-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, A1q+BHap6SMLqMTWwzLmkye33ybeSjAg5QEGurZ6jfP4KPPdagj7fsQxzU2caLMq 0tfA536PbO+LOeFvazV9zA== 0000950135-96-005355.txt : 19961220 0000950135-96-005355.hdr.sgml : 19961220 ACCESSION NUMBER: 0000950135-96-005355 CONFORMED SUBMISSION TYPE: 485APOS PUBLIC DOCUMENT COUNT: 54 FILED AS OF DATE: 19961219 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: NASL SERIES TRUST CENTRAL INDEX KEY: 0000756913 STANDARD INDUSTRIAL CLASSIFICATION: UNKNOWN SIC - 0000 [0000] STATE OF INCORPORATION: MA FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: 485APOS SEC ACT: 1933 Act SEC FILE NUMBER: 002-94157 FILM NUMBER: 96683244 FILING VALUES: FORM TYPE: 485APOS SEC ACT: 1940 Act SEC FILE NUMBER: 811-04146 FILM NUMBER: 96683245 BUSINESS ADDRESS: STREET 1: 116 HUNTINGTON AVE CITY: BOSTON STATE: MA ZIP: 02116 BUSINESS PHONE: 6172666004 MAIL ADDRESS: STREET 1: 116 HUNTINGTON AVE CITY: BOSTON STATE: MA ZIP: 02116 FORMER COMPANY: FORMER CONFORMED NAME: NASL SERIES FUND INC DATE OF NAME CHANGE: 19881030 485APOS 1 NASL SERIES TRUST 1 Registration No. 2-94157/811-4146 As filed with the Securities and Exchange Commission on December 19, 1996 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM N-1A REGISTRATION STATEMENT under THE SECURITIES ACT OF 1933 POST-EFFECTIVE AMENDMENT NO. 35 and THE INVESTMENT COMPANY ACT OF 1940 AMENDMENT NO. 36 NASL SERIES TRUST (Exact Name of Registrant as Specified in Charter) 116 Huntington Avenue Boston, Massachusetts 02116 (Address of Principal Executive Offices) James D. Gallagher, Esq. General Counsel North American Security Life Insurance Company 116 Huntington Avenue Boston, Massachusetts 02116 (Name and Address of Agent for Service) Copies to: J. Sumner Jones, Esq. Jones & Blouch L.L.P. 1025 Thomas Jefferson Street, N.W. Washington, DC 20007 The Registrant has registered an indefinite amount of its shares under the Securities Act of 1933 pursuant to a declaration made in accordance with paragraph (a)(1) of Rule 24f-2 under the Investment Company Act of 1940. The notice required by such rule for the Registrant's most recent fiscal year was filed on February 28, 1996. It is proposed that this filing will become effective: [ ] immediately upon filing pursuant to paragraph (b) [ ] on December 31,1996 pursuant to paragraph (b) [X] 60 days after filing pursuant to paragraph (a)(1) [ ] on (date) pursuant to paragraph (a)(1) [ ] 75 days after filing pursuant to paragraph (a)(2) 2 NASL SERIES TRUST CROSS REFERENCE TO ITEMS REQUIRED BY RULE 404(A) N-1A Item of Part A Caption in Prospectus 1. Cover Page 2. Synopsis 3. Financial Highlights; Management of the Trust (Performance Data) 4. Synopsis; Investment Objectives, Policies and Risks (Pacific Rim Emerging Markets Trust; Science & Technology Trust; International Small Cap Trust; Emerging Growth Trust; Pilgrim Baxter Growth Trust; Small/Mid Cap Trust; International Stock Trust; Worldwide Growth Trust; Global Equity Trust; Growth Trust; Equity Trust; Quantitative Equity Trust; Equity Index Trust; Blue Chip Growth Trust; Value Trust; International Growth and Income Trust; Growth and Income Trust; Equity-Income Trust; Real Estate Securities Trust, Balanced Trust; High Yield Trust; Automatic Asset Allocation Trusts, Strategic Bond Trust; Global Government Bond Trust; Investment Quality Bond Trust; Capital Growth Bond Trust; U.S. Government Securities Trust; Money Market Trust, The Lifestyle Trusts); Risk Factors (Investment Restrictions Generally; Foreign Securities; Lending Securities; When-Issued Securities; Hedging Techniques); Appendix I - Debt Security Ratings; Appendix II - Options, Futures and Currency Transactions, Appendix III - Standard & Poor's Disclaimers 5. Management of the Trust (Advisory Agreement; Subadvisory Agreements; Expenses); General Information (Custodian) 6. General Information (Shares of the Trust; Taxes; Dividends) 7. General Information (Purchase and Redemption of Shares) 8. General Information (Purchase and Redemption of Shares) 9. Not Applicable N-1A Item of Part B Caption in Part B 10. Cover Page 11. Table of Contents 12. Not Applicable 13. Investment Policies (Money Market Instruments); Investment Restrictions; Portfolio Turnover 14. Management of the Trust (Compensation of Trustees) 3 15. Organization of the Trust (Principal Holders of Securities) 16. Investment Management Arrangements (The Advisory Agreement; The Subadvisory Agreements) 17. Investment Management Arrangements (Portfolio Brokerage) 18. Organization of the Trust (Shares of the Trust) 19. Purchase and Redemption of Shares (Determination of Net Asset Value) 20. Not Applicable 21. Not Applicable 22. Purchase and Redemption of Shares (Performance Data) 23. Financial Statements 4 NASL SERIES TRUST 116 Huntington Avenue Boston, Massachusetts 02116 NASL Series Trust (the "Trust") is a no-load, open-end management investment company, commonly known as a mutual fund. Shares of the Trust are not offered directly to the public but are sold only to insurance companies and their separate accounts as the underlying investment medium for variable contracts ("contracts"). The Trust provides a range of investment objectives through thirty-five separate investment portfolios, each of which issues its own series of shares of beneficial interest. The names of those portfolios are as follows: PACIFIC RIM EMERGING MARKETS TRUST SCIENCE & TECHNOLOGY TRUST INTERNATIONAL SMALL CAP TRUST EMERGING GROWTH TRUST PILGRIM BAXTER GROWTH TRUST SMALL/MID CAP TRUST INTERNATIONAL STOCK TRUST WORLDWIDE GROWTH TRUST GLOBAL EQUITY TRUST GROWTH TRUST EQUITY TRUST QUANTITATIVE EQUITY TRUST EQUITY INDEX TRUST BLUE CHIP GROWTH TRUST REAL ESTATE SECURITIES TRUST VALUE TRUST INTERNATIONAL GROWTH AND INCOME TRUST GROWTH AND INCOME TRUST EQUITY-INCOME TRUST BALANCED TRUST AGGRESSIVE ASSET ALLOCATION TRUST HIGH YIELD TRUST MODERATE ASSET ALLOCATION TRUST CONSERVATIVE ASSET ALLOCATION TRUST STRATEGIC BOND TRUST GLOBAL GOVERNMENT BOND TRUST CAPITAL GROWTH BOND TRUST INVESTMENT QUALITY BOND TRUST U.S. GOVERNMENT SECURITIES TRUST MONEY MARKET TRUST LIFESTYLE AGGRESSIVE 1000 TRUST LIFESTYLE GROWTH 820 TRUST LIFESTYLE BALANCED 640 TRUST LIFESTYLE MODERATE 460 TRUST LIFESTYLE CONSERVATIVE 280 TRUST The investment objectives and certain policies of each Trust are set forth on the inside front cover. In pursuing their investment objectives, the Strategic Bond and High Yield Trusts reserve the right to invest without limitation, and the Investment Quality Bond and Equity-Income Trusts may invest up to 20% and 10%, respectively, of their assets, in high yield (high risk) securities, commonly known as "junk bonds" which also present a high degree of risk. High-yielding, lower-quality securities involve comparatively greater risks, including price volatility and risk of default in the timely payment of interest and principal, than higher-quality securities. Although the Strategic Bond Trust's Subadviser has the ability to invest up to 100% of the portfolio's assets in lower-rated securities, the portfolio's Subadviser does not anticipate investing in excess of 75% of the portfolio's assets in such securities. Purchasers should carefully assess the risks associated with an investment in the above-named Trusts. See "RISK FACTORS -- High Yield (High Risk) Securities." AN INVESTMENT IN THE MONEY MARKET TRUST IS NEITHER INSURED NOR GUARANTEED BY THE U.S. GOVERNMENT, AND THERE CAN BE NO ASSURANCE THAT THE MONEY MARKET TRUST WILL BE ABLE TO MAINTAIN A STABLE NET ASSET VALUE OF $10.00 PER SHARE. This Prospectus sets forth concisely the information about the Trust that a prospective purchaser of a contract should know before purchasing such a contract. PLEASE READ THIS PROSPECTUS AND RETAIN IT FOR FUTURE REFERENCE. Additional information about the Trust has been filed with the Securities and Exchange Commission and is available upon request and without charge by writing the Trust at the above address or calling (617) 266-6008 and requesting the "Statement of Additional Information for NASL Series Trust" dated the date of this Prospectus (hereinafter "Statement of Additional Information"). The Statement of Additional Information is incorporated by reference into this Prospectus. The Securities and Exchange Commission maintains a Web site (http://www.sec.gov) that contains the Statement of Additional Information, material incorporated by reference, and other information regarding registrants that file electronically with the Commission. SHARES OF THE TRUST ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR ENDORSED BY, ANY BANK, AND THE SHARES ARE NOT FEDERALLY INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER AGENCY. THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. The date of this Prospectus is December 31, 1996. 5 The investment objectives and certain policies of each Trust are as follows: PACIFIC RIM EMERGING MARKETS TRUST -- The investment objective of the Pacific Rim Emerging Markets Trust is to achieve long-term growth of capital. Manufacturers Adviser Corporation ("MAC") manages the Pacific Rim Emerging Markets Trust and seeks to achieve this investment objective by investing in a diversified portfolio that is comprised primarily of common stocks and equity-related securities of corporations domiciled in countries in the Pacific Rim region. SCIENCE & TECHNOLOGY TRUST -- The investment objective of the Science & Technology Trust is long-term growth of capital. Current income is incidental to the portfolio's objective. T. Rowe Price Associates, Inc. ("T. Rowe Price") manages the Science & Technology Trust. INTERNATIONAL SMALL CAP TRUST -- The investment objective of the International Small Cap Trust is to seek long term capital appreciation. Founders Asset Management, Inc. ("Founders") manages the International Small Cap Trust and will pursue this objective by investing primarily in securities issued by foreign companies which have total market capitalizations or annual revenues of $1 billion or less. These securities may represent companies in both established and emerging economies throughout the world. EMERGING GROWTH TRUST -- The investment objective of the Emerging Growth Trust is maximum capital appreciation. Warburg, Pincus Counsellors, Inc. ("Warburg") manages the Emerging Growth Trust and will pursue this objective by investing primarily in a portfolio of equity securities of domestic companies. The Emerging Growth Trust ordinarily will invest at least 65% of its total assets in common stocks or warrants of emerging growth companies that represent attractive opportunities for maximum capital appreciation. PILGRIM BAXTER GROWTH TRUST -- The investment objective of the Pilgrim Baxter Growth Trust is capital appreciation. Pilgrim Baxter & Associates, Ltd. ("PBHG") manages the Pilgrim Baxter Growth Trust and seeks to achieve its objective by investing in companies believed by PBHG to have an outlook for strong earnings growth and the potential for significant capital appreciation. SMALL/MID CAP TRUST -- The investment objective of the Small/Mid Cap Trust is to seek long term capital appreciation. Fred Alger Management, Inc. ("Alger") manages the Small/Mid Cap Trust and will pursue this objective by investing at least 65% of the portfolio's total assets (except during temporary defensive periods) in small/mid cap equity securities. INTERNATIONAL STOCK TRUST -- The investment objective of the International Stock Trust is long-term growth of capital. Rowe Price-Fleming International, Inc. ("Price-Fleming") manages the International Stock Trust and seeks to attain this objective by investing primarily in common stocks of established, non-U.S. companies. WORLDWIDE GROWTH TRUST -- The investment objective of the Worldwide Growth Trust is long-term growth of capital. Founders manages the Worldwide Growth Trust and seeks to attain this objective by normally investing at least 65% of its total assets in equity securities of growth companies in a variety of markets throughout the world. GLOBAL EQUITY TRUST -- The investment objective of the Global Equity Trust is long-term capital appreciation. Morgan Stanley Asset Management Inc. ("Morgan Stanley") manages the Global Equity Trust and intends to pursue this objective by investing primarily in equity securities of issuers throughout the world, including U.S. issuers and emerging market countries. GROWTH TRUST -- The investment objective of the Growth Trust is to seek long-term growth of capital. Founders manages the Growth Trust and will pursue this objective by investing, under normal market conditions, at least 65% of its total assets in common stocks of well-established, high-quality growth companies that Founders believes have the potential to increase earnings faster than the rest of the market. 3 6 EQUITY TRUST -- The principal investment objective of the Equity Trust is growth of capital. Current income is a secondary consideration although growth of income may accompany growth of capital. Fidelity Management Trust Company ("FMTC") manages the Equity Trust and seeks to attain the foregoing objective by investing primarily in common stocks of United States issuers or securities convertible into or which carry the right to buy common stocks. QUANTITATIVE EQUITY TRUST -- The investment objective of the Quantitative Equity Trust (prior to December 31, 1996, the "Common Stock Trust") is to achieve intermediate and long-term growth through capital appreciation and current income by investing in common stocks and other equity securities of well established companies with promising prospects for providing an above average rate of return. MAC manages the Quantitative Equity Trust. EQUITY INDEX TRUST -- The investment objective of the Equity Index Trust is to achieve investment results which approximate the total return of publicly traded common stocks in the aggregate, as represented by the Standard & Poor's 500 Composite Stock Price Index. MAC manages the Equity Index Trust. BLUE CHIP GROWTH TRUST -- The primary investment objective of the Blue Chip Growth Trust (prior to October 1, 1996, the "Pasadena Growth Trust") is to provide long-term growth of capital. Current income is a secondary objective, and many of the stocks in the portfolio are expected to pay dividends. T. Rowe Price manages the Blue Chip Growth Trust. REAL ESTATE SECURITIES TRUST -- The investment objective of the Real Estate Securities Trust is to achieve a combination of long-term capital appreciation and satisfactory current income by investing in real estate related equity and debt securities. MAC manages the Real Estate Securities Trust. VALUE TRUST -- The investment objective of the Value Trust is to realize an above-average total return over a market cycle of three to five years, consistent with reasonable risk. Miller Anderson & Sherrerd, LLP ("MAS") manages the Value Trust and seeks to attain this objective by investing primarily in common and preferred stocks, convertible securities, rights and warrants to purchase common stocks, ADRs and other equity securities of companies with equity capitalizations usually greater than $300 million. INTERNATIONAL GROWTH AND INCOME TRUST -- The investment objective of the International Growth and Income Trust is to seek long-term growth of capital and income. The portfolio is designed for investors with a long-term investment horizon who want to take advantage of investment opportunities outside the United States. J.P. Morgan Investment Management Inc. ("J.P. Morgan") manages the International Growth and Income Trust. GROWTH AND INCOME TRUST -- The investment objective of the Growth and Income Trust is to provide long-term growth of capital and income consistent with prudent investment risk. Wellington Management Company ("Wellington Management") manages the Growth and Income Trust and seeks to achieve the Trust's objective by investing primarily in a diversified portfolio of common stocks of U.S. issuers which Wellington Management believes are of high quality. EQUITY-INCOME TRUST -- The investment objective of the Equity-Income Trust (prior to December 31, 1996, the "Value Equity Trust") is to provide substantial dividend income and also long term capital appreciation. T. Rowe Price manages the Equity-Income Trust and seeks to attain this objective by investing primarily in dividend-paying common stocks, particularly of established companies with favorable prospects for both increasing dividends and capital appreciation. 4 7 BALANCED TRUST -- The investment objective of the Balanced Trust is current income and capital appreciation. Founders is the manager of the Balanced Trust and seeks to attain this objective by investing in a balanced portfolio of common stocks, U.S. and foreign government obligations and a variety of corporate fixed-income securities. HIGH YIELD TRUST -- The investment objective of the High Yield Trust is to realize an above-average total return over a market cycle of three to five years, consistent with reasonable risk. MAS manages the High Yield Trust and seeks to attain this objective by investing primarily in high yield debt securities, including corporate bonds and other fixed-income securities. AUTOMATIC ASSET ALLOCATION TRUSTS (AGGRESSIVE, MODERATE AND CONSERVATIVE) -- The investment objective of each of the Automatic Asset Allocation Trusts is to obtain the highest potential total return consistent with a specified level of risk tolerance -- aggressive, moderate and conservative. The amount of each portfolio's assets invested in each category of securities is dependent upon the judgment of FMTC as to what percentages of each portfolio's assets in each category will contribute to the limitation of risk and the achievement of its investment objective. STRATEGIC BOND TRUST -- The investment objective of the Strategic Bond Trust is to seek a high level of total return consistent with preservation of capital. The Strategic Bond Trust seeks to achieve its objective by giving its Subadviser, Salomon Brothers Asset Management ("SBAM"), broad discretion to deploy the Strategic Bond Trust's assets among certain segments of the fixed-income market as SBAM believes will best contribute to the achievement of the portfolio's objective. GLOBAL GOVERNMENT BOND TRUST -- The investment objective of the Global Government Bond Trust is to seek a high level of total return by placing primary emphasis on high current income and the preservation of capital. Oechsle International Advisors, L.P. ("Oechsle International") manages the Global Government Bond Trust and intends to pursue this objective by investing primarily in a selected global portfolio of high-quality, fixed-income securities of foreign and U.S. governmental entities and supranational issuers. CAPITAL GROWTH BOND TRUST -- The investment objective of the Capital Growth Bond Trust is to achieve growth of capital by investing in medium-grade or better debt securities, with income as a secondary consideration. MAC manages the Capital Growth Bond Trust. The Capital Growth Bond Trust differs from most "bond" funds in that its primary objective is capital appreciation, not income. INVESTMENT QUALITY BOND TRUST -- The investment objective of the Investment Quality Bond Trust is to provide a high level of current income consistent with the maintenance of principal and liquidity. Wellington Management manages the Investment Quality Bond Trust and seeks to achieve the Trust's objective by investing primarily in a diversified portfolio of investment grade corporate bonds and U.S. Government bonds with intermediate to longer term maturities. U.S. GOVERNMENT SECURITIES TRUST -- The investment objective of the U.S. Government Securities Trust is to obtain a high level of current income consistent with preservation of capital and maintenance of liquidity. SBAM manages the U.S. Government Securities Trust and seeks to attain its objective by investing a substantial portion of its assets in debt obligations and mortgage backed securities issued or guaranteed by the U.S. Government, its agencies or instrumentalities and derivative securities such as collateralized mortgage obligations backed by such securities. MONEY MARKET TRUST -- The investment objective of the Money Market Trust is to obtain maximum current income consistent with preservation of principal and liquidity. MAC manages the Money 5 8 Market Trust and seeks to achieve this objective by investing in high quality, U.S. dollar denominated money market instruments. LIFESTYLE AGGRESSIVE 1000 TRUST -- The investment objective of the Lifestyle Aggressive 1000 Trust is to provide long term growth of capital. Current income is not a consideration. MAC manages the Lifestyle Aggressive 1000 Trust and seeks to achieve this objective by investing 100% of the Lifestyle Trust's assets in other portfolios of NASL Series Trust ("Underlying Portfolios") which invest primarily in equity securities. LIFESTYLE GROWTH 820 TRUST -- The investment objective of the Lifestyle Growth 820 Trust is to provide long term growth of capital with consideration also given to current income. MAC manages the Lifestyle Growth 820 Trust and seeks to achieve this objective by investing approximately 20% of the Lifestyle Trust's assets in Underlying Portfolios which invest primarily in fixed income securities and approximately 80% of its assets in Underlying Portfolios which invest primarily in equity securities. LIFESTYLE BALANCED 640 TRUST -- The investment objective of the Lifestyle Balanced 640 Trust is to provide a balance between a high level of current income and growth of capital with a greater emphasis given to capital growth. MAC manages the Lifestyle Balanced 640 Trust and seeks to achieve this objective by investing approximately 40% of the Lifestyle Trust's assets in Underlying Portfolios which invest primarily in fixed income securities and approximately 60% of its assets in Underlying Portfolios which invest primarily in equity securities. LIFESTYLE MODERATE 460 TRUST -- The investment objective of the Lifestyle Moderate 460 Trust is to provide a balance between a high level of current income and growth of capital with a greater emphasis given to high income. MAC manages the Lifestyle Moderate 460 Trust and seeks to achieve this objective by investing approximately 60% of the Lifestyle Trust's assets in Underlying Portfolios which invest primarily in fixed income securities and approximately 40% of its assets in Underlying Portfolios which invest primarily in equity securities. LIFESTYLE CONSERVATIVE 280 TRUST -- The investment objective of the Lifestyle Conservative 280 Trust is to provide a high level of current income with some consideration also given to growth of capital. MAC manages the Lifestyle Conservative 280 Trust and seeks to achieve this objective by investing approximately 80% of the Lifestyle Trust's assets in Underlying Portfolios which invest primarily in fixed income securities and approximately 20% of its assets in Underlying Portfolios which invest primarily in equity securities. 6 9 NASL SERIES TRUST TABLE OF CONTENTS SYNOPSIS ................................................................... 8 FINANCIAL HIGHLIGHTS ....................................................... 10 INVESTMENT OBJECTIVES AND POLICIES.......................................... 32 Pacific Rim Emerging Markets Trust............................................................. 32 Science & Technology Trust........................................... 33 International Small Cap Trust............................................................. 34 Emerging Growth Trust............................................................. 35 Pilgrim Baxter Growth Trust.......................................... 37 Small/Mid Cap Trust.................................................. 38 International Stock Trust............................................ 39 Worldwide Growth Trust .............................................. 41 Global Equity Trust ................................................. 42 Growth Trust......................................................... 43 Equity Trust ........................................................ 44 Quantitative Equity Trust (formerly, the "Common Stock Trust")....... 44 Equity Index Trust............................................................. 45 Blue Chip Growth Trust (formerly, "Pasadena Growth").......................................................... 46 Real Estate Securities Trust............................................................. 48 Value Trust............................................................. 48 International Growth and Income Trust ............................... 49 Growth and Income Trust ............................................. 50 Equity-Income Trust (formerly, "Value Equity Trust")........................................................... 51 Balanced Trust............................................................. 52 High Yield Trust............................................................. 54 Automatic Asset Allocation Trusts ................................... 55 Strategic Bond Trust ................................................ 58 Global Government Bond Trust ........................................ 60 Capital Growth Bond Trust............................................................. 61 Investment Quality Bond Trust ....................................... 62 U.S. Government Securities Trust .................................... 63 Money Market Trust .................................................. 65 The Lifestyle Trusts................................................. 66 RISK FACTORS ............................................................... 67 Investment Restrictions Generally ................................... 67 Additional Investment Restrictions on Borrowing and Foreign Investing............................................. 68 High Yield Securities................................................ 69 Corporate Debt Securities............................................ 70 Foreign Sovereign Debt Securities.................................... 70 Foreign Securities................................................... 71 Warrants............................................................. 72 Lending Securities................................................... 72 When-Issued Securities .............................................. 73 Repurchase Agreements and Reverse Repurchase Agreements.............. 73 Mortgage Dollar Rolls................................................ 74 Hedging and Other Strategic Transactions............................. 74 Illiquid Securities ................................................. 75 MANAGEMENT OF THE TRUST .................................................... 75 Advisory Arrangements................................................ 75 Subadvisory Arrangements............................................. 78 Expenses ............................................................ 86 Performance Data .................................................... 87 GENERAL INFORMATION ........................................................ 88 Shares of the Trust ................................................. 88 Taxes ............................................................... 88 10 Dividends ........................................................... 89 Purchase and Redemption of Shares ................................... 90 Custodian ........................................................... 90 Appendix I - Debt Security Ratings ......................................... 91 Appendix II - Strategic Bond and Investment Quality Bond Trust Debt Ratings....................................................... 93 Appendix III - Standard & Poor's Disclaimers................................................................. 94 ______________________ NO DEALER, SALESPERSON OR 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 IN THIS PROSPECTUS, AND, IF GIVEN OR MADE, SUCH OTHER INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE TRUST, THE ADVISER, THE SUBADVISERS OR THE PRINCIPAL UNDERWRITER OF THE CONTRACTS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING IN ANY STATE IN WHICH SUCH OFFERING MAY NOT LAWFULLY BE MADE. 8 11 SYNOPSIS NASL Series Trust (the "Trust") is a series trust, which means that it has a number of portfolios, each with a stated investment objective which it pursues through separate investment policies. Currently, there are thirty-five such portfolios: the Pacific Rim Emerging Markets Trust, the Science & Technology Trust, the International Small Cap Trust, the Emerging Growth Trust, the Pilgrim Baxter Growth Trust, the Small/Mid Cap Trust, the International Stock Trust, the Worldwide Growth Trust, the Global Equity Trust, the Growth Trust, the Equity Trust, the Quantitative Equity Trust, the Equity Index Trust, the Blue Chip Growth Trust, the Real Estate Securities Trust, the Value Trust, the International Growth and Income Trust, the Growth and Income Trust, the Equity-Income Trust, the Balanced Trust, the Aggressive Asset Allocation Trust, the High Yield Trust, the Moderate Asset Allocation Trust, the Conservative Asset Allocation Trust, the Strategic Bond Trust, the Global Government Bond Trust, the Capital Growth Bond Trust, the Investment Quality Bond Trust, the U.S. Government Securities Trust, the Money Market Trust, the Lifestyle Aggressive 1000 Trust, the Lifestyle Growth 820 Trust, the Lifestyle Balanced 640 Trust, the Lifestyle Moderate 460 Trust and the Lifestyle Conservative 280 Trust.. The investment objective of each of the thirty-five portfolios is set forth below in the description of each portfolio. In addition to the risks inherent in any investment in securities, certain portfolios of the Trust are subject to particular risks associated with investing in foreign securities, lending portfolio securities, investing in when-issued securities and hedging techniques employed through the use of futures contracts, options on futures contracts, forward currency contracts and various options. See "RISK FACTORS." The investment adviser of the Trust is NASL Financial Services, Inc. ("NASL Financial" or the "Adviser"). The Trust currently has fourteen Subadvisers who manage all of the portfolios except for the five Lifestyle Trusts:
SUBADVISER SUBADVISER TO ------------- Fred Alger Management, Inc. ("Alger") Small/Mid Cap Trust Founders Asset Management, Inc. ("Founders") Growth Trust Worldwide Growth Trust Balanced Trust International Small Cap Trust Oechsle International Advisors, L.P. Global Government Bond Trust ("Oechsle International") Fidelity Management Trust Company Equity Trust ("FMTC") Conservative Asset Allocation Trust Moderate Asset Allocation Trust Aggressive Asset Allocation Trust Wellington Management Company Growth and Income Trust ("Wellington Management") Investment Quality Bond Trust Salomon Brothers Asset Management U.S. Government Securities Trust ("SBAM") Strategic Bond Trust J.P. Morgan Investment Management Inc. International Growth and Income Trust ("J.P. Morgan")
9 12
T. Rowe Price Associates, Inc. Science & Technology Trust ("T. Rowe Price") Blue Chip Growth Trust Equity-Income Trust Rowe Price-Fleming International, Inc. International Stock Trust ("Price-Fleming") Morgan Stanley Asset Management Inc. Global Equity Trust ("Morgan Stanley") Miller Anderson & Sherrerd, LLP ("MAS") Value Trust High Yield Trust Warburg, Pincus Counsellors, Inc. ("Warburg") Emerging Growth Trust Pilgrim Baxter & Associates, Ltd. ("PBHG") Pilgrim Baxter Growth Trust Manufacturers Adviser Corporation ("MAC") Pacific Rim Emerging Markets Trust Quantitative Equity Trust Real Estate Securities Trust Equity Index Trust Capital Growth Bond Trust Money Market Trust Lifestyle Trusts
The Adviser receives a fee from the Trust computed separately for each portfolio, except for the Lifestyle Trusts, as indicated in the expense table below. The Subadviser of each portfolio receives a fee from the Adviser computed separately for each portfolio, which fee is paid out of the advisory fee and is not an additional charge to the portfolio or its shareholders. See "Management of the Trust." The Trust currently serves as the underlying investment medium for sums invested in annuity and variable life contracts issued by North American Security Life Insurance Company ("Security Life"), First North American Life Assurance Company ("FNAL") and The Manufacturers Life Insurance Company of America ("Manulife America"). The portfolios that are available for investment by Manulife America contractholders are as follows: the Pacific Rim Emerging Markets, Real Estate Securities, Equity Index, Capital Growth Bond, Money Market, International Stock, Blue Chip Growth, Balanced, Equity, Equity-Income, Growth and Income, U.S. Government, Aggressive Asset Allocation, Moderate Asset Allocation and Conservative Asset Allocation Trusts. The Trust may, however, be used for other purposes in the future, such as funding annuity contracts issued by other insurance companies. Security Life is controlled by The Manufacturers Life Insurance Company ("Manulife"), a mutual life insurance company based in Toronto, Canada. FNAL is a wholly-owned subsidiary of Security Life and Manulife America is a wholly owned subsidiary of Manulife. Currently, the Trust has three shareholders, Security Life, FNAL and Manulife America. Trust shares are not offered directly to and may not be purchased directly by members of the public. Consequently, as of the date of this Prospectus, the terms "shareholder" and "shareholders" in this Prospectus refer to Security Life, Manulife America and FNAL. Certain contract values will vary with the investment performance of the portfolios of the Trust. Because contract owners will allocate their investments among the portfolios, prospective purchasers should carefully consider the information about the Trust and its portfolios presented in this Prospectus before purchasing such a contract. The Trust is a no-load, open-end management investment company registered with the Securities and Exchange Commission under the Investment Company Act of 1940, and each of the portfolios, except the Global Government Bond Trust, the Emerging Growth Trust and the five Lifestyle Trusts, is diversified for purposes of the Investment Company Act of 1940. See "Global Government Bond Trust," "Emerging Growth Trust" and "The Lifestyle Trusts." Information about the performance of each portfolio of the Trust is contained in the Trust's annual report to shareholders which may be obtained without charge. 10 13 FINANCIAL HIGHLIGHTS The tables below provide Financial Highlights for NASL Series Trust. In the case of the Quantitative Equity, Pacific Rim Emerging Markets, Real Estate Securities, Capital Growth Bond and Equity Index Trusts, the Financial Highlights for each period shown below consist of financial information for the predecessors to these portfolios. On December 31, 1996, the Common Stock, Pacific Rim Emerging Markets, Real Estate Securities, Capital Growth Bond and Equity Index portfolios of Manulife Series Fund, Inc. merged into the Quantitative Equity, Pacific Rim Emerging Markets, Real Estate Securities, Capital Growth Bond and Equity Index Trust of NASL Series Trust, respectively, each of which was created to be successors to the corresponding portfolio of Manulife Series Fund, Inc. This information is supplemented by financial statements and accompanying notes appearing in the NASL Series Trust Annual Report to shareholders for the fiscal year ended December 31, 1995, the NASL Series Trust Semi-Annual Report to shareholders for the six month period ended June 30, 1996 as well as the financial statements and accompanying notes for the Common Stock, Pacific Rim Emerging Markets, Real Estate Securities, Capital Growth Bond and Equity Index portfolios of Manulife Series Fund, Inc. appearing in the Manulife Series Fund, Inc. Annual Report to shareholders for the fiscal year ended December 31, 1995 and Semi-Annual Report to shareholders for the six months period ended June 30, 1996, all of which have been incorporated by reference into the Statement of Additional Information. In the case of the Growth Trust, this information is supplemented by financial statements and accompanying notes appearing in the Statement of Additional Information. The financial statements of the Trust at December 31, 1995 have been audited by Coopers & Lybrand L.L.P. independent accountants, as indicated in their report with respect thereto, and are included herein in reliance upon said report given on the authority of said firm as experts in accounting and auditing. The financial statements of the Common Stock, Pacific Rim Emerging Markets, Real Estate Securities, Capital Growth Bond and Equity Index portfolios of Manulife Series Fund, Inc. at December 31, 1995 have been audited by Ernst & Young LLP, independent auditors, as indicated in their report with respect thereto, and are included herein in reliance upon said report given on the authority of said firm as experts in accounting and auditing. 11 14 NASL SERIES TRUST FINANCIAL HIGHLIGHTS (FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD) SMALL/MID CAP TRUST 03/04/96* TO 06/30/96 (UNAUDITED) Net asset value, beginning of period ......................... $ 12.50 ------- Income from investment operations: Net investment income ............. 0.01 Net realized and unrealized gain on investments .................. 0.62 ------- Total from investment operations ................. 0.63 Net asset value, end of period ...... $ 13.13 ======= Total return ................. 5.04% Net assets, end of period (000's) ... $83,645 Ratio of operating expenses to average net assets ................ 1.17%(A) Ratio of net investment income to average net assets ................ 0.24%(A) Portfolio turnover rate ............. 54%(A) Average commission rate per share (B) ......................... $ 0.069
- ----------------------------- * Commencement of operations. (A) Annualized (B) For fiscal years beginning on or after September 1, 1995, a fund is required to disclose its average commission rate per share of all security trades on which commissions are charged. In certain foreign markets the relationship between the translated U.S. dollar price per share and commission paid per share may vary from that of domestic markets. 12 15 NASL SERIES TRUST FINANCIAL HIGHLIGHTS (FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD) INTERNATIONAL SMALL CAP TRUST 03/04/96* TO 06/30/96 (UNAUDITED) Net asset value, beginning of period .......................................... $ 12.50 Income from investment operations: Net investment income .............................. 0.03 Net realized and unrealized loss on investments and foreign currency transactions .................................... 0.75 -------- Total from investment operations .................................. 0.78 Net asset value, end of period ....................... $ 13.28 ======== Total return .................................. 6.24% Net assets, end of period (000's) .................... $ 47,088 Ratio of operating expenses to average net assets ................................. 1.44%(A) Ratio of net investment income to average net assets ................................. 1.71%(A) Portfolio turnover rate .............................. 24%(A) Average commission rate per share (B) ................ $ 0.019
- ----------------------------- * Commencement of operations. (A) Annualized (B) For fiscal years beginning on or after September 1, 1995, a fund is required to disclose its average commission rate per share of all security trades on which commissions are charged. In certain foreign markets the relationship between the translated U.S. dollar price per share and commission paid per share may vary from that of domestic markets. 13 16 NASL SERIES TRUST FINANCIAL HIGHLIGHTS (FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)
GLOBAL EQUITY TRUST ------------------------------------------------------------------------------------- SIX MONTHS ENDED YEARS ENDED DECEMBER 31, 06/30/96 --------------------------------------------------------------- (UNAUDITED) 1995 1994 1993 1992 ----------- --------- --------- --------- --------- Net asset value, beginning of period............................. $ 16.10 $ 15.74 $ 15.73 $ 12.00 $ 12.24 Income from investment operations: Net investment income (loss) (B)...... 0.05 0.29 0.05 0.12 0.10 Net realized and unrealized gain (loss) on investments and foreign currency transactions...... 1.06 0.84 0.22 3.79 (0.19) --------- --------- --------- --------- --------- Total from investment operations... 1.11 1.13 0.27 3.91 (0.09) Less distributions: Dividends from net investment income.. (0.27) (0.08) (0.02) (0.18) (0.15) Distributions from capital gains...... -- (0.69) (0.24) -- -- --------- --------- --------- --------- --------- Total distributions................ (0.27) (0.77) (0.26) (0.18) (0.15) --------- --------- --------- --------- --------- Net asset value, end of period.......... $ 16.94 $ 16.10 $ 15.74 $ 15.73 $ 12.00 --------- --------- --------- --------- --------- Total return....................... 6.93% 7.68% 1.74% 32.89% (0.72%) Net assets, end of period (000's)....... $ 726,688 $ 648,183 $ 616,138 $ 377,871 $ 116,731 Ratio of operating expenses to average net assets (C)................ 1.06%(A) 1.05% 1.08% 1.16% 1.16% Ratio of net investment income (loss) to average net assets................. 1.80%(A) 0.61% 0.44% 0.77% 1.12% Portfolio turnover rate................. 63%(A) 63% 52% 52% 69% Average commission rate per share (D)... $ 0.034 N/A N/A N/A N/A GLOBAL EQUITY TRUST -------------------------------------------------------------- YEARS ENDED DECEMBER 31, 3/18/88* --------------------------------------------- TO 1991 1990 1989 12/31/88 --------- --------- --------- --------- Net asset value, beginning of period............................. $ 11.00 $ 12.57 $ 10.15 $ 10.03 Income from investment operations: Net investment income (loss) (B)...... 0.16 0.12 0.10 (0.05) Net realized and unrealized gain (loss) on investments and foreign currency transactions...... 1.23 (1.41) 2.32 0.17 --------- --------- --------- --------- Total from investment operations... 1.39 (1.29) 2.42 0.12 Less distributions: Dividends from net investment income.. (0.15) (0.04) -- -- Distributions from capital gains...... -- (0.24) -- -- --------- --------- --------- --------- Total distributions................ (0.15) (0.28) -- -- --------- --------- --------- --------- Net asset value, end of period.......... $ 12.24 $ 11.00 $ 12.57 $ 10.15 --------- --------- --------- --------- Total return....................... 12.80% (10.43%) 23.84% 1.20% Net assets, end of period (000's)....... $ 89,003 $ 63,028 $ 26,223 $ 2,143 Ratio of operating expenses to average net assets (C)................ 1.23% 1.28% 1.62% 3.98%(A) Ratio of net investment income (loss) to average net assets................. 1.47% 1.97% 1.82% (1.71%)(A) Portfolio turnover rate................. 74% 67% 109% 81%(A) Average commission rate per share (D)... N/A N/A N/A N/A
- --------------------------------- * Commencement of operations. (A) Annualized (B) After expense reimbursement per share of $0.02 in 1988. (C) The ratio of operating expenses, before reimbursement from the investment adviser, was 4.53% in 1988. (D) For fiscal years beginning on or after September 1, 1995, a fund is required to disclose its average commission rate per share of all security trades on which commissions are charged. In certain foreign markets the relationship between the translated U.S. dollar price per share and commission paid per share may vary from that of domestic markets. 14 17 NASL SERIES TRUST FINANCIAL HIGHLIGHTS (FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)
PASADENA GROWTH TRUST ------------------------------------------------------------------------------------ SIX MONTHS ENDED YEARS ENDED DECEMBER 31, 12/11/92* 06/30/96 TO ------------------------------------------ (UNAUDITED) 1995 1994 1993 12/31/92 ----------- -------- -------- -------- -------- Net asset value, beginning of period.... $ 11.40 $ 9.05 $ 9.55 $ 9.93 $ 10.00 Income from investment operations: Net investment income (B)............... 0.01 0.03 0.04 0.05 0.00 Net realized and unrealized gain (loss) on investments 1.59 2.36 (0.50) (0.42) (0.07) -------- -------- -------- -------- -------- Total from investment operations... 1.60 2.39 (0.46) (0.37) (0.07) Less distributions: Dividends from net investment income.... (0.04) (0.04) (0.04) (0.01) -- -------- -------- -------- -------- -------- Total distributions.............. (0.04) (0.04) (0.04) (0.01) -- -------- -------- -------- -------- -------- Net asset value, end of period.......... $ 12.96 $ 11.40 $ 9.05 $ 9.55 $ 9.93 ======== ======== ======== ======== ======== Total return..................... 14.02% 26.53% (4.80%) (3.80%) (0.70%) Net assets, end of period (000's)....... $351,823 $277,674 $151,727 $104,966 $ 31,118 Ratio of operating expenses to average net assets (C)................ 0.975%(A) 0.975% 0.975% 0.975% 1.06%(A) Ratio of net investment income to average net assets.................... 0.11%(A) 0.42% 0.65% 0.75% 1.04%(A) Portfolio turnover rate................. 78%(A) 57% 33% 12% 0%(A) Average commission rate per share (D)... $ 0.058 N/A N/A N/A N/A
- --------------------------------- * Commencement of operations. (A) Annualized (B) After subadviser expense reimbursement per share of $0.003 for the six months ended June 30, 1996 and $0.004, $0.006 and $0.01 for the years ended December 31, 1995, 1994 and 1993, respectively. (C) The ratio of operating expenses, before reimbursement from the subadviser, was 1.03% for the six months ended June 30, 1996 and 1.03%, 1.06% and 1.09% for the years ended December 31,1995, 1994 and 1993, respectively. (D) For fiscal years beginning on or after September 1, 1995, a fund is required to disclose its average commission rate per share of all security trades on which commissions are charged. In certain foreign markets the relationship between the translated U.S. dollar price per share and commission paid per share may vary from that of domestic markets. 15 18 NASL SERIES TRUST FINANCIAL HIGHLIGHTS (FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)
EQUITY TRUST ------------------------------------------------------- SIX YEARS ENDED DECEMBER 31, MONTHS ENDED ----------------------------- 06/30/96 (UNAUDITED) 1995 1994 -------------- ----------- ----------- Net asset value, beginning of period .......................... $ 20.79 $ 14.66 $ 15.57 Income from investment operations: Net investment income (B) .......... 0.07 0.10 0.11 Net realized and unrealized gain (loss) on investments and foreign currency transactions .. 2.10 6.14 (0.18) -------------- ----------- ----------- Total from investment operations ..................... 2.17 6.24 (0.07) Less distributions: Dividends from net investment income (0.09) (0.11) (0.05) Distributions from capital gains ... (1.98) -- (0.79) Total distributions .............. (2.07) (0.11) (0.84) -------------- ----------- ----------- Net asset value, end of period ....... $ 20.89 $ 20.79 $ 14.66 ============== =========== =========== Total return .................... 10.95% 42.79% (0.53%) Net assets, end of period (000's) .... $ 1,183,293 $ 988,800 $ 534,562 Ratio of operating expenses to average net assets (C) ............. 0.81%(A) 0.80% 0.84% Ratio of net investment income to average net assets ................. 1.60%(A) 0.63% 0.88% Portfolio turnover rate .............. 126%(A) 88% 132% Average commission rate per share (D) .......................... $ 0.044 N/A N/A EQUITY TRUST -------------------------------------------------------------- YEARS ENDED DECEMBER 31, -------------------------------------------------------------- 1993** 1992 1991 1990 ----------- ----------- ---------- ---------- Net asset value, beginning of period .......................... $ 13.97 $ 13.12 $ 11.33 $ 19.14 Income from investment operations: Net investment income (B) .......... 0.07 0.64 0.14 0.24 Net realized and unrealized gain (loss) on investments and foreign currency transactions .. 2.11 0.38 1.88 (1.95) ----------- ----------- ---------- ---------- Total from investment operations ..................... 2.18 1.02 2.02 (1.71) Less distributions: Dividends from net investment income ........................... (0.58) (0.17) (0.23) (0.29) Distributions from capital gains ... -- -- -- (5.81) ----------- ----------- ---------- ---------- Total distributions .............. (0.58) (0.17) (0.23) (6.10) ----------- ----------- ---------- ---------- Net asset value, end of period ....... $ 15.57 $ 13.97 $ 13.12 $ 11.33 =========== =========== ========== ========== Total return .................... 16.31% 7.93% 17.94% (11.79%) Net assets, end of period (000's) .... $ 387,842 $ 192,626 $ 88,235 $ 36,564 Ratio of operating expenses to average net assets (C) ............. 0.88% 0.95% 0.89% 0.97% Ratio of net investment income to average net assets ................. 0.50% 7.31% 2.23% 2.74% Portfolio turnover rate .............. 173% 782% 172% 95% Average commission rate per share (D)........................... N/A N/A N/A N/A EQUITY TRUST ---------------------------------------------------------------- YEARS ENDED DECEMBER 31, ---------------------------------------------------------------- 1989 1988 1987 1986 ---------- ----------- ---------- --------- Net asset value, beginning of period .......................... $ 15.17 $ 12.57 $ 13.01 $ 11.39 Income from investment operations: Net investment income (B) .......... 0.29 0.15 0.19 0.27 Net realized and unrealized gain (loss) on investments and foreign currency transactions .. 3.87 2.45 0.97 1.80 ---------- ----------- ---------- --------- Total from investment operations ..................... 4.16 2.60 1.16 2.07 Less distributions: Dividends from net investment income ........................... (0.12) -- (0.14) (0.24) Distributions from capital gains ... (0.07) -- (1.46) (0.21) ---------- ----------- ---------- --------- Total distributions .............. (0.19) -- (1.60) (0.45) ---------- ----------- ---------- --------- Net asset value, end of period ....... $ 19.14 $ 15.17 $ 12.57 $ 13.01 ========== =========== ============= ============ Total return .................... 27.70% 20.71% 6.87% 18.50% Net assets, end of period (000's) .... $ 32,108 $ 133,852 $ 37,001 $ 1,408 Ratio of operating expenses to average net assets (C) ............. 1.02% 1.08% 1.15% 1.41% Ratio of net investment income to average net assets ................. 1.90% 1.80% 1.33% 1.19% Portfolio turnover rate .............. 111% 49% 64% 209% Average commission rate per share (D) .......................... N/A N/A N/A N/A
- -------------------------- ** Net investment income per share was calculated using the average shares method for fiscal year 1993. (A) Annualized (B) After expense reimbursement per share of $0.02 , $0.53 and $0.14 in 1987, 1986 and 1985, respectively. (C) The ratio of operating expenses, before reimbursement from the investment adviser, was 1.30%, 3.71% and 4.69% in 1987, 1986 and 1985, respectively. (D) For fiscal years beginning on or after September 1, 1995, a fund is required to disclose its average commission rate per share of all security trades on which commissions are charged. In certain foreign markets the relationship between the translated U.S. dollar price per share and commission paid per share may vary from that of domestic markets. 16 19 NASL SERIES TRUST FINANCIAL HIGHLIGHTS (FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)
VALUE EQUITY TRUST ----------------------------------------------------------------------- SIX MONTHS ENDED YEARS ENDED DECEMBER 31, 02/19/93* 06/30/96 TO ------------------------------ (UNAUDITED) 1995 1994** 12/31/93 ------------ ------------ ------------ ------------ Net asset value, beginning of period ......................... $ 13.81 $ 11.33 $ 11.31 $ 10.00 Income from investment operations: Net investment income ............... 0.08 0.17 0.12 0.07 Net realized and unrealized gain (loss) on investments ............. 1.00 2.49 (0.03) 1.24 ------------ ------------ ------------ ------------ Total from investment operations ............... 1.08 2.66 0.09 1.31 Less distributions: Dividends from net investment income ............................ (0.16) (0.08) (0.05) -- Distributions from capital gains .... (0.84) (0.10) (0.02) -- ------------ ------------ ------------ ------------ Total distributions ........ (1.00) (0.18) (0.07) -- ------------ ------------ ------------ ------------ Net asset value, end of period ...... $ 13.89 $ 13.81 $ 11.33 $ 11.31 ============ ============ ============ ============ Total return ............... 8.03% 23.69% 0.79% 13.10% Net assets, end of period (000's) ... $ 487,793 $ 396,827 $ 221,835 $ 86,472 Ratio of operating expenses to average net assets ................ 0.84%(A) 0.85% 0.87% 0.94%(A) Ratio of net investment income to average net assets ................ 1.50%(A) 1.63% 1.08% 1.30%(A) Portfolio turnover rate ............. 58%(A) 52% 26% 33%(A) Average commission rate per share (B) ......................... $ 0.056 N/A N/A N/A
- ----------------------------- * Commencement of operations. ** Net investment income per share was calculated using the average shares method for fiscal year 1994. (A) Annualized (B) For fiscal years beginning on or after September 1, 1995, a fund is required to disclose its average commission rate per share of all security trades on which commissions are charged. In certain foreign markets the relationship between the translated U.S. dollar price per share and commission paid per share may vary from that of domestic markets. 17 20 NASL SERIES TRUST FINANCIAL HIGHLIGHTS (FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)
GROWTH AND INCOME TRUST ---------------------------------------------------------------------------------- SIX MONTHS ENDED YEARS ENDED DECEMBER 31, 4/23/91* 06/30/96 TO ---------------------------------------------------- (UNAUDITED) 1995 1994 1993 1992 12/31/91 -------- -------- -------- -------- -------- -------- Net asset value, beginning of period ........................... $ 16.37 $ 13.04 $ 13.05 $ 12.10 $ 11.08 $ 10.00 Income from investment operations: Net investment income ............... 0.11 0.27 0.25 0.17 0.20 0.13 Net realized and unrealized gain on investments and foreign currency transactions ..................... 1.28 3.45 0.11 0.98 0.92 0.95 -------- -------- -------- -------- -------- ------- Total from investment operations 1.39 3.72 0.36 1.15 1.12 1.08 Less distributions: Dividends from net investment income ............................ (0.26) (0.26) (0.19) (0.18) (0.10) -- Distributions from capital gains .... (0.36) (0.13) (0.18) (0.02) -- -- -------- -------- -------- -------- -------- ------- Total distributions ............ (0.62) (0.39) (0.37) (0.20) (0.10) -- -------- -------- -------- -------- -------- ------- Net asset value, end of period ........ $ 17.14 $ 16.37 $ 13.04 $ 13.05 $ 12.10 $ 11.08 ======== ======== ======== ======== ======== ======= Total return .................. 8.64% 29.20% 2.85% 9.62% 10.23% 10.80% Net assets, end of period (000's) ..... $832,809 $669,387 $409,534 $288,765 $130,984 $57,404 Ratio of operating expenses to average net assets .................. 0.80%(A) 0.80% 0.82% 0.85% 0.85% 0.98%(A) Ratio of net investment income to average net assets .................. 1.72%(A) 2.23% 2.40% 2.29% 2.78% 2.92%(A) Portfolio turnover rate ............... 54%(A) 39% 42% 39% 44% 62%(A) Average commission rate per share (B)............................ $ 0.055 N/A N/A N/A N/A N/A
- ------------------ * Commencement of operations. (A) Annualized (B) For fiscal years beginning on or after September 1, 1995, a fund is required to disclose its average commission rate per share of all security trades on which commissions are charged. In certain foreign markets the relationship between the translated U.S. dollar price per share and commission paid per share may vary from that of domestic markets. 18 21 NASL SERIES TRUST FINANCIAL HIGHLIGHTS (FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)
INTERNATIONAL GROWTH AND INCOME TRUST -------------------------------------- SIX MONTHS ENDED 01/09/95* 06/30/96 TO (UNAUDITED) 12/31/95 ------------ ------------ Net asset value, beginning of period ........................... $ 10.47 $ 10.00 Income from investment operations: Net investment income .............. 0.12 0.11 Net realized and unrealized loss on investments and foreign currency transactions ..................... 0.49 0.59 ------------ ------------ Total from investment operations ................... 0.61 0.70 Less distributions: Dividends from net investment income ........................... (0.02) (0.12) Distributions from capital gains ... -- (0.11) ------------ ------------ Total distributions ............ (0.02) (0.23) ------------ ------------ Net asset value, end of period ........ $ 11.06 $ 10.47 ============ ============ Total return ................... 5.81% 6.98% Net assets, end of period (000's) ..... $ 141,098 $ 88,638 Ratio of operating expenses to average net assets .................. 1.13%(A) 1.47%(A) Ratio of net investment income to average net assets .................. 2.40%(A) 0.71%(A) Portfolio turnover rate ............... 206%(A) 112%(A) Average commission rate per share (B)............................ $ 0.031 N/A
- ----------------------------- * Commencement of operations. (A) Annualized (B) For fiscal years beginning on or after September 1, 1995, a fund is required to disclose its average commission rate per share of all security trades on which commissions are charged. In certain foreign markets the relationship between the translated U.S. dollar price per share and commission paid per share may vary from that of domestic markets. 19 22 NASL SERIES TRUST FINANCIAL HIGHLIGHTS (FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)
STRATEGIC BOND TRUST ---------------------------------------------------------------------------- SIX MONTHS ENDED YEARS ENDED DECEMBER 31, 02/19/93* 06/30/96 TO ----------------------------- (UNAUDITED) 1995 1994 12/31/93 ----------- ----------- ----------- ----------- Net asset value, beginning of period ............................. $ 11.26 $ 9.91 $ 10.88 $ 10.00 Income from investment operations: Net investment income ................. 0.30 0.78 0.57 0.33 Net realized and unrealized gain (loss) on investments and foreign currency transactions ....................... 0.30 1.04 (1.22) 0.55 ----------- ----------- ----------- ----------- Total from investment operations ..................... 0.60 1.82 (0.65) 0.88 Less distributions: Dividends from net investment income .. (0.85) (0.47) (0.28) -- Distributions from capital gains ...... -- -- (0.04) -- ----------- ----------- ----------- ----------- Total distributions .............. (0.85) (0.47) (0.32) -- ----------- ----------- ----------- ----------- Net asset value, end of period .......... $ 11.01 $ 11.26 $ 9.91 $ 10.88 =========== =========== =========== =========== Total return ..................... 5.67% 19.22% (5.99%) 8.80% Net assets, end of period (000's) ....... $ 155,321 $ 122,704 $ 84,433 $ 53,640 Ratio of operating expenses to average net assets .................... 0.92%(A) 0.92% 0.91% 1.00%(A) Ratio of net investment income to average net assets .................... 8.55%(A) 8.76% 7.49% 6.56%(A) Portfolio turnover rate ................. 220%(A) 181% 197% 356%(A) Average commission rate per share (B) ... N/A N/A N/A N/A
- ----------------------------- * Commencement of operations. (A) Annualized (B) For fiscal years beginning on or after September 1, 1995, a fund is required to disclose its average commission rate per share of all security trades on which commissions are charged. In certain foreign markets the relationship between the translated U.S. dollar price per share and commission paid per share may vary from that of domestic markets. 20 23 NASL SERIES TRUST FINANCIAL HIGHLIGHTS (FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)
GLOBAL GOVERNMENT BOND TRUST -------------------------------------------------------------------------------------- SIX MONTHS ENDED 06/30/96 YEARS ENDED DECEMBER 31, ----------------------------------------------------------------- (UNAUDITED) 1995 1994 1993 1992 ----------- ----------- ----------- ----------- ----------- Net asset value, beginning of period ........................... $ 14.56 $ 12.47 $ 13.93 $ 12.47 $ 12.88 Income from investment operations: Net investment income ............... 0.43 1.16 0.74 0.59 0.42 Net realized and unrealized gain (loss) on investments and foreign currency transactions ... (0.08) 1.62 (1.54) 1.67 (0.16) ----------- ----------- ----------- ----------- ----------- Total from investment operations.................... 0.35 2.78 (0.80) 2.26 0.26 Less distributions: Dividends from net investment income (1.31) (0.69) (0.30) (0.70) (0.43) Distributions from capital gains .... -- -- (0.36) (0.10) (0.24) ----------- ----------- ----------- ----------- ----------- Total distributions ............ (1.31) (0.69) (0.66) (0.80) (0.67) ----------- ----------- ----------- ----------- ----------- Net asset value, end of period ........ $ 13.60 $ 14.56 $ 12.47 $ 13.93 $ 12.47 =========== =========== =========== =========== =========== Total return .................. 2.67% 23.18% (5.75%) 18.99% 2.27% Net assets, end of period (000's) ..... $ 237,536 $ 235,243 $ 208,513 $ 196,817 $ 67,859 Ratio of operating expenses to average net assets .................. 0.94%(A) 0.93% 0.96% 1.06% 1.05% Ratio of net investment income to average net assets .................. 6.31%(A) 6.83% 6.10% 5.61% 6.71% Portfolio turnover rate ............... 211%(A) 171% 157% 154% 132% Average commission rate per share (B)............................ N/A N/A N/A N/A N/A GLOBAL GOVERNMENT BOND TRUST ------------------------------------------------------------------- 3/18/88* YEARS ENDED DECEMBER 31, TO ----------------------------------------------- 1991 1990 1989 12/31/88 ----------- ----------- ----------- ----------- Net asset value, beginning of period ........................... $ 11.59 $ 10.50 $ 10.21 $ 10.03 Income from investment operations: Net investment income ............... 0.55 0.25 0.45 0.14 Net realized and unrealized gain (loss) on investments and foreign currency transactions ... 1.21 1.13 -- 0.04 ----------- ----------- ----------- ----------- Total from investment operations.................... 1.76 1.38 0.45 0.18 Less distributions: Dividends from net investment income (0.46) (0.24) (0.09) -- Distributions from capital gains .... (0.01) (0.05) (0.07) -- ----------- ----------- ----------- ----------- Total distributions ............ (0.47) (0.29) (0.16) -- ----------- ----------- ----------- ----------- Net asset value, end of period ........ $ 12.88 $ 11.59 $ 10.50 $ 10.21 =========== =========== =========== =========== Total return .................. 15.86% 13.49% 4.49% 1.79% Net assets, end of period (000's) ..... $ 28,251 $ 11,582 $ 4,065 $ 1,355 Ratio of operating expenses to average net assets .................. 1.14% 1.21% 1.50% 3.39%(A) Ratio of net investment income to average net assets .................. 17.28% 6.62% 7.15% 3.74%(A) Portfolio turnover rate ............... 164% 142% 50% 234%(A) Average commission rate per share (B)............................ N/A N/A N/A N/A
- -------------------------- * Commencement of operations. (A) Annualized (B) For fiscal years beginning on or after September 1, 1995, a fund is required to disclose its average commission rate per share of all security trades on which commissions are charged. In certain foreign markets the relationship between the translated U.S. dollar price per share and commission paid per share may vary from that of domestic markets. 21 24 NASL SERIES TRUST FINANCIAL HIGHLIGHTS (FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)
INVESTMENT QUALITY BOND TRUST ------------------------------------------------------------------------------------ SIX MONTHS ENDED YEARS ENDED DECEMBER 31, 06/30/96 ----------------------------------------------------------------- (UNAUDITED) 1995 1994 1993 1992 1991** -------- -------- -------- ------- ------- ------- Net asset value, beginning of period .......................... $ 12.32 $ 11.01 $ 12.12 $ 11.58 $ 11.33 $ 10.74 Income from investment operations: Net investment income (B) .......... 0.37 0.77 0.66 0.60 0.63 0.76 Net realized and unrealized gain (loss) on investments ............ (0.65) 1.28 (1.23) 0.53 0.15 0.85 -------- -------- -------- ------- ------- ------- Total from investment operations .................... (0.28) 2.05 (0.57) 1.13 0.78 1.61 Less distributions: Dividends from net investment income ........................... (0.71) (0.74) (0.54) (0.59) (0.53) (1.25) Distributions from capital gains ... -- -- -- -- -- -- -------- --------- --------- ------- ------- ------- Total distributions ............. (0.71) (0.74) (0.54) (0.59) (0.53) (1.02) -------- -------- -------- ------- ------- ------- Net asset value, end of period ....... $ 11.33 $ 12.32 $ 11.01 $ 12.12 $ 11.58 $ 11.33 ======== ======== ======== ======= ======= ======= Total return ................... (2.25%) 19.49% (4.64%) 10.01% 7.21% 16.07% Net assets, end of period (000's) .... $141,937 $143,103 $111,423 $99,474 $60,185 $38,896 Ratio of operating expenses to average net assets (C) ............. 0.75%(A) 0.74% 0.76% 0.77% 0.80% 0.85% Ratio of net investment income to average net assets ................. 6.79%(A) 6.91% 6.49% 6.03% 6.96% 7.47% Portfolio turnover rate .............. 63%(A) 137% 140% 33% 59% 115% Average commission rate per share (D) .......................... N/A N/A N/A N/A N/A N/A
INVESTMENT QUALITY BOND TRUST ---------------------------------------------------------------------------------- YEARS ENDED DECEMBER 31, ---------------------------------------------------------------------------------- 1990 1989 1988 1987 1986 ----------- ----------- ----------- ----------- ----------- Net asset value, beginning of period .......................... $ 12.37 $ 11.55 $ 10.79 $ 11.58 $ 11.18 Income from investment operations: Net investment income (B) .......... 1.12 0.75 0.57 0.81 1.02 Net realized and unrealized gain (loss) on investments ............ (1.50) 0.51 0.19 (0.50) 0.37 ----------- ----------- ----------- ----------- ----------- Total from investment operations .................... (0.38) 1.26 0.76 0.31 1.39 Less distributions: Dividends from net investment income .......................... (1.25) (0.44) -- (0.88) (0.69) Distributions from capital gains ... -- -- -- (0.22) (0.30) ----------- ----------- ----------- ----------- ----------- Total distributions ............. (1.25) (0.44) -- (1.10) (0.99) ----------- ----------- ----------- ----------- ----------- Net asset value, end of period ....... $ 10.74 $ 12.37 $ 11.55 $ 10.79 $ 11.58 =========== =========== =========== =========== =========== Total return ................... (2.73%) 11.34% 7.09% 2.61% 13.25% Net assets, end of period (000's) .... $ 20,472 $ 26,965 $ 114,221 $ 25,131 $ 1,295 Ratio of operating expenses to average net assets (C) ............. 0.70% 0.83% 0.89% 0.95% 1.16% Ratio of net investment income to average net assets ................. 8.41% 8.77% 7.97% 7.46% 8.11% Portfolio turnover rate .............. 120% 351% 94% 201% 127% Average commission rate per share (D) ......................... N/A N/A N/A N/A N/A
- -------------------------- ** The Investment Quality Bond Trust is the successor to the Bond Trust effective April 23, 1991. (A) Annualized (B) After expense reimbursement per share of $0.02, $0.28 and $0.12 in 1987, 1986 and 1985, respectively. (C) The ratio of operating expenses, before reimbursement from the investment adviser, was 1.14%, 3.38% and 3.55% in 1987, 1986 and 1985, respectively. (D) For fiscal years beginning on or after September 1, 1995, a fund is required to disclose its average commission rate per share of all security trades on which commissions are charged. In certain foreign markets the relationship between the translated U.S. dollar price per share and commission paid per share may vary from that of domestic markets. 22 25 NASL SERIES TRUST FINANCIAL HIGHLIGHTS (FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD) - -------------------------------------------------------------------------------
U.S. Government Securities Trust ------------------------------------------------------------------------------------ Six Months Ended 06/30/96*** Years Ended December 31, --------------------------------------------------------------------- (Unaudited) 1995 1994 1993 1992 1991 1990 -------------- --------- --------- ---------- --------- --------- ---------- Net asset value, beginning of period ............................. $13.65 $12.64 $13.48 $13.05 $12.85 $11.83 $10.98 Income from investment operations: Net investment income (B) ............. 0.40 0.89 0.77 0.48 0.10 0.19 1.07 Net realized and unrealized gain (loss) on investments ............... (1.25) 0.99 (0.95) 0.49 0.65 1.40 (0.13) ----- ---- ----- ---- ---- ---- ----- Total from investment operations ..................... (0.85) 1.88 (0.18) 0.97 0.75 1.59 0.94 Less distributions: Dividends from net investment income .. (0.07) (0.87) (0.51) (0.46) (0.38) (0.53) (0.08) Distributions from capital gains ...... ---- ---- (0.15) (0.08) (0.17) (0.04) (0.01) ----- ---- ----- ---- ---- ---- ----- Total distributions .............. (0.07) (0.87) (0.66) (0.54) (0.55) (0.57) (0.09) ----- ---- ----- ---- ---- ---- ----- Net asset value, end of period .......... $12.73 $13.65 $12.64 $13.48 $13.05 $12.85 $11.83 ====== ====== ====== ====== ====== ====== ====== Total return .................... (1.20%) 15.57% (1.25%) 7.64% 6.19% 14.01% 8.63% Net assets, end of period (000's) ....... $212,117 $216,788 $188,813 $222,072 $125,945 $29,246 $10,469 Ratio of operating expenses to average net assets (C) ................ 0.72%(A) 0.71% 0.73% 0.75% 0.76% 0.87% 1.04% Ratio of net investment income to average net assets .................... 6.18%(A) 6.46% 5.68% 5.05% 6.12% 7.09% 7.70% Portfolio turnover rate ................. 215%(A) 212% 387% 213% 141% 233% 284% Average commission rate per share (D) ... N/A N/A N/A N/A N/A N/A N/A
3/18/88* to 1989** 12/31/88 --------- ---------- Net asset value, beginning of period ............................. $9.81 $10.03 Income from investment operations: Net investment income (B) ............. 0.20 0.07 Net realized and unrealized gain (loss) on investments ............... 1.08 (0.29) ---- ----- Total from investment operations ..................... 1.28 (0.22) Less distributions: Dividends from net investment income .. (0.11) ---- Distributions from capital gains ...... ---- ---- ---- ----- Total distributions .............. (0.11) ---- ---- ----- Net asset value, end of period .......... $10.98 $9.81 ====== ===== Total return .................... 13.16% (2.19%) Net assets, end of period (000's) ....... $5,905 $344 Ratio of operating expenses to average net assets (C) ................ 0.90% 5.16%(A) Ratio of net investment income to average net assets .................... 6.66% 1.16%(A) Portfolio turnover rate ................. 330% 156%(A) Average commission rate per share (D) ... N/A N/A
- ----------------------------- * Commencement of operations. ** The U.S. Government Securities Trust is the successor to the Convertible Securities Trust effective May 1, 1989. *** Net investment income per share has been calculated using the average shares method for the six months ended June 30, 1996. (A) Annualized (B) After expense reimbursement per share of $0.01 and $0.06 in 1989 and 1988, respectively. (C) The ratio of operating expenses, before reimbursement from the investment adviser, was 1.62% and 6.16% in 1989 and 1988, respectively. (D) For fiscal years beginning on or after September 1, 1995, a fund is required to disclose its average commission rate per share of all security trades on which commissions are charged. In certain foreign markets the relationship between the translated U.S. dollar price per share and commission paid per share may vary from that of domestic markets. 23 26 NASL SERIES TRUST FINANCIAL HIGHLIGHTS (FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD) - -------------------------------------------------------------------------------
Money Market Trust ------------------------------------------------------------------------------------ Six Months Ended 06/30/96 Years Ended December 31, ---------------------------------------------------------------------- (Unaudited) 1995 1994 1993 1992 1991 1990 1989 ------------- -------- -------- -------- -------- -------- -------- -------- Net asset value, beginning of period ........................... $10.00 $10.00 $10.00 $10.00 $10.00 $10.00 $10.00 $10.00 Income from investment operations: Net investment income (B) ........... 0.40 0.55 0.38 0.27 0.33 0.56 0.75 0.72 Less distributions: Dividends from net investment income ................. (0.40) (0.55) (0.38) (0.27) (0.33) (0.56) (0.75) (0.72) ----- ----- ----- ----- ----- ----- ----- ----- Net asset value, end of period ........ $10.00 $10.00 $10.00 $10.00 $10.00 $10.00 $10.00 $10.00 ====== ====== ====== ====== ====== ====== ====== ====== Total return .................... 2.47% 5.62% 3.78% 2.69% 3.36% 5.71% 7.76% 8.56% Net assets, end of period (000's) ..... $338,435 $258,117 $276,674 $132,274 $89,535 $79,069 $85,040 $19,403 Ratio of operating expenses to average net assets (C) .............. 0.54%(A) 0.54% 0.57% 0.59% 0.60% 0.60% 0.57% 0.79% Ratio of net investment income to average net assets .................. 4.76%(A) 5.48% 3.93% 2.66% 3.28% 5.65% 7.27% 8.26% Average commission rate per share (D) .......................... N/A N/A N/A N/A N/A N/A N/A N/A
----------------------------- 1988 1987 1986 -------- -------- -------- Net asset value, beginning of period ........................... $10.00 $10.00 $10.00 Income from investment operations: Net investment income (B) ........... 0.57 0.60 0.56 Less distributions: Dividends from net investment income ................. (0.57) (0.60) (0.56) ----- ----- ----- Net asset value, end of period ........ $10.00 $10.00 $10.00 ====== ====== ====== Total return .................... 6.77% 6.13% 5.74% Net assets, end of period (000's) ..... $12,268 $7,147 $1,046 Ratio of operating expenses to average net assets (C) .............. 0.99% 0.78% 1.11% Ratio of net investment income to average net assets .................. 6.68% 5.86% 6.84% Average commission rate per share (D) . N/A N/A N/A
