As filed with the Securities and Exchange Commission
on September 13, 1996.
Registration Nos. 33-88792
811-8960
==============================================================================
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. 3 [X]
(Check appropriate box or boxes.)
LPT VARIABLE INSURANCE SERIES TRUST
__________________________________________________
(Exact name of registrant as specified in charter)
1755 Creekside Oaks Drive
Sacramento, CA 95833
________________________________________ __________
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, Including Area Code (916) 641-4200
George Nicholson
London Pacific Life and Annuity Company
3109 Poplarwood Court
Raleigh, North Carolina 27604
(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
space):
__X__ immediately upon filing pursuant to paragraph (b) of Rule 485
_____ on (date) pursuant to paragraph (b) of Rule 485
_____ 60 days after filing pursuant to paragraph (a)(1) of Rule 485
_____ on (date) pursuant to paragraph (a)(1) 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
Pursuant to Rule 24f-2 of the Investment Company Act of 1940, Registrant has
registered an indefinite number of securities under the Securities Act of
1933.
==============================================================================
The Registrant hereby amends this Registration Statement on such date or dates
as may be necessary to delay its effective date until the Registrant shall
file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section
8(a), may determine.
LPT VARIABLE INSURANCE SERIES TRUST
CROSS REFERENCE SHEET
(as required by rule 404(c))
<TABLE>
<CAPTION>
<S> <C> <C>
PART A
N-1A
- --------
Item No. Location
- -------- ----------------------------
1. Cover Page......................... Cover Page
2. Synopsis........................... Not Applicable
3. Condensed Financial Information.... Not Applicable
4. General Description of Registrant.. Cover Page; Investment
Objectives and Policies;
Additional Information
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....................... 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
</TABLE>
CROSS REFERENCE SHEET (cont'd)
(as required by rule 404(c))
<TABLE>
<CAPTION>
<S> <C> <C>
N-1A
- --------
Item No. Location
- -------- ---------------------------------
14. Management of the Fund............. Management of the Trust
15. Control Persons and Principal
Holders of Securities......... Management of the Trust
16. Investment Advisory and Other
Services...................... Management of the Trust;
Independent Accountants;
Custodian
17. Brokerage Allocation............... Management of the Trust
(Brokerage and Research
Services)
18. Capital Stock and Other Securities. Sales and Redemptions (Part A);
Net Asset Value (Part A); Tax
Status, Dividends and Distribu-
tions (Part A); Organization and
Capitalization; Additional
Information (Part A)
19. Purchase, Redemption and Pricing of
Securities Being Offered...... Determination of Net Asset
Value; Sales and Redemptions
(Part A)
20. Tax Status......................... Taxes; Dividends and
Distributions
21. Underwriters....................... Not Applicable
22. Calculations of Yield Quotations of
Money Market Funds............ Performance Information
23. Financial Statements............... Not Applicable
</TABLE>
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.
PART A
The Prospectus for each of the eight series of the LPT Variable
Insurance Series Trust is incorporated into Part A of this Post-
Effective Amendment No. 1, by reference to the Prospectus for each
series of the Trust as filed electronically on May 20, 1996, pursuant
to Rule 497(e)(File No. 33-88792.)
LPT Variable Insurance Series Trust (the "Trust")
Supplement Dated September 13, 1996
To Prospectus Dated February 9, 1996
(As Amended May 1, 1996)
This Supplement contains financial highlights and notes thereto for the
Trust for the period ended June 30, 1996. With the filing of this
Supplement, the date of the Prospectus for each of the eight series of
the Trust is changed to September 13, 1996.
Financial Highlights
LPT VARIABLE INSURANCE SERIES TRUST
FINANCIAL HIGHLIGHTS
FOR THE PERIOD JANUARY 31, 1996 (COMMENCEMENT OF OPERATIONS)
TO JUNE 30, 1996 (UNAUDITED)
FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
SALOMON STRONG
MFS TOTAL U.S. QUALITY SALOMON INTERNATIONAL STRONG
MAS VALUE RETURN BOND MONEY MARKET STOCK GROWTH
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
--------- --------- ------------ ------------ ------------- ---------
Net asset value, beginning of
period $ 10.00 $ 10.00 $ 10.00 $ 1.00 $ 10.00 $ 10.00
INCOME FROM INVESTMENT OPERATIONS:
Net investment income 0.05 0.11 0.16 0.02 0.03 0.11
Net realized and unrealized gain
(loss) on investments 0.45 0.18 (0.36) 0.00 1.22 2.15
----------- ----------- -------------- -------------- --------------- -----------
Total from investment operations 0.50 0.29 (0.20) 0.02 1.25 2.26
----------- ----------- -------------- -------------- --------------- -----------
LESS DISTRIBUTIONS:
Dividends from net investment
income (0.01) (0.01) (0.01) (0.02) (0.00) (0.01)
Distributions from net realized
capital gains (0.00) (0.00) (0.00) (0.00) (0.00) (0.04)
----------- ----------- -------------- -------------- --------------- -----------
Total distributions (0.01) (0.01) (0.01) (0.02) (0.00) (0.05)
----------- ----------- -------------- -------------- --------------- -----------
Net asset value, end of period $ 10.49 $ 10.28 $ 9.79 $ 1.00 $ 11.25 $ 12.21
=========== =========== ============== ============== =============== ===========
TOTAL RETURN ++ 3.39% 1.80% (2.07)% 1.68% 11.95% 15.22%
=========== =========== ============== ============== =============== ===========
RATIOS TO AVERAGE NET
ASSETS/SUPPLEMENTAL DATA
Net assets, end of period
(in 000's) $ 1,107 $ 1,104 $ 1,332 $ 1,078 $ 1,208 $ 1,323
Ratio of operating expenses to
average net assets + 1.21% 1.21% 0.92% 0.84% 1.40% 1.22%
Ratio of net investment income to
average net assets + 1.11% 2.78% 5.22% 4.33% 0.84% 2.51%
Portfolio turnover rate 26.73% 51.99% 188.8% N/A 23.18% 186.14%
Average commission rate per share $ 0.0550 $ 0.0009 N/A N/A $ 0.0147 $ 0.0250
Ratio of operating expenses to
average net assets before waiver
of fees and expense
reimbursements + 11.00% 11.13% 11.04% 10.57% 11.55% 9.76%
Net investment loss per share
before waiver of fees and expense
reimbursements ($0.36) ($0.28) ($0.15) ($0.02) ($0.38) ($0.27)
<S> <C> <C>
BERKELEY LEXINGTON
SMALLER CORPORATE
COMPANIES LEADERS
PORTFOLIO PORTFOLIO
--------- -----------
Net asset value, beginning of
period $ 10.00 $ 10.00
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (0.04) 0.07
Net realized and unrealized gain
(loss) on investments 2.36 0.48
----------- -------------
Total from investment operations 2.32 0.55
----------- -------------
LESS DISTRIBUTIONS:
Dividends from net investment
income (0.01) (0.02)
Distributions from net realized
capital gains (0.00) (0.00)
----------- -------------
Total distributions (0.01) (0.02)
----------- -------------
Net asset value, end of period $ 12.31 $ 10.53
=========== =============
TOTAL RETURN ++ 21.24% 2.95%
=========== =============
RATIOS TO AVERAGE NET
ASSETS/SUPPLEMENTAL DATA
Net assets, end of period
(in 000's) $ 1,353 $ 1,059
Ratio of operating expenses to
average net assets + 1.31% 1.21%
Ratio of net investment income to
average net assets + (0.91%) 1.73%
Portfolio turnover rate 239.29% 0.00%
Average commission rate per share $ 0.0234 $ 0.0500
Ratio of operating expenses to
average net assets before waiver
of fees and expense
reimbursements + 10.11% 10.89%
Net investment loss per share
before waiver of fees and expense
reimbursements ($0.43) ($0.34)
<FN>
+ Annualized
++ Total return represents aggregate total return for the period February
9, 1996 (effective date) to June 30, 1996.
The total return would have been lower if certain fees had not
been waived by the investment advisor, and if certain expenses had not been
reimbursed by London Pacific.
THE LPT VARIABLE INSURANCE SERIES TRUST
NOTES TO FINANCIAL STATEMENTS (Unaudited)
1. Organization and Business
The LPT Variable Insurance Series Trust (the "Trust") was organized under
the laws of the Commonwealth of Massachusetts on January 23, 1995, and is a
business entity commonly known as a "Massachusetts Business Trust". The Trust is
registered under the Investment Company Act of 1994, as amended, (the "1940
Act"), as an open-end series management investment company. The trust offers
eight managed investment portfolios (the "Portfolios") to the public only
through certain variable annuity contracts offered by London Pacific Life and
Annuity Company ("London Pacific"): the Salomon Money Market Portfolio (the
"Money Portfolio"); the Salomon U.S. Quality Bond Portfolio (the "Bond
Portfolio"); and the MAS Value, MFS Total Return, Strong International Stock,
Strong Growth, Berkeley Smaller Companies, and Lexington Corporate Leaders
Portfolios (the "Equity Portfolios").
2. Significant Accounting Policies
The following is a summary of significant accounting policies which are
in conformity with generally accepted accounting principles consistently
followed by the Trust in the preparation of its financial statements. The
preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses during
the reported period. Actual results could differ from those estimates.
Security Valuation: Securities which are traded on a recognized exchange
(including securities traded through the National Market System) are valued at
the last sale price on the securities exchange on which such securities are
primarily traded, or, if there were no sales during the day, at the closing bid
price. Portfolio securities that are primarily traded on foreign exchanges are
generally valued at the most recent closing values of such securities on their
respective exchanges, except when an occurrence subsequent to the time a value
was so established is likely to have changed the value, then the fair value of
those Trustees or its delegates. Over-the-counter securities that are not traded
through the National Market System are valued on the basis of the bid price at
the close of business on each day. Short-term investments that mature in 60 days
or less are valued at amortized cost. Corporate debt securities and debt
securities of the U.S. Government and its agencies (other than short-term
investments) are valued by an independent pricing service approved by the Board
of Trustees which utilizes market quotations and transactions, quotations from
dealers and various relationships among securities in determining value. If not
valued by a pricing service, such securities are valued at prices obtained from
independent brokers. Investments with prices that cannot be readily obtained, if
any, are carried at market value as determined in good faith under consistently
applied procedures established by and under the supervision of the Board of
Trustees. The investments of the Money Portfolio are valued utilizing the
amortized cost valuation method permitted in accordance with Rule 2a-7 under the
Investment Company Act of 1940. This method involves valuing a portfolio
security initially at its cost, and, thereafter, assuming a constant
amortization to maturity of any discount or premium. Futures contracts and
options are valued at market value or fair value using methods determined by the
Board of Trustees.
Repurchase Agreements: Each Portfolio may engage in Repurchase Agreement
transactions. Under the terms of a typical Repurchase Agreement, the Portfolio
through its custodian takes possession of an underlying debt obligation, subject
to an obligation of the seller to repurchase and the Portfolio to resell, the
obligation at an agreed-upon price and time, thereby determining the yield
during the Portfolio's holding period. This arrangement results in a fixed rate
of return that is not subject to market fluctuations during the Portfolio's
holding period. The value of the collateral is at least equal at all times to
the total amount of the repurchase obligations, including interest. In the event
of counterparty default, the Portfolio has the right to use the collateral to
offset losses incurred. There is potential loss to the Portfolio in the event
the Portfolio is delayed or prevented from exercising its rights to dispose of
the collateral securities, including the risk of a possible decline in the value
of the underlying securities during the period while the Portfolio seeks to
assert its rights. Each Portfolio may enter into Repurchase Agreement only with
banks or dealers which, in the opinion of each Portfolio's Sub-advisor, based on
guidelines established by the Trust's Board of Trustees, are deemed
creditworthy.
Reverse Repurchase Agreements: All Portfolios, except the Money
Portfolio, may engage in reverse Repurchase Agreements. Reverse Repurchase
Agreements are the same as Repurchase Agreements to borrow short-term funds. The
Portfolio will maintain segregated accounts with the Trust's 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 bought may decline below the repurchase price of the securities sold.
Option Contracts: All Portfolios, except the Money Portfolio, may
purchase and/or write put and call options on portfolio securities or foreign
currencies. The Portfolios may use options contracts to manage their exposure to
the stock and bond markets and to fluctuations in interest rates and currency
values. Writing puts and buying calls tend to increase the Portfolio's exposure
to the underlying instrument. Buying puts and writing calls tends to either
decrease the Portfolio's exposure to the underlying instrument, or to hedge
other Portfolio investments.
The risk associated with purchasing options is limited to the premium
originally paid. The risk in writing a covered call option is that the Portfolio
may forego the opportunity of profit or incur a loss if the market price of the
underlying security increases and the option is exercised. The risk in writing a
put option is that the Portfolio may incur a loss if the market price of the
underlying security decreases and the option is exercised. In addition, there is
a risk the Portfolio may not be able to enter into a closing transaction because
of an illiquid secondary market, or, for over-the-counter options, because of a
counter party's inability to perform.
Future Contracts: All Portfolios, except the Money Portfolio, may engage
in futures transactions. The Portfolios may use future contracts to manage their
exposure to the stock and bond markets and to fluctuations in interest rates and
currency values. Buying futures contracts tends to increase the Portfolio's
exposure to the underlying instrument. Selling futures contracts tends to either
decrease the Portfolio's exposure to the underlying instrument or to hedge other
fund investments.
There are several risks in connection with the use of futures contracts
as a hedging device. The change in the value of futures contracts primarily
corresponds with the value of their underlying instruments, which may not
correlate with the change in the value of the hedged instruments. In addition,
there is the risk the Portfolio may not be able to enter into a closing
transaction because of an illiquid secondary market.
Forward Foreign Currency Contracts: All Portfolios, except the Money
Portfolio, may enter into forward foreign currency contracts, whereby the
Portfolios agree to sell a specific currency at a specific price at a future
date in an attempt to hedge against fluctuations in the value of the underlying
currency of certain investment instruments. Forward foreign currency contracts
are valued at the daily exchange rate of the underlying currency. Gains or
losses on the purchase or sale of forward foreign currency contracts having the
same settlement date and broker are recognized on the date of offset, otherwise
gains or losses are recognized on the settlement date.
Foreign Currency Translation: The books and records of the Portfolios are
maintained in U.S. Dollars. Investment valuations, other assets and liabilities
initially expressed as foreign currencies are converted each business day into
U.S. dollars based upon current exchange rates. Purchase and sales of foreign
investments and income and expenses are converted into U.S. dollars based upon
exchange rates prevailing on the respective dates of such transactions. That
portion of unrealized gains or losses on investments due to fluctuations in
foreign currency exchange rates is not separately disclosed.
Security Transactions and Investment Income: Security transactions are
recorded on the trade date. Net realized gains and losses from security
transactions are recorded on the basis of identified cost. Interest income is
recorded on the accrual basis and consists of interest accrued, and, if
applicable, discount earned less premiums amortized. Dividend income is recorded
on the ex-dividend date.
Distributions to Shareholders: Dividends from net investment income are
declared daily and reinvested monthly for the Money Portfolio and are declared
and distributed annually for all other Portfolios. All Portfolios, with the
exception of the Money Portfolio, declare and distribute, if any, all net
realized capital gains at least annually.
Federal Income Taxes: The Trust treats each Portfolio as a separate
entity for Federal income tax purposes. Each Portfolio of the Trust intends to
qualify each year as a "regulated investment company" under Subchapter M of the
Internal Revenue Code of 1986, as amended. By so qualifying, each Portfolio will
not be subject to Federal income taxes to the extent it distributes all of its
taxable income and net realized gains for the tax year ending December 31. In
addition, by distributing during each calendar year substantially all of its net
investment income, capital gains, and certain other amounts, if any, each
Portfolio will not be subject to Federal excise tax. Therefore, no Federal
income tax provision is required. Withholding taxes on foreign dividend income
and gains have been paid or provided for in accordance with the applicable
country's tax rules and rates.
Expenses: The Trust accounts separately for assets, liabilities, and
operations of each Portfolio. Expenses directly attributed to a Portfolio are
charged to the Portfolio, while expenses which are attributable to more than one
Portfolio of the Trust are allocated among the respective Portfolios.
3. Investment Advisory, Sub-advisory, Administration Fees, and Other Related
Party Transactions
LPIMC Insurance Marketing Services ("LPIMC"), a wholly owned subsidiary
of London Pacific, serves as investment advisor to the Trust. Berkeley Capital
Management, a wholly owned subsidiary of the London Pacific Group, Ltd., and an
affiliate of London Pacific, serves as Sub-Adviser to the Berkeley Smaller
Companies Portfolio, Miller, Anderson & Sherrerd, LLP, an indirect, wholly owned
subsidiary of the Morgan Stanley Group, Inc., serves as Sub-Adviser to the MAS
Value Portfolio, Massachusetts Financial Services Company, a wholly owned
subsidiary of Sun Life Assurance Company of Canada, serves as Sub-Adviser to the
MFS Total Return Portfolio, Salomon Brothers Asset Management Inc an
indirect, wholly owned subsidiary of Salomon Inc serves as Sub-Adviser to the
Salomon U.S. Quality Bond and Salomon Money Market Portfolios, Strong Capital
Management, Inc., a privately held corporation, serves as Sub-Adviser to the
Strong International Stock and Strong Growth Portfolios, and Lexington
Management Corporation, a wholly owned subsidiary of Lexington Global Asset
Managers, Inc., serves as Sub-Adviser to the Lexington Corporate Leaders
Portfolio.
The Trust pays LPIMC a monthly fee in arrears based on a percentage of
the average daily net assets of each Portfolio during the month, out of which
LPIMC pays the Sub-advisor of each Portfolio a monthly fee in arrears at annual
rates as follows:
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Fees on Assets Fees on Assets
Fees on Between $25 Between $100 Fees on
Assets up to Million and Million and Assets
Name of Portfolio $25 Million $100 Million $500 Million Exceeding
$500 Million
_________________ ____________ ______________ ______________ _____________
MAS Value Portfolio
LPIMC .25% .25% .25% .25%
Sub-advisor .625% .375% .25% .20%
----- ----- ---- ----
Total Fees Paid to
LPIMC * .875% .625% .50% .45%
===== ===== ==== ====
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Fees on Assets
Fees on Between $200 Fees on Assets
Assets up to Million and Exceeding $1.3
Name of Portfolio $200 Million $1.3 Billion Billion
----------------- ------------ ------------ --------------
MFS Total Return Portfolio
LPIMC .25% .25% .25%
Sub-advisor .50% .45% .40%
---- ---- ----
Total Fees Paid to .75% .70% .65%
LPIMC * ==== ==== ====
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Fees on Assets Fees on Assets
Fees on Between $50 Between $150 Fees on
Assets up to Million and Million and Assets
Name of Portfolio $50 Million $150 Million $300 Million Exceeding
$300 Million
----------------- ------------- -------------- ------------- -------------
Salomon U.S. Quality Bond
Portfolio
LPIMC .25% .25% .25% 25%
Sub-advisor .30% .275% .25% .20%
---- ----- ---- ----
Total Fees Paid to .55% .525% .50% .45%
LPIMC * ==== ===== ==== ====
Salomon Money Market Portfolio
LPIMC .25% .25% .25% .25%
Sub-advisor .20% .175% .15% .10%
---- ----- ---- ----
Total Fees Paid to .45% .425% .40% .35%
LPIMC * ==== ===== ==== ====
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Fees on Assets
Fees on Assets Between $150 Fees on Assets
up to $150 Million and Exceeding $500
Name of Portfolio Million $500 Million Million
----------------- ------- ------------- ---------------
Strong International Stock
Portfolio and Strong Growth
Portfolio
LPIMC .25% .25% .25%
Sub-advisor .50% .45% .40%
---- ---- ----
Total Fees Paid to .75% .70% .65%
LPIMC * ==== ==== ====
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C>
Fees on Assets Fees on Assets
up to $10 Exceeding $10
Name of Portfolio Million Million
----------------- -------------- --------------
Berkeley Smaller Company
Portfolio
LPIMC .25% .25%
Sub-advisor .75% .50%
---- ----
Total Fees Paid to 1.00% .75%
LPIMC * ===== ====
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Fees on Assets
Fees on Assets Between $10 Fees on Assets
up to $10 Million and Exceeding $100
Name of Portfolio Million $100 Million Million
----------------- ------- --------- -------
Lexington Corporate Leaders
Portfolio
LPIMC .25% .25% .25%
Sub-advisor .40% .35% .30%
---- ---- ----
Total Fees Paid to .65% .60% .55%
LPIMC * ==== ==== ====
</TABLE>
* Fees paid to LPIMC include fees paid for services
rendered by LPIMC to the Portfolio and those fees that
LPIMC will in turn pay to the Sub-advisor.
LPIMC and certain Sub-Advisers have voluntarily agreed to waive a portion
of the fees payable to them during the first six months of operations. Any fee
waivers by a Sub-advisor are passed through to the Portfolios. The Trust and
LPIMC also entered into an Administrative Agreement with State Street Bank and
Trust Company ("SSB&T"), a Massachusetts Trust Company, whereby SSB&T performs
administrative services for each of the Portfolios and is entitled to receive an
administration fee and certain out-of-pocket expenses. Each Portfolio is
responsible for the payment of the administrative fee to SSB&T.
In the event normal operating expenses of each Portfolio, excluding
brokerage commissions, but including the advisory fee, exceed certain voluntary
expense limitations (MAS Value Portfolio - 1.29%; MFS Total Return Portfolio -
1.29%; Salomon U.S. Quality Bond Portfolio - 0.99%; Salomon Money Market
Portfolio - 0.89%; Strong International Stock Portfolio - 1.49%; Strong Growth -
1.29%; Berkeley Smaller Companies Portfolio - 1.39%; and Lexington Corporate
Leaders Portfolio - 1.29%), London Pacific has agreed, through December 31,
1997, to reimburse each Portfolio for expenses in excess of the stated expense
limitations. The expense limitations may be removed or revised after December
31, 1997, without prior notice to existing shareholders.
For the five months ended June 30, 1996, London Pacific voluntarily agreed
to reimburse the Portfolios as follows:
Name of Portfolio Reimbursement
- ----------------- -------------
MAS Value Portfolio $39,918
MFS Total Return Portfolio 38,943
Salomon U.S. Quality Bond Portfolio 40,191
Salomon Money Market Portfolio 40,418
Strong International Stock Portfolio 43,796
Strong Growth Portfolio 40,552
Berkeley Smaller Companies Portfolio 37,740
Lexington Corporate Leaders Portfolio 40,576
The Trust pays no salaries or compensation to any of its officers. Trustees
who are not directors, officers, or employees of the Trust or any investment
advisor are reimbursed for their travel expenses in attending meetings of the
Trustees, and receive fees for each trust meeting attended. Such amounts are
paid by the Trust.
4. Purchases and Sales of Securities
The cost of purchases and proceeds from sales of investment securities,
excluding short-term investments, for the five months ended June 30, 1996, were
as follows:
<TABLE>
<CAPTION>
Purchases Sales
-------------------------------------------------------
Portfolio Other Government Other Government
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
MAS Value Portfolio $1,119,453 $0 $212,949 $0
MFS Total Return Portfolio 663,327 685,286 72,340 333,949
Salomon U.S. Quality Bond Portfolio 56,808 2,831,147 0 1,705,965
Strong International Stock Portfolio 945,243 0 181,931 0
Strong Growth Portfolio 2,752,915 0 1,711,311 0
Berkeley Smaller Companies Portfolio 2,964,189 0 2,253,971 0
Lexington Corporate Leaders Portfolio 989,674 0 0 0
</TABLE>
At June 30, 1996, aggregate gross unrealized appreciation for all
securities in which there was an excess of value over tax cost and aggregate
gross unrealized depreciation for all securities in which there was an excess of
tax cost over value were as follows:
Tax Basis
---------
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Net Unrealized
Unrealized Unrealized Appreciation
Portfolio Appreciation Depreciation (Depreciation) Cost
- ------------------------------------ ------------ ------------ -------------- ---------
MAS Value Portfolio $53,876 $24,534 $29,342 $1,046,733
MFS Total Return Portfolio 36,643 8,923 27,720 1,013,568
Salomon U.S. Quality Bond Portfolio 1,620 10,867 (9,247) 1,274,565
Strong International Stock Portfolio 126,805 23,906 102,899 1,076,646
Strong Growth Portfolio 144,970 18,891 126,079 1,122,684
Berkeley Smaller Companies Portfolio 165,288 26,411 138,877 1,204,718
Lexington Corporate Leaders Portfolio 62,405 14,801 47,604 989,674
</TABLE>
5. Shares of Beneficial Interest
The Trust's Declaration of Trust authorizes the Trustees to issue an
unlimited number of shares of beneficial interest for the Portfolios, each with
a $.01 par value.
The Salomon Money Market Portfolio has sold shares, issued reinvestment of
dividends and redeemed shares only at a constant net asset value of $1.00 per
share, the number of shares represented by such sales, reinvestments and
redemptions are the same as the dollar amounts shown for such transactions.
London Pacific, through its LPLA Separate Account One, owns of record 100%
of each Portfolio's outstanding shares. Changes in shares of beneficial interest
were as follows:
Shares
and
Amount
--------------
Salomon Money Market Portfolio
Sold $1,998,296
Issued as reinvestment
of dividends 18,852
Redeemed (939,258)
---------
Net increase $1,077,890
==========
Shares Amount
-------- ---------
MAS Value Fund
Sold 106,716 $1,070,326
Issued as reinvestment
of dividends 127 1,290
Redeemed (1,2501) (12,692)
-------- --------
Net increase 105,592 $1,058,924
======= ==========
Shares Amount
---------- -----------
MFS Total Return Portfolio
Sold 107,242 $1,074,251
Issued as reinvestment
of dividends 123 1,234
Redeemed 0.00 0
------- ----------
Net increase 107,365 $1,075,485
======= ==========
Salomon U.S. Quality Bond Portfolio
Sold 136,117 $1,352,159
Issued as reinvestment
of dividends 130 1,295
Redeemed (263) (2,547)
------- ----------
Net increase 135,984 $1,350,907
======= ==========
Strong International Stock Portfolio
Sold 110,437 $1,112,550
Issued as reinvestment
of dividends 27 272
Redeemed (3,104) (31,735)
------- ----------
Net increase 107,360 $1,081,087
======= ==========
Strong Growth Portfolio
Sold 108,465 $1,104,573
Issued as reinvestment
of dividends 513 5,249
Redeemed (592) (6,346)
------- ----------
Net increase 108,386 $1,103,476
======= ==========
Berkeley Smaller Companies Portfolio
Sold 110,481 $1,130,892
Issued as reinvestment
of dividends 83 845
Redeemed (604) (6,346)
------- ----------
Net increase 109,960 $1,125,391
======= ==========
Shares Amount
------- -------
Lexington Corporate Leaders Portfolio
Sold 100,979 $1,009,968
Issued as reinvestment
of dividends 150 1,552
Redeemed (631) (6,346)
------- ----------
Net increase 100,498 $1,005,174
======= ==========
All of the Portfolios commenced operations on January 31, 1996.
6. Foreign Securities
All Portfolios may invest in securities of foreign companies and foreign
governments. There are certain risks involved in investing in foreign securities
that are in addition to the usual risks inherent in domestic investments. These
risks include those resulting from future adverse political and economic
developments, reduced availability of public information concerning issues,
lower standards of accounting, auditing, and financial reporting, less market
liquidity, greater volatility of prices, and a possible imposition of currency
exchange blockages or restrictions on securities, transactions, or transfer of
assets.
PART B
LPT VARIABLE INSURANCE SERIES TRUST
FORM N-1A
PART B
STATEMENT OF ADDITIONAL INFORMATION
September 13, 1996
This Statement of Additional Information (this "SAI") contains information
which may be of interest to investors but which is not included in the
Prospectus of LPT Variable Insurance Series Trust (the "Trust"). This SAI is
not a prospectus and is only authorized for distribution when accompanied or
preceded by the Prospectus of the Trust dated February 9, 1996 (as amended
May 1, 1996) . This SAI should be read together with the Prospectus.
Investors may obtain a free copy of the Prospectus by calling London
Pacific Life and Annuity Company ("Life Company") at (800) 852-3152.
THIS SAI CONTAINS INFORMATION RELATING TO ALL PORTFOLIOS OF THE TRUST.
TABLE OF CONTENTS
PAGE
DEFINITIONS
INVESTMENT OBJECTIVES AND POLICIES OF THE TRUST
DESCRIPTION OF SECURITIES, INVESTMENT POLICIES AND RISK FACTORS
Repurchase Agreements
Mortgage Dollar Rolls and Reverse Repurchase Agreements
Illiquid or Restricted Securities
Mortgage- and Asset-Backed Securities
Collateralized Mortgage Obligations (CMOs)
Foreign Securities
Depositary Receipts
Lending of Portfolio Securities
Borrowing
High-Yield (High Risk) Securities
In General
Effect of Interest Rates and Economic Changes
Payment Expectations
Credit Ratings
Liquidity and Valuation
Recent and Proposed Legislation
U.S. Government Obligations
U.S. Government Agency Securities
Bank Obligations
Savings and Loan Obligations
Price Volatility
Maturity
Credit Quality
Temporary Defensive Position
Short-Term Corporate Debt Instruments
Municipal Obligations
Municipal Lease Obligations
Eurodollar and Yankee Obligations
Brady Bonds
When Issued Securities and Forward Commitment Contracts
Warrants
Zero-Coupon, Step-Coupon and Pay-in-Kind Securities
Floating and Variable Rate Instruments
Short Sales Against the Box
Inverse Floating Rate Obligations
Loan Participations and Other Direct Indebtedness
Indexed Securities
Other Investment Companies
Foreign Investment Companies
Swaps and Related Transactions
Derivative Instruments
General Description
Special Risks of These Instruments
General Limitations on Certain Derivative Transactions
Options
Yield Curve Options
Spread Transactions
Futures Contracts
Foreign Currency-Related Derivative Strategies-Special Considerations
Forward Currency Contracts
Foreign Currency Transactions
Hybrid Instruments
Combined Transactions
INVESTMENT RESTRICTIONS
Fundamental Investment Restrictions
Strong International Stock Portfolio and Strong Growth Portfolio
Salomon U.S. Quality Bond Portfolio
Salomon Money Market Portfolio
MAS Value Portfolio
Lexington Corporate Leaders Portfolio
Berkeley Smaller Companies Portfolio
MFS Total Return Portfolio
Non-Fundamental Investment Restrictions
Strong International Stock Portfolio and Strong Growth Portfolio
Salomon U.S. Quality Bond Portfolio
MAS Value Portfolio
Lexington Corporate Leaders Portfolio
Berkeley Smaller Companies Portfolio
MFS Total Return Portfolio
MANAGEMENT OF THE TRUST
Sub-Advisers
Brokerage and Research Services
Investment Decisions
DETERMINATION OF NET ASSET VALUE
TAXES
DIVIDENDS AND DISTRIBUTIONS
PERFORMANCE INFORMATION
SHAREHOLDER COMMUNICATIONS
ORGANIZATION AND CAPITALIZATION
PORTFOLIO TURNOVER
CUSTODIAN
LEGAL COUNSEL
INDEPENDENT ACCOUNTANTS
SHAREHOLDER LIABILITY
DESCRIPTION OF NRSRO RATINGS
FINANCIAL STATEMENTS
LPT VARIABLE INSURANCE SERIES TRUST
STATEMENT OF ADDITIONAL INFORMATION
CLASS A SHARES
DEFINITIONS
The "Trust" -- LPT Variable Insurance Series Trust.
"Adviser" -- LPIMC Insurance Marketing Services,
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 SAI 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 SAI 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.
DESCRIPTION OF SECURITIES, INVESTMENT POLICIES AND RISK FACTORS
The Prospectus for each Portfolio indicates the extent to which each
Portfolio may purchase the instruments or engage in the investment activities
described below. The discussion below supplements the information set forth
in the Portfolio Prospectuses.
REPURCHASE AGREEMENTS
The Portfolios may enter into repurchase agreements with certain banks or
non-bank dealers. In a repurchase agreement, the Portfolio buys a security at
one price, and at the time of sale, the seller agrees to repurchase the
obligation at a mutually agreed upon time and price (usually within seven
days). The repurchase agreement, thereby, determines the yield during the
purchaser's holding period, while the seller's obligation to repurchase is
secured by the value of the underlying security. Repurchase agreements permit
a Portfolio to keep all its assets at work while retaining "overnight"
flexibility in pursuit of investments of a longer-term nature. The
Sub-Adviser for each Portfolio will monitor, on an ongoing basis, the value of
the underlying securities to ensure that the value always equals or exceeds
the repurchase price plus accrued interest. Repurchase agreements could
involve certain risks in the event of a default or insolvency of the other
party to the agreement, including possible delays or restrictions upon a
Portfolio's ability to dispose of the underlying securities. Each Portfolio
will enter into repurchase agreements only with banks or dealers, which in the
opinion of each Portfolio's Sub-Adviser based on guidelines established by the
Trust's Board of Trustees, are deemed creditworthy. A Portfolio may, under
certain circumstances, deem repurchase agreements collateralized by U.S.
Government securities to be investments in U.S. Government securities.
Repurchase agreements with maturities of more than seven days will be treated
as illiquid securities by the Portfolios.
The Salomon U.S. Quality Bond Portfolio may invest in open repurchase
agreements which vary from the typical agreement in the following respects:
(1) the agreement has no set maturity, but instead matures upon 24 hours'
notice to the seller; and (2) the repurchase price is not determined at the
time the agreement is entered into, but is instead based on a variable
interest rate and the duration of the agreement.
MORTGAGE DOLLAR ROLLS AND REVERSE REPURCHASE AGREEMENTS
A Portfolio may engage in reverse repurchase agreements to facilitate
portfolio liquidity, a practice common in the mutual fund industry; to earn
additional income on portfolio securities, such as Treasury bills and notes;
or, with respect to the Strong International Stock Portfolio and the Strong
Growth Portfolio, for arbitrage transactions discussed below. In a reverse
repurchase agreement, a Portfolio temporarily transfers possession of a
security to another party, such as a bank, in return for cash, and agrees to
buy the security back at a future date and price. In a reverse repurchase
agreement, the Portfolio generally retains the right to interest and principal
payments on the security. Since a Portfolio receives cash upon entering into a
reverse repurchase agreement, it may be considered a borrowing and therefore
is subject to the overall percentage limitations on borrowings and the
restrictions on the purposes of borrowing described therein. (See "Borrowing"
and "Investment Restrictions.") When required by guidelines of the Securities
and Exchange Commission ("SEC"), a Portfolio will set aside permissible liquid
assets in a segregated account to secure its obligations to repurchase the
security.
A Portfolio may also enter into mortgage dollar rolls, in which the Portfolio
would sell mortgage-backed securities for delivery in the current month and
simultaneously contract to purchase substantially similar securities on a
specified future date. While the Portfolio would forego principal and
interest paid on the mortgage-backed securities during the roll period, the
Portfolio would be compensated by the difference between the current sales
price and the lower price for the future purchase as well as by any interest
earned on the proceeds of the initial sale. The Portfolio also could be
compensated through the receipt of fee income equivalent to a lower forward
price. At the time the Portfolio would enter into a mortgage dollar roll, it
would set aside permissible liquid assets in a segregated account to secure
its obligation for the forward commitment to buy mortgage-backed securities.
