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As filed with the Securities and Exchange Commission
on January 24, 1996
Registration No. 33-94896
811-9074
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
__________________
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [X]
PRE-EFFECTIVE AMENDMENT NO. 1 [X]
POST-EFFECTIVE AMENDMENT NO. __ [ ]
AND/OR
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [X]
AMENDMENT NO. 1
(Check appropriate box or boxes)
__________________
NICHOLAS-APPLEGATE SERIES TRUST
(Exact Name of Registrant as Specified in Charter)
600 WEST BROADWAY, 30TH FLOOR
SAN DIEGO, CALIFORNIA 92101
(Address of Principal Executive Offices, including Zip Code)
ARTHUR E. NICHOLAS
C/O NICHOLAS-APPLEGATE CAPITAL MANAGEMENT
600 WEST BROADWAY, 30TH FLOOR
SAN DIEGO, CALIFORNIA 92101
(Name and Address of Agent for Service)
COPY TO: ROBERT E. CARLSON
PAUL, HASTINGS, JANOFSKY & WALKER
555 S. FLOWER STREET, TWENTIETH FLOOR
LOS ANGELES, CALIFORNIA 90071
__________________
APPROXIMATE DATE OF PROPOSED PUBLIC OFFERING:
AS SOON AS PRACTICABLE FOLLOWING EFFECTIVE DATE.
__________________
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effectiveness 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 this Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
Pursuant to Rule 24f-2 under the Investment Company Act of 1940,
Registrant is registering an indefinite number of shares by this Registration
Statement. In accordance with Rule 24f-2, a registration fee in the amount of
$500 accompanied the Registration Statement.
__________________
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CROSS REFERENCE SHEET
(AS REQUIRED BY RULE 495)
N-1A ITEM NO. LOCATION
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PART A
Item 1. Cover Page. . . . . . . . . . . . . . . . . . Cover Page
Item 2. Synopsis. . . . . . . . . . . . . . . . . . . Summary of Expenses;
Prospectus Summary
Item 3. Condensed Financial Information . . . . . . . Not Applicable
Item 4. General Description of Registrant . . . . . . Cover Page; Prospectus
Summary; Investment
Objectives and
Policies; Organization
and Management;
Appendix
Item 5. Management of Fund. . . . . . . . . . . . . . Organization and
Management
Item 6. Capital Stock and Other Securities. . . . . . Dividends,
Distributions and
Taxes; Purchasing and
Redeeming Shares
Item 7. Purchase of Securities Being Offered. . . . . Purchasing and
Redeeming Shares
Item 8. Redemption of Repurchase. . . . . . . . . . . Purchasing and
Redeeming Shares
Item 9. Pending Legal Proceedings . . . . . . . . . . Not Applicable
PART B
Item 10. Cover Page. . . . . . . . . . . . . . . . . . Cover Page
Item 11. Table of Contents . . . . . . . . . . . . . . Table of Contents
Item 12. General Information and History . . . . . . . General Information
Item 13. Investment Objectives and Policies. . . . . . Investment Objectives
and Policies;
Investment
Restrictions
Item 14. Management of the Fund. . . . . . . . . . . . Trustees and Officers;
Administrator;
Distributor
Item 15. Control Persons and Principal
Holders of Securities. . . . . . . . . . . . Principal
Holders of
Securities
Item 16. Investment Advisory and Other Services. . . . Administrator;
Investment Adviser;
Distributor;
Custodian, Transfer
and Dividend
Disbursing Agent,
Independent
Accountants and Legal
Counsel
Item 17. Brokerage Allocation and Other Practices. . . Portfolio Transactions
and Brokerage
Item 18. Capital Stock and Other Securities. . . . . . Miscellaneous
Item 19. Purchase, Redemption and Pricing of . . . . . Purchase and Redemption
Securities Being Offered of Shares
Item 20. Tax Status. . . . . . . . . . . . . . . . . . Taxes
Item 21. Underwriters. . . . . . . . . . . . . . . . . Distributor
Item 22. Calculation of Performance Data . . . . . . . Performance
Information
Item 23. Financial Statements. . . . . . . . . . . . . Financial Statements
PART C
Information required to be included in Part C is set forth under the
appropriate item, so numbered, in Part C to the Registration Statement.
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NICHOLAS--APPLEGATE-REGISTERED TRADEMARK- SERIES TRUST
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PROSPECTUS
Nicholas-Applegate Series Trust (the "Trust") is an open-end management
investment company comprised of six investment portfolios ("Series") offered
hereby. Shares of the Series may be sold only to registered separate accounts of
insurance companies ("Separate Accounts") to serve as the investment medium for
variable life insurance policies and variable annuity contracts (collectively,
"Contracts") issued by insurance companies ("Insurance Companies"). The Separate
Accounts invest in shares of one or more of the Series in accordance with
allocation instructions received from owners of the Contracts. Such Contracts
are described further in the prospectus for the Separate Accounts. THERE CAN BE
NO ASSURANCE THAT ANY SERIES WILL ACHIEVE ITS INVESTMENT OBJECTIVE.
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CORE GROWTH SERIES seeks to maximize long-term capital appreciation. It invests
primarily in a diversified portfolio of common stocks of U.S. companies with
middle market capitalizations and above (generally above $500 million).
EMERGING GROWTH SERIES seeks to maximize long-term capital appreciation. It
invests primarily in a diversified portfolio of common stocks of U.S. companies
with smaller market capitalizations.
INTERNATIONAL GROWTH SERIES seeks to maximize long-term capital appreciation. It
invests in a diversified international portfolio of equity securities of foreign
companies.
VALUE SERIES seeks to provide a total return consisting of capital appreciation
plus dividend income that exceeds the total return realized on the Standard &
Poor's 500 Stock Price Index. It invests primarily in a diversified portfolio of
equity securities with larger market capitalizations.
DIVERSIFIED INCOME SERIES seeks to maximize total return. It invests primarily
in an actively managed, diversified portfolio of fixed-income securities.
INTERNATIONAL FIXED INCOME SERIES seeks high total return through both income
and capital appreciation. It invests primarily in a non-diversified
international portfolio of high-grade bonds and money market instruments of
foreign issuers.
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This Prospectus presents information you should know before investing in any
of the Series. It should be retained for future reference. A Statement of
Additional Information for the Trust dated 1996 has been filed with the
Securities and Exchange Commission and is incorporated by reference into this
Prospectus. The Statement of Additional Information may be obtained, without
charge, by writing to the Trust, P.O. Box , San Diego, California
92138-2169, or by calling (800) 551- . Inquiries regarding any of the Series
can also be made by calling (800) 551- .
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
, 1996
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NICHOLAS--APPLEGATE SERIES TRUST
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CORE GROWTH SERIES
EMERGING GROWTH SERIES
INTERNATIONAL GROWTH SERIES
VALUE SERIES
DIVERSIFIED INCOME SERIES
INTERNATIONAL FIXED INCOME SERIES
TABLE OF CONTENTS
Prospectus Summary.....3
Investment Objectives,
Policies and Risk
Considerations........6
Organization and
Management...........13
Purchasing and Redeeming
Shares...............16
Dividends, Distributions
and Taxes............17
General Information...18
Appendix:
Investment Policies,
Strategies
and Risks..........20
Prior Performance...37
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NO DEALER, SALES REPRESENTATIVE OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE
ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS, OTHER THAN THOSE CONTAINED IN
THIS PROSPECTUS, IN CONNECTION WITH THE OFFER CONTAINED HEREIN, AND, IF GIVEN
OR MADE, SUCH OTHER INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS
HAVING BEEN AUTHORIZED BY THE TRUST OR THE DISTRIBUTOR. THIS PROSPECTUS DOES
NOT CONSTITUTE AN OFFER BY THE TRUST OR THE DISTRIBUTOR TO SELL OR A
SOLICITATION OF ANY OFFER TO BUY ANY OF THE SECURITIES OFFERED HEREBY IN ANY
JURISDICTION TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER IN SUCH
JURISDICTION.
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PROSPECTUS SUMMARY
Nicholas-Applegate Series Trust is an open-end management investment company
comprised of the six Series offered hereby. The Series serve as the investment
medium for Contracts issued by Insurance Companies. Shares of the Series are
available for sale only to Separate Accounts established by the Insurance
Companies for the purpose of issuing Contracts. See "Purchasing Shares." The
terms "shareholder" and "shareholders" in this Prospectus refer to the Insurance
Companies.
The value of certain benefits under the Contracts will vary with the investment
performance of the Series. Prospective purchasers should carefully consider the
information presented in this Prospectus prior to purchasing such a Contract.
INVESTMENT OBJECTIVES. The investment objectives of the Series are described on
the front cover of this Prospectus. There can be no assurance that any Series
will achieve its investment objective. See "Investment Objectives, Policies and
Risk Considerations" below and "Appendix: Investment Policies, Strategies and
Risks".
INSURANCE COMPANY SPECIAL ACCOUNTS. Shares of the Series are sold to Separate
Accounts funding both variable annuity contracts and variable life insurance
contracts, and may be sold to Insurance Companies that are not affiliated with
each other or with Nicholas-Applegate Capital Management (the "Investment
Adviser"). The Trust does not currently foresee any disadvantages to Contract
owners arising from offering the Trust's shares to Separate Accounts of
Insurance Companies that are unaffiliated with each other; however, it is
theoretically possible that the interests of owners of various Contracts
participating in the Trust might at some time be in conflict. The Board of
Trustees of the Trust and the Insurance Companies whose Separate Accounts invest
in the Trust, in accordance with any procedures that may be agreed to by the
Trust and the Insurance Companies, will monitor events in order to identify any
material irreconcilable conflicts between the interests of any Contract owners
participating in Separate Accounts utilizing the Trust, and will determine what
action, if any, should be taken in response to such conflicts.
INVESTMENT RISKS AND CONSIDERATIONS. INVESTMENT RISKS AND OTHER CONSIDERATIONS
RELEVANT TO THE SECURITIES IN WHICH THE SERIES INVEST ARE DESCRIBED UNDER
"INVESTMENT OBJECTIVES, POLICIES AND RISK CONSIDERATIONS" AND
"APPENDIX-INVESTMENT POLICIES, STRATEGIES AND RISKS". They include the
following:
The securities of many companies in which the Core Growth, Emerging Growth, and
International Growth Series invest are subject to more volatile market movements
than securities of larger, more established companies because the issuers are
typically more subject to changes in earnings and prospects. The net asset
values of the Series therefore can be expected to experience above-average
fluctuations.
Yields on debt obligations depend on a variety of factors, including the general
conditions of the money and bond markets, the size of a particular offering, the
maturity of the obligation, and the rating of the issue. Debt obligations with
longer maturities tend to produce higher yields and are generally subject to
potentially greater capital appreciation and depreciation than obligations with
shorter maturities and lower yields. The market prices of debt obligations vary
depending on available yields. An increase in interest rates will generally
reduce the value of such portfolio investments, and a decline in interest rates
will generally increase the value of such portfolio investments. The ability of
a Series to achieve its investment objective also depends on the continuing
ability of the issuers of the debt securities in which it invests to meet their
obligations for the payment of interest and principal when due.
The International Fixed Income Series is a non-diversified portfolio as defined
in the Investment Company Act of 1940, as amended (the "Investment Company Act")
and may invest more than 25% of its total assets in the securities of any one
issuer. It may be more
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susceptible to risks associated with a single economic, political or regulatory
occurence than a diversified portfolio. The Diversified Income Series is
permitted to invest up to 50% of its net assets in zero coupon securities, which
may be subject to greater volatility as a result of changes in prevailing
interest rates than other debt securities.
The Diversified Income Series is permitted to invest up to 35% of its net assets
in convertible and debt securities rated below "Baa" by Moody's Investors
Service, Inc. ("Moody's"), "BBB-" by Standard & Poor's Corporation ("S&P"), or
below investment grade by other recognized rating agencies, or in unrated
securities of comparable quality, if the Investment Adviser believes that the
financial condition of the issuer or the protection afforded to the particular
securities is stronger than would otherwise be indicated by such low ratings or
lack of ratings. Such securities, commonly referred to as "junk bonds," are
speculative and subject to greater market fluctuations and risk of loss of
income and principal than higher rated bonds. Such Series will in no event
purchase debt securities rated below "C" by Moody's, S&P or another rating
agency, or determined by the Investment Adviser to be of comparable quality. See
the "Appendix: Investment Policies, Strategies and Risks" and the Statement of
Additional Information for a description of these securities and ratings.
Investments by the Series in securities of foreign companies and governments
involve special risks in addition to the usual risks inherent in domestic
investments, including fluctuations in foreign exchange rates, political or
economic instability in the country of issue, the possible imposition of
exchange controls or other laws or restrictions and fluctuations of foreign
exchange rates. Settlement of transactions in foreign markets may be delayed or
less frequent than in the U.S., and foreign governments may withhold taxes from
dividends and interest paid on securities held by the Funds. There is also
likely to be less publicly available information about certain foreign issuers
than is available about U.S. companies, and foreign companies are not generally
subject to uniform financial reporting standards comparable to those applicable
to U.S. companies. In addition, the Series may invest in emerging markets, which
involves greater risks than other foreign investments, including less-developed
economic and legal structures; less stable political systems; illiquid
securities markets; possible expropriations, nationalization or confiscatory
taxation; and possible foreign currency devaluations and fluctations.
Nicholas-Applegate Capital Management's investment approach results in
above-average portfolio turnover for each Series managed by it. A high rate of
portfolio turnover involves correspondingly greater brokerage commission
expenses.
Certain of the Series may effect transactions in futures contracts and related
options on securities and securities indices, engage in interest rate swap
transactions, purchase or write put and call options on securities and
securities indices, and engage in currency hedging transactions. Although the
Series will generally enter into such transactions for hedging purposes, the
Diversified Income Series may also enter into such transactions (other than
currency transactions) to enhance its income. However, such Series' net loss
exposure from non-hedging transactions is not expected to exceed 1% of its net
assets at any time; in the event it does exceed such amount, the Series will
close out transactions as promptly as practicable to reduce such exposure below
1% of net assets. These transactions involve derivative instruments, whose value
derives from the value of an underlying security or index. Risks associated with
the use of such derivative instruments include the possibility that the
Investment Adviser's or Subadviser's forecasts of interest rates, currency rates
of exchange and other factors are not correct; imperfect correlation between the
Fund's hedging technique and the asset or liability being hedged; default by the
other party to the transaction; and inability to close out a position because of
the lack of a liquid market. Investment in such derivative instruments may not
be successful, and may reduce the returns and increase the volatility of the
Series. See "Appendix: Investment Policies, Strategies and Risks" in this
Prospectus and "Investment Objectives, Policies and Risks" in the Statement of
Additional Information.
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THE CORE GROWTH, EMERGING GROWTH AND INTERNATIONAL GROWTH SERIES MAY ENGAGE IN
SHORT SALES, WHICH THEORETICALLY INVOLVE UNLIMITED LOSS POTENTIAL AND MAY BE
CONSIDERED A SPECULATIVE TECHNIQUE. See the discussion of the risks of short
sales under "Short Sales" in "Appendix: Investment Policies, Strategies and
Risks."
Each Series may invest up to 15% of its net assets in illiquid securities. All
Series may enter into repurchase agreements and lend their portfolio securities,
which involve the risk of loss upon the default of the seller or borrower. The
Series may also borrow money from banks for temporary purposes which, among
other things, may require the Series to sell portfolio securities to meet
interest and principal payments at an unfavorable time. See "Illiquid
Securities," "Repurchase Agreements," "Securities Lending," and "Borrowing" in
"Appendix: Investment Policies and Strategies and Risks."
The Series commenced operation as of the date of this Prospectus and have no
operating history.
INVESTMENT ADVISER AND SUBADVISER. Nicholas-Applegate Capital Management serves
as investment adviser to the Trust. The Investment Adviser has been in the
investment advisory business since 1984 and currently manages over $25 billion
of discretionary assets for numerous clients, including employee benefit plans
of corporations, public retirement systems and unions, university endowments,
foundations and other institutional investors, and individuals.
The Investment Adviser is compensated for its services to the Series in the form
of monthly fees at the following annual rates: for the International Growth
Series-1.00% of the first $500 million of the Series' average net assets, 0.90%
of the next $500 million and 0.85% of average net assets in excess of $1
billion; for the Emerging Growth Series-1.00% of the Series' average net assets;
for the International Fixed Income Series, 0.60% of the Series' average net
assets; for the Diversified Income Series-0.45% of the first $500 million of the
Series' average net assets, 0.40% of the next $250 million and 0.35% of average
net assets in excess of $750 million; for the Core Growth and Value Series-0.75%
of the first $500 million of the Series' average net assets, 0.675% of the next
$500 million and 0.65% of average net assets in excess of $1 billion. The
advisory fees paid by the Trust for the Core Growth, Emerging Growth,
International Growth and Value Series are higher than those paid by most other
investment companies.
The Investment Adviser has retained the services of Rogge Global Partners, plc
(the "Subadviser") to manage the investments of the International Fixed Income
Series. The Subadviser has been in the investment advisory business since 1984
and currently has over $3 billion in discretionary assets under management.
Payment for the services of the Subadviser is the responsibility of the
Investment Adviser and is not a separate expense of the International Fixed
Income Series. See "Organization and Management."
DISTRIBUTOR. Nicholas-Applegate Securities (the "Distributor"), an affiliate of
the Investment Adviser, serves as distributor of shares of the Trust. The Trust
pays no distribution or other fees to the Distributor in connection with
services it provides.
ADMINISTRATOR, TRANSFER AGENT AND CUSTODIAN. Investment Company Administration
Corporation (the "Administrator") is the administrator for the Trust, with
responsibility for managing the daily business operations of the Trust, subject
to the supervision of the Trust's Board of Trustees. PNC Bank (the "Custodian")
is the custodian for the Trust, and Nicholas-Applegate Securities is the
Transfer Agent for the Trust.
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PURCHASING SHARES. Shares of the Series are offered to Separate Accounts
established by Insurance Companies for the purpose of funding benefits under
Contracts. Shares of each Series are purchased at the next determined net asset
value per share, after an order is received by the Transfer Agent from an
Insurance Company whose Separate Account invests in the Trust. Individual
Contract owners should direct inquiries to their Insurance Companies. See
"Purchasing Shares."
REDEEMING SHARES. Shares of the Trust are redeemed by the Separate Accounts by
orders provided to the Transfer Agent. Owners of Contracts must make redemption
requests to the Insurance Company whose Separate Account invests in the Trust.
The price received for shares redeemed is at the next determined net asset value
after the request is received by the Transfer Agent, which may be more or less
than the purchase price. No contingent deferred sales charge or other fee is
imposed on redemptions. See "Redeeming Shares."
DIVIDENDS, DISTRIBUTIONS AND TAXES. Each Series will declare and pay dividends
and distributions at least once each year. The Series make distributions at
least annually of any net capital gains. All dividends and distributions will be
paid in the form of additional shares of the applicable Series at net asset
value.
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INVESTMENT OBJECTIVES, POLICIES AND RISK CONSIDERATIONS
This Prospectus offers six Series of the Trust which provide a broad range of
investment opportunities suitable for different investors. Shares of the Trust
are offered without a sales charge and only to Separate Accounts established by
Insurance Companies for the purpose of issuing Contracts. The investment
objective and policies of each Series are discussed below and in "Appendix:
Investment Policies, Strategies and Risks."
SPECIAL CONSIDERATIONS REGARDING CONTRACTS AND INSURANCE COMPANIES. Shares of
the Trust are sold to Separate Accounts funding both variable annuity contracts
and variable life insurance contracts, and may be sold to Insurance Companies
that are not affiliated with each other or with Nicholas-Applegate Capital
Management. The Board of Trustees of the Trust does not foresee any
disadvantages to Contract owners arising from offering shares of the Trust to
Separate Accounts of unaffiliated Insurance Companies or to Separate Accounts
funding both variable life insurance policies and variable annuity contracts. It
is possible, however, that the interests of owners of various Contracts
participating in the Trust might at some time be in conflict. The Board of
Trustees of the Trust and the Insurance Companies whose Separate Accounts invest
in the Trust, in accordance with any procedures that may be agreed to by the
Trust and the Insurance Companies, will monitor events in order to identify any
material irreconcilable conflicts between the interests of any Contract owners
participating in Separate Accounts utilizing the Trust, and will determine what
action, if any, should be taken in response to such conflicts. For example,
material irreconcilable conflicts could result from changes in state insurance
laws, changes in federal income and other tax laws, changes in the investment
management of any of the Series, or differences in voting instructions given by
Contract owners. Actions taken in response to a material irreconcilable conflict
could include the sale of Trust shares by one or more of the Separate Accounts
investing in the Trust, which could have adverse consequences to those or other
shareholders. In addition, the Board of Trustees, consistent with the terms
under which the Insurance Companies participate in the Trust, may refuse to sell
shares of any Series to any Separate Account or may suspend or
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terminate the offering of shares of any Series, if such action is required by
law or regulatory authority or is in the best interests of the shareholders of
the Series. The costs of resolving any such material conflicts will not be borne
by Contract owners.
CORE GROWTH SERIES. The Core Growth Series seeks to maximize long-term capital
appreciation. Assets of the Core Growth Series are invested primarily in a
diversified portfolio of common stocks of U.S. companies the earnings and stock
prices of which are expected by the Investment Adviser to grow faster than the
average rate of companies in the Standard & Poor's 500 Stock Price Index (the
"S&P 500 Index"). Companies in which the Series invests are diversified over a
cross-section of industries and may be growth companies, cyclical companies or
companies believed to be undergoing a basic change in operations or markets
which, in the opinion of the Investment Adviser, would result in a significant
improvement in earnings. The securities of such companies may be subject to more
volatile market movements than securities of larger, more established companies.
Although the Series is not restricted to investments in companies of any
particular size, it currently intends to invest primarily in companies with
middle market capitalizations and above (generally $500 million and above). See
"Appendix: Investment Policies, Strategies and Risks" for a discussion of the
risks associated with investment in such growth companies.
Under normal market conditions, at least 75% of the Core Growth Series' total
assets will be invested in common stocks. The remainder of the Series' assets
may be invested in preferred and convertible securities issued by similar growth
companies, investment grade corporate debt securities, securities issued or
guaranteed by the U.S. Government and its agencies or instrumentalities and
various other securities and instruments described in the Appendix. The Series
may invest up to 20% of its total assets, directly or indirectly through
American Depository Receipts, in securities issued by foreign issuers. See
"Appendix: Investment Policies, Strategies and Risks" for a discussion of the
risks associated with investment in foreign securities. The debt securities in
which the Series may invest will be rated "Baa" or higher by Moody's, or "BBB-"
or higher by S&P, or equivalent ratings by other recognized rating agencies, or
unrated if determined by the Investment Adviser to be of comparable quality.
These securities are investment grade, which means that their issuers are
believed to have adequate capacity to pay interest and repay principal, although
certain of such securities in the lower grades have speculative characteristics,
and changes in economic conditions or other circumstances may be more likely to
lead to a weakened capacity to pay interest and principal than would be the case
with higher rated securities. If the rating of a debt security held by the
Series is downgraded below investment grade, the security will be sold as
promptly as practicable. The Series may also make short sales, which is
considered a speculative technique. See "Appendix: Investment Policies,
Strategies and Risks" for a discussion of the risks associated with short sale
transactions.
EMERGING GROWTH SERIES. The Emerging Growth Series seeks to maximize long-term
capital appreciation. Assets of the Series are invested primarily in a
diversified portfolio of common stocks of the same types of companies as the
Core Growth Series, except that the Emerging Growth Series intends to invest
primarily in companies with smaller market capitalizations (E.G., up to $500
million). However, the Series will not necessarily sell any security held by it
if the market capitalization of the issuer increases above $500 million
subsequent to purchase. See "Appendix: Investment Policies, Strategies and
Risks" for a discussion of the risks associated with investment in small growth
companies.
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Under normal market conditions, at least 75% of the Series' total assets will be
invested in common stocks. The remainder of the Series' assets will be invested
in the same manner as the non-common stock assets of the Core Growth Series.
INTERNATIONAL GROWTH SERIES. The International Growth Series seeks to maximize
long-term capital appreciation. Assets of the International Growth Series are
invested primarily in a diversified international portfolio of equity securities
of foreign companies. Such companies may be in the earlier stages of
development, growth companies, cyclical companies or companies believed to be
undergoing a basic change in operations or markets which, in the opinion of the
Investment Adviser, would result in a significant improvement in earnings. The
securities of such companies may be subject to more volatile market movements
than securities of larger, more established companies. Although the Series is
not restricted to investments in companies of any particular size, it currently
intends to invest principally in companies with smaller to middle market
capitalizations (I.E., from $100 million to $5 billion). See "Appendix:
Investment Policies, Strategies and Risks" for a discussion of the risks
associated with investment in such companies.
The International Growth Series may invest in securities issued by companies
based or operating in any country other than the United States. Under normal
market conditions, as a fundamental policy which cannot be changed without
shareholder approval, at least 65% of the Series' total assets will be invested
in securities of issuers located in at least three countries. With these
exceptions, the Series is not driven by allocation considerations with respect
to any particular countries, geographic regions or economic sectors. The
Investment Adviser currently selects its portfolio securities from an investment
universe of approximately 12,000 foreign issuers in the 20 largest international
markets. Countries in which investment opportunities will be sought include
Australia, Austria, Belgium, Canada, Denmark, Finland, France, Germany, Hong
Kong, Italy, Japan, Malaysia, the Netherlands, New Zealand, Norway, Singapore,
Spain, Sweden, Switzerland, and the United Kingdom. However, the Series may also
invest in securities issued by companies based in emerging markets such as the
countries of Eastern Europe and South America, Indonesia, Korea, Mexico, the
Philippines, Portugal and Thailand. The International Growth Series may also
invest up to 10% of its total assets in closed-end country funds. An investment
in such funds may result in duplication of investment company fees. See
"Appendix: Investment Policies, Strategies and Risks" for a discussion of the
risks associated with investment in foreign securities.
Under normal market conditions, at least 75% of the International Growth Series'
total assets will be invested in equity securities (common and preferred
stocks), and warrants and securities convertible into equity securities. The
remainder of the International Growth Series' assets will be invested in debt
securities of foreign companies and foreign governments and their agencies and
instrumentalities which the Investment Adviser believes present attractive
opportunities for capital growth, as well as in various other securities and
instruments described in "Appendix: Investment Policies, Strategies and Risks".
The ratings (or in the case of unrated securities, the Investment Adviser's
assessment of comparable quality) of the Series' debt securities, and its
policies regarding downgraded securities, will be the same as those of the Core
Growth Series. See "Core Growth Series" above. The Series may also make short
sales, which is considered a speculative technique. See "Appendix: Investment
Policies, Strategies and Risks" for a discussion of the risks associated with
short sale transactions.
VALUE SERIES. The Value Series seeks to provide a total return consisting of
capital appreciation plus dividend income that exceeds the total return realized
on the S&P 500 Index. Under normal circumstances, the Series will invest at
least 90% of its total assets in a diversified
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portfolio of equity securities, primarily of companies with larger market
capitalizations (e.g., over $5 billion). The Series may invest in equity
securities of domestic issuers and in equity securities of foreign issuers that
are traded in the United States and comply with U.S. accounting standards. The
Series' portfolio is designed to have risk, capitalization and industry
characteristics similar to those of the S&P 500 Index. The remainder of the
Value Series' assets will be invested in debt securities of such domestic and
foreign issuers that are considered by the Investment Adviser to be cash
equivalents, as well as in various other securities and instruments described in
"Appendix: Investment Policies, Strategies and Risks."
DIVERSIFIED INCOME SERIES. The Diversified Income Series seeks to maximize total
return. It seeks to provide a total return greater than the return of an index
of either government/ corporate debt or government/corporate/mortgage debt over
a full market cycle. The Series invests primarily in an actively managed,
diversified portfolio of investment grade fixed-income securities. The Series
may invest in a broad range of fixed-income securities, including bonds, notes,
and mortgage-backed and asset-backed securities issued by U.S. and foreign
corporations or other entities, and sovereign debt securities of U.S. or foreign
governments or their agencies, authorities, instrumentalities or sponsored
enterprises. The Series may purchase securities that pay interest on a fixed,
variable, or floating basis. Under normal market conditions, at least 65% of the
Series' total assets will be invested in such securities of U.S. issuers. The
Series may acquire over-the-counter and illiquid securities, and may utilize
techniques such as when-issued securities and firm commitment agreements,
forward roll transactions, put and call options on securities, swap
transactions, futures contracts and options, securities lending, and borrowing.
See "Appendix: Investment Policies, Strategies and Risks" and the Statement of
Additional Information for a description of the Series' investment securities
and techniques.
Although the Diversified Income Series will invest primarily in obligations
payable in U.S. dollars, up to 30% of the Series' portfolio assets may be
payable in other currencies. Countries in which non-dollar denominated
investments may be made will include Australia, Austria, Belgium, Canada,
Denmark, France, Germany, Italy, Japan, the Netherlands, Spain, Sweden and the
United Kingdom. The Series may or may not hedge against the currency risks
associated with such investments.
The average maturity of the Series' portfolio will be adjusted as the Investment
Adviser determines market conditions warrant, but will not exceed ten years. The
Series is not constrained as to the maximum maturity of its individual portfolio
securities. However, its average portfolio maturity policy will limit the amount
of longer-term securities in its portfolio. The Series may adopt a temporary
defensive position during adverse market conditions by investing without limit
in high quality money market instruments, including short-term U.S. Government
securities, negotiable certificates of deposit, non-negotiable fixed time
deposits, bankers' acceptances, floating-rate notes and repurchase agreements.
The debt securities in which the Diversified Income Series may invest will
generally be investment-grade securities rated "Baa" or higher by Moody's, "BBB"
or higher by S&P, or equivalent ratings by other recognized rating agencies, or
unrated if determined by the Investment Adviser to be of comparable quality.
However, the Series may invest up to 35% of its net assets in debt securities
rated below investment grade, or unrated securities if determined by the
Investment Adviser to be of comparable quality. Debt securities with ratings
below "Baa" or "BBB-" or equivalent ratings, commonly referred to as "junk
bonds," are
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speculative and subject to greater market fluctuations and risk of loss of
income and principal than higher rated securities. See "Appendix: Investment
Policies, Strategies and Risk" for a discussion of the risks associated with
investment in junk bonds.
INTERNATIONAL FIXED INCOME SERIES. The International Fixed Income Series seeks
high total return through both income and capital appreciation. Assets of the
Series are invested primarily in an international portfolio of high-grade bonds
and money market instruments of foreign issuers. The Series is not constrained
as to the maximum maturity of its individual portfolio securities, and has no
average portfolio maturity restriction.
Under normal market conditions, as a fundamental policy which cannot be changed
without shareholder approval, at least 65% of the International Fixed Income
Series' total assets will be invested in securities of issuers located in at
least three countries other than the United States. Countries in which
investment opportunities will be sought are the same as for the International
Growth Series. The Series is not driven by allocation considerations with
respect to any particular countries, geographic regions or economic sectors and
may concentrate its investments in securities of issuers located in any country.
The Series is non-diversified for purposes of the Investment Company Act, and
may invest more than 25% of its total assets in the securities of any one
issuer. For temporary defensive purposes it may also invest up to 100% of its
assets in short term U.S. debt instruments. As a non-diversified portfolio, the
Series may be more susceptible to risks associated with a single economic,
political or regulatory occurrence than a diversified portfolio.
The International Fixed Income Series' investments may include debt securities
issued or guaranteed by a national government, its agencies or
instrumentalities; debt securities issued or guaranteed by supranational
organizations; corporate debt securities; bank or bank holding company
securities; and other debt securities, including those convertible into common
stock. Under normal market conditions, at least 90% of the Series' investments
will be securities rated at the time of purchase "A" or higher by Moody's or
S&P, or equivalent ratings by other recognized rating agencies, or unrated if
determined by the Investment Adviser or Subadviser to be of comparable quality.
However, the Series may invest up to 10% of its net assets in investment grade
securities rated at the time of purchase "Baa" by Moody's, "BBB" by S&P, or
equivalent ratings by other recognized rating agencies, or unrated securities if
determined by the Investment Adviser or Subadviser to be of comparable quality.
See "Core Growth Series" for a description of such debt securities.
The International Fixed Income Series' investments may be denominated in foreign
currencies (including the European Currency Unit) or in U.S. dollars.
Accordingly, movements in foreign currency exchange rates against the U.S.
dollar are likely to increase the Series' price variability relative to domestic
income funds, and may have a positive or negative impact on returns. The
Subadviser will attempt to reduce exchange rate risk through active portfolio
management, including currency hedging activities. See "Appendix: Investment
Policies, Strategies and Risks" for a discussion of the risks associated with
the use of currency hedging activities.
INVESTMENT TECHNIQUES AND PROCESSES. The overall focus of the Investment Adviser
is to produce growth over time. In making decisions with respect to equity
securities for the Series, the Investment Adviser uses a proprietary investment
methodology which is designed to capture positive change at an early stage. It
adheres rigorously to this methodology, and applies it to various segments of
the capital markets, domestically and internationally. This methodology consists
of investment techniques and processes designed to identify companies with
attractive earnings and dividend growth potential and to evaluate their
investment prospects. These
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techniques and processes include relationships with an extensive network of
brokerage and research firms located throughout the world; computer-assisted
fundamental analysis of thousands of domestic and foreign companies; established
criteria for the purchase and sale of individual securities; portfolio
structuring and rebalancing guidelines; securities trading techniques; and
continual monitoring and reevaluation of all holdings with a view to maintaining
the most attractive mix of investments. The Investment Adviser generally
collects data on approximately 26,000 companies in 35 countries (adjusting for
reporting and accounting differences). There can be no assurance that use of the
proprietary investment methodology will be successful.
The decision to invest assets of the Diversified Income Series in any particular
debt security will be based on such factors as the Investment Adviser's analysis
of the effect of the yield to maturity of the security on the average yield to
maturity of the total debt security portfolio of the Series, the Investment
Adviser's assessment of the credit quality of the issuer, and other factors the
Investment Adviser deems relevant. In order to achieve the Series' Investment
objectives, the Investment Adviser will seek to add value by varying the average
duration of the Series' portfolio to reflect interest rate forecasts, moving
portfolio investments among market sectors (e.g., non-dollar securities. U.S.
Treasury securities, corporate securities and mortgage-backed securities),
positioning investments in the most attractive maturities along the yield curve,
and selecting undervalued investments in order to take advantage of lower prices
and higher yields. There can be no assurance that the use of these techniques
will be successful.
The decision by the Investment Adviser to invest assets of the other Series it
manages in any particular debt security will be based on the same factors as
those described above. In managing the Series' debt security investments, the
Investment Adviser seeks to capture major moves in interest rates and utilizes a
proprietary model to identify interest rate trends in the bond market. There can
be no assurance that use of these techniques will be successful.
Investment decisions within the International Fixed Income Series will be made
by the Subadviser based upon a process of relative value analysis across
countries. The approach is based on an understanding of longer term financial
and economic trends and their implication for interactions between interest
rates and exchange rates. The Subadviser's research focusses on fundamental
factors such as savings rates, monetary growth and the credibility of monetary
authorities. Attention is also given to government policy and the political
climate. Optimal country and currency weights are derived from a mean-variance
model which uses twelve month expectations for bond and currency returns. Final
portfolio weightings also take into consideration portfolio managers' confidence
in these expectations and their shorter term market outlook. Built into the
investment management process is the belief that, over the long term, a
country's currency market and bond market will tend to move in the same
direction. However, exchange rates may exhibit significant volatility over the
short term. Therefore, the Subadviser may utilize a variety of currency hedging
techniques to reduce short term volatility.
INVESTMENT POLICIES, STRATEGIES AND RISKS. The Appendix and the Statement of
Additional Information describe certain investment securities and techniques of
the Series, and the associated risks. These include short-term investments in
cash and cash equivalents; investment in securities of foreign companies,
foreign governments and their agencies and instrumentalities; floating and
variable rate demand notes and bonds; non-convertible corporate debt securities;
convertible securities and warrants; closed-end country funds; depository
receipts; over-the-counter securities; when-issued securities and firm
commitment agreements; foreign exchange contracts; put and call options; futures
contracts and options; interest rate swaps; repurchase agreements; illiquid
securities; securities lending; and borrowing.
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INVESTMENT RESTRICTIONS. Each Series is subject to certain investment
restrictions which constitute fundamental policies. Fundamental policies may not
be changed without the approval of the holders of a majority of the outstanding
shares of the affected Series, as defined in the Investment Company Act. An
investment policy or restriction which is not described as fundamental in this
Prospectus or the Statement of Additional Information may be changed or modified
by the Board of Trustees of the Trust without shareholder approval.
Certain of the investment restrictions which are fundamental policies are set
forth below. Additional investment restrictions are discussed in the Appendix
and Statement of Additional Information.
1. No Series may invest more than 5% of its total assets in the securities of
any one issuer; provided, however, that (i) up to 25% of a Series' total
assets (50% in the case of the International Fixed Income Series) may be
invested without regard to the foregoing limitation, and (ii) the
foregoing limitation does not apply to investments in securities of other
investment companies or securities of the U.S. Government or its agencies
and instrumentalities (or, in the case of the International Fixed Income
Series, securities of foreign governments).
2. No Series may purchase more than 10% of the outstanding voting securities
of any one issuer, or purchase the securities of any issuer for the
purpose of exercising control.
3. No Series may invest 25% or more of its total assets in any one particular
industry; however, this restriction does not apply to the securities of
the U.S. Government, its agencies and instrumentalities (or, in the case
of the International Fixed Income Series, securities of foreign
governments).
4. No Series may make loans of its portfolio securities in an aggregate
amount exceeding 30% of the value of its total assets, or borrow money
(except from banks for temporary, extraordinary or emergency purposes or
for the clearance of transactions and in an aggregate amount not exceeding
20% of the value of its total assets).
5. No Series may invest more than 15% of its net assets in illiquid
securities.
The investment restrictions described above do not apply to an investment by a
Series of all of its assets in another diversified, open-end management
investment company with substantially the same investment objective, policies
and restrictions as such Series. Any such investment will not be implemented
without approval of a majority of the outstanding shares of the Series. Upon
such approval with respect to a Series, the Trust will provide at least 30 days'
written notice to the shareholders of the Series before such an investment
policy is implemented. See "Declaration of Trust -- Conversion to Master/Feeder
Structure" in the Statement of Additional Information.
DIVERSIFICATION. As a fundamental policy, each Series other than the
International Fixed Income Series is a "diversified" portfolio as defined in the
Investment Company Act. Accordingly, each Series may not, with respect to 75% of
its assets, purchase a security other than a U.S. Government security or a
security of another investment company if, as a result, more than 5% of the
Series' total assets would be invested in the securities of a single issuer or
the Series would own more than 10% of outstanding voting securities of any
single issuer.
Purchases of securities for each of the Series also will be limited in
accordance with the diversification requirements for regulated investment
companies established by section 851(b) of the Internal Revenue Code of 1986, as
amended (the "Internal Revenue Code") and the diversification requirements for
Contracts established by Section 817(h) of the Internal Revenue Code. See
"Dividends, Distributions and Taxes."
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PORTFOLIO TURNOVER. The Investment Adviser's investment approach results in
above-average portfolio turnover for each Series managed by it, as the
Investment Adviser sells portfolio securities when it believes the reasons for
their initial purchase are no longer valid or when it believes that the sale of
a security owned by a Series and the purchase of another security of better
value can enhance principal or increase income. A security may also be sold to
avoid a prospective decline in market value or purchased in anticipation of a
market rise. Although it is not possible to predict future portfolio turnover
rates accurately, and such rates may vary greatly from year to year, the
Investment Adviser anticipates that the annual portfolio turnover rate for each
Series managed by it may be up to 200%, which is substantially greater than that
of many other investment companies. The Subadviser manages approximately 80% of
the International Fixed Income Series' portfolio using a 12-18 month time
horizon and actively managing country/currency weightings based on a fundamental
relative value approach. Portfolio turnover in this portion of the portfolio
will tend to be lower than average. In 20% of the portfolio the Subadviser will
use a shorter term time horizon of 1-6 months and will seek to add value by
actively hedging, cross-hedging, taking advantage of changes in the yield curve,
shifting between sectors and securities. Portfolio turnover in this portion of
the portfolio will be higher than average. The Subadviser expects the annual
portfolio turnover for the International Fixed Income Series to range between
100% and 200%, which is greater than that of many other investment companies.
A high rate of portfolio turnover involves correspondingly greater brokerage
commission expenses for Series other than the Diversified Income and
International Fixed Income Series, which expenses will be borne directly by the
Series and ultimately by their shareholders. A high rate of portfolio turnover
should not result in the Diversified Income and International Fixed Income
Series paying greater brokerage commission expenses, as most transactions in
debt securities are effected with dealers on a principal basis; such securities,
however, are subject to a mark-up by the dealers.
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ORGANIZATION AND MANAGEMENT
ORGANIZATION. Each Series is a series of Nicholas-Applegate Series Trust, a
Delaware business trust. The Board of Trustees of the Trust, in addition to
reviewing the actions of the Trust's Investment Adviser, Subadviser,
Administrator, Distributor and Transfer Agent as set forth below, decides upon
matters of general policy with respect to each Series. See "General
Information." The trustees and officers of the Trust are described in the
Statement of Additional Information.
INVESTMENT ADVISER. Nicholas-Applegate Capital Management, 600 West Broadway,
30th Floor, San Diego, California 92101, serves as the Investment Adviser to the
Trust. The Investment Adviser currently manages over $ billion of discretionary
assets for numerous clients, including employee benefit plans of corporations,
public retirement systems and unions, university endowments, foundations and
other institutional investors, and individuals. The Investment Adviser was
organized in 1984 as a California limited partnership. Its general partner is
Nicholas-Applegate Capital Management Holdings, L.P., a California limited
partnership controlled by Arthur E. Nicholas. He and fifteen other partners
manage a staff of approximately 300 employees.
As compensation for the services it provides, the Investment Adviser receives a
monthly fee at the following annual rates: for the International Growth Series,
1.00% of the first $500 million of the Series' average net assets, 0.90% of the
next $500 million of average net assets, and
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0.85% of average net assets in excess of $1 billion; for the Emerging Growth
Series-1.00% of the Series' average net assets; for the International Fixed
Income Series, 0.60% of the Series' average net assets; for the Diversified
Income Series-0.45% of the first $500 million of the Series' average net assets,
0.40% of the next $250 million of average net assets, and 0.35% of average net
assets in excess of $1 billion; for the Core Growth and Value Series, 0.75% of
the first $500 million of the Series' average net assets, 0.675% of the next
$500 million of average net assets, and 0.65% of average net assets in excess of
$1 billion. The advisory fees paid by the Trust for the Core Growth, Emerging
Growth, International Growth and Value Series are higher than those paid by most
other investment companies.
The Core Growth, Emerging Growth and International Growth Series are managed
under the general supervision of Mr. Nicholas, who has been the Chief Investment
Officer of the Investment Adviser since its organization, and John D. Wylie,
Chief Investment Officer -- Retail of the Investment Adviser. The Diversified
Income Series is managed under the general supervision of Terrence S. Ellis, the
Chief Investment Officer-Fixed Income of the Investment Adviser, and John D.
Wylie. The following persons are primarily responsible for the Investment
Adviser's day-to-day management of the Series' portfolios: Core Growth
Series-John C. Marshall, Jr.; Emerging Growth Series-Catherine Somhegyi; Value
Series-John D. Wylie; International Growth Series-the Investment Adviser's
systems-driven global management team headed by Lawrence S. Speidell;
Diversified Income Series-the Investment Adviser's fixed income management team
headed by Fred S. Robertson III. Messrs. Marshall and Wylie and Ms. Somhegyi
have managed similar institutional accounts for the Investment Adviser for more
than the last five years. Mr. Speidell has been a portfolio manager with the
Investment Adviser since March 1994; from 1983 until he joined the Investment
Adviser, he was an institutional portfolio manager with Batterymarch Financial
Management. Messrs. Ellis and Robertson have managed similar institutional
accounts for the Investment Adviser since May 1995. Each of them managed similar
institutional accounts for Criterion Investment Management Company for more than
five years prior to May 1995, when it was acquired by the Investment Adviser.
For historical performance data relating to separate accounts managed by the
Investment Adviser, see "Appendix: Prior Performance."
SUBADVISER. The Investment Adviser has retained the services of Rogge Global
Partners, plc to manage the investments of the International Fixed Income
Series. Rogge Global Partners, plc, 5-6 St. Andrews Hill, London, England,
specializes in managing bonds on a global basis. It currently manages over $3
billion of discretionary assets for public funds, corporations and individuals.
The Subadviser was founded in 1984 and is registered as an investment adviser
with the Commission. Headquartered in London, its investment team consists of
three portfolio managers and a director of research all of whom have been
involved in the international bond markets for the last ten years. In addition
the firm has a team of four administrative/settlement staff in London and a
marketing and administrative team of three in the United States.
The Subadviser manages the investments of the International Fixed Income Series
under the supervision of the Investment Adviser. The following persons are
primarily responsible for the Subadviser's day-to-day management of the
International Fixed Income Series' Portfolio: Olaf Rogge, John Graham and
Richard Bell. Mr. Rogge founded the firm in 1984 and has been managing similar
institutional portfolios since the inception of the company. Mr. Graham joined
Rogge Global Partners in 1994 and prior to that time worked as an international
fixed income manager at J.P. Morgan in London managing similar institutional
portfolios. Mr. Bell
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has been a partner and portfolio manager of the Subadviser since 1990 and prior
to that time was head of fixed income research at Daiwa Securities in London.
Payment for the services of the Subadviser is made by the Investment Adviser and
is not a separate expense of the International Fixed Income Series. For
historical performance data relating to separate accounts managed by the
Subadviser, see "Appendix: Prior Performance."
ADMINISTRATOR. Investment Company Administration Corporation, a Delaware
corporation, is the Administrator of each Series. Pursuant to an Administration
Agreement with the Trust, and subject to the supervision of the Board of
Trustees of the Trust, the Administrator supervises the overall administration
of the Trust. Its responsibilities include preparing and filing all documents
required for compliance by the Trust with applicable laws and regulations,
arranging for the maintenance of books and records of the Trust and supervision
of other organizations that provide services to the Trust. Certain officers of
the Trust are also provided by the Administrator. For the services it provides
to the Trust, the Administrator receives an annual fee of up to 0.05% of the
Trust's average net assets, the fee is allocated among the Series in accordance
with relative net asset values.
EXPENSE LIMITATION. To limit the expenses of each Series, the Investment Adviser
has contractually agreed to reduce its fees, and to absorb the other operating
expenses of each Series, to ensure that the expenses of each Series (excluding
interest, taxes, brokerage commissions and other portfolio transaction expenses,
capital expenditures and extraordinary expenses) do not exceed the following
respective percentage of such Series' average net assets on an annual basis
through December 31, 1996: Core Growth-1.00%; Emerging Growth-1.25%;
International Growth-1.40%; International Fixed Income-0.95%; Diversified
Income-0.45%; Value-1.00%. During the first year of the Series' operation,
actual expenses are estimated to be the following respective percentages of
average net assets: Core Growth-1.31%; Emerging Growth-1.61%; International
Growth-1.61%; International Fixed Income-1.75%; Diversified Income-0.72%;
Value-1.31%. Each Series will reimburse the Investment Adviser for fees foregone
or other expenses paid by the Investment Adviser pursuant to this agreement in
later years in which operating expenses for the Series are less than the
applicable percentage limitation set forth above for any such year. No interest,
carrying or finance charge will be paid by a Series with respect to any amounts
representing fees foregone or other expenses paid. In addition, no Series will
be required to repay any unreimbursed amounts to the Investment Adviser upon
termination of its Investment Advisory Agreement with the Trust.
DISTRIBUTOR. Nicholas-Applegate Securities, 600 West Broadway, 30th Floor, San
Diego, California 92101, a California limited partnership, serves as the
Distributor of shares of each Series. The general partner of the Distributor is
Nicholas-Applegate Capital Management Holdings, L.P., and its limited partner is
the Investment Adviser. No selling commission or redemption charge is paid with
respect to the purchase or sale of shares.
CUSTODIAN AND TRANSFER AND DIVIDEND DISBURSING AGENT. PNC Bank, Airport Business
Center, International Court 2, 200 Stevens Drive, Lester, Pennsylvania, 19113,
serves as Custodian for the Series. PFPC Inc., an affiliate of the Custodian,
provides accounting services to the Series. Nicholas-Applegate Securities, 600
West Broadway, 30th Floor, San Diego, California 92101, is the Transfer Agent
for the Series.
PORTFOLIO TRANSACTIONS AND BROKERAGE. The Investment Adviser (or the Subadviser
in the case of the International Fixed Income Series) is responsible for the
Series' portfolio transactions and the allocation of their brokerage business.
In executing such transactions, the Investment Adviser (or Subadviser) seeks to
obtain the best price and execution for the Series. Portfolio
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transactions are executed through brokers as agent for the Series for prices
that include negotiated brokerage commissions, or through dealers as principals
in the over-the-counter market for prices that include a dealer mark-up. Subject
to obtaining the best price and execution, the Investment Adviser (or
Subadviser) may effect transactions through brokers who have assisted in
distributing Contracts. Subject to obtaining the best price and execution, the
Investment Adviser (or Subadviser) may also effect agency transactions through
brokers who provide research services to the Investment Adviser (or Subadviser),
which may result in the payment of higher commissions than those charged by
other brokers. However, the selection of such brokers will be made in accordance
with Section 28(e) of the Securities Exchange Act of 1934. Section 28(e)
requires the Investment Adviser (or Subadviser) to make a good faith
determination that the commissions paid are reasonable in relation to the value
of the brokerage and research services provided by such broker, viewed in terms
of either that particular transaction or the Investment Adviser's (or
Subadviser's) overall responsibilities with respect to the Series and other
accounts as to which it exercises investment discretion.
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PURCHASING AND REDEEMING SHARES
PURCHASING SHARES. The Trust will initially offer shares of the Series only to
Separate Accounts established by Insurance Companies for the purpose of issuing
Contracts. It is possible at some later date that shares of the Trust may be
offered to other persons consistent with the use of the Trust as an investment
vehicle for Contracts. Investments by owners of Contracts are made through their
Separate Accounts, which are responsible for transmitting all orders for the
purchase, redemption and exchange of Series shares. The availability of an
investment by a Contract owner in the Series, and the procedures for investing,
depend upon the provisions of the Contract. Contract owners should refer to the
prospectus for their Separate Account for further information.
Shares of each Series are purchased by Separate Accounts at net asset value
without a sales charge. Shares will be purchased for the account of a Contract
owner only upon receipt by the Separate Account of all information required by
it.
SHARE PRICE. Shares are purchased at the next determined net asset value per
share after the order is received by the Transfer Agent from an Insurance
Company whose Separate Account invests in the Trust. The price per share is
determined as of the close of trading of the New York Stock Exchange on each day
the Exchange is open for normal trading. To determine a Series' net asset value
per share, the current value of the Series' total assets, less all liabilities,
is divided by the total number of shares outstanding, and the result is rounded
to the nearer cent.
OTHER PURCHASE INFORMATION. The Board of Trustees, consistent with the terms
under which the Insurance Companies participate in the Trust, may refuse to sell
shares of any Series to any Separate Account or may suspend or terminate the
offering of shares of a Series, if such action is required by law or regulatory
authority or is in the best interests of the shareholders of the Series.
Purchases of Series shares will be made in full and fractional shares. In the
interest of economy and convenience, certificates for shares will not be issued.
EXCHANGE PRIVILEGE. Contract owners may exchange shares of a Series for shares
of any other Series and shares of any other portfolio that is a permissible
investment under their Contract.
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Contract owners may exchange shares (depending upon the provisions of the
Contract) by communicating with the Separate Account, which will transmit all
exchange orders to the Trust.
REDEEMING SHARES. A Separate Account of an Insurance Company may redeem shares
of a Series by contacting the Transfer Agent. Redemptions by Contract owners
must be made through the Separate Account pursuant to the requirements under the
Contract. Contract owners should refer to the prospectus for the Separate
Account for further information. The price received by a Separate Account for
the shares redeemed is at the next determined net asset value for the shares
after the redemption request is received by the Transfer Agent. No charge will
be imposed by the Trust or the Transfer Agent for redemptions.
Payment for shares presented for redemption may take up to seven days after
receipt by the Transfer Agent of a redemption request by a Separate Account
except as indicated below. Such payment may be postponed or the right of
redemption suspended at times when the New York Stock Exchange is closed for
other than customary weekends and holidays, when trading on such Exchange is
restricted, when an emergency exists as a result of which disposal by a Series
of securities owned by it is not reasonably practicable or it is not reasonably
practicable for the Series fairly to determine the value of its net assets, or
during any other period when the Securities and Exchange Commission, by order,
so permits.
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DIVIDENDS, DISTRIBUTIONS AND TAXES
The Trust intends to qualify each Series as a regulated investment company under
Subchapter M of the Internal Revenue Code. Accordingly, the Series will not be
subject to federal income taxes on its net investment income and capital gains,
if any, that they distribute to their shareholders. All dividends out of net
investment income, together with distributions of short-term capital gains, will
be treated as ordinary income to the Separate Accounts. Any net long-term
capital gains distributed to the Separate Accounts will be treated as such to
the Separate Accounts, regardless of the length of time a Separate Account has
owned the shares.
Each Series will declare and pay dividends and distributions at least annually.
In determining amounts of capital gains to be distributed by a Series, any
capital loss carryovers from prior years will be offset against its capital
gains. All dividends and distributions are automatically reinvested in full and
fractional shares of the applicable Series at net asset value.
In addition to meeting investment diversification rules applicable to regulated
investment companies under Subchapter M of the Internal Revenue Code, because
the Trust is utilized to fund Contracts, each Series is also subject to the
investment diversification requirements of Subchapter L of the Internal Revenue
Code. If any Series were to fail to comply with those diversification
requirements, owners of Contracts funded through the Trust would be taxed
immediately on the accumulated investment earnings under their Contracts and
would thereby lose any benefit of tax deferral. Compliance with Subchapter L is,
therefore, carefully monitored by the Investment Adviser (and the Subadviser for
the International Fixed Income Series).
For more information regarding the tax implications for owners of Contracts
investing in the Trust, please refer to the prospectus for the applicable
Separate Account.
The Treasury Department may in the future issue regulations or revenue rulings
addressing the circumstances in which a Contract owner's control of the
investments of a Separate Account may cause the Contract owner, rather than the
Insurance Company, to be treated as
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the owner of the assets held by the Separate Account. If the Contract owner is
considered the owner of the securities underlying the Separate Account, income
and gains produced by those securities would be included currently in the
Contract owner's gross income. The Trust does not know what standard will be set
forth in any such regulations or rulings. Such standards may apply only
prospectively, although retroactive application is possible if such standards
were considered not to embody a new position. In the event that any such
regulations or revenue rulings are adopted, there can be no assurance that the
Series will be able to continue to operate as currently described in this
Prospectus, or that the Trust will not have to change any Series' investment
objective or policies. Each Series' investment objective and certain investment
policies are fundamental and may be changed only by a vote of a majority of its
outstanding shares; all other policies may be changed by the Board of Trustees.
Purchasers of Contracts should consult their own tax advisers regarding specific
questions as to federal, state or local taxes. See "Dividends, Distributions and
Taxes" in the Statement of Additional Information.
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GENERAL INFORMATION
PERFORMANCE INFORMATION. From time to time the Trust may advertise each Series'
total return and, if applicable, its yield. These figures are based on
historical information and are not intended to indicate future performance.
Total return shows how much an investment in the Series would have increased (or
decreased) over a specified period of time (I.E., one, five or ten years or
since inception of the Series) assuming that all distributions and dividends by
the Trust to investors of the Series were reinvested on the reinvestment dates
during the period. Total return takes into account any applicable sales charges,
but does not take into account any federal or state income taxes which may be
payable by the investor. Yield will be calculated on a 30-day period pursuant to
a formula prescribed by the Securities and Exchange Commission ("Commission").
The Trust also may include comparative performance information in advertising or
marketing Series shares. Such performance information may include data from
Lipper Analytical Services, Inc., other industry publications, business
periodicals, rating services and market indices. See "Appendix: Prior
Performance" and "Performance Information" in the Statement of Additional
Information.
Performance figures of the Series do not reflect fees and charges made pursuant
to the terms of the Contracts funded by Separate Accounts that invest in shares
of the Series. Series performance information will be presented in conjunction
with performance information about those Contracts. Purchasers of Contracts
issued by the Insurance Companies should recognize that such fees and charges
will reduce the yield and total return to Contract owners.
DESCRIPTION OF SHARES. The Series are series of Nicholas-Applegate Series Trust,
an open-end management investment company. The Trust was organized in July 1995
as a Delaware business trust.
Currently, the Trust has six Series. The Trust is authorized to issue an
unlimited number of shares of each Series. Shares of a Series, when issued, are
fully paid, nonassessable, fully transferable and redeemable at the option of
the holder. Shares of a Series are also redeemable at the option of the Trust
under certain circumstances. There are no conversion, preemptive or other
subscription rights. In the event of liquidation, each share of a Series is
entitled to its portion of all of the Series' assets after all debts and
expenses of the Series have been paid.
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Pursuant to the Trust's Declaration of Trust, the Board of Trustees of the Trust
may authorize the creation of additional series, and classes within series, with
such preferences, privileges, limitations and voting and dividend rights as the
Board may determine.
Shareholders of the Series are entitled to one vote for each full share held and
fractional votes for fractional shares held, unless a different allocation of
voting rights is required under applicable law for an open-end investment
company that is an investment medium for variable insurance products.
Shareholders will vote without regard to Series except as otherwise required by
law or when the Board of Trustees of the Trust determines that a matter to be
voted upon affects only the interests of shareholders of a particular Series.
Shares of the Trust do not have cumulative voting rights for the election of
Trustees. The Trust does not intend to hold annual meetings of its shareholders
unless otherwise required by law. The Trust will not be required to hold
meetings of shareholders unless the election of Trustees or any other matter is
required to be acted on by shareholders under the Investment Company Act.
Shareholders have certain rights, including the right to call a meeting upon the
request of 10% of the outstanding shares of a Series, for the purpose of voting
on the removal of one or more Trustees.
Shareholders will vote shares held in their Separate Accounts as required by law
and interpretations thereof, as amended or changed from time to time. Under
current law and interpretations thereof, a participating Insurance Company is
required to request voting instructions from Contract owners and must vote
shares held in their Separate Account in proportion to the voting instructions
received from Contract owners. For a further discussion of voting rights, see
the prospectus for the applicable Separate Account.
Prior to the public offering of each Series' shares, Nicholas-Applegate Capital
Management will be the sole shareholder of each Series and will therefore be a
controlling person of each Series.
ADDITIONAL INFORMATION. This Prospectus, including the Statement of Additional
Information which has been incorporated by reference herein, does not contain
all the information set forth in the Registration Statement filed by the Trust
with the Securities and Exchange Commission under the Securities Act of 1933, as
amended. Copies of the Registration Statement may be obtained at a reasonable
charge from the Commission or may be examined, without charge, at the office of
the Commission in Washington, D.C.
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APPENDIX
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INVESTMENT POLICIES, STRATEGIES AND RISKS
The investment policies and strategies of the Series encompass the following
securities, techniques and risk considerations.
SHORT-TERM INVESTMENTS (ALL SERIES). Each of the Series may invest in short-term
investments to maintain liquidity for redemptions or during periods when, in the
opinion of the Investment Adviser, attractive investments are temporarily
unavailable. Under normal circumstances, no more than 10% of a Series' total
assets will be retained in cash (U.S. dollars or, in the case of the
International Growth and International Fixed Income Series, foreign currencies
or multinational currency units) and cash equivalents. However, the Value Series
may invest up to 35% of its total assets, and each other Series may invest
without restriction, in short-term investments for temporary defensive purposes,
such as when the securities markets or economic conditions are expected to enter
a period of decline. Short-term investments in which the Series may invest
include U.S. Treasury bills or other U.S. Government or Government agency or
instrumentality obligations; certificates of deposit; bankers' acceptances; time
deposits; high quality commercial paper and other short-term high grade
corporate obligations; shares of money market mutual funds; or repurchase
agreements with respect to such securities. The Series will only invest in
short-term investments which, in the opinion of the Investment Adviser (or
Subadviser) present minimal credit and interest rate risk.
U.S. GOVERNMENT OBLIGATIONS (ALL SERIES). Securities issued or guaranteed by the
U.S. Government or its agencies and instrumentalities in which each of the
Series may invest include U.S. Treasury securities, which differ only in their
interest rates, maturities and times of issuance. Treasury bills have initial
maturities of one year or less; Treasury notes have initial maturities of one to
ten years; and Treasury bonds generally have initial maturities of more than ten
years.
Some obligations issued or guaranteed by U.S. Government agencies and
instrumentalities, for example, Government National Mortgage Association
("GNMA") pass-through certificates, are supported by the full faith and credit
of the U.S. Treasury; others, such as those of the Federal Home Loan Banks, by
the right of the issuer to borrow money from the Treasury; others, such as those
issued by the Federal National Mortgage Association, by the discretionary
authority of the U.S. Government to purchase certain obligations of the agency
or instrumentality; and others, such as those issued by the Student Loan
Marketing Association, only by the credit of the agency or instrumentality.
While the U.S. Government provides financial support to U.S.
Government-sponsored agencies and instrumentalities, no assurance can be given
that it will always do so, since it is not so obligated by law. The Series will
invest in securities issued or guaranteed by U.S. Government agencies and
instrumentalities only when the Investment Adviser (or Subadviser) is satisfied
that the credit risk with respect to the issuer is minimal.
SOVEREIGN DEBT OBLIGATIONS (INTERNATIONAL FIXED INCOME SERIES). The
International Fixed Income Series may invest in sovereign debt securities of
foreign governments and their agencies and instrumentalities. Investments in
such securities involve special risks. The issuer of the debt or the
governmental authorities that control the repayment of the debt may be unable or
unwilling to pay principal or interest when due in accordance with the terms of
the debt, and the Series may have limited legal recourse in the event of
default. Periods of economic uncertainty may result in the volatility of market
prices of sovereign debt, and in turn the Series' net asset value, to a greater
extent than the volatility inherent in domestic fixed income securities.
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ZERO COUPON SECURITIES (DIVERSIFIED INCOME SERIES). The Diversified Income
Series may invest up to 50% of its net assets in "zero coupon" securities issued
or guaranteed by the U.S. Government and its agencies and instrumentalities.
Zero coupon securities may be issued by the U.S. Treasury or by a U.S.
Government agency, authority or instrumentality (such as the Student Loan
Marketing Association or the Resolution Funding Corporation). Zero coupon
securities are sold at a substantial discount from face value and redeemed at
face value at their maturity date without interim cash payments of interest and
principal. This discount is amortized over the life of the security and such
amortization will constitute the income earned on the security for both
accounting and tax purposes. Because of these features, such securities may be
subject to greater volatility as a result of changes in prevailing interest
rates than interest paying investments in which the Series may invest. In order
to qualify under Subchapter M of the Internal Revenue Code, the Series may be
required to annually distribute to its shareholders a portion of the discount
and income accrued, even though the Series does not receive the income currently
in cash. As a result, the Series may have to sell other portfolio investments to
obtain cash needed to make income distributions to shareholders.
CERTIFICATES OF DEPOSIT, TIME DEPOSITS AND BANKERS' ACCEPTANCES (ALL
SERIES). Each of the Series may invest in certificates of deposit, time deposits
and bankers' acceptances issued by domestic banks, foreign banks, foreign
branches of domestic banks, domestic and foreign branches of foreign banks, and
domestic savings and loan associations, all of which at the date of investment
have capital, surplus and undivided profits as of the date of their most recent
published financial statements in excess of $100 million, or less than $100
million if the principal amount of such bank obligations is insured by the
Federal Deposit Insurance Corporation. Certificates of deposit are certificates
evidencing the obligation of a bank to repay funds deposited with it for a
specified period of time. Time deposits are non-negotiable deposits maintained
in a banking institution for a specified period of time at a stated interest
rate. Bankers' acceptances are credit instruments evidencing the obligation of a
bank to pay a draft drawn on it by a customer; these instruments reflect the
obligation both of the bank and of the drawer to pay the face amount of the
instrument upon maturity.
COMMERCIAL PAPER (ALL SERIES). Each of the Series may invest in commercial paper
of domestic and foreign entities which is rated (or guaranteed by a corporation
the commercial paper of which is rated) in the two highest rating categories by
at least two nationally recognized statistical rating organizations ("NRSROs"),
including "P-1" or "P-2" by Moody's or "A-1" or "A-2" by S&P, or, if rated by
only one NRSRO, in such NRSRO's two highest grades, or, if not rated, is issued
by an entity which the Investment Adviser (or Subadviser), acting pursuant to
guidelines established by the Trust's Board of Trustees, has determined to be of
minimal credit risk and comparable quality. Commercial paper consists of
short-term, unsecured promissory notes issued to finance short-term credit
needs.
MUNICIPAL SECURITIES (DOMESTIC FIXED INCOME SERIES). The Domestic Fixed Income
Series may invest up to 5% of its net assets in taxable state and municipal
securities if the Investment Adviser believes they will provide competitive
returns. Such securities may include general obligation notes and bonds secured
by the issuer's pledge of its full faith, credit and taxing power for the
payment of principal and interest; revenue notes and bonds payable only from the
revenues derived from a particular facility or only from the proceeds of a
special excise tax; lease obligations issued by state or local government
authorities to acquire land, equipment or facilities; and certificates of
participation issued by municipalities or municipal authorities to evidence a
proportionate interest in rental or lease payments relating to specific
projects.
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VARIABLE RATE MASTER DEMAND NOTES (ALL SERIES). Each of the Series may purchase
floating and variable rate demand notes and bonds, which are obligations
ordinarily having stated maturities in excess of one year, but which permit the
holder to demand payment of principal at any time, or at specified intervals not
exceeding one year, in each case upon not more than 30 days' notice. Variable
rate demand notes include master demand notes, which are obligations that permit
a Series to invest fluctuating amounts, which may change daily without penalty.
The interest rates on these notes are adjusted at designated intervals or
whenever there are changes in the market rates of interest on which the interest
rates are based. The issuer of such obligations normally has a corresponding
right, after a given period, to prepay in its discretion the outstanding
principal amount of the obligations plus accrued interest upon a specified
number of days' notice to the holders of such obligations. Because these
obligations are direct lending arrangements between the lender and borrower, it
is not contemplated that such instruments generally will be traded, and there
generally is no established secondary market for these obligations, although
they are redeemable at face value. Such obligations frequently are not rated by
credit rating agencies and a Series may invest in obligations which are not so
rated only if the Investment Adviser (or Subadviser) determines that at the time
of investment the obligations are of comparable quality to the other obligations
in which the Series may invest. The Investment Adviser (or Subadviser) will
monitor the creditworthiness of the issuers of such obligations and their
earning power and cash flow, and will also consider situations in which all
holders of such notes would redeem at the same time. Investment by a Series in
floating or variable rate demand obligations as to which it cannot exercise the
demand feature on not more than seven days' notice will be subject to the
Series' limit on illiquid securities of 15% of net assets if there is no
secondary market available for these obligations.
CORPORATE DEBT SECURITIES (ALL SERIES). The non-convertible corporate debt
securities in which the Series may invest include obligations of varying
maturities (such as debentures, bonds and notes) over a cross-section of
industries. The value of a debt security changes as interest rates fluctuate,
with longer-term securities fluctuating more widely in response to changes in
interest rates than those of shorter-term securities. A decline in interest
rates usually produces an increase in the value of debt securities, while an
increase in interest rates generally reduces their value. The corporate debt
securities purchased by the Series are generally of investment grade, except
that certain of the Series may invest some of their assets in debt securities
rated below investment grade. See "Junk Bond Considerations" below. For
short-term purposes, all Series may also invest in corporate obligations issued
by domestic and foreign issuers which mature in one year or less and which are
rated "Aa" or higher by Moody's, "AA" or higher by S&P, rated in the two highest
rating categories by any other NRSRO, or which are unrated but determined by the
Investment Adviser (or Subadviser) to be of minimal credit risk and comparable
quality.
CONVERTIBLE SECURITIES AND WARRANTS (ALL SERIES OTHER THAN DIVERSIFIED INCOME
SERIES). Each of the Series other than the Diversified Income Series may invest
in securities which may be exchanged for, converted into, or exercised to
acquire a predetermined number of shares of the issuer's common stock at the
option of the holder during a specified time period (such as convertible
preferred stocks, convertible debentures and warrants). Convertible securities
generally pay interest or dividends and provide for participation in the
appreciation of the underlying common stock but at a lower level of risk because
the yield is higher and the security is senior to common stock. Convertible
securities may also include warrants which give the holder the right to purchase
at any time during a specified period a predetermined number of shares of common
stock at a fixed price but which do not pay a fixed dividend.
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Investments in warrants involve certain risks, including the possible lack of a
liquid market for resale, potential price fluctuations as a result of
speculation or other factors, and the failure of the price of the underlying
security to reach or have reasonable prospects of reaching a level at which the
warrant can be prudently exercised, in which event the warrant may expire
without being exercised, resulting in a loss of a Series' entire investment
therein. As a matter of operating policy, the Diversified Income and
International Fixed Income Series will not invest in warrants, and no other
Series will invest more than 5% of its net assets in warrants.
The value of a convertible security is a function of its "investment value"
(determined by its yield in comparison with the yields of other securities of
comparable maturity and quality that do not have a conversion privilege) and its
"conversion value" (the security's worth, at market value, if converted into the
underlying common stock). The credit standing of the issuer and other factors
may also affect the investment value of a convertible security. The conversion
value of a convertible security is determined by the market price of the
underlying common stock. If the conversion value is low relative to the
investment value, the price of the convertible security is governed principally
by its investment value. To the extent the market price of the underlying common
stock approaches or exceeds the conversion price, the price of the convertible
security will be increasingly influenced by its conversion value.
Like other debt securities, the market value of convertible securities tends to
vary inversely with the level of interest rates. The value of the security
declines as interest rates increase and increases as interest rates decline.
Although under normal market conditions longer term securities have greater
yields than do shorter term securities of similar quality, they are subject to
greater price fluctuations. Fluctuations in the value of a Series' investments
will be reflected in its net asset value per share. A convertible security may
be subject to redemption at the option of the issuer at a price established in
the instrument governing the convertible security. If a convertible security
held by a Series is called for redemption, the Series will be required to permit
the issuer to redeem the security, convert it into the underlying common stock
or sell it to a third party.
Convertible debt securities purchased by the Diversified Income and
International Fixed Income Series are subject to certain minimum credit rating
requirements. Convertible securities purchased by the other Series, which are
acquired in whole or substantial part for their equity characteristics, are not
subject to such rating requirements.
JUNK BOND CONSIDERATIONS (DIVERSIFIED INCOME SERIES). The Diversified Income
Series may invest up to 35% of its net assets in convertible and other debt
securities rated below "Baa" by Moody's, "BBB-" by S&P, or below investment
grade by other recognized rating agencies, or in unrated securities determined
by the Investment Adviser to be of comparable quality if the Investment Adviser
believes that the financial condition of the issuer or the protection afforded
to the particular securities is stronger than would otherwise be indicated by
such low ratings or the lack thereof. Securities rated below "Baa", "BBB-" or
equivalent ratings, commonly referred to as "junk bonds," are subject to greater
risk of loss of income and principal than higher-rated bonds and are considered
to be predominantly speculative with respect to the issuer's capacity to pay
interest and repay principal, which may in any case decline during sustained
periods of deteriorating economic conditions or rising interest rates. Junk
bonds are also generally considered to be subject to greater market risk in
times of deteriorating economic conditions, and to wider market and yield
fluctuations, than higher-rated securities. Junk bonds may also be more
susceptible to real or perceived adverse economic and competitive industry
conditions than investment grade securities. The market for such securities may
be thinner and less active than that for higher-rated securities, which can
adversely affect the prices at which these securities can be sold. To the extent
that there is no
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established secondary market for lower-rated securities, the Series may
experience difficulty in valuing such securities and, in turn, its assets. In
addition, adverse publicity and investor perceptions about junk bonds, whether
or not based on fundamental analysis, may tend to decrease the market value and
liquidity of such securities.
Legislation has been and could be adopted limiting the use, or tax and other
advantages, of junk bonds which could adversely affect their value. Under the
Financial Institutions Reform, Recovery, and Enforcement Act of 1989, for
example, federally insured savings and loan associations were required to divest
their investments in non-investment grade corporate debt securities by July 1,
1994. Other pending congressional proposals could, if enacted, have a material
adverse effect on the market for, and prices of, such securities.
The Investment Adviser will try to reduce the risk inherent in the Series'
investment in such securities through credit analysis, diversification and
attention to current developments and trends in interest rates and economic
conditions. However, there can be no assurance that losses will not occur. Since
the risk of default is higher for lower-rated bonds, the Investment Adviser's
research and credit analysis are a correspondingly important aspect of its
program for managing the Series' investments in such debt securities. The
Investment Adviser will attempt to identify those issuers of high-yielding
securities whose financial condition is adequate to meet future obligations, or
has improved or is expected to improve in the future.
The Series will in no event purchase securities rated below "C" or equivalent by
Moody's, S&P or another rating agency, or determined by the Investment Adviser
to be of comparable quality. Debt securities with such ratings are predominantly
speculative with respect to the capacity of the issuer to pay interest and repay
principal. Unrated securities will also be considered for investment when the
Investment Adviser believes that the financial condition of the issuers of such
securities, or the protection afforded by the terms of the securities
themselves, limit the risk to a Series to a degree comparable to that of rated
securities which are consistent with the Series' investment objective and
policies. See the Statement of Additional Information for a description of
credit ratings.
Credit ratings evaluate the safety of principal and interest payments of
securities, not their market value. The rating of an issuer is also heavily
weighted by past developments and does not necessarily reflect probable future
conditions. There is frequently a lag between the time a rating is assigned and
the time it is updated. As credit rating agencies may fail to timely change
credit ratings of securities to reflect subsequent events, the Investment
Adviser will also monitor issuers of such securities to determine if such
issuers will have sufficient cash flow and profits to meet required principal
and interest payments and to assure their liquidity. If the rating of a debt
security held by a Series is downgraded below "C" or an equivalent rating, or if
the Investment Adviser determines that an unrated security is of comparable
quality, the Investment Adviser will determine whether it is in the best
interests of the Series to continue to hold such security in its investment
portfolio. However, if the downgrading of an investment grade security causes
the Diversified Income Series to hold 35% or more of its net assets in
securities rated below investment grade or determined by the Investment Adviser
to be of comparable quality, the Series will sell sufficient principal amount of
such securities as promptly as practicable to make sure that it holds less than
such percentage of its net assets in such securities.
SYNTHETIC CONVERTIBLE SECURITIES (VALUE SERIES). The Value Series may invest in
"synthetic" convertible securities, which are derivative positions composed of
two or more different securities whose investment characteristics, taken
together, resemble those of convertible securities. For example, the Series may
purchase a non-convertible debt security and a warrant
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or option, which enables the Series to have a convertible-like position with
respect to a company, group of companies or stock index. Synthetic convertible
securities are typically offered by financial institutions and investment banks
in private placement transactions. Upon conversion, the Series generally
receives an amount in cash equal to the difference between the conversion price
and the then current value of the underlying security. Unlike a true convertible
security, a synthetic convertible comprises two or more separate securities,
each with its own market value. Therefore, the market value of a synthetic
convertible is the sum of the values of its fixed-income component and its
convertible component. For this reason, the values of a synthetic convertible
and a true convertible security may respond differently to market fluctuations.
The Value Series only invests in synthetic convertibles with respect to
companies whose corporate debt securities are rated "A" or higher by Moody's or
"A" or higher by S&P, and will not invest more than 15% of its net assets in
such synthetic securities and other illiquid securities. See "Illiquid
Securities" below.
EURODOLLAR AND YANKEE DOLLAR INSTRUMENTS (DIVERSIFIED INCOME SERIES). The
Diversified Income Series may invest in Eurodollar and Yankee Dollar
instruments. Eurodollar instruments are bonds that pay interest and principal in
U.S. dollars held in banks outside the United States, primary in Europe.