- --------------------------------- (A) Annualized (B) After expense reimbursement per share of $0.08, $0.23 and $0.12 in 1987, 1986 and 1985, respectively. (C) The ratio of operating expenses, before reimbursement from the investment adviser, was 1.57%, 3.43% and 3.50% in 1987, 1986 and 1985, respectively. (D) For fiscal years beginning on or after September 1, 1995, a fund is required to disclose its average commission rate per share of all security trades on which commissions are charged. In certain foreign markets the relationship between the translated U.S. dollar price per share and commission paid per share may vary from that of domestic markets. 24 27 NASL SERIES TRUST FINANCIAL HIGHLIGHTS (FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD) - -------------------------------------------------------------------------------
Aggressive Asset Allocation Trust -------------------------------------------------------------------------- Six Months Years Ended December 31, Ended 06/30/96 ---------------------------------------------------------- (Unaudited) 1995 1994 1993 1992 1991 ------------- --------- --------- --------- --------- --------- Net asset value, beginning of period .............................. $12.85 $11.17 $12.03 $11.25 $10.72 $9.08 Income from investment operations: Net investment income .................. 0.17 0.35 0.31 0.34 0.30 0.36 Net realized and unrealized gain (loss) on investments and foreign currency transactions ...... 0.48 2.07 (0.41) 0.79 0.55 1.69 ---- ---- ----- ---- ---- ---- Total from investment operations .. 0.65 2.42 (0.10) 1.13 0.85 2.05 Less distributions: Dividends from net investment income ... (0.33) (0.33) (0.31) (0.30) (0.32) (0.41) Distributions from capital gains ....... (0.64) (0.41) (0.45) (0.05) ---- ---- ----- ----- ----- ----- Total distributions ................. (0.97) (0.74) (0.76) (0.35) (0.32) (0.41) ----- ----- ----- ----- ----- ----- Net asset value, end of period ........... $12.53 $12.85 $11.17 $12.03 $11.25 $10.72 ====== ====== ====== ====== ====== ====== Total return ........................ 5.27% 22.77% (0.69%) 10.30% 8.24% 22.96% Net assets, end of period (000's) ........ $220,905 $211,757 $184,662 $174,448 $151,627 $124,632 Ratio of operating expenses to average net assets ..................... 0.96%(A) 0.91% 0.89% 0.86% 0.89% 0.88% Ratio of net investment income to average net assets ...................... 2.79%(A) 2.76% 2.90% 2.96% 3.08% 3.63% Portfolio turnover rate .................. 81%(A) 111% 136% 92% 123% 172% Average commission rate per share (B) .... $0.025 N/A N/A N/A N/A N/A
----------------------- 8/03/89* to -------- 1990 12/31/89 --------- ---------- Net asset value, beginning of period .............................. $9.88 $10.00 Income from investment operations: Net investment income .................. 0.36 0.08 Net realized and unrealized gain (loss) on investments and foreign currency transactions ...... (1.07) (0.20) ----- ----- Total from investment operations .. (0.71) (0.12) Less distributions: Dividends from net investment income ... (0.07) ---- Distributions from capital gains ....... (0.02) ---- ----- ------ Total distributions ................. (0.09) ---- ----- ------ Net asset value, end of period ........... $ 9.08 $ 9.88 ====== ====== Total return ........................ (7.27%) (1.20%) Net assets, end of period (000's) ........ $91,581 $87,301 Ratio of operating expenses to average net assets ..................... 0.78% 0.89%(A) Ratio of net investment income to average net assets ...................... 4.08% 3.32%(A) Portfolio turnover rate .................. 82% 22%(A) Average commission rate per share (B) .... N/A N/A
- ----------------------------- * Commencement of operations. (A) Annualized (B) For fiscal years beginning on or after September 1, 1995, a fund is required to disclose its average commission rate per share of all security trades on which commissions are charged. In certain foreign markets the relationship between the translated U.S. dollar price per share and commission paid per share may vary from that of domestic markets. 25 28 NASL SERIES TRUST FINANCIAL HIGHLIGHTS (FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD) - -------------------------------------------------------------------------------
Moderate Asset Allocation Trust --------------------------------------------------------------------------- Six Months Years Ended December 31, Ended 06/30/96 ----------------------------------------------------------- (Unaudited) 1995 1994 1993 1992 1991 ------------- --------- --------- --------- --------- --------- Net asset value, beginning of period ................................ $12.39 $10.79 $11.76 $11.14 $10.72 $9.29 Income from investment operations: Net investment income .................... 0.27 0.50 0.45 0.41 0.41 0.42 Net realized and unrealized gain (loss) on investments and foreign currency transactions ........ 0.10 1.65 (0.65) 0.67 0.43 1.50 ------ ------ ------ ------ ------ ------ Total from investment operations .... 0.37 2.15 (0.20) 1.08 0.84 1.92 Less distributions: Dividends from net investment income ..... (0.52) (0.45) (0.40) (0.39) (0.42) (0.49) Distributions from capital gains ......... (0.52) (0.10) (0.37) (0.07) ---- ---- ----- ----- ----- ----- ------ ------- Total distributions ................... (1.04) (0.55) (0.77) (0.46) (0.42) (0.49) ----- ----- ----- ----- ----- ----- Net asset value, end of period ............. $11.72 $12.39 $10.79 $11.76 $11.14 $10.72 ------ ------ ------ ------ ------ ------ Total return ......................... 3.18% 20.68% (1.61%) 10.06% 8.30% 21.23% Net assets, end of period (000's) .......... $628,835 $650,136 $604,491 $644,257 $505,967 $420,074 Ratio of operating expenses to average net assets ....................... 0.88%(A) 0.84% 0.85% 0.84% 0.87% 0.86% Ratio of net investment income to average net assets ....................... 4.19%(A) 4.09% 4.01% 4.02% 4.21% 4.38% Portfolio turnover rate .................... 87%(A) 129% 180% 135% 169% 168% Average commission rate per share (B) ...... $0.026 N/A N/A N/A N/A N/A
---------------------- 8/03/89* to --------- 1990 12/31/89 --------- ---------- Net asset value, beginning of period ................................ $10.03 $10.00 Income from investment operations: Net investment income .................... 0.48 0.11 Net realized and unrealized gain (loss) on investments and foreign currency transactions ........ (1.10) (0.08) ------- ------ Total from investment operations .... (0.62) 0.03 Less distributions: Dividends from net investment income ..... (0.10) ---- Distributions from capital gains ......... (0.02) ---- ----- ------ Total distributions ................... (0.12) ---- ----- ------ Net asset value, end of period ............. $9.29 $10.03 ----- ------ Total return ......................... (6.23%) 0.30% Net assets, end of period (000's) .......... $327,328 $318,439 Ratio of operating expenses to average net assets ....................... 0.73% 0.79%(A) Ratio of net investment income to average net assets ....................... 5.10% 4.51%(A) Portfolio turnover rate .................... 76% 41%(A) Average commission rate per share (B) ...... N/A N/A
- ----------------------------- * Commencement of operations. (A) Annualized (B) For fiscal years beginning on or after September 1, 1995, a fund is required to disclose its average commission rate per share of all security trades on which commissions are charged. In certain foreign markets the relationship between the translated U.S. dollar price per share and commission paid per share may vary from that of domestic markets. 26 29 NASL SERIES TRUST FINANCIAL HIGHLIGHTS (FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD) - -------------------------------------------------------------------------------
Conservative Asset Allocation Trust -------------------------------------------------------------------------- Six Months Years Ended December 31, Ended 06/30/96 ---------------------------------------------------------- (Unaudited) 1995 1994 1993 1992 1991 ------------- --------- --------- --------- --------- --------- Net asset value, beginning of period ................................ $11.59 $10.34 $11.26 $10.78 $10.63 $9.56 Income from investment operations: Net investment income .................... 0.27 0.54 0.55 0.50 0.47 0.58 Net realized and unrealized gain (loss) on investments and foreign currency transactions ........ (0.09) 1.26 (0.76) 0.44 0.26 1.15 ----- ---- ----- ---- ---- ---- Total from investment operations .... 0.18 1.80 (0.21) 0.94 0.73 1.73 Less distributions: Dividends from net investment income ..... (0.56) (0.55) (0.46) (0.46) (0.58) (0.66) Distributions from capital gains ......... (0.16) ---- (0.25) ---- ---- ---- ----- ---- ----- ---- ---- ---- Total distributions ................... (0.72) (0.55) (0.71) (0.46) (0.58) (0.66) ----- ----- ----- ----- ----- ----- Net asset value, end of period ............. $11.05 $11.59 $10.34 $11.26 $10.78 $10.63 ------ ------ ------ ------ ------ ------ Total return ......................... 1.61% 18.07% (1.84%) 8.99% 7.36% 18.80% Net assets, end of period (000's) .......... $215,765 $224,390 $216,716 $250,117 $201,787 $165,167 Ratio of operating expenses to average net assets ....................... 0.92%(A) 0.87% 0.87% 0.86% 0.89% 0.88% Ratio of net investment income to average net assets ....................... 4.57%(A) 4.68% 4.86% 4.78% 4.99% 5.65% Portfolio turnover rate .................... 75%(A) 110% 220% 170% 252% 211% Average commission rate per share (B) ...... $0.028 N/A N/A N/A N/A N/A
---------------------- 8/03/89* to --------- 1990 12/31/89 --------- ---------- Net asset value, beginning of period ................................ $10.11 $10.00 Income from investment operations: Net investment income .................... 0.62 0.15 Net realized and unrealized gain (loss) on investments and foreign currency transactions ........ (1.01) (0.04) ----- ----- Total from investment operations .... (0.39) 0.11 Less distributions: Dividends from net investment income ..... (0.13) ---- Distributions from capital gains ......... (0.03) ---- ----- ---- Total distributions ................... (0.16) ---- ----- ---- Net asset value, end of period ............. $9.56 $10.11 ----- ------ Total return ......................... (3.84%) 1.10% Net assets, end of period (000's) .......... $149,901 $141,191 Ratio of operating expenses to average net assets ....................... 0.76% 0.82%(A) Ratio of net investment income to average net assets ....................... 6.68% 6.00%(A) Portfolio turnover rate .................... 78% 85%(A) Average commission rate per share (B) ...... N/A N/A
- ----------------------------- * Commencement of operations. (A) Annualized (B) For fiscal years beginning on or after September 1, 1995, a fund is required to disclose its average commission rate per share of all security trades on which commissions are charged. In certain foreign markets the relationship between the translated U.S. dollar price per share and commission paid per share may vary from that of domestic markets. 27 30 NASL SERIES TRUST FINANCIAL HIGHLIGHTS (FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD) - --------------------------------------------------------------------------------
GROWTH TRUST ----------- 07/15/96* TO 11/30/96 (UNAUDITED) ----------- Net asset value, beginning of period ............. $ 12.50 Income from investment operations: Net investment income ............................ 0.09 Net realized and unrealized gain on investments .. 1.66 -------- Total from investment operations .................................. 1.75 Net asset value, end of period ................... $ 14.25 ======== Total return .................................... 14.00% Net assets, end of period (000's) ............... $ 52,034 Ratio of operating expenses to average net assets ............................. 1.04%(A) Ratio of net investment income to average net assets ............................. 3.54%(A) Portfolio turnover rate .......................... 202%(A) Average commission rate per share (B)............. $ 0.046
- -------------------- * Commencement of operations. (A) Annualized (B) For fiscal years beginning on or after September 1, 1995, a fund is required to disclose its average commission rate per share of all security trades on which commissions are charged. In certain foreign markets the relationship between the translated U.S. dollar price per share and commission paid per share may vary from that of domestic markets. 31 FINANCIAL HIGHLIGHTS Selected data for a share of capital stock outstanding for the periods indicated.
COMMON STOCK FUND * - ----------------------------------------------------------------------------------------------------------------------------------- SIX MONTHS YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED ENDED DEC. 31/95 DEC. 31/94 DEC. 31/93 DEC. 31/92 DEC. 31/91 JUNE 30/96 (UNAUDITED) - ----------------------------------------------------------------------------------------------------------------------------------- Net asset value beginning of period $ 17.27 $ 13.36 $ 14.68 $ 13.73 $ 13.33 $ 10.48 -------- -------- -------- --------- --------- ------------ Income from investment operations: Net investment income 0.12 0.24 0.20 0.19 0.18 0.21 Net realized and unrealized gain (loss) on investments 1.34 3.67 (0.81) 1.64 0.61 2.94 -------- -------- -------- --------- --------- ------------ Total from investment operations 1.46 3.91 (0.61) 1.83 0.79 3.15 -------- -------- -------- --------- --------- ------------ Dividend Distributions: Net investment income -- -- (0.20) (0.19) (0.18) (0.21) Net realized gain -- -- (0.51) (0.69) (0.21) (0.09) -------- -------- -------- --------- --------- ------------ Total dividend distributions 0.00 0.00 (0.71) (0.88) (0.39) (0.30) -------- -------- -------- --------- --------- ------------ Net asset value end of period $ 18.73 $ 17.27 $ 13.36 $ 14.68 $ 13.73 $ 13.33 ======== ======== ======== ========= ========= ============ Net assets end of period (in 000's) $ 76,032 $ 60,996 $ 34,829 $ 21,651 $ 9,708 $ 5,480 Aggregate return on share outstanding during entire period 8.45% 29.23% (4.19)% 13.39% 6.07% 30.18% Significant ratios : Portfolio turnover 85.74% (A) 109.03% 84.78% 88.23% 47.60% 53.01% Ratio of expenses to average net assets 0.50% (A) 0.50% 0.50% 0.50% 0.50% 0.50% Ratio of net investment income to average net assets 1.77% (A) 1.76% 1.53% 1.39% 1.51% 1.78% Ratio of net investment income and realized and unrealized gain(loss) to average net assets 15.76% (A) 25.70% (4.49)% 11.50% 7.94% 25.41% Average commission rate per share (B) $ 0.060 N/A N/A N/A N/A N/A
(A) Annualized (B) For fiscal years beginning on or after September 1, 1995, a fund is required to disclose its average commission rate per share of all security trades on which commissions are charged. In certain foreign markets, the relationship between the translated U.S. dollar price per share and commissions paid per share may vary from that of domestic markets. * Financial Highlights for predecessor portfolio. 32 FINANCIAL HIGHLIGHTS Selected data for a share of capital stock outstanding for the periods indicated.
REAL ESTATE SECURITIES FUND * - ----------------------------------------------------------------------------------------------------------------------------------- SIX MONTHS YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED ENDED DEC. 31/95 DEC. 31/94 DEC. 31/93 DEC. 31/92 DEC. 31/91 JUNE 30/96 (UNAUDITED) - ----------------------------------------------------------------------------------------------------------------------------------- Net asset value beginning of period........................ $ 15.10 $ 13.34 $ 14.07 $ 12.75 $ 10.92 $ 8.16 ---------- --------- -------- --------- ---------- --------- Income from investment operations: Net investment income...................... 0.36 0.67 0.55 0.47 0.45 0.53 Net realized and unrealized gain (loss) on investments...................... 0.55 1.35 (0.93) 2.38 1.83 2.76 ---------- --------- -------- --------- ---------- --------- Total from investment operations ......... 0.91 2.02 (0.38) 2.85 2.28 3.29 ---------- --------- -------- --------- ---------- --------- Dividend Distributions: Net investment income...................... 0.00 (0.26) (0.27) (0.47) (0.45) (0.53) Net realized gain.......................... 0.00 --- (0.08) (1.06) --- --- ---------- --------- -------- --------- ---------- --------- Total dividend distributions............... 0.00 (0.26) (0.35) (1.53) (0.45) (0.53) ---------- --------- -------- --------- ---------- --------- Net asset value end of period.............. $ 16.01 $ 15.10 $ 13.34 $ 14.07 $ 12.75 $ 10.92 ========== ========= ======== ========= ========== ========= Net assets end of period (in 000's)........ $ 56,860 $ 52,440 $ 42,571 $ 24,106 $ 7,273 $ 4,120 Aggregate return on share outstanding during entire period............... 6.03% 15.14% (2.76)% 22.61% 21.29% 41.10% Significant ratios : Portfolio turnover......................... 169.22%(A) 136.05% 35.60% 143.00% 70.71% 40.29% Ratio of expenses to average net assets............................... 0.50%(A) 0.50% 0.50% 0.50% 0.50% 0.50% Ratio of net investment income to average net assets....................... 4.88%(A) 5.06% 4.26% 3.93% 4.13% 5.40% Ratio of net investment income and realized and unrealized gain(loss) to average net assets..................... 11.81%(A) 14.51 % (4.48)% 15.23% 20.29% 33.48% Average commission rate per share (B) ..... $ 0.060 N/A N/A N/A N/A N/A
(A) Annualized (B) For fiscal years beginning on or after September 1, 1995, a fund is required to disclose its average commission rate per share of all security trades on which commissions are charged. In certain foreign markets, the relationship between the translated U.S. dollar price per share and commissions paid per share may vary from that of domestic markets. * Financial Highlights for predecessor portfolio. 33 FINANCIAL HIGHLIGHTS Selected data for a share of capital stock outstanding for the periods indicated.
CAPITAL GROWTH BOND FUND * - ----------------------------------------------------------------------------------------------------------------------------------- Six Months Year Ended Year Ended Year Ended Year Ended Year Ended Ended Dec. 31/95 Dec. 31/94 Dec. 31/93 Dec. 31/92 Dec. 31/91 June 30/96 (Unaudited) - ----------------------------------------------------------------------------------------------------------------------------------- Net asset value beginning of period ............... $ 11.30 $ 10.10 $ 11.33 $ 11.12 $ 11.47 $ 10.62 ---------- ---------- ---------- ---------- ---------- ---------- Income from investment operations: Net investment income ............. 0.35 0.72 0.72 0.65 0.77 0.83 Net realized and unrealized gain (loss) on investments ............. (0.61) 1.32 (1.22) 0.51 (0.11) 0.85 ---------- ---------- ---------- ---------- ---------- ---------- Total from investment operations .. (0.26) 2.04 (0.50) 1.16 0.66 1.68 ---------- ---------- ---------- ---------- ---------- ---------- Dividend Distributions: Net investment income ............. -- (0.72) (0.72) (0.65) (0.78) (0.83) Net realized gain ................. -- (0.12) (0.01) (0.30) (0.23) -- ---------- ---------- ---------- ---------- ---------- ---------- Total dividend distributions ...... 0.00 (0.84) (0.73) (0.95) (1.01) (0.83) ---------- ---------- ---------- ---------- ---------- ---------- Net asset value end of period ..... $ 11.04 $ 11.30 $ 10.10 $ 11.33 $ 11.12 $ 11.47 ========== ========== ========== ========== ========== ========== Net assets end of period (in 000's) $ 41,329 $ 42,694 $ 33,618 $ 41,183 $ 30,695 $ 29,326 Aggregate return on share outstanding during entire period............ (2.29)% 20.24% (4.49)% 10.56% 5.89% 16.38% Significant ratios : Portfolio turnover...................... 100.85% (A) 84.74% 79.04% 94.75% 153.05% 19.60% Ratio of expenses to average net assets............................ 0.50% (A) 0.50% 0.50% 0.50% 0.50% 0.50% Ratio of net investment income to average net assets.................... 6.14% (A) 6.36% 6.29% 5.69% 6.76% 7.54% Ratio of net investment income and realized and unrealized gain(loss) to average net assets.................. (4.71)%(A) 18.11% (5.23)% 9.28% 5.78% 15.35% Average commission rate per share (B) .. N/A N/A N/A N/A N/A N/A
(A) Annualized (B) For fiscal years beginning on or after September 1, 1995, a fund is required to disclose its average commission rate per share of all security trades on which commissions are charged. In certain foreign markets, the relationship between the translated U.S. dollar price per share and commissions paid per share may vary from that of domestic markets. * Financial Highlights for predecessor portfolio. 34 - -------------------------------------------------------------------------------- FINANCIAL HIGHLIGHTS Selected data for a share of capital stock outstanding for the periods indicated. - --------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------- PACIFIC RIM EMERGING MARKETS FUND ** EQUITY INDEX FUND ** - ---------------------------------------------------------------------------------------------------------------------------- SIX MONTHS YEAR ENDED OCT. 04/94* TO FEB. 14/96* TO ENDED DEC. 31/95 DEC. 31/94 JUNE 30/96 JUNE 30/96 (UNAUDITED) (UNAUDITED) - ---------------------------------------------------------------------------------------------------------------------------- Net asset value beginning of period ................. $ 10.36 $ 9.41 $ 10.00 $ 10.00 ----------- ----------- ----------- ----------- Income from investment operations: Net investment income ............... 0.06 0.12 0.04 0.09 Net realized and unrealized gain (loss) on investments ............... 0.66 0.96 (0.59) 0.28 ----------- ----------- ----------- ----------- Total from investment operations ... 0.72 1.08 (0.55) 0.37 ----------- ----------- ----------- ----------- Dividend Distributions: Net investment income ............... -- (0.09) (0.04) -- Net realized gain ................... -- (0.04) -- -- ----------- ----------- ----------- ----------- Total dividend distributions ........ 0.00 (0.13) (0.04) 0.00 ----------- ----------- ----------- ----------- Net asset value end of period ....... $ 11.08 $ 10.36 $ 9.41 $ 10.37 =========== =========== =========== =========== Net assets end of period (in 000's) . $ 19,627 $ 13,057 $ 7,657 $ 2,493 Aggregate return on share outstanding during entire period ........ 7.03% 11.47% (5.63)% 3.71% Significant ratios : Portfolio turnover .................. 56.53%(A) 54.85% 0.00% 0.00% Ratio of expenses to average net assets ........................ 1.50%(A) 1.50% 1.50%(A) 0.40%(A) Ratio of net investment income to average net assets ................ 1.22%(A) 1.01% 1.84%(A) 3.75%(A) Ratio of net investment income and realized and unrealized gain(loss) to average net assets .............. 11.14% (A) 11.86 % (23.41)%(A) 7.79 %(A) Average commission rate per share (B) .......................... $ 0.021 N/A N/A $ 0.040
* Commencement of Operations (A) Annualized (B) For fiscal years beginning on or after September 1, 1995, a fund is required to disclose its average commission rate per share of all security trades on which commissions are charged. In certain foreign markets, the relationship between the translated U.S. dollar price per share and commissions paid per share may vary from that of domestic markets. ** Financial Highlights for predecessor portfolio. 35 INVESTMENT OBJECTIVES AND POLICIES Each portfolio has a stated investment objective which it pursues through separate investment policies. The differences in objectives and policies among the portfolios can be expected to affect the return of each portfolio and the degree of market and financial risk to which each portfolio is subject. The investment objectives of each portfolio represent fundamental policies of each such portfolio and may not be changed without the approval of the holders of a majority of the outstanding shares of the portfolio. Except for certain investment restrictions, the policies by which a portfolio seeks to achieve its investment objectives may be changed by the Trustees of the Trust without the approval of the shareholders. The following is a description of the investment objectives and policies of each portfolio. More complete descriptions of the money market instruments and certain other instruments in which the Trust may invest and of the options, futures, currency and other derivative transactions that certain portfolios may engage in are set forth in the Statement of Additional Information. A more complete description of the debt security ratings used by the Trust assigned by Moody's Investors Service, Inc. ("Moody's") or Standard and Poor's Corporation ("S&P") is included in Appendix I to this Prospectus. PACIFIC RIM EMERGING MARKETS TRUST The investment objective of the Pacific Rim Emerging Markets Trust is to achieve long-term growth of capital. MAC manages the Pacific Rim Emerging Markets Trust and seeks to achieve this investment objective by investing in a diversified portfolio that is comprised primarily of common stocks and equity-related securities of corporations domiciled in countries in the Pacific Rim region. Current income from dividends and interest will not be an important consideration in the selection of portfolio securities. In pursuit of its investment objective, the Pacific Rim Emerging Markets Trust will vary the geographical distribution of its investments based upon the continuous evaluation of political, economic and market trends throughout the world. Investments will be shifted among the world's capital markets in accordance with the ongoing analyses of trends and developments affecting such markets and securities. The Pacific Rim Emerging Markets Trust will invest primarily in companies domiciled in potentially all countries of the Pacific Rim region. As used herein, the countries of the Pacific Rim region are India, Pakistan, Japan, Hong Kong, Singapore, Malaysia, Thailand, Indonesia, Australia, South Korea, Taiwan, Philippines, New Zealand and China. The Pacific Rim Emerging Markets Trust will, under normal conditions, invest at least 65% of its net assets in common stocks and equity-related securities of established larger-capitalization non-U.S. companies that have attractive long-term prospects for growth of capital. Equity-related securities in which the portfolio may invest include: preferred stocks, warrants (see "RISK FACTORS - Warrants" for further information on warrants) and securities convertible into or exchangeable into common stocks. The Pacific Rim Emerging Markets Trust may, for defensive purposes, invest all or a portion of its assets in non-convertible fixed income securities denominated in U.S. and non-U.S. dollars. These non-convertible fixed income securities will include debt of corporations, foreign governments and supranational organizations. The portfolio may also maintain a portion of its assets in cash or short term debt securities pending the selection of certain long-term investments. The Pacific Rim Emerging Markets Trust will be subject to special risks as a result of its ability to invest up to 100% of its total assets in foreign securities. These risks are described under the caption "RISK FACTORS --Foreign Securities" in this Prospectus. Moreover, substantial investments in foreign securities may have adverse tax implications as described under "GENERAL INFORMATION --Taxes" in this Prospectus. Use of Hedging and Other Strategic Transactions The Pacific Rim Emerging Markets Trust may also purchase and sell the following equity-related financial instruments: exchange-listed call and put options on equity indices, over-the-counter ("OTC") and exchange-listed equity index futures, OTC and exchange-listed call and put options on 33 36 various currencies in the portfolio, and OTC foreign currency futures contracts on various currencies in the portfolio. (A call option gives the holder the right to buy shares of the underlying security at a fixed price before a specified date in the future. A put option gives the holder the right to sell a specified number of shares of the underlying security at a particular price within a specified time period.)The Statement of Additional Information contains a description of these strategies and of certain risks associated therewith. SCIENCE & TECHNOLOGY TRUST The investment objective of the Science & Technology Trust is long-term growth of capital. Current income is incidental to the portfolio's objective. T. Rowe Price manages the Science & Technology Trust The Science & Technology Trust will invest at least 65% of its total assets in the common stocks of companies expected to benefit from the development, advancement, and use of science and technology. Industries likely to be represented in the portfolio include computers and peripheral products, software, electronic components and systems, telecommunications, media and information services, pharmaceuticals, hospital supply and medical devices, biotechnology, environmental services, chemicals and synthetic materials, and defense and aerospace. Investments may also include companies that should benefit from the commercialization of technological advances even if they are not directly involved in research and development. Most of the assets of the Science & Technology Trust will be invested in U.S. common stocks. However, the portfolio may also purchase other types of securities, for example, foreign securities, convertible stocks and bonds, and warrants, when considered consistent with the portfolio's investment objective and program. The portfolio will hold a certain portion of its assets in U.S. and foreign dollar-denominated money market securities, including repurchase agreements, in the two highest rating categories, maturing in one year or less. For temporary, defensive purposes, the portfolio may invest without limitation in such securities. This reserve position provides flexibility in meeting redemptions, expenses, and the timing of new investments and serves as a short-term defense during periods of unusual market volatility. Stock selection for the portfolio is not based on company size but rather on an assessment of the company's fundamental prospects. As a result, holdings can range from small companies developing new technologies or pursuing scientific breakthroughs to large, blue chip firms with established track records of developing and marketing such advances. Companies in the rapidly changing fields of science and technology face special risks. For example, their products or services may not prove commercially successful or may become obsolete quickly. Therefore, a portfolio of these stocks will likely be more volatile in price than one with broader diversification that includes investments in more economic sectors. The level of risk will be increased to the extent that the portfolio has significant exposure to smaller or unseasoned companies (those with less than a three-year operating history). Small companies often have limited product lines, markets, or financial resources, and they may depend on a small group of inexperienced managers. The securities of small companies may be subject to more abrupt or erratic market declines than securities of larger companies or the market averages in general. The Science & Technology Trust may also engage in a variety of investment management practices, such as buying and selling futures and options. The portfolio may invest up to 10% of its total assets in hybrid instruments, which are a type of high-risk derivative which can combine the characteristics of securities, futures and options. For example, the principal amount, redemption or conversion terms of a security could be related to the market price of some commodity, currency or securities index. Such securities may bear interest or pay dividends at below market (or even relatively nominal) rates. The Statement of Additional Information contains a fuller description of such instruments and the risks associated therewith. The Science & Technology Trust will be subject to special risks as a result of its ability to invest up to 30% of its total assets in foreign securities. These include nondollar-denominated securities traded outside of the U.S. and dollar-denominated securities of foreign issuers traded in the U.S. (such as ADRs). See "RISK FACTORS --Foreign Securities" in this Prospectus for a description of these 34 37 risks as well as a definition of ADRs. Moreover, substantial investments in foreign securities may have adverse tax implications as described under "GENERAL INFORMATION --Taxes" in this Prospectus. Use of Hedging and Other Strategic Transactions The Science & Technology Trust is currently authorized to use all of the various investment strategies referred to under "Hedging and Other Strategic Transactions." The Statement of Additional Information contains a description of these strategies and of certain risks associated therewith. INTERNATIONAL SMALL CAP TRUST The investment objective of the International Small Cap Trust is to seek long term capital appreciation. Founders manages the International Small Cap Trust and will pursue this objective by investing primarily in securities issued by foreign companies which have total market capitalizations (present market value per share multiplied by the total number of shares outstanding) or annual revenues of $1 billion or less. These securities may represent companies in both established and emerging economies throughout the world. At least 65% of the portfolio's total assets will normally be invested in foreign securities representing a minimum of three countries (other than the United States). The portfolio may invest in larger foreign companies or in U.S. based companies if, in Founders' opinion, they represent better prospects for capital appreciation. The International Small Cap Trust may invest a significant portion of its assets in the securities of small companies. Small companies are those which are still in the developing stages of their life cycles and are attempting to achieve rapid growth in both sales and earnings. Investments in small companies involve greater risk than is customarily associated with more established companies. These companies often have sales and earnings growth rates which exceed those of large companies. Such growth rates may be reflected in more rapid share price appreciation. However, smaller companies often have limited operating histories, product lines, markets or financial resources, and they may be dependent upon one-person management. These companies may be subject to intense competition from larger entities, and the securities of such companies may have limited marketability and may be subject to more abrupt or erratic movements in price than securities of larger companies or the market averages in general. Therefore, the net asset value of the International Small Cap Trust may fluctuate more widely than the popular market averages. Accordingly, an investment in the portfolio may not be appropriate for all investors. The International Small Cap Trust will invest primarily in equity securities but may also invest in convertible securities, preferred stocks, bonds, debentures and other corporate obligations when Founders believes that these investments offer opportunities for capital appreciation. Current income will not be a substantial factor in the selection of these securities. The portfolio will only invest in bonds, debentures and corporate obligations--other than convertible securities and preferred stock--rated investment-grade (Baa or higher by Moody's or BBB or higher by S&P) at the time of purchase or, if unrated, of comparable quality in the opinion of Founders. Convertible securities and preferred stocks purchased by the Portfolio may be rated in medium and lower categories by Moody's or S&P (Ba or lower by Moody's and BB or lower by S&P) but will not be rated lower than B. The portfolio may also invest in unrated convertible securities and preferred stocks in instances in which Founders believes that the financial condition of the issuer or the protection afforded by the terms of the securities limits risk to a level similar to that of securities rated in categories no lower than B. At no time will the portfolio have more than 5% of its total assets invested in any fixed-income securities which are unrated or are rated below investment grade either at the time of purchase or as a result of a reduction in rating after purchase. The portfolio is not required to dispose of debt securities whose ratings are downgraded below these ratings subsequent to the portfolio's purchase of the securities, unless such a disposition is necessary to reduce the portfolio's holdings of such securities to less than 5% of its total assets. See "RISK FACTORS - High Yield (High Risk) Securities." A description of the ratings used by Moody's and S & P is set forth in Appendix I to the Prospectus. The International Small Cap Trust may invest up to 100% of its assets temporarily in the following securities if Founders determines that it is appropriate for purposes of enhancing liquidity or preserving capital in light of prevailing market or economic conditions: cash, cash equivalents, U.S. government obligations, commercial paper, bank obligations, repurchase agreements, and negotiable U.S. dollar- 35 38 denominated obligations of domestic and foreign branches of U.S. depository institutions, U.S. branches of foreign depository institutions, and foreign depository institutions. The portfolio may also acquire certificates of deposit and bankers' acceptances of banks which meet criteria established by the Trust's Trustees. When the portfolio is in a defensive position, the opportunity to achieve capital growth will be limited, and, to the extent that this assessment of market conditions is incorrect, the portfolio will be foregoing the opportunity to benefit from capital growth resulting from increases in the value of equity investments and may not achieve its investment objective. Foreign Securities. The portfolio may invest up to 100% of its total assets in foreign securities and will be subject to special risks as a result of these investments. These risks are described under the caption "RISK FACTORS - -Foreign Securities" in this Prospectus. Moreover, substantial investments in foreign securities may have adverse tax implications as described under "GENERAL INFORMATION -Taxes" in this Prospectus. In order to comply with limitations imposed by the State of California Insurance Department, the International Small Cap Trust will comply with the restrictions regarding foreign investments set forth under "Risk Factors - Additional Investment Restrictions on Borrowing and Foreign Investing." Foreign investments of the International Small Cap Trust may include securities issued by companies located in countries not considered to be major industrialized nations. Such countries are subject to more economic, political and business risk than major industrialized nations, and the securities they issue and of issuers located in such countries are expected to be more volatile and more uncertain as to payments of interest and principal. The secondary market for such securities is expected to be less liquid than for securities of major industrialized nations. Such countries may include (but are not limited to) Argentina, Australia, Austria, Belgium, Bolivia, Brazil, Chile, China, Colombia, Costa Rica, Croatia, Czech Republic, Denmark, Ecuador, Egypt, Finland, Greece, Hong Kong, Hungary, India, Indonesia, Ireland, Israel, Italy, Jordan, Malaysia, Mexico, Netherlands, New Zealand, Nigeria, North Korea, Norway, Pakistan, Paraguay, Peru, Philippines, Poland, Portugal, Singapore, Slovak Republic. South Africa, South Korea, Spain, Sri Lanka, Sweden, Switzerland, Taiwan, Thailand, Turkey, Uruguay, Venezuela, Vietnam and the countries of the former Soviet Union. Investments of the Portfolio may include securities created through the Brady Plan, a program under which heavily indebted countries have restructured their bank debt into bonds. See "OTHER INSTRUMENTS--High Yield Foreign Sovereign Debt Securities" in the Statement of Additional Information. Since the International Small Cap Trust's assets will be invested primarily in foreign securities and since substantially all of the portfolio's revenues will be received in foreign currencies, the portfolio's net asset values will be affected by changes in currency exchange rates. The portfolio will pay dividends in dollars and will incur currency conversion costs. Use of Hedging and Other Strategic Transactions. The International Small Cap Trust is currently authorized to use all of the various investment strategies referred to under "RISK FACTORS -- Hedging and Other Strategic Transactions." The Statement of Additional Information contains a description of these strategies and of certain risks associated therewith. EMERGING GROWTH TRUST The investment objective of the Emerging Growth Trust is maximum capital appreciation. Warburg manages the Emerging Growth Trust and will pursue this objective by investing primarily in a portfolio of equity securities of domestic companies. The Emerging Growth Trust ordinarily will invest at least 65% of its total assets in common stocks or warrants of emerging growth companies that represent attractive opportunities for maximum capital appreciation. Emerging growth companies are small- or medium-sized companies that have passed their start-up phase and that show positive earnings and prospects of achieving significant profit and gain in a relatively short period of time. The Emerging Growth Trust is classified as a non-diversified investment company under the 1940 Act, which means that portfolio is not limited by the 1940 Act in the proportion of its assets that it may invest in the obligations of a single issuer. As a non-diversified investment company, the portfolio may invest a greater proportion of its assets in the obligations of a small number of issuers and, as a result, may be subject to greater risk with respect to portfolio securities. To the extent that the portfolio assumes large positions in the securities of a small number of issuers, its return may fluctuate to a 36 39 greater extent than that of a diversified company as a result of changes in the financial condition or in the market's assessment of the issuers. Although under current market conditions the Emerging Growth Trust expects to invest in companies having stock market capitalizations of up to approximately $500 million, the portfolio may invest in emerging growth companies without regard to their market capitalization. Emerging growth companies generally stand to benefit from new products or services, technological developments or changes in management and other factors and include smaller companies experiencing unusual developments affecting their market value. These "special situation companies" include companies that are involved in the following: an acquisition or consolidation; a reorganization; a recapitalization; a merger, liquidation, or distribution of cash, securities or other assets; a tender or exchange offer; a breakup or workout of a holding company; litigation which, if resolved favorably, would improve the value of the company's stock; or a change in corporate control. The Emerging Growth Trust may invest up to 20% of its total assets in investment grade debt securities (other than money market obligations) and preferred stocks that are not convertible into common stock for the purpose of seeking capital appreciation. The interest income to be derived may be considered as one factor in selecting debt securities for investment by Warburg. Because the market value of debt obligations can be expected to vary inversely to changes in prevailing interest rates, investing in debt obligations may provide an opportunity for capital appreciation when interest rates are expected to decline. The success of such a strategy is dependent upon Warburg's ability to accurately forecast changes in interest rates. The market value of debt obligations may also be expected to vary depending upon, among other factors, the ability of the issuer to repay principal and interest, any change in investment rating and general economic conditions. A security will be deemed to be investment grade if it is rated within the four highest grades by Moody's or S&P or, if unrated, is determined to be of comparable quality by Warburg. Bonds rated in the fourth highest grade may have speculative characteristics and changes in economic conditions or other circumstances are more likely to lead to a weakened capacity to make principal and interest payments than is the case with higher grade bonds. Subsequent to its purchase by the portfolio, an issue of securities may cease to be rated or its rating may be reduced below the minimum required for purchase by the portfolio. Neither event will require sale of such securities, although Warburg will consider such event in its determination of whether the portfolio should continue to hold the securities. When Warburg believes that a defensive posture is warranted, the Emerging Growth Trust may invest temporarily without limit in investment grade debt obligations and in domestic and foreign money market obligations, including repurchase agreements. The Emerging Growth Trust is authorized to invest, under normal market conditions, up to 20% of its total assets in domestic and foreign short-term (one year or less remaining to maturity) and medium-term (five years or less remaining to maturity) money market obligations and for temporary defensive purposes may invest in these securities without limit. These instruments consist of obligations issued or guaranteed by the U.S. government or a foreign government, their agencies or instrumentalities; bank obligations (including certificates of deposit, time deposits and bankers' acceptances of domestic or foreign banks, domestic savings and loans and similar institutions) that are high quality investments or, if unrated, deemed by Warburg to be high quality investments; commercial paper rated no lower than A-2 by S&P or Prime-2 by Moody's or the equivalent from another major rating service or, if unrated, of an issuer having an outstanding, unsecured debt issue then rated within the three highest rating categories; and repurchase agreements with respect to the foregoing. Investing in securities of emerging growth and small-sized companies may involve greater risks since these securities may have limited marketability and, thus, may be more volatile. Because small- and medium-sized companies normally have fewer shares outstanding than larger companies, it may be more difficult for the Emerging Growth Trust to buy or sell significant amounts of such shares without an unfavorable impact on prevailing prices. In addition, smalland medium-sized companies are typically subject to a greater degree of changes in earnings and business prospects than are larger, more established companies. There is typically less publicly available information concerning small- and medium-sized companies than for larger, more established ones. Securities of issuers in "special situations" also may be more volatile, since the market value of these securities may decline in value if the anticipated benefits do not materialize. Although investing in securities of emerging growth companies or 37 40 "special situations" offers potential for above-average returns if the companies are successful, the risk exists that the companies will not succeed and the prices of the companies' shares could significantly decline in value. Therefore, an investment in the portfolio may involve a greater degree of risk than an investment in other mutual funds that seek capital appreciation by investing in better-known, larger companies. The Emerging Growth Trust will be subject to certain risks as a result of its ability to invest up to 20% of its total assets in the securities of foreign issuers. These risks are described under the caption "RISK FACTORS - --Foreign Securities" in this Prospectus. Moreover, substantial investments in foreign securities may have adverse tax implications as described under "GENERAL INFORMATION --Taxes" in this Prospectus. Use of Hedging and Other Strategic Transactions The Emerging Growth Trust is currently authorized to use all of the investment strategies referred to under "Hedging and Other Strategic Transactions." However, it is not presently contemplated that any of these strategies will be used to a significant degree by the portfolio. PILGRIM BAXTER GROWTH TRUST The investment objective of the Pilgrim Baxter Growth Trust is capital appreciation. PBHG manages the Pilgrim Baxter Growth Trust and seeks to achieve its objective by investing in companies believed by the Subadviser to have an outlook for strong earnings growth and the potential for significant capital appreciation. The Pilgrim Baxter Growth Trust will normally be as fully invested as practicable in common stocks and securities convertible into common stocks, but also may invest up to 5% of its assets in warrants and rights to purchase common stocks. In the opinion of PBHG, there may be times when the shareholders' interests are best served and the investment objective is more likely to be achieved by having varying amounts of the portfolio's assets invested in convertible securities. Under normal market conditions, the Pilgrim Baxter Growth Trust will invest at least 65% of its total assets in common stocks and convertible securities of small and medium sized growth companies (market capitalization or annual revenues up to $2 billion). At certain times that percentage may be substantially higher. The average market capitalizations or annual revenues of holdings in the portfolio may, however, fluctuate over time as a result of market valuation levels and the availability of specific investment opportunities. In addition, the portfolio may continue to hold securities of companies whose market capitalizations or annual revenues grow above $2 billion subsequent to purchase, if the company continues to satisfy the other investment policies of the portfolio. PBHG tries to keep the portfolio fully invested at all times. However, for temporary defensive purposes, when the PBHG determines that market conditions warrant, each portfolio may invest up to 100% of its assets in cash and money market instruments (consisting of securities issued or guaranteed by the U.S. Government, its agencies or instrumentalities; certificates of deposit, time deposits and bankers' acceptances issued by banks or savings and loan associations having net assets of at least $500 million as stated on their most recently published financial statements; commercial paper rated in one of the two highest rating categories by at least one nationally recognized statistical rating organization ("NRSRO"); repurchase agreements involving such securities; and, to the extent permitted by applicable law and the portfolio's investment restrictions, shares of other investment companies investing solely in money market securities). To the extent the portfolio is invested in temporary defensive instruments, it will not be pursuing its investment objective. PBHG's investment process in managing the assets of the Pilgrim Baxter Growth Trust is both quantitative and fundamental, and is extremely focused on quality earnings growth. In seeking to identify investment opportunities for the portfolio, PBHG begins by creating a universe of rapidly growing companies with market capitalizations within the parameters described above and that possess certain quality characteristics. Using proprietary software and research models that incorporate important attributes of successful growth, such as positive earnings surprises, upward earnings estimate revisions, and accelerating sales and earnings growth, PBHG creates a universe of growing companies. Then, using fundamental research, PBHG evaluates each company's earnings quality and as- 38 41 sesses the sustainability of the company's current growth trends. Through this highly disciplined process, the Subadviser seeks to construct an investment portfolio that possesses strong growth characteristics. While PBHG intends to invest in small and medium capitalization companies that have strong balance sheets and that PBHG's research indicates should exceed consensus earnings expectations, any investment in small and medium capitalization companies involves greater risk and price volatility than that customarily associated with investments in larger, more established companies. This increased risk may be due to the greater business risks of small size, limited markets and financial resources, narrow product lines and frequent lack of management depth. The securities of small and medium capitalization companies are often traded in the over-the-counter market, and might not be traded in volumes typical of securities traded on a national securities exchange. Thus, the securities of small and medium capitalization companies are likely to be less liquid, and subject to more abrupt or erratic market movements, than securities of larger, more established companies Securities will be sold when PBHG believes that anticipated appreciation is no longer probable, alternative investments offer superior appreciation prospects, or the risk of a decline in market price is too great. Because of its policy with respect to the sales of investments, the Pilgrim Baxter Growth Trust may from time to time realize short-term gains or losses. The portfolio will likely have somewhat greater volatility than the stock market in general, as measured by the S&P 500 Index. Normally, the Pilgrim Baxter Growth Trust will purchase only securities traded in the United States or Canada on registered exchanges or in the over-the-counter market. The Portfolio may invest up to 15% of its total assets in securities of foreign issuers (including ADRs). To the extent the portfolio invests in foreign securities, it will be subject to certain risks as described under the caption "RISK FACTORS --Foreign Securities" in this Prospectus. Use of Hedging and Other Strategic Transactions The Pilgrim Baxter Growth Trust is currently authorized to use all of the investment strategies referred to under "Hedging and Other Strategic Transactions." With the exception of forward foreign currency contracts, however, it is not presently contemplated that any of these strategies will be used to a significant degree by the portfolio. (Forward foreign currency contracts are the purchase of a fixed quantity of foreign currency at a future date at a price set at the time of the contract.) The Statement of Additional Information contains a description of these strategies and certain risks associated therewith. SMALL/MID CAP TRUST The investment objective of the Small/Mid Cap Trust is to seek long term capital appreciation. Alger manages the Small/Mid Cap Trust and will pursue this objective by investing at least 65% of the portfolio's total assets (except during temporary defensive periods) in small/mid cap equity securities. As used in this Prospectus, small/mid cap equity securities are equity securities of companies that, at the time of purchase, have "total market capitalization" -- present market value per share multiplied by the total number of shares outstanding -- between $500 million and $5 billion. The portfolio may invest up to 35% of its total assets in equity securities of companies that, at the time of purchase, have total market capitalization of $5 billion or greater and in excess of that amount (up to 100% of its assets ) during temporary defensive periods. The Small/Mid Cap Trust seeks to achieve its investment objective by investing in equity securities, such as common or preferred stocks, or securities convertible into or exchangeable for equity securities, including warrants and rights. The portfolio will invest primarily in companies whose securities are traded on domestic stock exchanges or in the over-the-counter market. The Small/Mid Cap Trust may invest a significant portion of its assets in the securities of small companies. Small companies are those which are still in the developing stages of their life cycles and will attempt to achieve rapid growth in both sales and earnings. Investments in small companies involve greater risk than is customarily associated with more established companies. These companies often have sales and earnings growth rates which exceed those of large companies. Such growth rates may be reflected in more rapid share price appreciation. However, smaller companies often have limited operating histories, product lines, markets or financial resources, and they may be dependent upon the management of only a few people. These companies may be subject to intense competition from larger entities, and the securities of such 39 42 companies may have limited marketability and may be subject to more abrupt or erratic movements in price than securities of larger companies or the market averages in general. Therefore, the net asset values of the Small/Mid Cap Trust may fluctuate more widely than the popular market averages. Accordingly, an investment in the portfolio may not be appropriate for all investors. In order to afford the portfolio the flexibility to take advantage of new opportunities for investments in accordance with its investment objectives, it may hold up to 15% of its net assets (up to 100% of their assets during temporary defensive periods) in money market instruments, bank and thrift obligations, obligations issued or guaranteed by the U.S. Government or by its agencies or instrumentalities, foreign bank obligations and obligations of foreign branches of domestic banks, variable rate master demand notes and repurchase agreements. When the portfolio is in a defensive position, the opportunity to achieve capital growth will be limited, and, to the extent that this assessment of market conditions is incorrect, the portfolio will be foregoing the opportunity to benefit from capital growth resulting from increases in the value of its investments and may not achieve its investment objective. Foreign Securities. The portfolio may invest up to 20% of its total assets in foreign securities and will be subject to certain risks as a result of these investments. These risks are described under the caption "RISK FACTORS - -Foreign Securities" in this Prospectus. Moreover, substantial investments in foreign securities may have adverse tax implications as described under "GENERAL INFORMATION -Taxes" in this Prospectus. The portfolio may also purchase American Depository Receipts ("ADRs") or U.S. dollar-denominated securities of foreign issuers that are not included in the 20% foreign securities limitation. See "RISK FACTORS - Foreign Securities" in this Prospectus for a description of ADRs. Use of Hedging and Other Strategic Transactions. The Small/Mid Cap Trust is currently authorized to use all of the various investment strategies referred to under "RISK FACTORS -- Hedging and Other Strategic Transactions". The Statement of Additional Information contains a description of these strategies and of certain risks associated therewith. INTERNATIONAL STOCK TRUST The investment objective of the International Stock Trust is long-term growth of capital. Price-Fleming manages the International Stock Trust and seeks to attain this objective by investing primarily in common stocks of established, non-U.S. companies. The portfolio expects to invest substantially all of its assets outside the U.S. and to diversify broadly among countries throughout the world -- developed, newly industrialized, and emerging. The portfolio will invest in at least three countries outside the United States. The International Stock Trust expects to invest substantially all of its assets in common stocks. However, the portfolio may also invest in a variety of other equity-related securities, such as preferred stocks, warrants and convertible securities, as well as corporate and governmental debt securities, when considered consistent with the portfolio's investment objectives and program. Under normal market conditions, the portfolio's investment in securities other than common stocks is limited to no more than 35% of total assets. However, for temporary defensive purposes, the portfolio may invest all or a significant portion of its assets in U.S. Government and corporate debt obligations. The portfolio will not purchase any debt security which at the time of purchase is rated below investment grade. This would not prevent the portfolio from retaining a security downgraded to below investment grade after purchase. The International Stock Trust will hold a certain portion of its assets in U.S. and foreign dollar-denominated money market securities, including repurchase agreements, in the two highest rating categories, maturing in one year or less. For temporary, defensive purposes, the portfolio may invest without limitation in such securities. This reserve position provides flexibility in meeting redemptions, expenses, and the timing of new investments and serves as a short-term defense during periods of unusual market volatility. Price-Fleming uses a "bottom-up" approach to stock selection based on fundamental research. A company's prospects for achieving and sustaining above-average, long-term earnings growth is generally the Subadviser's primary focus. However, valuation factors, such as price/earnings, price/cash flow, and price/book are also important considerations. In conjunction with identifying potential stocks for in- 40 43 vestment, external factors are also reviewed. For example, a country's or region's political, economic, and financial status help shape the outlook for individual stocks and also affect decisions regarding the prudent level of overall exposure to particular areas. It is the present intention of Price-Fleming to invest in companies based in (or governments of or within) the Far East (for example, Japan, Hong Kong, Singapore, and Malaysia), Europe (for example, United Kingdom, Germany, Hungary, Poland, Netherlands, France, Spain, and Switzerland), South Africa, Australia, Canada, Latin America, and such other areas and countries as Price-Fleming may determine from time to time. In determining the appropriate distribution of investments among various countries and geographic regions, Price-Fleming ordinarily considers the following factors: prospects for relative economic growth between foreign countries; expected levels of inflation; government policies influencing business conditions; the outlook for currency relationships; and the range of individual investment opportunities available to international investors. In analyzing companies for investment, Price-Fleming ordinarily looks for one or more of the following characteristics: an above-average earnings growth per share; high return on invested capital; healthy balance sheet; sound financial and accounting policies and overall financial strength; strong competitive advantages; effective research and product development and marketing; efficient service; pricing flexibility; strength of management; and general operating characteristics which will enable the companies to compete successfully in their market place. While current dividend income is not a prerequisite in the selection of International Stock Trust companies, the companies in which the portfolio invests normally will have a record of paying dividends, and will generally be expected to increase the amounts of such dividends in future years as earnings increase. It is expected that the portfolio's investments will ordinarily be traded on exchanges located at least in the respective countries in which the various issuers of such securities are principally based. The International Stock Trust may purchase the securities of certain foreign investment portfolios or trusts called passive foreign investment companies. Such trusts have been the only or primary way to invest in certain countries. In addition to bearing their proportionate share of the trust's expenses (management fees and operating expenses), shareholders will also indirectly bear similar expenses of such trusts. Capital gains on the sale of such holdings are considered ordinary income regardless of how long the portfolio held its investment. In addition, the portfolio may be subject to corporate income tax and an interest charge on certain dividends and capital gains earned from these investments, regardless of whether such income and gains are distributed to shareholders. To avoid such tax and interest, the portfolio intends to treat these securities as sold on the last day of its fiscal year and recognize any gains for tax purposes at that time; losses will not be recognized. Such gains will be considered ordinary income, which the portfolio will be required to distribute even though it has not sold the security. The International Stock Trust may also engage in a variety of investment management practices, such as buying and selling futures and options and engaging in foreign currency exchange contracts. The portfolio may invest up to 10% of its total assets in hybrid instruments, which are a type of high-risk derivative which can combine the characteristics of securities, futures and options. For example, the principal amount, redemption or conversion terms of a security could be related to the market price of some commodity, currency or securities index. Such securities may bear interest or pay dividends at below market (or even relatively nominal) rates. The Statement of Additional Information contains a fuller description of such instruments and the risks associated therewith. The International Stock Trust will be subject to special risks as a result of its ability to invest up to 100% of its total assets in foreign securities. These include non-dollar-denominated securities traded outside of the U.S. and dollar-denominated securities of foreign issuers traded in the U.S. (such as ADRs). These risks are described under the caption "RISK FACTORS - --Foreign Securities" in this Prospectus. Moreover, substantial investments in foreign securities may have adverse tax implications as described under "GENERAL INFORMATION --Taxes" in this Prospectus. Use of Hedging and Other Strategic Transactions 41 44 The International Stock Trust is currently authorized to use all of the various investment strategies referred to under "Hedging and Other Strategic Transactions." The Statement of Additional Information contains a description of these strategies and of certain risks associated therewith. WORLDWIDE GROWTH TRUST The investment objective of the Worldwide Growth Trust is long-term growth of capital. Founders manages the Worldwide Growth Trust and seeks to attain this objective by normally investing at least 65% of its total assets in equity securities of growth companies in a variety of markets throughout the world. The Worldwide Growth Trust will emphasize common stocks of both emerging and established growth companies that generally have proven performance records and strong market positions. The portfolio's holdings will usually consist of investments in companies in various countries throughout the world, but it will always invest at least 65% of its total assets in three or more countries. The portfolio will not invest more than 25% of its total assets in the securities of any one foreign country. The Worldwide Growth Trust has the ability to purchase securities in any foreign country as well as in the United States. Foreign investments of the portfolio may include securities issued by companies located in countries not considered to be major industrialized nations. Such countries are subject to more economic, political and business risk than major industrialized nations, and the securities they issue are expected to be more volatile and more uncertain as to payments of interest and principal. Investments of the portfolio may include securities created through the Brady Plan, a program under which heavily indebted countries have restructured their bank debt into bonds. Since the Worldwide Growth Trust's assets will be invested primarily in foreign securities and since substantially all of the portfolio's revenues will be received in foreign currencies, the portfolio's net asset values will be affected by changes in currency exchange rates. The portfolio will pay dividends in dollars and will incur currency conversion costs. The Worldwide Growth Trust may invest in convertible securities, preferred stocks, bonds, debentures, and other corporate obligations when Founders believes that these investments offer opportunities for capital appreciation. Current income will not be a substantial factor in the selection of these securities. The portfolio will only invest in bonds, debentures, and corporate obligations -- other than convertible securities and preferred stocks -- rated investment grade (BBB or higher) at the time of purchase or, if unrated, of comparable quality in the opinion of Founders. Convertible securities and preferred stocks purchased by the portfolio may be rated in medium and lower categories by Moody's or S&P (Ba or lower by Moody's and BB or lower by S&P), but will not be rated lower than B. The portfolio may also invest in unrated convertible securities and preferred stocks in instances in which Founders believes that the financial condition of the issuer or the protection afforded by the terms of the securities limits risk to a level similar to that of securities eligible for purchase by the portfolio rated in categories no lower than B. At no time will the portfolio have more than 5% of its total assets invested in any fixed-income securities which are unrated or are rated below investment grade either at the time of purchase or as a result of a reduction in rating after purchase. The portfolio is not required to dispose of debt securities whose ratings are downgraded below these ratings subsequent to the portfolio's purchase of the securities, unless such a disposition is necessary to reduce the portfolio's holdings of such securities to less than 5% of its total assets. See "RISK FACTORS -- High Yield (High Risk) Securities." A description of the ratings used by Moody's and S&P is set forth in Appendix I to the Prospectus. Up to 100% of the assets of the Worldwide Growth Trust may be invested temporarily in U.S. Government obligations, commercial paper, bank obligations, repurchase agreements, and negotiable U.S. dollar-denominated obligations of domestic and foreign branches of U.S. depository institutions, U.S. branches of foreign depository institutions, and foreign depository institutions, in cash, or in other cash equivalents, if Founders determines it to be appropriate for purposes of enhancing liquidity or preserving capital in light of prevailing market or economic conditions. The portfolio may also acquire certificates of deposit and bankers' acceptances of banks which meet criteria established by the Trust's Trustees. While the portfolio is in a defensive position, the opportunity to achieve capital growth will be 42 45 limited, and, to the extent that this assessment of market conditions is incorrect, the portfolio will be foregoing the opportunity to benefit from capital growth resulting from increases in the value of equity investments. The Worldwide Growth Trust may invest in the securities of small and medium-sized companies. The Subadviser considers small and medium-sized companies to be those which are still in the developing stages of their life cycles and are attempting to achieve rapid growth in both sales and earnings. Investments in small and medium-sized companies involve greater risk than is customarily associated with more established companies. These companies often have sales and earnings growth rates which exceed those of large companies. Such growth rates may in turn be reflected in more rapid share price appreciation. However, smaller companies often have limited operating histories, product lines, markets, or financial resources, and they may be dependent upon one-person management. These companies may be subject to intense competition from larger entities, and the securities of such companies may have limited marketability and may be subject to more abrupt or erratic movements in price than securities of larger companies or the market averages in general. Therefore, the net asset value of the Worldwide Growth Trust's shares may fluctuate more widely than the popular market averages. The Worldwide Growth Trust will be subject to special risks as a result of its ability to invest up to 100% of its total assets in foreign securities. These risks are described under the caption "RISK FACTORS --Foreign Securities" in this Prospectus. Moreover, substantial investments in foreign securities may have adverse tax implications as described under "GENERAL INFORMATION --Taxes" in this Prospectus. Use of Hedging and Other Strategic Transactions The Worldwide Growth Trust is currently authorized to use all of the various investment strategies referred to under "Hedging and Other Strategic Transactions." The Statement of Additional Information contains a description of these strategies and of certain risks associated therewith. GLOBAL EQUITY TRUST The investment objective of the Global Equity Trust is long-term capital appreciation. Morgan Stanley manages the Global Equity Trust and seeks to attain this objective by investing primarily in common and preferred stocks, convertible securities, rights and warrants to purchase common stocks, American and Global Depository Receipts and other equity securities of issuers throughout the world, including issuers in the U.S. and emerging market countries. Under normal circumstances, at least 65% of the value of the total assets of the Global Equity Trust will be invested in equity securities and at least 20% of the value of the portfolio's total assets will be invested in the common stocks of U.S. issuers. The portfolio may also invest in money market instruments. Although the portfolio intends to invest primarily in securities listed on stock exchanges, it will also invest in equity securities that are traded over-the-counter or that are not admitted to listing on a stock exchange or dealt in on a regulated market. As a result of the absence of a public trading market, such securities may pose liquidity risks. The Subadviser's approach is oriented to individual stock selection and is value driven. In selecting stocks for the portfolio, the Subadviser initially identifies those stocks that it believes to be undervalued in relation to the issuer's assets, cash flow, earnings and revenues, and then evaluates the future value of such stocks by running the results of an in-depth study of the issuer through a dividend discount model. In selecting investments, the Subadviser utilizes the research of a number of sources, including Morgan Stanley Capital International, an affiliate of the Subadviser located in Geneva, Switzerland. Portfolio holdings are regularly reviewed and subjected to fundamental analysis to determine whether they continue to conform to the Subadviser's value criteria. Equity securities which no longer conform to such investment criteria will be sold. Although the portfolio will not invest for short-term trading purposes, investment securities may be sold from time to time without regard to the length of time they have been held. The Global Equity Trust may engage in forward foreign currency exchanges and when-issued or delayed delivery securities. 