may effect such merger or may sell, convey and transfer
the Trust Property to any such corporation, association, trust or organization
in exchange for cash or shares or securities thereof, or beneficial interest
therein with the assumption by such transferee of the liabilities of the
Trust; and thereupon the Trustees shall terminate the Trust and deliver such
cash, shares, securities or beneficial interest ratably among the Shareholders
of this Trust in redemption of their Shares.
ARTICLE XIV
MISCELLANEOUS
14.1 GOVERNING LAW . This Declaration of Trust is executed by the Trustees
and delivered in the Commonwealth of Massachusetts and with reference to the
laws thereof, and the rights of all parties and the validity, construction and
effect of every provision hereof shall be subject to and construed according
to the laws of said Commonwealth and reference shall be specifically made to
the Business Corporation Law of the Commonwealth of Massachusetts as to the
construction of matters not specifically covered herein or as to which an
ambiguity exists.
14.2 COUNTERPARTS . This Declaration of Trust may be simultaneously executed
in several counterparts, each of which so executed shall be deemed to be an
original, and such counterparts, together, shall constitute but one and the
same instrument, which shall be sufficiently evidenced by any such original
counterpart.
14.3 RELIANCE BY THIRD PARTIES . Any certificate executed by an individual
who, according to the records of the Trust, or of any recording office in
which this Declaration may be recorded, appears to be a Trustee hereunder,
certifying to: (a) the number or identity of Trustees or Shareholders, (b) the
due authorization of the execution of any instrument or writing, (c) the form
of any vote passed at a meeting of Trustees or Shareholders, (d) the fact that
the number of Trustees or Shareholders present at any meeting or executing any
written instrument satisfies the requirements of this Declaration of Trust,
(e) the form of any By-law adopted by or the identity of any officers elected
by the Trustees, or (f) the existence of any fact or facts which in any manner
relate to the affairs of the Trust, shall be conclusive evidence as to the
matters so certified in favor of any person dealing with the Trustees or any
of them and the successors of such person.
14.4 PROVISIONS IN CONFLICT WITH LAW OR REGULATIONS .
(a) The provisions of this Declaration of Trust are severable and if the
Trustees shall determine, with the advice of counsel, that any one or more of
such provisions (the "Conflicting Provisions") are in conflict with the
regulated investment company provisions of the Internal Revenue Code or with
other applicable federal or state laws and regulations, the Conflicting
Provisions shall be deemed never to have constituted a part of this
Declaration of Trust; provided, however, that such determination by the
Trustees shall not affect or impair any of the remaining provisions of this
Declaration of Trust or render invalid or improper any action taken or omitted
(including, but not limited to, the election of Trustees) prior to such
determination.
(b) If any provisions of this Declaration of Trust shall be held invalid
or unenforceable in any jurisdiction, such invalidity or unenforceability
shall attach only to such provision in such jurisdiction and shall not in any
manner affect or render invalid or unenforceable such provision in any other
jurisdiction or any other provision of this Declaration of Trust in any
jurisdiction.
14.5 SECTION HEADINGS . Section headings have been inserted for convenience
only and are not a part of this Declaration of Trust.
ARTICLE XV
DURATION OF TRUST
15.1 DURATION . Subject to possible termination in accordance with the
provisions of Article XIII hereof, the Trust shall be of unlimited duration.
IN WITNESS WHEREOF, the undersigned majority of all of the Trustees of
the Trust have caused these presents to be executed as of the 19th day of
April, 1995.
<TABLE>
<CAPTION>
<S> <C> <C>
Position with
Name Trust Address
/s/ RICHARD W. SCOTT President and 5555 San Felipe, Suite 900
- -------------------- Trustee Houston, Texas 77056
Richard W. Scott
/s/ JOHN A. GRAF Trustee 5555 San Felipe, Suite 900
- -------------------- Houston, Texas 77056
John A. Graf
/s/ ALDEN W. BROSSEAU Trustee 16670 Arnold Drive
- --------------------- Sonoma, California 95476
Alden W. Brosseau
/s/ HUGH L. HYDE Trustee 12 Greenway Plaza, Suite 1350
- ------------------- Houston, Texas 77046-1201
Hugh L. Hyde
/s/ MELVIN C. PAYNE Trustee Three Riverway, Suite 1375
- ------------------- Houston, Texas 77045
Melvin C. Payne
</TABLE>
BY-LAWS
These By-laws are made and adopted pursuant to the Declaration of Trust
establishing WNL SERIES TRUST (the "Trust"), as from time to time amended,
restated or modified (the "Declaration"). All words and terms capitalized in
these By-laws shall have the meaning or meanings set forth for such words or
terms in the Declaration. If any term or provision of these By-laws shall be
in conflict with any term or provision of the Declaration, the terms and
provisions of the Declaration shall be controlling.
ARTICLE I
SHAREHOLDERS' MEETINGS AND RECORD DATES
SECTION 1.1 GENERAL. All meetings of the Shareholders shall be held,
pursuant to written notice, within or without The Commonwealth of
Massachusetts and on such day and at such time as the Trustees shall
designate. Notice shall be given by mail not less than ten (10) nor more than
sixty (60) days prior to the day named for the meeting, and shall be deemed to
have been properly given to a Shareholder when deposited in the United States
mail with first class postage prepaid or in a telegraph office with charges
prepaid, directed to the Shareholder's address as given to a transfer agent or
such other officer or agent of the Trust as shall keep the register for entry
thereon. A certificate or affidavit by the Secretary or an Assistant
Secretary or a transfer agent shall be prima facie evidence of the giving of
any notice required by the Declaration.
SECTION 1.2 NOTICE OF ADJOURNMENTS. Upon adjournment of any meeting of
Shareholders, it shall not be necessary to give any notice of the adjourned
meeting or of the business to be transacted thereat, other than by
announcement at the meeting at which such adjournment is taken. At any
adjourned meeting at which a quorum shall be present or represented, only such
business may be transacted which might have been transacted at the meeting
originally called. If after the adjournment, the Trustees fix a new record
date for the adjourned meeting, a notice of the adjourned meeting shall be
given to each Shareholder of record on the new record date entitled by law to
receive such notice.
SECTION 1.3 CHAIRMAN. The Chairman shall act as chairman at all meetings of
the Shareholders; in his absence, the President shall act as chairman; and in
the absence of the Chairman and President, the Trustee or Trustees present at
each meeting may elect a temporary chairman for the meeting, who may be one of
themselves.
SECTION 1.4 PROXIES; VOTING. Shareholders may vote at any meeting, or by
consent in writing without a meeting pursuant to the Declaration, either in
person or by proxy. Every proxy shall be executed in writing by the
Shareholder, or by his duly authorized attorney-in-fact, with each full share
represented at the meeting being entitled to one vote and fractional shares to
fractional votes. A proxy, unless coupled with an interest, shall be
revocable at will, notwithstanding any other agreement or any provision in the
proxy to the contrary, but the revocation of a proxy shall not be effective
until notice thereof has been given to the Secretary, or such other officer or
agent of the Trust as the Secretary may direct. No proxy shall be valid after
eleven (11) months from the date of its execution, unless a longer time is
expressly stated in such proxy, but in no event shall a proxy, unless coupled
with an interest, be voted on after three (3) years from the date of its
execution. A proxy shall not be revoked by the death or incapacity of the
maker unless, before the vote is counted or the authority is exercised,
written notice of such death or incapacity is given to the Secretary or to
such other officer or agent of the Trust as the Secretary may direct.
SECTION 1.5 CLOSING OF TRANSFER BOOKS AND FIXING RECORD DATES. For the
purpose of determining the Shareholders who are entitled to notice of or to
vote or act at any meeting, including any adjournment thereof, or who are
entitled to participate in any dividend or distribution, or for any other
proper purpose, the Trustees may from time to time close the transfer books or
fix a record date in the manner provided in the Declaration. If the Trustees
do not, prior to any meeting of Shareholders, so fix a record date or close
the transfer books, then the record date shall be the close of business of the
day next preceding the date of mailing of notice of the meeting, or in the
case of a dividend or other distribution, the close of business on the day
upon which the dividend or distribution resolution is adopted, or on such
later day as the Trustees may determine.
SECTION 1.6 INSPECTORS OF ELECTION. In advance of any meeting of
Shareholders, the Trustees may appoint Inspectors of Election, who may but
need not be Shareholders, to act at such meeting or any adjournment thereof.
If Inspectors of Election are not so appointed, the chairman of any such
meeting may, and upon the request of any Shareholder or his proxy shall, make
such appointments at the meeting. The number of Inspectors shall be either
one (1) or three (3). If appointed at the meeting on the request of one or
more Shareholders or proxies, a majority of shares present shall determine
whether one or three Inspectors are to be appointed, but failure to allow such
determination by the Shareholders or proxies shall not affect the validity of
the appointment of Inspectors of Election. In case any person appointed as
Inspector fails to appear or fails or refuses to act, the vacancy must be
filled by appointment made by the Trustees in advance of the convening of the
meeting, or at the meeting by the person acting as chairman. The Inspectors
of Election shall determine the number of shares outstanding, the shares
represented at the meeting, the existence of a quorum, the authenticity,
validity and effect of proxies; shall receive votes, ballots or consents;
shall hear and determine all challenges and questions in any way arising in
connection with the right to vote; shall count and tabulate all votes or
consents, determine the results, and do such other acts as may be proper to
conduct the election or vote with impartiality and fairness to all
Shareholders. If there are three Inspectors of election, the decision, act or
certificate of a majority shall be effective in all respects as the decision,
act or certificate of all. On request of the chairman of the meeting, or of
any Shareholder or his proxy, the Inspectors of Election shall make a written
report of any challenge or question or matter determined by them and execute a
certificate of any fact found by them.
ARTICLE II
TRUSTEES
SECTION 2.1 REGULAR MEETINGS. Regular meetings of the Trustees may be held
at such time and place as the Trustees may by resolution from time to time
determine without call or notice. If any day fixed for a regular meeting
shall be a legal holiday in The Commonwealth of Massachusetts or the place
designated for regular meetings, then the meeting shall be held at the same
hour and place on the next succeeding business day.
SECTION 2.2 SPECIAL MEETINGS. Special Meetings of the Trustees shall be held
upon the call of the Chairman, the President, or the Secretary, or any two
Trustees, at such time, on such day, and at such place, as shall be designated
in the notice of the meeting.
SECTION 2.3 NOTICE OF SPECIAL MEETINGS. Notice of any special meeting,
specifying the place, day and hour of the meeting, shall be given to a Trustee
either personally or by sending a copy thereof through the mail, with first
class postage prepaid, or by telegram, charges prepaid, to his address
appearing on the books of the Trust or supplied by him to the Trust for the
purpose of notice, at least forty-eight (48) hours prior to the time named for
such meeting. If the notice is sent by mail or by telegraph, it shall be
deemed to have been given to the person entitled thereto when deposited in the
United States mail, postage prepaid, or with a telegraph office, charges
prepaid, for transmission to such person. Notice by telephone shall
constitute personal delivery for these purposes. Neither the business to be
transacted at, nor the purpose of, any meeting of the Board of Trustees need
be stated in the notice or waiver of notice of such meeting, and no notice
need be given of action proposed to be taken by unanimous consent.
SECTION 2.4 WAIVER OF NOTICE. Whenever any notice is required by the
Declaration or these By-laws to be given to a Trustee, a waiver thereof in
writing, whether signed by him before or after the meeting, shall be deemed
equivalent to the giving of due notice. Attendance of any Trustee at any
meeting shall constitute a waiver of notice of such meeting except where such
Trustee attends the meeting for the express purpose of objecting to the
transaction of any business because the meeting was not lawfully called or
convened.
SECTION 2.5 ADJOURNMENT. Adjournment or adjournments of any meeting may be
taken, and it shall not be necessary to give any notice of the adjourned
meeting or of the business to be transacted thereat other than by announcement
at the meeting at which such adjournment is taken. At any adjourned meeting
at which a quorum shall be present, any business may be transacted which might
have been transacted at the meeting originally called.
SECTION 2.6 EXECUTIVE COMMITTEE. Subject to the provisions of Section 3.4
hereof, the Trustees may, by resolution adopted by a majority thereof,
designate one or more of their number to constitute an Executive Committee,
and may designate one or more of their number as alternate members of the
Executive Committee, who may replace any absent or disqualified member at any
meeting of the Committee. The President shall be notified in advance of all
Executive Committee meetings, and whenever feasible or convenient for him, the
President shall attend meetings of the Executive Committee and serve ex
officio, as a non-voting advisory member. Any such Committee, to the extent
provided in such resolution and the Declaration, shall have and exercise the
authority of the Trustees in the management of the business and affairs of the
Trust and the management and disposition of Trust Property. Vacancies in the
membership of the Committee shall be filled by the Trustees. In the absence
or disqualification of any member of such Committee, the member or members
thereof present at any meeting and not disqualified from voting, whether or
not he or they constitute a quorum, may unanimously appoint another Trustee to
act at the meeting in the place of any such absent or disqualified member.
The Executive Committee shall keep regular minutes of its proceedings and
report the same to the Trustees.
SECTION 2.7 CHAIRMAN; RECORDS. The Chairman shall act as chairman at all
meetings of the Trustees; in his absence the Trustees present may elect one of
their number to act as temporary chairman. The results of all actions taken
at a meeting of the Trustees, or by written consents of the Trustees without a
meeting, shall be recorded by the Secretary.
SECTION 2.8 MEETING OF SHAREHOLDERS. Meetings of Shareholders shall be held
at such times and in such places as the Trustees shall, by resolution, direct.
ARTICLE III
OFFICERS, AGENTS AND EMPLOYEES
SECTION 3.1 OFFICERS OF THE TRUST. The officers of the Trust shall be a
Chairman chosen from among the Trustees and a President, a Secretary and a
Treasurer or persons who shall act as such regardless of the name or title by
which they may be designated, elected or appointed. One or more
Vice-Presidents, one or more Assistant Secretaries and Assistant Treasurers,
and such other officers or agents as the Trustees shall deem necessary or
appropriate to carry out the business of the Trust also may be elected or
appointed. Any two or more offices may be held by the same person, except
those of President and Secretary and provided that no officer shall execute,
acknowledge or verify any instrument in more than one capacity if such
instrument is required to be executed, acknowledged or verified by two or more
officers. In addition to the powers and duties prescribed by the Declaration
and these By-laws, the officers and assistant officers shall have such
authority and shall perform such duties as from time to time shall be
prescribed by the Trustees. The officers and assistant officers of the Trust
shall hold office until their successors are chosen and have qualified, unless
their term of office is sooner terminated, by death, resignation or removal.
The Trustees may amend the title of any officer or assistant officer or create
a new office, by utilizing a word or words descriptive of his powers or the
general character of his duties. If the office of any officer or assistant
officer becomes vacant for any reason, the vacancy may be filled by the
Trustees at any time.
SECTION 3.2 REMOVAL OF OFFICERS, AGENTS OR EMPLOYEES. Any officer, assistant
officer, agent or employee may be removed or have his authority revoked at any
time, with or without cause, by a majority of the Trustees, whenever in their
judgment the best interests of the Trust will be served thereby, but such
removal or revocation shall be without prejudice to the rights, if any, of the
person so removed to receive compensation or other benefits in accordance with
the terms of existing contracts. Any agent or employee likewise may be
removed by the President or, subject to the supervision of the President, by
the person having authority with respect to the appointment of such agent or
employee. Any officer may resign at any time by written notice signed by such
officer and delivered or mailed to the Chairman, President, or Secretary, and
such resignation shall take effect upon receipt by the Chairman, President, or
Secretary, or at a later date according to the terms of such notice.
SECTION 3.3 BONDS AND SURETY. Any officer may be required by the Trustees to
be bonded for the faithful performance of his duties in such amount and with
such sureties as the Trustees may determine.
SECTION 3.4 CHAIRMAN OF THE BOARD OF TRUSTEES; POWERS AND DUTIES. The
Chairman shall, if present, preside at all meetings of the Shareholders and of
the Trustees. He shall perform such other powers and duties as may from time
to time be assigned to him by the Trustees.
SECTION 3.5 THE PRESIDENT. Subject to such supervisory powers, if any, as
may be given by the Trustees, the President shall be the chief executive
officer of the Trust and, subject to the control of the Trustees, shall have
general supervision, direction and control of the business of the Trust and of
its employees and shall exercise such general powers of management as are
usually vested in the office of president of a Massachusetts business
corporation. In the absence of the Chairman, the President shall preside at
all meetings of the Shareholders and of the Trustees. Subject to direction of
the Trustees, the President shall have power in the name and on behalf of the
Trust to execute any and all loan documents, contracts, agreements, deeds,
mortgages, and other instruments in writing, and to employ and discharge
employees and agents of the Trust. Unless otherwise directed by the Trustees,
the President shall have full authority and power, on behalf of all of the
Trustees, to attend and to act and to vote, on behalf of the Trust at any
meetings of business organizations in which the Trust holds an interest, or to
confer such powers upon any other persons, by executing any proxies duly
authorizing such persons. The President shall have such further authorities
and duties as the Trustees shall from time to time determine and shall be an
ex officio member of the Executive Committee and of all standing committees
(if any) appointed by the Trustees.