Eurodollar instruments are usually issued on behalf of multinational companies
and foreign governments by large underwriting groups composed of banks and
issuing houses from many countries. Yankee Dollar instruments are U.S. dollar
denominated bonds issued in the U.S. by foreign banks and corporations. These
investments involve risks that are different from investments in securities
issued by U.S. issuers. See "Foreign Investment Considerations."
EQUITY SECURITIES OF GROWTH COMPANIES (CORE GROWTH, EMERGING GROWTH AND
INTERNATIONAL GROWTH SERIES). The Core Growth, Emerging Growth, and
International Growth Series each may invest in equity securities of growth
companies, cyclical companies, companies with smaller market capitalizations or
companies believed to be undergoing a basic change in operations or markets
which could result in a significant improvement in earnings. Small companies and
new companies often have limited product lines, markets or financial resources,
and may be dependent upon one or few key persons for management. The securities
of such companies may be subject to more volatile market movements than
securities of larger, more established companies, both because the securities
typically are traded in lower volume and because the issuers typically are more
subject to changes in earnings and prospects. The Series' net asset values can
be expected to experience above-average fluctuations, as above-average risk is
assumed by the Series in investing in such growth companies in seeking higher
than average growth in capital.
CLOSED-END COUNTRY FUNDS (INTERNATIONAL GROWTH SERIES). Closed-end country funds
in which the International Growth Series may invest are registered closed-end
investment companies with publicly traded shares and which hold portfolio
securities of issuers operated or located in a single country or geographical
region. The extent to which the Series may invest in closed-end country funds is
limited by the Investment Company Act. Accordingly, as a fundamental policy,
except as permitted by the Investment Company Act the International Growth
Series will not own more than 3% of the outstanding voting stock of any
closed-end investment company, will not invest more than 10% of its total assets
in securities issued by closed-end investment companies nor, together with other
investment companies managed by the Investment Adviser, will it own more than
10% of any closed-end investment company. Assets of the Series invested in
closed-end country funds are subject to advisory and other fees imposed by the
closed-end country fund, as well as to fees imposed by the Series.
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MORTGAGE-BACKED SECURITIES (ALL SERIES OTHER THAN VALUE SERIES). Each Series
other than the Value Series may invest in mortgage-backed securities.
Mortgage-backed securities represent direct or indirect participations in or
obligations collateralized by and payable from mortgage loans secured by real
property. Each mortgage pool underlying mortgage-backed securities will consist
of mortgage loans evidenced by promissory notes secured by first mortgages or
first deeds of trust or other similar security instruments creating a first lien
on real property. An investment in mortgage-backed securities includes certain
risks. Mortgage-backed securities are often subject to more rapid repayment than
their stated maturity dates would indicate as a result of the pass-through or
prepayments of principal on the underlying loans, which may increase the
volatility of such investments relative to similarily related debt securities.
During periods of declining interest rates, prepayment of loans underlying
mortgage-backed securities can be expected to accelerate and thus impair a
Series' ability to reinvest the returns of principal at comparable yields.
During periods of rising interest rates, reduced prepayment rates may extend the
average life of mortgage-backed securities and increase a Series' exposure to
rising interest rates. Accordingly, the market values of such securities will
vary with changes in market interest rates generally and in yield differentials
among various kinds of U.S. Government securities and other mortgage-backed
securities.
The Series may invest in mortgage pass-through securities, which are fixed or
adjustable rate mortgage-backed securities that provide for monthly payments
that are a "pass-through" of the monthly interest and principal payments
(including any prepayments) made by the individual borrowers on the pooled
mortgage loans, net of any fees or other amounts paid to any guarantor,
administrator and/or servicer of the underlying mortgage loans.
The Diversified Income Series may also invest in collateralized mortgage
obligations ("CMOs"), which are multiple class mortgage-backed securities. CMOs
provide an investor with a specified interest in the cash flow from a pool of
underlying mortgages or of other mortgage-backed securities. CMOs are issued in
multiple classes, each with a specified fixed or adjustable interest rate and a
final distribution date. In most cases, payments of principal and interest are
applied to the CMO classes in the order of their respective stated maturities or
seniorities, so that no principal and interest payments will be made on a CMO
class until all other classes leaving an earlier stated maturity date or
seniority are paid in full. Sometimes, however, CMO classes can be "parallel
paid" (i.e., payments of principal can be made to two or more classes
concurrently).
ASSET-BACKED SECURITIES (DIVERSIFIED INCOME SERIES). The Diversified Income
Series may invest in asset-backed securities, which represent participations in,
or are secured by and payable from, assets such as motor vehicle installment
sale contracts, installment loan contracts, leases of various types of real and
personal property, receivables from revolving credit (credit card) agreements
and other categories of receivables. Asset-backed securities may also be
collateralized by a portfolio of U.S. Government securities, but are not direct
obligations of the U.S. Government, its agencies or instrumentalities. Payments
or distributions of principal and interest on asset-backed securities may be
guaranteed up to certain amounts and for a certain time period by a letter of
credit or a pool insurance policy issued by a financial institution, or other
credit enhancements may be present; however, privately issued obligations
collateralized by a portfolio of privately issued asset-backed securities do not
involve any government-related guaranty or insurance.
Asset-backed securities can be structured in several ways, the most common of
which has been a "pass-through" model. A certificate representing a fractional
undivided beneficial interest in a trust or corporation created solely for the
purpose of holding the trust's assets is issued to the
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asset-backed security holder. The certificate entitles the holder to receive a
percentage of the interest and principal payments on the terms and according to
the schedule established by the trust instrument. A servicing agent collects
amounts due on the underlying assets for the account of the trust, which
distributes such amounts to the security holders. As an alternative structure,
the issuer of asset-backed securities effectively transforms an asset-backed
pool into obligations comprised of several different maturities. Instead of
holding an undivided interest in trust assets, the purchaser of the asset-backed
security holds a bond collateralized by the underlying assets. The bonds are
serviced by cash flows from the underlying assets, a specified fraction of all
cash received (less a fixed servicing fee) being allocated first to pay interest
and then to reduce principal.
Asset-backed securities present certain risks similar to and in addition to
those presented by mortgage-backed securities. Asset-backed securities generally
do not have the benefit of a security interest in collateral that is comparable
to mortgage assets and there is the possibility that, in some cases, recoveries
on repossessed collateral may not be available to support payments on these
securities. Asset-backed securities, however, are not generally subject to the
risks associated with prepayments of principal on the underlying loans.
DEPOSITORY RECEIPTS (ALL SERIES). Each of the Series may invest in American
Depository Receipts ("ADRs"), which are receipts issued by an American bank or
trust company evidencing ownership of underlying securities issued by a foreign
issuer. ADRs, in registered form, are designed for use in U.S. securities
markets. The Emerging Growth, International Growth, Value, Diversified Income
and International Fixed Income Series may also invest in European and Global
Depository Receipts ("EDRs" and "GDRs"), which, in bearer form, are designed for
use in European securities markets, and in other instruments representing
securities of foreign companies. Such depository receipts may be sponsored by
the foreign issuer or may be unsponsored. Unsponsored depository receipts are
organized independently and without the cooperation of the foreign issuer of the
underlying securities; as a result, available information regarding the issuer
may not be as current as for sponsored depository receipts, and the prices of
unsponsored depository receipts may be more volatile than if they were sponsored
by the issuers of the underlying securities.
EURODOLLAR CONVERTIBLE SECURITIES (INTERNATIONAL FIXED INCOME SERIES). The
International Fixed Income Series may invest in Eurodollar convertible
securities, which are fixed income securities of a U.S. issuer or a foreign
issuer that are issued outside the United States and are convertible into or
exchangeable for equity securities of the same or a different issuer. Interest
and dividends on Eurodollar securities are payable in U.S. dollars outside of
the United States. The Series may invest without limitation in Eurodollar
convertible securities that are convertible into or exchangeable for foreign
equity securities listed, or represented by ADRs listed, on the New York Stock
Exchange or the American Stock Exchange or convertible into or exchangeable for
publicly traded common stock of U.S. companies. The Series may also invest up to
15% of its total assets invested in convertible securities, taken at market
value, in Eurodollar convertible securities that are convertible into or
exchangeable for foreign equity securities which are not listed, or represented
by ADRs listed, on such exchanges.
FOREIGN INVESTMENT CONSIDERATIONS (ALL SERIES). There are special risks
associated with investments in securities of foreign companies and governments,
which add to the usual risks inherent in domestic investments. Such special
risks include fluctuations in foreign exchange rates, political or economic
instability in the country of issue, and the possible imposition of exchange
controls or other laws or restrictions. Certain foreign countries, particularly
developing countries, have experienced, and may continue to experience, high
rates of inflation
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and high interest rates; exchange-rate fluctuations; large amounts of external
debt; balance-of-payments and trade difficulties; and extreme poverty and
unemployment. In addition, securities prices in foreign markets are generally
subject to different economic, financial, political and social factors than are
the prices of securities in United States markets. With respect to some foreign
countries there may be the possibility of expropriation or confiscatory
taxation, limitations on liquidity of securities or political or economic
developments which could affect the foreign investments of a Series. Moreover,
securities of foreign issuers generally will not be registered with the
Securities and Exchange Commission and such issuers generally will not be
subject to the Commission's reporting requirements. Accordingly, there is likely
to be less publicly available information concerning certain of the foreign
issuers of securities held by a Series than is available concerning U.S.
companies. Foreign companies are also generally not subject to uniform
accounting, auditing and financial reporting standards or to practices and
requirements comparable to those applicable to U.S. companies. There may also be
less government supervision and regulation of foreign broker-dealers, financial
institutions and listed companies than exists in the United States. The Series
will not invest in securities denominated in a foreign currency unless, at the
time of investment, such currency is considered by the Investment Adviser to be
fully exchangeable into United States dollars without significant legal
restriction.
SPECIAL CONSIDERATIONS REGARDING EMERGING MARKETS INVESTMENTS (ALL
SERIES). Investments in securities issued by the governments of emerging or
developing countries, and of companies within those countries, involves greater
risks than other foreign investments. Investments in emerging or developing
markets involve exposure to economic and legal structures that are generally
less diverse and mature (and in some cases the absence of developed legal
structures governing private and foreign investments and private property), and
to political systems which can be expected to have less stability, than those of
more developed countries. The risks of investment in such countries may include
matters such as relatively unstable governments, higher degrees of government
involvement in the economy, the absence until recently of capital market
structures or market-oriented economies, economies based on only a few
industries, securities markets which trade only a small number of securities,
restrictions on foreign investment in stocks, and significant foreign currency
devaluations and fluctuations.
Emerging markets can be substantially more volatile than both U.S. and more
developed foreign markets. Such volatility may be exacerbated by illiquidity.
The average daily trading volume in all of the emerging markets combined is a
small fraction of the average daily volume of the U.S. market. Small trading
volumes may result in the Series being forced to purchase securities at
substantially higher prices than the current market, or to sell securities at
much lower prices than the current market.
OVER-THE-COUNTER SECURITIES (ALL SERIES). Securities owned by each of the Series
may be traded in the over-the-counter market or on a regional securities
exchange and may not be traded every day or in the volume typical of securities
trading on a national securities exchange. As a result, disposition by such
Series of portfolio securities to meet redemptions by investors or otherwise may
require the Series to sell these securities at a discount from market prices, to
sell during periods when such disposition is not desirable, or to make many
small sales over a lengthy period of time.
WHEN-ISSUED SECURITIES AND FIRM COMMITMENT AGREEMENTS (ALL SERIES). Each of the
Series may purchase securities on a delayed delivery or "when-issued" basis and
enter into firm commitment agreements (transactions in which the payment
obligation and interest rate are fixed at the time of the transaction but the
settlement is delayed). Delivery and payment for
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these securities typically occur 15 to 45 days after the commitment to purchase.
No interest accrues to the purchaser during the period before delivery. There is
a risk in these transactions that the value of the securities at settlement may
be more or less than the agreed upon price, or that the party with which a
Series enters into such a transaction may not perform its commitment. The Series
will normally enter into these transactions with the intention of actually
receiving or delivering the securities. The Series may sell the securities
before the settlement date.
To the extent a Series engages in any of these transactions it will do so for
the purpose of acquiring securities for its portfolio consistent with its
investment objective and policies and not for the purpose of investment
leverage. The Series will segregate liquid assets such as cash, U.S. Government
securities and other liquid high quality debt securities in an amount sufficient
to meet their payment obligations with respect to these transactions. A Series
may not purchase when-issued securities or enter into firm commitments if, as a
result, more than 15% of the Series' net assets would be segregated to cover
such contracts.
"ROLL" TRANSACTIONS (DIVERSIFIED INCOME AND INTERNATIONAL FIXED INCOME SERIES
FUND). The Diversified Income and International Fixed Income Series may enter
into "roll" transactions, which are the sale of GNMA certificates and other
securities together with a commitment to purchase similar, but not identical,
securities as a later date from the same party. During the roll period, a Series
forgoes principal and interest paid on the securities. The Series is compensated
by the difference between the current sales price and the forward price for the
future purchase, as well as by the interest earned on the cash proceeds of the
initial sale. Like when-issued securities or firm commitment agreements, roll
transactions involve the risk that the market value of the securities sold by
the Series may decline below the price at which the Series is committed to
purchase similar securities. Additionally, in the event the buyer of securities
under a roll transaction files for bankruptcy or becomes insolvent, the Series'
use of the proceeds of the transaction may be restricted pending a determination
by the other party, or its trustee or receiver, whether to enforce the Series'
obligation to repurchase the securities.
The Diversified Income and International Fixed Income Series will engage in roll
transactions for the purpose of acquiring securities for its portfolio
consistent with its investment objective and policies and not for investment
leverage. Nonetheless, roll transactions are speculative techniques and are
considered borrowings by a Series for purposes of the percentage limitations
applicable to borrowings. See "Borrowings" below. Each Series will establish a
segregated account with its Custodian in which it will maintain cash, U.S.
Government securities and other liquid, high-grade debt obligations in an amount
sufficient to meet its payment obligations with respect to these transactions. A
Series will not enter into roll transactions if, as a result, more than 15% of
the Series' net assets would be segregated to cover such contracts.
SHORT SALES (CORE GROWTH, EMERGING GROWTH AND INTERNATIONAL GROWTH SERIES). The
Investment Adviser believes that its growth equity management approach, in
addition to identifying equity securities the earnings and prices of which it
expects to grow at a rate above that of the S&P 500, also identifies securities
the prices of which can be expected to decline. Therefore, each of the Core
Growth, Emerging Growth and International Growth Series is authorized to make
short sales of securities it owns or has the right to acquire at no added cost
through conversion or exchange of other securities it owns (referred to as short
sales "against the box") and to make short sales of securities which it does not
own or have the right to acquire. A short sale that is not made "against the
box" is a transaction in which the Series sells a security it does not own in
anticipation of a decline in market price. When the Series makes a short
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sale, the proceeds it receives are retained by the broker until the Series
replaces the borrowed security. In order to deliver the security to the buyer,
the Series must arrange through a broker to borrow the security and, in so
doing, the Series becomes obligated to replace the security borrowed at its
market price at the time of replacement, whatever that price may be.
Short sales by the Core Growth, Emerging Growth or International Growth Series
that are not made "against the box" create opportunities to increase the Series'
return but, at the same time, involve special risk considerations and may be
considered a speculative technique. Since the Series in effect profits from a
decline in the price of the securities sold short without the need to invest the
full purchase price of the securities on the date of the short sale, the Series'
net asset value per share will tend to increase more when the securities it has
sold short decrease in value, and to decrease more when the securities it has
sold short increase in value, than would otherwise be the case if it had not
engaged in such short sales. Short sales theoretically involve unlimited loss
potential, as the market price of securities sold short may continuously
increase, although the Series may mitigate such losses by replacing the
securities sold short before the market price has increased significantly. Under
adverse market conditions a Series might have difficulty purchasing securities
to meet its short sale delivery obligations, and might have to sell portfolio
securities to raise the capital necessary to meet its short sale obligations at
a time when fundamental investment considerations would not favor such sales.
The value of securities of any issuer in which a Series maintains a short
position which is "not against the box" may not exceed the lesser of 2% of the
value of the Series' net assets or 2% of the securities of such class of the
issuer.
If the Core Growth, Emerging Growth or International Growth Series makes a short
sale "against the box", the Series would not immediately deliver the securities
sold and would not receive the proceeds from the sale. The seller is said to
have a short position in the securities sold until it delivers the securities
sold, at which time it receives the proceeds of the sale. A Series' decision to
make a short sale "against the box" may be a technique to hedge against market
risks when the Investment Adviser believes that the price of a security may
decline, causing a decline in the value of a security owned by the Series or a
security convertible into or exchangeable for such security. In such case, any
future losses in the Series' long position would be reduced by a gain in the
short position.
In the view of the Securities and Exchange Commission, a short sale involves the
creation of a "senior security" as such term is defined in the Investment
Company Act, unless the sale is "against the box" and the securities sold are
placed in a segregated account (not with the broker), or unless the Series'
obligation to deliver the securities sold short is "covered" by placing in a
segregated account (not with the broker) cash or U.S. Government securities in
an amount equal to the difference between the market value of the securities
sold short at the time of the short sale and any cash or U.S. Government
securities required to be deposited as collateral with a broker in connection
with the sale (not including the proceeds from the short sale), which difference
is adjusted daily for changes in the value of the securities sold short. The
total value of the cash and U.S. Government securities deposited with the broker
and otherwise segregated may not at any time be less than the market value of
the securities sold short at the time of the short sale. As a matter of policy,
the Trust's Board of Trustees has determined that no Series will make short
sales of securities or maintain a short position if to do so could create
liabilities or require collateral deposits and segregation of assets aggregating
more than 25% of the Series' total assets, taken at market value.
A Series' ability to enter into short sales transactions is limited by the
requirements of the Internal Revenue Code with respect to qualification as a
regulated investment company. See "Dividends, Distributions and Taxes" in the
Statement of Additional Information.
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FOREIGN EXCHANGE CONTRACTS (INTERNATIONAL GROWTH, DIVERSIFIED INCOME AND
INTERNATIONAL FIXED INCOME SERIES). Since the International Growth, Diversified
Income and International Fixed Income Series may invest primarily in securities
denominated in currencies other than the U.S. dollar, changes in foreign
currency exchange rates will affect the values of their portfolio securities and
the unrealized appreciation or depreciation of their investments. The rate of
exchange between the U.S. dollar and other currencies is determined by forces of
supply and demand in the foreign exchange markets. These forces are affected by
the international balance of payments and other economic and financial
conditions, government intervention, speculation and other factors.
The International Growth, Diversified Income and International Fixed Income
Series may enter into derivative positions such as foreign exchange forward
contracts or currency futures or options contracts for the purchase or sale of
foreign currency to "lock in" the U.S. dollar price of the securities
denominated in a foreign currency or the U.S. dollar equivalent of interest and
dividends to be paid on such securities, or to hedge against the possibility
that the currency of a foreign country in which a Series has investments may
suffer a decline against the U.S. dollar. The Series may also cross-hedge, which
involves entering into derivative positions on one foreign currency to hedge
against changes in exchange rates for a different foreign currency, if the
Adviser (or Subadviser) believes there is a pattern of correlation between the
two currencies. A forward currency contract is an obligation to purchase or sell
a specific currency at a future date, which may be any fixed number of days from
the date of the contract agreed upon by the parties, at a price set at the time
of the contract. For example, a Series may purchase a particular currency or
enter into a forward currency contract to preserve the U.S. dollar price of
securities it intends to or has contracted to purchase. Alternatively, the
Series might sell a particular currency on either a spot (cash) basis at the
rate then prevailing in the currency exchange market or on a forward basis by
entering into a forward contract to purchase or sell currency, to hedge against
an anticipated decline in the U.S. dollar value of securities it intends or has
contracted to sell. This method of attempting to hedge the value of the Series'
portfolio securities against a decline in the value of a currency does not
eliminate fluctuations in the underlying prices of the securities. None of the
Series is obligated to engage in any such currency hedging operations, and there
can be no assurance as to the success of any hedging operations which a Series
may implement. Although the strategy of engaging in foreign currency
transactions could reduce the risk of loss due to a decline in the value of the
hedged currency, it could also limit the potential gain from an increase in the
value of the currency. None of the Series intends to maintain a net exposure to
such contracts where the fulfillment of the Series' obligations under such
contracts would obligate the Series to deliver an amount of foreign currency in
excess of the value of the Series' portfolio securities or other assets
denominated in that currency.
OPTIONS (ALL SERIES OTHER THAN VALUE SERIES). Each of the Series other than the
Value Series may purchase listed covered "put" and "call" options with respect
to securities which are otherwise eligible for purchase by such Series and with
respect to various stock indices, for hedging purposes, subject to the following
restrictions: the aggregate premiums on call options purchased by a Series may
not exceed 5% of the market value of net assets of the Series as of the date the
call options are purchased, and the aggregate premiums on put options may not
exceed 5% of the market value of the net assets of the Series as of the date
such options are purchased. In addition, no Series will purchase or sell options
if, immediately thereafter, more than 25% of its net assets would be hedged. A
"put" gives a holder the right, in return for the premium paid, to require the
writer of the put to purchase from the holder a security at a specified price. A
"call" gives a holder the right, in return for the premium paid, to require
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the writer of the call to sell a security to the holder at a specified price. An
option on a securities index (such as a stock index) gives the holder the right,
in return for the premium paid, to require the writer to pay cash equal to the
difference between the closing price of the index and the exercise price of the
option, expressed in dollars, times a specified multiplier.
Put and call options are derivative securities traded on U.S. and foreign
exchanges, including the American Stock Exchange, Chicago Board Options
Exchange, Philadelphia Stock Exchange, Pacific Stock Exchange and New York Stock
Exchange. Additionally, each Series may purchase options not traded on a
securities exchange, which may bear a greater risk of nonperformance than
options traded on a securities exchange. Options not traded on an exchange are
considered dealer options and generally lack the liquidity of an exchange traded
option. Accordingly, dealer options may be subject to the Series' restriction on
investment in illiquid securities, as described below. Dealer options may also
involve the risk that the securities dealers participating in such transactions
will fail to meet their obligations under the terms of the option.
Each of such Series may also write listed covered options on up to 25% of the
value of its respective net assets. Call options written by a Series give the
holder the right to buy the underlying securities from the Series at a stated
exercise price; put options written by a Series give the holder the right to
sell the underlying security to the Series. A call option is covered if the
Series owns the security underlying the call or has an absolute and immediate
right to acquire that security without additional cash consideration upon
conversion or exchange of securities currently held by the Series. A put option
is covered if the Series maintains cash or cash equivalents equal to the
exercise price in a segregated amount with its Custodian. If an option written
by a Series expires unexercised, the Series realizes a gain equal to the premium
received at the time the option was written. If an option purchased by a Series
expires unexercised, the Series realizes a capital loss equal to the premium
paid.
Prior to the earlier of exercise or expiration, an option written by a Series
may be closed out by an offsetting purchase or sale of an option of the same
series. A Series will realize a gain from a closing purchase transaction if the
cost of the closing transaction is less than the premium received from writing
the option; if it is more, the Series will realize a capital loss. If the
premium received from a closing sale transaction is more than the premium paid
to purchase the option, the Series will realize a gain; if it is less, the
Series will realize a loss.
FUTURES CONTRACTS (ALL SERIES). The Core Growth, Emerging Growth, International
Growth and Value Series may purchase and sell stock index futures contracts as a
hedge against changes in market conditions. A stock index futures contract is a
bilateral agreement pursuant to which two parties agree to take or make delivery
of an amount of cash equal to a specified dollar amount times the difference
between the stock index value at the close of the last trading day of the
contract and the price at which the futures contract is originally struck. No
physical delivery of the underlying stocks in the index is made. The Value
Series may enter into futures transactions only with respect to the S&P 500
Index.
Each Series may also purchase and sell financial futures contracts as a hedge
against changes in interest rates. Additionally, the International Growth,
Value, Diversified Income and International Fixed Income Series may purchase and
sell currency futures contracts to hedge against foreign currency fluctuations,
and may purchase and sell related options on futures contracts. A financial or
currency futures contract obligates the seller of the contract to deliver and
the purchaser of the contract to take delivery of the type of financial
instrument or currency called for in the contract at a specified future time
(the settlement date) for a specified price. Although the terms of a contract
call for actual delivery or acceptance of the financial
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instrument or currency, the contracts will be closed out before the delivery
date without delivery or acceptance taking place. Futures options possess many
of the same characteristics as options on securities and indices. A futures
option gives the holder, in return for the premium paid, the right to buy (call)
from or sell (put) to the writer of the option a futures contract at a specified
price at any time during the period of the option. Upon exercise of a call
option, the holder acquires a long position in the futures contract and the
writer is assigned the opposite short position. In the case of a put option, the
opposite is true. A futures option may be closed out before exercise or
expiration by an offsetting purchase or sale of a futures option of the same
series.
Financial, currency and stock index futures contracts are derivative instruments
traded on U.S. commodities and futures exchanges, including the Chicago
Mercantile Exchange, the New York Futures Exchange, the Kansas City Board of
Trade, the Chicago Board of Trade and the International Monetary Market, as well
as commodity and securities exchanges located outside the United States,
including the London International Financial Futures Exchange, the Singapore
International Monetary Exchange, the Sydney Futures Exchange Limited and the
Tokyo Stock Exchange.
The Series will not engage in transactions in futures contracts for speculation,
but only as a hedge against the risk of unexpected changes exchange rates or in
the values of securities held or intended to be held by the Series. As a general
rule, no Series will purchase or sell futures if, immediately thereafter, more
than 25% of its net assets would be hedged. In addition, no Series may purchase
or sell futures or related options if, immediately thereafter, the sum of the
amount of margin deposits on the Series' existing futures positions and premiums
paid for such options would exceed 5% of the market value of the Series' net
assets. In instances involving the purchase of futures contracts by a Series, an
amount of cash and cash equivalents equal to the market value of the futures
contracts will be deposited in a segregated account with the Series' Custodian
or with a broker to collateralize the position and thereby insure that the use
of such futures is unleveraged.
INTEREST RATE AND CURRENCY SWAPS (DIVERSIFIED INCOME SERIES). For hedging
purposes, the Diversified Income Series may enter into interest rate swap
transactions, purchase or sell interest rate caps and floors, and enter into
currency swap cap transactions. An interest rate or currency swap involves an
agreement between a Series and another party to exchange payments calculated as
if they were interest on a specified ("notional") principal amount (e.g., an
exchange of floating rate payments by one party for fixed rate payments by the
other). An interest rate cap or floor entitles the purchaser, in exchange for a
premium, to receive payments of interest on a notional principal amount from the
seller of the cap or floor, to the extent that a specified reference rate
exceeds or falls below a predetermined level.
The Diversified Income Series usually enters into such transactions on a "net"
basis, with the Series receiving or paying, as the case may be, only the net
amount of the two payment streams. The net amount of the excess, if any, of the
Series' obligations over its entitlements with respect to each swap is accrued
on a daily basis, and an amount of cash or high-quality liquid securities having
an aggregate net asset value at least equal to the accrued excess is maintained
in a segregated account by the Trust's custodian. If the Series enters into a
swap on other than a net basis, or sells caps or floors, the Series maintains a
segregated account in the full amount accrued on a daily basis of the Series'
obligations with respect to the transaction. Such segregated accounts are
maintained in accordance with applicable regulations of the Commission.
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The Diversified Income Series will not enter into any of these derivative
transactions unless the unsecured senior debt or the claims paying ability of
the other party to the transaction is rated at least "high quality" at the time
of purchase by at least one of the established rating agencies (e.g., AAA or AA
by S&P). The swap market has grown substantially in recent years, with a large
number of banks and investment banking firms acting both as principals and
agents utilizing standard swap documentation, and the Investment Adviser
believes that the swap market has become relatively liquid. Swap transactions do
not involve the delivery of securities or other underlying assets or principal,
and the risk of loss with respect to such transactions is limited to the net
amount of payments that the Series is contractually obligated to make or
receive. Caps and floors are more recent innovations for which standardized
documentation has not yet been developed; accordingly, they are less liquid than
swaps, and caps and floors purchased by a Series are considered to be illiquid
assets.
SPECIAL HEDGING CONSIDERATIONS (ALL SERIES). Special risks are associated with
the use of options, futures contracts and swap transactions as hedging
techniques. There can be no guarantee of a correlation between price movements
in the hedging vehicle and in the portfolio securities being hedged. A lack of
correlation could result in a loss on both the hedged securities in a Series and
the hedging vehicle, so that the Series' return might have been better had
hedging not been attempted. In addition, a decision as to whether, when and how
to use options, futures or swaps involves the exercise of skill and judgment
which are different from those needed to select portfolio securities, and even a
well-conceived transaction may be unsuccessful to some degree because of market
behavior, currency fluctuations or interest rate trends. If the Investment
Adviser or Subadviser is incorrect in its forecasts regarding market values,
currency fluctuations, interest rate trends or other relevant factors, a Series
may be in a worse position than if the Series had not engaged in options,
futures or swap transactions. The loss incurred by a Series in writing, options
on futures and entering into futures and swap transactions is potentially
unlimited. The Investment Adviser and Subadviser are experienced in the use of
options, futures and swap transactions as investment techniques.
In the event of a default by the other party to an over-the-counter option
transaction or a futures or swap transaction, a Series might incur a loss. In
addition, there can be no assurance that a liquid market will exist at a time
when a Series seeks to close out an option position or futures or swap contract.
Most futures exchanges and boards of trade limit the amount of fluctuation in
futures contract prices during a single day; once the daily limit has been
reached on a particular contract, no trades may be made that day at a price
beyond that limit. In addition, certain of these instruments are relatively new
and without a significant trading history. As a result, there is no assurance
that an active secondary market will develop or continue to exist. Lack of a
liquid market for any reason may prevent a Series from liquidating an
unfavorable position and a Series would remain obligated to meet margin
requirements until the position is closed.
A Series' ability to enter into options, futures contracts and swap transactions
is limited by the requirements of the Internal Revenue Code with respect to
qualification as a regulated investment company. See "Dividends, Distributions
and Taxes" in the Statement of Additional Information.
NON-HEDGING STRATEGIC TRANSACTIONS (DIVERSIFIED INCOME SERIES). Each Series'
options, futures and swap transactions will generally be entered into for
hedging purposes -- to protect against possible changes in the market values of
securities held in or to be purchased for the Series' portfolio resulting from
securities markets, currency or interest rate fluctuations, to protect the
Series' unrealized gains in the values of its portfolio securities, to
facilitate the sale of such securities for investment purposes, to manage the
effective maturity or duration of the Series'
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portfolio, or to establish a position in the derivatives markets as a temporary
substitute for purchase or sale of particular securities. However, in addition
to the hedging transactions referred to above, the Diversified Income Series may
enter into options, futures and swap transactions to enhance potential gain in
circumstances where hedging is not involved. The Diversified Income Series' net
loss exposure resulting from transactions entered into for such purposes is not
expected to exceed 1% of the Series' net assets at any one time and, in the
event it does exceed such amount, the Series will close out transactions as
promptly as practicable in order to comply with this limitation. Such
transactions are subject to the limitations described above under "Options,"
"Futures Contracts," and "Interest Rate and Currency Swaps," and to the same
types of risks as described above under "Special Hedging Considerations."
REPURCHASE AGREEMENTS (ALL SERIES). Each Series may on occasion enter into
repurchase agreements, in which the Series purchases securities and the seller
agrees to repurchase them from the Series at a mutually agreed-upon time and
price. The period of maturity is usually overnight or a few days, although it
may extend over a number of months. The resale price is in excess of the
purchase price, reflecting an agreed-upon rate of return effective for the
period of time the Series' money is invested in the security. Each Series'
repurchase agreements will at all times be fully collateralized in an amount at
least equal to 102% of the purchase price, including accrued interest earned on
the underlying securities. The instruments held as collateral are valued daily
and, if the value of the instruments declines, the Series will require
additional collateral. If the seller defaults and the value of the collateral
securing the repurchase agreement declines, the Series may incur a loss. If
bankruptcy proceedings are commenced with respect to the seller, realization
upon the collateral by a Series may be delayed or limited. A Series will only
enter into repurchase agreements involving securities in which it could
otherwise invest and with selected financial institutions and brokers and
dealers which meet certain creditworthiness and other criteria.
ILLIQUID SECURITIES (ALL SERIES). Each Series may invest up to 15% of its net
assets in securities that at the time of purchase have legal or contractual
restrictions on resale or are otherwise illiquid. Historically, illiquid
securities have included securities subject to contractual or legal restrictions
on resale because they have not been registered under the Securities Act of 1933
("restricted securities"), securities which are otherwise not readily marketable
such as over-the-counter, or dealer traded, options, and repurchase agreements
having a maturity of more than seven days. Mutual funds do not typically hold a
significant amount of restricted or other illiquid securities because of the
potential for delays on resale and uncertainty in valuation. Limitations on
resale may have an adverse effect on the marketability of portfolio securities
and the Series might not be able to dispose of restricted or other securities
promptly or at reasonable prices and might thereby experience difficulty
satisfying redemptions. The Series might also have to register such restricted
securities in order to dispose of them, resulting in additional expense and
delay.
In recent years, however, a large institutional market has developed for certain
securities that are not registered under the Securities Act of 1933, including
repurchase agreements, commercial paper, foreign securities, municipal
securities and corporate bonds and notes. Institutional investors depend on an
efficient institutional market in which the unregistered security can be readily
resold or on an issuer's ability to honor a demand for repayment. The fact that
there are contractual or legal restrictions on resale to the general public or
to certain institutions may not be indicative of the liquidity of such
investments. If such securities are subject to purchase by institutional buyers
in accordance with Rule 144A promulgated by the Securities and Exchange
Commission under the Securities Act of 1933, the Trust's Board of
35
<PAGE>
Trustees may determine that such securities are not illiquid securities
notwithstanding their legal or contractual restrictions on resale based on
factors such as the frequency of trades and quotes for the securities, the
number of dealers and others wishing to purchase and sell the securities, and
the nature of the security and the marketplace trades. In all other cases,
however, securities subject to restrictions on resale will be deemed illiquid.
SECURITIES LENDING (ALL SERIES). To increase its income, each Series may lend
its portfolio securities to financial institutions such as banks and brokers if
the loan is collateralized in accordance with applicable regulatory
requirements. The Trust's Board of Trustees has adopted an operating policy that
limits the amount of loans made by Series to not more than 30% of the value of
the total assets of the Series. During the time portfolio securities are on
loan, the borrower pays the Series an amount equivalent to any dividends or
interest paid on such securities, and the Series may invest the cash collateral
and earn additional income, or it may receive an agreed-upon amount of interest
income from the borrower who has delivered equivalent collateral or secured a
letter of credit. Such loans involve risks of delay in receiving additional
collateral or in recovering the securities loaned or even loss of rights in the
collateral should the borrower of the securities fail financially. However, such
securities lending will be made only when, in the Investment Adviser's judgment,
the income to be earned from the loans justifies the attendant risks. Loans are
subject to termination at the option of the Series or the borrower.
BORROWING (ALL SERIES). Each Series may borrow money from banks in amounts up to
20% of its total assets (calculated when the loan is made) only for temporary,
extraordinary or emergency purposes or for the clearance of transactions.
Borrowing involves special risk considerations. Interest costs on borrowings may
fluctuate with changing market rates of interest and may partially offset or
exceed the return earned on borrowed funds (or on the assets that were retained
rather than sold to meet the needs for which funds were borrowed). Under adverse
market conditions, a Series might have to sell portfolio securities to meet
interest or principal payments at a time when fundamental investment
considerations would not favor such sales. All borrowings by a Series will be
made only to the extent that the value of the Series' total assets, less its
liabilities other than borrowings, is equal to at least 300% of all borrowings.
If such asset coverage of 300% is not maintained, the Series will take prompt
action to reduce its borrowings as required by applicable law. Short sales "not
against the box" are considered borrowings for purposes of the percentage
limitations applicable to borrowings.
36
<PAGE>
- --------------------------------------------------------------------------------
PRIOR PERFORMANCE
The following tables set forth composite performance data relating to the Core
Growth, Emerging Growth, International Growth, Value, Diversified Income and
International Fixed Income Series based on the historical performance of
substantially similar accounts managed by the Investment Adviser and Subadviser
since the dates indicated. The data is provided to illustrate the past
performance of the Investment Adviser and Subadviser in managing substantially
similar accounts, as measured against specified market indices. Investors should
not consider this performance data as an indication of future performance of the
Series.
All information set forth in the tables relies on data supplied by the
Investment Adviser or Subadviser or from statistical services, reports or other
sources believed by the Investment Adviser or Subadviser to be reliable.
However, such information has not been verified and is unaudited. The Investment
Adviser has advised the Trust that its net performance results in the tables
with respect to its accounts are the annual rates of return for the
dollar-weighted composite of all fully discretionary accounts managed by the
Investment Adviser for at least one month with the same investment objective and
substantially similar policies as those of the Core Growth, Emerging Growth,
International Growth, Value and Diversified Income Series calculated as set
forth above under "General Information -- Performance Information." The
Subadviser has advised the Trust that its net performance results in the table
with respect to its accounts are the annual rates of return for the
dollar-weighted composite of all fully discretionary accounts managed by the
Subadviser for at least one month with the same investment objective and similar
policies as those of the International Fixed Income Series. Each has indicated
that such results are net of the investment advisory fees paid by such accounts,
and give effect to transaction costs as well as reinvestment of income and
gains. See "Performance Information" in the Statement of Additional Information
for further information about calculation of total return.
The composite account results presented on the following pages may not
necessarily equate with the return experienced by any one particular account
managed by the Investment Adviser or Subadviser, as a result of differences in
brokerage commissions, the size of positions taken in relation to account size
and diversification of securities. The composite results do not reflect the
effect of the operating expenses of the Series or fees and charges made pursuant
to the terms of the Contracts funded by Separate Accounts that invest in shares
of the Series, which effect compounded over time may be substantial.
37
<PAGE>
<TABLE>
<CAPTION>
CORE GROWTH (1) EMERGING GROWTH (1)
------------------------------------------------ -------------------------------------------------
NICHOLAS- NICHOLAS-
APPLEGATE LIPPER APPLEGATE LIPPER RUSSELL
CORE GROWTH RUSSELL STANDARD & EMERGING SMALL COMPANY 2000 RUSSELL
GROWTH FUNDS INDEX MIDCAP POOR'S 500 GROWTH GROWTH FUNDS GROWTH 2000
YEAR COMPOSITE (2) INDEX (3) INDEX (4) COMPOSITE INDEX (5) INDEX (6) INDEX (6)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
- -------------------------------------------------------------------------------------------------------------------------------
1984..................... (5.9%) (4.8%) (8.1%) (3.7%)
1985..................... 24.7% 15.0% 16.7% 17.1% 34.9 30.8 31.0 31.1
1986..................... 20.4 12.9 18.2 18.6 7.4 6.1 3.6 5.7
1987..................... (1.9) 1.3 0.2 5.3 (2.7) (5.2) (10.5) (8.7)
1988..................... 13.6 13.8 19.8 16.6 20.6 18.4 20.4 25.0
1989..................... 32.9 25.1 26.3 31.6 28.4 22.5 20.2 16.3
1990..................... 0.6 (5.6) (11.5) (3.0) (7.1) (10.4) (17.4) (19.5)
1991..................... 56.1 35.5 41.5 30.5 65.9 50.5 51.2 46.0
1992..................... 10.1 7.6 16.3 7.6 10.4 11.9 7.8 18.4
1993..................... 24.6 10.8 14.3 10.1 17.9 16.7 13.4 18.9
1994..................... (9.4) (2.3) (2.1) 1.3 (2.5) (0.9) (2.4) (1.8)
1995.....................
Last 5 Years.............
Last 10 Years............
Since Inception..........
</TABLE>
- ----------------
(1) Inception dates are as follows: Core Growth - October 1, 1985; Emerging
Growth - September 1, 1984.
(2) The Lipper Growth Funds Index is an unmanaged, net asset value weighted
index of the 490 growth mutual funds in the data base maintained by Lipper
Analytical Services, Inc. ("Lipper"). The Lipper Equity Income Funds Index
is an unmanaged, net asset value weighted index of the 30 largest equity
income funds in Lipper's data base. The Lipper Balanced Funds Average is an
unmanaged, net asset value weighted average of 160 balanced mutual funds in
Lipper's data base. Performance is reported after the deduction of all
applicable fund fees and expenses. Lipper performance figures are based on
changes in net asset value with all income dividends and capital gains
distributions reinvested.
(3) The Russell Midcap Index is an index consisting of 800 securities of mid-cap
domestic companies (with capitalizations between $500 million and $5
billion) and is generally regarded as representative of the market for
medium-sized domestic securities. The Index includes income dividends and
distributions but does not reflect fees, brokerage commissions or other
expenses of investing.
(4) The Standard & Poor's 500 Index is a capital-weighted index representing the
aggregate market value of the common equity of 500 stocks primarily traded
on the New York Stock Exchange, regarded as generally representative of the
U.S. stock market. The weight of each stock in the Index is proportional to
its price times the number of shares outstanding. The Standard & Poor's 500
is an unmanaged index and includes the reinvestment of all dividends.
(5) The Lipper Small Company Growth Funds Index is a non-weighted index of the
30 largest U.S. small company growth mutual funds. It is calculated daily
with adjustments for income dividends and capital gains distributions as of
the ex-dividend dates.
(6) The Russell 3000 Index consists of securities of 3,000 large U.S.
corporations, as determined by market capitalizations, and represents
approximately 98% of the investable U.S. equity market. The Russell 2000
Index consists of the smallest 2,000 companies in the Russell 3000 Index,
representing approximately 10% of the total market capitalization of the
securities included in the Russell 3000 Index, and is widely regarded as a
measure of small capitalization stocks. The Russell 2000 Growth Index
contains those securities included in the Russell 2000 Index with a greater
than average growth orientation as measured by price-to-book value and
price-earnings ratios.
38
<PAGE>
<TABLE>
<CAPTION>
INTERNATIONAL GROWTH (1)
------------------------------------- VALUE (1)
NICHOLAS- ----------------------------------
APPLEGATE NICHOLAS-
INTERNATIONAL SALOMON APPLEGATE STANDARD & RUSSELL
GROWTH MSCI EAFE EPAC EMI VALUE POOR'S 500 1000
YEAR COMPOSITE INDEX (7) INDEX (8) COMPOSITE INDEX (4) INDEX (6)
<S> <C> <C> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------
1991..................... 3.5% 5.2% 1.4%
1992..................... (10.1) (12.2) (15.4)
1993..................... 28.1 32.6 30.3
1994..................... 10.1 7.8 9.4 3.8% 5.3% 1.6%
1995.....................
Since Inception..........
</TABLE>
- ----------------
(1) Inception dates are as follows: International Growth -- August 1, 1991;
Value -- April 1, 1994.
(4) The Standard & Poor's 500 Index is a capital-weighted index representing the
aggregate market value of the common equity of 500 stocks primarily traded
on the New York Stock Exchange, regarded as generally representative of the
U.S. stock market. The weight of each stock in the Index is proportional to
its price times the number of shares outstanding. The Standard & Poor's 500
is an unmanaged index and includes the reinvestment of all dividends.
(7)
The Morgan Stanley Capital International Europe, Australia, Far East Index
is an arithmetic, market-value weighted average of the performance of over
900 securities listed on the stock exchanges of Australia, Austria, Belgium,
Denmark, Finland, France, Hong Kong, Ireland, Italy, Japan, Malaysia, The
Netherlands, and New Zealand. The Index includes reinvestment of gross
dividends before deduction of withholding taxes.
(8) The Salomon Brothers Europe, Pacific, Asia Composite Index includes all
investable common stocks in those regions with market capitalizations in
excess of $U.S. 100 million. Each company is weighted by its available
equity capital adjusting for government-held large private holdings,
corporate cross holdings and legally restricted shares. The Extended Market
Index (EMI) represents the small capitalization sector, defined as the
bottom 20% of this group of securities. The Index is unmanaged and includes
gross dividends without deduction for tax withholdings.
39
<PAGE>
<TABLE>
<CAPTION>
DIVERSIFIED INCOME INTERNATIONAL
-------------------------------------------- FIXED INCOME (1)
NICHOLAS- ----------------------------------
APPLEGATE ROGGE
DIVERSIFIED LEHMAN BROS. LEHMAN BROS. INTERNATIONAL SALOMON WORLD
INCOME AGGREGATE BOND GOVT/CORP. BOND FIXED INCOME GOVERNMENT BOND
YEAR COMPOSITE INDEX (9) INDEX (10) COMPOSITE INDEX (EX U.S.)(11)
<S> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------
1981..................... 13.4% 10.6% 10.3%
1982..................... 42.4 32.6 31.1
1983..................... 6.7 8.3 8.0
1984..................... 15.4 15.1 15.0
1985..................... 22.3 22.1 21.3
1986..................... 16.5 15.3 15.6
1987..................... 3.0 2.8 2.3
1988..................... 8.2 7.9 7.6
1989..................... 12.8 14.5 14.2
1990..................... 8.5 9.0 8.3 14.4% 15.3%
1991..................... 17.5 16.0 16.1 21.7 16.2
1992..................... 7.8 7.4 7.6 5.4 4.8
1993..................... 12.5 9.8 11.0 19.4 15.1
1994..................... (3.5) (2.9) (3.5) 1.9 6.0
1995.....................
Last 5 Years.............
Last 10 Years............
Since Inception..........
</TABLE>
- ----------------
(1) Inception dates are as follows: Diversified Income - October 1, 1981;
International Fixed Income - January 1, 1990.
(9) The Lehman Brothers Aggregate Bond Index is an index consisting of the
Lehman Brothers Government/Corporate Bond Index, the Lehman Brothers
Mortgage-Backed Securities Index, and the Lehman-Brothers Assets-Backed
Securities Index. See note 10 for a description of the Government/Corporate
Bond Index. The Mortgage-Backed Securities Index consists of 15 and 30-year
fixed rate securities backed by mortgage pools of GNMA, FHLMC and FNMA
(excluding buydowns, manufactured homes and graduated equity mortgages). The
Asset-Backed Securities Index consists of credit card, auto and home equity
loans (excluding subordinated tranches) with an average life of one year.
Each Index includes income and distributions but does not reflect fees,
brokerage commissions or other expenses of investing.
(10)The Lehman Brothers Government/Corporate Bond Index is an index consisting
of the Lehman Brothers Government Bond Index and the Lehman Brothers
Corporate Bond Index. The Government Bond Index includes all public
obligations of the U.S. Treasury (excluding flower bonds and
foreign-targeted issues), its agencies and quasi-federal corporations, and
corporate debt guaranteed by the U.S. Government. The Corporate Bond Index
includes all publicly issued, fixed rate, non-convertible investment grade
U.S. dollar denominated corporate debt registered with the Securities and
Exchange Commission; it also includes debt issued or guaranteed by foreign
sovereign governments, municipalities, and governmental or international
agencies. The Index includes income and distributions but does not reflect
fees, brokerage commissions or other expenses of investing.
(11)The Salomon Brothers World Government Bond Index (Ex U.S.) is a market
capitalization weighted index consisting of the government bond markets of
Austria, Australia, Belgium, Canada, Denmark, France, Germany, Italy, Japan,
The Netherlands, Spain, Sweden and the United Kingdom. The Index consists of
issues with a remaining maturity of at least one year, and is rebalanced
monthly.
40
<PAGE>
NICHOLAS-APPLEGATE SERIES TRUST
600 West Broadway, 30th Floor
San Diego, California 92101
(800) ________
STATEMENT OF ADDITIONAL INFORMATION
__________, 1996
Nicholas-Applegate Series Trust (the "Trust") is an open-end
management investment company currently offering six separate diversified series
(each a "Series") to registered separate accounts of insurance companies
("Separate Accounts") to serve as the investment medium for variable life
insurance policies and variable annuity contracts (collectively "Contracts")
issued by the insurance companies ("Insurance Companies"). The Separate
Accounts, which will be the owners of the shares of the Trust, will invest in
the shares of each Series in accordance with instructions received from the
owners of the Contracts. Contract owners should consider that the investment
experience of the Series they select will affect the value of and the benefits
provided under the Contract. See the Prospectus for the Separate Accounts for a
description of the relationship between increases or decreases in the net asset
value of Trust shares (and any distributions on such shares) and the benefits
provided under a Contract.
This Statement of Additional Information is not a prospectus, but
contains information in addition to and more detailed than that set forth in the
Prospectus and should be read in conjunction with the Prospectus. The
Prospectus may be obtained without charge by calling or writing the Trust at the
address and phone number given above.
TABLE OF CONTENTS
Page
Investment Objectives, Policies and Risks. . . . . . . . . . . . . . . B-2
Investment Restrictions. . . . . . . . . . . . . . . . . . . . . . . . B-29
Principal Holders of Securities. . . . . . . . . . . . . . . . . . . . B-31
Trustees and Principal Officers. . . . . . . . . . . . . . . . . . . . B-32
Investment Adviser . . . . . . . . . . . . . . . . . . . . . . . . . . B-33
Administrator. . . . . . . . . . . . . . . . . . . . . . . . . . . . . B-35
Distributor. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . B-36
Portfolio Transactions and Brokerage . . . . . . . . . . . . . . . . . B-36
Purchase and Redemption of Shares. . . . . . . . . . . . . . . . . . . B-38
Taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . B-39
Performance Information. . . . . . . . . . . . . . . . . . . . . . . . B-43
Custodian, Transfer and Dividend Disbursing Agent,
Independent Accountants and Legal Counsel. . . . . . . . . . . . . . B-44
Miscellaneous. . . . . . . . . . . . . . . . . . . . . . . . . . . . . B-45
Appendix A - Description of Securities Ratings . . . . . . . . . . . . A-1
Appendix B - Statement of Assets and Liabilities . . . . . . . . . . . A-10
B-1
<PAGE>
INVESTMENT OBJECTIVES, POLICIES AND RISKS
The following discussion supplements the discussion of each Series'
investment objective and policies as set forth in the Prospectus. There can be
no assurance that the investment objective of any Series can be achieved.
EQUITY SECURITIES OF GROWTH COMPANIES
Each of the Core Growth, Emerging Growth and International Growth
Series invests in equity securities of domestic and foreign companies, the
earnings and stock prices of which are expected by Nicholas-Applegate Capital
Management (the "Investment Adviser") to grow at an above-average rate. Such
investments will be diversified over a cross-section of industries and
individual companies. Some of these companies may be organizations with market
capitalizations of $500 million or less or companies that have limited product
lines, markets and financial resources and are dependent upon a limited
management group. Examples of possible investments include emerging growth
companies employing new technology, cyclical companies, initial public offerings
of companies offering high growth potential, or other corporations offering good
potential for high growth in market value. The securities of such companies may
be subject to more abrupt or erratic market movements than larger, more
established companies both because the securities typically are traded in lower
volume and because the issuers typically are subject to a greater degree to
changes in earnings and prospects.
CONVERTIBLE SECURITIES AND WARRANTS
Each Series other than the Diversified Income Series may invest in
convertible securities. A convertible security is a fixed income security (a
bond or preferred stock) which may be converted at a stated price within a
specified period of time into a certain quantity of the common stock of the same
or a different issuer. Convertible securities are senior to common stocks in an
issuer's capital structure, but are usually subordinated to similar
non-convertible securities. While providing a fixed income stream (generally
higher in yield than the income derivable from common stock but lower than that
afforded by a similar nonconvertible security), a convertible security also
affords an investor the opportunity, through its conversion feature, to
participate in the capital appreciation attendant upon a market price advance in
the convertible security's underlying common stock.
All Series other than the Diversified Income and International Fixed
Income Series may invest in warrants. A warrant gives the holder a right to
purchase at any time during a specified period a predetermined number of shares
of common stock at a fixed price. Unlike convertible debt securities or
preferred stock, warrants do not pay a fixed dividend. Investments in warrants
involve certain risks, including the possible lack of a liquid market for resale
of the warrants, potential price fluctuations as a result of speculation or
other factors, and failure of the price of the underlying security to reach or
have reasonable prospects of reaching a level at which the warrant can be
prudently exercised (in which event the warrant may expire without being
exercised, resulting in a loss of the Series' entire investment therein).
B-2
<PAGE>
OTHER CORPORATE DEBT SECURITIES
Each Series may invest in non-convertible debt securities of foreign
and domestic companies over a cross-section of industries. The debt securities
in which such Series may invest will be of varying maturities and may include
corporate bonds, debentures, notes and other similar corporate debt instruments.
The value of a longer-term debt security fluctuates more widely in response to
changes in interest rates than do shorter-term debt securities.
RISKS OF INVESTING IN DEBT SECURITIES
There are a number of risks generally associated with an investment in
debt securities (including convertible securities). Yields on short,
intermediate, and long-term securities depend on a variety of factors, including
the general condition of the money and bond markets, the size of a particular
offering, the maturity of the obligation, and the rating of the issue. Debt
securities with longer maturities tend to produce higher yields and are
generally subject to potentially greater capital appreciation and depreciation
than obligations with short maturities and lower yields. The market prices of
debt securities usually vary, depending upon available yields. An increase in
interest rates will generally reduce the value of such portfolio investments,
and a decline in interest rates will generally increase the value of such
portfolio investments. The ability of the Series to achieve their investment
objectives also depends on the continuing ability of the issuers of the debt
securities in which the Series invests to meet their obligations for the payment
of interest and principal when due.
RISKS OF HOLDING LOWER-RATED DEBT SECURITIES
As set forth in the Prospectus, the Diversified Income Series may hold
a portion of their net assets in debt securities rated below "Baa" by Moody's or
"BBB-" by S&P, or below investment grade by other recognized rating agencies, or
in unrated securities believed to be of comparable quality under certain
circumstances. Securities with ratings below "Baa" and/or "BBB-" are commonly
referred to as "junk bonds." Such bonds are subject to greater market
fluctuations and risk of loss of income and principal than higher rated bonds,
and are considered to be predominantly speculative, for a variety of reasons,
including the following:
SENSITIVITY TO INTEREST RATE AND ECONOMIC CHANGES. The economy and
interest rates affect high yield securities differently from other securities.
For example, the prices of high yield bonds have been found to be less sensitive
to interest rate changes than higher-rated investments, but more sensitive to
adverse economic changes or individual corporate developments. Also, during an
economic downturn or substantial period of rising interest rates, highly
leveraged issuers may experience financial stress which would adversely affect
their ability to service their principal and interest obligations, to meet
projected business goals, and to obtain additional financing. If the issuer of
a bond defaults, the Series may incur additional expenses to seek recovery. In
addition, periods of economic uncertainty and changes can be expected to result
in increased volatility of market prices of high yield bonds and the Series'
asset values.
PAYMENT EXPECTATIONS. High yield bonds present certain risks based on
payment expectations. For example, high yield bonds may contain redemption and
call
B-3
<PAGE>
provisions. If an issuer exercises these provisions in a declining interest rate
market, a Series would have to replace the security with a lower yielding
security, resulting in a decreased return for investors. Conversely, a high
yield bond's value will decrease in a rising interest rate market, as will the
value of the Series' assets. If a Series experiences unexpected net
redemptions, it may be forced to sell its high yield bonds without regard to
their investment merits, thereby decreasing the asset base upon which the
Series' expenses can be spread and possibly reducing the Series' rate of return.
LIQUIDITY AND VALUATION. To the extent that there is no established
retail secondary market, there may be thin trading of high yield bonds, and this
may impact the Investment Adviser's (or Subadviser's) ability to accurately
value high yield bonds and the Series' assets and hinder the Series' ability to
dispose of the bonds. Adverse publicity and investor perceptions, whether or
not based on fundamental analysis, may decrease the values and liquidity of high
yield bonds, especially in a thinly traded market.
POTENTIAL LEGISLATION. Legislation has been and could be adopted
limiting the use, or tax and other advantages, of junk bonds which could
adversely affect their value. Under the Financial Institutions Reform,
Recovery, and Enforcement Act of 1989, for example, federally insured savings
and loan associations were required to divest their investments in non-
investment grade corporate debt securities by July 1, 1994.
CREDIT RATINGS. Credit ratings evaluate the safety of principal and
interest payments, not the market value risk of high yield bonds. Also, since
credit rating agencies may fail to timely change the credit ratings to reflect
subsequent events, the Investment Adviser must monitor the issuers of high yield
bonds in the Series' portfolios to determine if the issuers will have sufficient
cash flow and profits to meet required principal and interest payments, and to
assure the bonds' liquidity so the Series can meet redemption requests. The
Series will not necessarily dispose of a portfolio security when its rating has
been changed.
SHORT-TERM INVESTMENTS
Each of the Series invests in any of the following securities and
instruments:
BANK CERTIFICATES OF DEPOSIT, BANKERS' ACCEPTANCES AND TIME DEPOSITS.
Each Series may acquire certificates of deposit, bankers' acceptances and time
deposits. Certificates of deposit are negotiable certificates issued against
funds deposited in a commercial bank for a definite period of time and earning a
specified return. Bankers' acceptances are negotiable drafts or bills of
exchange, normally drawn by an importer or exporter to pay for specific
merchandise, which are "accepted" by a bank, meaning in effect that the bank
unconditionally agrees to pay the face value of the instrument on maturity.
Certificates of deposit and bankers' acceptances acquired by the Series will be
dollar-denominated obligations of domestic or foreign banks or financial
institutions which at the time of purchase have capital, surplus and undivided
profits in excess of $100 million (including assets of both domestic and foreign
branches), based on latest published reports, or less than $100 million if the
principal amount of such bank obligations are fully insured by the U.S.
Government.
A Series holding instruments of foreign banks or financial
institutions may be subject to additional investment risks that are different in
some respects from those
B-4
<PAGE>
incurred by a fund which invests only in debt obligations of U.S. domestic
issuers. See "Foreign Investments" below. Such risks include future political
and economic developments, the possible imposition of withholding taxes by the
particular country in which the issuer is located on interest income payable on
the securities, the possible seizure or nationalization of foreign deposits, the
possible establishment of exchange controls or the adoption of other foreign
governmental restrictions which might adversely affect the payment of principal
and interest on these securities.
Domestic banks and foreign banks are subject to different governmental
regulations with respect to the amount and types of loans which may be made and
interest rates which may be charged. In addition, the profitability of the
banking industry depends largely upon the availability and cost of funds for the
purpose of financing lending operations under prevailing money market
conditions. General economic conditions as well as exposure to credit losses
arising from possible financial difficulties of borrowers play an important part
in the operations of the banking industry.
As a result of federal and state laws and regulations, domestic banks
are, among other things, required to maintain specified levels of reserves,
limited in the amount which they can loan to a single borrower, and subject to
other regulations designed to promote financial soundness. However, such laws
and regulations do not necessarily apply to foreign bank obligations that a
Series may acquire.
In addition to purchasing certificates of deposit and bankers'
acceptances, to the extent permitted under their respective investment
objectives and policies stated above and in their Prospectuses, a Series may
make interest-bearing time or other interest-bearing deposits in commercial or
savings banks. Time deposits are non-negotiable deposits maintained at a
banking institution for a specified period of time at a specified interest rate.
SAVINGS ASSOCIATION OBLIGATIONS. Each Series may invest in
certificates of deposit (interest-bearing time deposits) issued by savings banks
or savings and loan associations that have capital, surplus and undivided
profits in excess of $100 million, based on latest published reports, or less
than $100 million if the principal amount of such obligations is fully insured
by the U.S. Government.
COMMERCIAL PAPER, SHORT-TERM NOTES AND OTHER CORPORATE OBLIGATIONS.
Each Series may invest a portion of its assets in commercial paper and
short-term notes. Commercial paper consists of unsecured promissory notes issued
by corporations. Issues of commercial paper and short-term notes will normally
have maturities of less than nine months and fixed rates of return, although
such instruments may have maturities of up to one year.
Commercial paper and short-term notes will consist of issues rated at
the time of purchase "A-2" or higher by S&P, "Prime-l" or "Prime-2" by Moody's,
or similarly rated by another nationally recognized statistical rating
organization or, if unrated, will be determined by the Investment Adviser to be
of comparable quality. These rating symbols are described in Appendix A.
Corporate obligations include bonds and notes issued by corporations
to finance longer-term credit needs than supported by commercial paper. While
such
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obligations generally have maturities of ten years or more, the Series may
purchase corporate obligations which have remaining maturities of one year or
less from the date of purchase and which are rated "AA" or higher by S&P or "Aa"
or higher by Moody's.
MONEY MARKET FUNDS.
Each Series may under certain circumstances invest a portion of its
assets in money market funds. The Investment Company Act prohibits the Series
from investing more than 5% of the value of their total assets in any one
investment company, or more than 10% of the value of their total assets in
investment companies as a group, and also restricts their investment in any
investment company to 3% of the voting securities of such investment company.
The Investment Adviser will not impose an advisory fee on assets of a Series
invested in a money market mutual fund. However, an investment in a money
market mutual fund will involve payment by a Series of its pro rata share of
advisory and administrative fees charged by such fund.
GOVERNMENT OBLIGATIONS.
Each Series may make short-term investments in U.S. Government
obligations. Such obligations include Treasury bills, certificates of
indebtedness, notes and bonds, and issues of such entities as the Government
National Mortgage Association ("GNMA"), Export-Import Bank of the United States,
Tennessee Valley Authority, Resolution Funding Corporation, Farmers Home
Administration, Federal Home Loan Banks, Federal Intermediate Credit Banks,
Federal Farm Credit Banks, Federal Land Banks, Federal Housing Administration,
Federal National Mortgage Association ("FNMA"), Federal Home Loan Mortgage
Corporation ("FHLMC"), and the Student Loan Marketing Association.
Some of these obligations, such as those of GNMA, are supported by the
full faith and credit of the U.S. Treasury; others, such as those of the
Export-Import Bank of the United States, are supported by the right of the
issuer to borrow from the Treasury; others, such as those of FNMA, are supported
by the discretionary authority of the U.S. Government to purchase the agency's
obligations; still others, such as those of the Student Loan Marketing
Association, are supported only by the credit of the instrumentality. No
assurance can be given that the U.S. Government would provide financial support
to U.S. Government-sponsored instrumentalities if it is not obligated to do so
by law.
The Diversified Income and International Fixed Income Series may
invest in sovereign debt obligations of foreign countries. A sovereign debtor's
willingness or ability to repay principal and interest in a timely manner may be
affected by a number of factors, including its cash flow situation, the extent
of its foreign reserves, the availability of sufficient foreign exchange on the
date a payment is due, the relative size of the debt service burden to the
economy as a whole, the sovereign debtor's policy toward principal international
lenders and the political constraints to which it may be subject. Emerging
market governments could default on their sovereign debt. Such sovereign
debtors also may be dependent on expected disbursements from foreign
governments, multilateral agencies and other entities abroad to reduce principal
and interest arrearages on their debt. The commitments on the part of these
governments, agencies and others to make such disbursements may be conditioned
on a sovereign debtor's implementation of economic reforms and/or economic
performance and the timely service of such debtor's obligations. Failure to
meet such conditions could result in the cancellation of such third parties'
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commitments to lend funds to the sovereign debtor, which may further impair such
debtor's ability or willingness to service its debt in a timely manner.
MUNICIPAL SECURITIES
The Diversified Income Series may invest in taxable debt obligations
issued by state and local governments, territories and possessions of the U.S.,
regional government authorities, and their agencies and instrumentalities
("municipal securities"). Municipal securities include both notes (which have
maturities of less than one year) and bonds (which have maturities of one year
or more) that bear fixed or variable rates of interest.
In general, "municipal securities" debt obligations are issued to
obtain funds for a variety of public purposes, such as the construction, repair,
or improvement of public facilities including airports, bridges, housing,
hospitals, mass transportation, schools, streets, and water and sewer works.
Municipal securities may be issued to refinance outstanding obligations as well
as to raise funds for general operating expenses and lending to other public
institutions and facilities.
The two principal classifications of municipal securities are "general
obligation" securities and "revenue" securities. General obligation securities
are secured by the issuer's pledge of its full faith, credit, and taxing power
for the payment of principal and interest. Characteristics and methods of
enforcement of general obligation bonds vary according to the law applicable to
a particular issuer, and the taxes that can be levied for the payment of debt
service may be limited or unlimited as to rates or amounts of special
assessments. Revenue securities are payable only from the revenues derived from
a particular facility, a class of facilities or, in some cases, from the
proceeds of a special excise tax. Revenue bonds are issued to finance a wide
variety of capital projects including: electric, gas, water and sewer systems;
highways, bridges, and tunnels; port and airport facilities; colleges and
universities; and hospitals. Although the principal security behind these bonds
may vary, many provide additional security in the form of a debt service reserve
fund the assets of which may be used to make principal and interest payments on
the issuer's obligations. Housing finance authorities have a wide range of
security, including partially or fully insured mortgages, rent subsidized and
collateralized mortgages, and the net revenues from housing or other public
projects. Some authorities are provided further security in the form of a
state's assurance (although without obligation) to make up deficiencies in the
debt service reserve fund.
The Diversified Income Series may purchase insured municipal debt in
which scheduled payments of interest and principal are guaranteed by a private,
non-governmental or governmental insurance company. The insurance does not
guarantee the market value of the municipal debt or the value of the shares of
the Series.
Securities of issuers of municipal obligations are subject to the
provisions of bankruptcy, insolvency and other laws affecting the rights and
remedies of creditors, such as the Bankruptcy Reform Act of 1978. In addition,
the obligations of such issuers may become subject to laws enacted in the future
by Congress, state legislatures or referenda extending the time for payment of
principal or interest, or imposing other constraints upon enforcement of such
obligations or upon the ability of municipalities to levy taxes. Furthermore,
as a result of legislation or other conditions, the power or ability of any
issuer
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to pay, when due, the principal of and interest on its municipal obligations may
be materially affected.
MORAL OBLIGATION SECURITIES. Municipal securities may include "moral
obligation" securities which are usually issued by special purpose public
authorities. If the issuer of moral obligation bonds cannot fulfill its
financial responsibilities from current revenues, it may draw upon a reserve
fund, the restoration of which is a moral commitment but not a legal obligation
of the state or municipality which created the issuer.
INDUSTRIAL DEVELOPMENT AND POLLUTION CONTROL BONDS. The Diversified
Income Series may invest in taxable industrial development bonds and pollution
control bonds which, in most cases, are revenue bonds and generally are not
payable from the unrestricted revenues of an issuer. They are issued by or on
behalf of public authorities to raise money to finance privately operated
facilities for business, manufacturing, housing, sport complexes, and pollution
control. Consequently, the credit quality of these securities is dependent upon
the ability of the user of the facilities financed by the bonds and any
guarantor to meet its financial obligations.
MUNICIPAL LEASE OBLIGATIONS. The Diversified Income Series may invest
in lease obligations or installment purchase contract obligations of municipal
authorities or entities ("municipal lease obligations"). Although lease
obligations do not constitute general obligations of the municipality for which
its taxing power is pledged, a lease obligation is ordinarily backed by the
municipality's covenant to budget for, appropriate and make the payment due
under the lease obligation. The Series may also purchase "certificates of
participation," which are securities issued by a particular municipality or
municipal authority to evidence a proportionate interest in base rental or lease
payments relating to a specific project to be made by the municipality, agency
or authority. However, certain lease obligations contain "non-appropriation"
clauses which provide that the municipality has no obligation to make lease or
installment purchase payments in any year unless money is appropriated for such
purpose for such year. Although "non-appropriation" lease obligations are
secured by the leased property, disposition of the property in the event of
default and foreclosure might prove difficult. In addition, these securities
represent a relatively new type of financing, and certain lease obligations may
therefore be considered to be illiquid securities.
The Series will attempt to minimize the special risks inherent in
municipal lease obligations and certificates of participation by purchasing only
lease obligations which meet the following criteria: (1) rated A or better by at
least one nationally recognized securities rating organization; (2) secured by
payments from a governmental lessee which has actively traded debt obligations;
(3) determined by the Investment Adviser to be critical to the lessee's ability
to deliver essential services; and (4) contain legal features which the
Investment Adviser deems appropriate, such as covenants to make lease payments
without the right of offset or counterclaim, requirements for insurance
policies, and adequate debt service reserve funds.
SHORT-TERM OBLIGATIONS. The Diversified Income Fund may invest in
short-term municipal obligations. These securities include the following:
TAX ANTICIPATION NOTES are used to finance working capital needs of
municipalities and are issued in anticipation of various seasonal tax
revenues, to be
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payable from these specific future taxes. They are usually general
obligations of the issuer, secured by the taxing power of the municipality
for the payment of principal and interest when due.
REVENUE ANTICIPATION NOTES are issued in expectation of receipt of
other kinds of revenue, such as federal revenues available under the
Federal Reserve Sharing Program. They also are usually general obligations
of the issuer.
BOND ANTICIPATION NOTES normally are issued to provide interim
financing until long-term financing can be arranged. The long-term bonds
then provide the money for the repayment of the notes.
CONSTRUCTION LOAN NOTES are sold to provide construction financing for
specific projects. After successful completion and acceptance, many
projects receive permanent financing through FNMA or GNMA.
SHORT-TERM DISCOUNT NOTES (tax-exempt commercial paper) are short-term
(365 days or less) promissory notes issued by municipalities to supplement
their cash flow.
ZERO COUPON SECURITIES
The Diversified Income Series may invest up to 50% of its net assets
in zero coupon securities issued by the U.S. Treasury. Zero coupon Treasury
securities are U.S. Treasury notes and bonds which have been stripped of their
unmatured interest coupons and receipts, or certificates representing interests
in such stripped debt obligations or coupons. Because a zero coupon security
pays no interest to its holder during its life or for a substantial period of
time, it usually trades at a deep discount from its face or par value and will
be subject to greater fluctuations of market value in response to changing
interest rates than debt obligations of comparable maturities which make current
distributions of interest.
VARIABLE AND FLOATING RATE INSTRUMENTS
Each Series may acquire variable and floating rate instruments. Such
instruments are frequently not rated by credit rating agencies; however, unrated
variable and floating rate instruments purchased by a Series will be determined
by the Investment Adviser or Rogge Global Partners, plc (the "Subadviser") under
guidelines established by the Board of Trustees to be of comparable quality at
the time of the purchase and rated instruments eligible for purchase by the
Series. In making such determinations, the Investment Adviser (or Subadviser)
will consider the earning power, cash flow and other liquidity ratios of the
issuers of such instruments (such issuers include financial, merchandising, bank
holding and other companies) and will monitor their financial condition. An
active secondary market may not exist with respect to particular variable or
floating rate instruments purchased by the Series. The absence of such an
active secondary market could make it difficult for the Series to dispose of the
variable or floating rate instrument involved in the event of the issuer of the
instrument defaulting on its payment obligation or during periods in which the
Series is not entitled to exercise its demand rights, and the Series could, for
these or other reasons, suffer a loss to the extent of the default. Variable
and floating rate instruments may be secured by bank letters of credit.
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MORTGAGE-RELATED SECURITIES
Each Series other than the Value Series may invest in mortgage-related
securities. Mortgage-related securities are derivative interests in pools of
mortgage loans made to U.S. residential home buyers, including mortgage loans
made by savings and loan institutions, mortgage bankers, commercial banks and
others. Pools of mortgage loans are assembled as securities for sale to
investors by various governmental, government-related and private organizations.
Each such Series may also invest in debt securities which are secured with
collateral consisting of U.S. mortgage-related securities, and in other types of
U.S. and foreign mortgage related securities.
U.S. MORTGAGE PASS-THROUGH SECURITIES. Interests in pools of
mortgage-related securities differ from other forms of debt securities, which
normally provide for periodic payment of interest in fixed amounts with
principal payments at maturity or specified call dates. Instead, these
securities provide a monthly payment which consists of both interest and
principal payments. In effect, these payments are a "pass-through" of the
monthly payments made by the individual borrowers on their residential mortgage
loans, net of any fees paid to the issuer or guarantor of such securities.
Additional payments are caused by repayments of principal resulting from the
sale of the underlying residential property, refinancing or foreclosure, net of
fees or costs which may be incurred. Some mortgage-related securities (such as
securities issued by the Government National Mortgage Association) are described
as "modified pass-throughs." These securities entitle the holder to receive all
interest and principal payments owed on the mortgage pool, net of certain fees,
at the scheduled payment dates regardless of whether or not the mortgagor
actually makes the payment.
The principal governmental guarantor of U.S. mortgage-related
securities is GNMA. GNMA is a wholly owned United States Government corporation
within the Department of Housing and Urban Development. GNMA is authorized to
guarantee, with the full faith and credit of the United States Government, the
timely payment of principal and interest on securities issued by institutions
approved by GNMA (such as savings and loan institutions, commercial banks and
mortgage bankers) and backed by pools of mortgages insured by the Federal
Housing Agency or guaranteed by the Veterans Administration.
Government-related guarantors include FNMA and FHLMC. FNMA is a
government-sponsored corporation owned entirely by private stockholders and
subject to general regulation by the Secretary of Housing and Urban Development.
FNMA purchases conventional residential mortgages not insured or guaranteed by
any government agency from a list of approved seller/services which include
state and federally chartered savings and loan associations, mutual savings
banks, commercial banks and credit unions and mortgage bankers. FHLMC is a
government-sponsored corporation created to increase availability of mortgage
credit for residential housing and owned entirely by private stockholders.
FHLMC issues participation certificates which represent interests in
conventional mortgages from FHLMC's national portfolio. Pass-through securities
issued by FNMA and participation certificates issued by FHLMC are guaranteed as
to timely payment of principal and interest by FNMA and FHLMC, respectively, but
are not backed by the full faith and credit of the United States Government.
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Although the underlying mortgage loans in a pool may have maturities
of up to 30 years, the actual average life of the pool certificates typically
will be substantially less because the mortgages will be subject to normal
principal amortization and may be prepaid prior to maturity. Prepayment rates
vary widely and may be affected by changes in market interest rates. In periods
of falling interest rates, the rate of prepayment tends to increase, thereby
shortening the actual average life of the pool certificates. Conversely, when
interest rates are rising, the rate of prepayments tends to decrease, thereby
lengthening the actual average life of the certificates. Accordingly, it is not
possible to predict accurately the average life of a particular pool.
COLLATERALIZED MORTGAGE OBLIGATIONS ("CMOS"). A CMO in which the
Series may invest is a hybrid between a mortgage-backed bond and a mortgage
pass-through security. Like a bond, interest is paid, in most cases,
semiannually. CMOs may be collateralized by whole mortgage loans, but are more
typically collateralized by portfolios of mortgage pass-through securities
guaranteed by GNMA, FHLMC, FNMA or equivalent foreign entities.
CMOs are structured into multiple classes, each bearing a different
state maturity. Actual maturity and average life depend upon the prepayment
experience of the collateral. CMOs provide for a modified form of call
protection through a de facto breakdown of the underlying pool of mortgages
according to how quickly the loans are repaid. Monthly payment of principal and
interest received from the pool of underlying mortgages, including prepayments,
is first returned to the class having the earliest maturity date or highest
seniority. Classes that have longer maturity dates or lower seniority will
receive principal only after the higher classes have been retired.
FOREIGN MORTGAGE-RELATED SECURITIES. Foreign mortgage-related
securities are interests in pools of mortgage loans made to residential home
buyers domiciled in a foreign country. These include mortgage loans made by
trust and mortgage loan companies, credit unions, chartered banks, and others.
Pools of mortgage loans are assembled as securities for sale to investors by
various governmental, government-related, and private organizations (e.g.,
Canada Mortgage and Housing Corporation and First Australian National Mortgage
Acceptance Corporation Limited). The mechanics of these mortgage-related
securities are generally the same as those issued in the United States.
However, foreign mortgage markets may differ materially from the U.S. mortgage
market with respect to matters such as the sizes of loan pools, prepayment
experience, and maturities of loans.
FOREIGN INVESTMENTS
Each Series other than the Value Series may invest in securities of
foreign issuers that are not publicly traded in the United States. Each Series
may also invest in depository receipts and the International Growth and
International Fixed Income Series may invest in foreign currency and futures
contracts.