43 46 The Global Equity Trust will be subject to special risks as a result of its ability to invest up to 100% of its total assets in foreign securities. These risks, including the risks of the possible increased likelihood of expropriation or the return to power of a communist regime which would institute policies to expropriate, nationalize or otherwise confiscate investments, are described under the caption "RISK FACTORS --Foreign Securities" in this Prospectus. Moreover, substantial investments in foreign securities may have adverse tax implications as described under "GENERAL INFORMATION --Taxes" in this Prospectus. Use of Hedging and Other Strategic Transactions The Global Equity Trust is currently authorized to use all of the various investment strategies referred to under "Hedging and Other Strategic Transactions." With the exception of currency transactions, however, it is not presently anticipated that any of these strategies will be used to a significant degree by the portfolio. The Statement of Additional Information contains a description of these strategies and of certain risks associated therewith. GROWTH TRUST The investment objective of the Growth Trust is to seek long-term growth of capital. Founders manages the Growth Trust and will pursue this objective by investing, under normal market conditions, at least 65% of its total assets in common stocks of well-established, high-quality growth companies that Founders believes have the potential to increase earnings faster than the rest of the market. These companies tend to have strong performance records, solid market positions and reasonable financial strength, and have continuous operating records of three years or more. The Growth Trust may invest in convertible securities, preferred stocks, bonds, debentures and other corporate obligations when Founders believes that these investments offer opportunities for capital appreciation. Current income will not be a substantial factor in the selection of these securities. The Growth Trust will only invest in bonds, debentures and corporate obligations--other than convertible securities and preferred stock--rated investment-grade (Baa or higher by Moody's and BBB or higher by S&P) or, if unrated, of comparable quality in the opinion of Founders at the time of purchase. Convertible securities and preferred stocks purchased by the Trust may be rated in medium and lower categories by Moody's or S&P (Ba or lower by Moody's and BB or lower by S&P) but will not be rated lower than B. The Growth Trust may also invest in unrated convertible securities and preferred stocks in instances in which Founders believes that the financial condition of the issuer or the protection afforded by the terms of the securities limits risk to a level similar to that of securities rated in categories no lower than B. At no time will the portfolio have more than 5% of its total assets invested in any fixed-income securities which are unrated or are rated below investment grade either at the time of purchase or as a result of a reduction in rating after purchase. The portfolio is not required to dispose of debt securities whose ratings are downgraded below these ratings subsequent to the portfolio's purchase of the securities, unless such a disposition is necessary to reduce the portfolio's holdings of such securities to less than 5% of its total assets. See "RISK FACTORS - High Yield Securities." The Growth Trust may invest up to 100% of its assets temporarily in the following securities if Founders determines that it is appropriate for purposes of enhancing liquidity or preserving capital in light of prevailing market or economic conditions: cash, cash equivalents, U.S. government obligations, commercial paper, bank obligations, repurchase agreements, and negotiable U.S. dollar-denominated obligations of domestic and foreign branches of U.S. depository institutions, U.S. branches of foreign depository institutions, and foreign depository institutions. The portfolio may also acquire certificates of deposit and bankers' acceptances of banks which meet criteria established by the Trust's Trustees. When the Growth Trust is in a defensive position, the opportunity to achieve capital growth will be limited, and, to the extent that this assessment of market conditions is incorrect, the Growth Trust will be foregoing the opportunity to benefit from capital growth resulting from increases in the value of equity investments and may not achieve its investment objective. Foreign Securities. The Growth Trust may invest without limit in ADRs and up to 30% of its total assets in foreign securities (other than ADRs), with no more than 25% invested in any one foreign country. The Growth Trust will be subject to certain risks as a result of these investments. These risks are described under the caption "RISK FACTORS -- Foreign Securities" in this Prospectus. Moreover, substantial 44 47 investments in foreign securities may have adverse tax implications as described under "GENERAL INFORMATION -Taxes" in this Prospectus. Use of Hedging and Other Strategic Transactions. The Growth Trust is currently authorized to use all of the various investment strategies referred to under "RISK FACTORS -- Hedging and Other Strategic Transactions." The Statement of Additional Information contains a description of these strategies and of certain risks associated therewith. EQUITY TRUST The principal investment objective of the Equity Trust is growth of capital. Current income is a secondary consideration although growth of income may accompany growth of capital. FMTC manages the Equity Trust and seeks to attain the foregoing objective by investing primarily in common stocks of United States issuers or securities convertible into or which carry the right to buy common stocks. It may also invest to a limited degree, normally not in excess of 15% of the value of the Equity Trust's total assets, in non-convertible preferred stocks and debt securities. Portfolio securities may be selected with a view toward either short-term or long-term capital growth. When in FMTC's opinion market or economic conditions warrant a defensive posture, the Equity Trust may place any portion of its assets in investment grade debt securities (i.e., the four highest bond ratings assigned by Moody's or S&P), preferred stocks, Government securities or cash. The fourth highest category of investment grade bonds has some speculative characteristics and instruments with such ratings are subject to greater fluctuations in value than more highly rated instruments as economic conditions change. The Equity Trust is not required to dispose of such instruments in the event they are downgraded. It may also maintain amounts in cash or short-term debt securities pending selection of investments in accordance with its policies. The Equity Trust will invest primarily in securities listed on national securities exchanges, but from time to time it may also purchase securities traded in the "over the counter" market. The Equity Trust will be subject to certain risks as a result of its ability to invest up to 20% of its assets in foreign securities. These risks are described under the caption "Foreign Securities" in this Prospectus. Moreover, substantial investments in foreign securities may have adverse tax implications as described under "Taxes" in this Prospectus. Use of Hedging and Other Strategic Transactions The Equity Trust is currently authorized to use all of the various investment strategies referred to under "RISK FACTORS -- Hedging and Other Strategic Transactions." However, it is not presently anticipated that any of these strategies will be used to a significant degree by the portfolio. The Statement of Additional Information contains a description of these strategies and of certain risks associated therewith. QUANTITATIVE EQUITY TRUST The investment objective of the Quantitative Equity Trust (prior to December 31, 1996, the "Common Stock Trust") is to achieve intermediate and long-term growth through capital appreciation and current income by investing in common stocks and other equity securities of well established companies with promising prospects for providing an above average rate of return. MAC manages the Quantitative Equity Trust. In pursuit of its objective, the Quantitative Equity Trust will invest principally in common stocks or in securities convertible into common stocks or carrying rights or warrants to purchase common stock or to participate in earnings. In selecting investments, emphasis will be placed on companies with good financial resources, strong balance sheet, satisfactory rate of return on capital, good industry position, superior management skills, and earnings that tend to grow at above average rates. The Trust's investments are not limited to any particular type or size of company, but high-quality growth and income stocks are emphasized. Investments will be made primarily in securities listed on national securities exchanges, but the Trust may purchase securities traded in the United States over-the-counter market. When, in the opinion of management, market or economic conditions warrant a defensive posture, the Trust may place all 45 48 or a portion of its assets in fixed-income securities. The Trust may also maintain a portion of its assets in cash or short-term debt securities pending selection of particular long-term investments. The Trust may purchase securities on a forward-commitment, when-issued or delayed-delivery basis. The Quantitative Equity Trust will be subject to certain risks as a result of its ability to invest up to 100% of its total assets in the following types of foreign securities: (i) U.S. dollar denominated obligations of foreign branches of U.S. banks, (ii) securities represented by ADRs listed on a national securities exchange or traded in the U.S. over-the-counter market, (iii) securities of a corporation organized in a jurisdiction other than the U.S. and listed on the New York Stock Exchange or NASDAQ or (iv) securities denominated in U.S. dollars but issued by non U.S. issuers and issued under U.S. federal securities regulations (for example, U.S. dollar denominated obligations issued or guaranteed as to principal or interest by the Government of Canada or any Canadian Crown agency). These risks are described under the caption "RISK FACTORS --Foreign Securities" in this Prospectus. Moreover, substantial investments in foreign securities may have adverse tax implications as described under "GENERAL INFORMATION --Taxes" in this Prospectus. Use of Hedging and Other Strategic Transactions The Quantitative Equity Trust does not presently use any of the investment strategies referred to under "Hedging and Other Strategic Transactions." EQUITY INDEX TRUST The investment objective of the Equity Index Trust is to achieve investment results which approximate the total return of publicly traded common stocks in the aggregate, as represented by the Standard & Poor's 500 Composite Stock Price Index (the "Index"). MAC manages the Equity Index Trust. The Equity Index Trust is designed to provide an economical and convenient means of maintaining a widely diversified investment in the United States equity market as part of an overall investment strategy. The portfolio uses the Index as its standard performance comparison because it represents more than 70% of the total market value of all publicly traded common stocks in the United States and is widely viewed among investors as representative of the performance of publicly traded common stocks in the United States. The Index is composed of 500 selected common stocks, over 95% of which are listed on the New York Stock Exchange. The Index is an unmanaged index of common stock prices. The performance of the Index is based on changes in the prices of stocks comprising the Index and assumes the reinvestment of all dividends paid on such stocks. Taxes, brokerage, commissions and other fees are disregarded in computing the level of the Index. Standard & Poor's selects the stocks to be included in the Index on a proprietary basis but does incorporate such factors as the market capitalization and trading activity of each stock and its adequacy as representative of stocks in a particular industry group. Stocks in the Index are weighted according to their market capitalization (i.e., the number of shares outstanding multiplied by the stock's current price).(1) The Index fluctuates in value with changes in the market value of the 500 stocks included in the Index at any point in time. An investment in the Equity-Index Trust involves risks similar to the risks of investing directly in the stocks included in the Index. The Subadviser will not attempt to "manage" the Equity Index Trust in the traditional portfolio management sense which generally involves the buying and selling of securities based upon investment analysis of economic, financial and market factors. Instead, the portfolio, utilizing a "passive" or "indexing" investment approach, attempts to duplicate the performance of the Index. The adverse financial situation of a company will not directly result in its elimination from the portfolio unless, of course, the company in question is removed from the Index. Conversely, the projected superior financial performance of a company would not normally lead to an increase in the portfolio's holdings of the company. Under normal circumstances, the net assets of the Equity Index Trust will be invested in any - ------------------ (1) "Standard & Poor's (R)", "S&P 500 (R)", "Standard & Poor's 500 (R) and "500" are trademarks of McGraw-Hill, Inc. 46 49 combination of the following investments: 1) representative common stocks, 2) Standard & Poor's 500 Futures Contracts and 3) Standard & Poor's Depository Receipts (R). With regard to the portion of the Equity Index Trust invested in common stocks, the method used to select investments for the portfolio involves investing in common stocks in approximately the order of their respective market value weightings in the Index, beginning with those having the highest weightings. For diversification purposes, the portfolio can purchase stocks with smaller weightings in order to represent other sectors of the Index. The portfolio will invest only in those stocks, and in such amounts, as its Subadviser deems necessary and appropriate in order for the portfolio to approximate the performance of the Index. There is no minimum or maximum number of stocks included in the Index which the Equity Index Trust must hold. Under normal circumstances, it is expected that the portion of the portfolio invested in stocks would hold between 300 and 500 different stocks included in the Index. The portfolio may compensate for the omission of a stock that is included in the Index, or for purchasing stocks in other than the same proportion that they are represented in the Index, by purchasing stocks that are believed to have characteristics that correspond to those of the omitted stocks. The portfolio may invest in short-term debt securities to maintain liquidity or pending investment in stocks or Standard & Poor's Stock Index Futures Contracts (S&P 500 Futures Contracts). Tracking error is measured by the difference between the total return for the Index and the total return for the portfolio after deductions of fees and expenses. All tracking error deviations are reviewed to determine the effectiveness of investment policies and techniques. Tracking error is reviewed at least weekly and more frequently if such a review is indicated by significant cash balance changes, market conditions or changes in the composition of the Index. If deviation accuracy is not maintained, the Equity Index Trust will rebalance its composition by selecting securities which, in the opinion of the Subadviser, will provide a more representative sampling of the capitalization of the securities in the Index as a whole or a more representative sampling of the sector diversification in the Index. S&P licenses certain trademarks and trade names to the Trust but disclaims any responsibility or liability to the Trust and its shareholders. See Appendix III for such disclaimer. Use of Hedging and Other Strategic Transactions The Equity Index Trust may (i) invest any portion of its net assets in S&P 500 Futures Contracts until the portfolio reaches $25 million in net assets and (ii) once the portfolio reaches $25 million in net assets, invest no more than 20% of its net assets in S&P 500 Futures Contracts. A description of this investment strategy appears under "RISK FACTORS --Hedging and Other Strategic Transactions" below in this Prospectus and under "Hedging and Other Strategic Transactions" in the Statement of Additional Information. BLUE CHIP GROWTH TRUST The primary investment objective of the Blue Chip Growth Trust (prior to October 1, 1996, the "Pasadena Growth Trust") is to provide long-term growth of capital. Current income is a secondary objective, and many of the stocks in the portfolio are expected to pay dividends. T. Rowe Price manages the Blue Chip Growth Trust. The portfolio will invest at least 65% of its total assets in the common stocks of large and medium-sized blue chip companies, as defined by T. Rowe Price. These companies will be well established in their industries and have the potential for above-average growth in earnings. In identifying blue chip companies, T. Rowe Price will generally take the following into consideration: *Leading market positions. Blue chip companies often have leading market positions that are expected to be maintained or enhanced over time. Strong positions, particularly in growing industries, can give a company pricing flexibility as well as the potential for good unit sales. These factors, in turn, can lead to higher earnings growth and greater share price appreciation. 47 50 *Seasoned management teams. Seasoned management teams with a track record of providing superior financial results are important for a company's long-term growth prospects. T. Rowe Price analysts will evaluate the depth and breadth of a company's management experience. *Strong financial fundamentals. Companies should demonstrate faster earnings growth than their competitors and the market in general; high profit margins relative to competitors; strong cash flow; a healthy balance sheet with relatively low debt; and a high return on equity with a comparatively low dividend payout ratio. Most of the assets of the portfolio will be invested in U.S. common stocks. However, the portfolio may also purchase other types of securities, for example, foreign securities, convertible stocks and bonds, and warrants, when considered consistent with the portfolio's investment objective and program. Investments in convertible securities, preferred stocks and debt securities are limited to 25% of total assets. The portfolio will hold a certain portion of its assets in U.S. and foreign dollar-denominated money market securities, including repurchase agreements, in the two highest rating categories, maturing in one year or less. For temporary, defensive purposes, the portfolio may invest without limitation in such securities. This reserve position provides flexibility in meeting redemptions, expenses, and the timing of new investments and serves as a short-term defense during periods of unusual market volatility. T. Rowe Price analysts evaluate the growth prospects of companies and the industries in which they operate. This approach seeks to identify companies with strong market franchises in industries that appear to be strategically poised for long-term growth. The investment approach reflects T. Rowe Price's belief that the combination of solid company fundamentals (with emphasis on the potential for above-average growth in earnings) along with a positive outlook for the overall industry will ultimately reward investors with a higher stock price. While primary emphasis is placed on a company's prospects for future growth, the portfolio will not purchase securities that, in T. Rowe Price's opinion, are overvalued considering the underlying business fundamentals. In the search for substantial capital appreciation, the portfolio looks for stocks attractively priced relative to their anticipated long-term value. The Blue Chip Growth Trust may invest in debt securities of any type without regard to quality or rating. Such securities would be purchased in companies which meet the investment criteria for the portfolio. The total return and yield of lower-quality (high-yield/high-risk) bonds, commonly referred to as "junk" bonds, can be expected to fluctuate more than the total return and yield of higher-quality, shorter-term bonds, but not as much as common stocks. Junk bonds (those rated below BBB or in default) are regarded as predominantly speculative with respect to the issuer's continuing ability to meet principal and interest payments. The portfolio will not purchase a noninvestment-grade debt security (or junk bond) if immediately after such purchase the portfolio would have more than 5% of its total assets invested in such securities. See "RISK FACTORS -- High Yield (High Risk) Securities" for further information. The Blue Chip Growth Trust may also engage in a variety of investment management practices, such as buying and selling futures and options. The portfolio may invest up to 10% of its total assets in hybrid instruments, which are a type of high-risk derivative which can combine the characteristics of securities, futures and options. For example, the principal amount, redemption or conversion terms of a security could be related to the market price of some commodity, currency or securities index. Such securities may bear interest or pay dividends at below market (or even relatively nominal) rates. The Statement of Additional Information contains a fuller description of such instruments and the risks associated therewith. The Blue Chip Growth Trust will be subject to special risks as a result of its ability to invest up to 20% of its total assets in foreign securities. These include nondollar-denominated securities traded outside of the U.S. and dollar-denominated securities of foreign issuers traded in the U.S. (such as ADRs). These risks are described under the caption "RISK FACTORS --Foreign Securities" in this Prospectus. Moreover, substantial investments in foreign securities may have adverse tax implications as described under "GENERAL INFORMATION --Taxes" in this Prospectus. Use of Hedging and Other Strategic Transactions 48 51 The Blue Chip Growth Trust is currently authorized to use all of the various investment strategies referred to under "Hedging and Other Strategic Transactions." The Statement of Additional Information contains a description of these strategies and of certain risks associated therewith. REAL ESTATE SECURITIES TRUST The investment objective of the Real Estate Securities Trust is to achieve a combination of long-term capital appreciation and satisfactory current income by investing in real estate related equity and debt securities. MAC manages the Real Estate Securities Trust and seeks to attain this objective by investing principally in real estate investment trust ("REIT") equity and debt securities and other securities issued by companies which invest in real estate or interests therein. REITs are pooled investment vehicles which invest primarily in income producing real estate or real estate related loans or interests. Investing in REITs involves the risks associated with real estate investing, such as risks relating to declines in real estate values, deterioration in general and local economic conditions, overbuilding and increased competition, increases in operating expenses and increases in interest rates, as well as certain unique risks, such as risks relating to heavy cash flow dependency, defaults by borrowers, self-liquidation and the possibility of failing to qualify for exemption from tax for distributed income under the Code or failing to maintain exemption from regulation under the 1940 Act. REITs are dependent on management skills, are not diversified and are subject to the risks of financing projects. They may have limited financial resources, trade less frequently and in a limited volume and be subject to more abrupt or erratic price movements than securities of larger issuers. The Real Estate Securities Trust may also purchase the common stocks, preferred stocks, convertible securities and bonds of companies operating in industry groups relating to the real estate industry. This would include companies engaged in the development of real estate, building and construction, and other market segments related to real estate. The portfolio will not invest directly in real property nor will it purchase mortgage notes directly. Under normal circumstances, at least 65% of the value of the Real Estate Securities Trust's total assets will be invested in real estate related equity and debt securities. When, in the opinion of the Subadviser, market or economic conditions warrant a defensive posture, the portfolio may place all or a portion of its assets in fixed-income securities which may or may not be real estate debt related securities. The portfolio may also maintain a portion of its assets in cash or short-term debt securities pending selection of particular long-term investments. The portfolio may purchase securities on a forward-commitment, when-issued or delayed-delivery basis. For a discussion of these securities, please see the discussion under "When-Issued Securities ("Forward Commitments") below. The Real Estate Securities Trust will be subject to certain risks as a result of its ability to invest up to 100% of its total assets in the following types of foreign securities: (i) U.S. dollar denominated obligations of foreign branches of U.S. banks, (ii) securities represented by ADRs listed on a national securities exchange or traded in the U.S. over-the-counter market, (iii) securities of a corporation organized in a jurisdiction other than the U.S. and listed on the New York Stock Exchange or NASDAQ or (iv) securities denominated in U.S. dollars but issued by non U.S. issuers and issued under U.S. federal securities regulations (for example, U.S. dollar denominated obligations issued or guaranteed as to principal or interest by the Government of Canada or any Canadian Crown agency). These risks are described under the caption "RISK FACTORS --Foreign Securities" in this Prospectus. Moreover, substantial investments in foreign securities may have adverse tax implications as described under "GENERAL INFORMATION --Taxes" in this Prospectus. Use of Hedging and Other Strategic Transactions The Real Estate Securities Trust does not presently use any of the investment strategies referred to under "Hedging and Other Strategic Transactions." VALUE TRUST The investment objective of the Value Trust is to realize an above-average total return over a market cycle of three to five years, consistent with reasonable risk. MAS manages the Value Trust and seeks to attain this objective by investing primarily in common and preferred stocks, convertible securities, rights and warrants to purchase common stocks, ADRs and other equity securities of companies with equity capitalizations usually greater than $300 million. Under normal circumstances, the Value Trust will invest at least 65% of its total assets in equity securities. The portfolio may also invest in obligations issued or guaranteed by the U.S. Government or by its agencies or instrumentalities, corporate bonds, foreign bonds, zero coupons, repurchase agreements, cash equivalents, foreign currencies, investment company securities and derivatives, including when-issued or delayed delivery securities, forward foreign currency exchange contracts, futures, options and swaps. See "INVESTMENT POLICIES -- Other Instruments" and "HEDGING AND OTHER STRATEGIC TRANSACTIONS" in the Statement of Additional Information. The Subadviser's approach is to select equity securities which are deemed to be undervalued relative to the stock market in general as measured by the Standard & Poor's 500 Index, based on value measures such as price/earnings ratios and price/book ratios, as well as fundamental research. While capital return will be emphasized somewhat more than income return, the Value Trust's total return will consist of both capital and income returns. Stocks that are deemed to be under-valued in the marketplace have, under most market conditions, provided higher dividend income returns than stocks that are deemed to have long-term earnings growth potential which normally sell at higher price/earnings ratios. The Value Trust may invest without limit in ADRs and up to 5% of its total assets in foreign equities excluding ADRs. The risks associated with foreign securities are described under the caption "RISK FACTORS --Foreign Securities" in this Prospectus. Use of Hedging and Other Strategic Transactions The Value Trust is currently authorized to use all of the various investment strategies referred to under "Hedging and Other Strategic Transactions." The Statement of Additional Information contains a description of these strategies and of certain risks associated therewith. INTERNATIONAL GROWTH AND INCOME TRUST The investment objective of the International Growth and Income Trust is to seek long-term growth of capital and income. The portfolio is designed for investors with a long-term investment horizon who want to take advantage of investment opportunities outside the United States. J.P. Morgan manages the International Growth and Income Trust and will seek to achieve the portfolio's objective by investing, under normal circumstances, at least 65% of its total assets in equity securities of foreign issuers, consisting of common stocks and other securities with equity characteristics such as preferred stock, warrants, rights and convertible securities. The portfolio will focus primarily on the common stock of established companies based in developed countries outside the United States although it may invest up to 15% of its assets in emerging market securities. Such investments will be made in at least three foreign countries. The portfolio invests in securities listed on foreign or domestic securities exchanges and securities traded in foreign or domestic over-the-counter markets, and may invest in certain restricted or unlisted securities. See "RISK FACTORS -- Foreign Securities." Under normal circumstances, the International Growth and Income Trust expects to invest primarily in equity securities. However, the portfolio may invest up to 35% of its assets in debt obligations of corporate or sovereign or supranational organizations rated A or higher by Moody's or S&P, or if unrated, of equivalent credit quality as determined by the Subadviser. See "Global Government Bond Trust" for further information on supranational organizations. Under normal circumstances, the portfolio will be invested approximately 85% in equity securities and 15% in these fixed income securities. This allocation, however, may change over time. J.P. Morgan may allocate the portfolio's investment in these asset classes in a manner consistent with the 49 52 portfolio's investment objective and current market conditions. Using a variety of analytical tools, J.P. Morgan assesses the relative attractiveness of each asset class and determines an optimal allocation between them. Yields on non-U.S. equity securities tend to be lower than those on equity securities of U.S. issuers. Therefore, current income from the portfolio may not be as high as that available from a portfolio of U.S. equity securities. In pursuing the International Growth and Income Trust's objective, J.P. Morgan will actively manage the assets of the portfolio through country allocation and stock valuation and selection. Based on fundamental research, quantitative valuation techniques and experienced judgment, J.P. Morgan uses a structured decision-making process to allocate the portfolio primarily across the developed countries of the world outside the United States. This universe is typically represented by the Morgan Stanley Europe, Australia and Far East Index (the "EAFE Index"). Using a dividend discount model and based on analysts' industry expertise, securities within each country are ranked within economic sectors according to their relative value. Based on this valuation, J.P. Morgan selects the securities which appear the most attractive for the portfolio. J.P. Morgan believes that under normal market conditions, economic sector weightings generally will be similar to those of the relevant equity index. Finally, J.P. Morgan actively manages currency exposure, in conjunction with country and stock allocation, in an attempt to protect and possibly enhance the International Growth and Income Trust's market value. Through the use of forward currency exchange contracts, J.P. Morgan will adjust the portfolio's foreign currency weightings to reduce its exposure to currencies that the Subadviser deems unattractive and, in certain circumstances, increase exposure to currencies deemed attractive, as market conditions warrant, based on fundamental research, technical factors and the judgment of a team of experienced currency managers. The International Growth and Income Trust intends to manage its investment portfolio actively in pursuit of its investment objective. The portfolio does not expect to trade in securities for short-term profits; however, when circumstances warrant, securities may be sold without regard to the length of time held. See "GENERAL INFORMATION -Taxes." To the extent the portfolio engages in short-term trading, it may incur increased transaction costs. The International Growth and Income Trust may also invest in securities on a when-issued or delayed delivery basis, enter into repurchase agreements, loan its portfolio securities and purchase certain privately placed securities. See "RISK FACTORS." The International Growth and Income Trust may make money market investments pending other investments or settlement or for liquidity purposes. In addition, when J.P. Morgan believes that investing for defensive purposes is appropriate, such as during periods of unusual or unfavorable market or economics conditions, up to 100% of the portfolio's assets may be temporarily invested in money market instruments. The money market investments permitted for the portfolio include obligations of the U.S. Government and its agencies and instrumentalities, other debt securities, commercial paper, bank obligations and repurchase agreements, as described below under "Money Market Trust." The International Growth and Income Trust will be subject to special risks as a result of its ability to invest up to 100% of its assets in foreign securities, including up to 15% in emerging market securities. These risks are described under the captions "RISK FACTORS -- Foreign Securities" and "INTERNATIONAL SMALL CAP TRUST - Foreign Securities." in this Prospectus. Moreover, substantial investments in foreign securities may have adverse tax implications as described under "GENERAL INFORMATION -- Taxes" in this Prospectus. The ability to diversify its investments among the equity markets of different countries may, however, reduce the overall level of market risk to the extent it may reduce the portfolio's exposure to a single market. In order to comply with limitations imposed by the State of California Insurance Department, the International Growth and Income Trust will comply with the restrictions regarding foreign investments set forth under "Risk Factors - Additional Investment Restrictions on Borrowing and Foreign Investing." 50 53 Use of Hedging and Other Strategic Transactions The International Growth and Income Trust is currently authorized to use all of the various investment strategies referred to under "RISK FACTORS -- Hedging and Other Strategic Transactions." With the exception of currency transactions, however, it is not presently anticipated that any of these strategies will be used to a significant degree by the portfolio. The Statement of Additional Information contains a description of these strategies and of certain risks associated therewith. GROWTH AND INCOME TRUST The investment objective of the Growth and Income Trust is to provide long-term growth of capital and income consistent with prudent investment risk. Wellington Management manages the Growth and Income Trust and seeks to achieve the Trust's objective by investing primarily in a diversified portfolio of common stocks of U.S. issuers which Wellington Management believes are of high quality. Wellington Management believes that high quality is evidenced by a leadership position within an industry, a strong or improving balance sheet, relatively high return on equity, steady or increasing dividend payout and strong management skills. The Trust's investments will primarily emphasize dividends paying stocks of larger companies. The Trust may also invest in securities convertible into or which carry the right to buy common stocks, including those convertible securities issued in the Euromarket, preferred stocks and debt securities. When market or financial conditions warrant a temporary defensive posture, the Trust may, in order to reduce risk and achieve attractive total investment return, invest up to 100% of its assets in securities which are authorized for purchase by the Investment Quality Bond Trust (excluding non-investment grade securities) or the Money Market Trust. The Subadviser expects that under normal market conditions the Growth and Income Trust will consist primarily of equity securities. Investments will be selected on the basis of fundamental analysis to identify those securities that, in Wellington Management's judgment, provide the potential for long-term growth of capital and income. Fundamental analysis involves assessing a company and its business environment, management, balance sheet, income statement, anticipated earnings and dividends and other related measures of value. When selecting securities of issuers domiciled outside of the United States, Wellington Management will also monitor and evaluate the economic and political climate and the principal securities markets of the country in which each company is located. The Growth and Income Trust will invest primarily in securities listed on national securities exchanges, but from time to time it may also purchase securities traded in the "over the counter" market. The Growth and Income Trust will be subject to certain risks as a result of its ability to invest up to 20% of its assets in foreign securities. These risks are described under the caption "Foreign Securities" in this Prospectus. Moreover, substantial investments in foreign securities may have adverse tax implications as described under "Taxes" in this Prospectus. Use of Hedging and Other Strategic Transactions The Growth and Income Trust is currently authorized to use all of the various investment strategies referred to under "Hedging and Other Strategic Transactions." However, it is not presently anticipated that any of these strategies will be used to a significant degree by the portfolio. The Statement of Additional Information contains a description of these strategies and of certain risks associated therewith. EQUITY-INCOME TRUST The investment objective of the Equity-Income Trust (prior to December 31, 1996, the "Value Equity Trust") is to provide substantial dividend income and also long term capital appreciation. T. Rowe Price manages the Equity-Income Trust and seeks to attain this objective by investing primarily in dividend-paying common stocks, particularly of established companies with favorable prospects for both increasing dividends and capital appreciation. Under normal circumstances, the Equity-Income Trust will invest at least 65% of total assets in the common stocks of established companies paying above-average dividends. T. Rowe Price believes 51 54 that income can be a significant contributor to total return over time and expects the portfolio's yield to be above that of the Standard & Poor's 500 Stock Index. The Equity-Income Trust will generally consider companies with the following characteristics: -- Established operating histories; -- Above-average current dividend yield relative to the average yield of the S&P 500; -- Low price/earnings ratios relative to the S&P 500; -- Sound balance sheets and other financial characteristics; -- Low stock price relative to a company's underlying value as measured by assets, earnings, cash flow, or business franchises. The Equity-Income Trust will tend to take a "value" approach and invest in stocks and other securities that appear to be temporarily undervalued by various measures, such as price/earnings ratios. Value investors seek to buy a stock (or other security) when its price is low in relation to what they believe to be its real worth or future prospects. By identifying companies whose stocks are currently out of favor, value investors hope to realize significant appreciation as other investors recognize the stock's intrinsic value and the price rises accordingly. Finding undervalued stocks requires considerable research to identify the particular stock, to analyze the company's underlying financial condition and prospects, and to assess the likelihood that the stock's underlying value will be recognized by the market and reflected in its price. The Equity-Income Trust may also purchase other types of securities, for example, foreign securities, preferred stocks, convertible stocks and bonds, and warrants, when considered consistent with the portfolio's investment objective and program. The portfolio will hold a certain portion of its assets in U.S. and foreign dollar-denominated money market securities, including repurchase agreements, in the two highest rating categories, maturing in one year or less. For temporary, defensive purposes, the portfolio may invest without limitation in such securities. This reserve position provides flexibility in meeting redemptions, expenses, and the timing of new investments and serves as a short-term defense during periods of unusual market volatility. The Equity-Income Trust may also invest in debt securities of any type including municipal securities without regard to quality or rating. The total return and yield of lower-quality (high-yield/high-risk) bonds, commonly referred to as "junk" bonds, can be expected to fluctuate more than the total return and yield of higher-quality, shorter-term bonds, but not as much as common stocks. Junk bonds (those rated below BBB or in default) are regarded as predominantly speculative with respect to the issuer's continuing ability to meet principal and interest payments. The portfolio will not purchase a noninvestment-grade debt security (or junk bond) if immediately after such purchase the portfolio would have more than 10% of its total assets invested in such securities. The Equity-Income Stock Trust may also engage in a variety of investment management practices, such as buying and selling futures and options. The portfolio may invest up to 10% of its total assets in hybrid instruments, which are a type of high-risk derivative which can combine the characteristics of securities, futures and options. For example, the principal amount, redemption or conversion terms of a security could be related to the market price of some commodity, currency or securities index. Such securities may bear interest or pay dividends at below market (or even relatively nominal) rates. The Statement of Additional Information contains a fuller description of such instruments and the risks associated therewith. The Equity-Income Trust will be subject to special risks as a result of its ability to invest up to 25% of its total assets in foreign securities. These include nondollar-denominated securities traded outside of the U.S. and dollar-denominated securities of foreign issuers traded in the U.S. (such as ADRs). These risks are described under the caption "RISK FACTORS --Foreign Securities" in this Prospectus. Moreover, substantial investments in foreign securities may have adverse tax implications as described under "GENERAL INFORMATION --Taxes" in this Prospectus. 52 55 Use of Hedging and Other Strategic Transactions The Equity-Income Trust is currently authorized to use all of the various investment strategies referred to under "Hedging and Other Strategic Transactions." The Statement of Additional Information contains a description of these strategies and of certain risks associated therewith. 53 56 BALANCED TRUST The investment objective of the Balanced Trust is current income and capital appreciation. Founders is the manager of the Balanced Trust and seeks to attain this objective by investing in a balanced portfolio of common stocks, U.S. and foreign government obligations and a variety of corporate fixed-income securities. Normally, the Balanced Trust will invest a significant percentage (up to 75%) of its total assets in common stocks, convertible corporate obligations, and preferred stocks. The portfolio emphasizes investment in dividend-paying common stocks with the potential for increased dividends, as well as capital appreciation. The portfolio also may invest in non-dividend-paying companies if, in Founders' opinion, they offer better prospects for capital appreciation. The Balanced Trust may invest in convertible securities, preferred stocks, bonds, debentures, and other corporate obligations when Founders believes that these investments offer opportunities for capital appreciation. Current income is also a factor in the selection of these securities. The Balanced Trust will maintain a minimum of 25% of its total assets in fixed-income, investment-grade securities rated Baa or higher by Moody's or BBB or higher by S&P. There is, however, no limit on the amount of straight debt securities in which the portfolio may invest. Up to 5% of the Balanced Trust's total assets may be invested in lower-grade (Ba or less by Moody's, BB or less by S&P) or unrated straight debt securities, generally referred to as junk bonds, where Founders determines that such securities present attractive opportunities. The portfolio will not invest in securities rated lower than B. Securities rated B generally lack characteristics of a desirable investment and are deemed speculative with respect to the issuer's capacity to pay interest and repay principal over a long period of time. The Balanced Trust may also invest in convertible corporate obligations and preferred stocks. Convertible securities and preferred stocks purchased by the portfolio may be rated in medium and lower categories by Moody's or S&P (Ba or lower by Moody's and BB or lower by S&P) but will not be rated lower than B. The portfolio may also invest in unrated convertible securities and preferred stocks in instances in which Founders believes that the financial condition of the issuer or the protection afforded by the terms of the securities limits risk to a level similar to that of securities eligible for purchase by the portfolio rated in categories no lower than B. At no time will the portfolio have more than 5% of its total assets invested in any fixed-income securities which are unrated or are rated below investment grade either at the time of purchase or as a result of a reduction in rating after purchase. The portfolio is not required to dispose of debt securities whose ratings are downgraded below these ratings subsequent to the portfolio's purchase of the securities, unless such a disposition is necessary to reduce the portfolio's holdings of such securities to less than 5% of its total assets. See "RISK FACTORS -- High Yield (High Risk) Securities." A description of the ratings used by Moody's and S&P is set forth in Appendix I to the Prospectus. Up to 100% of the assets of the Balanced Trust may be invested temporarily in U.S. Government obligations, commercial paper, bank obligations, repurchase agreements, and negotiable U.S. dollar-denominated obligations of domestic and foreign branches of U.S. depository institutions, U.S. branches of foreign depository institutions, and foreign depository institutions, in cash, or in other cash equivalents, if Founders determines it to be appropriate for purposes of enhancing liquidity or preserving capital in light of prevailing market or economic conditions. The portfolio may also acquire certificates of deposit and bankers' acceptances of banks which meet criteria established by the Trust's Board of Trustees. While the portfolio is in a defensive position, the opportunity to achieve capital growth will be limited, and, to the extent that this assessment of market conditions is incorrect, the portfolio will be foregoing the opportunity to benefit from capital growth resulting from increases in the value of equity investments. The Balanced Trust may invest without limit in ADRs and up to 30% of its total assets in foreign securities (other than ADRs). The portfolio will not invest more than 25% of its total assets in the securities of any one country. 54 57 The Balanced Trust will be subject to special risks as a result of its ability to invest up to 30% of its total assets in foreign securities, excluding ADRs. These risks are described under the caption "RISK FACTORS --Foreign Securities" in this Prospectus. Moreover, substantial investments in foreign securities may have adverse tax implications as described under "GENERAL INFORMATION --Taxes" in this Prospectus. Use of Hedging and Other Strategic Transactions The Balanced Trust is currently authorized to use all of the various investment strategies referred to under "Hedging and Other Strategic Transactions." The Statement of Additional Information contains a description of these strategies and of certain risks associated therewith. HIGH YIELD TRUST The investment objective of the High Yield Trust is to realize an above-average total return over a market cycle of three to five years, consistent with reasonable risk. MAS manages the High Yield Trust and seeks to attain this objective by investing primarily in high yield debt securities, including corporate bonds and other fixed-income securities. The High Yield Trust expects to achieve its objective through maximizing current income, although the portfolio may seek capital growth opportunities when consistent with its objective. The portfolio's average weighted maturity ordinarily will be greater than five years. Under normal circumstances, the portfolio will invest at least 65% of the value of its total assets in high yield debt securities. High yield securities are generally considered to include corporate bonds, preferred stocks and convertible securities rated Ba through C by Moody's or BB through D by S&P, and unrated securities considered to be of equivalent quality. Securities rated less than Baa by Moody's or BBB by S&P's are classified as non-investment grade securities and are commonly referred to as junk bonds or high yield securities. Such securities carry a high degree of risk and are considered speculative by the major credit rating agencies. While such securities offer high yields, they also normally carry with them a greater degree of risk than securities with higher ratings. Lower-rated bonds are considered speculative by traditional investment standards. High yield securities may be issued as a consequence of corporate restructuring or similar events. Also, high yield securities are often issued by smaller, less credit worthy companies, or by highly leveraged (indebted) firms, which are generally less able than more established or less leveraged firms to make scheduled payments of interest and principal. The price movement of these securities is influenced less by changes in interest rates and more by the financial and business position of the issuing corporation when compared to investment grade bonds. The risks posed by securities issued under such circumstances are substantial. If a security held by the portfolio is down-graded, the portfolio may retain the security. See "RISK FACTORS -- High Yield (High Risk) Securities." A description of the ratings used by Moody's and S&P is set forth in Appendix I to the Prospectus. The Subadviser's approach is to use equity and fixed-income valuation techniques and analyses of economic and industry trends to determine portfolio structure. Individual securities are selected and monitored by fixed-income portfolio managers who specialize in credit analysis of fixed-income securities and use in-depth financial analysis to uncover opportunities in undervalued issues. The Subadviser seeks to invest in high yield securities based on the Subadviser's analysis of economic and industry trends and individual security characteristics. The Subadviser conducts credit analysis for each security considered for investment to evaluate its attractiveness relative to its risk. A high level of diversification is also maintained to limit credit exposure to individual issuers. One of two primary components of the Subadviser's fixed-income strategy is value investing, whereby the Subadviser seeks to identify undervalued sectors and securities through analysis of credit quality, option characteristics and liquidity. Quantitative models are used in conjunction with judgment and experience to evaluate and select securities with embedded put or call options (options which are part of the security) which are attractive on a risk- and option-adjusted basis. Successful value investing will permit a portfolio to benefit from the price appreciation of individual securities during periods when interest rates are unchanged. 55 58 The other primary component of the Subadviser's fixed-income investment strategy is maturity and duration management. The maturity and duration structure of a portfolio investing in fixed-income securities is actively managed in anticipation of cyclical interest rate changes. Adjustments are not made in an effort to capture short-term, day-to-day movements in the market, but instead are implemented in anticipation of longer term shifts in the levels of interest rates. Adjustments made to shorten portfolio maturity and duration are made to limit capital losses during periods when interest rates are expected to rise. Conversely, adjustments made to lengthen maturity are intended to produce capital appreciation in periods when interest rates are expected to fall. The foundation for maturity and duration strategy lies in analysis of the U.S. and global economies, focusing on levels of real interest rates, monetary and fiscal policy actions, and cyclical indicators. At times it is anticipated that greater than 50% of High Yield Trust's assets may be invested in mortgage-backed securities. These include securities which represent pools of mortgage loans made by lenders such as commercial banks, savings and loan associations, mortgage bankers and others. The pools are assembled by various Governmental, Government-related and private organizations. It is expected that the portfolio's primary emphasis will be in mortgage-backed securities issued by the various Government-related organizations. However, the portfolio may invest, without limit, in mortgage-backed securities issued by private issuers when the Subadviser deems that the quality of the investment, the quality of the issuer, and market conditions warrant such investments. Securities issued by private issuers will be rated investment grade by Moody's or Standard & Poor's or be deemed by the Subadviser to be of comparable investment quality. It is not anticipated that greater than 25% of a portfolio's assets will be invested in mortgage pools comprised of private organizations. See "INVESTMENT POLICIES -- Other Instruments" in the Statement of Additional Information for a description of these investments and of certain risks associated therewith. The High Yield Trust will invest in foreign bonds and other fixed income securities denominated in foreign currencies, where, in the opinion of the Subadviser, the combination of current yield and currency value offer attractive expected returns. Foreign securities in which the portfolio may invest include emerging market securities. The Subadviser's approach to emerging markets investing is based on the Subadviser's evaluation of both short-term and long-term international economic trends and the relative attractiveness of emerging markets and individual emerging market securities. Emerging markets describes any country which is generally considered to be an emerging, or developing country by the international financial community such as the International Bank for Reconstruction and Development (more commonly known as the World Bank) and the International Finance Corporation. Securities available to the portfolio also include securities created through the Brady Plan, a program under which heavily indebted countries have restructured their bank debt into bonds. The High Yield Trust will be subject to special risks as a result of its ability to invest up to 100% of its total assets in foreign securities, including emerging market securities. These risks, including the risks of the possible increased likelihood of expropriation or the return to power of a communist regime which would institute policies to expropriate, nationalize or otherwise confiscate investments, are described under the caption "RISK FACTORS - --Foreign Securities" in this Prospectus. Moreover, substantial investments in foreign securities may have adverse tax implications as described under "GENERAL INFORMATION --Taxes" in this Prospectus. Use of Hedging and Other Strategic Transactions The High Yield Trust is currently authorized to use all of the various investment strategies referred to under "Hedging and Other Strategic Transactions." The Statement of Additional Information contains a description of these strategies and of certain risks associated therewith. AUTOMATIC ASSET ALLOCATION TRUSTS There are three Automatic Asset Allocation Trusts - Aggressive, Moderate and Conservative. The investment objective of each of the Automatic Asset Allocation Trusts is to obtain the highest potential total return consistent with a specified level of risk tolerance -- aggressive, moderate and conservative. Currently, the risk tolerance levels--aggressive, moderate and conservative--of the Asset Allocation Trusts are defined in terms of limiting the decline in portfolio value in very adverse market conditions. The definition of a risk tolerance level is not a fundamental policy and, therefore, can be changed by the Trustees at any time. The Automatic Asset Allocation Trusts are designed for: 56 59 * The investor who wants to maximize total return potential, but lacks the time, temperament or expertise to do so effectively; * The investor who does not want to monitor the financial markets in order to make periodic exchanges among portfolios; * The investor who wants the opportunity to improve on the return of an income-oriented investment program, but wants to take advantage of the risk management features of an asset allocation program; and * Retirement program fiduciaries who have a responsibility to limit risk in a meaningful way, while seeking the highest potential total return. Each of the Automatic Asset Allocation Trusts may invest in a combination of equity, fixed-income and money market securities. The amount of each portfolio's assets invested in each category of securities is dependent upon the judgment of FMTC as to what percentages of each portfolio's assets in each category will contribute to the limitation of risk and the achievement of its investment objective. Unlike many asset allocation and timing services offered by competitors, the Automatic Asset Allocation Trusts permit FMTC to reallocate each portfolio's assets among the categories of securities "automatically," without a delay for a request or response by the shareholder, whenever, in the Subadviser's judgment, market or economic changes warrant such a reallocation. FMTC reserves complete discretion to determine the allocations among the categories of securities. The investor chooses an Automatic Asset Allocation Trust by determining which risk tolerance level most closely corresponds to the investor's individual planning needs, objectives and comfort. Generally, the higher the portfolio's level of risk tolerance, the higher is the expected total return for the portfolio over the long-term and under favorable market conditions. Over the long-term, it is expected that the total return of the Aggressive Asset Allocation Trust will exceed that of the Moderate Asset Allocation Trust and that the total return of the Moderate Asset Allocation Trust will exceed that of the Conservative Asset Allocation Trust, although there is no assurance that this will be the case. Moreover, as a general matter, the higher the risk tolerance of a portfolio, the greater is the expected volatility of the portfolio. In adverse market conditions, it is expected that the losses will be greater in the Aggressive Asset Allocation Trust than in the Moderate Asset Allocation Trust and greater in the Moderate Asset Allocation Trust than in the Conservative Asset Allocation Trust, although again there is no assurance that this will be the case. FMTC attempts to limit the maximum amount of decline in value each portfolio incurs under very adverse market conditions, to define the level of risk tolerance -- aggressive, moderate or conservative. Very adverse market conditions are defined as a substantial increase in long-term interest rates accompanied by a similarly substantial decline in one or more commonly-followed stock market indices over a three year period. Of course, FMTC cannot predict with certainty when adverse market conditions will arise. Consequently, FMTC must manage each of the Automatic Asset Allocation Trusts under all market conditions with a view toward limiting risk and portfolio decline should very adverse market conditions arise. For example, since the Conservative Asset Allocation Trust has the lowest risk tolerance level, its assets under all market conditions will be invested less aggressively (i.e., with greater emphasis on fixed-income securities and money market instruments) than those of the other Automatic Asset Allocation Trusts. In addition, when market conditions deteriorate (the probability of very adverse market conditions rises), FMTC will give greater emphasis to fixed-income securities and money market instruments in an effort to limit overall declines in portfolio value. An investor should select an Automatic Asset Allocation Trust depending on his or her objective in terms of balancing the potential long-term total returns of a portfolio against limiting risk and portfolio declines in very adverse market conditions. There can be no assurance that actual declines in portfolio value will not exceed the percentage limitations set forth below in the description of each portfolio. THE AGGRESSIVE ASSET ALLOCATION TRUST The investment objective of the Aggressive Asset Allocation Trust is to seek the highest total return consistent with an aggressive level of risk tolerance. This Trust attempts to limit the decline in portfolio value in very adverse market conditions to 15% in any three year period. This Trust will tend to invest a greater portion of its assets in equity and foreign securities than the Moderate and Conservative Asset Allocation Trusts and a lower percentage of its assets in fixed-income securities and money market instruments than such Trusts. FMTC will invest the Aggressive Asset Allocation Trust's assets to attempt to produce a total return competitive with that of equity funds, while at the same time exposing the Trust's assets to less risk 57 60 than the typical aggressive equity fund by allocating a portion of the portfolio's assets to fixed-income securities and money market instruments. There can be no assurance that FMTC will be able to attain this objective. THE MODERATE ASSET ALLOCATION TRUST The investment objective of the Moderate Asset Allocation Trust is to seek the highest total return consistent with a moderate level of risk tolerance. This Trust attempts to limit the decline in portfolio value in very adverse market conditions to 10% over any three year period. The amount of the Moderate Asset Allocation Trust's assets invested in each category of securities will depend on the judgment of FMTC as to what relative portions of the portfolio's assets in each category will contribute to the achievement of its objective. Generally, it will place greater emphasis on equity and foreign securities than the Conservative Asset Allocation Trust but more emphasis on fixed-income securities and money market instruments than the Aggressive Asset Allocation Trust. FMTC will invest the Moderate Asset Allocation Trust's assets to attempt to give the portfolio a substantial participation in favorable equity and bond markets, although the expected total return will not necessarily exceed the best returns available from either of those markets. THE CONSERVATIVE ASSET ALLOCATION TRUST The investment objective of the Conservative Asset Allocation Trust is to seek the highest total return consistent with a conservative level of risk tolerance. This Trust attempts to limit the decline in portfolio value in very adverse market conditions to 5% over any three year period. This Trust will tend to invest a greater portion of its assets in fixed-income securities and money market instruments than the Moderate and Aggressive Asset Allocation Trusts and a lower percentage of its assets in equity and foreign securities than such Trusts. FMTC will attempt to invest the Conservative Asset Allocation Trust's assets in order to produce a higher total return than that which is available from a bond or a money market portfolio alone, although there can be no assurance that FMTC will be able to attain this objective. The types and characteristics of equity securities to be purchased by the Automatic Asset Allocation Trusts are set forth above in the discussion of investment objectives and policies for the Equity Trust; the types and characteristics of the fixed-income securities to be purchased are set forth in the discussion of investment objectives and policies for the Investment Quality Bond (the Automatic Asset Allocation Trusts may not invest in below investment grade securities except as noted below) and U.S. Government Securities Trusts; and the types and characteristics of the money market securities to be purchased are set forth in the discussion of investment objectives of the Money Market Trust. Potential investors should review the discussion therein in considering an investment in shares of the Automatic Asset Allocation Trusts. The Aggressive Asset Allocation Trust and the Moderate Asset Allocation Trust may each invest up to 10% of their assets in domestic and foreign high yield corporate and government debt securities, commonly known as "junk bonds" (i.e., rated "Ba" or below by Moody's or "BB" or below by S & P, or if unrated, of comparable quality as determined by FMTC. Domestic and foreign high yield debt securities involve comparatively greater risks, including price volatility and risk of default in the payment of interest and principal, than higher quality securities. See "RISK FACTORS -- High Yield (High Risk) Securities" for further information. Use of Hedging and Other Strategic Transactions The Automatic Asset Allocation Trusts are currently authorized to use all of the various investment strategies referred to under "Hedging and Other Strategic Transactions." The Statement of Additional Information contains a description of these strategies and of certain risks associated therewith. The Aggressive Asset Allocation Trust may invest up to 35% of its assets, the Moderate Asset Allocation Trust may invest up to 25% of its assets and the Conservative Allocation Trust may invest up to 15% of its assets in securities issued by foreign entities and/or denominated in foreign currencies. The Automatic Asset Allocation Trusts will be subject to certain risks as a result of their ability to invest in foreign securities. These risks are described under the caption "Foreign Securities" in this Prospectus. Moreover, substantial investments in foreign securities may have adverse tax implications as described under "Taxes" in this Prospectus. In order to comply with limitations imposed by the State of California Insurance Department, the Aggressive and Moderate Asset Allocation Trusts will comply with the restrictions regarding foreign investments set forth under "Risk Factors - Additional Investment Restrictions on Borrowing and Foreign Investing." 