Mortgage dollar roll transactions may be considered a borrowing by the
Portfolio. (See "Borrowing.")
The mortgage dollar rolls and reverse repurchase agreements entered into by
the Strong International Stock and Strong Growth Portfolios may be used as
arbitrage transactions in which a Portfolio will maintain an offsetting
position in investment grade debt obligations or repurchase agreements that
mature on or before the settlement date on the related mortgage dollar roll or
reverse repurchase agreement. Since a Portfolio will receive interest on the
securities or repurchase agreements in which it invests the transaction
proceeds, such transactions may involve leverage. However, since such
securities or repurchase agreements will be high quality and will mature on or
before the settlement date of the mortgage dollar roll or reverse repurchase
agreement, the Sub-Adviser believes that such arbitrage transactions do not
present the risks to the Portfolios that are associated with other types of
leverage.
ILLIQUID OR RESTRICTED SECURITIES
A Portfolio may invest in securities that are considered illiquid because of
the absence of a readily available market or due to legal or contractual
restrictions. Each Portfolio may invest up to 15% of its net assets in such
securities or, with respect to the Strong International Stock Portfolio and
Strong Growth Portfolio, such other amounts as may be permitted under the
Investment Company Act of 1940 ("1940 Act"), (except 10% with respect to the
Salomon Money Market Portfolio and 5% with respect to the Berkeley Smaller
Companies Portfolio). The Board of Trustees of the Trust has the ultimate
authority to determine, to the extent permissible under the federal securities
laws, which securities are illiquid for purposes of these limitations. Certain
securities exempt from registration or issued in transactions exempt from
registration under the Securities Act of 1933, as amended (the "1933 Act"),
including securities that may be resold pursuant to Rule 144A under the 1933
Act, may be considered liquid. The Board of Trustees has adopted guidelines
and delegated to the Sub-Advisers the daily function of determining and
monitoring the liquidity of Rule 144A securities, although it has retained
oversight and ultimate responsibility for such determinations. Although no
definitive liquidity criteria are used, the Board of Trustees has directed the
Sub-Advisers to look to such factors as (i) the nature of the market for a
security (including the institutional private resale market), (ii) the terms
of certain securities or other instruments allowing for the disposition to a
third party or the issuer thereof (e.g., certain repurchase obligations and
demand instruments), (iii) the availability of market quotations (e.g. for
securities quoted in the PORTAL system), and (iv) other permissible relevant
factors.
Restricted securities may be sold only in privately negotiated transactions
or in a public offering with respect to which a registration statement is in
effect under the 1933 Act. Where registration is required, a Portfolio may be
obligated to pay all or part of the registration expenses and a considerable
period may elapse between the time of the decision to sell and the time the
Portfolio may be permitted to sell a security under an effective registration
statement. If, during such a period, adverse market conditions were to
develop, a Portfolio might obtain a less favorable price than prevailed when
it decided to sell. Restricted securities will be priced at fair value as
determined in good faith by the Board of Trustees of the Trust. If through
the appreciation of restricted securities or the depreciation of unrestricted
securities, a Portfolio should be in a position where it has exceeded its
maximum percentage limitation with respect to its net assets which are
invested in illiquid assets, including restricted securities which are not
readily marketable, the Portfolio will take such steps as is deemed advisable,
if any, to protect liquidity.
A Portfolio may sell over-the-counter ("OTC") options and, in connection
therewith, segregate assets or cover its obligations with respect to OTC
options written by the Portfolio. The assets used as cover for OTC options
written by the Portfolio will be considered illiquid unless the OTC options
are sold to qualified dealers who agree that the Portfolio may repurchase any
OTC option it writes at a maximum price to be calculated by a formula set
forth in the option agreement. The cover for an OTC option written subject to
this procedure would be considered illiquid only to the extent that the
maximum repurchase price under the formula exceeds the intrinsic value of the
option.
Notwithstanding the above, the Sub-Adviser for the Strong International Stock
Portfolio and the Strong Growth Portfolio intends, as a matter of internal
policy, to limit each of such Portfolio's investments in illiquid securities
to 10% of its net assets.
MORTGAGE- AND ASSET-BACKED SECURITIES
Mortgage-backed securities represent direct or indirect participations in, or
are secured by and payable from, mortgage loans secured by real property, and
include single- and multi-class pass-through securities and collateralized
mortgage obligations. Such securities may be issued or guaranteed by U.S.
Government agencies or instrumentalities, such as the Government National
Mortgage Association and the Federal National Mortgage Association, or by
private issuers, generally originators and investors in mortgage loans,
including savings associations, mortgage bankers, commercial banks, investment
bankers, and special purpose entities (collectively, "private lenders").
Mortgage-backed securities issued by private lenders may be supported by pools
of mortgage loans or other mortgage-backed securities that are guaranteed,
directly or indirectly, by the U.S. Government or one of its agencies or
instrumentalities, or they may be issued without any governmental guarantee of
the underlying mortgage assets but with some form of non-governmental credit
enhancement.
Asset-backed securities have structural characteristics similar to
mortgage-backed securities. However, the underlying assets are not first lien
mortgage loans or interests therein, but include assets such as motor vehicle
installment sales contracts, other installment loan contracts, home equity
loans, leases of various types of property, and receivables from credit card
or other revolving credit arrangements. Payments or distributions of
principal and interest on asset-backed securities may be supported by
non-governmental credit enhancements similar to those utilized in connection
with mortgage-backed securities.
The yield characteristics of mortgage- and asset-backed securities differ
from those of traditional debt securities. Among the principal differences
are that interest and principal payments are made more frequently on mortgage-
and asset-backed securities, usually monthly, and that principal may be
prepaid at any time because the underlying mortgage loans or other assets
generally may be prepaid at any time. As a result, if a Portfolio purchases
these securities at a premium, a prepayment rate that is faster than expected
will reduce yield to maturity, while a prepayment rate that is slower than
expected will have the opposite effect of increasing the yield to maturity.
Conversely, if a Portfolio purchases these securities at a discount, a
prepayment rate that is faster than expected will increase yield to maturity,
while a prepayment rate that is slower than expected will reduce yield to
maturity. Amounts available for reinvestment by the Portfolio are likely to
be greater during a period of declining interest rates and, as a result, are
likely to be reinvested at lower interest rates than during a period of rising
interest rates. Accelerated prepayments on securities purchased by a
Portfolio 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. The market for privately issued mortgage- and asset-backed
securities is smaller and less liquid than the market for government-sponsored
mortgage-backed securities.
A Portfolio may invest in stripped mortgage- or asset-backed securities,
which receive differing proportions of the interest and principal payments
from the underlying assets. The market value of such securities generally is
more sensitive to changes in prepayment and interest rates than is the case
with traditional mortgage- and asset-backed securities, and in some cases such
market value may be extremely volatile. With respect to certain stripped
securities, such as interest only and principal only classes, a rate of
prepayment that is faster or slower than anticipated may result in a Portfolio
failing to recover all or a portion of its investment, even though the
securities are rated investment grade.
STRIPPED MORTGAGE SECURITIES. The Portfolio may purchase stripped mortgage
securities which are derivative multiclass mortgage securities. Stripped
mortgage securities 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. Stripped
mortgage securities have greater volatility than other types of mortgage
securities. Although stripped mortgage securities are purchased and sold by
institutional investors through several investment banking firms acting as
brokers or dealers, the market for such securities has not yet been fully
developed. Accordingly, stripped mortgage securities are generally illiquid
and to such extent, together with any other illiquid investments, will be
subject to the Portfolio's applicable restriction on investments in illiquid
securities.
Stripped mortgage securities are structured with two or more classes of
securities that receive different proportions of the interest and principal
distributions on a pool of mortgage assets. A common type of stripped
mortgage security will have at least one class receiving only a small portion
of the interest and a larger portion of the principal from the mortgage
assets, while the other class will receive primarily interest and only a small
portion of the principal. In the most extreme case, one class will receive
all of the interest ("IO" or interest-only), while the other class will
receive all of the principal ("PO" or principal-only class). The yield to
maturity on IOs, POs and other mortgage-backed securities that are purchased
at a substantial premium or discount generally are extremely sensitive not
only to changes in prevailing interest rates but also to the rate of principal
payments (including pre-payments) on the related underlying mortgage assets,
and a rapid rate of principal payments may have a material adverse effect on
such securities' yield to maturity. If the underlying mortgage assets
experience greater than anticipated prepayments of principal, the Portfolio
may fail to fully recoup its initial investment in these securities even if
the securities have received the highest rating by a nationally recognized
statistical rating organization.
In addition to the stripped mortgage securities described above, the
Portfolio may invest in similar securities such as Super POs and Levered IOs
which are more volatile than POs, IOs and IOettes. Risks associated with
instruments such as Super POs are similar in nature to those risks related to
investments in POs. Risks connected with Levered IOs and IOettes are similar
in nature to those associated with IOs. The Portfolio may also invest in
other similar instruments developed in the future that are deemed consistent
with its investment objective, policies and restrictions. POs may generate
taxable income from the current accrual of original issue discount, without a
corresponding distribution of cash to the Portfolio.
COLLATERALIZED MORTGAGE OBLIGATIONS (CMOS)
CMOs are bonds that are collateralized by whole loan mortgages or mortgage
pass-through securities. The bonds issued in a CMO transaction are divided
into groups, and each group of bonds is referred to as a "tranche." Under the
traditional CMO structure, the cash flows generated by the mortgages or
mortgage pass-through securities in the collateral pool are used to first pay
interest and then pay principal to the CMO bondholders. The bonds issued under
a CMO structure are retired sequentially as opposed to the pro rata return of
principal found in traditional pass-through obligations. Subject to the
various provisions of individual CMO issues the cash flow generated by the
underlying collateral (to the extent it exceeds the amount required to pay the
stated interest) is used to retire the bonds. Under the CMO structure, the
repayment of principal among the different tranches is prioritized in
accordance with the terms of the particular CMO issuance. The "fastest-pay"
tranche of bonds, as specified in the prospectus for the issue, would
initially receive all principal payments. When that tranche of bonds is
retired, the next tranche, or tranches, in the sequence, as specified in the
prospectus, receive all of the principal payments until they are retired. The
sequential retirement of bonds groups continues until the last tranche, or
group of bonds, is retired. Accordingly, the CMO structure allows the issuer
to use cash flows of long maturity, monthly-pay collateral to formulate
securities with short, intermediate and long final maturities and expected
average lives.
In recent years, new types of CMO structures have evolved. These include
floating rate CMOs, planned amortization classes, accrual bonds, and CMO
residuals. These newer structures affect the amount and timing of principal
and interest received by each tranche from the underlying collateral. Under
certain of these new structures, given classes of CMOs have priority over
others with respect to the receipt of prepayments on the mortgages. Therefore,
depending on the type of CMOs in which a Portfolio invests, the investment may
be subject to a greater or lesser risk of prepayment than other types of
mortgage-related securities.
The primary risk of any mortgage security is the uncertainty of the timing of
cash flows. For CMOs, the primary risk results from the rate of prepayments on
the underlying mortgages serving as collateral. An increase or decrease in
prepayment rates (resulting from a decrease or increase in mortgage interest
rates) will affect the yield, average life, and price of CMOs. The prices of
certain CMOs, depending on their structure and the rate of prepayments, can be
volatile. Some CMOs may also not be as liquid as other securities.
FOREIGN SECURITIES
Investment by a Portfolio in securities issued by companies or other issuers
whose principal activities are outside the United States involves significant
risks not present in U.S. investments. The value of securities denominated in
foreign currencies and of dividends and interest paid with respect to such
securities will fluctuate based on the relative strength of the U.S. dollar.
In addition, less publicly available information is generally available about
foreign companies, particularly those not subject to the disclosure and
reporting requirements of the U.S. securities laws. Foreign companies are not
bound by uniform accounting, auditing, and financial reporting requirements
and standards of practice comparable to those applicable to U.S. companies.
Investments in foreign securities also involve the risk of possible adverse
changes in investment or exchange control regulations, expropriation or
confiscatory taxation, limitations on the repatriation of monies or other
assets of a Portfolio, political or financial instability or diplomatic and
other developments which could affect such investments. Further, the economies
of particular countries or areas of the world may perform less favorably than
the economy of the U.S. and the U.S. dollar value of securities denominated in
currencies other than the U.S. dollar may be affected unfavorably by exchange
rate movements. Each of these factors could influence the value of a
Portfolio's shares, as well as the value of dividends and interest earned by a
Portfolio and the gains and losses which it realizes. It is anticipated that
in most cases the best available market for foreign securities will be on
exchanges or in over-the-counter markets located outside of the U.S. However,
foreign securities markets, while growing in volume and sophistication, are
generally not as developed as those in the U.S., and securities of some
foreign companies (particularly those located in developing countries) are
generally less liquid and more volatile than securities of comparable U.S.
companies. Foreign security trading practices, including those involving
securities settlement where Portfolio assets may be released prior to receipt
of payment, may expose a Portfolio to increased risk in the event of a failed
trade or the insolvency of a foreign broker-dealer. In addition, foreign
brokerage commissions and other fees are generally higher than on securities
traded in the U.S. and may be non-negotiable. These is less overall
governmental supervision and regulation of securities exchanges, securities
dealers, and listed companies than in the U.S.
The Portfolios may invest in foreign securities that are restricted against
transfer within the U.S. or to U.S. persons. Although securities subject to
such transfer restrictions may be marketable abroad, they may be less liquid
than foreign securities of the same class that are not subject to such
restrictions.
DEPOSITARY RECEIPTS
A Portfolio may invest in foreign securities by purchasing depositary
receipts, including American Depositary Receipts ("ADRs") and European
Depositary Receipts ("EDRs"), or other securities convertible into securities
or issuers based in foreign countries. These securities may not necessarily be
denominated in the same currency as the securities into which they may be
converted. Generally, ADRs, in registered form, are denominated in U.S.
dollars and are designed for use in the U.S. securities markets, while EDRs,
in bearer form, may be denominated in other currencies and are designed for
use in European securities markets. ADRs are receipts typically issued by a
U.S. bank or trust company evidencing ownership of the underlying securities.
EDRs are European receipts evidencing a similar arrangement. For purposes of
a Portfolio's investment policies, ADRs and EDRs are deemed to have the same
classification as the underlying securities they represent. Thus, an ADR or
EDR representing ownership of common stock will be treated as common stock.
ADR facilities may be established as either "unsponsored" or "sponsored."
While ADRs issued under these two types of facilities are in some respects
similar, there are distinctions between them relating to the rights and
obligations of ADR holders and the practices of market participants. A
depositary may establish an unsponsored facility without participation by (or
even necessarily the acquiescence of) the issuer of the deposited securities,
although typically the depositary requests a letter of non-objection from such
issuer prior to the establishment of the facility. Holders of unsponsored
ADRs generally bear all the costs of such facilities. The depositary usually
charges fees upon the deposit and withdrawal of the deposited securities, the
conversion of dividends into U.S. dollars, the disposition of non-cash
distributions, and the performance of other services. The depositary of an
unsponsored facility frequently is under no obligation to distribute
shareholder communications received from the issuer of the deposited
securities or to pass through voting rights to ADR holders in respect of the
deposited securities. Sponsored ADR facilities are created in generally the
same manner as unsponsored facilities, except that the issuer of the deposited
securities enters into a deposit agreement with the depositary. The deposit
agreement sets out the rights and responsibilities of the issuer, the
depositary and the ADR holders. With sponsored facilities, the issuer of the
deposited securities generally will bear some of the costs relating to the
facility (such as dividend payment fees of the depositary), although ADR
holders continue to bear certain other costs (such as deposit and withdrawal
fees). Under the terms of most sponsored arrangements, depositories agree to
distribute notices of shareholder meetings and voting instructions, and to
provide shareholder communications and other information to the ADR holders at
the request of the issuer of the deposited securities.
LENDING OF PORTFOLIO SECURITIES
A Portfolio is authorized to lend its portfolio securities to broker-dealers
or institutional investors that the Sub-Adviser deems qualified, but only when
the borrower maintains with the Portfolio's custodian bank collateral either
in cash or money market instruments in an amount at least equal to the market
value of the securities loaned, plus accrued interest and dividends,
determined on a daily basis and adjusted accordingly. However, the Portfolios
do not presently intend to engage in such lending. In determining whether to
lend securities to a particular broker-dealer or institutional investor, the
Sub-Adviser will consider, and during the period of the loan will monitor, all
relevant facts and circumstances, including the creditworthiness of the
borrower. A Portfolio will retain authority to terminate any loans at any
time. The Portfolios may pay reasonable administrative and custodial fees in
connection with a loan and may pay a negotiated portion of the interest earned
on the cash or money market instruments held as collateral to the borrower or
placing broker. The Portfolios will receive reasonable interest on the loan
or a flat fee from the borrower and amounts equivalent to any dividends,
interest or other distributions on the securities loaned. The Portfolios will
retain record ownership of loaned securities to exercise beneficial rights,
such as voting and subscription rights and rights to dividends, interest or
other distributions, when retaining such rights is considered to be in a
Portfolio's interest.
Other than the Salomon Money Market Portfolio, each of the Portfolios may
lend up to 33 1/3% of the total value of its securities (except 30% with
respect to the MFS Total Return Portfolio and 25% with respect to the Salomon
U.S. Quality Bond Portfolio).
BORROWING
The Portfolios may borrow money from banks, limited by each Portfolio's
investment restriction as to the percentage of its total assets that it may
borrow, and may engage in mortgage dollar roll transactions and reverse
repurchase agreements which may be considered a form of borrowing. (See
"Mortgage Dollar Rolls and Reverse Repurchase Agreements," above.) In
addition, the Strong International Stock Portfolio and the Strong Growth
Portfolio may borrow up to an additional 5% of their respective total assets
from banks for temporary or emergency purposes. A Portfolio will not purchase
securities when bank borrowings exceed 5% of the Portfolio's total assets.
HIGH-YIELD (HIGH RISK) SECURITIES
IN GENERAL. Certain Portfolios have the authority to invest in non-investment
grade debt securities (up to 5% of its net assets with respect to the Strong
International Stock and Strong Growth Portfolios). Non-investment grade debt
securities (hereinafter referred to as "lower-quality securities") include (i)
bonds rated as low as C by Moody's Investors Service, Inc. ("Moody's"),
Standard & Poor's Ratings Group ("S&P"), or Fitch Investors Service, Inc.
("Fitch"), or CCC by Duff & Phelps, Inc. ("D&P"); (ii) commercial paper rated
as low as C by S&P, Not Prime by Moody's or Fitch 4 by Fitch; and (iii)
unrated debt obligations of comparable quality. Lower-quality securities,
while generally offering higher yields than investment grade securities with
similar maturities, involve greater risks, including the possibility of
default or bankruptcy. They are regarded as predominantly speculative with
respect to the issuer's capacity to pay interest and repay principal. The
special risk considerations in connection with investments in these securities
are discussed below. Refer to "Description of NRSRO Ratings" for a discussion
of securities ratings.
EFFECT OF INTEREST RATES AND ECONOMIC CHANGES. The lower-quality and
comparable unrated securities market is relatively new and its growth has
paralleled a long economic expansion. As a result, it is not clear how this
market may withstand a prolonged recession or economic downturn. Such an
economic downturn could severely disrupt the market for and adversely affect
the value of such securities.
All interest-bearing securities typically experience appreciation when
interest rates decline and depreciation when interest rates rise. The market
values of lower-quality and comparable unrated securities tend to reflect
individual corporate developments to a greater extent than do higher rated
securities, which react primarily to fluctuations in the general level of
interest rates. Lower-quality and comparable unrated securities also tend to
be more sensitive to economic conditions than are higher-rated securities. As
a result, they generally involve more credit risks than securities in the
higher-rated categories. During an economic downturn or a sustained period of
rising interest rates, highly leveraged issuers of lower-quality and
comparable unrated securities may experience financial stress and may not have
sufficient revenues to meet their payment obligations. The issuer's ability
to service its debt obligations may also be adversely affected by specific
corporate developments, the issuer's inability to meet specific projected
business forecasts or the unavailability of additional financing. The risk of
loss due to default by an issuer of these securities is significantly greater
than issuers of higher-rated securities because such securities are generally
unsecured and are often subordinated to other creditors. Further, if the
issuer of a lower-quality or comparable unrated security defaulted, a
Portfolio might incur additional expenses to seek recovery. Periods of
economic uncertainty and changes would also generally result in increased
volatility in the market prices of these securities and thus in the
Portfolio's net asset value.
As previously stated, the value of a lower-quality or comparable unrated
security will decrease in a rising interest rate market, and accordingly so
will a Portfolio's net asset value. If a Portfolio experiences unexpected net
redemptions in such a market, it may be forced to liquidate a portion of its
portfolio securities without regard to their investment merits. Due to the
limited liquidity of lower-quality and comparable unrated securities
(discussed below), a Portfolio may be forced to liquidate these securities at
a substantial discount. Any such liquidation would reduce the Portfolio's
asset base over which expenses could be allocated and could result in a
reduced rate of return for the Portfolio.
PAYMENT EXPECTATIONS. Lower-quality and comparable unrated securities
typically contain redemption, call or prepayment provisions which permit the
issuer of such securities containing such provisions to, at its discretion,
redeem the securities. During periods of falling interest rates, issuers of
these securities are likely to redeem or prepay the securities and refinance
them with debt securities with a lower interest rate. To the extent an issuer
is able to refinance the securities, or otherwise redeem them, a Portfolio may
have to replace the securities with a lower yielding security, which would
result in a lower return for the Portfolio.
CREDIT RATINGS. Credit ratings issued by credit-rating agencies evaluate the
safety of principal and interest payments of rated securities. They do not,
however, evaluate the market value risk of lower-quality securities and,
therefore, may not fully reflect the true risks of an investment. In
addition, credit rating agencies may or may not make timely changes in a
rating to reflect changes in the economy or in the condition of the issuer
that affect the market value of the security. Consequently, credit ratings
are used only as a preliminary indicator of investment quality. Investments in
lower-quality and comparable unrated securities will be more dependent on the
Sub-Adviser's credit analysis than would be the case with investments in
investment-grade debt securities. The Sub-Advisers employ their own credit
research and analysis, which includes a study of existing debt, capital
structure, ability to service debt and to pay dividends, the issuer's
sensitivity to economic conditions, its operating history and the current
trend of earnings. The Sub-Advisers continually monitor the investments in
each Portfolio's portfolio and carefully evaluate whether to dispose of or to
retain lower-quality and comparable unrated securities whose credit ratings or
credit quality may have changed.
LIQUIDITY AND VALUATION. A Portfolio may have difficulty disposing of certain
lower-quality and comparable unrated securities because there may be a thin
trading market for such securities. Because not all dealers maintain markets
in all lower-quality and comparable unrated securities, there is no
established retail secondary market for many of these securities. The
Portfolios anticipate that such securities could be sold only to a limited
number of dealers or institutional investors. To the extent a secondary
trading market does exist, it is generally not as liquid as the secondary
market for higher-rated securities. The lack of a liquid secondary market may
have an adverse impact on the market price of the security. As a result, the
Portfolio's asset value and ability to dispose of particular securities, when
necessary to meet the Portfolio's liquidity needs or in response to a specific
economic event, may be impacted. The lack of a liquid secondary market for
certain securities may also make it more difficult for a Portfolio to obtain
accurate market quotations for purposes of valuing the Portfolio's
investments. Market quotations are generally available on many lower-quality
and comparable unrated issues only from a limited number of dealers and may
not necessarily represent firm bids of such dealers or prices for actual
sales. During periods of thin trading, the spread between bid and asked
prices is likely to increase significantly. In addition, adverse publicity
and investor perceptions, whether or not based on fundamental analysis, may
decrease the values and liquidity of lower-quality and comparable unrated
securities, especially in a thinly traded market.
RECENT AND PROPOSED LEGISLATION. Recent legislation has been adopted, and
from time to time proposals have been discussed, regarding new legislation
designed to limit the use of certain lower-quality and comparable unrated
securities by certain issuers. An example of legislation is a recent law
which requires federally insured savings and loan associations to divest their
investments in these securities over time. It is not currently possible to
determine the impact of the recent legislation or the proposed legislation on
the lower-quality and comparable unrated securities market. However, it is
anticipated that if additional legislation is enacted or proposed, it could
have a material affect on the value of these securities and the existence of a
secondary trading market for the securities.
U.S. GOVERNMENT OBLIGATIONS
U.S. Government Obligations include bills, notes, bonds, and other debt
securities issued by the U.S. Treasury. These are direct obligations of the
U.S. Government and differ mainly in the length of their maturities.
U.S. GOVERNMENT AGENCY SECURITIES
Securities issued or guaranteed by Federal agencies and U.S. Government
sponsored instrumentalities may or may not be backed by the full faith and
credit of the United States. In the case of securities not backed by the full
faith and credit of the United States, the investor must look principally to
the agency or instrumentality issuing or guaranteeing the obligation for
ultimate repayment, and may not be able to assert a claim against the United
States itself in the event the agency or instrumentality does not meet its
commitment. Agencies which are backed by the full faith and credit of the
United States include the Export Import Bank, Farmers Home Administration,
Federal Financing Bank, and others. Certain debt issued by Resolution Funding
Corporation has both its principal and interest backed by the full faith and
credit of the U.S. Treasury in that its principal is defeased by U.S. Treasury
zero coupon issues, while the U.S. Treasury is explicitly required to advance
funds sufficient to pay interest on it, if needed. Certain agencies and
instrumentalities, such as the Government National Mortgage Association, are,
in effect, backed by the full faith and credit of the United States through
provisions in their charters that they may make "indefinite and unlimited"
drawings on the Treasury, if needed to service its debt. Debt from certain
other agencies and instrumentalities, including the Federal Home Loan Bank and
Federal National Mortgage Association, are not guaranteed by the United
States, but those institutions are protected by the discretionary authority of
the U.S. Treasury to purchase certain amounts of their securities to assist
the institution in meeting its debt obligations. Finally, other agencies and
instrumentalities, such as the Farm Credit System and the Federal Home Loan
Mortgage Corporation, are federally chartered institutions under Government
supervision, but their debt securities are backed only by the credit
worthiness of those institutions, not the U.S. Government.
Some of the U.S. Government agencies that issue or guarantee securities
include the Export-Import Bank of the United States, Farmers Home
Administration, Federal Housing Administration, Maritime Administration, Small
Business Administration and The Tennessee Valley Authority.
An instrumentality of the U.S. Government is a Government agency organized
under Federal charter with Government supervision. Instrumentalities issuing
or guaranteeing securities include, among others, Federal Home Loan Banks, the
Federal Land Banks, Central Bank for Cooperatives, Federal Intermediate Credit
Banks and the Federal National Mortgage Association.
BANK OBLIGATIONS
Bank obligations include, but are not limited to, negotiable certificates of
deposit, bankers' acceptances and fixed time deposits. The Berkeley Smaller
Companies Portfolio will limit its investments in U.S. bank obligations to
obligations of U.S. banks (including foreign branches) which have more than $1
billion in total assets at the time of investment and are members of the
Federal Reserve System or are examined by the Comptroller of the Currency or
whose deposits are insured by the Federal Deposit Insurance Corporation. The
Berkeley Smaller Companies Portfolio will limit its investments in foreign
bank obligations to U.S. dollar denominated obligations of foreign banks which
at the time of investment (i) have more than $10 billion, or the equivalent in
other currencies, in total assets; (ii) in terms of assets are among the 75
largest foreign banks in the world; (iii) have branches or agencies in the
U.S.; and (iv) in the opinion of the Sub-Adviser are of an investment quality
comparable with obligations of U.S. banks which may be purchased by the
Berkeley Smaller Companies Portfolio.
Fixed time deposits are obligations of U.S. banks, of foreign branches of
U.S. banks, or of foreign banks which are payable at a stated maturity date
and bear a fixed rate of interest. Generally, fixed time deposits may be
withdrawn on demand by the investor, but they may be subject to early
withdrawal penalties which vary depending upon market conditions and the
remaining maturity of the obligation. Although fixed time deposits do not have
a market, there are no contractual restrictions on a Portfolio's right to
transfer a beneficial interest in the deposit to a third party. It is the
policy of the Berkeley Smaller Companies Portfolio not to invest in (i) fixed
time deposits subject to withdrawal penalties, other than overnight deposits;
(ii) repurchase agreements with more than seven days to maturity; or (iii)
other illiquid securities, if in the aggregate more than 5% of the value of
its net assets would be so invested.
Obligations of foreign banks and foreign branches of United States banks
involve somewhat different investment risks from those affecting obligations
of United States banks, including the possibilities that liquidity could be
impaired because of future political and economic developments, that the
obligations may be less marketable than comparable obligations of United
States banks, that a foreign jurisdiction might impose withholding taxes on
interest income payable on those obligations, that foreign deposits may be
seized or nationalized, that foreign governmental restrictions (such as
foreign exchange controls) may be adopted which might adversely affect the
payment of principal and interest on those obligations and that the selection
of those obligations may be more difficult because there may be less publicly
available information concerning foreign banks, or the accounting, auditing
and financial reporting standards, practices and requirements applicable to
foreign banks differ from those applicable to United States banks. In that
connection, foreign banks are not subject to examination by any United States
Government agency or instrumentality.
SAVINGS AND LOAN OBLIGATIONS
The Portfolios may invest in savings and loan obligations which are
negotiable certificates of deposit and other short-term debt obligations of
savings and loan associations.
DEBT OBLIGATIONS
A Portfolio may invest a portion of its assets in debt obligations. Issuers
of debt obligations have a contractual obligation to pay interest at a
specified rate on specified dates and to repay principal on a specified
maturity date. Certain debt obligations (usually intermediate- and long-term
bonds) have provisions that allow the issuer to redeem or "call" a bond before
its maturity. Issuers are most likely to call such securities during periods
of falling interest rates.
PRICE VOLATILITY. The market value of debt obligations is affected by changes
in prevailing interest rates. The market value of a debt obligation generally
reacts inversely to interest-rate changes, meaning, when prevailing interest
rates decline, an obligation's price usually rises, and when prevailing
interest rates rise, an obligation's price usually declines. A fund portfolio
consisting primarily of debt obligations will react similarly to changes in
interest rates.
MATURITY. In general, the longer the maturity of a debt obligation, the
higher its yield and the greater its sensitivity to changes in interest rates.
Conversely, the shorter the maturity, the lower the yield but the greater the
price stability. Commercial paper is generally considered the shortest form
of debt obligation. The term "bond" generally refers to securities with
maturities longer than two years. Bonds with maturities of three years or
less are considered short-term, bonds with maturities between three and seven
years are considered intermediate-term, and bonds with maturities greater than
seven years are considered long-term.
CREDIT QUALITY. The values of debt obligations may also be affected by
changes in the credit rating or financial condition of their issuers.
Generally, the lower the quality rating of a security, the higher the degree
of risk as to the payment of interest and return of principal. To compensate
investors for taking on such increased risk, those issuers deemed to be less
creditworthy generally must offer their investors higher interest rates than
do issuers with better credit ratings.
In conducting their credit research and analysis, the Sub-Advisers consider
both qualitative and quantitative factors to evaluate the creditworthiness of
individual issuers. The Sub-Advisers also rely, in part, on credit ratings
compiled by a number of NRSROs. See the Appendix for additional information.
TEMPORARY DEFENSIVE POSITION. When a Sub-Adviser determines that market
conditions warrant a temporary defensive position, the Portfolios may invest
without limitation in cash and short-term fixed income securities, including
U.S. Government securities, commercial paper, banker's acceptances,
certificates of deposit, and time deposits.
SHORT-TERM CORPORATE DEBT INSTRUMENTS
A Portfolio may invest in commercial paper, which refers to short-term,
unsecured promissory notes issued by U.S. and foreign corporations to finance
short-term credit needs. Commercial paper is usually sold on a discount basis
and has a maturity at the time of issuance not exceeding nine months.
A Portfolio may also invest in non-convertible corporate debt securities
(e.g., bonds and debentures) with no more than one year remaining to maturity
at the date of settlement. Corporate debt securities with a remaining maturity
of less than one year tend to become extremely liquid and are traded as money
market securities.
The Berkeley Smaller Companies Portfolio's commercial paper investments at
the time of purchase will be rated at least A-2 by Standard & Poor's or
Prime-2 by Moody's, or if unrated, will be of comparable quality as determined
by the Sub-Adviser. The Berkeley Smaller Companies Portfolio's short-term
investments in corporate bonds and debentures (which must have maturities at
the date of purchase of one year or less) must be rated at the time of
settlement at least AA by Standard & Poor's or Aa by Moody's. See "Description
of NRSRO Ratings" for information about Moody's and Standard & Poor's ratings.
MUNICIPAL OBLIGATIONS
Municipal Obligations include debt obligations issued to obtain funds for
various public purposes, including the construction of a wide range of public
facilities such as bridges, highways, housing, hospitals, mass transportation,
schools, streets and water and sewer works. Other public purposes for which
Municipal Obligations may be issued include refunding outstanding obligations,
obtaining funds for general operating expenses, and obtaining funds to loan to
other public institutions and facilities. In addition, certain types of
industrial development bonds are issued by or on behalf of public authorities
to obtain funds to provide privately-operated housing facilities, sports
facilities, convention or trade show facilities, airport, mass transit, port
or parking facilities, air or water pollution control facilities for water
supply, gas, electricity or sewage or solid waste disposal. Such obligations
are included with the term Municipal Obligations if the interest paid thereon
qualifies as exempt from federal income tax.
Other types of industrial development bonds, the proceeds of which are used
for the construction, equipment, repair or improvement of privately operated
industrial or commercial facilities, may constitute Municipal Obligations,
although the current federal tax laws place substantial limitations on the
size of such issues.
MUNICIPAL LEASE OBLIGATIONS
Municipal lease obligations are secured by revenues derived from the lease of
property to state and local government units. The underlying leases typically
are renewable annually by the governmental user, although the lease may have a
term longer than one year. If the governmental user does not appropriate
sufficient funds for the following year's lease payments, the lease will
terminate, with the possibility of default on the lease obligations and
significant loss to a Portfolio. In the event of a termination, assignment or
sublease by the governmental user, the interest paid on the municipal lease
obligation could become taxable, depending upon the identity of the succeeding
user.
EURODOLLAR AND YANKEE OBLIGATIONS
Eurodollar bank obligations are dollar-denominated certificates of deposit
and time deposits issued outside the U.S. capital markets by foreign branches
of banks and by foreign banks. Yankee bank obligations are dollar-denominated
obligations issued in the U.S. capital markets by foreign banks.
Eurodollar and Yankee obligations are subject to the same risks that pertain
to domestic issues, notably credit risk, market risk and liquidity risk.
Additionally, Eurodollar (and to a limited extent, Yankee) obligations are
subject to certain sovereign risks. One such risk is the possibility that a
sovereign country might prevent capital, in the form of dollars, from flowing
across their borders. Other risks include: adverse political and economic
developments; the extent and quality of government regulation of financial
markets and institutions; the imposition of foreign withholding taxes, and the
expropriation or nationalization of foreign issuers.
BRADY BONDS
A portion of a Portfolio's fixed -income investments may be invested in
certain debt obligations customarily referred to as "Brady Bonds", which are
created through the exchange of existing commercial bank loans to foreign
entities for new obligations in connection with debt restructuring under a
plan introduced by former U.S. Secretary of the Treasury, Nicholas F. Brady
(the "Brady Plan").