The United States government has from time to time imposed
restrictions, through taxation or otherwise, on foreign investments by U.S.
entities such as the Series. If such restrictions should be reinstituted, it
might become necessary for the International Growth, and International Fixed
Income Series to invest substantially all of their assets in United States
securities. In such event, the Board of Trustees of the Trust would consider
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alternative arrangements, including reevaluation of the Series' investment
objectives and policies, investment of all of the Series' assets in another
investment company with different investment objectives and policies than the
Series, or hiring an investment adviser to manage the Series' assets. However,
a Series would adopt any revised investment objective and fundamental policies
only after approval by the shareholders holding a majority (as defined in the
Investment Company Act) of the shares of the Series.
DEPOSITORY RECEIPTS. American Depository Receipts ("ADRs") may be
listed on a national securities exchange or may trade in the over-the-counter
market. ADR prices are denominated in the United States dollars; the underlying
security may be denominated in a foreign currency, although the underlying
security may be subject to foreign government taxes which would reduce the yield
on such securities.
RISKS OF INVESTING IN FOREIGN SECURITIES. Investments in foreign
securities involve certain inherent risks, including the following:
POLITICAL AND ECONOMIC FACTORS. Individual foreign economies of
certain countries may differ favorably or unfavorably from the United States'
economy in such respects as growth of gross national product, rate of inflation,
capital reinvestment, resource self-sufficiency, diversification and balance of
payments position. The internal politics of certain foreign countries may not
be as stable as those of the United States. Governments in certain foreign
countries also continue to participate to a significant degree, through
ownership interest or regulation, in their respective economies. Action by
these governments could include restrictions on foreign investment,
nationalization, expropriation of goods or imposition of taxes, and could have a
significant effect on market prices of securities and payment of interest. The
economies of many foreign countries are heavily dependent upon international
trade and are accordingly affected by the trade policies and economic conditions
of their trading partners. Enactment by these trading partners of protectionist
trade legislation could have a significant adverse effect upon the securities
markets of such countries.
CURRENCY FLUCTUATIONS. Each Series other than the Value Series may
invest in securities denominated in foreign currencies. Accordingly, a change
in the value of any such currency against the U.S. dollar will result in a
corresponding change in the U.S. dollar value of such Series' assets denominated
in that currency. Such changes will also affect the Series' income. The value
of the Series' assets may also be affected significantly by currency
restrictions and exchange control regulations enacted from time to time.
MARKET CHARACTERISTICS. The Investment Adviser expects that most
foreign securities in which each Series (other than the Value Series) invests
will be purchased in over-the-counter markets or on exchanges located in the
countries in which the principal offices of the issuers of the various
securities are located, if that is the best available market. Foreign exchanges
and markets may be more volatile than those in the United States. While growing
in volume, they usually have substantially less volume than U.S. markets, and
the Series' portfolio securities may be less liquid and more volatile than U.S.
Government securities. Moreover, settlement practices for transactions in
foreign markets may differ from those in United States markets, and may include
delays beyond periods customary in the United States. Foreign security trading
practices, including those involving securities settlement where Series assets
may be released prior to receipt of
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payment or securities, may expose the Series to increased risk in the event of a
failed trade or the insolvency of a foreign broker-dealer.
Transactions in options on securities, futures contracts, futures
options and currency contracts may not be regulated as effectively on foreign
exchanges as similar transactions in the United States, and may not involve
clearing mechanisms and related guarantees. The value of such positions also
could be adversely affected by the imposition of different exercise terms and
procedures and margin requirements than in the United States. The value of a
Series' positions may also be adversely impacted by delays in its ability to act
upon economic events occurring in foreign markets during non-business hours in
the United States.
LEGAL AND REGULATORY MATTERS. Certain foreign countries may have less
supervision of securities markets, brokers and issuers of securities, and less
financial information available to issuers, than is available in the United
States.
TAXES. The interest payable on certain of the Series' foreign
portfolio securities may be subject to foreign withholding taxes, thus reducing
the net amount of income available for distribution to the Series' shareholders.
A shareholder otherwise subject to United States federal income taxes may,
subject to certain limitations, be entitled to claim a credit or deduction of
U.S. federal income tax purposes for his proportionate share of such foreign
taxes paid by the Series.
COSTS. To the extent that the Series invest in foreign securities,
the expense ratios of the Series are likely to be higher than those of
investment companies investing only in domestic securities, since the cost of
investing in and maintaining the custody of foreign securities is higher.
In considering whether to invest in the securities of a foreign
company, the Investment Adviser (or Subadviser) considers such factors as the
characteristics of the particular company, differences between economic trends
and the performance of securities markets within the U.S. and those within other
countries, and also factors relating to the general economic, governmental and
social conditions of the country or countries where the company is located. The
extent to which a Series (other than the International Growth and International
Fixed Income Series) will be invested in foreign companies and countries and
depository receipts will fluctuate from time to time within the limitations
described in the Prospectus, depending on the Investment Adviser's (or
Subadviser's) assessment of prevailing market, economic and other conditions.
OPTIONS ON SECURITIES AND SECURITIES INDICES
PURCHASING PUT AND CALL OPTIONS. Each Series other than the Value
Series is authorized to purchase covered "put" and "call" options with respect
to securities which are otherwise eligible for purchase by the Series and with
respect to various indices subject to certain restrictions. Such Series will
engage in trading of such derivative securities exclusively for hedging
purposes.
If a Series purchases a put option, the Series acquires the right to
sell the underlying security at a specified price at any time during the term of
the option (for "American-style" options) or on the option expiration date (for
"European-style" options).
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For example, purchasing put options may be used as a portfolio investment
strategy when the Investment Adviser perceives significant short-term risk but
substantial long-term appreciation for the underlying security. The put option
acts as an insurance policy, as it protects against significant downward price
movement while it allows full participation in any upward movement. If the
Series is holding a stock which it feels has strong fundamentals, but for some
reason may be weak in the near term, the Series may purchase a put option on
such security, thereby giving itself the right to sell such security at a
certain strike price throughout the term of the option. Consequently, the
Series will exercise the put only if the price of such security falls below the
strike price of the put. The difference between the put's strike price and the
market price of the underlying security on the date the Series exercises the
put, less transaction costs, will be the amount by which the Series will be able
to hedge against a decline in the underlying security. If during the period of
the option the market price for the underlying security remains at or above the
put's strike price, the put will expire worthless, representing a loss of the
price the Series paid for the put, plus transaction costs. If the price of the
underlying security increases, the profit the Series realizes on the sale of the
security will be reduced by the premium paid for the put option less any amount
for which the put may be sold.
If a Series purchases a call option, it acquires the right to purchase
the underlying security at a specified price at any time during the term of the
option. For example, a Series may purchase a call option on a security it
intends to buy in the future, to seek to protect the Series against an increase
in the price of the security. The Series will exercise a call option only if
the price of the underlying security is above the strike price at the time of
exercise. If during the option period the market price for the underlying
security remains at or below the strike price of the call option, the option
will expire worthless, representing a loss of the price paid for the option,
plus transaction costs. If the call option has been purchased to hedge against
an increase in the price of the underlying security and the price of the
underlying security thereafter falls, the price of the security when purchased
will be increased by the premium paid for the call option less any amount for
which such option may be sold.
Prior to exercise or expiration, an option may be sold when it has
remaining value by a purchaser through a "closing sale transaction," which is
accomplished by selling an option of the same series as the option previously
purchased. The Series generally will purchase only those options for which the
Investment Adviser (or Subadviser) believes there is an active secondary market
to facilitate closing transactions.
WRITING PUT AND CALL OPTIONS. The Core Growth, Emerging Growth,
International Growth, and Diversified Income and International Fixed Income
Series may write covered call options, and the Diversified Income Series may
also write covered put options.
A put option is "covered" if the Series holds cash or liquid high
grade debt securities in a segregated account with the Custodian in an amount
sufficient to acquire the security, or holds a put option on the same security
or index with the same or a greater exercise price (or with a lesser price and
with the balance maintained as cash or liquid high grade debt securities). The
writer of a put option receives a premium and gives the purchaser the right to
require the writer to buy the security underlying the option at the exercise
price.
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A call option is "covered" if the Series owns the security underlying
the call or has an absolute right to acquire the security without additional
cash consideration (or, if additional cash consideration is required, cash or
cash equivalents in such amount as are held in a segregated account by the
Custodian). The writer of a call option receives a premium and gives the
purchaser the right to buy the security underlying the option at the exercise
price. The writer has the obligation upon exercise of the option to deliver the
underlying security against payment of the exercise price during the option
period.
If the writer of an exchange-traded option wishes to terminate his
obligation, he may effect a "closing purchase transaction." This is
accomplished by buying an option of the same series as the option previously
written. A writer may not effect a closing purchase transaction after it has
been notified of the exercise of an option.
Effecting a closing transaction in the case of a written put option
will permit a Series to use the cash or other segregated collateral for other
investment purposes or to write another put option on the underlying security
with either a different exercise price, expiration date or both. Effecting a
closing transaction in the case of a written call option will permit a Series to
write another call option on the underlying security with either a different
exercise price, expiration date, or both; in addition, effecting a closing
transaction will permit the cash or proceeds from the concurrent sale of any
securities subject to the option to be used for other investments of the Series.
If the Series desires to sell a particular security from its portfolio on which
it has written a call option, it will effect a closing transaction prior to or
concurrent with the sale of the security.
A Series will realize a gain from a closing transaction if the cost of
the closing transaction is less than the premium received from writing the
option or if the proceeds from the closing transaction are more than the premium
paid to purchase the option. A Series will realize a loss from a closing
transaction if the cost of the closing transaction is more than the premium
received from writing the option or if the proceeds from the closing transaction
are less than the premium paid to purchase the option. However, because
increases in the market price of a call option will generally reflect increases
in the market price of the underlying security, any loss to the Series resulting
from the repurchase of a call option is likely to be offset in whole or in part
by appreciation of the underlying security owned by the Series. Similarly,
because increases in the market price of a put option will generally reflect
decreases in the market price of the underlying security, any loss to a Series
resulting from the repurchase of a put option is likely to be offset in whole or
in part by the depreciation of the underlying security if it were to be
purchased by the Series.
INDEX OPTIONS. Each Series other than the Value and Diversified
Income Series may also purchase put and call options with respect to the S&P 500
and other indices. Such options may be purchased as a hedge against changes
resulting from market conditions in the values of securities which are held in a
Series' portfolio or which it intends to purchase or sell, or when they are
economically appropriate for the reduction of risks inherent in the ongoing
management of the Series.
The distinctive characteristics of options on indices create certain
risks that are not present with options generally. Because the value of an
index option depends upon movements in the level of the index rather than the
price of a particular security, whether the Series will realize a gain or loss
on the purchase or sale of an option on an index
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depends upon movements in the level of securities prices in the securities
market generally rather than movements in the price of a particular security.
Accordingly, successful use by a Series of options on an index would be subject
to the Investment Adviser's (or Subadviser's) ability to predict correctly
movements in the direction of the market generally. This requires different
skills and techniques than predicting changes in the price of individual
securities.
Index prices may be distorted if trading of certain securities
included in the index is interrupted. Trading of index options also may be
interrupted in certain circumstances, such as if trading were halted in a
substantial number of securities included in the index. If this were to occur,
the Series would not be able to close out options which it had purchased, and if
restrictions on exercise were imposed, the Series might be unable to exercise an
option it holds, which could result in substantial losses to the Series. It is
the policy of the Series to purchase put or call options only with respect to an
index which the Investment Adviser (or Subadviser) believes includes a
sufficient number of securities to minimize the likelihood of a trading halt in
the index.
RISKS OF TRANSACTIONS IN OPTIONS. There are several risks associated
with transactions in options on securities and indices. Options may be more
volatile than the underlying instruments and, therefore, on a percentage basis,
an investment in options may be subject to greater fluctuation than an
investment in the underlying instruments themselves. There are also significant
differences between the securities and options markets that could result in an
imperfect correlation between these markets, causing a given transaction not to
achieve its objective. In addition, a liquid secondary market for particular
options may be absent for reasons which include the following: there may be
insufficient trading interest in certain options; restrictions may be imposed by
an exchange on opening transactions or closing transactions or both; trading
halts, suspensions or other restrictions may be imposed with respect to
particular classes or series of option of underlying securities; unusual or
unforeseen circumstances may interrupt normal operations on an exchange; the
facilities of an exchange or clearing corporation may not at all times be
adequate to handle current trading volume; or one or more exchanges could, for
economic or other reasons, decide or be compelled at some future date to
discontinue the trading of options (or a particular class or series of options),
in which event the secondary market on that exchange (or in that class or series
of options) would cease to exist, although outstanding options that had been
issued by a clearing corporation as a result of trades on that exchange would
continue to be exercisable in accordance with their terms.
A decision as to whether, when and how to use options involves the
exercise of skill and judgment, and even a well-conceived transaction may be
unsuccessful to some degree because of market behavior or unexpected events. The
extent to which a Series may enter into options transactions may be limited by
the Internal Revenue Code requirements for qualification as a regulated
investment company. See "Dividends, Distributions and Taxes."
In addition, when trading options on foreign exchanges, many of the
protections afforded to participants in United States option exchanges will not
be available. For example, there may be no daily price fluctuation limits in
such exchanges or markets, and adverse market movements could therefore continue
to an unlimited extent over a period of time. Although the purchaser of an
option cannot lose more than the amount of the premium plus related transaction
costs, this entire amount could be lost. Moreover, a
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Series as an option writer could lose amounts substantially in excess of its
initial investment, due to the margin and collateral requirements typically
associated with such option writing. See "Dealer Options" below.
DEALER OPTIONS. The Core Growth, Emerging Growth, International
Growth, and Diversified Income and International Fixed Income Series will engage
in transactions involving dealer options as well as exchange-traded options.
Certain risks are specific to dealer options. While the Series might look to a
clearing corporation to exercise exchange-traded options, if a Series were to
purchase a dealer option it would need to rely on the dealer from which it
purchased the option to perform if the option were exercised. Failure by the
dealer to do so would result in the loss of the premium paid by the Series as
well as loss of the expected benefit of the transaction.
Exchange-traded options generally have a continuous liquid market
while dealer options may not. Consequently, a Series may generally be able to
realize the value of a dealer option it has purchased only by exercising or
reselling the option to the dealer who issued it. Similarly, when a Series
writes a dealer option, the Series may generally be able to close out the option
prior to its expiration only by entering into a closing purchase transaction
with the dealer to whom the Series originally wrote the option. While the
Series will seek to enter into dealer options only with dealers who will agree
to and which are expected to be capable of entering into closing transactions
with the Series, there can be no assurance that the Series will at any time be
able to liquidate a dealer option at a favorable price at any time prior to
expiration. Unless the Series, as a covered dealer call option writer, is able
to effect a closing purchase transaction, it will not be able to liquidate
securities (or other assets) used as cover until the option expires or is
exercised. In the event of insolvency of the other party, the Series may be
unable to liquidate a dealer option. With respect to options written by the
Series, the inability to enter into a closing transaction may result in material
losses to the Series. For example, since the Series must maintain a secured
position with respect to any call option on a security it writes, the Series may
not sell the assets which it has segregated to secure the position while it is
obligated under the option. This requirement may impair the Series' ability to
sell portfolio securities at a time when such sale might be advantageous.
The Staff of the Securities and Exchange Commission (the "Commission")
has taken the position that purchased dealer options are illiquid securities. A
Series may treat the cover used for written dealer options as liquid if the
dealer agrees that the Series may repurchase the dealer option it has written
for a maximum price to be calculated by a predetermined formula. In such cases,
the dealer option would be considered illiquid only to the extent the maximum
purchase price under the formula exceeds the intrinsic value of the option.
Accordingly, the Series will treat dealer options as subject to the Series'
limitation on unmarketable securities. If the Commission changes its position
on the liquidity of dealer options, the Series will change its treatment of such
instruments accordingly.
FOREIGN CURRENCY OPTIONS
The International Growth and Diversified Income and International
Fixed Income Series may buy or sell put and call options on foreign currencies.
A put or call option on a foreign currency gives the purchaser of the option the
right to sell or purchase a foreign currency at the exercise price until the
option expires. The Series will use foreign
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currency options separately or in combination to control currency volatility.
Among the strategies employed to control currency volatility is an option
collar. An option collar involves the purchase of a put option and the
simultaneous sale of call option on the same currency with the same expiration
date but with different exercise (or "strike") prices. Generally, the put
option will have an out-of-the-money strike price, while the call option will
have either an at-the-money strike price or an in-the-money strike price.
Foreign currency options are derivative instruments. Currency options traded on
U.S. or other exchanges may be subject to position limits which may limit the
ability of the Series to reduce foreign currency risk using such options.
As with other kinds of option transactions, the writing of an option
on foreign currency will constitute only a partial hedge, up to the amount of
the premium received. A Series could be required to purchase or sell foreign
currencies at disadvantageous exchange rates, thereby incurring losses. The
purchase of an option on foreign currency may constitute an effective hedge
against exchange rate fluctuations; however, in the event of exchange rate
movements adverse to a Series' position, the Series may forfeit the entire
amount of the premium plus related transaction costs.
FORWARD CURRENCY CONTRACTS
The International Growth and Diversified Income and International
Fixed Income Series may enter into forward currency contracts in anticipation of
changes in currency exchange rates. A forward currency contract is an
obligation to purchase or sell a specific currency at a future date, which may
be any fix number of days from the date of the contract agreed upon by the
parties, at a price set at the time of the contract. For example, the Series
might purchase a particular currency or enter into a forward currency contract
to preserve the U.S. dollar price of securities it intends to or has contracted
to purchase. Alternatively, it might sell a particular currency on either a
spot or forward basis to hedge against an anticipated decline in the dollar
value of securities it intends to or has contracted to sell. Although this
strategy could minimize the risk of loss due to a decline in the value of the
hedged currency, it could also limit any potential gain from an increase in the
value of the currency.
FUTURES CONTRACTS AND RELATED OPTIONS
Each Series may invest in futures contracts and options on futures
contracts as a hedge against changes in market conditions or interest rates.
The Series will trade in such derivative instruments for bona fide hedging
purposes and otherwise in accordance with the rules of the Commodity Futures
Trading Commission ("CFTC"). Each Series will segregate liquid assets in a
separate account with its Custodian when required to do so by CFTC guidelines in
order to cover its obligation in connection with futures and options
transactions.
STOCK INDEX FUTURES CONTRACTS. The Core Growth, Emerging Growth,
Value, and International Growth Series may invest in futures contracts on stock
indices (the Value Series is limited to futures contracts on the S&P 500 Stock
Price Index). Currently, stock index futures contracts can be purchased or sold
with respect to the S&P 500 Stock Price Index on the Chicago Mercantile
Exchange, the Major Market Index on the Chicago Board of Trade, the New York
Stock Exchange Composite Index on the New York Futures Exchange and the Value
Line Stock Index on the Kansas City Board of Trade. Foreign financial and
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stock index futures are traded on foreign exchanges including the London
International Financial Futures Exchange, the Singapore International Monetary
Exchange, the Sydney Futures Exchange Limited and the Tokyo Stock Exchange.
No price is paid or received by a Series upon the purchase or sale of
a futures contract. When it enters into a domestic futures contract, the Series
will be required to deposit in a segregated account with its Custodian an amount
of cash or U.S. Treasury bills equal to approximately 5% of the contract amount.
This amount is known as initial margin. The margin requirements for foreign
futures contracts may be different.
The nature of initial margin in futures transactions is different from
that of margin in securities transactions. Futures contract margin does not
involve the borrowing of funds by the customer to finance the transactions.
Rather, the initial margin is in the nature of a performance bond or good faith
deposit on the contract which is returned to the Series upon termination of the
futures contract, assuming all contractual obligations have been satisfied.
Subsequent payments (called variation margin) to and from the broker will be
made on a daily basis as the price of the underlying stock index fluctuates, to
reflect movements in the price of the contract making the long and short
positions in the futures contract more or less valuable. For example, when the
Series has purchased a stock index futures contract and the price of the
underlying stock index has risen, that position will have increased in value and
the Series will receive from the broker a variation margin payment equal to that
increase in value. Conversely, when the Series has purchased a stock index
futures contract and the price of the underlying stock index has declined, the
position will be less valuable and the Series will be required to make a
variation margin payment to the broker.
At any time prior to expiration of a futures contract, the Series may
elect to close the position by taking an opposite position, which will operate
to terminate the Series' position in the futures contract. A final
determination of variation margin is made on closing the position. Additional
cash is paid by or released to the Series, which realizes a loss or a gain.
INTEREST RATE OR FINANCIAL FUTURES CONTRACTS. The International
Growth and International Fixed Income Series may invest in interest rate or
financial futures contracts. Bond prices are established in both the cash
market and the futures market. In the cash market, bonds are purchased and sold
with payment for the full purchase price of the bond being made in cash,
generally within five business days after the trade. In the futures market, a
contract is made to purchase or sell a bond in the future for a set price on a
certain date. Historically, the prices for bonds established in the futures
markets have generally tended to move in the aggregate in concert with cash
market prices, and the prices have maintained fairly predictable relationships.
The sale of an interest rate or financial futures sale by a Series
would create an obligation by the Series, as seller, to deliver the specific
type of financial instrument called for in the contract at a specific future
time for a specified price. A futures contract purchased by a Series would
create an obligation by the Series, as purchaser, to take delivery of the
specific type of financial instrument at a specific future time at a specific
price. The specific securities delivered or taken, respectively, at settlement
date, would not be determined until at or near that date. The determination
would be in accordance with the rules of the exchange on which the futures
contract sale or purchase was made.
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Although interest rate or financial futures contracts by their terms
call for actual delivery or acceptance of securities, in most cases the
contracts are closed out before the settlement date without delivery of
securities. Closing out of a futures contract sale is effected by the Series'
entering into a futures contract purchase for the same aggregate amount of the
specific type of financial instrument and the same delivery date. If the price
in the sale exceeds the price in the offsetting purchase, the Series is paid the
difference and thus realizes a gain. If the offsetting purchase price exceeds
the sale price, the Series pays the difference and realizes a loss. Similarly,
the closing out of a futures contract purchase is effected by the Series'
entering into a futures contract sale. If the offsetting sale price exceeds the
purchase price, the Series realizes a gain, and if the purchase price exceeds
the offsetting sale price, the Series realizes a loss.
The Series deal only in standardized contracts on recognized
exchanges. Each exchange guarantees performance under contract provisions
through a clearing corporation, a nonprofit organization managed by the exchange
membership. Domestic interest rate futures contracts are traded in an auction
environment on the floors of several exchanges - principally, the Chicago Board
of Trade and the Chicago Mercantile Exchange. A public market now exists in
domestic futures contracts covering various financial instruments including
long-term United States Treasury bonds and notes; Government National Mortgage
Association (GNMA) modified pass-through mortgage-backed securities; three-month
United States Treasury bills; and 90-day commercial paper. A Series may trade
in any futures contract for which there exists a public market, including,
without limitation, the foregoing instruments. International interest rate
futures contracts are traded on the London International Financial Futures
Exchange, the Singapore International Monetary Exchange, the Sydney Futures
Exchange Limited and the Tokyo Stock Exchange.
FOREIGN CURRENCY FUTURES CONTRACTS. The International Growth and
Diversified Income and International Fixed Income Series may use foreign
currency futures contracts for hedging purposes. A foreign currency futures
contract provides for the future sale by one party and purchase by another party
of a specified quantity of a foreign currency at a specified price and time. A
public market exists in futures contracts covering several foreign currencies,
including the Australian dollar, the Canadian dollar, the British pound, the
German mark, the Japanese yen, the Swiss franc, and certain multinational
currencies such as the European Currency Unit ("ECU"). Other foreign currency
futures contracts are likely to be developed and traded in the future. The
Series will only enter into futures contracts and futures options which are
standardized and traded on a U.S. or foreign exchange, board of trade, or
similar entity, or quoted on an automated quotation system.
RISKS OF TRANSACTIONS IN FUTURES CONTRACTS. There are several risks
related to the use of futures as a hedging device. One risk arises because of
the imperfect correlation between movements in the price of the futures contract
and movements in the price of the securities which are the subject of the hedge.
The price of the future may move more or less than the price of the securities
being hedged. If the price of the future moves less than the price of the
securities which are the subject of the hedge, the hedge will not be fully
effective, but if the price of the securities being hedged has moved in an
unfavorable direction, a Series would be in a better position than if it had not
hedged at all. If the price of the securities being hedged has moved in a
favorable direction, this advantage will be partially offset by the loss on the
future. If the price of the future moves more than the price of the hedged
securities, the Series will experience either a loss or a
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gain on the future which will not be completely offset by movements in the price
of the securities which are subject to the hedge.
To compensate for the imperfect correlation of movements in the price
of securities being hedged and movements in the price of the futures contract, a
Series may buy or sell futures contracts in a greater dollar amount than the
dollar amount of securities being hedged if the historical volatility of the
prices of such securities has been greater than the historical volatility over
such time period of the future. Conversely, the Series may buy or sell fewer
futures contracts if the historical volatility of the price of the securities
being hedged is less than the historical volatility of the futures contract
being used. It is possible that, when the Series has sold futures to hedge its
portfolio against a decline in the market, the market may advance while the
value of securities held in the Series' portfolio may decline. If this occurs,
the Series will lose money on the future and also experience a decline in value
in its portfolio securities. However, the Investment Adviser believes that over
time the value of a diversified portfolio will tend to move in the same
direction as the market indices upon which the futures are based.
Where futures are purchased to hedge against a possible increase in
the price of securities before a Series is able to invest its cash (or cash
equivalents) in securities (or options) in an orderly fashion, it is possible
that the market may decline instead. If the Series then decides not to invest
in securities or options at that time because of concern as to possible further
market decline or for other reasons, it will realize a loss on the futures
contract that is not offset by a reduction in the price of securities purchased.
In addition to the possibility that there may be an imperfect
correlation, or no correlation at all, between movements in the futures and the
securities being hedged, the price of futures may not correlate perfectly with
movement in the stock index or cash market due to certain market distortions.
All participants in the futures market are subject to margin deposit and
maintenance requirements. Rather than meeting additional margin deposit
requirements, investors may close futures contracts through offsetting
transactions, which could distort the normal relationship between the index or
cash market and futures markets. In addition, the deposit requirements in the
futures market are less onerous than margin requirements in the securities
market. Therefore, increased participation by speculators in the futures market
may also cause temporary price distortions. As a result of price distortions in
the futures market and the imperfect correlation between movements in the cash
market and the price of securities and movements in the price of futures, a
correct forecast of general trends by the Investment Adviser (or Subadviser) may
still not result in a successful hedging transaction over a very short time
frame.
Positions in futures may be closed out only on an exchange or board of
trade which provides a secondary market for such futures. Although the Series
intend to purchase or sell futures only on exchanges or boards of trade where
there appears to be an active secondary market, there is no assurance that a
liquid secondary market on an exchange or board of trade will exist for any
particular contract or at any particular time. In such event, it may not be
possible to close a futures position, and in the event of adverse price
movements, the Series would continue to be required to make daily cash payments
of variation margin. When futures contracts have been used to hedge portfolio
securities, such securities will not be sold until the futures contract can be
terminated. In such circumstances, an increase in the price of the securities,
if any, may partially or completely offset losses on the futures contract.
However, as described above, there is no guarantee
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that the price of the securities will in fact correlate with the price movements
in the futures contract and thus provide an offset to losses on a futures
contract.
Most United States futures exchanges limit the amount of fluctuation
permitted in futures contract prices during a single trading day. The daily
limit establishes the maximum amount that the price of a futures contract may
vary either up or down from the previous day's settlement price at the end of a
trading session. Once the daily limit has been reached in a particular type of
futures contract, no trades may be made on that day at a price beyond that
limit. The daily limit governs only price movement during a particular trading
day and therefore does not limit potential losses, because the limit may prevent
the liquidation of unfavorable positions. Futures contract prices have
occasionally moved to the daily limit for several consecutive trading days with
little or no trading, thereby preventing prompt liquidation of futures positions
and subjecting some futures traders to substantial losses.
Successful use of futures by a Series is also subject to the
Investment Adviser's (or Subadviser's) ability to predict correctly movements in
the direction of the market. For example, if the Series has hedged against the
possibility of a decline in the market adversely affecting stocks held in its
portfolio and stock prices increase instead, the Series will lose part or all of
the benefit of the increased value of the stocks which it has hedged because it
will have offsetting losses in its futures positions. In addition, in such
situations, if the Series has insufficient cash, it may have to sell securities
to meet daily variation margin requirements. Such sales of securities may be,
but will not necessarily be, at increased prices which reflect the rising
market. The Series may have to sell securities at a time when it may be
disadvantageous to do so.
In the event of the bankruptcy of a broker through which a Series
engages in transactions in futures contracts or options, the Series could
experience delays and losses in liquidating open positions purchased or sold
through the broker, and incur a loss of all or part of its margin deposits with
the broker.
OPTIONS ON FUTURES CONTRACTS. Each Series may purchase options on the
futures contracts it can purchase or sell, as described above. A futures option
gives the holder, in return for the premium paid, the right to buy (call) from
or sell (put) to the writer of the option a futures contract at a specified
price at any time during the period of the option. Upon exercise, the writer of
the option is obligated to pay the difference between the cash value of the
futures contract and the exercise price. Like the buyer or seller of a futures
contract, the holder or writer of an option has the right to terminate its
position prior to the scheduled expiration of the option by selling, or
purchasing an option of the same series, at which time the person entering into
the closing transaction will realize a gain or loss. There is no guarantee that
such closing transactions can be effected.
Investments in futures options involve some of the same considerations
as investments in futures contracts (for example, the existence of a liquid
secondary market). In addition, the purchase of an option also entails the risk
that changes in the value of the underlying futures contract will not be fully
reflected in the value of the option. Depending on the pricing of the option
compared to either the futures contract upon which it is based, or upon the
price of the securities being hedged, an option may or may not be less risky
than ownership of the futures contract or such securities. In general, the
market prices of options can be expected to be more volatile than the market
prices on the underlying
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futures contracts. Compared to the purchase or sale of futures contracts,
however, the purchase of call or put options on futures contracts may frequently
involve less potential risk to the Series because the maximum amount at risk is
limited to the premium paid for the options (plus transaction costs).
RESTRICTIONS ON THE USE OF FUTURES CONTRACTS AND RELATED OPTIONS.
Except as otherwise described in the Trust's prospectus, a Series will not
engage in transactions in futures contracts or related options for speculation,
but only as a hedge against changes resulting from market conditions in the
values of securities held in the Series' portfolio or which it intends to
purchase and where the transactions are economically appropriate to the
reduction of risks inherent in the ongoing management of the Series. A Series
may not purchase or sell futures or purchase related options if, immediately
thereafter, more than 25% of its net assets would be hedged. A Series also may
not purchase or sell futures or purchase related options if, immediately
thereafter, the sum of the amount of margin deposits on the Series' existing
futures positions and premiums paid for such options would exceed 5% of the
market value of the Series' net assets.
Upon the purchase of futures contracts by a Series, an amount of cash
and cash equivalents, equal to the market value of the futures contracts, will
be deposited in a segregated account with the Custodian or in a margin account
with a broker to collateralize the position and thereby insure that the use of
such futures is unleveraged.
These restrictions, which are derived from current federal and state
regulations regarding the use of options and futures by mutual funds, are not
"fundamental restrictions" and may be changed by the Trustees if applicable law
permits such a change and the change is consistent with the overall investment
objective and policies of the Series.
The extent to which a Series may enter into futures and options
transactions may be limited by the Internal Revenue Code requirements for
qualification as a regulated investment company. See "Dividends, Distributions
and Taxes."
INTEREST RATE AND CURRENCY SWAPS
INTEREST RATE SWAPS. An interest rate swap is a contract between two
entities ("counterparties") to exchange interest payments (of the same currency)
between the parties. In the most common interest rate swap structure, one
counterparty agrees to make floating rate payments to the other counterparty,
which in turn makes fixed rate payments to the first counterparty. Interest
payments are determined by applying the respective interest rates to an agreed
upon amount, referred to as the "notional principal amount." In most such
transactions, the floating rate payments are tied to the London Interbank
Offered Rate, which is the offered rate for short-term Eurodollar deposits
between major international banks. As there is no exchange of principal
amounts, an interest rate swap is not an investment or a borrowing.
CROSS CURRENCY SWAPS. A cross-currency swap is a contract between two
counterparties to exchange interest and principal payments in different
currencies. A cross-currency swap normally has an exchange of principal at
maturity (the final exchange); an exchange of principal at the start of the swap
(the initial exchange) is optional. An initial exchange of notional principal
amounts at the spot exchange rate serves the same function
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as a spot transaction in the foreign exchange market (for a future transfer of
foreign exchange risk). The currency swap market convention is to use the spot
rate rather than the forward rate for the exchange at maturity. The economic
difference is realized through the coupon exchanges over the life of the swap.
In contrast to single currency interest rate swaps, cross-currency swaps involve
both interest rate risk and foreign exchange risk.
SWAP OPTIONS. A swap option is a contract that gives a counterparty
the right (but not the obligation) to enter into a new swap agreement or to
shorten, extend, cancel or otherwise change an existing swap agreement, at some
designated future time on specified terms. It is different from a forward swap,
which is a commitment to enter into a swap that starts at some future date with
specified rates. A swap option may be structured European-style (exercisable on
the pre-specified date) or American-style (exercisable during a designated
period). The right pursuant to a swap option must be exercised by the right
holder. The buyer of the right to receive fixed pursuant to a swap option is
said to own a call.
CAPS AND FLOORS. An interest rate cap is a right to receive periodic
cash payments over the life of the cap equal to the difference between any
higher actual level of interest rates in the future and a specified strike (or
"cap") level. The cap buyer purchases protection for a floating rate move above
the strike. An interest rate floor is the right to receive periodic cash
payments over the life of the floor equal to the difference between any lower
actual level of interest rates in the future and a specified strike (or "floor")
level. The floor buyer purchases protection for a floating rate move below the
strike. The strikes are typically based on the three-month LIBOR (although
other indices are available) and are measured quarterly. Rights arising
pursuant to both caps and floors are exercised automatically if the strike is in
the money. Caps and floors eliminate the risk that the buyer fails to exercise
an in-the-money option.
RISKS ASSOCIATED WITH SWAPS. The risks associated with interest rate
and currency swaps and interest rate caps and floors are similar to those
described above with respect to dealer options. In connection with such
transactions, a Series relies on the other party to the transaction to perform
its obligations pursuant to the underlying agreement. If there were a default
by the other party to the transaction, the Series would have contractual
remedies pursuant to the agreement, but could incur delays in obtaining the
expected benefit of the transaction or loss of such benefit. In the event of
insolvency of the other party, the Series might be unable to obtain its expected
benefit. In addition, while the Series will seek to enter into such transactions
only with parties which are capable of entering into closing transactions with
the Series, there can be no assurance that a Series will be able to close out
such a transaction with the other party, or obtain an offsetting position with
any other party, at any time prior to the end of the term of the underlying
agreement. This may impair a Series' ability to enter into other transactions
at a time when doing so might be advantageous.
REPURCHASE AGREEMENTS
Each Series may enter into repurchase agreements with respect to its
portfolio securities. Pursuant to such agreements, the Series acquires
securities from financial institutions such as banks and broker-dealers as are
deemed to be creditworthy by the Investment Adviser or Subadviser, subject to
the seller's agreement to repurchase and the Series' agreement to resell such
securities at a mutually agreed upon date and price.
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The repurchase price generally equals the price paid by the Series plus interest
negotiated on the basis of current short-term rates (which may be more or less
than the rate on the underlying portfolio security). Securities subject to
repurchase agreements will be held by the Custodian or in the Federal
Reserve/Treasury Book-Entry System or an equivalent foreign system. The seller
under a repurchase agreement will be required to maintain the value of the
underlying securities at not less than 102% of the repurchase price under the
agreement. If the seller defaults on its repurchase obligation, the Series
holding the repurchase agreement will suffer a loss to the extent that the
proceeds from a sale of the underlying securities is less than the repurchase
price under the agreement. Bankruptcy or insolvency of such a defaulting seller
may cause the Series' rights with respect to such securities to be delayed or
limited. Repurchase agreements are considered to be loans under the Investment
Company Act.
WHEN-ISSUED SECURITIES, FORWARD COMMITMENTS AND DELAYED SETTLEMENTS
Each of the Series may purchase securities on a "when-issued," forward
commitment or delayed settlement basis. In this event, the Custodian will set
aside cash or liquid portfolio securities equal to the amount of the commitment
in a separate account. Normally, the Custodian will set aside portfolio
securities to satisfy a purchase commitment. In such a case, a Series may be
required subsequently to place additional assets in the separate account in
order to assure that the value of the account remains equal to the amount of the
Series' commitment. It may be expected that the Series' net assets will
fluctuate to a greater degree when it sets aside portfolio securities to cover
such purchase commitments than when it sets aside cash.
The Series do not intend to engage in these transactions for
speculative purposes but only in furtherance of their investment objectives.
Because a Series will set aside cash or liquid portfolio securities to satisfy
its purchase commitments in the manner described, the Series' liquidity and the
ability of the Investment Adviser to manage it may be affected in the event the
Series' forward commitments, commitments to purchase when-issued securities and
delayed settlements ever exceeded 15% of the value of its net assets.
A Series will purchase securities on a when-issued, forward commitment
or delayed settlement basis only with the intention of completing the
transaction. If deemed advisable as a matter of investment strategy, however, a
Series may dispose of or renegotiate a commitment after it is entered into, and
may sell securities it has committed to purchase before those securities are
delivered to the Series on the settlement date. In these cases the Series may
realize a taxable capital gain or loss. When a Series engages in when-issued,
forward commitment and delayed settlement transactions, it relies on the other
party to consummate the trade. Failure of such party to do so may result in a
Series' incurring a loss or missing an opportunity to obtain a price credited to
be advantageous.
The market value of the securities underlying a when-issued purchase,
forward commitment to purchase securities, or a delayed settlement and any
subsequent fluctuations in their market value is taken into account when
determining the market value of a Series starting on the day the Series agrees
to purchase the securities. A Series does not earn interest on the securities
it has committed to purchase until they are paid for and delivered on the
settlement date.
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BORROWING
Each of the Series is authorized to borrow money from time to time for
temporary, extraordinary or emergency purposes or for clearance of transactions
in amounts up to 20% of the value of its total assets at the time of such
borrowings. The use of borrowing by a Series involves special risk
considerations that may not be associated with other funds having similar
objectives and policies. Since substantially all of a Series' assets fluctuate
in value, whereas the interest obligation resulting from a borrowing will be
fixed by the terms of the Series' agreement with its lender, the asset value per
share of the Series will tend to increase more when its portfolio securities
increase in value and to decrease more when its portfolio assets decrease in
value than would otherwise be the case if the Series did not borrow funds. In
addition, interest costs on borrowings may fluctuate with changing market rates
of interest and may partially offset or exceed the return earned on borrowed
funds. Under adverse market conditions, the Series might have to sell portfolio
securities to meet interest or principal payments at a time when fundamental
investment considerations would not favor such sales.
LENDING SERIES SECURITIES
Each of the Series may lend its portfolio securities in an amount not
exceeding 30% of its total assets to financial institutions such as banks and
brokers if the loan is collateralized in accordance with applicable regulations.
Under the present regulatory requirements which govern loans of portfolio
securities, the loan collateral must, on each business day, at least equal the
value of the loaned securities and must consist of cash, letters of credit of
domestic banks or domestic branches of foreign banks, or securities of the U.S.
Government or its agencies. To be acceptable as collateral, letters of credit
must obligate a bank to pay amounts demanded by the Series if the demand meets
the terms of the letter. Such terms and the issuing bank would have to be
satisfactory to the Series. Any loan might be secured by any one or more of the
three types of collateral. The terms of the Series' loans must permit the
Series to reacquire loaned securities on five days' notice or in time to vote on
any serious matter and must meet certain tests under the Internal Revenue Code.
SHORT SALES
The Investment Adviser's growth equity management approach is aimed
principally at identifying equity securities the earnings and prices of which it
expects to grow at a rate above that of the S&P 500. However, the Investment
Adviser believes that its approach also identifies securities the prices of
which can be expected to decline. Therefore, the Core Growth, Emerging Growth
and International Growth Series are authorized to make short sales of securities
they own or have the right to acquire at no added cost through conversion or
exchange of other securities they own (referred to as short sales "against the
box") and to make short sales of securities which they do not own or have the
right to acquire.
In a short sale that is not "against the box," a Series sells a
security which it does not own, in anticipation of a decline in the market value
of the security. To complete the sale, the Series must borrow the security
generally from the broker through which the short sale is made) in order to make
delivery to the buyer. The Series is then obligated to replace the security
borrowed by purchasing it at the market price at the time of
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replacement. The Series is said to have a "short position" in the securities
sold until it delivers them to the broker. The period during which the Series
has a short position can range from one day to more than a year. Until the
security is replaced, the proceeds of the short sale are retained by the broker,
and the Series is required to pay to the broker a negotiated portion of any
dividends or interest which accrue during the period of the loan. To meet
current margin requirements, the Series is also required to deposit with the
broker additional cash or securities so that the total deposit with the broker
is maintained daily at 150% of the current market value of the securities sold
short (100% of the current market value if a security is held in the account
that is convertible or exchangeable into the security sold short within 90 days
without restriction other than the payment of money).
Short sales by a Series that are not made "against the box" create
opportunities to increase the Series' return but, at the same time, involve
specific risk considerations and may be considered a speculative technique.
Since the Series in effect profits from a decline in the price of the securities
sold short without the need to invest the full purchase price of the securities
on the date of the short sale, the Series' net asset value per share will tend
to increase more when the securities it has sold short decrease in value, and to
decrease more when the securities it has sold short increase in value, than
would otherwise be the case if it had not engaged in such short sales. The
amount of any gain will be decreased, and the amount of any loss increased, by
the amount of any premium, dividends or interest the Series may be required to
pay in connection with the short sale. Furthermore, under adverse market
conditions the Series might have difficulty purchasing securities to meet its
short sale delivery obligations, and might have to sell portfolio securities to
raise the capital necessary to meet its short sale obligations at a time when
fundamental investment considerations would not favor such sales.
If a Series makes a short sale "against the box," the Series would not
immediately deliver the securities sold and would not receive the proceeds from
the sale. The seller is said to have a short position in the securities sold
until it delivers the securities sold, at which time it receives the proceeds of
the sale. To secure its obligation to deliver securities sold short, a Series
will deposit in escrow in a separate account with the Custodian an equal amount
of the securities sold short or securities convertible into or exchangeable for
such securities. The Series can close out its short position by purchasing and
delivering an equal amount of the securities sold short, rather than by
delivering securities already held by the Series, because the Series might want
to continue to receive interest and dividend payments on securities in its
portfolio that are convertible into the securities sold short.
A Series' decision to make a short sale "against the box" may be a
technique to hedge against market risks when the Investment Adviser believes
that the price of a security may decline, causing a decline in the value of a
security owned by the Series or a security convertible into or exchangeable for
such security. In such case, any future losses in the Series' long position
would be reduced by a gain in the short position. The extent to which such
gains or losses in the long position are reduced will depend upon the amount of
securities sold short relative to the amount of the securities the Series owns,
either directly or indirectly, and, in the case where the Series owns
convertible securities, changes in the investment values or conversion premiums
of such securities.
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<PAGE>
The extent to which a Series may enter into short sales transactions
may be limited by the Internal Revenue Code requirements for qualification as a
regulated investment company. See "Taxes."
ILLIQUID SECURITIES
No Series may invest more than 15% of the value of its net assets in
securities that at the time of purchase have legal or contractual restrictions
on resale or are otherwise illiquid. The Investment Adviser (or Subadviser)
will monitor the amount of illiquid securities in each Series' portfolio, under
the supervision of the Board of Trustees, to ensure compliance with the Series'
investment restrictions.
Historically, illiquid securities have included securities subject to
contractual or legal restrictions on resale because they have not been
registered under the Securities Act of 1933, as amended (the "Securities Act"),
securities which are otherwise not readily marketable and repurchase agreements
having a maturity of longer than seven days. Securities which have not been
registered under the Securities Act are referred to as private placement or
restricted securities and are purchased directly from the issuer or in the
secondary market. Mutual funds do not typically hold a significant amount of
these restricted or other illiquid securities because of the potential for
delays on resale and uncertainty in valuation. Limitations on resale may have
an adverse effect on the marketability of portfolio securities and the Series
might be unable to dispose of restricted or other illiquid securities promptly
or at reasonable prices and might thereby experience difficulty satisfying
redemption within seven days. The Series might also have to register such
restricted securities in order to dispose of them, resulting in additional
expense and delay. Adverse market conditions could impede such a public offering
of securities.
INVESTMENT TECHNIQUES AND PROCESSES
The Investment Adviser's investment techniques and processes, which it
has used in managing institutional portfolios for many years, are described
generally in the Series' prospectuses under "Investment Objectives and
Policies -- Investment Techniques and Processes." In making decisions with
respect to equity securities for the Series, growth over time is the Investment
Adviser's underlying goal and it's how they have built their reputation. Over
the past ten years, the Investment Adviser has built a record as one of the
finest performing investment managers in the United States. It has successfully
delivered growth over time to many institutional investors, pension plans,
foundations, endowments and high net worth individuals. The Investment
Adviser's methods have proven their ability to achieve growth over time through
a variety of investment vehicles.
The Investment Adviser emphasizes growth over time through investment
in securities of companies with earnings growth potential. The Investment
Adviser's style is a "bottom-up" growth approach that focuses on the growth
prospects of individual companies rather than on economic trends. It builds
portfolios stock by stock. The Investment Adviser's decision-making is guided
by three critical questions: Is there a positive change? Is it sustainable? Is
it timely? The Investment Adviser uses these three factors because it focuses
on discovering positive developments when they first show up in an issuer's
earnings, but before they are fully reflected in the price of the issuer's
securities. The Investment Adviser is always looking for companies that are
driving change and surpassing analysts' expectations. It seeks to identify
companies poised for rapid
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growth. The Investment Adviser focuses on recognizing successful companies,
regardless of their capitalization or whether they are domestic or foreign
companies.
As indicated in the Prospectus, the Investment Adviser's techniques
and processes include relationships with an extensive network of brokerage
research firms located throughout the United States. These analysts are often
located in the same geographic regions as the companies they follow, have
followed those companies for a number of years, and have developed excellent
sources of information about them. The Investment Adviser does not employ
in-house analysts other than the personnel actually engaged in managing
investments for the Series and the Investment Adviser's other clients. However,
information obtained from a brokerage research firm is confirmed with other
research sources or the Investment Adviser's computer-assisted quantitative
analysis (including "real time" pricing data) of a substantial universe of
potential investments.
As indicated in the Prospectus, the equity investments of a Series are
diversified. The equity securities of each issuer that are included in the
investment portfolio of a Series are purchased by the Investment Adviser in
approximately equal amounts, and the Investment Adviser attempts to stay fully
invested within the applicable percentage limitations set forth in the
prospectus. In addition, for each issuer whose securities are added to an
investment portfolio, the Investment Adviser sells the securities of one of the
issuers currently included in the portfolio.
The Subadviser was among the first investment management firms created
to focus exclusively on the global fixed income markets. Since the firm was
founded in 1984, it has achieved exceptional performance results for its
institutional clients using its relative value analysis approach. This top down
approach focuses on active country/currency allocation in liquid markets and is
based upon an understanding of longer term financial and economic trends and
their implications for the interactions between interest rates and exchange
rates. The Subadviser believes that, over time, "healthy countries" produce the
highest bond and currency returns. It defines healthy countries as those with
sound finances relative to other countries. The Subadviser pays particular
attention to fiscal policy, savings rates and monetary growth as well as the
credibility of monetary authorities in determining the relative health of a
given country.
INVESTMENT RESTRICTIONS
The Trust has adopted the following fundamental policies that cannot
be changed without the affirmative vote of a majority of the outstanding shares
of the appropriate Series (as defined in the Investment Company Act). All
percentage limitations set forth below apply immediately after a purchase or
initial investment, and any subsequent change in any applicable percentage
resulting from market fluctuations will not require elimination of any security
from the relevant portfolio.
No Series:
1. May invest in securities of any one issuer if more than 5% of the
market value of its total assets would be invested in the securities of such
issuer, except that up to 25% of a Series' total assets (50% in the case of the
International Fixed Income Series) may be invested without regard to this
restriction and a Series will be permitted to
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<PAGE>
invest all or a portion of its assets in a diversified, open-end management
investment company with substantially the same investment objective, policies
and restrictions as the Series. This restriction also does not apply to
investments by a Series in securities of other investment companies or
securities of the U.S. Government or any of its agencies and instrumentalities
(or, in the case of the International Fixed Income Series, securities of foreign
governments).
2. May purchase more than 10% of the outstanding voting securities,
or of any class of securities, of any one issuer, or purchase the securities of
any issuer for the purpose of exercising control or management, except that a
Series will be permitted to invest all or a portion of its assets in a
diversified, open-end management investment company with substantially the same
investment objective, policies and restrictions as the Series.
3. May invest 25% or more of the market value of its total assets in
the securities of issuers in any one particular industry, except that a Series
will be permitted to invest all or a portion of its assets in a diversified,
open-end management investment company with substantially the same investment
objective, policies and restrictions as the Series. This restriction does not
apply to investments by a Series in securities of the U.S. Government or its
agencies and instrumentalities (or, in the case of the International Fixed
Income Series, in securities of foreign governments).
4. May purchase or sell real estate. However, a Series may invest
in securities secured by, or issued by companies that invest in, real estate or
interests in real estate.
5. May make loans of money, except that a Series may purchase
publicly distributed debt instruments and certificates of deposit and enter into
repurchase agreements. Each Series reserves the authority to make loans of its
portfolio securities in an aggregate amount not exceeding 30% of the value of
its total assets.
6. May borrow money on a secured or unsecured basis, except for
temporary, extraordinary or emergency purposes or for the clearance of
transactions in amounts not exceeding 20% of the value of its total assets at
the time of the borrowing, provided that, pursuant to the Investment Company
Act, borrowings will only be made from banks and will be made only to the extent
that the value of the Series' total assets, less its liabilities other than
borrowings, is equal to at least 300% of all borrowings (including the proposed
borrowing). If such asset coverage of 300% is not maintained, the Series will
take prompt action to reduce its borrowings as required by applicable law.
7. May pledge or in any way transfer as security for indebtedness
any securities owned or held by it, except to secure indebtedness permitted by
restriction 6 above. This restriction shall not prohibit the Series from
engaging in options, futures and foreign currency transactions.
8. May underwrite securities of other issuers, except insofar as it
may be deemed an underwriter under the Securities Act in selling portfolio
securities.
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<PAGE>
9. May invest more than 15% of the value of its net assets in
securities that at the time of purchase have legal or contractual restrictions
on resale or are otherwise illiquid.
10. May purchase securities on margin, except for initial and
variation margin on options and futures contracts, and except that a Series may
obtain such short-term credit as may be necessary for the clearance of purchases
and sales of securities.
11. May engage in short sales (other than the Core Growth Series,
International Growth and Small Company Growth Series), except that a Series may
use such short-term credits as are necessary for the clearance of transactions.
This restriction does not prohibit the Series from engaging in hedging
transactions in futures and currencies.
12. May invest in securities of other investment companies, except
(a) that a Series may invest all or a portion of its assets in a diversified,
open-end management investment company with the same investment objective
policies and restrictions as the Series; (b) in compliance with the Investment
Company Act and applicable state laws, or (c) as part of a merger,
consolidation, acquisition or reorganization involving the Series.
13. May issue senior securities, except that a Series may borrow
money as permitted by restrictions 6 and 7 above. This restriction shall not
prohibit the Series from engaging in short sales, options, futures and foreign
currency transactions.
14. May enter into transactions for the purpose of arbitrage, or
invest in commodities and commodities contracts, except that a Series may invest
in stock index, currency and financial futures contracts and related options in
accordance with any rules of the Commodity Futures Trading Commission.
15. May purchase or write options on securities, except for hedging
purposes and then only if (i) aggregate premiums on call options purchased by a
Series do not exceed 5% of its net assets, (ii) aggregate premiums on put
options purchased by a Series do not exceed 5% of its net assets, (iii) not more
than 25% of a Series' net assets would be hedged, and (iv) not more than 25% of
a Series' net assets are used as cover for options written by the Series.
OPERATING RESTRICTIONS
As a matter of operating (not fundamental) policy adopted by the
Boards of Trustees of the Trust, no Series:
1. May invest in securities of any one issuer except in compliance
with the diversification requirements for insurance products established by
section 817(h) of the Internal Revenue Code of 1986.
2. May lend any securities from its portfolio unless the value of
the collateral received therefor is continuously maintained in an amount not
less than 100% of the value of the loaned securities by marking to market daily.
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<PAGE>
3. May invest in warrants, valued at the lower of cost or market, in
excess of 5% of the market value of the Series' net assets.
PRINCIPAL HOLDERS OF SECURITIES
As of _________, 1996, all of the outstanding shares of the Series are
held by the Investment Adviser.
TRUSTEES AND PRINCIPAL OFFICERS
TRUST
The names and addresses of the Trustees and principal officers of the
Trust, including their positions and principal occupations during the past five
years, are shown below. Trustees whose names are followed by an asterisk are
"interested persons" of the Trust (as defined by the Investment Company Act).
Unless otherwise indicated, the address of each Trustee and officer is 600 West
Broadway, 30th Floor, San Diego, California 92101.
ARTHUR E. NICHOLAS, TRUSTEE AND CHAIRMAN OF THE BOARD OF TRUSTEES.*/
Managing Partner and Chief Investment Officer, Nicholas-Applegate Capital
Management, since 1984. Director and Chairman of the Board of Directors of
Nicholas-Applegate Fund, Inc., a registered open-end investment company (since
1987); Trustee and Chairman of the Board of Trustees of Nicholas-Applegate
Mutual Funds and Nicholas-Applegate Investment Trust, registered open-end
investment companies (since June 1993).
FRED C. APPLEGATE, TRUSTEE. 885 La Jolla Corona Court, La Jolla,
California. President, Hightower Management Co., a financial management firm
(since January 1992); formerly President, Nicholas-Applegate Capital Management
(from August 1984 to December 1991). Director, Nicholas-Applegate Fund, Inc.
(since 1987); Trustee, Nicholas-Applegate Mutual Funds (since 1993).
THEODORE J. COBURN, TRUSTEE. 17 Cotswold Road, Brookline,
Massachusetts. Partner, Brown Coburn & Co., an investment banking firm (since
1991), and student, Harvard Divinity School and Harvard Graduate School of
Education (since September 1991); Trustee, Nicholas-Applegate Investment Trust
(since 1993); Director, Nicholas-Applegate Fund, Inc. (since 1987); Emerging
Germany Fund (since 1991), Premiere Radio Networks, Inc. (since 1991), Sage
Analytics International (since 1991), Tonight's Feature Ltd. (since 1995).
Formerly Managing Director of Global Equity Transactions Group, and member of
the Board of Directors, Prudential Securities (from 1986 to June 1991).
DARLENE DEREMER, TRUSTEE.* 155 South Street, Wrentham, Massachusetts.
President and Founder, DeRemer Associates, a marketing consultant for the
financial services industry (since 1987); formerly Vice President and Director,
Asset Management Division, State Street Bank and Trust Company (from 1982 to
1987), and Vice President, T. Rowe Price & Associates (1979 to 1982); Trustee,
Nicholas-Applegate Investment Trust (since 1993). Director, Jurika & Voyls Fund
Group (since 1994) and
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King's Wood Montessori School (since 1995); Member of Advisory Board, Financial
Women's Association (since 1995). DeRemer Associates received $_________ in
1995 and $54,247 in 1994 from the Investment Adviser as compensation for
consulting services provided in connection with its institutional business.
ARTHUR B. LAFFER, TRUSTEE. 4275 Executive Square, #330, la Jolla,
California. Chairman, A.B. Laffer, V.A. Canto Associates, an economic
consulting firm (since 1979); Chairman. Laffer Advisors Incorporated, economic
consultants (since 1981); Director, Nicholas-Applegate Fund, Inc. (since 1987);
Trustee, Nicholas-Applegate Mutual Funds (since 1993); Director, U.S. Filter
Corporation (since March 1991) and MasTec, Inc. (construction) (since 1994);
Chairman, Calport Asset Management, Inc. (since 1992); formerly Distinguished
University Professor and Director, Pepperdine University (from September 1985 to
May 1988) and Professor of Business Economics, University of Southern California
(1976 to 1984). A.B. Laffer, V.A. Canto & Associates received $_______ in 1995
and $100,000 in 1994 from the Investment Adviser as compensation for consulting
services provided from time to time to the Investment Adviser.
JOHN D. WYLIE, PRESIDENT. Partner (since _______), Chief Investment
Officer - Retail (since December 1995), and Portfolio Manager (since January
1990), Nicholas-Applegate Capital Management; President, Nicholas-Applegate
Mutual Funds and Nicholas-Applegate Investment Trust (since December 1995)
THOMAS PINDELSKI, CHIEF FINANCIAL OFFICER. Partner (since January
1996) and Chief Financial Officer, Nicholas-Applegate Capital Management (since
January 1993); Chief Financial Officer, Nicholas-Applegate Securities (since
January 1993), Nicholas-Applegate Mutual Funds and Nicholas-Applegate Investment
Trust (since 1993); formerly Chief Financial Officer, Aurora Capital
Partners/WSGP Partners L.P., an investment partnership (from November 1988 to
January 1993); and Vice President and Controller, Security Pacific Merchant
Banking Group (from November 1986 to November 1988).
E. BLAKE MOORE, JR., SECRETARY. General Counsel and Secretary,
Nicholas-Applegate Capital Management and Nicholas-Applegate Securities (since
1993); Secretary, Nicholas-Applegate Mutual Funds and Nicholas-Applegate
Investment Trust (since _____________, 1995); formerly Attorney, Luce, Forward,
Hamilton & Scripps (from 1989 to 1993).
The following table sets forth the estimated aggregate compensation to
be paid by the Trust for the fiscal year ended July 30, 1996 to the Trustees who
are not affiliated with the Investment Adviser or SubAdviser and the estimated
aggregate compensation to be paid to such Trustees for such fiscal year for
service on the Trust's
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board and all other funds in the "Trust complex" (as defined in Schedule 14A
under the Securities Exchange Act of 1934):
Pension or
Retirement Total
Benefits Estimated Compensation
Aggregate Accrued as Annual from Trust and
Compensation Part of Trust Benefits Upon Trust Complex
Name from Trust Expenses Retirement Paid to Trustee
- --------------------------------------------------------------------------------
Fred C. $16,000 None N/A $ (38*)
Applegate
Theodore J. 16,000 None N/A (13*)
Coburn
Darlene 16,000 None N/A (12*)
DeRemer
Arthur B. Laffer 16,000 None N/A (38*)
* Indicates number of funds in Trust complex, including the Series.
INVESTMENT ADVISER
The Investment Adviser to the Trust is Nicholas-Applegate Capital
Management, a California limited partnership, with its principal executive
office at 600 West Broadway, 30th Floor, San Diego, California 92101. The
Investment Adviser was organized in August 1984 to manage discretionary accounts
investing primarily in publicly traded equity securities and securities
convertible into or exercisable for publicly traded equity securities, with the
goal of capital appreciation. Its general partner is Nicholas-Applegate Capital
Management Holdings, L.P., a California limited partnership of which the general
partner is Nicholas-Applegate Capital Management Holdings, Inc., a California
corporation owned by Mr. Nicholas. The Investment Adviser currently has fifteen
partners (including Mr. Nicholas) who manage a staff of approximately 300
employees, including 28 portfolio managers.
Under the Investment Advisory Agreement between the Trust and the
Investment Adviser with respect to the Series, the Trust retains the Investment
Adviser to manage the Series' investment portfolios, subject to the direction of
the Trust's Board of Trustees. The Investment Adviser is authorized to
determine which securities are to be bought or sold by the Series and in what
amounts.
The Investment Advisory Agreement provides that the Investment Adviser
will not be liable for any error of judgment or for any loss suffered by a
Series or the Trust in connection with the matters to which the Investment
Advisory Agreement relates, except for liability resulting from willful
misfeasance, bad faith or gross negligence in the performance of its duties or
by reason of the Investment Adviser's reckless disregard of its duties and
obligations under the Investment Advisory Agreement. The Trust has agreed to
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indemnify the Investment Adviser against liabilities, costs and expenses that
the Investment Adviser may incur in connection with any action, suit,
investigation or other proceeding arising out of or otherwise based on any
action actually or allegedly taken or omitted to be taken by the Investment
Adviser in connection with the performance of its duties or obligations under
the Investment Advisory Agreement or otherwise as an investment adviser of the
Trust. The Investment Adviser is not entitled to indemnification with respect
to any liability to the Trust or its shareholders by reason of willful
misfeasance, bad faith or gross negligence in the performance of its duties, or
of its reckless disregard of its duties and obligations under the Investment
Advisory Agreement.
The Investment Advisory Agreement provides that it will terminate in
the event of its assignment (as defined in the Investment Company Act). The
Investment Advisory Agreement may be terminated with respect to any Series by
the Trust (by the Board of Trustees or vote of a majority of the outstanding
voting securities of the Series, as defined in the Investment Company Act) or
the Investment Adviser upon not more than 60 days' written notice, without
payment of any penalty. The Investment Advisory Agreement provides that it will
continue in effect with respect to each Series for a period of more than two
years from its execution only so long as such continuance is specifically
approved at least annually in conformity with the Investment Company Act.
SUB-ADVISER
The Investment Adviser has retained the services of Rogge Global
Partners, plc (the "Sub-Adviser") to serve as a sub-adviser to the Global
Series. The Sub-Adviser, a an English public limited corporation, with offices
at 5-6 St. Andrews Hill, London, England, has been in the investment advisory
business since 1984. It provides investment services to investment companies,
employee benefit plans, endowments, foundations and other institutions and
individuals.
Pursuant to a Sub-Advisory Agreement among the Trust, the Investment
Adviser and the Sub-Adviser, the Sub-Adviser provides investment advice to the
International Fixed Income Series and manages its investments, including
brokerage and other investment portfolio-related services, subject to the
policies and control of the Investment Adviser and the Trust's Board of
Trustees. Payment for the services of the Sub-Adviser is made by the Investment
Adviser and is not a separate expense of the Trust with respect to the
International Fixed Income Series. The Sub-Adviser is compensated at the annual
rate of 0.50% of the International Fixed Income Series' average daily net
assets.
The Sub-Advisory Agreement provides that the Sub-Adviser will not be
liable for any error of judgment or for any loss suffered by the Trust in
connection with the matters to which the Sub-Advisory Agreement relates, except
for liability resulting from willful misfeasance, bad faith or gross negligence
in the performance of its duties or by reason of the Sub-Adviser's reckless
disregard of its duties and obligations under the Sub-Advisory Agreement. The
Trust and Investment Adviser have agreed to indemnify the Sub-Adviser against
liabilities, costs and expenses that the Sub-Adviser may incur in connection
with any action, suit, investigation or other proceeding arising out of or
otherwise based on any action actually or allegedly taken or omitted to be taken
by the Sub-Adviser in connection with the performance of its duties or
obligations under the
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Sub-Advisory Agreement or otherwise as sub-adviser to the Trust with respect to
the International Fixed Income Series. The Sub-Adviser is not entitled to
indemnification with respect to any liability to the Trust or its shareholders
by reason of willful misfeasance, bad faith or gross negligence in the
performance of its duties, or its reckless disregard of its duties and
obligations under the Sub-Advisory Agreement.
The Sub-Advisory Agreement provides that it will terminate in the
event of its assignment (as defined in the Investment Company Act). The
Sub-Advisory Agreement may be terminated by the Investment Adviser or the Trust
(by the Board of Trustees of the Trust or vote of a majority of the outstanding
voting securities of the Master Trust, as defined in the Investment Company Act)
or the Subadviser upon 60 days' written notice, without payment of any penalty.
The Sub-Advisory Agreement provides that it will continue in effect for a period
of more than two years from its execution only so long as such continuance is
specifically approved at least annually in conformity with the Investment
Company Act.
ADMINISTRATOR
The Administrator of the Trust is Investment Company Administration
Corporation, 4455 East Camelback Road, Suite 261-E, Phoenix, Arizona 85018.
Pursuant to an Administration Agreement with the Trust, the
Administrator is responsible for performing all administrative services required
for the daily business operations of the Trust, subject to the supervision of
the Board of Trustees of the Trust. The Administrator has no supervisory
responsibility over the investment operations of the Series. The management or
administrative services of the Administrator for the Trust are not exclusive
under the terms of the Administration Agreement and the Administrator is free
to, and does, render management and administrative services to others.
For its services, the Administrator receives under the Administration
Agreement an annual fee of .05% of the first $250 million of the Trust's average
net assets, .03% of the next $250 million, and .02% of average net assets in
excess of $500 million, with a minimum annual fee of $25,000 per Series. Such
fee will be allocated among the Series based on relative net asset values. In
connection with its management of the corporate affairs of the Trust, the
Administrator pays the salaries and expenses of all its personnel and pays all
expenses incurred in connection with managing the ordinary course of the
business of the Trust, other than expenses assumed by the Trust as described
below.
Under the terms of the Administration Agreement, the Trust is
responsible for the payment of the following expenses: (a) the fees and
expenses incurred by the Trust in connection with the management of the
investment and reinvestment of their assets, (b) the fees and expenses of
Trustees and officers of the Trust who are not affiliated with the Administrator
or the Investment Adviser, (c) out-of-pocket travel expenses for the officers
and Trustees of the Trust and other expenses of Board of Trustees' meetings, (d)
the fees and certain expenses of the Custodian, (e) the fees and expenses of the
Transfer and Dividend Disbursing Agent that relate to the maintenance of each
shareholder account, (f) the charges and expenses of the Trust's legal counsel
and independent accountants, (g) brokerage commissions and any issue or transfer
taxes chargeable to Trustees and officers
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of the Trust in connection with securities transactions, (h) all taxes and
corporate fees payable by the Trust to federal, state and other governmental
agencies, (i) the fees of any trade association of which the Trust may be a
member, (j) the cost of maintaining the Trust's existence, taxes and interest,
(k) the cost of fidelity and liability insurance, (l) the fees and expenses
involved in registering and maintaining the registration of the Trust and of its
shares under securities laws, including the preparation and printing of the
Trust's registration statement, prospectuses and statements of additional
information, (m) allocable communication expenses with respect to investor
services and all expenses of shareholders' and Board of Trustees' meetings and
of preparing, printing and mailing prospectuses and reports to shareholders, and
(n) litigation and indemnification expenses and other extraordinary expenses not
incurred in the ordinary course of the business of the Trust.
The Administration Agreement provides that the Administrator will not
be liable for any error of judgment or for any loss suffered by the Trust in
connection with the matters to which the Administration Agreement relates,
except a loss resulting from the Administrator's willful misfeasance, bad faith,
gross negligence or reckless disregard of its duties. The Administration
Agreement will terminate automatically if assigned, and may be terminated
without penalty by either the Administrator or the Trust (by the Board of
Trustees of the Trust or vote of a majority of the outstanding voting securities
of the Trust, as defined in the Investment Company Act), upon 60 days' written
notice. The Administration Agreement will continue in effect for a period of
more than two years from the date of execution only so long as such continuance
is specifically approved at least annually in conformity with the Investment
Company Act.
DISTRIBUTOR
Nicholas-Applegate Securities (the "Distributor"), 600 West Broadway,
30th Floor, San Diego, California 92101, is the principal underwriter and
distributor for the Trust and, in such capacity, is responsible for distributing
shares of the Series. The Distributor is a California limited partnership
organized in 1992 to distribute shares of registered investment companies. Its
general partner is Nicholas-Applegate Capital Management Holdings, L.P., the
general partner of the Investment Adviser.
Pursuant to a Distribution Agreement with the Trust, the Distributor
has agreed to use its best efforts to effect sales of shares of the Series, but
is not obligated to sell any specified number of shares. The Distribution
Agreement contains provisions with respect to renewal and termination similar to
those in the Investment Advisory Agreement described above. Pursuant to the
Distribution Agreement, the Trust has agreed to indemnify the Distributor to the
extent permitted by applicable law against certain liabilities under the
Securities Act.
No compensation is payable by the Series to the Distributor for its
distribution services. The Distributor pays for the personnel involved in
performing its services, expenses incurred in connection with the printing of
Prospectuses and Statements of Additional Information (other than those sent to
existing shareholders), sales literature, advertising and other communications
used in the public offering of shares of the Trust, and other expenses
associated with performing services as distributor of the Trust's shares.
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Each Series pays the expenses of issuance, registration and transfer of its
shares, including filing fees and legal fees.
PORTFOLIO TRANSACTIONS AND BROKERAGE
Subject to policies established by the Trust's Board of Trustees, the
Investment Adviser and Subadviser are primarily responsible for the execution of
the Series' portfolio transactions and the allocation of the brokerage business.
In executing such transactions, the Investment Adviser and Subadviser will seek
to obtain the best price and execution for the Series, taking into account such
factors as price, size of order, difficulty and risk of execution and
operational facilities of the firm involved. Securities in which the Series
invest may be traded in the over-the-counter markets, and the Series deal
directly with the dealers who make markets in such securities except in those
circumstances where better prices and execution are available elsewhere.
Commission rates are established pursuant to negotiation with brokers or dealers
based on the quality or quantity of services provided in light of generally
prevailing rates, and while the Investment Adviser and Subadviser generally seek
reasonably competitive commission rates, the Series do not necessarily pay the
lowest commissions available. The allocation of orders among brokers and the
commission rates paid are reviewed periodically by the Board of Trustees.
The Series have no obligation to deal with any broker, dealer, or
group of brokers or dealers in executing transactions in portfolio securities.
Subject to obtaining the best price and execution, broker-dealers who provide
supplemental research, market and statistical information and other research
services and products to the Investment Adviser and Subadviser may receive
orders for transactions by the Series. Such information, services and products
are those which brokerage houses customarily provide to institutional investors,
and include items such as statistical and economic data, research reports on
particular companies and industries, and computer software used for research
with respect to investment decisions. Information, services and products so
received are in addition to and not in lieu of the services required to be
performed by the Investment Adviser and Subadviser under the Investment Advisory
Agreement and Subadvisory Agreement, and the expenses of the Investment Adviser
and Subadviser are not necessarily reduced as a result of the receipt of such
supplemental information, services and products. Such information, services and
products may be useful to the Investment Adviser and Subadviser in providing
services to clients other than the Trust, and not all such information, services
and products are used by the Investment Adviser and Subadviser in connection
with the Series. Similarly, such information, services and products provided to
the Investment Adviser and Subadviser by brokers and dealers through whom other
clients of the Investment Adviser and Subadviser effect securities transactions
may be useful to the Investment Adviser and Subadviser in providing services to
the Series. The Investment Adviser and Subadviser are authorized to pay higher
commission on brokerage transactions for the Series to brokers in order to
secure the information, services and products described above, subject to review
by the Board of Trustees from time to time as to the extent and continuation of
this practice.
Although investment decisions for the Trust are made independently
from those of the other accounts managed by the Investment Adviser or
Subadviser, investments of the kind made by the Series may often also be made by
such other accounts. When a purchase or sale of the same security is made at
substantially the same time on behalf of
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the Series and one or more other accounts managed by the Investment Adviser or
Subadviser, available investments are allocated in the discretion of the
Investment Adviser or Subadviser by such means as, in its judgment, result in
fair treatment. The Investment Adviser or Subadviser aggregates orders for
purchases and sales of securities of the same issuer on the same day among the
Series and its other managed accounts, and the price paid to or received by the
Series and those accounts is the average obtained in those orders. In some
cases, such aggregation and allocation procedures may affect adversely the price
paid or received by the Series or the size of the position purchased or sold by
the Series.
In the over-the-counter market, securities are generally traded on a
"net" basis with dealers acting as principal for their own accounts without a
stated commission, although the price of the security usually includes a profit
to the dealer. In underwritten offerings, securities are purchased at a fixed
price which includes an amount of compensation to the underwriter, generally
referred to as the underwriter's commission or discount. On occasion, certain
money market instruments and agency securities may be purchased directly from
the issuer, in which case no commissions or discounts are paid.
PURCHASE AND REDEMPTION OF SERIES SHARES
The price paid for purchases and redemptions of shares of the Series
is the net asset value per share, which is calculated once daily at the close of
trading (normally 4:00 P.M. New York time) each day the New York Stock Exchange
is open. The New York Stock Exchange is currently closed on weekends and on the
following holidays: New Year's Day, Washington's Birthday, Good Friday, Memorial
Day, Independence Day, Labor Day, Thanksgiving and Christmas Day. The offering
price is effective for orders received by the Transfer Agent prior to the time
of determination of net asset value. Insurance Companies are responsible for
promptly transmitting purchase orders to the Transfer Agent.
The net asset value of a share of a Series is calculated by dividing
(i) the value of the securities held by the Series, plus any cash or other
assets, minus all liabilities (including accrued estimated expenses on an annual
basis), by (ii) the total number of shares of the Series outstanding. The value
of the investments and assets of the Series is determined each business day.
Investment securities, including depository receipts, that are traded on a stock
exchange or on the NASDAQ National Market System are valued at the last sale
price as of the close of business on the New York Stock Exchange (normally 4:00
P.M. New York time) on the day the securities are being valued, or lacking any
sales, at the mean between the closing bid and asked prices. Other
over-the-counter securities are valued at the mean between the closing bid and
asked prices.
In the event that the New York Stock Exchange or the national
securities exchange on which stock or stock options are traded adopt different
trading hours on either a permanent or temporary basis, the Board of Trustees
will reconsider the time at which net asset value is computed. In addition, the
asset value of the Series may be computed as of any time permitted pursuant to
any exemption, order or statement of the Commission or its staff.
Long-term debt obligations are valued at the mean of representative
quoted bid and asked prices for such securities or, if such prices are not
available, at prices for
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securities of comparable maturity, quality and type; however, when the
Investment Adviser deems it appropriate, prices obtained for the day of
valuation from a bond pricing service will be used, as discussed below. Debt
securities with maturities of 60 days or less are valued at amortized cost if
their term to maturity from date of purchase is less than 60 days, or by
amortizing, from the sixty-first day prior to maturity, their value on the
sixty-first day prior to maturity if their term to maturity from date of
purchase by the Series is more than 60 days, unless this is determined by the
Board of Trustees not to represent fair value. Repurchase agreements are valued
at cost plus accrued interest.
U.S. Government securities are traded in the over-the-counter market
and are valued at the mean between the last available bid and asked prices,
except that securities with a demand feature exercisable within one to seven
days are valued at par. Such valuations are based on quotations of one or more
dealers that make markets in the securities as obtained from such dealers, or on
the evaluation of a pricing service.
Options, futures contracts and options thereon, which are traded on
exchanges, are valued at their last sale or settlement price as of the close of
such exchanges or, if no sales are reported, at the mean between the last
reported bid and asked prices. If an options or futures exchange closes later
than 4:00 p.m. New York time, the options or futures traded on it are valued
based on the sale price, or on the mean between the bid and ask prices, as the
case may be, as of 4:00 p.m. New York time.
Trading in securities on foreign securities exchanges and
over-the-counter markets is normally completed well before the close of business
day in New York. In addition, foreign securities trading may not take place on
all business days in New York, and may occur in various foreign markets on days
which are not business days in New York and on which net asset value is not
calculated. The calculation of net asset value may not take place
contemporaneously with the determination of the prices of portfolio securities
used in such calculation. Events affecting the values of portfolio securities
that occur between the time their prices are determined and the close of the New
York Stock Exchange will not be reflected in the calculation of net asset value
unless the Board of Trustees deems that the particular event would materially
affect net asset value, in which case an adjustment will be made. Assets or
liabilities initially expressed in terms of foreign currencies are translated
prior to the next determination of the net asset value into U.S. dollars at the
spot exchange rates at 1:00 p.m. New York time or at such other rates as the
Investment Adviser may determine to be appropriate in computing net asset value.
Securities and assets for which market quotations are not readily
available, or for which the Board of Trustees or persons designated by the Board
determine that the foregoing methods do not accurately reflect current market
value, are valued at fair value as determined in good faith by or under the
direction of the Board of Trustees. Such valuations and procedures will be
reviewed periodically by the Board of Trustees.
The Trust may use a pricing service approved by the Board of Trustees.