SECTION 3.6 VICE-PRESIDENT: POWERS AND DUTIES. The Vice-President, if any,
shall, in the absence or disability of the President, perform all the duties
of the President, and when so acting shall have all the powers and be subject
to all of the restrictions upon the President. If there be more than one
Vice-President, their seniority in performing such duties and exercising such
powers shall be in order of their rank as fixed by the Trustees, or, if more
than one and not ranked, then by determination of the Trustees, or, in the
absence of such determination, by the order in which they were first elected.
Subject to the direction of the Trustees, and the President, each
Vice-President shall have the power in the name and on behalf of the Trust to
execute any and all loan documents, contracts, agreements, deeds, mortgages
and other instruments in writing, and, in addition, shall have such other
duties and powers as shall be designated from time to time by the Trustees or
the President and as by general usage appertain to the office.
SECTION 3.7 SECRETARY: POWERS AND DUTIES. The Secretary shall keep the
minutes of all meetings of, and record all votes of, Shareholders, Trustees
and the executive or other committees, if any. He shall give, or cause to be
given, as required by the Declaration or these By-laws, notice of meetings of
the Shareholders and of the Trustees, and shall perform such other duties as
may be prescribed by the Trustees, or the President. The Secretary shall also
perform any other duties commonly incident to such office in a Massachusetts
business corporation, and shall have such other authorities and duties as the
Trustees or the President shall from time to time determine.
SECTION 3.8 TREASURER; POWERS AND DUTIES. Except as otherwise directed by
the Trustees, the Treasurer shall have the general supervision of the monies,
funds, securities, notes receivable and other valuable papers and documents of
the Trust, and shall have and exercise under the supervision of the Trustees
and President all powers and duties normally incident to his office. He may
endorse for deposit or collection all notes, checks and other instruments
payable to the Trust or to its order. He shall deposit all funds of the Trust
in such depositories as the Trustees shall designate. He shall be responsible
for such disbursement of the funds of the Trust as may be ordered by the
Trustees, or the President. He shall keep accurate account of the books of
the Trust's transactions which shall be the property of the Trust, and which,
together with all other property of the Trust in his possession, shall be
subject at all times to the inspection and control of the Trustees. Unless
the Trustees shall otherwise determine, the Treasurer shall be the principal
financial and accounting officer of the Trust. He shall have such other
duties and authorities as the Trustees or the President shall from time to
time determine. Notwithstanding anything to the contrary herein contained,
the Trustees may authorize the Investment Adviser, the Custodian, or the
Transfer Agent to maintain bank accounts and deposit and disburse funds of the
Trust on behalf of the Trust.
SECTION 3.9 DELEGATION OF OFFICERS' DUTIES. The Trustees may appoint such
other officers and assistant officers as they shall from time to time
determine to be necessary or desirable in order to conduct the business of the
Trust. Assistant officers shall act generally in the absence of the officer
whom they assist, shall assist that officer in the duties of his office and
shall have such other duties and authority as may be conferred upon them by
the Trustees or delegated to them by the President. In case of the absence or
disability of any officer or assistant officer of the Trust or for any other
reason that the Trustees may deem sufficient, the Trustees may delegate or
authorize the delegation of his powers or duties, for the time being, to any
person.
ARTICLE IV
SHARES
SECTION 4.1 EVIDENCE OF SHARE OWNERSHIP. Certificates representing the
Trust's shares shall not be physically issued. Shares in the Trust shall be
recorded on a register maintained for the Trust by the Transfer Agent
appointed by the Trustees. The holders of shares so maintained shall have the
same rights of ownership with respect to such shares as if certificates had
been issued. The Trustees shall, from time to time, by appropriate
resolution, establish such rules for authentication of Shareholders for
purposes of purchase and redemption as they shall deem necessary.
ARTICLE V
MISCELLANEOUS
SECTION 5.1 DEPOSITORIES. The funds of the Trust shall be deposited in such
depositories as the Trustees shall designate in accordance with the provisions
of the Declaration, and shall be drawn out on checks, drafts or other orders
signed by such officer, officers, agent or agents (including the Adviser), as
the Trustees may from time to time authorize.
SECTION 5.2 SIGNATURES. All contracts and other instruments shall be
executed on behalf of the Trust by such officer, officers, agent or agents, as
provided in the Declaration or these By-laws or as the Trustees may from time
to time by resolution provide.
ARTICLE VI
AMENDMENT OF BY-LAWS
SECTION 6.1 AMENDMENT AND REPEAL OF BY-LAWS. In accordance with the
Declaration, the Trustees have the power to alter, amend or repeal the by-laws
or adopt new by-laws at any time. Action by the Trustees with respect to the
By-laws shall be taken by an affirmative vote of a majority of the Trustees.
The Trustees shall in no event adopt By-laws which are in conflict with the
Declaration, and any apparent inconsistency shall be construed in favor of the
related provisions in the Declaration.
* * * * *
The Declaration of Trust establishing WNL Series Trust, dated December 12,
1994, as amended, a copy of which, together with all amendments thereto (the
"Declaration"), is on file in the office of the Secretary of The Commonwealth
of Massachusetts, provides that the name "WNL Series Trust" refers to the
Trustees under the Declaration collectively as Trustees, but not as
individuals or personally; and no Trustee, shareholder, officer, employee or
agent of WNL Series Trust shall be held to any personal liability, nor shall
resort be had to their private property for the satisfaction of any obligation
or claim or otherwise in connection with the affairs of said WNL Series Trust
but the Trust Property only shall be liable.
INVESTMENT ADVISORY AGREEMENT
AGREEMENT, made as of the 23rd day of August, 1995 between WNL SERIES TRUST,
an unincorporated business trust organized under the laws of the Commonwealth
of Massachusetts (the "Trust"), and WNL INVESTMENT ADVISORY SERVICES, INC., a
Delaware corporation (the "Adviser").
W I T N E S S E T H :
WHEREAS, the Trust is engaged in business as an open-end management investment
company and is registered as such under the Investment Company Act of 1940, as
amended (the "Act");
WHEREAS, the Trust is authorized to issue separate series, each of which
offers a separate class of shares of common stock, each having its own
investment objective or objectives, policies and limitations;
WHEREAS, the Trust currently offers shares in eight series, designated as the
American Capital Emerging Growth Portfolio, BEA Growth and Income Portfolio,
Credit Suisse International Equity Portfolio, BlackRock Managed Bond
Portfolio, Quest for Value Asset Allocation Portfolio, Salomon Brothers U.S.
Government Securities Portfolio, Global Advisors Growth Equity Portfolio and
Global Advisors Money Market Portfolio ("Current Series"), and the Trust may
offer shares of one or more additional series in the future;
WHEREAS, the Adviser is registered as an investment adviser under the
Investment Advisers Act of 1940; and
WHEREAS, the Trust desires to retain the Adviser to render investment
management and administrative services to the Trust with respect to each
Current Series as indicated on the signature page in the manner and on the
terms and conditions hereinafter set forth;
NOW, THEREFORE, the parties hereto agree as follows:
1. SERVICES OF THE ADVISER.
1.1 INVESTMENT MANAGEMENT SERVICES. The Adviser shall act as the investment
adviser to the Trust and, as such, shall (i) obtain and evaluate such
information relating to the economy, industries, business, securities markets
and securities as it may deem necessary or useful in discharging its
responsibilities hereunder, (ii) formulate a continuing program for the
investment of the assets of the Trust in a manner consistent with its
investment objectives, policies and restrictions, and (iii) determine from
time to time securities to be purchased, sold, retained or lent by the Trust,
and implement those decisions, including the selection of entities with or
through which such purchases, sales or loans are to be effected; provided,
that the Adviser will place orders pursuant to its investment determinations
either directly with the issuer or with a broker or dealer, and if with a
broker or dealer, (a) will attempt to obtain the best net price and most
favorable execution of its orders, and (b) may nevertheless in its discretion
purchase and sell portfolio securities from and to brokers and dealers who
provide the Adviser with research, analysis, advice and similar services and
pay such brokers and dealers in return a higher commission or spread than may
be charged by other brokers or dealers.
The Trust hereby authorizes any entity or person associated with the Adviser
or any Sub-Adviser retained by Adviser pursuant to Section 7 of this
Agreement, which is a member of a national securities exchange, to effect any
transaction on the exchange for the account of the Trust which is permitted by
Section 11(a) of the Securities Exchange Act of 1934 and Rule 11a2-2(T)
thereunder, and the Trust hereby consents to the retention of compensation for
such transactions in accordance with Rule 11a2-2(T)(a)(iv).
The Adviser shall carry out its duties with respect to the Trust's investments
in accordance with applicable law and the investment objectives, policies and
restrictions set forth in the Trust's then-current Prospectus and Statement of
Additional Information, and subject to such further limitations as the Trust
may from time to time impose by written notice to the Adviser.
1.2 ADMINISTRATIVE SERVICES. The Adviser shall manage the Trust's business
and affairs and shall provide such services required for effective
administration of the Trust as are not provided by employees or other agents
engaged by the Trust; provided, that the Adviser shall not have any obligation
to provide under this Agreement any direct or indirect services to Trust
shareholders, any services related to the distribution of Trust shares, or any
other services which are the subject of a separate agreement or arrangement
between the Trust and the Adviser. Subject to the foregoing, in providing
administrative services hereunder, the Adviser shall:
1.2.1 OFFICE SPACE, EQUIPMENT AND FACILITIES. Furnish without cost to the
Trust, or pay the cost of, such office space, office equipment and office
facilities as are adequate for the Trust's needs.
1.2.2 PERSONNEL. Provide, without remuneration from or other cost to the
Trust, the services of individuals competent to perform all of the Trust's
executive, administrative and clerical functions which are not performed by
employees or other agents engaged by the Trust or by the Adviser acting in
some other capacity pursuant to a separate agreement or arrangement with the
Trust.
1.2.3 AGENTS. Assist the Trust in selecting and coordinating the activities
of the other agents engaged by the Trust, including the Trust's shareholder
servicing agent, custodian, independent auditors and legal counsel.
1.2.4 TRUSTEES AND OFFICERS. Authorize and permit the Adviser's directors,
officers and employees who may be elected or appointed as Trustees or officers
of the Trust to serve in such capacities, without remuneration from or other
cost to the Trust.
1.2.5 BOOKS AND RECORDS. Assure that all financial, accounting and other
records required to be maintained and preserved by the Trust are maintained
and preserved by it or on its behalf in accordance with applicable laws and
regulations.
1.2.6 REPORTS AND FILINGS. Assist in the preparation of (but not pay for)
all periodic reports by the Trust to its shareholders and all reports and
filings required to maintain the registration and qualification of the Trust
and Trust shares, or to meet other regulatory or tax requirements applicable
to the Trust, under federal and state securities and tax laws.
1.3 ADDITIONAL SERIES. In the event that the Trust from time to time
designates one or more series in addition to the Current Series ("Additional
Series"), it shall notify the Adviser in writing. If the Adviser is willing to
perform services hereunder to the Additional Series, it shall so notify the
Trust in writing. Thereupon, the Trust and the Adviser shall enter into an
Addendum to this Agreement for the Additional Series and the Additional Series
shall be subject to this Agreement.
2. EXPENSES OF THE TRUST.
2.1 EXPENSES TO BE PAID BY ADVISER. The Adviser shall pay all salaries,
expenses and fees of the officers, Trustees and employees of the Trust who are
officers, directors or employees of the Adviser.
In the event that the Adviser pays or assumes any expenses of the Trust not
required to be paid or assumed by the Adviser under this Agreement, the
Adviser shall not be obligated hereby to pay or assume the same or any similar
expense in the future; provided, that nothing herein contained shall be deemed
to relieve the Adviser of any obligation to the Trust under any separate
agreement or arrangement between the parties.
2.2 EXPENSES TO BE PAID BY THE TRUST. The Trust shall bear all expenses of
its operation, except those specifically allocated to the Adviser under this
Agreement or under any separate agreement between the Trust and the Adviser.
Subject to any separate agreement or arrangement between the Trust and the
Adviser, the expenses hereby allocated to the Trust, and not to the Adviser,
include, but are not limited to:
2.2.1 CUSTODY. All charges of depositories, custodians, and other agents for
the transfer, receipt, safekeeping, and servicing of its cash, securities, and
other property.
2.2.2 SHAREHOLDER SERVICING. All expenses of maintaining and servicing
shareholder accounts, including but not limited to the charges of any
shareholder servicing agent, dividend disbursing agent or other agent engaged
by the Trust to service shareholder accounts.
2.2.3 SHAREHOLDER REPORTS. All expenses of preparing, setting in type,
printing and distributing reports and other communications to shareholders.
2.2.4 PROSPECTUSES. All expenses of preparing, setting in type, printing and
mailing annual or more frequent revisions of the Trust's Prospectus and
Statement of Additional Information and any supplements thereto and of
supplying them to shareholders.
2.2.5 PRICING AND PORTFOLIO VALUATION. All expenses of computing the Trust's
net asset value per share, including any equipment or services obtained for
the purpose of pricing shares or valuing the Trust's investment portfolio.
2.2.6 COMMUNICATIONS. All charges for equipment or services used for
communications between the Adviser or the Trust and any custodian, shareholder
servicing agent, portfolio accounting services agent, or other agent engaged
by the Trust.
2.2.7 LEGAL AND ACCOUNTING FEES. All charges for services and expenses of
the Trust's legal counsel and independent auditors.
2.2.8 TRUSTEES' FEES AND EXPENSES. All compensation of Trustees other than
those affiliated with the Adviser, all expenses incurred in connection with
such unaffiliated Trustees' services as Trustees, and all other expenses of
meetings of the Trustees and committees of the Trustees.
2.2.9 SHAREHOLDER MEETINGS. All expenses incidental to holding meetings of
shareholders, including the printing of notices and proxy materials, and proxy
solicitation therefor.
2.2.10 FEDERAL REGISTRATION FEES. All fees and expenses of registering and
maintaining the registration of the Trust under the Act and the registration
of the Trust's shares under the Securities Act of 1933 (the "1933 Act"),
including all fees and expenses incurred in connection with the preparation,
setting in type, printing, and filing of any Registration Statement,
Prospectus and Statement of Additional Information under the 1933 Act or the
Act, and any amendments or supplements that may be made from time to time.
2.2.11 STATE REGISTRATION FEES. All fees and expenses of qualifying and
maintaining the qualification of the Trust and of the Trust's shares for sale
under the securities laws of various states or jurisdictions, and of
registration and qualification of the Trust under all other laws applicable to
the Trust or its business activities (including registering the Trust as a
broker-dealer, or any officer of the Trust or any person as agent or salesman
of the Trust in any state).
2.2.12 SHARE CERTIFICATES. All expenses of preparing and transmitting the
Trust's share certificates.
2.2.13 CONFIRMATIONS. All expenses incurred in connection with the issue and
transfer of Trust shares, including the expenses of confirming all share
transactions.
2.2.14 BONDING AND INSURANCE. All expenses of bond, liability, and other
insurance coverage required by law or regulation or deemed advisable by the
Trustees of the Trust, including, without limitation, such bond, liability and
other insurance expenses that may from time to time be allocated to the Trust
in a manner approved by its Trustees.
2.2.15 BROKERAGE COMMISSIONS. All brokers' commissions and other charges
incident to the purchase, sale or lending of the Trust's portfolio securities.
2.2.16 TAXES. All taxes or governmental fees payable by or with respect to
the Trust to federal, state or other governmental agencies, domestic or
foreign, including stamp or other transfer taxes.
2.2.17 TRADE ASSOCIATION FEES. All fees, dues and other expenses incurred in
connection with the Trust's membership in any trade association or other
investment organization.
2.2.18 NONRECURRING AND EXTRAORDINARY EXPENSES. Such nonrecurring and
extraordinary expenses as may arise including the costs of actions, suits, or
proceedings to which the Trust is a party and the expenses the Trust may incur
as a result of its legal obligation to provide indemnification to its
officers, Trustees and agents.
3. ADVISORY FEE.
3.1 FEE. As compensation for all services rendered, facilities provided and
expenses paid or assumed by the Adviser under this Agreement, the Trust shall
pay the Adviser on the last day of each month, or as promptly as possible
thereafter, a fee calculated at the annual rate of the average daily net
assets during such month of each series of the Trust as set forth below:
3.1.1 AMERICAN CAPITAL EMERGING GROWTH PORTFOLIO. .75% of average daily net
assets.
3.1.2 BEA GROWTH AND INCOME PORTFOLIO. .75% of average daily net assets.
3.1.3 CREDIT SUISSE INTERNATIONAL EQUITY PORTFOLIO. .90% of average daily
net assets.
3.1.4 BLACKROCK MANAGED BOND PORTFOLIO. .55% of average daily net assets.
3.1.5 QUEST FOR VALUE ASSET ALLOCATION PORTFOLIO. .65% of average daily net
assets.
3.1.6 SALOMON BROTHERS U.S. GOVERNMENT SECURITIES PORTFOLIO. .475% of
average daily net assets.
3.1.7 GLOBAL ADVISORS GROWTH EQUITY PORTFOLIO. .61% of average daily net
assets.
3.1.8 GLOBAL ADVISORS MONEY MARKET PORTFOLIO. .45% of average daily net
assets.
4. RECORDS.
4.1 TAX TREATMENT. The Adviser shall maintain the books and records of the
Trust in such a manner that treats each series as a separate entity for
federal income tax purposes.
4.2 OWNERSHIP. All records required to be maintained and preserved by the
Trust pursuant to the provisions or rules or regulations of the Securities and
Exchange Commission under Section 31(a) of the Act and maintained and
preserved by the Adviser on behalf of the Trust are the property of the Trust
and shall be surrendered by the Adviser promptly on request by the Trust;
provided, that the Adviser may at its own expense make and retain copies of
any such records.