Brady Bonds have been issued only recently, and, accordingly, do not have a
long payment history. They may be collateralized or uncollateralized and
issued in various currencies (although most are dollar-denominated) and they
are actively traded in the over-the-counter secondary market.
Dollar-denominated, collateralized Brady Bonds, which may be fixed rate par
bonds or floating rate discount bonds, are generally collateralized in full as
to principal due at maturity by U.S. Treasury zero coupon obligations which
have the same maturity as the Brady Bonds. Interest payments on these Brady
Bonds generally are collateralized by cash or securities in an amount that, in
the case of fixed rate bonds, is equal to at least one year of rolling
interest payments or, in the case of floating rate bonds, initially is equal
to at least one year's rolling interest payments based on the applicable
interest rate at that time and is adjusted at regular intervals thereafter.
Certain Brady Bonds are entitled to "value recovery payments" in certain
circumstances, which in effect constitute supplemental interest payments but
generally are not collateralized. Brady Bonds are often viewed as having three
or four valuation components: (i) the collateralized repayment of principal at
final maturity; (ii) the collateralized interest payments; (iii) the
uncollateralized interest payments; and (iv) any uncollateralized repayment of
principal at maturity (these uncollateralized amounts constitute the "residual
risk"). In the event of a default with respect to Collateralized Brady Bonds
as a result of which the payment obligations of the issuer are accelerated,
the U.S. Treasury zero coupon obligations held as collateral for the payment
of principal will not be distributed to investors, nor will such obligations
be sold and the proceeds distributed. The collateral will be held by the
collateral agent to the scheduled maturity of the defaulted Brady Bonds, which
will continue to be outstanding, at which time the face amount of the
collateral will equal the principal payments which would have then been due on
the Brady Bonds in the normal course. In addition, in light of the residual
risk of the Brady Bonds and, among other factors, the history of default with
respect to commercial bank loans by public and private entities of countries
issuing Brady Bonds, investments in Brady Bonds are to be viewed as
speculative.
Brady Plan debt restructurings totaling approximately $73 billion have been
implemented to date in Argentina, Brazil, Bulgaria, Costa Rica, Dominican
Republic, Ecuador, Jordan, Mexico, Nigeria, Panama, the Philippines, Poland,
Uruguay and Venezuela, with the largest proportion of Brady Bonds having been
issued to date by Mexico and Venezuela. Brazil has announced plans to issue
Brady Bonds aggregating approximately $35 billion, based on current estimates.
There can be no assurance that the circumstances regarding the issuance of
Brady Bonds by these countries will not change.
WHEN ISSUED SECURITIES AND FORWARD COMMITMENT CONTRACTS
A Portfolio may from time to time purchase securities on a "when-issued"
basis. The price of debt obligations purchased on a when-issued basis, which
may be expressed in yield terms, is fixed at the time the commitment to
purchase is made, but delivery and payment for the securities take place at a
later date. Normally, the settlement date occurs within one month of the
purchase. During the period between the purchase and settlement, no payment is
made by a Portfolio to the issuer and no interest on the debt obligations
accrues to the Portfolio. Forward commitments 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 value of a Portfolio's
other assets. While when-issued securities may be sold prior to the settlement
date, the Portfolios intend to purchase such securities with the purpose of
actually acquiring them unless a sale 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 value
of the security in determining its net asset value. The Portfolios do not
believe that their respective net asset values will be adversely affected by
purchases of securities on a when-issued basis.
The Portfolios will maintain cash and marketable securities 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. When the
time comes to pay for when-issued securities, a Portfolio will meet its
obligations from then-available cash flow, sale of the securities held in the
separate account, described above, sale of other securities or, although it
would not normally expect to do so, from the sale of the when-issued
securities themselves (which may have a market value greater or less than the
Portfolio's payment obligation).
WARRANTS
A Portfolio may acquire warrants. Warrants are securities giving the holder
the right, but not the obligation, to buy the stock of an issuer at a given
price (generally higher than the value of the stock at the time of issuance)
during a specified period or perpetually. Warrants may be acquired separately
or in connection with the acquisition of securities. Warrants do not carry
with them the right to dividends or voting rights with respect to the
securities that they entitle their holder to purchase, and they do not
represent any rights in the assets of the issuer. As a result, warrants may
be considered more speculative than certain other types of investments. In
addition, the value of a warrant does not necessarily change with the value of
the underlying securities, and a warrant ceases to have value if it is not
exercised prior to its expiration date.
ZERO-COUPON, STEP-COUPON AND PAY-IN-KIND SECURITIES
A Portfolio may invest in zero-coupon, step-coupon, and pay-in-kind
securities. These securities are debt securities that do not make regular
cash interest payments. Zero-coupon and step-coupon securities are sold at a
deep discount to their face value. Pay-in-kind securities pay interest
through the issuance of additional securities. Because such securities do not
pay current cash income, the price of these securities can be volatile when
interest rates fluctuate. While these securities do not pay current cash
income, federal income tax law requires the holders of zero-coupon,
step-coupon, and pay-in-kind securities to include in income each year the
portion of the original issue discount (or deemed discount) and other non-cash
income on such securities accruing that year. The Salomon U.S. Quality Bond
Portfolio may invest up to 10% of its assets in zero coupon bonds or strips.
Strips are debt securities that are stripped of their interest after the
securities are issued, but otherwise are comparable to zero coupon bonds.
FLOATING AND VARIABLE RATE INSTRUMENTS
Certain of the floating or variable rate obligations that may be purchased by
a Portfolio may carry a demand feature that would permit the holder to tender
them back to the issuer of the instrument or to a third party at par value
prior to maturity. Some of the demand instruments purchased by a Portfolio are
not traded in a secondary market and derive their liquidity solely from the
ability of the holder to demand repayment from the issuer or third party
providing credit support. If a demand instrument is not traded in a secondary
market, a Portfolio will nonetheless treat the instrument as "readily
marketable" for the purposes of its investment restriction limiting
investments in illiquid securities unless the demand feature has a notice
period of more than seven days; if the notice period is greater than seven
days, the demand instrument will be characterized as "not readily marketable"
for such purpose.
A Portfolio's right to obtain payment at par on a demand instrument could be
affected by events occurring between the date such Portfolio elects to demand
payment and the date payment is due that may affect the ability of the issuer
of the instrument or third party providing credit support to make payment when
due, except when such demand instruments permit same day settlement. To
facilitate settlement, these same day demand instruments may be held in book
entry form at a bank other than the Trust's custodian subject to a
sub-custodian agreement approved by the Trust between that bank and the
Trust's custodian.
SHORT SALES AGAINST THE BOX
A Portfolio may sell securities short against the box to hedge unrealized
gains on portfolio securities. Selling securities short against the box
involves selling a security that a Portfolio owns or has the right to acquire,
for delivery at a specified date in the future. If a Portfolio sells
securities short against the box, it may protect unrealized gains, but will
lose the opportunity to profit on such securities if the price rises.
INVERSE FLOATING RATE OBLIGATIONS
Certain Portfolios may invest in inverse floating rate obligations, or
"inverse floaters." Inverse floaters have coupon rates that vary inversely at
a multiple of a designated floating rate (which typically is determined by
reference to an index rate, but may also be determined through a dutch auction
or a remarketing agent) (the "reference rate"). Inverse floaters may
constitute a class of CMOs with a coupon rate that moves inversely to a
designated index, such as LIBOR (London Inter-Bank Offered Rate) or COFI (Cost
of Funds Index). Any rise in the reference rate of an inverse floater (as a
consequence of an increase in interest rates) causes a drop in the coupon rate
while any drop in the reference rate of an inverse floater causes an increase
in the coupon rate. In addition, like most other fixed income securities, the
value of inverse floaters will generally decrease as interest rates increase.
Inverse floaters exhibit substantially greater price volatility than fixed
rate obligations having similar credit quality, redemption provisions and
maturity, and inverse floater CMOs exhibit greater price volatility than the
majority of mortgage pass-through securities or CMOs. In addition, some
inverse floater CMOs exhibit extreme sensitivity to changes in prepayments. As
a result, the yield to maturity of an inverse floater CMO is sensitive not
only to changes in interest rates but also to changes in prepayment rates on
the related underlying mortgage assets.
LOAN PARTICIPATIONS AND OTHER DIRECT INDEBTEDNESS
A Portfolio may purchase loan participations and other direct claims against
a borrower. In purchasing a loan participation, a Portfolio acquires some or
all of the interest of a bank or other lending institution in a loan to a
corporate borrower. Many such loans are secured, although some may be
unsecured. Such loans may be in default at the time of purchase. Loans that
are fully secured offer the Portfolio more protection than an unsecured loan
in the event of non-payment of scheduled interest or principal. However, there
is no assurance that the liquidation of collateral from a secured loan would
satisfy the corporate borrower's obligation, or that the collateral can be
liquidated.
These loans are made generally to finance internal growth, mergers,
acquisitions, stock repurchases, leveraged buy-outs and other corporate
activities. Such loans are typically made by a syndicate of lending
institutions, represented by an agent lending institution which has negotiated
and structured the loan and is responsible for collecting interest, principal
and other amounts due on its own behalf and on behalf of the others in the
syndicate, and for enforcing its and their other rights against the borrower.
Alternatively, such loans may be structured as a novation, pursuant to which a
Portfolio would assume all of the rights of the lending institution in a loan,
or as an assignment, pursuant to which the Portfolio would purchase an
assignment of a portion of a lender's interest in a loan either directly from
the lender or through an intermediary. A Portfolio may also purchase trade or
other claims against companies, which generally represent money owed by the
company to a supplier of goods or services. These claims may also be purchased
at a time when the company is in default.
Certain of the loan participations acquired by a Portfolio may involve
revolving credit facilities or other standby financing commitments which
obligate a Portfolio to pay additional cash on a certain date or on demand.
These commitments may have the effect of requiring a Portfolio to increase its
investment in a company at a time when a Portfolio might not otherwise decide
to do so (including at a time when the company's financial condition makes it
unlikely that such amounts will be repaid). To the extent that a Portfolio is
committed to advance additional funds, it will at all times hold and maintain
in a segregated account cash or other high grade debt obligations in an amount
sufficient to meet such commitments.
A Portfolio's ability to receive payments of principal, interest and other
amounts due in connection with these investments will depend primarily on the
financial condition of the borrower. In selecting the loan participations and
other direct investments which a Portfolio will purchase, the Sub-Adviser will
rely upon its (and not that of the original lending institutions) own credit
analysis of the borrower. As a Portfolio may be required to rely upon another
lending institution to collect and pass on to the Portfolio amounts payable
with respect to the loan and to enforce a Portfolio's rights under the loan,
an insolvency, bankruptcy or reorganization of the lending institution may
delay or prevent a Portfolio from receiving such amounts. In such cases, a
Portfolio will evaluate as well the creditworthiness of the lending
institution and will treat both the borrower and the lending institution as an
"issuer" of the loan participation for purposes of certain investment
restrictions pertaining to the diversification of a Portfolio's investments.
The highly leveraged nature of many such loans may make such loans especially
vulnerable to adverse changes in economic or market conditions. Investments in
such loans may involve additional risks to a Portfolio. For example, if a loan
is foreclosed, a Portfolio could become part owner of any collateral, and
would bear the costs and liabilities associated with owning and disposing of
the collateral. In addition, it is conceivable that under emerging legal
theories of lender liability, a Portfolio could be held liable as a co-lender.
It is unclear whether loans and other forms of direct indebtedness offer
securities law protections against fraud and misrepresentation. In the absence
of definitive regulatory guidance, a Portfolio relies on the Sub-Adviser's
research in an attempt to avoid situations where fraud or misrepresentation
could adversely affect the Portfolio. In addition, loan participations and
other direct investments may not be in the form of securities or may be
subject to restrictions on transfer, and only limited opportunities may exist
to resell such instruments. As a result, a Portfolio may be unable to sell
such investments at an opportune time or may have to resell them at less than
fair market value. To the extent that the Sub-Adviser determines that any such
investments are illiquid, a Portfolio will include them in the investment
limitations described below.
INDEXED SECURITIES
A Portfolio may purchase securities whose prices are indexed to the prices of
other securities, securities indices, currencies, precious metals or other
commodities, or other financial indicators. Index securities may include
securities that have embedded swaps (see "Swaps and Related Transactions") and
typically, but not always, are debt securities or deposits whose value at
maturity or coupon rate is determined by reference to a specific instrument or
statistic. Gold-indexed securities, for example, typically provide for a
maturity value that depends on the price of gold, resulting in a security
whose price tends to rise and fall together with gold prices. Currency-indexed
securities typically are short-term to intermediate-term debt securities whose
maturity values or interest rates are determined by reference to the values of
one or more specified foreign currencies, and may offer higher yields than
U.S. dollar-denominated securities of equivalent issuers. Currency-indexed
securities may be positively or negatively indexed; that is, their maturity
value may increase when the specified currency value increases, resulting in a
security that performs similarly to a foreign-denominated instrument, or their
maturity value may decline when foreign currencies increase, resulting in a
security whose price characteristics are similar to a put on the underlying
currency. Currency-indexed securities may also have prices that depend on the
values of a number of different foreign currencies relative to each other.
The performance of indexed securities depends to a great extent on the
performance of the security, currency, or other instrument to which they are
indexed, and may also be influenced by interest rate changes in the U.S. and
abroad. At the same time, indexed securities are subject to the credit risks
associated with the issuer of the security, and their values may decline
substantially if the issuer's creditworthiness deteriorates. Recent issuers of
indexed securities have included banks, corporations, and certain U.S.
Government agencies.
OTHER INVESTMENT COMPANIES
As indicated under "Investment Restrictions", a Portfolio may from time to
time invest in securities of other investment companies. The return on such
investments will be reduced by the operating expenses, including investment
advisory and administration fees, of such investment funds, and will be
further reduced by the Portfolio expenses, including management fees; that is,
there will be a layering of certain fees and expenses.
FOREIGN INVESTMENT COMPANIES
Some of the countries in which a Portfolio may invest may not permit direct
investment by outside investors. Investments in such countries may only be
permitted through foreign government-approved or -authorized investment
vehicles, which may include other investment companies. Investing through such
vehicles may involve frequent or layered fees or expenses and may also be
subject to limitation under the 1940 Act. Under the 1940 Act, a Portfolio may
invest up to 10% of its assets in shares of investment companies and up to 5%
of its assets in any one investment company as long as the investment does not
represent more than 3% of the voting stock of the acquired investment company.
SWAPS AND RELATED TRANSACTIONS
A Portfolio may enter into interest rate swaps, currency swaps and other
types of available swap agreements, such as caps, collars and floors.
Swap agreements may be individually negotiated and structured to include
exposure to a variety of different types of investments or market factors.
Depending on their structure, swap agreements may increase or decrease a
Portfolio's exposure to long or short-term interest rates (in the U.S. or
abroad), foreign currency values, mortgage securities, corporate borrowing
rates, or other factors such as securities prices or inflation rates. Swap
agreements can take many different forms and are known by a variety of names.
A Portfolio is not limited to any particular form or variety of swap agreement
if the Sub-Adviser determines it is consistent with the Portfolio's investment
objective and policies.
A Portfolio will maintain cash or appropriate liquid assets with its
custodian to cover its current obligations under swap transactions. If a
Portfolio enters into a swap agreement on a net basis (i.e., the two payment
streams are netted out, with the Portfolio receiving or paying as the case may
be, only the net amount of the two payments), the Portfolio will maintain cash
or liquid assets with its Custodian with a daily value at least equal to the
excess, if any, of the Portfolio's accrued obligations under the swap
agreement over the accrued amount the Portfolio is entitled to receive under
the agreement. If the Portfolio enters into a swap agreement on other than a
net basis, it will maintain cash or liquid assets with a value equal to the
full amount of the Portfolio's accrued obligations under the agreement.
The most significant factor in the performance of swaps, caps, floors and
collars is the change in the specific interest rate, currency or other factor
that determines the amount of payments to be made under the arrangement. If a
Sub-Adviser is incorrect in its forecasts of such factors, the investment
performance of the Portfolio would be less than what it would have been if
these investment techniques had not been used. If a swap agreement calls for
payments by the Portfolio, the Portfolio must be prepared to make such
payments when due. In addition, if the counterparty's creditworthiness
declined, the value of the swap agreement would be likely to decline,
potentially resulting in losses. If the counterparty defaults, the Portfolio's
risk of loss consists of the net amount of payments that the Portfolio is
contractually entitled to receive. The Portfolio anticipates that it will be
able to eliminate or reduce its exposure under these arrangements by
assignment or other disposition or by entering into an offsetting agreement
with the same or another counterparty.
DERIVATIVE INSTRUMENTS
GENERAL DESCRIPTION. As discussed in the Prospectus, the Sub-Advisers for
certain Portfolios may use a variety of derivative instruments, including
options, futures contracts (sometimes referred to as "futures"), options on
futures contracts, and forward currency contracts for any lawful purpose, such
as to hedge a Portfolio's investments, risk management, or to attempt to
enhance returns.
The use of these instruments is subject to applicable regulations of the SEC,
the several options and futures exchanges upon which they may be traded, the
Commodity Futures Trading Commission ("CFTC") and various state regulatory
authorities. In addition, a Portfolio's ability to use these instruments will
be limited by tax considerations.
In addition to the products, strategies and risks described below and in the
Prospectus, the Sub-Advisers expect to discover additional derivative
instruments and other hedging techniques. These new opportunities may become
available as the Sub-Advisers develop new techniques or as regulatory
authorities broaden the range of permitted transactions. The Sub-Advisers may
utilize these opportunities to the extent that they are consistent with a
Portfolio's investment objective and permitted by a Portfolio's investment
limitations and applicable regulatory authorities.
SPECIAL RISKS OF THESE INSTRUMENTS. The use of derivative instruments
involves special considerations and risks as described below. Risks
pertaining to particular instruments are described in the sections that
follow.
(1) Successful use of most of these instruments depends upon a
Sub-Adviser's ability to predict movements of the overall securities and
currency markets, which requires different skills than predicting changes in
the prices of individual securities. While the Sub-Advisers are experienced
in the use of these instruments, there can be no assurance that any particular
strategy adopted will succeed.
(2) There might be imperfect correlation, or even no correlation,
between price movements of an instrument and price movements of investments
being hedged. For example, if the value of an instrument used in a short
hedge (such as writing a call option, buying a put option, or selling a
futures contract) increased by less than the decline in value of the hedged
investment, the hedge would not be fully successful. Such a lack of
correlation might occur due to factors unrelated to the value of the
investments being hedged, such as speculative or other pressures on the
markets in which these instruments are traded. The effectiveness of hedges
using instruments on indices will depend on the degree of correlation between
price movements in the index and price movements in the investments being
hedged.
(3) Hedging strategies, if successful, can reduce risk of loss by
wholly or partially offsetting the negative effect of unfavorable price
movements in the investments being hedged. However, hedging strategies can
also reduce opportunity for gain by offsetting the positive effect of
favorable price movements in the hedged investments. For example, if a
Portfolio entered into a short hedge because the Sub-Adviser projected a
decline in the price of a security in the Portfolio's investments, and the
price of that security increased instead, the gain from that increase might be
wholly or partially offset by a decline in the price of the instrument.
Moreover, if the price of the instrument declined by more than the increase in
the price of the security, a Portfolio could suffer a loss.
(4) As described below, a Portfolio might be required to maintain
assets as "cover," maintain segregated accounts, or make margin payments when
it takes positions in these instruments involving obligations to third parties
(i.e., instruments other than purchased options). If a Portfolio were unable
to close out its positions in such instruments, it might be required to
continue to maintain such assets or accounts or make such payments until the
position expired or matured. The requirements might impair a Portfolio's
ability to sell a portfolio security or make an investment at a time when it
would otherwise be favorable to do so, or require that a Portfolio sell a
portfolio security at a disadvantageous time. A Portfolio's ability to close
out a position in an instrument prior to expiration or maturity depends on the
existence of a liquid secondary market or, in the absence of such a market,
the ability and willingness of the other party to the transaction ("counter
party") to enter into a transaction closing out the position. Therefore,
there is no assurance that any hedging position can be closed out at a time
and price that is favorable to a Portfolio.
GENERAL LIMITATIONS ON CERTAIN DERIVATIVE TRANSACTIONS. The Trust will file a
notice of eligibility for exclusion from the definition of the term "commodity
pool operator" with the CFTC and the National Futures Association, which
regulate trading in the futures markets. Pursuant to Rule 4.5 of the
regulations under the Commodity Exchange Act (the "CEA"), the notice of
eligibility will include representations that the Trust will use futures
contracts and related options solely for bona fide hedging purposes within the
meaning of CFTC regulations, provided that the Trust may hold other positions
in futures contracts and related options that do not qualify as a bona fide
hedging position if the aggregate initial margin deposits and premiums
required to establish these positions, less the amount by which any such
options positions are "in the money," do not exceed 5% of the Trust's net
assets. Adoption of these guidelines does not limit the percentage of the
Trust's assets at risk to 5%.
In addition, (i) the aggregate value of securities underlying call options on
securities written by a Portfolio or obligations underlying put options on
securities written by a Portfolio determined as of the date the options are
written will not exceed 50% of the Portfolio's net assets; (ii) the aggregate
premiums paid on all options purchased by a Portfolio and which are being held
will not exceed 20% of the Portfolio's net assets; (iii) a Portfolio will not
purchase put or call options, other than hedging positions, if, as a result
thereof, more than 5% of its total assets would be so invested; and (iv) the
aggregate margin deposits required on all futures and options on futures
transactions being held will not exceed 5% of a Portfolio's total assets.
The foregoing limitations are not fundamental policies of the Portfolios and
may be changed by the Trust's Board of Trustees without shareholder approval
as regulatory agencies permit.
Transactions using options (other than purchased options) expose a Portfolio
to counter-party risk. To the extent required by SEC guidelines, a Portfolio
will not enter into any such transactions unless it owns either (1) an
offsetting ("covered") position in securities, other options, or futures or
(2) cash and liquid high grade debt securities with a value sufficient at all
times to cover its potential obligations to the extent not covered as provided
in (1) above. A Portfolio will also set aside cash and/or appropriate liquid
assets in a segregated custodial account if required to do so by the SEC and
CFTC regulations. Assets used as cover or held in a segregated account cannot
be sold while the position in the corresponding option or futures contract is
open, unless they are replaced with similar assets. As a result, the
commitment of a large portion of a Portfolio's assets to segregated accounts
as a cover could impede portfolio management or the Portfolio's ability to
meet redemption requests or other current obligations.
OPTIONS. A Portfolio may purchase and write put and call options on
securities, on indices of securities, and foreign currency, and enter into
closing transactions with respect to such options to terminate an existing
position. The purchase of call options serves as a long hedge, and the
purchase of put options serves as a short hedge. Writing put or call options
can enable a Portfolio to enhance income by reason of the premiums paid by the
purchaser of such options. Writing call options serves as a limited short
hedge because declines in the value of the hedged investment would be offset
to the extent of the premium received for writing the option. However, if the
security appreciates to a price higher than the exercise price of the call
option, it can be expected that the option will be exercised and the Portfolio
will be obligated to sell the security at less than its market value or will
be obligated to purchase the security at a price greater than that at which
the security must be sold under the option. All or a portion of any assets
used as cover for OTC options written by a Portfolio would be considered
illiquid to the extent described under "Illiquid or Restricted Securities."
Writing put options serves as a limited long hedge because increases in the
value of the hedged investment would be offset to the extent of the premium
received for writing the option. However, if the security depreciates to a
price lower than the exercise price of the put option, it can be expected that
the put option will be exercised and the Portfolio will be obligated to
purchase the security at more than its market value.
The value of an option position will reflect, among other things, the
historical price volatility of the underlying investment, the current market
value of the underlying investment, the time remaining until expiration, the
relationship of the exercise price to the market price of the underlying
investment, and general market conditions. Options that expire unexercised
have no value. Options used by a Portfolio may include European-style options.
This means that the option is only exercisable at its expiration. This is in
contrast to American-style options which are exercisable at any time prior to
the expiration date of the option.
A Portfolio may effectively terminate its right or obligation under an option
by entering into a closing transaction. For example, a Portfolio may
terminate its obligation under a call or put option that it had written by
purchasing an identical call or put option; this is known as a closing
purchase transaction. Conversely, a Portfolio may terminate a position in a
put or call option it had purchased by writing an identical put or call
option; this is known as a closing sale transaction. Closing transactions
permit a Portfolio to realize the profit or limit the loss on an option
position prior to its exercise or expiration.
A Portfolio may purchase or write both exchange-traded and OTC options.
Exchange-traded options are issued by a clearing organization affiliated with
the exchange on which the option is listed that, in effect, guarantees
completion of every exchange-traded option transaction. OTC options are
contracts between a Portfolio and the other party to the transaction ("counter
party") (usually a securities dealer or a bank) with no clearing organization
guarantee. Thus, when a Portfolio purchases or writes an OTC option, it
relies on the counter party to make or take delivery of the underlying
investment upon exercise of the option. Failure by the counter party to do so
would result in the loss of any premium paid by a Portfolio as well as the
loss of any expected benefit of the transaction.
A Portfolio's ability to establish and close out positions in exchange-listed
options depends on the existence of a liquid market. The Portfolios intend to
purchase or write only those exchange-traded options for which there appears
to be a liquid secondary market. However, there can be no assurance that such
a market will exist at any, particular time. Closing transactions can be made
for OTC options only by negotiating directly with the counter party, or by a
transaction in the secondary market if any such market exists. Although a
Portfolio will enter into OTC options only with counter parties that are
expected to be capable of entering into closing transactions with the
Portfolio, there is no assurance that the Portfolio will in fact be able to
close out an OTC option at a favorable price prior to expiration. In the
event of insolvency of the counter party, a Portfolio might be unable to close
out an OTC option position at any time prior to its expiration.
If a Portfolio were unable to effect a closing transaction for an option it
had purchased, it would have to exercise the option to realize any profit. The
inability to enter into a closing purchase transaction for a covered call
option written by a Portfolio could cause material losses because the
Portfolio would be unable to sell the investment used as cover for the written
option until the option expires or is exercised.
A Portfolio may engage in options transactions on indices in much the same
manner as the options on securities discussed above, except the index options
may serve as a hedge against overall fluctuations in the securities markets
in general.
The writing and purchasing of options is a highly specialized activity that
involves investment techniques and risks different from those associated with
ordinary portfolio securities transactions. Imperfect correlation between the
options and securities markets may detract from the effectiveness of attempted
hedging.
YIELD CURVE OPTIONS: A Portfolio may also enter into options on the "spread,"
or yield differential, between two fixed income securities, in transactions
referred to as "yield curve" options. In contrast to other types of options, a
yield curve option is based on the difference between the yields of designated
securities, rather than the prices of the individual securities, and is
settled through cash payments. Accordingly, a yield curve option is profitable
to the holder if this differential widens (in the case of a call) or narrows
(in the case of a put), regardless of whether the yields of the underlying
securities increase or decrease.
Yield curve options may be used for the same purposes as other options on
securities. Specifically, a Portfolio may purchase or write such options for
hedging purposes. For example, a Portfolio may purchase a call option on the
yield spread between two securities, if it owns one of the securities and
anticipates purchasing the other security and wants to hedge against an
adverse change in the yield spread between the two securities. A Portfolio may
also purchase or write yield curve options for other than hedging purposes
(i.e., in an effort to increase its current income) if, in the judgment of the
Sub-Adviser, a Portfolio will be able to profit from movements in the spread
between the yields of the underlying securities. The trading of yield curve
options is subject to all of the risks associated with the trading of other
types of options. In addition, however, such options present risk of loss even
if the yield of one of the underlying securities remains constant, if the
spread moves in a direction or to an extent which was not anticipated. Yield
curve options written by a Portfolio will be "covered". A call (or put) option
is covered if the Portfolio holds another call (or put) option on the spread
between the same two securities and maintains in a segregated account with its
custodian cash or cash equivalents sufficient to cover the Portfolio's net
liability under the two options. Therefore, a Portfolio's liability for such a
covered option is generally limited to the difference between the amount of
the Portfolio's liability under the option written by the Portfolio less the
value of the option held by the Portfolio. Yield curve options may also be
covered in such other manner as may be in accordance with the requirements of
the counterparty with which the option is traded and applicable laws and
regulations. Yield curve options are traded over-the-counter and because they
have been only recently introduced, established trading markets for these
securities have not yet developed.
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 a
certain percentage of the Portfolio's assets (the "SEC illiquidity ceiling").
The Sub-Advisers intend to limit a Portfolio's writing of over-the-counter
options in accordance with the following procedure. 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 a Portfolio will have in place with such
primary dealers will provide that the Portfolio has the absolute right to
repurchase an option it writes at any time 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-money. A Portfolio will
treat all or a part of the formula price as illiquid for purposes of the SEC
illiquidity ceiling. A Portfolio may also write over-the-counter options with
non-primary dealers, including foreign dealers, and will treat the assets used
to cover these options as illiquid for purposes of such SEC illiquidity
ceiling.
SPREAD TRANSACTIONS. A Portfolio may purchase covered spread options from
securities dealers. Such covered spread options are not presently
exchange-listed or exchange-traded. The purchase of a spread option gives a
Portfolio the right to put, or sell, a security that it owns at a fixed dollar
spread or fixed yield spread in relationship to another security that a
Portfolio does not own, but which is used as a benchmark. The risk to the
Portfolio in purchasing covered spread options is the cost of the premium paid
for the spread option and any transaction costs. In addition, there is no
assurance that closing transactions will be available. The purchase of spread
options will be used to protect the Portfolio against adverse changes in
prevailing credit quality spreads, i.e., the yield spread between high quality
and lower quality securities. Such protection is only provided during the
life of the spread option.
FUTURES CONTRACTS. A Portfolio may enter into futures contracts, including
interest rate, index, and foreign currency futures. A Portfolio may also
purchase put and call options, and write covered put and call options, on
futures in which it is allowed to invest. The purchase of futures or call
options thereon can serve as a long hedge, and the sale of futures or the
purchase of put options thereon can serve as a short hedge. Writing covered
call options on futures contracts can serve as a limited short hedge, and
writing covered put options on futures contracts can serve as a limited long
hedge, using a strategy similar to that used for writing covered options in
securities. A Portfolio's hedging may include purchases of futures as an
offset against the effect of expected increases in securities prices and
currency exchange rates and sales of futures as an offset against the effect
of expected declines in securities prices and currency exchange rates. A
Portfolio's futures transactions may be entered into for any lawful purpose
such as hedging purposes, risk management, or to enhance returns. A Portfolio
may also write put options on futures contracts while at the same time
purchasing call options on the same futures contracts in order to create
synthetically a long futures contract position. Such options would have the
same strike prices and expiration dates. A Portfolio will engage in this
strategy only when a Sub-Adviser believes it is more advantageous to the
Portfolio than is purchasing the futures contract.
To the extent required by regulatory authorities, the Portfolios only enter
into futures contracts that are traded on national futures exchanges and are
standardized as to maturity date and underlying financial instrument. Futures
exchanges and trading are regulated under the CEA by the CFTC. Although
techniques other than sales and purchases of futures contracts could be used
to reduce a Portfolio's exposure to market, currency, or interest rate
fluctuations, the Portfolio may be able to hedge its exposure more effectively
and perhaps at a lower cost through using futures contracts.
A futures contract provides for the future sale by one party and purchase by
another party of a specified amount of a specific financial instrument (e.g.
debt security) or currency for a specified price at a designated date, time,
and place. An index futures contract is an agreement pursuant to which the
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 futures contract was
originally written. Transaction costs are incurred when a futures contract is
bought or sold and margin deposits must be maintained. A futures contract may
be satisfied by delivery or purchase, as the case may be, of the instrument,
the currency, or by payment of the change in the cash value of the index.
More commonly, futures contracts are closed out prior to delivery by entering
into an offsetting transaction in a matching futures contract. Although the
value of an index might be a function of the value of certain specified
securities, no physical delivery of those securities is made. If the
offsetting purchase price is less than the original sale price, the Portfolio
realizes a gain; if it is more, the Portfolio realizes a loss. Conversely, if
the offsetting sale price is more than the original purchase price, the
Portfolio realizes a gain; if it is less, the Portfolio realizes a loss. The
transaction costs must also be included in these calculations. There can be
no assurance, however, that a Portfolio will be able to enter into an
offsetting transaction with respect to a particular futures contract at a
particular time. If the Portfolio is not able to enter into an offsetting
transaction, the Portfolio will continue to be required to maintain the margin
deposits on the futures contract.
No price is paid by a Portfolio upon entering into a futures contract.
Instead, at the inception of a futures contract, the Portfolio is required to
deposit in a segregated account with its custodian, in the name of the futures
broker through whom the transaction was effected, "initial margin" consisting
of cash, U.S. Government securities or other liquid, high grade debt
obligations, in an amount generally equal to 10% or less of the contract
value. Margin must also be deposited when writing a call or put option on a
futures contract, in accordance with applicable exchange rules. Unlike margin
in securities transactions, initial margin on futures contracts does not
represent a borrowing, but rather is in the nature of a performance bond or
good-faith deposit that is returned to the Portfolio at the termination of the
transaction if all contractual obligations have been satisfied. Under certain
circumstances, such as periods of high volatility, the Portfolio may be
required by an exchange to increase the level of its initial margin payment,
and initial margin requirements might be increased generally in the future by
regulatory action.
Subsequent "variation margin" payments are made to and from the futures
broker daily as the value of the futures position varies, a process known as
"marking to market." Variation margin does not involve borrowing, but rather
represents a daily settlement of the Portfolio's obligations to or from a
futures broker. When a Portfolio purchases an option on a future, the premium
paid plus transaction costs is all that is at risk. In contrast, when the
Portfolio purchases or sells a futures contract or writes a call or put option
thereon, it is subject to daily variation margin calls that could be
substantial in the event of adverse price movements. If a Portfolio has
insufficient cash to meet daily variation margin requirements, it might need
to sell securities at a time when such sales are disadvantageous. Purchasers
and sellers of futures positions and options on futures can enter into
offsetting closing transactions by selling or purchasing, respectively, an
instrument identical to the instrument held or written. Positions in futures
and options on futures may be closed only on an exchange or board of trade
that provides a secondary market. The Portfolios intend to enter into futures
transactions only on exchanges or boards of trade where there appears to be a
liquid secondary market. However, there can be no assurance that such a
market will exist for a particular contract at a particular time.
Under certain circumstances, futures exchanges may establish daily limits on
the amount that the price of a future or option on a futures contract can vary
from the previous day's settlement price; once that limit is reached, no
trades may be made that day at a price beyond the limit. Daily price limits
do not limit potential losses because prices could move to the daily limit for
several consecutive days with little or no trading, thereby preventing
liquidation of unfavorable positions.
If a Portfolio were unable to liquidate a futures or option on a futures
contract position due to the absence of a liquid secondary market or the
imposition of price limits, it could incur substantial losses. The Portfolio
would continue to be subject to market risk with respect to the position. In
addition, except in the case of purchased options, the Portfolio would
continue to be required to make daily variation margin payments and might be
required to maintain the position being hedged by the future or option or to
maintain cash or securities in a segregated account.