Prices provided by such a service represent evaluations of the mean between
current bid and asked market prices, may be determined without exclusive
reliance on quoted prices, and may reflect appropriate factors such as
institution-size trading in similar groups of securities, yield, quality, coupon
rate, maturity, type of issue, individual trading characteristics, indications
of values from dealers and other market data. Such services may use electronic
data processing techniques and/or a matrix system to determine
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valuations. The procedures of such services are reviewed periodically by the
officers of the Trust under the general supervision and responsibility of its
Board of Trustees, which may replace a service at any time if it determines that
it is in the best interests of the Series to do so.
TAXES
REGULATED INVESTMENT COMPANY
The Trust has elected to qualify each Series as a regulated investment
company under Subchapter M of the Code, and intends that each Series will remain
so qualified.
As a regulated investment company, a Series will not be liable for
federal income tax on its income and gains provided it distributes all of its
income and gains currently. Qualification as a regulated investment company
under the Code requires, among other things, that each Series (a) derive at
least 90% of its gross income from dividends, interest, payments with respect to
securities loans, and gains from the sale or other disposition of securities or
foreign currencies, or other income (including, but not limited to, gains from
options, futures or forward contracts) derived with respect to its business of
investing in such securities or currencies; (b) derive less than 30% of its
gross income from the sale or other disposition of stock, securities, options,
futures, forward contracts, certain foreign currencies and certain options,
futures, and forward contracts on foreign currencies held less than three
months; (c) diversify its holdings so that, at the end of each fiscal quarter,
(i) at least 50% of the market value of the Series' assets is represented by
cash, U.S. Government securities and securities of other regulated investment
companies, and other securities (for purposes of this calculation generally
limited, in respect of any one issuer, to an amount not greater than 5% of the
market value of the Series' assets and 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 one issuer (other than U.S. Government or
foreign government securities or the securities of other regulated investment
companies), or two or more issuers which the Trust controls and which are
determined to be engaged in the same or similar trades or businesses; and
(d) distribute at least 90% of its investment company taxable income (which
includes dividends, interest, and net short-term capital gains in excess of net
long-term capital losses each taxable year. A distribution of a Series' income
or gain will be treated as paid on December 31 of the calendar year if it is
declared by the Series in October, November, or December of that year to
shareholders of record on a date in such a month and paid by the Series during
January of the following year.
In addition, each Series must satisfy the diversification requirements
of section 817(h) of the Code. In general, for a Series to meet these
investment diversification requirements, Treasury regulations require that no
more than 55% of the total value of the assets of the Series may be represented
by any one investment, no more than 70% by two investments, no more than 80% by
three investments and no more than 90% by four investments. Generally, for
purposes of the regulations, all securities of the same issuer are treated as a
single investment. With respect to the United States Government securities
(including any security that is issued, guaranteed or insured by the United
States or an instrumentality of the United States), each governmental agency or
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instrumentality is treated as a separate issuer. Compliance with the
regulations is tested on the last day of each calendar year quarter. There is a
30 day period after the end of each calendar year quarter in which to cure any
non-compliance.
Dividends paid by a Series from ordinary income, and distributions of
the Series' net realized short-term capital gains, are treated as ordinary
income in the hands of a Separate Account shareholder. Under the Code, any
distributions designated as being made from net capital gains will be treated as
long-term capital gains in the hands of a Separate Account, regardless of the
holding period of such Separate Account. Such distributions of net capital
gains will be designated by the Series as a capital gains distribution in a
written notice to its shareholders which accompanies the distribution payment.
Any loss on the sale of shares held for less than six months will be treated as
a long-term capital loss for federal tax purposes to the extent a Separate
Account receives net capital gain distributions on such shares.
SPECIAL TAX CONSIDERATIONS
SECTION 1256 CONTRACTS. Many of the options, futures contracts and
forward contracts used by the Series are "section 1256 contracts." Any gains or
losses on section 1256 contracts are generally credited 60% long-term and 40%
short-term capital gains or losses ("60/40") although gains and losses from
hedging transactions, certain mixed straddles and certain foreign currency
transactions from such contracts may be treated as ordinary in character. Also,
section 1256 contracts held by the Series at the end of each taxable year are
"marked to market" with the result that unrealized gains or losses are treated
as though they were realized and the resulting gain or loss is treated as
ordinary or 60/40 gain or loss, depending on the circumstances.
STRADDLE RULES. Generally, the hedging transactions and certain other
transactions in options, futures and forward contracts undertaken by the Series
may result in "straddles" for U.S. federal income tax purposes. The straddle
rules may affect the character of gains (or losses) realized by the Series. In
addition, losses realized by the Series on positions that are part of a straddle
may be deferred under the straddle rules, rather than being taken into account
in calculating the taxable income for the taxable year in which such losses are
realized. Because only a few regulations implementing the straddle rules have
been promulgated, the tax consequences of transactions in options, futures and
forward contracts to the Series are not entirely clear. The transactions may
increase the amount of short-term capital gain realized by the Series which is
treated as ordinary income in the hands of shareholders.
The Series may make one or more of the elections available under the
Code which are applicable to straddles. If the Series make any of the
elections, the amount, character and timing of the recognition of gains or
losses from the affected straddle positions will be determined under rules that
vary according to the election(s) made. The rules applicable under certain of
the elections operate to accelerate the recognition of gains or losses from the
affected straddle positions.
Because applications of the straddle rules may affect the character of
gains or losses, defer losses and/or accelerate the recognition of gains or
losses from the affected straddle positions, the amount which must be
distributed to the shareholders, and which will be treated as ordinary income or
long-term capital gain in the hands of shareholders,
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may be increased or decreased substantially as compared to a fund that did not
engage in such hedging transactions.
The 30% limit on gains from the disposition of certain options,
futures, and forward contracts held less than three months and the qualifying
income and diversification requirements applicable to the Series' and the
Series' assets may limit the extent to which the Series will be able to engage
in transactions in options, futures contracts or forward contracts.
SECTION 988 GAINS AND LOSSES. Under the Code, gains or losses
attributable to fluctuations in exchange rates which occur between the time a
Series accrues interest or other receivables or accrues expenses or other
liabilities denominated in a foreign currency and the time the Series actually
collects such receivables or pays such liabilities generally are treated as
ordinary income or loss. Similarly, gains or losses on disposition of debt
securities denominated in a foreign currency and on disposition of certain
futures attributable to fluctuations in the value of the foreign currency
between the date of acquisition of the security or contract and the date of
disposition also are treated as ordinary gain or loss. These gains and losses,
referred to under the Code as "section 988" gains or losses, may increase or
decrease the amount of the Series' investment company taxable income to be
distributed to the shareholders.
SWAPS. No definitive guidance currently exists with respect to the
classification of interest rate swaps and cross currency swaps as securities or
foreign currencies for purposes of certain of the tests described above.
Accordingly, to avoid the possibility of disqualification as a regulated
investment company, each Series will limit its positions in swaps to
transactions for the purpose of hedging against interest rate or currency
fluctuation risks, and will treat swaps as excluded assets for purposes of
determining compliance with the diversification test.
SHORT SALES. Generally, capital gain or loss realized by a Series in
a short sale may be long-term or short term depending on the holding period of
the short position. Under a special rule, however, the capital gain will be
short-term gain if (i) as of the date of the short sale, the Series owned
property for the short-term holding period that was substantially identical to
that which the Series used to close the sale, or (ii) after the short sale and
on or before its closing, the Series acquired substantially similar property.
Similarly, if property substantially identical to that sold short was held by
the Series for the long-term holding period as of the date of the short sale,
any loss on closing the short position will be long-term capital loss. These
special rules do not apply to substantially similar property to the extent such
property exceeds the property used by the Series to close its short position.
FOREIGN TAX. Income received by a Series from sources within foreign
countries may be subject to withholding and other taxes imposed by such
countries. Tax conventions between certain countries and the U.S. may reduce or
eliminate such taxes. In addition, the Investment Adviser and Subadviser intend
to manage the Series with the intention of minimizing foreign taxation in cases
where it is deemed prudent to do so. If more than 50% of the value of a Series'
total assets at the close of its taxable year consists of securities of foreign
corporations, the Series will be eligible to elect to "pass-through" to the
Series' shareholders the amount of foreign income and similar taxes paid by the
Series. Each shareholder will be notified within 60 days after the close of the
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Series' taxable year whether the foreign taxes paid by the Series will be
"pass-through" for that year.
Generally, a credit for foreign taxes is subject to the limitation
that it may not exceed the shareholder's U.S. tax attributable to its total
foreign source taxable income. For this purpose, if the pass-through election
is made, the source of the Series' income will flow through to shareholders of
the Series. With respect to such election, gains from the sale of securities
will be treated as derived from U.S. sources and certain currency fluctuation
gains, including fluctuation gains from foreign currency denominated debt
securities, receivables and payables will be treated as ordinary income derived
from U.S. sources. The limitation on the foreign tax credit is applied
separately to foreign source passive income, and to certain other types of
income. Shareholders may be unable to claim a credit for the full amount of
their proportion at share of the foreign taxes paid by the Series.
ORIGINAL ISSUE DISCOUNT. Some of the debt securities (with a fixed
maturity date of more than one year from the date of issuance) that may be
acquired by the Series may be treated as debt securities that are issued
originally at a discount. Generally, the amount of the original issue discount
("OID") is treated as interest income and is included in income over the term of
the debt security, even though payment of that amount is not received until a
later time, usually when the debt security matures. A portion of the OID
includable in income with respect to certain high-yield corporation debt
securities may be treated as a dividend for Federal income tax purposes.
Some of the debt securities (with a fixed maturity date of more than
one year from the date of issuance) that may be acquired by the Series in the
secondary market may be treated as having market discount. Generally, any gain
recognized on the disposition of, and any partial payment of principal on, a
debt security having market discount is treated as ordinary income to the extent
the gain, or principal payment, does not exceed the "accrued market discount" on
such debt security. Market discount generally accrues in equal daily
installments. The Series may make one or more of the elections applicable to
debt securities having market discount, which could affect the character and
timing the recognition of income.
Some of the debt securities (with a fixed maturity date of one year or
less from the date of issuance) that may be acquired by the Series may be
treated as having an acquisition discount, or OID in the case of certain types
of debt securities. Generally, a Series will be required to include the
acquisition discount, or OID, in income over the term of the debt security, even
though payment of that amount is not received until a later time, usually when
the debt security matures. The Series may make one or more of the elections
applicable to the debt securities having acquisition discount, or OID, which
could affect the character and timing of recognition of income.
The Series generally will be required to distribute dividends to
shareholders representing discount on debt securities that is currently
includible in income, even though cash representing such income may not have
been received by the Series. Cash to pay such dividends may be obtained from
sales proceeds of securities held by the Series.
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OTHER TAX INFORMATION
Reference is made to the prospectus for the Separate Account and
Contracts for information regarding the federal income tax treatment of
distributions to the Separate Account.
The Trust may in the future become subject to state or local taxes in
certain states where it is deemed to be doing business. Further, the state tax
treatment of the Trust and of the Insurance Companies investing in a Series with
respect to distributions by the Series may differ from federal tax treatment.
PERFORMANCE INFORMATION
The Trust may from time to time advertise total returns and yields for
the Series, compare Series performance to various indices, and publish rankings
of the Series prepared by various ranking services. Any performance information
should be considered in light of the Series' investment objectives and policies,
characteristics and quality of the its portfolio, and the market conditions
during the given time period, and should not be considered to be representative
of what may be achieved in the future.
TOTAL RETURN
The total return for a Series is computed by assuming a hypothetical
initial payment of $1,000. It is assumed that all investments are made at net
asset value (as opposed to market price) and that all of the dividends and
distributions by the Series over the relevant time periods are invested at net
asset value. It is then assumed that, at the end of each period, the entire
amount is redeemed without regard to any redemption fees or costs. The average
annual total return is then determined by calculating the annual rate required
for the initial payment to grow to the amount which would have been received
upon redemption. Total return does not take into account any federal or state
income taxes.
Total return is computed according to the following formula:
P(1 + T)to the nth power = ERV
Where: P = a hypothetical initial payment of $1,000.
T = average annual total return.
n = number of years.
ERV = ending redeemable value at the end of the period (or fractional
portion thereof) of a hypothetical $1,000 payment made at the
beginning of the period.
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YIELD
The yield for a Series is calculated based on a 30-day or one-month
period, according to the following formula:
Yield = 2[{a - b + 1}to the 6th power -1]
-----
{cd }
For purposes of this formula, "a" is total dividends and interest
earned during the period; "b" is total expenses accrued for the period (net of
reimbursements); "c" is the average daily number of shares outstanding during
the period that were entitled to receive dividends; and "d" is the maximum
offering price per share on the last day of the period.
COMPARISON TO INDICES AND RANKINGS
Performance information for a Series may be compared to various
unmanaged indices, such as the Standard & Poor's 500 Stock Price Index, the Dow
Jones Industrial Average, the Lipper Growth Funds Index, the Russell Midcap
Index, the Lipper Small Growth Funds Index, the Russell 2000 Growth Index, the
Russell 1000 Index, the Russell 2000 Index, the Morgan Stanley Capital
International Europe, Australia, Far East Index, the Salomon Brothers Europe,
Pacific, Asia Composite Index, the Lehman Brothers Aggregate Bond Index, the
Lehman Brothers Government/Corporate Bond Index, the Salomon Brothers World
Government Bond Index (Ex U.S.), and other indices prepared by Lipper Analytical
Services. Unmanaged indices (I.E., other than Lipper) generally do not reflect
deductions for administrative and management costs and expenses.
Performance rankings are prepared by a number of mutual fund ranking
entities that are independent of the Trust and its affiliates. These entities
categorize and rank funds by various criteria, including fund type, performance
over a given period of years, total return, standardized yield, variations in
sales charges and risk\reward considerations.
CUSTODIAN, TRANSFER AGENT,
INDEPENDENT ACCOUNTANTS AND LEGAL COUNSEL
PNC Bank, Airport Business Center, International Court 2, 200 Stevens
Drive, Lester, Pennsylvania 19113, serves as Custodian for the portfolio
securities and cash of the Series and in that capacity maintains certain
financial and accounting books and records pursuant to agreements with the
Trust. PFPC Inc., 103 Bellevue Parkway, Wilmington, Delaware, an affiliate of
the Custodian, provides additional accounting services to the Series.
Nicholas-Applegate Securities, 600 West Broadway, 30th Floor, San
Diego, California 92101, serves as Transfer Agent for the Series. The Transfer
Agent provides customary transfer agency services to the Trust, including the
handling of communications with Separate Account shareholders, the processing of
Separate Account shareholder transactions, the maintenance of Separate Account
shareholder account records, and related functions.
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Ernst & Young, LLP, 515 South Flower Street, Suite 1800, Los Angeles,
California 90071, serves as the independent accountants for the Trust, and in
that capacity examines the annual financial statements of the Trust.
Paul, Hastings, Janofsky & Walker, 555 South Flower Street, Los
Angeles, California 90071, is legal counsel for the Trust. It also acts as
legal counsel for the Investment Adviser and Distributor.
MISCELLANEOUS
SHARES OF BENEFICIAL INTEREST
On any matter submitted to a vote of shareholders of the Trust, all
shares then entitled to vote will be voted in the aggregate unless otherwise
required by the Investment Company Act, in which case all shares of the Trust
will be voted by the affected Series. For example, a change in a Series'
fundamental investment policies would be voted upon only by shareholders of that
Series, as would the approval of any advisory or distribution contract for the
Series. However, all shares of the Trust may vote together in the election or
selection of Trustees, principal underwriters and accountants for the Trust.
Rule 18f-2 under the 1940 Act provides that any matter required to be
submitted to the holders of the outstanding voting securities of an investment
company such as the Trust shall not be deemed to have been effectively acted
upon unless approved by a majority of the outstanding shares of the series of
the Trust affected by the matter. Under Rule 18f-2, a series is presumed to be
affected by a matter, unless the interests of each series in the matter are
identical or the matter does not affect any interest of such series. Under Rule
18f-2 the approval of an investment advisory agreement or any change in a
fundamental investment policy would be effectively acted upon with respect to a
Series only if approved by a majority of its outstanding shares. However, the
rule also provides that the ratification of independent public accountants, the
approval of principal underwriting contracts and the election of directors may
be effectively acted upon by the shareholders of the Trust voting without regard
to Series.
DECLARATION OF TRUST
The Declaration of Trust of the Trust provides that obligations of the
Trust are not binding upon its Trustees, officers, employees and agents
individually and that the Trustees, officers, employees and agents will not be
liable to the Trust or its investors for any action or failure to act, but
nothing in the Declaration of Trust protects a Trustee, officer, employee or
agent against any liability to the Trust or its investors to which the Trustee,
officer, employee or agent would otherwise be subject by reason of willful
misfeasance, bad faith, gross negligence, or reckless disregard of his or her
duties. The Declaration of Trust also provides that the debts, liabilities,
obligations and expenses incurred, contracted for or existing with respect to a
designated Series shall be enforceable against the assets and property of such
Series only, and not against the assets or property of any other Series.
B-47
<PAGE>
CONVERSION TO MASTER/FEEDER STRUCTURE
The Trust's investment restrictions permit each Series to seek to
achieve its investment objectives by investing its assets in another
diversified, open-end management investment company with the same investment
objective, policies and restrictions as such Series (a "Master Fund"). In such
event, the Trust would terminate the services of the Investment Adviser with
respect to the assets invested in the Series. This "master/feeder" structure
will not be implemented with respect to any Series without approval of a
majority of the outstanding shares of such Series. Upon such approval with
respect to a Series, the Trust will provide at least 30 days' written notice to
the shareholders of the Series before such arrangements are implemented.
There are certain risks to a Series related to any such use of the
"master/feeder" structure. Such risks include, but are not limited to, the
following: Large-scale redemptions by other investment companies of their
interests in the corresponding Master Fund could have adverse effects, such as
lack of portfolio diversity and decreased economies of scale, and could result
in the shareholders of a Series, as the remaining investor in the Master Fund,
bearing all the operating costs of the Master Fund and thus experiencing higher
pro rata operating expenses and lower returns than would otherwise be the case.
In addition, the total withdrawal by another investment company as an investor
in a Master Fund may cause the Master Fund to terminate automatically, unless
the corresponding Series and any other investors in the Master Fund unanimously
agree to continue the business of the Master Fund. As the Series is required to
submit such matters to a vote of its shareholders, it will be required to incur
the expenses of shareholder meetings in connection with such withdrawals. If
unanimous agreement is not reached to continue a Master Fund, the Board of
Trustees of the Trust would need to consider alternative arrangements for the
Series, including investing all of the Series' assets in another investment
company with the same investment objective as the Series or hiring an investment
adviser to manage the Series' assets in accordance with its investment policies.
The absence of substantial experience with the master/feeder structure could
result in accounting or other difficulties. Failure by shareholders of a Series
to approve a change in the investment objective and policies of a Series
parallel to a change that has been approved by the investors of the
corresponding Master Fund would require the Series to redeem its shares of the
Master Fund; this could result in a distribution in kind to the Series of the
portfolio securities of the Master Fund (rather than a cash distribution),
causing the Series to incur brokerage fees or other transaction costs in
converting such securities to cash, reducing the diversification of the Series'
investments and adversely affecting its liquidity. Other shareholders in the
Master Fund may have a greater ownership interest in the Master Fund than the
Series' interest, and could thus have effective voting control over the
operation of the Master Fund.
FINANCIAL STATEMENTS
The Trust's Statement of Assets and Liabilities as of ______________,
1996 is included as Exhibit B to this Statement of Additional Information. Such
statement has been audited by the Fund's independent auditors, Ernst & Young,
LLP, whose report thereon also appears in Exhibit B. Such financial statements
have been included herein in reliance upon such reports given upon their
authority as experts in accounting and auditing.
B-48
<PAGE>
REGISTRATION STATEMENT
The Registration Statement of the Trust, including the Series'
Prospectus, the Statement of Additional Information and the exhibits filed
therewith, may be examined at the office of the Commission in Washington, D.C.
Statements contained in the Series' Prospectus or the Statement of Additional
Information as to the contents of any contract or other document referred to
herein or in the Prospectus are not necessarily complete, and, in each instance,
reference is made to the copy of such contract or other document filed as an
exhibit to the Registration Statement, each such statement being qualified in
all respects by such reference.
OTHER INFORMATION
As used in the Prospectus and in this Statement of Additional
Information, the term "majority," when referring to approvals to be obtained
from shareholders of a Series, means the vote of the lesser of (i) 67% of the
shares of the Series represented at a meeting if the holders of more than 50% of
the outstanding shares of the Series are present in person or by proxy, or (ii)
more than 50% of the outstanding shares of the Series. The term "majority,"
when referring to the approvals to be obtained from shareholders of the Trust,
means the vote of the lesser of (i) 67% of the Trust's shares represented at a
meeting if the holders of more than 50% of the Trust's outstanding shares are
present in person or by proxy, or (ii) more than 50% of the Trust's outstanding
shares. Shareholders are entitled to one vote for each full share held and
fractional votes for fractional shares held. Unless otherwise provided by law
or by the Trust's Declaration of Trust or Bylaws, the Trust may take or
authorize any action upon the favorable vote of the holders of more than 50% of
the outstanding shares of the Trust.
The Trust will dispense with annual meetings of shareholders in any
year in which it is not required to elect Trustees under the Investment Company
Act. However, the Trust undertakes to hold a special meeting of its
shareholders for the purpose of voting on the question of removal of a Trustee
or Trustees if requested in writing by the holders of at least 10% of the
Trust's outstanding voting securities, and to assist in communicating with other
shareholders as required by Section 16(c) of the Investment Company Act.
Each Separate Account will vote the shares of each Series held by the
Separate Account at meetings of the shareholders of the Series or Trust in
accordance with instructions received from the Contract owners having the voting
interests in the Separate Account. The Separate Account will vote shares for
which it has not received instructions in the same proportion as it votes shares
for which it has received instructions. Contract owners having voting interests
will receive periodic reports relating to the Series in which they have an
interest. Contract owners will also receive proxy materials and a form with
which to give voting instructions with respect to their interests in the Series.
Each share of a Series represents an equal proportional interest in
the Series with each other share and is entitled to such dividends and
distributions out of the income earned on the assets belonging to the Series as
are declared in the discretion of the Trustees. In the event of the liquidation
or dissolution of the Trust, shareholders of a Series are entitled to receive
the assets attributable to the Series that are available for distribution, and a
distribution of any general assets not attributable to a particular Series that
are
B-49
<PAGE>
available for distribution in such manner and on such basis as the Trustees in
their sole discretion may determine.
The Trust intends to obtain from the Securities and Exchange
Commission certain exemptions from the provisions of the Investment Company Act
necessary to permit shares of the Trust to be sold to and held by variable
annuity and variable life insurance separate accounts of both affiliated and
unaffiliated life insurance companies. As a condition to such exemptions, the
Trust has agreed to a variety of operational matters, including the following:
(a) a majority of the Board of Trustees of the Trust will consist of persons who
are not "interested persons" of the Trust as defined by the Investment Company
Act ("disinterested Trustees"); (b) the Board of Trustees will monitor the Fund
for the existence of any material irreconcilable conflict between the interests
of the Contract owners of all separate accounts investing in the Fund; (c) if a
material irreconcilable conflict is determined to exist by a majority of the
Board of Trustees or a majority of the disinterested Trustees, the relevant
participating Insurance Companies will, at their expense and to the extent
reasonably practicable (as determined by a majority of the disinterested
Trustees), take whatever steps are necessary to remedy or eliminate the
conflict.
B-50
<PAGE>
APPENDIX A
DESCRIPTION OF SECURITIES RATINGS
The following paragraphs summarize the descriptions for the rating symbols
of securities.
COMMERCIAL PAPER
The following paragraphs summarize the description for the rating
symbols of commercial paper.
MOODY'S INVESTORS SERVICE, INC.
Moody's short-term debt ratings, which are also applicable to
commercial paper investments permitted to be made by the Master Trust, are
opinions of the ability of issuers to repay punctually their senior debt
obligations which have an original maturity not exceeding one year. Moody's
employs the following designations, all judged to be investment grade, to
indicate the relative repayment capacity of rated issuers:
PRIME 1: Issuers (or related supporting institutions) rated PRIME-1
have a superior ability for repayment of short-term promissory obligations.
PRIME-1 repayment ability will often be evidenced by the following
characteristics: (a) leading market positions in well-established industries;
(b) high rates of return on funds employed; (c) conservative capitalization
structures with moderate reliance on debt and ample asset protection; (d) broad
margins in earnings coverage of fixed financial charges and high internal cash
generation; and (e) well-established access to a range of financial markets and
assured sources of alternate liquidity.
PRIME-2: Issuers rated PRIME-2 (or related supporting institutions)
have a strong ability for repayment of senior short-term debt obligations. This
will normally be evidenced by many of the characteristics cited above in the
PRIME-1 category but to a lesser degree. Earning trends and coverage ratios,
while sound, will be more subject to variation. Capitalization characteristics,
while still appropriate, may be more affected by external conditions. Ample
alternate liquidity is maintained.
PRIME 3: Issuers rated PRIME-3 (or related supporting institutions)
have an acceptable ability for repayment of short-term debt 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 may require relatively high
financial leverage. Adequate alternate liquidity is maintained.
STANDARD & POOR'S CORPORATION
Standard & Poor's ratings are a current assessment of the likelihood
of timely payment of debt having an original maturity of no more than 365 days.
The ratings are based on current information furnished to Standard & Poor's by
the issuer and obtained
A-1
<PAGE>
by Standard & Poor's from other sources it considers reliable. Ratings are
graded into four categories, ranging from "A" for the highest quality
obligations to "D" for the lowest. Issues within the "A" category are
delineated with the numbers 1, 2, and 3 to indicate the relative degree of
safety, as follows:
A-1: This designation indicates the degree of safety regarding timely
payment is overwhelming or very strong. Those issuers determined to possess
overwhelming safety characteristics are denoted with a "PLUS" (+) designation.
A-2: Capacity for timely payment on issues with this designation is
strong. However, the relative degree of safety is not as overwhelming as for
issues designated A-1.
A-3: Issues carrying this designation have a satisfactory capacity
for timely payment. They are, however, more vulnerable to the adverse effects
of changes in circumstances than obligations carrying the higher designations.
B: Issues rated "B" are regarded as having only an adequate capacity
for timely payment. However, such capacity may be damaged by changing
conditions or short-term adversities.
C: Issues rated "C" are regarded as having a doubtful capacity for
payment.
FITCH INVESTORS SERVICE, INC.
F-1+: Exceptionally strong credit quality. Commercial paper assigned
this rating is regarded as having the strongest degree of assurance for timely
payment.
F-1: Very strong credit quality. Issues assigned this rating reflect
an assurance of timely payment only slightly less in degree than issues rated
F-1+.
F-2: Good credit quality. Commercial paper assigned this rating has
a satisfactory degree of assurance for timely payment but the margin of safety
is not as great as for issuers assigned F-1+ and F-1 ratings.
F-3: Fair credit quality. Issues assigned this rating have
characteristics suggesting that the degree of assurance for timely payment is
adequate, however, near term adverse changes could cause these securities to be
rated below investment grade.
DUFF & PHELPS
The three rating categories of Duff & Phelps for investment grade
commercial paper are "Duff 1," "Duff 2" and "Duff 3." Duff & Phelps employs
three designations, "Duff 1+," Duff 1" and "Duff 1-," within the highest rating
category. The following summarizes the rating categories used by Duff & Phelps
for commercial paper:
DUFF 1+ - Debt possesses highest certainty of timely payment. Short-
term liquidity, including internal operating factors and/or access to
alternative sources of funds, is outstanding, and safety is just below risk-free
U.S. Treasury short-term obligations.
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<PAGE>
DUFF 1 - Debt possesses very high certainty of timely payment.
Liquidity factors are excessent and supported by good fundamental protection
factors. Risk factors are minor.
DUFF 1- - Debt possesses high certainty of timely payment. Liquidity
factors are strong and supported by good fundamental protection factors. Risk
factors are very small.
DUFF 2 - Debt possesses good certainty of timely payment. Liquidity
factors and company fundamentals are sound. Although ongoing funding needs may
enlarge total financing requirements, access to capital markets is good. Risk
factors are small.
DUFF 3 - Debt possesses satisfactory liquidity, and other protection
factors qualify issue as investment grade. Risk factors are larger and subject
to more variation. Nevertheless, timely payment is expected.
DUFF 4 - Debt possesses speculative investment characteristics.
DUFF 5 - Issuer has failed to meet scheduled principal and/or interest
payments.
THOMSON BANKWATCH
Thomson BankWatch commercial paper ratings assess the likelihood of an
untimely payment of principal or interest of debt having a maturity of one year
or less which is issued by United States commercial banks, thrifts and non-bank
banks; non-United States banks; and broker-dealers. The following summarizes
the ratings used by Thomson BankWatch:
TBW-1 - This designation represents Thomson BankWatch's highest rating
category and indicates a very high degree of likelihood that principal and
interest will be paid on a timely basis.
TBW-2 - This designation indicates that while the degree of safety
regarding timely payment of principal and interest is strong, the relative
degree of safety is not as high as for issues rated "TBW-1."
TBW-3 - This designation represents the lowest investment grade
category and indicates that while the debt is more susceptible to adverse
developments (both internal and external) than obligations with higher ratings,
capacity to service principal and interest in a timely fashion is considered
adequate.
IBCA
IBCA assesses the investment quality of unsecured debt with an
original maturity of less than one year which is issued by bank holding
companies and their principal bank subsidiaries. The following summarizes the
rating categories used by IBCA for short-term debt ratings:
A-3
<PAGE>
A1+ - Obligations are supported by the highest capacity for timely
repayment.
A1 - Obligations are supported by a strong capacity for timely
repayment.
A2 - Obligations are supported by a satisfactory capacity for timely
repayment, although such capacity may be susceptible to adverse changes in
business, economic, or financial conditions.
A3 - Obligations are supported by an adequate capacity for timely
repayment. Such capacity is more susceptible to adverse changes in business,
economic, or financial conditions than for obligations in higher categories.
CORPORATE BONDS
MOODY'S
Moody's corporate bond ratings are opinions of the relative investment
qualities of bonds. Moody's employs nine designations to indicate such relative
qualities, ranging from "Aaa" for the highest quality obligations to "C" for the
lowest. Issues are further refined with the designation 1, 2, and 3 to indicate
the relative ranking within designations. Bonds with the following Moody's
ratings have the following investment qualities:
Aaa: Bonds in this category are judged to be of the highest 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 in this category 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 in this category possess many favorable investment
attributes and are considered to be 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 in this category are considered medium-grade obligations,
(I.E., they are neither highly protected nor poorly secured). Interest
payments and principal security appear adequate for the present but certain
protective elements may be lacking or may be characteristically unreliable over
any great length of time. Such bonds lack outstanding investment
characteristics and in fact have speculative characteristics as well.
A-4
<PAGE>
Ba: Bonds in this category 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 in this category 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 in this category 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 in this category represent obligations which are
speculative in a high degree. Such issues are often in default or have other
marked shortcoming.
C: Bonds in this category are the lowest rated class of bonds, and
issues so rated can be regarded as having extremely poor prospects of ever
attaining any real investment standing.
STANDARD & POOR'S
A Standard & Poor's corporate debt rating is a current assessment of
the creditworthiness of an obligor with respect to a specific obligation.
Ratings are graded into ten categories, ranging from "AAA" for the highest
quality obligation to "D" for debt in default. Issues are further refined with
a "PLUS" or "MINUS" sign to show relative standing within the categories. Bonds
with the following Standard & Poor's ratings have the following investment
qualities:
AAA: Bonds in this category have the highest rating assigned by
Standard & Poor's. Capacity to pay interest and repay principal is extremely
strong.
AA: Bonds in this category have a very strong capacity to pay
interest and repay principal and differ from the higher rated issues only in
small degree.
A: Bonds in this category 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 debt in higher
rated categories.
BBB: Bonds in this category have an adequate capacity to pay interest
and repay principal. Whereas such issues normally exhibit adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than in higher-rated categories.
BB: Bonds in this category have less near-term vulnerability to
default than other speculative issues. However, they face major ongoing
uncertainties or exposure to adverse business, financial or economic conditions
which could lead to inadequate capacity to meet timely interest and principal
payments. The "BB" rating category is also used for debt subordinated to senior
debt that is assigned an actual or implied "BBB-" rating.
A-5
<PAGE>
B: Bonds in this category have a greater vulnerability to default but
currently have the capacity to meet interest payments and principal repayments.
Adverse business, financial, or economic conditions will likely impair capacity
or willingness to pay interest and repay principal. The "B" rating is also used
for debt subordinated to senior debt that is assigned an actual or implied "BB"
or "BB-" rating.
CCC: Bonds in this category have currently identifiable vulnerability
to default, and are dependent upon favorable business, financial and economic
conditions to meet timely payment of interest and repayment of principal. In
the event of adverse business, financial, or economic conditions, they are not
likely to have the capacity to pay interest and repay principal. The "CCC"
rating category is also used for debt subordinated to senior debt that is
assigned an actual or implied "B" or "B-" rating.
C: This rating is typically applied to debt subordinated to senior
debt which is assigned an actual or implied "CCC-" debt rating. The "C" rating
may be used to cover a situation where a bankruptcy petition has been filed, but
debt service payments are continued.
DUFF & PHELPS
The following summarizes the ratings used by Duff & Phelps for
corporate and municipal long-term debt:
AAA - Debt is considered to be of the highest credit quality. The
risk factors are negligible, being only slightly more than for risk-free U.S.
Treasury debt.
AA - Debt is considered of high credit quality. Protection factors
are strong. Risk is modest but may vary slightly from time to time because of
economic conditions.
A - Debt possesses protection factors which are average but adequate.
However, risk factors are more variable and greater in periods of economic
stress.
BBB - Debt possesses below average protection factors but such
protection factors are still considered sufficient for prudent investment.
Considerable variability in risk is present during economic cycles.
BB, B, CCC, DD, AND DP - Debt that possesses one of these ratings is
considered to be below investment grade. Although below investment grade, debt
rated "BB" is deemed likely to meet obligations when due. Debt rated "B"
possesses the risk that obligations will not be met when due. Debt rated "CCC"
is well below investment grade and has considerable uncertainty as to timely
payment of principal, interest or preferred dividends. Debt rated "DD" is a
defaulted debt obligation, and the rating "DP" represents preferred stock with
dividend arrearages.
To provide more detailed indications of credit quality, the "AA," "A,"
"BBB," "BB" and "B" ratings may be modified by the addition of a plus (+) or
minus (-) sign to show relative standing within these major categories.
A-6
<PAGE>
FITCH INVESTORS SERVICE, INC.
The following summarizes the highest four ratings used by Fitch for
corporate and municipal bonds:
AAA - Bonds considered to be investment grade and of the highest
credit quality. The obligor has an exceptionally strong ability to pay interest
and repay principal, which is unlikely to be affected by reasonably foreseeable
events.
AA - Bonds considered to be investment grade and of very high credit
quality. The obligor's ability to pay interest and repay principal is very
strong, although not quite as strong as bonds rated "AAA." Because bonds rated
in the "AAA" and "AA" categories are not significantly vulnerable to foreseeable
future developments, short-term debt of these issuers is generally rated "F-1+."
A - Bonds considered to be investment grade and of high credit
quality. The obligor's ability to pay interest and repay principal is
considered to be strong, but may be more vulnerable to adverse changes in
economic conditions and circumstances than bonds with higher ratings.
BBB - Bonds considered to be investment grade and of satisfactory
credit quality. The obligor's ability to pay interest and repay principal is
considered to be adequate. Adverse changes in economic conditions and
circumstances, however, are more likely to have an adverse impact on these
bonds, and therefore, impair timely payment. The likelihood that the ratings of
these bonds will fall below investment grade is higher than for bonds with
higher ratings.
BB, B, CCC, CC, C, DDD, DD, AND D - Bonds that possess one of these
ratings are considered by Fitch to be speculative investments. The ratings "BB"
to "C" represent Fitch's assessment of the likelihood of timely payment of
principal and interest in accordance with the terms of obligation for bond
issues not in default. For defaulted bonds, the rating "DDD" to "D" is an
assessment of the ultimate recovery value through reorganization or liquidation.
To provide more detailed indications of credit quality, the Fitch
ratings from and including "AA" to "C" may be modified by the addition of a plus
(+) or minus (-) sign to show relative standing within these major rating
categories.
IBCA
IBCA assesses the investment quality of unsecured debt with an
original maturity of more than one year which is issued by bank holding
companies and their principal bank subsidiaries. The following summarizes the
rating categories used by IBCA for long-term debt ratings:
AAA - Obligations for which there is the lowest expectation of
investment risk. Capacity for timely repayment of principal and interest is
substantial such that adverse changes in business, economic or financial
conditions are unlikely to increase investment risk significantly.
A-7
<PAGE>
AA - Obligations for which there is a very low expectation of
investment risk. Capacity for timely repayment of principal and interest is
substantial. Adverse changes in business, economic or financial conditions may
increase investment risk albeit not very significantly.
A - Obligations for which there is a low expectation of investment
risk. Capacity for timely repayment of principal and interest is strong,
although adverse changes in business, economic or financial conditions may lead
to increased investment risk.
BBB - Obligations for which there is currently a low expectation of
investment risk. Capacity for timely repayment of principal and interest is
adequate, although adverse changes in business, economic or financial conditions
are more likely to lead to increased investment risk than for obligations in
higher categories.
BB, B, CCC, CC, AND C - Obligations are assigned one of these ratings
where it is considered that speculative characteristics are present. "BB"
represents the lowest degree of speculation and indicates a possibility of
investment risk developing. "C" represents the highest degree of speculation
and indicates that the obligations are currently in default.
IBCA may append a rating of plus (+) or minus (-) to a rating to
denote relative status within major rating categories.
THOMSON BANKWATCH
Thomson BankWatch assesses the likelihood of an untimely repayment of
principal or interest over the term to maturity of long term debt and preferred
stock which are issued by United States commercial banks, thrifts and non-bank
banks; non-United States banks; and broker-dealers. The following summarizes
the rating categories used by Thomson BankWatch for long-term debt ratings:
AAA - This designation represents the highest category assigned by
Thomson BankWatch to long-term debt and indicates that the ability to repay
principal and interest on a timely basis is very high.
AA - This designation indicates a superior ability to repay principal
and interest on a timely basis with limited incremental risk versus issues rated
in the highest category.
A - This designation indicates that the ability to repay principal and
interest is strong. Issues rated "A" could be more vulnerable to adverse
developments (both internal and external) than obligations with higher ratings.
BBB - This designation represents Thomson BankWatch's lowest
investment grade category and indicates an acceptable capacity to repay
principal and interest. Issues rated "BBB" are, however, more vulnerable to
adverse developments (both internal and external) than obligations with higher
ratings.
BB, B, CCC, AND CC, - These designations are assigned by Thomson
BankWatch to non-investment grade long-term debt. Such issues are regarded as
having speculative characteristics regarding the likelihood of timely payment of
principal and
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<PAGE>
interest. "BB" indicates the lowest degree of speculation and "CC" the
highest degree of speculation.
D - This designation indicates that the long-term debt is in default.
PLUS (+) OR MINUS (-) - The ratings from "AAA" through "CC" may
include a plus or minus sign designation which indicates where within the
respective category the issue is placed.
A-9
<PAGE>
NICHOLAS-APPLEGATE SERIES TRUST
FORM N-1A
PART C: OTHER INFORMATION
Item 24. FINANCIAL STATEMENTS AND EXHIBITS.
a. Financial Statements:
Registrant's Statement of Assets and Liabilities as of __________, 1996,
related Notes and Independent Accountants' Report dated _________, 1996,
with respect to the Series are included as Exhibit B to Part B.
b. Exhibits:
(1.1) Certificate of Trust of Registrant.
(1.2) Declaration of Trust of Registrant.
(2) Bylaws of Registrant.
(3) None.
(4) None.
(5.1) Form of Investment Advisory Agreement between Registrant and
Nicholas-Applegate Capital management.
(5.2) Form of Subadvisory Agreement among Registrant, Nicholas-
Applegate Capital Management and Rogge Global Partners, plc.
(6) Form of Distribution Agreement between Registrant and
Nicholas-Applegate Securities.
(7) None.
(8) Form of Custodian Services Agreement between Registrant and
PNC Bank.
(9.1) Form of Administration Agreement between Registrant and
Investment Company Administration Corporation.
C-1
<PAGE>
(9.2) Form of Transfer Agency and Service Agreement between Registrant
and Nicholas-Applegate Securities.
(9.3) Form of License Agreement between Registrant and Nicholas-
Applegate Capital Management.
(9.4) Form of Accounting Services Agreement between Registrant and PFPC
Inc.
(9.5) Form of Letter agreement between Registrant and Nicholas-
Applegate Capital Management regarding expense reimbursements.
(9.6) Form of Participation Agreement between Registrant, Nicholas-
Applegate Capital Management and Aetna Insurance Company of
America.
(9.7) Form of Participation Agreement between Registrant, Nicholas-
Applegate Capital Management, and ALIAC Life Insurance and
Annuity Company.
(10) Opinion of Counsel -- to be filed.
(11) Consent of Independent Accountants -- to be filed.
(12) None.
(13) Form of Investment Letter of initial investor in Registrant.
(14) None.
(15) None.
(16) None.
(17.1) Limited Powers of Attorney of Arthur E. Nicholas and John D.
Wylie.
C-2
<PAGE>
Item 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT.
Arthur E. Nicholas, Fred C. Applegate, and Arthur B. Laffer, members of
the Board of Trustees of Registrant, are also members of the Board of Trustees
of Nicholas-Applegate Mutual Funds and members of the Board of Directors of
Nicholas-Applegate Fund, Inc., registered investment companies. In addition,
Theodore J. Coburn, a member of the Board of Trustees of Registrant, is also a
member of the Board of Directors of Nicholas-Applegate Fund, Inc.; and Messrs.
Nicholas and Coburn and Darlene T. DeRemer, a member of the Board of Trustees of
Registrant, are also members of the Board of Trustees of Nicholas-Applegate
Investment Trust, a registered investment company. As such persons constitute a
majority of the Boards of Nicholas-Applegate Mutual Funds and Nicholas-Applegate
Fund, Inc., and 50% of the Board of Trustees of Nicholas-Applegate Investment
Trust, Registrant, Nicholas-Applegate Mutual Funds, Nicholas-Applegate
Investment Trust and Nicholas-Applegate Fund, Inc. may be deemed to be under
common control.
Item 26. NUMBER OF HOLDERS OF SECURITIES.
As of _______, 1996, the number of record holders of each series of
Registrant was as follows:
TITLE OF SERIES NUMBER OF RECORD HOLDERS
--------------- ------------------------
Core Growth Series 1
Emerging Growth Series 1
International Growth Series 1
Value Series 1
Diversified Income Series 1
International Fixed Income Series 1
Item 27. INDEMNIFICATION.
Article V of Registrant's Declaration of Trust, filed herewith as
Exhibit 1, provides for the indemnification of Registrant's trustees, officers,
employees and agents against liabilities incurred by them in connection with the
defense or disposition of any action or proceeding in which they may be involved
or with which they may be threatened, while in office or thereafter, by reason
of being or having been in such office, except with respect to matters as to
which it has been determined that they acted with willful misfeasance, bad
faith, gross negligence or reckless disregard of the duties involved in the
conduct of their office ("Disabling Conduct").
C-3
<PAGE>
Section 8 of Registrant's Administration Agreement, filed herewith as
Exhibit 9.1, provides for the indemnification of Registrant's Administrator
against all liabilities incurred by it in performing its obligations under the
Agreement, except with respect to matters involving its Disabling Conduct.
Section 9 of Registrant's Distribution Agreement, filed herewith as Exhibit 6,
provides for the indemnification of Registrant's Distributor against all
liabilities incurred by it in performing its obligations under the Agreement,
except with respect to matters involving its Disabling Conduct. Section 4 of
the Shareholder Service Agreement, filed herewith as Exhibit 9.3, provides for
the indemnification of Registrant's Distributor against all liabilities incurred
by it in performing its obligations under the Agreement, except with respect to
matters involving its Disabling Conduct.
Registrant has obtained from a major insurance carrier a trustees' and
officers' liability policy covering certain types of errors and omissions.
Insofar as indemnification for liabilities 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
Securities 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 Securities
Act and will be governed by the final adjudication of such issue.
Item 28. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISERS.
During the two fiscal years ended December 31, 1995 Nicholas-Applegate
Capital Management has engaged principally in the business of providing
investment services to institutional and other clients. All of the additional
information required by this Item 28 with respect to the Investment Adviser is
set forth in the Form ADV, as amended, of Nicholas-Applegate Capital
C-4
<PAGE>
Management (File No. 801-21442), which is incorporated herein by reference.
During the two fiscal years ended December 31, 1995, Rogge Global
Partners, plc has engaged principally in the business of providing investment
services to institutional and other clients. All of the additional information
required by this Item 28 with respect to the Subadviser is set forth in the Form
ADV, as amended, of Rogge Global Partners, plc (File No. 801-25482), which is
incorporated herein by reference.
Item 29. PRINCIPAL UNDERWRITERS.
(a) Nicholas-Applegate Securities does not act as a principal
underwriter, depositor or investment adviser to any investment company, other
than as principal underwriter to Registrant and Nicholas-Applegate Mutual Funds.
(b) Nicholas-Applegate Securities, the Distributor of the
shares of Registrant's Series, is a California limited partnership and its
general partner is Nicholas-Applegate Capital Management Holdings, L.P. (the
"General Partner"). Information is furnished below with respect to the
officers, partners and directors of the General Partner and
Nicholas-Applegate Securities. The principal business address of such
persons is 600 West Broadway, 30th Floor, San Diego, California 92101, except
as otherwise indicated below.
POSITIONS AND
OFFICES WITH POSITIONS AND
NAME AND PRINCIPAL PRINCIPAL OFFICES WITH
BUSINESS ADDRESS UNDERWRITER REGISTRANT
- ------------------ ------------- -------------
Arthur E. Nicholas Chairman Chairman of the
Board of Trustees
Ashley T. Rabun President Vice President
Peter J. Johnson Vice President None
Thomas Pindelski Chief Financial Chief Financial
Officer Officer
E. Blake Moore, Jr. General Counsel and Secretary
Secretary
Todd Spillane Director of None
Compliance
C-5
<PAGE>
(c) Not applicable.
Item 30. LOCATION OF ACCOUNTS AND RECORDS.
All 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 will be maintained either at the offices of the Registrant (600 West
Broadway, 30th Floor, San Diego, California 92101); the Investment Adviser to
the Registrant, Nicholas-Applegate Capital Management (600 West Broadway, 30th
Floor, San Diego, California 92101); the Subadviser to the Registrant, Rogge
Global Partners, plc (5-6 St. Andrews Hill, London, England); the Administrator
for the Registrant, Investment Company Administration Corporation (4455 East
Camelback Road, Suite 261-E, Phoenix, Arizona 85018); the Custodian, PNC Bank
(Airport Business Center, International Court 2, 200 Stevens Drive, Lester,
Pennsylvania 19113); or the Distributor, Transfer Agent and Dividend Disbursing
Agent, Nicholas-Applegate Securities (600 West Broadway, 30th Floor, San Diego,
California 92101).
Item 31. MANAGEMENT SERVICES.
Not Applicable.
Item 32. UNDERTAKINGS.
Registrant hereby undertakes to file a post-effective amendment,
containing reasonably current financial statements with respect to its Core
Growth Series, Emerging Growth Series, International Growth Series, Value
Series, Diversified Income Series and International Fixed Income Series which
need not be certified, within four to six months from the effective date of the
Registrant's 1933 Act Registration Statement with respect to such Series.
Registrant hereby undertakes to furnish each person to whom a
prospectus is delivered with a copy of Registrant's latest annual report to
shareholders, upon request and without charge.
C-6
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant has duly caused this Amendment to
Registration Statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of San Diego, State of California, on the 24th day
of January, 1996.
NICHOLAS-APPLEGATE SERIES TRUST
By John D. Wylie*
---------------------------
John D. Wylie
President
Pursuant to the requirements of the Securities Act of 1933, this
Amendment to Registration Statement has been signed below by the following
persons in the capacities and on the dates indicated.
Principal Executive
John D. Wylie* Officer January 24, 1996
- --------------------
John D. Wylie
Principal Financial
/s/Thomas Pindelski and Accounting
- -------------------- Officer January 24, 1996
Thomas Pindelski
Arthur E. Nicholas*
- -------------------- Trustee January 24, 1996
Arthur E. Nicholas
*/s/E. Blake Moore, Jr.
- -----------------------
By: E. Blake Moore, Jr.
Attorney in Fact
C-7
<PAGE>
EXHIBIT INDEX
NICHOLAS-APPLEGATE SERIES TRUST
PRES-EFFECTIVE AMENDMENT NO. 1 TO
FORM N-1A REGISTRATION STATEMENT
FILE NO. 811-9074
EXHIBIT NO. TITLE OF EXHIBIT
----------- ----------------
(1.1) Certificate of Trust of
Registrant.
(1.2) Declaration of Trust of Registrant.
(2) Bylaws of Registrant.
(3) None.
(4) None.
(5.1) Form of Investment Advisory Agreement between
Registrant and Nicholas-Applegate Capital
management.
(5.2) Form of Subadvisory Agreement among Registrant,
Nicholas-Applegate Capital Management and Rogge
Global Partners, plc.
(6) Form of Distribution Agreement between
Registrant and Nicholas-Applegate Securities.
(7) None.
(8) Form of Custodian Services Agreement between
Registrant and PNC Bank.
(9.1) Form of Administration Agreement between
Registrant and Investment Company
Administration Corporation.
C-8
<PAGE>
EXHIBIT NO. TITLE OF EXHIBIT
----------- ----------------
(9.2) Form of Transfer Agency and Service Agreement
between Registrant and Nicholas-Applegate
Securities.
(9.3) Form of License Agreement between Registrant
and Nicholas-Applegate Capital Management.
(9.4) Form of Accounting Services Agreement between
Registrant and PFPC Inc.
(9.5) Form of Letter agreement between Registrant and
Nicholas-Applegate Capital Management regarding
expense reimbursements.
(9.6) Form of Participation Agreement between
Registrant, Nicholas-Applegate Capital
Management and Aetna Insurance Company of
America.
(9.7) Form of Participation Agreement between Registrant,
Nicholas-Applegate Capital Management, and ALIAC Life
Insurance and Annuity Company.
(10) Opinion of Counsel -- to be filed.
(11) Consent of Independent Accountants -- to be
filed.
(12) None.
(13) Form of Investment Letter of initial investor
in Registrant.
(14) None.
(15) None.
C-9
<PAGE>
EXHIBIT NO. TITLE OF EXHIBIT
----------- ----------------
(16) None.
(17.1) Limited Powers of Attorney of Arthur E.
Nicholas and John D. Wylie.
C-10
<PAGE>
CERTIFICATE OF TRUST
OF
NICHOLAS-APPLEGATE SERIES TRUST
The undersigned, constituting the sole member of the Board of Trustees
of NICHOLAS-APPLEGATE SERIES TRUST (the "Trust"), in order to form a Delaware
business trust pursuant to Section 3810 of the Delaware Business Trust Act, does
hereby certify the following:
1. The name of the Delaware business trust is NICHOLAS-APPLEGATE
SERIES TRUST.
2. Prior to the issuance of beneficial interests, the Trust will
become a registered investment company under the Investment Company Act of 1940,
as amended.
3. Notice is hereby given that pursuant to Section 3804 of the
Delaware Business Trust Act, the debts, liabilities, obligations and expenses
incurred, contracted for or otherwise existing with respect to a particular
series of the Trust shall be enforceable against the assets of such series only
and not against the assets of the Trust generally.
4. The registered office of the Trust in Delaware is NICHOLAS-
APPLEGATE SERIES TRUST, c/o The Corporation Trust Company, Corporation Trust
Center, 1209 Orange Street, County of New Castle, Wilmington, Delaware 19801.
5. The registered agent for service of process on the Trust is The
Corporation Trust Company, Corporation Trust Center, 1209 Orange Street, County
of New Castle, Wilmington, Delaware 19801.
<PAGE>
6. This Certificate of Trust shall be effective the date it is filed
with the Office of the Delaware Secretary of State.
IN WITNESS WHEREOF, the undersigned Trustee of NICHOLAS-APPLEGATE
SERIES TRUST has executed this Certificate as of the 20th day of July, 1995.
s/ Arthur E. Nicholas
---------------------------------
Arthur E. Nicholas
<PAGE>
EXHIBIT 1.2
DECLARATION OF TRUST
OF
NICHOLAS-APPLEGATE SERIES TRUST
a Delaware Business Trust
July 20, 1995
<PAGE>
TABLE OF CONTENTS
-----------------
PAGE
----
ARTICLE I
THE TRUST. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.1 NAME. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.2 TRUST PURPOSE . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.3 DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
ARTICLE II
TRUSTEES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
2.1 NUMBER AND QUALIFICATION. . . . . . . . . . . . . . . . . . . . . . . 4
2.2 TERM AND ELECTION . . . . . . . . . . . . . . . . . . . . . . . . . . 4
2.3 RESIGNATION AND REMOVAL . . . . . . . . . . . . . . . . . . . . . . . 5
2.4 VACANCIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
2.5 MEETINGS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
2.6 OFFICERS; CHAIRMAN OF THE BOARD . . . . . . . . . . . . . . . . . . . 7
2.7 BY-LAWS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
ARTICLE III
POWERS OF TRUSTEES . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
3.1 GENERAL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
3.2 INVESTMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
3.3 LEGAL TITLE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
3.4 SALE OF INTERESTS . . . . . . . . . . . . . . . . . . . . . . . . . . 9
3.5 BORROW MONEY. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
3.6 DELEGATION; COMMITTEES. . . . . . . . . . . . . . . . . . . . . . . . 10
3.7 COLLECTION AND PAYMENT. . . . . . . . . . . . . . . . . . . . . . . . 10
3.8 EXPENSES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
3.9 MISCELLANEOUS POWERS. . . . . . . . . . . . . . . . . . . . . . . . . 10
3.10 FURTHER POWERS. . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
ARTICLE IV
INVESTMENT ADVISORY, ADMINISTRATIVE SERVICES
AND PLACEMENT AGENT ARRANGEMENTS . . . . . . . . . . . . . . . . . . . . . 11
4.1 INVESTMENT ADVISORY AND OTHER ARRANGEMENTS. . . . . . . . . . . . . . 11
4.2 PARTIES TO CONTRACT . . . . . . . . . . . . . . . . . . . . . . . . . 12
ARTICLE V
LIMITATIONS OF LIABILITY . . . . . . . . . . . . . . . . . . . . . . . . . 12
5.1 NO PERSONAL LIABILITY OF TRUSTEES OFFICERS, EMPLOYEES, AGENTS . . . . 12
5.2 INDEMNIFICATION OF TRUSTEES, OFFICERS, EMPLOYEES AGENTS . . . . . . . 13
5.3 LIABILITY OF HOLDERS; INDEMNIFICATION . . . . . . . . . . . . . . . . 14
5.4 NO BOND REQUIRED OF TRUSTEES. . . . . . . . . . . . . . . . . . . . . 14
-i-
<PAGE>
5.5 NO DUTY OF INVESTIGATION; NOTICE IN TRUST INSTRUMENTS, ETC. . . . . . 14
5.6 RELIANCE ON EXPERTS, ETC. . . . . . . . . . . . . . . . . . . . . . . 15
5.7 ASSENT TO DECLARATION . . . . . . . . . . . . . . . . . . . . . . . . 15
ARTICLE VI
INTERESTS IN THE TRUST . . . . . . . . . . . . . . . . . . . . . . . . . . 16
6.1 GENERAL CHARACTERISTICS . . . . . . . . . . . . . . . . . . . . . . . 16
6.2 ESTABLISHMENT OF SERIES OF INTERESTS. . . . . . . . . . . . . . . . . 17
6.3 ESTABLISHMENT OF CLASSES. . . . . . . . . . . . . . . . . . . . . . . 17
6.4 ASSETS OF SERIES. . . . . . . . . . . . . . . . . . . . . . . . . . . 18
6.5 LIABILITIES OF SERIES . . . . . . . . . . . . . . . . . . . . . . . . 18
6.6 DIVIDENDS AND DISTRIBUTIONS . . . . . . . . . . . . . . . . . . . . . 19
6.7 VOTING RIGHTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
6.8 RECORD DATES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
6.9 TRANSFER. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
6.10 EQUALITY. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
6.11 FRACTIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
6.12 CLASS DIFFERENCES . . . . . . . . . . . . . . . . . . . . . . . . . . 22
6.13 CONVERSION OF INTERESTS . . . . . . . . . . . . . . . . . . . . . . . 22
6.14 INVESTMENTS IN THE TRUST. . . . . . . . . . . . . . . . . . . . . . . 22
6.15 TRUSTEES AND OFFICERS AS HOLDERS. . . . . . . . . . . . . . . . . . . 22
6.16 NO PRE-EMPTIVE RIGHTS; DERIVATIVE SUITS . . . . . . . . . . . . . . . 22
6.17 NO APPRAISAL RIGHTS . . . . . . . . . . . . . . . . . . . . . . . . . 23
6.18 STATUS OF INTERESTS AND LIMITATION OF PERSONAL LIABILITY. . . . . . . 23
ARTICLE VII
PURCHASES AND REDEMPTIONS. . . . . . . . . . . . . . . . . . . . . . . . . 24
7.1 PURCHASES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
7.2 REDEMPTION BY HOLDER. . . . . . . . . . . . . . . . . . . . . . . . . 24
7.3 REDEMPTION BY TRUST . . . . . . . . . . . . . . . . . . . . . . . . . 24
7.4 NET ASSET VALUE . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
ARTICLE VIII
HOLDERS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
8.1 RIGHTS OF HOLDERS . . . . . . . . . . . . . . . . . . . . . . . . . . 26
8.2 REGISTER OF INTERESTS . . . . . . . . . . . . . . . . . . . . . . . . 26
8.3 NOTICES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
8.4 MEETINGS OF HOLDERS . . . . . . . . . . . . . . . . . . . . . . . . . 26
8.5 NOTICE OF MEETINGS. . . . . . . . . . . . . . . . . . . . . . . . . . 27
8.6 RECORD DATE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
8.7 PROXIES, ETC. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
8.8 REPORTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
8.9 INSPECTION OF RECORDS . . . . . . . . . . . . . . . . . . . . . . . . 29
-ii-
<PAGE>
PAGE
----
8.10 VOTING POWERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
8.11 HOLDER ACTION BY WRITTEN CONSENT. . . . . . . . . . . . . . . . . . . 29
8.12 HOLDER COMMUNICATIONS . . . . . . . . . . . . . . . . . . . . . . . . 30
ARTICLE IX
DURATION; TERMINATION OF TRUST;
AMENDMENT; MERGERS: ETC. . . . . . . . . . . . . . . . . . . . . . . . . . 30
9.1 DURATION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
9.2 TERMINATION OF TRUST. . . . . . . . . . . . . . . . . . . . . . . . . 31
9.3 AMENDMENT PROCEDURE . . . . . . . . . . . . . . . . . . . . . . . . . 32
9.4 MERGER, CONSOLIDATION AND SALE OF ASSETS. . . . . . . . . . . . . . . 33
9.5 INCORPORATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
ARTICLE X
MISCELLANEOUS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
10.1 CERTIFICATE OF DESIGNATION; AGENT FOR SERVICE OF PROCESS. . . . . . . 34
10.2 GOVERNING LAW . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
10.3 COUNTERPARTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
10.4 RELIANCE BY THIRD PARTIES . . . . . . . . . . . . . . . . . . . . . . 35
10.5 PROVISIONS IN CONFLICT WITH LAW OR
REGULATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
10.6 TRUST ONLY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
10.7 WITHHOLDING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
10.8 HEADINGS AND CONSTRUCTION . . . . . . . . . . . . . . . . . . . . . . 36
-iii-
<PAGE>
EXHIBIT 1.2
DECLARATION OF TRUST
OF
NICHOLAS-APPLEGATE SERIES TRUST
This AMENDED AND RESTATED DECLARATION OF TRUST of TIME HORIZON FUNDS is
made on July 20, 1995 by the party signatory hereto, as sole trustee.
WHEREAS, the Trustee desires to form a business trust under the law of
Delaware for the investment and reinvestment of its assets; and
WHEREAS, it is proposed that the Trust assets be composed of cash,
securities and other assets contributed to the Trust by the holders of interests
in the Trust entitled to ownership rights in the Trust;
NOW, THEREFORE, the Trustee hereby declares that the Trustees will hold
in trust all cash, securities and other assets which they may from time to time
acquire in any manner as Trustees hereunder, and manage and dispose of the same
for the benefit of the holders of interests in the Trust and subject to the
following terms and conditions.
ARTICLE I
THE TRUST
1.1 NAME. The name of the trust created hereby (the "Trust") shall be
"Nicholas-Applegate Series Trust," and so far as may be practicable the Trustee
shall conduct the Trust's activities, execute all documents and sue or be sued
under that name, which name (and the word "Trust" wherever hereinafter used)
shall not refer to the Trustees in their individual capacity or to the officers,
agents, employees or holders of interest in the Trust. However, should the
Trustees determine that the use of the name of the Trust is not advisable, they
may select such other name for the Trust as they deem proper and the Trust may
hold its property and conduct its activities under such other name. Any name
change shall become effective upon the execution by a majority of the then
Trustees of an instrument setting
<PAGE>
forth the new name and the filing of a certificate of amendment pursuant to
Section 3810(b) of the DBTA. Any such instrument shall not require the approval
of the holders of interests in the Trust, but shall have the status of an
amendment to this Declaration.
1.2 TRUST PURPOSE. The purpose of the Trust is to conduct, operate and
carry on the business of an open-end management investment company registered
under the 1940 Act. In furtherance of the foregoing, it shall be the purpose of
the Trust to do everything necessary, suitable, convenient or proper for the
conduct, promotion and attainment of any businesses and purposes which at any
time may be incidental or may appear conducive or expedient for the
accomplishment of the business of an open-end management investment company
registered under the 1940 Act and which may be engaged in or carried on by a
trust organized under the DBTA, and in connection therewith the Trust shall have
and may exercise all of the powers conferred by the laws of the State of
Delaware upon a Delaware business trust.
1.3 DEFINITIONS. As used in this Declaration, the following terms
shall have the following meanings:
(a) "1940 ACT" shall mean the Investment Company Act of 1940, as
amended from time to time, and the rules and regulations thereunder, as adopted
or amended from time to time.
(b) "AFFILIATED PERSON," "ASSIGNMENT" and "INTERESTED PERSON"
shall have the meanings given such terms in the 1940 Act.
(c) "ADMINISTRATOR" shall mean any party furnishing services to
the Trust pursuant to any administrative services contract described in Section
4.1 hereof.
(d) "BY-LAWS" shall mean the By-Laws of the Trust as amended from
time to time.
(e) "CODE" shall mean the Internal Revenue Code of 1986, as
amended from time to time, and the rules and regulations thereunder, as adopted
or amended from time to time.
(f) "COMMISSION" shall mean the Securities and Exchange
Commission.
-2-
<PAGE>
(g) "DECLARATION" shall mean this Declaration of Trust as amended
from time to time. References in this Declaration to "DECLARATION," "HEREOF,"
"HEREIN" and "HEREUNDER" shall be deemed to refer to the Declaration rather than
the article or section in which such words appear. This Declaration shall,
together with the By-Laws, constitute the governing instrument of the Trust
under the DBTA.
(h) "DBTA" shall mean the Delaware Business Trust Act, Delaware
Code Annotated title 12, Sections 3801 et seq., as amended from time to time.
(i) "FISCAL YEAR" shall mean an annual period as determined by the
Trustees unless otherwise provided by the Code or applicable regulations.
(j) "HOLDERS" shall mean as of any particular time any or all
holders of record of Interests in the Trust or in Trust Property, as the case
may be, at such time.
(k) "INTEREST" shall mean a Holder's units of interest into which
the beneficial interest in the Trust and each series and class of the Trust
shall be divided from time to time.
(1) "INVESTMENT ADVISER" shall mean any party furnishing services
to the Trust pursuant to any investment advisory contract described in Section
4.1 hereof.
(m) "MAJORITY INTERESTS VOTE" shall mean the vote, at a meeting of
the Holders of Interests, of the lesser of (A) 67% or more of the Interests
present or represented at such meeting, provided the Holders of more than 50% of
the Interests are present or represented by proxy or (B) more than 50% of the
Interests.
(n) "PERSON" shall mean and include an individual, corporation,
partnership, trust, association, joint venture and other entity, whether or not
a legal entity, and a government and agencies and political subdivisions
thereof.
(o) "REGISTRATION STATEMENT" as of any particular time shall mean
the Registration Statement of the Trust which is effective at such time under
the 1940 Act.
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(p) "TRUST PROPERTY" shall mean as of any particular time any and
all property, real or personal, tangible or intangible, which at such time is
owned or held by or for the account of the Trust or the Trustees or any series
of the Trust established in accordance with Section 6.2.
(q) "TRUSTEES" shall mean such persons who are identified as
trustees of the Trust on the signature page of this Declaration, so long as they
shall continue in office in accordance with the terms of this Declaration of
Trust, and all other persons who at the time in question have been duly elected
or appointed as trustees in accordance with the provisions of this Declaration
of Trust and are then in office, in their capacity as trustees hereunder.
ARTICLE II
TRUSTEES
2.1 NUMBER AND QUALIFICATION. The number of Trustees shall initially
be one and shall thereafter be fixed from time to time by written instrument
signed by majority of the Trustees so fixed then in office, provided, however,
that the number of Trustees shall in no event be less than one. A Trustee shall
be an individual at least 21 years of age who is not under legal disability.
(a) Any vacancy created by an increase in Trustees shall be filled
by the appointment or election of an individual having the qualifications
described in this Article as provided in Section 2.4. Any such appointment
shall not become effective, however, until the individual appointed or elected
shall have accepted in writing such appointment or election and agreed in
writing to be bound by the terms of the Declaration. No reduction in the number
of Trustees shall have the effect of removing any Trustee from office.
(b) Whenever a vacancy in the number of Trustees shall occur,
until such vacancy is filled as provided in Section 2.4 hereof, the Trustees in
office, regardless of their number, shall have all the powers granted to the
Trustees and shall discharge all the duties imposed upon the Trustees by this
Declaration.
2.2 TERM AND ELECTION. Each Trustee named herein, or elected or
appointed prior to the first meeting
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of the Holders, shall (except in the event of resignations or removals or
vacancies pursuant to Section 2.3 or 2.4 hereof) hold office until his or her
successor has been elected at such meeting and has qualified to serve as
Trustee. Beginning with the Trustees elected at the first meeting of Holders,
each Trustee shall hold office during the lifetime of this Trust and until its
termination as hereinafter provided unless such Trustee resigns or is removed as
provided in Section 2.3 below or his term expires pursuant to Section 2.4
hereof.
2.3 RESIGNATION AND REMOVAL. Any Trustee may resign (without need for
prior or subsequent accounting) by an instrument in writing signed by him or her
and delivered or mailed to the Chairman, if any, the President or the Secretary
and such resignation shall be effective upon such delivery, or at a later date
according to the terms of the instrument.
(a) Any of the Trustees may be removed with or without cause by
the affirmative vote of the Holders of two-thirds (2/3) of the Interests or
(provided the aggregate number of Trustees, after such removal and after giving
effect to any appointment made to fill the vacancy created by such removal,
shall not be less than the number required by Section 2.1 hereof) with cause, by
the action of two-thirds (2/3) of the remaining Trustees. Removal with cause
shall include, but not be limited to, the removal of a Trustee due to physical
or mental incapacity.
(b) Upon the resignation or removal of a Trustee, or his or her
otherwise ceasing to be a Trustee, he or she shall execute and deliver such
documents as the remaining Trustees shall require for the purpose of conveying
to the Trust or the remaining Trustees any Trust Property held in the name of
the resigning or removed Trustee. Upon the death of any Trustee or upon removal
or resignation due to any Trustee's incapacity to serve as trustee, his or her
legal representative shall execute and deliver on his or her behalf such
documents as the remaining Trustees shall require as provided in the preceding
sentence.
2.4 VACANCIES. The term of office of a Trustee shall terminate and a
vacancy shall occur in the event of the earliest to occur of the following: the
Trustee's attainment of age 70, death, resignation, adjudicated incompetence or
other incapacity to perform the duties of the office, or removal, of the
Trustee. A vacancy shall
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also occur in the event of an increase in the number of trustees as provided in
Section 2.1. No such vacancy shall operate to annul this Declaration or to
revoke any existing trust created pursuant to the terms of this Declaration. In
the case of a vacancy, the Holders of a plurality of the Interests entitled to
vote, acting at any meeting of the Holders held in accordance with Article VIII
hereof, or, to the extent permitted by the 1940 Act, a majority vote of the
Trustees continuing in office acting by written instrument or instruments, may
fill such vacancy, and any Trustee so elected by the Trustees or the Holders
shall hold office as provided in this Declaration. There shall be no cumulative
voting by the Holders in the election of Trustees.
2.5 MEETINGS. Meetings of the Trustees shall be held from time to time
within or without the State of Delaware upon the call of the Chairman, if any,
the President, the Chief Operating Officer, the Secretary, an Assistant
Secretary or any two Trustees.
(a) Regular meetings of the Trustees may be held without call or
notice at a time and place fixed by the By-Laws or by resolution of the
Trustees. Notice of any other meeting shall be given not later than 72 hours
preceding the meeting by United States mail or by electronic transmission to
each Trustee at his business address as set forth in the records of the Trust or
otherwise given personally not less than 24 hours before the meeting but may be
waived in writing by any Trustee either before or after such meeting. The
attendance of a Trustee at a meeting shall constitute a waiver of notice of such
meeting except where a Trustee attends a meeting for the express purpose of
objecting to the transaction of any business on the ground that the meeting has
not been lawfully called or convened.
(b) A quorum for all meetings of the Trustees shall be one-third
of the total number of Trustees, but (except at such time as there is only one
Trustee) no less than two Trustees. Unless provided otherwise in this
Declaration, any action of the Trustees may be taken at a meeting by vote of a
majority of the Trustees present (a quorum being present) or without a meeting
by written consent of a majority of the Trustees-, which written consent shall
be filed with the minutes of proceedings of the Trustees or any such committee.
If there be less than a quorum present at any meeting of the Trustees, a
majority of those present may adjourn the meeting until a quorum shall have been
obtained.
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(c) Any committee of the Trustees, including an executive
committee, if any, may act with or without a meeting. A quorum for all meetings
of any such committee shall be two or more of the members thereof, unless the
Board shall provide otherwise. Unless provided otherwise in this Declaration,
any action of any such committee may be taken at a meeting by vote of a majority
of the members present (a quorum being present) or without a meeting by written
consent of a majority of the members, which written consent shall be filed with
the minutes of proceedings of the Trustees or any such committee.
(d) With respect to actions of the Trustees and any committee of
the Trustees, Trustees who are Interested Persons of the Trust or are otherwise
interested in any action to be taken may be counted for quorum purposes under
this Section 2.5 and shall be entitled to vote to the extent permitted by the
1940 Act.
(e) All or any one or more Trustees may participate in a meeting
of the Trustees or any committee thereof by means of a conference telephone or
similar communications equipment by means of which all persons participating in
the meeting can hear each other, and participation in a meeting pursuant to such
communications system shall constitute presence in person at such meeting,
unless the 1940 Act specifically requires the Trustees to act "in person," in
which case such term shall be construed consistent with Commission or staff
releases or interpretations.
2.6 OFFICERS; CHAIRMAN OF THE BOARD. The Trustees shall, from time to
time, elect officers of the Trust, including a President, a Secretary and a
Treasurer. The Trustees shall elect or appoint a Trustee to act as Chairman of
the Board who shall preside at all meetings of the Trustees and carry out such
other duties as the Trustees shall designate. The Trustees may elect or appoint
or authorize the President to appoint such other officers or agents with such
powers as the Trustees may deem to be advisable. The President, Secretary and
Treasurer may, but need not, be a Trustee. Except as set forth above, the
Chairman of the Board and such officers of the Trust shall serve in such
capacity for such time and with such authority as the Trustees may, in their
discretion, so designate or as provided by in the By-Laws.
2.7 BY-LAWS. The Trustees may adopt and, from time to time, amend or
repeal the By-Laws for the conduct of
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the business of the Trust not inconsistent with this Declaration and such By-
Laws are hereby incorporated in this Declaration by reference thereto.
ARTICLE III
POWERS OF TRUSTEES
3.1 GENERAL. The Trustees shall have exclusive and absolute control
over management of the business and affairs of the Trust, but with such powers
of delegation as may be permitted by this Declaration and the DBTA. The
Trustees may perform such acts as in their sole discretion are proper for
conducting the business and affairs of the Trust. The enumeration of any
specific power herein shall not be construed as limiting the aforesaid power.
Such powers of the Trustee may be exercised without order of or recourse to any
court.
3.2 INVESTMENTS. The Trustees shall have power to:
(a) conduct, operate and carry on the business of an investment
company;
(b) subscribe for, invest in, reinvest in, purchase or otherwise
acquire, hold, pledge, sell, assign, transfer, exchange, distribute or otherwise
deal in or dispose of United States and foreign currencies and related
instruments including forward contracts, and securities, including common and
preferred stock, warrants, bonds, debentures, time notes and all other evidences
of indebtedness, negotiable or non-negotiable instruments, obligations,
certificates of deposit or indebtedness, commercial paper, repurchase
agreements, reverse repurchase agreements, convertible securities, forward
contracts, options, futures contracts, and other securities, including, without
limitation, those issued, guaranteed or sponsored by any state, territory or
possession of the United States and the District of Columbia and their political
subdivisions, agencies and instrumentalities, or by the United States
Government, any foreign government, or any agency, instrumentality or political
subdivision of the United States Government or any foreign government, or
international instrumentalities, or by any bank, savings institution,
corporation or other business entity organized under the laws of the United
States or under foreign laws; and to exercise any and all rights, powers and
privileges of
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ownership or interest in respect of any and all such investments of every kind
and description, including, without limitation, the right to consent and
otherwise act with respect thereto, with power to designate one or more persons,
firms, associations, or corporations to exercise any of said rights, powers and
privileges in respect of any of said instruments; and the Trustees shall be
deemed to have the foregoing powers with respect to any additional securities in
which the Trustees may determine to invest.
The Trustees shall not be limited to investing in obligations maturing
before the possible termination of the Trust, nor shall the Trustees be limited
by any law limiting the investments which may be made by fiduciaries.
3.3 LEGAL TITLE. Legal title to all the Trust Property shall be vested
in the Trust as a separate legal entity under the DBTA, except that the Trustees
shall have the power to cause legal title to any Trust Property to be held by or
in the name of one or more of the Trustees or in the name of any other Person on
behalf of the Trust on such terms as the Trustees may determine.
In the event that title to any part of the Trust Property is vested in
one or more Trustees, the right, title and interest of the Trustees in the Trust
Property shall vest automatically in each person who may hereafter become a
Trustee upon his or her due election and qualification. Upon the resignation,
removal or death of a Trustee he or she shall automatically cease to have any
right, title or interest in any of the Trust Property, and the right, title and
interest of such Trustee in the Trust Property shall vest automatically in the
remaining Trustees. To the extent permitted by law, such vesting and cessation
of title shall be effective whether or not conveyancing documents have been
executed and delivered.
3.4 SALE OF INTERESTS. Subject to the more detailed provisions set
forth in Article VII, the Trustees shall have the power to permit persons to
purchase Interests and to add or reduce, in whole or in part, their Interest in
the Trust.
3.5 BORROW MONEY. The Trustees shall have power to borrow money or
otherwise obtain credit and to secure the same by mortgaging, pledging or
otherwise subjecting as security the assets of the Trust, including the lending
of portfolio securities, and to endorse, guarantee or undertake
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the performance of any obligation, contract or engagement of any other person,
firm, association or corporation.
3.6 DELEGATION; COMMITTEES. The Trustees shall have the power,
consistent with their continuing exclusive authority over the management of the
Trust and the Trust Property, to delegate from time to time to such of their
number or to officers, employees or agents of the Trust the doing of such things
and the execution of such instruments, either in the name of the Trust or the
names of the Trustees or otherwise, as the Trustees may deem expedient.