5. REPORTS TO ADVISER.
The Trust shall furnish or otherwise make available to the Adviser such copies
of the Trust's Prospectus, Statement of Additional Information, financial
statements, proxy statements, reports, and other information relating to its
business and affairs as the Adviser may, at any time or from time to time,
reasonably require in order to discharge its obligations under this Agreement.
6. REPORTS AND DISCLOSURE TO THE TRUST.
The Adviser shall prepare and furnish to the Trust such reports, statistical
data and other information in such form and at such intervals as the Trust
may reasonably request. The Adviser shall deliver to the Trust a copy of
Part II of Adviser's Form ADV at least annually.
7. RETENTION OF SUB-ADVISER(S).
Subject to the Trust's obtaining the initial and periodic approvals required
under Section 15 of the Act, the Adviser may retain one or more sub-advisers,
at the Adviser's own cost and expense, for the purpose of managing the
investment of the assets of one or more Series of the Trust. Retention of
one or more sub-advisers shall in no way reduce the responsibilities or
obligations of the Adviser under this Agreement and the Adviser shall be
responsible to the Trust for all acts or omissions of any sub-adviser in
connection with the performance of the Adviser's duties hereunder.
8. SERVICES TO OTHER CLIENTS.
Nothing herein contained shall limit the freedom of the Adviser or any
affiliated person of the Adviser to render investment management and
administrative services to other investment companies, to act as investment
adviser or investment counselor to other persons, firms or corporations, or to
engage in other business activities.
9. LIMITATION OF LIABILITY OF ADVISER AND ITS PERSONNEL.
Neither the Adviser nor any director, officer or employee of the Adviser
performing services for the Trust at the direction or request of the Adviser
in connection with the Adviser's discharge of its obligations hereunder shall
be liable for any error of judgment or mistake of law or for any loss suffered
by the Trust in connection with any matter to which this Agreement relates,
and the Adviser shall not be responsible for any action of the Trustees of the
Trust in following or declining to follow any advice or recommendation of the
Adviser; PROVIDED, that nothing herein contained shall be construed (i) to
protect the Adviser against any liability to the Trust or its shareholders to
which the Adviser would otherwise be subject by reason of willful misfeasance,
bad faith, or gross negligence in the performance of the Adviser's duties, or
by reason of the Adviser's reckless disregard of its obligations and duties
under this Agreement, or (ii) to protect any director, officer or employee of
the Adviser who is or was a Trustee or officer of the Trust against any
liability of the Trust or its shareholders to which such person would
otherwise be subject by reason of willful misfeasance, bad faith, gross
negligence or reckless disregard of the duties involved in the conduct of such
person's office with the Trust.
10. INDEMNIFICATION.
The Trust shall indemnify and hold harmless the Adviser, its officers and
directors and each person, if any, who controls the Adviser within the meaning
of Section 15 of the 1933 Act (any and all such persons shall be referred to
as "Indemnified Party"), against any loss, liability, claim, damage or expense
(including the reasonable cost of investigating or defending any alleged loss,
liability, claim, damage or expense and reasonable counsel fees incurred in
connection therewith), arising by reason of any matter to which this
Investment Advisory Agreement relates. However, in no case (i) is this
indemnity to be deemed to protect any particular Indemnified Party against any
liability to which such Indemnified Party would otherwise be subject by reason
of willful misfeasance, bad faith or gross negligence in the performance of
its duties or by reason of reckless disregard of its obligations and duties
under this Investment Advisory Agreement or (ii) is the Trust to be liable
under this indemnity with respect to any claim made against any particular
Indemnified Party unless such Indemnified Party shall have notified the Trust
in writing within a reasonable time after the summons or other first legal
process giving information of the nature of the claim shall have been served
upon the Adviser or such controlling persons.
The Adviser shall indemnify and hold harmless the Trust and each of its
directors and officers and each person if any who controls the Trust within
the meaning of Section 15 of the 1933 Act, against any loss, liability,
claim, damage or expense described in the foregoing indemnity, but only
with respect to the Adviser's willful misfeasance, bad faith or gross
negligence in the performance of its duties under this Investment Advisory
Agreement. In case any action shall be brought against the Trust or any
person so indemnified, in respect of which indemnity may be sought
against the Adviser, the Adviser shall have the rights and duties given
to the Trust, and the Trust and each person so indemnified shall have the
rights and duties given to the Adviser by the provisions of subsections (i)
and (ii) of this section.
11. NO PERSONAL LIABILITY OF TRUSTEES OR SHAREHOLDERS.
This Agreement is made by the Trust on behalf of its various Current Series
pursuant to authority granted by the Trustees, and the obligations created
hereby are not binding on any of the Trustees or shareholders of the Trust
individually, but bind only the property of each Current Series of the Trust.
12. EFFECT OF AGREEMENT.
Nothing herein contained shall be deemed to require the Trust to take any
action contrary to its Declaration of Trust or its By-Laws or any applicable
law, regulation or order to which it is subject or by which it is bound, or to
relieve or deprive the Trustees of the Trust of their responsibility for and
control of the conduct of the business and affairs of the Trust.
13. TERM OF AGREEMENT.
The term of this Agreement shall begin on the date first above written, and
unless sooner terminated as hereinafter provided, this Agreement shall remain
in effect through August 22, 1997. Thereafter, this Agreement shall continue
in effect with respect to the Trust from year to year, subject to the
termination provisions and all other terms and conditions hereof; PROVIDED,
such continuance with respect to the Trust is approved at least annually by
vote of the holders of a majority of the outstanding voting securities of the
Trust or by the Trustees of the Trust; PROVIDED, that in either event such
continuance is also approved annually by the vote, cast in person at a meeting
called for the purpose of voting on such approval, of a majority of the
Trustees of the Trust who are not parties to this Agreement or interested
persons of either party hereto; and PROVIDED FURTHER that the Adviser shall
not have notified the Trust in writing at least sixty (60) days prior to
August 22, 1997, or at least sixty (60) days prior to August 22 of any year
thereafter that it does not desire such continuation. The Adviser shall
furnish to the Trust, promptly upon its request, such information as may
reasonably be necessary to evaluate the terms of this Agreement or any
extension, renewal or amendment thereof.
14. AMENDMENT OR ASSIGNMENT OF AGREEMENT.
Any amendment to this Agreement shall be in writing signed by the parties
hereto; PROVIDED, that no such amendment shall be effective unless authorized
on behalf of the Trust (i) by resolution of the Trust's Trustees, including
the vote or written consent of a majority of the Trust's Trustees who are not
parties to this Agreement or interested persons of either party hereto, and
(ii) by vote of a majority of the outstanding voting securities of the Trust.
This Agreement shall terminate automatically and immediately in the event of
its assignment.
15. TERMINATION OF AGREEMENT.
This Agreement may be terminated at any time by either party hereto, without
the payment of any penalty, upon sixty (60) days' prior written notice to the
other party; PROVIDED, that in the case of termination by the Trust, such
action shall have been authorized (i) by resolution of the Trust's Board of
Trustees, including the vote or written consent of Trustees of the Trust who
are not parties to this Agreement or interested persons of either party
hereto, or (ii) by vote of a majority of the outstanding voting securities of
the Trust.
16. INTERPRETATION AND DEFINITION OF TERMS.
Any question of interpretation of any term or provision of this Agreement
having a counterpart in or otherwise derived from a term or provision of the
Act shall be resolved by reference to such term or provision of the Act and to
interpretation thereof, if any, by the United States courts, or, in the
absence of any controlling decision of any such court, by rules, regulations
or orders of the Securities and Exchange Commission validly issued pursuant to
the Act. Specifically, the terms "vote of a majority of the outstanding voting
securities," "interested persons," "assignment" and "affiliated person," as
used in this Agreement shall have the meanings assigned to them by Section
2(a) of the Act. In addition, when the effect of a requirement of the Act
reflected in any provision of this Agreement is modified, interpreted or
relaxed by a rule, regulation or order of the Securities and Exchange
Commission, whether of special or of general application, such provision shall
be deemed to incorporate the effect of such rule, regulation or order.
17. CAPTIONS.
The captions in this Agreement are included for convenience of reference only
and in no way define or delineate any of the provisions hereof or otherwise
affect their construction or effect.
18. EXECUTION IN COUNTERPARTS.
This Agreement may be executed simultaneously in counterparts, each of which
shall be deemed an original, but all of which together shall constitute one
and the same instrument.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be signed
by their respective officers thereunto duly authorized and their respective
seals to be hereunto affixed, as of the date and year first above written.
<TABLE>
<CAPTION>
<S> <C>
WNL SERIES TRUST for its American Capital
Emerging Growth Portfolio, BEA Growth and
Income Portfolio, Credit Suisse International
Equity Portfolio, BlackRock Managed Bond
Portfolio, Quest for Value Asset Allocation
Portfolio, Salomon Brothers U.S. Government
Securities Portfolio, Global Advisors Growth
Equity Portfolio and Global Advisors Money
Market Portfolio
Attest:
/S/EVELYN M. CURRAN By:/S/DWIGHT L. CRAMER
__________________________ ____________________________________________
Assistant Secretary Vice President
WNL INVESTMENT ADVISORY SERVICES, INC.
Attest:
/S/EVELYN M. CURRAN By:/S/KURT R. FREDLAND
__________________________ ____________________________________________
Assistant Secretary Vice President
</TABLE>
SUB-ADVISORY AGREEMENT
AGREEMENT dated as of August 23, 1995, among VAN KAMPEN AMERICAN CAPITAL ASSET
MANAGEMENT, INC., a Delaware corporation (the "Sub-Adviser"), WNL INVESTMENT
ADVISORY SERVICES, INC., a Delaware corporation (the "Adviser"), and WNL
SERIES TRUST, a Massachusetts business trust (the "Trust").
WHEREAS, Adviser has entered into an Investment Advisory Agreement (referred
to herein as the "Advisory Agreement"), dated August 23, 1995, with the Trust,
under which Adviser has agreed to act as investment adviser to the Trust,
which is registered as an open-end diversified management investment company
under the Investment Company Act of 1940, as amended ("1940 Act"); and
WHEREAS, the Advisory Agreement provides that the Adviser may engage a
sub-adviser or sub-advisers for the purpose of managing the investments of the
Portfolios of the Trust; and
WHEREAS, the Adviser desires to retain Sub-Adviser, which is engaged in the
business of rendering investment management services, to provide certain
investment management services for the American Capital Emerging Growth
Portfolio (the "Portfolio") of the Trust as more fully described below; and
WHEREAS, it is the purpose of this Agreement to express the mutual agreements
of the parties hereto with respect to the services to be provided by
Sub-Adviser to Adviser with respect to the Portfolio and the terms and
conditions under which such services will be rendered.
NOW, THEREFORE, in consideration of the mutual covenants and agreements set
forth herein, the parties hereto agree as follows:
1. SERVICES OF SUB-ADVISER. The Sub-Adviser shall act as investment counsel
to the Adviser with respect to the Portfolio. In this capacity, Sub-Adviser
shall have the following responsibilities:
(a) to furnish continuous investment information, advice and
recommendations to the Adviser as to the acquisition, holding or disposition
of any or all of the securities or other assets which the Portfolio may own or
contemplate acquiring from time to time;
(b) to cause its officers to attend meetings of the Adviser or the Trust
and furnish oral or written reports, as the Adviser may reasonably require, in
order to keep the Adviser and its officers and the Trustees of the Trust and
appropriate officers of the Trust fully informed as to the condition of the
investment securities of the Portfolio, the investment recommendations of the
Sub-Adviser, and the investment considerations which have given rise to those
recommendations;
(c) to furnish such statistical and analytical information and reports
as may reasonably be required by the Adviser from time to time; and
(d) to supervise and place orders for the purchase, sale, exchange and
conversion of securities as directed by the appropriate officers of the Trust
or of the Adviser.
2. OBLIGATIONS OF THE ADVISER. The Adviser shall have the following
obligations under this Agreement:
(a) to keep the Sub-Adviser continuously and fully informed as to the
composition of the Portfolio's investment securities and the nature of the
Portfolio's assets and liabilities;
(b) to keep the Sub-Adviser continually and fully advised of the
Portfolio's investment objectives, and any modifications and changes thereto,
as well as any specific investment restrictions or limitations by sending the
Sub-Adviser copies of each registration statement;
(c) to furnish the Sub-Adviser with a certified copy of any financial
statement or report prepared for the Trust with respect to the Portfolio by
certified or independent public accountants, and with copies of any financial
statements or reports made by the Trust to shareholders or to any governmental
body or securities exchange and to inform the Sub-Adviser of the results of
any audits or examinations by regulatory authorities pertaining to the
Portfolio, if these results affect the services provided by the Sub-Adviser
pursuant to this Agreement;
(d) to furnish the Sub-Adviser with any further materials or information
which the Sub-Adviser may reasonably request to enable it to perform its
functions under this Agreement; and
(e) to compensate the Sub-Adviser for its services under this Agreement
by the payment of fees as set forth in Exhibit A attached hereto.
3. PORTFOLIO TRANSACTIONS. The Sub-Adviser shall place all orders for the
purchase and sale of portfolio securities for the account of the Portfolio
with broker-dealers selected by the Sub-Adviser. In executing portfolio
transactions and selecting broker-dealers, the Sub-Adviser will use its best
efforts to seek best execution on behalf of the Portfolio. In assessing the
best execution available for any transaction, the Sub-Adviser shall consider
all 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-dealer, and the reasonableness of the commission, if
any (all for the specific transaction and on a continuing basis). In
evaluating the best execution available, and in selecting the broker-dealer to
execute a particular transaction, the Sub-Adviser may also consider the
brokerage and research services (as those terms are used in Section 28(e) of
the Securities Exchange Act of 1934) provided to the Portfolio and/or other
accounts over which the Sub-Adviser, an affiliate of the Sub-Adviser (to the
extent permitted by law) or another investment adviser of the Portfolio
exercises investment discretion. The Sub-Adviser is authorized to cause the
Portfolio to pay a broker-dealer who provides such brokerage and research
services a commission for executing a portfolio transaction for the Portfolio
which is in excess of the amount of commission another broker-dealer would
have charged for effecting that transaction if, but only if, the Sub-Adviser
determines in good faith that such commission was reasonable in relation to
the value of the brokerage and research services provided by such
broker-dealer viewed in terms of that particular transaction or in terms of
all of the accounts over which investment discretion is so exercised.
4. MARKETING SUPPORT. The Sub-Adviser shall provide marketing support to the
Adviser in connection with the sale of Trust shares and/or the sale of
variable annuity and variable life insurance contracts issued by Western
National Life Insurance Company and its affiliates which may invest in the
Trust (collectively, the "Life Company"), as reasonably requested by the
Adviser. Such support shall include, but not necessarily be limited to,
presentations by representatives of the Sub-Adviser at investment seminars,
conferences and other industry meetings. Any materials utilized by the
Adviser which contain any information relating to the Sub-Adviser shall be
submitted to the Sub-Adviser for approval prior to use, not less than five (5)
business days before such approval is needed by the Adviser. Any materials
utilized by the Sub-Adviser which contain any information relating to the
Adviser, the Life Company (including any information relating to its separate
accounts or variable annuity or variable life insurance contracts) or the
Trust shall be submitted to the Adviser for approval prior to use, not less
than five (5) business days before such approval is needed by the Sub-Adviser.
5. GOVERNING LAW. This Agreement shall be construed in accordance with and
governed by the laws of the Commonwealth of Massachusetts.
6. EXECUTION OF AGREEMENT. This Agreement will become binding on the parties
hereto upon their execution of the attached Exhibit A to this Agreement.
7. COMPLIANCE WITH LAWS. The Sub-Adviser represents that it is, and will
continue to be throughout the term of this Agreement, an investment adviser
registered under all applicable federal and state laws. In all matters
relating to the performance of this Agreement, the Sub-Adviser will act in
conformity with the Trust's Declaration of Trust, Bylaws, and current
registration statement applicable to the Portfolio and with the instructions
and direction of the Adviser and the Trust's Trustees, and will conform to and
comply with the 1940 Act and all other applicable federal or state laws and
regulations.
8. TERMINATION. This Agreement shall terminate automatically upon the
termination of the Advisory Agreement. This Agreement may be terminated at
any time, without penalty, by the Adviser or by the Trust by giving sixty (60)
days' written notice of such termination to the Sub-Adviser at its principal
place of business, provided that such termination is approved by the Board of
Trustees of the Trust or by vote of a majority of the outstanding voting
securities (as that phrase is defined in Section 2(a)(42) of the 1940 Act) of
the Portfolio. This Agreement may be terminated at any time by the
Sub-Adviser by giving 60 days' written notice of such termination to the Trust
and the Adviser at their respective principal places of business.
9. ASSIGNMENT. This Agreement shall terminate automatically in the event of
any assignment (as that term is defined in Section 2(a)(4) of the 1940 Act) of
this Agreement.
10. TERM. This Agreement shall begin on the date of its execution and unless
sooner terminated in accordance with its terms shall continue in effect for
two years from that date and from year to year thereafter provided continuance
is specifically approved at least annually by the vote of a majority of the
Trustees of the Trust who are not parties hereto or interested persons (as the
term is defined in Section 2(a)(19) of the 1940 Act) of any such party, cast
in person at a meeting called for the purpose of voting on the approval of the
terms of such renewal, and by either the Trustees of the Trust or the
affirmative vote of a majority of the outstanding voting securities of the
Portfolio (as that phrase is defined in Section 2(a)(42) of the 1940 Act).