Certain characteristics of the futures market might increase the risk that
movements in the prices of futures contracts or options on futures contracts
might not correlate perfectly with movements in the prices of the investments
being hedged. For example, all participants in the futures and options on
futures contracts markets are subject to daily variation margin calls and
might be compelled to liquidate futures or options on futures contracts
positions whose prices are moving unfavorably to avoid being subject to
further calls. These liquidations could increase price volatility of the
instruments and distort the normal price relationship between the futures or
options and the investments being hedged. Also, because initial margin
deposit requirements in the futures market are less onerous than margin
requirements in the securities markets, there might be increased participation
by speculators in the future markets. This participation also might cause
temporary price distortions. In addition, activities of large traders in both
the futures and securities markets involving arbitrage, "program trading" and
other investment strategies might result in temporary price distortions.
FOREIGN CURRENCY-RELATED DERIVATIVE STRATEGIES-SPECIAL CONSIDERATIONS. A
Portfolio may also use options and futures on foreign currencies and forward
currency contracts to hedge against movements in the values of the foreign
currencies in which the Portfolio's securities are denominated. The Portfolio
may utilize foreign currency-related derivative instruments for any lawful
purposes such as for bona fide hedging or to seek to enhance returns through
exposure to a particular foreign currency. Such currency hedges can protect
against price movements in a security the Portfolio owns or intends to acquire
that are attributable to changes in the value of the currency in which it is
denominated. Such hedges do not, however, protect against price movements in
the securities that are attributable to other causes.
A Portfolio might seek to hedge against changes in the value of a particular
currency when no hedging instruments on that currency are available or such
hedging instruments are more expensive than certain other hedging instruments.
In such cases, the Portfolio may hedge against price movements in that
currency by entering into transactions using hedging instruments on another
foreign currency or a basket of currencies, the values of which the
Sub-Adviser believes will have a high degree of positive correlation to the
value of the currency being hedged. The risk that movements in the price of
the hedging instrument will not correlate perfectly with movements in the
price of the currency being hedged is magnified when this strategy is used.
The value of derivative instruments on foreign currencies depends on the
value of the underlying currency relative to the U.S. dollar. Because foreign
currency transactions occurring in the interbank market might involve
substantially larger amounts than those involved in the use of such hedging
instruments, the Portfolio could be disadvantaged by having to deal in the 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 or any regulatory requirement that quotations available through
dealers or other market sources be firm or revised on a timely basis.
Quotation information generally is representative of very large transactions
in the interbank market and thus might not reflect odd-lot transactions where
rates might be less favorable. The interbank market in foreign currencies is
a global, round-the-clock market. To the extent the U.S. options or futures
markets are closed while the markets for the underlying currencies remain
open, significant price and rate movements might take place in the underlying
markets that cannot be reflected in the markets for the derivative instruments
until they reopen.
Settlement of derivative transactions involving foreign currencies might be
required to take place within the country issuing the underlying currency.
Thus, the Portfolio might be required to accept or make delivery of the
underlying foreign currency in accordance with any U.S. or foreign regulations
regarding the maintenance of foreign banking arrangements by U.S. residents
and might be required to pay any fees, taxes and charges associated with such
delivery assessed in the issuing country.
Permissible foreign currency options will include options traded primarily in
the OTC market. Although options on foreign currencies are traded primarily
in the OTC market, the Portfolio will normally purchase OTC options on foreign
currency only when the Sub-Adviser believes a liquid secondary market will
exist for a particular option at any specific time.
FORWARD CURRENCY CONTRACTS. A forward currency contract involves an
obligation to purchase or sell a specific currency at a specified future date,
which may be any fixed number of days from the contract date agreed upon by
the parties, at a price set at the time the contract is entered into.
A Portfolio may enter into forward currency contracts to purchase or sell
foreign currencies for a fixed amount of U.S. dollars or another foreign
currency for any lawful purpose. Such transactions may serve as long hedges
- -- for example, a Portfolio may purchase a forward currency contract to lock
in the U.S. dollar price of a security denominated in a foreign currency that
a Portfolio intends to acquire. Forward currency contracts may also serve as
short hedges -- for example, the Portfolio may sell a forward currency
contract to lock in the U.S. dollar equivalent of the proceeds from the
anticipated sale of a security denominated in a foreign currency.
A Portfolio may seek to hedge against changes in the value of a particular
currency by using forward contracts on another foreign currency or a basket of
currencies, the value of which the Sub-Adviser believes will have a positive
correlation to the values of the currency being hedged. In addition, the
Portfolio may use forward currency contracts to shift exposure to foreign
currency fluctuations from one country to another. For example, if a
Portfolio owns securities denominated in a foreign currency and the
Sub-Adviser believes that currency will decline relative to another currency,
it might enter into a forward contract to sell an appropriate amount of the
first foreign currency, with payment to be made in the second foreign
currency. Transactions that use two foreign currencies are sometimes referred
to as "cross hedges." Use of different foreign currency magnifies the risk
that movements in the price of the instrument will not correlate or will
correlate unfavorably with the foreign currency being hedged.
The cost to the Portfolio of engaging in forward currency contracts varies
with factors such as the currency involved, the length of the contract period
and the market conditions then prevailing. Because forward currency contracts
are usually entered into on a principal basis, no fees or commissions are
involved. When the Portfolio enters into a forward currency contract, it
relies on the counter party to make or take delivery of the underlying
currency at the maturity of the contract. Failure by the counter party to do
so would result in the loss of any expected benefit of the transaction.
As is the case with futures contracts, holders and writers of forward
currency contracts can enter into offsetting closing transactions, similar to
closing transactions on futures, by selling or purchasing, respectively, an
instrument identical to the instrument held or written. Secondary markets
generally do not exist for forward currency contracts, with the result that
closing transactions generally can be made for forward currency contracts only
by negotiating directly with the counter party. Thus, there can be no
assurance that the Portfolio will in fact be able to close out a forward
currency contract at a favorable price prior to maturity. In addition, in the
event of insolvency of the counter party, the Portfolio might be unable to
close out a forward currency contract at any time prior to maturity. In
either event, the Portfolio would continue to be subject to market risk with
respect to the position, and would continue to be required to maintain a
position in securities denominated in the foreign currency or to maintain cash
or securities in a segregated account.
The precise matching of forward currency contract amounts and the value of
the securities involved generally will not be possible because the value of
such securities, measured in the foreign currency, will change after the
foreign currency contract has been established. Thus, the Portfolio might
need to purchase or sell foreign currencies in the spot (cash) market to the
extent such foreign currencies are not covered by forward contracts. The
projection of short-term currency market movements is extremely difficult, and
the successful execution of a short-term hedging strategy is highly uncertain.
FOREIGN CURRENCY TRANSACTIONS
Although the Strong International Stock Portfolio values its assets daily in
U.S. dollars, it is not required to convert its holdings of foreign currencies
to U.S. dollars on a daily basis. The Portfolio's foreign currencies generally
will be held as "foreign currency call accounts" at foreign branches of
foreign or domestic banks. These accounts bear interest at negotiated rates
and are payable upon relatively short demand periods. If a bank became
insolvent, the Portfolio could suffer a loss of some or all of the amounts
deposited. The Portfolio may convert foreign currency to U.S. dollars from
time to time. Although foreign exchange dealers generally do not charge a
stated commission or fee for conversion, the prices posted generally include a
"spread," which is the difference between the prices at which the dealers are
buying and selling foreign currencies.
HYBRID INSTRUMENTS
Hybrid Instruments have recently been developed and combine the elements of
futures contracts or options with those of debt, preferred equity or a
depository instrument. Often these Hybrid Instruments are indexed to the price
of a commodity, a particular currency, or a domestic or foreign debt or equity
securities index. Hybrid Instruments may take a variety of forms, including,
but not limited to, debt instruments with interest or principal payments or
redemption terms determined by reference to the value of a currency or
commodity or securities index at a future point in time, preferred stock with
dividend rates determined by reference to the value of a currency, or
convertible securities with the conversion terms related to a particular
commodity.
The risks of investing in Hybrid Instruments reflect a combination of the
risks of investing in securities, options, futures and currencies, including
volatility and lack of liquidity. Reference is made to the discussion of
futures, options, and forward contracts herein for a discussion of these
risks. Further, the prices of the Hybrid Instrument and the related commodity
or currency may not move in the same direction or at the same time. Hybrid
Instruments may bear interest or pay preferred dividends at below market (or
even relatively nominal) rates. Alternatively, Hybrid Instruments may bear
interest at above market rates but bear an increased risk of principal loss
(or gain). In addition, because the purchase and sale of Hybrid Instruments
could take place in an over-the-counter market or in a private transaction
between a Portfolio and the seller of the Hybrid Instrument, the
creditworthiness of the counterparty to the transaction would be a risk factor
which a Portfolio would have to consider. Hybrid Instruments also may not be
subject to regulation by the CFTC, which generally regulates the trading of
commodity futures by U.S. persons, the SEC (which regulates the offer and sale
of securities by and to U.S. persons), or any other governmental regulatory
authority.
COMBINED TRANSACTIONS
The Portfolios may enter into multiple transactions, including multiple
options transactions, multiple futures transactions, multiple foreign currency
transactions (including forward foreign currency exchange contracts) and any
combination of futures, options and foreign currency transactions, instead of
a single transaction, as part of a single hedging strategy when, in the
opinion of a Sub-Adviser, it is in the best interest of a Portfolio to do so.
A combined transaction, while part of a single strategy, may contain elements
of risk that are present in each of its component transactions and will be
structured in accordance with applicable SEC regulations and SEC staff
guidelines.
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 1940 Act 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.
STRONG INTERNATIONAL STOCK PORTFOLIO AND STRONG GROWTH PORTFOLIO
Each of the Strong Portfolios:
1. May not with respect to 75% of its total assets, purchase the
securities of any issuer (except securities issued or guaranteed by the U.S.
government or its agencies or instrumentalities) if, as a result, (i) more
than 5% of the Portfolio's total assets would be invested in the securities of
that issuer, or (ii) the Portfolio would hold more than 10% of the outstanding
voting securities of that issuer.
2. May (i) borrow money from banks and (ii) make other investments or
engage in other transactions permissible under the 1940 Act which may involve
a borrowing such as reverse repurchase agreement and mortgage "dollar roll"
transactions, provided that the combination of (i) and (ii) shall not exceed
33 1/3% of the value of the Portfolio's total assets (including the amount
borrowed), less the Portfolio's liabilities (other than borrowings), except
that the Portfolio may borrow up to an additional 5% of its total assets (not
including the amount borrowed) from a bank for temporary or emergency purposes
(but not for leverage or the purchase of investments). The Portfolio may also
borrow money from the other Strong Funds for which it serves as investment
adviser or other persons to the extent permitted by applicable law.
3. May not issue senior securities, except as permitted under the 1940
Act.
4. May not act as an underwriter of another issuer's securities, except
to the extent that the Portfolio may be deemed to be an underwriter within
the meaning of the 1933 Act in connection with the purchase and sale of
portfolio securities.
5. May not purchase or sell physical commodities unless acquired as a
result of ownership of securities or other instruments (but this shall not
prevent the Portfolio from purchasing or selling options, futures contracts,
or other derivative instruments, or from investing in securities or other
instruments backed by physical commodities).
6. May not make loans if, as a result, more than 33 1/3% of the
Portfolio's total assets would be lent to other persons, except through (i)
purchases of debt securities or other debt instruments, or (ii) engaging in
repurchase agreements.
7. May not purchase the securities of any issuer if, as a result, more
than 25% of the Portfolio's total assets would be invested in the securities
of issuers, the principal business activities of which are in the same
industry.
8. May not purchase or sell real estate unless acquired as a result of
ownership of securities or other instruments (but this shall not prohibit the
Portfolio from purchasing or selling securities or other instruments backed by
real estate or of issuers engaged in real estate activities).
9. May, notwithstanding any other fundamental investment policy or
restriction, invest all of its assets in the securities of a single open-end
management investment company with substantially the same fundamental
investment objective, policies, and restrictions as the Portfolio.
SALOMON U.S. QUALITY BOND PORTFOLIO
The Salomon U.S. Quality Bond Portfolio may not:
(1) Own more than 10% of the outstanding voting securities of any one
issuer, and as to seventy-five percent (75%) of the value of the total assets
of the Portfolio, purchase the securities of any one issuer (except cash items
and "government securities" as defined under the 1940 Act, if immediately
after and as a result of such purchase, the value of the holdings of the
Portfolio in the securities of such issuer exceeds 5% of the value of the
Portfolio's total assets.
(2) Invest more than 25% of the value of its respective assets in any
particular industry (other than U.S. Government securities).
(3) Invest directly in real estate or interests in real estate; however,
the Portfolio may own debt or equity securities issued by companies engaged in
those businesses.
(4) Purchase or sell physical commodities other than foreign currencies
unless acquired as a result of ownership of securities (but this limitation
shall not prevent the Portfolio from purchasing or selling options, futures,
swaps and forward contracts or from investing in securities or other
instruments backed by physical commodities).
(5) Lend any security or make any other loan if, as a result, more than
25% of the Portfolio's total assets would be lent to other parties (but this
limitation does not apply to purchases of commercial paper, debt securities or
repurchase agreements).
(6) Act as an underwriter of securities issued by others, except to the
extent that the Portfolio may be deemed an underwriter in connection with the
disposition of portfolio securities of the Portfolio.
(7) Invest more than 15% of the Portfolio's net assets in securities
which are restricted as to disposition under federal securities law, or
securities with other legal or contractual restrictions or resale. This
limitation does not apply to securities eligible for resale pursuant to Rule
144A of the 1933 Act which the Board of Trustees has determined to be liquid.
(8) Purchase or retain the securities of any issuer if any of the
officers, trustees or directors of the Trust or the investment adviser or
sub-adviser owns beneficially more than 1/2 of 1% of the securities of such
issuer and together they own more than 5% of the securities of such issuer.
(9) The Portfolio will not issue senior securities except that it may
borrow money for temporary or emergency purposes (not for leveraging or
investment) in an amount not exceeding 25% of the value of its respective
total assets (including the amount borrowed) less liabilities (other than
borrowings). If borrowings exceed 25% of the value of the Portfolio's total
assets by reason of a decline in net assets, the Portfolio will reduce its
borrowings within three business days to the extent necessary to comply with
the 25% limitation. This policy shall not prohibit reverse repurchase
agreements, deposits of assets to margin or guarantee positions in futures,
options, swaps and forward contracts, or the segregation of assets in
connection with such contracts.
SALOMON MONEY MARKET PORTFOLIO
The Salomon Money Market Portfolio may not:
(1) purchase any securities which would cause more than 25% of the value
of its total assets at the time of such purchase to be invested in securities
of one or more issuers conducting their principal business activities in the
same industry, provided that there is no limitation with respect to
investment in obligations issued or guaranteed by the U.S. government, its
agencies or instrumentalities, with respect to bank obligations or with
respect to repurchase agreements collateralized by any of such obligations;
(2) own more than 10% of the outstanding voting stock or other
securities, or both, of any one issuer (other than securities of the U.S.
government or any agency or instrumentality thereof);
(3) purchase shares of other investment companies (except as part of a
merger, consolidation or reorganization or purchase of assets approved by the
Portfolio's shareholders), provided that the Portfolio may purchase shares of
any registered open-end investment company that determines its net asset value
per share based on the amortized cost- or penny-rounding method, if
immediately after any such purchase the Portfolio does not (a) own more than
3% of the outstanding voting stock of any one investment company, (b) invest
more than 5% of the value of its total assets in any one investment company,
or (c) invest more than 10% of the value of its total assets in the aggregate
in securities of investment companies;
(4) purchase securities on margin (except for delayed delivery or
when-issued transactions or such short-term credits as are necessary for the
clearance of transactions);
(5) sell securities short;
(6) purchase or sell commodities or commodity contracts, including
futures contracts;
(7) invest for the purpose of exercising control over management of any
company;
(8) make loans, except that the Portfolio may (a) purchase and hold debt
instruments (including bonds, debentures or other obligations and certificates
of deposit, banker's acceptances and fixed time deposits) in accordance with
its investment objectives and policies; and (b) enter into repurchase
agreements with respect to portfolio securities;
(9) underwrite the securities of other issuers, except to the extent
that the purchase of investments directly from the issuer thereof and later
disposition of such securities in accordance with the Portfolio's investment
program may be deemed to be an underwriting;
(10) purchase real estate or real estate limited partnership interests
(other than money market securities secured by real estate or interests
therein or securities issued by companies that invest in real estate or
interests therein);
(11) invest directly in interests in oil, gas or other mineral
exploration development programs or mineral leases; or
(12) purchase warrants.
With respect to the Salomon Money Market Portfolio, for the purpose of
applying the above percentage restrictions and the percentage investment
limitations set forth in the Prospectus to receivables-backed obligations,
both the special purpose entity issuing the receivables-backed obligations and
the issuer of the underlying receivables will be considered an issuer.
MAS VALUE PORTFOLIO
The MAS Value Portfolio may not:
(1) invest in physical commodities or contracts on physical commodities;
(2) purchase or sell real estate, although it may purchase and sell
securities of companies which deal in real estate, other than real estate
limited partnerships, and may purchase and sell marketable securities which
are secured by interests in real estate;
(3) make loans except: (i) by purchasing debt securities in accordance
with its investment objectives and policies, or entering into repurchase
agreements, subject to the limitations described in (h) below (ii) by lending
its portfolio securities and (iii) by lending portfolio assets to other
Portfolios of the Trust, so long as such loans are not inconsistent with the
1940 Act or the Rules and Regulations, or interpretations or orders of the SEC
thereunder;
(4) with respect to 75% of its assets, purchase a security if, as a
result, it would hold more than 10% (taken at the time of such investment) of
the outstanding voting securities of any issuer;
(5) with respect to 75% of its assets, purchase securities of any issuer
if, as a result, more than 5% of the Portfolio's total assets, taken at market
value at the time of such investment, would be invested in the securities of
such issuer except that this restriction does not apply to securities issued
or guaranteed by the U.S. government or its agencies or instrumentalities;
(6) borrow money, except (i) as a temporary measure for extraordinary or
emergency purposes (ii) in connection with reverse repurchase agreement
provided that (i) and (ii) in combination do not exceed 33 1/3% of the
Portfolio's total assets (including the amount borrowed) less liabilities
(exclusive of borrowings);
(7) underwrite the securities of other issuers (except to the extent
that the Portfolio may be deemed to be an underwriter within the meaning of
the 1933 Act in the disposition of restricted securities);
(8) acquire any securities of companies within one industry, if as a
result of such acquisition, more than 25% of the value of the Portfolio's
total assets would be invested in securities of companies within such
industry; provided, however, that there shall be no limitation on the purchase
of obligations issued or guaranteed by the U.S. government, its agencies or
instrumentalities, when any such Portfolio adopts a temporary defensive
position.
LEXINGTON CORPORATE LEADERS PORTFOLIO
The Lexington Corporate Leaders Portfolio will not:
a. issue any senior security (as defined in the 1940 Act), except that
(a) the Portfolio may enter into commitments to purchase securities in
accordance with the Portfolio's investment program, including reverse
repurchase agreements, foreign exchange contracts, delayed delivery and
when-issued securities, which may be considered the issuance of senior
securities; (b) the Portfolio may engage in transactions that may result in
the issuance of a senior security to the extent permitted under applicable
regulations, interpretation of the 1940 Act or an exemptive order; (c) the
Portfolio may engage in short sales of securities to the extent permitted in
its investment program and other restrictions; (d) the purchase or sale of
futures contracts and related options shall not be considered to involve the
issuance of senior securities; and (e) subject to fundamental restrictions,
the Portfolio may borrow money as authorized by the 1940 Act.
b. act as an underwriter of securities except to the extent that, in
connection with the disposition of portfolio securities by the Portfolio, the
Portfolio may be deemed to be an underwriter under the provisions of the 1933
Act.
c. purchase real estate, interests in real estate or real estate limited
partnership interests except that, to the extent appropriate under its
investment program, the Portfolio may invest in securities secured by real
estate or interests therein or issued by companies, including real estate
investment trusts, which deal in real estate or interests therein;
d. invest in commodity contracts, except that the Portfolio may, to the
extent appropriate under its investment program, purchase securities of
companies engaged in such activities, may enter into transactions in financial
and index futures contracts and related options, may engage in transactions on
a when-issued or forward commitment basis, and may enter into forward currency
contracts.
e. make loans, except that, to the extent appropriate under its
investment program, the Portfolio may (a) purchase bonds, debentures or other
debt securities, including short-term obligations, (b) enter into repurchase
transactions and (c) lend portfolio securities provided that the value of such
loaned securities does not exceed one-third of the Portfolio's total assets;
f. hold more than 5% of the value of its total assets in the securities
of any one issuer or hold more than 10% of the outstanding voting securities
of any one issuer. This restriction applies only to 50% of the value of the
Portfolio's total assets. Securities issued or guaranteed by the U.S.
government, its agencies and instrumentalities are excluded from this
restriction;
g. concentrate its investments in any one industry except that the
Portfolio may invest up to 25% of its total assets in securities issuers
principally engaged in any one industry. This limitation, however, will not
apply to securities issued or guaranteed by the U.S. Government, its agencies
or instrumentalities, securities invested in, or repurchase agreements for,
U.S. Government securities, and certificates of deposit, or bankers'
acceptances, or securities of U.S. banks and bank holding companies;
h. borrow money, except that (a) the Portfolio may enter into certain
futures contracts and options related thereto; (b) the Portfolio may enter
into commitments to purchase securities in accordance with the Portfolio's
investment program, including delayed delivery and when-issued securities and
reverse repurchase agreements; (c) for temporary emergency purposes, the
Portfolio may borrow money in amounts not exceeding 5% of the value of its
total assets at the time when the loan is made; (d) the Portfolio may pledge
its portfolio securities or receivable or transfer or assign or otherwise
encumber them in an amount not exceeding one-third of the value of its total
assets; and (e) for purposes of leveraging, the Portfolio may borrow money
from banks (including its custodian bank), only if, immediately after such
borrowing, the value of the Portfolio's assets, including the amount borrowed,
less its liabilities, is equal to at least 300% of the amount borrowed, plus
all outstanding borrowings. If at any time, the value of the Portfolio's
assets fails to meet the 300% asset coverage requirement relative only to
leveraging, the Portfolio will, within three days (not including Sundays and
holidays), reduce its borrowings to the extent necessary to meet the 300%
test.
BERKELEY SMALLER COMPANIES PORTFOLIO
The Berkeley Smaller Companies Portfolio may not:
1. Borrow money or mortgage or pledge any of its assets, except that
the Portfolio may borrow from banks, for temporary or emergency purposes, up
to 33-1/3% of its total assets and pledge up to 33-1/3% of its total assets in
connection therewith. Any borrowings that come to exceed 33-1/3% of the value
of the Portfolio's total assets at any time will be reduced within three days
(exclusive of Sundays and legal holidays) to the extent necessary to comply
with the 33-1/3% limitation. The Portfolio may not purchase securities when
borrowings exceed 5% of its assets. Borrowings for purposes of this
restriction include reverse repurchase agreements.
2. Purchase any securities on "margin," or underwrite securities,
except that the Portfolio may obtain such short-term credit as may be
necessary for the clearance of purchases and sales of securities and except
that the Portfolio may make margin deposits in connection with futures
contracts and options.
3. Make loans if, as a result, more than 33-1/3% of the Portfolio's
total assets would be lent to other parties except (i) through the purchase of
a portion of an issue of debt securities in accordance with its investment
objectives, policies, and limitations, or (ii) by engaging in repurchase
agreements with respect to portfolio securities. Portfolio securities may be
loaned only if continuously collateralized at least 100% by
"marking-to-market" daily.
4. Invest 25% or more of its total assets in the securities of issuers
in a single industry (excluding securities issued or guaranteed by the U.S.
government, its agencies or instrumentalities).
5. Purchase from, or sell any portfolio securities to, the Trust's
officers or Trustees, or any firm of which any such officer or Trustee is a
member, as principal, except that the Trust may deal with such persons or
firms as securities dealers and pay a customary brokerage commission; or
retain securities of any issuer, if to the knowledge of the Trust, one or more
of its officers, Trustees or investment managers own beneficially more than
one-half of 1% of the securities of such issuer and all such persons together
own beneficially more than 5% of such securities.
6. Purchase the securities of any issuer(other than securities issued
or guaranteed by the U.S. Government or any of its agencies or
instrumentalities) if, as a result thereof, the Portfolio, would own more than
10% of the outstanding voting securities of such issuer.
7. Issue senior securities, as defined in the 1940 Act, except that
this restriction shall not be deemed to prohibit the Portfolio from (a) making
any otherwise permitted borrowings, mortgages or pledges, or (b) entering into
option contracts, futures contracts, forward contracts or repurchase
transactions.
8. With respect to 75% of its total assets, invest in securities of any
one issuer if immediately after, and as a result of such investment, more than
5% of the total assets of the Portfolio, taken at market value, would be
invested in the securities of such issuer. This restriction does not apply to
investments in U.S. Government or agency securities.
9. Make investments for the purpose of exercising control, or
underwrite the securities of other issuers, except insofar as the Portfolio
may be technically deemed an underwriter in connection with the disposition of
its portfolio securities.
10. Purchase interests in oil, gas or other mineral exploration or
development programs, including mineral leases, although the Portfolio may
invest in common stocks of companies which invest in or sponsor such programs.
11. Purchase or sell real estate or real estate limited partnerships or
securities issued by companies that invest in real estate or interests
therein.
12. Purchase commodities or commodity contracts (including futures
contracts), except that the Portfolio may purchase securities of issuers which
invest or deal in commodities or commodity contracts.
MFS TOTAL RETURN PORTFOLIO
The MFS Total Return Portfolio shall not:
(1) borrow amounts in excess of 33 1/3% of its assets including amounts
borrowed and then only as a temporary measure for extraordinary or emergency
purposes;
(2) underwrite securities issued by other persons except insofar as the
Portfolio may technically be deemed an underwriter under the Securities Act of
1933, as amended (the "1933 Act") in selling a portfolio security;
(3) purchase or sell real estate (including limited partnership
interests but excluding securities secured by real estate or interests therein
and securities of companies, such as real estate investment trusts, which deal
in real estate or interests therein), interests in oil, gas or mineral leases,
commodities or commodity contracts (excluding currencies and any type of
option, futures contracts and forward contracts) in the ordinary course of its
business. The Portfolio reserves the freedom of action to hold and to sell
real estate, mineral leases, commodities or commodity contracts (including
currencies and any type of option, futures contracts and forward contracts)
acquired as a result of the ownership of securities;
(4) issue any senior securities except as permitted by the 1940 Act. For
purposes of this restriction, collateral arrangements with respect to any type
of swap, option, forward contracts and futures contracts and collateral
arrangements with respect to initial and variation margin are not deemed to be
the issuance of a senior security;
(5) make loans to other persons. For these purposes, the purchase of
commercial paper, the purchase of a portion or all of an issue of debt
securities, the lending of portfolio securities, or the investment of the
Portfolio's assets in repurchase agreements, shall not be considered the
making of a loan; or
(6) purchase any securities of an issuer of a particular industry, if as
a result, more than 25% of its gross assets would be invested in securities of
issuers whose principal business activities are in the same industry (except
there is no limitation with respect to obligations issued or guaranteed by
the U.S. Government or its agencies and instrumentalities and repurchase
agreements collateralized by such obligations).
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.
STRONG INTERNATIONAL STOCK PORTFOLIO AND STRONG GROWTH PORTFOLIO
Each of the Strong Portfolios may not:
1. Sell securities short, unless the Portfolio owns or has the right to
obtain securities equivalent in kind and amount to the securities sold short,
or unless it covers such short sale as required by the current rules and
positions of the SEC or its staff, and provided that transactions in options,
futures contracts, options on futures contracts, or other derivative
instruments are not deemed to constitute selling securities short.
2. Purchase securities on margin, except that the Portfolio may obtain
such short-term credits as are necessary for the clearance of transactions;
and provided that margin deposits in connection with futures contracts,
options on futures contracts, or other derivative instruments shall not
constitute purchasing securities on margin.
3. Invest in illiquid securities if, as a result of such investment,
more than 15% of its net assets would be invested in illiquid securities, or
such other amounts as may be permitted under the 1940 Act.
4. Purchase securities of other investment companies except in
compliance with the 1940 Act and applicable state law.
5. Invest all of its assets in the securities of a single open-end
investment management company with substantially the same fundamental
investment objective, restrictions and policies as the Portfolio.
6. Purchase the securities of any issuer (other than securities issued
or guaranteed by domestic or foreign governments or political subdivisions
thereof) if, as a result, more than 5% of its total assets would be invested
in the securities of issuers that, including predecessor or unconditional
guarantors, have a record of less than three years of continuous operation.
This policy does not apply to securities of pooled investment vehicles or
mortgage or asset-backed securities.
7. Invest in direct interests in oil, gas, or other mineral exploration
programs or leases; however, the Portfolio may invest in the securities of
issuers that engage in these activities.
8. Engage in futures or options on futures transactions which are
impermissible pursuant to Rule 4.5 under the CEA and, in accordance with Rule
4.5, will use futures or options on futures transactions solely for bona fide
hedging transactions (within the meaning of the CEA), provided, however, that
the Portfolio may, in addition to bona fide hedging transactions, use futures
and options on futures transactions if the aggregate initial margin and
premiums required to establish such positions, less the amount by which any
such options positions are in the money (within the meaning of the CEA), do
not exceed 5% of the Portfolio's net assets.
In addition, (i) the aggregate value of securities underlying call
options on securities written by the Portfolio or obligations underlying put
options on securities written by the Portfolio determined as of the date the
options are written will not exceed 50% of the Portfolio's net assets; (ii)
the aggregate premiums paid on all options purchased by the Portfolio and
which are being held will not exceed 20% of the Portfolio's net assets; (iii)
the Portfolio will not purchase put or call options, other than hedging
positions, if, as a result thereof, more than 5% of its total assets would be
so invested; and (iv) the aggregate margin deposits required on all futures
and options on futures transactions being held will not exceed 5% of the
Portfolio's total assets.
9. Pledge, mortgage or hypothecate any assets owned by the Portfolio
except as may be necessary in connection with permissible borrowings or
investments and then such pledging, mortgaging, or hypothecating may not
exceed 33 1/3% of the Portfolio's total assets at the time of the borrowing or
investment.
10. Purchase or retain the securities of any issuer if any officer or
trustee of the Trust or its investment advisor beneficially owns more than 1/2
of 1% of the securities of such issuer and such officers and trustees together
own beneficially more than 5% of the securities of such issuer.
11. Purchase warrants, valued at the lower of cost or market value, in
excess of 5% of the Portfolio's net assets. Included in that amount, but not
to exceed 2% of the Portfolio's net assets, may be warrants that are not
listed on any stock exchange. Warrants acquired by the Portfolio in units or
attached to securities are not subject to these restrictions.
12. Borrow money except (i) from banks or (ii) through reverse
repurchase agreements or mortgage dollar rolls, and will not purchase
securities when bank borrowings exceed 5% of its total assets.
13. Make any loans other than loans of portfolio securities, except
through (i) purchases of debt securities or other debt instruments, or (ii)
engaging in repurchase agreements.
SALOMON U.S. QUALITY BOND PORTFOLIO
The Salomon U.S. Quality Bond Portfolio's additional investment restrictions
are as follows:
(a) Portfolio investments in warrants, valued at the lower of cost or
market, may not exceed 5% of the value of its net assets. Included within
that amount, but not to exceed 2% of the value of a Portfolio's net assets,
may be warrants that are not listed on the New York or American Stock
Exchanges. Warrants acquired by a Portfolio in units or attached to
securities shall be deemed to be without value for the purpose of monitoring
this policy.
(b) The Portfolio does not currently intend to sell securities short,
unless they own or have the right to obtain securities equivalent in kind and
amount to the securities sold short without the payment of any additional
consideration therefor, and provided that transactions in futures, options,
swaps and forward contracts are not deemed to constitute selling securities
short.
(c) The Portfolio does not currently intend to purchase securities on
margin, except that the Portfolio may obtain such short-term credits as are
necessary for the clearance of transactions, and provided that margin payments
and other deposits in connection with transactions in futures, options, swaps
and forward contracts shall not be deemed to constitute purchasing securities
on margin.
(d) The Portfolio does not currently intend to (i) purchase securities
of other investment companies, except in the open market where no commission
except the ordinary broker's commission is paid, or (ii) purchase or retain
securities issued by other open-end investment companies. Limitations (i) and
(ii) do not apply to money market funds or to securities received as
dividends, through offers of exchange, or as a result of a reorganization,
consolidation, or merger.
(e) The Portfolio does not currently intend to invest directly in oil,
gas, or other mineral development or exploration programs or leases; however,
the Portfolio may own debt or equity securities of companies engaged in those
businesses.
(f) The Portfolio intends to comply with the CFTC regulations limiting
its investments in futures and options for non-hedging purposes.
MAS VALUE PORTFOLIO
The MAS Value Portfolio will not:
(a) enter into futures contracts to the extent that its outstanding
obligations to purchase securities under these contracts in combination with
its outstanding obligations with respect to options transactions would exceed
50% of its total assets and will maintain assets sufficient to meet its
obligations under such contracts in a segregated account with the custodian
bank or will otherwise comply with the SEC's position on asset coverage.
(b) invest in puts, calls, straddles or spreads except as described
above in (a);
(c) invest in warrants, valued at the lower of cost or market, in excess
of 5% of the value of its total assets. Included within that amount, but not
to exceed 2% of the value of the Portfolio's net assets, may be warrants that
are not listed on the New York or American Stock Exchanges or an exchange with
comparable listing requirements. Warrants attached to securities are not
subject to this limitation.
(d) purchase on margin, except for use of short-term credit as may be
necessary for the clearance of purchases and sales of securities, but it may
make margin deposits in connection with transactions in options, futures, and
options on futures; or sell short unless, by virtue of its ownership of other
securities, it has the right to obtain securities equivalent in kind and
amount to the securities sold and, if the right is conditional, the sale is
made upon the same conditions. Transactions in futures contracts and options
are not deemed to constitute selling securities short;
(e) purchase or retain securities of an issuer if those officers and
trustees of the Trust or its investment adviser or sub-adviser owning more
than 1/2 of 1% of such securities together own more than 5% of such
securities;
(f) borrow money other than from banks or other Portfolios of the Trust,
provided such borrowing is not inconsistent with the 1940 Act, as amended, or
the Rules and Regulations or interpretations or orders of the Securities and
Exchange Commission thereunder; or purchase additional securities when
borrowings exceed 5% of total (gross) assets;
(g) pledge, mortgage, or hypothecate any of its assets to an extent
greater than 33 1/3% of its total assets at fair market value;
(h) invest more than an aggregate of 15% of the net assets of the
Portfolio, determined at the time of investment, in securities subject to
legal or contractual restrictions on resale or securities for which there are
no readily available markets, including repurchase agreements having
maturities of more than seven days and OTC options provided that there is no
limitation with respect to or arising out of investment in (i) securities that
have legal or contractual restrictions on resale but have a readily available
market or (ii) securities that are not registered under the 1933 Act but which
can be sold to qualified institutional investors in accordance with Rule 144A
under the 1933 Act;
(i) invest for the purpose of exercising control over management of any
company;
(j) invest its assets in securities of any investment company, except by
purchase in the open market involving only customary brokers' commissions or
in connection with mergers, acquisitions of assets or consolidations and
except as may otherwise be permitted by the 1940 Act, as amended;
(k) invest more than 5% of its total assets in securities of issuers
(other than securities issued or guaranteed by U.S. or foreign governments or
political subdivisions thereof) which have (with predecessors) a record of
less than three years' continuous operation; and
(l) write or acquire options or interests in oil, gas or other mineral
exploration or development programs or leases.