3.7 COLLECTION AND PAYMENT. The Trustees shall have power to collect
all property due to the Trust; to pay all claims, including taxes, against the
Trust Property; to prosecute, defend, compromise or abandon any claims relating
to the Trust Property; to foreclose any security interest securing any
obligations, by virtue of which any property is owned to the Trust; and to enter
into releases, agreements and other instruments.
3.8 EXPENSES. The Trustees shall have the power to incur and pay any
expenses which in the opinion of the Trustees are necessary or incidental to
carry out any of the purposes of this Declaration, and to pay reasonable
compensation from the funds of the Trust to themselves as Trustees. The
Trustees shall fix the compensation of all officers, employees and Trustees.
The Trustees may pay themselves such compensation for special services,
including legal and brokerage services, as they in good faith may deem
reasonable (subject to any limitations in the 1940 Act), and reimbursement for
expenses reasonably incurred by themselves on behalf of the Trust. There shall
be no retirement compensation plan for Trustees; provided, however, that the
Trustees may adopt a deferred compensation plan consistent with industry and
regulatory standards.
3.9 MISCELLANEOUS POWERS. The Trustees shall have the power to: (a)
employ or contract with such Persons as the Trustees may deem desirable for the
transaction of the business of the Trust and terminate such employees or
contractual relationships as they consider appropriate; (b) enter into joint
ventures, partnerships and any other combinations or associations; (c) purchase,
and pay for out of Trust Property, insurance policies (including, but not
limited to, fidelity bonding and errors and omission policies) insuring the
Investment Adviser, Administrator, distributor, Holders, Trustees, officers,
employees, agents, or independent contractors of the Trust against all claims
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arising by reason of holding any such position or by reason of any action taken
or omitted by any such person in such capacity, whether or not the Trust would
have the power to indemnify such Person against liability; (d) establish
pension, profit-sharing and other retirement, incentive and benefit plans for
any Trustees, officers, employees and agents of the Trust; (e) to the extent
permitted by law, indemnify any Person with whom the Trust has dealings,
including the Investment Adviser, Administrator, distributor, Holders, Trustees,
officers, employees, agents or independent contractors of the Trust, to such
extent as the Trustees shall determine; (f) guarantee indebtedness or
contractual obligations of others; (g) determine and change the Fiscal Year of
the Trust and the method by which its accounts shall be kept; and (h) adopt a
seal for the Trust, but the absence of such seal shall not impair the validity
of any instrument executed on behalf of the Trust.
3.10 FURTHER POWERS. The Trustees shall have power to conduct the
business of the Trust and carry on its operations in any and all of its branches
and maintain offices, whether within or without the State of Delaware, in any
and all states of the United States of America, in the District of Columbia, in
any foreign countries, and in any and all commonwealths, territories,
dependencies, colonies, possessions, agencies or instrumentalities of the United
States of America and of foreign countries, and to do all such other things and
execute all such instruments as they deem necessary, proper or desirable in
order to promote the interests of the Trust although such things are not herein
specifically mentioned. Any determination as to what is in the interests of the
Trust made by the Trustees in good faith shall be conclusive and shall be
binding upon the Trust and the Holders, past, present and future. In construing
the provisions of this Declaration, the presumption shall be in favor of a grant
of power to the Trustees. The Trustees shall not be required to obtain any
court order to deal with Trust Property.
ARTICLE IV
INVESTMENT ADVISORY, ADMINISTRATIVE SERVICES
AND PLACEMENT AGENT ARRANGEMENTS
4.1 INVESTMENT ADVISORY AND OTHER ARRANGEMENTS. The Trustees may in
their discretion, from time to time, enter into contracts or agreements for
investment advisory services, administrative services (including transfer and
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dividend disbursing agency services), distribution services, fiduciary
(including custodian) services, placement agent services, Holder servicing and
distribution services, or other services, whereby the other party to such
contract or agreement shall undertake to furnish the Trustees such services as
the Trustees shall, from time to time, consider desirable and all upon such
terms and conditions as the Trustees may in their discretion determine.
Notwithstanding any other provisions of this Declaration to the contrary, the
Trustees may authorize any Investment Adviser (subject to such general or
specific instructions as the Trustees may, from time to time, adopt) to effect
purchases, sales, loans or exchanges of Trust Property on behalf of the Trustees
or may authorize any officer, employee or Trustee to effect such purchases,
sales, loans or exchanges pursuant to recommendations of any such Investment
Adviser (all without further action by the Trustees). Any such purchases,
sales, loans and exchanges shall be binding upon the Trust.
4.2 PARTIES TO CONTRACT. Any contract or agreement of the character
described in Section 4.1 of this Article IV or in the By-Laws of the Trust may
be entered into with any Person, although one or more of the Trustees or
officers of the Trust or any Holder may be an officer, director, trustee,
shareholder, or member of such other party to the contract or agreement, and no
such contract or agreement shall be invalidated or rendered voidable by reason
of the existence of any such relationship, nor shall any person holding such
relationship be liable merely by reason of such relationship for any loss or
expense to the Trust under or by reason of such contract or agreement or
accountable for any profit realized directly or indirectly therefrom, provided
that the contract or agreement when entered into was reasonable and fair and not
inconsistent with the provisions of this Article IV or the By-Laws. Any Trustee
or officer of the Trust or any Holder may be the other party to contracts or
agreements entered into pursuant to Section 4.1 hereof or the By-Laws of the
Trust, and any Trustee or officer of the Trust or any Holder may be financially
interested or otherwise affiliated with Persons who are parties to any or all of
the contracts or agreements mentioned in this Section 4.2.
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ARTICLE V
LIMITATIONS OF LIABILITY
5.1 NO PERSONAL LIABILITY OF TRUSTEES OFFICERS, EMPLOYEES, AGENTS. No
Trustee, officer, employee or agent of the Trust when acting in such capacity
shall be subject to any personal liability whatsoever, in his or her individual
capacity, to any Person, other than the Trust or its Holders, in connection with
Trust Property or the affairs of the Trust; and all such Persons shall look
solely to the Trust Property for satisfaction of claims of any nature against a
Trustee, officer, employee or agent of the Trust arising in connection with the
affairs of the Trust. No Trustee, officer, employee or agent of the Trust shall
be liable to the Trust, Holders of Interests therein, or to any Trustee,
officer, employee, or agent thereof for any action or failure to act (including,
without limitation, the failure to compel in any way any former or acting
Trustee to redress any breach of trust) except for his or her own bad faith,
willful misfeasance, gross negligence or reckless disregard of his or her
duties.
5.2 INDEMNIFICATION OF TRUSTEES, OFFICERS, EMPLOYEES AGENTS. The Trust
shall indemnify each of its Trustees, officers, employees, and agents (including
Persons who serve at its request as directors, officers or trustees of another
organization in which it has any interest, as a shareholder, creditor or
otherwise) against all liabilities and expenses (including amounts paid in
satisfaction of judgments, in compromise, as fines and penalties, and as counsel
fees) reasonably incurred by him or her in connection with the defense or
disposition of any action, suit or other proceeding, whether civil or criminal,
in which he or she may be involved or with which he or she may be threatened,
while in office or thereafter, by reason of his or her being or having been such
a Trustee, officer, employee or agent, except with respect to any matter as to
which he or she shall have been adjudicated to have acted in bad faith, willful
misfeasance, gross negligence or reckless disregard of his or her duties;
provided, however, that as to any matter disposed of by a compromise payment by
such Person, pursuant to a consent decree or otherwise, no indemnification
either for said payment or for any other expenses shall be provided unless there
has been a determination that such Person did not engage in willful misfeasance,
bad faith, gross negligence or reckless disregard of the duties involved in the
conduct of his or her office by the court or other body approving the
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settlement or other disposition or by a reasonable determination, based upon
review of readily available facts (as opposed to a full trial-type inquiry),
that he or she did not engage in such conduct by a reasonable determination,
based upon a review of the facts, that such Person was not liable by reason of
such conduct, by (a) the vote of a majority of a quorum of Trustees who are
neither "interested persons" of the Trust as defined in Section 2(a)(19) of the
1940 Act nor parties to the proceeding, or (b) a written opinion from
independent legal counsel approved by the Trustees. The rights accruing to any
Person under these provisions shall not exclude any other right to which he or
she may be lawfully entitled; provided that no Person may satisfy any right of
indemnity or reimbursement granted herein or in Section 5.1 or to which he or
she may be otherwise entitled except out of the Trust Property. The Trustees
may make advance payments in connection with indemnification under this Section
5.2, provided that the indemnified Person shall have given a written undertaking
to reimburse the Trust in the event it is subsequently determined that he or she
is not entitled to such indemnification.
5.3 LIABILITY OF HOLDERS; INDEMNIFICATION. The Trust shall indemnify
and hold each Holder harmless from and against any claim or liability to which
such Holder may become subject solely by reason of his or her being or having
been a Holder and not because of such Holder's acts or omissions or for some
other reason, and shall reimburse such Holder for all legal and other expenses
reasonably incurred by him or her in connection with any such claim or liability
(upon proper and timely request by the Holder); provided, however, that no
Holder shall be entitled to indemnification by any series established in
accordance with Section 6.2 unless such Holder is a Holder of Interests of such
series. The rights accruing to a Holder under this Section 5.3 shall not
exclude any other right to which such Holder may be lawfully entitled, nor shall
anything herein contained restrict the right of the Trust to indemnify or
reimburse a Holder in any appropriate situation even though not specifically
provided herein.
5.4 NO BOND REQUIRED OF TRUSTEES. No Trustee shall, as such, be
obligated to give any bond or surety or other security for the performance of
any of his or her duties hereunder.
5.5 NO DUTY OF INVESTIGATION; NOTICE IN TRUST INSTRUMENTS, ETC. No
purchaser, lender, or other Person
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dealing with the Trustees or any officer, employee or agent of the Trust shall
be bound to make any inquiry concerning the validity of any transaction
purporting to be made by the Trustees or by said officer, employee or agent or
be liable for the application of money or property paid, loaned, or delivered to
or on the order of the Trustees or of said officer, employee or agent. Every
obligation, contract, instrument, certificate or other interest or undertaking
of the Trust, and every other act or thing whatsoever executed in connection
with the Trust, shall be conclusively taken to have been executed or done by the
executors thereof only in their capacity as Trustees, officers, employees or
agents of the Trust. Every written obligation, contract, instrument,
certificate or other interest or undertaking of the Trust made by the Trustees
or by any officer, employee or agent of the Trust, in his or her capacity as
such, shall contain an appropriate recital to the effect that the Trustee,
officer, employee and agent of the Trust shall not personally be bound by or
liable thereunder, nor shall resort be had to their private property or the
private property of the Holders for the satisfaction of any obligation or claim
thereunder, and appropriate references shall be made therein to the Declaration,
and may contain any further recital which they may deem appropriate, but the
omission of such recital shall not operate to impose personal liability on any
of the Trustees, officers, employees or agents of the Trust. The Trustees may
maintain insurance for the protection of the Trust Property, Holders, Trustees,
officers, employees and agents in such amount as the Trustees shall deem
advisable.
5.6 RELIANCE ON EXPERTS, ETC. Each Trustee and officer or employee of
the Trust shall, in the performance of his or her duties, be fully and
completely justified and protected with regard to any act or any failure to act
resulting from reliance in good faith upon the books of account or other records
of the Trust, upon an opinion of counsel, or upon reports made to the Trust by
any of its officers or employees or by any Investment Adviser, Administrator,
accountant, appraiser or other experts or consultants selected with reasonable
care by the Trustees, officers or employees of the Trust, regardless of whether
such counsel or expert may also be a Trustee.
5.7 ASSENT TO DECLARATION. Every Holder, by virtue of having become a
Holder in accordance with the terms of this Declaration, shall be held to have
expressly assented and agreed to the terms hereof and to have become a party
hereto.
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ARTICLE VI
INTERESTS IN THE TRUST
6.1 GENERAL CHARACTERISTICS. (a) The Trustees shall have the power and
authority, without Holder approval, to issue Interests in one or more series
from time to time as they deem necessary or desirable. Each series shall be
separate from all other series in respect of the assets and liabilities
allocated to that series and shall represent a separate investment portfolio of
the Trust. The Trustees shall have exclusive power, without Holder approval, to
establish and designate such separate and distinct series, as set forth in
Section 6.2, and to fix and determine the relative rights and preferences as
between the Interests of the separate series as to right of redemption, special
and relative rights as to dividends and other distributions and on liquidation,
conversion rights, and conditions under which the series shall have separate
voting rights or no voting rights.
(b) The Trustees may, without Holder approval, divide Interests of
any series into two or more classes, Interests of each such class having such
preferences and special or relative rights and privileges (including conversion
rights, if any) as the Trustees may determine as provided in Section 6.3. The
fact that a series shall have been initially established and designated without
any specific establishment or designation of classes, shall not limit the
authority of the Trustees to divide a series and establish and designate
separate classes thereof.
(c) The number of Interests authorized shall be unlimited, and the
Interests so authorized may be represented in part by fractional Interests.
From time to time, the Trustees may divide or combine the Interests of any
series or class into a greater or lesser number without thereby changing the
proportionate beneficial interests in the series or class. The Trustees may
issue Interests of any series or class thereof for such consideration and on
such terms as they may determine (or for no consideration if pursuant to an
Interest dividend or split-up), all without action or approval of the Holders.
All Interests when so issued on the terms determined by the Trustees shall be
fully paid and non-assessable. The Trustees may classify or reclassify any
unissued Interests or any Interests previously issued and reacquired of any
series or class thereof into one or more series or classes thereof that may
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be established and designated from time to time. The Trustees may hold as
treasury Interests, reissue for such consideration and on such terms as they may
determine, or cancel, at their discretion from time to time, any Interests of
any series or class thereof reacquired by the Trust.
6.2 ESTABLISHMENT OF SERIES OF INTERESTS. (a) Without limiting the
authority of the Trustees set forth in Section 6.2(b) to establish and designate
any further series, the Trustees hereby establish and designate six series, as
follows:
Core Growth Series
Emerging Growth Series
International Growth Series
Value Series
Diversified Income Series
International Fixed Income Series
The provisions of this Article VI shall be applicable to the above
designated series and any further series that may from time to time be
established and designated by the Trustees as provided in Section 6.2(b).
(b) The establishment and designation of any series of Interests
other than those set forth above shall be effective upon the execution by a
majority of the then Trustees of an instrument setting forth such establishment
and designation and the relative rights and preferences of such series, or as
otherwise provided in such instrument. At any time that there are no Interests
outstanding of any particular series previously established and designated, the
Trustees may by an instrument executed by a majority of their number abolish
that series and the establishment and designation thereof. Each instrument
referred to in this paragraph shall have the status of an amendment to this
Declaration.
(c) Section 9.2 of this Agreement shall apply also with respect to
each such series as if such series were a separate trust.
6.3 ESTABLISHMENT OF CLASSES. The division of any series into two or
more classes and the establishment and designation of such classes shall be
effective upon the execution by a majority of the then Trustees of an Instrument
setting forth such division, and the establishment, designation, and relative
rights and
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preferences of such classes, or as otherwise provided in such instrument. The
relative rights and preferences of the classes of any series may differ in such
respects as the Trustees may determine to be appropriate, provided that such
differences are set forth in the aforementioned instrument. At any time that
there are no Interests outstanding of any particular class previously
established and designated, the Trustees may by an instrument executed by a
majority of their number abolish that class and the establishment and
designation thereof. Each instrument referred to in this paragraph shall have
the status of an amendment to this Declaration.
6.4 ASSETS OF SERIES. All consideration received by the Trust for the
issue or sale of Interests of a particular series together with all Trust
Property in which such consideration is invested or reinvested, all income,
earnings, profits, and proceeds thereof, including any proceeds derived from the
sale, exchange or liquidation of such assets, and any funds or payments derived
from any reinvestment of such proceeds in whatever form the same may be, shall
irrevocably belong to that series for all purposes, subject only to the rights
of creditors of such series and except as may otherwise be required by
applicable tax laws, and shall be so recorded upon the books of account of the
Trust. Separate and distinct records shall be maintained for each series and
the assets associated with a series shall be held and accounted for separately
from the other assets of the Trust, or any other series. In the event that
there is any Trust Property, or any income, earnings, profits, and proceeds
thereof, funds, or payments which are not readily identifiable as belonging to
any particular series, the Trustees shall allocate them among any one or more of
the series established and designated from time to time in such manner and on
such basis as they, in their sole discretion, deem fair and equitable. Each
such allocation by the Trustees shall be conclusive and binding upon the Holders
of all Interests for all purposes.
6.5 LIABILITIES OF SERIES. (a) The Trust Property belonging to each
particular series shall be charged with the liabilities of the Trust in respect
of that series and all expenses, costs, charges and reserves attributable to
that series, and any general liabilities, expenses, costs, charges or reserves
of the Trust which are not readily identifiable as belonging to any particular
series shall be allocated and charged by the Trustees to and among any one or
more of the series established and designated from time to time in such manner
and on such
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basis as the Trustees in their sole discretion deem fair and equitable. Each
allocation of liabilities, expenses, costs, charges and reserves by the Trustees
shall be conclusive and binding upon the Holders of all Interests for all
purposes. The Trustees shall have full discretion, to the extent not
inconsistent with the 1940 Act, to determine which items shall be treated as
income and which items as capital, and each such determination and allocation
shall be conclusive and binding upon the Holders.
(b) Without limitation of the foregoing provisions of this
Section, but subject to the right of the Trustees in their discretion to
allocate general liabilities, expenses, costs, charges or reserves as herein
provided, the debts, liabilities, obligations and expenses incurred, contracted
for or otherwise existing with respect to a particular series shall be
enforceable against the assets of such series only, and not against the assets
of any other series. Notice of this limitation on interseries liabilities shall
be set forth in the certificate of trust of the Trust (whether originally or by
amendment) as filed or to be filed in the Office of the Secretary of State of
the State of Delaware pursuant to the DBTA, and upon the giving of such notice
in the certificate of trust, the statutory provisions of Section 3804 of the
DBTA relating to limitations on interseries liabilities (and the statutory
effect under Section 3804 of setting forth such notice in the certificate of
trust) shall become applicable to the Trust and each series. Every note, bond,
contract or other undertaking issued by or on behalf of a particular series
shall include a recitation limiting the obligation represented thereby to that
series and its assets.
6.6 DIVIDENDS AND DISTRIBUTIONS. (a) Dividends and distributions on
Interests of a particular series or any class thereof may be paid with such
frequency as the Trustees may determine, which may be daily or otherwise,
pursuant to a standing resolution or resolution adopted only once or with such
frequency as the Trustees may determine, to the Holders of Interests in that
series or class, from such of the income and capital gains, accrued or realized,
from the Trust Property belonging to that series, or in the case of a class,
belonging to that series and allocable to that class, as the Trustees may
determine, after providing for actual and accrued liabilities belonging to that
series. All dividends and distributions on Interests in a particular series or
class thereof shall be distributed pro rata to the Holders of Interests in that
series or class in proportion to the total outstanding Interests in that series
or class
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held by such Holders at the date and time of record established for the payment
of such dividends or distribution, except to the extent otherwise required or
permitted by the preferences and special or relative rights and privileges of
any series or class. Such dividends and distributions may be made in cash or
Interests of that series or class or a combination thereof as determined by the
Trustees or pursuant to any program that the Trustees may have in effect at the
time for the election by each Holder of the mode of the making of such dividend
or distribution to that Holder. Any such dividend or distribution paid in
Interests will be paid at the net asset value thereof as determined in
accordance with Section 7.4.
(b) The Interests in a series or a class of the Trust shall
represent beneficial interests in the Trust Property belonging to such series or
in the case of a class, belonging to such series and allocable to such class.
Each Holder of Interests in a series or a class shall be entitled to receive its
pro rata share of distributions of income and capital gains made with respect to
such series or such class. Upon reduction or withdrawal of its Interests or
indemnification for liabilities incurred by reason of being or having been a
Holder of Interests in a series or a class, such Holder shall be paid solely out
of the funds and property of such series or in the case of a class, the funds
and property of such series and allocable to such class of the Trust. Upon
liquidation or termination of a series or class of the Trust, Holders of
Interests in such series or class shall be entitled to receive a pro rata share
of the Trust Property belonging to such series or in the case of a class, belong
to such series and allocable to such class.
6.7 VOTING RIGHTS. Notwithstanding any other provision hereof, on each
matter submitted to a vote of the Holders, each Holder shall be entitled to one
vote for each whole Interest standing in his name on the books of the Trust, and
each fractional Interest shall be entitled to a proportionate fractional vote,
irrespective of the series thereof or class thereof and all Interests of all
series and classes thereof shall vote together as a single class; provided,
however, that as to any matter (i) with respect to which a separate vote of one
or more series or classes thereof is permitted or required by the 1940 Act or
the provisions of the instrument establishing and designating the series or
class, such requirements as to a separate vote by such series or class thereof
shall apply in lieu of all Interests of all series and classes thereof voting
together; and (ii) as to any matter which affects only the interests
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of one or more particular series or classes thereof, only the Holders of the one
or more affected series or class shall be entitled to vote, and each such series
or class shall vote as a separate class.
6.8 RECORD DATES. The Trustees may from time to time close the
transfer books or establish record dates and times for the purposes of
determining the Holders entitled to be treated as such, to the extent provided
or referred to in Section 8.6.
6.9 TRANSFER. All Interests of each particular series or class thereof
shall be transferable, but transfers of Interests of a particular series or
class thereof will be recorded on the Interest transfer records of the Trust
applicable to that series or class only at such times as Holders shall have the
right to require the Trust to redeem Interests of that series or class and at
such other times as may be permitted by the Trustees.
6.10 EQUALITY. Except as provided herein or in the instrument
designating and establishing any class or series, all Interests of each
particular series or class thereof shall represent an equal proportionate
interest in the assets belonging to that series, or in the case of a class,
belonging to that series and allocable to that class, subject to the liabilities
belonging to that series, and each Interest of any particular series or classes
shall be equal to each other Interest of that series or class; but the
provisions of this sentence shall not restrict any distinctions permissible
under Section 6.7 that may exist with respect to dividends and distributions on
Interests of the same series or class. The Trustees may from time to time
divide or combine the Interests of any particular series or class into a greater
or lesser number of Interests of that series or class without thereby changing
the proportionate beneficial interest in the assets belonging to that series or
class or in any way affecting the rights or Interests of any other series or
class.
6.11 FRACTIONS. Any fractional Interest of any series or class, if any
such fractional Interest is outstanding, shall carry proportionately all the
rights and obligations of a whole Interest of that series or class, including
rights and obligations with respect to voting, receipt of dividends and
distributions, redemption of Interests, and liquidation of the Trust.
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6.12 CLASS DIFFERENCES. Subject to Section 6.3, the relative rights and
preferences of the classes of any series may differ in such other respects as
the Trustees may determine to be appropriate in their sole discretion, provided
that such differences are set forth in the instrument establishing and
designating such classes and executed by a majority of the Trustees.
6.13 CONVERSION OF INTERESTS. Subject to compliance with the
requirements of the 1940 Act, the Trustees shall have the authority to provide
that Holders of Interests of any series shall have the right to convert said
Interests into one or more other series in accordance with such requirements and
procedures as may be established by the Trustees. The Trustees shall also have
the authority to provide that Holders of Interests of any class of a particular
series shall have the right to convert said Interests into one or more other
classes of that particular series or any other series in accordance with such
requirements and procedures as may be established by the Trustees.
6.14 INVESTMENTS IN THE TRUST. The Trustees may accept investments in
the Trust from such persons and on such terms and for such consideration, not
inconsistent with the provisions of the 1940 Act, as they from time to time
authorize. The Trustees may authorize any distributor, principal underwriter,
custodian, transfer agent or other person to accept orders for the purchase of
Interests that conform to such authorized terms and to reject any purchase
orders for Interests whether or not conforming to such authorized terms.
6.15 TRUSTEES AND OFFICERS AS HOLDERS. Any Trustee, officer or other
agent of the Trust, and any organization in which any such person is interested,
may acquire, own, hold and dispose of Interests of the Trust to the same extent
as if such person were not a Trustee, officer or other agent of the Trust; and
the Trust may issue and sell or cause to be issued and sold and may purchase
Interests from any such person or any such organization subject only to the
general limitations, restrictions or other provisions applicable to the sale or
purchase of Interests generally.
6.16 NO PRE-EMPTIVE RIGHTS; DERIVATIVE SUITS. Holders shall have no
pre-emptive or other right to subscribe to any additional Interests or other
securities issued by the Trust. No action may be brought by a Holder
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on behalf of the Trust unless Holders owning no less than 10% of the then
outstanding Interests, or series or class thereof, join in the bringing of such
action. A Holder of Interests in a particular series or a particular class of
the Trust shall not be entitled to participate in a derivative or class action
lawsuit on behalf of any other series or any other class or on behalf of the
Holders of Interests in any other series or any other class of the Trust.
6.17 NO APPRAISAL RIGHTS. Holders shall have no right to demand payment
for their Interests or to any other rights of dissenting Holders in the event
the Trust participates in any transaction which would give rise to appraisal or
dissenters' rights by a stockholder of a corporation organized under the General
Corporation Law of Delaware, or otherwise.
6.18 STATUS OF INTERESTS AND LIMITATION OF PERSONAL LIABILITY.
Interests shall be deemed to be personal property giving only the rights
provided in this Declaration of Trust. Every Holder by virtue of acquiring
Interests shall be held to have expressly assented and agreed to the terms
hereof and to be bound hereby. The death, incapacity, dissolution, termination
or bankruptcy of a Holder during the continuance of the Trust shall not operate
to dissolve or terminate the Trust or any series thereof nor entitle the
representative of such Holder to an accounting or to take any action in court or
elsewhere against the Trust or the Trustees, but shall entitle the
representative of such Holder only to the rights of such Holder under this
Trust. Ownership of Interests shall not entitle the Holder to any title in or
to the whole or any part of the Trust Property or right to call for a partition
or division of the same or for an accounting, nor shall the ownership of
Interests constitute the Holders partners. Neither the Trust nor the Trustees,
nor any officer, employee or agent of the Trust, shall have any power to bind
personally any Holder, nor except as specifically provided herein to call upon
any Holder for the payment of any sum of money or assessment whatsoever other
than such as the Holder may at any time personally agree to pay.
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ARTICLE VII
PURCHASES AND REDEMPTIONS
7.1 PURCHASES. The Trustees, in their discretion, may, from time to
time, without a vote of the Holders, permit the purchase of Interests by such
party or parties (or increase in the Interests of a Holder) and for such type of
consideration, including, without limitation, cash or property, at such time or
times (including, without limitation, each business day), and on such terms as
the Trustees may deem best, and may in such manner acquire other assets
(including, without limitation, the acquisition of assets subject to, and in
connection with the assumption of, liabilities) and businesses.
7.2 REDEMPTION BY HOLDER. (a) Each Holder of Interests of the Trust or
any series or class thereof, shall have the right at such times as may be
permitted by the Trust to require the Trust to redeem all or any part of his or
her Interests of the Trust, or series or class thereof, at a redemption price
equal to the net asset value per Interest of the Trust or series or class
thereof, next determined in accordance with Section 7.4 hereof after the
Interests are properly tendered for redemption, subject to any contingent
deferred sales charge or redemption charge in effect at the time of redemption.
Payment of the redemption price shall be in cash; provided, however, that if the
Trustees determine, which determination shall be conclusive, that conditions
exist which make payment wholly in cash unwise or undesirable, the Trust may,
subject to the requirements of the 1940 Act, make payment wholly or partly in
securities or other assets belonging to the Trust or series or class thereof of
which the Interests being redeemed are part at the value of such securities or
assets used in such determination of net asset value.
(b) Notwithstanding the foregoing, the Trust may postpone payment
of the redemption price and may suspend the right of the Holders of Interests of
the Trust, or series or class thereof, to require the Trust to redeem Interests
of the Trust, or of any series or class thereof, during any period or at any
time when and to the extent permissible under the 1940 Act.
7.3 REDEMPTION BY TRUST. Each Interest of the Trust, or series or
class thereof, that has been established and designated is subject to redemption
by the Trust at the redemption price which would be applicable if such Interest
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was then being redeemed by the Holder pursuant to Section 7.2 hereof: (i) at any
time, if the Trustees determine in their sole discretion and by majority vote
that it is in the best interests of the Trust, or any series or class thereof,
to abolish any series or class of the Trust, or (ii) upon such other conditions
as may from time to time be determined by the Trustees and set forth in the then
current Prospectus of the Trust with respect to maintenance of Holder accounts
of a minimum amount. Upon such redemption the Holders of the Interests so
redeemed shall have no further right with respect thereto other than to receive
payment of such redemption price.
7.4 NET ASSET VALUE. (a) The net asset value per Interest of any
series shall be (i) in the case of a series whose Interests are not divided into
classes, the quotient obtained by dividing the value of the net assets of that
series (being the value of the assets belonging to that series less the
liabilities belonging to that series) by the total number of Interests of that
series outstanding, and (ii) in the case of a class of Interests of a series
whose Interests are divided into classes, the quotient obtained by dividing the
value of the net assets of that series allocable to such class (being the value
of the assets belonging to that series allocable to such class less the
liabilities allocable to such class) by the total number of Interests of such
class outstanding; all determined in accordance with the methods and procedures,
including without limitation those with respect to rounding, established by the
Trustees from time to time.
(b) The Trustees may determine to maintain the net asset value per
Interest of any series or any class at a designated constant dollar amount and
in connection therewith may adopt procedures consistent with the 1940 Act for
continuing declarations of income attributable to that series or that class as
dividends payable in additional Interests of that series at the designated
constant dollar amount and for the handling of any losses attributable to that
series or that class. Such procedures may provide that in the event of any loss
each Holder shall be deemed to have contributed to the capital of the Trust
attributable to that series his or her pro rata portion of the total number of
Interests required to be cancelled in order to permit the net asset value per
Interest of that series or class to be maintained, after reflecting such loss,
at the designated constant dollar amount. Each Holder of the Trust shall be
deemed to have agreed, by his or her investment in any series or class with
respect to which the Trustees shall
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have adopted any such procedure, to make the contribution referred to in the
preceding sentence in the event of any such loss.
ARTICLE VIII
HOLDERS
8.1 RIGHTS OF HOLDERS. The right to conduct any business hereinbefore
described is vested exclusively in the Trustees, and the Holders shall have no
rights under this Declaration or with respect to the Trust Property other than
the beneficial interest conferred by their Interests and the voting rights
accorded to them under this Declaration.
8.2 REGISTER OF INTERESTS. A register shall be kept by the Trust under
the direction of the Trustees which shall contain the names and addresses of the
Holders and Interests held by each Holder. Each such register shall be
conclusive as to the identity of the Holders of the Trust and the Persons who
shall be entitled to payments of distributions or otherwise to exercise or enjoy
the rights of Holders. No Holder shall be entitled to receive payment of any
distribution, nor to have notice given to it as herein provided, until it has
given its address to such officer or agent of the Trustees as shall keep the
said register for entry thereon. No certificates certifying the ownership of
interests need be issued except the Trustees may otherwise determine from time
to time.
8.3 NOTICES. Any and all notices to which any Holder hereunder may be
entitled and any and all communications shall be deemed duly served or given if
presented personally to a Holder, left at his or her residence or usual place of
business or sent via United States mail or by electronic transmission to a
Holder at his or her address as it is registered with the Trust, as provided in
Section 8.2. If mailed, such notice shall be deemed to be given when deposited
in the United States mail addressed to the Holder at his or her address as it is
registered with the Trust, as provided in Section 8.2, with postage thereon
prepaid.
8.4 MEETINGS OF HOLDERS. Meetings of the Holders may be called at any
time by a majority of the Trustees and shall be called by any Trustee upon
written request of Holders holding, in the aggregate, not less than 10% of the
Interests (or series or class thereof), such request specifying the purpose or
purposes for which such meeting is
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to be called. Any such meeting shall be held within or without the State of
Delaware on such day and at such time as the Trustees shall designate. Holders
of one-third of the Interests in the Trust, present in person or by proxy, shall
constitute a quorum for the transaction of any business, except as may otherwise
be required by the 1940 Act or other applicable law or by this Declaration or
the By-Laws of the Trust. If a quorum is present at a meeting, an affirmative
vote by the Holders present, in person or by proxy, holding more than 50% of the
total Interests (or series or class thereof) of the Holders present, either in
person or by proxy, at such meeting constitutes the action of the Holders,
unless the 1940 Act, other applicable law, this Declaration or the By-Laws of
the Trust requires a greater number of affirmative votes. Notwithstanding the
foregoing, the affirmative vote by the Holders present, in person or by proxy,
holding less than 50% of the Interests (or class or series thereof) of the
Holders present, in person or by proxy, at such meeting shall be sufficient for
adjournments. Any meeting of Holders, whether or not a quorum is present, may
be adjourned for any lawful purpose provided that no meeting shall be adjourned
for more than six months beyond the originally scheduled meeting date. Any
adjoined session or sessions may be held, within a reasonable time after the
date set for the original meeting without the necessity of further notice.
8.5 NOTICE OF MEETINGS. Written or printed notice of all meetings of
the Holders, stating the time, place and purposes of the meeting, shall be given
as provided in Section 8.3 for the giving of notices. At any such meeting, any
business properly before the meeting may be considered whether or not stated in
the notice of the meeting. Any adjourned meeting held as provided in Section 8.4
shall not require the giving of additional notice.
8.6 RECORD DATE. For the purpose of determining the Holders who are
entitled to notice of any meeting and to vote at any meeting, or to participate
in any distribution, or for the purpose of any other action, the Trustees may
from time to time fix a date, not more than 90 calendar days prior to the date
of any meeting of the Holders or payment of distributions or other action, as
the case may be, as a record date for the determination of the persons to be
treated as Holders of record for such purposes, and any Holder who was a Holder
at the date and time so fixed shall be entitled to vote at such meeting or to be
treated as a Holder of record for purposes of such other action, even though he
or she has since that date and time disposed of
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his or her Interests, and no Holder becoming such after that date and time shall
be so entitled to vote at such meeting or to be treated as a Holder of record
for purposes of such other action. If the Trustees shall divide the Interests
into two or more series in accordance with Section 6.2 herein, nothing in this
Section shall be construed as precluding the Trustees from setting different
record dates for different series and if the Trustees shall divide any series
into two or more classes in accordance with Section 6.3 herein, nothing in this
Section 8.5 shall be construed as precluding the Trustees from setting different
record dates for different classes.
8.7 PROXIES, ETC. At any meeting of Holders, any Holder entitled to
vote thereat may vote by proxy, provided that no proxy shall be voted at any
meeting unless it shall have been placed on file with the Secretary, or with
such other officer or agent of the Trust as the Secretary may direct, for
verification prior to the time at which such vote shall be taken.
(a) Pursuant to a resolution of a majority of the Trustees,
proxies may be solicited in the name of one or more Trustees or one or more of
the officers of the Trust. Only Holders of record shall be entitled to vote.
Each Holder shall be entitled to a vote proportionate to its Interest in the
Trust.
(b) When Interests are held jointly by several persons, any one of
them may vote at any meeting in person or by proxy in respect of such Interest,
but if more than one of them shall be present at such meeting in person or by
proxy, and such joint owners or their proxies so present disagree as to any vote
to be cast, such vote shall not be received in respect of such Interest.
(c) A proxy purporting to be executed by or on behalf of a Holder
shall be deemed valid unless challenged at or prior to its exercise, and the
burden of proving invalidity shall rest on the challenger. If the Holder is a
minor or a person of unsound mind, and subject to guardianship or to the legal
control of any other person regarding the charge or management of its Interest,
he or she may vote by his or her guardian or such other person appointed or
having such control, and such vote may be given in person or by proxy.
8.8 REPORTS. The Trustees shall cause to be prepared, at least
annually, a report of operations
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containing a balance sheet and statement of income and undistributed income of
the Trust prepared in conformity with generally accepted accounting principles
and an opinion of an independent public accountant on such financial statements.
The Trustees shall, in addition, furnish to the Holders at least semi-annually
interim reports containing an unaudited balance sheet as of the end of such
period and an unaudited statement of income and surplus for the period from the
beginning of the current Fiscal Year to the end of such period.
8.9 INSPECTION OF RECORDS. The records of the Trust shall be open to
inspection by Holders during normal business hours and for any purpose not
harmful to the Trust.
8.10 VOTING POWERS. (a) The Holders shall have power to vote only (i)
for the election of Trustees as contemplated by Section 2.2 hereof, (ii) with
respect to any investment advisory contract as contemplated by Section 4.1
hereof, (iii) with respect to termination of the Trust as provided in Section
9.2 hereof, (iv) with respect to amendments to the Amended and Restated
Declaration of Trust as provided in Section 9.3 hereof, (v) with respect to any
merger, consolidation or sale of assets as provided in Section 9.4 hereof, (vi)
with respect to incorporation of the Trust to the extent and as provided in
Section 9.5 hereof, (vii) with respect to such additional matters relating to
the Trust as may be required by the 1940 Act, DBTA, or any other applicable law,
the Declaration, the By-Laws or any registration of the Trust with the
Commission (or any successor agency) or any state, or as and when the Trustees
may consider necessary or desirable.
(b) Each Holder shall be entitled to vote based on the ratio its
Interest bears to the Interests of all Holders entitled to vote. Until
Interests are issued, the Trustees may exercise all rights of Holders and may
take any action required by law, the Declaration or the By-Laws to be taken by
Holders. The By-Laws may include further provisions for Holders' votes and
meetings and related matters not inconsistent with this Declaration.
8.11 HOLDER ACTION BY WRITTEN CONSENT. Any action which may be taken by
Holders may be taken without notice and without a meeting if Holders holding
more than 50% of the total Interests entitled to vote (or such larger proportion
thereof as shall be required by any express provision of this Declaration) shall
consent to the action in writing and the written consents shall be filed with
the
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records of the meetings of Holders. Such consents shall be treated for all
purposes as votes taken at a meeting of Holders.
8.12 HOLDER COMMUNICATIONS. (a) Whenever ten or more Holders who have
been such for at least six months preceding the date of application, and who
hold in the aggregate at least 1% of the total Interests, shall apply to the
Trustees in writing, stating that they wish to communicate with other Holders
with a view to obtaining signatures to a request for a meeting of Holders and
accompanied by a form of communication and request which they wish to transmit,
the Trustees shall within five business days after receipt of such application
either (1) afford to such applicants access to a list of the names and addresses
of all Holders as recorded on the books of the Trust; or (2) inform such
applicants as to the approximate number of Holders, and the approximate cost of
transmitting to them the proposed communication and form of request.
(b) If the Trustees elect to follow the course specified in clause
(2) above, the Trustees, upon the written request of such applicants,
accompanied by a tender of the material to be transmitted and of the reasonable
expenses of transmission, shall, with reasonable promptness, transmit, by United
States mail or by electronic transmission, such material to all Holders at their
addresses as recorded on the books, unless within five business days after such
tender the Trustees shall transmit, by United States mail or by electronic
transmission, to such applicants and file with the Commission, together with a
copy of the material to be transmitted, a written statement signed by at least a
majority of the Trustees to the effect that in their opinion either such
material contains untrue statements of fact or omits to state facts necessary to
make the statements contained therein not misleading, or would be in violation
of applicable law, and specifying the basis of such opinion. The Trustees shall
thereafter comply with any order entered by the Commission and the requirements
of the 1940 Act and the Securities Exchange Act of 1934.
ARTICLE IX
Duration; Termination of Trust;
AMENDMENT; MERGERS: ETC.
9.1 DURATION. Subject to possible termination in accordance with the
provisions of Section 9.2, the Trust
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created hereby shall continue perpetually pursuant to Section 3808 of DBTA.
9.2 TERMINATION OF TRUST.
(a) The Trust may be terminated (i) by the affirmative vote of the
Holders of not less than two-thirds of the Interests in the Trust at any meeting
of the Holders, or (ii) by an instrument in writing, without a meeting, signed
by a majority of the Trustees and consented to by the Holders of not less than
two-thirds of such Interests, or (iii) by the Trustees by written notice to the
Holders. Upon any such termination,
(i) The Trust shall carry on no business except for the
purpose of winding up its affairs.
(ii) The Trustees shall proceed to wind up the affairs of the
Trust and all of the powers of the Trustees under this Declaration shall
continue until the affairs of the Trust shall have been wound up, including
the power to fulfill or discharge the contracts of the Trust, collect its
assets, sell, convey, assign, exchange, or otherwise dispose of all or all or
any part of the remaining Trust Property to one or more Persons at public or
private sale for consideration which may consist in whole or in part of cash,
securities or other property of any kind, discharge or pay its liabilities,
and do all other acts appropriate to liquidate its business; provided that
any sale, conveyance, assignment, exchange, or other disposition of all or
substantially all of the Trust Property shall require approval of the
principal terms of the transaction and the nature and amount of the
consideration by the Holders by a Majority Interests Vote.
(iii) After paying or adequately providing for the payment of
all liabilities, and upon receipt of such releases, indemnities and refunding
agreements, as they deem necessary for their protection, the Trustees may
distribute the remaining Trust Property, in cash or in kind or partly each,
among the Holders according to their respective rights.
(b) Upon termination of the Trust and distribution to the Holders
as herein provided, a majority of the Trustees shall execute and lodge among the
records of
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the Trust an instrument in writing setting forth the fact of such termination
and file a certificate of cancellation in accordance with Section 3810 of the
DBTA. Upon termination of the Trust, the Trustees shall thereon be discharged
from all further liabilities and duties hereunder, and the rights and interests
of all Holders shall thereupon cease.
9.3 AMENDMENT PROCEDURE.
(a) All rights granted to the Holders under this Declaration of
Trust are granted subject to the reservation of the right of the Trustees to
amend this Declaration of Trust as herein provided, except as set forth herein
to the contrary. Subject to the foregoing, the provisions of this Declaration
of Trust (whether or not related to the rights of Holders) may be amended at any
time, so long as such amendment is not in contravention of applicable law,
including the 1940 Act, by an instrument in writing signed by a majority of the
then Trustees (or by an officer of the Trust pursuant to the vote of a majority
of such Trustees). Any such amendment shall be effective as provided in the
instrument containing the terms of such amendment or, if there is no provision
therein with respect to effectiveness, upon the execution of such instrument and
of a certificate (which may be a part of such instrument) executed by a Trustee
or officer of the Trust to the effect that such amendment has been duly adopted.
(b) No amendment may be made, under Section 9.3(a) above, which
would change any rights with respect to any Interest in the Trust by reducing
the amount payable thereon upon liquidation of the Trust, by repealing the
limitations on personal liability of any Holder or Trustee, or by diminishing or
eliminating any voting rights pertaining thereto, except with a Majority
Interests Vote.
(c) A certification signed by a majority of the Trustees setting
forth an amendment and reciting that it was duly adopted by the Holders or by
the Trustees as aforesaid or a copy of the Declaration, as amended, and executed
by a majority of the Trustees, shall be conclusive evidence of such amendment
when lodged among the records of the Trust.
(d) Notwithstanding any other provision hereof, until such time as
Interests are first sold, this Declaration may be terminated or amended in any
respect by the affirmative vote of a majority of the Trustees or by an
instrument signed by a majority of the Trustees.
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9.4 MERGER, CONSOLIDATION AND SALE OF ASSETS. The Trust may merge or
consolidate with any other corporation, association, trust or other organization
or may sell, lease or exchange all or substantially all of its property,
including its good will, upon such terms and conditions and for such
consideration when and as authorized by no less than a majority of the Trustees
and by a Majority Interests Vote of the Trust or by an instrument or instruments
in writing without a meeting, consented to by the Holders of not less than 50%
of the total Interests of the Trust and any such merger, consolidation, sale,
lease or exchange shall be deemed for all purposes to have been accomplished
under and pursuant to the statutes of the State of Delaware. In accordance with
Section 3815(f) of DBTA, an agreement of merger or consolidation may effect any
amendment to the Declaration or By-Laws or effect the adoption of a new
declaration of trust or by-laws of the Trust if the Trust is the surviving or
resulting business trust. A certificate of merger or consolidation of the Trust
shall be signed by a majority of the Trustees.
9.5 INCORPORATION. Upon a Majority Interests Vote, the Trustees may
cause to be organized or assist in organizing a corporation or corporations
under the laws of any jurisdiction or any other trust, partnership, association
or other organization to take over all of the Trust Property, or series thereof,
or to carry on any business in which the Trust shall directly or indirectly have
any interest, and to sell, convey and transfer the Trust Property, or series
thereof, to any such corporation, trust, association or organization in exchange
for the equity interests thereof or otherwise, and to lend money to, subscribe
for the equity interests of, and enter into any contracts with any such
corporation, trust, partnership, association or organization, or any
corporation, partnership, trust, association or organization in which the Trust
holds or is about to acquire equity interests. The Trustees may also cause a
merger or consolidation between the Trust or any successor thereto and any such
corporation, trust, partnership, association or other organization if and to the
extent permitted by law, as provided under the law then in effect. Nothing
contained herein shall be construed as requiring approval of the Holders for the
Trustees to organize or assist in organizing one or more corporations, trusts,
partnerships, associations or other organizations and selling, conveying or
transferring a portion of the Trust Property to such organizations or entities.
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ARTICLE X
MISCELLANEOUS
10.1 CERTIFICATE OF DESIGNATION; AGENT FOR SERVICE OF PROCESS. The
Trust shall file, in accordance with Section 3812 of DBTA, in the office of the
Secretary of State of Delaware, a certificate of trust, in the form and with
such information required by Section 3810 by DBTA and executed in the manner
specified in Section 3811 of DBTA. In the event the Trust does not have at
least one Trustee qualified under Section 3807(a) of DBTA, then the Trust shall
comply with Section 3807(b) of DBTA by having and maintaining a registered
office in Delaware and by designating a registered agent for service of process
on the Trust, which agent shall have the same business office as the Trust's
registered office. The failure to file any such certificate, to maintain a
registered office, to designate a registered agent for service of process, or to
include such other information shall not affect the validity of the
establishment of the Trust, the Declaration, the By-Laws or any action taken by
the Trustees, the Trust officers or any other Person with respect to the Trust
except insofar as a provision of the DBTA would have governed, in which case the
Delaware common law governs.
10.2 GOVERNING LAW. This Declaration is executed by all of the Trustees
and delivered with reference to DBTA and the laws of the State of Delaware, and
the rights of all parties and the validity and construction of every provision
hereof shall be subject to and construed according to DBTA and the laws of the
State of Delaware (unless and to the extent otherwise provided for and/or
preempted by the 1940 Act or other applicable federal securities laws);
provided, however, that there shall not be applicable to the Trust, the Trustees
or this Declaration (a) the provisions of Section 3540 of Title 12 of the
Delaware Code or (b) any provisions of the laws (statutory or common) of the
State of Delaware (other than the DBTA) pertaining to trusts which are
inconsistent with the rights, duties, powers, limitations or liabilities of the
Trustees set forth or referenced in this Declaration.
10.3 COUNTERPARTS. This Declaration may be simultaneously executed in
several counterparts, each of which shall be deemed to be an original, and such
counterparts, together, shall constitute one and the same instrument, which
shall be sufficiently evidenced by any such original counterpart.
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10.4 RELIANCE BY THIRD PARTIES. Any certificate executed by an
individual who, according to the records of the Trust or of any recording office
in which this Declaration may be recorded, appears to be a Trustee hereunder,
certifying to (a) the number or identity of Trustees or Holders, (b) the due
authorization of the execution of any instrument or writing, (c) the form of any
vote passed at a meeting of Trustees or Holders, (d) the fact that the number of
Trustees or Holders present at any meeting or executing any written instrument
satisfies the requirements of this Declaration, (e) the form of any By-Laws
adopted by or the identity of any officers elected by the Trustees, or (f) the
existence of any fact or facts which in any manner relate to the affairs of the
Trust, shall be conclusive evidence as to the matters so certified in favor of
any person dealing with the Trustees and their successors.
10.5 PROVISIONS IN CONFLICT WITH LAW OR REGULATIONS.
(a) The provisions of this Declaration are severable, and if the
Trustees shall determine, with the advice of counsel, that any of such
provisions is in conflict with the 1940 Act, the DBTA, or with other applicable
laws and regulations, the conflicting provisions shall be deemed never to have
constituted a part of this Declaration; provided, however, that such
determination shall not affect any of the remaining provisions of this
Declaration or render invalid or improper any action taken or omitted prior to
such determination.
(b) If any provision of this Declaration shall be held invalid or
unenforceable in any jurisdiction, such invalidity or unenforceability shall
attach only to such provision in such jurisdiction and shall not in any manner
affect such provision in any other jurisdiction or any other provision of this
Declaration in any jurisdiction.
10.6 TRUST ONLY. It is the intention of the Trustees to create only a
business trust under DBTA with the relationship of Trustee and beneficiary
between the Trustees and each Holder from time to time. It is not the intention
of the Trustees to create a general partnership, limited partnership, joint
stock association, corporation, bailment, or any form of legal relationship
other than a Delaware
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business trust except to the extent such trust is deemed to constitute a
corporation under the Code and applicable state tax laws. Nothing in this
Declaration of Trust shall be construed to make the Holders, either by
themselves or with the Trustees, partners or members of a joint stock
association.
10.7 WITHHOLDING. Should any Holder be subject to withholding pursuant
to the Code or any other provision of law, the Trust shall withhold all amounts
otherwise distributable to such Holder as shall be required by law and any
amounts so withheld shall be deemed to have been distributed to such Holder
under this Declaration of Trust. If any sums are withheld pursuant to this
provision, the Trust shall remit the sums so withheld to and file the required
forms with the Internal Revenue Service, or other applicable government agency.
10.8 HEADINGS AND CONSTRUCTION. Headings are placed herein for
convenience of reference only and shall not be taken as a part hereof or control
or affect the meaning, construction or effect of this instrument. Whenever the
singular number is used herein, the same shall include the plural; and the
neuter, masculine and feminine genders shall include each other, as applicable.
IN WITNESS WHEREOF, the undersigned have caused these presents to be
executed as of the day and year first above written.
s/ Arthur E. Nicholas
_____________________________ July 20, 1995
Arthur E. Nicholas
Trustee
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EXHIBIT 2
NICHOLAS-APPLEGATE SERIES TRUST
BY-LAWS
These By-Laws are made as of the 2oth day of July, 1995 and adopted
pursuant to Section 2.7 of the Declaration of Trust establishing Nicholas-
Applegate Series Trust dated July 20, 1995 (hereinafter called the
"Declaration"). All words and terms capitalized in these By-Laws shall have the
meaning or meanings set forth for such words or terms in the Declaration.
ARTICLE I
MEETINGS OF HOLDERS
Section 1.1 ANNUAL MEETING. An annual meeting of the Holders of
Interests in the Trust, which may be held on such date and at such hour as may
from time to time be designated by the Board of Trustees and stated in the
notice of such meeting, is not required to be held unless certain actions must
be taken by the Holders as set forth in Section 8.7 of the Declaration, or
except when the Trustees consider it necessary or desirable.
Section 1.2 CHAIRMAN. The President or, in his or her absence, the
Chief Operating Officer shall act as chairman at all meetings of the Holders
and, in the absence of both of them, the Trustee or Trustees present at the
meeting may elect a temporary chairman for the meeting, who may be one of
themselves or an officer of the Trust.
Section 1.3 PROXIES; VOTING. Holders may vote either in person or by
duly executed proxy and each Holder shall be entitled to a vote proportionate to
his or her Interest in the Trust, all as provided in Article IX of the
Declaration. No proxy shall be valid after eleven (11) months from the date of
its execution, unless a longer period is expressly stated in such proxy.
Section 1.4 FIXING RECORD DATES. For the purpose of determining the
Holders who are entitled to notice of or to vote or act at a meeting, including
any adjournment thereof, or who are entitled to participate in any
distributions, or for any other proper purpose, the Trustees may from time to
time fix a record date in the manner provided in Section 9.3 of the Declaration.
If the Trustees do not, prior to any meeting of the Holders, so fix a record
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date, then the date of mailing notice of the meeting shall be the record date.
Section 1.5 INSPECTORS OF ELECTION. In advance of any meeting of the
Holders, the Trustees may appoint Inspectors of Election to act at the meeting
or any adjournment thereof. If Inspectors of Election are not so appointed, the
chairman, if any, of any meeting of the Holders may, and on the request of any
Holder or his or her proxy shall, appoint Inspectors of Election of the meeting.
The number of Inspectors shall be either one or three. If appointed at the
meeting on the request of one or more Holders or proxies, a Majority Interests
Vote shall determine whether one or three Inspectors are to be appointed, but
failure to allow such determination by the Holders shall not affect the validity
of the appointment of Inspectors of Election. In case any person appointed as
Inspector fails to appear or fails or refuses to act, the vacancy may be filled
by appointment made by the Trustees in advance of the convening of the meeting
or at the meeting by the person acting as chairman. The Inspectors of Election
shall determine the Interests owned by Holders, the Interests represented at the
meeting, the existence of a quorum, the authenticity, validity and effect of
proxies, shall receive votes, ballots or consents, shall hear and determine all
challenges and questions in any way arising in connection with the right to
vote, shall count and tabulate all votes or consents, determine the results, and
do such other acts as may be proper to conduct the election or vote with
fairness to all Holders. If there are three Inspectors of Election, the
decision, act or certificate of a majority is effective in all respects as the
decision, act or certificate of all. On request of the chairman, if any, of the
meeting, or of any Holder or his or her proxy, the Inspectors of Election shall
make a report in writing of any challenge or question or matter determined by
them and shall execute a certificate of any facts found by them.
Section 1.6 RECORDS OF MEETINGS OF HOLDERS. At each meeting of the
Holders there shall be open for inspection the minutes of the last previous
meeting of Holders of the Trust and a list of the Holders of the Trust,
certified to be true and correct by the Secretary or other proper agent of the
Trust, as of the record date of the meeting. Such list of Holders shall contain
the name of each Holder in alphabetical order, the Holder's address and
Interests owned by such Holder. Holders shall have the right to inspect books
and records of the Trust during
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normal business hours for any purpose not harmful to the Trust.
ARTICLE II
TRUSTEES
Section 2.1 ANNUAL AND REGULAR MEETINGS. The Trustees shall hold an
Annual Meeting of the Trustees for the election of officers and the transaction
of other business which may come before such meeting. Regular meetings of the
Trustees may be held without call or notice at such place or places and times as
the Trustees may by resolution provide from time to time.
Section 2.2 SPECIAL MEETINGS. Special Meetings of the Trustees shall
be held upon the call of the chairman, if any, the President, the Secretary, or
any two Trustees, at such time, on such day and at such place, as shall be
designated in the notice of the meeting.
Section 2.3 NOTICE. Notice of a meeting shall be given by United
States mail (which term shall include overnight mail) or by electronic
transmission (which term shall include without limitation by telephone,
cablegram or telefacsimile) or delivered personally, to each Trustee at his or
her business address as set forth in the records of the Trust. If notice is
given by mail, it shall be mailed not later than 72 hours preceding the meeting
and if given by telegram or personally, such notice shall be delivered not later
than 24 hours preceding the meeting. Notice of a meeting of Trustees may be
waived before or after any meeting by signed written waiver. Neither the
business to be transacted at, nor the purpose of, any meeting of the Board of
Trustees need be stated in the notice or waiver of notice of such meeting, and
no notice need be given of action proposed to be taken by written consent. The
attendance of a Trustee at a meeting shall constitute a waiver of notice of such
meeting except where a Trustee attends a meeting for the express purpose of
objecting, at the commencement of such meeting, to the transaction of any
business on the ground that the meeting has not been lawfully called or
convened.
Section 2.4 CHAIRMAN; RECORDS. The Trustees shall appoint a Chairman
of the Board from among their number. Such Chairman of the Board shall act as
chairman at all meetings of the Trustees; in his or her absence the President
shall act as chairman; and, in the absence of all
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of them, the Trustees present shall elect one of their number to act as
temporary chairman. The results of all actions taken at a meeting of the
Trustees, or by written consent of the Trustees, shall be recorded by the
Secretary.
Section 2.5 AUDIT COMMITTEE. The Board of Trustees may, by the
affirmative vote of a majority of the entire Board, appoint from its members an
Audit Committee composed of two or more Trustees who are not "interested
persons" (as defined in the 1940 Act) of the Trust, as the Board may from time
to time determine. The Audit Committee shall (a) recommend independent public
accountants for selection by the Board, (b) review the scope of audit,
accounting and financial internal controls and the quality and adequacy of the
Trust's accounting staff with the independent public accountants and such other
persons as may be deemed appropriate, (c) review with the accounting staff and
the independent public accountants the compliance of transactions of the Trust
with its investment adviser, administrator or any other service provider with
the financial terms of applicable contracts or agreements, (d) review reports of
the independent public accountants and comment to the Board when warranted,
(e) report to the Board at least once each year and at such other times as the
committee deems desirable, and (f) be directly available at all times to
independent public accountants and responsible officers of the Trust for
consultation on audit, accounting and related financial matters.
Section 2.6 NOMINATING COMMITTEE OF TRUSTEES. The Board of Trustees
may, by the affirmative vote of a majority of the entire Board, appoint from its
members a Trustee Nominating Committee composed of two or more Trustees. The
Trustee Nominating Committee shall recommend to the Board a slate of persons to
be nominated for election as Trustees by the Holders at a meeting of the Holders
and a person to be elected to fill any vacancy occurring for any reason in the
Board. Notwithstanding anything in this Section to the contrary, if the Trust
has in effect a plan pursuant to Rule 12b-1 under the 1940 Act, the selection
and nomination of those Trustees who are not "interested persons" (as defined in
the Act) shall be committed to the discretion of such Disinterested Trustees.
Section 2.7 EXECUTIVE COMMITTEE. The Board of Trustees may appoint
from its members an Executive Committee composed of those Trustees as the Board
may from time to time determine, of which committee the Chairman of the Board
shall be a member. In the intervals between meetings of the
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Board, the Executive Committee shall have the power of the Board to
(a) determine the value of securities and assets owned by the Trust, (b) elect
or appoint officers of the Trust to serve until the next meeting of the Board,
and (c) take such action as may be necessary to manage the portfolio security
loan business of the Trust. All action by the Executive Committee shall be
recorded and reported to the Board at its meeting next succeeding such action.
Section 2.8 OTHER COMMITTEES. The Board of Trustees may appoint from
among its members other committees composed of two or more of its Trustees which
shall have such powers as may be delegated or authorized by the resolution
appointing them.
Section 2.9 COMMITTEE PROCEDURES. The Board of Trustees may at any
time change the members of any committee, fill vacancies or discharge any
committee. In the absence of any member of any committee, the member or members
thereof present at any meeting, whether or not they constitute a quorum, may
unanimously appoint to act in the place of such absent member a member of the
Board who, except in the case of the Executive Committee, is not an "interested
person" of the Trust as the Board may from time to time determine. Each
committee may fix its own rules of procedure and may meet as and when provided
by those rules. Copies of the minutes of all meetings of committees other than
the Nominating Committee and the Executive Committee shall be distributed to the
Board unless the Board shall otherwise provide.
ARTICLE III
OFFICERS
Section 3.1 OFFICERS OF THE TRUST; COMPENSATION. The officers of the
Trust shall consist of a President, a Secretary, a Treasurer and such other
officers or assistant officers, including Vice Presidents, as may be elected by
the Trustees. Any two or more of the offices may be held by the same person.
The Trustees may designate a Vice President as an Executive Vice President and
may designate the order in which the other Vice Presidents may act. No officer
of the Trust need be a Trustee. The Board of Trustees may determine what, if
any, compensation shall be paid to officers of the Trust.
Section 3.2 ELECTION AND TENURE. At the initial organization meeting
and thereafter at each annual meeting of the Trustees, the Trustees shall elect
the Chairman,
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President, Secretary, Treasurer and such other officers as the Trustees shall
deem necessary or appropriate in order to carry out the business of the Trust.
The Chairman of the Board and such officers shall hold office until the next
annual meeting of the Trustees and until their successors have been duly elected
and qualified. The Trustees may fill any vacancy in or add any additional
officers at any time.
Section 3.3 REMOVAL OF OFFICERS. Any officer may be removed at any
time, with or without cause, by action of a majority of the Trustees. This
provision shall not prevent the making of a contract of employment for a
definite term with any officer and shall have no effect upon any cause of action
which any officer may have as a result of removal in breach of a contract of
employment. Any officer may resign at any time by notice in writing signed by
such officer and delivered or mailed to the President or Secretary, and such
resignation shall take effect immediately, or at a later date according to the
terms of such notice in writing.
Section 3.4 BONDS AND SURETY. Any officer may be required by the
Trustees to be bonded for the faithful performance of his or her duties in such
amount and with such sureties as the Trustees may determine.
Section 3.5 PRESIDENT AND VICE-PRESIDENTS. The President shall be
the chief executive officer of the Trust and, subject to the control of the
Trustees, shall have general supervision, direction and control of the business
of the Trust and of its employees and shall exercise such general powers of
management as are usually vested in the office of president of a corporation.
The President shall preside at all meetings of the Holders and, in the absence
of the Chairman of the Board, the President shall preside at all meetings of the
Trustees. The President shall be, ex officio, a member of all standing
committees. Subject to direction of the Trustees, the President shall have the
power, in the name and on behalf of the Trust, to execute any and all loan
documents, contracts, agreements, deeds, mortgages, and other instruments in
writing, and to employ and discharge employees and agents of the Trust. Unless
otherwise directed by the Trustees, the President shall have full authority and
power, on behalf of all of the Trustees, to attend and to act and to vote, on
behalf of the Trust at any meetings of business organizations in which the Trust
holds an interest, or to confer such powers upon any other persons, by executing
any proxies duly authorizing such persons. The President shall have such
further authorities
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and duties as the Trustees shall from time to time determine. In the absence or
disability of the President, the Vice Presidents in order of their rank or the
Vice President designated by the Trustees, shall perform all of the duties of
President, and when so acting shall have all the powers of and be subject to all
of the restrictions upon the President. Subject to the direction of the
President, the Treasurer and each Vice President shall have the power in the
name and on behalf of the Trust to execute any and all loan documents,
contracts, agreements, deeds, mortgages and other instruments in writing, and,
in addition, shall have such other duties and powers as shall be designated from
time to time by the Trustees, the Chairman, or the President.
Section 3.6 SECRETARY. The Secretary shall keep the minutes of all
meetings of, and record all votes of, Holders, Trustees and any committees of
Trustees, provided that, in the absence or disability of the Secretary, the
Holders or Trustees or committee may appoint any other person to keep the
minutes of a meeting and record votes. The Secretary shall attest the signature
or signatures of the officer or officers executing any instrument on behalf of
the Trust. The Secretary shall also perform any other duties commonly incident
to such office in a Delaware corporation, and shall have such other authorities
and duties as the Trustees shall from time to time determine.
Section 3.7 TREASURER. Except as otherwise directed by the Trustees,
the Treasurer shall have the general supervision of the monies, funds,
securities, notes receivable and other valuable papers and documents of the
Trust, and shall have and exercise under the supervision of the Trustees and of
the Chairman and the President all powers and duties normally incident to his
office. He may endorse for deposit or collection all notes, checks and other
instruments payable to the Trust or to its order. He shall deposit all funds of
the Trust as may be ordered by the Trustees, the Chairman or the President. He
shall keep accurate account of the books of the Trust's transactions which shall
be the property of the Trust and which, together with all other property of the
Trust in his possession, shall be subject at all times to the inspection and
control of the Trustees. Unless the Trustees shall otherwise determine, the
Treasurer shall be the principal accounting officer of the Trust and shall also
be the principal financial officer of the Trust. He shall have such other
duties and authorities as the Trustees shall from time to time determine.
Notwithstanding anything to the contrary
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herein contained, the Trustees may authorize any adviser or administrator to
maintain bank accounts and deposit and disburse funds on behalf of the Trust.
Section 3.8 OTHER OFFICERS AND DUTIES. The Trustees may elect such
other officers and assistant officers as they shall from time to time determine
to be necessary or desirable in order to conduct the business of the Trust.
Assistant officers shall act generally in the absence of the officer whom they
assist and shall assist that officer in the duties of his office. Each officer,
employee and agent of the Trust shall have such other duties and authority as
may be conferred upon him by the Trustees or delegated to him by the President.
ARTICLE IV
CUSTODIAN
Section 4.1 APPOINTMENT AND DUTIES. The Trustees shall at all times
employ a custodian or custodians with authority as its agent, but subject to
such restrictions, limitations and other requirements, if any, as may be
contained in these By-Laws:
(1) to hold the securities owned by the Trust and deliver the
same upon written order;
(2) to receive and receipt for any moneys due to the Trust and
deposit the same in its own banking department or elsewhere as the Trustees
may direct;
(3) to disburse such funds upon orders or vouchers;
(4) if authorized by the Trustees, to keep the books and
accounts of the Trust and furnish clerical and accounting services; and
(5) if authorized to do so by the Trustees, to compute the net
income and net assets of the Trust;
all upon such basis of compensation as may be agreed upon between the Trustees
and the custodian. The Trustees may also authorize the custodian to employ one
or more sub-custodians, from time to time, to perform such of the acts and
services of the custodian and upon such terms and
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conditions as may be agreed upon between the custodian and such sub-custodian
and approved by the Trustee.
Section 4.2 CENTRAL CERTIFICATE SYSTEM. Subject to such rules,
regulations and orders as the Commission may adopt, the Trustees may direct the
custodian to deposit all or any part of the securities owned by the Trust in a
system for the central handling of securities established by a national
securities exchange or a national securities association registered with the
Commission under the Securities Exchange Act of 1934, any such other person or
entity with which the Trustees may authorize deposit in accordance with the 1940
Act, pursuant to which system all securities of any particular class or series
of any issuer deposited within the system are treated as fungible and may be
transferred or pledged by bookkeeping entry without physical delivery of such
securities. All such deposits shall be subject to withdrawal only upon the
order of the Trust.
ARTICLE V
MISCELLANEOUS
Section 5.1 DEPOSITORIES. In accordance with Article IV of these By-
Laws, the funds of the Trust shall be deposited in such depositories as the
Trustees shall designate and shall be drawn out on checks, drafts or other
orders signed by such officer, officers, agent or agents (including any adviser
or administrator), as the Trustees may from time to time authorize.
Section 5.2 SIGNATURES. All contracts and other instruments shall be
executed on behalf of the Trust by such officer, officers, agent or agents, as
provided in these By-Laws or as the Trustees may from time to time by resolution
or authorization provide.
Section 5.3 FISCAL YEAR. The fiscal year of the Trust shall end on
March 31 of each year, subject, however, to change from time to time by the
Board of Trustees.
ARTICLE VI
INTERESTS
Section 6.1 INTERESTS. Except as otherwise provided by law, the
Trust shall be entitled to recognize the exclusive right of a person in whose
name Interests stand on the record of Holders as the owners of such
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Interests for all purposes, including, without limitation, the rights to receive
distributions, and to vote as such owner, and the Trust shall not be bound to
recognize any equitable or legal claim to or interest in any such Interests on
the part of any other person.
Section 6.2 REGULATIONS. The Trustees may make such additional rules
and regulations, not inconsistent with these By-Laws, as they may deem expedient
concerning the sale and purchase of Interests of the Trust.
Section 6.3 DISTRIBUTION DISBURSING AGENTS AND THE LIKE. The
Trustees shall have the power to employ and compensate such distribution
disbursing agents, warrant agents and agents for the reinvestment of
distributions as they shall deem necessary or desirable. Any of such agents
shall have such power and authority as is delegated to any of them by the
Trustees.
ARTICLE VII
AMENDMENT OF BY-LAWS
Section 7.1 AMENDMENT AND REPEAL OF BY-LAWS. In accordance with
Section 2.7 of the Declaration, the Trustees shall have the power to alter,
amend or repeal the By-Laws or adopt new By-Laws at any time. The Trustees
shall in no event adopt By-Laws which are in conflict with the Declaration,
DBTA, the 1940 Act or applicable federal securities laws.
Section 7.2 NO PERSONAL LIABILITY. The Declaration establishing
Nicholas-Applegate Series Trust provides that the name Nicholas-Applegate Series
Trust does not refer to the Trustees as individuals or personally; and no
Trustee, officer, employee or agent of Nicholas-Applegate Series Trust shall be
held to any personal liability, nor shall resort be had to their private
property for the satisfaction of any obligation or claim or otherwise in
connection with the affairs of Nicholas-Applegate Series Trust.
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EXHIBIT 5.1
INVESTMENT ADVISORY AGREEMENT
THIS INVESTMENT ADVISORY AGREEMENT is made as of _____________, 1996
between NICHOLAS-APPLEGATE SERIES TRUST, a Delaware business trust (the
"Trust"), and NICHOLAS-APPLEGATE CAPITAL MANAGEMENT, a California limited
partnership (the "Investment Adviser").
WHEREAS, the Trust is registered as an open-end management investment
company under the Investment Company Act of 1940, as amended ("1940 Act");
WHEREAS, the Trust currently offers shares of six series (each a
"Series" and collectively the "Series"), including Nicholas-Applegate Core
Growth Series, Nicholas-Applegate Emerging Growth Series, Nicholas-Applegate
International Growth Series, Nicholas-Applegate Value Series, Nicholas-Applegate
Diversified Income Series, and Nicholas-Applegate International Fixed Income
Series; and
WHEREAS, the Trust desires to retain the Investment Adviser to furnish
investment advisory services to the Trust and each of its Series;
NOW, THEREFORE, in consideration of the premises and mutual covenants
herein contained, it is agreed between the parties hereto as follows:
1. APPOINTMENT.
(a) The Trust hereby appoints the Investment Adviser to serve
as investment adviser to each of the Series for the period and on the terms set
forth in this Agreement. The Investment Adviser accepts such appointment and
agrees to furnish the services herein set forth for the compensation herein
provided.
(b) In the event that the Trust establishes one or more
series other than the Series with respect to which it desires to retain the
Investment Adviser to serve as investment adviser hereunder, it will notify the
Investment Adviser in writing. If the Investment Adviser is willing to render
such services under this Agreement it will so notify the Trust in writing,
whereupon such series will become a "Series" (as defined hereunder) and will be
subject to the provisions of this Agreement to the same extent as the Series
except to the extent that such provisions (including those relating to the
compensation payable by the
<PAGE>
Series to the Investment Adviser) are modified with respect to such Series in
writing by the Trust and the Adviser at the time.
2. SERVICES. Subject to the supervision of the Trust's Board of
Trustees (the "Board"), the Investment Adviser will provide a continuous
investment program for each of the Series, including investment research and
management with respect to all securities and investments and cash equivalents
in the Series. The Investment Adviser will determine from time to time what
securities and other investments will be purchased, retained or sold by the
Trust with respect to each Series. The Investment Adviser will provide the
services under this Agreement in accordance with each Series' investment
objective, policies and restrictions as stated in the Series' prospectus and
statement of additional information, as currently in effect and as from time to
time amended (collectively, the "Prospectus"), and resolutions of the Board.
The Investment Adviser further agrees that it:
(a) Will conform with all applicable rules and regulations of
the Securities and Exchange Commission and will in addition conduct its
activities under this Agreement in accordance with other applicable law.
(b) Will place all orders for the purchase and sale of
portfolio securities for the account of each Series with brokers or dealers
selected by the Investment Adviser. In executing portfolio transactions and
selecting brokers or dealers, the Investment Adviser will use its best efforts
to seek on behalf of the Trust and each Series the best available price and
execution. In assessing the best overall terms available for any transaction,
the Investment Adviser will consider all factors it deems relevant, including
the breadth of the market in the security, the price of the security, the size
of the order, the difficulty and risk of execution, the financial condition and
execution capability of the broker or dealer, and the reasonableness of the
commission, if any, both for the specific transaction and on a continuing basis.
In evaluating the best overall terms available, and in selecting the
broker or dealer to execute a particular transaction, the Investment Adviser may
also consider the brokerage and research services (as those terms are defined in
Section 28(e) of the Securities Exchange Act of 1934, as amended) provided to
any Series and/or other
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<PAGE>
accounts over which the Investment Adviser or any affiliate of the Investment
Adviser exercises investment discretion. The Investment Adviser is authorized
to pay to a broker or dealer who provides such brokerage and research services a
commission or spread for executing a portfolio transaction for any Series which
is in excess of the amount of commission or spread another broker or dealer
would have charged for effecting that transaction if, but only if, the
Investment 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 or dealer viewed in terms of that particular transaction or in terms of
the overall responsibilities of the Investment Adviser to the particular Series
and to the Trust. The Investment Adviser may also select brokers to execute
portfolio transactions who have assisted in distributing the variable life
insurance policies and variable annuity contracts for which the Series serve as
the investment medium. The extent and continuation of these practices will be
subject to periodic review by the Board.
In executing portfolio transactions for any Series, the Investment
Adviser may, but will not be obligated to, aggregate the securities to be sold
or purchased with those of other Series and its other clients where such
aggregation is not inconsistent with the policies set forth in the Prospectus,
to the extent permitted by applicable laws and regulations. In such event, the
Investment Adviser will allocate the securities so purchased or sold, and the
expenses incurred in the transaction, in the manner it considers to be the most
equitable and consistent with its fiduciary obligations to the Series and such
other clients.
(c) Will maintain all books and records with respect to the
securities transactions of the Series, keep books of account with respect to the
Series and furnish the Board with such periodic and special reports as the Board
may request.
(d) Will treat confidentially and as proprietary information
of the Trust all records and other information relative to the Trust and
shareholders of the Trust ("Investors") or those persons or entities who respond
to inquiries concerning investment in the Trust, and will not use such records
and information for any purpose other than performance of its responsibilities
and duties hereunder or under any other agreement with the Trust except after
prior notification to and approval in writing by the
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<PAGE>
Trust, which approval will not be unreasonably withheld and may not be withheld
where the Investment Adviser may be exposed to civil or criminal contempt
proceedings for failure to comply, when requested to divulge such information by
duly constituted authorities, or when so requested by the Trust. Nothing
contained herein, however, will prohibit the Investment Adviser from advertising
to or soliciting the public generally with respect to other products or
services, including, but not limited to, any advertising or marketing via radio,
television, newspapers, magazines or direct mail solicitation, regardless of
whether such advertisement or solicitation may coincidentally include prior or
present Investors or those persons or entities who have responded to inquiries
regarding the Trust.
(e) Will obtain the prior written approval of the Board
before retaining the services of any sub-adviser to manage the assets and
portfolio investments of any Series (it being agreed that the Investment Adviser
may retain the services of Rogge Global Partners, plc to serve as sub-adviser to
the International Fixed Income Series).
3. SERVICES NOT EXCLUSIVE. The Investment Adviser will for all
purposes herein be deemed to be an independent contractor and will, unless
otherwise expressly provided herein or authorized by the Board from time to
time, have no authority to act for or represent the Trust in any way or
otherwise be deemed its agent. The investment management services furnished by
the Investment Adviser hereunder are not deemed exclusive, and the Investment
Adviser will be free to furnish similar services to others so long as its
services under this Agreement are not impaired thereby.
4. BOOKS AND RECORDS. In compliance with the requirements of Rule
31a-3 under the 1940 Act, the Investment Adviser agrees that all records which
it maintains for the Trust are the property of the Trust and further agrees to
surrender promptly to the Trust any such records upon the Trust's request. In
addition, the Investment Adviser agrees to preserve for the periods prescribed
by Rule 31a-2 under the 1940 Act the records required to be maintained by Rule
31a-1 under the 1940 Act.
5. EXPENSES. During the term of this Agreement, the Investment
Adviser will pay all expenses incurred by it in connection with its activities
under this Agreement other
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<PAGE>
than the cost of securities (including brokerage commissions, if any) purchased
for the Trust.
6. COMPENSATION.
(a) For the services provided and the expenses assumed pursuant to
this Agreement, the Trust will pay the Investment Adviser and the Investment
Adviser will accept as full compensation therefor a fee, computed daily and paid
monthly (in arrears), at the annual rates set forth in Schedule A hereto. Such
fee as is attributable to each Series will be a separate charge to each such
Series and will be the several (and not joint or joint and several) obligation
of each such Series.