11. AMENDMENTS. This Agreement may be amended only with the approval by the
affirmative vote of a majority of the outstanding voting securities of the
Portfolio (as that phrase is defined in Section 2(a)(42) of the 1940 Act) and
the approval by the vote of a majority of the Trustees of the Trust who are
not parties hereto or interested persons (as that term is defined in Section
2(a)(19) of the 1940 Act) of any such party, cast in person at a meeting
called for the purpose of voting on the approval of such amendment, unless
otherwise permitted in accordance with the 1940 Act.
12. INDEMNIFICATION. The Adviser shall indemnify and hold harmless the
Sub-Adviser, its officers and directors and each person, if any, who controls
the Sub-Adviser within the meaning of Section 15 of the Securities Act of 1933
("1933 Act") (any and all such persons shall be referred to as "Indemnified
Party"), against any loss, liability, claim, damage or expense (including the
reasonable cost of investigating or defending any alleged loss, liability,
claim, damages or expense and reasonable counsel fees incurred in connection
therewith), arising by reason of any matter to which this Sub-Advisory
Agreement relates. However, in no case (i) is this indemnity to be deemed to
protect any particular Indemnified Party against any liability to which such
Indemnified Party would otherwise be subject by reason of willful misfeasance,
bad faith or gross negligence in the performance of its duties or by reason of
reckless disregard of its obligations and duties under this Sub-Advisory
Agreement or (ii) is the Adviser to be liable under this indemnity with
respect to any claim made against any particular Indemnified Party unless such
Indemnified Party shall have notified the Adviser in writing within a
reasonable time after the summons or other first legal process giving
information of the nature of the claim shall have been served upon the
Sub-Adviser or such controlling persons.
The Sub-Adviser shall indemnify and hold harmless the Adviser and each of its
directors and officers and each person if any who controls the Adviser within
the meaning of Section 15 of the 1933 Act, against any loss, liability, claim,
damage or expense described in the foregoing indemnity, but only with respect
to the Sub-Adviser's willful misfeasance, bad faith or gross negligence in the
performance of its duties under this Sub-Advisory Agreement. In case any
action shall be brought against the Adviser or any person so indemnified, in
respect of which indemnity may be sought against the Sub-Adviser, the
Sub-Adviser shall have the rights and duties given to the Adviser, and the
Adviser and each person so indemnified shall have the rights and duties given
to the Sub-Adviser by the provisions of subsections (i) and (ii) of this
section.
SUB-ADVISORY AGREEMENT
AGREEMENT dated as of August 23, 1995, among BEA ASSOCIATES, a New York
general partnership (the "Sub-Adviser"), WNL INVESTMENT ADVISORY SERVICES,
INC., a Delaware corporation (the "Adviser"), and WNL SERIES TRUST, a
Massachusetts business trust (the "Trust").
WHEREAS, the Trust, an open-end diversified management investment company, as
that term is defined in the Investment Company Act of 1940, as amended
("Act"), that is registered as such with the Securities and Exchange
Commission, has appointed Adviser as investment adviser for all its portfolios
pursuant to an investment advisory agreement dated August 23, 1995 between the
Adviser and the Trust ("Advisory Agreement"); and
WHEREAS, Sub-Adviser is engaged in the business of rendering investment
management services; and
WHEREAS, Adviser desires to retain Sub-Adviser to provide certain investment
management services for the BEA Growth and Income Portfolio (the "Portfolio")
of the Trust as more fully described below;
NOW, THEREFORE, the parties hereto, intending to be legally bound, hereby
agree as follows:
1. Adviser hereby retains Sub-Adviser to assist Adviser in its capacity
as investment adviser for the Portfolio. Subject to the oversight and review
of Adviser and the Board of Trustees of the Trust, Sub-Adviser shall manage
the investment and reinvestment of the assets of the Portfolio. Sub-Adviser
will determine in its discretion, subject to the oversight and review of
Adviser, the investments to be purchased or sold, will provide Adviser with
records concerning its activities which Adviser or the Trust is required to
maintain, and will render regular reports to Adviser and to officers and
Trustees of the Trust concerning its discharge of the foregoing
responsibilities. The services of Sub-Adviser hereunder are not to be deemed
exclusive, and the Sub-Adviser shall be free to render similar services to
others.
2. Sub-Adviser, in its supervision of the investments of the Portfolio,
will be guided by the Portfolio's investment objectives and policies and the
provisions and restrictions contained in the Declaration of Trust and By-Laws
of the Trust and as set forth in the Registration Statement and exhibits as
may be on file with the Securities and Exchange Commission, all as
communicated by Adviser to Sub-Adviser.
3. Adviser shall pay to Sub-Adviser, for all services rendered to the
Portfolio by Sub-Adviser hereunder, the fees set forth in Exhibit A attached
hereto. During the term of this Agreement, Sub-Adviser will bear all expenses
incurred by it in the performance of its duties hereunder.
4. The term of this Agreement shall begin on the date of its execution
and shall remain in effect for two years from that date and from year to year
thereafter, subject to the provisions for termination and all of the other
terms and conditions hereof if: (a) such continuation shall be specifically
approved at least annually by the vote of a majority of the Trustees of the
Trust, including a majority of the Trustees who are not "interested persons",
as defined in Section 2(a)(19) of the Act, of any party (other than as
Trustees of the Trust) cast in person at a meeting called for that purpose;
and (b) Adviser shall not have notified the Trust in writing at least sixty
(60) days prior to the anniversary date of this Agreement in any year
thereafter that it does not desire such continuation with respect to the
Portfolio.
5. This Agreement is terminable by vote of the Trust's Board of
Trustees, or by the holders of a majority of the outstanding voting securities
of the Portfolio, at any time without penalty, on 60 days' written notice to
the Sub-Adviser. This Agreement may also be terminated by the Adviser (1) on
20 days' notice to the Sub-Adviser upon breach by the Sub-Adviser of its
representations and warranties, which breach shall not have been cured within
such 20-day period or (2) if the Sub-Adviser becomes unable to discharge its
duties and obligations under this Agreement. This Agreement may also be
terminated by the Sub-Adviser on 120 days' written notice to the Adviser.
6. This Agreement shall automatically terminate: (a) in the event of its
assignment or (b) in the event of the termination of the Advisory Agreement.
7. In the absence of willful misfeasance, bad faith, gross negligence,
or reckless disregard of the obligations or duties under this Agreement on the
part of Sub-Adviser, Sub-Adviser shall not be liable to Adviser, the Trust,
the Portfolio or to any shareholder for any act or omission in the course of
or connected in any way with rendering services or for any losses that may be
sustained in the purchase, holding, or sale of any security.
8. The Sub-Adviser shall place all orders for the purchase and sale of
portfolio securities for the account of the Portfolio with broker-dealers
selected by the Sub-Adviser. In executing portfolio transactions and
selecting broker-dealers, the Sub-Adviser will use its best efforts to seek
best execution on behalf of the Portfolio. In assessing the best execution
available for any transaction, the Sub-Adviser shall consider all 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-dealer, and the reasonableness of the commission, if any (all for the
specific transaction and on a continuing basis). In evaluating the best
execution available, and in selecting the broker-dealer to execute a
particular transaction, the Sub-Adviser may also consider the brokerage and
research services (as those terms are used in Section 28(e) of the Securities
Exchange Act of 1934) provided to the Portfolio and/or other accounts over
which the Sub-Adviser, an affiliate of the Sub-Adviser (to the extent
permitted by law) or another investment adviser of the Portfolio exercises
investment discretion. The Sub-Adviser is authorized to cause the Portfolio
to pay a broker-dealer who provides such brokerage and research services a
commission for executing a portfolio transaction for the Portfolio which is in
excess of the amount of commission another broker-dealer would have charged
for effecting that transaction if, but only if, the Sub-Adviser determines in
good faith that such commission was reasonable in relation to the value of the
brokerage and research services provided by such broker-dealer viewed in terms
of that particular transaction or in terms of all of the accounts over which
investment discretion is so exercised.
9. The Sub-Adviser shall provide marketing support to the Adviser in
connection with the sale of Trust shares and/or the sale of variable annuity
and variable life insurance contracts issued by Western National Life
Insurance Company and its affiliates which may invest in the Trust
(collectively, the "Life Company"), as reasonably requested by the Adviser.
Such support shall include, but not necessarily be limited to, presentations
by representatives of the Sub-Adviser at investment seminars, conferences and
other industry meetings. Any materials utilized by the Adviser which contain
any information relating to the Sub-Adviser shall be submitted to the
Sub-Adviser for approval prior to use, not less than five (5) business days
before such approval is needed by the Adviser. Any materials utilized by the
Sub-Adviser which contain any information relating to the Adviser, the Life
Company (including any information relating to its separate accounts or
variable annuity or variable life insurance contracts) or the Trust shall be
submitted to the Adviser for approval prior to use, not less than five (5)
business days before such approval is needed by the Sub-Adviser.
10. This Agreement may be amended at any time by agreement of the
parties, provided that the amendment shall be approved both by the vote of a
majority of the Trustees of the Trust, including a majority of the Trustees
who are not "interested persons," as defined in Section 2(a)(19) of the Act,
of any party to this Agreement (other than as Trustees of the Trust) cast in
person at a meeting called for that purpose, and on behalf of the Portfolio by
the holders of a majority of the outstanding voting securities of the
Portfolio, as defined in Section 2(a)(42) of the Act.
11. This Agreement shall be construed in accordance with and governed by
the laws of the Commonwealth of Massachusetts.
12. This Agreement will become binding on the parties hereto upon their
execution of the attached Exhibit A to this Agreement.
13. It is understood that any information or recommendation supplied by
the Sub-Adviser in connection with the performance of its obligations
hereunder is to be regarded as confidential and for use only by the Adviser,
the Trust or such persons as the Adviser may designate in connection with the
Portfolio. It is also understood that any information supplied to Sub-Adviser
in connection with the performance of its obligations hereunder, particularly,
but not necessarily limited to, any list of securities which, on a temporary
basis, may not be bought or sold for the Portfolio, is to be regarded as
confidential and for use only by the Sub-Adviser in connection with its
obligation to provide investment advice and other services to the Portfolio.
14. Each party to this Agreement hereby acknowledges that it is
registered as an investment adviser under the Investment Advisers Act of 1940,
it will use its reasonable best efforts to maintain such registration, and it
will promptly notify the other if it ceases to be so registered, if its
registration is suspended for any reason, or if it is notified by any
regulatory organization or court of competent jurisdiction that it should show
cause why its registration should not be suspended or terminated.
15. The Adviser shall indemnify and hold harmless the Sub-Adviser, its
officers and directors and each person, if any, who controls the Sub-Adviser
within the meaning of Section 15 of the Securities Act of 1933 ("1933 Act")
(any and all such persons shall be referred to as "Indemnified Party"),
against any loss, liability, claim, damage or expense (including the
reasonable cost of investigating or defending any alleged loss, liability,
claim, damages or expense and reasonable counsel fees incurred in connection
therewith), arising by reason of any matter to which this Sub-Advisory
Agreement relates. However, in no case (i) is this indemnity to be deemed to
protect any particular Indemnified Party against any liability to which such
Indemnified Party would otherwise be subject by reason of willful misfeasance,
bad faith or gross negligence in the performance of its duties or by reason of
reckless disregard of its obligations and duties under this Sub-Advisory
Agreement or (ii) is the Adviser to be liable under this indemnity with
respect to any claim made against any particular Indemnified Party unless such
Indemnified Party shall have notified the Adviser in writing within a
reasonable time after the summons or other first legal process giving
information of the nature of the claim shall have been served upon the
Sub-Adviser or such controlling persons.
The Sub-Adviser shall indemnify and hold harmless the Adviser and each of
its directors and officers and each person if any who controls the Adviser
within the meaning of Section 15 of the 1933 Act, against any loss, liability,
claim, damage or expense described in the foregoing indemnity, but only with
respect to the Sub-Adviser's willful misfeasance, bad faith or gross negligence
in the performance of its duties under this Sub-Advisory Agreement. In
case any action shall be brought against the Adviser or any person so
indemnified, in respect of which indemnity may be sought against the
Sub-Adviser, the Sub-Adviser shall have the rights and duties given to the
Adviser, and the Adviser and each person so indemnified shall have the rights
and duties given to the Sub-Adviser by the provisions of subsections (i)
and (ii) of this section.
16. The Sub-Adviser hereby grants to the Trust a royalty-free,
non-exclusive license to use "BEA" in the name of the Portfolio only for so
long as BEA is acting as the Sub-Adviser to the Portfolio.
EXHIBIT A
WNL SERIES TRUST
SUB-ADVISORY COMPENSATION
For all services rendered by Sub-Adviser hereunder, Adviser shall pay to
Sub-Adviser and Sub-Adviser agrees to accept as full compensation for all
services rendered hereunder, a fee payable monthly based on average daily net
assets of:
BEA GROWTH AND INCOME PORTFOLIO
.50 of 1%.
WNL SERIES TRUST
By:/S/DWIGHT L. CRAMER
___________________________________________
Title: Vice President
WNL INVESTMENT ADVISORY SERVICES, INC.
By:/S/KURT R. FREDLAND
____________________________________________
Title: Vice President
BEA ASSOCIATES
By:/S/
____________________________________________
Title: Vice President/Director of Compliance
A copy of the document establishing the Trust is filed with the Secretary of
the Commonwealth of Massachusetts. This Agreement is executed by officers not
as individuals and is not binding upon any of the Trustees, officers or
shareholders of the Trust individually but only upon the assets of each
Portfolio.
SUB-ADVISORY AGREEMENT
THIS AGREEMENT made as of the 23rd day of August, 1995, among CREDIT SUISSE
INVESTMENT MANAGEMENT LIMITED, a company incorporated in England (the
"Sub-Adviser"), WNL INVESTMENT ADVISORY SERVICES, INC., a Delaware corporation
(the "Adviser"), and WNL SERIES TRUST, a Massachusetts business trust (the
"Trust").
W I T N E S S E T H:
WHEREAS, the Adviser has entered into an Investment Advisory Agreement (the
"Advisory Agreement") dated August 23, 1995 with the Trust, an open-end
management investment company registered under the Investment Company Act of
1940, as amended (the "1940 Act"), pursuant to which the Adviser provides
investment advisory services to the Trust; and
WHEREAS, the Adviser has the authority to delegate its investment advisory
responsibilities under the Advisory Agreement to one or more sub-advisers; and
WHEREAS, the Adviser desires to retain the Sub-Adviser to provide investment
advisory services to the Credit Suisse International Equity Portfolio (the
"Portfolio") of the Trust.
NOW, THEREFORE, the parties hereto agree as follows:
1. APPOINTMENT AND STATUS AS SUB-ADVISER. The Adviser hereby appoints the
Sub-Adviser as the Sub-Adviser with respect to the Portfolio, and the
Sub-Adviser hereby accepts this appointment on the terms and conditions set
forth herein.
2. MANAGEMENT OF PORTFOLIO. The Sub-Adviser represents that it is a
registered investment adviser under the Investment Advisers Act of 1940, as
amended. The Adviser and the Sub-Adviser agree that the Sub-Adviser, subject
to the direction and control of the Adviser and the Trustees of the Trust,
shall direct, with full authority and at its discretion, the investment of the
assets contained in the Portfolio in such manner as the Sub-Adviser may deem
advisable, in accordance with the investment objectives, policies and
limitations with respect to the Portfolio set forth in the Trust's Declaration
of Trust, as amended from time to time, the Trust's Registration Statement
filed with the Securities and Exchange Commission under the 1940 Act and the
Securities Act of 1933 (the "1933 Act"), the provisions of the Internal
Revenue Code of 1986, as amended, and applicable policy decisions, guidelines
and procedures adopted by the Trust's Board of Trustees from time to time.
Copies of the Trust's Declaration of Trust, Registration Statement and any
policy decisions, guidelines or procedures adopted by the Trust's Board of
Trustees, as well as any amendments to the above, will be furnished promptly
to the Sub-Adviser.
3. BROKERAGE. The Sub-Adviser is authorized, subject to the supervision of
the Adviser and the Trustees of the Trust, to place orders for the purchase
and sale of the Portfolio's investments with or through such persons, brokers
or dealers, including the Sub-Adviser or affiliates thereof, and to negotiate
commissions to be paid on such transactions in accordance with the Portfolio's
policy with respect to brokerage. The Sub-Adviser may, on behalf of the
Portfolio, pay brokerage commissions to a broker which provides brokerage and
research services to the Sub-Adviser in excess of the amount another broker
would have charged for effecting the transaction, provided the Sub-Adviser
determines in good faith that the amount is reasonable in relation to the
value of the brokerage and research services provided by the executing broker
in terms of the particular transaction or in terms of the Sub-Adviser's
overall responsibilities with respect to the Portfolio and the accounts as to
which the Sub-Adviser exercises investment discretion. It is recognized that
the services provided by such brokers may be useful to the Sub-Adviser in
connection with the Sub-Adviser's service to other clients. On occasions when
the Sub-Adviser deems the purchase or sale of a security to be in the best
interest of the Portfolio as well as other customers, the Sub-Adviser may, to
the extent permitted by applicable laws and regulations, but shall not be
obligated to, aggregate the securities to be so sold or purchased in order to
obtain the best execution and lower brokerage commissions, if any.