LEXINGTON CORPORATE LEADERS PORTFOLIO
The Lexington Corporate Leaders Portfolio will not:
i. purchase the securities of any other investment company, except as
permitted under the 1940 Act.
ii. purchase any securities on margin or make short sales of
securities, other than short sales "against the box", or purchase securities
on margin except for short-term credits necessary for clearance of portfolio
transactions, provided that this restriction will not be applied to limit the
use of options, futures contracts and related options, in the manner otherwise
permitted by the investment restrictions, policies and investment programs of
the Portfolio.
iii. buy securities from or sell securities (other than securities
issued by the Portfolio) to any of its officers, trustees or its investment
adviser or sub-adviser or distributor as principal.
iv. contract to sell any security or evidence of interest therein,
except to the extent that the same shall be owned by the Portfolio.
v. purchase securities of an issuer if to the Portfolio's knowledge,
one or more of the Trustees or officers of the Trust, the adviser or the
sub-adviser individually owns beneficially more than 0.5% and together own
beneficially more than 5% of the securities of such issuer nor will the
Portfolio hold the securities of such issuer.
vi. except for investments which, in the aggregate, do not exceed 5% of
the Portfolio's total assets taken at market value, purchase securities unless
the issuer thereof or any company on whose credit the purchase was based has a
record of at least three years continuous operations prior to the purchase.
vii. invest for the purpose of exercising control over or management of
any company.
viii. write, purchase or sell puts, calls or combinations thereof.
However, the Portfolio may invest up to 15% of the value of its assets in
warrants. This restriction on the purchase of warrants does not apply to
warrants attached to, or otherwise included in, a unit with other securities.
ix. The Portfolio will not invest more than 15% of its total assets in
illiquid securities. Illiquid securities are securities that are not readily
marketable or cannot be disposed of promptly within seven days and in the
usual course of business without taking a materially reduced price. Such
securities include, but are not limited to, time deposits and repurchase
agreements with maturities longer than seven days. Securities that may be
resold under Rule 144A or securities offered pursuant to Section 4(2) of the
1933 Act, shall not be deemed illiquid solely by reason of being unregistered.
The Sub-Adviser shall determine whether a particular security is deemed to be
liquid based on the trading markets for the specific security and other
factors.
x. The Portfolio will not purchase interests in oil, gas, mineral
leases or other exploration programs; however, this policy will not prohibit
the acquisition of securities of companies engaged in the production or
transmission of oil, gas or other materials.
BERKELEY SMALLER COMPANIES PORTFOLIO
The Berkeley Smaller Companies Portfolio does not currently intend to:
(i) Engage in any reverse repurchase agreements if, as a result, more
than 5% of the Portfolio's net assets would be subject to reverse repurchase
agreements.
(ii) Purchase or otherwise acquire any security or enter into a
repurchase agreement with respect to any security if, as a result, more than
5% of the Portfolio's net assets (taken at current value) would be invested in
repurchase agreements not entitling the holder to payment of interest and
principal within seven days, or in securities that are illiquid by virtue of
legal or contractual restrictions on resale or for which there is no readily
available market.
(iii) Purchase securities of another investment company, except as
permitted by the 1940 Act and other applicable laws.
(iv) Lend assets, other than portfolio securities, to other parties,
except by purchasing debt securities and engaging in repurchase agreements.
Portfolio securities may be loaned only if continuously collateralized at
least 100% by "marking-to-market" daily. The Portfolio, however, does not
currently intend to lend its portfolio securities during the current fiscal
year.
(v) Make short sales of securities or maintain a short position, unless
at all times when a short position is open the Portfolio owns an equal amount
of such securities or securities convertible or exchangeable into, without
payment of any further consideration, securities of the same issuer as, and
equal in amount to, the securities sold short ("short sales against the box"),
and unless not more than 5% of the Portfolio's net assets (taken at market
value) is held as collateral for such sales at any one time.
(vi) Purchase a security if, as a result thereof, more than 5% of the
Portfolio's net assets would be invested in warrants or more than 2% of such
Portfolio's net assets will be invested in warrants which are not listed on
the American or New York Stock Exchange.
(vii) Purchase the securities of any issuer if, as a result thereof,
more than 5% of the value of the total assets of the Portfolio would be
invested in the securities of companies which, including predecessors, have a
record of less than three years' continuous operations.
The U.S. Government has from time to time imposed restrictions, through
taxation and otherwise, on foreign investments by U.S. entities such as the
Portfolio. If such restrictions should be reinstituted for the Portfolio, it
might become necessary for the Portfolio to invest all or substantially all of
its securities in U.S. securities. In such event, the Board of Trustees would
reevaluate the Portfolio's investment objective and policies, but would adopt
any revised investment objectives and fundamental policies only after approval
by the shareholders holding a majority (as defined in the 1940 Act) of the
shares of the Portfolio.
The Portfolio's ability to borrow money creates special risks not associated
with funds that have similar investment objectives and policies but do not
have the ability to borrow money or borrow at the same level as the Portfolio.
Borrowings by the Portfolio may have either a positive or negative effect on
its level of investment income. Any investment income or gains earned from
amounts borrowed which is in excess of the interest due on and other costs of
such borrowings may cause the Portfolio's investment income to be greater than
would otherwise be the case. Conversely, if the investment performance of any
amounts borrowed fails to cover the interest due on and other costs of such
borrowings, the Portfolio's investment income will be less than would
otherwise be the case.
MFS TOTAL RETURN PORTFOLIO
The MFS Total Return Portfolio will not:
(1) invest in illiquid investments, including securities subject to
legal or contractual restrictions on resale or for which there is no readily
available market (e.g., trading in the security is suspended, or, in the case
of unlisted securities, where no market exists) if more than 15% of the
Portfolio's assets (taken at market value) would be invested in such
securities. Repurchase agreements maturing in more than seven days will be
deemed to be illiquid for purposes of the Portfolio's limitation on investment
in illiquid securities. Securities that are not registered under the 1933 Act
and sold in reliance on Rule 144A thereunder, but are determined to be liquid
by the Trust's Board of Trustees (or its delegee), will not be subject to this
15% limitation;
(2) purchase securities issued by any other investment company in excess
of the amount permitted by the 1940 Act, except when such purchase is part of
a plan of merger or consolidation;
(3) purchase any securities or evidences of interest therein on margin,
except that the Portfolio may obtain such short-term credit as may be
necessary for the clearance of any transaction and except that the Portfolio
may make margin deposits in connection with any type of swap, option, futures
contracts and forward contracts;
(4) sell any security which the Portfolio does not own unless by virtue
of its ownership of other securities the Portfolio has at the time of sale a
right to obtain securities without payment of further consideration equivalent
in kind and amount to the securities sold and provided that if such right is
conditional, the sale is made upon the same conditions;
(5) pledge, mortgage or hypothecate in excess of 33 1/3% of its gross
assets. For purposes of this restriction, collateral arrangements with respect
to any type of swap, option, futures contracts and forward contracts and
payments of initial and variation margin in connection therewith, are not
considered a pledge of assets;
(6) purchase or sell any put or call option or any combination thereof,
provided that this shall not prevent the purchase, ownership, holding or sale
of (1) warrants where the grantor of the warrants is the issuer of the
underlying securities or (ii) put or call options or combinations thereof with
respect to securities, indices of securities, swaps, foreign currencies and
futures contracts;
(7) invest for the purpose of exercising control of management.
These investment restrictions are adhered to at the time of purchase or
utilization of assets; a subsequent change in circumstances will not be
considered to result in a violation of policy.
MANAGEMENT OF THE TRUST
The Trust's Board of Trustees has the responsibility for the overall
management of the Trust, including general supervision and review of their
investment activities. The Board of Trustees, in turn, appoints the officers
who are responsible for administering the day-to-day operations of the Trust.
Listed below are the Trustees and officers of the Trust and their affiliations
and principal occupations for the past five years.
<TABLE>
<CAPTION>
<S> <C> <C>
Position Held Principal Occupation
Name and Address With the Trust During Past 5 Years
- ------------------- ---------------------- -------------------------------
Mark E. Prillaman* President, Principal Executive Vice President
Executive Officer and and Chief Marketing Officer of
Trustee the Life Company and Adviser
since February 1994;
prior thereto, Regional
Marketing Director, American
Skandia Assurance Company
Raymond L. Pfeister Trustee Principal, Chief Marketing
Officer of Fred Alger
Management, Inc.
Robert H. Singletary Trustee
Jerry T. Tamura* Vice President and Vice President - Administrative Services
Secretary of the Life Company since 1989.
James Winther Trustee
<FN>
* Interested person of the Trust within the meaning of the 1940 Act.
</TABLE>
Each Trustee of the Trust who is not an interested person of the Trust or
Adviser or Sub-Adviser receives fee of $2,500 for attendance at each Trustees'
meeting and is reimbursed for expenses incurred in connection with attending
Trustees' meetings. No Trustee receives any other compensation directly from
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, 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.
The Investment Advisory Agreement provides that the 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.
The Investment Advisory Agreement provides that neither the Adviser nor any
director, officer or employee of the 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 the 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 1940 Act.
The Adviser has undertaken to bear certain operating expenses of each
Portfolio as described in the Prospectus.
State Street Bank and Trust Company provides certain accounting 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 of the services provided by, and the fees paid to, the
Sub-Advisers are described in the Prospectus under "Management of the Trust -
Sub-Advisers."
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.
It 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 which 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
which 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 which 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.
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.
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 net asset value of the shares of the Portfolios 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 SAI. It
does not describe in any respect the tax treatment or offsets of any insurance
or other product pursuant to which investments in the Trust may be made.
DIVIDENDS AND DISTRIBUTIONS
Each of the Portfolios 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
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.
From time to time the Salomon Money Market Portfolio may make available
information as to its "yield" and "effective yield." The "yield" of the
Salomon Money Market Portfolio refers to the income generated by an investment
in the Portfolio over a seven-day period. 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 Salomon 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.
Total return of a Portfolio for periods longer than one year is determined by
calculating the actual dollar amount of investment return on a $1,000
investment in the Portfolio made at the beginning of each period, then
calculating the average annual compounded rate of return which would produce
the same investment return on the $1,000 investment over the same period.
Total return for a period of one year or less is equal to the actual
investment return on a $1,000 investment in the Portfolio during that period.
Total return calculations assume that all Portfolio distributions are
reinvested at net asset value on their respective reinvestment dates.
From time to time, the 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.
The performance of the Portfolios may, from time to time, be compared to that
of other mutual funds tracked by mutual fund rating services, to broad groups
of comparable mutual funds, or to unmanaged indices which may assume
investment of dividends but generally do not reflect deductions for
administrative and management costs.
The Prospectus contains historical performance information of Strong Growth
Fund, Value Portfolio of the MAS Funds, MFS Total Return Fund, Strong
International Stock Fund, Govett Smaller Companies Fund which are public
mutual funds which have the same investment objective and follow substantially
the same investment strategies as Strong Growth Portfolio, MAS Value
Portfolio, MFS Total Return Portfolio, Strong International Stock Portfolio,
Berkeley Smaller Companies Portfolio, respectively.
The performance of those public mutual funds is commonly measured as total
return. An average annual compounded rate of return ("T") may be computed by
using the redeemable value at the end of a specified period ("ERV") of a
hypothetical initial investment of $1,000 ("P") over a period of time ["n"]
according to the formula:
n
P (1 + T) = ERV
The Prospectus contains comparative performance information with respect to
the S&P 500 Composite Stock Price Index ("S&P 500 Index"). The S&P 500 Index
is a broad index of common stock prices which assumes reinvestment of
distributions and is calculated without regard to tax consequences or the
costs of investing.
Investors should not consider this performance data as an indication of the
future performance of any of the Portfolios in the Trust.
From time to time indications of the Portfolios' past performance may be
published. Such performance will be measured by independent sources such as
(but not limited to) Lipper Analytical Services, Incorporated, Weisenberger
Investment Companies Service, Bank Rate Monitor, Financial Planning Magazine,
Standard & Poor's Indices, Dow Jones Industrial Averages, VARDS, Barron's,
Business Week, Changing Times, Financial World, Forbes, Fortune, Money,
Personal Investor, Sylvia Porter's Personal Finance and The Wall Street
Journal. Information provided to the NASD for review may be used as
advertisements for publication in regional and local newspapers. In addition,
Portfolio performance may be advertised relative to certain indices and
benchmark investments, including: (a) the Lipper Analytical Services, Inc.
Mutual Fund Performance Analysis, Fixed-Income Analysis and Mutual Fund
indices (which measure total return and average current yield for the mutual
fund industry and rank mutual fund performance); (b) the CDA Mutual Fund
Report published by CDA Investment Technologies, Inc. (which analyzes price,
risk and various measures of return for the mutual fund industry); (c) the
Consumer Price Index published by the U.S. Bureau of Labor Statistics (which
measures changes in the price of goods and services); (d) Stocks, Bonds, Bills
and Inflation published by Ibbotson Associates (which provides historical
performance figures for stocks, government securities and inflation); (e) the
Hambrecht & Quist Growth Stock Index; (f) the NASDAQ OTC Composite Prime
Return; (g) the Russell Midcap Index; (h) the Russell 2000 Index - Total
Return; (i) the ValueLine Composite-Price Return; (j) the Wilshire 4500 Index;
(k) the Salomon Brothers' World Bond Index (which measures the total return in
U.S. dollar terms of government bonds, Eurobonds and non-U.S. bonds of ten
countries, with all such bonds having a minimum maturity of five years); (l)
the Shearson Lehman Brothers Aggregate Bond Index or its component indices
(the Aggregate Bond Index measures the performance of Treasury, U.S.
Government agencies, mortgage and Yankee bonds); (m) the S&P Bond indices
(which measure yield and price of corporate, municipal and U.S. Government
bonds); (n) the J.P. Morgan Global Government Bond Index; (o) other taxable
investments including certificates of deposit, money market deposit accounts,
checking accounts, savings accounts, money market mutual funds and repurchase
agreements; (p) historical investment data supplied by the research
departments of Goldman Sachs, Lehman Brothers, First Boston Corporation,
Morgan Stanley (including EAFE), Salomon Brothers, Merrill Lynch, Donaldson
Lufkin and Jenrette or other providers of such data; (q) the FT-Actuaries
Europe and Pacific Index; (r) mutual fund performance indices published by
Variable Annuity Research & Data Service; and (s) mutual fund performance
indices published by Morningstar, Inc. The composition of the investment in
such indices and the characteristics of such benchmark investments are not
identical to, and in some cases are very different from, those of a Portfolio.
These indices and averages are generally unmanaged and the items included in
the calculations of such indices and averages may be different from those of
the equations used by the Trust to calculate a Portfolio's performance
figures.
A Portfolio's investment results will vary from time to time depending upon
market conditions, the composition of its investment portfolio and its
operating expenses. Yield and performance information of any Portfolio will
not be compared with such information for funds that offer their shares
directly to the public, because Portfolio performance data does not reflect
charges imposed by the Life Company on the variable contracts. The effective
yield and total return for a Portfolio should be distinguished from the rate
of return of a corresponding division of the Life Company's separate account,
which rate will reflect the deduction of additional charges, including
mortality and expense risk charges, and will therefore be lower. Accordingly,
performance figures for a Portfolio will only be advertised if comparable
performance figures for the corresponding division of the separate account are
included in the advertisements. Variable annuity contractholders should
consult the variable annuity contract prospectus for further information.
Each Portfolio's results also should be considered relative to the risks
associated with its investment objectives and policies.
SHAREHOLDER COMMUNICATIONS
Owners of VA 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 January 23,
1995, as amended.
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 Strong Growth Portfolio would be
voted upon only by shareholders of the Strong Growth 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.
The Trust is authorized to subdivide each series (Portfolio) into two or more
classes. Currently, shares of the Portfolios are divided into Class A and
Class B. Each class of shares of a Portfolio is entitled to the same rights
and privileges as all other classes of the Portfolio, provided however, that
each class bears the expenses related to its distribution arrangements, as
well as any other expenses attributable to the class and unrelated to managing
the Portfolio's portfolio securities. Any matter that affects only the
holders of a particular class of shares may be voted on only by such
shareholders.
Additional Portfolios may be created from time to time with different
investment objectives or for use as funding vehicles for variable life
insurance policies or for different 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
additional classes 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. 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 Trust's Board of Trustees periodically reviews the Adviser's and
Sub-Advisers' performance of their respective responsibilities in connection
with the placement of portfolio transactions on behalf of the Portfolios, and
reviews the commissions paid by the Portfolios to determine whether such
commissions are reasonable in relation to what the Trustees believe are the
benefits for the Portfolios.
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 ACCOUNTANTS
The Trust has selected Price Waterhouse LLP as the independent accountants 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 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 versus 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 issue 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 COMMERCIAL PAPER RATINGS
Commercial paper rated A-1 by S&P indicates that the degree of safety
regarding timely payments is either overwhelming 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'S 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'S 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
LPT VARIABLE INSURANCE SERIES TRUST
STATEMENTS OF ASSETS AND LIABILITIES
JUNE 30, 1996 (UNAUDITED)
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
MAS Value MFS Total Salomon U. S. Salomon Strong Strong
Portfolio Return Quality Bond Money International Growth
Portfolio Portfolio Market Stock Portfolio
Portfolio Portfolio
--------- --------- ------------ --------- ------------- ---------
ASSETS
Investments at value, $ 947,075 $ 937,288 $ 1,265,318 $1,335,143 $ 888,545 $1,248,763
See accompanying schedules
Repurchase agreements at cost 129,000 104,000 0 0 291,000 0
and value
Cash and/or foreign currency 662 989 10,838 2,207 5,395 44,724
Dividends and/or interest 1,543 9,524 15,026 0 3,960 13,631
receivable
Receivable for investments 18,455 9,007 0 0 0 328,594
securities sold
Receivable for Trust shares sold 23,992 47,985 145,056 0 23,992 0
Expense reimbursements receivable 22,756 21,348 25,251 25,773 27,919 24,067
Other assets 2,123 2,149 2,116 2,116 2,220 2,119
---------- ----------- --------------- ----------- -------------- ----------
TOTAL ASSETS 1,145,606 1,132,290 1,463,605 1,365,239 1,243,031 1,661,898
Investments at cost 917,733 909,568 1,274,565 1,335,143 785,646 1,122,684
Cash and/or foreign currency 662 990 10,838 2,207 5,391 44,724
at cost
LIABILITIES
Payable for investment 8,540 0 100,641 0 0 308,189
securities purchased
Payable for Trust shares redeemed 0 0 0 255,844 0 0
Custodian fees payable 11,456 11,023 13,678 13,973 16,457 12,132
Advisory fees payable 552 0 0 0 582 670
Accrued legal and audit fees 7,473 7,473 7,473 7,473 7,473 7,473
Administration fees payable 7,949 7,949 7,949 7,949 7,949 7,949
Accrued expenses and other 2,186 2,125 2,121 2,122 2,717 2,132
---------- ----------- --------------- ----------- -------------- ----------
liabilities
TOTAL LIABILITIES 38,156 28,570 131,862 287,361 35,178 338,545
NET ASSETS $1,107,450 $1,103,720 $ 1,331,743 $1,077,878 $ 1,207,853 $1,323,353
========== =========== =============== =========== ============== ==========
COMPONENTS OF NET ASSETS:
Paid-in capital $1,058,924 $1,075,485 $ 1,350,907 $1,077,890 $ 1,081,087 $1,103,476
Undistributed net investment
income/(loss) 3,555 10,559 20,635 0 3,430 11,397
Accumulated net realized
gain/(loss) on
securities and foreign currency
transactions 15,629 (10,043) (30,552) (12) 20,433 82,401
Net unrealized appreciation/
(depreciation) of securities and
foreign currency transactions 29,342 27,719 (9,247) 0 102,903 126,079
---------- ----------- --------------- ----------- -------------- ----------
NET ASSETS $1,107,450 $1,103,720 $ 1,331,743 $1,077,878 $ 1,207,853 $1,323,353
========== =========== =============== =========== ============== ==========
NET ASSET VALUE, OFFERING PRICE
AND REDEMPTION PRICE, PER SHARE $ 10.49 $ 10.28 $ 9.79 $ 1.00 $ 11.25 $ 12.21
========== =========== =============== =========== ============== ==========
SHARES OUTSTANDING (UNLIMITED
AUTHORIZATION, $.01 PAR VALUE) 105,592 107,365 135,984 1,077,890 107,360 108,386
========== =========== =============== =========== ============== ==========
<S> <C> <C>
Berkeley Lexington
Smaller Corporate
Companies Leaders
Portfolio Portfolio
----------- ------------
ASSETS
Investments at value, $1,101,595 $ 1,037,278
See accompanying schedules
Repurchase agreements at cost 242,000 0
and value
Cash and/or foreign currency 111 23,309
Dividends and/or interest 47 2,004
receivable
Receivable for investments 17,700 0
securities sold
Receivable for Trust shares sold 23,992 0
Expense reimbursements receivable 20,053 25,417
Other assets 2,116 2,116
----------- ------------
TOTAL ASSETS 1,407,614 1,090,124
Investments at cost 962,718 989,674
Cash and/or foreign currency 111 23,309
at cost
LIABILITIES
Payable for investment 25,660 0
securities purchased
Payable for Trust shares redeemed 0 0
Custodian fees payable 10,929 13,459
Advisory fees payable 0 445
Accrued legal and audit fees 7,473 7,473
Administration fees payable 7,949 7,949
Accrued expenses and other 2,122 2,121
----------- ------------
liabilities
TOTAL LIABILITIES 54,133 31,447
NET ASSETS $1,353,481 $ 1,058,677
=========== ============
COMPONENTS OF NET ASSETS:
Paid-in capital $1,125,391 $ 1,005,174
Undistributed net investment
income/(loss) (5,221) 5,899
Accumulated net realized
gain/(loss) on
securities and foreign currency
transactions 94,434 0
Net unrealized appreciation/
(depreciation) of securities and
foreign currency transactions 138,877 47,604
----------- ------------
NET ASSETS $1,353,481 $ 1,058,677
=========== ============
NET ASSET VALUE, OFFERING PRICE
AND REDEMPTION PRICE, PER SHARE $ 12.31 $ 10.53
=========== ============
SHARES OUTSTANDING (UNLIMITED
AUTHORIZATION, $.01 PAR VALUE) 109,960 100,498
=========== ============
</TABLE>
See Notes to Financial Statements
LPT VARIABLE INSURANCE SERIES TRUST
STATEMENTS OF OPERATIONS
FOR THE PERIOD JANUARY 31, 1996 (COMMENCEMENT OF OPERATIONS)
TO JUNE 30, 1996 (UNAUDITED)
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
SALOMON STRONG
MFS TOTAL U.S. QUALITY SALOMON INTERNATIONAL
MAS VALUE RETURN BOND MONEY MARKET STOCK STRONG GROWTH
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
--------- --------- ------------- ------------ ------------- --------------
INVESTMENT INCOME
Income:
Dividends $ 8,824 $ 6,746 $ 0 $ 0 $ 8,887 $ 16,738
Foreign withholding tax on
dividend income (90) (99) 0 0 (800) (10)
Interest 1,380 10,275 25,812 22,506 1,809 1,491
----------- ----------- -------------- -------------- --------------- ---------------
TOTAL INVESTMENT INCOME 10,114 16,922 25,812 22,506 9,896 18,219
----------- ----------- -------------- -------------- --------------- ---------------
EXPENSES:
Investment advisory fees 3,790 3,167 2,292 1,958 3,302 3,646
Administration fees 17,199 17,199 17,199 17,199 17,199 17,199
Custodian fees 14,556 14,556 14,556 14,556 18,272 14,556
Printing expenses 581 581 581 581 581 581
Legal and audit fees 8,425 8,425 8,425 8,425 8,425 8,425
Insurance expense 1,743 1,743 1,743 1,743 1,743 1,743
Trustees' fees and expenses 698 698 698 698 698 698
Other expense 871 870 871 870 871 871
----------- ----------- -------------- -------------- --------------- ---------------
Expenses before waiver of fees
and expense reimbursement 47,863 47,239 46,365 46,030 51,091 47,719
Fees waived by investment
advisor (Note 3) (2,676) (3,167) (2,292) (1,958) (1,101) (1,215)
Expense reimbursement (Note 3) (39,918) (38,943) (40,191) (40,418) (43,796) (40,552)
----------- ----------- -------------- -------------- --------------- ---------------
TOTAL EXPENSES 5,269 5,129 3,882 3,654 6,194 5,952
----------- ----------- -------------- -------------- --------------- ---------------
NET INVESTMENT INCOME 4,845 11,793 21,930 18,852 3,702 12,267
----------- ----------- -------------- -------------- --------------- ---------------
REALIZED AND UNREALIZED GAIN
(LOSS) ON INVESTMENTS
Realized gain (loss) on sales of
securities and
foreign currency transactions 15,629 (10,043) (30,552) (12) 20,433 86,780
Net change in unrealized
appreciation/(depreciation) of
securities and foreign currency
transactions 29,342 27,719 (9,247) 0 102,903 126,079
----------- ----------- -------------- -------------- --------------- ---------------
NET REALIZED AND UNREALIZED GAIN
(LOSS) ON INVESTMENTS 44,971 17,676 (39,799) (12) 123,336 212,859
----------- ----------- -------------- -------------- --------------- ---------------
NET INCREASE (DECREASE) IN NET
ASSETS RESULTING FROM OPERATIONS $ 49,816 $ 29,469 ($17,869) $ 18,840 $ 127,038 $ 225,126
=========== =========== ============== ============== =============== ===============
<S> <C> <C>
BERKELEY LEXINGTON
SMALLER CORPORATE
COMPANIES LEADERS
PORTFOLIO PORTFOLIO
--------- -----------
INVESTMENT INCOME
Income:
Dividends $ 167 $ 12,037
Foreign withholding tax on
dividend income 0 (190)
Interest 1,789 785
----------- -------------
TOTAL INVESTMENT INCOME 1,956 12,632
----------- -------------
EXPENSES:
Investment advisory fees 4,803 2,786
Administration fees 17,199 17,199
Custodian fees 14,556 14,556
Printing expenses 581 581
Legal and audit fees 8,425 8,425
Insurance expense 1,743 1,743
Trustees' fees and expenses 698 698
Other expense 870 870
----------- -------------
Expenses before waiver of fees
and expense reimbursement 48,875 46,858
Fees waived by investment
advisor (Note 3) (4,803) (1,071)
Expense reimbursement (Note 3) (37,740) (40,576)
----------- -------------
TOTAL EXPENSES 6,332 5,211
----------- -------------
NET INVESTMENT INCOME (4,376) 7,421
----------- -------------
REALIZED AND UNREALIZED GAIN
(LOSS) ON INVESTMENTS
Realized gain (loss) on sales of
securities and
foreign currency transactions 94,434 0
Net change in unrealized
appreciation/(depreciation) of
securities and foreign currency
transactions 138,877 47,604
----------- -------------
NET REALIZED AND UNREALIZED GAIN
(LOSS) ON INVESTMENTS 233,311 47,604
----------- -------------
NET INCREASE (DECREASE) IN NET
ASSETS RESULTING FROM OPERATIONS $ 228,935 $ 55,025
=========== =============
</TABLE>
See Notes to Financial Statements
LPT VARIABLE INSURANCE SERIES TRUST
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE PERIOD JANUARY 31, 1996 (COMMENCEMENT OF OPERATIONS)
TO JUNE 30, 1996 (UNAUDITED)
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
SALOMON STRONG
MFS TOTAL U.S. QUALITY SALOMON INTERNATIONAL STRONG
MAS VALUE RETURN BOND MONEY MARKET STOCK GROWTH
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
--------- --------- ------------ ------------ ------------- ---------
INCREASE (DECREASE) IN NET ASSETS
FROM OPERATIONS
Net investment income 4,845 11,793 21,930 18,852 3,702 12,267
Net realized gain/(loss) on
securities and foreign
currency transactions 15,629 (10,043) (30,552) (12) 20,433 86,780
Net unrealized appreciation
(depreciation) of securities and
foreign currency transactions
during the period 29,342 27,719 (9,247) 0 102,903 126,079
----------- ----------- -------------- -------------- --------------- -----------
Net increase (decrease) in net
assets resulting from operations 49,816 29,469 (17,869) 18,840 127,038 225,126
----------- ----------- -------------- -------------- --------------- -----------
DISTRIBUTIONS TO SHAREHOLDERS
FROM:
Net investment income (1,290) (1,234) (1,295) (18,852) (272) (870)
Net realized gain on investments 0 0 0 0 0 (4,379)
----------- ----------- -------------- -------------- --------------- -----------
Total distributions (1,290) (1,234) (1,295) (18,852) (272) (5,249)
SHARE TRANSACTIONS
Net proceeds from sale of shares 1,070,326 1,074,251 1,352,159 1,998,296 1,112,550 1,104,573
Issued to shareholders in
reinvested dividends 1,290 1,234 1,295 18,852 272 5,249
Cost of shares repurchased (12,692) 0 (2,547) (939,258) (31,735) (6,346)
----------- ----------- -------------- -------------- --------------- -----------
Net increase from share
transactions (Note 5) 1,058,924 1,075,485 1,350,907 1,077,890 1,081,087 1,103,476
----------- ----------- -------------- -------------- --------------- -----------
NET INCREASE IN NET ASSETS 1,107,450 1,103,720 1,331,743 1,077,878 1,207,853 1,323,353
----------- ----------- -------------- -------------- --------------- -----------
NET ASSET AT BEGINNING OF PERIOD 0 0 0 0 0 0
----------- ----------- -------------- -------------- --------------- -----------
NET ASSETS AT END OF PERIOD
(INCLUDING LINE A) $1,107,450 $1,103,720 $ 1,331,743 $ 1,077,878 $ 1,207,853 $1,323,353
=========== =========== ============== ============== =============== ===========
(A) Accumulated undistributed net
investment income (loss) $ 3,555 $ 10,559 $ 20,635 $ 0 $ 3,430 $ 11,397
=========== =========== ============== ============== =============== ===========
<S> <C> <C>
BERKELEY LEXINGTON
SMALLER CORPORATE
COMPANIES LEADERS
PORTFOLIO PORTFOLIO
--------- ------------
INCREASE (DECREASE) IN NET ASSETS
FROM OPERATIONS
Net investment income (4,376) 7,421
Net realized gain/(loss) on
securities and foreign
currency transactions 94,434 0
Net unrealized appreciation
(depreciation) of securities and
foreign currency transactions
during the period 138,877 47,604
----------- -------------
Net increase (decrease) in net
assets resulting from operations 228,935 55,025
----------- -------------
DISTRIBUTIONS TO SHAREHOLDERS
FROM:
Net investment income (845) (1,522)
Net realized gain on investments 0 0
----------- -------------
Total distributions (845) (1,522)
SHARE TRANSACTIONS
Net proceeds from sale of shares 1,130,892 1,009,968
Issued to shareholders in
reinvested dividends 845 1,552
Cost of shares repurchased (6,346) (6,346)
----------- -------------
Net increase from share
transactions (Note 5) 1,125,391 1,005,174
----------- -------------
NET INCREASE IN NET ASSETS 1,353,481 1,058,677
----------- -------------
NET ASSET AT BEGINNING OF PERIOD 0 0
----------- -------------
NET ASSETS AT END OF PERIOD
(INCLUDING LINE A) $1,353,481 $ 1,058,677
=========== =============
(A) Accumulated undistributed net
investment income (loss) ($5,221) $ 5,899
=========== =============
</TABLE>
See Notes to Financial Statements
LPT VARIABLE INSURANCE SERIES TRUST
FINANCIAL HIGHLIGHTS
FOR THE PERIOD JANUARY 31, 1996 (COMMENCEMENT OF OPERATIONS)
TO JUNE 30, 1996 (UNAUDITED)
FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
SALOMON STRONG
MFS TOTAL U.S. QUALITY SALOMON INTERNATIONAL STRONG
MAS VALUE RETURN BOND MONEY MARKET STOCK GROWTH
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
--------- --------- ------------ ------------ ------------- ---------
Net asset value, beginning of
period $ 10.00 $ 10.00 $ 10.00 $ 1.00 $ 10.00 $ 10.00
INCOME FROM INVESTMENT OPERATIONS:
Net investment income 0.05 0.11 0.16 0.02 0.03 0.11
Net realized and unrealized gain
(loss) on investments 0.45 0.18 (0.36) 0.00 1.22 2.15
----------- ----------- -------------- -------------- --------------- -----------
Total from investment operations 0.50 0.29 (0.20) 0.02 1.25 2.26
----------- ----------- -------------- -------------- --------------- -----------
LESS DISTRIBUTIONS:
Dividends from net investment
income (0.01) (0.01) (0.01) (0.02) (0.00) (0.01)
Distributions from net realized
capital gains (0.00) (0.00) (0.00) (0.00) (0.00) (0.04)
----------- ----------- -------------- -------------- --------------- -----------
Total distributions (0.01) (0.01) (0.01) (0.02) (0.00) (0.05)
----------- ----------- -------------- -------------- --------------- -----------
Net asset value, end of period $ 10.49 $ 10.28 $ 9.79 $ 1.00 $ 11.25 $ 12.21
=========== =========== ============== ============== =============== ===========
TOTAL RETURN ++ 3.39% 1.80% (2.07)% 1.68% 11.95% 15.22%
=========== =========== ============== ============== =============== ===========
RATIOS TO AVERAGE NET
ASSETS/SUPPLEMENTAL DATA
Net assets, end of period
(in 000's) $ 1,107 $ 1,104 $ 1,332 $ 1,078 $ 1,208 $ 1,323
Ratio of operating expenses to
average net assets + 1.21% 1.21% 0.92% 0.84% 1.40% 1.22%
Ratio of net investment income to
average net assets + 1.11% 2.78% 5.22% 4.33% 0.84% 2.51%
Portfolio turnover rate 26.73% 51.99% 188.8% N/A 23.18% 186.14%
Average commission rate per share $ 0.0550 $ 0.0009 N/A N/A $ 0.0147 $ 0.0250
Ratio of operating expenses to
average net assets before waiver
of fees and expense
reimbursements + 11.00% 11.13% 11.04% 10.57% 11.55% 9.76%
Net investment loss per share
before waiver of fees and expense
reimbursements ($0.36) ($0.28) ($0.15) ($0.02) ($0.38) ($0.27)
<S> <C> <C>
BERKELEY LEXINGTON
SMALLER CORPORATE
COMPANIES LEADERS
PORTFOLIO PORTFOLIO
--------- -----------
Net asset value, beginning of
period $ 10.00 $ 10.00
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (0.04) 0.07
Net realized and unrealized gain
(loss) on investments 2.36 0.48
----------- -------------
Total from investment operations 2.32 0.55
----------- -------------
LESS DISTRIBUTIONS:
Dividends from net investment
income (0.01) (0.02)
Distributions from net realized
capital gains (0.00) (0.00)
----------- -------------
Total distributions (0.01) (0.02)
----------- -------------
Net asset value, end of period $ 12.31 $ 10.53
=========== =============
TOTAL RETURN ++ 21.24% 2.95%
=========== =============
RATIOS TO AVERAGE NET
ASSETS/SUPPLEMENTAL DATA
Net assets, end of period
(in 000's) $ 1,353 $ 1,059
Ratio of operating expenses to
average net assets + 1.31% 1.21%
Ratio of net investment income to
average net assets + (0.91%) 1.73%
Portfolio turnover rate 239.29% 0.00%
Average commission rate per share $ 0.0234 $ 0.0500
Ratio of operating expenses to
average net assets before waiver
of fees and expense
reimbursements + 10.11% 10.89%
Net investment loss per share
before waiver of fees and expense
reimbursements ($0.43) ($0.34)
<FN>
+ Annualized
++ Total return represents aggregate total return for the period February
9, 1996 (effective date) to June 30, 1996.