58 61 STRATEGIC BOND TRUST The investment objective of the Strategic Bond Trust is to seek a high level of total return consistent with preservation of capital. The Strategic Bond Trust seeks to achieve its objective by giving its Subadviser, SBAM, broad discretion to deploy the Strategic Bond Trust's assets among certain segments of the fixed-income market as SBAM believes will best contribute to the achievement of the portfolio's objective. At any point in time, the Subadviser will deploy the portfolio's assets based on the Subadviser's analysis of current economic and market conditions and the relative risks and opportunities present in the following market segments: U.S. Government obligations, investment grade domestic corporate debt, high yield (high risk) corporate debt securities, mortgage backed securities and investment grade and high yield international debt securities. The Subadviser is an affiliate of Salomon Brothers Inc. ("SBI"), and in making investment decisions is able to draw on the research and market expertise of SBI with respect to fixed-income securities. In pursuing its investment objective, the Strategic Bond Trust may invest without limitation in high yield (high risk) securities. High yield securities, commonly known as "junk bonds", also present a high degree of risk. High-yielding, lower-quality securities involve comparatively greater risks, including price volatility and the risk of default in the timely payment of interest and principal, than higher-quality securities. Due to the risks inherent in certain of the securities in which the Strategic Bond Trust may invest, an investment in the portfolio should not be considered as a complete investment program and may not be appropriate for all investors. See "Risk Factors--High Yield (High Risk) Securities." The Subadviser will determine the amount of assets to be allocated to each type of security in which it invests based on its assessment of the maximum level of total return that can be achieved from a portfolio which is invested in these securities without incurring undue risks to principal value. In making this determination, the Subadviser will rely in part on quantitative analytical techniques that measure relative risks and opportunities of each type of security based on current and historical economic, market, political and technical data for each type of security, as well as on its own assessment of economic and market conditions both on a global and local (country) basis. In performing quantitative analysis, the Subadviser will employ prepayment analysis and option adjusted spread technology to evaluate mortgage securities, mean variance optimization models to evaluate international debt securities, and total rate of return analysis to measure relative risks and opportunities in other fixed-income markets. Economic factors considered will include current and projected levels of growth and inflation, balance of payment status and monetary policy. The allocation of assets to international debt securities will further be influenced by current and expected currency relationships and political and sovereign factors. The portfolio's assets may not always be allocated to the highest yielding securities if the Subadviser feels that such investments would impair the portfolio's ability to preserve shareholder capital. The Subadviser will continuously review this allocation of assets and make such adjustments as it deems appropriate. The portfolio does not plan to establish a minimum or a maximum percentage of the assets which it will invest in any particular type of fixed-income security. In addition, the Subadviser will have discretion to select the range of maturities of the various fixed-income securities in which the portfolio invests. Such maturities may vary substantially from time to time depending on economic and market conditions. The types and characteristics of the U.S. Government obligations, mortgage-backed securities, investment grade corporate debt securities and investment grade international debt securities to be purchased are set forth in the discussion of investment objectives and policies for the Investment Quality Bond, U.S. Government Securities and Global Government Bond Trusts, and in the section entitled "Other Investments" in the Statement of Additional Information; and the types and characteristics of the money market securities to be purchased are set forth in the discussion of investment objectives of the Money Market Trust. Potential investors should review the discussion therein in considering an investment in shares of the Strategic Bond Trust. As described below, the Strategic Bond Trust may also invest in high yield domestic and foreign debt securities. The Strategic Bond Trust will be subject to special risks as a result of its ability to invest up to 100% of its assets in foreign securities. These risks are described under the captions "Risk Factors--High Yield (High Risk) Securities" and "Foreign Securities" in this Prospectus. Moreover, substantial investments in foreign securities may have adverse tax implications as described under "Taxes" in this Prospectus. The 59 62 ability to spread its investments among the fixed-income markets in a number of different countries may, however, reduce the overall level of market risk to the extent it may reduce the Strategic Bond Trust's exposure to a single market. In order to comply with limitations imposed by the State of California Insurance Department, the Strategic Bond Trust will comply with the restrictions regarding foreign investments set forth under "Risk Factors - Additional Investment Restrictions on Borrowing and Foreign Investing." The Strategic Bond Trust currently intends to invest substantially all of its assets in fixed-income securities. In order to maintain liquidity, however, the Strategic Bond Trust may invest up to 20% of its assets in high-quality short-term money market instruments. If at some future date, in the opinion of the Subadviser, adverse conditions prevail in the market for fixed-income securities, the Strategic Bond Trust for temporary defensive purposes may invest its assets without limit in high-quality short-term money market instruments. As discussed above, the Strategic Bond Trust may invest in U.S. dollar-denominated securities issued by domestic issuers that are rated below investment grade or of comparable quality. Although the Subadviser does not anticipate investing in excess of 75% of the portfolio's assets in domestic and developing country debt securities that are rated below investment grade, the portfolio may invest a greater percentage in such securities when, in the opinion of the Subadviser, the yield available from such securities outweighs their additional risks. By investing a portion of the portfolio's assets in securities rated below investment grade, as well as through investments in mortgage securities and international debt securities, as described below, the Subadviser expects to provide investors with a higher yield than a high-quality domestic corporate bond fund while at the same time presenting less risk than a fund that invests principally in securities rated below investment grade. Certain of the debt securities in which the portfolio may invest may have, or be considered comparable to securities having, the lowest ratings for non-subordinated debt instruments assigned by Moody's or S&P (i.e., rated C by Moody's or CCC or lower by S&P). See "Risk Factors--High Yield (High Risk) Securities--General." In light of the risks associated with high yield corporate and sovereign debt securities, the Subadviser will take various factors into consideration in evaluating the credit worthiness of an issue. For corporate debt securities, these will typically include the issuer's financial resources, its sensitivity to economic conditions and trends, the operating history of the issuer, and the experience and track record of the issuer's management. For sovereign debt instruments, these will typically include the economic and political conditions within the issuer's country, the issuer's overall and external debt levels and debt service ratios, the issuer's access to capital markets and other sources of funding, and the issuer's debt service payment history. The Subadviser will also review the ratings, if any, assigned to the security by any recognized rating agencies, although the Subadviser's judgment as to the quality of a debt security may differ from that suggested by the rating published by a rating service. The Strategic Bond Trust's ability to achieve its investment objective may be more dependent on the Subadviser's credit analysis than would be the case if it invested in higher quality debt securities. A description of the ratings used by Moody's and S&P is set forth in Appendix I to this Prospectus. In addition to the types of international debt securities as set forth in the discussion of investment objectives and policies of the Global Government Bond Trust, the Strategic Bond Trust may also invest in international debt securities that are below investment grade. The high yield sovereign debt securities in which the Strategic Bond Trust may invest are U.S. dollar-denominated and non-dollar-denominated debt securities issued or guaranteed by governments or governmental entities of developing and emerging countries. The Subadviser expects that these countries will consist primarily of those which have issued or have announced plans to issue Brady Bonds, but the portfolio is not limited to investing in the debt of such countries. Brady Bonds are debt securities issued under the framework of the Brady Plan, an initiative announced by U.S. Treasury Secretary Nicholas F. Brady in 1989 as a mechanism for debtor nations to restructure their outstanding external indebtedness. The Subadviser anticipates that the portfolio's initial investments in sovereign debt will be concentrated in Latin American countries, including Mexico and Central and South American and Caribbean countries. The Subadviser expects to take advantage of additional opportunities for investment in the debt of North African countries, such as Nigeria and Morocco, Eastern European countries, such as Poland and Hungary, and Southeast Asian countries, such as the Philippines. Sovereign governments may include national, provincial, state, municipal or other foreign governments with taxing authority. Governmental entities may include the agencies and instrumentalities of such governments, as well as state-owned enterprises. 60 63 Use of Hedging and Other Strategic Transactions The Strategic Bond Trust is currently authorized to use all of the various investment strategies referred to under "Hedging and Other Strategic Transactions." With the exception of currency transactions, however, it is not presently anticipated that any of these strategies will be used to a significant degree by the portfolio. The Statement of Additional Information contains a description of these strategies and of certain risks associated therewith. GLOBAL GOVERNMENT BOND TRUST The investment objective of the Global Government Bond Trust is to seek a high level of total return by placing primary emphasis on high current income and the preservation of capital. Oechsle International manages the Global Government Bond Trust and intends to pursue this objective by investing primarily in a selected global portfolio of high-quality, fixed-income securities of foreign and U.S. governmental entities and supranational issuers. Oechsle International will select the Global Government Bond Trust's assets from among countries and in currency denominations where opportunities for total return are expected to be the most attractive. Fundamental economic strength, credit quality, and currency and interest rate trends will be the principal determinants of the various country and sector weightings within the Global Government Bond Trust. The Global Government Bond Trust may substantially invest in one or more countries but intends to have represented in its portfolio securities from a number of different countries, although there is no limit on the value of the portfolio's assets that may be invested in any one country or in assets denominated in any one country's currency. Moreover, the Global Government Bond Trust may for temporary defensive purposes choose to invest substantially all its assets in U.S. securities or cash and cash items. The Global Government Bond Trust, unlike the other portfolios of the Trust, is non-diversified for purposes of the Investment Company Act of 1940. Due to its status as non-diversified, the Global Government Bond Trust is not subject to the general limitation under the Investment Company Act of 1940 that it not invest more than 5% of its total assets in the securities of a single issuer. The Global Government Bond Trust has elected non-diversified status so that it may invest more than 5% of its assets in the obligations of a foreign government and this practice may expose the Global Government Bond Trust to increased financial and market risks. While non-diversified for purposes of the Investment Company Act of 1940, the Global Government Bond Trust remains subject to certain diversification requirements imposed under the Internal Revenue Code which are described under the caption "Taxes" in this Prospectus. The Global Government Bond Trust will generally invest at least 65% of its assets in the following investments: (i) debt obligations issued or guaranteed by the U.S. government or one of its agencies or political subdivisions; (ii) debt obligations issued or guaranteed by a foreign sovereign government or one of its agencies or political subdivisions; (iii) debt obligations issued or guaranteed by supranational organizations. Supranational entities include international organizations designated or supported by governmental entities to promote economic reconstruction or development and international banking institutions and related government agencies. Examples include the International Bank for Reconstruction and Development (the "World Bank"), the European Coal and Steel Community, the Asian Development Bank and the Inter-American Development Bank. Such supranational issued instruments may be denominated in multi-national currency units. Investments in multi-currency, debt securities will be limited to those assigned within the four highest bond ratings by Moody's or S&P or, if not rated, that are of equivalent investment quality as determined by Oechsle International. The Global Government Bond Trust may also invest up to 35% of its assets in (i) corporate debt securities assigned within the three highest bond ratings by Moody's or S&P or, if not rated, that are of equivalent investment quality as determined by Oechsle International, (ii) preferred stocks and (iii) securities convertible into or exercisable for common stocks. In addition, the Global Government Bond Trust will hold short-term cash reserves (money market instruments maturing in a period of thirteen months or less) as Oechsle International believes is advisable to maintain liquidity or for temporary defensive purposes. Reserves may be held in any currency deemed attractive by Oechsle International. Oechsle International intends to invest in fixed-income securities in countries where the combination of fixed-income market returns and exchange rate movements is judged to be attractive. Oechsle International will actively manage the Global Government Bond Trust's maturity structure according to its 61 64 interest rate outlook for each foreign economy. In response to rising interest rates and falling prices, the Global Government Bond Trust may invest in securities with shorter maturities to protect its principal value. Conversely, when certain interest rates are falling and prices are rising, the Global Government Bond Trust may invest in securities with longer maturities to take advantage of higher yields and to seek capital appreciation. The Global Government Bond Trust will seek to invest in countries having favorable currency and interest rate trends. Investments in countries where the currency trend is unfavorable may be made when the currency risk can be minimized through hedging. The Global Government Bond Trust does not intend to invest in longer-term fixed income securities in countries where the fixed income market is fundamentally unattractive, regardless of the currency trend, but may invest in short-term fixed income securities in such countries. Use of Hedging and Other Strategic Transactions The Global Government Bond Trust is currently authorized to use all of the various investment strategies referred to under "Hedging and Other Strategic Transactions." With the exception of currency transactions, however, it is not presently anticipated that any of these strategies will be used to a significant degree by the portfolio. The Statement of Additional Information contains a description of these strategies and of certain risks associated therewith. The Global Government Bond Trust will be subject to special risks as a result of its ability to invest up to 100% of its assets in foreign securities. These risks are described under the caption "Foreign Securities" in this Prospectus. Moreover, substantial investments in foreign securities may have adverse tax implications as described under "Taxes" in this Prospectus. The ability to spread its investments among the fixed-income markets in a number of different countries may, however, reduce the overall level of market risk to the extent it may reduce the Global Government Bond Trust's exposure to a single market. In order to comply with limitations imposed by the State of California Insurance Department, the Global Government Bond Trust will comply with the restrictions regarding foreign investments set forth under "Risk Factors - Additional Investment Restrictions on Borrowing and Foreign Investing." CAPITAL GROWTH BOND TRUST The investment objective of the Capital Growth Bond Trust is to achieve growth of capital by investing in medium-grade or better debt securities, with income as a secondary consideration. MAC manages the Capital Growth Bond Trust. The Capital Growth Bond Trust differs from most "bond" funds in that its primary objective is capital appreciation, not income. Opportunities for capital appreciation will usually exist only when the levels of prevailing interest rates are falling. During periods when MAC expects interest rates to decline, the portfolio will invest primarily in intermediate-term and long-term corporate and government debt securities. However, during periods when the Subadviser expects interest rates to rise or believes that market or economic conditions otherwise warrant such action, the portfolio may invest substantially all of its assets in short-term debt securities to preserve capital and maintain income. The portfolio may also maintain a portion of its assets temporarily in cash or short-term debt securities pending selection of particular long-term investments. The Capital Growth Bond Trust will be carefully positioned in relation to the term of debt obligations and the anticipated movement of interest rates. It is contemplated that at least 75% of the value of the portfolio's total investment in corporate debt securities, excluding commercial paper, will be represented by debt securities which have, at the time of purchase, a rating within the four highest grades as determined by Moody's (Aaa, Aa, A or Baa), S&P's (AAA, AA, A or BBB), or Fitch's Investors Service ("Fitch's") (AAA, AA, A or BBB) and debt securities of banks and other issuers which, although not rated as a matter of policy by either Moody's, S&P's, or Fitch's, are considered by the Subadviser to have investment quality comparable to securities receiving ratings within such four highest grades. Although the portfolio does not intend to acquire or hold debt securities of below investment-grade quality, shareholders should note that even bonds of the lowest categories of investment-grade quality may have speculative characteristics, and changes in economic conditions or other circumstances are more likely to lead to a weakened capacity to make principal and interest payments than is the case with higher-grade bonds. It should be further noted that should an obligation in the portfolio drop below investment grade, the portfolio will make every effort to dispose of it promptly so long as to do so would not be detrimental to the portfolio. 62 65 Government obligations in which the Capital Growth Bond Trust may invest include those of foreign governments provided they are denominated in U.S. dollars. The portfolio may purchase securities on a forward-commitment, when-issued or delayed-delivery basis. See "RISK FACTORS - When-Issued Securities" for additional information on this practice. The Capital Growth Bond Trust may purchase corporate debt securities which carry certain equity features, such as conversion or exchange rights or warrants for the acquisition of stock of the same or a different issuer or participations based on revenues, sales, or profits. The portfolio will not exercise any such conversion, exchange or purchase rights if, at the time, the value of all equity interests so owned would exceed 10% of the value of the portfolio's total assets. The Capital Growth Bond Trust will be subject to certain risks as a result of its ability to invest up to 100% of its total assets in the following types of foreign securities: (i) U.S. dollar denominated obligations of foreign branches of U.S. banks, (ii) securities represented by American Depository Receipts listed on a national securities exchange or traded in the U.S. over-the-counter market, (iii) securities of a corporation organized in a jurisdiction other than the U.S. and listed on the New York Stock Exchange or NASDAQ ("Interlisted Securities") or (iv) securities denominated in U.S. dollars but issued by non U.S. issuers and issued under U.S. federal securities regulations (for example, U.S. dollar denominated obligations issued or guaranteed as to principal or interest by the Government of Canada or any Canadian Crown agency). These risks are described under the caption "RISK FACTORS -- Foreign Securities" in this Prospectus. Moreover, substantial investments in foreign securities may have adverse tax implications as described under "GENERAL INFORMATION -- Taxes" in this Prospectus. Use of Hedging and Other Strategic Transactions The Capital Growth Bond Trust is currently authorized to use all of the investment strategies referred to under "Hedging and Other Strategic Transactions." However, it is not presently contemplated that any of these strategies will be used to a significant degree by the portfolio. INVESTMENT QUALITY BOND TRUST The investment objective of the Investment Quality Bond Trust is to provide a high level of current income consistent with the maintenance of principal and liquidity. Wellington Management manages the Investment Quality Bond Trust and seeks to achieve the Trust's objective by investing primarily in a diversified portfolio of investment grade corporate bonds and U.S. Government bonds with intermediate to longer term maturities. Investment management will emphasize sector analysis, which focuses on relative value and yield spreads among security types and among quality, issuer, and industry sectors, call protection and credit research. Credit research on corporate bonds is based on both quantitative and qualitative criteria established by Wellington Management, such as an issuer's industry, operating and financial profiles, business strategy, management quality, and projected financial and business conditions. Wellington Management will attempt to maintain a high, steady and possibly growing income stream. At least 65% of the Investment Quality Bond Trust's assets will be invested in: (1) marketable debt securities of domestic issuers and of foreign issuers (payable in U.S. dollars) rated at the time of purchase "A" or better by Moody's or S&P or, if unrated, of comparable quality as determined by Wellington Management; (2) securities issued or guaranteed as to principal or interest by the U.S. Government or its agencies or instrumentalities, including mortgage backed securities (described below under U.S. Government Securities Trust); and (3) cash and cash equivalent securities which are authorized for purchase by the Money Market Trust. The balance of the Investment Quality Bond Trust's investments may include: domestic and foreign debt securities rated below "A" by Moody's and S&P (and unrated securities of comparable quality as determined by Wellington Management), preferred stocks, convertible securities (including those issued in the Euromarket) and securities carrying warrants to purchase equity securities, privately placed debt securities, 63 66 asset-backed securities and privately issued mortgage securities. At least 65% of the Investment Quality Bond Trust's assets will be invested in bonds and debentures. In pursuing its investment objective, the Investment Quality Bond Trust may invest up to 20% of its assets in domestic and foreign high yield (high risk) corporate and government debt securities, commonly known as "junk bonds" (i.e., rated "Ba" or below by Moody's or "BB" or below by S&P, or if unrated, of comparable quality as determined by Wellington Management). The high yield sovereign debt securities in which the portfolio will invest are described above under "Strategic Bond Trust." No minimum rating standard is required for a purchase by the portfolio. Domestic and foreign high yield debt securities involve comparatively greater risks, including price volatility and risk of default in the payment of interest and principal, than higher-quality securities. See "RISK FACTORS -- High Yield (High Risk) Securities" and "-- Foreign Sovereign Debt Securities." The Investment Quality Bond Trust may also invest in debt securities carrying the fourth highest quality rating ("Baa" by Moody's or "BBB" by S&P) and unrated securities of comparable quality as determined by Wellington Management. While such securities are considered as investment grade and are viewed to have adequate capacity for payment of principal and interest, investments in such securities involve a higher degree of risk than that associated with investments in debt securities in the higher rating categories and such bonds lack outstanding investment characteristics and in fact have speculative characteristics as well. For example, changes in economic conditions or other circumstances are more likely to lead to a weakened capacity to make principal and interest payments than is the case with higher grade bonds. While the Investment Quality Bond Trust may only invest up to 20% of its assets in bonds rated below "Baa" by Moody's or "BBB" by S&P (or, if unrated, of comparable quality as determined by Wellington Management) at the time of investment, it is not required to dispose of bonds owned that may be downgraded causing the portfolio to exceed this 20% maximum. Use of Hedging and Other Strategic Transactions The Investment Quality Bond Trust is currently authorized to use all of the various investment strategies referred to under "Hedging and Other Strategic Transactions." The Statement of Additional Information contains a description of these strategies and of certain risks associated therewith. The Investment Quality Bond Trust will be subject to certain risks as a result of its ability to invest up to 20% of its assets in foreign securities. These risks are described under the caption "Foreign Securities" in this Prospectus. Moreover, substantial investments in foreign securities may have adverse tax implications as described under "Taxes" in this Prospectus. U.S. GOVERNMENT SECURITIES TRUST The investment objective of the U.S. Government Securities Trust is to obtain a high level of current income consistent with preservation of capital and maintenance of liquidity. SBAM manages the U.S. Government Securities Trust and seeks to attain its objective by investing a substantial portion of its assets in debt obligations and mortgage backed securities issued or guaranteed by the U.S. Government, its agencies or instrumentalities and derivative securities such as collateralized mortgage obligations backed by such securities. The portfolio may also invest a portion of its assets in the types of securities in which the Investment Quality Bond Trust may invest. At least 80% of the total assets of the U.S. Government Securities Trust will be invested in: (1) mortgage backed securities guaranteed by the Government National Mortgage Association that are supported by the full faith and credit of the U.S. Government and which are the "modified pass-through" type of mortgage backed security ("GNMA Certificates"). Such securities entitle the holder to receive all interest and principal payments due whether or not payments are actually made on the underlying mortgages; (2) U.S. Treasury obligations; (3) obligations issued or guaranteed by agencies or instrumentalities of the U.S. Government which are backed by their own credit and may not be backed by the full faith and credit of the U.S. Government; 64 67 (4) mortgage backed securities guaranteed by agencies or instrumentalities of the U.S. Government which are supported by their own credit but not the full faith and credit of the U.S. Government, such as the Federal Home Loan Mortgage Corporation and the Federal National Mortgage Association; and (5) collateralized mortgage obligations issued by private issuers for which the underlying mortgage backed securities serving as collateral are backed (i) by the credit alone of the U.S. Government agency or instrumentality which issues or guarantees the mortgage backed securities, or (ii) by the full faith and credit of the U.S. Government. The mortgage backed securities in which the U.S. Government Securities Trust invests represent participating interests in pools of residential mortgage loans which are guaranteed by the U.S. Government, its agencies or instrumentalities. However, the guarantee of these types of securities runs only to the principal and interest payments and not to the market value of such securities. In addition, the guarantee only runs to the portfolio securities held by the U.S. Government Securities Trust and not the purchase of shares of the portfolio. Mortgage backed securities are issued by lenders such as mortgage bankers, commercial banks, and savings and loan associations. Such securities differ from conventional debt securities which provide for periodic payment of interest in fixed amounts (usually semiannually) with principal payments at maturity or specified call dates. Mortgage backed securities provide monthly payments which are, in effect, a "pass-through" of the monthly interest and principal payments (including any prepayments) made by the individual borrowers on the pooled mortgage loans. Principal prepayments result from the sale of the underlying property or the refinancing or foreclosure of underlying mortgages. The yield of mortgage-backed securities is based on the average life of the underlying pool of mortgage loans, which is computed on the basis of the maturities of the underlying instruments. The actual life of any particular pool may be shortened by unscheduled or early payments of principal and interest. The occurrence of prepayments is affected by a wide range of economic, demographic and social factors and, accordingly, it is not possible to accurately predict the average life of a particular pool. For pools of fixed rate 30-year mortgages, it has been common practice to assume that prepayments will result in a 12-year average life. The actual prepayment experience of a pool of mortgage loans may cause the yield realized by the U.S. Government Securities Trust to differ from the yield calculated on the basis of the average life of the pool. In addition, if any of these mortgage backed securities are purchased at a premium, the premium may be lost in the event of early prepayment which may result in a loss to the portfolio. Prepayments tend to increase during periods of falling interest rates, while during periods of rising interest rates prepayments will most likely decline. Reinvestment by the U.S. Government Securities Trust of scheduled principal payments and unscheduled prepayments may occur at higher or lower rates than the original investment, thus affecting the yield of this portfolio. Monthly interest payments received by the portfolio have a compounding effect which will increase the yield to shareholders as compared to debt obligations that pay interest semiannually. Because of the reinvestment of prepayments of principal at current rates, mortgage-backed securities may be less effective than Treasury bonds of similar maturity at maintaining yields during periods of declining interest rates. Also, although the value of debt securities may increase as interest rates decline, the value of these pass-through type of securities may not increase as much due to the prepayment feature. The U.S. Government Securities Trust must comply with diversification requirements established pursuant to the Internal Revenue Code for investments of separate accounts funding contracts. Under these requirements, no more than 55% of the value of the assets of a portfolio may be represented by any one investment; no more than 70% by any two investments; no more than 80% by any three investments; and no more than 90% by any four investments. For these purposes, all securities of the same issuer are treated as a single investment and each United States government agency or instrumentality is treated as a separate issuer. As a result of these requirements, the U.S. Government Securities Trust may not invest more than 55% of the value of its assets in GNMA Certificates or in securities issued or guaranteed by any other single United States government agency or instrumentality. See the discussion under "Taxes" below for additional information. Use of Hedging and Other Strategic Transactions 65 68 The U.S. Government Securities Trust is currently authorized to use only certain of the various investment strategies referred to under "Hedging and Other Strategic Transactions." Specifically, the U.S. Government Securities Trust may write covered call options and put options on securities and purchase call and put options on securities, write covered call and put options on securities indices and purchase call and put options on securities indices, and, may enter into futures contracts on financial instruments and indices and write and purchase put and call options on such futures contracts. It is not presently anticipated that any of these strategies will be used to a significant degree by the portfolio. The Statement of Additional Information contains a description of these strategies and of certain risks associated therewith. MONEY MARKET TRUST The investment objective of the Money Market Trust is to obtain maximum current income consistent with preservation of principal and liquidity. MAC manages the Money Market Trust and seeks to achieve this objective by investing in high quality, U.S. dollar denominated money market instruments of the following types: (1) obligations issued or guaranteed as to principal and interest by the United States Government, or any agency or authority controlled or supervised by and acting as an instrumentality of the U.S. Government pursuant to authority granted by Congress (hereinafter "U.S. Government securities"), or obligations of foreign governments including those issued or guaranteed as to principal or interest by the Government of Canada, the government of any province of Canada, or any Canadian or provincial Crown agency (any foreign obligation acquired by the Trust will be payable in U.S. dollars); (2) certificates of deposit, bank notes, time deposits, Eurodollars, Yankee obligations and bankers' acceptances of U.S. banks, foreign branches of U.S. banks, foreign banks and U.S. savings and loan associations 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 $100,000,000 (or less than $100,000,000 if the principal amount of such bank obligations is insured by the Federal Deposit Insurance Corporation or the Saving Association Insurance Fund); (3) commercial paper which at the date of investment is rated (or guaranteed by a company whose commercial paper is rated) within the two highest rating categories by any nationally recognized statistical rating organization ("NRSRO") (such as "P-1" or "P-2" by Moody's or "A-1" or "A-2" by S&P) or, if not rated, is issued by a company which MAC acting pursuant to guidelines established by the Trustees, has determined to be of minimal credit risk and comparable quality; (4) corporate obligations maturing in 397 days or less which at the date of investment are rated within the two highest rating categories by any NRSRO (such as "Aa" or higher by Moody's or "AA" or higher by S&P); and (5) short-term obligations issued by state and local governmental issuers; (6) securities that have been structured to be eligible money market instruments such as participation interests in special purpose trusts that meet the quality and maturity requirements in whole or in part due to arrangements for credit enhancement or for shortening effective maturity; and (7) repurchase agreements with respect to any of the foregoing obligations. Commercial paper may include variable amount master demand notes, which are obligations that permit investment of fluctuating amounts at varying rates of interest. Such notes are direct lending arrangements between the Money Market Trust and the note issuer, and MAC will monitor the creditworthiness of the issuer and its earning power and cash flow, and will also consider situations in which all holders of such notes would redeem at the same time. Variable amount master demand notes are redeemable on demand. All of the Money Market Trust's investments will mature in 397 days or less and the portfolio will maintain a dollar-weighted average portfolio maturity of 90 days or less. By limiting the maturity of its investments, the Money Market Trust seeks to lessen the changes in the value of its assets caused by fluctuations in short-term interest rates. In addition, the Money Market Trust will invest only in securities the 66 69 Trustees determine to present minimal credit risks and which at the time of purchase are "eligible securities" as defined by Rule 2a-7 under the Investment Company Act of 1940. The Money Market Trust also intends to maintain, to the extent practicable, a constant per share net asset value of $10.00, but there is no assurance that it will be able to do so. The Money Market Trust will be subject to certain risks as a result of its ability to invest up to 20% of its assets in foreign securities. These risks are described under "RISK FACTORS - Foreign Securities." Use of Hedging and Other Strategic Transactions The Money Market Trust is not authorized to use any of the various investment strategies referred to under "Hedging and Other Strategic Transactions." THE LIFESTYLE TRUSTS There are five Lifestyle Trusts (each of which is a fund of funds) -- Aggressive, Growth, Balanced, Moderate and Conservative. The Lifestyle Trusts differ from the portfolios previously described in that each Lifestyle Trust invests in a number of the other portfolios of the Trust ("Underlying Portfolios"). Each Lifestyle Trust has its own investment objective and policies. Lifestyle Aggressive 1000 Trust. The investment objective of the Lifestyle Aggressive 1000 Trust is to provide long term growth of capital. Current income is not a consideration. MAC seeks to achieve this objective by investing 100% of the Lifestyle Trust's assets in Underlying Portfolios which invest primarily in equity securities. Lifestyle Growth 820 Trust. The investment objective of the Lifestyle Growth 820 Trust is to provide long term growth of capital with consideration also given to current income. MAC seeks to achieve this objective by investing approximately 20% of the Lifestyle Trust's assets in Underlying Portfolios which invest primarily in fixed income securities and approximately 80% of its assets in Underlying Portfolios which invest primarily in equity securities. Lifestyle Balanced 640 Trust. The investment objective of the Lifestyle Balanced 640 Trust is to provide a balance between a high level of current income and growth of capital with a greater emphasis given to capital growth. MAC seeks to achieve this objective by investing approximately 40% of the Lifestyle Trust's assets in Underlying Portfolios which invest primarily in fixed income securities and approximately 60% of its assets in Underlying Portfolios which invest primarily in equity securities. Lifestyle Moderate 460 Trust. The investment objective of the Lifestyle Moderate 460 Trust is to provide a balance between a high level of current income and growth of capital with a greater emphasis given to high income. MAC seeks to achieve this objective by investing approximately 60% of the Lifestyle Trust's assets in Underlying Portfolios which invest primarily in fixed income securities and approximately 40% of its assets in Underlying Portfolios which invest primarily in equity securities. Lifestyle Conservative 280 Trust. The investment objective of the Lifestyle Conservative 280 Trust is to provide a high level of current income with some consideration also given to growth of capital. MAC seeks to achieve this objective by investing approximately 80% of the Lifestyle Trust's assets in Underlying Portfolios which invest primarily in fixed income securities and approximately 20% of its assets in Underlying Portfolios which invest primarily in equity securities. The Lifestyle Trusts are designed to provide a simple means of obtaining a professionally-determined comprehensive investment program designed for differing investment orientations. Each program is implemented by means of selected long term investment allocations among the Underlying Portfolios. The portfolios eligible for purchase by the Lifestyle Trusts consist of all of the non-Lifestyle Trusts. The Underlying Portfolios are grouped according to whether they invest primarily in fixed income securities or equity securities. The Underlying Portfolios investing primarily in fixed income se- 67 70 curities are the Strategic Bond, Global Government Bond, Capital Growth Bond, Investment Quality Bond, U.S. Government Securities and Money Market Trusts. The other Underlying Portfolios invest primarily in equity securities. The percentage allocations between the two types of Underlying Portfolios specified for each Lifestyle Trust are approximate only. Variations in the percentages are permitted up to 10% in either direction. Thus, for example, the Lifestyle Conservative 280 Trust may have a fixed income/equity allocation of 10%/90% or 30%/70%. Variations beyond the permissible deviation range of 10% are not permitted, unless the Adviser determines that in light of market or economic conditions the normal percentage limitations should be exceeded to protect the portfolio or to achieve the portfolio's objective. NASL Financial and MAC manage the Lifestyle Trusts at no cost, although they reserve the right to seek compensation for services in the future. Within the prescribed percentage allocations between the two types of Underlying Portfolios, MAC may from time to time adjust the percent of assets invested in any single portfolios held by a Lifestyle Trust. Such adjustments may be made to increase or decrease the Lifestyle Trust's holdings of particular assets classes, such as common stocks of foreign issuers, or to adjust portfolio quality or the duration of fixed income securities. Adjustments may also be made to increase or reduce the percent of the Lifestyle Trust's assets subject to the management of a particular Subadviser. In addition, changes may be made to reflect some fundamental change in the investment environment. Although substantially all of the assets of the Lifestyle Trusts will be invested in shares of the Underlying Portfolios, the Lifestyle Trusts may invest up to 100% of their assets in cash or in the money market instruments of the type in which the Money Market Trust is authorized to invest for the purpose of meeting redemption requests or making other anticipated cash payments or to protect the portfolio in the event the Adviser determines that market or economic conditions warrant a defensive posture. Because substantially all of the securities in which the Lifestyle Trusts may invest are Underlying Portfolios, each of the Lifestyle Trusts is non-diversified for purposes of the Investment Company Act of 1940. The Lifestyle Trusts are subject to the risks of the Underlying Portfolios in which they invest. The Lifestyle Trusts are not authorized to use any of the various investment strategies referred to under "Hedging and Other Strategic Transactions." Investors in the Lifestyle Trusts, in addition to bearing their proportionate share of the expenses of a Lifestyle Trust, will indirectly bear expenses of the Underlying Portfolio. Therefore, some investors may be able to realize lower aggregate charges and expenses by investing directly in the Underlying Portfolios rather than investing indirectly in the Underlying Portfolio by investing in the Lifestyle Trusts. An investor who chose to invest directly in the Underlying Portfolios rather than purchasing the Lifestyle Trusts would, however, forego the asset allocation services provided by the MAC in its management of the Lifestyle Trusts. RISK FACTORS INVESTMENT RESTRICTIONS GENERALLY The Trust is subject to a number of restrictions in pursuing its investment objectives and policies. The following is a brief summary of certain restrictions that may be of interest to contract owners. Some of these restrictions are subject to exceptions not stated here. Such exceptions and a complete list of the investment restrictions applicable to the individual portfolios and to the Trust are set forth in the Statement of Additional Information under the caption "Investment Restrictions." Except for the restrictions specifically identified as fundamental, all investment restrictions described in this Prospectus and in the Statement of Additional Information are not fundamental, so that the Trustees of the Trust may change them without shareholder approval. Fundamental policies may not be changed without the affirmative vote of a majority of the outstanding voting securities. Fundamental policies applicable to all portfolios include prohibitions on (i) investing more than 25% of the total assets of any portfolio, except the Real Estate Securities Trust and the Lifestyle Trusts, in the 68 71 securities of issuers having their principal activities in any particular industry (with exceptions for U.S. Government securities and certain other obligations) and (ii) borrowing money, except for temporary or emergency purposes (but not for leveraging) and then not in excess of 33 1/3% of the value of the total assets of the portfolio at the time the borrowing is made. In addition, each portfolio may borrow in connection with reverse repurchase agreements, mortgage dollar rolls and other similar transactions. Reverse repurchase agreements and mortgage dollar rolls may be considered a form of borrowing and will be treated as a borrowing for purposes of the restriction on borrowing in excess of 33 1/3% of the value of the total assets of a portfolio. A portfolio will not purchase securities while borrowings (other than reverse repurchase agreements, mortgage dollar rolls and similar transactions) exceed 5% of total assets. In addition, each of the portfolios except the Global Government Bond, Emerging Growth and Lifestyle Trusts, is prohibited from purchasing securities of any issuer if the purchase would cause more than 5% of the value of a portfolio's total assets to be invested in the securities of any one issuer (excluding U.S. Government securities) or cause more than 10% of the voting securities of the issuer to be held by a portfolio, except that up to 25% of the value of each portfolio's total assets (except the Money Market Trust) may be invested without regard to this restriction. Restrictions that apply to all portfolios and that are not fundamental include prohibitions on (i) knowingly investing more than 15% of the net assets of any portfolio in "illiquid" securities (including repurchase agreements maturing in more than seven days but excluding master demand notes), (ii) pledging, hypothecating, mortgaging or transferring more than 10% of the total assets of any portfolio as security for indebtedness (except that the applicable percent is 33 1/3% in the case of the Blue Chip Growth, Equity-Income, International Stock and Science & Technology Trusts, 15% in the case of the International Small Cap, Growth, Balanced and Worldwide Growth Trusts and 50% in the case of the Value Trust), and (iii) purchasing securities of other investment companies, other than in connection with a merger, consolidation or reorganization, if the purchase would cause more than 10% of the value of a portfolio's total assets to be invested in investment company securities, except that the Lifestyle Trusts are not subject to this restriction. The percentage restriction in clause (i) of the preceding sentence, however, is 10% in the case of the Money Market Trust. Finally, the Money Market Trust is subject to certain restrictions required by Rule 2a-7 under the Investment Company Act of 1940. In order to comply with such restrictions, the Money Market Trust will, inter alia, not purchase the securities of any issuer if it would cause (i) more than 5% of its total assets to be invested in the securities of any one issuer (excluding U.S. Government securities and repurchase agreements fully collateralized by U.S. Government securities), except as permitted by the Rule for certain securities for a period of up to three business days after purchase, (ii) more than 5% of its total assets to be invested in "second tier securities," as defined by the Rule, or (iii) more than the greater of $1 million or 1% of its total net assets to be invested in the second tier securities of that issuer. * * * There are also diversification and other requirements for all of the portfolios imposed by the federal tax laws, as described under "Taxes" in this Prospectus. The following is a description of certain investment policies subject to investment restrictions that may be of particular interest to contract owners. ADDITIONAL INVESTMENT RESTRICTIONS ON BORROWING AND FOREIGN INVESTING In order to comply with limitations imposed by the State of California Insurance Department, each Trust will comply with the following restrictions on borrowing and each Trust that invests in foreign securities will comply with the following restrictions regarding foreign investments. These restrictions are nonfundamental and may be changed without shareholder approval. Borrowing. Each portfolio of the Trust will not borrow money except that each portfolio may borrow in an amount (i) up to 25% of the portfolio's net assets for temporary purposes to facilitate redemptions (not for leveraging) and (ii) up to 10% of the portfolio's net assets in connection with reverse repurchase agreements, mortgage dollar rolls and other similar transactions. This limitation is more restrictive than the Trust's fundamental restriction on borrowing. Foreign Securities. Each portfolio of the Trust that invests in foreign securities will comply with the following restrictions: 69 72 (i) A portfolio will be invested in a minimum of five different foreign countries at all times. However, this minimum is reduced to four when foreign country investments comprise less than 80% of the portfolio's net asset value; to three when less than 60% of such value; to two when less than 40%; and to one when less than 20%. (ii) Except as set forth in items (iii) and (iv) below, a portfolio will have no more than 20% of its net asset value invested in securities of issuers located in any one country. (iii) A portfolio may have an additional 15% of its net asset value invested in securities of issuers located in any one of the following countries (to the extent such investment is consistent with the investment policies of the portfolio): Australia, Canada, France, Japan, the United Kingdom or West Germany. (iv) A portfolio's investments in United States issuers are not subject to these foreign country diversification restrictions. HIGH YIELD (HIGH RISK) SECURITIES GENERAL. The Strategic Bond and High Yield Trusts may invest without limitation, the Investment Quality Bond Trust may invest up to 20% of its assets, the Equity-Income, Aggressive Asset Allocation and Moderate Asset Allocation Trusts may each invest up to 10% of its assets, and the Balanced, International Small Cap, Growth, Blue Chip Growth and Worldwide Growth Trusts may each invest up to 5% of its assets, in "high yield" (high risk) securities. Securities rated below investment grade and comparable unrated securities offer yields that fluctuate over time, but generally are superior to the yields offered by higher rated securities. However, securities rated below investment grade also involve greater risks than higher rated securities. Under rating agency guidelines, medium- and lower-rated securities and comparable unrated securities will likely have some quality and protective characteristics that are outweighed by large uncertainties or major risk exposures to adverse conditions. Certain of the debt securities in which the portfolios may invest may have, or be considered comparable to securities having, the lowest ratings for non-subordinated debt instruments assigned by Moody's or S&P (i.e., rated C by Moody's or CCC or lower by S&P). These securities are considered to have extremely poor prospects of ever attaining any real investment standing, to have a current identifiable vulnerability to default, to be unlikely to have the capacity to pay interest and repay principal when due in the event of adverse business, financial or economic conditions, and/or to be in default or not current in the payment of interest or principal. Such securities are considered speculative with respect to the issuer's capacity to pay interest and repay principal in accordance with the terms of the obligations. Accordingly, it is possible that these types of factors could, in certain instances, reduce the value of securities held by the portfolio with a commensurate effect on the value of the portfolio's shares. Because the Strategic Bond and High Yield Trusts may invest without limitation in high yield debt securities, an investment in those portfolios should not be considered as a complete investment program for all investors. Because the Strategic Bond, High Yield, and Investment Quality Bond Trusts will invest primarily in fixed-income securities, the net asset value of each portfolio's shares can be expected to change as general levels of interest rates fluctuate, although the market values of securities rated below investment grade and comparable unrated securities tend to react less to fluctuations in interest rate levels than do those of higher-rated securities. Except to the extent that values are affected independently by other factors such as developments relating to a specific issuer, when interest rates decline, the value of a fixed-income portfolio can generally be expected to rise. Conversely, when interest rates rise, the value of a fixed-income portfolio can generally be expected to decline. The secondary markets for high yield corporate and sovereign debt securities are not as liquid as the secondary markets for higher rated securities. The secondary markets for high yield debt securities are concentrated in relatively few market makers and participants in the market are mostly institutional investors, including insurance companies, banks, other financial institutions and mutual funds. In addition, the trading volume for high yield debt securities is generally lower than that for higher-rated securities and the secondary markets could contract under adverse market or economic conditions independent of any specific adverse changes in the condition of a particular issuer. These factors may have an adverse effect on the ability of portfolios investing in high yield securities to dispose of particular portfolio investments and may limit the ability of those portfolios to obtain accurate market quotations for purposes of valuing securities and 70 73 calculating net asset value. If a portfolio investing in high yield debt securities is not able to obtain precise or accurate market quotations for a particular security, it will become more difficult for the Trustees to value that portfolio's investment portfolio and the Trustees may have to use a greater degree of judgment in making such valuations. Less liquid secondary markets may also affect a portfolio's ability to sell securities at their fair value. In addition, each portfolio may invest up to 15% (10% in the case of the Money Market Trust) of its net assets, measured at the time of investment, in illiquid securities, which may be more difficult to value and to sell at fair value. If the secondary markets for high yield debt securities are affected by adverse economic conditions, the proportion of a portfolio's assets invested in illiquid securities may increase. CORPORATE DEBT SECURITIES. While the market values of securities rated below investment grade and comparable unrated securities tend to react less to fluctuations in interest rate levels than do those of higher-rated securities, the market values of certain of these securities also tend to be more sensitive to individual corporate developments and changes in economic conditions than higher-rated securities. In addition, such securities generally present a higher degree of credit risk. Issuers of these securities are often highly leveraged and may not have more traditional methods of financing available to them, so that their ability to service their debt obligations during an economic downturn or during sustained periods of rising interest rates may be impaired. The risk of loss due to default by such issuers is significantly greater than with investment grade securities because such securities generally are unsecured and frequently are subordinated to the prior payment of senior indebtedness. FOREIGN SOVEREIGN DEBT SECURITIES. Investing in foreign sovereign debt securities will expose the Strategic Bond, High Yield and Investment Quality Bond Trusts and other portfolios investing in such securities to the direct or indirect consequences of political, social or economic changes in the developing and emerging countries that issue the securities. The ability and willingness of sovereign obligors in developing and emerging countries or the governmental authorities that control repayment of their external debt to pay principal and interest on such debt when due may depend on general economic and political conditions within the relevant country. Countries such as those in which these portfolios may invest have historically experienced, and may continue to experience, high rates of inflation, high interest rates, exchange rate trade difficulties and extreme poverty and unemployment. Many of these countries are also characterized by political uncertainty or instability. Additional factors which may influence the ability or willingness to service debt include, but are not limited to, a country's cash flow situation, the availability of sufficient foreign exchange on the date a payment is due, the relative size of its debt service burden to the economy as a whole, and its government's policy towards the International Monetary Fund, the World Bank and other international agencies. The ability of a foreign sovereign obligor to make timely payments on its external debt obligations will also be strongly influenced by the obligor's balance of payments, including export performance, its access to international credits and investments, fluctuations in interest rates and the extent of its foreign reserves. A country whose exports are concentrated in a few commodities or whose economy depends on certain strategic imports could be vulnerable to fluctuations in international prices of these commodities or imports. To the extent that a country receives payment for its exports in currencies other than dollars, its ability to make debt payments denominated in dollars could be adversely affected. If a foreign sovereign obligor cannot generate sufficient earnings from foreign trade to service its external debt, it may need to depend on continuing loans and aid from foreign governments, commercial banks, and multilateral organizations, and inflows of foreign investment. The commitment on the part of these foreign governments, multilateral organizations and others to make such disbursements may be conditioned on the government's implementation of economic reforms and/or economic performance and the timely service of its obligations. Failure to implement such reforms, achieve such levels of economic performance or repay principal or interest when due may result in the cancellation of such third parties' commitments to lend funds, which may further impair the obligor's ability or willingness to timely service its debts. The cost of servicing external debt will also generally be adversely affected by rising international interest rates, because many external debt obligations bear interest at rates which are adjusted based upon international interest rates. The ability to service external debt will also depend on the level of the relevant government's international currency reserves and its access to foreign exchange. Currency devaluations may affect the ability of a sovereign obligor to obtain sufficient foreign exchange to service its external debt. As a result of the foregoing, a governmental obligor may default on its obligations. If such an event occurs, the portfolio may have limited legal recourse against the issuer and/or guarantor. Remedies must, in some cases, be pursued in the courts of the defaulting party itself, and the ability of the holder of foreign sovereign debt securities to obtain recourse may be subject to the political climate in the relevant country. In 71 74 addition, no assurance can be given that the holders of commercial bank debt will not contest payments to the holders of other foreign sovereign debt obligations in the event of default under their commercial bank loan agreements. Sovereign obligors in developing and emerging countries are among the world's largest debtors to commercial banks, other governments, international financial organizations and other financial institutions. These obligors have in the past experienced substantial difficulties in servicing their external debt obligations, which led to defaults on certain obligations and the restructuring of certain indebtedness. Restructuring arrangements have included, among other things, reducing and rescheduling interest and principal payments by negotiating new or amended credit agreements or converting outstanding principal and unpaid interest to Brady Bonds, and obtaining new credit to finance interest payments. Holders of certain foreign sovereign debt securities may be requested to participate in the restructuring of such obligations and to extend further loans to their issuers. There can be no assurance that the Brady Bonds and other foreign sovereign debt securities in which the portfolios may invest will not be subject to similar restructuring arrangements or to requests for new credit which may adversely affect the portfolio's holdings. Furthermore, certain participants in the secondary market for such debt may be directly involved in negotiating the terms of these arrangements and may therefore have access to information not available to other market participants. In addition to high yield foreign sovereign debt securities, many of the Trust's portfolios may invest in investment grade foreign securities. For a discussion of such securities and their associated risks, see "Foreign Securities" below. FOREIGN SECURITIES Each of the portfolios, other than the U.S. Government Securities and Equity Index Trusts, may invest in securities of foreign issuers. Such foreign securities may be denominated in foreign currencies, except with respect to the Money Market Trust which may only invest in U.S. dollar-denominated securities of foreign issuers. The International Small Cap, Capital Growth Bond, Global Equity, Global Government Bond, Worldwide Growth, High Yield, International Growth and Income, International Stock, Strategic Bond, Real Estate Securities, Common Stock and Pacific Rim Emerging Markets Trusts may each, without limitation, invest up to 100% of its assets in securities issued by foreign entities and/or denominated in foreign currencies. The Aggressive Asset Allocation Trust may invest up to 35% of its assets, the Growth, Balanced and Science & Technology Trusts each up to 30% of its assets, the Moderate Asset Allocation and Equity-Income Trusts each up to 25% of its assets, the Pilgrim Baxter Growth and Conservative Asset Allocation Trusts each up to 15% of its assets, the Value Trust up to 5% of its assets, and each of the other portfolios other than the U.S. Government Securities and Equity Index Trusts up to 20% of its assets in securities issued by foreign entities and/or denominated in foreign currencies. (In the case of the Small/Mid Cap, Growth, Balanced and Value Trusts, ADRs and U.S. dollar denominated securities are not included in the percentage limitation.) Securities of foreign issuers include obligations of foreign branches of U.S. banks and of foreign banks, common and preferred stocks, debt securities issued by foreign governments, corporations and supranational organizations, and American Depository Receipts, European Depository Receipts and Global Depository Receipts ("ADRs", "EDRs" and "GDRs"). ADRs are U.S. dollar-denominated securities backed by foreign securities deposited in a U.S. securities depository. ADRs are created for trading in the U.S. markets. The value of an ADR will fluctuate with the value of the underlying security, reflect any changes in exchange rates and otherwise involve risks associated with investing in foreign securities. ADRs in which the portfolios may invest may be sponsored or unsponsored. There may be less information available about foreign issuers of unsponsored ADRs. Securities of foreign issuers also include EDRs and GDRs, which are receipts evidencing an arrangement with a non-U.S. bank similar to that for ADRs and are designed for use in non-U.S. securities markets. EDRs and GDRs are not necessarily quoted in the same currency as the underlying security. Foreign securities may be subject to foreign government taxes which reduce their attractiveness. See "Taxes." In addition, investing in securities denominated in foreign currencies and in the securities of foreign issuers, particularly non-governmental issuers, involves risks which are not ordinarily associated with investing in domestic issuers. These risks include political or economic instability in the country involved and the possibility of imposition of currency controls. Since certain portfolios may invest in securities denominated or quoted in currencies other than the United States dollar, changes in foreign currency 72 75 exchange rates may affect the value of investments in the portfolio and the unrealized appreciation or depreciation of investments insofar as United States investors are concerned. Foreign currency exchange rates are determined by forces of supply and demand on the foreign exchange markets. These forces are, in turn, affected by the international balance of payments and other economic and financial conditions, government intervention, speculation and other factors. The portfolios may incur transaction charges in exchanging foreign currencies. There may be less publicly available information about a foreign issuer than about a domestic issuer. Foreign issuers, including foreign branches of U.S. banks, are subject to different accounting and reporting requirements which are generally less extensive than the requirements applicable to domestic issuers. Foreign stock markets (other than Japan) have substantially less volume than the United States exchanges and securities of foreign issuers are generally less liquid and more volatile than those of comparable domestic issuers. There is frequently less governmental regulation of exchanges, broker-dealers and issuers than in the United States, and brokerage costs may be higher. In addition, investments in foreign companies may be subject to the possibility of nationalization, withholding of dividends at the source, expropriation or confiscatory taxation, currency blockage, political or economic instability or diplomatic developments that could adversely affect the value of those investments. Finally, in the event of a default on any foreign obligation, it may be difficult for the Trust to obtain or to enforce a judgment against the issuer. Emerging Markets. Foreign markets, especially emerging markets, may have different clearance and settlement procedures, and in certain markets there have been times when settlements have been unable to keep pace with the volume of securities transactions, making it difficult to conduct such transactions. Delays in settlement could result in temporary periods when a portion of the assets of a portfolio is uninvested and no return is earned thereon. The inability of a portfolio to make intended security purchases due to settlement problems could cause the portfolio to miss attractive investment opportunities. Inability to dispose of portfolio securities due to settlement problems could result in losses to a portfolio due to subsequent declines in values of the portfolio securities or, if the portfolio has entered into a contract to sell the security, possible liability to the purchaser. Certain foreign markets, especially emerging markets, may require governmental approval for the repatriation of investment income, capital or the proceeds of sales of securities by foreign investors. A portfolio could be adversely affected by delays in, or a refusal to grant, any required governmental approval for repatriation of capital, as well as by the application to the portfolio of any restrictions on investments. In addition to the foreign securities listed above, the Strategic Bond, High Yield, Investment Quality Bond, Worldwide Growth, International Small Cap, Growth, Balanced, Aggressive Asset Allocation and Moderate Asset Allocation Trusts may also invest in foreign sovereign debt securities, which involve certain additional risks. See "Risk Factors--High Yield (High Risk) Securities--Foreign Sovereign Debt Securities" above. WARRANTS Subject to certain restrictions, each of the Portfolios except the Money Market Trust and the Lifestyle Trusts may purchase warrants, including warrants traded independently of the underlying securities. Warrants are rights to purchase securities at specific prices valid for a specific period of time. Their prices do not necessarily move parallel to the prices of the underlying securities, and warrant holders receive no dividends and have no voting rights or rights with respect to the assets of an issuer. Warrants cease to have value if not exercised prior to the expiration date. LENDING SECURITIES Each portfolio may lend its securities so long as such loans do not represent in excess of 33 1/3% of a portfolio's total assets. This is a fundamental policy. The procedure for lending securities is for the borrower to give the lending portfolio collateral consisting of cash, cash equivalents or securities issued or guaranteed by the U.S. government or its agencies or instrumentalities. The lending portfolio may invest the cash collateral and earn additional income or receive an agreed upon fee from a borrower which has delivered cash equivalent collateral. The Trust anticipates that its securities will be loaned only under the following conditions: (1) the borrower must furnish collateral equal at all times to the market value of the securities loaned and the borrower must agree to increase the collateral on a daily basis if the securities increase in value; (2) the loan will be made in accordance with New York Stock Exchange rules, which presently require the borrower, after notice, to redeliver the securities within five business days; and (3) the portfolio making 73 76 the loan may pay reasonable service, placement, custodian or other fees in connection with loans of securities and share a portion of the interest from these investments with the borrower of the securities. As with other extensions of credit there are risks of delay in recovery or even loss of rights in the collateral should the borrower of the securities fail financially. WHEN-ISSUED SECURITIES ("FORWARD COMMITMENTS") In order to help ensure the availability of suitable securities, each of the portfolios may purchase debt securities on a "when-issued" or on a "forward delivery" basis, which means that the obligations will be delivered to the portfolio at a future date, which may be a month or more after the date of commitment (referred to as "forward commitments"). It is expected that, under normal circumstances, a portfolio purchasing securities on a when-issued or forward delivery basis will take delivery of the securities, but the portfolio may sell the securities before the settlement date, if such action is deemed advisable. In general, a portfolio does not pay for the securities or start earning interest on them until the obligations are scheduled to be settled, but it does, in the meantime, record the transaction and reflect the value each day of the securities in determining its net asset value. At the time delivery is made, the value of when-issued or forward delivery securities may be more or less than the transaction price, and the yields then available in the market may be higher than those obtained in the transaction. While awaiting delivery of the obligations purchased on such bases, a portfolio will establish a segregated account consisting of cash or high quality debt securities equal to the amount of the commitments to purchase when-issued or forward delivery securities. The availability of liquid assets for this purpose and the effect of asset segregation on a portfolio's ability to meet its current obligations, to honor requests for redemption and to have its investment portfolio managed properly will limit the extent to which the portfolio may purchase when-issued or forward delivery securities. Except as may be imposed by these factors, there is no limit on the percent of a portfolio's total assets that may be committed to such transactions. REPURCHASE AGREEMENTS AND REVERSE REPURCHASE AGREEMENTS Each of the Trust's portfolios may enter into repurchase agreements and reverse repurchase agreements. Repurchase agreements involve the acquisition by a portfolio of debt securities subject to an agreement to resell them at an agreed-upon price. Under a repurchase agreement, at the time the portfolio acquires a security, it agrees to resell it to the original seller (a financial institution or broker/dealer which meets the guidelines established by the Trustees) and must deliver the security (and/or securities that may be added to or substituted for it under the repurchase agreement) to the original seller on an agreed-upon date in the future. The repurchase price is in excess of the purchase price. The arrangement is in economic effect a loan collateralized by securities. The Trustees have adopted procedures that establish certain creditworthiness, asset and collateralization requirements for the counterparties to a portfolio's repurchase agreements. The Trustees will regularly monitor the use of repurchase agreements and the Subadvisers will, pursuant to procedures adopted by the Trustees, continuously monitor the amount of collateral held with respect to a repurchase transaction so that it equals or exceeds the amount of the obligation. A portfolio's risk in a repurchase transaction is limited to the ability of the seller to pay the agreed-upon sum on the delivery date. In the event of bankruptcy or other default by the seller, there may be possible delays and expenses in liquidating the instrument purchased, decline in its value and loss of interest. Securities subject to repurchase agreements will be valued every business day and additional collateral will be requested if necessary so that the value of the collateral is at least equal to the value of the repurchase obligation, including the interest accrued thereon. Each portfolio of the Trust may enter into "reverse" repurchase agreements. Under a reverse repurchase agreement, a portfolio may sell a debt security and agree to repurchase it at an agreed upon time and at an agreed upon price. The portfolio retains record ownership of the security and the right to receive interest and principal payments thereon. At an agreed upon future date, the portfolio repurchases the security by remitting the proceeds previously received, plus interest. The difference between the amount the portfolio receives for the security and the amount it pays on repurchase is deemed to be payment of interest. The portfolio will maintain in a segregated custodial account cash, Treasury bills or other U.S. Government securities having an aggregate value equal to the amount of such commitment to repurchase including accrued interest, until payment is made. In certain types of agreements, there is no agreed-upon repurchase date and interest payments are calculated daily, often based on the prevailing overnight repurchase rate. 74 77 While a reverse repurchase agreement may be considered a form of leveraging and may, therefore, increase fluctuations in a portfolio's net asset value per share, each portfolio will cover the transaction as described above. MORTGAGE DOLLAR ROLLS Each portfolio of the Trust (except the Money Market Trust and the Lifestyle Trusts) may enter into mortgage dollar rolls. Under a mortgage dollar roll, a portfolio sells mortgage-backed securities for delivery in the future (generally within 30 days) and simultaneously contracts to repurchase substantially similar (same type, coupon and maturity) securities on a specified future date. During the roll period, the portfolio forgoes principal and interest paid on the mortgage-backed securities. A portfolio is compensated by the difference between the current sale price and the lower forward price for the future purchase (often referred to as the "drop") as well as by the interest earned on the cash proceeds of the initial sale. A portfolio may also be compensated by receipt of a commitment fee. A portfolio may only enter into covered rolls. A "covered roll" is a specific type of dollar roll for which there is an offsetting cash or cash equivalent security position which matures on or before the forward settlement date of the dollar roll