In such event, allocation of the securities so purchased or sold, as well as
the expenses incurred in the transaction, will be made by the Sub-Adviser in
the manner it considers to be the most equitable and consistent with its
fiduciary obligations to the Portfolio and, if applicable, to such other
customers. The Trust and the Adviser acknowledge that in order to comply with
federal securities laws and related regulatory requirements, there may be
periods when the Sub-Adviser will not be permitted to initiate or recommend
certain types of transactions in the securities of issuers for which
affiliates of the Sub-Adviser are performing investment banking services, and
neither the Trust nor the Adviser will be advised of that fact. For example,
during certain periods when affiliates of the Sub-Adviser are engaged in an
underwriting or other distribution of a company's securities, the Sub-Adviser
may be prohibited from purchasing or recommending the purchase of certain
securities of that company for its clients. Similarly, the Sub-Adviser may on
occasion be prohibited from selling or recommending the sale of securities of
a company for which affiliates are providing investment banking services.
4. PORTFOLIO COMPOSITION. The Adviser shall provide (or cause the Trust's
custodian to provide) timely information to the Sub-Adviser regarding such
matters as the composition of assets in the Portfolio, cash requirements and
cash available for investment in the Portfolio, and all other information as
may be reasonably necessary for the Sub-Adviser to perform its
responsibilities hereunder.
5. CUSTODY. The cash and assets of the Portfolio shall be held by State
Street Bank and Trust Company (the "Custodian"), which the Adviser and the
Trust hereby represent has agreed to act as custodian for the Portfolio. The
Sub-Adviser shall at no time have custody or physical control of the assets
and cash in the Portfolio. In addition, the Sub-Adviser shall not be liable
for any act or omission of the Custodian. The Sub-Adviser shall give
instructions to the Custodian in writing or orally and confirmed in writing as
soon as practicable thereafter. The Adviser shall instruct the Custodian to
provide the Sub-Adviser with such periodic reports concerning the status of
the Portfolio as the Sub-Adviser may reasonably request from time to time.
Neither the Adviser nor the Trust will change the Custodian without giving the
Sub-Adviser reasonable prior notice of their intention to do so together with
the name and other relevant information with respect to the new Custodian.
6. LIMIT OF LIABILITY; INDEMNIFICATION. (a) The Sub-Adviser shall not be
responsible for any loss incurred by reason of any act or omission of any
broker-dealer (provided the Sub-Adviser has acted in accordance with its
established standards for selecting broker-dealers), counterparty, the Adviser
or the Trust; provided, however, that the Sub-Adviser will make such efforts
as it deems reasonable to require that brokers selected by the Sub-Adviser
perform their obligations with respect to the Portfolio.
(b) The Adviser shall indemnify and hold harmless the Sub-Adviser, its
officers, directors, employees, agents and each person, if any, who controls
the Sub-Adviser within the meaning of Section 15 of the 1933 Act (any and all
such persons shall be referred to as "Indemnified Party"), against any loss,
liability, claim, damage or expense (including the reasonable cost of
investigating or defending any alleged loss, liability, claim, damages or
expense and reasonable counsel fees incurred in connection therewith), arising
by reason of any matter to which this Sub-Advisory Agreement relates.
However, in no case is this indemnity to be deemed to protect any particular
Indemnified Party against any liability to which such Indemnified Party would
otherwise be subject by reason of willful misfeasance, bad faith or gross
negligence in the performance of its duties or by reason of reckless disregard
of its obligations and duties under this Sub-Advisory Agreement. The
Sub-Adviser shall make reasonable efforts to notify the Adviser in writing
within a reasonable time after the summons or other first legal process giving
information of the nature of the claim shall have been served upon the
Indemnified Party.
(c) The Sub-Adviser shall indemnify and hold harmless the Adviser and
each of its directors and officers and each person if any who controls the
Adviser within the meaning of Section 15 of the 1933 Act, against any loss,
liability, claim, damage or expense arising by reason of any matter to which
the Sub-Advisory Agreement relates, but only to the extent of the
Sub-Adviser's willful misfeasance, bad faith or gross negligence in the
performance of its duties under this Sub-Advisory Agreement. In case any
action shall be brought against the Adviser or any person so indemnified, in
respect of which indemnity may be sought against the Sub-Adviser, the
Sub-Adviser shall have the rights and duties given to the Adviser, and the
Adviser and each person so indemnified shall have the rights and duties given
to the Sub-Adviser.
(d) The Adviser acknowledges and agrees that the Sub-Adviser makes no
representation and warranty, express or implied, that any level of performance
or investment results will be achieved by the Portfolio or that the Portfolio
will perform comparably with any standard or index, including other clients of
the Sub-Adviser, whether public or private.
7. REPRESENTATIONS AND WARRANTIES OF THE ADVISER AND THE TRUST. Each of the
Adviser and the Trust represent and warrant to the Sub-Adviser that (a) the
Adviser has the authority to act on behalf of the Trust and has and will
continue to convey to the Sub-Adviser all relevant information regarding the
Trust and the Portfolio including, but not limited to, any relevant investment
restrictions of the Trust and the Portfolio; (b) this Agreement has been duly
authorized, executed and delivered by each of the Adviser and the Trust and
constitutes its valid and binding obligation, enforceable in accordance with
its terms; (c) no governmental authorizations, approvals, consents or filings
are required in connection with the execution, delivery or performance of this
Agreement by the Adviser or the Trust; (d) the execution, delivery and
performance of this Agreement by the Adviser and the Trust will not violate or
result in any default under the Adviser's or the Trust's certificate of
incorporation or by-laws (or equivalent constituent documents), any contract
or other agreement to which the Adviser or the Trust is a party or by which
their assets (including the Portfolio) may be bound or any statute or any
rule, regulation or order of any government agency or body; (e) the assets of
the Portfolio do not and will not constitute assets of any employee benefit
plan within the meaning of Section 3(3) of the Employee Retirement Income
Security Act of 1974 or Section 4975(e) of the Internal Revenue Code of 1986
and this Agreement or within the meaning of DOL Reg. Section 2510.3-101(a)(2)
and (h) (1) ; and (f) the Adviser and the Trust have received a copy of the
Sub-Adviser's Form ADV as most recently filed with the Securities and Exchange
Commission.
8. DIRECTIONS TO SUB-ADVISER. All directions by or on behalf of the Adviser
to the Sub-Adviser shall be in writing signed either (a) by a director or
officer of the Adviser, or (b) by a duly authorized agent of the Adviser. The
Sub-Adviser shall be fully protected in relying upon any direction signed in
the appropriate manner with respect to any instruction, direction or approval
of the Adviser. The Sub-Adviser shall also be fully protected when acting
upon any instrument, certificate or paper the Sub-Adviser believes to be
genuine and to be signed or presented by the proper person or persons. The
Sub-Adviser shall be under no duty to make any investigation or inquiry as to
any statement contained in any writing and may accept the same as conclusive
evidence of the truth and accuracy of the statements therein contained.
9. REPORTS. The Sub-Adviser shall provide the Adviser with reports in form
and content reasonably acceptable to the Adviser and the Sub-Adviser
containing the status of the Portfolio at least quarterly and at any other
times as the Adviser may reasonably request.
10. PROXIES, TENDER OFFERS, CLASS ACTIONS, ETC. Subject to any other written
instructions of the Adviser, the Sub-Adviser is hereby appointed the Adviser's
and the Portfolio's agent and attorney-in-fact in its discretion to vote,
tender or convert any securities in the Portfolio; to execute proxies,
waivers, consents, account documentation, agreements, contracts and other
instruments with respect to such securities and the assets of the Portfolio;
to endorse, transfer or deliver such securities and to participate in or
consent to any class action, plan of reorganization, merger, combination,
consolidation, liquidation or similar plan with reference to such securities;
and the Sub-Adviser shall not incur any liability to the Adviser or the
Portfolio by reason of any exercise of, or failure to exercise, any such
discretion. Notwithstanding the foregoing provisions of this Section 10, if
the Sub-Adviser determines that it, or any of its affiliates, has an adverse
or potentially adverse interest with respect to the vote or other requested
action, the Sub-Adviser shall so inform the Adviser, which shall thereupon
become responsible for the determination on such vote or other action.
11. CONFIDENTIAL RELATIONSHIP. All information and advice furnished by any
party to this Agreement shall be treated as confidential and shall not be
disclosed to third parties except as required by law.
12. SERVICES TO OTHER CLIENTS. The Sub-Adviser acts as adviser or
sub-adviser to other clients and may give advice, and take action, with
respect to any of those clients that may differ from the advice given, or the
time or nature of action taken, with respect to the Portfolio. The
Sub-Adviser shall have no obligation to purchase or sell for the Portfolio or
to recommend for purchase or sale by the Portfolio, any securities that the
Sub-Adviser, its principals, affiliates or employees may purchase for
themselves or for any other clients.
13. NON-ASSIGNABILITY. This Agreement shall terminate automatically in the
event of its assignment (as defined in the 1940 Act).
14. TERMINATION. The term of this Sub-Advisory Agreement shall begin on the
date first above written, and unless sooner terminated as hereinafter
provided, this Sub-Advisory Agreement shall remain in effect for two years
from that date. Thereafter, this Sub-Advisory Agreement shall continue in
effect with respect to the Portfolio from year to year, subject to the
termination provisions and all other terms and conditions hereof; PROVIDED,
such continuance with respect to the Portfolio is approved at least annually
by vote of the holders of a majority of the outstanding voting securities of
the Portfolio or by the Trustees of the Trust; PROVIDED, that in either event
such continuance is also approved annually by the vote, cast in person at a
meeting called for the purpose of voting on such approval, of a majority of
the Trustees of the Trust who are not parties to this Sub-Advisory Agreement
or interested persons of any party hereto; and PROVIDED FURTHER that the
Sub-Adviser shall not have notified the Trust in writing at least sixty (60)
days prior to any termination date that it does not desire such continuation.
The Sub-Adviser shall furnish to the Trust, promptly upon its request, such
information as may reasonably be necessary to evaluate the terms of this
Sub-Advisory Agreement or any extension, renewal or amendment thereof. This
Sub-Advisory Agreement may be terminated at any time by any party hereto,
without the payment of any penalty, upon sixty (60) days' prior written notice
to the other parties; PROVIDED, that in the case of termination by the Trust,
such action shall have been authorized (i) by resolution of the Trust's Board
of Trustees, including the vote or written consent of Trustees of the Trust
who are not parties to this Sub-Advisory Agreement or interested persons of
any party hereto, or (ii) by vote of a majority of the outstanding voting
securities of the Portfolio. This Agreement will terminate automatically upon
the termination of the Advisory Agreement.
15. NOTICES. All notices and instructions with respect to securities
transactions or any other matters contemplated by this Agreement shall be
deemed duly given when delivered in writing to the addresses below or when
deposited by first class mail addressed as follows:
(a) If to the Sub-Adviser:
Credit Suisse Investment Management Limited
One Cabot Square
London, England E14 4QJ
Attention: Glenn Wellman
With a copy to:
CS First Boston Corporation
55 East 52nd Street
New York, NY 10055
Attention: Daniel W. Sasaki, Esq.
(b) If to the Adviser:
WNL Investment Advisory Services, Inc.
5555 San Felipe, Suite 900
Houston, Texas 77056
(c) If to the Trust:
WNL Series Trust
5555 San Felipe, Suite 900
Houston, Texas 77056
16. FEES. For performance of the services hereunder with respect to the
Portfolio, the Adviser will pay the Sub-Adviser the fee described in Exhibit A
attached hereto. The fee prescribed in Exhibit A shall be calculated daily
and payable monthly in arrears at an annual rate of the Portfolio's average
daily net assets as described in Exhibit A.
17. EXPENSES. The Sub-Adviser will bear all of its expenses in connection
with the performance of its services under this Agreement. All other expenses
to be incurred in the operation of the Portfolio will be borne by the Trust,
except to the extent specifically assumed by the Sub-Adviser (or by the
Adviser in the Advisory Agreement).
18. MARKETING SUPPORT. The Sub-Adviser shall provide marketing support to
the Adviser in connection with the sale of Trust shares and/or the sale of
variable annuity and variable life insurance contracts issued by Western
National Life Insurance Company and its affiliates which may invest in the
Trust (collectively, the "Life Company"), as reasonably requested by the
Adviser. Such support shall include, but not necessarily be limited to,
presentations by representatives of the Sub-Adviser at investment seminars,
conferences and other industry meetings. Any materials utilized by the
Adviser which contain any information relating to the Sub-Adviser shall be
submitted to the Sub-Adviser for approval prior to use, not less than five (5)
business days before such approval is needed by the Adviser. Any materials
utilized by the Sub-Adviser which contain any information relating to the
Adviser, the Life Company (including any information relating to its separate
accounts or variable annuity or variable life insurance contracts) or the
Trust shall be submitted to the Adviser for approval prior to use, not less
than five (5) business days before such approval is needed by the Sub-Adviser.
19. MISCELLANEOUS. (a) Under the rules of the Investment Management
Regulatory Organization ("IMRO"), clients must be placed in specific
categories which are dictated by different considerations including the nature
and financial description of the client, the experience of the client in
certain investments and other factors. On the basis of the information which
the Adviser has given, it is a Non-Private Customer in relation to the
services to be provided in accordance with this Agreement.
(b) The Sub-Adviser understands that the Adviser does not require
transaction confirmation notes from Sub-Adviser. The information which would
have been contained in the Adviser's confirmation notes will be included in
the periodic statements specified below. The Sub-Adviser will deliver or send
to the Adviser on a monthly basis and after the date of termination, a
statement of the contents and value of the Portfolio and an assessment of its
performance.
Each statement will include:
(a) the number of units of each asset comprising the Portfolio, the
aggregate of the initial value of each and the aggregate of their value at the
time the statement is made up; and
(b) the basis on which such values have been calculated with a note of
any change in such basis from that used in the immediately preceding
statement. This basis shall be:
(i) taken from mid-market price indications from a representative
sample of market makers, or
(ii) where, in the opinion of the Sub-Adviser, the investment
concerned is not readily realizable then it shall be taken at
such fair valuation as may be determined on each occasion by
the Sub-Adviser.
(c) The Sub-Adviser may undertake transactions in options, futures, or
contracts for differences ("Relevant Transactions") in accordance with the
Registration Statement. The markets on which Relevant Transactions are
executed can be highly volatile. Such investments carry a high risk of loss
and, in the case of futures, contracts for differences and the grant of
options, a relatively small adverse market movement may result not only in the
loss of the original investment but also in unquantifiable further loss
exceeding any margin deposited. The Sub-Adviser may pay margin, or (subject
to the rules of the exchange concerned) deposit investments by way of margin
or collateral, on any Relevant Transaction out of the funds or investments in
the Portfolio. The Sub-Adviser may enter into Relevant Transactions under
which the Trust may be required to pay amounts, or deposit investments, in
respect of margin or collateral in excess of (as the case may be) the funds or
the investments held in the Portfolio. Subject to the limits specified in the
Registration Statement with respect to the Portfolio, the Sub-Adviser may
borrow on the Trust's behalf in order to meet any calls for margin or
collateral and the Sub-Adviser and the Trust acknowledge that the amounts
which may be so committed are unquantifiable, due to the nature of the
commitments. In connection with Relevant Transactions, the Sub-Adviser may,
without reference to the Adviser, make contractual or other arrangements to
settle or close out outstanding obligations in circumstances required by any
exchange or intermediate broker with or through which the Sub-Adviser effects
such transactions.
(d) The Sub-Adviser, the Adviser and the Trust may record telephone
conversations with each other. Any recordings made by the Sub-Adviser shall
be the property of the Sub-Adviser.
(e) The Sub-Adviser has in operation a written procedure in accordance
with the rules of IMRO for the effective consideration and proper handling of
complaints from clients. Any complaint by the Adviser and/or the Trust
hereunder should be sent in writing to the Compliance Officer of the
Sub-Adviser at the address specified in Paragraph 15 of this Agreement. The
Adviser and/or the Trust are also entitled to make any complaint about the
Sub-Adviser to IMRO.
20. ENTIRE AGREEMENT; AMENDMENT. This Agreement states the entire agreement
of the parties with respect to management of the Portfolio and may be amended
only in accordance with the 1940 Act.
21. GOVERNING LAW. This Agreement shall be governed by, and construed in
accordance with the laws of, the Commonwealth of Massachusetts.
22. EFFECTIVE DATE. This Agreement shall become effective on the day and
year first written above.
WNL SERIES TRUST
By:/S/DWIGHT L. CRAMER
____________________________________________
Title: Vice President
WNL INVESTMENT ADVISORY SERVICES, INC.
By:/S/KURT R. FREDLAND
____________________________________________
Title: Vice President
CREDIT SUISSE INVESTMENT MANAGEMENT LIMITED
By:/S/DAVID COLLINS
____________________________________________
Title: Compliance Officer
A copy of the document establishing the Trust is filed with the Secretary of
the Commonwealth of Massachusetts. This Agreement is executed by officers not
as individuals and is not binding upon any of the Trustees, officers or
shareholders of the Trust individually but only upon the assets of each
Portfolio.