The total return would have been lower if certain fees had not
been waived by the investment advisor, and if certain expenses had not been
reimbursed by London Pacific.
</TABLE>
<TABLE>
<CAPTION>
The LPT Variable Insurance Series Trust
MAS Value Portfolio
Schedule of Investments
June 30, 1996 (Unaudited)
<S> <C>
Value
Shares (Note 2)
- ------ --------
COMMON STOCKS - 85.5%
Financial Services - 18.6%
254 Allstate Corporation................................................... $11,589
250 American General Corporation........................................... 9,094
188 American Re Corporation................................................ 8,436
200 Bank of Boston Corporation............................................. 9,900
152 Bank of New York Company, Inc.......................................... 7,790
250 Capital One Financial Corporation...................................... 7,125
150 Chase Manhattan Corporation (New)...................................... 10,594
132 Citicorp............................................................... 10,907
100 Crestar Financial Corporation.......................................... 5,337
100 Dean Witter Discover & Company......................................... 5,725
100 Federal Home Loan Mortgage Corporation................................. 8,550
300 Federal National Mortgage Association.................................. 10,050
200 First Chicago NBD Corporation.......................................... 7,825
100 First Union Corporation................................................ 6,088
155 ITT Hartford Group, Inc................................................ 8,254
340 Old Republic International Corporation................................. 7,310
350 Providian Corporation.................................................. 15,006
173 Reliastar Financial Corporation........................................ 7,461
123 Republic New York Corporation.......................................... 7,657
154 Salomon, Inc........................................................... 6,776
250 Signet Banking Corporation............................................. 5,812
100 St. Paul Companies, Inc................................................ 5,350
100 Standard Federal Bancorporation........................................ 3,850
115 Transatlantic Holdings, Inc............................................ 8,064
462 Great Western Financial Corporation.................................... 11,030
------
205,580
-------
Technology - 12.6%
350 Beckman Industries, Inc................................................ 13,300
342 Compaq Computer Corporation +.......................................... 16,844
------
</TABLE>
See Notes to Financial Statements
<TABLE>
<CAPTION>
The LPT Variable Insurance Series Trust
MAS Value Portfolio
Schedule of Investments (Continued)
June 30, 1996 (Unaudited)
<S> <C>
Value
Shares (Note 2)
- ------ --------
COMMON STOCKS - (Continued)
Technology - (Continued)
197 International Business Machines........................................ $19,503
400 LAM Research Corporation +............................................. 10,400
700 National Semiconductor Corporation +................................... 10,850
200 Raytheon Company....................................................... 10,325
452 Seagate Technology +................................................... 20,340
150 Standard Register...................................................... 3,694
143 Tandy Corporation...................................................... 6,775
282 Tektronix, Inc......................................................... 12,619
100 TRW, Inc............................................................... 8,988
212 Western Digital Corporation +.......................................... 5,538
-----
139,176
-------
Producer Durables - 10.4%
100 Caterpillar, Inc....................................................... 6,775
281 Cummins Engine, Inc.................................................... 11,345
300 Deere & Company........................................................ 12,000
304 Harnischfeger Industries, Inc.......................................... 10,108
200 Kennametal, Inc........................................................ 6,800
200 Parker-Hannifin Corporation............................................ 8,475
214 Tecumseh Products Company.............................................. 11,503
150 Textron, Inc........................................................... 11,981
191 Timken Company +....................................................... 7,401
500 Trinova Corporation.................................................... 16,687
250 Varity Corporation +................................................... 12,031
------
115,106
--------
Materials and Processing - 9.8%
190 Bowater, Inc........................................................... 7,149
200 Cabot Corporation...................................................... 4,900
250 Cyprus Amax Materials Company.......................................... 5,656
</TABLE>
See Notes to Financial Statements
<TABLE>
<CAPTION>
The LPT Variable Insurance Series Trust
MAS Value Portfolio
Schedule of Investments (Continued)
June 30, 1996 (Unaudited)
<S> <C>
Value
Shares (Note 2)
- ------ --------
COMMON STOCKS - (Continued)
Materials and Processing - (Continued)
200 Dexter Corporation..................................................... $5,950
200 DuPont (E.I.) DeNemours & Company...................................... 15,825
195 FMC Corporation +...................................................... 12,724
195 IMC Global, Inc........................................................ 7,337
300 Mallinckrodt Group, Inc................................................ 11,662
123 Potash Corporation of Saskatchewan..................................... 8,149
300 Premark International, Inc............................................. 5,550
150 Reynolds Metals Company................................................ 7,819
300 Rhone Poulnec SA, ADR.................................................. 7,950
350 Wellman, Inc........................................................... 8,181
-----
108,852
-------
Autos & Transportation - 7.6%
200 AMR Corporation........................................................ 18,200
100 Burlington Northern Santa Fe........................................... 8,088
200 CSX Corporation........................................................ 9,650
200 Eaton Corporation...................................................... 11,725
250 General Motors Corporation............................................. 13,094
300 Goodyear Tire and Rubber............................................... 14,475
300 Ryder Systems, Inc..................................................... 8,437
-----
83,669
------
Energy - 6.3%
100 Amoco Corporation...................................................... 7,238
100 Atlantic Richfield Company............................................. 11,850
150 British Petroleum, PLC, ADR............................................ 16,031
200 Mapco, Inc............................................................. 11,275
182 Tenneco, Inc........................................................... 9,305
300 Ultramar Corporation................................................... 8,700
250 YPF, S.A., ADR......................................................... 5,625
-----
70,024
------
</TABLE>
See Notes to Financial Statements
<TABLE>
<CAPTION>
The LPT Variable Insurance Series Trust
MAS Value Portfolio
Schedule of Investments (Continued)
June 30, 1996 (Unaudited)
<S> <C>
Value
Shares (Note 2)
- ------ --------
COMMON STOCKS - (Continued)
Consumer Staples - 6.2%
450 Archer-Daniels-Midland Company......................................... $8,606
405 IBP, Inc............................................................... 11,188
200 Philip Morris Companies, Inc........................................... 20,800
250 RJR Nabisco Holdings Corporation....................................... 7,750
300 Tupperware Corporation................................................. 12,675
200 Universal Foods Corporation............................................ 7,375
-----
68,394
------
Utilities - 4.8%
400 Central Maine Power Company............................................ 5,800
100 DTE Energy Company..................................................... 3,081
250 El Paso Natural Gas Company............................................ 9,625
307 Entergy Corporation.................................................... 8,711
253 General Public Utilities Corporation................................... 8,918
349 Peco Energy Company.................................................... 9,074
305 Unicom Corporation..................................................... 8,502
-----
53,711
------
Consumer Discretionary - 4.3%
50 Anheuser-Busch Companies, Inc.......................................... 3,750
254 Dillard Department Stores, Inc......................................... 9,271
200 PHH Corporation........................................................ 11,400
100 Reebok International, Ltd.............................................. 3,362
150 Springs Industries, Inc., Class A...................................... 7,575
200 VF Corporation......................................................... 11,925
------
47,283
------
Drugs & Health Care - 4.2%
400 Bergen Brunswig Corporation, Class A................................... 11,100
100 Bristol-Myers Squibb Company........................................... 9,000
------
</TABLE>
See Notes to Financial Statements
<TABLE>
<CAPTION>
The LPT Variable Insurance Series Trust
MAS Value Portfolio
Schedule of Investments (Continued)
June 30, 1996 (Unaudited)
<S> <C>
Value
Shares (Note 2)
- ------- --------
COMMON STOCK - (Continued)
Drugs & Health Care - (Continued)
374 Foundation Health Corporation +........................................ $13,417
100 Horizon CMS Healthcare Corporation +................................... 1,288
300 Maxicare Health Plans, Inc. +.......................................... 5,663
300 Tenet Healthcare Corporation +......................................... 6,412
-----
46,880
------
Other - 0.7%
200 Sprint Corporation..................................................... 8,400
-----
Total Common Stock (Cost $917,733) 947,075
-------
Principal
Amount
_________
SHORT-TERM OBLIGATIONS - 11.7%
$129,000 Repurchase Agreement with State Street
Bank and Trust Company, dated 06/28/96 at
2.0%, (collateralized by U.S. Treasury Note,
5.92%, due 08/31/97, par value $129,000;
market value $132,523) (Cost $129,000)......................... 129,000
-------
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C>
TOTAL INVESTMENTS (COST $1,046,733*)................. 97.2% 1,076,075
OTHER ASSETS AND LIABILITIES (NET)................... 2.8 31,375
------- ----------
NET ASSETS........................................... 100.0% $1,107,450
====== ==========
<FN>
* Aggregate cost for Federal tax purposes
+ Non-income producing security
</TABLE>
---------------------------------------------------------------
GLOSSARY OF TERMS
ADR American Depositary Receipt
---------------------------------------------------------------
See Notes to Financial Statements
<TABLE>
<CAPTION>
The LPT Variable Insurance Series Trust
MFS Total Return Portfolio
Schedule of Investments
June 30, 1996 (Unaudited)
<S> <C>
Value
Shares (Note 2)
- ------ --------
COMMON STOCK - 52.8%
Financial Services - 8.5%
50 Aetna Life & Casualty Company.......................................... $3,575
70 Allstate Corporation................................................... 3,194
80 American Express Company............................................... 3,570
100 Associates First Capital Corporation, Class A.......................... 3,763
160 Bank of Boston Corporation............................................. 7,920
140 Bank of New York Company, Inc.......................................... 7,175
145 Chase Manhattan Corporation (New)...................................... 10,240
50 Cigna Corporation...................................................... 5,894
90 Federal Home Loan Mortgage Corporation................................. 7,695
80 Fleet Financial Corporation, Inc....................................... 3,480
300 National City Corporation.............................................. 10,538
100 Nationsbank Corporation................................................ 8,262
250 Southern National Corporation.......................................... 7,938
120 St. Paul Companies, Inc................................................ 6,420
110 Torchmark.............................................................. 4,812
-----
94,476
------
Energy - 7.9%
90 Amoco Corporation...................................................... 6,514
50 Atlantic Richfield Company............................................. 5,925
80 British Petroleum PLC, ADR............................................. 8,550
300 Enron Corporation...................................................... 7,763
70 Exxon Corporation...................................................... 6,081
60 Mobil Corporation...................................................... 6,727
210 Occidental Petroleum Company........................................... 5,198
250 Panenergy Corporation.................................................. 8,219
120 Repsol SA, ADR......................................................... 4,170
90 Royal Dutch Petroleum Company (NY Registry)............................ 13,837
40 Schlumberger, Ltd...................................................... 3,370
100 Sun, Inc............................................................... 3,037
400 USX Marathon Group..................................................... 8,050
-----
87,441
------
</TABLE>
See Notes to Financial Statements
<TABLE>
<CAPTION>
The LPT Variable Insurance Series Trust
MFS Total Return Portfolio
Schedule of Investments (Continued)
June 30, 1996 (Unaudited)
<S> <C>
Value
Shares (Note 2)
- ------ --------
COMMON STOCKS - (Continued)
Utilities - 5.6%
200 Carolina Power & Light Company......................................... $7,600
230 Coastal Corporation.................................................... 9,603
100 Eastern Enterprises.................................................... 3,325
100 FPL Group, Inc......................................................... 4,600
190 Peco Energy Company.................................................... 4,940
200 Pinnacle West Capital Corporation...................................... 6,075
230 Portland General Corporation........................................... 7,100
100 Sonat, Inc............................................................. 4,500
100 Texas Utilities Company................................................ 4,275
200 UGI Corporation........................................................ 4,400
100 Williams Companies, Inc................................................ 4,950
-----
61,368
------
Materials and Processing - 5.4%
50 Aluminum Company of America............................................ 2,869
10 CIBA Geigy AG.......................................................... 12,198
80 Dow Chemical Company................................................... 6,080
70 DuPont (E.I.) DeNemours & Company...................................... 5,539
150 Freeport McMoran Copper & Gold, Class B................................ 4,781
150 B.F. Goodrich Company.................................................. 5,606
80 Hanna (M.A.) Company................................................... 1,670
30 Olin Corporation....................................................... 2,678
80 Phelps Dodge Corporation............................................... 4,990
100 Praxair, Inc........................................................... 4,225
50 Rohm & Haas Company.................................................... 3,138
60 Weyerhaeuser Company................................................... 2,550
100 Witco Corporation...................................................... 3,437
-----
59,761
-------
</TABLE>
See Notes to Financial Statements
<TABLE>
<CAPTION>
The LPT Variable Insurance Series Trust
MFS Total Return Portfolio
Schedule of Investments (Continued)
June 30, 1996 (Unaudited)
<S> <C>
Value
Shares (Note 2)
- ------ --------
COMMON STOCKS - (Continued)
Technology - 4.9%
130 Allied Signal, Inc..................................................... $7,426
40 Analog Devices, Inc. +................................................. 1,020
40 Digital Equipment Corporation +........................................ 1,800
140 Honeywell, Inc......................................................... 7,630
30 International Business Machines........................................ 2,970
80 Lockheed Martin Corporation............................................ 6,720
150 Raytheon Company....................................................... 7,744
110 United Technologies Corporation........................................ 12,650
110 Xerox Corporation...................................................... 5,885
-----
53,845
------
Producer Durables - 3.7%
100 Browning Ferris Industries, Inc........................................ 2,900
190 Deere & Company........................................................ 7,600
140 General Electric....................................................... 12,110
140 Ingersoll Rand Company................................................. 6,125
140 York International Corporation......................................... 7,245
150 WMX Technologies, Inc.................................................. 4,913
-----
40,893
------
Drugs & Health Care - 3.4%
130 American Home Products Corporation..................................... 7,816
160 Baxter International, Inc.............................................. 7,560
300 Lion Nathan, Ltd....................................................... 786
90 Eli Lilly & Company.................................................... 5,850
100 Meditrust.............................................................. 3,337
50 Rhone-Poulene Rorer, Inc............................................... 3,356
70 St. Judd Medical, Inc. +............................................... 2,345
120 SmithKline Beecham, PLC, ADR........................................... 6,525
-----
37,575
------
</TABLE>
See Notes to Financial Statements
<TABLE>
<CAPTION>
The LPT Variable Insurance Series Trust
MFS Total Return Portfolio
Schedule of Investments (Continued)
June 30, 1996 (Unaudited)
<S> <C>
Value
Shares (Note 2)
- ------ --------
COMMON STOCKS - (Continued)
Autos & Transportation - 3.3%
60 Burlington Northern Santa Fe........................................... $4,853
140 CSX Corporation........................................................ 6,755
110 Dana Corporation....................................................... 3,410
150 Ford Motor Company..................................................... 4,856
160 General Motors Corporation............................................. 8,380
190 Illinois Central Corporation........................................... 5,391
140 Volvo Artiebolaget, ADR................................................ 3,150
-----
36,795
------
Communication - 3.3%
150 AT&T Corporation....................................................... 9,300
120 Ameritech Corporation.................................................. 7,125
150 GTE Corporation........................................................ 6,712
270 MCI Communications Corporation......................................... 6,919
100 NYNEX Corporation...................................................... 4,750
40 Telephone & Data Systems, Inc.......................................... 1,800
-----
36,606
------
Consumer Discretionary - 3.2%
120 Eastman Kodak Company.................................................. 9,330
110 May Department Stores Company.......................................... 4,812
100 Office Depot, Inc. +................................................... 2,038
120 Sears Roebuck & Company................................................ 5,835
80 Tribune Company........................................................ 5,810
70 VF Corporation......................................................... 4,174
120 Wal-Mart Stores, Inc................................................... 3,045
-----
35,044
------
Consumer Staples - 3.1%
60 American Brands, Inc................................................... 2,723
100 Dimon, Inc............................................................. 1,850
</TABLE>
See Notes to Financial Statements
<TABLE>
<CAPTION>
The LPT Variable Insurance Series Trust
MFS Total Return Portfolio
Schedule of Investments (Continued)
June 30, 1996 (Unaudited)
<S> <C>
Value
Shares (Note 2)
- ------ --------
COMMON STOCKS - (Continued)
Consumer Staples - (Continued)
120 General Mills, Inc..................................................... $6,540
30 Kellogg Company........................................................ 2,198
120 Phillip Morris Companies, Inc.......................................... 12,480
90 Rubbermaid, Inc........................................................ 2,452
200 Stanley Works.......................................................... 5,950
-----
34,193
------
Other - 0.5%
200 Hospitality Properties Trust........................................... 5,350
-----
Total Common Stocks (Cost $555,565).................................... 583,347
-------
PREFERRED STOCKS - 1.2%
50 American Radio Systems Corporation, Non-Voting......................... 2,975
100 Unocal Corporation, Non-Voting......................................... 5,638
40 Case Corporation, Series A, Non-Voting................................. 4,750
-----
Total Preferred Stocks (Cost $12,700).................................. 13,363
------
Principal
Amount
_________
TREASURY OBLIGATIONS - 30.5%
$339,000 United States Treasury Note, 6.375%
Due 08/15/2002 (Cost $337,120).................................. 336,298
-------
CORPORATE BONDS AND NOTES - 0.4%
4,000 Cooper Industries Inc., Subordinated
Debenture, 7.05%, due 01/01/2015 (Cost $4,183).................. 4,280
-----
</TABLE>
See Notes to Financial Statements
<TABLE>
<CAPTION>
The LPT Variable Insurance Series Trust
MFS Total Return Portfolio
Schedule of Investments (Continued)
June 30, 1996 (Unaudited)
<S> <C>
Principal Value
Amount (Note 2)
- ---------- ----------
SHORT-TERM OBLIGATIONS - 9.4%
$104,000 Repurchase Agreement with State Street Bank & Trust
Company, dated 06/28/96 at 2.0%, (collateralized by
U.S. Treasury Note, 5.92%, due 08/31/97, par value
$104,000; market value $107,038) (Cost $104,000)............... $104,000
--------
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C>
TOTAL INVESTMENTS (COST $1,013,568*)................. 94.3% 1,041,288
OTHER ASSETS AND LIABILITIES......................... 5.7 62,432
------ ----------
NET ASSETS........................................... 100.0% $1,103,720
====== ==========
<FN>
* Aggregate cost for Federal tax purposes
+ Non-income producing security
</TABLE>
---------------------------------------------------------------
GLOSSARY OF TERMS
ADR American Depositary Receipt
---------------------------------------------------------------
See Notes to Financial Statements
<TABLE>
<CAPTION>
The LPT Variable Insurance Series Trust
Salomon U.S. Quality Bond Portfolio
Schedule of Investments
June 30, 1996 (Unaudited)
<S> <C>
Principal Value
Amount (Note 2)
_________ _________
U.S. TREASURY NOTES - 35.2%
$125,000 5.875%, due 11/15/2005.......................................... $117,754
250,000 6.50%, due 05/31/2001........................................... 250,117
100,000 6.625%, due 06/30/2001.......................................... 100,641
-------
Total U.S. Treasury Notes (Cost $468,119)................. 468,512
-------
U.S. GOVERNMENT AGENCY OBLIGATIONS - 55.6%
Government National Mortgage Association (GNMA) - 18.0%
250,000 Pool #432575 7.00%, due 04/15/2026
(Cost $243,045)................................................. 239,454
-------
Federal Farm Credit Bank (FFCB) - 9.7%
45,000 5.28%, due 07/11/1996+.......................................... 44,934
50,000 5.28%, due 07/24/1996+.......................................... 49,831
35,000 5.25%, due 07/25/1996+.......................................... 34,878
------
Total FFCB (Cost $129,643)................................ 129,643
-------
Student Loan Marketing Association (SLMA) - 9.6%
125,000 7.20%, due 11/09/2000 (Cost $129,053)........................... 127,578
-------
Federal Home Loan Bank (FHLB) - 9.1%
125,000 5.89%, due 07/24/2000 (Cost $123,910)........................... 121,875
-------
Federal Home Loan Mortgage Corporation (FHLMC) - 5.9%
70,441 11.75%, due 08/01/2014 (Cost $78,805)........................... 78,771
------
</TABLE>
See Notes to Financial Statements
<TABLE>
<CAPTION>
The LPT Variable Insurance Series Trust
Salomon U.S. Quality Bond Portfolio
Schedule of Investments (Continued)
June 30, 1996 (Unaudited)
<S> <C>
Principal Value
Amount (Note 2)
_________ ________
U.S. GOVERNMENTAL AGENCY OBLIGATIONS (CONTINUED)
Federal National Mortgage Association (FNMA) - 3.3%
$15,000 Pool #100089 13.00%, due 11/1/2015.............................. $15,932
6,000 Pool #100090 14.50%, due 11/1/2014.............................. 6,808
10,000 Pool #303791 12.50%, due 08/01/2015............................. 10,549
10,000 Pool #303792 11.50%, due 09/01/2019............................. 10,712
------
Total FNMA (Cost $45,480)................................. 44,001
------
Total U.S. Government Agency Obligations
(Cost $749,936)........................................... 741,322
-------
CORPORATE BONDS AND NOTES - 4.2%
50,000 Mellon Financial Company, 9.75%
Due 06/15/2001 (Cost $56,510)................................... 55,484
------
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C>
TOTAL INVESTMENTS (COST $1,274,565*)................. 95.0% 1,265,318
OTHER ASSETS AND LIABILITIES (NET)................... 5.0 66,425
------ -----------
NET ASSETS........................................... 100.0% $1,331,743
====== ==========
<FN>
* Aggregate cost for Federal tax purposes
+ Rate represents annualized yield at date of purchase
</TABLE>
See Notes to Financial Statements
<TABLE>
<CAPTION>
The LPT Variable Insurance Series Trust
Salomon Money Market Portfolio
Schedule of Investments
June 30, 1996 (Unaudited)
<S> <C>
Principal Value
Amount (Note 2)
_________ ________
U.S. TREASURY BILLS - 14.3%
$155,000 5.07%, due 09/05/1996+ (Cost $153,559).......................... $153,559
--------
U.S. GOVERNMENT AGENCY OBLIGATIONS - 105.0%
Federal Farm Credit Bank (FFCB) - 56.0%
145,000 5.30%, due 07/01/1996+.......................................... 145,000
260,000 5.26%, due 07/24/1996+.......................................... 259,126
200,000 5.25%, due 07/25/1996+.......................................... 199,300
-------
Total FFCB (Cost $603,426)................................ 603,426
-------
Federal Home Loan Mortgage Corporation (FHLMC) - 22.2%
40,000 5.24%, due 07/02/1996+.......................................... 39,994
200,000 5.30%, due 07/26/1996+.......................................... 199,264
-------
Total FHLMC (Cost $239,258)............................... 239,258
-------
Federal Home Loan Bank (FHLB) - 18.5%
200,000 5.23%, due 07/24/1996+ (Cost $199,332).......................... 199,332
-------
Federal National Mortgage Association (FNMA) - 8.3%
90,000 5.26%, due 07/26/1996+ (Cost $89,671)........................... 89,671
------
Total U.S. Government Agency Obligations
(Cost $1,131,687) .............................................. 1,131,687
---------
COMMERCIAL PAPER - 4.6%
50,000 Ford Motor Credit Company, 5.35%
Due 07/15/1996+ (Cost $49,897).................................. 49,897
------
</TABLE>
See Notes to Financial Statements
<TABLE>
<CAPTION>
The LPT Variable Insurance Series Trust
Salomon Money Market Portfolio
Schedule of Investments (Continued)
June 30, 1996 (Unaudited)
<S> <C> <C>
Value
(Note 2)
________
TOTAL INVESTMENTS (COST $1,335,143*)................. 123.9% $1,335,143
OTHER ASSETS AND LIABILITIES (NET)................... (23.9) (257,265)
------ ---------
NET ASSETS........................................... 100.0% $1,077,878
====== ==========
<FN>
* Aggregate cost for Federal tax purposes
+ Rate represents annualized yield at date of purchase
</TABLE>
See Notes to Financial Statements
<TABLE>
<CAPTION>
The LPT Variable Insurance Series Trust
Strong International Stock Portfolio
Schedule of Investments
June 30, 1996 (Unaudited)
<S> <C>
Value
Shares (Note 2)
______ ________
COMMON STOCKS - 69.7%
Japan - 17.5%
1,000 Canon Sales Company, Inc............................................... $27,888
7,000 Chubu Steel Plate Company, Ltd......................................... 46,212
1,100 Family Mart Company.................................................... 49,084
10,000 Ishikawajima Harina Heavy Industries................................... 48,919
2,000 Nomura Securities Company, Ltd......................................... 39,135
------
211,238
-------
Italy - 11.8%
38,000 Simint, SPA +.......................................................... 142,694
-------
Australia - 7.8%
26,000 Normandy Mining, Ltd................................................... 41,065
7,400 WMC, Ltd. .......................................................... 52,919
------
93,984
------
United Kingdom - 7.7%
11,000 Inchcape, PLC.......................................................... 50,054
10,000 Royal Doulton.......................................................... 42,398
------
92,452
------
Hong Kong - 6.9%
84,000 CDL Hotels International............................................... 46,119
26,000 Peregrine Investment Holdings.......................................... 37,451
------
83,570
------
Indonesia - 5.0%
32,000 Bukaka Teknik Utama.................................................... 48,120
8,250 Kawasan Industries..................................................... 12,051
------
60,171
------
</TABLE>
See Notes to Financial Statements
<TABLE>
<CAPTION>
The LPT Variable Insurance Series Trust
Strong International Stock Portfolio
Schedule of Investments (Continued)
June 30, 1996 (Unaudited)
<S> <C>
Value
Shares (Note 2)
- ------ --------
COMMON STOCKS - (Continued)
New Zealand - 4.2%
97,533 Guinness Peat Group, PLC............................................... $50,327
-------
Malaysia - 3.9%
27,000 IJM Corporation Berhad................................................. 46,759
------
France - 3.6%
1,500 Remy Cointreau, SA..................................................... 44,035
------
United States - 1.3%
700 De Rigo SPA, ADR +..................................................... 16,012
------
Total Common Stocks (Cost $735,005).................................... 841,242
-------
PREFERRED STOCK - 3.5%
United States - 3.5%
2,400 Thai Prime Fund, Ltd. (Cost $46,086)................................... 42,240
------
WARRANTS - 0.4%
10,400 Normandy Mining (Australia) expires 04/08/2001......................... 4,740
2,600 Peregrine Investment Holdings (Hong Kong),
expires 05/15/1998..................................................... 323
---
Total Warrants (Cost $4,555)............................... 5,063
-----
</TABLE>
See Notes to Financial Statements
<TABLE>
<CAPTION>
The LPT Variable Insurance Series Trust
Strong International Stock Portfolio
Schedule of Investments (Continued)
June 30, 1996 (Unaudited)
<S> <C>
Principal Value
Amount (Note 2)
_________ ________
SHORT-TERM INVESTMENTS - 24.1%
$291,000 Repurchase Agreement with State Street Bank
and Trust Company, dated 06/28/96 at
2.0%, (collateralized by U.S. Treasury Note,
5.92%, due 08/31/97, par value $291,000;
market value $300,725) (Cost $291,000)......................... $291,000
--------
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C>
TOTAL INVESTMENTS (COST $1,076,646*)................. 97.7% 1,179,545
OTHER ASSETS AND LIABILITIES (NET)................... 2.3 28,308
------ -----------
NET ASSETS........................................... 100.0% $1,207,853
====== ==========
<FN>
* Aggregate cost for Federal tax purposes
+ Non-income producing security
</TABLE>
---------------------------------------------------------------
GLOSSARY OF TERMS
ADR American Depositary Receipt
---------------------------------------------------------------
See Notes to Financial Statements
<TABLE>
<CAPTION>
The LPT Variable Insurance Series Trust
Strong International Stock Portfolio
Schedule of Investments (Continued)
June 30, 1996 (Unaudited)
As of June 30, 1996, sector diversification of the Portfolio was as follows:
<S> <C> <C>
% of Value
Sector Diversification Net Assets (Note 2)
______________________ __________ ________
COMMON STOCKS:
Consumer Discretionary............................... 31.2% $376,187
Producer Durables.................................... 11.9 143,798
Materials and Processing............................. 11.6 140,195
Consumer Staples..................................... 7.7 92,725
Financial Services................................... 6.3 76,586
Other................................................ 1.0 11,751
--- ------
TOTAL COMMON STOCKS.................................. 69.7 841,242
PREFERRED STOCKS..................................... 3.5 42,240
WARRANTS ............................................ 0.4 5,063
SHORT-TERM INVESTMENTS............................... 24.1 291,000
---- -------
TOTAL INVESTMENTS.................................... 97.7 1,179,545
OTHER ASSETS AND LIABILITIES (Net)................... 2.3 28,308
-------- ----------
NET ASSETS........................................... 100.0% $1,207,853
====== ==========
</TABLE>
See Notes to Financial Statements
<TABLE>
<CAPTION>
The LPT Variable Insurance Series Trust
Strong Growth Portfolio
Schedule of Investments
June 30, 1996 (Unaudited)
<S> <C>
Value
Shares (Note 2)
______ ________
COMMON STOCKS - 94.4%
Consumer Discretionary - 28.6%
300 Apple South, Inc....................................................... $8,025
300 Autozone, Inc. +....................................................... 10,425
400 BT Office Products International, Inc. +............................... 7,150
200 Checkpoint Systems, Inc. +............................................. 6,875
100 Circus Circus Enterprises, Inc. +...................................... 4,100
400 Consolidated Stores Corporation +...................................... 14,700
600 CUC International, Inc. +.............................................. 21,300
600 Dollar Tree Stores, Inc. +............................................. 19,050
300 Garden Ridge Corporation +............................................. 15,150
100 Gucci Group, NV........................................................ 6,450
600 HFS, Inc. + .......................................................... 42,000
200 Medaphis Corporation +................................................. 7,950
200 Kohl's Corporation +................................................... 7,325
400 Midwest Express Holdings, Inc. +....................................... 12,850
300 Nautica Enterprises, Inc. +............................................ 8,625
100 Nike, Inc., Class B.................................................... 10,275
300 PMT Services, Inc. +................................................... 8,588
300 Promus Hotel Corporation +............................................. 8,888
300 Rain Forest Cafe, Inc. +............................................... 15,000
300 Regal Cinemas +........................................................ 13,725
300 Service Corporation International...................................... 17,250
500 Staples, Inc. +........................................................ 9,750
800 Viking Office Products, Inc. +......................................... 25,100
100 Tommy Hilfiger Corporation +........................................... 5,362
1,000 Tribune Company........................................................ 72,625
------
378,538
-------
</TABLE>
See Notes to Financial Statements
<TABLE>
<CAPTION>
The LPT Variable Insurance Series Trust
Strong Growth Portfolio
Schedule of Investments (Continued)
June 30, 1996 (Unaudited)
<S> <C>
Value
Shares (Note 2)
______ ________
COMMON STOCKS - (Continued)
Technology - 21.5%
100 Adtran, Inc. +......................................................... $7,088
200 Andrew Corporation +.................................................. 10,750
200 Baan Company, NV +.................................................... 6,800
200 Cascade Communications +............................................... 13,600
400 CBT Group Publishing, Ltd., ADR +...................................... 18,500
400 Cisco Systems, Inc. +.................................................. 22,650
800 Danka Business System, ADR ............................................ 23,400
200 HBO & Company.......................................................... 13,550
300 HNC Software, Inc. +................................................... 13,875
200 Intel Corporation...................................................... 14,687
300 McAfee Associates, Inc. +.............................................. 14,700
100 Microsoft Corporation +............................................... 12,011
200 Stratacom, Inc. +...................................................... 11,250
400 Sykes Enterprises, Inc................................................. 19,700
300 Tellabs, Inc. +........................................................ 20,063
200 US Long Distance Corporation........................................... 7,100
400 US Robotics Corporation +............................................. 34,200
500 Uniphase Corporation +................................................ 17,750
100 Visio Corporation +.................................................... 3,600
-----
289,774
-------
Drugs & Health Care - 17.9%
400 Amerisource Health Corporation, Class A +.............................. 13,300
200 Cardinal Health, Inc................................................... 14,425
500 Dura Pharmaceuticals, Inc. +........................................... 28,000
300 Elan PLC, ADR +........................................................ 17,138
300 Guidant Corporation.................................................... 14,775
800 Healthport, Inc. +..................................................... 24,200
</TABLE>
See Notes to Financial Statements
<TABLE>
<CAPTION>
The LPT Variable Insurance Series Trust
Strong Growth Portfolio
Schedule of Investments (Continued)
June 30, 1996 (Unaudited)
<S> <C>
Value
Shares (Note 2)
______ ________
COMMON STOCKS - (Continued)
Drugs & Health Care - (Continued)
300 Healthsouth Corporation +.............................................. $10,800
300 Johnson & Johnson...................................................... 14,850
400 Eli Lilly & Company.................................................... 26,000
300 Merck & Company, Inc................................................... 19,387
400 Orthodontic Centers of America, Inc. +................................. 10,600
300 Parexel International Corporation +.................................... 14,475
100 Quintiles Transnational Corporation +.................................. 6,575
300 Pfizer, Inc. .......................................................... 21,413
------
235,938
-------
Materials and Equipment - 10.6%
300 ABR Information Services, Inc. +....................................... 15,075
700 Accustaff, Inc. +...................................................... 19,075
300 Alco Standard Corporation.............................................. 13,575
400 Career Horizons, Inc. +................................................ 14,000
500 Corestaff, Inc. +...................................................... 22,375
1,000 Monsanto Company....................................................... 32,500
100 Olin Corporation....................................................... 8,925
200 Physicians Resource Group, Inc. +...................................... 6,675
200 Sitel Corporation +.................................................... 8,400
-----
140,600
-------
Financial Services - 5.5%
300 Aames Financial Corporation............................................ 10,762
1,000 Corporate Express, Inc. +.............................................. 40,000
300 First Bank Systems, Inc................................................ 17,400
100 First USA Paymentech, Inc. +........................................... 4,000
-----
72,162
------
</TABLE>
See Notes to Financial Statements
<TABLE>
<CAPTION>
The LPT Variable Insurance Series Trust
Strong Growth Portfolio
Schedule of Investments (Continued)
June 30, 1996 (Unaudited)
<S> <C>
Value
Shares (Note 2)
______ ________
COMMON STOCKS - (Continued)
Communications - 3.4%
400 Ameritech Corporation.................................................. $23,750
400 Cincinnati Bell, Inc................................................... 20,850
------
44,600
------
Consumer Staples - 3.3%
800 Pepsico, Inc........................................................... 28,300
400 USA Detergents, Inc.................................................... 15,950
------
44,250
------
Energy - 2.3%
100 Chesapeake Energy Corporation +........................................ 8,988
500 Pride Petroleum Services, Inc. +....................................... 7,125