(b) If a Series' expenses during a fiscal year (excluding interest,
brokerage commissions, litigation expenses and certain other items) exceed any
expense limitation imposed by the applicable securities laws of any state, the
Investment Adviser will bear the amount of such excess to the extent required by
such limitation.
(c) The Investment Adviser may also from time to time voluntarily
agree in writing to reduce its fees or reimburse other operating expenses to
ensure that the expenses of a Series do not exceed certain limitations. In the
event the Investment Adviser so agrees, then any such reduction or reimbursement
shall be repaid by such Series to the Investment Adviser, without interest, at
such later time or times as it may be repaid without causing the aggregate
operating expenses of such Series to exceed such expense limitation; provided,
however, that the Trust shall have no obligation to repay any such amount with
respect to a Series upon termination of this Agreement with respect to such
Series.
7. REPRESENTATIONS AND WARRANTIES.
(a) The Trust represents and warrants to the Investment Adviser that:
(i) it is a business trust duly organized and existing and in good standing
under the laws of the State of Delaware and is duly qualified to conduct its
business in the State of Delaware and in such other jurisdictions wherein the
nature of its activities or its properties owned or leased makes such
qualification necessary; (ii) it is a registered open-end management investment
company under the 1940 Act; (iii) a registration statement on Form N-1A under
the Securities Act of 1933, as amended, on behalf of the Series is currently
effective and
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<PAGE>
will remain effective, and appropriate state securities law filings have been
made and will continue to be made, with respect to all shares of the Series
being offered for sale; (iv) it is empowered under applicable laws and by its
Declaration of Trust and Bylaws to enter into and perform this Agreement; and
(v) all requisite trust proceedings have been taken to authorize it to enter
into and perform this Agreement.
(b) The Investment Adviser represents and warrants to the Trust that:
(i) it is a limited partnership duly organized and existing and in good standing
under the laws of the State of California and is duly qualified to conduct its
business in the State of California and in such other jurisdictions wherein the
nature of its activities or its properties owned or leased makes such
qualification necessary; (ii) it is empowered under applicable laws and by its
partnership agreement to enter into and perform this Agreement; (iii) all
requisite partnership proceedings have been taken to authorize it to enter into
and perform this Agreement; and (iv) it is a registered investment adviser under
the Investment Advisers Act of 1940 and applicable state laws.
8. LIMITATION OF LIABILITY; INDEMNIFICATION.
(a) The Investment Adviser will not be liable for any error of
judgment or mistake of law or for any loss suffered by a Series or the Trust in
connection with the matters to which this Agreement relates, except for
liability resulting from willful misfeasance, bad faith or gross negligence on
the part of the Investment Adviser in the performance of its duties, or by
reason of the Investment Adviser's reckless disregard of its obligations and
duties under this Agreement.
The Trust will indemnify and hold harmless the Investment Adviser from
and against all liabilities, damages, costs and expenses that the Investment
Adviser may incur in connection with any action, suit, investigation or
proceeding arising out of or otherwise based on any action actually or allegedly
taken or omitted to be taken by the Investment Adviser with respect to the
performance of its duties or obligations hereunder or otherwise as an investment
adviser of the Trust and the Series; provided, however, that the Investment
Adviser will not be entitled to indemnification with respect to any liability to
the Trust or the Investors by reason of willful misfeasance, bad faith or gross
negligence on the part of the Investment Adviser in
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<PAGE>
the performance of its duties, or by reason of the Investment Adviser's reckless
disregard of its obligations and duties under this Agreement.
(b) The Investment Adviser acknowledges that it has received a copy
of the Declaration of Trust of the Trust dated July 20, 1995. The Investment
Adviser further acknowledges and agrees that the obligations of the Trust under
this Agreement are not binding on any officers, trustees or shareholders of the
Trust individually, but are only binding upon the assets and properties of the
Trust. Moreover, the Declaration of Trust of the Trust provides that the debts,
liabilities, obligations and expenses incurred, contracted for or otherwise
existing with respect to a Series shall be enforceable against the assets and
property of the Series only, and not against the assets and property of any
other series of the Trust.
9. DURATION AND TERMINATION. This Agreement will become effective
with respect to each Series (currently in existence) on the date first written
above. This Agreement will become effective with respect to any additional
Series on the date of receipt by the Trust of notice from the Investment Adviser
in accordance with Section 1(b) hereof that the Investment Adviser is willing to
serve as investment adviser with respect to such Series.
Unless sooner terminated as provided herein, this Agreement will
continue in effect for a period of two years from the date hereof. Thereafter,
if not terminated, this Agreement will continue in effect as to a particular
Series for successive annual periods, provided such continuance is specifically
approved at least annually (a) by the vote of a majority of those members of the
Board who are not interested persons of any party to this Agreement, cast in
person at a meeting called for the purpose of voting on such approval, and (b)
by the Board or by vote of a majority of
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<PAGE>
the outstanding voting securities of such Series. Notwithstanding the foregoing,
this Agreement may be terminated as to any Series at any time, without the
payment of any penalty, by the Trust (by vote of the Board or by vote of a
majority of the outstanding voting securities of such Series), or by the
Investment Adviser, upon not less than 60 days' written notice. This Agreement
will immediately terminate in the event of its assignment. (As used in this
Agreement, the terms "majority of the outstanding voting securities,"
"interested persons" and "assignment" have the same meaning as the meaning of
such terms in the 1940 Act.)
10. AMENDMENT OF THIS AGREEMENT. No provision of this Agreement may
be changed, waived, discharged or terminated orally, but only by an instrument
in writing signed by the party against which enforcement of the change, waiver,
discharge or termination is sought. No amendment of this Agreement will be
effective as to a particular Series until approved by vote of a majority of the
outstanding voting securities of such Series, except as permitted by the 1940
Act.
11. NOTIFICATION OF CHANGE OF PARTNERS. During the term of this
Agreement, the Investment Adviser will notify the Trust of any change in the
membership of the Investment Adviser's partnership within a reasonable time
after such change.
12. NOTICES. Notices of any kind to be given to the Investment
Adviser hereunder by the Trust will be in writing and will be duly given if
mailed, delivered or communicated by answer back facsimile transmission to the
Investment Adviser at 600 West Broadway, 30th Floor, San Diego, California
92101, Facsimile: (619) 234-7726, Attention: President, or at such other address
or to such individual as will be so specified by the Investment Adviser.
Notices of any kind to be given to the Trust hereunder by the Investment Adviser
will be in writing and will be duly given if mailed or delivered to the Trust at
600 West Broadway, 30th Floor, San Diego, California 92101, Facsimile: (619)
234-7726, Attention: President, or at such other address or to such individual
as will be so specified by the Trust to the Investment Adviser.
13. MISCELLANEOUS.
(a) This Agreement constitutes the entire agreement and understanding
between the parties hereto, and
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<PAGE>
supersedes all prior agreements and understandings relating to the subject
matter hereof.
(b) The captions in this Agreement are included for convenience of
reference only and in no way define or delimit any of the provisions hereof or
otherwise affect their construction or effect.
(c) If any provision of this Agreement is held or made invalid by a
court decision, statute, rule or otherwise, the remainder of this Agreement will
not be affected thereby.
(d) This Agreement will be binding upon and will inure to the benefit
of the parties hereto and their respective successors and will be governed by
the internal laws, and not the law of conflicts of laws, of the State of
California; provided that nothing herein will be construed in a manner
inconsistent with the 1940 Act, the Investment Advisers Act of 1940, as amended,
or any rule or regulation of the Securities and Exchange Commission thereunder.
IN WITNESS WHEREOF, the parties hereto have caused this instrument to
be executed by their officers designated below as of the date first above
written.
NICHOLAS-APPLEGATE SERIES TRUST
By:
----------------------------------
E. Blake Moore, Jr., Secretary
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<PAGE>
NICHOLAS-APPLEGATE CAPITAL MANAGEMENT
By: Nicholas-Applegate Capital
Management Holdings, L.P., a
California limited partnership,
its General Partner
By: Nicholas-Applegate Capital
Management Holdings, Inc.,
its General Partner
By:
----------------------------------
E. Blake Moore, Jr.
Secretary
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<PAGE>
SCHEDULE A
INVESTMENT ADVISORY FEES
The Investment Adviser will be compensated for its services under the
Agreement with respect to the Series at the following annual rates:
1. For the Emerging Growth Series, 1.00% of the Series' average
daily net assets.
2. For the International Growth Series, 1.00% of the first $500
million of the Series' average daily net assets, 0.90% of the next $500 million
and 0.85% of the Series's average daily net assets in excess of $1 billion.
3. For the Core Growth Series and Value Series, 0.75% of the first
$500 million of each such Series' average daily net assets, 0.675% of the next
$500 million and 0.65% of the each such Series' average daily net assets in
excess of $1 billion.
4. For the International Fixed Income Series, 0.60% of the Series'
average daily net assets.
5. For the Diversified Series, 0.45% of the first $500 million of
the Series' average daily net assets, 0.40% of the next $250 million and 0.35%
of the Series' average daily net assets in excess of $750 million.
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<PAGE>
EXHIBIT 5.2
NICHOLAS-APPLEGATE SERIES TRUST
SUB-ADVISORY AGREEMENT FOR THE
INTERNATIONAL FIXED INCOME FUND
Agreement made as of this _____ day of ______________, 19___ by and among
Nicholas-Applegate Capital Management, a California limited partnership
("Manager"), Rogge Global Partners, plc, a United Kingdom corporation, (the
"Sub-Adviser"), and Nicholas-Applegate Series Trust, a Delaware Business Trust
(the "Trust").
WHEREAS, the Trust, a diversified open-end management investment company
registered under the Investment Company Act of 1940, as amended (the "1940
Act"), is a series type investment company that is currently comprised of six
series, each of which is a separate investment portfolio having its own
investment objectives and investment policies; and
WHEREAS, the Manager has entered into a Management Agreement dated
______________, 19___ (the "Management Agreement") pursuant to which the Manager
has been employed to act as the investment manager of the Trust, on behalf of
each of its series; and
WHEREAS, the Sub-Adviser is engaged in business as an investment adviser
and is registered as an investment adviser under the Investment Advisers Act of
1940; and
WHEREAS, the Manager desires to retain the Sub-Adviser to provide
investment advisory services to the Trust in connection with the management of
one series of the Trust, the International Fixed Income Fund ("Fund"), and the
Sub-Adviser is willing to render such investment advisory services.
NOW, THEREFORE, the Parties agree as follows:
1. (a) Subject to the supervision of the Manager and of the Board of
Trustees of the Trust, the Sub-Adviser shall manage the investment operations of
the Fund and the composition of the Fund, including the purchase, reinvestment,
retention and disposition of securities of the Fund, in accordance with the
Fund's investment objectives, policies and restrictions as stated in the
Prospectus and Statement of Additional Information (as currently in effect for
the Fund and as amended or supplemented from time to time, being herein called
the "Prospectus"), and subject to the following understandings:
<PAGE>
(i) The Sub-Adviser shall manage the Fund's investments and
determine from time to time what investments and securities will be purchased,
retained, sold or loaned by the Fund, and what portion of the Fund's assets will
be invested or held uninvested as cash.
(ii) In the performance of its duties and obligations under this
Agreement, the Sub-Adviser shall act in conformity with the Charter and By-laws
of the Trust and Prospectus and with the instructions, resolutions and direc-
tions of the Manager and of the Board of Trustees of the Trust and shall conform
to and comply with the requirements of the 1940 Act, the Internal Revenue Code
of 1986, as amended (the "Code") (including without limitation Sections 817(h)
and 851), and all other applicable federal and state laws and regulations and
shall specifically monitor and maintain compliance with the diversification
requirements of the Fund under Sections 817(h) and 851 of the Code.
(iii) The Sub-Adviser shall determine the securities to be
purchased or sold by the Fund and shall place orders with or through such
persons, brokers or dealers as may be necessary or desirable to carry out the
policy with respect to brokerage as set forth in the Fund's Prospectus or as the
Board of Trustees may direct from time to time. In providing the Trust with
investment management for the Fund, it is recognized that the Sub-Adviser will
give primary consideration to securing the most favorable price and efficient
execution considering all the circumstances. Within the framework of this
policy, the Sub-Adviser may consider the financial responsibility, research and
investment information and other research services and products provided by
brokers or dealers who may effect or be a party to any such transaction or other
transactions to which the Sub-Adviser's other clients may be a party. It is
understood that it is desirable for the Trust that the Sub-Adviser have access
to brokerage and research services and products and security and economic
analysis provided by brokers who may execute brokerage transactions at a higher
cost to the Trust than broker-dealers that do not provide such brokerage and
research services. Therefore, in compliance with Section 28(e) of the
Securities Exchange Act of 1934 ("1934 Act") the Sub-Adviser is authorized to
place orders for the purchase and sale of securities for the Fund with brokers
that provide brokerage and research products and/or services that charge an
amount of commission for effecting a securities transaction in excess of the
amount of commission another broker would have charged for effecting that trans-
action, provided the Sub-Adviser determines in good faith that such amount of
commission was reasonable in relation to the value of the brokerage and research
products and/or services provided by such broker viewed in terms of either that
particular transaction or the overall responsibil-
2
<PAGE>
ities of the Sub-Adviser for this or other advisory accounts, subject to review
by the Trust's Board of Trustees from time to time with respect to the extent
and continuation of this practice. It is understood that the information,
services and products provided by such brokers may be useful to the Sub-Adviser
in connection with the Sub-Adviser's services to other clients.
On occasions when the Sub-Adviser deems the purchase or sale of a
security to be in the best interest of the Fund as well as other clients of the
Sub-Adviser, the Sub-Adviser, to the extent permitted by applicable laws and
regulations, may, but shall be under no obligation to, aggregate the securities
to be sold or purchased in order to obtain the most favorable price or lower
brokerage commissions and efficient execution. In such event, allocation of the
securities so purchased or sold, as well as the expenses incurred in the
transaction, shall be made by the Sub-Adviser in the manner the Sub-Adviser
considers to be the most equitable and consistent with its fiduciary obligations
to the Trust and to such other clients.
(iv) The Sub-Adviser shall maintain, prepare and preserve all
books and records with respect to the Fund's portfolio transactions required by
applicable law/regulation, including without limitation, subparagraphs (b) (5),
(6), (7), (9), (10) and (11) and paragraph (f) of Rule 31a-1 and the provisions
of Rule 31a-2 under the 1940 Act, and shall render to the Trust's Board of
Trustees such periodic and special reports as the Board may reasonably request.
(v) The Sub-Adviser shall provide the Trust's Custodian on each
business day with information relating to all transactions concerning the Fund's
assets and shall provide the Manager with such information upon request of the
Manager. In performing the duties stated in Section 1, the Sub-Adviser will
regularly provide the Manager and the Trust with the benefits of such investment
research, advice and management as the Manager and the Board or officers of the
Trust may, from time to time, consider necessary for the proper management of
the Fund. In connection with its continuous program of evaluation of the assets
in the Fund, the Sub-Adviser will provide the Manager with all statistical
information with respect to investments of the Trust and such periodic and
special reports and information as the Manager or the Board or officers of the
Trust may reasonably request. Statistical information includes information
prepared in a manner consistent with the procedures and requirements established
by the Board, if any.
(vi) The investment management services provided by the Sub-
Adviser hereunder are not to be deemed
3
<PAGE>
exclusive, and the Sub-Adviser shall be free to render similar services to
others clients, provided, however, the Sub-Adviser agrees that, for a period of
three years from commencement of operations of the Trust, the Sub-Adviser shall
not sponsor, distribute, market, advise or sub-advise any mutual fund or other
investment company or separate account used to fund any variable annuity or
variable life insurance contract with investment objectives or investment
programs similar to those of the Fund, without Manager's written consent.
(b) The Sub-Adviser shall authorize and permit any of its officers or
employees who are officers of the Trust to serve in the capacities in which they
are elected. Services to be furnished by the Sub-Adviser under this Agreement
may be furnished through the medium of any of such officers or employees.
(c) The Sub-Adviser shall keep the Fund's books and records required
to be maintained, prepared and preferred by the Sub-Adviser pursuant to
paragraph 1(a) hereof and shall timely furnish to the Manager all information
relating to the Sub-Adviser's services hereunder needed by the Manager to keep
the other books and records of the Fund required by Rule 31a-1 under the 1940
Act. The Sub-Adviser agrees that all records which it maintains for the Fund
are the property of the Trust and the Sub-Adviser shall surrender promptly to
the Trust any of such records upon the Trust's request, provided however that
the Sub-Adviser may retain a copy of such records. The Sub-Adviser further
agrees to preserve for the periods prescribed by Rule 31a-2 under the 1940 Act
any such records as are required to be maintained by it pursuant to paragraph
1(a) hereof. The Sub-Adviser also agrees, upon the request of the Manager or
the Trust, to promptly surrender the books and records to either party or make
the books and records available for inspection by representatives of any
regulatory authorities.
2. The Manager shall continue to have responsibility for all services to
be provided to the Trust and the Fund pursuant to the Management Agreement and
shall oversee and review the Sub-Adviser's performance of its duties under this
Agreement.
3. The Manager shall pay the Sub-Adviser, as compensation for the
services provided and the expenses assumed pursuant to this Agreement, a sub-
advisory fee at the annual rate of .50 of 1% of the Fund's average daily net
asset value. The Manager shall pay the sub-advisory fee at the end of each
calendar month. The Fund's net asset value shall be determined and computed in
accordance with the method for determining net asset value contained in the
Prospectus.
4
<PAGE>
The payment of the sub-advisory fees and the allocation of charges and
expenses between the Trust and the Manager are set forth in the Management
Agreement. Nothing in this Agreement shall change or affect that arrangement.
The payment of sub-advisory fees and the apportionment of any expenses related
to the services of the Sub-Adviser shall be the sole concern of the Manager and
the Sub-Adviser and shall not be the responsibility of the Trust.
4. The Sub-Adviser shall not be liable for any error of judgment or for
any loss suffered by the Trust or the Manager in connection with the matters to
which this Agreement relates, except a loss resulting from (i) a breach of
fiduciary duty with respect to the receipt of compensation for services or (ii)
willful misfeasance, bad faith or gross negligence on the Sub-Adviser's part in
the performance of its duties or from its reckless disregard of its obligations
and duties under this Agreement.
If any person who is a trustee, director, partner, officer or employee
of the Sub-Adviser is or becomes a trustee, director, partner, officer or
employee of the Trust and acts as such in any business of the Trust pursuant to
this Agreement, then such trustee, director, partner, officer or employee of the
Sub-Adviser shall be deemed to be acting in such capacity solely for the Trust,
and not as a trustee, director, partner, officer or employee of the Sub-Adviser
or under the control or direction of the Sub-Adviser, although paid by the Sub-
Adviser.
5. This Agreement shall continue in effect for a period of more than two
years from the date the Fund commences operation only so long as such
continuance is specifically approved at least annually in conformity with the
requirements of the 1940 Act; provided, however, that this Agreement may be
terminated by the Trust at any time, without the payment of any penalty, by the
Board of Trustees of the Trust or by vote of a majority of the outstanding
voting securities (as defined in the 1940 Act) of the Trust, or by the Manager
or the Sub-Adviser at any time, without the payment of any penalty, on not more
than 60 days' nor less than 30 days' written notice to the other party. This
Agreement shall terminate automatically in the event of its assignment (as
defined in the 1940 Act) or upon the termination of the Management Agreement.
Termination by the Board or the Manager shall be subject to shareholder approval
only to the extent legally required by applicable law.
6. Except as set forth in Section 1(a)(vi) above, nothing in this
Agreement shall limit or restrict the right of any of the Sub-Adviser's
partners, officers or employees who may also be a Trustee, officer or employee
of the Trust to
5
<PAGE>
engage in any other business or to devote his or her time and attention to the
management of other aspects of any business, whether of a similar or a
dissimilar nature, nor limit or restrict the Sub-Adviser's right to engage in
any other business or to render services of any kind to any other corporation,
firm, individual or association.
7. The Sub-Adviser acknowledges and agrees that its name and certain
information about the Sub-Adviser will be used in the Fund's Prospectus, proxy
statement, reports to shareholders, sales literature, marketing and other
literature, although not in the name of the Trust or the Fund. During the term
of this Agreement, the Manager agrees to furnish to Sub-Adviser at its principal
offices all Prospectuses, proxy statements, reports to shareholders, sales
literature or other material prepared for distribution to shareholders of the
Trust or the public, which refer to the Sub-Adviser in any way, prior to use
thereof, and not to use material if the Sub-Adviser reasonably objects in
writing five business days (or such other time as may be mutually agreed) after
receipt thereof. Such materials may be furnished to the Sub-Adviser hereunder
by first-class or overnight mail, facsimile transmission equipment or hand
delivery.
8. During the term of this Agreement the Sub-Adviser shall immediately
notify the Manager and Trust of any change in the membership of the Sub-
Adviser's partnership after such change.
9. This Agreement may be amended by mutual written consent, but only if
such amendment is in conformity with the requirements of the 1940 Act or other
applicable laws or the terms of the Charter and By-Laws of the Trust.
10. This Agreement shall be governed by the laws of the State of
California without regard to principles of conflicts of law. To the extent that
the applicable law of the State of California, or any of the provisions herein,
conflict with the applicable provisions of the 1940 Act or other federal laws
and regulations which may be applicable, the latter shall control.
11. If the Trust and Manager determine to add additional fixed income
series to the Trust and determine that such series are to be managed by an
unaffiliated third party sub-adviser, the parties agree that the Sub-Adviser
shall be given the first opportunity to negotiate in good faith with Manager and
the Trust to act as the sub-adviser for such series.
12. This Agreement is expressly conditioned upon commencement of
operations of the Trust (and Fund), and
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appointment of the Sub-Adviser to act as sub-adviser to the Manager of the Fund,
no later than June 30, 1996.
13. All notices contemplated by this Agreement shall be in writing and
delivered to the following addresses:
Nicholas-Applegate Series Trust
600 West Broadway
San Diego, CA 92101
Attn: Blake Moore
Nicholas-Applegate Capital Management
600 West Broadway
San Diego, CA 92101
Attn: Blake Moore
Rogge Global Partners
1720 Post Road East
Westport, CT 06880
Attn:____________________
IN WITNESS WHEREOF, the Parties hereto have caused this instrument to be
executed by their officers designated below as of the day and year first above
written.
ROGGE GLOBAL PARTNERS, plc
By: ___________________________
Name: ________________________
Title: _______________________
NICHOLAS-APPLEGATE CAPITAL MANAGEMENT
By:
--------------------------
E. Blake Moore, Jr.
General Counsel
NICHOLAS-APPLEGATE SERIES TRUST
By:
--------------------------
Name: E. Blake Moore, Jr.
Title: Secretary
<PAGE>
EXHIBIT 6
NICHOLAS-APPLEGATE MUTUAL FUNDS
DISTRIBUTION AGREEMENT
This DISTRIBUTION AGREEMENT (this "Agreement") is made as of this __
day of ____________, 1996 by and between Nicholas-Applegate Series Trust, a
Delaware business trust (the "Trust"), and Nicholas-Applegate Securities, a
California limited partnership (the "Distributor").
WHEREAS, the Trust is an open-end management investment company
registered under the Investment Company Act of 1940, as amended (the "1940
Act");
WHEREAS, the Trust currently consists of six series (each a "Series"
and collectively the "Series");
WHEREAS, Nicholas-Applegate Capital Management, an affiliate of the
Distributor, has agreed to act as investment adviser to the Trust;
WHEREAS, the Distributor is a broker-dealer registered under the
Securities Exchange Act of 1934, as amended, and a member of the National
Association of Securities Dealers, Inc. (the "NASD");
WHEREAS, the Trust desires to retain the Distributor as its agent to
provide services in connection with the distribution of shares of beneficial
interest ("shares") of each of the Series, and the Distributor is willing to
provide such services upon the terms set forth herein;
NOW, THEREFORE, for good and valuable consideration, receipt of which
is hereby acknowledged, the parties hereto agree as follows:
Section 1. APPOINTMENT OF DISTRIBUTOR.
The Trust hereby appoints the Distributor as its agent to act as the
principal underwriter and distributor of shares of the Series, and the
Distributor hereby accepts such appointment and agrees to act hereunder. The
Trust hereby agrees during the term of this Agreement to sell shares of the
Series exclusively to or through the Distributor on the terms and conditions set
forth below.
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In the event that the Trust establishes one or more series other than
the Series with respect to which it desires to appoint the Distributor as the
principal underwriter and distributor hereunder, it will notify the Distributor
in writing. If the Distributor is willing to accept such appointment under this
Agreement it will so notify the Trust in writing, whereupon such series will be
subject to the provisions of this Agreement to the same extent as the Series
except to the extent that such provisions (including those relating to the
compensation payable by the Trust to the Distributor) are modified with respect
to such series in writing by the Trust and the Distributor at the time.
Section 2. SALE OF SHARES.
2.1 The Distributor shall have the right to sell as agent for the
Trust the shares of a Series needed, but not more than the shares needed, to
fill unconditional orders for shares placed with the Distributor by registered
separate accounts of insurance companies.
2.2 The shares of the Series are to be sold by the Distributor, as
described in Section 5 hereof, to investors at the offering price as set forth
in the applicable prospectus and statement of additional information for the
Series then in effect (the "Prospectus").
2.3 The Trust shall have the right to suspend the sale of its shares
at times when redemption is suspended pursuant to the conditions in Section 3.3
hereof or at such other times as may be determined by the Trust's Board of
Trustees (the "Board").
2.4 The Trust, or any agent of the Trust designated in writing by the
Board, shall be promptly advised of all purchase orders for shares of the Series
received by the Distributor. Any order may be rejected by the Trust or the
Distributor; provided, however, that the Trust and the Distributor will not
arbitrarily or without reasonable cause refuse to accept or confirm orders for
the purchase of shares of a Series. The Trust (or its agent) will confirm
orders upon their receipt, will make appropriate book entries and, upon receipt
by the Trust (or its agent) of payment therefor, will deliver deposit receipts
for the shares pursuant to the instructions of the Distributor. Payment shall
be made to the Trust (or its agent) in New York Clearing House funds or federal
funds.
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The Distributor agrees to cause such payment and such instructions to be
delivered promptly to the Trust (or its agent).
Section 3. REDEMPTION OF SHARES BY THE TRUST.
3.1 Any of the outstanding shares of a Series may be tendered for
redemption at any time, and the Trust agrees to repurchase or redeem the shares
so tendered in accordance with the Trust's Declaration of Trust and Bylaws and
the applicable provisions of the respective Series' Prospectus. The price to be
paid to redeem or repurchase the shares shall be equal to the net asset value
per share determined as set forth in the applicable Prospectus (the "redemption
price"). All payments by the Trust hereunder shall be made in the manner set
forth in Section 3.2 below.
3.2 The Trust (or its agent) shall pay the total amount of the
redemption price pursuant to the instructions of the Distributor on or before
the seventh calendar day subsequent to the Trust (or its agent) having received
the notice of redemption in proper form. The proceeds of any redemption of
shares shall be paid by the Trust (or its agent) to or for the account of the
redeeming shareholder, in each case in accordance with the applicable provisions
of the respective Series' Prospectus.
3.3 Redemption of shares or payment therefor may be suspended at
times when the New York Stock Exchange is closed for other than customary
weekends and holidays, when trading on the Exchange is restricted, when an
emergency exists as a result of which disposal by the Trust of securities owned
by it is not reasonably practicable or when it is not reasonably practicable for
the Trust fairly to determine the value of its net assets, or during any other
period when the Securities and Exchange Commission, by order, so permits.
Section 4. DUTIES OF THE TRUST.
4.1 Subject to the possible suspension of the sale of shares of a
Series, and the right to reject orders, as provided herein, the Trust agrees to
sell shares of the Series so long as shares are available for sale.
4.2 The Trust (or its agent) shall furnish the Distributor copies of
all information, financial statements and other documents which the Distributor
may reasonably request for use in connection with the distribution of
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<PAGE>
shares, which information shall include one certified copy, upon request by the
Distributor, of all financial statements prepared for the Trust by its
independent public accountants. The Trust (or its agent) shall make available
to the Distributor such number of copies of the Prospectuses for each Series and
annual and interim reports as the Distributor shall reasonably request.
4.3 The Trust shall use its best efforts to take from time to time,
but subject to the necessary approval of the Board and the shareholders, all
necessary action to register authorized shares under the Securities Act of 1933,
as amended (the "1933 Act"), so that there will be available for sale such
number of shares of the Series as the Distributor reasonably may expect to sell.
The Trust shall file from time to time such amendments, reports and other
documents as may be necessary in order that there will be no untrue statement of
a material fact in the Trust's Registration Statement on Form N-1A covering the
shares of the Series (the "Registration Statement"), or necessary in order that
there will be no omission to state a material fact in the Registration Statement
which omission would make the statements therein misleading. The Distributor
shall furnish such information and other material relating to its affairs and
activities as may be required by the Trust in connection with such Registration
Statement.
4.4 The Trust shall use its best efforts to qualify and maintain the
qualification of an appropriate number of shares of the Series for sale under
the securities laws of such states as the Distributor and the Trust may approve;
provided that the Trust shall not be required to amend its Declaration of Trust
or Bylaws to comply with the laws of any state, to maintain an office in any
state, to change the terms of the offering of its shares in any state from the
terms set forth in its Registration Statement, to qualify as a foreign
corporation in any state or to consent to service of process in any state other
than with respect to claims arising out of the offering of its shares. Any such
qualification may be withheld, terminated or withdrawn by the Trust at any time
in its discretion. As provided in Section 7 hereof, the expense of
qualification and maintenance of qualification shall be borne by the Trust. The
Distributor shall furnish such information and other material relating to its
affairs and activities as may be required by the Trust in connection with such
qualifications.
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<PAGE>
Section 5. DUTIES OF THE DISTRIBUTOR.
5.1 The Distributor shall devote reasonable time and effort to effect
sales of shares of the Series, but shall not be obligated to sell any specific
number of shares. Sales of shares of a Series shall be on the terms described
in its Prospectus. To the extent not otherwise provided herein, the Distributor
shall bear all of the costs and expenses it incurs in fulfilling its obligations
hereunder.
5.2 In selling shares of the Series, the Distributor shall use its
best efforts in all respects duly to conform with the requirements of all
federal and state laws relating to the sale of such securities. Neither the
Distributor nor any other person is authorized by the Trust to give any
information or to make any representations, other than those contained in the
Registration Statement or applicable Prospectus for the respective Series and
any sales literature approved by appropriate officers of the Trust.
5.3 The Distributor shall adopt and follow procedures for the
confirmation of sales to investors, the collection of amounts payable by
investors on such sales and the cancellation of unsettled transactions, as may
be necessary to comply with the requirements established by the NASD.
5.4 The Distributor shall be the exclusive distributor of shares of
the Series appointed by the Trust; however, the Distributor is an independent
contractor and may enter into like arrangements with other investment companies.
Section 6. PAYMENTS TO THE DISTRIBUTOR.
The Distributor shall receive no compensation from the Trust in
connection with sales and redemptions of shares of the Series.
Section 7. ALLOCATION OF EXPENSES.
The Trust shall bear all costs and expenses of the continuous offering
of shares of the Series, including fees and disbursements of its counsel and
auditors, in connection with the preparation and filing of any required
registration statements and/or prospectuses under the 1940 Act or the 1933 Act,
and preparing and mailing annual and periodic
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<PAGE>
reports and proxy materials to shareholders (including but not limited to the
expense of typesetting any such registration statements, prospectuses, annual or
periodic reports or proxy materials). The Trust shall also bear the costs and
expenses of qualifying the shares for sale, and, if necessary or advisable in
connection therewith, of qualifying the Trust as a broker or dealer, in such
states or other jurisdictions as shall be selected by the Trust and the
Distributor pursuant to Section 4.4 hereof, and the cost and expense payable to
each such state for continuing qualification therein until the Trust decides to
discontinue such qualification pursuant to Section 4.4 hereof.
Section 8. INDEMNIFICATION.
8.1 The Trust agrees to indemnify, defend and hold the Distributor,
its partners and officers, and any person who controls the Distributor within
the meaning of Section 15 of the 1933 Act, free and harmless from and against
any and all claims, demands, liabilities and expenses (including the cost of
investigating or defending such claims, demands or liabilities and any counsel
fees incurred in connection therewith) which the Distributor, its partners and
officers or any such controlling person may incur under the 1933 Act, or under
common law or otherwise, arising out of or based upon any untrue statement of a
material fact contained in the Registration Statement or Prospectuses for any of
the Series or arising out of or based upon any alleged omission to state a
material fact required to be stated in the Registration Statement or
Prospectuses or necessary to make the statements therein not misleading, except
insofar as such claims, demands, liabilities or expenses arise out of or are
based upon any such untrue statement or omission or alleged untrue statement or
omission made in reliance upon and in conformity with information furnished in
writing by the Distributor to the Trust for use in the Registration Statement or
Prospectuses; provided, however, that this indemnity agreement shall not inure
to the benefit of any such partner, officer or controlling person unless a court
of competent jurisdiction shall determine, in a final decision on the merits,
that the person to be indemnified was not liable by reason of willful
misfeasance, bad faith or gross negligence in the performance of its duties, or
by reason of its reckless disregard of its obligations under this Agreement
("disabling conduct"), or, in the absence of such a decision, a reasonable
determination, based upon a review of the facts, that the indemnified person was
not liable by reason of disabling conduct by (a) a vote of a
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<PAGE>
majority of a quorum of Trustees of the Trust who are neither "interested
persons" of the Trust as defined in Section 2(a)(19) of the 1940 Act nor parties
to the proceeding, or (b) an independent legal counsel in a written opinion.
The Trust's agreement to indemnify the Distributor, its partners and officers
and any such controlling person as aforesaid is expressly conditioned upon the
Trust's being promptly notified of any action brought against the Distributor,
its partners, officers or any such controlling person. The Trust agrees
promptly to notify the Distributor of the commencement of any litigation or
proceedings against it or any of its officers or Trustees in connection with the
issue and sale of any shares.
8.2 The Distributor agrees to indemnify, defend and hold the Trust,
its officers and Trustees and any person who controls the Trust, if any, within
the meaning of Section 15 of the 1933 Act, free and harmless from and against
any and all claims, demands, liabilities and expenses (including the cost of
investigating or defending against such claims, demands or liabilities and any
counsel fees incurred in connection therewith) which the Trust, its officers and
Trustees or any such controlling person may incur under the 1933 Act or under
common law or otherwise, but only to the extent that such liability or expense
incurred by the Trust, its Trustees or officers or such controlling person
resulting from such claims or demands shall arise out of or be based upon any
alleged untrue statement of a material fact contained in information furnished
in writing by the Distributor to the Trust for use in the Registration Statement
or Prospectuses for any of the Series or shall arise out of or be based upon any
alleged omission to state a material fact in connection with such information
required to be stated in the Registration Statement or Prospectuses or necessary
to make such information not misleading. The Distributor's agreement to
indemnify the Trust, its officers and Trustees and any such controlling person
as aforesaid, is expressly conditioned upon the Distributor's being promptly
notified of any action brought against the Trust, its officers and Trustees or
any such controlling person.
8.3 The Distributor acknowledges that it has received a copy of the
Declaration of Trust of the Trust dated July 20, 1995. The Distributor further
acknowledges and agrees that the obligations of the Trust under this Agreement
are not binding on any officers, trustees or shareholders of the Trust
individually, but are only binding upon the assets and properties of the Trust.
Moreover, the
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<PAGE>
Declaration of Trust of the Trust provides that the debts, liabilities,
obligations and expenses incurred, contracted for or otherwise existing with
respect to a Series shall be enforceable against the assets and property of such
Series only, and not against the assets and property of any other Series of the
Trust.
Section 9. DURATION AND TERMINATION OF THIS AGREEMENT.
9.1 This Agreement shall become effective with respect to a Series
as of the date first above written and shall remain in force for two years from
the date hereof and thereafter, but only so long as such continuance is
specifically approved at least annually by (a) the Board, or by the vote of a
majority of the outstanding voting securities of the shares of the Series, and
(b) by the vote of a majority of those Trustees of the Trust who are not parties
to this Agreement or interested persons of any such parties (the "Disinterested
Trustees"), cast in person at a meeting called for the purpose of voting upon
such approval.
9.2 This Agreement may be terminated with respect to a Series at any
time, without the payment of any penalty, by a majority of the Disinterested
Trustees or by vote of a majority of the outstanding voting securities of the
Series, or by the Distributor, on not less than sixty (60) days' written notice
to the other party. This Agreement shall automatically terminate in the event
of its assignment.
9.3 The terms "affiliated person," "assignment," "interested person"
and "vote of a majority of the outstanding voting securities," when used in this
Agreement, shall have the respective meanings specified in the 1940 Act.
Section 10. AMENDMENTS TO THIS AGREEMENTS.
This Agreement may be amended with respect to a Series by the parties
only if such amendment is specifically approved by (a) the Board, or by the vote
of a majority of the outstanding voting securities of the Series and (b) by the
vote of a majority of the Disinterested Trustees cast in person at a meeting
called for the purpose of voting on such amendment.
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Section 11. GOVERNING LAW.
The provisions of this Agreement shall be construed and interpreted in
accordance with the internal laws (and not the laws of conflicts of law) of the
State of California as at the time in effect and the applicable provisions of
the 1940 Act. To the extent that the applicable law of the State of California,
or any of the provisions herein, conflict with the applicable provisions of the
1940 Act, the latter shall control.
Section 12. MISCELLANEOUS.
12.1 Notices of any kind to be given to the Distributor by the Trust
shall be in writing and shall be duly given if mailed, delivered or communicated
by answer back facsimile transmission to the Distributor at 600 West Broadway,
30th Floor, San Diego, California 92101, Facsimile: (619) 234-7726, Attention:
President, or at such other address or to such individual as shall be so
specified by the Distributor. Notices of any kind to be given to the Trust
hereunder by the Distributor shall be in writing and will be duly given if
mailed, delivered or so communicated to the Trust at 600 West Broadway, 30th
Floor, San Diego, California 92101, Facsimile: (619) 234-7726, Attention:
President, or at such other address or to such individual as shall be so
specified by the Trust to the Distributor.
12.2 This Agreement constitutes the entire agreement and
understanding between the parties hereto, and supersedes all prior agreements
and understandings relating to the subject matter hereof.
12.3 The captions in this Agreement are included for convenience of
reference only and in no way define or delimit any of the provisions hereof or
otherwise affect their construction or effect.
12.4 If any provision of this Agreement is held or made invalid by a
court decision, statute, rule or
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otherwise, the remainder of this Agreement shall not be affected thereby.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year above written.
NICHOLAS-APPLEGATE MUTUAL FUNDS
By:
-------------------------------------
E. Blake Moore, Jr.
Its: Secretary
NICHOLAS-APPLEGATE SECURITIES
By: Nicholas-Applegate Capital
Management Holdings, L.P.
Its General Partner
By: Nicholas-Applegate Capital
Management Holdings, Inc.
Its General Partner
By:
---------------------------------
E. Blake Moore, Jr.
Its: Secretary
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EXHIBIT 8
CUSTODIAN SERVICES AGREEMENT
THIS AGREEMENT is made as of ____________________, 1996 by and between PNC
BANK, NATIONAL ASSOCIATION, a national banking association ("PNC Bank"), and
NICHOLAS-APPLEGATE SERIES TRUST, a Delaware business trust (the "Fund").
W I T N E S S E T H:
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 Fund wishes to retain PNC Bank to provide custodian services,
and PNC Bank wishes to furnish custodian services, either directly or through an
affiliate or affiliates, as more fully described herein.
NOW, THEREFORE, In consideration of the premises and mutual covenants
herein contained, and intending to be legally bound hereby, the parties hereto
agree as follows:
1. DEFINITIONS. AS USED IN THIS AGREEMENT:
(a) "1933 ACT" means the Securities Act of 1933, as amended.
<PAGE>
(b) "1934 ACT" means the Securities Exchange Act of 1934, as amended.
(c) "AUTHORIZED PERSON" means any officer of the Fund and any other
person duly authorized by the Fund's Board of Trustees to give Oral Instructions
and Written Instructions on behalf of the Fund and listed on the Authorized
Persons Appendix attached hereto and made a part hereof or any amendment thereto
as may be received by PNC Bank. An Authorized Person's scope of authority may
be limited by the Fund by setting forth such limitation in the Authorized
Persons Appendix.
(d) "BOOK-ENTRY SYSTEM" means Federal Reserve Treasury book-entry
system for United States and federal agency securities, its successor or
successors, and its nominee or nominees and any book-entry system maintained by
an exchange registered with the SEC under the 1934 Act.
(e) "CEA" means the Commodities Exchange Act, as amended.
(f) "ORAL INSTRUCTIONS" mean oral instructions received by PNC Bank
from an Authorized Person or from a
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person reasonably believed by PNC Bank to be an Authorized Person.
(g) "SERIES" means the following series of Shares of the Fund:
Nicholas-Applegate Core Growth Series, Nicholas-Applegate Income & Growth
Series, Balanced Growth Series and International Growth Series, and any other
series of the Fund which may be established in the future and to which PNC Bank
provides custodian services.
(h) "PNC BANK" means PNC Bank, National Association or a subsidiary
or affiliate of PNC Bank, National Association.
(i) "SEC" means the Securities and Exchange Commission.
(j) "SECURITIES LAWS" mean the 1933 Act, the 1934 Act, the 1940 Act
and the CEA.
(k) "SHARES" mean the shares of beneficial interest of any series or
class of the Fund.
(l) "PROPERTY" means:
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(i) any and all securities and other investment items which the
Fund may from time to time deposit, or cause to be
deposited, with PNC Bank or which PNC Bank may from time to
time hold for the Fund;
(ii) all income in respect of any of such securities or other
investment items;
(iii) all proceeds of the sale of any of such securities or
investment items; and
(iv) all proceeds of the sale of securities issued by the Fund,
which are received by PNC Bank from time to time, from or on
behalf of the Fund.
(m) "WRITTEN INSTRUCTIONS" mean written instructions signed by two
Authorized Persons and received by PNC Bank. The instructions may be delivered
by hand, mail, tested telegram, cable, telex or facsimile sending device.
2. APPOINTMENT. The Fund hereby appoints PNC Bank to provide custodian
services to the Fund, on behalf of each of the Series, and PNC Bank accepts such
appointment and agrees to furnish such services. In the event the Fund
establishes one or more series other than the Series named herein, it shall
notify PNC Bank in writing. If PNC Bank is willing to accept such appointment
under this Agreement, it will so notify the Fund in writing, whereupon such
series will be subject to the same provisions of this Agreement as are the
4
<PAGE>
Series named herein, except to the extent that such provisions are modified with
respect to such series in writing between the Fund and PNC Bank.
3. DELIVERY OF DOCUMENTS. The Fund has provided or, where applicable,
will provide PNC Bank with the following:
(a) certified or authenticated copies of the resolutions of the
Fund's Board of Trustees, approving the appointment of PNC Bank
or its affiliates to provide services;
(b) a copy of the Fund's most recent effective registration
statement;
(c) a copy of each Series' advisory agreements;
(d) a copy of the distribution agreement with respect to each class
of Shares;
(e) a copy of each Series' administration agreement if PNC Bank is
not providing the Series with such services;
(f) copies of any shareholder servicing agreements made in respect of
the Fund or a Series; and
(g) certified or authenticated copies of any and all amendments or
supplements to the foregoing.
4. COMPLIANCE WITH LAWS.
PNC Bank undertakes to comply with all applicable requirements of the
Securities Laws and any laws, rules and regulations of governmental authorities
having jurisdiction with respect to the duties to be performed by PNC Bank
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hereunder. Except as specifically set forth herein, PNC Bank assumes no
responsibility for such compliance by the Fund or any Series.
5. INSTRUCTIONS.
(a) Unless otherwise provided in this Agreement, PNC Bank shall act
only upon Oral Instructions and Written Instructions.
(b) PNC Bank shall be entitled to rely upon any Oral Instructions and
Written Instructions it receives from an Authorized Person (or from a person
reasonably believed by PNC Bank to be an Authorized Person) pursuant to this
Agreement. PNC Bank may assume that any Oral Instructions or Written
Instructions received hereunder are not in any way inconsistent with the
provisions of organizational documents of the Fund or of any vote, resolution or
proceeding of the Fund's Board of Trustees or of the Fund's shareholders, unless
and until PFPC receives Written Instructions to the contrary.
(c) The Fund agrees to forward to PNC Bank Written Instructions
confirming Oral Instructions (except where such Oral Instructions are given by
PNC Bank or its affiliates) so that PNC Bank receives the Written
6
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Instructions by the close of business on the same day that such Oral
Instructions are received. The fact that such confirming Written Instructions
are not received by PNC Bank shall in no way invalidate the transactions or
enforceability of the transactions authorized by the Oral Instructions. Where
Oral Instructions or Written Instructions reasonably appear to have been
received from an Authorized Person, PNC Bank shall incur no liability to the
Fund in acting upon such Oral Instructions or Written Instructions provided that
PNC Bank's actions comply with the other provisions of this Agreement.
6. RIGHT TO RECEIVE ADVICE.
(a) ADVICE OF THE FUND. If PNC Bank is in doubt as to any action it
should or should not take, PNC Bank may request directions or advice, including
Oral Instructions or Written Instructions, from the Fund.
(b) ADVICE OF COUNSEL. If PNC Bank shall be in doubt as to any
question of law pertaining to any action it should or should not take, PNC Bank
may request advice at its own cost from such counsel of its own choosing (who
may be counsel for the Fund, the Fund's investment adviser or PNC Bank, at the
option of PNC Bank).
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(c) CONFLICTING ADVICE. In the event of a conflict between
directions, advice or Oral Instructions or Written Instructions PNC Bank
receives from the Fund, and the advice it receives from counsel, PNC Bank shall
be entitled to rely upon and follow the advice of counsel. In the event PNC
Bank so relies on the advice of counsel, PNC Bank remains liable for any action
or omission on the part of PNC Bank which constitutes willful misfeasance, bad
faith, gross negligence or reckless disregard by PNC Bank of any duties,
obligations or responsibilities set forth in this Agreement.
(d) PROTECTION OF PNC BANK. PNC Bank shall be protected in any
action it takes or does not take in reliance upon directions, advice or Oral
Instructions or Written Instructions it receives from the Fund or from counsel
and which PNC Bank believes, in good faith, to be consistent with those
directions, advice or Oral Instructions or Written Instructions. Nothing in
this section shall be construed so as to impose an obligation upon PNC Bank (i)
to seek such directions, advice or Oral Instructions or Written Instructions, or
(ii) to act in accordance with such directions, advice or Oral Instructions or
Written Instructions unless, under the terms of other
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provisions of this Agreement, the same is a condition of PNC Bank's properly
taking or not taking such action. Nothing in this subsection shall excuse PNC
Bank when an action or omission on the part of PNC Bank constitutes willful
misfeasance, bad faith, gross negligence or reckless disregard by PNC Bank of
any duties, obligations or responsibilities set forth in this Agreement.
7. RECORDS; VISITS. The books and records pertaining to the Fund and any
Series, which are in the possession or under the control of PNC Bank, shall be
the property of the Fund. Such books and records shall be prepared and
maintained as required by the 1940 Act and other applicable securities laws,
rules and regulations. The Fund and Authorized Persons shall have access to
such books and records at all times during PNC Bank's normal business hours.
Upon the reasonable request of the Fund, copies of any such books and records
shall be provided by PNC Bank to the Fund or to an authorized representative of
the Fund, at the Fund's expense.
8. CONFIDENTIALITY. PNC Bank agrees to keep confidential all records of
the Fund and information relating to the Fund and its shareholders, unless the
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<PAGE>
release of such records or information is otherwise consented to, in writing, by
the Fund. The Fund agrees that such consent shall not be unreasonably withheld
and may not be withheld where PNC Bank may be exposed to civil or criminal
contempt proceedings or when required to divulge such information or records to
duly constituted authorities.
9. COOPERATION WITH ACCOUNTANTS. PNC Bank shall cooperate with the Fund's
independent public accountants and shall take all reasonable action in the
performance of its obligations under this Agreement to ensure that the necessary
information is made available to such accountants for the expression of their
opinion, as required by the Fund.
10. DISASTER RECOVERY. PNC Bank shall enter into and shall maintain in
effect with appropriate parties one or more agreements making reasonable
provisions for emergency use of electronic data processing equipment to the
extent appropriate equipment is available. In the event of equipment failures,
PNC Bank shall, at no additional expense to the Fund, take reasonable steps to
minimize service interruptions. PNC Bank shall have no liability with respect
to the loss of data or service interruptions caused
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by equipment failure provided such loss or interruption is not covered by PNC
Bank's own willful misfeasance, bad faith, gross negligence or reckless
disregard of its duties or obligations under this Agreement.
11. COMPENSATION. As compensation for custody services rendered by PNC
Bank during the term of this Agreement, the Fund, on behalf of each of the
Series, will pay to PNC Bank a fee or fees as may be agreed to in writing from
time to time by the Fund and PNC Bank.
12. INDEMNIFICATION. The Fund, on behalf of each Series, agrees to
indemnify and hold harmless PNC Bank and its affiliates from all taxes, charges,
expenses, assessments, claims and liabilities (including, without limitation,
liabilities arising under the Securities Laws and any state and foreign
securities and blue sky laws, and amendments thereto, and expenses, including
(without limitation) attorneys' fees and disbursements, arising directly or
indirectly from any action or omission to act which PNC Bank takes (i) at the
request or on the direction of or in reliance on the advice of the Fund or (ii)
upon Oral Instructions or Written Instructions. Neither PNC Bank, nor any of
its affiliates, shall be indemnified
11
<PAGE>
against any liability (or any expenses incident to such liability) arising out
of PNC Bank's or its affiliates' own willful misfeasance, bad faith, gross
negligence or reckless disregard of its duties under this Agreement.
13. RESPONSIBILITY OF PNC BANK.
(a) PNC Bank shall be under no duty to take any action on behalf of
the Fund or any Series except as specifically set forth herein or as may be
specifically agreed to by PNC Bank in writing. PNC Bank shall be obligated to
exercise care and diligence in the performance of its duties hereunder, to act
in good faith and to use its best efforts, within reasonable limits, in
performing services provided for under this Agreement. PNC Bank shall be liable
for any damages arising out of PNC Bank's failure to perform its duties under
this agreement to the extent such damages arise out of PNC Bank's willful
misfeasance, bad faith, gross negligence or reckless disregard of its duties
under this Agreement.
(b) Without limiting the generality of the foregoing or of any other
provision of this Agreement, (i) PNC Bank shall not be under any duty or
obligation to inquire into and shall not be liable for (A) the validity or
12
<PAGE>
invalidity or authority or lack thereof of any Oral Instruction or Written
Instruction, notice or other instrument which conforms to the applicable
requirements of this Agreement, and which PNC Bank reasonably believes to be
genuine; or (B) subject to section 10, delays or errors or loss of data
occurring by reason of circumstances beyond PNC Bank's control, including acts
of civil or military authority, national emergencies, fire, flood, catastrophe,
acts of God, insurrection, war, riots or failure of the mails, transportation,
communication or power supply.
(c) Notwithstanding anything in this Agreement to the contrary,
neither PNC Bank nor its affiliates shall be liable to the Fund or to any Series
for any consequential, special or indirect losses or damages which the Fund may
incur or suffer by or as a consequence of PNC Bank's or its affiliates'
performance of the services provided hereunder, whether or not the likelihood of
such losses or damages was known by PNC Bank or its affiliates.
14. DESCRIPTION OF SERVICES.
(a) DELIVERY OF THE PROPERTY. The Fund will deliver or arrange for
delivery to PNC Bank, all the Property owned by the Series, including cash
received as a
13
<PAGE>
result of the distribution of Shares, during the period that is set forth in
this Agreement. PNC Bank will not be responsible for such property until actual
receipt.
(b) RECEIPT AND DISBURSEMENT OF MONEY. PNC Bank, acting upon Written
Instructions, shall open and maintain separate accounts in the Fund's name using
all cash received from or for the account of the Fund, subject to the terms of
this Agreement. In addition, upon Written Instructions, PNC Bank shall open
separate custodial accounts for each separate Series of the Fund (collectively,
the "Accounts") and shall hold in the Accounts all cash received from or for the
Accounts of the Fund specifically designated to each separate Series.
PNC Bank shall make cash payments from or for the Accounts of a Series only
for:
(i) purchases of securities in the name of a Series or PNC Bank
or PNC Bank's nominee as provided in sub-section (j) and for
which PNC Bank has received a copy of the broker's or
dealer's confirmation or payee's invoice, as appropriate;
(ii) purchase or redemption of Shares of the Fund delivered to
PNC Bank;
(iii) payment of, subject to Written Instructions, interest,
taxes, administration, accounting, distribution, advisory,
management fees
14
<PAGE>
or similar expenses which are to be borne by a Series;
(iv) payment to, subject to receipt of Written Instructions, the
Fund's Transfer agent, as agent for the shareholders, an
amount equal to the amount of dividends and distributions
stated in the Written Instructions to be distributed in cash
by the transfer agent to shareholders, or, in lieu of paying
the Fund's transfer agent, PNC Bank may arrange for the
direct payment of cash dividends and distributions to
shareholders in accordance with procedures mutually agreed
upon from time to time by and among the Fund, PNC Bank and
the Fund's transfer agent.
(v) payments, upon receipt Written Instructions, in connection
with the conversion, exchange or surrender of securities
owned or subscribed to by the Fund and held by or delivered
to PNC Bank;
(vi) payments of the amounts of dividends received with respect
to securities sold short;
(vii) payments made to a sub-custodian pursuant to provisions in
sub-section (c) of this Section; and
(viii) payments, upon Written Instructions, made for other proper
Fund purposes.
PNC Bank is hereby authorized to endorse and collect all checks, drafts or
other orders for the payment of money received as custodian for the Accounts.
(c) RECEIPT OF SECURITIES; SUBCUSTODIANS.
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<PAGE>
(i) PNC Bank shall hold all securities received by it for the
Accounts in a separate account that physically segregates
such securities from those of any other persons, firms or
corporations, except for securities held in a Book-Entry
System. All such securities shall be held or disposed of
only upon Written Instructions of the Fund pursuant to the
terms of this Agreement. PNC Bank shall have no power or
authority to assign, hypothecate, pledge or otherwise
dispose of any such securities or investment, except upon
the express terms of this Agreement and upon Written
Instructions, accompanied by a certified resolution of the
Fund's Board of Trustees, authorizing the transaction. In
no case may any member of the Fund's Board of Trustees, or
any officer, employee or agent of the Fund withdraw any
securities.
At PNC Bank's own expense and for its own convenience, PNC
Bank may enter into sub-custodian agreements with other
United States banks or trust companies to perform duties
described in this sub-section (c). Such bank or trust
company shall have an aggregate capital, surplus and
undivided profits, according to its last published report,
of at least one million dollars ($1,000,000), if it is a
subsidiary or affiliate of PNC Bank, or at least twenty
million dollars ($20,000,000) if such bank or trust company
is not a subsidiary or affiliate of PNC Bank. In addition,
such bank or trust company must be qualified to act as
custodian and agree to comply with the relevant provisions
of the 1940 Act and other applicable rules and regulations.
Any such arrangement will not be entered into without prior
written notice to the Fund.
PNC Bank shall remain responsible for the performance of all
of its duties as
16
<PAGE>
described in this Agreement and shall hold the Fund and each
Series harmless from its own acts or omissions, under the
standards of care provided for herein, or the acts and
omissions of any sub-custodian chosen by PNC Bank under the
terms of this sub-section (c).
(d) TRANSACTIONS REQUIRING INSTRUCTIONS. Upon receipt of Oral
Instructions or Written Instructions and not otherwise, PNC Bank, directly or
through the use of the Book-Entry System, shall:
(i) deliver any securities held for a Series against the receipt
of payment for the sale of such securities;
(ii) execute and deliver to such persons as may be designated in
such Oral Instructions or Written Instructions, proxies,
consents, authorizations, and any other instruments whereby
the authority of a Series as owner of any securities may be
exercised;
(iii) deliver any securities to the issuer thereof, or its agent,
when such securities are called, redeemed, retired or
otherwise become payable; provided that, in any such case,
the cash or other consideration is to be delivered to PNC
Bank;
(iv) deliver any securities held for a Series against receipt of
other securities or cash issued or paid in connection with
the liquidation, reorganization, refinancing, tender offer,
merger, consolidation or recapitalization of any
corporation, or the exercise of any conversion privilege;
(v) deliver any securities held for a Series to any protective
committee,
17
<PAGE>
reorganization committee or other person in connection with
the reorganization, refinancing, merger, consolidation,
recapitalization or sale of assets of any corporation, and
receive and hold under the terms of this Agreement such
certificates of deposit, interim receipts or other
instruments or documents as may be issued to it to evidence
such delivery;
(vi) make such transfer or exchanges of the assets of the Series
and take such other steps as shall be stated in said Oral
Instructions or Written Instructions to be for the purpose
of effectuating a duly authorized plan of liquidation,
reorganization, merger, consolidation or recapitalization of
the Fund;
(vii) release securities belonging to a Series to any bank or
trust company for the purpose of a pledge or hypothecation
to secure any loan incurred by the Fund on behalf of that
Series; provided, however, that securities shall be released
only upon payment to PNC Bank of the monies borrowed, except
that in cases where additional collateral is required to
secure a borrowing already made subject to proper prior
authorization, further securities may be released for that
purpose; and repay such loan upon redelivery to it of the
securities pledged or hypothecated therefor and upon
surrender of the note or notes evidencing the loan;
(viii) release and deliver securities owned by a Series in
connection with any repurchase agreement entered into on
behalf of the Fund, but only on receipt of payment therefor;
and pay out moneys of the Fund in connection with such
repurchase agreements, but only upon the delivery of the
securities;
18
<PAGE>
(ix) release and deliver or exchange securities owned by the Fund
in connection with any conversion of such securities,
pursuant to their terms, into other securities;
(x) release and deliver securities owned by the fund for the
purpose of redeeming in kind shares of the Fund upon
delivery thereof to PNC Bank; and
(xi) release and deliver or exchange securities owned by the Fund
for other corporate purposes.
PNC Bank must also receive a certified resolution describing
the nature of the corporate purpose and the name and address
of the person(s) to whom delivery shall be made when such
action is pursuant to sub-paragraph d.
(e) USE OF BOOK-ENTRY SYSTEM. The Fund shall deliver to PNC Bank
certified resolutions of the Fund's Board of Trustees approving, authorizing and
instructing PNC Bank on a continuous basis, to deposit in the Book-Entry System
all securities belonging to each Series eligible for deposit therein and to
utilize the Book-Entry System to the extent possible in connection with
settlements of purchases and sales of securities by each Series, and deliveries
and returns of securities loaned, subject to repurchase agreements or used as
collateral in connection with borrowings. PNC Bank shall continue to perform
such duties until it receives Written Instructions or Oral Instructions
authorizing contrary actions.
19
<PAGE>
PNC Bank shall administer the Book-Entry System as follows:
(i) With respect to securities of each Series which are
maintained in the Book-Entry System, the records of PNC Bank
shall identify by Book-Entry or otherwise those securities
belonging to each Series. PNC Bank shall furnish to the
Fund a detailed statement of the Property held for each
Series under this Agreement at least monthly and from time
to time and upon written request.
(ii) Securities and any cash of each Series deposited in the
Book-Entry System will at all times be segregated from any
assets and cash controlled by PNC Bank in other than a
fiduciary or custodian capacity but may be commingled with
other assets held in such capacities. PNC Bank and its
sub-custodian, if any, will pay out money only upon receipt
of securities and will deliver securities only upon the
receipt of money.
(iii) All books and records maintained by PNC Bank which relate to
the Fund's participation in the Book-Entry System will at
all times during PNC Bank's regular business hours be open
to the inspection of Authorized Persons, and PNC Bank will
furnish to the Fund all information in respect of the
services rendered as it may require.
PNC Bank will also provide the Fund with such reports on its own system of
internal control as the Fund may reasonably request from time to time.
20
<PAGE>
(f) REGISTRATION OF SECURITIES. All Securities held for a Series
which are issued or issuable only in bearer form, except such securities held in
the Book-Entry System, shall be held by PNC Bank in bearer form; all other
securities held for a Series may be registered in the name of the Fund on behalf
of that Series, PNC Bank, the Book-Entry System, a sub-custodian, or any duly
appointed nominees of the Fund, PNC Bank, Book-Entry System or sub-custodian.
The Fund reserves the right to instruct PNC Bank as to the method of
registration and safekeeping of the securities of the Fund. The Fund agrees to
furnish to PNC Bank appropriate instruments to enable PNC Bank to hold or
deliver in proper form for transfer, or to register in the name of its nominee
or in the name of the Book-Entry System, any securities which it may hold for
the Accounts and which may from time to time be registered in the name of the
Fund on behalf of a Series.
(g) VOTING AND OTHER ACTION. Neither PNC Bank nor its nominee shall
vote any of the securities held pursuant to this Agreement by or for the
account of a Series, except in accordance with Written Instructions. PNC Bank,
directly or through the use of the Book-Entry System, shall execute in blank and
promptly deliver all notices,
21
<PAGE>
proxies and proxy soliciting materials to the registered holder of such
securities. If the registered holder is not the Fund on behalf of a Series,
then Written Instructions or Oral Instructions must designate the person who
owns such securities.
(h) TRANSACTIONS NOT REQUIRING INSTRUCTIONS. In the absence of
contrary Written Instructions, PNC Bank is authorized to take the following
actions:
(i) COLLECTION OF INCOME AND OTHER PAYMENTS.
(A) collect and receive for the account of each Series, all
income, dividends, distributions, coupons, option
premiums, other payments and similar items, included or
to be included in the Property, and, in addition,
promptly advise each Series of such receipt and credit
such income, as collected, to each Series' custodian
account;
(B) endorse and deposit for collection, in the name of the
Fund, checks, drafts, or other orders for the payment
of money;
(C) receive and hold for the account of each Series all
securities received as a distribution on each Series
securities as a result of a stock dividend, share
split-up or reorganization, recapitalization,
readjustment or other rearrangement or distribution of
rights or similar securities issued with respect to any
securities belonging
22
<PAGE>
to a Series and held by PNC Bank hereunder;
(D) present for payment and collect the amount payable upon
all securities which may mature or be called, redeemed,
or retired, or otherwise become payable on the date
such securities become payable; and
(E) take any action which may be necessary and proper in
connection with the collection and receipt of such
income and other payments and the endorsement for
collection of checks, drafts, and other negotiable
instruments.
(ii) MISCELLANEOUS TRANSACTIONS.
(A) deliver or cause to be delivered Property against
payment or other consideration or written receipt
therefor in the following cases:
(1) for examination by a broker or dealer selling for
the account of a Series in accordance with street
delivery custom;
(2) for the exchange of interim receipts or temporary
securities for definitive securities; and
(3) for transfer of securities into the name of the
Fund on behalf of a Series or PNC Bank or nominee
of either, or for exchange of securities for a
different number of bonds, certificates, or other
evidence, representing the same aggregate face
amount or number of units bearing the same
interest rate, maturity date and call provisions,
if any; provided that, in any
23
<PAGE>
such case, the new securities are to be delivered
to PNC Bank.
(B) Unless and until PNC Bank receives Oral Instructions or
Written Instructions to the contrary, PNC Bank shall:
(1) pay all income items held by it which call for
payment upon presentation and hold the cash
received by it upon such payment for the account
of each Series;
(2) collect interest and cash dividends received, with
notice to the Fund, to the account of each Series;
(3) hold for the account of each Series all stock
dividends, rights and similar securities issued
with respect to any securities held by PNC Bank;
and
(4) execute as agent on behalf of the Fund all
necessary ownership certificates required by the
Internal Revenue Code or the Income Tax
Regulations of the United States Treasury
Department or under the laws of any state now or
hereafter in effect, inserting the Fund's name, on
behalf of a Series, on such certificate as the
owner of the securities covered thereby, to the
extent it may lawfully do so.
(i) SEGREGATED ACCOUNTS.
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<PAGE>
(i) PNC Bank shall upon receipt of Written Instructions or Oral
Instructions establish and maintain a segregated accounts on
its records for and on behalf of each Series. Such accounts
may be used to transfer cash and securities, including
securities in the Book-Entry System:
(A) for the purposes of compliance by the Fund with the
procedures required by a securities or option exchange,
providing such procedures comply with the 1940 Act and
any releases of the SEC relating to the maintenance of
segregated accounts by registered investment companies;
and
(B) Upon receipt of Written Instructions, for other proper
corporate purposes.
(ii) PNC Bank shall arrange for the establishment of IRA
custodian accounts for such shareholders holding Shares
through IRA accounts, in accordance with the Fund's
prospectuses, the Internal Revenue Code of 1986, as amended
(including regulations promulgated thereunder), and with
such other procedures as are mutually agreed upon from time
to time by and among the Fund, PNC Bank and the Fund's
transfer agent.
(j) PURCHASES OF SECURITIES. PNC Bank shall settle purchased
securities upon receipt of Oral Instructions or Written Instructions from the
Fund or its investment advisers that specify:
(i) the name of the issuer and the title of the securities,
including CUSIP number if applicable;
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<PAGE>
(ii) the number of shares or the principal amount purchased and
accrued interest, if any;
(iii) the date of purchase and settlement;
(iv) the purchase price per unit;
(v) the total amount payable upon such purchase;
(vi) the Series involved; and
(vii) the name of the person from whom or the broker through whom
the purchase was made. PNC Bank shall upon receipt of
securities purchased by or for a Series pay out of the
moneys held for the account of the Series the total amount
payable to the person from whom or the broker through whom
the purchase was made, provided that the same conforms to
the total amount payable as set forth in such Oral
Instructions or Written Instructions.
(k) SALES OF SECURITIES. PNC Bank shall settle sold securities upon
receipt of Oral Instructions or Written Instructions from the Fund
that specify:
(i) the name of the issuer and the title of the security,
including CUSIP number if applicable;
(ii) the number of shares or principal amount sold, and accrued
interest, if any;
(iii) the date of trade and settlement;
(iv) the sale price per unit;
(v) the total amount payable to the Fund upon such sale;
(vi) the name of the broker through whom or the person to whom
the sale was made; and
26
<PAGE>
(vii) the location to which the security must be delivered and
delivery deadline, if any; and
(viii) the Series involved.
PNC Bank shall deliver the securities upon receipt of the total amount
payable to the Series upon such sale, provided that the total amount payable is
the same as was set forth in the Oral Instructions or Written Instructions.
Subject to the foregoing, PNC Bank may accept payment in such form as shall be
satisfactory to it, and may deliver securities and arrange for payment in
accordance with the customs prevailing among dealers in securities.
(l) REPORTS; PROXY MATERIALS.
(i) PNC Bank shall furnish to the Fund the following reports:
(A) such periodic and special reports as the Fund may
reasonably request;
(B) a monthly statement summarizing all transactions and
entries for the account of each Series, listing each
Series securities belonging to each Series with the
adjusted average cost of each issue and the market
value at the end of such month and stating the cash
account of each Series including disbursements;
(C) the reports required to be furnished to the Fund
pursuant to Rule 17f-4; and
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<PAGE>
(D) such other information as may be agreed upon from time
to time between the Fund and PNC Bank.
(ii) PNC Bank shall transmit promptly to the Fund any proxy
statement, proxy material, notice of a call or conversion or
similar communication received by it as custodian of the
Property. PNC Bank shall be under no other obligation to
inform the Fund as to such actions or events.
(m) COLLECTIONS. All collections of monies or other property in
respect, or which are to become part, of the Property (but not the safekeeping
thereof upon receipt by PNC Bank) shall be at the sole risk of the Fund. If
payment is not received by PNC Bank within a reasonable time after proper
demands have been made, PNC Bank shall notify the Fund in writing, including
copies of all demand letters, any written responses, memoranda of all oral
responses and shall await instructions from the Fund. PNC Bank shall not be
obliged to take legal action for collection unless and until reasonably
indemnified to its satisfaction. PNC Bank shall also notify the Fund as soon
as reasonably practicable whenever income due on securities is not collected in
due course and shall provide the Fund with periodic status reports of such
income collected after a reasonable time.
15. DURATION AND TERMINATION. This Agreement shall continue until
terminated by the Fund or by PNC Bank on
28
<PAGE>
sixty (60) days' prior written notice to the other party. In the event this
Agreement is terminated (pending appointment of a successor to PNC Bank or vote
of the shareholders of the Fund to dissolve or to function without a custodian
of its cash, securities or other property), PNC Bank shall not deliver cash,
securities or other property of the Series' to the Fund. It may deliver them to
a bank or trust company of PNC Bank's choice, having an aggregate capital,
surplus and undivided profits, as shown by its last published report, of not
less than twenty million dollars ($20,000,000), as a custodian for the Fund to
be held under terms similar to those of this Agreement. PNC Bank shall not be
required to make any such delivery or payment until full payment shall have been
made to PNC Bank of all of its fees, compensation, costs and expenses. PNC Bank
shall have a security interest in and shall have a right of setoff against the
Property as security for the payment of such fees, compensation, costs and
expenses.
16. NOTICES. All notices and other communications, including Written
Instructions, shall be in writing or by confirming telegram, cable, telex or
facsimile sending device. Notice shall be addressed (a) if to PNC Bank at
Airport Business Center, International Court 2, 200 Stevens
29
<PAGE>
Drive, Lester, Pennsylvania 19113, marked for the attention of the Custodian
Services Department (or its successor) (b) if to the Fund, at ________________
, Attn:____________________ or (c) if to neither of the foregoing, at such other
address as shall have been given by like notice to the sender of any such notice
or other communication by the other party. If notice is sent by confirming
telegram, cable, telex or facsimile sending device, it shall be deemed to have
been given immediately. If notice is sent by first-class mail, it shall be
deemed to have been given five days after it has been mailed. If notice is sent
by messenger, it shall be deemed to have been given on the day it is delivered.
17. AMENDMENTS. This Agreement, or any term hereof, may be changed or
waived only by a written amendment, signed by the party against whom enforcement
of such change or waiver is sought.
18. DELEGATION; ASSIGNMENT. PNC Bank may assign its rights and delegate
its duties hereunder to any wholly-owned direct or indirect subsidiary of PNC
Bank, National Association or PNC Bank Corp., provided that (i) PNC Bank gives
the Fund thirty (30) days' prior written notice; (ii)
30
<PAGE>
the delegate (or assignee) agrees with PNC Bank and the Fund to comply with all
relevant provisions of the 1940 Act; and (iii) PNC Bank and such delegate (or
assignee) promptly provide such information as the Fund may request, and respond
to such questions as the Fund may ask, relative to the delegation (or
assignment), including (without limitation) the capabilities of the delegate (or
assignee).
19. COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
20. FURTHER ACTIONS. Each party agrees to perform such further acts and
execute such further documents as are necessary to effectuate the purposes
hereof.
21. MISCELLANEOUS.
(a) ENTIRE AGREEMENT. This Agreement embodies the entire agreement
and understanding between the parties and supersedes all prior agreements and
understandings relating to the subject matter hereof, provided that the parties
may embody in one or more separate documents their
31
<PAGE>
agreement, if any, with respect to delegated duties and Oral Instructions.
(b) CAPTIONS. The captions in this Agreement are included for
convenience of reference only and in no way define or delimit any of the
provisions hereof or otherwise affect their construction or effect.
(c) GOVERNING LAW. This Agreement shall be deemed to be a contract
made in Pennsylvania and governed by Pennsylvania law, without regard to
principles of conflicts of law.
(d) PARTIAL INVALIDITY. If any provision of this Agreement shall be
held or made invalid by a court decision, statute, rule or otherwise, the
remainder of this Agreement shall not be affected thereby.
(e) SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon and
shall inure to the benefit of the parties hereto and their respective successors
and permitted assigns.
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<PAGE>
(f) FACSIMILE SIGNATURES. The facsimile signature of any party to
this Agreement shall constitute the valid and binding execution hereof by such
party.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the day and year first above written.
PNC BANK, NATIONAL ASSOCIATION
By:
--------------------------------
Title:
-----------------------------
NICHOLAS-APPLEGATE SERIES TRUST
By:
--------------------------------
Title:
-----------------------------
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<PAGE>
AUTHORIZED PERSONS APPENDIX
NAME (TYPE) SIGNATURE
- ------------------------------ ------------------------------
- ------------------------------ ------------------------------
- ------------------------------ ------------------------------
- ------------------------------ ------------------------------
- ------------------------------ ------------------------------
- ------------------------------ ------------------------------
34
<PAGE>
EXHIBIT 9.1
NICHOLAS-APPLEGATE SERIES TRUST
ADMINISTRATION AGREEMENT
AGREEMENT made this __________ day of ______________
_________________________, 1994, by and between NICHOLAS-APPLEGATE SERIES TRUST
(the "Trust"), a trust organized under the laws of the State of Delaware, and
INVESTMENT COMPANY ADMINISTRATION CORPORATION (the "Administrator"), a Delaware
corporation.
WITNESSETH:
In consideration of the mutual promises and agreements herein contained and
other good and valuable consideration, the receipt of which is hereby
acknowledged, it is hereby agreed by and between the parties hereto as follows:
1. In General.
The Trust hereby appoints Investment Company Administration Corporation as
Administrator, subject to the overall supervision of the Board of Trustees of
the Trust for the period and on the terms set forth in this Agreement. The
Administrator hereby accepts such appointment and agrees during such period to
render the services herein described and to assume the obligations set forth
herein, for the compensation herein provided.
2. Duties and Obligations of the Administrator.
(a) Subject to the direction and control of the Board of Trustees of
the Trust, the Administrator shall be responsible for providing such
services as the Trustees may reasonably request, including but not limited
to (i) maintaining the Trust's books and records (other than financial or
accounting books and records maintained by any custodian, transfer agent or
accounting services agent); (ii) overseeing the Trust's insurance
relationships; (iii) preparing for the Trust (or assisting counsel and/or
auditors in the preparation of) all required tax returns, proxy statements
and reports to the Trust's shareholders and Trustees and reports to and
other filings with the Securities and Exchange Commission and any other
governmental agency (the Trust agreeing to supply or cause to be supplied
to the Administrator all necessary financial and other information in
connection with the foregoing); (iv) preparing such applications and
<PAGE>
reports as may be necessary to register or maintain the Trust's
registration and/or the registration of the shares of the Trust under the
securities or "blue sky" laws of the various states selected by the Trust
(the Trust agreeing to pay all filing fees or other similar fees in
connection therewith); (v) responding to all inquiries or other
communications of shareholders, if any, which are directed to the
Administrator, or if any such inquiry or communication is more properly to
be responded to by the Trust's custodian, transfer agent or accounting
services agent, overseeing their response thereto; (vi) overseeing all
relationships between the Trust and any custodian(s), transfer agent(s) and
accounting services agent(s), including the negotiation of agreements and
the supervision of the performance of such agreements; and (vii)
authorizing and directing any of the Administrator's directors, officers
and employees who may be elected as Trustees or officers of the Trust to
serve in the capacities in which they are elected. All services to be
furnished by the Administrator under this Agreement may be furnished
through the medium of any such directors, officers or employees of the
Administrator.
(b) In the absence of willful misfeasance, bad faith, negligence or
reckless disregard of obligations or duties ("disabling conduct") hereunder
on the part of the Administrator (and its officers, directors, agents,
employees, controlling persons, shareholders and any other person or entity
affiliated with the Administrator) the Administrator shall not be subject
to liability to the Trust or to any shareholder of the Trust for any act or
omission in the course of, or connected with, rendering services hereunder,
including, without limitation, any error of judgment or mistake of law or
for any loss suffered by any of them in connection with the matters to
which this Agreement relates, except to the extent specified in Section
36(b) of the Investment Company Act of 1940 (the "Act") concerning loss
resulting from a breach of fiduciary duty with respect to the receipt of
compensation for services. Except for such disabling conduct, the Trust
shall indemnify the Administrator (and its officers, directors, agents,
employees, controlling persons, shareholders and any other person or entity
affiliated with the Administrator) from any liability arising from the
Administrator's conduct under this Agreement to the extent permitted by the
Trust's Declaration of Trust and applicable law.