EXHIBIT A
WNL SERIES TRUST
SUB-ADVISORY COMPENSATION
CREDIT SUISSE INTERNATIONAL EQUITY PORTFOLIO
For all services rendered by Sub-Adviser hereunder, Adviser shall pay to
Sub-Adviser and Sub-Adviser agrees to accept as full compensation for all
services rendered hereunder, a monthly fee of:
.65 of 1% on an annualized basis of average daily net assets under
management.
SUB-ADVISORY AGREEMENT
Sub-Advisory Agreement executed as of August 23, 1995 among WNL INVESTMENT
ADVISORY SERVICES, INC., a Delaware corporation (the "Adviser"), BLACKROCK
FINANCIAL MANAGEMENT, INC., a Delaware corporation (the "Sub-Adviser"), and
WNL SERIES TRUST, a Massachusetts business trust (the "Trust").
W I T N E S S E T H:
That in consideration of the mutual covenants herein contained, it is agreed
as follows:
1. SERVICES TO BE RENDERED BY SUB-ADVISER TO THE TRUST.
(a) Subject always to the control of the Trustees of the Trust and to
the overall supervision of the Adviser, the Sub-Adviser, at its expense, will
furnish continuously an investment program for the portfolio represented by
shares of BlackRock Managed Bond Portfolio (the "Portfolio"). The Sub-Adviser
will make investment decisions on behalf of the Portfolio and place all orders
for the purchase and sale of portfolio securities. In the performance of its
duties, the Sub-Adviser will comply with the provisions of the Trust's
Declaration of Trust, the By-laws of the Trust and the stated investment
objectives, policies and restrictions of the Portfolio as set forth in its
registration statement on Form N-1A, File No. 33-87380, and will use its best
efforts to safeguard and promote the welfare of the Portfolio, and to comply
with other policies which the Trustees or the Adviser, as the case may be, may
from time to time determine. Copies of the Trust's Registration Statement,
including exhibits, have been or will be provided to the Sub-Adviser, and the
Adviser agrees promptly to provide the Sub-Adviser with all amendments or
supplements to the Registration Statement. The Sub-Adviser shall make its
officers and employees available to the Adviser at reasonable times to review
investment policies of the Portfolio and to consult with the Adviser regarding
the investment affairs of the Portfolio.
(b) The Sub-Adviser, at its expense, will furnish all necessary office
space and equipment, bookkeeping and clerical services (excluding shareholder
accounting and transfer agency services) required for it to perform its duties
hereunder and will pay all salaries, fees and expenses of officers and
Trustees of the Trust who are affiliated with the Sub-Adviser and not
otherwise affiliated with the Adviser.
(c) In the selection of brokers, dealers, futures commissions merchants
or any other sources of portfolio investments for the Portfolio (hereafter,
"brokers or dealers") and the placing of orders for the purchase and sale of
portfolio investments for the Portfolio, the Sub-Adviser shall use its best
efforts to obtain the most favorable price and execution available, except to
the extent it may be permitted to pay higher brokerage commissions for
brokerage and research services as described below. In using its best efforts
to obtain the most favorable price and execution available, the Sub-Adviser,
bearing in mind the Portfolio's best interests at all times, shall consider
all factors it deems relevant, including by way of illustration, price, the
size of the transaction, the nature of the market for the security, the amount
of the commission, the timing of the transaction taking into account market
prices and trends, the reputation, experience and financial stability of the
broker or dealer involved and the quality of service rendered by the broker or
dealer in other transactions. Subject to such policies as the Trustees of the
Trust may determine, the Sub-Adviser shall not be deemed to have acted
unlawfully or to have breached any duty created by this Agreement or otherwise
solely by reason of its having caused the Trust to pay, on behalf of the
Portfolio, a broker or dealer that provides brokerage and research services to
the Sub-Adviser an amount of commission for effecting a portfolio investment
transaction in excess of the amount of commission another broker or dealer
would have charged for effecting that transaction, if the Sub-Adviser
determines in good faith that such amount of commission was reasonable in
relation to the value of the brokerage and research services provided by such
broker or dealer, viewed in terms of either that particular transaction or the
Sub-Adviser's overall responsibilities with respect to the Trust and to other
clients of the Sub-Adviser as to which the Sub-Adviser exercises investment
discretion. As provided in the Investment Advisory Agreement ("Advisory
Agreement") referred to in Section 3 below, the Trust agrees that any entity
or person associated with the Adviser or Sub-Adviser which is a member of a
national securities exchange is authorized to effect any transaction on such
exchange for the account of the Portfolio which is permitted by Section 11(a)
of the Securities Exchange Act of 1934 and Rule 11a2-2(T) thereunder, and the
Trust has consented to the retention of compensation for such transactions in
accordance with Rule 11a2-2(T)(2)(iv).
(d) The Sub-Adviser shall not be obligated to pay any expenses of or
for the Portfolio not expressly assumed by the Sub-Adviser pursuant to this
Section 1 other than as provided in Section 3.
(e) The Sub-Adviser shall maintain all books and records with respect
to the Portfolio's portfolio transactions required by subparagraphs (b)(5) -
(b)(11) and paragraph (f) of Rule 31a-1 under the Investment Company Act of
1940, as amended, and shall render to the Board of Trustees of the Trust such
periodic and special reports as the Board may reasonably request.
2. OTHER AGREEMENTS, ETC.
The Trust understands that the Sub-Adviser now acts, will continue to act and
may act in the future as investment adviser to fiduciary and other managed
accounts and as investment adviser to one or more other investment companies
or series of investment companies, and the Trust has no objection to the
Sub-Adviser so acting, provided that whenever the Portfolio and one or more
other accounts or investment companies advised by the Sub-Adviser have
available funds for investment, investments suitable and appropriate for each
will be allocated in accordance with procedures believed to be equitable to
each entity. Similarly, opportunities to sell securities will be allocated in
an equitable manner. The Trust recognizes that in some cases this procedure
may adversely affect the size of the position that may be acquired or disposed
of for the Portfolio. In addition, the Trust understands that the persons
employed by the Sub-Adviser to assist in the performance of the Sub-Adviser
's duties hereunder will not devote their full time to such service and
nothing contained herein shall be deemed to limit or restrict the right of the
Sub-Adviser or any affiliate of the Sub-Adviser to engage in and devote time
and attention to other businesses or to render services of whatever kind or
nature.
3. COMPENSATION TO BE PAID BY THE ADVISER TO THE SUB-ADVISER.
The Adviser will pay to the Sub-Adviser as compensation for the Sub-Adviser's
services rendered and for the expenses borne by the Sub-Adviser pursuant to
Section 1, a fee, computed and paid monthly at the annual rate of .30% of the
average daily net asset value of the Portfolio. The average daily net asset
value of the Portfolio shall be determined by taking an average of all of the
determinations of such net asset value during such month at the close of
business on each business day during such month while this Agreement is in
effect. For the purposes of determining fees payable to the Sub-Adviser, the
value of the net assets of the Portfolio shall be computed at the times and in
the manner specified in the Prospectus or Statement of Additional Information
relating to the Portfolio as from time to time in effect. Such fee shall be
payable for each month within 10 business days after the end of such month.
Notwithstanding the foregoing, in the event that any reduction in the fees
paid to the Adviser under the Advisory Agreement shall be required as a result
of any statutory or regulatory limitation on investment company expenses,
there shall be a proportionate reduction in the fee payable to the Sub-Adviser
hereunder; provided that the Sub-Adviser will never be required to pay more
than the amount of fees it receives.
If the Sub-Adviser shall serve for less than the whole of a month, the
foregoing compensation shall be prorated.
4. ASSIGNMENT TERMINATES THIS AGREEMENT; AMENDMENTS OF THIS AGREEMENT.
This Agreement shall automatically terminate, without the payment of any
penalty, in the event of its assignment or in the event that the Advisory
Agreement shall have terminated for any reason; and this Agreement shall not
be amended unless such amendment be approved at a meeting by the affirmative
vote of a majority of the outstanding shares of the Portfolio, and by the
vote, cast in person at a meeting called for the purpose of voting on such
approval, of a majority of the Trustees of the Trust who are not interested
persons of the Trust or of the Adviser or of the Sub-Adviser.
5. EFFECTIVE PERIOD AND TERMINATION OF THIS AGREEMENT.
This Agreement shall become effective upon its execution, and shall remain in
full force and affect continuously thereafter (unless terminated automatically
as set forth in Section 4) until terminated as follows:
(a) The Trust may at any time terminate this Agreement by not more than
sixty days' written notice delivered or mailed by registered mail, postage
prepaid, to the Adviser and the Sub-Adviser, or
(b) If (i) the Trustees of the Trust or the shareholders by the
affirmative vote of a majority of the outstanding shares of the Portfolio, and
(ii) a majority of the Trustees of the Trust who are not interested persons of
the Trust or of the Adviser or of the Sub-Adviser, by vote cast in person at a
meeting called for the purpose of voting on such approval, do not specifically
approve at least annually the continuance of this Agreement, then this
Agreement shall automatically terminate at the close of business on the second
anniversary of its execution, or upon the expiration of one year from the
effective date of the last such continuance, whichever is later; provided,
however, that if the continuance of this Agreement is submitted to the
shareholders of the Portfolio for their approval and such shareholders fail to
approve such continuance of this Agreement as provided herein, the Sub-Adviser
may continue to serve hereunder in a manner consistent with the Investment
Company Act of 1940 and the Rules and Regulations thereunder, or
(c) The Adviser may at any time terminate this Agreement by not less
than sixty days' written notice delivered or mailed by registered mail,
postage prepaid, to the Sub-Adviser, and the Sub-Adviser may at any time
terminate this Agreement by not less than ninety days' written notice
delivered or mailed by registered mail, postage prepaid, to the Adviser.
Action by the Trust under (a) above may be taken either (i) by vote of a
majority of its Trustees, or (ii) by the affirmative vote of a majority of the
outstanding shares of the Portfolio.
Termination of this Agreement pursuant to this Section 5 shall be without the
payment of any penalty.
6. CERTAIN INFORMATION.
The Sub-Adviser shall promptly notify the Adviser in writing of the
occurrence of any of the following events: (a) the Sub-Adviser shall fail to
be registered as an investment adviser under the Investment Advisers Act of
1940, as amended from time to time, and under the laws of any jurisdiction in
which the Sub-Adviser is required to be registered as an investment adviser
in order to perform its obligations under this Agreement, (b) the Sub-Adviser
shall have been served or otherwise have notice of any action, suit,
proceeding, inquiry or investigation, at law or in equity, before or by any
court, public board or body, involving the affairs of the Trust and (c) there
shall be any change in the control of the Sub-Adviser.
The Adviser represents that it has received a copy of Part II of the
Sub-Adviser's Form ADV.
7. CERTAIN DEFINITIONS.
For the purposes of this Agreement, the "affirmative vote of a majority of the
outstanding shares" of the Portfolio means the affirmative vote, at a duly
called and held meeting of shareholders, (a) of the holders of 67% or more of
the shares of the Portfolio present (in person or by proxy) and entitled to
vote at such meeting, if the holders of more than 50% of the outstanding
shares of the Portfolio entitled to vote at such meeting are present in person
or by proxy, or (b) of the holders of more than 50% of the outstanding shares
of the Portfolio entitled to vote at such meeting, whichever is less.
For the purposes of this Agreement, the terms "affiliated person", "control",
"interested person" and "assignment" shall have their respective meanings
defined in the Investment Company Act of 1940 and the Rules and Regulations
thereunder, subject, however, to such exemptions as may be granted by the
Securities and Exchange Commission under said Act; the term "specifically
approve at least annually" shall be construed in a manner consistent with the
Investment Company Act of 1940 and the Rules and Regulations thereunder; and
the term "brokerage and research services" shall have the meaning given in the
Securities Exchange Act of 1934 and the Rules and Regulations thereunder.
8. INDEMNIFICATION.
The Adviser shall indemnify and hold harmless the Sub-Adviser, its officers
and directors and each person, if any, who controls the Sub-Adviser within the
meaning of Section 15 of the Securities Act of 1933 ("1933 Act") (any and all
such persons shall be referred to as "Indemnified Party"), against any loss,
liability, claim, damage or expense (including the reasonable cost of
investigating or defending any alleged loss, liability, claim, damages or
expense and reasonable counsel fees incurred in connection therewith), arising
by reason of any matter to which this Sub-Advisory Agreement relates.
However, in no case (i) is this indemnity to be deemed to protect any
particular Indemnified Party against any liability to which such Indemnified
Party would otherwise be subject by reason of willful misfeasance, bad faith
or gross negligence in the performance of its duties or by reason of reckless
disregard of its obligations and duties under this Sub-Advisory Agreement or
(ii) is the Adviser to be liable under this indemnity with respect to any
claim made against any particular Indemnified Party unless such Indemnified
Party shall have notified the Adviser in writing within a reasonable time
after the summons or other first legal process giving information of the
nature of the claim shall have been served upon the Sub-Adviser or such
controlling persons.
The Sub-Adviser shall indemnify and hold harmless the Adviser and each of its
directors and officers and each person if any who controls the Adviser within
the meaning of Section 15 of the 1933 Act, against any loss, liability, claim,
damage or expense described in the foregoing indemnity, but only with respect
to the Sub-Adviser's willful misfeasance, bad faith or gross negligence in the
performance of its duties under this Sub-Advisory Agreement. In case any
action shall be brought against the Adviser or any person so indemnified, in
respect of which indemnity may be sought against the Sub-Adviser, the
Sub-Adviser shall have the rights and duties given to the Adviser, and the
Adviser and each person so indemnified shall have the rights and duties given
to the Sub-Adviser by the provisions of subsections (i) and (ii) of this
section.
9. LIMITATION OF LIABILITY OF THE TRUSTEES AND SHAREHOLDERS.
A copy of the Declaration of Trust of the Trust is on file with the Secretary
of the Commonwealth of Massachusetts, and notice is hereby given that this
instrument is executed on behalf of the Trustees of the Trust as Trustees and
not individually and that the obligations of this instrument are not binding
upon any of the Trustees or shareholders individually but are binding only
upon the assets and property of the Portfolio.
10. MARKETING SUPPORT.
The Sub-Adviser shall provide marketing support to the Adviser in connection
with the sale of Trust shares and/or the sale of variable annuity and variable
life insurance contracts issued by Western National Life Insurance Company and
its affiliates which may invest in the Trust (collectively, the "Life
Company"), as reasonably requested by the Adviser. Such support shall
include, but not necessarily be limited to, presentations by representatives
of the Sub-Adviser at investment seminars, conferences and other industry
meetings. Any materials utilized by the Adviser which contain any information
relating to the Sub-Adviser shall be submitted to the Sub-Adviser for
approval prior to use, not less than five (5) business days before such
approval is needed by the Adviser. Any materials utilized by the Sub-Adviser
which contain any information relating to the Adviser, the Life Company
(including any information relating to its separate accounts or variable
annuity or variable life insurance contracts) or the Trust shall be submitted
to the Adviser for approval prior to use, not less than five (5) business days
before such approval is needed by the Sub-Adviser.
11. GOVERNING LAW.
This Agreement shall be construed in accordance with and governed by the laws
of the Commonwealth of Massachusetts.
12. COMPLIANCE WITH LAWS.
The Sub-Adviser represents that it is, and will continue to be throughout the
term of this Agreement, an investment adviser registered under all applicable
federal and state laws. In all matters relating to the performance of this
Agreement, the Sub-Adviser will act in conformity with the Trust's
Declaration of Trust, Bylaws, and current Registration Statement applicable to
the Portfolio and with the instructions and direction of the Adviser and the
Trust's Trustees, and will conform to and comply with the Investment Company
Act of 1940 and all other applicable federal or state laws and regulations.
IN WITNESS WHEREOF, The parties have each caused this instrument to be signed
in triplicate on its behalf by its duly authorized representative, all as of
the day and year first above written.
WNL SERIES TRUST
By:/S/DWIGHT L. CRAMER
_________________________________
Name: Dwight L. Cramer
Title: Vice President
BLACKROCK FINANCIAL MANAGEMENT, INC.
By:/S/LAURENCE D. FINK
_________________________________
Name: Laurence D. Fink
Title: Chairman & Chief Executive
Officer
WNL INVESTMENT ADVISORY SERVICES, INC.
By:/S/KURT R. FREDLAND
_________________________________
Name: Kurt R. Fredland
Title: Vice President
SUB-ADVISORY AGREEMENT
THIS AGREEMENT, made this 23rd day of August, 1995, is among QUEST FOR VALUE
ADVISORS, a Delaware general partnership (the "Sub-Adviser"), WNL INVESTMENT
ADVISORY SERVICES, INC., a Delaware corporation (the "Adviser"), and WNL
SERIES TRUST, a Massachusetts business trust (the "Trust").
BACKGROUND INFORMATION
(A) The Adviser has entered into an Investment Advisory Agreement dated
as of August 23, 1995, with the Trust, a copy of which agreement is attached
hereto as Exhibit A (the "Investment Advisory Agreement"). Pursuant to the
Investment Advisory Agreement, the Adviser has agreed to render investment
advisory and certain other management services to all of the Portfolios of the
Trust, and the Trust has agreed to employ the Adviser to render such services
and to pay to the Adviser certain fees therefore. The Investment Advisory
Agreement recognizes that the Adviser may enter into agreements with other
investment advisers who will serve as Sub-Advisers to the Portfolios of the
Trust.
(B) The parties hereto wish to enter into an agreement whereby the
Sub-Adviser will provide to the Quest for Value Asset Allocation Portfolio
(the "Portfolio") securities investment advisory services for the Portfolio.