100 Schlumberger, Ltd...................................................... 8,425
200 Smith International, Inc. +............................................ 6,025
-----
30,563
------
Other - 1.3%
300 Harley Davidson, Inc................................................... 12,338
200 Planning Services International, PLC, ADR +............................ 4,500
-----
16,838
------
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C>
TOTAL INVESTMENTS (COST $1,122,684*)................. 94.4% 1,248,763
OTHER ASSETS AN LIABILITIES (NET).................... 5.6 74,590
------ ----------
NET ASSETS........................................... 100.0% $1,323,353
====== ==========
<FN>
* Aggregate cost for Federal tax purposes
+ Non-income producing security
</TABLE>
---------------------------------------------------------------
GLOSSARY OF TERMS
ADR American Depositary Receipt
---------------------------------------------------------------
See Notes to Financial Statements
<TABLE>
<CAPTION>
The LPT Variable Insurance Series Trust
Berkeley Smaller Companies Portfolio
Schedule of Investments
June 30, 1996 (Unaudited)
<S> <C>
Value
Shares (Note 2)
______ ________
COMMON STOCKS - 81.4%
Technology - 25.2%
300 Arbor Software Corporation +........................................... $17,925
400 Business Objects, SA, ADR +............................................ 16,100
300 Ciprico, Inc.+......................................................... 4,575
800 Cotelligent Group, Inc. +.............................................. 13,800
300 Cylink Corporation +................................................... 5,175
700 Edify Software, Inc. +................................................. 18,550
400 Forte Software, Inc. +................................................. 20,900
200 HBO & Company.......................................................... 13,550
200 Hologic, Inc.+......................................................... 8,850
400 IDX Systems Corporation +.............................................. 15,600
200 Iomega Corporation +................................................... 5,800
200 Mechanical Dynamics, Inc. +............................................ 3,025
700 Moog, Inc., Class A +.................................................. 17,150
100 Netscape Communications Corporation +.................................. 6,225
100 Network Appliance, Inc. +.............................................. 2,975
500 P Com, Inc. +......................................................... 15,750
300 Premenos Technology Corporation +...................................... 5,475
780 SDL, Inc. + .......................................................... 21,645
300 Security Dynamics Technology, Inc. +................................... 24,675
400 Shiva Corporation +.................................................... 32,000
600 Sun Quest Information Systems, Inc. +.................................. 9,000
400 Systemsoft Corporation +............................................... 18,800
300 U.S. Robotics Corporation +............................................ 25,650
200 Unison Software, Inc. +................................................ 5,050
200 Veritas Software Company +............................................. 8,600
100 Xylan Corporation +.................................................... 4,650
-----
341,495
-------
</TABLE>
See Notes to Financial Statements
<TABLE>
<CAPTION>
The LPT Variable Insurance Series Trust
Berkeley Smaller Companies Portfolio
Schedule of Investments (Continued)
June 30, 1996 (Unaudited)
<S> <C>
Value
Shares (Note 2)
______ ________
COMMON STOCKS - (Continued)
Consumer Discretionary - 12.8%
500 American Telecasting, Inc. +........................................... $6,625
200 Atlas Air, Inc. +...................................................... 11,500
600 Borders Group, Inc. +.................................................. 19,350
900 Claire S Stores, Inc................................................... 24,862
600 Dave & Busters, Inc. +................................................. 16,050
700 Finish Line, Inc., Class A +........................................... 20,038
900 Fossil, Inc. +......................................................... 13,050
300 Just for Feet, Inc. +.................................................. 15,862
700 Party City Corporation +............................................... 12,425
200 Peoplesoft, Inc. +..................................................... 14,250
100 Sodak Gaming, Inc. +................................................... 3,050
700 Wet Seal, Inc. +....................................................... 16,669
------
173,731
-------
Drugs & Health Care - 11.9%
500 ABR Information Services, Inc. +....................................... 25,125
800 American Oncology Resources, Inc. +.................................... 17,400
100 Amisys Managed Care Systems, Inc. +.................................... 2,575
500 Cardiovascular Dynamics, Inc. +........................................ 6,125
300 Dura Pharmaceuticals, Inc. +........................................... 16,800
300 Fresenias USA, Inc..................................................... 6,450
300 InterCardia, Inc. +.................................................... 8,550
400 Noven Pharmaceuticals, Inc. +.......................................... 6,400
1,200 Orthologic Corporation +............................................... 15,300
600 Phycon, Inc. +........................................................ 22,800
600 Physician Sales & Services, Inc. +..................................... 14,550
700 Rexall Sundown, Inc. +................................................. 18,900
------
160,975
-------
</TABLE>
See Notes to Financial Statements
<TABLE>
<CAPTION>
The LPT Variable Insurance Series Trust
Berkeley Smaller Companies Portfolio
Schedule of Investments (Continued)
June 30, 1996 (Unaudited)
<S> <C>
Value
Shares (Note 2)
______ ________
COMMON STOCKS - (Continued)
Communications - 11.1%
500 Adtran, Inc. +......................................................... $35,438
400 Ascend Communications, Inc. +.......................................... 22,500
300 DSP Communications, Inc. +............................................. 15,412
600 EIS International, Inc. +.............................................. 15,300
500 Intelcom Group, Inc. +................................................. 12,500
500 Pairgain Technologies +................................................ 31,000
300 Premisys Communications, Inc. +........................................ 18,300
------
150,450
-------
Business Services - 7.5%
400 Accustaff, Inc. +...................................................... 10,900
300 Career Horizons, Inc. +................................................ 10,500
200 CKS Group, Inc. +...................................................... 6,450
1,200 Cognos, Inc. +......................................................... 27,600
100 Corestaff, Inc. +...................................................... 4,475
700 FPA Medical Management, Inc. +......................................... 10,894
700 Physician Support Systems, Inc. +...................................... 15,837
200 Quintiles Transnational Corporation +.................................. 13,150
------
99,806
------
Energy - 7.2%
500 ENSCO International, Inc. +............................................ 16,250
1,500 Marine Drilling Companies, Inc. +...................................... 15,188
1,100 Nabors Industries, Inc. +.............................................. 17,875
800 Reading & Bates Corporation +.......................................... 17,700
400 Seacor Holdings, Inc. +................................................ 17,900
500 Seagull Energy Corporation +........................................... 12,500
------
97,413
------
</TABLE>
See Notes to Financial Statements
<TABLE>
<CAPTION>
The LPT Variable Insurance Series Trust
Berkeley Smaller Companies Portfolio
Schedule of Investments (Continued)
June 30, 1996 (Unaudited)
<S> <C>
Value
Shares (Note 2)
______ ________
COMMON STOCKS - (Continued)
Other - 2.1%
200 Planning Sciences International PLC, ADR +............................. 4,500
200 Siebel Systems, Inc. +................................................. 4,275
600 3-D Geophysical, Inc. +................................................ 6,450
200 Viasoft, Inc. +........................................................ 12,925
------
28,150
Financial Services - 1.9%
400 Compdent Corporation +................................................. $18,600
200 Triad Guaranty, Inc.................................................... 7,350
-----
25,950
------
Producer Durables - 1.7%
500 ADE Corporation +...................................................... 7,125
100 Boston Communications Group +.......................................... 1,650
200 JLG Industries, Inc.................................................... 14,850
------
23,625
Total Common Stock (Cost $962,718)..................................... 1,101,595
---------
Principal
Amount
_________
SHORT-TERM INVESTMENTS - 17.9%
$242,000 Repurchase Agreement with State Street
Bank and Trust Company, dated 06/28/96 at
2.0%, (collateralized by U.S. Treasury Note,
5.92%, due 08/31/97, par value $242,000;
market value $249,755) (Cost $242,000)......................... 242,0000
--------
</TABLE>
See Notes to Financial Statements
<TABLE>
<CAPTION>
The LPT Variable Insurance Series Trust
Berkeley Smaller Companies Portfolio
Schedule of Investments (Continued)
June 30, 1996 (Unaudited)
<S> <C>
Value
(Note 2)
____________
TOTAL INVESTMENTS (COST $1,204,718*)................. 99.3% $1,343,595
OTHER ASSETS AND LIABILITIES (NET)................... 0.7 9,886
------ ----------
NET ASSETS........................................... 100.0% $1,353,481
====== ==========
<FN>
* Aggregate cost for Federal tax purposes
+ Non-income producing security
</TABLE>
---------------------------------------------------------------
GLOSSARY OF TERMS
ADR American Depositary Receipt
---------------------------------------------------------------
See Notes to Financial Statements
<TABLE>
<CAPTION>
The LPT Variable Insurance Series Trust
Lexington Corporate Leaders Portfolio
Schedule of Investments
June 30, 1996 (Unaudited)
<S> <C>
Value
Shares (Note 2)
______ ________
COMMON STOCKS - 98.0%
Energy - 21.4%
390 Chevron Corporation.................................................... $23,010
390 Exxon Corporation...................................................... 33,881
390 Mobil Corporation...................................................... 43,729
390 Royal Dutch Petroleum Company.......................................... 59,963
390 Schlumberger, Ltd...................................................... 32,857
390 Texaco, Inc. .......................................................... 32,711
------
226,151
-------
Consumer Discretionary - 20.3%
390 American Brands, Inc................................................... 17,696
780 Coca Cola Company...................................................... 38,123
390 Eastman Kodak Company.................................................. 30,322
390 McDonalds Corporation.................................................. 18,232
390 Philip Morris Companies, Inc........................................... 40,560
390 Procter & Gamble Company............................................... 35,344
390 Wal-Mart Stores, Inc................................................... 9,896
390 Walt Disney Company.................................................... 24,521
------
214,694
-------
Technology - 11.3%
390 Allied Signal, Inc..................................................... 22,279
390 Boeing Company......................................................... 33,979
390 Hewlett Packard Company................................................ 38,854
390 Motorola, Inc.......................................................... 24,521
------
119,633
-------
</TABLE>
<TABLE>
<CAPTION>
The LPT Variable Insurance Series Trust
Lexington Corporate Leaders Portfolio
Schedule of Investments (Continued)
June 30, 1996 (Unaudited)
<S> <C>
Value
Shares (Note 2)
______ ________
COMMON STOCKS - (Continued)
Autos & Transportation - 9.2%
390 Burlington Northern Santa Fe........................................... $31,541
390 General Motors Corporation............................................. 20,426
390 Goodyear Tire and Rubber Company....................................... 18,818
390 Union Pacific Corporation.............................................. 27,251
------
98,036
------
Materials & Processing - 8.3%
390 Aluminum Company of America............................................ 22,376
390 Bethlehem Steel Corporation +.......................................... 4,631
390 DuPont (E.I.) DeNemours & Company...................................... 30,859
390 International Paper Company............................................ 14,381
390 Union Carbide Corporation.............................................. 15,503
------
87,750
------
Financial Services - 7.3%
390 American Express Company............................................... 17,404
390 J.P. Morgan & Company, Inc............................................. 33,004
585 Travelers Group, Inc................................................... 26,690
------
77,098
------
Utilities - 6.2%
390 Consolidated Edison Company of New York................................ 11,408
390 Duke Power Company..................................................... 19,987
390 Houston Industries, Inc................................................ 9,604
390 Pacific Gas & Electric Company......................................... 9,068
390 Union Electric Company................................................. 15,698
------
65,765
------
</TABLE>
See Notes to Financial Statements
<TABLE>
<CAPTION>
The LPT Variable Insurance Series Trust
Lexington Corporate Leaders Portfolio
Schedule of Investments (Continued)
June 30, 1996 (Unaudited)
<S> <C>
Value
Shares (Note 2)
______ ________
COMMON STOCKS - (Continued)
Drugs & Health Care - 6.0%
780 Johnson & Johnson...................................................... $38,610
390 Merck & Company, Inc................................................... 25,204
------
63,814
------
Producer Durables - 5.7%
390 Caterpillar, Inc....................................................... 26,422
390 General Electric Company............................................... 33,735
------
60,157
------
Communications - 2.3%
390 AT&T Corporation....................................................... 24,180
------
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C>
TOTAL INVESTMENTS (COST $989,674*)................... 98.0% 1,037,278
OTHER ASSETS AND LIABILITIES......................... 2.0 21,399
------ ----------
NET ASSETS........................................... 100.0% $1,058,677
====== ==========
<FN>
* Aggregate cost for Federal tax purposes
+ Non-income producing security
</TABLE>
See Notes to Financial Statements
THE LPT VARIABLE INSURANCE SERIES TRUST
NOTES TO FINANCIAL STATEMENTS (Unaudited)
1. Organization and Business
The LPT Variable Insurance Series Trust (the "Trust") was organized under
the laws of the Commonwealth of Massachusetts on January 23, 1995, and is a
business entity commonly known as a "Massachusetts Business Trust". The Trust is
registered under the Investment Company Act of 1940, as amended, (the "1940
Act"), as an open-end series management investment company. The trust offers
eight managed investment portfolios (the "Portfolios") to the public only
through certain variable annuity contracts offered by London Pacific Life and
Annuity Company ("London Pacific"): the Salomon Money Market Portfolio (the
"Money Portfolio"); the Salomon U.S. Quality Bond Portfolio (the "Bond
Portfolio"); and the MAS Value, MFS Total Return, Strong International Stock,
Strong Growth, Berkeley Smaller Companies, and Lexington Corporate Leaders
Portfolios (the "Equity Portfolios").
2. Significant Accounting Policies
The following is a summary of significant accounting policies which are
in conformity with generally accepted accounting principles consistently
followed by the Trust in the preparation of its financial statements. The
preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses during
the reported period. Actual results could differ from those estimates.
Security Valuation: Securities which are traded on a recognized exchange
(including securities traded through the National Market System) are valued at
the last sale price on the securities exchange on which such securities are
primarily traded, or, if there were no sales during the day, at the closing bid
price. Portfolio securities that are primarily traded on foreign exchanges are
generally valued at the most recent closing values of such securities on their
respective exchanges, except when an occurrence subsequent to the time a value
was so established is likely to have changed the value, then the fair value of
those Trustees or its delegates. Over-the-counter securities that are not traded
through the National Market System are valued on the basis of the bid price at
the close of business on each day. Short-term investments that mature in 60 days
or less are valued at amortized cost. Long-term debt securities are valued
by an independent pricing service approved by the Board of Trustees which
utilizes market quotations and transactions, quotations from dealers and
various relationships among securities in determining value. If not valued by
a pricing service, such securities are valued at prices obtained from
independent brokers. Investments with prices that cannot be readily obtained, if
any, are stated at fair value as determined in good faith under consistently
applied procedures established by and under the supervision of the Board of
Trustees. The investments of the Money Portfolio are valued utilizing
the amortized cost valuation method permitted in accordance with Rule 2a-7 under
the Investment Company Act of 1940. This method involves valuing a
portfolio security initially at its cost, and, thereafter, assuming a constant
amortization to maturity of any discount or premium. Futures contracts and
options are valued at market value or fair value using methods determined by the
Board of Trustees.
Repurchase Agreements: Each Portfolio may engage in Repurchase Agreement
transactions. Under the terms of a typical Repurchase Agreement, the Portfolio
through its custodian takes possession of an underlying debt obligation, subject
to an obligation of the seller to repurchase and the Portfolio to resell, the
obligation at an agreed-upon price and time, thereby determining the yield
during the Portfolio's holding period. This arrangement results in a fixed rate
of return that is not subject to market fluctuations during the Portfolio's
holding period. The value of the collateral is at least equal at all times to
the total amount of the repurchase obligations, including interest. In the event
of counterparty default, the Portfolio has the right to use the collateral to
offset losses incurred. There is potential loss to the Portfolio in the event
the Portfolio is delayed or prevented from exercising its rights to dispose of
the collateral securities, including the risk of a possible decline in the value
of the underlying securities during the period while the Portfolio seeks to
assert its rights. Each Portfolio may enter into Repurchase Agreements only with
banks or dealers which, in the opinion of each Portfolio's Sub-advisor, based on
guidelines established by the Trust's Board of Trustees, are deemed
creditworthy.
Reverse Repurchase Agreements: All Portfolios, except the Money
Portfolio, may engage in reverse Repurchase Agreements. Reverse Repurchase
Agreements are the same as Repurchase Agreements to borrow short-term funds. The
Portfolio will maintain segregated accounts with the Trust's 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 bought may decline below the repurchase price of the securities sold.
Option Contracts: All Portfolios, except the Money Portfolio, may
purchase and/or write put and call options on portfolio securities or foreign
currencies. The Portfolios may use options contracts to manage their exposure to
the stock and bond markets and to fluctuations in interest rates and currency
values. Writing puts and buying calls tend to increase the Portfolio's exposure
to the underlying instrument. Buying puts and writing calls tends to either
decrease the Portfolio's exposure to the underlying instrument, or to hedge
other Portfolio investments.
The risk associated with purchasing options is limited to the premium
originally paid. The risk in writing a covered call option is that the Portfolio
may forego the opportunity of profit or incur a loss if the market price of the
underlying security increases and the option is exercised. The risk in writing a
put option is that the Portfolio may incur a loss if the market price of the
underlying security decreases and the option is exercised. In addition, there is
a risk the Portfolio may not be able to enter into a closing transaction because
of an illiquid secondary market, or, for over-the-counter options, because of a
counter party's inability to perform.
Futures Contracts: All Portfolios, except the Money Portfolio, may engage
in futures transactions. The Portfolios may use futures contracts to manage
their exposure to the stock and bond markets and to fluctuations in interest
rates and currency values. Buying futures contracts tends to increase the
Portfolio's exposure to the underlying instrument. Selling futures contracts
tends to either decrease the Portfolio's exposure to the underlying instrument
or to hedge other fund investments.
There are several risks in connection with the use of futures contracts
as a hedging device. The change in the value of futures contracts primarily
corresponds with the value of their underlying instruments, which may not
correlate with the change in the value of the hedged instruments. In addition,
there is the risk the Portfolio may not be able to enter into a closing
transaction because of an illiquid secondary market.
Forward Foreign Currency Contracts: All Portfolios, except the Money
Portfolio, may enter into forward foreign currency contracts, whereby the
Portfolios agree to sell a specific currency at a specific price at a future
date in an attempt to hedge against fluctuations in the value of the underlying
currency of certain investment instruments. Forward foreign currency contracts
are valued at the daily exchange rate of the underlying currency. Gains or
losses on the purchase or sale of forward foreign currency contracts having the
same settlement date and broker are recognized on the date of offset, otherwise
gains or losses are recognized on the settlement date.
Foreign Currency Translation: The books and records of the Portfolios are
maintained in U.S. Dollars. Investment valuations, other assets and liabilities
initially expressed as foreign currencies are converted each business day into
U.S. dollars based upon current exchange rates. Purchase and sales of foreign
investments and income and expenses are converted into U.S. dollars based upon
exchange rates prevailing on the respective dates of such transactions. That
portion of unrealized gains or losses on investments due to fluctuations in
foreign currency exchange rates is not separately disclosed.
Security Transactions and Investment Income: Security transactions are
recorded on the trade date. Net realized gains and losses from security
transactions are recorded on the basis of identified cost. Interest income is
recorded on the accrual basis and consists of interest accrued, and, if
applicable, discount earned less premiums amortized. Dividend income is recorded
on the ex-dividend date.
Distributions to Shareholders: Dividends from net investment income are
declared daily and reinvested monthly for the Money Portfolio and are declared
and distributed annually for all other Portfolios. All Portfolios, with the
exception of the Money Portfolio, declare and distribute, if any, all net
realized capital gains at least annually.
Federal Income Taxes: The Trust treats each Portfolio as a separate
entity for Federal income tax purposes. Each Portfolio of the Trust intends to
qualify each year as a "regulated investment company" under Subchapter M of the
Internal Revenue Code of 1986, as amended. By so qualifying, each Portfolio will
not be subject to Federal income taxes to the extent it distributes all of its
taxable income and net realized gains for the tax year ending December 31. In
addition, by distributing during each calendar year substantially all of its net
investment income, capital gains, and certain other amounts, if any, each
Portfolio will not be subject to Federal excise tax. Therefore, no Federal
income tax provision is required. Withholding taxes on foreign dividend income
and gains have been paid or provided for in accordance with the applicable
country's tax rules and rates.
Expenses: The Trust accounts separately for assets, liabilities, and
operations of each Portfolio. Expenses directly attributed to a Portfolio are
charged to the Portfolio, while expenses which are attributable to more than one
Portfolio of the Trust are allocated among the respective Portfolios.
3. Investment Advisory, Sub-Advisory, Administration Fees, and Other Related
Party Transactions
LPIMC Insurance Marketing Services ("LPIMC"), a wholly owned subsidiary
of London Pacific, serves as investment adviser to the Trust. Berkeley Capital
Management, a wholly owned subsidiary of the London Pacific Group, Ltd., and an
affiliate of London Pacific, serves as Sub-Adviser to the Berkeley Smaller
Companies Portfolio, Miller, Anderson & Sherrerd, LLP, an indirect, wholly owned
subsidiary of the Morgan Stanley Group, Inc., serves as Sub-Adviser to the MAS
Value Portfolio, Massachusetts Financial Services Company, a wholly owned
subsidiary of Sun Life Assurance Company of Canada, serves as Sub-Adviser to the
MFS Total Return Portfolio, Salomon Brothers Asset Management Inc, an
indirect, wholly-owned subsidiary of Salomon, Inc, serves as Sub-Adviser to the
Salomon U.S. Quality Bond and Salomon Money Market Portfolios, Strong Capital
Management, Inc., a privately held corporation, serves as Sub-Adviser to the
Strong International Stock and Strong Growth Portfolios, and Lexington
Management Corporation, a wholly owned subsidiary of Lexington Global Asset
Managers, Inc., serves as Sub-Adviser to the Lexington Corporate Leaders
Portfolio.
The Trust pays LPIMC a monthly fee in arrears based on a percentage of
the average daily net assets of each Portfolio during the month, out of which
LPIMC pays the Sub-Adviser of each Portfolio a monthly fee in arrears at annual
rates as follows:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Fees on Assets Fees on Assets
Fees on Between $25 Between $100 Fees on
Assets up to Million and Million and Assets
Name of Portfolio $25 Million $100 Million $500 Million Exceeding
$500 Million
_________________ ____________ ______________ ______________ _____________
MAS Value Portfolio
LPIMC .25% .25% .25% .25%
Sub-advisor .625% .375% .25% .20%
----- ----- ---- ----
Total Fees Paid to
LPIMC * .875% .625% .50% .45%
===== ===== ==== ====
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Fees on Assets
Fees on Between $200 Fees on Assets
Assets up to Million and Exceeding $1.3
Name of Portfolio $200 Million $1.3 Billion Billion
----------------- ------------ ------------ --------------
MFS Total Return Portfolio
LPIMC .25% .25% .25%
Sub-advisor .50% .45% .40%
---- ---- ----
Total Fees Paid to .75% .70% .65%
LPIMC * ==== ==== ====
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Fees on Assets Fees on Assets
Fees on Between $50 Between $150 Fees on
Assets up to Million and Million and Assets
Name of Portfolio $50 Million $150 Million $300 Million Exceeding
$300 Million
----------------- ------------- -------------- ------------- -------------
Salomon U.S. Quality Bond
Portfolio
LPIMC .25% .25% .25% 25%
Sub-advisor .30% .275% .25% .20%
---- ----- ---- ----
Total Fees Paid to .55% .525% .50% .45%
LPIMC * ==== ===== ==== ====
Salomon Money Market Portfolio
LPIMC .25% .25% .25% .25%
Sub-advisor .20% .175% .15% .10%
---- ----- ---- ----
Total Fees Paid to .45% .425% .40% .35%
LPIMC * ==== ===== ==== ====
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Fees on Assets
Fees on Assets Between $150 Fees on Assets
up to $150 Million and Exceeding $500
Name of Portfolio Million $500 Million Million
----------------- ------- ------------- ---------------
Strong International Stock
Portfolio and Strong Growth
Portfolio
LPIMC .25% .25% .25%
Sub-advisor .50% .45% .40%
---- ---- ----
Total Fees Paid to .75% .70% .65%
LPIMC * ==== ==== ====
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C>
Fees on Assets Fees on Assets
up to $10 Exceeding $10
Name of Portfolio Million Million
----------------- -------------- --------------
Berkeley Smaller Company
Portfolio
LPIMC .25% .25%
Sub-advisor .75% .50%
---- ----
Total Fees Paid to 1.00% .75%
LPIMC * ===== ====
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Fees on Assets
Fees on Assets Between $10 Fees on Assets
up to $10 Million and Exceeding $100
Name of Portfolio Million $100 Million Million
----------------- ------- --------- -------
Lexington Corporate Leaders
Portfolio
LPIMC .25% .25% .25%
Sub-advisor .40% .35% .30%
---- ---- ----
Total Fees Paid to .65% .60% .55%
LPIMC * ==== ==== ====
</TABLE>
* Fees paid to LPIMC include fees paid for services
rendered by LPIMC to the Portfolio and those fees that
LPIMC will in turn pay to the Sub-advisor.
LPIMC and certain Sub-Advisors have voluntarily agreed to waive a portion
of the fees payable to them during the first six months of operations. Any fee
waivers by a Sub-Advisor are passed through to the Portfolios. The Trust and
LPIMC also entered into an Administrative Agreement with State Street Bank and
Trust Company ("SSB&T"), a Massachusetts Trust Company, whereby SSB&T performs
administrative services for each of the Portfolios and is entitled to receive an
administration fee and certain out-of-pocket expenses. Each Portfolio is
responsible for the payment of the administrative fee to SSB&T.
In the event normal operating expenses of each Portfolio, excluding
brokerage commissions, but including the advisory fee, exceed certain voluntary
expense limitations based on average net assets (MAS Value Portfolio - 1.29%;
MFS Total Return Portfolio - 1.29%; Salomon U.S. Quality Bond Portfolio -
0.99%; Salomon Money Market Portfolio - 0.89%; Strong International Stock
Portfolio - 1.49%; Strong Growth - 1.29%; Berkeley Smaller Companies
Portfolio - 1.39%; and Lexington Corporate Leaders Portfolio - 1.29%), London
Pacific has agreed, through December 31, 1997, to reimburse each Portfolio
for expenses in excess of the stated expense limitations. The expense
limitations may be removed or revised after December 31, 1997, without prior
notice to existing shareholders.
For the five months ended June 30, 1996, London Pacific voluntarily agreed
to reimburse the Portfolios as follows:
Name of Portfolio Reimbursement
- ----------------- -------------
MAS Value Portfolio $39,918
MFS Total Return Portfolio 38,943
Salomon U.S. Quality Bond Portfolio 40,191
Salomon Money Market Portfolio 40,418
Strong International Stock Portfolio 43,796
Strong Growth Portfolio 40,552
Berkeley Smaller Companies Portfolio 37,740
Lexington Corporate Leaders Portfolio 40,576
The Trust pays no salaries or compensation to any of its officers. Trustees
who are not directors, officers, or employees of the Trust or any investment
advisor are reimbursed for their travel expenses in attending meetings of the
Trustees, and receive fees for each trust meeting attended. Such amounts are
paid by the Trust.
4. Purchases and Sales of Securities
The cost of purchases and proceeds from sales of investment securities,
excluding short-term investments, for the five months ended June 30, 1996, were
as follows:
<TABLE>
<CAPTION>
Purchases Sales
-------------------------------------------------------
Portfolio Other Government Other Government
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
MAS Value Portfolio $1,119,453 $0 $212,949 $0
MFS Total Return Portfolio 663,327 685,286 72,340 333,949
Salomon U.S. Quality Bond Portfolio 56,808 2,831,147 0 1,705,965
Strong International Stock Portfolio 945,243 0 181,931 0
Strong Growth Portfolio 2,752,915 0 1,711,311 0
Berkeley Smaller Companies Portfolio 2,964,189 0 2,253,971 0
Lexington Corporate Leaders Portfolio 989,674 0 0 0
</TABLE>
At June 30, 1996, aggregate gross unrealized appreciation for all
securities in which there was an excess of value over tax cost and aggregate
gross unrealized depreciation for all securities in which there was an excess of
tax cost over value were as follows:
Tax Basis
---------
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Net Unrealized
Unrealized Unrealized Appreciation
Portfolio Appreciation Depreciation (Depreciation) Cost
- ------------------------------------ ------------ ------------ -------------- ---------
MAS Value Portfolio $53,876 $24,534 $29,342 $1,046,733
MFS Total Return Portfolio 36,643 8,923 27,720 1,013,568
Salomon U.S. Quality Bond Portfolio 1,620 10,867 (9,247) 1,274,565
Strong International Stock Portfolio 126,805 23,906 102,899 1,076,646
Strong Growth Portfolio 144,970 18,891 126,079 1,122,684
Berkeley Smaller Companies Portfolio 165,288 26,411 138,877 1,204,718
Lexington Corporate Leaders Portfolio 62,405 14,801 47,604 989,674
</TABLE>
5. Shares of Beneficial Interest
The Trust's Declaration of Trust authorizes the Trustees to issue an
unlimited number of shares of beneficial interest for the Portfolios, each with
a $.01 par value.
The Salomon Money Market Portfolio has sold shares, issued reinvestment of
dividends and redeemed shares only at a constant net asset value of $1.00 per
share, the number of shares represented by such sales, reinvestments and
redemptions are the same as the dollar amounts shown for such transactions.
London Pacific, through its LPLA Separate Account One, owns of record 100%
of each Portfolio's outstanding shares. Changes in shares of beneficial interest
were as follows:
Shares
and
Amount
--------------
Salomon Money Market Portfolio
Sold $1,998,296
Issued as reinvestment
of dividends 18,852
Redeemed (939,258)
---------
Net increase $1,077,890
==========
Shares Amount
-------- ---------
MAS Value Fund
Sold 106,716 $1,070,326
Issued as reinvestment
of dividends 127 1,290
Redeemed (1,251) (12,692)
-------- --------
Net increase 105,592 $1,058,924
======= ==========
Shares Amount
---------- -----------
MFS Total Return Portfolio
Sold 107,242 $1,074,251
Issued as reinvestment
of dividends 123 1,234
Redeemed 0 0
------- ----------
Net increase 107,365 $1,075,485
======= ==========
Salomon U.S. Quality Bond Portfolio
Sold 136,117 $1,352,159
Issued as reinvestment
of dividends 130 1,295
Redeemed (263) (2,547)
------- ----------
Net increase 135,984 $1,350,907
======= ==========
Strong International Stock Portfolio
Sold 110,437 $1,112,550
Issued as reinvestment
of dividends 27 272
Redeemed (3,104) (31,735)
------- ----------
Net increase 107,360 $1,081,087
======= ==========
Strong Growth Portfolio
Sold 108,465 $1,104,573
Issued as reinvestment
of dividends 513 5,249
Redeemed (592) (6,346)
------- ----------
Net increase 108,386 $1,103,476
======= ==========
Berkeley Smaller Companies Portfolio
Sold 110,481 $1,130,892
Issued as reinvestment
of dividends 83 845
Redeemed (604) (6,346)
------- ----------
Net increase 109,960 $1,125,391
======= ==========
Shares Amount
------- -------
Lexington Corporate Leaders Portfolio
Sold 100,979 $1,009,968
Issued as reinvestment
of dividends 150 1,552
Redeemed (631) (6,346)
------- ----------
Net increase 100,498 $1,005,174
======= ==========
All of the Portfolios commenced operations on January 31, 1996.
6. Foreign Securities
All Portfolios may invest in securities of foreign companies and foreign
governments. There are certain risks involved in investing in foreign securities
that are in addition to the usual risks inherent in domestic investments. These
risks include those resulting from future adverse political and economic
developments, reduced availability of public information concerning issues,
lower standards of accounting, auditing, and financial reporting, less market
liquidity, greater volatility of prices, and a possible imposition of currency
exchange blockages or restrictions on securities, transactions, or transfer of
assets.
A Statement of Assets and Liabilities (unaudited) for each of the Portfolios of
the Trust as of July 31, 1996 is set forth below.
LPT VARIABLE INSURANCE SERIES TRUST
STATEMENT OF ASSETS AND LIABILITIES
JULY 31, 1996 (UNAUDITED)
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
Strong
MFS Total Salomon U.S. Salomon International
MAS Value Return Quality Bond Money Market Stock
Portfolio Portfolio Portfolio Portfolio Portfolio
----------- ----------- --------------- -------------- --------------
Assets
Investments at value $ 931,823 $ 913,177 $ 1,633,952 $ 899,668 $ 909,309
Repurchase agreements, at value and cost 185,000 222,000 0 0 238,000
Cash and/or foreign currency 522 765 158 148 5,663
Receivable for investments securities sold 969 588 0 0 0
Receivable for Trust shares sold 0 0 0 0 0
Dividends and/or interest receivable 897 11,089 16,042 33 2,310
Expense reimbursements receivable 30,928 28,909 32,845 33,840 36,601
Other assets 1,786 1,812 1,761 1,760 1,823
----------- ----------- --------------- -------------- --------------
Total Assets 1,151,925 1,178,340 1,684,758 935,449 1,193,706
Liabilities
Payable for investment securities purchased 17,040 3,402 147,923 0 0
Payable for Trust shares redeemed 0 0 0 0 0
Custodian fees payable 14,425 13,991 16,647 16,941 20,231
Advisory fees payable 576 0 0 0 501
Accrued legal and audit fees 9,191 9,191 9,191 9,191 9,191
Administration fees payable 11,457 11,457 11,457 11,457 11,457
Accrued expenses and other liabilities 1,417 1,427 1,455 1,413 2,006
----------- ----------- --------------- -------------- --------------
Total Liabilities 54,106 39,468 186,673 39,002 43,386
Net Assets $1,097,819 $1,138,872 $ 1,498,085 $ 896,447 $ 1,150,320
=========== =========== =============== ============== ==============
Components of Net Assets:
Paid-in capital $1,090,291 $1,133,590 $ 1,512,467 $ 896,474 $ 1,109,007
Undistributed net investment income/
(loss) 3,790 12,795 27,458 0 1,663
Accumulated net realized gain/(loss) on
securities and foreign currency
transactions 18,607 (9,800) (30,865) (27) 29,573
Net unrealized appreciation/
(depreciation) of securities and
foreign currency transactions (14,869) 2,287 (10,975) 0 10,077
----------- ----------- --------------- -------------- --------------
Net Assets $1,097,819 $1,138,872 $ 1,498,085 $ 896,447 $ 1,150,320
=========== =========== =============== ============== ==============
Net Asset Value $ 10.10 $ 10.07 $ 9.82 $ 1.00 $ 10.47
=========== =========== =============== ============== ==============
Shares outstanding 108,650 113,077 152,622 896,474 109,906
=========== =========== =============== ============== ==============
<S> <C> <C> <C>
Berkeley Lexington
Smaller Corporate
Strong Growth Companies Leaders
Portfolio Portfolio Portfolio
-------------- ----------- ----------
Assets
Investments at value $ 989,391 $ 894,685 $1,000,984
Repurchase agreements, at value and cost 282,000 300,000 0
Cash and/or foreign currency 838 27,582 26,224
Receivable for investments securities sold 11,677 24,237 0
Receivable for Trust shares sold 0 0 0
Dividends and/or interest receivable 11,073 17 721
Expense reimbursements receivable 32,028 27,351 33,424
Other assets 1,762 1,760 1,760
-------------- ----------- ----------
Total Assets 1,328,769 1,275,632 1,063,113
Liabilities
Payable for investment securities purchased 89,680 54,301 0
Payable for Trust shares redeemed 0 0 0
Custodian fees payable 15,101 13,898 16,427
Advisory fees payable 522 0 350
Accrued legal and audit fees 9,191 9,191 9,191
Administration fees payable 11,457 11,457 11,457
Accrued expenses and other liabilities 1,413 1,413 1,413
-------------- ----------- ----------
Total Liabilities 127,364 90,260 38,838
Net Assets $ 1,201,405 $1,185,372 $1,024,275
============== =========== ==========
Components of Net Assets:
Paid-in capital $ 1,103,727 $1,154,759 $1,007,424
Undistributed net investment income/
(loss) 27,604 (6,251) 5,541
Accumulated net realized gain/(loss) on
securities and foreign currency
transactions 59,484 39,487 0
Net unrealized appreciation/
(depreciation) of securities and
foreign currency transactions 10,590 (2,623) 11,310
-------------- ----------- ----------
Net Assets $ 1,201,405 $1,185,372 $1,024,275
============== =========== ==========
Net Asset Value $ 11.08 $ 10.54 $ 10.17
============== =========== ==========
Shares outstanding 108,408 112,438 100,719
============== =========== ==========
</TABLE>
PART C
OTHER INFORMATION
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS
(A) FINANCIAL STATEMENTS:
The Financial Highlights as of June 30, 1996 for the Registrant are
included in Part A. The Financial Statements dated June 30, 1996
and the Statement of Assets and Liabilities dated July 31, 1996 for
the Registrant are included in Part B.