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<PAGE>
(c) It is agreed that the Administrator shall have no responsibility
or liability for the accuracy or completeness of the Trust's Registration
Statement under the Act except for information supplied by the
Administrator for inclusion therein.
3. Allocation of Expenses
The Administrator agrees that it will furnish the Trust, at the
Administrator's expense, with all office space and facilities, and equipment and
clerical personnel necessary for carrying out its duties under this Agreement.
The Administrator will also pay all compensation of all Trustees, officers and
employees of the Trust who are affiliated persons of the Administrator. All
costs and expenses not expressly assumed by the Administrator under this
Agreement shall be paid by the Trust, including, but not limited to (i) interest
and taxes; (ii) brokerage fees and commissions; (iii) insurance premiums; (iv)
compensation and expenses of the Trust's Trustees other than those affiliated
with the Advisor or the Administrator; (v) legal and auditing fees and expenses;
(vi) fees and expenses of the Trust's custodian, transfer agent and accounting
services agent; (vii) expenses incident to the issuance of the Trust's shares,
including issuance on the payment of, or reinvestment of, dividends; (viii) fees
and expenses incident to the registration under Federal or state securities laws
of the Trust or its shares; (ix) expenses of preparing, printing and mailing
reports and notices and proxy material to shareholders of the Trust; (x) all
other expenses incidental to holding meetings of the Trust's shareholders; (xi)
dues or assessments of or contributions to the Investment Company Institute or
any successor; (xii) such non-recurring expenses as may arise, including
litigation affecting the Trust and the legal obligations which the Trust may
have to indemnify its officers and Trustees with respect thereto; and (xiii)
organization costs of the Trust.
4. Compensation of the Administrator
As compensation for services rendered to the Trust by the Administrator
during the term of this agreement, the Trust will pay to the Administrator a
monthly fee at the annual rates set forth on Schedule A to this agreement.
5. Duration and Termination
(a) This Agreement shall become effective on the date set forth above
and shall remain in force for two
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<PAGE>
years thereafter unless terminated pursuant to the provisions of paragraph
(b) hereof. This Agreement shall continue in force from year to year after
the initial two-year term, but only so long as such continuance is
specifically approved annually by the Trust's Board of Trustees or by a
vote of a majority of the Trust's outstanding voting securities.
(b) This Agreement may be terminated by the Administrator at any time
without penalty upon giving the Trust not less than sixty (60) days'
written notice (which notice may be waived by the Trust) and may be
terminated by the Trust at any time without penalty upon giving the
Administrator not less than sixty (60) days' written notice (which notice
may be waived by the Administrator), provided that such termination by the
Trust shall be directed or approved by the vote of a majority of all of its
Trustees in office at the time or by the vote of the holders of a majority
(as defined in the Act) of the voting securities of the Trust.
6. Governing Law.
(a) This Agreement shall be governed and construed in accordance with
the laws of the State of California.
IN WITNESS WHEREOF, the parties hereto have caused the foregoing instrument
to be executed by duly authorized persons
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<PAGE>
and their seals to be hereunto affixed, all as of the day and year first above
written.
NICHOLAS-APPLEGATE SERIES TRUST
By
---------------------------------
ATTEST:
- -----------------------------------
INVESTMENT COMPANY ADMINISTRATION CORPORATION
By
---------------------------------
ATTEST:
- -----------------------------------
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<PAGE>
EXHIBIT 9.2
TRANSFER AGENCY AGREEMENT
THIS TRANSFER AGENCY AGREEMENT is made as of the ___ day of _______, 1996,
by and between NICHOLAS-APPLEGATE SERIES TRUST, a Delaware business trust,
having its principal office and place of business at 600 West Broadway, 30th
Floor, San Diego, California 92101 (the "Trust"), and NICHOLAS-APPLEGATE
SECURITIES, L.P., a California limited partnership having its principal office
and place of business at 600 West Broadway, 30th Floor, San Diego, California
92101 (the "Transfer Agent").
WHEREAS, the Trust is authorized to issue shares of beneficial interest of
various series, with each such series representing interests in a separate
portfolio of securities and other assets; and
WHEREAS, the Trust intends to initially offer shares in six series (each
such series, together with all other series subsequently established by the
Trust and made subject to this Agreement in accordance with Section 9, being
herein referred to as a "Series", and collectively as the "Series");
WHEREAS, Nicholas-Applegate Capital Management, an affiliate of the
Transfer Agent, serves as investment adviser to the Trust;
WHEREAS, the Trust on behalf of the Series desires to appoint the Transfer
Agent as its transfer agent, and the Transfer Agent desires to accept such
appointment;
NOW, THEREFORE, for good and valuable consideration, the receipt of which
is hereby acknowledged, the parties hereto agree as follows:
Section 1. TERMS OF APPOINTMENT; DUTIES OF THE TRANSFER AGENT.
1.01 Subject to the terms and conditions set forth in this Agreement, the
Trust, on behalf of the Series, hereby employs and appoints the Transfer Agent
to act as, and the Transfer Agent agrees to act as, its transfer agent for the
authorized and issued shares of beneficial interest
<PAGE>
of the Trust representing interests in each of the respective Series ("Shares").
1.02 The Transfer Agent agrees that it will perform the following
services:
(a) In accordance with procedures established from time to
time by agreement between the Trust on behalf of each of the Series, as
applicable and the Transfer Agent, the Transfer Agent shall:
(i) Receive for acceptance orders for the
purchase of Shares, and promptly deliver payment and
appropriate documentation thereof to the Custodian of the
Trust authorized pursuant to the Declaration of Trust of
the Trust (the "Custodian");
(ii) Pursuant to purchase orders, issue the
appropriate number of Shares and hold such Shares in the
appropriate Shareholder account;
(iii) Receive for acceptance redemption
requests and redemption directions and deliver the
appropriate documentation thereof to the Custodian;
(iv) At the appropriate time as and when it
receives any monies paid to it by the Custodian with
respect to any redemption, pay over or cause to be paid
over in the appropriate manner such monies as instructed
by the redeeming Shareholders;
(v) Effect transfers of Shares by the
registered owners thereof upon receipt of appropriate
instructions;
(vi) Prepare and transmit payments for
dividends and distributions declared by the Trust on
behalf of the applicable Series;
(vii) Maintain records of account for and
advise the Trust and its Shareholders as to the
foregoing; and
(viii) Record the issuance of Shares of the
Trust and maintain a record of the total
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<PAGE>
number of Shares which are issued and outstanding.
(b) In addition to and neither in lieu nor in contravention
of the services set forth in the above paragraph (a), the Transfer Agent shall
perform the customary services of a transfer agent, including but not limited
to: maintaining all Shareholder accounts, preparing Shareholder meeting lists,
mailing proxies, mailing Shareholder reports and prospectuses to current
Shareholders, preparing and filing any forms required with respect to dividends
and distributions by federal authorities for all Shareholders, preparing and
mailing confirmation forms and statements of account to Shareholders for all
purchases and redemptions of Shares and other confirmable transactions in
Shareholder accounts, preparing and mailing activity statements for
Shareholders, and providing Shareholder account information.
(c) Procedures as to who shall provide certain of these
services in this Article 1 may be established from time to time by agreement
between the Trust on behalf of each Series and the Transfer Agent. The Transfer
Agent may at times perform only a portion of these services and the Trust or its
agent may perform these services on the Trust's behalf.
(d) The Transfer Agent shall provide any additional services
on behalf of the Trust which may be agreed upon in writing between the Trust and
the Transfer Agent.
Section 2. FEES AND EXPENSES.
2.01 The Trust shall pay no compensation to the Transfer Agent for its
services hereunder.
2.02 The Trust agrees on behalf of each of the Series to promptly
reimburse the Transfer Agent for out-of-pocket expenses, including but not
limited to confirmation production, postage, forms, telephone, microfilm,
microfiche, tabulating proxies, records storage or advances incurred by the
Transfer Agent. In addition, any other expenses incurred by the Transfer Agent
at the request or with the consent of the Trust will be reimbursed by the Trust
on behalf of the applicable Series.
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<PAGE>
Section 3. REPRESENTATIONS AND WARRANTIES OF THE TRANSFER AGENT. The
Transfer Agent represents and warrants to the Trust that:
3.01 It is a limited partnership duly organized and existing and in good
standing under the laws of the State of California.
3.02 It is duly qualified to carry on its business in the State of
California.
3.03 It is empowered under applicable laws and by its Agreement of Limited
Partnership to enter into and perform this Agreement.
3.04 All requisite partnership proceedings have been taken to authorize it
to enter into and perform this Agreement.
3.05 It has and will continue to have access to the necessary facilities,
equipment and personnel to perform its duties and obligations under this
Agreement.
Section 4. REPRESENTATION AND WARRANTIES OF THE TRUST. The Trust
represents and warrants to the Transfer Agent that:
4.01 It is a Delaware business trust duly organized and existing and in
good standing under the laws of Delaware.
4.02 It is empowered under applicable laws and by its Declaration of Trust
and By-Laws to enter into and perform this Agreement.
4.03 All corporate proceedings required by said Declaration of Trust and
By-Laws have been taken to authorize it to enter into and perform this
Agreement.
4.04 It is an open-end management investment company registered under the
Investment Company Act of 1940, as amended.
4.05 A registration statement under the Securities Act of 1933,
as amended on behalf of each of the Series is currently effective and will
remain effective, and appropriate state securities law filings have been made
and
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<PAGE>
will continue to be made, with respect to all Shares of the Trust being
offered for sale.
Section 5. INDEMNIFICATION.
5.01 The Transfer Agent shall not be responsible for, and the Trust shall
on behalf of the applicable Series indemnify and hold the Transfer Agent
harmless from and against, any and all losses, damages, costs, charges, counsel
fees, payments, expenses and liability arising out of or attributable to:
(a) All actions of the Transfer Agent required to be taken
pursuant to this Agreement, provided that such actions are taken in good faith
and without negligence or willful misconduct.
(b) The Trust's lack of good faith, negligence or willful
misconduct which arise out of the breach of any representation or warranty of
the Trust hereunder.
(c) The reliance on or use by the Transfer Agent of
information, records, documents or services which are received by the Transfer
Agent and have been prepared, maintained or performed by the Trust or any other
person or firm on behalf of the Trust.
(d) Subject to the provisions of Section 6, the reliance on,
or the carrying out by the Transfer Agent of any instructions or requests of the
Trust on behalf of the applicable Series.
(e) The offer or sale of Shares in violation of any
requirement under the federal securities laws or regulations or the securities
laws or regulations of any state that such Shares be registered in such state or
in violation of any stop order or other determination or ruling by any federal
agency or any state with respect to the offer or sale of such Shares in such
state.
5.02 At any time the Transfer Agent may apply to any officer of the Trust
for instructions, and may consult with reasonably qualified legal counsel with
respect to any matter arising in connection with the services to be performed by
the Transfer Agent under this Agreement, and the Transfer Agent shall not be
liable and shall be indemnified by the Trust on behalf of the applicable Series
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<PAGE>
for any action taken or omitted by it in reliance upon such instructions or upon
the opinion of such counsel. Subject to the provisions of Section 6, the
Transfer Agent shall be protected and indemnified in acting upon any paper or
document furnished by or on behalf of the Trust, reasonably believed to be
genuine and to have been signed by the proper person or persons, or upon any
instruction, information, data, records or documents provided the Transfer Agent
or its agents or subcontractors by machine readable input, telex, CRT data entry
or other similar means authorized by the Trust, and shall not be held to have
notice of any change of authority of any person, until receipt of written notice
thereof from the Trust.
5.03 In order that the indemnification provisions contained in this
Section 5 shall apply, upon the assertion of a claim for which the Trust may be
required to indemnify the Transfer Agent, the Transfer Agent shall promptly
notify the Trust of such assertion, and shall keep the Trust advised with
respect to all developments concerning such claim. The Trust shall have the
option to participate with the Transfer Agent in the defense of such claim or to
defend against said claim in its own name or in the name of the Transfer Agent.
The Transfer Agent shall in no case confess any claim or make any compromise in
any case in which the Trust may be required to indemnify the Transfer Agent
except with the Trust's prior written consent.
Section 6. STANDARD OF CARE. The Transfer Agent shall at all times act in
good faith and agrees to use its best efforts within reasonable limits to insure
the accuracy of all services performed under this Agreement, but assumes no
responsibility and shall not be liable for loss or damage due to errors unless
said errors are caused by its negligence, bad faith, or willful misconduct or
that of its employees.
Section 7. COVENANTS OF THE TRUST AND THE TRANSFER AGENT.
7.01 The Trust shall on behalf of each of the Series promptly furnish to
the Transfer Agent the following: a certified copy of the resolution of the
Trustees of the Trust authorizing the appointment of the Transfer Agent and the
execution and delivery of this Agreement; and a copy of the Declaration of Trust
and By-Laws of the Trust and all amendments thereto.
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<PAGE>
7.02 The Transfer Agent shall keep records relating to the services to be
performed hereunder, in the form and manner as it may deem advisable. To the
extent required by Section 31 of the Investment Company Act of 1940, as amended,
and the Rules thereunder, the Transfer Agent agrees that all such records
prepared or maintained by the Transfer Agent relating to the services to be
performed by the Transfer Agent hereunder are the property of the Trust and will
be preserved, maintained and made available in accordance with such Section and
Rules, and will be surrendered promptly to the Trust on and in accordance with
its request.
7.03 The Transfer Agent and the Trust agree that all books, records,
information and data pertaining to the business of the other party which are
exchanged or received pursuant to the negotiation or the carrying out of this
Agreement shall remain confidential, and shall not be voluntarily disclosed to
any other person, except as may be required by law.
7.04 In case of any requests or demands for the inspection of the
Shareholder records of the Trust, the Transfer Agent will endeavor to notify the
Trust and to secure instructions from an authorized officer of the Trust as to
such inspection. The Transfer Agent reserves the right, however, to exhibit the
Shareholder records to any person whenever it is advised by its counsel that it
may be held liable for the failure to exhibit the Shareholder records to such
person.
Section 8. TERMINATION OF AGREEMENT.
8.01 This Agreement may be terminated by either party upon sixty (60) days
written notice to the other.
8.02 Should the Trust exercise its right to terminate, all out-of-pocket
expenses associated with the movement of records and material will be borne by
the Trust on behalf of the applicable Series. Additionally, the Transfer Agent
reserves the right to charge for any other reasonable expenses associated with
such termination.
Section 9. ADDITION OF NEW SERIES. In the event that the Trust
establishes one or more series other than the Series with respect to which it
desires to appoint the Transfer Agent to act as Transfer Agent, it shall notify
the
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<PAGE>
Transfer Agent in writing. If the Transfer Agent is willing to accept such
appointment under this Agreement it will so notify the Trust in writing,
whereupon such series will be subject to the same provisions of this Agreement
as are the Series except to the extent that such provisions are modified with
respect to such series in writing between the Trust and the Transfer Agent.
Section 10. ASSIGNMENT. Neither this Agreement nor any rights or
obligations hereunder may be assigned by either party without the written
consent of the other party. This Agreement shall inure to the benefit of and be
binding upon the parties and their respective permitted successors and assigns.
Section 11. AMENDMENT. This Agreement may be amended or modified by a
written agreement executed by both parties and authorized or approved by a
resolution of the Trustees of the Trust.
Section 12. CALIFORNIA LAW TO APPLY. This Agreement shall be construed
and the provisions thereof interpreted under and in accordance with the laws of
the State of California (without regard to principles of conflicts of law).
Section 13. FORCE MAJEURE. In the event either party is unable to perform
its obligations under the terms of this Agreement because of acts of God,
strikes, equipment or transmission failure or damage reasonably beyond its
control, or other causes reasonably beyond its control, such party shall not be
liable for damages to the other for any damages resulting from such failure to
perform or otherwise from such causes.
Section 14. CONSEQUENTIAL DAMAGES. Neither party to this Agreement shall
be liable to the other party for consequential damages under any provision of
this Agreement or for any consequential damages arising out of any act or
failure to act hereunder.
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<PAGE>
Section 15. NOTICES. Notices of any kind to be given to the Transfer
Agent by the Trust shall be in writing and shall be duly given if mailed,
delivered or communicated by answer back facsimile transmission to the Transfer
Agent at 600 West Broadway, 30th Floor, San Diego, California 92101, Facsimile:
(619) 687-8100, Attention: President, or at such other address or to such
individual as shall be so specified by the Transfer Agent. Notices by any kind
to be given to the Trust hereunder by the Transfer Agent shall be in writing and
will be duly given if mailed, delivered or so communicated to the Trust at 600
West Broadway, 30th Floor, San Diego, California 92101, Facsimile: (619) 687-
8000, Attention: President, or at such other address or to such individual as
shall be so specified by the Trust to the Transfer Agent.
Section 16. MERGER OF AGREEMENT. This Agreement constitutes the entire
agreement between the parties hereto and supersedes any prior agreement with
respect to the subject matter hereof whether oral or written.
Section 17. LIMITATIONS OF LIABILITY OF THE TRUSTEES. The Transfer Agent
acknowledges that it has received a copy of the Declaration of Trust of the
Trust dated July 20, 1995. The Transfer Agent further acknowledges and agrees
that the obligations of the Trust under this Agreement are not binding on any
officers, trustees or shareholders of the Trust individually, but are only
binding upon the assets and properties of the Trust. Moreover, the debts,
liabilities, obligations and expenses incurred, contracted for or otherwise
existing with respect to a particular Series shall be enforceable against the
assets and property of such Series only, and not against the assets of property
of any other Series.
Section 18. COUNTERPARTS. This Agreement may be executed by the parties
hereto on any number of
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<PAGE>
counterparts, and all of said counterparts taken together shall be deemed to
constitute one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed in their names and on their behalf by and through their duly authorized
officers, as of the day and year first above written.
NICHOLAS-APPLEGATE SERIES TRUST
BY:_______________________________
E. Blake Moore, Jr.
Title: Secretary
NICHOLAS-APPLEGATE SECURITIES, L.P.
a California Limited Partnership
By: Nicholas-Applegate Capital Management
Holdings, Inc., its General Partner
BY:_______________________________
E. Blake Moore, Jr.
Title: Secretary
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<PAGE>
EXHIBIT 9.3
LICENSE AGREEMENT
This License Agreement (this "Agreement") is entered into as of the ____
day of ________________, 1996, by and between Nicholas-Applegate Capital
Management, a California limited partnership ("NACM") and Nicholas-Applegate
Series Trust, a Delaware business trust (the "Trust").
WHEREAS, NACM was organized under the laws of the State of California and
commenced doing business under a name including the phrase "Nicholas-Applegate"
in 1984, and has used such name at all times thereafter; and
WHEREAS, NACM has registered and is the owner of the service mark
"Nicholas-Applegate," Registration No. 1,888,843 (the "Service Mark"); and
WHEREAS, the Trust was organized under the laws of the State of Delaware on
July 21, 1995; and
WHEREAS, the Trust has requested from NACM a license to the use of the
phrase "Nicholas-Applegate" in the name of the Trust and/or one or more of the
series of shares of beneficial interest of the Trust (collectively, "Series"),
and NACM is willing to grant such license, subject to the terms and conditions
set forth below;
NOW, THEREFORE, in consideration of the premises and of the covenants
hereinafter contained, NACM and the Trust hereby agree as follows:
1. The Trust hereby acknowledges and agrees that the name "Nicholas-
Applegate" and the Service Mark are valuable proprietary rights of NACM and that
the Trust has no rights to use such name or Service Mark except as are expressly
provided to the Trust by NACM pursuant to this Agreement. The Trust shall at
all times use the Service Mark in a manner which is designed to enhance the
reputation and goodwill associated with the Service Mark, and shall comply with
all laws, rules, regulations, ordinances and orders of all local, state and
national authorities. The Trust shall not in any manner represent that it has
any rights of ownership or use with respect to the name "Nicholas-Applegate" or
the Service Mark except as set forth
1
<PAGE>
herein, and acknowledges and agrees that all uses of such name and Service Mark
by it shall inure to the benefit of NACM. The Trust agrees that it shall do
nothing inconsistent with NACM's ownership in the Service Mark, and shall not
apply for registration or seek to obtain ownership of the Service Mark, or any
similar mark, in any state or nation. The provisions of this Section 1 shall
survive the termination of this Agreement, irrespective of the reason therefor.
2. NACM hereby grants to the Trust a non-exclusive and non-transferrable
license to use the name "Nicholas-Applegate" and the Service Mark in the names
of the Trust and/or any one or more of its Series, only so long as such name and
Service Mark are used in conjunction with descriptive phrases such as "Series
Trust" or phrases describing the investment objectives or purposes of a Series
(such as "Core Growth Series"). NACM hereby consents to the qualification of
the Trust to do business under the laws of any state of the United States with
the name "Nicholas-Applegate" in its name or that of any of its Series and
agrees to execute such formal consents as may be necessary in connection with
such qualifications.
3. NACM reserves and retains the right to grant to any other person or
entity, including without limitation any other investment company, the right to
use the name "Nicholas-Applegate" and the Service Mark, or any derivatives or
variations thereof, and no consent or permission of the Trust shall be necessary
for such use; provided, however, that if required by the applicable law of any
state, the Trust shall forthwith grant all requisite consents. The Trust shall
take such actions as NACM may reasonably require to protect the rights of NACM
to such name and Service Mark.
4. The Trust shall have no right to grant to any other person or entity a
sublicense to use a name containing the name "Nicholas-Applegate" or the Service
Mark. The Trust shall have no right to assign its interest in this Agreement,
or any part thereof, to any other person or entity without the prior written
consent of NACM.
5. The license provided to the Trust hereunder shall immediately and
automatically terminate and be of no further force or effect at such time as
NACM no longer provides investment advisory services to the Trust, any Series or
(in the event all assets of the Trust or any Series are invested in Nicholas-
Applegate Investment Trust, a Delaware business trust) Nicholas-Applegate
Investment
2
<PAGE>
Trust, a Delaware business trust) Nicholas-Applegate Investment Trust.
In addition, NACM may terminate this Agreement immediately upon notice to the
Trust in the event of any breach of this Agreement by the Trust. Upon
termination of this Agreement, the Trust shall as promptly as practicable
take such actions as may be necessary to change its name and the names of
the Series to names that do not include the names "Nicholas" or "Applegate,"
or any derivatives or variations thereof, and shall forever cease all use of
the name "Nicholas-Applegate" and the Service Mark, and any derivatives or
variations thereof or any similar mark.
6. This Agreement contains the entire understanding of the parties with
respect to the subject matter hereof and may not be amended at any time except
by a writing signed by the parties hereto.
7. All of the terms of this Agreement shall be binding upon and, except as
set forth herein, shall inure to the benefit of, the successors and assigns of
the parties.
8. NACM acknowledges that it has received a copy of the Declaration of
Trust of the Trust dated July 20, 1995. NACM further acknowledges and agrees
that the obligations of the Trust under this Agreement are not binding on any
officers, trustees or shareholders of the Trust individually, but are binding
only upon the assets and properties of the Trust.
9. If any term or provision of this Agreement is held to be void or
unenforceable by any court of competent jurisdiction, only that objectionable
term or provision shall be deleted herefrom while the remainder of the term,
provision and agreement shall be enforceable.
10. No party's failure to enforce any provision or provisions of this
Agreement shall be deemed or in any way construed as a waiver of any such
provision or provisions, nor prevent that party thereafter from enforcing each
and every provision of this Agreement. The rights granted the parties herein
are cumulative and shall not constitute a waiver of any party's right to assert
all other legal remedies available to it under the circumstances.
11. This Agreement shall be construed and interpreted in accordance with
the internal, substantive laws of the State of California.
12. The Trust acknowledges that money damages alone are not an adequate
remedy for any breach by the Trust of any provision of this Agreement.
Therefore, in the event
3
<PAGE>
of a breach or threatened breach of any provision of this Agreement by the
Trust, the Trust agrees and consents that NACM, in addition to all other
remedies, shall have the right to immediately seek, obtain and enforce
injunctive relief prohibiting the breach or compelling specific performance,
without the need to post any bond. Unless expressly set forth herein to the
contrary, all remedies set forth herein are cumulative and are in addition to
any and all remedies provided either party at law or in equity.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first above written.
NICHOLAS-APPLEGATE CAPITAL
MANAGEMENT, A CALIFORNIA
LIMITED PARTNERSHIP
By: Nicholas-Applegate Capital
Management Holdings, L.P., a
California limited
partnership, its General
Partner
By: Nicholas-Applegate Capital
Management Holdings, Inc.,
Its General Partner
By:
--------------------------------
E. Blake Moore, Jr.
Title: Secretary
NICHOLAS-APPLEGATE SERIES TRUST
By:
--------------------------------
E. Blake Moore, Jr.
Title: Secretary
4
<PAGE>
EXHIBIT 9.4
ACCOUNTING SERVICES AGREEMENT
THIS AGREEMENT is made as of _________________, 1996 by and between
NICHOLAS-APPLEGATE SERIES TRUST, a Delaware business trust (the "Fund") and PFPC
INC., a Delaware corporation ("PFPC"), which is an indirect wholly owned
subsidiary of PNC Bank Corp.
W I T N E S S E T H:
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 Fund wishes to retain PFPC to provide accounting services, and
PFPC wishes to furnish such services; and
NOW, THEREFORE in consideration of the premises and the mutual covenants
herein contained, and intending to be legally bound hereby the parties hereto
agree as follows:
1. DEFINITIONS AS USED IN THIS AGREEMENT.
(a) "1933 ACT" means the Securities Act of 1933, as amended.
(b) "1934 ACT" means the Securities Exchange Act of 1934, as amended.
<PAGE>
(c) "AUTHORIZED PERSON" means any officer of the Fund and any other
person duly authorized by the Fund's Board of Trustees to give Oral Instructions
and Written Instructions on behalf of the Fund and listed on the Authorized
Persons Appendix attached hereto and made a part hereof or any amendment thereto
as may be received by PFPC. An Authorized Person's scope of authority may be
limited by the Fund by setting forth such limitation in the Authorized Persons
Appendix.
(d) "CEA" means the Commodities Exchange Act, as amended.
(e) "ORAL INSTRUCTIONS" mean oral instructions received by PFPC from
an Authorized Person or from a person reasonably believed by PFPC to be an
Authorized Person.
(f) "SERIES" means the following series of Shares of the Fund:
Nicholas-Applegate Core Growth Series, Nicholas-Applegate Income & Growth
Series, Balanced Growth Series and International Growth Series, and any other
series of the Fund which may be established in the future and to which PFPC
provides accounting services.
(g) "SEC" means the Securities and Exchange Commission.
(h) "SECURITIES LAWS" mean the 1933 Act, the 1934 Act, the 1940 Act
and the CEA.
2
<PAGE>
(i) "SHARES" mean the shares of beneficial interest of any series or
class of the Fund.
(j) "WRITTEN INSTRUCTIONS" mean written instructions signed by an
Authorized Person and received by PFPC. The instructions may be delivered by
hand, mail, tested telegram, cable, telex or facsimile sending device.
2. APPOINTMENT. The Fund hereby appoints PFPC to provide accounting
services to each of the Series in accordance with the terms set forth in this
Agreement. PFPC accepts such appointment and agrees to furnish such services.
In the event the Fund establishes one or more series other than the Series named
herein, it shall notify PFPC in writing. If PFPC is willing to accept such
appointment under this Agreement, it will so notify the Fund in writing,
whereupon such series will be subject to the same provisions of this Agreement
as are the Series named herein, except to the extent that such provisions are
modified with respect to such series in writing between the Fund and PFPC.
3. DELIVERY OF DOCUMENTS. The Fund has provided or, where applicable,
will provide PFPC with the following:
(a) certified or authenticated copies of the resolutions of the
Fund's Board of Trustees, approving the appointment of PFPC or
its affiliates to provide services to
3
<PAGE>
each Series and approving this Agreement;
(b) a copy of Fund's most recent effective registration statement;
(c) a copy of each Series' advisory agreement or agreements;
(d) a copy of the distribution agreement with respect to each class
of Shares representing an interest in a Series;
(e) a copy of any additional administration agreement with respect to
a Series;
(f) a copy of any shareholder servicing agreement made in respect
of the Fund or a Series; and
(f) copies (certified or authenticated, where applicable) of any and
all amendments or supplements to the foregoing.
4. COMPLIANCE WITH GOVERNMENT RULES AND REGULATIONS. PFPC undertakes to
comply with all applicable requirements of the Securities Laws, and any laws,
rules and regulations of governmental authorities having jurisdiction with
respect to the duties to be performed by PFPC hereunder. Except as specifically
set forth herein, PFPC assumes no responsibility for such compliance by the Fund
or any Series.
5. INSTRUCTIONS.
(a) Unless otherwise provided in this Agreement, PFPC shall act only
upon Oral Instructions and Written Instructions.
4
<PAGE>
(b) PFPC shall be entitled to rely upon any Oral Instructions and
Written Instructions it receives from an Authorized Person (or from a person
reasonably believed by PFPC to be an Authorized Person) pursuant to this
Agreement. PFPC may assume that any Oral Instructions or Written Instruction
received hereunder is not in any way inconsistent with the provisions of
organizational documents or this Agreement or of any vote, resolution or
proceeding of the Fund's Board of Trustees or of the Fund's shareholders, unless
and until PFPC receives Written Instructions to the contrary.
(c) The Fund agrees to forward to PFPC Written Instructions
confirming Oral Instructions so that PFPC receives the Written Instructions by
the close of business on the same day that such Oral Instructions are received.
The fact that such confirming Written Instructions are not received by PFPC
shall in no way invalidate the transactions or enforceability of the
transactions authorized by the Oral Instructions. Where Oral Instructions or
Written Instructions reasonably appear to have been received from an Authorized
Person, PFPC shall incur no liability to the Fund in acting upon such Oral
Instructions or Written Instructions provided that PFPC's actions comply with
the other provisions of this Agreement.
5
<PAGE>
6. RIGHT TO RECEIVE ADVICE.
(a) ADVICE OF THE FUND. If PFPC is in doubt as to any action it
should or should not take, PFPC may request directions or advice, including Oral
Instructions or Written Instructions, from the Fund.
(b) ADVICE OF COUNSEL. If PFPC shall be in doubt as to any question
of law pertaining to any action it should or should not take, PFPC may request
advice at its own cost from such counsel of its own choosing (who may be counsel
for the Fund, the Fund's investment adviser or PFPC, at the option of PFPC).
(c) CONFLICTING ADVICE. In the event of a conflict between
directions, advice or Oral Instructions or Written Instructions PFPC receives
from the Fund and the advice PFPC receives from counsel, PFPC may rely upon and
follow the advice of counsel. In the event PFPC so relies on the advice of
counsel, PFPC remains liable for any action or omission on the part of PFPC
which constitutes willful misfeasance, bad faith, gross negligence or reckless
disregard by PFPC of any duties, obligations or responsibilities set forth in
this Agreement.
(d) PROTECTION OF PFPC. PFPC shall be protected in any action it
takes or does not take in reliance upon directions, advice or Oral Instructions
or Written
6
<PAGE>
Instructions it receives from the Fund or from counsel and which PFPC believes,
in good faith, to be consistent with those directions, advice and Oral
Instructions or Written Instructions. Nothing in this section shall be
construed so as to impose an obligation upon PFPC (i) to seek such directions,
advice or Oral Instructions or Written Instructions, or (ii) to act in
accordance with such directions, advice or Oral Instructions or Written
Instructions unless, under the terms of other provisions of this Agreement, the
same is a condition of PFPC's properly taking or not taking such action.
Nothing in this subsection shall excuse PFPC when an action or omission on the
part of PFPC constitutes willful misfeasance, bad faith, gross negligence or
reckless disregard by PFPC of any duties, obligations or responsibilities set
forth in this Agreement.
7. RECORDS; VISITS. The books and records pertaining to the Fund and the
Series which are in the possession or under the control of PFPC shall be the
property of the Fund. The Fund and Authorized Persons, shall have access to
such books and records at all times during PFPC's normal business hours. Upon
the reasonable request of the Fund, copies of any such books and records shall
be provided by PFPC to the Fund or to an Authorized Person at the Fund's
expense.
7
<PAGE>
PFPC shall keep the following records:
(a) all books and records with respect to the Fund's books of account;
(b) records of each Series' securities transaction.
8. CONFIDENTIALITY. PFPC agrees to keep confidential all records of the
Fund and information relating to the Fund and its shareholders, unless the
release of such records or information is otherwise consented to, in writing, by
the Fund. The Fund agrees that such consent shall not be unreasonably withheld
and may not be withheld where PFPC may be exposed to civil or criminal contempt
proceedings or when required to divulge such information or records to duly
constituted authorities.
9. LIAISON WITH ACCOUNTANTS. PFPC shall act as liaison with the Fund's
independent public accountants and shall provide account analyses, fiscal year
summaries, and other audit-related schedules with respect to each Series. PFPC
shall take all reasonable action in the performance of its duties under this
Agreement to assure that the necessary information is made available to such
accountants for the expression of their opinion, as required by the Fund.
10. DISASTER RECOVERY. PFPC shall enter into and shall maintain in effect
with appropriate parties one or more agreements making reasonable provisions for
emergency use of electronic data processing equipment to the extent
8
<PAGE>
appropriate equipment is available. In the event of equipment failures, PFPC
shall, at no additional expense to the Fund, take reasonable steps to minimize
service interruptions. PFPC shall have no liability with respect to the loss of
data or service interruptions caused by equipment failure provided such loss or
interruption is not covered by PFPC's own willful misfeasance, bad faith, gross
negligence or reckless disregard of its duties or obligations under this
Agreement.
11. COMPENSATION. As compensation for services rendered by PFPC during
the term of this Agreement, the Fund, on behalf of each Series, will pay to PFPC
a fee or fees as may be agreed to in writing by the Fund and PFPC.
12. INDEMNIFICATION. The Fund, on behalf of each Series, agrees to
indemnify and hold harmless PFPC and its affiliates from all taxes, charges,
expenses, assessments, claims and liabilities (including, without limitation,
liabilities arising under the Securities Laws and any state or foreign
securities and blue sky laws, and amendments thereto), and expenses, including
(without limitation) attorneys' fees and disbursements arising directly or
indirectly from any action or omission to act which PFPC takes (i) at the
request or on the direction of or in
9
<PAGE>
reliance on the advice of the Fund or (ii) upon Oral Instructions or Written
Instructions. Neither PFPC, nor any of its affiliates, shall be indemnified
against any liability to the Fund or to its shareholders (or any expenses
incident to such liability) arising out of PFPC's or its affiliates' own willful
misfeasance, gross negligence or reckless disregard of its duties and
obligations under this Agreement. Any amounts payable by the Fund hereunder
shall be satisfied only against the relevant Series' assets and not against the
assets of any other investment portfolio of the Fund.
13. RESPONSIBILITY OF PFPC.
(a) PFPC shall be under no duty to take any action on behalf of the
Fund or any Series except as specifically set forth herein or as may be
specifically agreed to by PFPC in writing. PFPC shall be obligated to exercise
care and diligence in the performance of its duties hereunder, to act in good
faith and to use its best efforts, within reasonable limits, in performing
services provided for under this Agreement. PFPC shall be liable for any
damages arising out of PFPC's failure to perform its duties under this Agreement
to the extent such damages arise out of PFPC's willful misfeasance, bad faith,
gross negligence or reckless disregard of such duties.
10
<PAGE>
(b) Without limiting the generality of the foregoing or of any other
provision of this Agreement (i) PFPC shall not be liable for losses beyond its
control, provided that PFPC has acted in accordance with the standard of care
set forth above; and (ii) PFPC shall not be liable for (i) the validity or
invalidity or authority or lack thereof of any Oral Instructions or Written
Instruction, notice or other instrument which conforms to the applicable
requirements of this Agreement, and which PFPC reasonably believes to be
genuine; or (ii) subject to Section 10, delays or errors or loss of data
occurring by reason of circumstances beyond PFPC's control, including acts of
civil or military authority, national emergencies, labor difficulties, fire,
flood, catastrophe, acts of God, insurrection, war, riots or failure of the
mails, transportation, communication or power supply.
(c) Notwithstanding anything in this Agreement to the contrary,
neither PFPC nor its affiliates shall be liable to the Fund or any Series for
any consequential, special or indirect losses or damages which the Fund or any
Series may incur or suffer by or as a consequence of PFPC's or any affiliates'
performance of the services provided hereunder, whether or not the likelihood of
such losses or damages was known by PFPC or its affiliates.
11
<PAGE>
14. DESCRIPTION OF ACCOUNTING SERVICES ON A CONTINUOUS BASIS. PFPC will
perform the following accounting services with
respect to each Series:
(i) Journalize investment, capital share and income and expense
activities;
(ii) Verify investment buy/sell trade tickets when received from
the investment adviser for a Series (the "Adviser") and
transmit trades to the Fund's custodian (the "Custodian")
for proper settlement;
(iii) Maintain individual ledgers for investment
securities;
(iv) Maintain historical tax lots for each
security;
(v) Reconcile cash and investment balances with the Custodian,
and provide the Adviser with the beginning cash balance
available for investment purposes;
(vi) Update the cash availability throughout the day as
required by the Adviser;
(vii) Post to and prepare the Statement of Assets and Liabilities
and the Statement of Operations;
(viii) Calculate various contractual expenses (E.G.,
advisory and custody fees);
(ix) Monitor the expense accruals and notify an officer of
the Fund of any proposed adjustments;
(x) Control all disbursements and authorize such disbursements
upon Written Instructions;
(xi) Calculate capital gains and losses;
12
<PAGE>
(xii) Determine net income;
(xiii) Obtain security market quotes from independent pricing
services approved by the Adviser, or if such quotes are
unavailable, then obtain such prices from the Adviser, and
in either case calculate the market value of each Series'
Investments;
(xiv) Transmit or mail a copy of the daily portfolio valuation to
the Adviser;
(xv) Compute net asset value;
(xvi) As appropriate, compute yields, total return, expense
ratios, portfolio turnover rate, and, if required,
portfolio average dollar-weighted maturity; and
(xvii) Prepare a monthly financial statement, which will include
the following items:
Schedule of Investments
Statement of Assets and Liabilities
Statement of Operations
Statement of Changes in Net Assets
Cash Statement
Schedule of Capital Gains and Losses.
15. DURATION AND TERMINATION. This Agreement shall continue until
terminated by the Fund or by PFPC on sixty (60) days' prior written notice to
the other party.
16. NOTICES. All notices and other communications, including Written
Instructions, shall be in writing or by
13
<PAGE>
confirming telegram, cable, telex or facsimile sending device. If notice is
sent by confirming telegram, cable, telex or facsimile sending device, it shall
be deemed to have been given immediately. If notice is sent by first-class
mail, it shall be deemed to have been given three days after it has been mailed.
If notice is sent by messenger, it shall be deemed to have been given on the day
it is delivered. Notices shall be addressed (a) if to PFPC, at address, 400
Bellevue Parkway, Wilmington, Delaware 19809; (b) if to the Fund, at
, Attn: ; or (c) if to neither of the foregoing, at
such other address as shall have been provided by like notice to the sender of
any such notice or other communication by the other party.
17. AMENDMENTS. This Agreement, or any term thereof, may be changed or
waived only by written amendment, signed by the party against whom enforcement
of such change or waiver is sought.
18. DELEGATION; ASSIGNMENT. PFPC may assign its rights and delegate its
duties hereunder to any wholly-owned direct or indirect subsidiary of PNC Bank,
National Association or PNC Bank Corp., provided that (i) PFPC gives the Fund
thirty (30) days' prior written notice; (ii) the delegate (or assignee) agrees
with PFPC and the Fund to comply with all relevant provisions of the 1940 Act;
14
<PAGE>
and (iii) PFPC and such delegate (or assignee) promptly provide such information
as the Fund may request, and respond to such questions as the Fund may ask,
relative to the delegation (or assignment), including (without limitation) the
capabilities of the delegate (or assignee).
19. COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
20. FURTHER ACTIONS. Each party agrees to perform such further acts and
execute such further documents as are necessary to effectuate the purposes
hereof.
21. MISCELLANEOUS.
(a) ENTIRE AGREEMENT. This Agreement embodies the entire agreement
and understanding between the parties and supersedes all prior agreements and
understandings relating to the subject matter hereof, provided that the parties
may embody in one or more separate documents their agreement, if any, with
respect to delegated duties or Oral Instructions.
(b) CAPTIONS. The captions in this Agreement are included for
convenience of reference only and in no way define or delimit any of the
provisions hereof or otherwise affect their construction or effect.
15
<PAGE>
(c) GOVERNING LAW. This Agreement shall be deemed to be a contract
made in Delaware and governed by Delaware law, without regard to principles of
conflicts of law.
(d) PARTIAL INVALIDITY. If any provision of this Agreement shall be
held or made invalid by a court decision, statute, rule or otherwise, the
remainder of this Agreement shall not be affected thereby.
(e) SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon and
shall inure to the benefit of the parties hereto and their respective successors
and permitted assigns.
(f) FACSIMILE SIGNATURES. The facsimile signature of any party to
this Agreement shall constitute the valid and binding execution hereof by such
party.
16
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the day and year first above written.
PFPC INC.
By:
---------------------------
Title:
-----------------------
NICHOLAS-APPLEGATE SERIES TRUST
By:
---------------------------
Title:
-----------------------
17
<PAGE>
AUTHORIZED PERSONS APPENDIX
NAME (TYPE) SIGNATURE
- --------------------- ---------------------
- --------------------- ---------------------
- --------------------- ---------------------
- --------------------- ---------------------
- --------------------- ---------------------
- --------------------- ---------------------
18
<PAGE>
EXHIBIT 9.5
NICHOLAS-APPLEGATE CAPITAL MANAGEMENT
600 West Broadway, 30th Floor
San Diego, California 92101
_______________, 1996
Nicholas-Applegate Series Trust
600 West Broadway, 30th Floor
San Diego, California 92101
Ladies and Gentlemen:
Pursuant to the Investment Advisory Agreement between us dated as of
___________, 1996 (the "Agreement"), this letter will confirm our agreement
whereby Nicholas-Applegate Capital Management will reduce its fees and reimburse
other operating expenses of the various portfolios (each a "Series") of
Nicholas-Applegate Series Trust set forth below to ensure that total annual
operating expenses for each such Series (other than interest, taxes, brokerage
commissions and other portfolio transaction expenses, capital expenditures and
extraordinary expenses) do not exceed the percentage of average daily net assets
of such Series set forth opposite the name of such Series, through December 31,
1996, subject to the provisions set forth in the Agreement with respect to
repayment of such reductions and reimbursements.
<TABLE>
<CAPTION>
Name of Series Percentage Limitation
-------------- ---------------------
<S> <C>
Core Growth Series 1.00%
Emerging Growth Series 1.25%
International Growth Series 1.40%
Value Series 1.00%
Diversified Income Series 0.45%
International Fixed Income Series 0.95%
</TABLE>
<PAGE>
Please sign this letter below to confirm your agreement with these
limitations.
Very truly yours,
_________________________
E. Blake Moore, Jr.
Secretary
AGREED:
Nicholas-Applegate Series Trust
By:________________________
E. Blake Moore, Jr.
Secretary
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<PAGE>
EXHIBIT 9.6
PARTICIPATION AGREEMENT
Among
NICHOLAS-APPLEGATE SERIES TRUST
NICHOLAS-APPLEGATE CAPITAL MANAGEMENT
and
AETNA INSURANCE COMPANY of AMERICA
THIS AGREEMENT, made and entered into as of this ____ day of January, 1996
by and among AETNA INSURANCE COMPANY OF AMERICA (hereinafter "AICA"), a
Connecticut life insurance company, on its own behalf and on behalf of its
Variable Annuity Account I and such additional separate accounts as may be set
forth on Schedule A attached hereto (the "Accounts"); Nicholas-Applegate Series
Trust, a business trust organized under the laws of Delaware (hereinafter the
"Trust"); and Nicholas-Applegate Capital Management, (hereinafter the
"Adviser"), a California limited partnership.
WHEREAS, the Trust engages in business as an open-end management investment
company and is available to act as the investment vehicle for separate accounts
established for variable life insurance policies and/or variable annuity
contracts (collectively, the "Variable Insurance Products") to be offered by
insurance companies which have entered into participation agreements similar to
this Agreement (hereinafter "Participating Insurance Companies"); and
WHEREAS, the beneficial interest in the Trust is divided into several
series of shares, each designated a "Portfolio" and representing the interest in
a particular managed portfolio of securities and other assets; and
WHEREAS, the Trust intends to file an application to obtain an order from
the Securities and Exchange Commission (the "SEC"), granting Participating
Insurance Companies and variable annuity and variable life insurance separate
accounts exemptions from the provisions of sections 9(a), 13(a), 15(a), and
15(b) of the Investment Company Act of 1940, as amended, (the "1940 Act") and
Rules 6e-2(b)(15) and 6e-3(T) (b)(15) thereunder, to the extent necessary to
permit shares of the Trust to be sold to and held by variable annuity and
variable life insurance separate accounts of life insurance companies that may
or may not be affiliated with one another (the "Shared Funding Exemptive
Order"); and
WHEREAS, the Trust is registered as an open-end management investment
company under the 1940 Act and shares of the Portfolio(s) are registered under
the Securities Act of 1933, as amended (the "1933 Act"); and
<PAGE>
WHEREAS, the Adviser is duly registered as an investment adviser under the
Investment Advisers Act of 1940, as amended, and any applicable state securities
laws; and
WHEREAS, AICA has registered or will register certain variable annuity and
variable life insurance contracts supported wholly or partially by the Account
(the "Contracts") under the 1933 Act and said Contracts are listed in Schedule A
hereto, as it may be amended from time to time by mutual written agreement; and
WHEREAS, each Account is or will be a duly organized, validly existing
segregated asset account, established by resolution of the Board of Directors of
AICA, to set aside and invest assets attributable to variable annuity contracts,
including the Contracts; and
WHEREAS, AICA has registered or will register the Account as a unit
investment trust under the 1940 Act; and
WHEREAS, to the extent permitted by applicable insurance laws and
regulations, AICA intends to purchase shares in the Portfolio(s) listed in
Schedule B hereto, as it may be amended from time to time by mutual written
agreement (the "Designated Portfolio(s)"), on behalf of the Accounts to fund the
aforesaid Contracts, and the Adviser, or an affiliate, is authorized to sell
such shares to unit investment trusts such as the Account at net asset value;
and
NOW, THEREFORE, in consideration of their mutual promises, AICA, the Trust
and the Adviser agree as follows:
ARTICLE I. SALE OF TRUST SHARES
1.1. The Adviser, or an affiliate, agrees to sell to AICA those shares of
the Designated Portfolio(s) which the Account orders, executing such orders on a
daily basis at the net asset value next computed after receipt by the Transfer
Agent for the Trust or its designee of the order for the shares of the
Portfolios. For purposes of this Section 1.1, AICA shall be the designee of the
Transfer Agent of the Trust for receipt of such orders and receipt by such
designee shall constitute receipt by the Transfer Agent of the Trust, provided
that the Transfer Agent of the Trust receives notice of any such order prior to
9:00 a.m. Eastern Time on the next following Business Day. "Business Day" shall
mean any day on which the New York Stock Exchange is open for trading and on
which the Trust calculates its net asset value pursuant to the rules of the SEC.
1.2. The Trust agrees to make shares of the Designated Portfolio(s)
available for purchase at the applicable net asset value per share by AICA and
the Account on those days on which the Trust calculates its Designated
Portfolio(s)' net asset value pursuant to rules of the SEC, and the Trust shall
calculate such net asset value on each day which the New York Stock Exchange is
open for trading. Notwithstanding the foregoing, the Board of Trustees of the
Trust (the "Board") may refuse to sell shares of any Portfolio to any person, or
suspend or terminate the
-2-
<PAGE>
offering of shares of any Portfolio if such action is required by law or by
regulatory authorities having jurisdiction or is, in the sole discretion of the
Board acting in good faith and in light of their fiduciary duties under federal
and any applicable state laws, necessary in the best interests of the
shareholders of such Portfolio.
1.3. The Trust and the Adviser will not sell shares of the Designated
Portfolio(s) to any other insurance company or separate account and AICA will
not purchase shares of any investment company under the Contracts (other than
one advised by AICA or an affiliate) unless an agreement containing provisions
substantially the same as Sections 2.1, 3.6, 3.7, 3.8, and Article VII of this
Agreement is in effect to govern such sales.
1.4. The Trust agrees to redeem for cash, at AICA's request, any full or
fractional shares of the Trust held by AICA, executing such requests on a daily
basis at the net asset value next computed after receipt by the Transfer Agent
for the Trust or its designee of the request for redemption. Requests for
redemption identified by AICA, or its agent, as being in connection with
surrenders, annuitizations, or death benefits under the Contracts may be
executed within five (5) calendar days after receipt by the Transfer Agent for
the Trust or its designee of the requests for redemption subject to the right to
suspend redemptions pursuant to the 1940 Act. This Section 1.4 may be amended,
in writing, by the parties consistent with the requirements of the 1940 Act and
interpretations thereof. For purposes of this Section 1.4, AICA shall be the
designee of the Transfer Agent for the Trust for receipt of requests for
redemption and receipt by such designee shall constitute receipt by the Trust,
provided that the Trust receives notice of any such request for redemption by
9:00 a.m. Eastern Time on the next following Business Day.
1.5. The Parties hereto acknowledge that the arrangement contemplated by
this Agreement is not exclusive; the Trust's shares may be sold to other
insurance companies (subject to Section 1.3 and Article VI hereof).
1.6. AICA shall pay for Trust shares by 10:00 a.m. Eastern Time on the next
Business Day after an order to purchase Trust shares is made in accordance with
the provisions of Section 1.1 hereof. Payment shall be in federal funds
transmitted by wire and/or by a credit for any shares redeemed the same day as
the purchase.
1.7. The Trust shall pay and transmit the proceeds of redemptions of Trust
shares by 10:00 a.m. Eastern Time on the next Business Day after a redemption
order is received in accordance with Section 1.4 hereof subject to the right to
suspend redemptions pursuant to the 1940 Act. Payment shall be in federal funds
transmitted by wire and/or a credit for any shares purchased the same day as the
redemption.
1.8. Issuance and transfer of the Trust's shares will be by book entry
only. Stock certificates will not be issued to AICA or to the Account. Shares
ordered from the Trust will be recorded in an appropriate title for the Account
or in the appropriate sub-account of the Account.
1.9. The Trust or its designee shall furnish same day notice (by wire or
telephone, followed by written confirmation) to AICA of any income, dividends or
-3-
<PAGE>
capital gain distributions payable on the Designated Portfolio(s)' shares. AICA
hereby elects to receive all such income dividends and capital gain
distributions as are payable on the Portfolio shares in additional shares of
that Portfolio. The Trust shall notify AICA by the end of the following
Business Day of the number of shares so issued as payment of such dividends and
distributions.
1.10. The Trust or its designee shall make the net asset value per share
for each Designated Portfolio available to AICA on a daily basis as soon as is
reasonably practical after the net asset value per share is calculated and shall
use its best efforts to make such net asset value per share available by 6:00
p.m. Eastern Time. If the Trust or its designee provides AICA with incorrect
per share net asset value information or incorrect information regarding
dividend or capital gains distributions, for any Designated Portfolio through no
fault of AICA, AICA, on behalf of the Accounts, shall be entitled to an
adjustment to the number of shares purchased or redeemed to reflect (as of the
date the incorrect net asset value per share or dividend or capital gains
distribution information was provided) the correct net asset value per share or
dividend or capital gains distribution only, if and to the extent necessary,
AICA is required to make adjustments to the number of units credited and/or unit
values for the Contracts for the periods affected. In addition, to the extent
that such adjustment in the number of shares to reflect the correct net asset
value per share or dividend or capital gains distribution is not sufficient to
compensate AICA for reasonable and necessary expenses and/or losses it has
incurred in making required adjustments to owners of Contracts as a result of
incorrect per share net asset value or dividend or capital gains distribution
information, the Trust or its designee shall assume and/or compensate AICA for
any such reasonable and necessary expenses and/or losses, provided that such
incorrect per share net asset value or dividend or capital gains distribution
information did not arise out of or result from AICA's misfeasance, bad faith,
negligence, or disregard of its duties under this Agreement. In such
circumstances, the Trust will request that AICA provide adequate supporting
data. Any error in the calculation or reporting of net asset value per share,
dividend or capital gains information greater than or equal to $.01 per share
shall be reported immediately upon discovery to AICA. Any error of a lesser
amount shall be corrected as soon as practicable.
1.11. The Trust and the Adviser shall use their reasonable best efforts
to enable each Designated Portfolio(s) to remain in compliance with the
insurance and other applicable laws of the State of Connecticut and any other
applicable state to the extent required to perform this Agreement. The Trust
shall register and qualify the shares for sale in accordance with the laws of
the various states if and to the extent required by applicable law.
-4-
<PAGE>
ARTICLE II. REPRESENTATIONS AND WARRANTIES
2.1. AICA represents and warrants that each Account is or will be
registered as a unit investment trust under the 1940 Act and the Contracts are
or will be registered under the 1933 Act; that the Contracts will be issued and
sold in compliance in all material respects with all applicable federal and
state laws and that the sale of the Contracts shall comply in all material
respects with state insurance suitability requirements. AICA further represents
and warrants that it is an insurance company duly organized and in good standing
under applicable law and that it has or will have legally and validly
established each Account prior to any issuance or sale thereof as a segregated
asset account under applicable state insurance law and has registered or will
register each Account as a unit investment trust in accordance with the
provisions of the 1940 Act to serve as a segregated investment account for the
Contracts.
2.2. The Trust represents and warrants that Designated Portfolio shares
sold pursuant to this Agreement are registered under the 1933 Act, duly
authorized for issuance and sold in compliance with all applicable federal
securities laws including without limitation the 1933 Act, the Securities
Exchange Act of 1934 ("1934 Act"), and the 1940 Act and that the Trust is and
shall remain registered under the 1940 Act. The Trust shall amend the
Registration Statement for its shares under the 1933 Act and the 1940 Act from
time to time as required in order to effect the continuous offering of its
shares.
2.3. The Trust reserves the right to adopt a plan pursuant to Rule 12b-1
under the 1940 Act and to impose an asset-based or other charge to finance
distribution expenses as permitted by applicable law and regulation. In any
event, the Trust and Adviser agree to comply with applicable provisions and SEC
staff interpretations of the 1940 Act to assure that the investment advisory or
management fees paid to the Adviser by the Trust are legitimate and not
excessive. To the extent that the Trust decides to finance distribution
expenses pursuant to Rule 12b-1, the Trust undertakes to have a Board, a
majority of whom are not interested persons of the Trust, formulate and approve
any plan pursuant to Rule 12b-1 under the 1940 Act to finance distribution
expenses.
2.4. The Trust represents and warrants that it is lawfully organized and
validly existing under the laws of the State of Delaware and that it does and
will comply in all material respects with the 1940 Act.
2.5. The Adviser represents and warrants that it is and shall remain duly
registered under all applicable federal and state securities laws and that it
shall perform its obligations for the Trust in compliance in all material
respects with the laws of the State of California and any applicable state and
federal securities laws.
2.6. The Trust and the Adviser represent and warrant that all of their
officers, employees, investment advisers, and other individuals or entities
dealing with the money and/or securities of the Trust are, and shall continue to
be at all times, covered by a blanket fidelity bond or similar coverage for the
benefit of the Trust in an amount not less than the minimal coverage required by
Section 17g-(1) of the 1940
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Act or related provisions as may be promulgated from time to time. The
aforesaid bond shall include coverage for larceny and embezzlement and shall be
issued by a reputable bonding company.
2.7. The Trust will provide AICA with as much advance notice as is
reasonably practicable of any material change affecting the Designated
Portfolio(s) (including, but not limited to, any material change in its
registration statement or prospectus affecting the Designated Portfolio(s) and
any proxy solicitation affecting the Designated Portfolio(s)) and consult with
AICA in order to implement any such change in an orderly manner, recognizing the
expenses of changes and attempting to minimize such expenses by implementing
them in conjunction with regular annual updates of the prospectus for the
Contracts.
2.8. AICA represents, assuming that the Trust complies with Article VI of
this Agreement, that the Contracts are currently treated as annuity contracts or
life insurance contracts, as applicable, under applicable provisions of the
Internal Revenue Code of 1986, as amended (the "Code"), and that it will make
every effort to maintain such treatment and that it will notify the Adviser and
the Trust immediately upon having a reasonable basis for believing that the
Contracts have ceased to be so treated or that they might not be so treated in
the future.
2.9. AICA represents and warrants that it will not purchase Trust shares
with assets derived from tax-qualified retirement plans except indirectly,
through Contracts purchased in connection with such plans.
ARTICLE III. PROSPECTUSES AND PROXY STATEMENTS; VOTING
3.1(a). At least annually, the Trust shall provide AICA, at AICA's
expense with camera ready copy of the Trust's prospectus for the Designated
Portfolios or as many copies of the Trust's current prospectus for the
Designated Portfolio(s) as AICA may reasonably request for marketing purposes
(including distribution to Contract owners with respect to new sales of a
Contract). If requested by AICA in lieu thereof, the Adviser or Trust shall
provide such documentation (including a final copy of the new prospectus for the
Designated Portfolio(s)) and other assistance as is reasonably necessary in
order for AICA once each year (or more frequently if the prospectus for the
Designated Portfolio(s) are amended) to have the prospectus for the Contracts
and the Trust's prospectus for the Designated Portfolio(s) printed together in
one document.
3.2. If applicable state or federal laws or regulations require that
the Statement of Additional Information ("SAI") for the Trust be distributed to
all Contract purchasers, then the Trust shall provide AICA, at AICA's expense,
with the Trust's SAI or camera ready documentation thereof for the Designated
Portfolio(s) in such quantities as AICA may reasonably request for marketing
purposes (including distribution to Contract owners with respect to new sales of
a Contract).
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3.3. The Trust shall also provide such SAI to AICA or any owner of a
Contract or prospective owner who requests such SAI (although it is anticipated
that such requests will be made to AICA).
3.4. The Trust shall provide AICA, at AICA's expense, with copies of its
prospectus, SAI, and other communications to stockholders for the Designated
Portfolio(s) in such quantity as AICA shall reasonably require for mailing or
distribution to Contract owners. In addition, Adviser shall assume all printing
expenses in connection with printing a sufficient number of copies for all
Contract owners with respect to all proxy solicitations materials, voting
instruction materials and semi-annual and annual reports that are required to be
provided to Contract owners. In the event that AICA, at the request of the
Adviser, prints such materials and reports upon the receipt of camera ready copy
or other mutually acceptable electronic format from the Adviser, the Adviser
will reimburse AICA for all reasonable printing expenses. AICA shall assume all
postage and mailing expenses incurred in connection with providing such
materials and reports to Contract owners, provided that, if the Adviser is
printing such materials, AICA receives such materials in a timely manner from
the Adviser.
3.5. It is understood and agreed that, except with respect to information
regarding AICA provided in writing by that party, AICA is not responsible for
the content of the prospectus or SAI for the Designated Portfolio(s). It is
also understood and agreed that, except with respect to information regarding
the Trust, Adviser or the Designated Portfolio(s) provided in writing by the
Trust or the Adviser (including, in particular, expense information about the
Designated Portfolios that is intended to be included in the fee table portion
of the Prospectus for the Contracts), neither the Trust nor the Adviser are
responsible for the content of the prospectus or SAI for the Contracts.
3.6. If and to the extent required by law, AICA shall:
(i) solicit voting instructions from Contract owners;
(ii) vote the Designated Portfolio shares in accordance with
instructions received from Contract owners: and
(iii) vote Designated Portfolio shares for which no instructions
have been received in the same proportion as Designated
Portfolio shares for which instructions have been received
from Contract owners, so long as and to the extent that the
SEC continues to interpret the 1940 Act to require pass-
through voting privileges for variable contract owners.
AICA reserves the right to vote Trust shares held in any
segregated asset account in its own right, to the extent
permitted by it by law. The Adviser reserves the right to
vote Trust shares acquired in order to provide "seed money"
for the Portfolios, to the extent permitted by law.
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3.7. AICA shall be responsible for assuring that each of its separate
accounts holding shares of a Designated Portfolio calculates voting privileges
in the manner required by any Shared Funding Exemptive Order that may be
obtained in the future by the Trust. The Trust agrees to promptly notify AICA
of any changes of interpretations or amendments to any Shared Funding Exemptive
Order obtained by the Trust.
3.8. The Trust will comply with all provisions of the 1940 Act requiring
voting by shareholders, and in particular the Trust will either provide for
annual meetings (except insofar as the SEC may interpret Section 16 of the 1940
Act not to require such meetings) or, as the Trust currently intends, comply
with Section 16(c) of the 1940 Act (although the Trust is not one of the trusts
described in Section 16(c) of that Act) as well as with Sections 16(a) and, if
and when applicable, 16(b). Further, the Trust will act in accordance with the
SEC's interpretation of the requirements of Section 16(a) with respect to
periodic elections of trustees and with whatever rules the Commission may
promulgate with respect thereto.
ARTICLE IV. SALES MATERIAL AND INFORMATION
4.1. AICA shall furnish, or shall cause to be furnished, to Nicholas-
Applegate Securities, an affiliated broker-dealer of the Adviser, as distributor
of the Trust, for its written approval, at least ten (10) Business Days prior to
its use, a copy of each piece of sales literature or other promotional material
that AICA develops or proposes to use. Such promotional, sales, advertising and
training material shall be prepared and reviewed in light of all applicable
laws, rules and regulations. All such material shall be approved in writing by
Nicholas-Applegate Securities. Nicholas-Applegate Securities, as distributor of
the Trust, agrees to respond to requests for such approval on a prompt and
timely basis, not exceeding ten (10) Business Days for the initial review of
such materials, and five (5) Business Days for any subsequent review of such
materials.
4.2. AICA shall not give any information or make any representations or
statements on behalf of the Trust or the Adviser or concerning the Trust or the
Adviser in connection with the sale of the Contracts other than the information
or representations contained in the registration statement or prospectus for the
Trust shares, as such registration statement and prospectus may be amended or
supplemented from time to time, or in reports or proxy statements for the Trust,
or in sales literature or other promotional material approved by the Trust or
its designee or by the Adviser, except with the written permission of the Trust
or Nicholas-Applegate Securities.
4.3. Nicholas-Applegate Securities, as distributor of the Trust, shall
furnish, or shall cause to be furnished, to AICA, at least ten (10) Business
Days prior to its use, a copy of each piece of sales literature or other
promotional material that Adviser or Nicholas-Applegate Securities develops or
proposes to use in connection with the sale of the Contracts. Such promotional,
sales, advertising and training material shall be prepared and reviewed in light
of all applicable laws, rules and regulations. All such material shall be
approved in writing by AICA, and AICA agrees to respond to
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requests for such approval on a prompt and timely basis, not exceeding ten (10)
Business Days for the initial review of such materials, and five (5) Business
Days for any subsequent review of such materials.
4.4. The Trust, the Adviser and Nicholas-Applegate Securities shall not
give any information or make any representations on behalf of AICA or concerning
AICA, the Account, or the Contracts other than the information or
representations contained in a registration statement or prospectus for the
Contracts, as such registration statement and prospectus may be amended or
supplemented from time to time, or in reports for the Account, or in sales
literature or other promotional material approved by AICA or its designee,
except with the written permission of AICA.
4.5. The Trust will provide to AICA at least one complete copy of all
registration statements, prospectuses, SAIs, reports, proxy statements, sales
literature and other promotional materials, applications for exemptions,
requests for no-action letters, and all amendments to any of the above, that
relate to the Designated Portfolio(s), contemporaneously with the filing of such
document(s) with the SEC or the National Association of Securities Dealers, Inc.
("NASD") or other regulatory authorities.
4.6. AICA will provide to the Trust at least one complete copy of all
registration statements, prospectuses, SAIs, reports, solicitations for voting
instructions, sales literature and other promotional materials, applications for
exemptions, requests for no-action letters, and all amendments to any of the
above, that relate to the Contracts or the Account (as it relates to the
Contracts), contemporaneously with the filing of such document(s) with the SEC,
the NASD, or other regulatory authorities.
4.7. For purposes of this Article IV, the phrase "sales literature and
other promotional material" includes, but is not limited to, advertisements
(such as material published, or designed for use in, a newspaper, magazine, or
other periodical, radio, television, telephone or tape recording, videotape
display, signs or billboards, motion pictures, or other public media, including
electronic media), sales literature (I.E., any written communication distributed
or made generally available to customers or the public, including brochures,
circulars, research reports, market letters, form letters, seminar texts,
reprints or excerpts of any other advertisement, sales literature, or published
article), educational or training materials or other communications distributed
or made generally available to some or all agents or employees and shareholder
reports. However, it is anticipated that materials provided solely (a)
internally to AICA's or the Adviser's own employees or counsel or (b) to certain
designated third parties and that are not designed to be provided or
communicated in any manner to the general public (e.g. training materials
provided to distributors or agents) will not be filed with the NASD or any state
securities or insurance regulatory authorities, although such materials will be
prepared in accordance with applicable laws.
4.8. At the request of any party to this Agreement, each other party
will make available to the requesting party's independent auditors and/or
representatives of the appropriate regulatory agencies, all records, data and
access to operating
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procedures that may be reasonably requested in connection with compliance and
regulatory requirements related to this Agreement or any party's obligations
under this Agreement.
ARTICLE V. FEES AND EXPENSES
5.1. The Trust and the Adviser shall pay no fee or other compensation to
AICA under this Agreement, and AICA shall pay no fee or other compensation to
the Trust or the Adviser under this Agreement.
5.2. All expenses incident to performance by the Trust or the Adviser under
this Agreement shall be paid by them. The Trust shall see to it that all shares
of the Designated Portfolio(s) are duly registered and authorized for issuance
in accordance with applicable federal law and, if and to the extent required, in
accordance with applicable state laws prior to their sale.
5.3. All expenses incident to performance by AICA under this Agreement
shall be paid by AICA. In this regard, AICA shall bear the expenses of routine
annual distribution of the Trust's prospectus and distributing the Trust's proxy
materials and reports to owners of Contracts offered by AICA.
ARTICLE VI. DIVERSIFICATION AND QUALIFICATION
6.1. The Trust shall use their best efforts to sell its shares and invest
its assets in such a manner as to ensure that the Contracts will be treated as
annuity contracts under the Code, and the regulations issued thereunder. The
Trust and the Adviser agree that shares of the Designated Portfolio(s) will be
sold only to Participating Insurance Companies and their separate accounts,
unless and until the parties otherwise agree in writing.
6.2. No shares of the Trust will be sold to the general public. However,
shares of the Trust may be sold to AICA or the Adviser to provide initial seed
money to the Portfolios, provided the holding of such shares by AICA or the
Adviser is in compliance with Section 817(h) of the Code and the regulations
thereunder.
6.3. The Trust and Adviser represent and warrant that the Trust and each
Designated Portfolio intends to qualify as a Regulated Investment Company under
Subchapter M of the Code, and that the Trust and the Adviser will expend their
best efforts to maintain such qualification (under Subchapter M or any successor
or similar provisions) as long as this Agreement is in effect.
6.4. The Trust or Adviser will notify AICA immediately upon having a
reasonable basis for believing that the Trust or any Portfolio has ceased to
comply with the aforesaid Section 817(h) diversification or Subchapter M
qualification requirements or might not so comply in the future.
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ARTICLE VII. POTENTIAL CONFLICTS AND COMPLIANCE WITH ANY
SHARED FUNDING EXEMPTIVE ORDER OBTAINED
7.1. The Board will monitor the Trust for the existence of any material
irreconcilable conflict between the interests of the contract owners of all
separate accounts investing in the Trust. An irreconcilable material conflict
may arise for a variety of reasons, including: (a) an action by any state
insurance regulatory authority; (b) a change in applicable federal or state
insurance, tax, or securities laws or regulations, or a public ruling, private
letter ruling, no-action or interpretative letter, or any similar action by
insurance, tax, or securities regulatory authorities; (c) an administrative or
judicial decision in any relevant proceeding; (d) the manner in which the
investments of any Designated Portfolio are being managed; (e) a difference in
voting instructions given by variable annuity contract and variable life
insurance contract owners; or (f) a decision by a Participating Insurance
Company to disregard the voting instructions of contract owners. The Trust
shall promptly inform AICA if the Board determines that an irreconcilable
material conflict exists and the implications thereof.
7.2. AICA and the Adviser will report any potential or existing conflicts
of which it is aware to the Board. AICA and the Adviser will assist the Board
in carrying out its responsibilities under any Shared Funding Exemptive Order
obtained by the Trust, by providing the Board with all information reasonably
necessary for the Board to consider any issues raised. This includes, but is
not limited to, an obligation by AICA to inform the Board whenever contract
owner voting instructions are to be disregarded. Such responsibilities shall be
carried out by AICA with a view only to the interests of its Contract owners.
7.3. If it is determined by a majority of the Board, or a majority of its
trustees who are not interested persons of the Trust, the Adviser or any sub-
adviser to any of the Designated Portfolios (the "Independent Trustees"), that a
material irreconcilable conflict exists, AICA and other Participating Insurance
Companies shall, at their expense and to the extent reasonably practicable (as
determined by a majority of the Independent Trustees), take whatever steps are
necessary to remedy or eliminate the irreconcilable material conflict, up to and
including: (a) withdrawing the assets allocable to some or all of the separate
accounts from the Trust or any Designated Portfolio and reinvesting such assets
in a different investment medium, including (but not limited to) another
Designated Portfolio of the Trust, or submitting the question whether such
segregation should be implemented to a vote of all affected Contract owners and,
as appropriate, segregating the assets of any appropriate group (I.E., annuity
contract owners, life insurance contract owners, or variable contract owners of
one or more Participating Insurance Companies) that votes in favor of such
segregation, or offering to the affected Contract owners the option of making
such a change; and (b) establishing a new registered management investment
company or managed separate account.
7.4. If a material irreconcilable conflict arises because of a decision by
AICA to disregard Contract owner voting instructions and that decision
represents a minority position or would preclude a majority vote, AICA may be
required, at the Trust's election, to withdraw the Account's investment in the
Trust and terminate this
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Agreement; provided, however that such withdrawal and termination shall be
limited to the extent required by the foregoing material irreconcilable conflict
as determined by a majority of the Independent Trustees. Any such withdrawal
and termination must take place within six (6) months after the Trust gives
written notice that this provision is being implemented and, until the end of
that six (6) month period, the Adviser and the Trust shall continue to accept
and implement orders by AICA for the purchase (and redemption) of shares of the
Trust.
7.5. If a material irreconcilable conflict arises because a particular
state insurance regulator's decision applicable to AICA conflicts with the
majority of other state regulators, then AICA will withdraw the Account's
investment in the Trust and terminate this Agreement within six (6) months after
the Board informs AICA in writing that it has determined that such decision has
created an irreconcilable material conflict; provided, however, that such
withdrawal and termination shall be limited to the extent required by the
foregoing material irreconcilable conflict as determined by a majority of the
Independent Trustees. Until the end of the foregoing six (6) month period, the
Adviser and the Trust shall continue to accept and implement orders by AICA for
the purchase (and redemption) of shares of the Trust.
7.6. For purposes of Sections 7.3 through 7.6 of this Agreement, a majority
of the Independent Trustees shall determine whether any proposed action
adequately remedies any irreconcilable material conflict, but in no event will
the Trust be required to establish a new funding medium for the Contracts. AICA
shall not be required by Section 7.3 to establish a new funding medium for the
Contracts if an offer to do so has been declined by vote of a majority of
Contract owners materially adversely affected by the irreconcilable material
conflict. In the event that the Board determines that any proposed action does
not adequately remedy any irreconcilable material conflict, then AICA will
withdraw the Account's investment in the Trust and terminate this Agreement
within six (6) months after the Board informs AICA in writing of the foregoing
determination; provided, however, that such withdrawal and termination shall be
limited to the extent required by any such material irreconcilable conflict as
determined by a majority of the Independent Trustees.
7.7. If and to the extent that Rule 6e-2 and Rule 6e-3(T) under the 1940
Act are amended, or Rule 6e-3 is adopted, to provide exemptive relief from any
provision of the 1940 Act or the rules promulgated thereunder with respect to
mixed or shared funding on terms and conditions materially different from those
contained in the Shared Funding Exemptive Order, then (a) the Trust and/or the
Participating Insurance Companies, as appropriate, shall take such steps as may
be necessary to comply with Rules 6e-2 and 6e-3(T) under the 1940 Act, as
amended, and Rule 6e-3, as adopted, to the extent such rules are applicable: and
(b) Sections 3.6, 3.7, 3.8, 7.1, 7.2, 7.3, 7.4, and 7.5 of this Agreement shall
continue in effect only to the extent that terms and conditions substantially
identical to such Sections are contained in such Rule(s) as so amended or
adopted.
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ARTICLE VIII. INDEMNIFICATION
8.1. INDEMNIFICATION BY AICA
8.1(a). AICA agrees to indemnify and hold harmless each of the
Trust, the Adviser, and any sub-advisers and their officers and partners and
each member of their Board(s) and each person, if any, who controls any such
person within the meaning of the Section 15 of the 1933 Act (each an
"Indemnified Party" and collectively, the "Indemnified Parties" for purposes of
this Section 8.1) against any and all losses, claims, expenses, damages,
liabilities (including amounts paid in settlement with the written consent of
AICA) or litigation (including legal and other expenses) to which such
Indemnified Party may become subject under any statute or regulation, at common
law or otherwise, insofar as such losses, claims, damages, liabilities or
expenses (or actions in respect thereof) or settlements are related to the sale
or acquisition of the Trust's shares or the Contracts and:
(i) arise out of or are based upon any untrue statement or alleged
untrue statement of any material fact contained in the registration
statement or prospectus or SAI for the Contracts or contained in the
Contracts or sales literature for the Contracts (or any amendment or
supplement to any of the foregoing), or arise out of or are based
upon the omission or the alleged omission to state therein a
material fact required to be stated therein or necessary to make the
statements therein not misleading, PROVIDED that this agreement to
indemnify shall not apply as to any Indemnified Party if such
statement or omission or such alleged statement or omission was made
in reliance upon and in conformity with information furnished in
writing to AICA by or on behalf of the Trust or the Adviser for use
in the registration statement or prospectus for the Contracts or in
the Contracts or sales literature (or any amendment or supplement)
or otherwise for use in connection with the sale of the Contracts or
Trust shares; or
(ii) arise out of or as a result of statements or representations (other
than statements or representations contained in the registration
statement, prospectus or sales literature of the Trust not supplied
by AICA or persons under its control) or wrongful conduct of AICA or
persons under its control, with respect to the sale or distribution
of the Contracts or Trust Shares; or
(iii) arise out of any untrue statement or alleged untrue statement of a
material fact contained in a registration statement, prospectus, or
sales literature of the Trust or any amendment thereof or supplement
thereto or the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the
statements therein not misleading if such a statement or omission
was made in reliance upon information furnished in writing to the
Trust by or on behalf of AICA; or
<PAGE>
(iv) arise as a result of any failure by AICA to provide the services and
furnish the materials under the terms of this Agreement; or
(v) arise out of or result from any material breach of any representation
and/or warranty made by AICA in this Agreement or arise out of or
result from any other material breach of this Agreement by AICA;
as limited by and in accordance with the provisions of Sections 8.1(b) and
8.1(c) hereof.
8.1(b). AICA shall not be liable under this indemnification provision
with respect to any losses, claims, expenses, damages, liabilities or litigation
to which an Indemnified Party would otherwise be subject by reason of such
Indemnified Party's willful misfeasance, bad faith, or gross negligence in the
performance of such Indemnified Party's duties or by reason of such Indemnified
Party's reckless disregard of obligations or duties under this Agreement or to
the Trust, whichever is applicable.
8.1(c). AICA shall not be liable under this indemnification provision
with respect to any claim made against an Indemnified Party unless such
Indemnified Party shall have notified AICA in writing within a reasonable time
after the summons or other first legal process giving information of the nature
of the claim shall have been served upon such Indemnified Party (or after such
Indemnified Party shall have received notice of such service on any designated
agent), but failure to notify AICA of any such claim shall not relieve AICA from
any liability which it may have to the Indemnified Party against whom such
action is brought otherwise than on account of this indemnification provision,
except to the extent that AICA has been prejudiced by such failure to give
notice. In case any such action is brought against an Indemnified Party, AICA
shall be entitled to participate, at its own expense, in the defense of such
action. AICA also shall be entitled to assume the defense thereof, with counsel
satisfactory to the party named in the action. After notice from AICA to such
party of AICA's election to assume the defense thereof, the Indemnified Party
shall bear the fees and expenses of any additional counsel retained by it, and
AICA will not be liable to such party under this Agreement for any legal or
other expenses subsequently incurred by such party independently in connection
with the defense thereof other than reasonable costs of investigation.