WITNESSETH THAT:
In consideration of the mutual covenants herein contained, the Trust, the
Adviser and the Sub-Adviser agree as follows:
(1) The Trust and Adviser hereby employ the Sub-Adviser to render
certain investment advisory services to the Portfolio as set forth herein.
The Sub-Adviser hereby accepts such employment and agrees to perform such
services on the terms herein set forth, and for the compensation herein
provided.
(2) The Sub-Adviser shall furnish the Portfolio advice with respect to
the investment and reinvestment of the assets of the Portfolio in accordance
with the investment objectives, restrictions and limitations of the Portfolio,
as set forth in the Trust's most recent Registration Statement.
(3) The Sub-Adviser shall perform a monthly reconciliation of the
Portfolio to the holdings report provided by the Trust's custodian and bring
any material or significant variances regarding holding or valuation to the
attention of the Adviser.
(4) The Sub-Adviser shall for all purposes herein be deemed to be an
independent contractor. The Sub-Adviser has no authority to act for or
represent the Trust or the Portfolio in any way except to direct securities
transactions pursuant to its investment advice hereunder. The Sub-Adviser is
not an agent of the Trust or the Portfolio.
(5) It is understood that the Sub-Adviser does not, by this Agreement,
undertake to assume or pay any costs or expenses of the Trust or the
Portfolio.
(6)(a) The Adviser agrees to pay the Sub-Adviser for its services to be
furnished under this Agreement the fees set forth in Exhibit B attached
hereto. Such fees, with respect to each calendar month after the effective
date of this Agreement, shall be paid on the twentieth (20th) day after the
close of each calendar month.
(6)(b) The payment of all fees provided for hereunder shall be prorated
and reduced for sums payable for a period less than a full month in the event
of termination of this Agreement on a day that is not the end of a calendar
month.
(6)(c) For the purposes of this Paragraph 6, the daily closing net asset
values of the Portfolio shall be computed in the manner specified in the
Registration Statement for the computation of the value of such net assets in
connection with the determination of the net asset value of the Portfolio's
shares.
(7) The services of the Sub-Adviser hereunder are not to be deemed to be
exclusive, and the Sub-Adviser is free to render services to others and to
engage in other activities so long as its services hereunder are not impaired
thereby. Without in any way relieving the Sub-Adviser of its responsibilities
hereunder, it is agreed that the Sub-Adviser may employ others to furnish
factual information, economic advice and/or research, and investment
recommendations, upon which its investment advice and service is furnished
hereunder.
(8) In the absence of willful misfeasance, bad faith or gross negligence
in the performance of its duties hereunder, or reckless disregard of its
obligations and duties hereunder, the Sub-Adviser shall not be liable to the
Trust, the Portfolio or the Adviser or to any shareholder or shareholders of
the Trust, the Portfolio, or the Adviser for any mistake of judgment, act or
omission in the course of, or connected with, the services to be rendered by
the Sub-Adviser hereunder.
(9) In connection with the management of the investment and reinvestment
of the assets of the Portfolio, the Sub-Adviser is authorized to select the
brokers or dealers including Oppenheimer & Co., Inc. ("Opco") that will
execute purchase and sale transactions for the Portfolio, and is directed to
use its best efforts to obtain the best available price and most favorable
execution with respect to such purchases and sales of portfolio securities for
the Trust. Subject to this primary requirement, and maintaining as its first
consideration the benefits for the Portfolio, and its shareholders, the
Sub-Adviser shall have the right, subject to the approval of the Board of
Trustees of the Trust and of the Adviser, to follow a policy of selecting
brokers and dealers who furnish statistical research and other services to the
Portfolio, the Adviser, or the Sub-Adviser and, subject to the Rules of Fair
Practice of the National Association of Securities Dealers, Inc., to take into
account the sale of variable contracts which are invested in Trust shares in
allocating to brokers and dealers purchase and sale orders for portfolio
securities, provided the Sub-Adviser believes that the quality of the
transaction and commission are comparable to what they would be with other
qualified firms.
The Adviser and the Trust's Portfolio recognize and intend that subject to the
foregoing provisions of this Section, Opco will act as its regular broker so
long as it is lawful for it so to act and that Opco may be a major recipient
of brokerage commissions paid by the Trust's Portfolio. Opco may effect
securities transactions for the Portfolio only if (1) the commissions, fees or
other remuneration received or to be received by it are reasonable and fair
compared to the commissions, fees or other remuneration received by other
brokers in connection with comparable transactions involving similar
securities being purchased or sold on a securities exchange during a
comparable period of time and (2) the Trustees, including a majority of those
Trustees who are not interested persons, have adopted procedures pursuant to
Rule 17e-1 under the Investment Company Act of 1940 for determining the
permissible level of such commissions. The Portfolio will not purchase any
securities from or sell any securities to Opco acting as principal for its own
account.
(10) The Trust may terminate this Agreement by sixty days written notice
to the Adviser and the Sub-Adviser at any time, without the payment of any
penalty, by vote of the Trust's Board of Trustees, or by vote of a majority of
its outstanding voting securities. The Adviser may terminate this Agreement
by sixty days written notice to the Sub-Adviser and the Sub-Adviser may
terminate this Agreement by sixty days written notice to the Adviser, without
the payment of any penalty. This Agreement shall immediately terminate in the
event of its assignment, unless an order is issued by the Securities and
Exchange Commission conditionally or unconditionally exempting such assignment
from the provision of Section 15(a) of the Investment Company Act of 1940, in
which event this Agreement shall remain in full force and effect. This
Agreement will terminate automatically upon the termination of the Investment
Advisory Agreement.
(11) Subject to prior termination as provided above, this Agreement
shall continue in force for a period of two years from the date of execution
and from year to year thereafter if its continuance after said date: (1) is
specifically approved on or before said date and at least annually thereafter
by vote of the Board of Trustees of the Trust, including a majority of those
Trustees who are not parties to this Agreement or interested persons of any
such party, or by vote of a majority of the outstanding voting securities of
the Trust, and (2) is specifically approved at least annually by the vote of a
majority of Trustees of the Trust who are not parties to this Agreement or
interested persons of any such party cast in person at a meeting called for
the purpose of voting on such approval.
(12) The Adviser shall indemnify and hold harmless the Sub-Adviser, its
officers and directors and each person, if any, who controls the Sub-Adviser
within the meaning of Section 15 of the Securities Act of 1933 ("1933 Act")
(any and all such persons shall be referred to as "Indemnified Party"),
against any loss, liability, claim, damage or expense (including the
reasonable cost of investigating or defending any alleged loss, liability,
claim, damages or expense and reasonable counsel fees incurred in connection
therewith), arising by reason of any matter to which this Sub-Advisory
Agreement relates. However, in no case (i) is this indemnity to be deemed to
protect any particular Indemnified Party against any liability to which such
Indemnified Party would otherwise be subject by reason of willful misfeasance,
bad faith or gross negligence in the performance of its duties or by reason of
reckless disregard of its obligations and duties under this Sub-Advisory
Agreement or (ii) is the Adviser to be liable under this indemnity with
respect to any claim made against any particular Indemnified Party unless such
Indemnified Party shall have notified the Adviser in writing within a
reasonable time after the summons or other first legal process giving
information of the nature of the claim shall have been served upon the
Sub-Adviser or such controlling persons.
The Sub-Adviser shall indemnify and hold harmless the Adviser and each of
its directors and officers and each person if any who controls the Adviser
within the meaning of Section 15 of the 1933 Act, against any loss, liability,
claim, damage or expense described in the foregoing indemnity, but only with
respect to the Sub-Adviser's willful misfeasance, bad faith or gross
negligence in the performance of its duties under this Sub-Advisory Agreement.
In case any action shall be brought against the Adviser or any person so
indemnified, in respect of which indemnity may be sought against the
Sub-Adviser, the Sub-Adviser shall have the rights and duties given to the
Adviser, and the Adviser and each person so indemnified shall have the rights
and duties given to the Sub-Adviser by the provisions of subsections (i) and
(ii) of this section.
(13) The Sub-Adviser shall provide marketing support to the Adviser in
connection with the sale of Trust shares and/or the sale of variable annuity
and variable life insurance contracts issued by Western National Life
Insurance Company and its affiliates which may invest in the Trust
(collectively, the "Life Company"), as reasonably requested by the Adviser.
Such support shall include, but not necessarily be limited to, presentations
by representatives of the Sub-Adviser at investment seminars, conferences and
other industry meetings. Any materials utilized by the Adviser which contain
any information relating to the Sub-Adviser shall be submitted to the
Sub-Adviser for approval prior to use, not less than five (5) business days
before such approval is needed by the Adviser. Any materials utilized by the
Sub-Adviser which contain any information relating to the Adviser, the Life
Company (including any information relating to its separate accounts or
variable annuity or variable life insurance contracts) or the Trust shall be
submitted to the Adviser for approval prior to use, not less than five (5)
business days before such approval is needed by the Sub-Adviser. No such
materials shall be used if the Sub-Adviser or the Adviser reasonably objects
in writing to such use within five days after receipt of such material.
(14) This Agreement shall be governed by the laws of the Commonwealth of
Massachusetts.
(15) The Sub-Adviser agrees to notify the parties within a reasonable
period of time regarding a material change in the membership of the
Sub-Adviser.
(16) The terms "vote of a majority of the outstanding voting
securities," "assignment" and "interested persons," when used herein, shall
have the respective meanings specified in the Investment Company Act of 1940
as now in effect or as hereafter amended.
(17) This Agreement is executed by the Trustees of the Trust, not
individually, but rather in their capacity as Trustees under the Declaration
of Trust dated December 12, 1994, as amended April 19, 1995. None of the
Shareholders, Trustees, officers, employees, or agents of the Trust shall be
personally bound or liable under this Agreement, nor shall resort be had to
their private property for the satisfaction of any obligation or claim
hereunder but only to the property of the Trust and, if the obligation or
claim relates to the property held by the Trust for the benefit of one or more
but fewer than all Portfolios, then only to the property held for the benefit
of the affected Portfolio.
(18) This Agreement will become binding on the parties hereto upon their
execution of the attached Exhibit B to the Agreement.
(19) Any notice hereunder shall be deemed duly given if sent by hand,
evidenced by written receipt or by certified mail, return receipt requested,
to the parties at the address set forth below:
If to the Sub-Adviser:
Quest for Value Advisors
One World Financial Center
200 Liberty Street
New York, NY 10281
Attn: Thomas E. Duggan, Esq.
General Counsel and Secretary
If to the Adviser:
WNL Investment Advisory Services, Inc.
5555 San Felipe, Suite 900
Houston, TX 77056
Attn: Dwight L. Cramer, Esq.
If to the Trust:
WNL Series Trust
5555 San Felipe, Suite 900
Houston, TX 77056
Attn: Dwight L. Cramer, Esq.
or to such other address as to which the recipient shall have informed the
other party in writing.
EXHIBIT B
WNL SERIES TRUST
SUB-ADVISORY COMPENSATION
For all services rendered by Sub-Adviser hereunder, Adviser shall pay to
Sub-Adviser and Sub-Adviser agrees to accept as full compensation for all
services rendered hereunder, monthly a fee of:
QUEST FOR VALUE ASSET ALLOCATION PORTFOLIO
.40 of 1% on an annualized basis of net assets under management.
WNL SERIES TRUST
By:/S/DWIGHT L. CRAMER
________________________________________
Title: Vice President
WNL INVESTMENT ADVISORY SERVICES, INC.
By:/S/KURT R. FREDLAND
_________________________________________
Title: Vice President
QUEST FOR VALUE ADVISORS
By:/S/BERNARD H. GARIL
_________________________________________
Title: President
A copy of the document establishing the Trust is filed with the Secretary of
the Commonwealth of Massachusetts. This Agreement is executed by officers not
as individuals and is not binding upon any of the Trustees, officers or
shareholders of the Trust individually but only upon the assets of the
Portfolio.
SUB-ADVISORY AGREEMENT
AGREEMENT dated and effective as of August 23, 1995, among SALOMON BROTHERS
ASSET MANAGEMENT INC, a Delaware corporation (the "Sub-Adviser"), WNL
INVESTMENT ADVISORY SERVICES, INC., a Delaware corporation (the "Adviser"),
and WNL SERIES TRUST, a Massachusetts business trust (the "Trust").
WHEREAS, the Adviser has entered into an Investment Advisory Agreement (the
"Advisory Agreement") dated August 23, 1995 with the Trust, an open-end
management investment company registered under the Investment Company Act of
1940, as amended (the "1940 Act"), pursuant to which the Adviser provides
investment advisory services to the Trust; and
WHEREAS, the Adviser has the authority to delegate its investment advisory
responsibilities under the Advisory Agreement to one or more sub-advisers; and
WHEREAS, the Adviser desires to retain the Sub-Adviser to provide investment
advisory services to the Salomon Brothers U.S. Government Securities Portfolio
of the Trust.
NOW, THEREFORE, the parties hereto agree as follows:
1. The Adviser employs the Sub-Adviser, subject to the direction and control
of the Trustees of the Trust, including without limitation any approval of the
Trustees of the Trust required by the 1940 Act, to (a) make, in consultation
with the Adviser and the Trust's Board of Trustees, investment strategy
decisions for the Trust, (b) manage the investing and reinvesting of the
Trust's assets and (c) place purchase and sale orders on behalf of the Trust.
The Sub-Adviser shall have the sole ultimate discretion over investment
decisions for the Trust.
2. (a) The Adviser shall provide (or cause the Trust's custodian to provide)
timely information to the Sub-Adviser regarding such matters as the
composition of assets in the Portfolio, cash requirements and cash available
for investment in that Portfolio, and all other information as may be
reasonably necessary for the Sub-Adviser to perform its responsibilities
hereunder.
(b) The Adviser agrees to furnish the Sub-Adviser with minutes of
meetings of the Board of Trustees of the Trust applicable to the Trust to the
extent they may affect the duties of the Sub-Adviser, and with copies of any
financial statements or reports made by the Trust to its shareholders, and any
further materials or information which the Sub-Adviser may reasonably request
to enable it to perform its functions under this Agreement.
3. (a) The Sub-Adviser shall, at its expense, provide office space, office
facilities and personnel reasonably necessary for performance of the services
to be provided by the Sub-Adviser pursuant to this Agreement.
(b) Except as provided in subparagraph 3(a) hereof, the Trust shall be
responsible for all of the Trust's expenses and liabilities, including
organizational and offering expenses; expenses for legal, accounting and
auditing services; taxes and governmental fees, dues and expenses incurred in
connection with membership in investment company organizations; costs of
printing and distributing shareholder reports, proxy materials, prospectuses,
stock certificates and distribution of dividends; charges of the Trust's
custodians and sub-custodians, administrators and sub-administrators,
registrars, transfer agents, dividend disbursing agents and dividend
reinvestment plan agents; payment for portfolio pricing services to a pricing
agent, if any; registration and filing fees of the Securities and Exchange
Commission (the "SEC"); any expenses of registering or qualifying securities
of the Trust for sale in the various states; freight and other charges in
connection with the shipment of the Trust's portfolio securities; fees and
expenses of non-interested Trustees; travel expenses or an appropriate portion
thereof of Trustees and officers of the Trust who are directors, officers or
employees of the Sub-Adviser to the extent that such expenses relate to
attendance at meetings of the Board of Trustees or any committee thereof;
costs of shareholders meetings; insurance; interest; brokerage costs, and
litigation and other extraordinary or non-recurring expenses.
4. The Sub-Adviser shall make investments for the Trust's account in
accordance with the investment objectives, policies and limitations set forth
in the Trust's Declaration of Trust, as amended from time to time (the
"Declaration"), the Registration Statement, as in effect from time to time
(the "Registration Statement"), filed with the SEC by the Trust under the 1940
Act and the Securities Act of 1933, as amended (the "1933 Act"), the
provisions of the Internal Revenue Code of 1986, as amended, and policy
decisions adopted by the Trust's Board of Trustees from time to time. Copies
of any amendments to the documents referred to in the preceding sentence shall
be promptly furnished to the Sub-Adviser. The Sub-Adviser shall advise the
Trust's officers and Board of Trustees, at such times as the Trust's Board of
Trustees may specify, of investments made for the Trust's account and shall,
when requested by the Trust's officers or Board of Trustees, supply the
reasons for making such investments.
5. The Sub-Adviser may contract with or consult with such banks, other
securities firms, brokers or other parties, without additional expense to the
Trust, as it may deem appropriate regarding investment advice, research and
statistical data, clerical assistance or otherwise.
6. The Sub-Adviser is authorized on behalf of the Trust, from time to time
when deemed to be in the best interests of the Trust and to the extent
permitted by applicable law, to select brokers (including Salomon Brothers
Inc. or any other brokers affiliated with the Sub-Adviser) for the execution
of trades for the Trust.
7. The Sub-Adviser is authorized, for the purchase and sale of the Trust's
portfolio securities, to employ such dealers and brokers as may, in the
judgment of the Sub-Adviser, implement the policy of the Trust to obtain the
best results taking into account such factors as price, including dealer
spread, the size, type and difficulty of the transaction involved, the firm's
general execution and operational facilities and the firm's risk in
positioning the securities involved. Consistent with this policy, the
Sub-Adviser is authorized to direct the execution of the Trust's portfolio
transactions to dealers and brokers furnishing statistical information or
research deemed by the Sub-Adviser to be useful or valuable to the performance
of its investment advisory functions for the Trust. Information so received
will be in addition to and not in lieu of the services required to be
performed by the Sub-Adviser. It is understood that the expenses of the
Sub-Adviser will not necessarily be reduced as a result of the receipt of such
information or research.