transaction. Dollar roll transactions involve the risk that the market value of the securities sold by the portfolio may decline below the repurchase price of those securities. While a mortgage dollar roll may be considered a form of leveraging, and may, therefore, increase fluctuations in a portfolio's net asset value per share, each portfolio will cover the transaction as described above. HEDGING AND OTHER STRATEGIC TRANSACTIONS Individual portfolios may be authorized to use a variety of investment strategies described below for hedging purposes only, including hedging various market risks (such as interest rates, currency exchange rates and broad or specific market movements) and managing the effective maturity or duration of debt instruments held by the portfolio. The description in this Prospectus of each portfolio indicates which, if any, of these types of transactions may be used by the portfolio. Limitations on the portion of a portfolio's assets that may be used in connection with the investment strategies described below are set out in the Statement of Additional Information. Subject to the constraints described above, an individual portfolio may (if and to the extent so authorized) purchase and sell (or write) exchange-listed and over-the-counter put and call options on securities, financial futures contracts and fixed income indices and other financial instruments, enter into financial futures contracts, enter into interest rate transactions, and enter into currency transactions (collectively, these transactions are referred to in this Prospectus as "Hedging and Other Strategic Transactions"). A portfolio's interest rate transactions may take the form of swaps, caps, floors and collars, and a portfolio's currency transactions may take the form of currency forward contracts, currency futures contracts, currency swaps and options on currencies or currency futures contracts. Hedging and Other Strategic Transactions may be used to attempt to protect against possible changes in the market value of securities held or to be purchased by a portfolio resulting from securities markets or currency exchange rate fluctuations, to protect a portfolio's unrealized gains in the value of its securities, to facilitate the sale of those securities for investment purposes, to manage the effective maturity or duration of a portfolio's securities or to establish a position in the derivatives markets as a temporary substitute for purchasing or selling particular securities. A portfolio may use any or all types of Hedging and Other Strategic Transactions which it is authorized to use at any time; no particular strategy will dictate the use of one type of transaction rather than another, as use of any authorized Hedging and Other Strategic Transaction will be a function of numerous variables, including market conditions. The ability of a portfolio to utilize Hedging and Other Strategic Transactions successfully will depend on, in addition to the factors described above, the subadviser's ability to predict pertinent market movements, which cannot be assured. These skills are different from those needed to select a portfolio's securities. None of the portfolios is a "commodity pool" (i.e., a pooled investment vehicle which trades in commodity futures contracts and options thereon and the operator of which is registered with the Commodity Futures Trading Commission (the "CFTC")) and Hedging and Other Strategic Transactions involving futures contracts and options on futures contracts will be purchased, sold or entered into only for bona fide hedging, risk management or appropriate portfolio management purposes and not for speculative purposes. The use of certain Hedging and Other Strategic Transactions will require that a portfolio segregate cash, liquid high grade debt obligations or other assets to the extent a portfolio's obligations are not otherwise "covered" through ownership of the underlying security, financial instrument or currency. Risks associated with Hedging and Other Strategic Transactions 75 78 are described in "Hedging and Other Strategic Transactions -- Risk Factors" in the Statement of Additional Information. A detailed discussion of various Hedging and Other Strategic Transactions, including applicable regulations of the CFTC and the requirement to segregate assets with respect to these transactions, also appears in the Statement of Additional Information. ILLIQUID SECURITIES Each of the portfolios is precluded from investing in excess of 15% of its net assets in securities that are not readily marketable, except that the Money Market Trust may not invest in excess of 10% of its net assets in such securities. Excluded from the 10% and 15% limitation are securities that are restricted as to resale but for which a ready market is available pursuant to exemption provided by Rule 144A adopted pursuant to the Securities Act of 1933 ("1933 Act") or other exemptions from the registration requirements of the 1933 Act. Whether securities sold pursuant to Rule 144A are readily marketable for purposes of the Trust's investment restriction is a determination to be made by the Subadvisers subject to the Trustees' oversight and for which the Trustees are ultimately responsible. The Subadvisers will also monitor the liquidity of Rule 144A securities held by the portfolios for which they are responsible. To the extent Rule 144A securities held by a portfolio should become illiquid because of a lack of interest on the part of qualified institutional investors, the overall liquidity of the portfolio could be adversely affected. In addition, the Money Market Trust may invest in commercial paper issued in reliance on the exemption from registration afforded by Section 4(2) of the 1933 Act. Section 4(2) commercial paper is restricted as to the disposition under federal securities law, and is generally sold to institutional investors, such as the Trust, who agree that they are purchasing the paper for investment purposes and not with a view to public distribution. Any resale by the purchaser must be made in an exempt transaction. Section 4(2) commercial paper is normally resold to other institutional investors like the Money Market Trust through or with the assistance of the issuer or investment dealers who make a market in Section 4(2) commercial paper, thus providing liquidity. The Money Market Trust's subadviser believes that Section 4(2) commercial paper meets its criteria for liquidity and is quite liquid. The Money Market Trust intends, therefore, to treat Section 4(2) commercial paper as liquid and not subject to the investment limitation applicable to illiquid securities. The Money Market Trust's subadviser will monitor the liquidity of 4(2) commercial paper held by the Money Market Trust, subject to the Trustees' oversight and for which the Trustees are ultimately responsible. MANAGEMENT OF THE TRUST Under Massachusetts law and the Trust's Declaration of Trust and By-Laws, the management of the business and affairs of the Trust is the responsibility of its Trustees. The Trust was originally organized on August 3, 1984 as "NASL Series Fund, Inc." (the "Fund"), a Maryland corporation. Pursuant to an Agreement and Plan of Reorganization and Liquidation approved at the Special Meeting of Shareholders held on December 2, 1988, the Fund was reorganized as a Massachusetts business trust established pursuant to an Agreement and Declaration of Trust dated September 29, 1988 (the "Declaration of Trust"). The reorganization became effective on December 31, 1988. At that time, the assets and liabilities of each of the Fund's separate investment portfolios were assumed by the corresponding portfolios of the Trust and the Trust carried on the business and operations of the Fund with the same investment management arrangements as were in effect for the Fund immediately prior to such reorganization. Effective December 31, 1996, Manulife Series Fund, Inc., a registered management investment company with nine portfolios, was merged into the Trust. The net assets of four of the portfolios of Manulife Series Fund, Inc. were transferred to comparable portfolios of the Trust, and the remaining five portfolios -- the Pacific Rim Emerging Markets, Common Stock, Real Estate Securities, Capital Growth and Equity Index Portfolios -- were transferred to the Trust and reconstituted as new portfolios of the Trust. ADVISORY ARRANGEMENTS NASL Financial Services, Inc. ("NASL Financial" or, in its capacity as investment adviser to the Trust the "Adviser"), a Massachusetts corporation whose principal offices are located at 116 Huntington Avenue, Boston, Massachusetts 02116, is a wholly-owned subsidiary of Security Life the ultimate parent of which is The Manufacturers Life Insurance Company ("Manulife"), a Canadian mutual life insurance company based in Toronto, Canada. Prior to January 1, 1996, Security Life was a wholly owned subsidiary of North American Life Assurance Company ("NAL"), a Canadian mutual life insurance company. On January 1, 1996 NAL and Manulife merged with the combined company retaining the name Manulife. NASL Financial is registered as an investment adviser under the Investment Advisers Act of 1940 and as a broker-dealer under the Securities Exchange Act of 1934, and it is a member of the National Association of 76 79 Securities Dealers, Inc. ("NASD"). In addition, NASL Financial serves as principal underwriter of certain contracts issued by Security Life and as investment adviser to one other investment company, North American Funds. Under the terms of the Advisory Agreement, the Adviser administers the business and affairs of the Trust. The Adviser is responsible for performing or paying for various administrative services for the Trust, including providing at the Adviser's expense, (i) office space and all necessary office facilities and equipment, (ii) necessary executive and other personnel for managing the affairs of the Trust and for performing certain clerical, accounting and other office functions, and (iii) all other information and services, other than services of counsel, independent accountants or investment subadvisory services provided by any subadviser under a subadvisory agreement, required in connection with the preparation of all tax returns and documents required to comply with the federal securities laws. The Adviser pays the cost of (i) any advertising or sales literature relating solely to the Trust, (ii) the cost of printing and mailing prospectuses to persons other than current holders of Trust shares or of variable contracts funded by Trust shares and (iii) the compensation of the Trust's officers and Trustees that are officers, directors or employees of the Adviser or its affiliates. In addition, advisory fees are reduced or the Adviser reimburses the Trust if the total of all expenses (excluding advisory fees, taxes, portfolio brokerage commissions, interest, litigation and indemnification expenses and other extraordinary expenses not incurred in the ordinary course of the Trust's business) applicable to a portfolio exceeds an annual rate of .75% in the case of the International Small Cap, Global Equity, Global Government Bond, Worldwide Growth, International Growth and Income, International Stock and Pacific Rim Emerging Markets Trusts, .50% in the case of all other portfolios except for the Equity Index Trust, or .15% in the case of the Equity Index Trust of the average annual net assets of such portfolio. The expense limitations will continue in effect from year to year unless otherwise terminated at any year end by the Adviser on 30 days' notice to the Trust. (For a limited period of one year ending December 31, 1997, the expense limitation applicable to the Real Estate Securities, Common Stock and Capital Growth Bond Trusts will include all expenses of such portfolios, so that their total expenses for that year, including advisory fees, will not exceed .50%.) For the prior fiscal year, the Adviser did not reimburse the Trust for any expenses since expenses were below the expense limitations. However, if expenses were to increase above the expense limits and the reimbursements were terminated, Trust expenses would increase. In addition, in the case of the Lifestyle Trusts, the Adviser has agreed to pay the expenses of the Lifestyle Trusts (other than the expenses of the Underlying Portfolios) for a period of one year commencing January 1, 1997. After this one year period, this expense reimbursement may be terminated at any time. In addition to providing the services and expense limitations described above, the Adviser selects, contracts with and compensates subadvisers to manage the investment and reinvestment of the assets of all portfolios of the Trust. (The Adviser does not manage any of the Trust portfolio assets.) The Adviser monitors the compliance of such subadvisers with the investment objectives and related policies of each portfolio and reviews the performance of such subadvisers and reports periodically on such performance to the Trustees of the Trust. The Trust has received an order from the Securities and Exchange Commission permitting the Adviser to appoint a subadviser or change a subadvisory fee pursuant to an agreement that is not approved by shareholders. The Trust, therefore, is able to change subadvisers or the fees paid to subadvisers from time to time without the expense and delays associated with obtaining shareholder approval of the change. As compensation for its services, the Adviser receives a fee from the Trust computed separately for each portfolio, except for the Lifestyle Trusts for which the Adviser makes no charge. The fee for each portfolio is stated as an annual percentage of the current value of the net assets of the portfolio. The fee, which is accrued daily and payable monthly, is calculated for each day by multiplying the daily equivalent of the annual percentage prescribed for a portfolio by the value of the net assets of the portfolio at the close of business on the previous business day of the Trust. The following is a schedule of the management fees each portfolio currently is obligated to pay the Adviser: PORTFOLIO Pacific Rim Emerging Markets Trust........................ .850% Science & Technology Trust................................ 1.100% International Small Cap Trust............................. 1.100% Emerging Growth Trust..................................... 1.050% Pilgrim Baxter Growth Trust............................... 1.050% Small/Mid Cap Trust....................................... 1.000%
77 80 International Stock Trust........................... 1.050% Worldwide Growth Trust ............................. 1.000% Global Equity Trust................................. .900% Growth Trust........................................ .850% Equity Trust ....................................... .750% Quantitative Equity Trust........................... .700%* Equity Index Trust.................................. .250% Blue Chip Growth Trust.............................. .925% Real Estate Securities Trust........................ .700%* Value Trust......................................... .800% International Growth and Income Trust .............. .950% Growth and Income Trust ............................ .750% Equity-Income Trust................................. .800% Balanced Trust...................................... .800% Aggressive Asset Allocation Trust .................. .750% High Yield Trust.................................... .775% Moderate Asset Allocation Trust..................... .750% Conservative Asset Allocation Trust................. .750% Strategic Bond Trust ............................... .775% Global Government Bond Trust ....................... .800% Capital Growth Bond................................. .650%* Investment Quality Bond Trust ...................... .650% U.S. Government Securities Trust ................... .650% Money Market Trust ................................. .500%
* Because of the special one-year expense limitation described above, total fees will not exceed .50%. For the year ended December 31, 1995 the aggregate investment advisory fees paid by the Trust was $33,808,255, allocated among the portfolios as follows: $5,513,312 -- Global Equity Trust, $2,115,434 -- Blue Chip Growth Trust, $5,643,363 -- Equity Trust, $2,459,247 -- Equity-Income Trust, $3,922,671 -- Growth and Income Trust, $450,200 -- International Growth and Income Trust (January 9, 1995, commencement of operations, to December 31, 1995), $767,448 -- Strategic Bond Trust, $1,757,909 -- Global Government Bond Trust, $798,045 -- Investment Quality Bond Trust, $1,291,668 -- U.S. Government Securities Trust, $1,318,573 -- Money Market Trust, $1,463,421 -- Aggressive Asset Allocation Trust, $4,667,061 -- Moderate Asset Allocation Trust and $1,639,903 -- Conservative Asset Allocation Trust. For the year ended December 31, 1995 the net investment advisory fees retained by the Adviser after payment of subadvisory fees was $21,679,387, allocated among the portfolios as follows:
$ Amount Annual % of -------- portfolio net assets -------------------- Global Equity Trust $ 3,097,393 0.51% Blue Chip Growth Trust 1,018,275 0.47% Equity Trust 4,014,691 0.53% Equity-Income Trust 1,594,436 0.52% Growth and Income Trust 2,655,435 0.51% International Growth and Income Trust* 215,965 0.45% Strategic Bond Trust 445,372 0.45% Global Government Bond Trust 986,193 0.45% Investment Quality Bond Trust 521,799 0.43% U.S. Government Securities Trust 849,065 0.43% Money Market Trust 1,120,787 0.43% Aggressive Asset Allocation Trust 903,401 0.46% Moderate Asset Allocation Trust 3,233,644 0.52% Conservative Asset Allocation Trust 1,022,932 0.47% --------- $21,679,387 ===========
78 81 * For the period January 9, 1995 (commencement of operations) to December 31, 1995. SUBADVISORY ARRANGEMENTS Each of the Trust's subadvisers, except Fidelity Management Trust Company, is registered as an investment adviser under the Investment Advisers Act of 1940. Agreements with the subadvisers have heretofore been approved by the vote of a majority of the then outstanding voting securities of each series of shares of the portfolios to be managed by the subadviser. The Trust has filed an application with the Securities and Exchange Commission seeking exemptive relief to permit the appointment of a subadviser pursuant to an agreement that is not approved by shareholders. If granted, the Trust would be able to change subadvisers from time to time without the expense and delays associated with obtaining shareholder approval of the new subadviser. There is no assurance that the requested relief will be granted. Fidelity Management Trust Company Fidelity Management Trust Company ("FMTC"), the subadviser to the Equity and Automatic Asset Allocation Trusts, founded in 1946, is located at 82 Devonshire Street, Boston, Massachusetts 02109. FMTC is part of Fidelity Investments, a group of companies that provides investment management and other financial services. FMTC is a wholly-owned subsidiary of FMR Corp., the parent company of the Fidelity companies. Founded in 1981, FMTC serves as investment manager to institutional clients, managing assets for insurance companies, tax-exempt retirement funds, endowments, foundations and other institutional investors. As of October 31, 1996 FMTC had investment management responsibility for approximately $39.3 billion of assets. Fidelity Investments, founded by Edward C. Johnson 2d, the father of the current chairman, Edward C. Johnson 3d, is the country's largest privately-owned investment management organization and as of October 31, 1996 had assets under management exceeding $476.5 billion. Fidelity Investments maintains a staff of over 100 in-house research analysts and follows some 7000 companies worldwide. David Felman has been primarily responsible for the day-to-day management of the Equity Trust since June 1996. Scott D. Stewart has had primary responsibility for the day-to-day management of the three Asset Allocation Trusts since December 1991. David Felman joined Fidelity in June, 1993 and is a Portfolio Manager within the Growth Group and an analyst for the Diversified Chemicals Industry. Scott Stewart joined Fidelity in 1987, and is Senior Vice President, Portfolio Manager and head of the Structured Equity Group. Oechsle International Advisors, L.P. Oechsle International Advisors, L.P. ("Oechsle International"), the subadviser to the Global Government Bond Trust, founded in 1986, is a Delaware limited partnership whose principal offices are located at One International Place, Boston, Massachusetts 02110. Oechsle International, which also has offices in London, England, Frankfurt, Germany and Tokyo, Japan, as of November 30, 1996 managed approximately $9.1 billion for institutional and private investors. Oechsle International is a money manager providing management and advisory services with respect to all primary international securities markets. Each year Oechsle International's investment professionals concentrate on up to 30 different countries, averaging 700 visits to companies annually. Astrid Vogler has been primarily responsible for the day-to-day management of the Global Government Bond Trust. Ms. Vogler has been a Fixed Income Portfolio Manager at Oechsle International in Frankfurt, West Germany since 1988. Wellington Management Company, LLP 79 82 Wellington Management Company, LLP ("Wellington Management"), the subadviser to the Growth and Income and Investment Quality Bond Trusts, founded in 1933, is a Massachusetts limited liability partnership whose principal business address is 75 State Street, Boston, Massachusetts 02109. Wellington Management is a professional investment counseling firm which provides investment services to investment companies, employee benefit plans, endowments, foundations and other institutions and individuals. As of September 30, 1996, Wellington Management had investment management authority with respect to approximately $123 billion of client assets. The managing partners of Wellington Management are Robert W. Doran, Duncan M. McFarland and John R. Ryan. Matthew E. Megargel, Senior Vice President of Wellington Management, has served as portfolio manager to the Growth and Income Trust since February 1992. Mr. Megargel also serves as the portfolio manager for the North American Funds' Growth and Income Fund. Mr. Megargel joined Wellington Management in 1983 as a research analyst and took on additional responsibilities as a portfolio manager in 1988. In 1991, he became solely a portfolio manager with Wellington Management. Thomas L. Pappas, Senior Vice President of Wellington Management, has served as portfolio manager to the Investment Quality Bond Trust since March 1994. Mr. Pappas also serves as portfolio manager to the North American Funds' Investment Quality Bond Fund. Mr. Pappas has been a portfolio manager with Wellington Management since 1987. J.P. Morgan Investment Management, Inc. J.P. Morgan Investment Management, Inc. ("J.P. Morgan") is the Subadviser to the International Growth and Income Trust. J.P. Morgan, with principal offices at 522 Fifth Avenue, New York 10036, is a wholly-owned subsidiary of J.P. Morgan & Co. Incorporated ("J.P. Morgan & Co."), a bank holding company organized under the laws of Delaware which is located at 60 Wall Street, New York, New York 10260. Through offices in New York City and abroad, J.P. Morgan & Co., through J.P. Morgan and other subsidiaries, offers a wide range of services to governmental, institutional, corporate and individual customers and acts as investment adviser to individual and institutional clients with combined assets under management of approximately $197 billion as of September 30, 1996. J.P. Morgan has managed international securities for institutional investors since 1974. As of September 30, 1996, the non-U.S. securities under J.P. Morgan's management was approximately $ 65 billion. J.P. Morgan provides investment advice and portfolio management services to the portfolio. Subject to the supervision of the Trustees, J.P. Morgan makes the portfolio's day-to-day investment decisions, arranges for the execution of portfolio transactions and generally manages the Portfolio's investments. J.P. Morgan uses a sophisticated, disciplined, collaborative process for managing the portfolio. The following persons are primarily responsible for the day-to-day management of the portfolio (their business experience for the past five years is indicated parenthetically): Paul A. Quinsee, Vice President (employed by J.P. Morgan since February 1992, previously Vice President, Citibank) and Gareth A. Fielding, Vice President (employed by J.P. Morgan since February 1992, previously he received his MBA from Imperial College at London University, while he was a self-employed trader on the London International Financial Futures Exchange.) Mr. Quinsee is primarily responsible for the day-to-day management of several other institutional and investment company accounts that invest in international securities constituting approximately $5 billion of assets. Since July 1994, Mr. Fielding has been responsible for the day-to-day management (in some cases with another person) of 10 institutional and investment company portfolios that invest primarily in international fixed income securities, constituting approximately $3.3 billion of assets. Mr. Fielding is a specialist in mortgage and asset-backed securities. Prior to July 1994, Mr. Fielding traded global fixed income products on J.P. Morgan's London trading desk. Salomon Brothers Asset Management Inc. Salomon Brothers Asset Management Inc. ("SBAM"), the subadviser to the U.S. Government Securities Fund and Strategic Bond Fund (collectively, the "Funds") is a wholly-owned subsidiary of Salomon Brothers Holding Company Inc., which is in turn wholly-owned 80 83 by Salomon Inc. ("SI"). SBAM was incorporated in 1987 and, together with affiliates in London, Frankfurt and Hong Kong, provides a full range of fixed income and equity investment advisory services for individual and institutional clients around the world, including European and Far East central banks, pension funds, endowments, insurance companies, and services as investment adviser to various investment companies. In providing such investment advisory services, SBAM and it affiliates have access to SI's more than 250 economists, mortgage, bond, sovereign and equity analysts. As of October 31, 1996, SBAM and its worldwide investment advisory affiliates managed approximately $17.8 billion in assets. SBAM's business offices are located at 7 World Trade Center, New York, New York 10048. In connection with SBAM's service as subadviser to the Strategic Bond Fund, SBAM's London-based affiliate, Salomon Brothers Asset Management Limited ("SBAM Limited"), whose business address is Victoria Plaza, 111 Buckingham Palace Road, London SW1W OSB, England, provides certain advisory services to SBAM with regard to currency transactions and investments in non-dollar denominated debt securities for the benefit of the Strategic Bond Fund. SBAM Limited is compensated by SBAM at no additional expense to the Strategic Bond Fund. SBAM Limited is an indirect, wholly-owned subsidiary of Salomon Brothers Holding Company Inc. SBAM Limited is a member of the Investment Management Regulatory Organization Limited in the United Kingdom and is registered as an investment adviser in the United States pursuant to the Investment Advisers Act of 1940, as amended. Steven Guterman and Roger Lavan are jointly responsible for the day-to-day management of the mortgage-backed securities and U.S. government securities components of the U.S. Government Securities Fund portfolio and the Strategic Bond Fund portfolio. Mr. Guterman, who joined SBAM in 1990, is a Managing Director of Salomon Brothers Inc. and a managing Director and Senior Portfolio Manager of SBAM, responsible for SBAM's investment company and institutional portfolios which invest primarily in mortgage-backed securities and U.S. government issues. Mr. Guterman also serves as portfolio manager for two offshore mortgage funds and a number of institutional clients. Mr. Guterman joined Salomon Brothers Inc. in 1983 working initially in the mortgage research group where he became a Research Director and later traded derivative mortgage-backed securities. Mr. Lavan joined SBAM in 1990 and is a Portfolio Manager and Quantitative Fixed Income Analyst, responsible for working with senior portfolio managers to monitor and analyze market relationships and identify and implement relative value transactions in SBAM's investment company and institutional portfolios which invest in mortgage-backed securities and U.S. government securities. Prior to joining SBAM, Mr. Lavan spent four years analyzing portfolios for Salomon Brothers' Fixed Income Sales Group and Product Support Divisions. Messrs. Guterman and Lavan are assisted in the management of the Funds by Peter Wilby and David Scott. Mr. Wilby, who joined SBAM in 1989, is a Managing Director of Salomon Brothers Inc. and SBAM and a Senior Portfolio Manager of SBAM, responsible for investment company and institutional portfolio investments in high yield U.S. corporate debt securities and high yield foreign sovereign debt securities. From 1984 to 1989, Mr. Wilby was employed by Prudential Capital Management Group ("Prudential"), where he served as Director of Prudential's 81 84 credit research unit and as a corporate and sovereign credit analyst. Mr. Wilby also managed high yield bonds and leveraged equities for Prudential mutual funds and institutional portfolios. David Scott is a Senior Portfolio Manager with SBAM Limited in London with primary responsibility for managing long-term global bond portfolios. He also plays an integral role in developing strategy. Mr. Scott manages currency transactions and investments in non-dollar denominated securities for the Strategic Bond Fund. Prior to joining Salomon Brothers in April 1994, Mr. Scott worked at J.P. Morgan Investment Management ("J.P. Morgan") from 1990 to 1994 where he had responsibility for global and non-dollar portfolios for clients including departments of various governments, pension funds and insurance companies. Before joining J.P. Morgan, from 1987 to 1990, Mr. Scott worked for Mercury Asset Management managing captive insurance portfolios and products. Fred Alger Management, Inc. Investment decisions for the Small/Mid Cap Trust are made by its Subadviser, Fred Alger Management, Inc. ("Alger"). Alger, located at 75 Maiden Lane, New York, New York 10038, has been in the business of providing investment advisory services since 1964 and as of September 30, 1996 had approximately $6.8 billion under management, including $4.8 billion in mutual fund accounts and $2.0 billion in other advisory accounts. Alger Management is wholly owned by Fred Alger & Company, Incorporated which in turn is wholly owned by Alger Associates, Inc., a financial services holding company. Fred M. Alger, III and his brother, David D. Alger, are the majority shareholders of Alger Associates, Inc. and may be deemed to control that company and its subsidiaries. David D. Alger, President of Alger Management, is primarily responsible for the day-to-day management of the Small/Mid Cap Trust. He has been employed by Alger as Executive Vice President and Director of Research since 1971 and as President since 1995 and he serves as portfolio manager for other mutual funds and investment accounts managed by Alger Management. Also participating in the management of the Small/Mid Cap Trust are Ronald Tartaro and Seilai Khoo. Mr. Tartaro has been employed by Alger Management since 1990 and he serves as a Senior Vice President. Prior to 1990, he was a member of the technical staff at AT&T Bell Laboratories. Ms. Khoo has been employed by Alger Management since 1989 and she serves as a Senior Vice President. Founders Asset Management, Inc. Investment decisions for the Growth, International Small Cap, Balanced and Worldwide Growth Trusts are made by its Subadviser, Founders Asset Management, Inc. ("Founders"), located at 2930 East Third Avenue, Denver, Colorado 80206, a registered investment adviser first established as an asset manager in 1938. Bjorn K. Borgen, Chairman, Chief Executive Officer and Chief Investment Officer of Founders, owns 100% of the voting stock of Founders. As of October 31, 1996, Founders had over $4.5 billion of assets under management, including approximately $3.4 billion in mutual fund accounts and $1.1 billion in other advisory accounts. Founders is a "growth-style" manager of equity portfolios and gives priority to the selection of individual securities that have the potential to provide superior results over time, despite short-term volatility. Under normal circumstances, Founders' approach to investment management gives greater emphasis to the fundamental financial, marketing and operating strengths of the companies whose securities it buys, and is less concerned with the short-term impact of changes in macroeconomic and market conditions. Founders focuses on purchasing the stocks of companies with strong management and market positions that have earnings prospects that are significantly above the average for their market sectors. 82 85 To facilitate the day-to-day investment management of the Growth, International Small Cap, Balanced and Worldwide Growth Trusts, Founders employs a unique team-and-lead-manager system. The management team is composed of several members of the Investment Department, including Founders' Chief Investment Officer, lead portfolio managers, assistant portfolio managers, portfolio traders and research analysts. Team members share responsibility for providing ideas, information, knowledge and expertise in the management of the portfolios. Each team member has one or more areas of expertise that is applied to the management of the Portfolio. Daily decisions on portfolio selection for the portfolio rests with a lead portfolio manager assigned to the portfolio. Michael W. Gerding, Vice President of Investments, is the lead portfolio manager for the International Small Cap and Worldwide Growth Trusts. Mr. Gerding is a chartered financial analyst who has been part of Founders' investment department since 1990. Prior to joining Founders, Mr. Gerding served as a portfolio manager and research analyst with NCNB Texas for several years. Mr. Gerding earned a BBA in finance and an MBA from Texas Christian University. Edward F. Keely, Vice President of Investments, is the lead portfolio manager for the Growth Trust. Mr. Keely is a chartered financial analyst who joined Founders in 1989. A graduate of The Colorado College, Mr. Keely holds a Bachelor of Arts degree in economics. Brian F. Kelly, Portfolio Manager, is the lead portfolio manager for the Balanced Trust. Mr. Kelly joined Founders in 1996. Prior to joining Founders, Mr. Kelly served as portfolio manager for Invesco Trust Company (1993-1996) and as a senior investment analyst for Sears Investment Management Company (1986-1993). A graduate of the University of Notre Dame, Mr. Kelly received his MBA and JD from the University of Iowa. He is also a Certified Public Accountant. T. Rowe Price Associates, Inc. T. Rowe Price Associates, Inc. ("T. Rowe Price"), whose address is at 100 East Pratt Street, Baltimore, Maryland 21202, is the subadviser for the Blue Chip Growth, Equity-Income and Science & Technology Trusts. Founded in 1937 by the late Thomas Rowe Price, Jr., T. Rowe Price and its affiliates managed over $90 billion for over four million individual and institutional investor accounts as of November 30, 1996. The Blue Chip Growth Trust has an investment advisory committee composed of the following members: Larry J. Puglia, Chairman, Brian W.H. Berghuis, Thomas H. Broadus, Jr., John D. Gillespie, Thomas J. Huber, and William J. Stromberg. The committee chairman has day-to-day responsibility for managing the portfolio and works with the committee in developing and executing the portfolio's investment program. Mr. Puglia joined T. Rowe Price in 1990 and has been managing investments since 1993. He became chairman of the Blue Chip Growth Trust investment advisory committee on October 1, 1996. The investment advisory committee for the Science and Technology Trust is composed of the following members: Charles A. Morris, Chairman, Lise J. Buyer, Jill L. Hauser, Joseph Klein III, and Brian D. Stansky. Mr. Morris joined T. Rowe Price in 1987, and has been managing investments since 1991. He has been chairman of the investment advisory committee of T. Rowe Price Science & Technology Fund, Inc. since 1991. The investment advisory committee for the Equity-Income Trust is comprised of the following members: Brian C. Rogers, Chairman, Stephen W. Boesel, Richard P. Howard, Michael F. Sola, and William J. Stromberg. Mr. Rogers joined T. Rowe Price in 1982 and has been managing investments since 1983. He has been chairman of the Equity Income Trust investment advisory committee since October 1, 1996. Rowe Price-Fleming International, Inc. Rowe Price-Fleming International, Inc. ("Price-Fleming") is subadviser to the International Stock Trust. Price Fleming's U.S. office is located at 100 East Pratt Street, Baltimore, Maryland 21202. Price-Fleming has offices in Baltimore, London, Tokyo, and Hong Kong. Price-Fleming was incorporated in Maryland in 1979 as a joint venture between T. Rowe Price and Robert Fleming Holdings Limited (Flemings). 83 86 T. Rowe Price, Flemings, and Jardine Fleming are owners of Price-Fleming. The common stock of Price-Fleming is 50% owned by a wholly owned subsidiary of T. Rowe Price, 25% by a subsidiary of Flemings, and 25% by Jardine Fleming Group Limited (Jardine Fleming). (Half of Jardine Fleming is owned by Flemings and half by Jardine Matheson Holdings Limited) T. Rowe Price has the right to elect a majority of the Board of Directors of Price Fleming, and Flemings has the right to elect the remaining directors, one of whom will be nominated by Jardine Fleming. An investment advisory group has day to day responsibility for managing the portfolio and developing and executing its investment program. The members of the advisory group are as follows: Martin G. Wade, Christopher D. Alderson, Peter B. Askew, Richard J. Bruce, Mark J.T. Edwards, John R. Ford, Robert C. Howe, James B.M. Seddon, Benedict R.F. Thomas, and David J.L. Warren.. Martin Wade joined Price-Fleming in 1979 and has 26 years of experience with the Fleming Group in research, client service, and investment management. (Fleming Group included Robert Fleming and/or Jardine Fleming.) Christopher Alderson joined Price-Fleming in 1988 and has nine years of experience with the Fleming Group in research and portfolio management. Peter Askew joined Price-Fleming in 1988 and has 20 years of experience managing multi-currency fixed income portfolios. Richard Bruce joined Price-Fleming in 1991 and has seven years of experience in investment management with the Fleming Group in Tokyo. Mark Edwards joined Price-Fleming in 1986 and has 14 years of experience in financial analysis. John Ford joined Price-Fleming in 1982 and has 15 years of experience with the Fleming Group in research and portfolio management. Robert Howe joined Price-Fleming in 1986 and has 14 years of experience in economic research, company research, and portfolio management. James Seddon joined Price-Fleming in 1987 and has 10 year of experience in portfolio management. Benedict Thomas joined Price-Fleming in 1988 and has six years of portfolio management experience. David Warren joined Price-Fleming in 1984 and has 15 years of experience in equity research, fixed income research, and portfolio management. Morgan Stanley Asset Management Inc. Morgan Stanley Asset Management Inc. ("Morgan Stanley"), with principal offices at 1221 Avenue of the Americas, New York, New York 10020, has been the subadviser to the Global Equity Trust since October 1, 1996. Morgan Stanley, a wholly-owned subsidiary of Morgan Stanley Group Inc., conducts a worldwide portfolio management business, providing a broad range of portfolio management services to customers in the United States and abroad. At September 30, 1996, Morgan Stanley, together with its affiliated asset management companies (including MAS), managed investments totaling approximately $103.5 billion, including approximately $86.9 billion under active management and $16.6 billion as named fiduciary or fiduciary adviser. Frances Campion is primarily responsible for the portfolio management of the Global Equity Trust. Ms. Campion joined Morgan Stanley in January 1990 as a global equity fund manager and is now a Principal of Morgan Stanley & Co. Incorporated. Her responsibilities include day to day management of the Global Equity Portfolio of Morgan Stanley Institutional Fund, Inc. Prior to joining Morgan Stanley, Ms. Campion was a U.S. equity analyst with Lombard Odler Limited where she had responsibility for the management of global portfolios. Ms. Campion has ten years global investment experience. She is a graduate of University of College, Dublin. Miller Anderson & Sherrerd, LLP Miller Anderson & Sherrerd, LLP ("MAS"), the subadviser to the Value and High Yield Trusts, is a Pennsylvania limited liability partnership founded in 1969 and is located at One Tower Bridge, West Conshohocken, PA 19428. MAS provides investment services to employee benefit plans, endowment funds, foundations and other institutional investors and as of September 30, 1996 had approximately $37.5 billion in assets under management. As of January 1996, MAS is also indirectly wholly-owned by Morgan Stanley Group Inc. The investment professionals of MAS who are primarily responsible for the day to day management of the Value Trust are Robert J. Marcin and Richard M. Behler. Robert J. Marcin, 84 87 Portfolio Manager, joined MAS in 1988 and Richard M Behler, Portfolio Manager, joined MAS in 1995. Both Mr. Marcin and Mr. Behler have been portfolio managers since joining MAS. Prior to joining MAS, Mr. Behler served as portfolio manager from 1992-1995 for Moore Capital Management and Senior Vice President for Merrill Lynch Economics from 1987 through 1992. Messrs. Marcin and Behler are also primarily responsible for the management of the Value Portfolios of MAS Funds and Morgan Stanley Universal Funds. The investment professionals primarily responsible for the High Yield Trust are Robert E. Angevine, Thomas L. Bennett and Stephen F. Esser. Robert E. Angevine, Portfolio Manager, joined Morgan Stanley Asset Management in 1988 and came to the MAS High Yield Portfolio Team in 1996, Thomas L. Bennett, Portfolio Manager, joined MAS in 1984, and Stephen F. Esser, Portfolio Manager, joined MAS in 1988. Messrs. Angevine, Bennett and Esser are also primarily responsible for the management of the High Yield portfolios of MAS funds and Morgan Stanley Universal Funds. Pilgrim Baxter & Associates Pilgrim Baxter & Associates, the sub-advisor to the Pilgrim Baxter Growth Trust, is a professional investment management firm that has been in business since its founding in 1982. The controlling shareholder of Pilgrim Baxter & Associates is United Asset Management Corporation (UAM), a New York Stock Exchange listed holding company principally engaged, through affiliated firms, in providing institutional investment management services. UAM's corporate headquarters are located at One International Place, Boston, Massachusetts 02110. Pilgrim Baxter & Associates currently has discretionary management authority with respect to approximately $14 billion. In addition to advising the Pilgrim Baxter Growth Trust, Pilgrim Baxter & Associates provides advisory services to the PBHG Funds, Inc. and to pension and profit sharing plans, charitable institutions, corporations, individuals, trust and estates and other investment companies. The principal business address for Pilgrim Baxter & Associates is 1255 Drummers Lane, Wayne, Pennsylvania 19087. Mr. Bruce J. Muzina and Mr. Gary L. Pilgrim, CFA serve as co-portfolio managers of the Pilgrim Baxter Growth Trust. Mr. Pilgrim has served as the Chief Investment Officer of Pilgrim Baxter & Associates for the past six years and as the President since 1993. Mr. Pilgrim is also the portfolio manager of the PBHG Growth Fund, a mutual fund available to the general public. Mr. Muzina serves as the lead Mid-Cap portfolio manager for institutional accounts at Pilgrim Baxter & Associates. Mr. Muzina has been with the firm since 1985. Manufacturers Adviser Corporation Manufacturers Adviser Corporation ("MAC"), a Colorado corporation, is the subadviser of the Money Market, Pacific Rim Emerging Markets, Capital Growth Bond, Quantitative Equity, Real Estate Securities, Equity Index and Lifestyle Trusts. Its principal business at the present time is to provide investment management services to these portfolios and comparable portfolios of North American Funds. MAC is an indirect wholly-owned subsidiary of Manulife. The address of MAC is 200 Bloor Street East, Toronto, Ontario, Canada M4W 1E5. As of October 31, 1996, MAC together with Manulife had approximately $15 billion of assets under management. Management of the above portfolios is provided by a team of investment professionals each of whom plays an important role in the management process of each portfolio. Team members work together to develop investment strategies and select securities for a portfolio. They are supported by research analysts, traders and other investment specialists who work alongside the investment professionals in an effort to utilize all available resources to benefit the shareholders. The persons with primary responsibility for the day to day management of the Real Estate Securities Trust are Mark Schmeer and Leslie Grober. Mr. Schmeer joined MAC in 1995 and has managed the Real Estate Securities Trust since then. He is an investment manager of U.S. Equities at Manulife. Prior to 1995 he was a Vice President of Sun Life Investment Management, where he served from 1993 to 1995. Mr. Schmeer was a manager of U.S. Investments for Ontario Hydro Corporation from 1986 to 1993. Mr. Grober also joined MAC in 1995 and has managed the Real Estate Securities Trust since then. He has been an investment manager of U.S. Equities at Manulife 85 88 since 1994. Mr. Grober was an investment representative of Toronto-Dominion Bank from 1991 to 1993. Prior to that he was employed by the Bank of Montreal. The persons with primary responsibility for the day to day management of the Quantitative Equity Trust are Mark Schmeer and Rhonda Chang. Ms. Chang joined MAC in 1995 and has managed the Quantitative Equity Trust since then. She has been an investment manager at Manulife since 1994. From 1990 to 1994, Ms. Chang was an investment analyst with American International Group. Mark Schmeer has managed the Quantitative Equity Trust since 1995. The person with primary responsibility for the day to day management of the Lifestyle Trusts is Mark Schmeer. Catherine Addison has primary responsibility for the day to day management of the Capital Growth Bond Trust. She has had such responsibility for the predecessor portfolio of Manulife Series Fund, Inc., since 1988. She has been an investment manager of U.S. Fixed Income at Manulife since 1985. The persons with primary responsibility for the day to day management of the Pacific Rim Emerging Markets Trust are Stephen Hill, Richard James Crook and Emilia Panadero-Perez. Mr. Hill joined MAC in 1995 and has managed the Pacific Rim Emerging Market Trust since then. He is also an investment manager at Manulife. Prior to 1995, Mr. Hill was a director of INVESCO Asset Management, where he served in 1993 and 1994. Mr. Hill was a director of Yasuda Trust Europe from 1989 to 1992. Mr. Crook joined MAC in 1994 and has managed the Pacific Rim Emerging Market Trust since then. He has been an investment manager of Manulife since 1975. Ms. Panadero-Perez joined MAC in 1995. She has been an investment manager at Manulife since 1989. Warburg, Pincus Counsellors, Inc. Warburg, Pincus Counsellors, Inc. ("Warburg"), the subadviser of the Emerging Growth Trust, is a professional investment counselling firm which provides investment services to investment companies, employee benefit plans, endowment funds, foundations and other institutions and individuals. As of October 31, 1996, Warburg managed approximately $18.4 billion of assets, including approximately $9.8 billion of investment company assets. Incorporated in 1970, Warburg is a wholly owned subsidiary of Warburg, Pincus Counsellors G.P. ("Warburg G.P."), a New York general partnership. E.M. Warburg, Pincus & Co., LLC ("EMW") controls Warburg through its ownership of a class of voting preferred stock of Warburg. Warburg G.P. has no business other than being a holding company of Warburg and its subsidiaries. Warburg's address is 466 Lexington Avenue, New York, New York 10017-3147. The co-portfolio managers of the Fund are Elizabeth B. Dater and Stephen J. Lurito. Ms. Dater has been portfolio manager of the Warburg Pincus Emerging Growth Fund since its inception on January 21, 1988. She is a managing director of EMW and has been a portfolio manager of Warburg since 1978. Mr. Lurito has been a portfolio manager of the Fund since 1990. He is a managing director of EMW and has been with Warburg since 1987, before which time he was a research analyst at Sanford C. Bernstein & Company, Inc. * * * Under the terms of each of the Subadvisory Agreements, the subadviser manages the investment and reinvestment of the assets of the assigned portfolios, subject to the supervision of the Trustees of the Trust. The subadviser formulates a continuous investment program for each such portfolio consistent with its investment objectives and policies outlined in this Prospectus. Each subadviser implements such programs by purchases and sales of securities and regularly reports to the Adviser and the Trustees of the Trust with respect to the implementation of such programs. As compensation for their services, the subadvisers receive fees from the Adviser computed separately for each portfolio. The fee for each portfolio is stated as an annual percentage of the current value 86 89 of the net assets of such portfolio. The fees are calculated on the basis of the average of all valuations of net assets of each portfolio made at the close of business on each business day of the Trust during the period for which such fees are paid. Once the average net assets of a portfolio exceed specified amounts, the fee is reduced with respect to such excess. The following is a schedule of the management fees the Adviser currently is obligated to pay the subadvisers out of the advisory fee it receives from each portfolio as specified above:
BETWEEN BETWEEN $50,000,000 $200,000,000 FIRST AND AND EXCESS OVER PORTFOLIO $50,000,000 $200,000,000 $500,000,000 $500,000,000 - -------------------------------------------------------------------------------------------------------------------------------- Pacific Rim Emer'g Mrkts Trust ........................................ .400% .350% .275% .225% Science & Technology Trust ...................... .600% .600% .600% .600% International Small Cap Trust ................... .650% .600% .500% .400% Emerging Growth Trust ........................... .550% .550% .550% .550% Pilgrim Baxter Growth Trust ..................... .600% .600% .500% .500% Small/Mid Cap Trust ............................. .525% .500% .475% .450% International Stock Trust ....................... .750%* .500% .500%* .450%* Worldwide Growth Trust .......................... .600% .550% .450% .350% Global Equity Trust ............................. .500% .450% .375% .325% Growth Trust .................................... .450% .450% .350% .300% Equity Trust .................................... .375% .325% .275% .200% Quantitative Equity Trust ....................... .275% .225% .175% .150% Equity Index Trust .............................. .100% .100% .100% .100% Blue Chip Growth ................................ .500% .450% .400% .325% Real Estate Securities Trust .................... .275% .225% .175% .150% Value Trust ..................................... .400% .300% .200% .200% International Growth and Income Trust ................................. .500% .450% .400% .350% Growth and Income Trust ......................... .325% .275% .225% .150% Equity-Income Trust ............................. .400% .300% .200% .200% Balanced Trust .................................. .375% .325% .275% .225% Aggressive Asset Allocation Trust ........................................ .400% .350% .300% .225% High Yield Trust ................................ .350% .300% .250% .200% Moderate Asset Allocation Trust ................. .375% .325% .275% .200% Conservative Asset Allocation Trust ........................................ .350% .300% .250% .175% Strategic Bond Trust** .......................... .350% .300% .250% .200% Global Government Bond Trust .................... .375% .350% .300% .250% Capital Growth Bond Trust ....................... .225% .225% .150% .100% Investment Quality Bond Trust ................... .225% .225% .150% .100% U.S. Government Securities Trust ................ .225% .225% .150% .100% Money Market Trust .............................. .075% .075% .075% .020% Lifestyle Trusts ................................ no subadvisory fee
*.750% up to $20 million, .600% from $20 million up to $50 million, .50% from $50 million up to $200 million of the current value of the net assets of the Portfolio. When the current value of the net assets of the Portfolio equals or exceeds $200 million, the fee is .500% of the current value of the net assets of the Portfolio. When the current value of the net assets of the Portfolio equals or exceeds $500 million, the fee is .450% of the current value of the net assets of the Portfolio. ** In connection with the subadvisory consulting agreement between SBAM and SBAM Limited, SBAM will pay SBAM Limited, as full compensation for all services provided under the subadvisory consulting agreement, a portion of its subadvisory fee, such amount being an amount equal to the fee payable under SBAM's subadvisory agreement multiplied by the current value of the net assets of the portion of the assets 87 90 of the Strategic Bond Trust that SBAM Limited has been delegated to manage divided by the current value of the net assets of the portfolio. For the year ended December 31, 1995, the Adviser paid aggregate subadvisory fees of $12,007,940, allocated among the portfolios as follows: Global Equity Trust - $2,415,918, Blue Chip Growth Trust - $978,146, Equity Trust - $1,628,673, Equity-Income Trust - $864,812, Growth & Income Trust - $1,267,236, International Growth & Income Trust - $232,320, Global Government Bond Trust - $771,716, Investment Quality Bond Trust - $276,246, U.S. Government Securities Trust - $442,603, Money Market Trust - $197,786, Aggressive Asset Allocation Trust - $560,019, Moderate Asset Allocation Trust - $1,433,417, Conservative Asset Allocation Trust - $616,971, Strategic Bond Trust - $322,077 ($63,321 of this amount was paid to SBAM Limited.). For the year ended December 31, 1995, the Adviser did not pay any subadvisory fees to any affiliated subadviser. Above are brief summaries of the advisory agreement with NASL Financial ("Advisory Agreement") and the subadvisory agreements with the subadvisers ("Subadvisory Agreements"). A more comprehensive statement of the terms of such agreements appears in the Statement of Additional Information under the caption "Investment Management Arrangements". All or a portion of Trust brokerage commissions may be paid to affiliates of Salomon, J.P. Morgan, Alger, Fidelity, Morgan Stanley and Oechsle. Information on the amount of these commissions is set forth in the Statement of Additional Information under "Portfolio Brokerage." EXPENSES Subject to the expense limitations discussed above, the Trust is responsible for the payment of all expenses of its organization, operations and business, except for those expenses the Adviser or subadvisers have agreed to pay pursuant to the Advisory or Subadvisory Agreements. Among the expenses to be borne by the Trust are charges and expenses of the custodian, independent accountants and transfer, bookkeeping and dividend disbursing agents appointed by the Trust; brokers' commissions and issue and transfer taxes on securities transactions to which the Trust is a party; taxes payable by the Trust; and legal fees and expenses in connection with the affairs of the Trust, including registering and qualifying its shares with regulatory authorities and in connection with any litigation. For the year ended December 31, 1995, the expenses, including the Adviser's fee but excluding portfolio brokerage commissions, expressed as a percentage of average net assets, for each of the Trust's portfolios were as follows: 1.05% -- Global Equity Trust, .975% -- Blue Chip Growth Trust, .80% -- Equity Trust, .85% -- Equity-Income Trust, .80% -- Growth and Income Trust, 1.47% (annualized) -- International Growth and Income Trust, .92% -- Strategic Bond Trust, .93% -- Global Government Bond Trust, .74% -- Investment Quality Bond Trust, .71% -- U.S. Government Securities Trust, .54% -- Money Market Trust, .91% -- Aggressive Asset Allocation Trust, .84% -- Moderate Asset Allocation Trust and .87% -- Conservative Asset Allocation Trust. For the year ended December 31, 1995, the expenses, excluding the Adviser's fee and portfolio brokerage commissions, expressed as a percentage of average net assets, for each of the Trust's portfolios were as follows: .15% -- Global Equity Trust, 0% -- Blue Chip Growth Trust, .05% -- Equity Trust, .05% -- Equity-Income Trust, .05% -- Growth and Income Trust, .52% (annualized) -- International Growth and Income Trust, .15% -- Strategic Bond Trust, .13% -- Global Government Bond Trust, .09% -- Investment Quality Bond Trust, .06% -- U.S. Government Securities Trust, .04% -- Money Market Trust, .16% -- Aggressive Asset Allocation Trust, .09% -- Moderate Asset Allocation Trust and .12% -- Conservative Asset Allocation Trust. Each of the portfolios, except the Global Equity, Blue Chip Growth, Equity, Equity-Income and Growth and Income Trusts, anticipates that its annual portfolio turnover rate will exceed 100%. A high portfolio turnover rate generally involves correspondingly greater brokerage commission expenses, which must be borne directly by the portfolio. The portfolio turnover rate of each of the Trust's portfolios may vary from year to year, as well as within a year. See "Portfolio Turnover" in the Statement of Additional Information. 88 91 PERFORMANCE DATA From time to time the Trust may publish advertisements containing performance data relating to its portfolios. Performance data will consist of total return quotations which will always include quotations for recent one-year and, when applicable, five-year and ten-year periods and where less than five or ten years, for the period since the date the portfolio, including its predecessor prior to the reorganization of the Fund on December 31, 1988, became available for investment. In the case of the Pacific Rim Emerging Markets, Real Estate Securities, Common Stock, Capital Growth Bond and Equity Index Trusts, such quotations will be for periods that include the performance of the predecessor portfolios of Manulife Series Trust, Inc. Such quotations for such periods will be the average annual rates of return required for an initial investment of $1,000 to equal the market value of such investment on the last day of the period, after reflection of all Trust charges and expenses and assuming reinvestment of all dividends and distributions. Performance figures used by the Trust are based on the actual historical performance of its portfolios for specified periods, and the figures are not intended to indicate future performance. Moreover, the Trust's performance figures are not comparable to those for public mutual funds. Trust shares are only available as the underlying investment medium for contracts which provide for certain charges, as described in the accompanying contract Prospectus. The impact of such charges is not reflected in the Trust's performance figures. More detailed information on the computations is set forth in the Statement of Additional Information. The Trust's annual report, which is available without charge upon request, contains further discussions of Trust performance. The Trust may also from time to time advertise the performance of certain portfolios relative to that of unmanaged indices, including but not limited to the Dow Jones Industrial Average, the Lehman Brothers Bond, Government Corporate, Corporate and Aggregate Indices, the Standard and Poor's 500, the Value Line Composite and the Morgan Stanley Capital International Europe, Australia and Far East ("EAFE") and World Indices. The Trust may also advertise the performance rankings assigned certain portfolios or their investment subadvisers by various statistical services, including but not limited to SEI, Lipper Analytical Services, Inc.'s Mutual Fund Performance Analysis and Variable Insurance Products Performance Analysis, Variable Annuity Research and Data Service, Intersec Research Survey of Non-U.S. Equity Fund Returns and Frank Russell International Universe, and any other data which may be presented from time to time by such analysts as Dow Jones, Morning Star, Chase International Performance, Wilson Associates, Stanger, CDA Investment Technology, the Consumer Price Index ("CPI"), The Bank Rate Monitor National Index, IBC/Donaghue's Average U.S. Government and Agency, or as they appear in various publications, including The Wall Street Journal, New York Times, Forbes, Barrons, Fortune, Money Magazine, Financial World and Financial Services Week. GENERAL INFORMATION SHARES OF THE TRUST The Trust's Declaration of Trust authorizes the Trustees to issue an unlimited number of full and fractional shares of beneficial interest having a par value of $.01 per share, to divide such shares into an unlimited number of series of shares and to designate the relative rights and preferences thereof, all without shareholder approval. In addition, the Trustees are authorized to divide any series of shares into separate classes, also without shareholder approval. The Trust currently has thirty-five series of shares, one for each portfolio. Shares of each portfolio have equal rights with regard to redemptions, dividends, distributions and liquidations with respect to that portfolio. When issued, shares are fully paid and non-assessable and do not have preemptive or conversion rights or cumulative voting rights. All shares are entitled to one vote and are voted by series, except that when voting for the election of Trustees and when otherwise permitted by the Investment Company Act of 1940, shares are voted in the aggregate. Only shares of a particular portfolio are entitled to vote on matters determined by the Trustees to affect only the interests of that portfolio. The Trust currently has three shareholders, Security Life, Manulife America and FNAL. Security Life provided the Trust with its initial capital. Currently, Security Life owns Trust shares attributable to the initial capitalization of the Growth and Income Trust. Each shareholder owns the Trust shares attributable to contracts participating in its separate accounts and will vote such shares and, in the case of Security Life, Trust shares owned beneficially by Security Life in accordance with instructions received from contract owners. 89 92 Shares of the Trust may be sold to both variable annuity separate accounts and variable life insurance separate accounts of affiliated insurance companies. The Trust currently does not foresee any disadvantages to the owners of variable annuity or variable life insurance contracts arising from the fact that the interests of those owners may differ. Nevertheless, the Trust's Board of Trustees will monitor events in order to identify any material irreconcilable conflicts which may possibly arise due to differences of tax treatment or other considerations and to determine what action, if any, should be taken in response thereto. Such an action could include the withdrawal of a separate account from participation in the Trust. TAXES TAX STATUS. The Trust believes that each portfolio will qualify as a regulated investment company under Subchapter M, Chapter 1, Subtitle A of the Internal Revenue Code (the "Code"), and the Trust intends to take the steps necessary to so qualify each portfolio. As a result of qualifying as a regulated investment company, each portfolio will not be subject to Federal income tax to the extent that the portfolio distributes its net income, including its net realized capital gains, to its shareholders. Accordingly, each portfolio intends to distribute substantially all of its net income, including all of its net realized capital gains, to its shareholders. Under current law, net income, including net realized capital gain, is not taxed to a life insurance company to the extent that it is applied to increase the reserves for the company's variable annuity and life insurance contracts. SOURCES OF GROSS INCOME. To qualify for treatment as a regulated investment company, a portfolio must, among other things, derive its income from certain sources. Specifically, in each taxable year a portfolio must derive at least 90% of its gross income from dividends, interest, payments with respect to securities loans, gains from the sale or other disposition of stock, securities or foreign currencies, or other income (including, but not limited to, gains from options, futures or forward contracts) derived with respect to its business of investing in stock, securities, or currencies. A portfolio must also derive less than 30% of its gross income from the sale or other disposition of any of the following which was held for less than three months: (1) stock or securities, (2) options, futures, or forward contracts (other than options, futures, or forward contracts on foreign currencies), or (3) foreign currencies (or options, futures, or forward contracts on foreign currencies) but only if such currencies (or options, futures, or forward contracts) are not directly related to the portfolio's principal business of investing in stock or securities (or options and futures with respect to stocks or securities). For purposes of these tests, gross income generally is determined without regard to losses from the sale or other disposition of stock or securities or other portfolio assets. Compliance with these requirements may prevent a portfolio from utilizing options, futures, and forward contracts as much as the subadviser might otherwise believe to be desirable. DIVERSIFICATION OF ASSETS. To qualify for treatment as a regulated investment company, a portfolio must also satisfy certain requirements with respect to the diversification of its assets. A portfolio must have, at the close of each quarter of the taxable year, at least 50% of the value of its total assets represented by cash, cash items, United States Government securities, securities of other regulated investment companies, and other securities which, in respect of any one issuer, do not represent more than 5% of the value of the assets of the portfolio nor more than 10% of the voting securities of that issuer. In addition, at those times not more than 25% of the value of the portfolio's assets may be invested in securities (other than United States Government securities or the securities of other regulated investment companies) of any one issuer, or of two or more issuers which the portfolio controls and which are engaged in the same or similar trades or businesses or related trades or businesses. Because the Trust is established as an investment medium for insurance company separate accounts, regulations under Subchapter L of the Code impose additional diversification requirements on each portfolio. These requirements generally are that no more than 55% of the value of the assets of a portfolio may be represented by any one investment; no more than 70% by any two investments; no more than 80% by any three investments; and no more than 90% by any four investments. For these purposes, all securities of the same issuer are treated as a single investment and each United States government agency or instrumentality is treated as a separate issuer. FOREIGN INVESTMENTS. Portfolios investing in foreign securities or currencies may be required to pay withholding or other taxes to foreign governments. Foreign tax withholding from dividends and interest, if any, is generally at a rate between 10% and 35%. The investment yield of any portfolio that invests in foreign securities or currencies will be reduced by these foreign taxes. Shareholders will bear the cost of any foreign 90 93 tax withholding, but may not be able to claim a foreign tax credit or deduction for these foreign taxes. Portfolios investing in securities of passive foreign investment companies may be subject to U.S. federal income taxes and interest charges (and investment yield of the portfolios making such investments will be reduced by these taxes and interest charges). Shareholders will bear the cost of these taxes and interest charges, but will not be able to claim a deduction for these amounts. ADDITIONAL TAX CONSIDERATIONS. If a portfolio failed to qualify as a regulated investment company, owners of contracts based on the portfolio (1) might be taxed currently on the investment earnings under their contracts and thereby lose the benefit of tax deferral, and (2) the portfolio might incur additional taxes. In addition, if a portfolio failed to comply with the diversification requirements of the regulations under Subchapter L of the Code, owners of contracts based on the portfolio would be taxed on the investment earnings under their contracts and thereby lose the benefit of tax deferral. Accordingly, compliance with the above rules is carefully monitored by the Adviser and the Subadvisers and it is intended that the portfolios will comply with these rules as they exist or as they may be modified from time to time. Compliance with the tax requirements described above may result in a reduction in the return under a portfolio, since, to comply with the above rules, the investments utilized (and the time at which such investments are entered into and closed out) may be different from that Subadvisers might otherwise believe to be desirable. OTHER INFORMATION. For more information regarding the tax implications for the purchaser of a variable annuity or life insurance contracts who allocates investments to the Trust, please refer to the prospectus for the contract. The foregoing is a general and abbreviated summary of the applicable provisions of the Code and Treasury Regulations currently in effect. It is not intended to be a complete explanation or a substitute for consultation with individual tax advisors. For the complete provisions, reference should be made to the pertinent Code sections and the Treasury Regulations promulgated thereunder. The Code and Regulations are subject to change. DIVIDENDS The Trust intends to declare as dividends substantially all of the net investment income, if any, of each portfolio. For dividend purposes, net investment income of each portfolio except the Money Market Trust will consist of all payments of dividends (other than stock dividends) or interest received by such portfolio less the estimated expenses of such portfolio (including fees payable to the Adviser) and for the Money Market Trust it will consist of the interest income earned on investments, plus or minus amortized purchase discount or premium, plus or minus realized gains and losses, less estimated expenses. Dividends from the net investment income and the net realized short-term and long-term capital gains, if any, for each portfolio except the Money Market Trust will be declared not less frequently than annually and reinvested in additional full and fractional shares of that portfolio or paid in cash. Dividends from net investment income and net realized short-term and long-term capital gains, if any, for the Money Market Trust will be declared and reinvested, or paid in cash, daily. PURCHASE AND REDEMPTION OF SHARES Shares of the Trust are offered continuously, without sales charge, at prices equal to the respective net asset values of the portfolio. The Trust sells its shares directly without the use of any underwriter. Shares of the Trust are sold and redeemed at their net asset value next computed after a purchase payment or redemption request is received by the shareholder from the contract owner or after any other purchase or redemption order is received by the Trust. Depending upon the net asset values at that time, the amount paid upon redemption may be more or less than the cost of the shares redeemed. Payment for shares redeemed will be made as soon as possible, but in any event within seven days after receipt of a request for redemption. The net asset value of the shares of each portfolio is determined once daily as of the close of regularly scheduled trading of the New York Stock Exchange, Monday through Friday, except that no determination is required on (i) days on which changes in the value of such portfolio's portfolio securities will not materially affect the current net asset value of the shares of the portfolio, (ii) days during which no shares of such portfolio are tendered for redemption and no order to purchase or sell such shares is received by the Trust, or (iii) the following business holidays or the days on which such holidays are observed by the New York Stock Exchange: New Year's Day, Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day and Christmas Day. Generally, trading in non-U.S. securities, as well as U.S. Government 91 94 securities and money market instruments, is substantially completed each day at various times prior to the close of regularly scheduled trading of the New York Stock Exchange. The values of such securities used in computing the net asset value of a portfolio's shares are generally determined as of such times. Occasionally, events which affect the values of such securities may occur between the times at which they are generally determined and the close of the New York Stock Exchange and would therefore not be reflected in the computation of a portfolio's net asset value. If events materially affecting the value of such securities occur during such period, then these securities will be valued at their fair value as determined in good faith by the subadvisers under procedures established and regularly reviewed by the Trustees. The net asset values per share of all portfolios other than the Money Market Trust are computed by adding the sum of the value of the securities held by each portfolio plus any cash or other assets it holds, subtracting all its liabilities, and dividing the result by the total number of shares outstanding of that portfolio at such time. Securities held by each of the portfolios other than the Money Market Trust, except for money market instruments with remaining maturities of 60 days or less and Underlying Portfolio shares held by the Lifestyle Trusts, are valued at their market value if market quotations are readily available. Otherwise, such securities are valued at fair value as determined in good faith by the Trustees although the actual calculations may be made by persons acting pursuant to the direction of the Trustees. All instruments held by the Money Market Trust and money market instruments with a remaining maturity of 60 days or less held by the other portfolios are valued on an amortized cost basis. CUSTODIAN State Street Bank and Trust Company, ("State Street") 225 Franklin Street, Boston, Massachusetts 02110, currently acts as custodian and bookkeeping agent of all the Trust assets. State Street has selected various banks and trust companies in foreign countries to maintain custody of certain foreign securities. State Street is authorized to use the facilities of the Depository Trust Company, the Participants Trust Company and the book-entry system of the Federal Reserve Banks. 92 95 APPENDIX I DEBT SECURITY RATINGS STANDARD & POOR'S RATINGS GROUP ("S&P") Commercial Paper: A-1 The rating A-1 is the highest rating assigned by S&P to commercial paper. This designation indicates that the degree of safety regarding timely payment is either overwhelming or very strong. Those issues determined to possess overwhelming safety characteristics are denoted with a plus (+) sign designation. A-2 Capacity for timely payment on issues with this designation is strong. However, the relative degree of safety is not as high for issuers designated "A-1". Bonds: AAA Debt rated AAA has the highest rating assigned by S&P. Capacity to pay interest and repay principal is extremely strong. AA Debt rated AA has a very strong capacity to pay interest and repay principal and differs from the higher rated issues only in small degree. A Debt rated A has a strong capacity to pay interest and repay principal although it is somewhat more susceptible to the adverse effects of changes in circumstances and economic conditions than debt in higher rated categories. BBB Debt rated BBB is regarded as having an adequate capacity to pay interest and repay principal. Whereas it normally exhibits adequate protection parameters, adverse economic conditions or changing circumstances are more likely to lead to a weakened capacity to pay interest and repay principal for debt in this category than in higher rated categories. BB-B-CCC -CC Bonds rated BB, B, CCC and CC are regarded, on balance, as predominantly speculative with respect to the issuer's capacity to pay interest and repay principal in accordance with the terms of the obligations. BB indicates the lowest degree of speculation and CC the highest degree of speculation. While such bonds will likely have some quality and protective characteristics, these are outweighed by large uncertainties or major risk exposures to adverse conditions. D Bonds rated D are in default. The D category is used when interest payments or principal payments are not made on the date due even if the applicable grace period has not expired. The D rating is also used upon the filing of a bankruptcy petition if debt service payments are jeopardized. The ratings set forth above may be modified by the addition of a plus or minus to show relative standing within the major rating categories. MOODY'S INVESTORS SERVICE, INC. ("MOODY'S") Commercial Paper: P-1 The rating P-1 is the highest commercial paper rating assigned by Moody's. Issuers rated P-1 (or related supporting institutions) have a superior capacity for repayment of short-term promissory obligations. P-1 repayment capacity will normally be evidenced by the following characteristics: (1) leading market positions in established industries; (2) high rates of return on funds employed; (3) conservative capitalization structures with moderate reliance on debt 93 96 and ample asset protection; (4) broad margins in earnings coverage of fixed financial charges and high internal cash generation; and (5) well established access to a range of financial markets and assured sources of alternate liquidity. P-2 Issuers rated P-2 (or related supporting institutions) have a strong capacity for repayment of short-term promissory obligations. This will normally be evidenced by many of the characteristics cited above but to a lesser degree. Earnings trends and coverage ratios, while sound, will be more subject to variation. Capitalization characteristics, while still appropriate, may be more affected by external conditions. Ample alternative liquidity is maintained. Bonds: Aaa Bonds which are rated Aaa by Moody's are judged to be of the best quality. They carry the smallest degree of investment risk and are generally referred to as "gilt edge". Interest payments are protected by a large or by an exceptionally stable margin and principal is secure. While the various protective elements are likely to change, such changes as can be visualized are most unlikely to impair the fundamentally strong position of such issues. Aa Bonds which are rated Aa by Moody's are judged to be of high quality by all standards. Together with the Aaa group, they comprise what are generally known as high grade bonds. They are rated lower than the best bonds because margins of protection may not be as large as in Aaa securities or fluctuation of protective elements may be of greater amplitude or there may be other elements present which make the long term risks appear somewhat larger than in Aaa securities. A Bonds which are rated A by Moody's possess many favorable investment attributes and are to be considered as upper medium grade obligations. Factors giving security to principal and interest are considered adequate but elements may be present which suggest a susceptibility to impairment sometime in the future. Baa Bonds which are rated Baa by Moody's are considered as medium grade obligations, that is, 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. B Bonds which are rated B generally lack characteristics of a desirable investment. Assurance of interest and principal payments or of maintenance and other terms of the contract over any long period of time may be small. Caa Bonds which are rated Caa are of poor standing. Such issues may be in default or there may be present elements of danger with respect to principal or interest. Ca Bonds which are rated Ca represent obligations which are speculative in high degree. Such issues are often in default or have other marked shortcomings. C Bonds which are rated C 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. Moody's applies numerical modifiers "1", "2" and "3" to certain of its rating classifications. The modifier "1" indicates that the security ranks in the higher end of its generic rating category; the modifier "2" indicates a mid-range ranking; and the modifier "3" indicates that the issue ranks in the lower end of its generic rating category. 94 97 APPENDIX II STRATEGIC BOND TRUST DEBT RATINGS The average distribution of investments in corporate and government bonds by ratings for the fiscal year ended December 31, 1995, calculated monthly on a dollar-weighted basis, for the Strategic Bond Trust, are as follows:
UNRATED BUT OF MOODY'S STANDARD & POOR'S COMPARABLE QUALITY PERCENTAGE* - ------------------------------------------------------------------------------- Aaa AAA 11% 0% Aa AA 0% 0% A A 0% 2% Baa BBB 0% 3% Ba BB 23% 4% B B 0% 33% Caa CCC 0% 2% Ca CC 0% 0% C C 0% 0% D 0% 0% Unrated as a Group 34% U.S. Government Securities* 22% ---- 100%
The actual distribution of the Strategic Bond Trust's corporate and government bond investments by ratings on any given date will vary. In addition, the distribution of the Trust's investments by ratings as set forth above should not be considered as representative of the Trust's future portfolio composition. *Obligations issued or guaranteed by the U.S. Government or its agencies, authorities or instrumentalities. INVESTMENT QUALITY BOND TRUST DEBT RATINGS The average distribution of investments in corporate and government bonds by ratings for the fiscal year ended December 31, 1995, calculated monthly on a dollar-weighted basis, for the Investment Quality Bond Trust, are as follows:
UNRATED BUT OF MOODY'S STANDARD & POOR'S COMPARABLE QUALITY PERCENTAGE* - ------------------------------------------------------------------------------- Aaa AAA 0% 9% Aa AA 0% 5% A A 0% 19% Baa BBB 0% 5% Ba BB 0% 2% B B 0% 1% Caa CCC 0% 0% Ca CC 0% 0% C C 0% 0% D 0% 0% Unrated as a Group 0% U.S. Government Securities* 59% --- 100%
The actual distribution of the Investment Quality Bond Trust's corporate and government bond investments by ratings on any given date will vary. In addition, the distribution of the Trust's investments by ratings as set forth above should not be considered as representative of the Trust's future portfolio composition. *Obligations issued or guaranteed by the U.S. Government or its agencies, authorities or instrumentalities. 95 98 APPENDIX III STANDARD AND POOR'S DISCLAIMERS The Equity Index Trust is not sponsored, endorsed, sold or promoted by Standard & Poor's ("S&P"). S&P makes no representation or warranty, express or implied, to the shareholders of the Equity Index Trust or any member of the public regarding the advisability of investing in securities generally or in the Equity Index Trust particularly or the ability of the S&P 500 Index to track general stock market performance. S&P's only relationship to the Trust is the licensing of certain trademarks and trade names of S&P and of the S&P 500 Index which is determined, composed and calculated by S&P without regard to the Trust or the Equity Index Trust. S&P has no obligation to take the needs of the Trust or the shareholders of the Equity Index Trust into consideration in determining, composing or calculating the S&P 500 Index. S&P is not responsible for and has not participated in the determination of the prices and amount of shares of the Equity Index Trust or the timing of the issuance or sale of the shares of the Equity Index Trust or in the determination or calculation of the equation by which shares of the Equity Index Trust are to be converted into cash. S&P has no obligation or liability in connection with the administration, marketing or trading of the Equity Index Portfolio. S&P does not guarantee the accuracy and/or the completeness of the S&P 500 Index or any data included therein and S&P shall have no liability for any errors, omissions, or interruptions therein. S&P makes no warranty, express or implied, as to results to be obtained by the Trust, shareholders of the Equity Index Trust, or any other person or entity from the use of the S&P 500 Index or any data included therein. S&P makes no express or implied warranties, and expressly disclaims all warranties of merchantability or fitness for a particular purpose or use with respect to the S&P 500 Index or any data included therein. Without limiting any of the foregoing, in no event shall S&P have any liability for any special, punitive, indirect, or consequential damages (including lost profits), even if notified of the possibility of such damages. 96 99 STATEMENT OF ADDITIONAL INFORMATION NASL SERIES TRUST (the "Trust") This Statement of Additional Information is not a prospectus but should be read in conjunction with the Trust's Prospectus dated December 31, 1996 which may be obtained from NASL Series Trust, 116 Huntington Avenue, Boston, Massachusetts, 02116. The date of this Statement of Additional Information is December 31, 1996. 100
TABLE OF CONTENTS INVESTMENT POLICIES .............................................................. 3 Money Market Instruments .................................................. 3 Other Instruments ......................................................... 5 HEDGING AND OTHER STRATEGIC TRANSACTIONS ......................................... 13 General Characteristics of Options ........................................ 13 General Characteristics of Futures Contracts and Options on Futures Contracts ....................................................... 15 Options on Securities Indices and Other Financial Indices ................. 15 Currency Transactions ..................................................... 16 Combined Transactions ..................................................... 17 Swaps, Caps, Floors and Collars ........................................... 17 Eurodollar Instruments .................................................... 18 Risk Factors .............................................................. 18 Risks of Hedging and Other Strategic Transactions Outside the United States ........................................................... 19 Use of Segregated and Other Special Accounts .............................. 19 Other Limitations ......................................................... 20 INVESTMENT RESTRICTIONS .......................................................... 21 Fundamental ............................................................... 21 Nonfundamental ............................................................ 22 PORTFOLIO TURNOVER ............................................................... 23 MANAGEMENT OF THE TRUST .......................................................... 25 Compensation of Trustees .................................................. 27 INVESTMENT MANAGEMENT ARRANGEMENTS ............................................... 27 The Advisory Agreement .................................................... 29 The Subadvisory Agreements ................................................ 30 Agreement With Prior Subadviser ........................................... 32 PORTFOLIO BROKERAGE .............................................................. 32 PURCHASE AND REDEMPTION OF SHARES ................................................ 38 DETERMINATION OF NET ASSET VALUE ................................................. 38 PERFORMANCE DATA ................................................................. 39 ORGANIZATION OF THE TRUST ........................................................ 41 Shares of the Trust ....................................................... 41 Principal Holders of Securities ........................................... 42 REPORTS TO SHAREHOLDERS .......................................................... 42 INDEPENDENT ACCOUNTANTS .......................................................... 42 LEGAL COUNSEL .................................................................... 42 FINANCIAL STATEMENTS ............................................................. 43
2 101 INVESTMENT POLICIES The following discussion supplements the Trust's "Investment Objectives and Policies" set forth in the Prospectus. MONEY MARKET INSTRUMENTS The Money Market Trust will be invested in the types of money market instruments described below. Certain of the instruments listed below may also be purchased by the other portfolios in accordance with their investment policies and all portfolios may purchase such instruments to invest otherwise idle cash or for defensive purposes, except that the U.S. Government Securities Trust and the Equity Index Trust may not invest in the instruments described in 2. below. 1. U.S. GOVERNMENT AND GOVERNMENT AGENCY OBLIGATIONS. Government obligations are debt securities issued or guaranteed as to principal or interest by the U.S. Treasury. These securities include treasury bills, notes and bonds. U.S. Government agency obligations are debt securities issued or guaranteed as to principal or interest by an agency or instrumentality of the U.S. Government pursuant to authority granted by Congress. U.S. Government agency obligations include, but are not limited to, the Student Loan Marketing Association, Federal Home Loan Banks, Federal Intermediate Credit Banks and the Federal National Mortgage Association. U.S. instrumentality obligations include, but are not limited to, the Export-Import Bank and Farmers Home Administration. Some obligations issued or guaranteed by U.S. Government agencies or instrumentalities are supported by the right of the issuer to borrow from the U.S. Treasury or the Federal Reserve Banks, such as those issued by Federal Intermediate Credit Banks; others, such as those issued by the Federal National Mortgage Association, by 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. There are also separately traded interest components of securities issued or guaranteed by the United States Treasury. No assurance can be given that the U.S. Government will provide financial support to such U.S. Government sponsored agencies or instrumentalities in the future, since it is not obligated to do so by law. The foregoing types of instruments are hereafter collectively referred to as "U.S. Government securities." 2. CANADIAN AND PROVINCIAL GOVERNMENT AND CROWN AGENCY OBLIGATIONS. Canadian Government obligations are debt securities issued or guaranteed as to principal or interest by the Government of Canada pursuant to authority granted by the Parliament of Canada and approved by the Governor in Council, where necessary. These securities include treasury bills, notes, bonds, debentures and marketable Government of Canada loans. Canadian Crown agency obligations are debt securities issued or guaranteed by a Crown corporation, company or agency ("Crown agencies") pursuant to authority granted by the Parliament of Canada and approved by the Governor in Council, where necessary. Certain Crown agencies are by statute agents of Her Majesty in right of Canada, and their obligations, when properly authorized, constitute direct obligations of the Government of Canada. Such obligations include, but are not limited to, those issued or guaranteed by the Export Development Corporation, Farm Credit Corporation, Federal Business Development Bank and Canada Post Corporation. In addition, certain Crown agencies which are not by law agents of Her Majesty may issue obligations which by statute the Governor in Council may authorize the Minister of Finance to guarantee on behalf of the Government of Canada. Other Crown agencies which are not by law agents of Her Majesty may issue or guarantee obligations not entitled to be guaranteed by the Government of Canada. No assurance can be given that the Government of Canada will support the obligations of Crown agencies which are not agents of Her Majesty, which it has not guaranteed, since it is not obligated to do so by law. Provincial Government obligations are debt securities issued or guaranteed as to principal or interest by the government of any province of Canada pursuant to authority granted by the Legislature of any such province and approved by the Lieutenant Governor in Council of any such province, where necessary. These securities include treasury bills, notes, bonds and debentures. Provincial Crown agency obligations are debt securities issued or guaranteed by a provincial Crown corporation, company or agency ("provincial Crown agencies") pursuant to authority granted by a provincial Legislature and approved by the Lieutenant 3 102 Governor in Council of such province, where necessary. Certain provincial Crown agencies are by statute agents of Her Majesty in right of a particular province of Canada, and their obligations, when properly authorized, constitute direct obligations of such province. Other provincial Crown agencies which are not by law agents of Her Majesty in right of a particular province of Canada may issue obligations which by statute the Lieutenant Governor in Council of such province may guarantee, or may authorize the Treasurer thereof to guarantee, on behalf of the government of such province. Finally, other provincial Crown agencies which are not by law agencies of Her Majesty may issue or guarantee obligations not entitled to be guaranteed by a provincial government. No assurance can be given that the government of any province of Canada will support the obligations of provincial Crown agencies which are not agents of Her Majesty, which it has not guaranteed, as it is not obligated to do so by law. Provincial Crown agency obligations described above include, but are not limited to, those issued or guaranteed by a provincial railway corporation, a provincial hydroelectric or power commission or authority, a provincial municipal financing corporation or agency and a provincial telephone commission or authority. Any Canadian obligation acquired by the Money Market Trust will be payable in U.S. dollars. 3. CERTIFICATES OF DEPOSIT AND BANKERS' ACCEPTANCES. Certificates of deposit are certificates issued against funds deposited in a bank or a savings and loan. They are for a definite period of time and earn a specified rate of return. Bankers' acceptances are short-term credit instruments evidencing the obligation of a bank to pay a draft which has been 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. They are primarily used to finance the import, export, transfer or storage of goods. They are termed "accepted" when a bank guarantees their payment at maturity. Trust portfolios may acquire obligations of foreign banks and foreign branches of U.S. banks. These obligations are not insured by the Federal Deposit Insurance Corporation. 4. COMMERCIAL PAPER. Commercial paper consists of unsecured promissory notes issued by corporations to finance short-term credit needs. Commercial paper is issued in bearer form with maturities generally not exceeding nine months. Commercial paper obligations may include variable amount master demand notes. Variable amount master demand notes are obligations that permit the investment of fluctuating amounts at varying rates of interest pursuant to direct arrangements between a portfolio, as lender, and the borrower. These notes permit daily changes in the amounts borrowed. The portfolio has the right to increase the amount under the note at any time up to the full amount provided by the note agreement, or to decrease the amount, and the borrower may prepay up to the full amount of the note without penalty. Because variable amount master demand notes are direct lending arrangements between the lender and borrower, it is not generally contemplated that such instruments will be traded, and there is no secondary market for these notes, although they are redeemable (and thus immediately repayable by the borrower) at face value, plus accrued interest, at any time. A portfolio will only invest in variable amount master demand notes issued by companies which at the date of investment have an outstanding debt issue rated "Aaa" or "Aa" by Moody's or "AAA" or "AA" by S&P and which the applicable Subadviser has determined present minimal risk of loss to the portfolio. A Subadviser will look generally at the financial strength of the issuing company as "backing" for the note and not to any security interest or supplemental source such as a bank letter of credit. A master demand note will be valued each day a portfolio's net asset value is determined, which value will generally be equal to the face value of the note plus accrued interest unless the financial position of the issuer is such that its ability to repay the note when due is in question. 5. CORPORATE OBLIGATIONS. Corporate obligations include bonds and notes issued by corporations to finance long-term credit needs. 6. REPURCHASE AGREEMENTS. Repurchase agreements are arrangements involving the purchase of obligations by a portfolio and the simultaneous agreement to resell the same obligations on demand or at a specified future date and at an agreed upon price. A repurchase agreement can be viewed as a loan made by a portfolio to the seller of the obligation with such obligation serving as collateral for the seller's agreement to repay the amount borrowed with interest. Such transactions afford an opportunity for a portfolio to earn a 4 103 return on cash which is only temporarily available. Repurchase agreements entered into by the portfolio will be with banks, brokers or dealers. However, a portfolio will enter into a repurchase agreement with a broker or dealer only if the broker or dealer agrees to deposit additional collateral should the value of the obligation purchased by the portfolio decrease below the resale price. In selecting sellers with whom the portfolio will enter into repurchase transactions, the Trustees have adopted procedures that establish certain credit worthiness, asset and collateralization requirements and limit the counterparties to repurchase transactions to those financial institutions which are members of the Federal Reserve System and for a primary government securities dealer reporting to the Federal Reserve Bank of New York's Market Reports Division or a broker/dealer which meet certain credit worthiness criteria or which report U.S. Government securities positions to the Federal Reserve Board. However, the Trustees reserve the right to change the criteria used to select such financial institutions and broker/dealers. The Trustees will regularly monitor the use of repurchase agreements and the Subadviser will, pursuant to procedures adopted by the Trustees, continuously monitor that the collateral held with respect to a repurchase transaction equals or exceeds the amount of the obligations. Should an issuer of a repurchase agreement fail to repurchase the underlying obligation, the loss to the portfolio, if any, would be the difference between the repurchase price and the underlying obligation's market value. A portfolio might also incur certain costs in liquidating the underlying obligation. Moreover, if bankruptcy or other insolvency proceedings should be commenced with respect to the seller, realization upon the underlying obligation by the Trust might be delayed or limited. Generally, repurchase agreements are of a short duration, often less than one week but on occasion for longer periods. OTHER INSTRUMENTS The following provides a more detailed explanation of some of the other instruments in which certain portfolios may invest. 1. MORTGAGE SECURITIES Mortgage securities differ from conventional bonds in that principal is paid over the life of the securities rather than at maturity. As a result, a portfolio receives monthly scheduled payments of principal and interest, and may receive unscheduled principal payments representing prepayments on the underlying mortgages. When a portfolio reinvests the payments and any unscheduled prepayments of principal it receives, it may receive a rate of interest which is higher or lower than the rate on the existing mortgage securities. For this reason, mortgage securities may be less effective than other types of debt securities as a means of locking in long term interest rates. In addition, because the underlying mortgage loans and assets may be prepaid at any time, if a portfolio purchases mortgage securities at a premium, a prepayment rate that is faster than expected will reduce yield to maturity, while a prepayment rate that is slower than expected will have the opposite effect of increasing yield to maturity. Conversely, if a portfolio purchases these securities at a discount, faster than expected prepayments will increase, while slower than expected payments will reduce, yield to maturity. Adjustable rate mortgage securities, are similar to the mortgage securities discussed above, except that unlike fixed rate mortgage securities, adjustable rate mortgage securities are collateralized by or represent interests in mortgage loans with variable rates of interest. These variable rates of interest reset periodically to align themselves with market rates. Most adjustable rate mortgage securities provide for an initial mortgage rate that is in effect for a fixed period, typically ranging from three to twelve months. Thereafter, the mortgage interest rate will reset periodically in accordance with movements in a specified published interest rate index. The amount of interest due to an adjustable rate mortgage holder is determined in accordance with movements in a specified published interest rate index by adding a pre-determined increment or "margin" to the specified interest rate index. Many adjustable rate mortgage securities reset their interest rates based on changes in the one-year, three-year and five-year constant maturity Treasury rates, the three-month or six-month Treasury Bill rate, the 11th District Federal Home Loan Bank Cost of Funds, the National Median 5 104 Cost of Funds, the one-month, three-month, six-month or one-year London Interbank Offered Rate ("LIBOR") and other market rates. A portfolio will not benefit from increases in interest rates to the extent that interest rates rise to the point where they cause the current coupon of adjustable rate mortgages held as investments to exceed any maximum allowable annual or lifetime reset limits (or "cap rates") for a particular mortgage. In this event, the value of the mortgage securities in a portfolio would likely decrease. Also, the portfolio's net asset value could vary to the extent that current yields on adjustable rate mortgage securities are different than market yields during interim periods between coupon reset dates. During periods of declining interest rates, income to a portfolio derived from adjustable rate mortgages which remain in a mortgage pool will decrease in contrast to the income on fixed rate mortgages, which will remain constant. Adjustable rate mortgages also have less potential for appreciation in value as interest rates decline than do fixed rate investments. Privately-Issued Mortgage Securities. Privately-issued pass through securities provide for the monthly principal and interest payments made by individual borrowers to pass through to investors on a corporate basis, and in privately issued collateralized mortgage obligations, as further described below. Privately-issued mortgage securities are issued by private originators of, or investors in, mortgage loans, including mortgage bankers, commercial banks, investment banks, savings and loan associations and special purpose subsidiaries of the foregoing. Since privately-issued mortgage certificates are not guaranteed by an entity having the credit status of GNMA or FHLMC, such securities generally are structured with one or more types of credit enhancement. For a description of the types of credit enhancements that may accompany privately-issued mortgage securities, see "Types of Credit Support" below. A portfolio will not limit its investments to asset-backed securities with credit enhancements. Collateralized Mortgage Obligations ("CMOs"). CMOs generally are bonds or certificates issued in multiple classes that are collateralized by or represent an interest in mortgages. CMOs may be issued by single-purpose, stand-alone finance subsidiaries or trusts of financial institutions, government agencies, investment banks or other similar institutions. Each class of CMOs, often referred to as a "tranche", may be issued with a specific fixed coupon rate (which may be zero) or a floating coupon rate, and has a stated maturity or final distribution date. Principal prepayments on the underlying mortgages may cause the CMOs to be retired substantially earlier than their stated maturities or final distribution dates. Interest is paid or accrued on CMOs on a monthly, quarterly or semiannual basis. The principal of and interest on the underlying mortgages may be allocated among the several classes of a series of a CMO in many ways. The general goal sought to be achieved in allocating cash flows on the underlying mortgages to the various classes of a series of CMOs is to create tranches on which the expected cash flows have a higher degree of predictability than the underlying mortgages. As a general matter, the more predictable the cash flow is on a CMO tranche, the lower the anticipated yield will be on that tranche at the time of issuance. As part of the process of creating more predictable cash flows on most of the tranches in a series of CMOs, one or more tranches generally must be created that absorb most of the volatility in the cash flows on the underlying mortgages. The yields on these tranches are relatively higher than on tranches with more predictable cash flows. Because of the uncertainty of the cash flows on these tranches, and the sensitivity thereof to changes in prepayment rates on the underlying mortgages, the market prices of and yield on these tranches tend to be highly volatile. CMOs purchased may be: (1) collateralized by pools of mortgages in which each mortgage is guaranteed as to payment of principal and interest by an agency or instrumentality of the U.S. Government; (2) collateralized by pools of mortgages in which payment of principal and interest is guaranteed by the issuer and the guarantee is collateralized by U.S. Government securities; or (3) securities for which the proceeds of the issuance are invested in mortgage securities and payment of the principal and interest is supported by the credit of an agency or instrumentality of the U.S. Government. 6 105 STRIPS. In addition to the U.S. Government securities discussed above, certain portfolios may invest in separately traded interest components of securities issued or guaranteed by the United States Treasury. The interest components of selected securities are traded independently under the Separate Trading of Registered Interest and Principal of Securities program ("STRIPS"). Under the STRIPS program, the interest components are individually numbered and separately issued by the United States Treasury at the request of depository financial institutions, which then trade the component parts independently. Stripped Mortgage Securities. Stripped mortgage securities are derivative multiclass mortgage securities. Stripped mortgage securities may be issued by agencies or instrumentalities of the U.S. Government, or by private issuers, including savings and loan associations, mortgage banks, commercial banks, investment banks and special purpose subsidiaries of the foregoing. Stripped mortgage securities have greater volatility than other types of mortgage securities in which the portfolio invests. Although stripped mortgage securities are purchased and sold by institutional investors through several investment banking firms acting as brokers or dealers, the market for such securities has not yet been fully developed. Accordingly, stripped mortgage securities are generally illiquid and to such extent, together with any other illiquid investments, will not exceed 15% of a portfolio's net assets. Stripped mortgage securities are usually structured with two classes that receive different proportions of the interest and principal distributions on a pool of mortgage assets. A common type of stripped mortgage security will have one class receiving some of the interest and most of the principal from the mortgage assets, while the other class will receive most of the interest and the remainder of the principal. In the most extreme case, one class will receive all of the interest (the interest only or "IO" class), while the other class will receive all of the principal (the principal only or "PO" class). The yield to maturity on an IO class is extremely sensitive not only to changes in prevailing interest rates but also the rate of principal payments (including prepayments) on the related underlying mortgage assets, and a rapid rate of principal payments may have a material adverse effect on the portfolio's yield to maturity. If the underlying mortgage assets experience greater than anticipated prepayments of principal, the portfolio may fail to fully recoup its initial investment in these securities even if the securities are rated AAA by S&P. As interest rates rise and fall, the value of IOs tends to move in the same direction as interest rates. The value of the other mortgage securities described in this Prospectus, like other debt instruments, will tend to move in the opposite direction to interest rates. Accordingly, the Trust believes that investing in IOs, in conjunction with the other mortgage securities described herein, will contribute to a portfolio's relatively stable net asset value. In addition to the stripped mortgage securities described above, the Strategic Bond, High Yield and Value Trusts may invest in similar securities such as Super POs and Levered IOs which are more volatile than POs, IOs and IOettes. Risks associated with instruments such as Super POs are similar in nature to those risks related to investments in POs. Risks connected with Levered IOs and IOettes are similar in nature to those associated with IOs. The Strategic Bond Trust may also invest in other similar instruments developed in the future that are deemed consistent with the investment objectives, policies and restrictions of the portfolio. Under the Internal Revenue Code of 1986, as amended (the "Code"), POs may generate taxable income from the current accrual of original issue discount, without a corresponding distribution of cash to the portfolio. See "Additional Information Concerning Taxes." Inverse Floaters. The Strategic Bond, High Yield and Value Trusts may invest in inverse floaters which are also derivative mortgage securities. Inverse floaters may be issued by agencies or instrumentalities of the U.S. Government, or by private issuers, including savings and loan associations, mortgage banks, commercial banks, investment banks and special purpose subsidiaries of the foregoing. Inverse floaters have greater volatility than other types of mortgage securities in which the portfolio invests (with the exception of stripped mortgage securities). Although inverse floaters are purchased and sold by institutional investors through several investment banking firms acting as brokers or dealers, the market for such securities has not 7 106 yet been fully developed. Accordingly, inverse floaters are generally illiquid and to such extent, together with any other illiquid investments, will not exceed 15% of a portfolio's net assets. Inverse floaters are structured as a class of security that receives distributions on a pool of mortgage assets and whose yields move in the opposite direction of short-term interest rates and at an accelerated rate. Inverse floaters may be volatile and there is a risk that their market value will vary from their amortized cost. 2. ASSET-BACKED SECURITIES The securitization techniques used to develop mortgage securities are also being applied to a broad range of other assets. Through the use of trusts and special purpose corporations, automobile and credit card receivables are being securitized in pass-through structures similar to mortgage pass-through structures or in a pay-through structure similar to the CMO structure. Generally the issuers of asset-backed bonds, notes or pass-through certificates are special purpose entities and do not have any significant assets other than the receivables securing such obligations. In general, the collateral supporting asset-backed securities is of shorter maturity than mortgage loans. As a result, investment in these securities should result in greater price stability for the portfolio's shares. Instruments backed by pools of receivables are similar to mortgage-backed securities in that they are subject to unscheduled prepayments of principal prior to maturity. When the obligations are prepaid, the portfolio must reinvest the prepaid amounts in securities the yields of which reflect interest rates prevailing at the time. Therefore, a portfolio's ability to maintain a portfolio which includes high-yielding asset-backed securities will be adversely affected to the extent that prepayments of principal must be reinvested in securities which have lower yields than the prepaid obligations. Moreover, prepayments of securities purchased at a premium could result in a realized loss. A portfolio will only invest in asset-backed securities rated, at the time of purchase, AA or better by S&P or Aa or better by Moody's or which, in the opinion of the investment subadviser, are of comparable quality. As with mortgage securities, asset-backed securities are often backed by a pool of assets representing the obligation of a number of different parties and use similar credit enhancement techniques. For a description of the types of credit enhancement that may accompany privately-issued mortgage securities, see "Types of Credit Support" below. A portfolio will not limit its investments to asset-backed securities with credit enhancements. Although asset-backed securities are not generally traded on a national securities exchange, such securities are widely traded by brokers and dealers, and to such extent will not be considered illiquid securities for the purposes of the investment restriction under "Investment Restrictions" below. TYPES OF CREDIT SUPPORT. Mortgage securities and asset-backed securities are often backed by a pool of assets representing the obligations of a number of different parties. To lessen the effect of failure by obligors on underlying assets to make payments, such securities may contain elements of credit support. Such credit support falls into two categories: (i) liquidity protection and (ii) protection against losses resulting from ultimate default by an obligor on the underlying assets. Liquidity protection refers to the provision of advances, generally by the entity administering the pool of assets, to ensure that the pass-through of payments due on the underlying pool occurs in a timely fashion. Protection against losses resulting from ultimate default enhances the likelihood of ultimate payment of the obligations on at least a portion of the assets in the pool. Such protection may be provided through guarantees, insurance policies or letters of credit obtained by the issuer or sponsor from third parties, through various means of structuring the transaction or through a combination of such approaches. The Trust will not pay any additional fees for such credit support, although the existence of credit support may increase the price of a security. The ratings of mortgage securities and asset-backed securities for which third-party credit enhancement provides liquidity protection or protection against losses from default are generally dependent upon the continued creditworthiness of the provider of the credit enhancement. The ratings of such securities could be subject to reduction in the event of deterioration in the creditworthiness of the credit enhancement provider even in cases where the delinquency and loss experience on the underlying pool of assets is better than expected. 8 107 Examples of credit support arising out of the structure of the transaction include "senior-subordinated securities" (multiple class securities with one or more classes subordinate to other classes as to the payment of principal thereof and interest thereon, with the result that defaults on the underlying assets are borne first by the holders of the subordinated class), creation of "reserve funds" (where cash or investments sometimes funded from a portion of the payments on the underlying assets, are held in reserve against future losses) and "over-collateralization" (where the scheduled payments on, or the principal amount of, the underlying assets exceed those required to make payment of the securities and pay any servicing or other fees). The degree of credit support provided for each issue is generally based on historical information with respect to the level of credit risk associated with the underlying assets. Delinquency or loss in excess of that which is anticipated could adversely affect the return on an investment in such security. 3. ZERO COUPON SECURITIES AND PAY-IN-KIND BONDS Zero coupon securities and pay-in-kind bonds involve special risk considerations. Zero coupon securities are debt securities that pay no cash income but are sold at substantial discounts from their value at maturity. When a zero coupon security is held to maturity, its entire return, which consists of the amortization of discount, comes from the difference between its purchase price and its maturity value. This difference is known at the time of purchase, so that investors holding zero coupon securities until maturity know at the time of their investment what the return on their investment will be. Certain zero coupon securities also are sold at substantial discounts from their maturity value and provide for the commencement of regular interest payments at a deferred date. The portfolios also may purchase pay-in-kind bonds. Pay-in-kind bonds are bonds that pay all or a portion of their interest in the form of debt or equity securities. Zero coupon securities and pay-in-kind bonds tend to be subject to greater price fluctuations in response to changes in interest rates than are ordinary interest-paying debt securities with similar maturities. The value of zero coupon securities appreciates more during periods of declining interest rates and depreciates more during periods of rising interest rates. Zero coupon securities and pay-in-kind bonds may be issued by a wide variety of corporate and governmental issuers. Although zero coupon securities and pay-in-kind bonds are generally not traded on a national securities exchange, such securities are widely traded by brokers and dealers and, to such extent, will not be considered illiquid for the purposes of the investment restriction under "Investment Restrictions" below. Current federal income tax law requires the holder of a zero coupon security or certain pay-in-kind bonds to accrue income with respect to these securities prior to the receipt of cash payments. To maintain its qualification as a regulated investment company and avoid liability for federal income and excise taxes, a portfolio may be required to distribute income accrued with respect to these securities and may have to dispose of portfolio securities under disadvantageous circumstances in order to generate cash to satisfy these distribution requirements. See "Taxes--Pay-in-kind Bonds and Zero Coupon Bonds" below. 4. HIGH YIELD (HIGH RISK) DOMESTIC CORPORATE DEBT SECURITIES The market for high yield U.S. corporate debt securities has undergone significant changes in the past decade. Issuers in the U.S. high yield market originally consisted primarily of growing small capitalization companies and larger capitalization companies whose credit quality had declined from investment grade. During the mid-1980's, participants in the U.S. high yield market issued high yield securities principally in connection with leveraged buyouts and other leveraged recapitalizations. In late 1989 and 1990, the volume of new issues of high yield U.S. corporate debt declined significantly and liquidity in the market decreased. Since early 1991, the volume of new issues of high yield U.S. corporate debt securities has increased substantially and secondary market liquidity has improved. During the same periods, the U.S. high yield debt market exhibited strong returns, and it continues to be an attractive market in terms of yield and yield spread over U.S. Treasury securities. Currently, most new offerings of U.S. high yield securities are being issued to refinance higher coupon debt and to raise funds for general corporate purposes. 9 108 High yield U.S. corporate debt securities in which the portfolios may invest include bonds, debentures, notes and commercial paper and will generally be unsecured. Most of these debt securities will bear interest at fixed rates. However, the portfolios may also invest in debt securities with variable rates of interest or which involve equity features, such as contingent interest or participations based on revenues, sales or profits (i.e., interest or other payments, often in addition to a fixed rate of return, that are based on the borrower's attainment of specified levels of revenues, sales or profits and thus enable the holder of the security to share in the potential success of the venture). 5. HIGH YIELD FOREIGN SOVEREIGN DEBT SECURITIES The Strategic Bond, Investment Quality Bond and High Yield Trusts expect that a significant portion of their emerging market governmental debt obligations will consist of "Brady Bonds." In addition, the Worldwide Growth, International Small Cap, Moderate Asset Allocation and Aggressive Asset Allocation Trusts may also invest in Brady Bonds. Brady Bonds are debt securities issued under the framework of the "Brady Plan," an initiative announced by former U.S. Treasury Secretary Nicholas F. Brady in 1989 as a mechanism for debtor nations to restructure their outstanding external commercial bank indebtedness. The Brady Plan framework, as it has developed, contemplates the exchange of external commercial bank debt for newly issued bonds (Brady Bonds). Brady Bonds may also be issued in respect of new money being advanced by existing lenders in connection with the debt restructuring. Investors should recognize that Brady Bonds have been issued only recently, and accordingly do not have a long payment history. Brady Bonds issued to date generally have maturities of between 15 and 30 years from the date of issuance and have traded at a deep discount from their face value. The Trusts may invest in Brady Bonds of emerging market countries that have been issued to date, as well as those which may be issued in the future. In addition to Brady Bonds, the Trusts may invest in emerging market governmental obligations issued as a result of debt restructuring agreements outside of the scope of the Brady Plan. Agreements implemented under the Brady Plan to date are designed to achieve debt and debt-service reduction through specific options negotiated by a debtor nation with its creditors. As a result, the financial packages offered by each country differ. The types of options have included the exchange of outstanding commercial bank debt for bonds issued at 100% of face value of such debt which carry a below-market stated rate of interest (generally known as par bonds), bonds issued at a discount from face value of such debt (generally known as discount bonds), bonds bearing an interest rate which increases over time and bonds issued in exchange for the advancement of new money by existing lenders. Discount bonds issued to date under the framework of the Brady Plan have generally borne interest computed semi-annually at a rate equal to 13/16 of one percent above the current six month LIBOR rate. Regardless of the stated face amount and stated interest rate of the various types of Brady Bonds, the portfolios will purchase Brady Bonds in secondary markets, as described below, in which the price and yield to the investor reflect market conditions at the time of purchase. Brady Bonds issued to date have traded at a deep discount from their face value. Certain sovereign bonds are entitled to "value recovery payments" in certain circumstances, which in effect constitute supplemental interest payments but generally are not collateralized. Certain Brady Bonds have been collateralized as to principal due at maturity (typically 15 to 30 years from the date of issuance) by U.S. Treasury zero coupon bonds with a maturity equal to the final maturity of such Brady Bonds, although the collateral is not available to investors until the final maturity of the Brady Bonds. Collateral purchases are financed by the International Monetary Fund (the "IMF"), the World Bank and the debtor nations' reserves. In addition, interest payments on certain types of Brady Bonds may be collateralized by cash or high-grade securities in amounts that typically represent between 12 and 18 months of interest accruals on these instruments with the balance of the interest accruals being uncollateralized. The Trusts may purchase Brady Bonds with no or limited collateralization, and will be relying for payment of interest and (except in the case of principal collateralized Brady Bonds) principal primarily on the willingness and ability of the foreign government to make payment in accordance with the terms of the Brady Bonds. Brady Bonds issued to date are purchased and sold in secondary markets through U.S. securities dealers and other financial institutions and are generally maintained through European transactional securities depositories. A substantial portion of the Brady Bonds and other sovereign debt securities in which the portfolios invest are likely to be acquired at a discount. 10 109 6. HYBRID INSTRUMENTS Hybrid instruments (a type of potentially high-risk derivative) have been developed and combine the elements of futures contracts or options with those of debt, preferred equity or a depository instrument (hereinafter "Hybrid Instruments"). Generally, a Hybrid Instrument will be a debt security, preferred stock, depository share, trust certificate, certificate of deposit or other evidence of indebtedness on which a portion of or all interest payments, and/or the principal or stated amount payable at maturity, redemption or retirement, is determined by reference to prices, changes in prices, or differences between prices, of securities, currencies, intangibles, goods, articles or commodities (collectively "Underlying Assets") or by another objective index, economic factor or other measure, such as interest rates, currency exchange rates, commodity indices, and securities indices (collectively "Benchmarks"). Thus, Hybrid Instruments may take a variety of forms, including, but not limited to, debt instruments with interest or principal payments or redemption terms determined by reference to the value of a currency or commodity or securities index at a future point in time, preferred stock with dividend rates determined by reference to the value of a currency, or convertible securities with the conversion terms related to a particular commodity. Hybrid Instruments can be an efficient means of creating exposure to a particular market, or segment of a market, with the objective of enhancing total return. For example, a portfolio may wish to take advantage of expected declines in interest rates in several European countries, but avoid the transactions costs associated with buying and currency-hedging the foreign bond positions. One solution would be to purchase a U.S. dollar-denominated Hybrid Instrument whose redemption price is linked to the average three year interest rate in a designated group of countries. The redemption price formula would provide for payoffs of greater than par if the average interest rate was lower than a specified level, and payoffs of less than par if rates were above the specified level. Furthermore, the portfolio could limit the downside risk of the security by establishing a minimum redemption price so that the principal paid at maturity could not be below a predetermined minimum level if interest rates were to rise significantly. The purpose of this arrangement, known as a structured security with an embedded put option, would be to give the portfolio the desired European bond exposure while avoiding currency risk, limiting downside market risk, and lowering transactions costs. Of course, there is no guarantee that the strategy will be successful and the portfolio could lose money if, for example, interest rates do not move as anticipated or credit problems develop with the issuer of the Hybrid. The risks of investing in Hybrid Instruments reflect a combination of the risks of investing in securities, options, futures and currencies. Thus, an investment in a Hybrid Instrument may entail significant risks that are not associated with a similar investment in a traditional debt instrument that has a fixed principal amount, is denominated in U.S. dollars or bears interest either at a fixed rate or a floating rate determined by reference to a common, nationally published Benchmark. The risks of a particular Hybrid Instrument will, of course, depend upon the terms of the instrument, but may include, without limitation, the possibility of significant changes in the Benchmarks or the prices of Underlying Assets to which the instrument is linked. Such risks generally depend upon factors which are unrelated to the operations or credit quality of the issuer of the Hybrid Instrument and which may not be readily foreseen by the purchaser, such as economic and political events, the supply and demand for the Underlying Assets and interest rate movements. In recent years, various Benchmarks and prices for Underlying Assets have been highly volatile, and such volatility may be expected in the future. Reference is also made to the discussion below of futures, options, and forward contracts for a description of certain risks associated with such investments. Hybrid Instruments are potentially more volatile and carry greater market risks than traditional debt instruments. Depending on the structure of the particular Hybrid Instrument, changes in a Benchmark may be magnified by the terms of the Hybrid Instrument and have an even more dramatic and substantial effect upon the value of the Hybrid Instrument. Also, the prices of the Hybrid Instrument and the Benchmark or Underlying Asset may not move in the same direction or at the same time. 11 110 Hybrid Instruments may bear interest or pay preferred dividends at below market (or even relatively nominal) rates. Alternatively, Hybrid Instruments may bear interest at above market rates but bear an increased risk of principal loss (or gain). The latter scenario may result if "leverage" is used to structure the Hybrid Instrument. Leverage risk occurs when the Hybrid Instrument is structured so that a given change in a Benchmark or Underlying Asset is multiplied to produce a greater value change in the Hybrid Instrument, thereby magnifying the risk of loss as well as the potential for gain. Hybrid Instruments may also carry liquidity risk since the instruments are often "customized" to meet the portfolio needs of a particular investor, and therefore, the number of investors that are willing and able to buy such instruments in the secondary market may be smaller than that for more traditional debt securities. In addition, because the purchase and sale of Hybrid Instruments could take place in an over-the-counter market without the guarantee of a central clearing organization or in a transaction between the portfolio and the issuer of the Hybrid Instrument, the creditworthiness of the counter party or issuer of the Hybrid Instrument would be an additional risk factor which the portfolio would have to consider and monitor. Hybrid Instruments also may not be subject to regulation of the Commodities Futures Trading Commission ("CFTC"), which generally regulates the trading of commodity futures by U.S. persons, the SEC, which regulates the offer and sale of securities by and to U.S. persons, or any other governmental regulatory authority. The various risks discussed above, particularly the market risk of such instruments, may in turn cause significant fluctuations in the net asset value of the portfolio. HEDGING AND OTHER STRATEGIC TRANSACTIONS As described in the Prospectus under "Hedging and Other Strategic Transactions", an individual portfolio may be authorized to use a variety of investment strategies. These strategies will be used for hedging purposes only, including hedging various market risks (such as interest rates, currency exchange rates and broad or specific market movements), and managing the effective maturity or duration of debt instruments held by the portfolio (such investment strategies and transactions are referred to herein as "Hedging and Other Strategic Transactions"). The description in the Prospectus of each portfolio indicates which, if any, of these types of transactions may be used by the portfolio. A detailed discussion of Hedging and Other Strategic Transactions follows below. No portfolio which is authorized to use any of these investment strategies will be obligated, however, to pursue any of such strategies and no portfolio makes any representation as to the availability of these techniques at this time or at any time in the future. In addition, a portfolio's ability to pursue certain of these strategies may be limited by the Commodity Exchange Act, as amended, applicable rules and regulations of the CFTC thereunder and the federal income tax requirements applicable to regulated investment companies which are not operated as commodity pools. GENERAL CHARACTERISTICS OF OPTIONS Put options and call options typically have similar structural characteristics and operational mechanics regardless of the underlying instrument on which they are purchased or sold. Thus, the following general discussion relates to each of the particular types of options discussed in greater detail below. In addition, many Hedging and Other Strategic Transactions involving options require segregation of portfolio assets in special accounts, as described below under "Use of Segregated and Other Special Accounts." A put option gives the purchaser of the option, upon payment of a premium, the right to sell, and the writer the obligation to buy, the underlying security, commodity, index, currency or other instrument at the exercise price. A portfolio's purchase of a put option on a security, for example, might be designed to protect its holdings in the underlying instrument (or, in some cases, a similar instrument) against a substantial decline in the market value of such instrument by giving the portfolio the right to sell the instrument at the option exercise price. A call option, upon payment of a premium, gives the purchaser of the option the right to buy, and the seller the obligation to sell, the underlying instrument at the exercise price. A portfolio's purchase of a call option on a security, financial futures contract, index, currency or other instrument might be intended to protect the portfolio against an increase in the price of the underlying instrument that it intends to purchase in 12 111 the future by fixing the price at which it may purchase the instrument. An "American" style put or call option may be exercised at any time during the option period, whereas a "European" style put or call option may be exercised only upon expiration or during a fixed period prior to expiration. Exchange-listed options are issued by a regulated intermediary such as the Options Clearing Corporation ("OCC"), which guarantees the performance of the obligations of the parties to the options. The discussion below uses the OCC as an example, but is also applicable to other similar financial intermediaries. OCC-issued and exchange-listed options, with certain exceptions, generally settle by physical delivery of the underlying security or currency, although in the future, cash settlement may become available. Index options and Eurodollar instruments (which are described below under "Eurodollar Instruments") are cash settled for the net amount, if any, by which the option is "in-the-money" (that is, the amount by which the value of the underlying instrument exceeds, in the case of a call option, or is less than, in the case of a put option, the exercise price of the option) at the time the option is exercised. Frequently, rather than taking or making delivery of the underlying instrument through the process of exercising the option, listed options are closed by entering into offsetting purchase or sale transactions that do not result in ownership of the new option. A portfolio's ability to close out its position as a purchaser or seller of an OCC-issued or exchange-listed put or call option is dependent, in part, upon the liquidity of the particular option market. Among the possible reasons for the absence of a liquid option market on an exchange are: (1) insufficient trading interest in certain options, (2) restrictions on transactions imposed by an exchange, (3) trading halts, suspensions or other restrictions imposed with respect to particular classes or series of options or underlying securities, including reaching daily price limits, (4) interruption of the normal operations of the OCC or an exchange, (5) inadequacy of the facilities of an exchange or the OCC to handle current trading volume or (6) a decision by one or more exchanges to discontinue the trading of options (or a particular class or series of options), in which event the relevant market for that option on that exchange would cease to exist, although any such outstanding options on that exchange would continue to be exercisable in accordance with their terms. The hours of trading for listed options may not coincide with the hours during which the underlying financial instruments are traded. To the extent that the option markets close before the markets for the underlying financial instruments, significant price and rate movements can take place in the underlying markets that would not be reflected in the corresponding option markets. Over-the-counter ("OTC") options are purchased from or sold to securities dealers, financial institutions or other parties (collectively referred to as "Counterparties" and individually referred to as a "Counterparty") through direct bilateral agreement with the Counterparty. In contrast to exchange-listed options, which generally have standardized terms and performance mechanics, all of the terms of an OTC option, including such terms as method of settlement, term, exercise price, premium, guaranties and security, are determined by negotiation of the parties. It is anticipated that any portfolio authorized to use OTC options will generally only enter into OTC options that have cash settlement provisions, although it will not be required to do so. Unless the parties provide for it, no central clearing or guaranty function is involved in an OTC option. As a result, if a Counterparty fails to make or take delivery of the security, currency or other instrument underlying an OTC option it has entered into with a portfolio or fails to make a cash settlement payment due in accordance with the terms of that option, the portfolio will lose any premium it paid for the option as well as any anticipated benefit of the transaction. Thus, the subadviser must assess the creditworthiness of each such Counterparty or any guarantor or credit enhancement of the Counterparty's credit to determine the likelihood that the terms of the OTC option will be met. A portfolio will enter into OTC option transactions only with U.S. Government securities dealers recognized by the Federal Reserve Bank of New York as "primary dealers," or broker-dealers, domestic or foreign banks, or other financial institutions that are deemed creditworthy by the subadviser. In the absence of a change in the current position of the staff of the Commission, OTC options purchased by a portfolio and the amount of the portfolio's obligation pursuant to an OTC option sold by the portfolio (the cost of the sell-back plus the in-the-money amount, if any) or the value of the assets held to cover such options will be deemed illiquid. 13 112 If a portfolio sells a call option, the premium that it receives may serve as a partial hedge, to the extent of the option premium, against a decrease in the value of the underlying securities or instruments held by the portfolio or will increase the portfolio's income. Similarly, the sale of put options can also provide portfolio gains. If and to the extent authorized to do so, a portfolio may purchase and sell call options on securities and on Eurodollar instruments that are traded on U.S. and foreign securities exchanges and in the OTC markets, and on securities indices, currencies and futures contracts. All calls sold by a portfolio must be "covered" (that is, the portfolio must own the securities or futures contract subject to the call) or must otherwise meet the asset segregation requirements described below for so long as the call is outstanding. Even though a portfolio will receive the option premium to help protect it against loss, a call sold by the portfolio will expose the portfolio during the term of the option to possible loss of opportunity to realize appreciation in the market price of the underlying security or instrument and may require the portfolio to hold a security or instrument that it might otherwise have sold. Each portfolio reserves the right to invest in options on instruments and indices which may be developed in the future to the extent consistent with applicable law, the portfolio's investment objective and the restrictions set forth herein. If and to the extent authorized to do so, a portfolio may purchase and sell put options on securities (whether or not it holds the securities in its portfolio) and on securities indices, currencies and futures contracts. A portfolio will not sell put options if, as a result, more than 50% of the portfolio's assets would be required to be segregated to cover its potential obligations under put options other than those with respect to futures contracts. In selling put options, a portfolio faces the risk that it may be required to buy the underlying security at a disadvantageous price above the market price. GENERAL CHARACTERISTICS OF FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS If and to the extent authorized to do so, a portfolio may trade financial futures contracts or purchase or sell put and call options on those contracts as a hedge against anticipated interest rate, currency or market changes, for duration management and for risk management purposes. Futures contracts are generally bought and sold on the commodities exchanges on which they are listed with payment of initial and variation margin as described below. The sale of a futures contract creates a firm obligation by a portfolio, as seller, to deliver to the buyer the specific type of financial instrument called for in the contract at a specific future time for a specified price (or, with respect to certain instruments, the net cash amount). Options on futures contracts are similar to options on securities except that an option on a futures contract gives the purchaser the right, in return for the premium paid, to assume a position in a futures contract and obligates the seller to deliver that position. A portfolio's use of financial futures contracts and options thereon will in all cases be consistent with applicable regulatory requirements and in particular the rules and regulations of the CFTC and will be entered into only for bona fide hedging, risk management (including duration management) or to attempt to increase income or gains. Maintaining a futures contract or selling an option on a futures contract will typically require a portfolio to deposit with a financial intermediary, as security for its obligations, an amount of cash or other specified assets ("initial margin") that initially is from 1% to 10% of the face amount of the contract (but may be higher in some circumstances). Additional cash or assets ("variation margin") may be required to be deposited thereafter daily as the mark-to-market value of the futures contract fluctuates. The purchase of an option on a financial futures contract involves payment of a premium for the option without any further obligation on the part of a portfolio. If a portfolio exercises an option on a futures contract it will be obligated to post initial margin (and potentially variation margin) for the resulting futures position just as it would for any futures position. Futures contracts and options thereon are generally settled by entering into an offsetting transaction, but no assurance can be given that a position can be offset prior to settlement or that delivery will occur. 