8.1(d). The Indemnified Parties will promptly notify AICA of the
commencement of any litigation or proceedings against them in connection with
the issuance or sale of the Trust Shares or the Contracts or the operation of
the Trust.
8.2. INDEMNIFICATION BY THE ADVISER
8.2(a). The Adviser agrees to indemnify and hold harmless AICA and
its directors and officers and each person, if any, who controls AICA within the
meaning of Section 15 of the 1933 Act (each an "Indemnified Party" and
collectively, the "Indemnified Parties" for purposes of this Section 8.2)
against any and all losses, claims, expenses, damages, liabilities (including
amounts paid in settlement with the written consent of the Adviser) or
litigation (including legal and other expenses) to which the Indemnified Parties
may become subject under any statute or regulation, at
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common law or otherwise, insofar as such losses, claims, expenses, damages,
liabilities (or actions in respect thereof) or litigation are related to the
sale or acquisition of the Trust's shares or the Contracts and:
(i) arise out of or are based upon any untrue statement or alleged untrue
statement of any material fact contained in the registration statement
or prospectus or SAI or sales literature of the Trust (or any
amendment or supplement to any of the foregoing), or arise out of or
are based upon the omission or the alleged omission to state therein a
material fact required to be stated therein or necessary to make the
statements therein not misleading, PROVIDED that this agreement to
indemnify shall not apply as to any Indemnified Party if such
statement or omission or such alleged statement or omission was made
in reliance upon and in conformity with information furnished in
writing to the Trust or the Adviser by or on behalf of AICA for use in
the Registration Statement or prospectus for the Trust or in sales
literature (or any amendment or supplement) or otherwise for use in
connection with the sale of the Contracts or Trust shares; or
(ii) arise out of or as a result of statements or representations (other
than statements or representations contained in the registration
statement, prospectus or sales literature for the Contracts not
supplied by the Adviser or persons under its control) or wrongful
conduct of the Trust or Adviser or persons under their control, with
respect to the sale or distribution of the Contracts or Trust shares;
or
(iii) arise out of any untrue statement or alleged untrue statement of a
material fact contained in a registration statement, prospectus or
sales literature covering the Contracts, or any amendment thereof or
supplement thereto, or the omission or alleged omission to state
therein a material fact required to be stated therein or necessary
to make the statement or statements therein not misleading, if such
statement or omission was made in reliance upon information
furnished in writing to AICA by or on behalf of the Trust or the
Adviser; or
(iv) arise as a result of any failure by the Trust or the Adviser to
provide the services and furnish the materials required to be provided
or furnished by the Trust or the Adviser under the terms of this
Agreement (including a failure to comply with the diversification and
other qualification requirements specified in Article VI of this
Agreement); or
(v) arise out of or result from any material breach of any representation
and/or warranty made by the Trust or Adviser in this Agreement or
arise out of or result from any other material breach of this
Agreement by the Adviser;
as limited by and in accordance with the provisions of Sections 8.2(b) and
8.2(c) hereof.
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8.2(b). The Adviser shall not be liable under this indemnification
provision with respect to any losses, claims, expenses, damages, liabilities or
litigation to which an Indemnified Party would otherwise be subject by reason of
such Indemnified Party's willful misfeasance, bad faith, or gross negligence in
the performance of such Indemnified Party's duties or by reason of such
Indemnified Party's reckless disregard of obligations and duties under this
Agreement or to AICA or the Account, whichever is applicable.
8.2(c). The Adviser shall not be liable under this indemnification
provision with respect to any claim made against an Indemnified Party unless
such Indemnified Party shall have notified the Adviser in writing within a
reasonable time after the summons or other first legal process giving
information of the nature of the claim shall have been served upon such
Indemnified Party (or after such Indemnified Party shall have received notice of
such service on any designated agent), but failure to notify the Adviser of any
such claim shall not relieve the Adviser from any liability which it may have to
the Indemnified Party against whom such action is brought otherwise than on
account of this indemnification provision, except to the extent that the Adviser
has been prejudiced by such failure to give notice. In case any such action is
brought against an Indemnified Party, the Adviser will be entitled to
participate, at its own expense, in the defense of such action. The Adviser
also shall be entitled to assume the defense thereof, with counsel reasonably
satisfactory to the party named in the action. After notice from the Adviser to
such party of the Adviser's election to assume the defense thereof, the
Indemnified Party shall bear the fees and expenses of any additional counsel
retained by it, and the Adviser will not be liable to such party under this
Agreement for any legal or other expenses subsequently incurred by such party
independently in connection with the defense thereof other than reasonable costs
of investigation.
8.2(d). AICA agrees promptly to notify the Adviser of the
commencement of any litigation or proceedings against it or any of its officers
or directors in connection with the issuance or sale of the Contracts or the
operation of the Account.
8.3. INDEMNIFICATION BY THE TRUST
8.3(a). The Trust agrees to indemnify and hold harmless AICA and its
directors and officers and each person, if any, who controls AICA within the
meaning of Section 15 of the 1933 Act (each individually an "Indemnified Party"
and collectively, the "Indemnified Parties" for purposes of this Section 8.3)
against any and all losses, claims, expenses, damages, liabilities (including
amounts paid in settlement with the written consent of the Trust) or litigation
(including legal and other expenses) to which the Indemnified Parties may become
subject under any statute or regulation, at common law or otherwise, insofar as
such losses, claims, expenses, damages, liabilities or expenses (or actions in
respect thereof) or settlement, are related to the operations of the Trust and:
(i) arise as a result of any failure by the Trust to provide the services
and furnish the materials required to be provided or furnished by it
under the terms of this Agreement (including a failure, whether
unintentional
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or in good faith or otherwise, to comply with the diversification and
other qualification requirements specified in Article VI of this
Agreement); or
(ii) arise out of or result from any material breach of any representation
and/or warranty made by the Trust in this Agreement or arise out of or
result from any other material breach of this Agreement by the Trust;
or
as limited by and in accordance with the provisions of Sections 8.3(b) and
8.3(c) hereof.
8.3(b). The Trust shall not be liable under this indemnification
provision with respect to any losses, claims, expenses, damages, liabilities or
litigation to which an Indemnified Party would otherwise be subject by reason of
such Indemnified Party's willful misfeasance, bad faith, or gross negligence in
the performance of such Indemnified Party's duties or by reason of such
Indemnified Party's reckless disregard of obligations and duties under this
Agreement or to AICA, the Trust, the Adviser or the Account, whichever is
applicable.
8.3(c). The Trust shall not be liable under this indemnification
provision with respect to any claim made against an Indemnified Party unless
such Indemnified Party shall have notified the Trust in writing within a
reasonable time after the summons or other first legal process giving
information of the nature of the claim shall have been served upon such
Indemnified Party (or after such Indemnified Party shall have received notice of
such service on any designated agent), but failure to notify the Trust of any
such claim shall not relieve the Trust from any liability which it may have to
the Indemnified Party against whom such action is brought otherwise than on
account of this indemnification provision, except to the extent that the Trust
has been prejudiced by such failure to give notice. In case any such action is
brought against an Indemnified Party, the Trust will be entitled to participate
in the defense or to defend against such action and will not be liable to such
party under this Agreement for any legal or other expenses subsequently incurred
by such party independently in connection with the defense thereof other than
reasonable costs of investigation.
8.3(d). AICA agrees promptly to notify the Trust of the commencement
of any litigation or proceeding against it or any of its officers or directors
in connection with the Agreement, the issuance or sale of the Contracts, the
operation of the Account, or the sale or acquisition of shares of the Trust.
ARTICLE IX. APPLICABLE LAW
9.1. This Agreement shall be construed and the provisions hereof
interpreted under and in accordance with the laws of the State of California,
except the California conflict of laws provisions.
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<PAGE>
9.2. This Agreement shall be subject to the provisions of the 1933, 1934
and 1940 Acts, and the rules and regulations and rulings thereunder, including
such exemptions from those laws, rules and regulations as the SEC may grant
(including, but not limited to, any Shared Funding Exemptive Order obtained by
the Trust) and the terms hereof shall be interpreted and construed in accordance
therewith.
ARTICLE X. TERMINATION
10.1. This Agreement shall terminate:
(a) at the option of any party, with or without cause, with respect
to some or all Designated Portfolios, upon six (6) months advance
written notice delivered to the other parties; provided, however, that
such notice shall not be given earlier than July 31, 1998; or
(b) at the option of AICA, by thirty (30) days written notice to the
other parties with respect to any Designated Portfolio based upon
AICA's determination that shares of such Portfolio are not reasonably
available to meet the requirements of the Contracts; or
(c) at the option of AICA, by thirty (30) days written notice to the
other parties with respect to any Designated Portfolio in the event
any of the Designated Portfolio's shares are not registered, issued or
sold in accordance with applicable state and/or federal law or such
law precludes the use of such shares as the underlying investment
media of the Contracts issued or to be issued by AICA; or
(d) at the option of the Trust, upon thirty (30) days written notice,
in the event that formal administrative proceedings are instituted
against AICA or the principal underwriter of the Contracts by the
NASD, the SEC, the Insurance Commissioner or like official of any
state or any other regulatory body regarding AICA's duties under this
Agreement or related to the sale of the Contracts, the operation of
any Account, or the purchase of the Trust shares, provided, however,
that the Trust determines, in its sole judgment exercised in good
faith, that any such administrative proceeding will have a material
adverse effect upon the ability of AICA to perform its obligations
under this Agreement; or
(e) at the option of AICA, upon thirty (30) days written notice, in
the event that formal administrative proceedings are instituted
against the Trust or Adviser by the SEC, the NASD, or any state
securities or insurance department or any other regulatory body,
provided, however, that AICA determines, in its sole judgment
exercised in good faith, that any such administrative proceeding will
have a material adverse effect upon the ability of the Trust or
Adviser to perform its obligations under this Agreement; or
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(f) at the option of AICA, by written notice to the Trust and the
Adviser with respect to any Designated Portfolio if AICA reasonably
believes that the Portfolio will fail to meet the Section 817(h)
diversification requirements or Subchapter M qualifications specified
in Article VI hereof; or
(g) at the option of either the Trust or the Adviser, if (i) the
Trust or the Adviser, respectively, shall determine, in its sole
judgement reasonably exercised in good faith, that AICA has suffered a
material adverse change in its business or financial condition or is
the subject of material adverse publicity and that material adverse
change or publicity will have a material adverse impact on AICA's
ability to perform its obligations under this Agreement, (ii) the
Trust or the Adviser notifies AICA of that determination and its
intent to terminate this Agreement, AND (iii) after considering the
actions taken by AICA and any other changes in circumstances since the
giving of such a notice, the determination of the Trust or Adviser
shall continue to apply, in its sole judgment exercised in good faith,
on the sixtieth (60th) day following the giving of that notice, which
sixtieth day shall be the effective date of termination; or
(h) at the option of AICA, if (i) AICA shall determine, in its sole
judgement reasonably exercised in good faith, that either the Trust or
the Adviser has suffered a material adverse change in its business or
financial condition or is the subject of material adverse publicity
and that material adverse change or publicity will have a material
adverse impact on the Trust's or the Adviser's ability to perform its
obligations under this Agreement, (ii) AICA notifies the Trust or the
Adviser, as appropriate, of that determination and its intent to
terminate this Agreement, AND (iii) after considering the actions
taken by the Trust or the Adviser and any other changes in
circumstances since the giving of such a notice, the determination of
AICA shall continue to apply, in its sole judgment exercised in good
faith, on the sixtieth (60th) day following the giving of that notice,
which sixtieth (60th) day shall be the effective date of termination.
10.2. NOTICE REQUIREMENT. No termination of this Agreement shall be
effective unless and until the party terminating this Agreement gives prior
written notice to all other parties of its intent to terminate, which notice
shall set forth the basis for the termination.
10.3. EFFECT OF TERMINATION. Notwithstanding any termination of this
Agreement or any other agreement between the parties, the Trust and the Adviser
shall continue to make available additional shares of the Trust pursuant to the
terms and conditions of this Agreement, for all Contracts in effect on the
effective date of termination of this Agreement (hereinafter referred to as
"Existing Contracts"). Specifically, without limitation, the owners of the
Existing Contracts shall be permitted to reallocate investments in the Trust,
redeem investments in the Trust and/or invest in the Trust upon the making of
additional purchase payments under the
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<PAGE>
Existing Contracts. The parties agree that this Section 10.3 shall not apply to
any terminations under Article VII and the effect of such Article VII
terminations shall be governed by Article VII of this Agreement.
10.4 RESTRICTIONS ON REDEMPTION OF SHARES. AICA shall not redeem Trust
shares attributable to the Contracts (as opposed to Trust shares attributable to
the AICA assets held in the Account) except: (a) as necessary to implement
Contract owner initiated transactions, (b) as required by with state and/or
federal laws or regulations or judicial or other legal precedent of general
application (a "Legally Required Redemption") or (c) as permitted by an order of
the SEC pursuant to Section 26(b) of the 1940 Act (if and to the extent that the
SEC continues to require the receipt of such an order or any other order of the
SEC in order for AICA to redeem Trust shares attributable to the Contracts).
Upon request, AICA will promptly furnish to the Trust and the Adviser an opinion
of counsel for AICA (which counsel shall be reasonably satisfactory to the Trust
and the Adviser) to the effect that any redemption pursuant to clause (b) above
is a Legally Required Redemption or any redemption pursuant to clauses (a), (b)
or (c) is permitted without first obtaining an order of the SEC pursuant to
Section 26(b) of the 1940 Act. Furthermore, AICA may prevent Contract owners
from allocating payments to a Portfolio that was otherwise available under the
Contracts provided that AICA first gives the Trust or the Adviser ninety (90)
days notice of its intention to do so.
10.5. SURVIVING PROVISIONS. Notwithstanding any termination of this
Agreement, each party's obligations under Article VIII to indemnify other
parties shall survive and not be affected by any termination of this Agreement.
In addition, with respect to Existing Contracts, all provisions of this
Agreement shall also survive and not be affected by any termination of this
Agreement.
ARTICLE XI. NOTICES
Any notice shall be sufficiently given when sent by registered or certified
mail to the other party at the address of such party set forth below or at such
other address as such party may from time to time specify in writing to the
other party.
If to the Trust:
Nicholas-Applegate Series Trust
600 West Broadway, 30th Floor,
San Diego, California 92101
Attn: Secretary
If to the Adviser:
Nicholas-Applegate Capital Management
600 West Broadway, 29th Floor,
San Diego, California 92101
Attn: General Counsel
If to AICA:
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<PAGE>
AICA Life Insurance and Annuity Company
151 Farmington Avenue
Hartford, Connecticut 06156
Attention: Julie Rockmore, Esq.
with a simultaneous copy to:
Maria F. McKeon, Esq.
AICA Life Insurance and Annuity Company
151 Farmington Avenue
Hartford, Connecticut 06156
or such other address as such party may hereafter specify in writing or by
facsimile. Each such notice to a party shall be either hand delivered or
transmitted by registered or certified United States mail with return receipt
requested, and shall be effective upon delivery.
ARTICLE XII. MISCELLANEOUS
12.1. Subject to the requirements of legal process and regulatory
authority, each party hereto shall treat as confidential the names and addresses
of the owners of the Contracts and all information reasonably identified as
confidential in writing by any other party hereto and, except as permitted by
this Agreement, shall not disclose, disseminate or utilize such names and
addresses and other confidential information without the express written consent
of the affected party until such time as such information may come into the
public domain. Without limiting the foregoing, no party hereto shall disclose
any information that such party has been advised is proprietary, except such
information that such party is required to disclose by any appropriate
governmental authority (including without limitation the SEC, the NASD and state
securities or insurance regulators).
12.2. The captions in this Agreement are included for convenience of
reference only and in no way define or delineate any of the provisions hereof or
otherwise affect their construction or effect.
12.3. This Agreement may be executed simultaneously in two or more
counterparts, each of which taken together shall constitute one and the same
instrument.
12.4. This Agreement constitutes the whole agreement between the
parties hereto with respect to the subject matter hereof, and supersedes all
prior oral or written understandings, agreements or negotiations between the
parties with respect to such subject matter, except as otherwise agreed to in
writing by the parties. No prior writings by or between the parties with
respect to the subject matter hereof shall be used by either party in connection
with the interpretation of any provision of this Agreement. If any provision of
this Agreement shall be held or made invalid by a court decision, statute, rule
or otherwise, the remainder of the Agreement shall not be affected thereby.
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<PAGE>
12.5. Each party hereto shall cooperate with each other party and all
appropriate governmental authorities (including without limitation the SEC, the
NASD and state securities or insurance regulators) and shall permit such
authorities reasonable access to its books and records in connection with any
investigation or inquiry relating to this Agreement or the transactions
contemplated hereby.
12.6. Any controversy or claim arising out of or relating to this
Agreement, or breach thereof, shall be settled by arbitration in a forum jointly
selected by the relevant parties (but if applicable law requires some other
forum, then such other forum) in accordance with the Commercial Arbitration
Rules of the American Arbitration Association, and judgment upon the award
rendered by the arbitrators may be entered in any court having jurisdiction
thereof.
12.7. The rights, remedies and obligations contained in this Agreement are
cumulative and are in addition to any and all rights, remedies and obligations,
at law or in equity, which the parties hereto are entitled to under state and
federal laws.
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12.8. This Agreement or any of the rights and obligations hereunder may
not be assigned by any party without the prior written consent of all parties
hereto.
IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to
be executed in its name and on its behalf by its duly authorized representative
and its seal to be hereunder affixed hereto as of the date specified below.
AETNA INSURANCE COMPANY OF AMERICA
By its authorized officer
SEAL By: _____________________________
Title: ____________________________
Date: ____________________________
NICHOLAS-APPLEGATE SERIES TRUST
By its authorized officer
SEAL By: _______________________________
E. Blake Moore, Jr.
Title: Secretary
Date:_______________________________
NICHOLAS-APPLEGATE CAPITAL MANAGEMENT
SEAL By: ______________________________
E. Blake Moore, Jr.
Title:
Date: ____________________________
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SCHEDULE A
CONTRACTS AND
SEPARATE ACCOUNTS FORM NUMBERS
- ----------------- ------------
Variable Annuity Account I 1. G-CDA-94 (NQ) using the
Nicholas-Applegate/ ALIAC
Schedule Page.
2. G-CDA-94 (IR) using the
Nicholas-Applegate/ALIAC
Schedule Page.
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SCHEDULE B
DESIGNATED PORTFOLIOS
- ---------------------
Nicholas-Applegate Series Trust:
1. Core Growth Series
2. Emerging Growth Series
3. International Growth Series
4. Value Series
5. Diversified Income Series
6. International Fixed Income Series
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EXHIBIT 9.7
PARTICIPATION AGREEMENT
Among
NICHOLAS-APPLEGATE SERIES TRUST
NICHOLAS-APPLEGATE CAPITAL MANAGEMENT
and
ALIAC LIFE INSURANCE AND ANNUITY COMPANY
THIS AGREEMENT, made and entered into as of this ____ day of January,
1996 by and among ALIAC LIFE INSURANCE AND ANNUITY COMPANY (hereinafter
"ALIAC"), a Connecticut life insurance company, on its own behalf and on
behalf of its Variable Annuity Account B and such additional separate
accounts as may be set forth on Schedule A attached hereto (the
"Accounts"); Nicholas-Applegate Series Trust, a business trust organized
under the laws of Delaware (hereinafter the "Trust"); and Nicholas-
Applegate Capital Management, (hereinafter the "Adviser"), a California
limited partnership.
WHEREAS, the Trust engages in business as an open-end management
investment company and is available to act as the investment vehicle for
separate accounts established for variable life insurance policies and/or
variable annuity contracts (collectively, the "Variable Insurance
Products") to be offered by insurance companies which have entered into
participation agreements similar to this Agreement (hereinafter
"Participating Insurance Companies"); and
WHEREAS, the beneficial interest in the Trust is divided into several
series of shares, each designated a "Portfolio" and representing the
interest in a particular managed portfolio of securities and other assets;
and
WHEREAS, the Trust intends to file an application to obtain an order
from the Securities and Exchange Commission (the "SEC"), granting
Participating Insurance Companies and variable annuity and variable life
insurance separate accounts exemptions from the provisions of sections
9(a), 13(a), 15(a), and 15(b) of the Investment Company Act of 1940, as
amended, (the "1940 Act") and Rules 6e-2(b)(15) and 6e-3(T) (b)(15)
thereunder, to the extent necessary to permit shares of the Trust to be
sold to and held by variable annuity and variable life insurance separate
accounts of life insurance companies that may or may not be affiliated
with one another (the "Shared Funding Exemptive Order"); and
WHEREAS, the Trust is registered as an open-end management investment
company under the 1940 Act and shares of the Portfolio(s) are registered
under the Securities Act of 1933, as amended (the "1933 Act"); and
<PAGE>
WHEREAS, the Adviser is duly registered as an investment adviser
under the Investment Advisers Act of 1940, as amended, and any applicable
state securities laws; and
WHEREAS, ALIAC has registered or will register certain variable
annuity and variable life insurance contracts supported wholly or
partially by the Account (the "Contracts") under the 1933 Act and said
Contracts are listed in Schedule A hereto, as it may be amended from time
to time by mutual written agreement; and
WHEREAS, each Account is or will be a duly organized, validly
existing segregated asset account, established by resolution of the Board
of Directors of ALIAC, to set aside and invest assets attributable to
variable annuity contracts, including the Contracts; and
WHEREAS, ALIAC has registered or will register the Account as a unit
investment trust under the 1940 Act; and
WHEREAS, to the extent permitted by applicable insurance laws and
regulations, ALIAC intends to purchase shares in the Portfolio(s) listed
in Schedule B hereto, as it may be amended from time to time by mutual
written agreement (the "Designated Portfolio(s)"), on behalf of the
Accounts to fund the aforesaid Contracts, and the Adviser, or an
affiliate, is authorized to sell such shares to unit investment trusts
such as the Account at net asset value; and
NOW, THEREFORE, in consideration of their mutual promises, ALIAC, the
Trust and the Adviser agree as follows:
ARTICLE I. SALE OF TRUST SHARES
1.1. The Adviser, or an affiliate, agrees to sell to ALIAC those
shares of the Designated Portfolio(s) which the Account orders, executing
such orders on a daily basis at the net asset value next computed after
receipt by the Transfer Agent for the Trust or its designee of the order
for the shares of the Portfolios. For purposes of this Section 1.1, ALIAC
shall be the designee of the Transfer Agent of the Trust for receipt of
such orders and receipt by such designee shall constitute receipt by the
Transfer Agent of the Trust, provided that the Transfer Agent of the Trust
receives notice of any such order prior to 9:00 a.m. Eastern Time on the
next following Business Day. "Business Day" shall mean any day on which
the New York Stock Exchange is open for trading and on which the Trust
calculates its net asset value pursuant to the rules of the SEC.
1.2. The Trust agrees to make shares of the Designated
Portfolio(s) available for purchase at the applicable net asset value per
share by ALIAC and the Account on those days on which the Trust calculates
its Designated Portfolio(s)' net asset value pursuant to rules of the SEC,
and the Trust shall calculate such net asset value on each day which the
New York Stock Exchange is open for trading. Notwithstanding the
foregoing, the Board of Trustees of the Trust (the "Board") may refuse to
sell shares of any Portfolio to any person, or suspend or terminate the
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<PAGE>
offering of shares of any Portfolio if such action is required by law or
by regulatory authorities having jurisdiction or is, in the sole
discretion of the Board acting in good faith and in light of their
fiduciary duties under federal and any applicable state laws, necessary in
the best interests of the shareholders of such Portfolio.
1.3. The Trust and the Adviser will not sell shares of the
Designated Portfolio(s) to any other insurance company or separate account
and ALIAC will not purchase shares of any investment company under the
Contracts (other than one advised by ALIAC or an affiliate) unless an
agreement containing provisions substantially the same as Sections 2.1,
3.6, 3.7, 3.8, and Article VII of this Agreement is in effect to govern
such sales.
1.4. The Trust agrees to redeem for cash, at ALIAC's request, any
full or fractional shares of the Trust held by ALIAC, executing such
requests on a daily basis at the net asset value next computed after
receipt by the Transfer Agent for the Trust or its designee of the request
for redemption. Requests for redemption identified by ALIAC, or its
agent, as being in connection with surrenders, annuitizations, or death
benefits under the Contracts may be executed within five (5) calendar days
after receipt by the Transfer Agent for the Trust or its designee of the
requests for redemption subject to the right to suspend redemptions
pursuant to the 1940 Act. This Section 1.4 may be amended, in writing, by
the parties consistent with the requirements of the 1940 Act and
interpretations thereof. For purposes of this Section 1.4, ALIAC shall be
the designee of the Transfer Agent for the Trust for receipt of requests
for redemption and receipt by such designee shall constitute receipt by
the Trust, provided that the Trust receives notice of any such request for
redemption by 9:00 a.m. Eastern Time on the next following Business Day.
1.5. The Parties hereto acknowledge that the arrangement contemplated
by this Agreement is not exclusive; the Trust's shares may be sold to
other insurance companies (subject to Section 1.3 and Article VI hereof).
1.6. ALIAC shall pay for Trust shares by 10:00 a.m. Eastern Time
on the next Business Day after an order to purchase Trust shares is made
in accordance with the provisions of Section 1.1 hereof. Payment shall be
in federal funds transmitted by wire and/or by a credit for any shares
redeemed the same day as the purchase.
1.7. The Trust shall pay and transmit the proceeds of redemptions
of Trust shares by 10:00 a.m. Eastern Time on the next Business Day after
a redemption order is received in accordance with Section 1.4 hereof
subject to the right to suspend redemptions pursuant to the 1940 Act.
Payment shall be in federal funds transmitted by wire and/or a credit for
any shares purchased the same day as the redemption.
1.8. Issuance and transfer of the Trust's shares will be by book
entry only. Stock certificates will not be issued to ALIAC or to the
Account. Shares ordered from the Trust will be recorded in an appropriate
title for the Account or in the appropriate sub-account of the Account.
1.9. The Trust or its designee shall furnish same day notice (by
wire or telephone, followed by written confirmation) to ALIAC of any
income, dividends or
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<PAGE>
capital gain distributions payable on the Designated Portfolio(s)' shares.
ALIAC hereby elects to receive all such income dividends and capital gain
distributions as are payable on the Portfolio shares in additional shares
of that Portfolio. The Trust shall notify ALIAC by the end of the
following Business Day of the number of shares so issued as payment of
such dividends and distributions.
1.10. The Trust or its designee shall make the net asset value per
share for each Designated Portfolio available to ALIAC on a daily basis as
soon as is reasonably practical after the net asset value per share is
calculated and shall use its best efforts to make such net asset value per
share available by 6:00 p.m. Eastern Time. If the Trust or its designee
provides ALIAC with incorrect per share net asset value information or
incorrect information regarding dividend or capital gains distributions,
for any Designated Portfolio through no fault of ALIAC, ALIAC, on behalf
of the Accounts, shall be entitled to an adjustment to the number of
shares purchased or redeemed to reflect (as of the date the incorrect net
asset value per share or dividend or capital gains distribution
information was provided) the correct net asset value per share or
dividend or capital gains distribution only, if and to the extent
necessary, ALIAC is required to make adjustments to the number of units
credited and/or unit values for the Contracts for the periods affected.
In addition, to the extent that such adjustment in the number of shares to
reflect the correct net asset value per share or dividend or capital gains
distribution is not sufficient to compensate ALIAC for reasonable and
necessary expenses and/or losses it has incurred in making required
adjustments to owners of Contracts as a result of incorrect per share net
asset value or dividend or capital gains distribution information, the
Trust or its designee shall assume and/or compensate ALIAC for any such
reasonable and necessary expenses and/or losses, provided that such
incorrect per share net asset value or dividend or capital gains
distribution information did not arise out of or result from ALIAC's
misfeasance, bad faith, negligence, or disregard of its duties under this
Agreement. In such circumstances, the Trust will request that ALIAC
provide adequate supporting data. Any error in the calculation or
reporting of net asset value per share, dividend or capital gains
information greater than or equal to $.01 per share shall be reported
immediately upon discovery to ALIAC. Any error of a lesser amount shall
be corrected as soon as practicable.
1.11. The Trust and the Adviser shall use their reasonable best
efforts to enable each Designated Portfolio(s) to remain in compliance
with the insurance and other applicable laws of the State of Connecticut
and any other applicable state to the extent required to perform this
Agreement. The Trust shall register and qualify the shares for sale in
accordance with the laws of the various states if and to the extent
required by applicable law.
ARTICLE II. REPRESENTATIONS AND WARRANTIES
2.1. ALIAC represents and warrants that each Account is or will be
registered as a unit investment trust under the 1940 Act and the Contracts
are or will be registered under the 1933 Act; that the Contracts will be
issued and sold in compliance in all material respects with all applicable
federal and state laws and that the sale of the Contracts shall comply in
all material respects with state insurance
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<PAGE>
suitability requirements. ALIAC further represents and warrants that it
is an insurance company duly organized and in good standing under
applicable law and that it has or will have legally and validly
established each Account prior to any issuance or sale thereof as a
segregated asset account under applicable state insurance law and has
registered or will register each Account as a unit investment trust in
accordance with the provisions of the 1940 Act to serve as a segregated
investment account for the Contracts.
2.2. The Trust represents and warrants that Designated Portfolio
shares sold pursuant to this Agreement are registered under the 1933 Act,
duly authorized for issuance and sold in compliance with all applicable
federal securities laws including without limitation the 1933 Act, the
Securities Exchange Act of 1934 ("1934 Act"), and the 1940 Act and that
the Trust is and shall remain registered under the 1940 Act. The Trust
shall amend the Registration Statement for its shares under the 1933 Act
and the 1940 Act from time to time as required in order to effect the
continuous offering of its shares.
2.3. The Trust reserves the right to adopt a plan pursuant to Rule
12b-1 under the 1940 Act and to impose an asset-based or other charge to
finance distribution expenses as permitted by applicable law and
regulation. In any event, the Trust and Adviser agree to comply with
applicable provisions and SEC staff interpretations of the 1940 Act to
assure that the investment advisory or management fees paid to the Adviser
by the Trust are legitimate and not excessive. To the extent that the
Trust decides to finance distribution expenses pursuant to Rule 12b-1, the
Trust undertakes to have a Board, a majority of whom are not interested
persons of the Trust, formulate and approve any plan pursuant to
Rule 12b-1 under the 1940 Act to finance distribution expenses.
2.4. The Trust represents and warrants that it is lawfully
organized and validly existing under the laws of the State of Delaware and
that it does and will comply in all material respects with the 1940 Act.
2.5. The Adviser represents and warrants that it is and shall
remain duly registered under all applicable federal and state securities
laws and that it shall perform its obligations for the Trust in compliance
in all material respects with the laws of the State of California and any
applicable state and federal securities laws.
2.6. The Trust and the Adviser represent and warrant that all of
their officers, employees, investment advisers, and other individuals or
entities dealing with the money and/or securities of the Trust are, and
shall continue to be at all times, covered by a blanket fidelity bond or
similar coverage for the benefit of the Trust in an amount not less than
the minimal coverage required by Section 17g-(1) of the 1940 Act or
related provisions as may be promulgated from time to time. The aforesaid
bond shall include coverage for larceny and embezzlement and shall be
issued by a reputable bonding company.
2.7. The Trust will provide ALIAC with as much advance notice as
is reasonably practicable of any material change affecting the Designated
Portfolio(s) (including, but not limited to, any material change in its
registration statement or
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<PAGE>
prospectus affecting the Designated Portfolio(s) and any proxy
solicitation affecting the Designated Portfolio(s)) and consult with ALIAC
in order to implement any such change in an orderly manner, recognizing
the expenses of changes and attempting to minimize such expenses by
implementing them in conjunction with regular annual updates of the
prospectus for the Contracts.
2.8. ALIAC represents, assuming that the Trust complies with
Article VI of this Agreement, that the Contracts are currently treated as
annuity contracts or life insurance contracts, as applicable, under
applicable provisions of the Internal Revenue Code of 1986, as amended
(the "Code"), and that it will make every effort to maintain such
treatment and that it will notify the Adviser and the Trust immediately
upon having a reasonable basis for believing that the Contracts have
ceased to be so treated or that they might not be so treated in the
future.
2.9. ALIAC represents and warrants that it will not purchase Trust
shares with assets derived from tax-qualified retirement plans except
indirectly, through Contracts purchased in connection with such plans.
ARTICLE III. PROSPECTUSES AND PROXY STATEMENTS; VOTING
3.1(a). At least annually, the Trust shall provide ALIAC, at ALIAC's
expense with camera ready copy of the Trust's prospectus for the
Designated Portfolios or as many copies of the Trust's current prospectus
for the Designated Portfolio(s) as ALIAC may reasonably request for
marketing purposes (including distribution to Contract owners with respect
to new sales of a Contract). If requested by ALIAC in lieu thereof, the
Adviser or Trust shall provide such documentation (including a final copy
of the new prospectus for the Designated Portfolio(s)) and other
assistance as is reasonably necessary in order for ALIAC once each year
(or more frequently if the prospectus for the Designated Portfolio(s) are
amended) to have the prospectus for the Contracts and the Trust's
prospectus for the Designated Portfolio(s) printed together in one
document.
3.2. If applicable state or federal laws or regulations require
that the Statement of Additional Information ("SAI") for the Trust be
distributed to all Contract purchasers, then the Trust shall provide
ALIAC, at ALIAC's expense, with the Trust's SAI or camera ready
documentation thereof for the Designated Portfolio(s) in such quantities
as ALIAC may reasonably request for marketing purposes (including
distribution to Contract owners with respect to new sales of a Contract).
3.3. The Trust shall also provide such SAI to ALIAC or any owner
of a Contract or prospective owner who requests such SAI (although it is
anticipated that such requests will be made to ALIAC).
3.4. The Trust shall provide ALIAC, at ALIAC's expense, with
copies of its prospectus, SAI, and other communications to stockholders
for the Designated Portfolio(s) in such quantity as ALIAC shall reasonably
require for mailing or distribution to Contract owners. In addition,
Adviser shall assume all printing expenses in connection with printing a
sufficient number of copies for all Contract
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owners with respect to all proxy solicitations materials, voting
instruction materials and semi-annual and annual reports that are required
to be provided to Contract owners. In the event that ALIAC, at the
request of the Adviser, prints such materials and reports upon the receipt
of camera ready copy or other mutually acceptable electronic format from
the Adviser, the Adviser will reimburse ALIAC for all reasonable printing
expenses. ALIAC shall assume all postage and mailing expenses incurred in
connection with providing such materials and reports to Contract owners,
provided that, if the Adviser is printing such materials, ALIAC receives
such materials in a timely manner from the Adviser.
3.5. It is understood and agreed that, except with respect to
information regarding ALIAC provided in writing by that party, ALIAC is
not responsible for the content of the prospectus or SAI for the
Designated Portfolio(s). It is also understood and agreed that, except
with respect to information regarding the Trust, Adviser or the Designated
Portfolio(s) provided in writing by the Trust or the Adviser (including,
in particular, expense information about the Designated Portfolios that is
intended to be included in the fee table portion of the Prospectus for the
Contracts), neither the Trust nor the Adviser are responsible for the
content of the prospectus or SAI for the Contracts.
3.6. If and to the extent required by law, ALIAC shall:
(i) solicit voting instructions from Contract owners;
(ii) vote the Designated Portfolio shares in accordance
with instructions received from Contract owners: and
(iii) vote Designated Portfolio shares for which no
instructions have been received in the same proportion
as Designated Portfolio shares for which instructions
have been received from Contract owners, so long as
and to the extent that the SEC continues to interpret
the 1940 Act to require pass-through voting privileges
for variable contract owners. ALIAC reserves the
right to vote Trust shares held in any segregated
asset account in its own right, to the extent
permitted by it by law. The Adviser reserves the
right to vote Trust shares acquired in order to
provide "seed money" for the Portfolios, to the extent
permitted by law.
3.7. ALIAC shall be responsible for assuring that each of its
separate accounts holding shares of a Designated Portfolio calculates
voting privileges in the manner required by any Shared Funding Exemptive
Order that may be obtained in the future by the Trust. The Trust agrees
to promptly notify ALIAC of any changes of interpretations or amendments
to any Shared Funding Exemptive Order obtained by the Trust.
3.8. The Trust will comply with all provisions of the 1940 Act
requiring voting by shareholders, and in particular the Trust will either
provide for annual meetings (except insofar as the SEC may interpret
Section 16 of the 1940 Act not to
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require such meetings) or, as the Trust currently intends, comply with
Section 16(c) of the 1940 Act (although the Trust is not one of the trusts
described in Section 16(c) of that Act) as well as with Sections 16(a)
and, if and when applicable, 16(b). Further, the Trust will act in
accordance with the SEC's interpretation of the requirements of Section
16(a) with respect to periodic elections of trustees and with whatever
rules the Commission may promulgate with respect thereto.
ARTICLE IV. SALES MATERIAL AND INFORMATION
4.1. ALIAC shall furnish, or shall cause to be furnished, to
Nicholas-Applegate Securities, an affiliated broker-dealer of the Adviser,
as distributor of the Trust, for its written approval, at least ten (10)
Business Days prior to its use, a copy of each piece of sales literature
or other promotional material that ALIAC develops or proposes to use.
Such promotional, sales, advertising and training material shall be
prepared and reviewed in light of all applicable laws, rules and
regulations. All such material shall be approved in writing by Nicholas-
Applegate Securities. Nicholas-Applegate Securities, as distributor of
the Trust, agrees to respond to requests for such approval on a prompt and
timely basis, not exceeding ten (10) Business Days for the initial review
of such materials, and five (5) Business Days for any subsequent review of
such materials.
4.2. ALIAC shall not give any information or make any
representations or statements on behalf of the Trust or the Adviser or
concerning the Trust or the Adviser in connection with the sale of the
Contracts other than the information or representations contained in the
registration statement or prospectus for the Trust shares, as such
registration statement and prospectus may be amended or supplemented from
time to time, or in reports or proxy statements for the Trust, or in sales
literature or other promotional material approved by the Trust or its
designee or by the Adviser, except with the written permission of the
Trust or Nicholas-Applegate Securities.
4.3. Nicholas-Applegate Securities, as distributor of the Trust,
shall furnish, or shall cause to be furnished, to ALIAC, at least ten (10)
Business Days prior to its use, a copy of each piece of sales literature
or other promotional material that Adviser or Nicholas-Applegate
Securities develops or proposes to use in connection with the sale of the
Contracts. Such promotional, sales, advertising and training material
shall be prepared and reviewed in light of all applicable laws, rules and
regulations. All such material shall be approved in writing by ALIAC, and
ALIAC agrees to respond to requests for such approval on a prompt and
timely basis, not exceeding ten (10) Business Days for the initial review
of such materials, and five (5) Business Days for any subsequent review of
such materials.
4.4. The Trust, the Adviser and Nicholas-Applegate Securities
shall not give any information or make any representations on behalf of
ALIAC or concerning ALIAC, the Account, or the Contracts other than the
information or representations contained in a registration statement or
prospectus for the Contracts, as such registration statement and
prospectus may be amended or supplemented from time to
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time, or in reports for the Account, or in sales literature or other
promotional material approved by ALIAC or its designee, except with the
written permission of ALIAC.
4.5. The Trust will provide to ALIAC at least one complete copy of
all registration statements, prospectuses, SAIs, reports, proxy
statements, sales literature and other promotional materials, applications
for exemptions, requests for no-action letters, and all amendments to any
of the above, that relate to the Designated Portfolio(s),
contemporaneously with the filing of such document(s) with the SEC or the
National Association of Securities Dealers, Inc. ("NASD") or other
regulatory authorities.
4.6. ALIAC will provide to the Trust at least one complete copy of
all registration statements, prospectuses, SAIs, reports, solicitations
for voting instructions, sales literature and other promotional materials,
applications for exemptions, requests for no-action letters, and all
amendments to any of the above, that relate to the Contracts or the
Account (as it relates to the Contracts), contemporaneously with the
filing of such document(s) with the SEC, the NASD, or other regulatory
authorities.
4.7. For purposes of this Article IV, the phrase "sales literature
and other promotional material" includes, but is not limited to,
advertisements (such as material published, or designed for use in, a
newspaper, magazine, or other periodical, radio, television, telephone or
tape recording, videotape display, signs or billboards, motion pictures,
or other public media, including electronic media), sales literature
(I.E., any written communication distributed or made generally available
to customers or the public, including brochures, circulars, research
reports, market letters, form letters, seminar texts, reprints or excerpts
of any other advertisement, sales literature, or published article),
educational or training materials or other communications distributed or
made generally available to some or all agents or employees and
shareholder reports. However, it is anticipated that materials provided
solely (a) internally to ALIAC's or the Adviser's own employees or counsel
or (b) to certain designated third parties and that are not designed to be
provided or communicated in any manner to the general public (e.g.
training materials provided to distributors or agents) will not be filed
with the NASD or any state securities or insurance regulatory authorities,
although such materials will be prepared in accordance with applicable
laws.
4.8. At the request of any party to this Agreement, each other
party will make available to the requesting party's independent auditors
and/or representatives of the appropriate regulatory agencies, all
records, data and access to operating procedures that may be reasonably
requested in connection with compliance and regulatory requirements
related to this Agreement or any party's obligations under this Agreement.
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ARTICLE V. FEES AND EXPENSES
5.1. The Trust and the Adviser shall pay no fee or other
compensation to ALIAC under this Agreement, and ALIAC shall pay no fee or
other compensation to the Trust or the Adviser under this Agreement.
5.2. All expenses incident to performance by the Trust or the
Adviser under this Agreement shall be paid by them. The Trust shall see
to it that all shares of the Designated Portfolio(s) are duly registered
and authorized for issuance in accordance with applicable federal law and,
if and to the extent required, in accordance with applicable state laws
prior to their sale.
5.3. All expenses incident to performance by ALIAC under this
Agreement shall be paid by ALIAC. In this regard, ALIAC shall bear the
expenses of routine annual distribution of the Trust's prospectus and
distributing the Trust's proxy materials and reports to owners of
Contracts offered by ALIAC.
ARTICLE VI. DIVERSIFICATION AND QUALIFICATION
6.1. The Trust shall use their best efforts to sell its shares and
invest its assets in such a manner as to ensure that the Contracts will be
treated as annuity contracts under the Code, and the regulations issued
thereunder. The Trust and the Adviser agree that shares of the Designated
Portfolio(s) will be sold only to Participating Insurance Companies and
their separate accounts, unless and until the parties otherwise agree in
writing.
6.2. No shares of the Trust will be sold to the general public.
However, shares of the Trust may be sold to ALIAC or the Adviser to
provide initial seed money to the Portfolios, provided the holding of such
shares by ALIAC or the Adviser is in compliance with Section 817(h) of the
Code and the regulations thereunder.
6.3. The Trust and Adviser represent and warrant that the Trust
and each Designated Portfolio intends to qualify as a Regulated Investment
Company under Subchapter M of the Code, and that the Trust and the Adviser
will expend their best efforts to maintain such qualification (under
Subchapter M or any successor or similar provisions) as long as this
Agreement is in effect.
6.4. The Trust or Adviser will notify ALIAC immediately upon
having a reasonable basis for believing that the Trust or any Portfolio
has ceased to comply with the aforesaid Section 817(h) diversification or
Subchapter M qualification requirements or might not so comply in the
future.
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ARTICLE VII. POTENTIAL CONFLICTS AND COMPLIANCE WITH ANY
SHARED FUNDING EXEMPTIVE ORDER OBTAINED
7.1. The Board will monitor the Trust for the existence of any
material irreconcilable conflict between the interests of the contract
owners of all separate accounts investing in the Trust. An irreconcilable
material conflict may arise for a variety of reasons, including: (a) an
action by any state insurance regulatory authority; (b) a change in
applicable federal or state insurance, tax, or securities laws or
regulations, or a public ruling, private letter ruling, no-action or
interpretative letter, or any similar action by insurance, tax, or
securities regulatory authorities; (c) an administrative or judicial
decision in any relevant proceeding; (d) the manner in which the
investments of any Designated Portfolio are being managed; (e) a
difference in voting instructions given by variable annuity contract and
variable life insurance contract owners; or (f) a decision by a
Participating Insurance Company to disregard the voting instructions of
contract owners. The Trust shall promptly inform ALIAC if the Board
determines that an irreconcilable material conflict exists and the
implications thereof.
7.2. ALIAC and the Adviser will report any potential or existing
conflicts of which it is aware to the Board. ALIAC and the Adviser will
assist the Board in carrying out its responsibilities under any Shared
Funding Exemptive Order obtained by the Trust, by providing the Board with
all information reasonably necessary for the Board to consider any issues
raised. This includes, but is not limited to, an obligation by ALIAC to
inform the Board whenever contract owner voting instructions are to be
disregarded. Such responsibilities shall be carried out by ALIAC with a
view only to the interests of its Contract owners.
7.3. If it is determined by a majority of the Board, or a majority
of its trustees who are not interested persons of the Trust, the Adviser
or any sub-adviser to any of the Designated Portfolios (the "Independent
Trustees"), that a material irreconcilable conflict exists, ALIAC and
other Participating Insurance Companies shall, at their expense and to the
extent reasonably practicable (as determined by a majority of the
Independent Trustees), take whatever steps are necessary to remedy or
eliminate the irreconcilable material conflict, up to and including: (a)
withdrawing the assets allocable to some or all of the separate accounts
from the Trust or any Designated Portfolio and reinvesting such assets in
a different investment medium, including (but not limited to) another
Designated Portfolio of the Trust, or submitting the question whether such
segregation should be implemented to a vote of all affected Contract
owners and, as appropriate, segregating the assets of any appropriate
group (I.E., annuity contract owners, life insurance contract owners, or
variable contract owners of one or more Participating Insurance Companies)
that votes in favor of such segregation, or offering to the affected
Contract owners the option of making such a change; and (b) establishing a
new registered management investment company or managed separate account.
7.4. If a material irreconcilable conflict arises because of a
decision by ALIAC to disregard Contract owner voting instructions and that
decision represents a minority position or would preclude a majority vote,
ALIAC may be required, at the Trust's election, to withdraw the Account's
investment in the Trust and terminate this
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Agreement; provided, however that such withdrawal and termination shall be
limited to the extent required by the foregoing material irreconcilable
conflict as determined by a majority of the Independent Trustees. Any
such withdrawal and termination must take place within six (6) months
after the Trust gives written notice that this provision is being
implemented and, until the end of that six (6) month period, the Adviser
and the Trust shall continue to accept and implement orders by ALIAC for
the purchase (and redemption) of shares of the Trust.
7.5. If a material irreconcilable conflict arises because a
particular state insurance regulator's decision applicable to ALIAC
conflicts with the majority of other state regulators, then ALIAC will
withdraw the Account's investment in the Trust and terminate this
Agreement within six (6) months after the Board informs ALIAC in writing
that it has determined that such decision has created an irreconcilable
material conflict; provided, however, that such withdrawal and termination
shall be limited to the extent required by the foregoing material
irreconcilable conflict as determined by a majority of the Independent
Trustees. Until the end of the foregoing six (6) month period, the
Adviser and the Trust shall continue to accept and implement orders by
ALIAC for the purchase (and redemption) of shares of the Trust.
7.6. For purposes of Sections 7.3 through 7.6 of this Agreement, a
majority of the Independent Trustees shall determine whether any proposed
action adequately remedies any irreconcilable material conflict, but in no
event will the Trust be required to establish a new funding medium for the
Contracts. ALIAC shall not be required by Section 7.3 to establish a new
funding medium for the Contracts if an offer to do so has been declined by
vote of a majority of Contract owners materially adversely affected by the
irreconcilable material conflict. In the event that the Board determines
that any proposed action does not adequately remedy any irreconcilable
material conflict, then ALIAC will withdraw the Account's investment in
the Trust and terminate this Agreement within six (6) months after the
Board informs ALIAC in writing of the foregoing determination; provided,
however, that such withdrawal and termination shall be limited to the
extent required by any such material irreconcilable conflict as determined
by a majority of the Independent Trustees.
7.7. If and to the extent that Rule 6e-2 and Rule 6e-3(T) under
the 1940 Act are amended, or Rule 6e-3 is adopted, to provide exemptive
relief from any provision of the 1940 Act or the rules promulgated
thereunder with respect to mixed or shared funding on terms and conditions
materially different from those contained in the Shared Funding Exemptive
Order, then (a) the Trust and/or the Participating Insurance Companies, as
appropriate, shall take such steps as may be necessary to comply with
Rules 6e-2 and 6e-3(T) under the 1940 Act, as amended, and Rule 6e-3, as
adopted, to the extent such rules are applicable: and (b) Sections 3.6,
3.7, 3.8, 7.1, 7.2, 7.3, 7.4, and 7.5 of this Agreement shall continue in
effect only to the extent that terms and conditions substantially
identical to such Sections are contained in such Rule(s) as so amended or
adopted.
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ARTICLE VIII. INDEMNIFICATION
8.1. INDEMNIFICATION BY ALIAC
8.1(a). ALIAC agrees to indemnify and hold harmless each of
the Trust, the Adviser, and any sub-advisers and their officers and
partners and each member of their Board(s) and each person, if any, who
controls any such person within the meaning of the Section 15 of the 1933
Act (each an "Indemnified Party" and collectively, the "Indemnified
Parties" for purposes of this Section 8.1) against any and all losses,
claims, expenses, damages, liabilities (including amounts paid in
settlement with the written consent of ALIAC) or litigation (including
legal and other expenses) to which such Indemnified Party may become
subject under any statute or regulation, at common law or otherwise,
insofar as such losses, claims, damages, liabilities or expenses (or
actions in respect thereof) or settlements are related to the sale or
acquisition of the Trust's shares or the Contracts and:
(i) arise out of or are based upon any untrue statement or
alleged untrue statement of any material fact contained in
the registration statement or prospectus or SAI for the
Contracts or contained in the Contracts or sales literature
for the Contracts (or any amendment or supplement to any
of the foregoing), or arise out of or are based upon the
omission or the alleged omission to state therein a material
fact required to be stated therein or necessary to make the
statements therein not misleading, PROVIDED that this
agreement to indemnify shall not apply as to any Indemnified
Party if such statement or omission or such alleged statement
or omission was made in reliance upon and in conformity with
information furnished in writing to ALIAC by or on behalf of
the Trust or the Adviser for use in the registration
statement or prospectus for the Contracts or in the Contracts
or sales literature (or any amendment or supplement) or
otherwise for use in connection with the sale of the
Contracts or Trust shares; or
(ii) arise out of or as a result of statements or representations
(other than statements or representations contained in the
registration statement, prospectus or sales literature of the
Trust not supplied by ALIAC or persons under its control) or
wrongful conduct of ALIAC or persons under its control, with
respect to the sale or distribution of the Contracts or Trust
Shares; or
(iii) arise out of any untrue statement or alleged untrue statement
of a material fact contained in a registration statement,
prospectus, or sales literature of the Trust or any amendment
thereof or supplement thereto or the omission or alleged
omission to state therein a material fact required to be
stated therein or necessary to make the statements therein
not misleading if such a statement or omission was made in
reliance upon information furnished in writing to the Trust
by or on behalf of ALIAC; or
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<PAGE>
(iv) arise as a result of any failure by ALIAC to provide the
services and furnish the materials under the terms of this
Agreement; or
(v) arise out of or result from any material breach of any
representation and/or warranty made by ALIAC in this
Agreement or arise out of or result from any other material
breach of this Agreement by ALIAC;
as limited by and in accordance with the provisions of Sections 8.1(b) and
8.1(c) hereof.
8.1(b). ALIAC shall not be liable under this
indemnification provision with respect to any losses, claims, expenses,
damages, liabilities or litigation to which an Indemnified Party would
otherwise be subject by reason of such Indemnified Party's willful
misfeasance, bad faith, or gross negligence in the performance of such
Indemnified Party's duties or by reason of such Indemnified Party's
reckless disregard of obligations or duties under this Agreement or to the
Trust, whichever is applicable.
8.1(c). ALIAC shall not be liable under this
indemnification provision with respect to any claim made against an
Indemnified Party unless such Indemnified Party shall have notified ALIAC
in writing within a reasonable time after the summons or other first legal
process giving information of the nature of the claim shall have been
served upon such Indemnified Party (or after such Indemnified Party shall
have received notice of such service on any designated agent), but failure
to notify ALIAC of any such claim shall not relieve ALIAC from any
liability which it may have to the Indemnified Party against whom such
action is brought otherwise than on account of this indemnification
provision, except to the extent that ALIAC has been prejudiced by such
failure to give notice. In case any such action is brought against an
Indemnified Party, ALIAC shall be entitled to participate, at its own
expense, in the defense of such action. ALIAC also shall be entitled to
assume the defense thereof, with counsel satisfactory to the party named
in the action. After notice from ALIAC to such party of ALIAC's election
to assume the defense thereof, the Indemnified Party shall bear the fees
and expenses of any additional counsel retained by it, and ALIAC will not
be liable to such party under this Agreement for any legal or other
expenses subsequently incurred by such party independently in connection
with the defense thereof other than reasonable costs of investigation.
8.1(d). The Indemnified Parties will promptly notify ALIAC
of the commencement of any litigation or proceedings against them in
connection with the issuance or sale of the Trust Shares or the Contracts
or the operation of the Trust.
8.2. INDEMNIFICATION BY THE ADVISER
8.2(a). The Adviser agrees to indemnify and hold harmless
ALIAC and its directors and officers and each person, if any, who controls
ALIAC within the meaning of Section 15 of the 1933 Act (each an
"Indemnified Party" and collectively, the "Indemnified Parties" for
purposes of this Section 8.2) against any and all losses, claims,
expenses, damages, liabilities (including amounts paid in settlement with
the written consent of the Adviser) or litigation (including legal and
other expenses) to which the Indemnified Parties may become subject under
any statute or regulation, at
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common law or otherwise, insofar as such losses, claims, expenses,
damages, liabilities (or actions in respect thereof) or litigation are
related to the sale or acquisition of the Trust's shares or the Contracts
and:
(i) arise out of or are based upon any untrue statement or
alleged untrue statement of any material fact contained in
the registration statement or prospectus or SAI or sales
literature of the Trust (or any amendment or supplement to
any of the foregoing), or arise out of or are based upon the
omission or the alleged omission to state therein a material
fact required to be stated therein or necessary to make the
statements therein not misleading, PROVIDED that this
agreement to indemnify shall not apply as to any Indemnified
Party if such statement or omission or such alleged statement
or omission was made in reliance upon and in conformity with
information furnished in writing to the Trust or the Adviser
by or on behalf of ALIAC for use in the Registration
Statement or prospectus for the Trust or in sales literature
(or any amendment or supplement) or otherwise for use in
connection with the sale of the Contracts or Trust shares; or
(ii) arise out of or as a result of statements or representations
(other than statements or representations contained in the
registration statement, prospectus or sales literature for
the Contracts not supplied by the Adviser or persons under
its control) or wrongful conduct of the Trust or Adviser or
persons under their control, with respect to the sale or
distribution of the Contracts or Trust shares; or
(iii) arise out of any untrue statement or alleged untrue statement
of a material fact contained in a registration statement,
prospectus or sales literature covering the Contracts, or any
amendment thereof or supplement thereto, or the omission or
alleged omission to state therein a material fact required to
be stated therein or necessary to make the statement or
statements therein not misleading, if such statement or
omission was made in reliance upon information furnished in
writing to ALIAC by or on behalf of the Trust or the Adviser;
or
(iv) arise as a result of any failure by the Trust or the Adviser
to provide the services and furnish the materials required to
be provided or furnished by the Trust or the Adviser under
the terms of this Agreement (including a failure to comply
with the diversification and other qualification requirements
specified in Article VI of this Agreement); or
(v) arise out of or result from any material breach of any
representation and/or warranty made by the Trust or Adviser
in this Agreement or arise out of or result from any other
material breach of this Agreement by the Adviser;
as limited by and in accordance with the provisions of Sections 8.2(b) and
8.2(c) hereof.
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8.2(b). The Adviser shall not be liable under this
indemnification provision with respect to any losses, claims, expenses,
damages, liabilities or litigation to which an Indemnified Party would
otherwise be subject by reason of such Indemnified Party's willful
misfeasance, bad faith, or gross negligence in the performance of such
Indemnified Party's duties or by reason of such Indemnified Party's
reckless disregard of obligations and duties under this Agreement or to
ALIAC or the Account, whichever is applicable.
8.2(c). The Adviser shall not be liable under this
indemnification provision with respect to any claim made against an
Indemnified Party unless such Indemnified Party shall have notified the
Adviser in writing within a reasonable time after the summons or other
first legal process giving information of the nature of the claim shall
have been served upon such Indemnified Party (or after such Indemnified
Party shall have received notice of such service on any designated agent),
but failure to notify the Adviser of any such claim shall not relieve the
Adviser from any liability which it may have to the Indemnified Party
against whom such action is brought otherwise than on account of this
indemnification provision, except to the extent that the Adviser has been
prejudiced by such failure to give notice. In case any such action is
brought against an Indemnified Party, the Adviser will be entitled to
participate, at its own expense, in the defense of such action. The
Adviser also shall be entitled to assume the defense thereof, with counsel
reasonably satisfactory to the party named in the action. After notice
from the Adviser to such party of the Adviser's election to assume the
defense thereof, the Indemnified Party shall bear the fees and expenses of
any additional counsel retained by it, and the Adviser will not be liable
to such party under this Agreement for any legal or other expenses
subsequently incurred by such party independently in connection with the
defense thereof other than reasonable costs of investigation.
8.2(d). ALIAC agrees promptly to notify the Adviser of the
commencement of any litigation or proceedings against it or any of its
officers or directors in connection with the issuance or sale of the
Contracts or the operation of the Account.
8.3. INDEMNIFICATION BY THE TRUST
8.3(a). The Trust agrees to indemnify and hold harmless
ALIAC and its directors and officers and each person, if any, who controls
ALIAC within the meaning of Section 15 of the 1933 Act (each individually
an "Indemnified Party" and collectively, the "Indemnified Parties" for
purposes of this Section 8.3) against any and all losses, claims,
expenses, damages, liabilities (including amounts paid in settlement with
the written consent of the Trust) or litigation (including legal and other
expenses) to which the Indemnified Parties may become subject under any
statute or regulation, at common law or otherwise, insofar as such losses,
claims, expenses, damages, liabilities or expenses (or actions in respect
thereof) or settlement, are related to the operations of the Trust and:
(i) arise as a result of any failure by the Trust to provide the
services and furnish the materials required to be provided or
furnished by it under the terms of this Agreement (including
a failure, whether unintentional
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or in good faith or otherwise, to comply with the
diversification and other qualification requirements
specified in Article VI of this Agreement); or
(ii) arise out of or result from any material breach of any
representation and/or warranty made by the Trust in this
Agreement or arise out of or result from any other material
breach of this Agreement by the Trust; or
as limited by and in accordance with the provisions of Sections 8.3(b) and
8.3(c) hereof.
8.3(b). The Trust shall not be liable under this
indemnification provision with respect to any losses, claims, expenses,
damages, liabilities or litigation to which an Indemnified Party would
otherwise be subject by reason of such Indemnified Party's willful
misfeasance, bad faith, or gross negligence in the performance of such
Indemnified Party's duties or by reason of such Indemnified Party's
reckless disregard of obligations and duties under this Agreement or to
ALIAC, the Trust, the Adviser or the Account, whichever is applicable.
8.3(c). The Trust shall not be liable under this
indemnification provision with respect to any claim made against an
Indemnified Party unless such Indemnified Party shall have notified the
Trust in writing within a reasonable time after the summons or other first
legal process giving information of the nature of the claim shall have
been served upon such Indemnified Party (or after such Indemnified Party
shall have received notice of such service on any designated agent), but
failure to notify the Trust of any such claim shall not relieve the Trust
from any liability which it may have to the Indemnified Party against whom
such action is brought otherwise than on account of this indemnification
provision, except to the extent that the Trust has been prejudiced by such
failure to give notice. In case any such action is brought against an
Indemnified Party, the Trust will be entitled to participate in the
defense or to defend against such action and will not be liable to such
party under this Agreement for any legal or other expenses subsequently
incurred by such party independently in connection with the defense
thereof other than reasonable costs of investigation.
8.3(d). ALIAC agrees promptly to notify the Trust of the
commencement of any litigation or proceeding against it or any of its
officers or directors in connection with the Agreement, the issuance or
sale of the Contracts, the operation of the Account, or the sale or
acquisition of shares of the Trust.
ARTICLE IX. APPLICABLE LAW
9.1. This Agreement shall be construed and the provisions hereof
interpreted under and in accordance with the laws of the State of
California, except the California conflict of laws provisions.
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<PAGE>
9.2. This Agreement shall be subject to the provisions of the
1933, 1934 and 1940 Acts, and the rules and regulations and rulings
thereunder, including such exemptions from those laws, rules and
regulations as the SEC may grant (including, but not limited to, any
Shared Funding Exemptive Order obtained by the Trust) and the terms hereof
shall be interpreted and construed in accordance therewith.
ARTICLE X. TERMINATION
10.1. This Agreement shall terminate:
(a) at the option of any party, with or without cause, with
respect to some or all Designated Portfolios, upon six (6)
months advance written notice delivered to the other parties;
provided, however, that such notice shall not be given
earlier than July 31, 1998; or
(b) at the option of ALIAC, by thirty (30) days written
notice to the other parties with respect to any Designated
Portfolio based upon ALIAC's determination that shares of
such Portfolio are not reasonably available to meet the
requirements of the Contracts; or
(c) at the option of ALIAC, by thirty (30) days written
notice to the other parties with respect to any Designated
Portfolio in the event any of the Designated Portfolio's
shares are not registered, issued or sold in accordance with
applicable state and/or federal law or such law precludes
the use of such shares as the underlying investment media of
the Contracts issued or to be issued by ALIAC; or
(d) at the option of the Trust, upon thirty (30) days
written notice, in the event that formal administrative
proceedings are instituted against ALIAC or the principal
underwriter of the Contracts by the NASD, the SEC, the
Insurance Commissioner or like official of any state or any
other regulatory body regarding ALIAC's duties under this
Agreement or related to the sale of the Contracts, the
operation of any Account, or the purchase of the Trust
shares, provided, however, that the Trust determines, in its
sole judgment exercised in good faith, that any such
administrative proceeding will have a material adverse effect
upon the ability of ALIAC to perform its obligations under
this Agreement; or
(e) at the option of ALIAC, upon thirty (30) days written
notice, in the event that formal administrative proceedings
are instituted against the Trust or Adviser by the SEC, the
NASD, or any state securities or insurance department or any
other regulatory body, provided, however, that ALIAC
determines, in its sole judgment exercised in good faith,
that any such administrative proceeding will have a material
adverse effect upon the ability of the Trust or Adviser to
perform its obligations under this Agreement; or
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(f) at the option of ALIAC, by written notice to the Trust
and the Adviser with respect to any Designated Portfolio if
ALIAC reasonably believes that the Portfolio will fail to
meet the Section 817(h) diversification requirements or
Subchapter M qualifications specified in Article VI hereof;
or
(g) at the option of either the Trust or the Adviser, if (i)
the Trust or the Adviser, respectively, shall determine, in
its sole judgement reasonably exercised in good faith, that
ALIAC has suffered a material adverse change in its business
or financial condition or is the subject of material adverse
publicity and that material adverse change or publicity will
have a material adverse impact on ALIAC's ability to perform
its obligations under this Agreement, (ii) the Trust or the
Adviser notifies ALIAC of that determination and its intent
to terminate this Agreement, AND (iii) after considering the
actions taken by ALIAC and any other changes in circumstances
since the giving of such a notice, the determination of the
Trust or Adviser shall continue to apply, in its sole
judgment exercised in good faith, on the sixtieth (60th) day
following the giving of that notice, which sixtieth day shall
be the effective date of termination; or
(h) at the option of ALIAC, if (i) ALIAC shall determine, in
its sole judgement reasonably exercised in good faith, that
either the Trust or the Adviser has suffered a material
adverse change in its business or financial condition or is
the subject of material adverse publicity and that material
adverse change or publicity will have a material adverse
impact on the Trust's or the Adviser's ability to perform its
obligations under this Agreement, (ii) ALIAC notifies the
Trust or the Adviser, as appropriate, of that determination
and its intent to terminate this Agreement, AND (iii) after
considering the actions taken by the Trust or the Adviser and
any other changes in circumstances since the giving of such a
notice, the determination of ALIAC shall continue to apply,
in its sole judgment exercised in good faith, on the sixtieth
(60th) day following the giving of that notice, which
sixtieth (60th) day shall be the effective date of
termination.
10.2. NOTICE REQUIREMENT. No termination of this Agreement shall
be effective unless and until the party terminating this Agreement gives
prior written notice to all other parties of its intent to terminate,
which notice shall set forth the basis for the termination.
10.3. EFFECT OF TERMINATION. Notwithstanding any termination of
this Agreement or any other agreement between the parties, the Trust and
the Adviser shall continue to make available additional shares of the
Trust pursuant to the terms and conditions of this Agreement, for all
Contracts in effect on the effective date of termination of this Agreement
(hereinafter referred to as "Existing Contracts"). Specifically, without
limitation, the owners of the Existing Contracts shall be permitted to
reallocate investments in the Trust, redeem investments in the Trust
and/or invest in the Trust upon the making of additional purchase payments
under the
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Existing Contracts. The parties agree that this Section 10.3 shall not
apply to any terminations under Article VII and the effect of such Article
VII terminations shall be governed by Article VII of this Agreement.
10.4 RESTRICTIONS ON REDEMPTION OF SHARES. ALIAC shall not redeem
Trust shares attributable to the Contracts (as opposed to Trust shares
attributable to the ALIAC assets held in the Account) except: (a) as
necessary to implement Contract owner initiated transactions, (b) as
required by with state and/or federal laws or regulations or judicial or
other legal precedent of general application (a "Legally Required
Redemption") or (c) as permitted by an order of the SEC pursuant to
Section 26(b) of the 1940 Act (if and to the extent that the SEC continues
to require the receipt of such an order or any other order of the SEC in
order for ALIAC to redeem Trust shares attributable to the Contracts).
Upon request, ALIAC will promptly furnish to the Trust and the Adviser an
opinion of counsel for ALIAC (which counsel shall be reasonably
satisfactory to the Trust and the Adviser) to the effect that any
redemption pursuant to clause (b) above is a Legally Required Redemption
or any redemption pursuant to clauses (a), (b) or (c) is permitted without
first obtaining an order of the SEC pursuant to Section 26(b) of the 1940
Act. Furthermore, ALIAC may prevent Contract owners from allocating
payments to a Portfolio that was otherwise available under the Contracts
provided that ALIAC first gives the Trust or the Adviser ninety (90) days
notice of its intention to do so.
10.5. SURVIVING PROVISIONS. Notwithstanding any termination of
this Agreement, each party's obligations under Article VIII to indemnify
other parties shall survive and not be affected by any termination of this
Agreement. In addition, with respect to Existing Contracts, all
provisions of this Agreement shall also survive and not be affected by any
termination of this Agreement.
ARTICLE XI. NOTICES
Any notice shall be sufficiently given when sent by registered or
certified mail to the other party at the address of such party set forth
below or at such other address as such party may from time to time specify
in writing to the other party.
If to the Trust:
Nicholas-Applegate Series Trust
600 West Broadway, 30th Floor,
San Diego, California 92101
Attn: Secretary
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<PAGE>
If to the Adviser:
Nicholas-Applegate Capital Management
600 West Broadway, 29th Floor,
San Diego, California 92101
Attn: General Counsel
If to AETNA:
AETNA Life Insurance and Annuity Company
151 Farmington Avenue
Hartford, Connecticut 06156
Attention: Julie Rockmore, Esq.
with a simultaneous copy to:
Maria F. McKeon, Esq.
AETNA Life Insurance and Annuity Company
151 Farmington Avenue
Hartford, Connecticut 06156
or such other address as such party may hereafter specify in writing or by
facsimile. Each such notice to a party shall be either hand delivered or
transmitted by registered or certified United States mail with return
receipt requested, and shall be effective upon delivery.
ARTICLE XII. MISCELLANEOUS
12.1. Subject to the requirements of legal process and regulatory
authority, each party hereto shall treat as confidential the names and
addresses of the owners of the Contracts and all information reasonably
identified as confidential in writing by any other party hereto and,
except as permitted by this Agreement, shall not disclose, disseminate or
utilize such names and addresses and other confidential information
without the express written consent of the affected party until such time
as such information may come into the public domain. Without limiting the
foregoing, no party hereto shall disclose any information that such party
has been advised is proprietary, except such information that such party
is required to disclose by any appropriate governmental authority
(including without limitation the SEC, the NASD and state securities or
insurance regulators).
12.2. The captions in this Agreement are included for convenience
of reference only and in no way define or delineate any of the provisions
hereof or otherwise affect their construction or effect.
12.3. This Agreement may be executed simultaneously in two or more
counterparts, each of which taken together shall constitute one and the
same instrument.
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<PAGE>
12.4. This Agreement constitutes the whole agreement between the
parties hereto with respect to the subject matter hereof, and supersedes
all prior oral or written understandings, agreements or negotiations
between the parties with respect to such subject matter, except as
otherwise agreed to in writing by the parties. No prior writings by or
between the parties with respect to the subject matter hereof shall be
used by either party in connection with the interpretation of any
provision of this Agreement. If any provision of this Agreement shall be
held or made invalid by a court decision, statute, rule or otherwise, the
remainder of the Agreement shall not be affected thereby.
12.5. Each party hereto shall cooperate with each other party and
all appropriate governmental authorities (including without limitation the
SEC, the NASD and state securities or insurance regulators) and shall
permit such authorities reasonable access to its books and records in
connection with any investigation or inquiry relating to this Agreement or
the transactions contemplated hereby.
12.6. Any controversy or claim arising out of or relating to this
Agreement, or breach thereof, shall be settled by arbitration in a forum
jointly selected by the relevant parties (but if applicable law requires
some other forum, then such other forum) in accordance with the Commercial
Arbitration Rules of the American Arbitration Association, and judgment
upon the award rendered by the arbitrators may be entered in any court
having jurisdiction thereof.
12.7. The rights, remedies and obligations contained in this
Agreement are cumulative and are in addition to any and all rights,
remedies and obligations, at law or in equity, which the parties hereto
are entitled to under state and federal laws.
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12.8. This Agreement or any of the rights and obligations hereunder
may not be assigned by any party without the prior written consent of all
parties hereto.
IN WITNESS WHEREOF, each of the parties hereto has caused this
Agreement to be executed in its name and on its behalf by its duly
authorized representative and its seal to be hereunder affixed hereto as
of the date specified below.
AETNA LIFE INSURANCE AND ANNUITY COMPANY
By its authorized officer
SEAL By: _____________________________
Title: ____________________________
Date: ____________________________
NICHOLAS-APPLEGATE SERIES TRUST
By its authorized officer
SEAL By: _______________________________
E. Blake Moore, Jr.
Title: Secretary
Date:_______________________________
NICHOLAS-APPLEGATE CAPITAL MANAGEMENT
SEAL By: ______________________________
E. Blake Moore, Jr.
Title:
Date: ____________________________
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SCHEDULE A
CONTRACTS AND
SEPARATE ACCOUNTS FORM NUMBERS
Variable Annuity Account B 1. G-CDA-IC (IR) using the
Nicholas-Applegate/ ALIAC
Schedule Page.
2. G-CDA-IC (NA) using the
Nicholas-Applegate/ALIAC
Schedule Page.
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SCHEDULE B
DESIGNATED PORTFOLIOS
Nicholas-Applegate Series Trust:
1. Core Growth Series
2. Emerging Growth Series
3. International Growth Series
4. Value Series
5. Diversified Income Series
6. International Fixed Income Series
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EXHIBIT 13
NICHOLAS-APPLEGATE CAPITAL MANAGEMENT
600 West Broadway, 30th Floor
San Diego, California 92101
, 1996
---------------
Nicholas-Applegate Series Trust
600 West Broadway, 30th Floor
San Diego, California 92101
Ladies and Gentlemen:
In connection with your sale to us today of 10,000 shares of beneficial
interest ("Shares") of the Nicholas-Applegate Core Growth, Emerging Growth,
International Growth, Value, Diversified Income and International Fixed Income
Series of Nicholas-Applegate Series Trust (the "Trust"), we understand that:
(i) the Shares have not been registered under the Securities Act of 1933, as
amended (the "1933 Act"); (ii) your sale of the Shares to us is made in reliance
on such sale being exempt under Section 4(2) of the 1933 Act as not involving
any public offering; and (iii) in part, your reliance on such exemption is
predicated on our representation, which we hereby confirm, that we are acquiring
the Shares for investment for our own account as the sole beneficial owner
thereof, and not with a view to or in connection with any resale or distribution
of the Shares or of any interest therein.
We hereby agree that we will not sell, assign or transfer the Shares or any
interest therein, except upon repurchase or redemption by the Trust, unless and
until the Shares have been registered under the 1933 Act or you have received an
opinion of your counsel indicating to your satisfaction that such sale,
assignment or transfer will not violate the provisions of the 1933 Act or any
rules or regulations promulgated thereunder. We further agree that if any
portion of the Shares is redeemed prior to the full amortization of the Trust's
organizational expenses, the proceeds thereof will be reduced by a pro rata
portion of such unamortized balance in the same proportion as the
<PAGE>
Number of such Shares being redeemed bears to the number of such Shares
outstanding at the time of redemption.
NICHOLAS-APPLEGATE CAPITAL
MANAGEMENT
By: Nicholas-Applegate Capital
Management Holdings, L.P., a
California limited partnership,
its General Partner
By: Nicholas-Applegate Capital
Management Holdings, Inc.,
its General Partner
By
------------------------
E. Blake Moore, Jr.
Secretary
<PAGE>
LIMITED POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned hereby constitutes and
appoints John D. Wylie and E. Blake Moore, Jr., and each of them, his true and
lawful attorney-in-fact and agent, with full power of substitution and
resubstitution, for him and in his name, place and stead, in any and all
capacities, to sign the Registration Statement of Nicholas-Applegate Series
Trust, a Delaware business trust, on Form N-1A under the Securities Act of 1933,
as amended, and the Investment Company Act of 1940, as amended, and any or all
amendments thereto, and to file the same, with all exhibits thereto and other
documents in connection therewith, with the Securities and Exchange Commission,
granting unto said attorney-in-fact and agent full power and authority to do and
perform each and every act and thing requisite and necessary to be done in and
about the premises, as fully to all intents and purposes as he might or could do
in person, hereby ratifying and confirming all said attorney-in-fact and agent
may lawfully do or cause to be done by virtue hereof.
DATED: January 23, 1996
/s/Arthur E. Nicholas
-------------------------
Arthur E. Nicholas
<PAGE>
LIMITED POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned hereby constitutes and
appoints Ashley T. Rabun and E. Blake Moore, Jr., and each of them, his true and
lawful attorney-in-fact and agent, with full power of substitution and
resubstitution, for him and in his name, place and stead, in any and all
capacities, to sign the Registration Statement of Nicholas-Applegate Series
Trust, a Delaware business trust, on Form N-1A under the Securities Act of 1933,
as amended, and the Investment Company Act of 1940, as amended, and any or all
amendments thereto, and to file the same, with all exhibits thereto and other
documents in connection therewith, with the Securities and Exchange Commission,
granting unto said attorney-in-fact and agent full power and authority to do and
perform each and every act and thing requisite and necessary to be done in and
about the premises, as fully to all intents and purposes as he might or could do
in person, hereby ratifying and confirming all said attorney-in-fact and agent
may lawfully do or cause to be done by virtue hereof.
DATED: January 23, 1996
/s/John D. Wylie
-------------------------
John D. Wylie