8. In consideration of the services to be rendered by the Sub-Adviser under
this Agreement, the Adviser shall pay the Sub-Adviser the fee as set forth in
Exhibit A of this Agreement. If the fee payable to the Sub-Adviser pursuant
to this paragraph 8 and Exhibit A hereto begins to accrue before the end of
any month or if this Agreement terminates before the end of any month, the fee
for the period from such date to the end of such month or from the beginning
of such month to the date of termination, as the case may be, shall be
prorated according to the proportion which such period bears to the full month
in which such effectiveness or termination occurs. For purposes of
calculating each such monthly fee, the value of the Trust's net assets shall
be computed at the time and in the manner specified in the Registration
Statement.
9. The Sub-Adviser shall provide marketing support to the Adviser in
connection with the sale of Trust shares and/or the sale of variable annuity
and variable life insurance contracts issued by Western National Life
Insurance Company and its affiliates which may invest in the Trust
(collectively, the "Life Company"), as reasonably requested by the Adviser.
Such support shall include, but not necessarily be limited to, presentations
by representatives of the Sub-Adviser at investment seminars, conferences and
other industry meetings. Any materials utilized by the Adviser which contain
any information relating to the Sub-Adviser shall be submitted to the
Sub-Adviser for approval prior to use, not less than five (5) business days
before such approval is needed by the Adviser. Any materials utilized by the
Sub-Adviser which contain any information relating to the Adviser, the Life
Company (including any information relating to its separate accounts or
variable annuity or variable life insurance contracts) or the Trust shall be
submitted to the Adviser for approval prior to use, not less than five (5)
business days before such approval is needed by the Sub-Adviser.
10. The Sub-Adviser represents and warrants that it is duly registered and
authorized as an investment adviser under the Investment Advisers Act of 1940,
as amended, and the Sub-Adviser agrees to maintain effective all requisite
registrations, authorizations and licenses, as the case may be, until
termination of this Agreement.
11. The Adviser shall indemnify and hold harmless the Sub-Adviser, its
officers and directors and each person, if any, who controls the Sub-Adviser
within the meaning of Section 15 of the 1933 Act (any and all such persons
shall be referred to as "Indemnified Party"), against any loss, liability,
claim, damage or expense (including the reasonable cost of investigating or
defending any alleged loss, liability, claim, damages or expense and
reasonable counsel fees incurred in connection therewith), arising by reason
of any matter to which this Sub-Advisory Agreement relates. However, in no
case (i) is this indemnity to be deemed to protect any particular Indemnified
Party against any liability to which such Indemnified Party would otherwise be
subject by reason of willful misfeasance, bad faith or gross negligence in the
performance of its duties or by reason of reckless disregard of its
obligations and duties under this Sub-Advisory Agreement or (ii) is the
Adviser to be liable under this indemnity with respect to any claim made
against any particular Indemnified Party unless such Indemnified Party shall
have notified the Adviser in writing within a reasonable time after the
summons or other first legal process giving information of the nature of the
claim shall have been served upon the Sub-Adviser or such controlling persons.
The Sub-Adviser shall indemnify and hold harmless the Adviser and each of its
directors and officers and each person if any who controls the Adviser within
the meaning of Section 15 of the 1933 Act, against any loss, liability, claim,
damage or expense described in the foregoing indemnity, but only with respect
to the Sub-Adviser's willful misfeasance, bad faith or gross negligence in the
performance of its duties under this Sub-Advisory Agreement. In case any
action shall be brought against the Adviser or any person so indemnified, in
respect of which indemnity may be sought against the Sub-Adviser, the
Sub-Adviser shall have the rights and duties given to the Adviser, and the
Adviser and each person so indemnified shall have the rights and duties given
to the Sub-Adviser by the provisions of subsections (i) and (ii) of this
section.
12. This Agreement shall become effective as of the date of its execution
and continue in effect for two years from the date of execution, and
thereafter for successive annual periods, provided that such continuance is
specifically approved at least annually (a) by the vote of a majority
of the Trust's outstanding voting securities (as defined in the 1940 Act) or
by the Trust's Board of Trustees and (b) by the vote, cast in person at a
meeting called for the purpose, of a majority of the Trust's Trustees who are
not parties to this Agreement or "interested persons" (as defined in the
1940 Act)of any such party. This Agreement may be terminated at any time,
without the payment of any penalty, by (i) a vote of a majority of the
Trust's entire Board of Trustees on 60 days' written notice to the
Sub-Adviser or (ii) by the Sub-Adviser on 60 days' written notice to the
Adviser or (iii) by the Adviser on 60 days' written notice to the Sub-Adviser.
This Agreement shall terminate automatically (a) in the event of its
assignment (as defined in the 1940 Act) or (b) in the event of the
termination of the Advisory Agreement.
13. Nothing herein shall be deemed to limit or restrict the right of the
Sub-Adviser, or any affiliate of the Sub-Adviser, or any employee of the
Sub-Adviser, to engage in any other business or to devote time and attention
to the management or other aspects of any other business, whether of a similar
or dissimilar nature, or to render services of any kind to any other
corporation, firm, individual or association. Nothing herein shall be
construed as constituting the Sub-Adviser an agent of the Adviser or the
Trust.
14. This Agreement shall be governed by the laws of the Commonwealth of
Massachusetts, provided, however, that nothing herein shall be construed as
being inconsistent with the 1940 Act.
15. Any notice hereunder shall be in writing and shall be delivered in person
or by telex or facsimile (followed by delivery in person) to the parties at
the addresses set forth below.
If to the Sub-Adviser:
Salomon Brothers Asset Management Inc
Seven World Trade Center
New York, New York 10048
Tel: (212) 783-7000
Fax: (212) 783-4764
Attn: Tana E. Tselepis, Secretary
(b) If to the Adviser:
WNL Investment Advisory Services, Inc.
5555 San Felipe, Suite 900
Houston, Texas 77056
Tel: (713) 888-7807
Fax: (713) 888-7894
Attn: Dwight Cramer
or to such other address as to which the recipient shall have informed the
other party in writing.
Unless specifically provided elsewhere, notice given as provided above shall
be deemed to have been given, if by personal delivery, on the day of such
delivery, and, if by facsimile and mail, on the date on which such facsimile
is sent and mailed.
16. This Agreement may be executed in two or more counterparts, each of
which shall be deemed to be an original, but all of which together shall
constitute one and the same instrument. This Agreement will become binding
on the parties hereto upon their execution of the attached Exhibit A to this
Agreement.
EXHIBIT A
WNL SERIES TRUST
SUB-ADVISORY COMPENSATION
For all services rendered by Sub-Adviser hereunder, Adviser shall pay to
Sub-Adviser and Sub-Adviser agrees to accept as full compensation for all
services rendered hereunder, monthly a fee of:
SALOMON BROTHERS U.S. GOVERNMENT SECURITIES PORTFOLIO
.225 of 1% on an annualized basis of net assets under management.
WNL SERIES TRUST
By:/S/DWIGHT L. CRAMER
_________________________________________
Title: Vice President
WNL INVESTMENT ADVISORY SERVICES, INC.
By:/S/KURT R. FREDLAND
_________________________________________
Title: Vice President
SALOMON BROTHERS ASSET MANAGEMENT INC
By:/S/MICHAEL HYLAND
_________________________________________
Michael Hyland
President
A copy of the document establishing the Trust is filed with the Secretary of
the Commonwealth of Massachusetts. This Agreement is executed by officers not
as individuals and is not binding upon any of the Trustees, officers or
shareholders of the Trust individually but only upon the assets of each
Portfolio.
SUB-ADVISORY AGREEMENT
AGREEMENT dated as of August 23, 1995, among STATE STREET BANK AND TRUST
COMPANY, a Massachusetts trust company (the "Sub-Adviser"), WNL INVESTMENT
ADVISORY SERVICES, INC., a Delaware corporation (the "Adviser"), and WNL
SERIES TRUST, a Massachusetts business trust (the "Trust").
An Investment Advisory Agreement (the "Advisory Agreement") dated August 23,
1995, between the Adviser and the Trust on behalf of the Global Advisors
Growth Equity Portfolio and the Global Advisors Money Market Portfolio (each a
"Portfolio"), provides that the Adviser shall manage the investment of each
Portfolio's assets in accordance with the Trust's prospectus and statement of
additional information (the "Prospectus") and may delegate responsibilities to
a sub-adviser.
1. The Sub-Adviser will manage the investment and reinvestment of the assets
of each Portfolio in accordance with the Prospectus and will perform the other
services herein set forth, subject to the supervision of the Adviser and the
Board of Trustees of the Trust.
2. In carrying out its obligations hereunder, the Sub-Adviser shall:
(a) evaluate such economic, statistical and financial information and
undertake such investment research as it shall believe advisable;
(b) purchase and sell securities and other investments for each Portfolio
in accordance with the procedures described in the Prospectus; and
(c) provide such reports and data in hard copy and machine readable form
as are requested by the Adviser.
3. The Adviser shall pay the Sub-Adviser, for all services rendered to the
Portfolios by Sub-Adviser pursuant to the terms of this Agreement, the fees
set forth in Schedule A attached hereto. During the term of this Agreement,
the Sub-Adviser will bear all expenses incurred by it in the performance of
its duties hereunder.
4. The Sub-Adviser shall be free to render similar services to others so
long as its services hereunder are not impaired thereby.
5. This Agreement shall become effective as of the date of its execution, and
(a) unless otherwise terminated, shall continue until two years from its date
of execution and from year to year thereafter so long as approved annually in
accordance with the Investment Company Act of 1940, as amended, and the rules
thereunder (the "1940 Act"); (b) may be terminated without penalty on sixty
(60) days' written notice to the Sub-Adviser (i) by the Adviser, (ii) by vote
of the Board of Trustees of the Trust or (iii) by vote of a majority of the
outstanding voting securities of a Portfolio as to that Portfolio; (c) shall
automatically terminate in the event of its assignment; (d) may be terminated
without penalty by the Sub-Adviser on sixty (60) days' written notice to the
Adviser and the Trust; and (e) shall terminate automatically in the event of
the termination of the Advisory Agreement.
6. This Agreement may be amended in accordance with the 1940 Act.
7. For the purpose of this Agreement, the terms "vote of a majority of the
outstanding voting securities" and "assignment" shall have their respective
meanings defined in the 1940 Act and exemptions and interpretations issued by
the Securities and Exchange Commission under the 1940 Act.
8. In the absence of willful misfeasance, bad faith or gross negligence on
the part of the Sub-Adviser or reckless disregard of its obligations and
duties hereunder, the Sub-Adviser shall not be subject to any liability to the
Adviser, the Trust or a Portfolio, or to any shareholder of the Trust or a
Portfolio for any act or omission in the course of, or connected with,
rendering services hereunder.
9. The Sub-Adviser shall provide marketing support to the Adviser in
connection with the sale of Trust shares and/or the sale of variable annuity
and variable life insurance contracts issued by Western National Life
Insurance Company and its affiliates which may invest in the Trust
(collectively, the "Life Company"), as reasonably requested by the Adviser.
Such support shall include, but not necessarily be limited to, presentations
by representatives of the Sub-Adviser at investment seminars, conferences and
other industry meetings. Any materials utilized by the Adviser which contain
any information relating to the Sub-Adviser shall be submitted to the
Sub-Adviser for approval prior to use, not less than five (5) business
days before such approval is needed by the Adviser. Any materials utilized
by the Sub-Adviser which contain any information relating to the Adviser,
the Life Company (including any information relating to its separate
accounts or variable annuity or variable life insurance contracts) or the
Trust shall be submitted to the Adviser for approval prior to use, not less
than five (5) business days before such approval is needed by the Sub-Adviser.
SCHEDULE A
WNL SERIES TRUST
SUB-ADVISORY COMPENSATION
For all services rendered by the Sub-Adviser hereunder, the Adviser shall pay
to the Sub-Adviser and the Sub-Adviser agrees to accept as full compensation
for all services rendered hereunder, monthly a fee of:
GLOBAL ADVISORS GROWTH EQUITY PORTFOLIO
.36 of 1% on an annualized basis of net assets under management.
GLOBAL ADVISORS MONEY MARKET PORTFOLIO
.20 of 1% on an annualized basis of net assets under management.
WNL SERIES TRUST
By: /S/ DWIGHT L. CRAMER
______________________________________
Title: Vice President
WNL INVESTMENT ADVISORY SERVICES, INC.
By: /S/ KURT R. FREDLAND
______________________________________
Title: Vice President
STATE STREET BANK AND TRUST COMPANY
By: /S/ TIMOTHY B. HARBERT
______________________________________
Title: Senior Vice President
A copy of the document establishing the Trust is filed with the Secretary of
the Commonwealth of Massachusetts. This Agreement is executed by officers not
as individuals and is not binding upon any of the Trustees, officers or
shareholders of the Trust individually but only upon the assets of each
Portfolio.
April 30, 1996
Board of Trustees
WNL Series Trust
5555 San Felipe, Suite 900
Houston, Texas 77056 CN-1884
Re: Opinion of Counsel - WNL Series Trust
Gentlemen:
You have requested our Opinion of Counsel in connection with the filing with
the Securities and Exchange Commission of a Post-Effective Amendment to a
Registration Statement on Form N-1A with respect to WNL Series Trust.
We have made such examination of the law and have examined such records and
documents as in our judgment are necessary or appropriate to enable us to
render the opinions expressed below.
We are of the following opinions:
1. WNL Series Trust ("Trust") is a valid and existing unincorporated
voluntary association, commonly known as a business trust.
2. The Trust is a business Trust created and validly existing pursuant
to the Massachusetts Laws.
3. All of the prescribed Trust procedures for the issuance of the shares
have been followed, and, when such shares are issued in accordance with the
Prospectus contained in the Registration Statement for such shares, all state
requirements relating to such Trust shares will have been complied with.
4. Upon the acceptance of purchase payments made by shareholders in
accordance with the Prospectus contained in the Registration Statement and
upon compliance with applicable law, such shareholders will have
legally-issued, fully paid, non-assessable shares of the Trust.
You may use this opinion letter, or a copy thereof, as an exhibit to the
Registration.
We consent to the reference to our Firm under the caption "Legal Counsel"
contained in the Statement of Additional Information which forms a part of the
Registration Statement.
Sincerely,
BLAZZARD, GRODD & HASENAUER, P.C.
/S/RAYMOND A.O'HARA III
By: __________________________________________
Raymond A. O'Hara III
To the Board of Trustees of
WNL Series Trust:
We consent to the inclusion in Post-Effective Amendment No. 1 to the
Registration Statement of WNL Series Trust (the "Fund") on Form N-1A (File No.
33-87380) of our report dated February 7, 1996 on our audit of the financial
statements and financial highlights of the Fund, which report is included in
the Annual Report to Shareholders for the year ended December 31, 1995 which
is included in the Post-Effective Amendment to the Registration Statement.
We also consent to the reference to our Firm under the caption "Financial
Highlights" in the Prospectus and under the caption "Independent Auditors" in
the Statement of Additional Information of the Registration Statement.
COOPERS & LYBRAND L.L.P.
Boston, Massachusetts
April 30, 1996
EXHIBIT 16
SCHEDULE FOR COMPUTATION OF PERFORMANCE QUOTATIONS
AVERAGE ANNUAL TOTAL RETURNS
n
ENDING REDEEMABLE VALUE (ERV) = P(1+T)
Where: P = a hypothetical initial payment of $1,000
T = average annual total return
n = number of years entitled to receive dividends
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
Beginning of n since Return for Inception
Period Date inception the Period* T inception ERV
------------ --------- ----------- ----------- ----------
Inception Date through 12/31/95:
BEA Growth and Income 20-Oct-95 0.200 6.57 32.85 $ 1,058.45
Credit Suisse International Equity 20-Oct-95 0.200 3.93 19.65 $ 1,036.53
Global Advisors Growth Equity 20-Oct-95 0.200 3.57 17.85 $ 1,033.39
Global Advisors Money Market 10-Oct-95 0.227 1.17 5.15 $ 1,011.47
</TABLE>
*Total return represents aggregate return for the period indicated and is not
annualized.
EXHIBIT 16
SCHEDULE FOR COMPUTATION OF PERFORMANCE QUOTATIONS
YIELD
7 Day Yield = [a-b] * 365/7
-----
c
7 Day Effective Yield = [(a-b+1) * 365/7] -1
------------------
c
Where: a = interest earned during the period
b = expense accrued for the period (net of reimbursement)
c = the average number of shares outstanding during the period
that were entitled to receive dividends
Global Advisors Money Market Portfolio
As of December 31, 1995:
<TABLE>
<CAPTION>
<S> <C>
a = $ 115.60
b = 2.96
c = 127,114.139
7 Day Yield = 4.62%
7 Day Effective Yield = 4.73%
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000934349
<NAME> WNL SERIES TRUST
<SERIES>
<NUMBER> 01
<NAME> GLOBAL ADVISORS MONEY MARKET PORTFOLIO
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<NAME> WNL SERIES TRUST
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</TABLE>
<TABLE> <S> <C>
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<CIK> 0000934349
<NAME> WNL SERIES TRUST
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</TABLE>