14 113 No portfolio will enter into a futures contract or option thereon if, immediately thereafter, the sum of the amount of its initial margin and premiums on open futures contracts and options thereon would exceed 5% of the current fair market value of the portfolio's total assets; however, in the case of an option that is in-the-money at the time of the purchase, the in-the-money amount may be excluded in calculating the 5% limitation. The value of all futures contracts sold by a portfolio (adjusted for the historical volatility relationship between such portfolio and the contracts) will not exceed the total market value of the portfolio's securities. The segregation requirements with respect to futures contracts and options thereon are described below under "Use of Segregated and Other Special Accounts". OPTIONS ON SECURITIES INDICES AND OTHER FINANCIAL INDICES If and to the extent authorized to do so, a portfolio may purchase and sell call and put options on securities indices and other financial indices. In so doing, the portfolio can achieve many of the same objectives it would achieve through the sale or purchase of options on individual securities or other instruments. Options on securities indices and other financial indices are similar to options on a security or other instrument except that, rather than settling by physical delivery of the underlying instrument, options on indices settle by cash settlement; that is, an option on an index gives the holder the right to receive, upon exercise of the option, an amount of cash if the closing level of the index upon which the option is based exceeds, in the case of a call, or is less than, in the case of a put, the exercise price of the option (except if, in the case of an OTC option, physical delivery is specified). This amount of cash is equal to the excess of the closing price of the index over the exercise price of the option, which also may be multiplied by a formula value. The seller of the option is obligated, in return for the premium received, to make delivery of this amount. The gain or loss on an option on an index depends on price movements in the instruments comprising the market, market segment, industry or other composite on which the underlying index is based, rather than price movements in individual securities, as is the case with respect to options on securities. CURRENCY TRANSACTIONS If and to the extent authorized to do so, a portfolio may engage in currency transactions with Counterparties to hedge the value of portfolio securities denominated in particular currencies against fluctuations in relative value. Currency transactions include currency forward contracts, exchange-listed currency futures contracts and options thereon, exchange-listed and OTC options on currencies, and currency swaps. A forward currency contract involves a privately negotiated obligation to purchase or sell (with delivery generally required) 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. A currency swap is an agreement to exchange cash flows based on the notional difference among two or more currencies and operates similarly to an interest rate swap, which is described below under "Swaps, Caps, Floors and Collars". A portfolio may enter into currency transactions only with Counterparties that are deemed creditworthy by the subadviser. A portfolio's dealings in forward currency contracts and other currency transactions such as futures contracts, options, options on futures contracts and swaps will be limited to hedging and other non-speculative purposes, including transaction hedging and position hedging. Transaction hedging is entering into a currency transaction with respect to specific assets or liabilities of a portfolio, which will generally arise in connection with the purchase or sale of the portfolio's portfolio securities or the receipt of income from them. Position hedging is entering into a currency transaction with respect to portfolio securities positions denominated or generally quoted in that currency. A portfolio will not enter into a transaction to hedge currency exposure to an extent greater, after netting all transactions intended wholly or partially to offset other transactions, than the aggregate market value (at the time of entering into the transaction) of the securities held by the portfolio that are denominated or generally quoted in or currently convertible into the currency, other than with respect to proxy hedging as described below. A portfolio may cross-hedge currencies by entering into transactions to purchase or sell one or more currencies that are expected to increase or decline in value relative to other currencies to which the portfolio has or in which the portfolio expects to have exposure. To reduce the effect of currency fluctuations on the 15 114 value of existing or anticipated holdings of its securities, a portfolio may also engage in proxy hedging. Proxy hedging is often used when the currency to which a portfolio's holdings is exposed is difficult to hedge generally or difficult to hedge against the dollar. Proxy hedging entails entering into a forward contract to sell a currency, the changes in the value of which are generally considered to be linked to a currency or currencies in which some or all of a portfolio's securities are or are expected to be denominated, and to buy dollars. The amount of the contract would not exceed the market value of the portfolio's securities denominated in linked currencies. Currency transactions are subject to risks different from other portfolio transactions, as discussed below under "Risk Factors". If a portfolio enters into a currency hedging transaction, the portfolio will comply with the asset segregation requirements described below under "Use of Segregated and Other Special Accounts". COMBINED TRANSACTIONS If and to the extent authorized to do so, a portfolio may enter into multiple transactions, including multiple options transactions, multiple futures transactions, multiple currency transactions (including forward currency contracts), multiple interest rate transactions and any combination of futures, options, currency and interest rate transactions, instead of a single Hedging and Other Strategic Transaction, as part of a single or combined strategy when, in the judgment of the subadviser, it is in the best interests of the portfolio to do so. A combined transaction will usually contain elements of risk that are present in each of its component transactions. Although combined transactions will normally be entered into by a portfolio based on the subadviser's judgment that the combined strategies will reduce risk or otherwise more effectively achieve the desired portfolio management goal, it is possible that the combination will instead increase the risks or hinder achievement of the portfolio management objective. SWAPS, CAPS, FLOORS AND COLLARS Among the Hedging and Other Strategic Transactions into which a portfolio may be authorized to enter are interest rate, currency and index swaps, the purchase or sale of related caps, floors and collars and other derivatives. A portfolio will enter into these transactions primarily to seek to preserve a return or spread on a particular investment or portion of its portfolio, to protect against currency fluctuations, as a duration management technique or to protect against any increase in the price of securities a portfolio anticipates purchasing at a later date. A portfolio will use these transactions for non-speculative purposes and will not sell interest rate caps or floors if it does not own securities or other instruments providing the income the portfolio may be obligated to pay. Interest rate swaps involve the exchange by a portfolio with another party of their respective commitments to pay or receive interest (for example, an exchange of floating rate payments for fixed rate payments with respect to a notional amount of principal). A currency swap is an agreement to exchange cash flows on a notional amount based on changes in the values of the reference indices. The purchase of a cap entitles the purchaser to receive payments on a notional principal amount from the party selling the cap to the extent that a specified index exceeds a predetermined interest rate. The purchase of an interest rate floor entitles the purchaser to receive payments of interest on a notional principal amount from the party selling the interest rate floor to the extent that a specified index falls below a predetermined interest rate or amount. The purchase of a floor entitles the purchaser to receive payments on a notional principal amount from the party selling the floor to the extent that a specific index falls below a predetermined interest rate or amount. A collar is a combination of a cap and a floor that preserves a certain return with a predetermined range of interest rates or values. A portfolio will usually enter into interest rate swaps on a net basis, that is, two payment streams are netted out in a cash settlement on the payment date or dates specified in the instrument, with the portfolio receiving or paying, as the case may be, only the net amount of the two payments. Inasmuch as these swaps, caps, floors, collars and other similar derivatives are entered into for good faith hedging or other non-speculative purposes, they do not constitute senior securities under the Investment Company Act of 1940, as amended, and, thus, will not be treated as being subject to the portfolio's borrowing restrictions. A portfolio will not enter into any swap, cap, floor, collar or other derivative transaction unless the Counterparty is 16 115 deemed creditworthy by the subadviser. If a Counterparty defaults, a portfolio may have contractual remedies pursuant to the agreements related to the transaction. The swap market has grown substantially in recent years with a large number of banks and investment banking firms acting both as principals and as agents utilizing standardized swap documentation. As a result, the swap market has become relatively liquid. Caps, floors and collars are more recent innovations for which standardized documentation has not yet been fully developed and, for that reason, they are less liquid than swaps. The liquidity of swap agreements will be determined by a Subadviser based on various factors, including (1) the frequency of trades and quotations, (2) the number of dealers and prospective purchasers in the marketplace, (3) dealer undertakings to make a market, (4) the nature of the security (including any demand or tender features), and (5) the nature of the marketplace for trades (including the ability to assign or offset a portfolio's rights and obligations relating to the investment). Such determination will govern whether a swap will be deemed to be within the 15% restriction on investments in securities that are not readily marketable. Each portfolio will maintain cash and appropriate liquid assets in a segregated custodial account to cover its current obligations under swap agreements. If a portfolio enters into a swap agreement on a net basis, it will segregate assets with a daily value at least equal to the excess, if any, of the portfolio's accrued obligations under the swap agreement over the accrued amount the portfolio is entitled to receive under the agreement. If a portfolio enters into a swap agreement on other than a net basis, it will segregate assets with a value equal to the full amount of the portfolio's accrued obligations under the agreement. See also, "Use of Segregated and Other Special Accounts." EURODOLLAR INSTRUMENTS If and to the extent authorized to do so, a portfolio may make investments in Eurodollar instruments, which are typically dollar-denominated futures contracts or options on those contracts that are linked to the London Interbank Offered Rate ("LIBOR"), although foreign currency denominated instruments are available from time to time. Eurodollar futures contracts enable purchasers to obtain a fixed rate for the lending of funds and sellers to obtain a fixed rate for borrowings. A portfolio might use Eurodollar futures contracts and options thereon to hedge against changes in LIBOR, to which many interest rate swaps and fixed income instruments are linked. RISK FACTORS Hedging and Other Strategic Transactions have special risks associated with them, including possible default by the Counterparty to the transaction, illiquidity and, to the extent the subadviser's view as to certain market movements is incorrect, the risk that the use of the Hedging and Other Strategic Transactions could result in losses greater than if they had not been used. Use of put and call options could result in losses to a portfolio, force the sale or purchase of portfolio securities at inopportune times or for prices higher than (in the case of put options) or lower than (in the case of call options) current market values, or cause a portfolio to hold a security it might otherwise sell. The use of futures and options transactions entails certain special risks. In particular, the variable degree of correlation between price movements of futures contracts and price movements in the related securities position of a portfolio could create the possibility that losses on the hedging instrument are greater than gains in the value of the portfolio's position. In addition, futures and options markets could be illiquid in some circumstances and certain over-the-counter options could have no markets. As a result, in certain markets, a portfolio might not be able to close out a transaction without incurring substantial losses. Although a portfolio's use of futures and options transactions for hedging should tend to minimize the risk of loss due to a decline in the value of the hedged position, at the same time it will tend to limit any potential gain to a portfolio that might result from an increase in value of the position. Finally, the daily variation margin requirements for futures contracts create a greater ongoing potential financial risk than would purchases of options, in which case the exposure is limited to the cost of the initial premium. 17 116 Currency hedging involves some of the same risks and considerations as other transactions with similar instruments. Currency transactions can result in losses to a portfolio if the currency being hedged fluctuates in value to a degree or in a direction that is not anticipated. Further, the risk exists that the perceived linkage between various currencies may not be present or may not be present during the particular time that a portfolio is engaging in proxy hedging. Currency transactions are also subject to risks different from those of other portfolio transactions. Because currency control is of great importance to the issuing governments and influences economic planning and policy, purchases and sales of currency and related instruments can be adversely affected by government exchange controls, limitations or restrictions on repatriation of currency, and manipulations or exchange restrictions imposed by governments. These forms of governmental actions can result in losses to a portfolio if it is unable to deliver or receive currency or monies in settlement of obligations and could also cause hedges it has entered into to be rendered useless, resulting in full currency exposure as well as incurring transaction costs. Buyers and sellers of currency futures contracts are subject to the same risks that apply to the use of futures contracts generally. Further, settlement of a currency futures contract for the purchase of most currencies must occur at a bank based in the issuing nation. Trading options on currency futures contracts is relatively new, and the ability to establish and close out positions on these options is subject to the maintenance of a liquid market that may not always be available. Currency exchange rates may fluctuate based on factors extrinsic to that country's economy. Losses resulting from the use of Hedging and Other Strategic Transactions will reduce a portfolio's net asset value, and possibly income, and the losses can be greater than if Hedging and Other Strategic Transactions had not been used. RISKS OF HEDGING AND OTHER STRATEGIC TRANSACTIONS OUTSIDE THE UNITED STATES When conducted outside the United States, Hedging and Other Strategic Transactions may not be regulated as rigorously as in the United States, may not involve a clearing mechanism and related guarantees, and will be subject to the risk of governmental actions affecting trading in, or the prices of, foreign securities, currencies and other instruments. The value of positions taken as part of non-U.S. Hedging and Other Strategic Transactions also could be adversely affected by: (1) other complex foreign political, legal and economic factors, (2) lesser availability of data on which to make trading decisions than in the United States, (3) delays in a portfolio's ability to act upon economic events occurring in foreign markets during non-business hours in the United States, (4) the imposition of different exercise and settlement terms and procedures and margin requirements than in the United States and (5) lower trading volume and liquidity. USE OF SEGREGATED AND OTHER SPECIAL ACCOUNTS Use of many Hedging and Other Strategic Transactions by a portfolio will require, among other things, that the portfolio segregate cash, liquid high grade debt obligations or other assets with its custodian, or a designated sub-custodian, to the extent the portfolio's obligations are not otherwise "covered" through ownership of the underlying security, financial instrument or currency. In general, either the full amount of any obligation by a portfolio to pay or deliver securities or assets must be covered at all times by the securities, instruments or currency required to be delivered, or, subject to any regulatory restrictions, an amount of cash or liquid high grade debt obligations at least equal to the current amount of the obligation must be segregated with the custodian or sub-custodian. The segregated assets cannot be sold or transferred unless equivalent assets are substituted in their place or it is no longer necessary to segregate them. A call option on securities written by a portfolio, for example, will require the portfolio to hold the securities subject to the call (or securities convertible into the needed securities without additional consideration) or to segregate liquid high grade debt obligations sufficient to purchase and deliver the securities if the call is exercised. A call option sold by a portfolio on an index will require the portfolio to own portfolio securities that correlate with the index or to segregate liquid high grade debt obligations equal to the excess of the index value over the exercise price on a current basis. A put option on securities written by a portfolio will require the portfolio to segregate liquid high grade debt obligations equal to the exercise price. Except when a portfolio enters into a forward contract in connection with the purchase or sale of a security denominated in a foreign currency or for other non-speculative purposes, which requires no segregation, a currency contract that obligates the portfolio to buy or sell a foreign currency will generally require the portfolio to hold an 18 117 amount of that currency or liquid securities denominated in that currency equal to a portfolio's obligations or to segregate liquid high grade debt obligations equal to the amount of the portfolio's obligations. OTC options entered into by a portfolio, including those on securities, currency, financial instruments or indices, and OCC-issued and exchange-listed index options will generally provide for cash settlement, although a portfolio will not be required to do so. As a result, when a portfolio sells these instruments it will segregate an amount of assets equal to its obligations under the options. OCC-issued and exchange-listed options sold by a portfolio other than those described above generally settle with physical delivery, and the portfolio will segregate an amount of assets equal to the full value of the option. OTC options settling with physical delivery or with an election of either physical delivery or cash settlement will be treated the same as other options settling with physical delivery. In the case of a futures contract or an option on a futures contract, a portfolio must deposit initial margin and, in some instances, daily variation margin in addition to segregating assets sufficient to meet its obligations to purchase or provide securities or currencies, or to pay the amount owed at the expiration of an index-based futures contract. These assets may consist of cash, cash equivalents, liquid debt or equity securities or other acceptable assets. A portfolio will accrue the net amount of the excess, if any, of its obligations relating to swaps over its entitlements with respect to each swap on a daily basis and will segregate with its custodian, or designated sub-custodian, an amount of cash or liquid high grade debt obligations having an aggregate value equal to at least the accrued excess. Caps, floors and collars require segregation of assets with a value equal to a portfolio's net obligation, if any. Hedging and Other Strategic Transactions may be covered by means other than those described above when consistent with applicable regulatory policies. A portfolio may also enter into offsetting transactions so that its combined position, coupled with any segregated assets, equals its net outstanding obligation in related options and Hedging and Other Strategic Transactions. A portfolio could purchase a put option, for example, if the strike price of that option is the same or higher than the strike price of a put option sold by the portfolio. Moreover, instead of segregating assets if it holds a futures contracts or forward contract, a portfolio could purchase a put option on the same futures contract or forward contract with a strike price as high or higher than the price of the contract held. Other Hedging and Other Strategic Transactions may also be offset in combinations. If the offsetting transaction terminates at the time of or after the primary transaction, no segregation is required, but if it terminates prior to that time, assets equal to any remaining obligation would need to be segregated. OTHER LIMITATIONS No portfolio will maintain open short positions in futures contracts, call options written on futures contracts, and call options written on securities indices if, in the aggregate, the current market value of the open positions exceeds the current market value of that portion of its securities portfolio being hedged by those futures and options plus or minus the unrealized gain or loss on those open positions, adjusted for the historical volatility relationship between that portion of the portfolio and the contracts (e.g., the Beta volatility factor). For purposes of the limitation stated in the immediately preceding sentence, to the extent the portfolio has written call options on specific securities in that portion of its portfolio, the value of those securities will be deducted from the current market value of that portion of the securities portfolio. If this limitation should be exceeded at any time, the portfolio will take prompt action to close out the appropriate number of open short positions to bring its open futures and options positions within this limitation. The degree to which a portfolio may utilize Hedging and Other Strategic Transactions may also be affected by certain provisions of the Internal Revenue Code of 1986, as amended. INVESTMENT RESTRICTIONS There are two classes of investment restrictions to which the Trust is subject in implementing the investment policies of the portfolios: fundamental and nonfundamental. Nonfundamental restrictions are 19 118 subject to change by the Trustees of the Trust without shareholder approval. Fundamental restrictions may only be changed by a vote of the lesser of (i) 67% or more of the shares represented at a meeting at which more than 50% of the outstanding shares are represented or (ii) more than 50% of the outstanding shares. With respect to the submission of a change in an investment restriction to the holders of the Trust's outstanding voting securities, the matter shall be deemed to have been effectively acted upon with respect to a particular portfolio if a majority of the outstanding voting securities of the portfolio vote for the approval of the matter, notwithstanding (1) that the matter has not been approved by the holders of a majority of the outstanding voting securities of any other portfolio affected by the matter, and (2) that the matter has not been approved by the vote of a majority of the outstanding voting securities of the Trust. All of the restrictions through restriction 8. are fundamental. Restrictions 9. through 15. are nonfundamental. FUNDAMENTAL The Trust may not issue senior securities, except to the extent that the borrowing of money in accordance with restriction 3. may constitute the issuance of a senior security. (For purposes of this restriction, purchasing securities on a when-issued or delayed delivery basis and engaging in Hedging and Other Strategic Transactions will not be deemed to constitute the issuance of a senior security.) In addition, unless a portfolio is specifically excepted by the terms of a restriction, each portfolio will not: (1) Invest more than 25% of the value of its total assets in securities of issuers having their principal activities in any particular industry, excluding United States Government securities and obligations of domestic branches of U.S. banks and savings and loan associations, except that this restriction shall not apply to the Real Estate Securities Trust and the Lifestyle Trusts. [The Trust has determined to forego the exclusion from the above policy of obligations of domestic branches of U.S. savings and loan associations and to limit the exclusion of obligations of domestic branches of U.S. banks to the Money Market Trust.] For purposes of this restriction, neither finance companies as a group nor utility companies as a group are considered to be a single industry. Such companies will be grouped instead according to their services; for example, gas, electric and telephone utilities will each be considered a separate industry. Also for purposes of this restriction, foreign government issuers and supranational issuers are not considered members of any industry. (2) Purchase the securities of any issuer if the purchase would cause more than 5% of the value of the portfolio's total assets to be invested in the securities of any one issuer (excluding United States Government securities) or cause more than 10% of the voting securities of the issuer to be held by the portfolio, except that up to 25% of the value of each portfolio's total assets may be invested without regard to these restrictions. The Global Government Bond Trust, the Emerging Growth Trust and the Lifestyle Trusts are not subject to these restrictions. (3) Borrow money, except that each portfolio may borrow (i) for temporary or emergency purposes (not for leveraging) up to 33 1/3% of the value of the portfolio's total assets (including amounts borrowed) less liabilities (other than borrowings) and (ii) in connection with reverse repurchase agreements, mortgage dollar rolls and other similar transactions. (4) Underwrite securities of other issuers except insofar as the Trust may be considered an underwriter under the Securities Act of 1933 in selling portfolio securities. (5) Purchase or sell real estate, except that each portfolio may invest in securities issued by companies which invest in real estate or interests therein and each of the portfolios other than the Money Market Trust may invest in mortgages and mortgage backed securities. (6) Purchase or sell commodities or commodity contracts except that each portfolio other than the Money Market Trust may purchase and sell futures contracts on financial instruments and indices and 20 119 options on such futures contracts and each portfolio other than the Money Market Trust and U.S. Government Securities Trust may purchase and sell futures contracts on foreign currencies and options on such futures contracts. (7) Lend money to other persons except by the purchase of obligations in which the portfolio is authorized to invest and by entering into repurchase agreements. For purposes of this restriction, collateral arrangements with respect to options, forward currency and futures transactions will not be deemed to involve the lending of money. (8) Lend securities in excess of 33 1/3% of the value of its total assets. For purposes of this restriction, collateral arrangements with respect to options, forward currency and futures transactions will not be deemed to involve loans of securities. NONFUNDAMENTAL (9) Knowingly invest more than 15% of the value of its net assets in securities or other investments, including repurchase agreements maturing in more than seven days but excluding master demand notes, that are not readily marketable, except that the Money Market Trust may not invest in excess of 10% of its net assets in such securities or other investments. (10) Sell securities short or purchase securities on margin except that it may obtain such short-term credits as may be required to clear transactions. For purposes of this restriction, collateral arrangements with respect to Hedging and Other Strategic Transactions will not be deemed to involve the use of margin. (11) Write or purchase options on securities, financial indices or currencies except to the extent a portfolio is specifically authorized to engage in Hedging and Other Strategic Transactions. (12) Purchase securities for the purpose of exercising control or management. (13) Purchase securities of other investment companies (A) in reliance on Section 12(d)(1)(G) of the 1940 Act or (B) if the purchase would cause more than 10% of the value of the portfolio's total assets to be invested in investment company securities, provided that (i) no investment will be made in the securities of any one investment company if immediately after such investment more than 3% of the outstanding voting securities of such company would be owned by the portfolio or more than 5% of the value of the portfolio's total assets would be invested in such company and (ii) no restrictions shall apply to a purchase of investment company securities in connection with a merger, consolidation or reorganization or in connection with the investment of collateral received in connection with the lending of securities in the Navigator Securities Lending Trust.* For purposes of this restriction, privately issued collateralized mortgage obligations will not be treated as investment company securities if issued by "Exemptive Issuers". Exemptive Issuers are defined as unmanaged, fixed-asset issuers that (a) invest primarily in mortgage-backed securities, (b) do not issue redeemable securities as defined in section 2(a)(32) of the Investment Company Act of 1940, (c) operate under general exemptive orders exempting them from "all provisions of the Investment Company Act of 1940," and (d) are not registered or regulated under the Investment Company Act of 1940 as investment companies. This restriction (13) shall not apply to the Lifestyle Trusts. (14) Pledge, hypothecate, mortgage or transfer (except as provided in restriction 8.) as security for indebtedness any securities held by the portfolio except in an amount of not more than 10% (33 1/3% in the case of the Blue Chip Growth, Equity-Income, International Stock and Science & Technology Trusts, 15% in the case of the International Small Cap, Growth, Balanced and Worldwide Growth Trusts and 50% in the case of the Value Trust) of the value of the portfolio's total assets and then only to secure borrowings permitted by restrictions 3. and 10. For purposes of this restriction, collateral arrangements with respect to Hedging and Other Strategic Transactions will not be deemed to involve a pledge of assets. 21 120 (15) Purchase securities of foreign issuers, except that (A) the Aggressive Asset Allocation Trust may invest up to 35% of its assets in such securities; (B) the Growth, Balanced and Science & Technology Trusts may each invest up to 30% of its assets in such securities, (C) the Equity-Income and Moderate Asset Allocation Trusts may each invest up to 25% of its assets in such securities; (D) the Pilgrim Baxter Growth and Conservative Asset Allocation Trusts each may invest up to 15% of its assets in such securities; (E) the Value Trust may invest up to 5% of its assets in foreign securities; (F) each other portfolio other than the U.S. Government Securities and Equity Index Trusts may invest up to 20% of its total assets in such securities (in the case of the Small/Mid Cap, Growth, Balanced and Value Trusts, ADRs and U.S. dollar-denominated securities are not included in the applicable percentage limit); and (G) the foregoing restriction shall not apply to the International Small Cap, Worldwide Growth, Global Equity, Pacific Rim Emerging Markets, International Stock, High Yield, Global Government Bond, International Growth and Income, Strategic Bond, Capital Growth Bond, Real Estate Securities and Quantitative Equity Trusts. *State Street Bank and Trust Company ("State Street"), the Trust's custodian, pursuant to an agreement with the Trust provides a security lending service to the Trust. In connection with the service, collateral from securities lent may be invested in the Navigator Trust. The Navigator Trust is a registered investment company managed by State Street that is sold only to mutual fund lending clients of State Street. In connection with the creation of the Navigator Trust, State Street received from the Securities and Exchange Commission exemption from certain provisions of the Investment Company Act of 1940 (the "1940 Act") in order to permit its mutual fund clients to invest in the Navigator Trust. State Street received exemption from Section 12(d)(1) of the 1940 Act and various provisions of Section 17 of the 1940 Act. In addition to the above policies, the Money Market Trust is subject to certain restrictions required by Rule 2a-7 under the Investment Company Act of 1940. In order to comply with such restrictions, the Money Market Trust will, inter alia, not purchase the securities of any issuer if it would cause (i) more than 5% of its total assets to be invested in the securities of any one issuer (excluding U.S. Government securities and repurchase agreements fully collateralized by U.S. Government securities), except as permitted by Rule 2a-7 for certain securities for a period of up to three business days after purchase, (ii) more than 5% of its total assets to be invested in "second tier securities," as defined by Rule, or (iii) more than the greater of $1 million or 1% of its total assets to be invested in the second tier securities of that issuer. If a percentage restriction is adhered to at the time of an investment, a later increase or decrease in the investment's percentage of the value of a portfolio's total assets resulting from a change in such values or assets will not constitute a violation of the percentage restriction, except in the case of the Money Market Trust where the percentage limitation of restriction 9. must be met at all times. PORTFOLIO TURNOVER The annual rate of portfolio turnover will normally differ for each portfolio and may vary from year to year. Portfolio turnover is calculated by dividing the lesser of purchases or sales of portfolio securities during the fiscal year by the monthly average of the value of the portfolio's securities (excluding from the computation all securities, including options, with maturities at the time of acquisition of one year or less). A high rate of portfolio turnover (100% or more) generally involves correspondingly greater brokerage commission expenses, which must be borne directly by the portfolio. No portfolio turnover rate can be calculated for the Money Market Trust due to the short maturities of the instruments purchased. The portfolio turnover rate may vary from year to year, as well as within a year. The portfolio turnover rates for the portfolios of the Trust for the years ended December 31, 1995 and 1994 were as follows:
1995 1994 Global Equity Trust .................... 63% 52% Equity Trust ........................... 88% 132% Blue Chip Growth Trust ................. 57% 33%
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1995 1994 International Growth and Income Trust* . 112% NA Growth and Income Trust ................ 39% 42% Equity-Income Trust .................... 52% 26% Aggressive Asset Allocation Trust ............................. 11% 136% Moderate Asset Allocation Trust ............................. 129% 180% Conservative Asset Allocation Trust ............................. 110% 220% Strategic Bond Trust ................... 181% 197% Global Government Bond Trust ............................. 171% 157% Investment Quality Bond Trust .......... 137% 140% U.S. Government Securities Trust ............................. 212% 387%
*Annualized Portfolio turnover rates (based on normal circumstances) for newer portfolios are not expected to exceed 200%. Prior rates of portfolio turnover do not provide an accurate guide as to what the rate will be in any future year, and prior rates and estimated rates are not a limiting factor when it is deemed appropriate to purchase or sell securities for a portfolio. Each portfolio of the Trust intends to comply with the various requirements of the Internal Revenue Code so as to qualify as a "regulated investment company" thereunder. One such requirement is that a portfolio must derive less than 30% of its gross income from the sale or other disposition of stock or securities held for less than three months. Accordingly, the ability of a particular portfolio to effect certain portfolio transactions may be limited. 23 122 MANAGEMENT OF THE TRUST The Trustees and officers of the Trust, together with information as to their principal occupations during the past five years, are listed below:
============================================================================================ NAME, ADDRESS AND AGE POSITION WITH THE PRINCIPAL OCCUPATION TRUST DURING PAST FIVE YEARS ============================================================================================ Don B. Allen Trustee Senior Lecturer, William E. Simon 136 Knickerbocker Road Graduate School of Business Pittsford, NY 14534 Administration, University of Age: 68 Rochester ============================================================================================ John D. DesPrez III President Vice President, Annuities, The 116 Huntington Avenue Manufacturers Life Insurance Boston, MA 02116 Company, September 1996 to Age: 39 present; President and Director, North American Security Life Insurance Company, September 1996 to present; President, North American Funds, March 1993 to September 1996; Vice President and General Counsel, North American Security Life Insurance Company, 1991 to 1994. ============================================================================================ Charles L. Bardelis Trustee President and Executive Officer, 297 Dillingham Ave. Island Commuter Corp.(Marine Falmouth, MA 02540 Transport) Age: 55 ============================================================================================ Samuel Hoar** Trustee Senior Mediator, Judicial 73 Tremont Street Arbitration Mediation Services Boston, MA 02109 "JAMS/Endispute," June 1, 1994 to Age: 69 date; Partner, Goodwin, Proctor and Hoar, prior to June 1, 1994 ============================================================================================ John D. Richardson* Chairman of Trustees Senior Vice President and General 200 Bloor Street East Manager, U.S. Operations, Toronto, Ontario, Canada Manulife, January 1995 to present; M4W 1E5 Senior Vice President and General Age: 58 Manager, Canadian Operations, Manulife, June 1992 to January 1995; Senior Vice President, Financial Services, Manulife, prior to June 1992 ============================================================================================
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============================================================================================ NAME, ADDRESS AND AGE POSITION WITH THE PRINCIPAL OCCUPATION TRUST DURING PAST FIVE YEARS ============================================================================================ F. David Rolwing Trustee Chairman, President and CEO, 17810 Meeting House Road Montgomery Mutual Insurance Sandy Spring, MD 20860 Company, 1991 to present Age: 62 ============================================================================================ Robert J. Myers Trustee Consulting Actuary 9610 Wire Avenue (self-employed), April 1983 to Silver Springs, MD 20921 date; Member, Prospective Payment Age: 84 Assessment Commission, June 1993 to present; Chairman, Commission on Railroad Retirement Reform, 1988 to 1990. ============================================================================================ John G. Vrysen Vice President Vice President, Chief Financial 116 Huntington Avenue Officer, U.S. Operations, of Boston, MA 02116 Manulife, January 1, 1996 to date; Age: 40 Vice President and Actuary, January 1986 to date, North American Security Life Insurance Company. ============================================================================================ James D. Gallagher Secretary Vice President, Legal Services, of 116 Huntington Avenue Manulife, January 1, 1996 to date; Boston, MA 02116 Vice President, Secretary and Age: 41 General Counsel, June 1994 to date, North American Security Life Insurance Company; Vice President and Associate General Counsel, 1990 to 1994, The Prudential Insurance Company of America. ============================================================================================ Richard C. Hirtle Vice President Vice President, Chief Financial 116 Huntington Avenue and Treasurer Officer, Annuities, of Manulife, Boston, MA 02116 January 1996 to date; Vice Age: 40 President, Treasurer and Chief Financial Officer, November 1988 to date, North American Security Life Insurance Company. ============================================================================================
*Trustee who is an "interested person", as defined in the Investment Company Act of 1940. **Trustee who is an "interested person" of the Trust but not the Adviser. 25 124 COMPENSATION OF TRUSTEES The Trust does not pay any remuneration to its Trustees who are officers or employees of the Adviser or its affiliates. Trustees not so affiliated receive an annual retainer of $21,000, a fee of $5,500 for each meeting of the Trustees that they attend in person and a fee of $200 for each such meeting conducted by telephone. Trustees are reimbursed for travel and other out-of-pocket expenses. The officers listed above are furnished to the Trust pursuant to the Advisory Agreement described below and receive no compensation from the Trust. These officers spend only a portion of their time on the affairs of the Trust.
================================================================================================================ NAMES OF PERSON, POSITION AGGREGATE COMPENSATION TOTAL COMPENSATION FROM FROM TRUST FOR PRIOR FISCAL TRUST COMPLEX FOR PRIOR YEAR* FISCAL YEAR*# - ---------------------------------------------------------------------------------------------------------------- Don B. Allen, Trustee $35,000 $42,500 ------------------------------------------------------------------------------------------------------ Charles L. Bardelis, Trustee $35,000 $42,500 ------------------------------------------------------------------------------------------------------ Samuel Hoar, Trustee $35,000 $42,500 ------------------------------------------------------------------------------------------------------ Robert J. Myers, Trustee $35,000 $42,500 ====================================================================================================== John D. Richardson, Trustee $ 0 $ 0 ====================================================================================================== F. David Rolwing, Trustee $ 0 $12,000 ======================================================================================================
*Compensation received for services as Trustee #Trust Complex includes all portfolios of the Trust as well as all portfolios of North American Funds of which NASL Financial is the investment adviser and all portfolios of Manulife Series Fund, Inc. of which Manufacturers Adviser Corporation was the investment adviser. INVESTMENT MANAGEMENT ARRANGEMENTS The following information supplements the material appearing in the Prospectus under the caption "Management of the Trust." Copies of the Advisory and Subadvisory Agreements discussed below have been filed with and are available from the Securities and Exchange Commission. The Trust, formerly a Maryland corporation known as "NASL Series Fund, Inc." (the "Fund"), was reorganized as a Massachusetts business trust effective December 31, 1988. Pursuant to such reorganization, the Trust assumed all the assets and liabilities of the Fund and carried on its business and operations with the same investment management arrangements as were in effect for the Fund at the time of the reorganization. The assets and liabilities of each of the Fund's separate portfolios were assumed by the corresponding portfolios of the Trust. Effective December 31, 1996, Manulife Series Fund, Inc., a registered management investment company with nine portfolios, was merged into the Trust. The net assets of four of the portfolios of Manulife Series Fund, Inc. were transferred to comparable portfolios of the Trust, and the remaining five portfolios -- the Pacific Rim Emerging Markets, Real Estate Securities, Common Stock, Capital Growth and Equity Index Portfolios -- were transferred to the Trust and reconstituted as new portfolios of the Trust. NASL Financial (the "Adviser") is a Massachusetts corporation whose principal offices are located at 116 Huntington Avenue, Boston, Massachusetts 02116. NASL Financial is registered as an investment adviser under the Investment Advisers Act of 1940 and as a broker-dealer under the Securities Exchange Act of 1934. It is a member of the National Association of Securities Dealers, Inc. (the "NASD"). In addition, NASL Financial serves as principal underwriter of certain contracts issued by Security Life. 26 125 The Advisory Agreement, each Subadvisory Agreement (except those described below) and the Salomon Brothers Asset Management Limited Consulting Agreement were approved by the Trustees on September 28, 1995 and by the shareholders of the portfolios on December 5, 1995. These approvals occurred in connection with the change of control of NASL Financial as a result of the merger of North American Life Assurance Company, the ultimate controlling parent of NASL Financial, with The Manufacturers Life Insurance Company on January 1, 1996. On December 15, 1995, the Trustees appointed Fred Alger Management, Inc. ("Alger") pursuant to a new Subadvisory Agreement with Alger ("Alger Subadvisory Agreement") to manage the Small/Mid Cap Trust. The Alger Subadvisory Agreement and an amendment to the Advisory Agreement, both to provide for the management of the Small/Mid Cap Trust, were approved by the Trustees, including a majority of the Trustees who are not parties to the agreements or interested persons of any party to such agreements. The Alger Subadvisory Agreement and the related amendment to the Advisory Agreement have been approved by the sole shareholder of the Small/Mid Cap Trust. On December 15, 1995, the Trustees appointed Founders Asset Management, Inc. ("Founders") pursuant to a new Subadvisory Agreement with Founders ("Founders Subadvisory Agreement") to manage the International Small Cap Trust and on June 20, 1996, the Trustees appointed Founders pursuant to an amendment to the Founders Subadvisory Agreement to manage the Growth Trust. The Founders Subadvisory Agreement (and in the case of the Growth Trust, the amendment to the Founders Subadvisory Agreement) and amendments to the Advisory Agreement, both to provide for the management of the Growth and International Small Cap Trust, were approved by the Trustees, including a majority of the Trustees who are not parties to the agreements or interested persons of any party to such agreements. The Founders Subadvisory Agreement (and in the case of the Growth Trust, the amendment to the Founders Subadvisory Agreement) and the related amendments to the Advisory Agreement have been approved by the sole shareholders of the Growth and the International Small Cap Trust. Effective October 1, 1996, Oechsle International, Wellington Management, Goldman Sachs Asset Management and Roger Engemann Management Co., Inc., the Subadvisers of the Global Equity, Money Market, Equity-Income and Blue Chip Growth Trusts, respectively, resigned their positions as Subadvisers of those portfolios. On September 27, 1996, the Trustees (i) appointed Morgan Stanley Asset Management Inc. ("Morgan Stanley") pursuant to a new Subadvisory Agreement with Morgan Stanley ("Morgan Stanley Subadvisory Agreement") to manage the Global Equity Trust, (ii) appointed T. Rowe Price Associates, Inc. ("T. Rowe Price") pursuant to a new Subadvisory Agreement with T. Rowe Price ("T. Rowe Price Subadvisory Agreement") to manage the Blue Chip Growth and Equity-Income Trusts, and (iii) appointed Manufacturers Adviser Corporation ("MAC") pursuant to a new Subadvisory Agreement with MAC ("MAC Subadvisory Agreement") to manage the Money Market Trust. All such Subadvisory Agreements were approved by the Trustees, including a majority of the Trustees who are not parties to the agreements or interested persons of any party to such agreements, on September 27, 1996 (with an effective date of October 1, 1996) and by the shareholders of the respective portfolios on December 20, 1996. Also on September 27, 1996, the Trustees (i) appointed Miller Anderson & Sherrerd, LLP ("MAS") pursuant to a new Subadvisory Agreement with MAS ("MAS Subadvisory Agreement") to manage the Value and High Yield Trusts, (ii) appointed Warburg Pincus Counsellors, Inc. ("Warburg") pursuant to an agreement with Warburg ("Warburg Subadvisory Agreement") to manage the Emerging Growth Trust, (iii) appointed T. Rowe Price pursuant to the T. Rowe Price Subadvisory Agreement to also manage the Science & Technology Trust, (iv) appointed Rowe Price-Fleming International, Inc. ("Price-Fleming") pursuant to a new Subadvisory Agreement with Price Fleming ("Price-Fleming Subadvisory Agreement") to manage the International Stock Trust, (v) appointed Founders pursuant to an amendment to the Founders Subadvisory Agreement to manage the Worldwide Growth and Balanced Trusts, (vi) appointed Pilgrim Baxter & Associates, Inc. ("PBHG") to manage the Pilgrim Baxter Growth Trust pursuant to an agreement with PBHG ("PBHG Subadvisory Agreement"), (vii) appointed MAC pursuant to the MAC Subadvisory Agreement to also manage the Pacific Rim Emerging Markets, Real Estate Securities, Common Stock, Capital Growth Bond and Equity Index Trusts and (viii) appointed the Adviser to manage the Lifestyle Trusts 27 126 pursuant to an amendment to the Advisory Agreement. Such Subadvisory Agreements or amended Subadvisory Agreement and amendments to the Advisory Agreement, to provide for the management of the newly-established portfolios, were approved by the Trustees, including a majority of the Trustees who are not parties to the agreements or interested persons of any party to such agreements, on September 27, 1996. On December 13, 1996, the Trustees appointed MAC pursuant to the amended MAC Subadvisory Agreement to also manage each of the Lifestyle Trusts. The amended MAC Subadvisory Agreement was approved by the Trustees, including a majority of the Trustees who are not parties to the agreement or interested persons of any party to such agreement, on December 13, 1996. THE ADVISORY AGREEMENT Under the terms of the Advisory Agreement, the Adviser administers the business and affairs of the Trust. The Adviser is responsible for performing or paying for various administrative services for the Trust, including providing at the Adviser's expense (i) office space and all necessary office facilities and equipment, (ii) necessary executive and other personnel for managing the affairs of the Trust and for performing certain clerical, accounting and other office functions, and (iii) all other information and services, other than services of counsel, independent accountants or investment subadvisory services provided by any subadviser under a subadvisory agreement, required in connection with the preparation of all tax returns and documents required to comply with the federal securities laws. The Adviser pays the cost of any advertising or sales literature relating solely to the Trust, the cost of printing and mailing Prospectuses to persons other than current holders of Trust shares or of variable contracts funded by Trust shares and the compensation of the Trust's officers and Trustees that are officers, directors or employees of the Adviser or its affiliates. In addition, advisory fees are reduced or the Adviser reimburses the Trust if the total of all expenses (excluding advisory fees, taxes, portfolio brokerage commissions, interest, litigation and indemnification expenses and other extraordinary expenses not incurred in the ordinary course of the Trust's business) applicable to a portfolio exceeds an annual rate of .75% in the case of the International Small Cap, Global Equity, Global Government Bond, Worldwide Growth, International Growth and Income, International Stock and Pacific Rim Emerging Markets Trusts, .50% in the case of all other portfolios except for the Equity Index Trust, or .15% in the case of the Equity Index Trust of the average annual net assets of such portfolio. The expense limitation will continue in effect from year to year unless otherwise terminated at any year end by the Adviser on 30 days' notice to the Trust. (For a limited period of one year ending December 31, 1997, the expense limitation applicable to the Real Estate Securities, Common Stock and Capital Growth Bond Trusts will include all expenses of such portfolios, so that their total expenses for that year, including advisory fees, will not exceed .50%.) In addition, in the case of the Lifestyle Trusts, the Adviser has agreed to pay the expenses of the Lifestyle Trusts (other than the expenses of the Underlying Trusts) for a period of one year commencing January 1, 1997. After this one year period, this expense reimbursement may be terminated at any time. In addition to providing the services and expense limitation described above, the Adviser selects, contracts with and compensates subadvisers to manage the investment and reinvestment of the assets of the Trust portfolios, except for the Lifestyle Trusts. The Adviser monitors the compliance of such subadvisers with the investment objectives and related policies of each portfolio and reviews the performance of such subadvisers and reports periodically on such performance to the Trustees of the Trust. As compensation for its services, the Adviser receives a fee from the Trust computed separately for each portfolio. The fee for each portfolio is stated as an annual percentage of the current value of the net assets of such portfolio. The fee, which is accrued daily and payable monthly, is calculated for each day by multiplying the daily equivalent of the annual percentage prescribed for a portfolio by the value of its net assets at the close of business on the previous business day of the Trust. The management fees each portfolio currently is obligated to pay the Adviser is as set forth in the Prospectus. No management fees are currently payable by the Lifestyle Trusts. 28 127 For the years ended December 31, 1995, 1994 and 1993 the aggregate investment advisory fee payable by the Trust under the fee schedule then in effect, absent the expense limitation provision, was $33,808,255, $27,076,438 and $16,988,737 allocated among the portfolios as follows:
PORTFOLIO 1995 1994 1993 - ---------------------------------------------------------------------------------- Global Equity .................... $5,513,312 $4,916,694 $1,813,650 Blue Chip Growth ................. $2,115,434 $1,255,314 $ 675,183 Equity ........................... $5,643,363 $3,483,279 $1,953,233 Equity-Income .................... $2,459,247 $1,274,807 $ 308,485 Growth and Income ................ $3,922,671 $2,670,229 $1,544,607 International Growth & Income .... $ 450,200* N/A N/A Strategic Bond ................... $ 767,448 $ 588,051 $ 189,565 Global Government Bond ........... $1,757,909 $ 1,742,81 $ 947,963 Investment Quality Bond .......... $ 798,045 $ 709,069 $ 529,433 U.S. Government Securities ....... $1,291,668 $1,350,850 $1,153,241 Money Market Trust ............... $1,318,573 $1,158,400 $ 606,603 Aggressive Asset Allocation ...... $1,463,421 $1,354,682 $1,226,006 Moderate Asset Allocation ........ $4,667,061 $4,783,431 $4,341,909 Conservative Asset Allocation .... $1,639,903 $1,788,821 $1,698,859
*For the period January 9, 1995 (commencement of operations) to December 31, 1995. THE SUBADVISORY AGREEMENTS Under the terms of each of the current subadvisory agreements, including the SBAM Limited Consulting Agreement (collectively "Subadvisory Agreements"), the Subadviser manages the investment and reinvestment of the assets of the assigned portfolios, subject to the supervision of the Trust's Trustees. The Subadviser formulates a continuous investment program for each such portfolio consistent with its investment objectives and policies outlined in the Prospectus. Each Subadviser implements such programs by purchases and sales of securities and regularly reports to the Adviser and the Trustees of the Trust with respect to the implementation of such programs. Each Subadviser, at its expense, furnishes all necessary investment and management facilities, including salaries of personnel required for it to execute its duties, as well as administrative facilities, including bookkeeping, clerical personnel, and equipment necessary for the conduct of the investment affairs of the assigned portfolios. As compensation for their services, the Subadvisers receive fees from the Adviser computed separately for each portfolio. The fee for each portfolio is stated as an annual percentage of the current value of the net assets of the portfolio. The fees are calculated on the basis of the average of all valuations of net assets of each portfolio made at the close of business on each business day of the Trust during the period for which such fees are paid. Once the average net assets of a portfolio exceed specified amounts, the fee is reduced with respect to such excess. The schedule of the management fees the Adviser currently is obligated to pay the Subadvisers out of the advisory fee it receives from each portfolio is as set forth in the Prospectus. The prospectus refers to a subadvisory consulting agreement between SBAM and Salomon Brothers Asset Management Limited ("SBAM Limited") which is subject to certain conditions as set forth in the prospectus. Under that agreement SBAM Limited provides certain investment advisory services to SBAM relating to currency transactions and investments in non-dollar denominated debt securities for the benefit of the Strategic Bond Trust. SBAM pays SBAM Limited, as full compensation for all services provided under the subadvisory consulting agreement, a portion of its subadvisory fee, such amount being an amount equal to the fee payable under SBAM's subadvisory agreement multiplied by the current value of the net assets of the portion of the assets of the Strategic Bond Trust that SBAM Limited has been delegated to manage divided by the current value of the net assets of the portfolio. The Trust will not incur any expenses in connection with SBAM Limited's services. SBAM Limited is a wholly owned subsidiary of Salomon Brothers Europe 29 128 Limited ("SBEL"). Salomon (International) Finance A G ("SIF") owns 100% of SBEL's Convertible Redeemable Preference Shares and 36.8% of SBEL's Ordinary Shares, while the remaining 63.2% of SBEL's Ordinary Shares are owned by Salomon Brothers Holding Company Inc. ("SBH"). SIF is wholly owned by SBH, which is in turn, a wholly owned subsidiary of Salomon Inc. For the years ended December 31, 1995, 1994 and 1993, the Adviser paid aggregate subadvisory fees of $12,007,940 $9,905,072, and $6,285,555, respectively, allocated among the portfolios as follows:
PORTFOLIO 1995 1994 1993 - ---------------------------------------------------------------------------------------------------------------------------------- Global Equity ............................................................... $2,415,918 $2,192,713 $ 905,318 Blue Chip Growth ............................................................ $ 978,146 $ 558,057 $ 280,422 Equity ...................................................................... $1,628,673 $1,166,032 $ 710,703 Equity-Income ............................................................... $ 864,812 $ 525,739 $ 148,581 Growth and Income ........................................................... $1,267,236 $ 926,068 $ 579,977 International Growth & Income ............................................... $ 232,320* N/A N/A Strategic Bond .............................................................. $ 322,077+ $ 252,633 $ 85,576 Global Government Bond ...................................................... $ 771,716 $ 766,324 $ 427,234 Investment Quality Bond ..................................................... $ 276,246 $ 245,447 $ 183,265 U.S. Government Securities .................................................. $ 442,603 $ 458,245 $ 395,910 Money Market Trust .......................................................... $ 197,786 $ 173,760 $ 90,990 Aggressive Asset Allocation ................................................. $ 560,019 $ 521,717 $ 474,535 Moderate Asset Allocation ................................................... $1,433,417 $ 456,691 $1,368,386 Conservative Asset Allocation ............................................... $ 616,971 $ 661,646 $ 634,658
* For the period January 9, 1995 (commencement of operations) to December 31, 1995. + Of this amount, $63,231 was paid by SBAM to SBAM Limited under the Subadvisory Consulting Agreement. Subject to the expense limitations discussed above, the Trust is responsible for the payment of all expenses of its organization, operations and business, except those which the Adviser or Subadvisers have agreed to pay pursuant to the Advisory or Subadvisory Agreements. Expenses borne by the Trust include charges and expenses of the custodian, independent accountants and transfer, bookkeeping and dividend disbursing agent appointed by the Trust; brokers' commissions and issue and transfer taxes on securities transactions to which the Trust is a party; taxes and fees payable by the Trust; and legal fees and expenses in connection with the affairs of the Trust, including registering and qualifying its shares with regulatory authorities and in connection with any litigation. The Advisory Agreement and each Subadvisory Agreement will continue in effect as to a portfolio for a period no more than two years from the date of its execution or the execution of an amendment making the agreement applicable to that portfolio only so long as such continuance is specifically approved at least annually either by the Trustees or by the vote of a majority of the outstanding voting securities of the Trust, provided that in either event such continuance shall also be approved by the vote of the majority of the Trustees who are not interested persons of any party to the Agreements, cast in person at a meeting called for the purpose of voting on such approval. The required shareholder approval of any continuance of any of the Agreements shall be effective with respect to any portfolio if a majority of the outstanding voting securities of the series of shares of beneficial interest of that portfolio vote to approve such continuance, notwithstanding that such continuance may not have been approved by a majority of the outstanding voting securities of (i) any other portfolio affected by the Agreement or (ii) all of the portfolios of the Trust. If the holders of any series of shares of beneficial interest of any portfolio fail to approve any continuance of the Advisory Agreement or the Subadvisory Agreement, the Adviser or Subadviser (including SBAM Limited) may continue to act as investment adviser or subadviser with respect to such portfolio pending the required approval of the continuance of such Agreement, of a new contract with the Adviser or Subadviser or different adviser or subadviser, or other definitive action. In the case of the Adviser, the 30 129 compensation received in respect of such a portfolio during such period will be no more than its actual costs incurred in furnishing investment advisory and management services to such portfolio or the amount it would have received under the Advisory Agreement in respect of such portfolio, whichever is less. In the case of the Subadvisers, the compensation received in respect of such a portfolio during such period will be no more than that permitted by Rule 15a-4 under the Investment Company Act of 1940. The Advisory Agreement and the Subadvisory Agreements may be terminated at any time without the payment of any penalty on 60 days' written notice to the other party or parties to the Agreements, and to the Trust in the case of the Subadvisory Agreements, (i) by the Trustees of the Trust; (ii) by the vote of a majority of the outstanding voting securities of the Trust, or with respect to any portfolio, by the vote of a majority of the outstanding voting securities of the series of shares of beneficial interest of such portfolio; and (iii) by the Adviser, and in the case of the Subadvisory Agreements, by the respective Subadvisers. The Agreements will automatically terminate in the event of their assignment. The Advisory Agreement may be amended by the Trust and the Adviser and the Subadvisory Agreements by the Adviser and respective Subadvisers provided such amendment is specifically approved by the vote of a majority of the outstanding voting securities of the Trust and by the vote of a majority of the Trustees of the Trust who are not interested persons of the Trust, the Adviser or the applicable Subadviser (including SBAM Limited) cast in person at a meeting called for the purpose of voting on such approval. The required shareholder approval of any amendment shall be effective with respect to any portfolio if a majority of the outstanding voting securities of that portfolio vote to approve the amendment, notwithstanding that the amendment may not have been approved by a majority of the outstanding voting securities of (i) any other portfolio affected by the amendment or (ii) all the portfolios of the Trust. AGREEMENT WITH PRIOR SUBADVISER The Conservative, Moderate and Aggressive Asset Allocation Trusts for which Sass Investors acted as Subadviser up until December 13, 1991, and the Bond Trust (now Investment Quality Bond Trust) for which Sass Investors acted as Subadviser up until April 23, 1991, acquired certain taxable revenue bonds, the value of which has declined substantially due to the default of the bonds caused by the Conservatorship of Executive Life Insurance Company. The Trust retained legal counsel to advise it as to any potential claims it may have arising out of its purchase of such bonds. On the basis of the advice received and, to avoid any prejudice resulting from the passage of time, the Trust has sought to obtain agreements from certain persons which would toll the running of statutes of limitations that might in time bar the assertion of any claims related to its purchase of the bonds. In February 1991 the Trust entered into an agreement with Sass Investors, its principals and affiliated companies concerning any claims the Trust may have arising out of Sass Investors' performance under the Sass Subadvisory Agreement in connection with the purchase or sale of the aforementioned bonds. The parties agreed that the running of time under any statute of limitations or by way of laches with respect to any claims or defenses arising out of such purchase or sale would be tolled until thirty days after termination of the agreement by either party giving written notice to the other. PORTFOLIO BROKERAGE Pursuant to the Subadvisory Agreements, the Subadvisers are responsible for placing all orders for the purchase and sale of portfolio securities of the Trust, except for the Lifestyle Trusts the portfolio transactions for which are the responsibility of the Adviser. The Subadvisers have no formula for the distribution of the Trust's brokerage business, their intention being to place orders for the purchase and sale of securities with the primary objective of obtaining the most favorable overall results for the Trust. The cost of securities transactions for each portfolio will consist primarily of brokerage commissions or dealer or underwriter spreads. Bonds and money market instruments are generally traded on a net basis and do not normally involve either brokerage commissions or transfer taxes. Occasionally, securities may be purchased directly from the issuer. For securities traded primarily in the over-the-counter market, the Subadvisers will, where possible, deal directly with dealers who make a 31 130 market in the securities unless better prices and execution are available elsewhere. Such dealers usually act as principals for their own account. In selecting brokers or dealers through whom to effect transactions, the Subadvisers will give consideration to a number of factors, including price, dealer spread or commission, if any, the reliability, integrity and financial condition of the broker-dealer, size of the transaction and difficulty of execution. Consideration of these factors by a Subadviser, either in terms of a particular transaction or the Subadviser's overall responsibilities with respect to the Trust and any other accounts managed by the Subadviser, could result in the Trust paying a commission or spread on a transaction that is in excess of the amount of commission or spread another broker-dealer might have charged for executing the same transaction. In selecting brokers and dealers, the Subadvisers will also give consideration to the value and quality of any research, statistical, quotation or valuation services provided by the broker or dealer. In placing a purchase or sale order, a Subadviser may use a broker whose commission in effecting the transaction is higher than that of some other broker if the Subadviser determines in good faith that the amount of the higher commission is reasonable in relation to the value of the brokerage and research services provided by such broker, viewed in terms of either the particular transaction or the Subadviser's overall responsibilities with respect to the Trust and any other accounts managed by the Subadviser. Brokerage and research services provided by brokers and dealers include advice, either directly or through publications or writings, as to the value of securities, the advisability of purchasing or selling securities, the availability of securities or purchasers or sellers of securities, and analyses and reports concerning issuers, industries, securities, economic factors and trends and portfolio strategy. Consistent with the foregoing considerations and the Rules of Fair Practice of the NASD, sales of contracts for which the broker-dealer or an affiliate thereof is responsible may be considered as a factor in the selection of such brokers or dealers. A higher cost broker-dealer will not be selected, however, solely on the basis of sales volume but will be selected in accordance with the criteria set forth above. To the extent research services are used by the Subadvisers in rendering investment advice to the Trust, such services would tend to reduce the Subadvisers' expenses. However, the Subadvisers do not believe that an exact dollar value can be assigned to these services. Research services received by the Subadvisers from brokers or dealers executing transactions for the Trust will be available also for the benefit of other portfolios managed by the Subadvisers. The Subadvisers manage a number of accounts other than the Trust's portfolios. Although investment recommendations or determinations for the Trust's portfolios will be made by the Subadvisers independently from the investment recommendations and determinations made by them for any other account, investments deemed appropriate for the Trust's portfolios by the Subadvisers may also be deemed appropriate by them for other accounts, so that the same security may be purchased or sold at or about the same time for both the Trust's portfolios and other accounts. In such circumstances, the Subadvisers may determine that orders for the purchase or sale of the same security for the Trust's portfolios and one or more other accounts should be combined, in which event the transactions will be priced and allocated in a manner deemed by the Subadvisers to be equitable and in the best interests of the Trust Portfolios and such other accounts. While in some instances combined orders could adversely affect the price or volume of a security, the Trust believes that its participation in such transactions on balance will produce better overall results for the Trust. For the years ended December 31, 1995, 1994 and 1993, the Trust paid brokerage commissions in connection with portfolio transactions of $6,609,957, $5,510,656 and $2,877,317, respectively, allocated among the portfolios as follows:
PORTFOLIO 1995 1994 1993 - ---------------------------------------------------------------------------------------------------------------------------------- Global Equity .............................................................. $2,684,254 $2,358,799 $1,196,630 Blue Chip Growth ........................................................... $ 388,904 $ 187,089 $ 114,811 Equity ..................................................................... $ 861,497 $1,011,437 $ 600,555 Equity-Income .............................................................. $ 606,918 $ 383,033 $ 181,956 Growth and Income .......................................................... $ 697,618 $ 487,223 $ 308,818
32 131
PORTFOLIO 1995 1994 1993 - ---------------------------------------------------------------------------------------------------------------------------------- International Growth and Income ............................................ $ 374,962* NA NA Aggressive Asset Allocation ................................................ $ 286,517 $ 280,679 $ 122,305 Moderate Asset Allocation .................................................. $ 604,766 $ 682,814 $ 292,232 Conservative Asset Allocation .............................................. $ 104,521 $ 119,582 $ 60,010
* For the period January 9, 1995 (commencement of operations) to December 31, 1995. Salomon Brothers Inc. ("Salomon"), J.P. Morgan Securities Inc. and J.P. Morgan Securities Ltd. (J.P. Morgan"), Dresdner Bank, Fidelity Capital Markets and Morgan Stanley & Co. Incorporated are affiliated brokers of the Trust due to the positions of Salomon, J.P. Morgan, Oechsle International, FMTC and Morgan Stanley, respectively, as Subadvisers to Trust portfolios. Prior to October 1, 1996, Goldman Sachs & Co. ("Goldman") was an affiliated broker of the Trust due to the position of Goldman as Subadviser to the Equity-Income Trust. 33 132 For the years ended December 31, 1995, 1994 and 1993, brokerage commissions were paid to GOLDMAN, SACHS & CO. by the portfolios as follows:
YEAR ENDED DECEMBER 31, 1995 % OF AGGREGATE % OF PORTFOLIO'S BROKERAGE $ AMOUNT OF COMMISSIONS REPRESENTED TRANSACTIONS PORTFOLIO COMMISSIONS FOR THE PERIOD FOR THE PERIOD - ----------------------------------------------------------------------------------------------------- Global Equity ................. $ 6,951 0.26% 0.08% Blue Chip Growth ............. $24,855 6.39% 0.52% Equity ........................ $13,799 1.60% 0.62% Equity-Income ................. $63,836 10.52% 0.19% Growth and Income ............. $33,000 4.73% 0.46% International Growth and Income $ 6,651* 1.77% 1.05% Aggressive Asset Allocation ... $ 7,202 2.51% 0.43% Moderate Asset Allocation ..... $11,975 1.98% 0.69% Conservative Asset Allocation . $ 2,080 1.99% 0.80%
* For the period January 9, 1995 (commencement of operations) to December 31, 1995.