(B) EXHIBITS
<TABLE>
<CAPTION>
<C> <S>
(1)(a) Declaration of Trust*
(b) Amendment to Declaration of Trust**
(c) Amended and Restated Declaration of Trust***
(2) By-laws of Trust**
(3) Not Applicable
(4) Not Applicable
(5) (a) Investment Advisory Agreement***
(b) Sub-Advisory Agreements**
(6) Not Applicable
(7) Not Applicable
(8) Form of Custodian Agreement and Fund Accounting Agreement
between the Registrant and the Custodian**
(9) Form of Subadministration Agreement for Reporting and
Accounting Services between the Registrant and the
Subadministrator
(10) Consent and Opinion of Counsel*
(11) Not Applicable
(12) Not Applicable
(13) Not Applicable
(14) Not Applicable
(15) Not Applicable
(16) Not Applicable
(27) Financial Data Schedules
<FN>
* incorporated by reference to Registrant's Registration Statement on
Form N-1A (File No. 33-88792), as filed on January 25, 1995.
** incorporated by reference to Registrant's Registration Statement on
Form N-1A (File No. 33-88792), as filed August 7, 1995.
*** incorporated by reference to Registrant's Pre-Effective Amendment
No. 2 to Form N-1A (File No. 33-88792) as filed electronically on
January 26, 1996.
</TABLE>
ITEM 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT
None
ITEM 26. NUMBER OF HOLDERS OF SECURITIES
None
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 AND PRINCIPAL
BUSINESS ADDRESS BUSINESS AND OTHER CONNECTIONS
- ----------------------- ------------------------------------------------
Ian K. Whitehead President, Chief Executive Officer and Director
1755 Creekside Oaks Dr. of the Adviser; President, Chief Executive
Sacramento, CA 95833 Officer and Director - Life Company; Chairman and
Director - London Pacific Financial & Insurance
Services; Chief Financial Officer - Govett & Company
Limited; Chairman - North American Trust
Company, an affiliate of the Life Company
Arthur I. Trueger Chairman of the Board and Director of the
650 California St. Adviser; Chairman of the Board and Director -
San Francisco, CA 94108 Life Company; Executive Chairman - Govett &
Company Limited
George C. Nicholson Chief Financial Officer and Director of the
3109 Poplarwood Court Adviser; Chief Financial Officer, Secretary
Raleigh, NC 27604 and Director - Life Company; Treasurer and
Director (since September 1994) - London Pacific
Financial & Insurance Services; Senior Manager
- Ernst & Young, Louisville, Kentucky from
January 1985 to August 1994
Mark E. Prillaman Executive Vice President and Chief Marketing
1755 Creekside Oaks Dr. Officer of the Adviser and the Life Company
Sacramento, CA 95833 (since February 1994); Regional Marketing
Director - American Skandia Assurance Company,
from August 1989 to February 1994
Susan Y. Gressel Vice President and Treasurer of the Adviser;
3109 Poplarwood Court Vice President and Treasurer - Life Company
Raleigh, NC 27604
Charles M. King Vice President and Controller of the Adviser;
3109 Poplarwood Court Vice President and Controller - Life Company
Raleigh, NC 27604
William J. McCarthy Vice President and Chief Actuary of the Adviser;
3109 Poplarwood Court Vice President and Chief Actuary - Life Company
Raleigh, NC 27604
Charlotte M. Stott Vice President, Marketing of the Adviser; Vice
1755 Creekside Oaks Dr. President, Marketing - Life Company
Sacramento, CA 95833
Jerry T. Tamura Vice President - Administrative Services of the
1755 Creekside Oaks Dr. Adviser; Vice President - Administrative
Sacramento, CA 95833 Services - Life Company; Chairman, President and
Chief Executive Officer - London Pacific
Financial & Insurance Services
Jerry S. Waters Vice President, Technology Services of the
1755 Creekside Oaks Dr. Adviser; Vice President, Technology Services -
Sacramento, CA 95833 Life Company
</TABLE>
The principal address of Registrant's Investment Adviser is 1755 Creekside
Oaks Drive, Sacramento, California 95833.
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:
Berkeley Capital Management Company
File No. 801-45598
Lexington Management Corporation
File No. 801-8281
Miller Anderson & Sherrerd, LLP
File No. 801-10437
Strong Capital Management, Inc.
File No. 801-10724
Massachusetts Financial Services Company
File No. 801-17352
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, LPIMC Insurance Marketing
Services; and the Registrant's custodian, State Street Bank and Trust Company.
The address of the Secretary and LPIMC Insurance Marketing Services is 31
Poplarwood Court, Raleigh, NC 27604.
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 Raleigh, and State of North Carolina on the 5th
day of September, 1996.
LPT VARIABLE INSURANCE SERIES TRUST
By: /S/ GEORGE C. NICHOLSON
__________________________________________
George C. Nicholson
Vice President and Treasurer
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/ MARK E. PRILLAMAN* President, Principal September 5, 1996
- ------------------------------- ----------------
Mark E. Prillaman Executive Officer and
Trustee
/S/ GEORGE C. NICHOLSON Vice President, Treasurer, September 5, 1996
- ------------------------------- ----------------
George C. Nicholson Principal Financial
Officer and Principal
Accounting Officer
/S/ RAYMOND L. PFEISTER* Trustee September 5, 1996
- ------------------------------- -----------------
Raymond L. Pfeister
- ------------------------------- Trustee -----------------
Robert H. Singletary
/S/ JAMES WINTHER* Trustee September 5, 1996
- ------------------------------- ----------------
James Winther
</TABLE>
*By: /s/ GEORGE C. NICHOLSON
-------------------------
George C. Nicholson
Attorney-in-Fact
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that LPT VARIABLE INSURANCE SERIES TRUST,
a Massachusetts Business Trust (the "Trust"), and each of its undersigned
officers and Trustees hereby nominate, constitute and appoint Mark E.
Prillaman and George C. Nicholson (with full power to each of them to act
alone) its/his/her true and lawful attorney-in-fact and agent, for it/him/her
and in its/his/her name, place and stead in any and all capacities, to make,
execute and sign all amendments to the Trust's Registration Statement on Form
N-1A under the Securities Act of 1933 and the Investment Company Act of 1940,
and to file with the Securities and Exchange Commission and any other
regulatory authority having jurisdiction over the offer and sale of shares of
the Trust, such amendments, and any and all amendments and supplements
thereto, and any and all exhibits and other documents requisite in connection
therewith granting unto said attorneys and each of them, full power and
authority to do and perform each and every act necessary and/or appropriate as
fully to all intents and purposes as the Trust and the undersigned officers
and Trustees itself/themselves might or could do.
IN WITNESS WHEREOF, LPT VARIABLE INSURANCE SERIES TRUST has caused this
power of attorney to be executed in its name by its President and attested by
its Secretary, and the undersigned officers and Trustees have hereunto set
their hands this 18th day of January, 1996.
<TABLE>
<CAPTION>
<S> <C>
LPT VARIABLE INSURANCE SERIES TRUST
By: /s/ MARK E. PRILLAMAN
----------------------------------
Mark E. Prillaman
ATTEST:
/S/ JERRY T. TAMURA
- -----------------------------
Jerry T. Tamura, Secretary
</TABLE>
(signatures continue)
<TABLE>
<CAPTION>
<S> <C>
SIGNATURE TITLE
/s/ MARK E. PRILLAMAN
- --------------------- President and Trustee
Mark E. Prillaman (Principal Executive Officer)
/S/ GEORGE C. NICHOLSON
- --------------------- Vice President and Treasurer
George C. Nicholson (Principal Financial Officer
and Principal Accounting
Officer)
/S/ RAYMOND L. PFEISTER
- --------------------- Trustee
Raymond L. Pfeister
/S/ JAMES WINTHER
- -------------------- Trustee
James Winther
</TABLE>
PART II
EXHIBITS
TO
POST-EFFECTIVE AMENDMENT NO. ONE
TO
FORM N-1A
FOR
LPT VARIABLE INSURANCE SERIES TRUST
INDEX TO EXHIBITS
PAGE
EX-99.B9 Form of Subadministration Agreement
EX-27 Financial Data Schedules
SUB-ADMINISTRATION AGREEMENT
Agreement dated as of , 1995 by and between State Street Bank and Trust
Company, a Massachusetts trust company (the "Sub-administrator), and LPT
Variable Insurance Series Trust (the "Fund") and LPIMC Insurance Marketing
Services (the "Adviser").
WHEREAS, the Fund is registered as an open-end, management investment
company under the Investment Company Act of 1940, as amended (the "1940 Act");
and
WHEREAS, the Adviser has been appointed manager of the Fund and the
Adviser has accepted such appointment, and
WHEREAS, the Fund and the Adviser desire to retain the Sub-administrator
to furnish certain administrative services to the Fund, and the
Sub-administrator is willing to furnish such services, on the terms and
conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the premises and mutual covenants
herein contained, the parties hereto agree as follows:
1. APPOINTMENT OF SUB ADMINISTRATOR
The Fund and the Adviser hereby appoint the Sub-administrator to act as
Sub-administrator with respect to the Fund for purposes of providing certain
administrative services for the period and on the terms set forth in this
Agreement. The Sub-administrator accepts such appointment and agrees to render
the services stated herein.
The Fund will initially consist of the portfolio(s) and/or class(es) of
shares (each an Investment Fund) listed in Schedule A to this Agreement. In
the event that the Fund establishes one or more additional Investment Funds
with respect to which it wishes to retain the Sub-administrator to act as
Sub-administrator hereunder, the Fund shall notify the Sub-administrator in
writing. Upon written acceptance by the Sub-administrator, such Investment
Fund shall become subject to the provisions of this Agreement to the same
extent as the existing Investment Funds, except to the extent that such
provisions (including those relating to the compensation and expenses payable
by the Fund and its Investment Funds) may be modified with respect to each
additional Investment Fund in writing by the Fund and the Sub-administrator at
the time of the addition of the Investment Fund.
2. DELIVERY OF DOCUMENTS
The Adviser will deliver or cause the Fund to deliver to the
Sub-administrator copies of each of the following documents and all future
amendments and supplements, if any:
a. The Fund's charter document and by-laws;
b. The Fund's currently effective registration statement under the
Securities Act of 1933, as amended (the "1933 Act"), and the 1940 Act and the
Fund's Prospectus(es) and Statement(s) of Additional Information relating to
all Investment Funds and all amendments and supplements thereto as in effect
from time to time;
c. Certified copies of the resolutions of the Board of Trustees of the
Fund (the "Board") authorizing (1) the Fund to enter into this Agreement and
(2) certain individuals on behalf of the Fund to (a) give instructions to the
Sub-administrator pursuant to this Agreement and (b) sign checks and pay
expenses;
d. A copy of the investment advisory agreement between the Fund and its
investment adviser; and
e. Such other certificates, documents or opinions which the
Sub-administrator may, in its reasonable discretion, deem necessary or
appropriate in the proper performance of its duties.
3. REPRESENTATION AND WARRANTIES OF THE SUB-ADMINISTRATOR
The Sub-administrator represents and warrants to the Adviser and to the
Fund that:
a. It is a Massachusetts trust company, duly organized, existing and in
good standing under the laws of The Commonwealth of Massachusetts;
b. It has the corporate power and authority to carry on its business in
The Commonwealth of Massachusetts;
c. All requisite corporate proceedings have been taken to authorize it
to enter into and perform this Agreement;
d. No legal or administrative proceedings have been instituted or
threatened which would impair the Sub-administrator's ability to perform its
duties and obligations under this Agreement; and
e. Its entrance into this Agreement shall not cause a material breach or
be in material conflict with any other agreement or obligation of the
Sub-administrator or any law or regulation applicable to it.
4. REPRESENTATIONS AND WARRANTIES OF THE ADVISER AND THE FUND
The Adviser and the Fund represent and warrant to the Sub-administrator
that:
a. The Fund is a business trust, duly organized and existing and in good
standing under the laws of The Commonwealth of Massachusetts;
b. The Adviser is a duly organized and existing and in good
standing under the laws of ;
c. Each of the Adviser and the Fund has the corporate power and authority
under applicable laws and by its charter and by-laws to enter into and perform
this Agreement;
d. All requisite proceedings have been taken to authorize each of the
Adviser and the Fund to enter into and perform this Agreement;
e. The Fund is an investment company properly registered under the 1940
Act;
f. A registration statement under the 1933 Act and the 1940 Act has been
filed with respect to the Fund and will be effective and remain effective
during the term of this Agreement. The Adviser and the Fund also warrant to
the Sub-administrator that all necessary filings under the securities laws of
the states in which the Fund offers or sells its shares will have been made
and will be current during the term of this Agreement;
g. No legal or administrative proceedings have been instituted or
threatened which would impair the Adviser's or the Fund's ability to perform
its duties and obligations under this Agreement;
h. The entrance into this Agreement by the Adviser and the Fund shall
not cause a material breach or be in material conflict with any other
agreement or obligation of the Adviser or the Fund or any law or regulation
applicable to either of them; and
i. As of the close of business on the date of this Agreement, the Fund
is authorized to issue shares of beneficial interest, and it will initially
offer shares, in the authorized amounts as set forth in Schedule A to this
Agreement.
5. ADMINISTRATION SERVICES
The Sub-administrator shall provide the following services, in each case,
subject to the control, supervision and direction of the Adviser or the Fund
and the review and comment by the Fund's auditors and legal counsel and in
accordance with procedures which may be established from time to time between
the Adviser, the Fund and the Sub-administrator:
a. Oversee the determination of the Fund's net asset value in accordance
with the Fund's policy as adopted from time to time by the Board;
b. Oversee the maintenance by the Fund's custodian of certain books and
records of the Fund as required under Rule 31a-l(b) of the 1940 Act;
c. Review calculation, submit for approval by officers of the Fund and
arrange for payment of the Fund's expenses;
d. Assist the Fund, as may be requested, in preparing financial
information for the Fund's semi-annual and annual reports, proxy statements
and other communications required or otherwise to be sent to Fund
shareholders;
e. Prepare for review by an officer of and legal counsel for the Fund,
the Fund's periodic financial reports required to be filed with the Securities
and Exchange Commission ("SEC") on Form N-SAR. The Fund will be responsible
for providing the Sub-administrator with financial information to be included
in such reports;
f. Prepare reports relating to the business and affairs of the Fund as
may be mutually agreed upon and not otherwise prepared by the Fund's
investment adviser, custodian, legal counsel or independent accountants;
g. Make such reports and recommendations to the Board concerning the
performance and fees of the Fund's custodian and transfer and dividend
disbursing agent ("Transfer Agent") as the Board may reasonably request or
deems appropriate;
h. Oversee and review calculations of fees paid to the Fund's investment
adviser, custodian and Transfer Agent;
i. Consult with the Fund's owners, independent accountants, legal
counsel, custodian and Transfer Agent in establishing the accounting
policies of the Fund;
j. Respond to, or refer to the Fund's officers or Transfer Agent,
shareholder inquiries relating to the Fund;
k. Provide periodic testing of portfolios to assist the Fund's investment
adviser in complying with Internal Revenue Code mandatory qualification
requirements, including Sections 817(h) and 851 of such Code, the requirements
of the 1940 Act and Fund prospectus limitations as may be mutually agreed
upon.
The Sub-administrator shall provide the office facilities and the personnel
required by it to perform the services contemplated herein.
6. FEES; EXPENSES; EXPENSE REIMBURSEMENT
The Sub-administrator shall receive from the Adviser and/or the Fund such
compensation for the Sub-administrator's services provided pursuant to this
Agreement as may be agreed to from time to time in a written fee schedule
approved by the parties and initially set forth in Schedule B to this
Agreement. The fees are accrued daily and billed monthly and shall be due and
payable upon receipt of the invoice. Upon the termination of this Agreement
before the end of any month, the fee for the part of the month before such
termination shall be prorated according to the proportion which such part
bears to the full monthly period and shall be payable upon the date of
termination of this Agreement. In addition, the Adviser and/or the Fund shall
reimburse the Sub-administrator for its out-of-pocket costs incurred in
connection with this Agreement.
The Adviser and/or the Fund agrees promptly to reimburse the
Sub-administrator for any equipment and supplies specially ordered by or for
the Fund through the Sub-administrator and for any other expenses not
contemplated by this Agreement that the Sub-administrator may incur on the
Fund's behalf at the Adviser's and/or the Fund's request or with the Adviser's
and/or the Fund's consent.
The Adviser or the Fund will bear all expenses that are incurred in its
operation and not specifically assumed by the Sub-administrator. Expenses to
be borne by the Adviser or the Fund, include, but are not limited to:
organizational expenses; cost of services of independent accountants and
outside legal and tax counsel (including such counsel's review of the Fund's
registration statement, proxy materials, federal and state tax qualification
as a regulated investment company and other reports and materials prepared by
the Sub-administrator under this Agreement); cost of any services contracted
for by the Adviser or the Fund directly from parties other than the
Sub-administrator; cost of trading operations and brokerage fees, commissions
and transfer taxes in connection with the purchase and sale of securities for
the Fund; investment advisory fees; taxes, insurance premiums and other fees
and expenses applicable to its operation; costs incidental to any meetings of
shareholders including, but not limited to, legal and accounting fees, proxy
filing fees and the costs of preparation, printing and mailing of any proxy
materials; costs incidental to Board meetings, including fees and expenses of
Board members; the salary and expenses of any officer, director\trustee or
employee of the Fund; costs incidental to the preparation, printing and
distribution of the Fund's registration statements and any amendments thereto
and shareholder reports; cost of typesetting and printing of prospectuses;
cost of preparation and filing of the Fund's tax returns, Form N-1A and Form
N-SAR, and all notices, registrations and amendments associated with
applicable federal and state tax and securities laws; all applicable
registration fees and filing fees required under federal and state securities
laws; fidelity bond and directors' and officers' liability insurance; and
cost of independent pricing services used in computing the Fund's net asset
value.
The Sub-administrator is authorized to and may employ or associate with
such person or persons as the Sub-administrator may deem desirable to assist
it in performing its duties under this Agreement; provided, however, that the
compensation of such person or persons shall be paid by the Sub-administrator
and that the Sub-administrator shall be as fully responsible to the Adviser
and the Fund for the acts and omissions of any such person or persons as it is
for its own acts and omissions.
7. INSTRUCTIONS AND ADVICE
At any time, the Sub-administrator may apply to any officer of the
Adviser or the Fund for instructions and may consult with its own legal
counsel, legal counsel for the Adviser, outside counsel for the Fund, or the
independent accountants for the Fund at the expense of the Adviser and/or the
Fund, with respect to any matter arising in connection with the services to be
performed by the Sub-administrator under this Agreement. The Sub-administrator
shall not be liable, and shall be indemnified by the Adviser and/or the Fund,
for any action taken or omitted by it in good faith in reliance upon any such
instructions or advice or upon any paper or document believed by it to be
genuine and to have been signed by the proper person or persons. The
Sub-administrator shall not be held to have notice of any change of authority
of any person until receipt of written notice thereof from the Adviser or the
Fund.
Nothing in this paragraph shall be construed as imposing upon the
Sub-administrator any obligation to seek such instructions or advice, or to
act in accordance with such advice when received.
8. LIMITATION OF LIABILITY AND INDEMNIFICATION
The Sub-administrator shall be responsible for the performance of only
such duties as are set forth in this Agreement and, except as otherwise
provided under Section 6, shall have no responsibility for the actions or
activities of any other party, including other service providers. The
Sub-administrator shall have no liability for any error of judgement or
mistake of law or for any loss or damage resulting from the performance or
nonperformance of its duties hereunder unless solely caused by or resulting
from the gross negligence or willful misconduct of the Sub-administrator, its
officers or employees. The Sub-administrator shall not be liable for any
special, indirect, incidental, or consequential damages of any kind
whatsoever (including, without limitation, attorneys' fees) under any provision
of this Agreement or for any such damages arising out of any act or failure to
act hereunder. In any event, the Sub-administrator's liability under this
Agreement shall be limited to its total annual compensation earned and fees
paid hereunder during the preceding twelve months for any liability or loss
suffered by the Adviser or the Fund including, but not limited to, any
liability relating to qualification of the Fund as a regulated investment
company or any liability relating to the Fund's compliance with any federal or
state tax or securities statute, regulation or ruling.
The Sub-administrator shall not be responsible or liable for any failure
or delay in performance of its obligations under this Agreement arising out of
or caused, directly or indirectly, by circumstances beyond its control,
including without limitation, work stoppage, power or other mechanical
failure, computer virus which the Sub-administrator could not have prevented
by using commercially reasonable methods, natural disaster, governmental
action or communication disruption, nor shall any such failure or delay give
the Adviser or the Fund the right to terminate this Agreement.
The Adviser and the Fund shall indemnify and hold the Sub-administrator
harmless from all loss, cost, damage and expense, including reasonable fees
and expenses for counsel, incurred by the Sub-administrator resulting from any
claim, demand, action or suit in connection with the Sub-administrator's
acceptance of this Agreement, any action or omission by it in the performance
of its duties hereunder, or as a result of acting upon any instructions
reasonably believed by it to have been duly authorized by the Adviser or the
Fund, provided that this indemnification shall not apply to actions or
omissions of the Sub-administrator, its officers or employees in cases of its
or their own gross negligence or willful misconduct.
The Adviser and/or the Fund will be entitled to participate at its own
expense in the defense, or, if it so elects, to assume the defense of any suit
brought to enforce any liability subject to the indemnification provided
above. In the event the Adviser and/or the Fund elects to assume the defense
of any such suit and retain counsel, the Sub-administrator or any of its
affiliated persons, named as defendant or defendants in the suit, may retain
additional counsel but shall bear the fees and expenses of such counsel unless
(i) the Adviser and/or the Fund shall have specifically authorized the
retaining of such counsel or (ii) the Sub-administrator shall have determined
in good faith that the retention of such counsel is required as a result of a
conflict of interest.
The indemnification contained herein shall survive the termination of
this Agreement.
9. CONFIDENTIALITY
The Sub-administrator agrees that, except as otherwise required by law or
in connection with any required disclosure to a banking or other regulatory
authority, it will keep confidential all records and information in its
possession relating to the Fund or its shareholders or shareholder accounts
and will not disclose the same to any person except at the request or with the
written consent of the Fund.
10. COMPLIANCE WITH GOVERNMENTAL RULES AND REGULATIONS; RECORDS
The Adviser and the Fund assume full responsibility for complying with all
securities, tax, commodities and other laws, rules and regulations applicable
to the Fund.
In compliance with the requirements of Rule 31a-3 under the 1940 Act, the
Sub-administrator agrees that all records which it maintains for the Fund
shall at all times remain the property of the Fund, shall be readily
accessible during normal business hours, and shall be promptly surrendered
upon the termination of the Agreement or otherwise on written request. The
Sub-administrator further agrees that all records which it maintains for the
Fund pursuant to Rule 31a-1 under the 1940 Act will be preserved for the
periods prescribed by Rule 31a-2 under the 1940 Act unless any such records
are earlier surrendered as provided above. Records shall be surrendered in
usable machine-readable form.
11. SERVICES NOT EXCLUSIVE
The services of the Sub-administrator to the Fund are not to be deemed
exclusive, and the Sub-administrator shall be free to render similar services
to others. The Sub-administrator shall be deemed to be an independent
contractor and shall, unless otherwise expressly provided herein or authorized
by the Adviser or the Fund from time to time, have no authority to act or
represent the Adviser or the Fund in any way or otherwise be deemed an agent
of the Adviser or the Fund.
12. TERM, TERMINATION AND AMENDMENT
This Agreement shall become effective on the date the Fund first accepts
money for investment. The Agreement shall remain in effect for a period of one
year from the effective date and shall automatically continue in effect
thereafter unless terminated in writing by any party at the end of such period
or thereafter on sixty (60) days' prior written notice given by any party to
the other parties hereto. Termination of this Agreement with respect to any
given Investment Fund shall in no way affect the continued validity of this
Agreement with respect to any other Investment Fund. Upon termination of this
Agreement, the Fund and/or the Adviser shall pay to the Sub-administrator such
compensation and any reimbursable expenses as may be due under the terms
hereof as of the date of such termination, including reasonable out-of-pocket
expenses associated with such termination. This Agreement may be modified or
amended from time to time by mutual written agreement of the parties hereto.
13. NOTICES
Any notice or other communication authorized or required by this Agreement
to be given to either party shall be in writing and deemed to have been given
when delivered in person or by confirmed facsimile, or posted by certified
mail, return receipt requested, to the following address (or such other
address as a party may specify by written notice to the other): if to the Fund
or to the Adviser: Mr. George C. Nicholson, 3109 Poplarwood Court, Raleigh,
NC 27604, fax: (919) 981-2797; if to the Sub-administrator: State Street Bank
and Trust Company, 1776 Heritage Drive, North Quincy, Massachusetts 02171,
Attn: David M. Elwood, Vice President and Senior Counsel, fax: (617) 985-2497.
14. NON-ASSIGNABILITY
This Agreement shall not be assigned by any party hereto without the prior
consent in writing of the other parties, except that the Sub-administrator may
assign this Agreement to a successor of all or a substantial portion of its
business, or to a party controlling, controlled by or under common control
with the Sub-administrator.
15. SUCCESSORS
This Agreement shall be binding on and shall inure to the benefit of the
Fund, the Adviser and the Sub-administrator and their respective successors
and permitted assigns.
16. ENTIRE AGREEMENT
This Agreement contains the entire understanding between the parties
hereto with respect to the subject matter hereof and supersedes all previous
representations, warranties or commitments regarding the services to be
performed hereunder whether oral or in writing.
17. WAIVER
The failure of a party to insist upon strict adherence to any term of this
Agreement on any occasion shall not be considered a waiver nor shall it
deprive such party of the right thereafter to insist upon strict adherence to
that term or any term of this Agreement. Any waiver must be in writing signed
by the waiving party.
18. SEVERABILITY
If any provision of this Agreement is invalid or unenforceable, the
balance of the Agreement shall remain in effect, and if any provision is
inapplicable to any person or circumstance it shall nevertheless remain
applicable to all other persons and circumstances.
19. GOVERNING LAW
This Agreement shall be construed and the provisions thereof interpreted
under and in accordance with the laws of The Commonwealth of Massachusetts.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their officers designated below as of the date first written
above.
LPT VARIABLE INSURANCE SERIES TRUST
By:
--------------------------------
Name:
--------------------------------
Title:
--------------------------------
LPIMC INSURANCE MARKETING SERVICES
By:
--------------------------------
Name:
--------------------------------
Title:
--------------------------------
STATE STREET BANK AND TRUST COMPANY
By:
--------------------------------
Name:
--------------------------------
Title:
--------------------------------
SUB-ADMINISTRATION AGREEMENT
LPT VARIABLE INSURANCE SERIES TRUST
SCHEDULE A
Listing of Investment Funds and Authorized Shares
<TABLE>
<CAPTION>
<S> <C>
Investment Fund Authorized Shares
- --------------- -----------------
Strong International Stock Unlimited
Strong Growth Unlimited
MAS Value Unlimited
Berkeley Smaller Companies Unlimited
Lexington Corporate Leaders Unlimited
MFS Total Return Unlimited
Salomon U.S. Quality Bond Unlimited
Salomon Money Market Unlimited
</TABLE>
___________________________________________________
STATE STREET BANK AND TRUST COMPANY
LPT VARIABLE INSURANCE SERIES TRUST
___________________________________________________
FUND SUB-ADMINISTRATION FEE SCHEDULE
I. FUND SUB-ADMINISTRATION SERVICES
<TABLE>
<CAPTION>
<S> <C>
Annual Fee
Expressed in Basis
Average Trust Assets Points: 1/100 of 1%
- -------------------- -------------------
First $500 Million 5
Next $500 Million 3
Thereafter 1
Minimum per Portfolio $ 33,000
</TABLE>
II. OUT OF POCKET EXPENSES - MAY INCLUDE, BUT MAY NOT BE LIMITED TO:
- Printing for shareholder reports and SEC filings
- Legal fees audit fees and other professional fees
- Postage, telephone, fax, and photocopying
- Supplies related to fund records
- Travel and lodging for Board and Operations meetings
- Preparation of financial statements other than Annual, Semi-annual
and quarterly board reporting $3,000 per financial report
III. SPECIAL ARRANGEMENTS
The Trust's auditors will be engaged to perform the tax services for the
Trust. The scope of the tax services to be performed by the auditors includes
the preparation of the federal and relevant state fiscal tax returns for each
fund, preparation of associated tax filing extensions for each fund,
preparation of each fund's federal excise returns, and calculation of each
fund's excise and fiscal distribution requirements.
Fee for activities of non-recurring nature such as fund consolidations or
reorganizations, and/or preparation of special reports will be subject to
negotiation.
IV. TERM OF THE CONTRACT
The parties agree that the fee schedule shall remain in effect for one
full year from the commencement of Trust operations and from year to year
thereafter until it is revised as a result of negotiations initiated by either
party.
LPT VARIABLE INSURANCE SERIES TRUST
BY: ---------------------------
Title: ------------------------
Date: -------------------------
LPIMC INSURANCE MARKETING SERVICES
BY: ---------------------------
Title: ------------------------
Date: -------------------------
STATE STREET BANK AND TRUST COMPANY
BY: ---------------------------
Title: ------------------------
Date: -------------------------
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000936330
<NAME> LPT VARIABLE INSURANCE SERIES TRUST
<SERIES>
<NUMBER> 001
<NAME> MAS VALUE PORTFOLIO
<S> <C>
<PERIOD-TYPE> 5-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-31-1996
<PERIOD-END> JUN-30-1996
<INVESTMENTS-AT-COST> 1046733
<INVESTMENTS-AT-VALUE> 1076075
<RECEIVABLES> 66746
<ASSETS-OTHER> 2785
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 1145606
<PAYABLE-FOR-SECURITIES> 8540
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 29616
<TOTAL-LIABILITIES> 38156
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 1058924
<SHARES-COMMON-STOCK> 105592
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 3555
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 15629
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 29342
<NET-ASSETS> 1107450
<DIVIDEND-INCOME> 8734
<INTEREST-INCOME> 1380
<OTHER-INCOME> 0
<EXPENSES-NET> (5269)
<NET-INVESTMENT-INCOME> 4845
<REALIZED-GAINS-CURRENT> 15629
<APPREC-INCREASE-CURRENT> 29342
<NET-CHANGE-FROM-OPS> 49816
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (1290)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 106716
<NUMBER-OF-SHARES-REDEEMED> (1251)
<SHARES-REINVESTED> 127
<NET-CHANGE-IN-ASSETS> 1107450
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<GROSS-EXPENSE> 47863
<AVERAGE-NET-ASSETS> 1042916
<PER-SHARE-NAV-BEGIN> 10.00
<PER-SHARE-NII> .05
<PER-SHARE-GAIN-APPREC> .45
<PER-SHARE-DIVIDEND> (0.01)
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<PER-SHARE-NAV-END> 10.49
<EXPENSE-RATIO> 1.21
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</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000936330
<NAME> LPT VARIABLE INSURANCE SERIES TRUST
<SERIES>
<NUMBER> 002
<NAME> MFS TOTAL RETURN
<S> <C>
<PERIOD-TYPE> 5-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-31-1996
<PERIOD-END> JUN-30-1996
<INVESTMENTS-AT-COST> 1013568
<INVESTMENTS-AT-VALUE> 1041288
<RECEIVABLES> 87864
<ASSETS-OTHER> 3138
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 1132290
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 28570
<TOTAL-LIABILITIES> 28570
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 1075485
<SHARES-COMMON-STOCK> 107365
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 10559
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (10043)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 27719
<NET-ASSETS> 1103720
<DIVIDEND-INCOME> 6647
<INTEREST-INCOME> 10275
<OTHER-INCOME> 0
<EXPENSES-NET> (5129)
<NET-INVESTMENT-INCOME> 11793
<REALIZED-GAINS-CURRENT> (10043)
<APPREC-INCREASE-CURRENT> 27719
<NET-CHANGE-FROM-OPS> 29469
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (1234)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 107242
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 123
<NET-CHANGE-IN-ASSETS> 1103720
<ACCUMULATED-NII-PRIOR> 0
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<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 3167
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<GROSS-EXPENSE> 47239
<AVERAGE-NET-ASSETS> 1016791
<PER-SHARE-NAV-BEGIN> 10.00
<PER-SHARE-NII> 0.11
<PER-SHARE-GAIN-APPREC> 0.18
<PER-SHARE-DIVIDEND> (0.01)
<PER-SHARE-DISTRIBUTIONS> 0.00
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<PER-SHARE-NAV-END> 10.28
<EXPENSE-RATIO> 1.21
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000936330
<NAME> LPT VARIABLE INSURANCE SERIES TRUST
<SERIES>
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<NAME> SALOMON U.S. QUALITY BOND PORTFOLIO
<S> <C>
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<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 1463605
<PAYABLE-FOR-SECURITIES> 100641
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 31221
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<PER-SHARE-NAV-BEGIN> 10.00
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</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000936330
<NAME> LPT VARIABLE INSURANCE SERIES TRUST
<SERIES>
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<NAME> SALOMON MONEY MARKET PORTFOLIO
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<PERIOD-START> JAN-31-1996
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<RECEIVABLES> 25773
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<TOTAL-ASSETS> 1365239
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<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 287361
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<EXPENSES-NET> (3654)
<NET-INVESTMENT-INCOME> 18852
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</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000936330
<NAME> LPT VARIABLE INSURANCE SERIES TRUST
<SERIES>
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<NAME> STRONG INTERNATIONAL STOCK PORTFOLIO
<S> <C>
<PERIOD-TYPE> 5-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-31-1996
<PERIOD-END> JUN-30-1996
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<INVESTMENTS-AT-VALUE> 1179545
<RECEIVABLES> 55871
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<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 1243031
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<SENIOR-LONG-TERM-DEBT> 0
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<TOTAL-LIABILITIES> 35178
<SENIOR-EQUITY> 0
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<SHARES-COMMON-STOCK> 107360
<SHARES-COMMON-PRIOR> 0
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<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 20433
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