YEAR ENDED DECEMBER 31, 1994 % OF AGGREGATE % OF PORTFOLIO'S BROKERAGE $ AMOUNT OF COMMISSIONS REPRESENTED TRANSACTIONS PORTFOLIO COMMISSIONS FOR THE PERIOD FOR THE PERIOD - --------------------------------------------------------------------------------------------------- Blue Chip Growth .............. $ 6,376 3.41% 5.71% Equity ........................ $ 8,032 0.79% 0.03% Equity-Income ................. $20,741 5.41% 3.98% Growth and Income ............. $12,612 2.59% 1.14% Aggressive Asset Allocation ... $10,644 3.79% 0.53% Moderate Asset Allocation ..... $25,501 3.73% 3.21% Conservative Asset Allocation . $ 676 0.57% 0.08%
YEAR ENDED DECEMBER 31, 1993 % OF AGGREGATE % OF PORTFOLIO'S BROKERAGE $ AMOUNT OF COMMISSIONS REPRESENTED TRANSACTIONS PORTFOLIO COMMISSIONS FOR THE PERIOD FOR THE PERIOD - ---------------------------------------------------------------------------------------------------- Global Equity ................. $15,566 1.30% 1.95% Blue Chip Growth .............. $ 4,500 3.92% 9.33% Equity ........................ $ 5,755 0.96% 1.71% Equity-Income ................. $27,565 15.15% 16.68% Growth and Income ............. $ 9,480 3.07% 3.73%
For the years ended December 31, 1995, 1994 and 1993, brokerage commissions were paid to SALOMON BROTHERS INC. by the portfolios as follows: 34 133 YEAR ENDED DECEMBER 31, 1995
% OF AGGREGATE % OF PORTFOLIO'S BROKERAGE $ AMOUNT OF COMMISSIONS REPRESENTED TRANSACTIONS PORTFOLIO COMMISSIONS FOR THE PERIOD FOR THE PERIOD - ------------------------------------------------------------------------------------------------------- Global Equity .................. $ 34,352 1.28% 0.19% Blue Chip Growth ............... $ 16,380 4.21% 0.26% Equity ......................... $ 13,968 1.62% 0.14% Equity-Income .................. $ 35,568 5.86% 0.14% Growth and Income .............. $128,844 18.47% 1.45% Aggressive Asset Allocation .... $ 3,072 1.07% 0.88% Moderate Asset Allocation ...... $ 3,967 0.66% 1.42% Conservative Asset Allocation .. $ 999 0.96% 1.87%
YEAR ENDED DECEMBER 31, 1994 % OF AGGREGATE % OF PORTFOLIO'S BROKERAGE $ AMOUNT OF COMMISSIONS REPRESENTED TRANSACTIONS PORTFOLIO COMMISSIONS FOR THE PERIOD FOR THE PERIOD - ---------------------------------------------------------------------------------------------------- Global Equity .................. $17,818 0.76% 0.43% Blue Chip Growth ............... $ 4,200 2.24% 2.08% Equity ......................... $24,110 2.38% 2.59% Equity-Income .................. $17,052 4.45% 4.09% Growth and Income .............. $46,848 9.62% 3.08% Aggressive Asset Allocation .... $ 1,063 0.38% 4.74% Moderate Asset Allocation ...... $ 2,641 0.39% 6.03% Conservative Asset Allocation .. $ 607 0.51% 2.07%
YEAR ENDED DECEMBER 31, 1993 % OF AGGREGATE % OF PORTFOLIO'S BROKERAGE $ AMOUNT OF COMMISSIONS REPRESENTED TRANSACTIONS PORTFOLIO COMMISSIONS FOR THE PERIOD FOR THE PERIOD - ----------------------------------------------------------------------------------------------------- Global Equity ................. $14,144 1.18% 0.71% Equity ........................ $15,426 2.57% 1.58% Equity-Income ................. $ 8,748 4.81% 3.34% Growth and Income ............. $23,534 7.62% 6.93%
For the year ended December 31, 1995, brokerage commissions were paid to J.P. Morgan Securities by the portfolios as follows: 35 134 YEAR ENDED DECEMBER 31, 1995
% OF AGGREGATE % OF PORTFOLIO'S BROKERAGE $ AMOUNT OF COMMISSIONS REPRESENTED TRANSACTIONS PORTFOLIO COMMISSIONS FOR THE PERIOD FOR THE PERIOD - ----------------------------------------------------------------------------------------------------- Global Equity ................... $15,349 0.57% 0.90% Blue Chip Growth ................ $ 2,482 0.64% 0.03% Equity .......................... $ 8,890 1.03% 0.06% Equity-Income ................... $40,124 6.61% 0.20% Growth and Income ............... $12,798 1.83% 0.30% International Growth and Income.. $ 554* 0.15% 0.41% Aggressive Asset Allocation ..... $ 721 0.25% 0.24% Moderate Asset Allocation ....... $ 1,680 0.28% 0.31% Conservative Asset Allocation ... $ 397 0.38% 0.14%
* For the period January 9, 1995 (commencement of operations) to December 31, 1995. For the year ended December 31, 1995, brokerage commissions were paid to Dresdner Bank by the portfolios as follows:
% OF AGGREGATE % OF PORTFOLIO'S BROKERAGE $ AMOUNT OF COMMISSIONS REPRESENTED TRANSACTIONS PORTFOLIO COMMISSIONS FOR THE PERIOD FOR THE PERIOD - ----------------------------------------------------------------------------------------------------- Equity ......................... $277 0.03% .00% International Growth & Income .. 408* 0.11% .04%
* For the period January 9, 1995 (commencement of operations) to December 31, 1995. For the year ended December 31, 1995, brokerage commissions were paid to Fidelity Capital Markets by the portfolios as follows:
% OF AGGREGATE % OF PORTFOLIO'S BROKERAGE $ AMOUNT OF COMMISSIONS REPRESENTED TRANSACTIONS PORTFOLIO COMMISSIONS FOR THE PERIOD FOR THE PERIOD - ---------------------------------------------------------------------------------------------------- Global Equity ................. $31,110 1.16% 0.77% International Growth & Income . 197* 0.05% 0.15% Aggressive Asset Allocation ... 3,240 1.13% 0.08% Moderate Asset Allocation ..... 8,815 1.46% 0.07% Conservative Asset Allocation . 1,920 1.84% 0.05%
* For the period January 9, 1995 (commencement of operations) to December 31, 1995. 36 135 PURCHASE AND REDEMPTION OF SHARES The Trust will redeem all full and fractional portfolio shares for cash at the net asset value per share of each portfolio. Payment for shares redeemed will generally be made within seven days after receipt of a proper notice of redemption. However, the Trust may suspend the right of redemption or postpone the date of payment beyond seven days during any period when (a) trading on the New York Stock Exchange is restricted, as determined by the Securities and Exchange Commission, or such Exchange is closed for other than weekends and holidays; (b) an emergency exists, as determined by the Commission, as a result of which disposal by the Trust of securities owned by it is not reasonably practicable or it is not reasonably practicable for the Trust fairly to determine the value of its net assets; or (c) the Commission by order so permits for the protection of security holders of the Trust. DETERMINATION OF NET ASSET VALUE The following supplements the discussion of the valuation of portfolio assets set forth in the Prospectus under the caption "Purchase and Redemption of Shares." Securities held by the portfolios, except for debt instruments with remaining maturities of 60 days or less, all debt instruments held by the Money Market Trust and shares of the Underlying Portfolios held by the Lifestyle Trusts, will be valued as follows: securities which are traded on stock exchanges (including securities traded in both the over-the-counter market and on an exchange) are valued at the last sales price as of the close of the regularly scheduled trading of the New York Stock Exchange on the day the securities are being valued, or, lacking any sales, at the closing bid prices. Securities traded only in the over-the-counter market are valued at the last bid prices quoted by brokers that make markets in the securities at the close of trading on the New York Stock Exchange. Securities and assets for which market quotations are not readily available are valued at fair value as determined in good faith by or under the direction of the Trustees. Shares of the Underlying Portfolios held by the Lifestyle Trusts are valued at their net asset value as described in the Prospectus under "Purchase and Redemption of Shares." Generally, trading in non-U.S. securities, as well as U.S. Government securities and money market instruments, is substantially completed each day at various times prior to the close of the regularly scheduled trading of the New York Stock Exchange. The values of such securities used in computing the net asset value of a portfolio's shares are generally determined as of such times. Occasionally, events which affect the values of such securities may occur between the times at which they are generally determined and the close of the New York Stock Exchange and would therefore not be reflected in the computation of a portfolio's net asset value. If events materially affecting the value of such securities occur during such period, then these securities will be valued at their fair value as determined in good faith by the Subadvisers under procedures established and regularly reviewed by the Trustees. Debt instruments with a remaining maturity of 60 days or less held by each of the portfolios other than the Money Market Trust, and all instruments held by the Money Market Trust, will be valued on an amortized cost basis. Under this method of valuation, the instrument is initially valued at cost (or in the case of instruments initially valued at market value, at the market value on the day before its remaining maturity is such that it qualifies for amortized cost valuation); thereafter, the Trust assumes a constant proportionate amortization in value until maturity of any discount or premium, regardless of the impact of fluctuating interest rates on the market value of the instrument. While this method provides certainty in valuation, it may result in periods during which value, as determined by amortized cost, is higher or lower than the price that would be received upon sale of the instrument. The Money Market Trust uses the amortized cost valuation method in reliance upon Rule 2a-7 under the Investment Company Act of 1940. As required by the Rule, the Money Market Trust will maintain a dollar weighted average maturity of 90 days or less. In addition, the Money Market Trust is permitted to purchase only securities that the Trustees determine to present minimal credit risks and which are at the time of purchase "eligible securities," as defined by the Rule. Generally, eligible securities must be rated by a nationally recognized statistical rating organization in one of the two highest rating categories for short-term 37 136 debt obligations or be of comparable quality. The Money Market Trust will invest only in obligations that have remaining maturities of thirteen months or less. The Trustees have established procedures designed to stabilize, to the extent reasonably possible, the Money Market Trust's price per share as computed for the purpose of sales and redemptions at $10.00. Such procedures include a direction to the Adviser to establish procedures which will allow for the monitoring of the propriety of the continued use of amortized cost valuation to maintain a constant net asset value of $10.00 per share. Such procedures include a directive to the Adviser that requires that on determining net asset value per share based upon available market quotations, the Money Market Trust shall value weekly (a) all portfolio instruments for which market quotations are readily available at market, and (b) all portfolio instruments for which market quotations are not readily available or are not obtainable from a pricing service, at their fair value as determined in good faith by the Trustees, although the actual calculations may be made by persons acting pursuant to the direction of the Trustees. If the fair value of a security needs to be determined, the Subadviser will provide determinations, in accordance with procedures and methods established by the Trustees of the Trust, of the fair value of securities held by the Money Market Trust for which market quotations are not readily available for purposes of enabling the Money Market Trust's Custodian to calculate net asset value. The Adviser, with the Subadviser's assistance, periodically (but no less frequently than annually) shall prepare a written report to the Trustees verifying the accuracy of the pricing system or estimate. A non-negotiable security which is not treated as an illiquid security because it may be redeemed with the issuer, subject to a penalty for early redemption, shall be assigned a value that takes into account the reduced amount that would be received if it were currently liquidated. In the event that the deviation from the amortized cost exceeds .50 of 1% or more or a difference of $.05 per share in net asset value, the Adviser shall promptly call a special meeting of the Trustees to determine what, if any, action should be initiated. Where the Trustees believe the extent of any deviation from the Money Market Trust's amortized cost price per share may result in material dilution or other unfair results to investors or existing shareholders, they shall take such action as they deem appropriate to eliminate or reduce to the extent reasonably practical such dilution or unfair results. The actions that may be taken by the Trustees include, but are not limited to: (a) redeeming shares in kind; (b) selling portfolio instruments prior to maturity to realize capital gains or losses or to shorten the average portfolio maturity of the Money Market Trust; (c) withholding or reducing dividends;(d) utilizing a net asset value per share based on available market quotations; (e)investing all cash in instruments with a maturity on the next business day. The Money Market Trust may also reduce the number of shares outstanding by redeeming proportionately from shareholders, without the payment of any monetary compensation, such number of full and fractional shares as is necessary to maintain the net asset value at $10.00 per share. Any such redemption will be treated as a negative dividend for purposes of the Net Investment Factor under the contracts issued by North American Security Life Insurance Company. PERFORMANCE DATA Each of the portfolios may quote total return figures in its advertising and sales materials. Such figures will always include the average annual total return for recent one year and, when applicable, five and ten year periods and where less than five or ten years, the period since the portfolio, including its predecessor prior to the reorganization of the Fund on December 31, 1988, became available for investment. In the case of the Pacific Rim Emerging Markets, Real Estate Securities, Common Stock, Capital Growth Bond and Equity Index Trusts, such quotations will be for periods that include the performance of the predecessor portfolios of Manulife Series Trust, Inc. Where the period since inception is less than one year, the total return quoted will be the aggregate return for the period. The average annual total return is the average annual compounded rate of return that equates the initial amount invested to the market value of such investment on the last day of the period for which such return is calculated. For purposes of the calculation it is assumed that an initial payment of $1,000 is made on the first day of the period for which the return is calculated and that all dividends and distributions are reinvested at the net asset value on the reinvestment dates during the period. All recurring fees such as advisory fees charged to the Trust and all Trust expenses are reflected in the calculations. There are no non-recurring fees such as sales loads, surrender charges or account fees charged by the Trust. If the period since inception is less than one year, the figures will be based on an aggregate total return rather than an average annual total return. Because the Investment Quality Bond 38 137 Trust changed its investment objective and investment subadviser effective April 23, 1991, the Trust has elected to quote performance for that portfolio only since the date of the change in order to quote returns representative of its current objectives and/or produced by its current portfolio manager TOTAL ANNUALIZED RETURN [UNAUDITED)
- ------------------------------------------------------------------------------------------------------------------------ Trust One Year Ended Five Years Since Inception or 10 Date first 6/30/96 Ended Years, whichever is Available 6/30/96 shorter through 6/30/96 - ------------------------------------------------------------------------------------------------------------------------ Pacific Rim Emer'g Mar't # 15.80% N/A 7.05% 10/04/94 International Small Cap N/A N/A 6.24%* 03/04/96 Small/Mid Cap N/A N/A 5.04%* 03/04/96 Global Equity 14.62% 10.99% 8.44% 03/18/88 Blue Chip Growth 23.09% N/A 7.94% 12/11/92 Common Stock # 25.55% 13.44% 10.31% 04/30/87 Equity Index # N/A N/A 3.71%**** 02/14/96 GROWTH N/A N/A N/A*** 07/11/96 Equity 26.18% 15.46% 13.31%** 06/18/85 Equity-Income 14.68% N/A 13.34% 02/19/93 Real Estate Securities # 15.34% 15.78% 11.24% 04/30/87 Growth and Income 21.06% 14.20% 13.53% 04/23/91 International Growth and 13.09% N/A 8.78% 01/09/95 Income Strategic Bond 14.19% N/A 7.83% 02/19/93 Global Government Bond 13.68% 11.14% 8.91% 03/18/88 Capital Growth Bond # 4.43% 7.94% 7.50% 06/26/84 Investment Quality Bond 4.63% 8.17% 8.04% 04/23/91 U.S. Government 3.66% 7.27% 7.74% 05/01/89 Securities Money Market 5.28% 4.11% 5.55%** 06/18/85 Cons. Asset Allocation 9.04% 9.07% 6.96% 08/03/89 Mod. Asset Allocation 12.24% 10.05% 7.66% 08/03/89 Aggr. Asset Allocation 16.01% 10.90% 8.22% 08/03/89
* Aggregate total return from March 4, 1996 (inception date) to June 30, 1996. ** 10 Years *** Aggregate total return from July 11, 1996 (inception date) to June 30, 1996. 39 138 **** Aggregate total return from February 14, 1996 (inception date) to June 30, 1996. #Performance presented for these NASL portfolios is based upon the performance of their respective predecessor Manulife portfolios for periods prior to the consummation of the reorganization effective December 31, 1996. Performance presented for each of these NASL portfolios is based on the historical expenses and performance of its predecessor Manulife portfolio and does not reflect the current expenses that an investor would incur as a holder of shares of such NASL portfolio. The Trust may also from time to time include in advertising and sales literature the following: 1) information regarding its portfolio subadvisers, such as information regarding a subadvisers specific investment expertise, client base, assets under management or other relevant information; 2) quotations about the Trust, its portfolios or its investment subadvisers that appear in various publications and media; and 3) general discussions of economic theories, including but not limited to discussions of how demographics and political trends may effect future financial markets, as well as market or other relevant information. ORGANIZATION OF THE TRUST SHARES OF THE TRUST The Declaration of Trust authorizes the Trustees of the Trust to issue an unlimited number of full and fractional shares of beneficial interest having a par value of $.01 per share, to divide such shares into an unlimited number of series of shares and to designate the relative rights and preferences thereof, all without shareholder approval. The Trust currently has thirty-five series of shares as described in the Prospectus. The shares of each portfolio, when issued and paid for, will be fully paid and non-assessable and will have no preemptive or conversion rights. Holders of shares of any portfolio are entitled to redeem their shares as set forth under "Purchase and Redemption of Shares." The Trust reserves the right to later issue additional series of shares or separate classes of existing series of shares without the consent of outstanding shareholders. Each issued and outstanding share is entitled to participate equally in dividends and distributions declared by the respective portfolio and upon liquidation in the net assets of such portfolio remaining after satisfaction of outstanding liabilities. For these purposes and for purposes of determining the sale and redemption prices of shares, any assets which are not clearly allocable to a particular portfolio will be allocated in the manner determined by the Trustees. Accrued liabilities which are not clearly allocable to one or more portfolios will also be allocated among the portfolios in the manner determined by the Trustees. Shareholders of each portfolio of the Trust are entitled to one vote for each full share held (and fractional votes for fractional shares held) irrespective of the relative net asset values of the shares of the portfolio. All shares entitled to vote are voted by series, except that when voting for the election of Trustees and when otherwise permitted by the Investment Company Act of 1940, shares are voted in the aggregate and not by series. Only shares of a particular portfolio are entitled to vote on matters determined by the Trustees to affect only the interests of that portfolio. Pursuant to the Investment Company Act of 1940 and the rules and regulations thereunder, certain matters approved by a vote of a majority of all the shareholders of the Trust may not be binding on a portfolio whose shareholders have not approved such matter. There will normally be no meetings of shareholders for the purpose of electing Trustees unless and until less than a majority of the Trustees holding office has been elected by shareholders, at which time the Trustees then in office will call a shareholders' meeting for the election of Trustees. Holders of not less than two-thirds of the outstanding shares of the Trust may remove a Trustee by a vote cast in person or by proxy at a meeting called for such purpose. Shares of the Trust do not have cumulative voting rights, which means that the holders of more than 50% of the Trust's shares voting for the election of Trustees can elect all of the Trustees if they so choose. In such event, the holders of the remaining shares would not be able to elect any Trustees. Under Massachusetts law, shareholders of the Trust could, under certain circumstances, be held personally liable for the obligations of the Trust. The Declaration of Trust contains an express disclaimer of shareholder liability for acts or obligations of the Trust and requires that notice of such disclaimer be given in each agreement, obligation, or instrument entered into or executed by the Trustees or any officer of the Trust. 40 139 The Declaration of Trust provides for indemnification out of the property of a Trust portfolio for all losses and expenses of any shareholder held personally liable for the obligations of such portfolio. The Declaration of Trust also provides that the Trust shall, upon request, assume the defense of any claim made against any shareholder for any act or obligation of the Trust and satisfy any judgment thereon, but only out of the property of a particular portfolio. Thus, the risk of a shareholder incurring financial loss on account of shareholder liability is limited to circumstances in which a particular portfolio would be unable to meet its obligations. PRINCIPAL HOLDERS OF SECURITIES The Trust currently has three shareholders: The Manufacturers Life Insurance Company of America ("Manulife America"), Security Life and First North American Life Assurance Company ("FNAL"). Each shareholder holds Trust shares attributable to variable and variable life contracts in their separate accounts. Each shareholder will solicit voting instructions from such variable and variable life contract owners and vote all shares held in proportion to the instructions received. Reflecting the conditions of section 817(h) and other provisions of the Internal Revenue Code and regulations thereunder, the By-laws of the Trust provide that shares of the Trust may be purchased only by the following eligible shareholders: (a) separate accounts of Security Life or of other insurance companies; (b) Security Life; (c) NASL Financial; (d) any corporation related in a manner specified in section 267(b) of the Internal Revenue Code to Security Life or to NASL Financial, and (e) any Trustee of a qualified pension of retirement plan. As a matter of operating policy, shares of the Trust may be purchased only by the eligible shareholders of categories (a), (b) and (d). REPORTS TO SHAREHOLDERS The financial statements of the Trust at June 30, 1996 and December 31, 1995 are incorporated herein by reference from its annual and semi annual reports to shareholders filed with the Securities and Exchange Commission pursuant to Section 30(b) of the Investment Company Act of 1940 and Rule 30b2-1. The annual and semi-annual reports have been sent to contract owners. The following financial statements of the Growth Trust at November 30, 1996 are attached hereto: Financial Highlights for the period ended November 30, 1996 Statement of Assets and Liabilities at November 30, 1996 Statement of Operations for the period ended November 30, 1996 Statement of Changes in Net Assets for the period ended November 30, 1996 Portfolios of Investments at November 30, 1996 Notes to Financial Statements The financial statements of the Common Stock, Pacific Rim Emerging Markets, Real Estate Securities, Capital Growth Bond and Equity Index portfolios of Manulife Series Fund, Inc. at June 30, 1996 and December 31, 1995 are incorporated herein by reference from the Manulife Series Fund, Inc. annual and semi-annual reports to shareholders filed with the Securities and Exchange Commission pursuant to Section 30(b) of the Investment Company Act of 1940 and Rule 30b2-1. Annual and semi-annual reports containing financial statements of the Trust have been sent to contract owners. INDEPENDENT ACCOUNTANTS The financial statements of the Trust at December 31, 1995, including the related Financial Highlights which appear in the Prospectus, have been audited by Coopers & Lybrand, 41 140 L.L.P., independent accountants, as indicated in their report with respect thereto, and are included herein in reliance upon said report given on the authority of said firm as experts in accounting and auditing. Coopers & Lybrand LLP has offices at One Post Office Square, Boston, MA 02109. The financial statements of the Common Stock, Pacific Rim Emerging Markets, Real Estate Securities, Capital Growth Bond and Equity Index portfolios of Manulife Series Fund, Inc. at December 31, 1995, including the related Financial Highlights which appear in the Prospectus, have been audited by Ernst & Young LLP, independent auditors, as indicated in their report with respect thereto, and are included herein in reliance upon said report given on the authority of said firm as experts in accounting and auditing. Ernst & Young has offices at the John Hancock Tower, 200 Clarendon Street, Boston, MA 02116. LEGAL COUNSEL Messrs. Jones & Blouch L.L.P., 1025 Thomas Jefferson Street, N.W., Washington, DC 20007, have passed upon certain legal matters relating to the federal securities laws. 42 141 NASL SERIES TRUST STATEMENT OF ASSETS AND LIABILITIES - NOVEMBER 30, 1996 (UNAUDITED) - --------------------------------------------------------------------------------
GROWTH TRUST ------------ ASSETS Investments in securities, at value* (Includes a repurchase agreement of $12,217,000 in the Growth Trust)(See accompanying portfolio of investments) ........................................... $ 51,978,963 Cash ...................................................... 380 Foreign currency (Cost: $318) ............................. 311 Receivables: Investments sold ..................................... 218,379 Dividends ............................................ 24,658 Interest ............................................. 3,224 Other assets ......................................... 25 ------------ Total assets ..................................... 52,225,940 ------------ LIABILITIES Payables: Investments purchased ................................ 142,841 Dividend withholding tax ............................. 700 Custodian fee ........................................ 15,953 Other accrued expenses ............................... 32,587 ------------ Total liabilities ................................ 192,081 ------------ NET ASSETS ................................................ $ 52,033,859 ============ Net assets consist of: Accumulated undistributed net investment income (Note 2) ................................... $ 333,874 Accumulated undistributed net realized loss on investments .................................... (717,426) Unrealized appreciation (depreciation) on: Investments ........................................ 3,950,057 Foreign currency and forward foreign currency contracts ........................................ (7) Capital shares at par value of $.01 (Note 3) ......... 36,509 Additional paid-in capital ........................... 48,430,852 ------------ Net assets ....................................... $ 52,033,859 ============ Capital shares outstanding (Note 3) ...................... 3,650,890 ------------ Net asset value, offering price and redemption price per share ............................................ $ 14.25 ============ Investments in securities, at identified cost (Note 2) .... $ 48,028,906 ============
The accompanying notes are an integral part of the financial statements. 1 142 NASL SERIES TRUST STATEMENT OF OPERATION- FOR THE PERIOD ENDED NOVEMBER 30, 1996 (UNAUDITED) - --------------------------------------------------------------------------------
GROWTH TRUST * ----------- Investment Income: Interest ................................................ $ 123,214 Dividends (Net of $1,212 withholding tax) ............... 308,643 ----------- Total income ....................................... 431,857 ----------- Expenses: Investment adviser fee (Note 5) ......................... 80,229 Custodian fee ........................................... 16,312 Trustee fees and expenses (Note 6) ...................... 245 Registration and filing fees ............................ 320 Audit and legal fees .................................... 868 Miscellaneous ........................................... 9 ----------- Total expenses ..................................... 97,983 ----------- Net investment income .............................. 333,874 ----------- Realized and unrealized gain on investments and foreign currency: Net realized gain (loss) on: Investment transactions ............................... (711,435) Foreign currency and forward foreign currency contracts .................................. (5,991) Change in unrealized appreciation (depreciation) on: Investments ........................................... 3,950,057 Translation of foreign currency and forward foreign currency contracts .......................... (7) Net gain on investments and foreign currency ................................ 3,232,624 ----------- Net increase in net assets resulting from operations ................................. $ 3,566,498 ===========
* For the period July 15, 1996 (commencement of operations) to November 30, 1996. The accompanying notes are an integral part of the financial statements. 2 143 NASL SERIES TRUST STATEMENT OF CHANGES IN NET ASSETS - --------------------------------------------------------------------------------
Growth Trust ------------ 07/15/96* to 11/30/96 (Unaudited) ------------ Increase in net assets: Operations: Net investment income ............................... $ 333,874 Net realized gain (loss) on: Investment transactions ........................... (711,435) Foreign currency and forward foreign currency contracts .............................. (5,991) Change in unrealized appreciation (depreciation) on: Investments ....................................... 3,950,057 Foreign currency and forward foreign currency contracts .............................. (7) ------------ Net increase in net assets resulting from operations ........................... 3,566,498 Increase in net assets from capital share transactions (Note 3) ................. 48,467,361 ------------ Increase in net assets ................................ 52,033,859 Net assets at beginning of period ..................... -- ------------ Net assets at end of period ........................... $ 52,033,859 ============ Accumulated undistributed net investment income ................................... $ 333,874 ============
- ------------------------ * Commencement of operations The accompanying notes are an integral part of the financial statements. 3 144 NASL SERIES TRUST FINANCIAL HIGHLIGHTS (FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD) - --------------------------------------------------------------------------------
GROWTH TRUST ----------- 07/15/96* TO 11/30/96 (UNAUDITED) ----------- Net asset value, beginning of period ............. $ 12.50 Income from investment operations: Net investment income ............................ 0.09 Net realized and unrealized gain on investments .. 1.66 -------- Total from investment operations .................................. 1.75 Net asset value, end of period ................... $ 14.25 ======== Total return .................................... 14.00% Net assets, end of period (000's) ............... $ 52,034 Ratio of operating expenses to average net assets ............................. 1.04%(A) Ratio of net investment income to average net assets ............................. 3.54%(A) Portfolio turnover rate .......................... 202%(A) Average commission rate per share (B)............. $ 0.046
- -------------------- * Commencement of operations. (A) Annualized (B) For fiscal years beginning on or after September 1, 1995, a fund is required to disclose its average commission rate per share of all security trades on which commissions are charged. In certain foreign markets the relationship between the translated U.S. dollar price per share and commission paid per share may vary from that of domestic markets. The accompanying notes are an integral part of the financial statements 4 145 NASL SERIES TRUST PORTFOLIO OF INVESTMENTS - NOVEMBER 30, 1996 - Unaudited (showing percentage of total value of investments) - -------------------------------------------------------------------------------- GROWTH TRUST
Shares Value ------ ----- COMMON STOCKS - 76.06% AEROSPACE - 4.10% Boeing Company 6,350 $ 631,031 Computer Sciences Corporation 6,975 548,409 Gulfstream Aerospace Corporation 24,000 576,000 Lockheed Martin Corporation 4,150 376,094 ---------- 2,131,534 BANKING - 1.11% BankAmerica Corporation 5,600 576,800 ---------- BUSINESS SERVICES - 2.25% First Data Corporation 7,450 297,069 Fiserv, Incorporated 10,200 385,050 Gartner Group, Incorporated 11,325 413,362 Oakley, Incorporated 5,275 73,191 ---------- 1,168,672 CHEMICALS - 1.15% Arcadian Corporation 7,200 182,700 The B.F. Goodrich Company 9,275 416,216 ---------- 598,916 COMPUTERS & BUSINESS EQUIPMENT - 8.14% 3Com Corporation 6,500 488,312 Cisco Systems, Incorporated 19,775 1,342,228 Compaq Computer Corporation 8,000 634,000 Fore Systems, Incorporated 9,400 368,950 International Business Machines Corporation 4,725 753,047 Oce-Van Der Grinten NV 3,700 403,410 Sun Microsystems, Incorporated 4,175 243,194 ---------- 4,233,141 CONGLOMERATES - 0.34% Hunter Douglas NV 2,700 176,628 ---------- DOMESTIC OIL - 0.61% Phillips Petroleum Company 7,025 317,003 ---------- DRUGS & HEALTH CARE - 11.35% ASTRA AB, Series B, SEK 9,500 446,312 ASTRA AB, ADR 2,600 122,850 Baxter International, Incorporated 5,450 231,625 Bristol-Myers Squibb Company 3,425 389,594 Cardinal Health, Incorporated 5,450 455,756 Columbia/HCA Healthcare Corporation 14,562 582,480 Johnson & Johnson 6,550 347,969 Oxford Health Plans, Incorporated 9,600 556,800 Pacificare Health System, Incorporated 2,150 178,450 Phycor, Incorporated 17,175 554,967 SmithKline Beecham PLC, ADR 7,625 525,172 United States Surgical Corporation 11,500 461,437 Warner-Lambert Company 14,550 1,040,325 ---------- 5,893,737 Shares Value ------ ----- ELECTRICAL EQUIPMENT - 2.35% Duracell International, Incorporated 5,550 $ 369,769 General Electric Company 8,200 852,800 ---------- 1,222,569 ELECTRONICS - 10.73% ADC Telecommunication, Incorporated 21,575 782,094 Altera Corporation 7,825 590,787 Andrew Corporation 3,800 219,925 Intel Corporation 11,325 1,436,859 Linear Technology Corporation 2,150 101,319 Maxim Integrated Products, Incorporated 13,250 614,469 Picturetel Corporation 9,725 269,869 Tellabs, Incorporated 12,250 486,937 Xilinx, Incorporated 24,500 1,074,938 ---------- 5,577,197 FINANCIAL SERVICES - 3.54% Associates First Capital Corporation 13,275 642,178 The Chase Manhattan Corporation 4,450 420,525 Federal Home Loan Mortgage Corporation 2,625 299,906 Federal National Mortgage Association 11,525 475,407 ---------- 1,838,016 FOOD & BEVERAGES - 1.72% The Coca-Cola Company 6,400 327,200 Coca-Cola Enterprises, Incorporated 12,575 567,447 ---------- 894,647 HOTELS AND RESTAURANTS - 3.00% The Cheesecake Factory, Incorporated 6,750 136,687 HFS, Incorporated 2,900 187,775 Host Marriott Corporation 14,950 227,987 ITT Corporation 3,525 162,591 Marriott International, Incorporated 8,825 491,994 Planet Hollywood International, Incorporated 4,725 108,675 Sun International Hotels, Ltd. 4,950 245,644 ---------- 1,561,353 HOUSEHOLD APPLIANCES FURNISHING - 1.07% Sunbeam Corporation 20,150 556,644 ---------- INSURANCE - 1.34% Everest Reinsurance Holdings 9,100 255,938 General Re Corporation 950 160,312 Progressive Corporation 4,025 280,744 ---------- 696,994 INTERNATIONAL OIL - 1.78% The British Petroleum Company PLC, ADR 1,250 173,437 Exxon Corporation 1,800 170,325 Gulf Canada Resources, Ltd. 18,000 117,000
The accompanying notes are an integral part of the financial statements 5 146
Shares Value ------ ----- INTERNATIONAL OIL - CONTINUED Royal Dutch Petroleum Company 1,100 $ 186,863 Texaco, Incorporated 2,800 277,550 ---------- 925,175 LEISURE TIME - 1.73% Circus Circus Enterprises, Incorporated 14,075 513,737 International Game Technology 19,800 386,100 ---------- 899,837 OFFICE FURNISHING & SUPPLIES - 0.93% Staples, Incorporated 24,450 482,887 ---------- PETROLEUM SERVICES - 1.43% Global Marine, Incorporated 7,500 146,250 Rowan Companies, Incorporated 12,000 283,500 Schlumberger, Ltd. 3,000 312,000 ---------- 741,750 RETAIL GROCERY - 1.48% Kroger Company 6,800 313,650 Safeway, Incorporated 11,200 455,000 ---------- 768,650 RETAIL TRADE - 2.35% Borders Group, Incorporated 3,650 133,225 Consolidated Stores Corporation 8,075 298,775 Federated Department Stores, Incorporated 11,250 383,906 Fila Holdings SPA, ADR 3,275 242,350 The Home Depot, Incorporated 3,125 162,891 ---------- 1,221,147 SOFTWARE - 8.02% BMC Software, Incorporated 12,750 554,625 Cadence Design Systems, Incorporated 11,700 466,538 Computer Associates International, Incorporated 11,575 761,056 Documentum, Incorporated 2,350 89,300 HBO & Company 6,000 341,250 Microsoft Corporation 1,025 160,797 Parametric Technology Corporation 16,025 871,359 PeopleSoft, Incorporated 6,325 578,737 Shared Medical Systems Corporation 6,975 347,006 ---------- 4,170,668 TELECOMMUNICATION SERVICES - 4.59% Advanced Fibre Communications 650 31,769 Ascend Communications, Incorporated 9,375 666,797 Cascade Communications Corporation 8,300 573,738 Korea Mobile Telecommunication, ADR 6,750 87,750 Lucent Technologies, Incorporated 8,900 456,125 Premisys Communications, Incorporated 7,400 382,025 TeleCom Brazil-Telebras, ADR 2,475 187,481 ---------- 2,385,685 Shares Value ------ ----- TELEPHONE - 0.95% DDI Corporation 10 $ 71,554 WorldCom, Incorporated 18,275 422,609 ----------- 494,163 TOTAL COMMON STOCKS (Cost: $35,610,299) $39,533,813 ----------- WARRENTS - 0.44% ELECTRONICS - 0.44% Intel Corporation (Expiration date 03/14/98; Strike price $41.75) 2,600 228,150 ----------- TOTAL WARRANTS (Cost: $201,607) $ 228,150 -----------
REPURCHASE AGREEMENT - 23.50%
Principal Amount Value ------ ----- $12,217,000 Repurchase Agreement with State Street Bank & Trust Company dated 11/29/96 at 4.75%, to be repurchased at $12,221,836 on 12/02/96, collateralized by $12,370,000 U.S. Treasury Notes, 6.5% due 05/15/97 (valued at $12,464,878 including interest) $12,217,000 ----------- TOTAL INVESTMENTS (Growth Trust) (Cost: $48,028,906) $51,978,963 ===========
The accompanying notes are an integral part of the financial statements 6 147 NASL SERIES TRUST NOTES TO FINANCIAL STATEMENTS - (UNAUDITED) - -------------------------------------------------------------------------------- 1. ORGANIZATION OF THE TRUST. The Growth Trust is a portfolio of the NASL Series Trust (the "Trust"), a no-load, open-end management investment company organized as a Massachusetts business trust. The Trust is a series company, which means that it has several portfolios, each with a stated investment objective which it pursues through separate investment policies. The Trust currently offers the following seventeen portfolios: The Small/Mid Cap Trust ("Small/Mid Cap"), the International Small Cap Trust ("International Small Cap"), the Global Equity Trust ("Global Equity"), the Blue Chip Growth Trust ("Blue Chip"), the Growth Trust ("Growth"), the Equity Trust ("Equity"), the Value Equity Trust ("Value Equity"), the Growth and Income Trust ("Growth and Income"), the International Growth and Income Trust ("International Growth and Income"), the Strategic Bond Trust ("Strategic Bond"), the Global Government Bond Trust ("Global Government Bond"), the Investment Quality Bond Trust ("Investment Quality Bond"), the U.S. Government Securities Trust ("U.S. Government Securities"), the Money Market Trust ("Money Market"), the Aggressive Asset Allocation Trust ("Aggressive Asset Allocation"), the Moderate Asset Allocation Trust ("Moderate Asset Allocation"), and the Conservative Asset Allocation Trust ("Conservative Asset Allocation"). Each of the Trusts with the exception of Global Government Bond is diversified for purposes of the Investment Company Act of 1940. Shares of the Trust are presently offered only to the NASL Variable Account, the NASL Group Variable Account and the NASL Variable Life Account, separate accounts of North American Security Life Insurance Company ("Security Life"), to the FNAL Variable Account, a separate account of First North American Life Assurance Company ("First North American") and in case of certain portfolios, to Separate Accounts One, Two, Three and Four, separate accounts of The Manufacturers Life Insurance Company of America ("Manulife America"). Security Life is controlled by The Manufacturers Life Insurance Company ("Manulife"), a mutual life insurance company based in Toronto, Canada. First North American is a wholly-owned subsidiary of Security Life and Manulife America is a wholly-owned subsidiary of Manulife. At November 30, 1996, Security Life owned seed money shares in Growth and Growth and Income. NASL Financial Services, Inc. ("NASL Financial"), a wholly-owned subsidiary of Security Life, serves as investment adviser for the Trust (Note 5). NASL Financial is also the principal underwriter of the variable contracts issued by Security Life and First North American. NEW PORTFOLIOS. On July 15, 1996, Growth commenced operations. The subadviser to this portfolio is Founders Asset Management, Inc. 2. SIGNIFICANT ACCOUNTING POLICIES. The policies described below are followed by the Trust in the preparation of the financial statements for its portfolios in conformity with generally accepted accounting principles ("GAAP"). BASIS OF PRESENTATION. The accompanying unaudited financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and pursuant to the rules and regulations of the Securities and Exchange Commission. In the opinion of management, all adjustments necessary for a fair presentation of the financial position and the results of operations have been included. Results for the period July 15, 1996 (commencement of operations) to November 30, 1996 are not necessarily indicative of annual results. SECURITY VALUATION. Short term instruments with remaining maturities of 60 days or less are valued on an amortized cost basis or at original cost plus accrued interest, both of which approximate current market value. All other securities held by the Trust are valued at the last sale price as of the close of business on a principal securities exchange (domestic or foreign) or, lacking any sales, at the closing bid prices. Securities traded only in the over-the-counter market are valued at the last bid prices quoted by brokers making markets in the securities at the close of trading on the Exchange. Trust securities for which there are no such quotations, principally debt securities, are valued on the basis of the valuation provided by a pricing service which utilizes both dealer-supplied and electronic data processing techniques. Other assets and securities for which no such quotations are readily available are valued at their fair value as determined in good faith under consistently applied procedures established by and under the general supervision of the Board of Trustees. FOREIGN CURRENCY TRANSLATIONS. The accounting records of the Trust are maintained in U.S. dollars. Foreign currency amounts are translated into U.S. dollars on the following basis: (i) market value of securities, other assets and other liabilities at the current rate of exchange of such currencies against U.S. dollars; (ii) purchases and sales of securities, income and expenses at the rate of exchange quoted on the respective dates of such transactions. 7 148 NASL SERIES TRUST NOTES TO FINANCIAL STATEMENTS - CONTINUED - -------------------------------------------------------------------------------- SIGNIFICANT ACCOUNTING POLICIES- CONTINUED Gains and losses that arise from changes in foreign exchange rates have been segregated from gains and losses that arise from changes in the market prices of investments. These gains and losses are included with gains and losses on foreign currency and forward foreign currency contracts in the Statements of Operations. FORWARD FOREIGN CURRENCY CONTRACTS. Growth may purchase and sell forward foreign currency contracts in order to hedge a specific transaction or portfolio position. The net U.S. dollar value of foreign currency underlying all contractual commitments held at the end of the period and the resulting net unrealized appreciation (depreciation) and related net receivable or payable amount are determined using forward foreign currency exchange rates supplied by a quotation service. The Trust could be exposed to risks if the counterparties to the contracts are unable to meet the terms of their contracts or if the value of the foreign currency changes unfavorably. Net realized gains (losses) on foreign currency and forward foreign currency contracts shown in the Statements of Operations, includes net gains or losses realized by a portfolio on contracts which have matured or which the portfolio has terminated by entering into an offsetting commitment with the same broker. FUTURES. Growth may purchase and sell financial futures contracts and options on those contracts. The portfolio invests in contracts based on financial instruments such as U.S. Treasury bonds or notes or on securities indices such as the S&P 500 Index, in order to hedge against a decline in the value of securities owned by the portfolio. When a portfolio sells a futures contract based on a financial instrument, the portfolio becomes obligated to deliver that kind of instrument at an agreed upon date for a specified price. The portfolio realizes a gain or loss depending on whether the price of an offsetting purchase is less or more than the price of the initial sale or on whether the price of an offsetting sale is more or less than the price of the initial purchase . The Trust could be exposed to risks if it could not close out futures positions because of an illiquid secondary market or the inability of counterparties to meet the terms of their contracts. Upon entering into futures contracts, the Trust is required to deposit with a broker an amount, initial margin, which represents 5% of the purchase price indicated in the futures contract. Payments to and from the broker, known as variation margin, are required to be made on a daily basis as the price of the futures contract fluctuates, making the long or short positions in the contract more or less valuable. If the position is closed out by taking an opposite position prior to the settlement date of the futures contract, a final determination of variation margin is made, cash is required to be paid to or released by the broker, and the portfolio realizes a gain or loss. FORWARD COMMITMENTS. Growth may purchase debt securities on a when issued or forward delivery basis, which means that the obligations will be delivered to the portfolios of the Trust at a future date, which may be a month or more after the date of commitment. The price of the underlying securities and the date when the securities will be delivered and paid for are fixed at the time the transaction is negotiated. The value of the securities underlying a forward commitment to purchase securities, and the subsequent fluctuations in their value, is taken into account when determining the Trust's net asset value starting on the day the Trust agrees to purchase the securities. SECURITIES LENDING. Growth may lend securities in amounts up to 33 1/3% of its total non-cash assets to brokers, dealers and other financial institutions, provided such loans are callable at any time and are at all times fully secured by cash, cash equivalents or securities issued or guaranteed by the U.S. government or its agencies or instrumentalities, marked to market to the value of the loaned securities on a daily basis. The Trust may bear the risk of delay in recovery of, or even loss of rights in, the securities loaned should the borrower of the securities fail financially. Consequently, loans of portfolio securities will only be made to firms deemed by the subadvisers to be creditworthy. The Trust receives compensation for lending its securities either in the form of fees or by retaining a portion of interest on the investment of any cash received as collateral. Income generated from the investment of cash collateral is included as interest income in the Statements of Operations. All collateral received will be in an amount equal to at least 100% of the market value of the loaned securities and must be maintained at that level during the period of the loan. During the loan period, the fund continues to retain rights of ownership, including dividends and interest of the loaned securities. At November 30, 1996, Growth had no securities on loan. FEDERAL INCOME TAXES. The Trust's policy is to qualify as a "regulated investment company" under Subchapter M of the Internal Revenue Code, as amended, and to distribute all of its taxable income to its shareholders. Accordingly, no federal income tax provision is required. Each portfolio of the Trust is treated as a separate taxpayer for federal income tax purposes. 8 149 NASL SERIES TRUST NOTES TO FINANCIAL STATEMENTS - CONTINUED - -------------------------------------------------------------------------------- SIGNIFICANT ACCOUNTING POLICIES - CONTINUED DISTRIBUTION OF INCOME AND GAINS. During any particular year, net realized gains from investment transactions of each portfolio, in excess of available capital loss carryforwards of each portfolio would be taxable to such portfolio if not distributed. Therefore, the Trust intends to distribute all of its investment company taxable income and any net realized capital gains in order to avoid federal income tax. The Trust is exempt from federal excise tax. Net investment income is reported in the accompanying statements under GAAP. The Trust's distributions are based on income amounts determined in accordance with federal income tax regulations. Overdistributions of net investment income as determined in accordance with GAAP have been presented in the financial statements as distributions in excess of net investment income. Net investment income and net realized gains differ for financial statement and tax purposes due to distributions in accordance with income tax regulations which may differ from GAAP: marking-to-market of certain financial instruments, the deferral of certain losses for tax purposes and the treatment of currency gains or losses. As a result, the character of distributions made during the year from net investment income may differ from its ultimate characterization for tax purposes. EXPENSE ALLOCATION. Expenses not directly attributable to a particular portfolio are allocated based on the relative share of net assets of each portfolio for the time during which the expense was incurred. REPURCHASE AGREEMENTS. Growth may enter into repurchase agreements. When a portfolio enters into a repurchase agreement through its custodian, it receives delivery of the underlying securities, the amount of which at the time of purchase and each subsequent business day is required to be maintained at such a level that the market value is generally at least 102% of the repurchase amount. Each portfolio will take constructive receipt of all securities underlying the repurchase agreements they have entered into until such agreements expire. If the seller defaults, the portfolio would suffer a loss to the extent that proceeds from the sale of underlying securities were less than the repurchase amount. OTHER. Investment security transactions are accounted for on a trade date plus one basis. Interest income is accrued as earned. Dividend income and distributions to shareholders are recorded on the ex-dividend date. All original issue discounts are accreted for financial and tax reporting purposes. The Trust uses the First In, First Out method for determining realized gain or loss on investments for both financial and federal income tax reporting purposes. The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amount of assets and liabilities. Actual results may differ from these estimates. 3. CAPITAL SHARES. Share activity for the period July 15, 1996 (commencement of operations) to November 30, 1996, was as follows:
ADDITIONAL SHARES PAR VALUE PAID-IN CAPITAL ---------- ------------ --------------- GROWTH Outstanding at July 15, 1996 (commencement of operations) ............................ -- -- -- Sold ........................................ 3,797,013 $ 37,970 $ 50,403,511 Redeemed .................................... (146,123) (1,461) (1,972,659) ---------- ------------ ------------ Net increase .............................. 3,650,890 36,509 48,430,852 ---------- ------------ ------------ Outstanding at November 30, 1996 ............ 3,650,890 $ 36,509 $ 48,430,852 ========== ============ ============
4. PURCHASES AND SALES OF SECURITIES. The following summarizes the securities transactions (except for short-term investments) for the period July 15, 1996 (commencement of operations) to November 30, 1996:
PURCHASES SALES ------------------------- ------------------------- U.S U. S. PORTFOLIO GOVERNMENT OTHER ISSUES GOVERNMENT OTHER ISSUES - ------------- ---------- ------------ ---------- ------------ Growth ............. -- $56,107,398 -- $19,580,968
5. INVESTMENT ADVISORY AGREEMENTS. Effective March 20, 1987, the Trust entered into an Investment Advisory Agreement with NASL Financial, a wholly-owned subsidiary of Security Life and the principal underwriter of the variable annuity. 9 150 NASL SERIES TRUST NOTES TO FINANCIAL STATEMENTS - CONTINUED - -------------------------------------------------------------------------------- INVESTMENT ADVISORY AGREEMENTS- CONTINUED contracts issued by Security Life and First North American. The Adviser is responsible for managing the corporate and business affairs of the Trust and for selecting and compensating subadvisers to handle the investment and reinvestment of the assets of each portfolio of the Trust, subject to the supervision of the Trust's Board of Trustees. As compensation for its services, NASL Financial receives an advisory fee from the Trust cmputed seperately for each portfolio at an annual percentage of average net assets as follows:
PORTFOLIO FEE ----------- ----- Growth................................. .85%
EXPENSE REIMBURSEMENT. Pursuant to the Advisory Agreement, NASL Financial reimburses the Trust for expenses (excluding advisory fees, taxes, portfolio brokerage commissions, and interest) incurred in excess of 0.50% of the average annual net assets on an annualized basis in Growth . There were no expenses reimbursed by NASL Financial for the period July 15, 1996 (commencement of operations) to November 30, 1996. 6. TRUSTEES' FEES. The Trust pays each Trustee who is not an employee or a director of the Adviser or its affiliates a fee of $5,500 plus travel expenses for each Board of Trustees meeting attended. The Trust also pays each Trustee who is not an employee of the Adviser or its affiliates an annual retainer of $21,000. 7. SUBSEQUENT EVENT. On September 7, 1995, North American Life announced plans to "amalgamate" with The Manaufacturers Life Insurance company ("MLI"). An amalgamation is the exclusive method of combining federally chartered mutual life insurers under the applicable Insurance Companies Act (Canada). The amalgamation required and received the approval of the Superintendent of Financial Institutions in Canada, certain US regulatory approvals and the approval of the policyholders of both mutual companies. The amalgamation of North American Life and MLI became effective as of January 1, 1996. MLI is a Canadian federally chartered mutual life insurance company with $29.9 billion (US) in consolidated assets and $2.4 billion (US) in policyholder surplus as of June 30, 1995. North American Life, also a Canadian federally chartered mutual life insurance company, had $4.5 billion (US) in assets and $0.6 billion (US) in policyholders surplus as June 30, 1995. The survivng company will conduct business under the "The Manufacturers Life Insurance Company". Effective January 1, 1996, immediately following the amalgamation, Security Life experienced a corporate restructuring which resulted in the formation of a newly organized holding company, NAWL Holding Company, Inc. ("NAWL"). NAWL holds all of the outstanding shares of Security Life and Wood Logan Associates, Inc. ("WLA"). WLA is a broker-dealer registered with the Securities and Exchange Commission and is a member of the National Association of Securities Dealers, Inc. WLA acts as the promotional agent for distribution of the Trust. MLI owns all of the class A shares of NAWL, representing 85% of the voting shares of NAWL. Certain employees of WLA own all of the class B shares, which represent the remaining 15% voting interest in NAWL. 10 151 PART C OTHER INFORMATION 152 ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS (a) Financial Statements: NASL SERIES TRUST (1) Audited Financial Statements for periods ended December 31, 1995 Report of Independent Auditors, February 15, 1996 -- Part B Statements of Assets and Liabilities, December 31, 1995 -- Part B Statements of Operations for the year ended December 31, 1995 -- Part B Statements of Changes in Net Assets for the years ended December 31, 1995 and December 31, 1994 -- Part B Notes to Financial Statements, December 31, 1995 -- Part B Portfolios of Investments, December 31, 1995 -- Part B Financial Highlights -- Parts A and B (2) Unaudited Financial Statements for periods ended June 30, 1996 Statements of Assets and Liabilities, June 30, 1996 -- Part B Statements of Operations for the periods ended June 30, 1996 -- Part B Statements of Changes in Net Assets for the periods ended June 30, 1996 -- Part B Notes to Financial Statements, June 30, 1996 -- Part B Portfolios of Investments, June 30, 1996 -- Part B Financial Highlights -- Parts A and B (3) Growth Trust Unaudited Financial Statements for period ended November 30, 1996 Statements of Assets and Liabilities, November 30, 1996 -- Part B Statements of Operations for the periods ended November 30, 1996 -- Part B
153 Statements of Changes in Net Assets for the periods ended November 30, 1996 -- Part B Notes to Financial Statements, November 30, 1996 -- Part B Portfolios of Investments, November 30, 1996 -- Part B Financial Highlights -- Parts A and B MANULIFE SERIES FUND, INC. (COMMON STOCK, PACIFIC RIM EMERGING MARKETS, REAL ESTATE SECURITIES, CAPITAL GROWTH BOND AND EQUITY INDEX PORTFOLIOS ONLY) (1) Audited Financials Report of Independent Accountants, February 2, 1996 -- Part B Statements of Assets and Liabilities, December 31, 1995 -- Part B Statements of Operations for the year ended December 31, 1995 -- Part B Statements of Changes in Net Assets for the years ended December 31, 1995 and December 31, 1994 -- Part B Notes to Financial Statements, December 31, 1995 -- Part B Portfolios of Investments, December 31, 1995 -- Part B Financial Highlights -- Parts A and B (2) Unaudited Financial Statements for periods ended June 30, 1996 Statements of Assets and Liabilities, June 30, 1996 -- Part B Statements of Operations for the periods ended June 30, 1996 -- Part B Statements of Changes in Net Assets for the periods ended June 30, 1996 -- Part B Notes to Financial Statements, June 30, 1996 -- Part B
2 154 Portfolios of Investments, June 30, 1996 -- Part B Financial Highlights -- Parts A and B (b) Exhibits: (1)(a) Agreement and Declaration of Trust dated September 29, 1988 -- previously filed as exhibit (1)(a) to post-effective amendment no. 31 filed on February 28, 1996. (1)(b) Establishment and Designation of Additional Series of Shares of Beneficial Interest Redesignation of the Series of Shares known as the "Convertible Securities Trust" to the "U.S. Government Bond Trust" dated May 1, 1989 -- previously filed as exhibit (1)(b) to post-effective amendment no. 31 filed on February 28, 1996. (1)(c) Establishment and Designation of Additional Series of Shares of Beneficial Interest Conservative, Moderate and Aggressive Asset Allocation Trusts dated May 1, 1989 -previously filed as exhibit (1)(c) to post-effective amendment no. 31 filed on February 28, 1996. (1)(d) Establishment and Designation of Additional Series of Shares of Beneficial Interest Growth & Income Trust dated February 1, 1991 -- previously filed as exhibit (1)(d) to post-effective amendment no. 31 filed on February 28, 1996. (1)(e) Establishment and Designation of Additional Series of Shares of Beneficial Interest Redesignation of the Series of Shares known as the "Bond Trust" to the "Investment Quality Bond Trust" dated April 16, 1991 -- previously filed as exhibit (1)(e) to post-effective amendment no. 31 filed on February 28, 1996. (1)(f) Establishment and Designation of Additional Series of Shares of Beneficial Interest Redesignation of the Series of Shares known as the "U.S. Government Bond Trust" to the "U.S. Government Securities Trust" dated June 14, 1991 -- previously filed as exhibit (1)(f) to post-effective amendment no. 31 filed on February 28, 1996. (1)(g) Establishment and Designation of Additional Series of Shares of Beneficial Interest Pasadena Growth Trust, Growth Trust and Strategic Income Trust dated August 7, 1992 -previously filed as exhibit (1)(g) to post-effective amendment no. 31 filed on February 28, 1996. (1)(h) Establishment and Designation of Additional Series of Shares of Beneficial Interest Redesignation of the Series of Shares known as the "Strategic 3 155 Income Trust" to the "Strategic Bond Trust" and the Series of Shares known as the "Growth Trust" to the "Value Equity Trust" dated April 4,1993 -- previously filed as exhibit (1)(h) to post-effective amendment no. 31 filed on February 28, 1996. (1)(i) Establishment and Designation of Additional Series of Shares of Beneficial Interest International Growth and Income Trust dated December 28, 1994 -- previously filed as exhibit (1)(i) to post-effective amendment no. 31 filed on February 28, 1996. (1)(j) Establishment and Designation of Additional Series of Shares of Beneficial Interest - Small/Mid Cap Trust, dated February 1, 1996 -- previously filed as exhibit (1)(j) to post-effective amendment no. 34 filed on October 4, 1996. (1)(k) Establishment and Designation of Additional Series of Shares of Beneficial Interest - International Small Cap Trust dated February 1, 1996 -previously filed as exhibit (1)(k) to post-effective amendment no. 34 filed on October 4, 1996. (1)(l) Establishment and Designation of Additional Series of Shares of Beneficial Interest - Growth Trust dated July 9, 1996 -- previously filed as exhibit (1)(l) to post-effective amendment no. 34 filed on October 4, 1996. (l)(m) Establishment and Designation of Additional Series of Shares of Beneficial Interest - Value Trust, High Yield Trust, International Stock Trust, Science & Technology Trust, Balanced Trust, Worldwide Growth Trust, Emerging Growth Trust, Pilgrim Baxter Growth Trust, Pacific Rim Emerging Markets Trust, Real Estate Securities Trust, Capital Growth Bond Trust, Equity Index Trust, Common Stock Trust, Lifestyle Conservative 280 Trust, Lifestyle Moderate 460 Trust, Lifestyle Balanced 640 Trust, Lifestyle Growth 820 Trust, Lifestyle Aggressive 1000 Trust -- and Redesignation of the Series of Shares known as the "Pasadena Growth Trust" to the "Blue Chip Growth Trust" and the Series of Shares known as the "Value Equity Trust" to the "Equity-Income Trust" -- Filed herewith. (2) By-laws of NASL Series Trust -- previously filed as exhibit (2) to post-effective amendment no. 7 filed on October 31, 1988. (4)(a) Specimen Share Certificate for Equity Trust -- previously filed as exhibit (4)(a) to post-effective amendment no. 7 filed on October 31, 1988. 4 156 (4)(b) Specimen Share Certificate for Growth and Income Trust -- previously filed as exhibit (4)(b) to post-effective amendment no. 13 filed on February 15, 1991. (4)(c) Specimen Share Certificate for Investment Quality Bond Trust --previously filed as exhibit (4)(c) to post-effective amendment no. 14 filed on April 15, 1991. (4)(d) Specimen Share Certificate for Money Market Trust -- previously filed as exhibit (4)(c) to post-effective amendment no. 7 filed on October 31, 1988. (4)(e) Specimen Share Certificate for Global Equity Trust -- previously filed as exhibit (4)(d) to post-effective amendment no. 7 filed on October 31, 1988. (4)(f) Specimen Share Certificate for Global Government Bond Trust -previously filed as exhibit (4)(e) to post-effective amendment no. 7 filed on October 31, 1988. (4)(g) Specimen Share Certificate for U.S. Government Securities Trust -- previously filed as exhibit (4)(g) to post-effective amendment no. 14 filed on April 15, 1991. (4)(h) Specimen Share Certificate for Conservative Asset Allocation Trust -- previously filed as exhibit (4)(g) to post-effective amendment no. 10 filed on May 19, 1989. (4)(i) Specimen Share Certificate for Moderate Asset Allocation Trust --previously filed as exhibit (4)(h) to post-effective amendment no. 10 filed on May 19, 1989. (4)(j) Specimen Share Certificate for Aggressive Asset Allocation Trust -- previously filed as exhibit (4)(i) to post-effective amendment no. 10 filed on May 19, 1989. (4)(k) Specimen Share Certificate for Value Equity Trust -- previously filed as exhibit (4)(k) to post-effective amendment no. 21 filed on August 24, 1992. (4)(l) Specimen Share Certificate for Strategic Bond Trust -- previously filed as exhibit (4)(l) to post-effective amendment no. 21 filed on August 24, 1992. (4)(m) Specimen Share Certificate for Pasadena Growth Trust -- previously filed as exhibit (4)(m) to post-effective amendment no. 21 filed on August 24, 1992. 5 157 (4)(n) Specimen Share Certificate for International Growth and Income Trust -- previously filed as exhibit (4)(n) to post-effective amendment no. 27 filed October 20, 1994. (4)(o) Specimen Share Certificate for the Small/Mid Cap Trust -- previously filed as exhibit (4)(o) to post effective amendment no. 30 filed December 14, 1995. (4)(p) Specimen Share Certificate for the International Small Cap Trust -- previously filed as exhibit (4)(p) to post effective amendment no. 30 filed December 14, 1995. (4)(q) Specimen Share Certificate for the Growth Trust -- previously filed as exhibit (4)(q) to post-effective amendment no. 32 filed May 13, 1996. (4)(r) Specimen Share Certificate for the Emerging Growth Trust -- previously filed as exhibit (4)(r) to post-effective amendment no. 34 filed on October 4, 1996. (4)(s) Specimen Share Certificate for the Pilgrim Baxter Growth Trust -- previously filed as exhibit (4)(s) to post-effective amendment no. 34 filed on October 4, 1996. (4)(t) Specimen Share Certificate for the Pacific Rim Emerging Markets Trust -- previously filed as exhibit (4)(t) to post-effective amendment no. 34 filed on October 4, 1996. (4)(u) Specimen Share Certificate for the International Stock Trust -- previously filed as exhibit (4)(u) to post-effective amendment no. 34 filed on October 4, 1996. (4)(v) Specimen Share Certificate for the Worldwide Growth Trust -- previously filed as exhibit (4)(v) to post-effective amendment no. 34 filed on October 4, 1996. (4)(w) Specimen Share Certificate for the Science & Technology Trust -- previously filed as exhibit (4)(w) to post-effective amendment no. 34 filed on October 4, 1996. (4)(x) Specimen Share Certificate for the Common Stock Trust -- previously filed as exhibit (4)(x) to post-effective amendment no. 34 filed on October 4, 1996. 6 158 (4)(y) Specimen Share Certificate for the Real Estate Securities Trust -- previously filed as exhibit (4)(y) to post-effective amendment no. 34 filed on October 4, 1996. (4)(z) Specimen Share Certificate for the Value Trust -- previously filed as exhibit (4)(z) to post-effective amendment no. 34 filed on October 4, 1996. (4)(aa) Specimen Share Certificate for the Equity Index Trust -- previously filed as exhibit (4)(aa) to post-effective amendment no. 34 filed on October 4, 1996. (4)(bb) Specimen Share Certificate for the Balanced Trust -- previously filed as exhibit (4)(bb) to post-effective amendment no. 34 filed on October 4, 1996. (4)(cc) Specimen Share Certificate for the High Yield Trust -- previously filed as exhibit (4)(cc) to post-effective amendment no. 34 filed on October 4, 1996. (4)(dd) Specimen Share Certificate for the Capital Growth Bond Trust -- previously filed as exhibit (4)(dd) to post-effective amendment no. 34 filed on October 4, 1996. (5)(a)(1) Advisory Agreement between NASL Series Trust and NASL Financial Services, Inc. -- previously filed as exhibit (5)(a)(1) to post effective amendment no. 30 filed December 14, 1995. (5)(a)(2) Amendment to Advisory Agreement between NASL Series Trust and NASL Financial Services, Inc. adding the Growth Trust -- previously filed as exhibit (5)(a)(1) to post effective amendment no. 30 filed December 14, 1995. (5)(a)(3) Amendment to Advisory Agreement between NASL Series Trust and NASL Financial Services, Inc. dated October 1, 1996, reducing advisory fee for Blue Chip Growth Trust -- previously filed as exhibit (5)(a)(3) to post-effective amendment no. 34 filed on October 4,1996. (5)(a)(4) Amendment to Advisory Agreement between NASL Series Trust and NASL Financial Services, Inc. adding Emerging Growth Trust, Pilgrim Baxter Growth Trust, Pacific Rim Emerging Markets Trust, International Stock Trust, Worldwide Growth Trust, Science & Technology Trust, Common Stock Trust, Real Estate Securities Trust, Value Trust, Equity Index Trust, Balanced Trust, High Yield Trust, Capital Growth Bond Trust, Lifestyle Conservative 280 Trust, Lifestyle Moderate 460 Trust. Lifestyle Balanced 640 Trust, Lifestyle Growth 820 Trust and Lifestyle Aggressive 1000 Trust--Filed herewith. 7 159 (5)(b)(i) Restated Subadvisory Agreement Between NASL Financial Services, Inc. and Oechsle International Advisors, L.P. -- previously filed as exhibit (5) (b) (ii) to post-effective amendment no. 16 on October 23, 1991. (5)(b)(ii) Subadvisory Agreement Between NASL Financial Services, Inc. and Wellington Management Company -- previously filed as exhibit (5) (b) (iii) to post-effective amendment no. 16 on October 23, 1991. (5)(b)(iii) Amendment to Subadvisory Agreement Between NASL Financial Services, Inc. and Wellington Management Company dated December 13, 1991, -- previously filed as exhibit (5)(b)(iii) to post-effective amendment no. 18 on December 19, 1991. (5)(b)(iv) Subadvisory Agreement Between NASL Financial and Fidelity Management Trust Company dated December 6, 1991 -- previously filed as exhibit (5)(b)(iv) to post-effective amendment no. 18 on December 19, 1991. (5)(b)(v) Subadvisory Agreement Between NASL Financial and Salomon Brothers Asset Management Inc. dated December 6, 1991 -- previously filed as exhibit (5)(b)(v) to post-effective amendment no. 18 on December 19, 1991. (5)(b)(vi) Amendment to Subadvisory Agreement Between NASL Financial and Salomon Brothers Asset Management Inc. dated August 20, 1992 -- previously filed as exhibit no. (5)(a)(3) to post-effective amendment no. 22 filed on October 30, 1992. (5)(b)(vii) Subadvisory Consulting Agreement Between Salomon Brothers Asset Management Inc. and Salomon Brothers Asset Management Limited dated February 19, 1993. -- previously filed as exhibit (5)(b)(ix) to post effective amendment 24 on April 2, 1993. (5)(b)(viii) Subadvisory Agreement between NASL Financial Services, Inc. and J.P. Morgan Investment Management Inc. dated December 1, 1994 -- previously filed as exhibit (5)(b)(xi) to post-effective amendment no. 28 on March 2, 1995. (5)(b)(ix) Form of Subadvisory Agreement between NASL Financial Services, Inc. and Fred Alger Management, Inc. -- previously filed as exhibit (5)(b)(xi) to post effective amendment no. 30 filed December 14, 1995. 8 160 (5)(b)(x) Form of Subadvisory Agreement between NASL Financial Services, Inc. and Founders Asset Management, Inc. -- previously filed as exhibit (5)(b)(xii) to post effective amendment no. 30 filed December 14, 1995. (5)(b)(xi) Amendment to Subadvisory Agreement between NASL Financial Services, Inc. and Founders Asset Management, Inc. adding the Growth Trust -- previously filed as exhibit (5)(b)(xiii) to post effective amendment no. 33 filed July 10, 1996. (5)(b)(xii) Form of Amendment to Subadvisory Agreement between NASL Financial Services, Inc. and Founders Asset Management, Inc. dated October 1, 1996 adding the Worldwide Growth and Balanced Trusts -- previously filed as exhibit (5)(b)(xii) to post-effective amendment no. 34 filed on October 4,1996. (5)(b)(xiii) Subadvisory Agreement between NASL Financial Services, Inc. and T. Rowe Price Associates, Inc. dated October 1, 1996 providing for the Blue Chip Growth and Equity-Income Trusts -- Filed herewith. (5)(b)(xiv) Form of Subadvisory Agreement between NASL Financial Services, Inc. and Rowe Price-Fleming International, Inc. adding the International Stock Trust -- previously filed as exhibit (5)(b)(xiv) to post-effective amendment no. 34 filed on October 4, 1996. (5)(b)(xv) Subadvisory Agreement between NASL Financial Services, Inc. and Morgan Stanley Asset Management, Inc. dated October 1, 1996 providing for the Global Equity Trust -- Filed herewith. (5)(b)(xvi) Subadvisory Agreement between NASL Financial Services, Inc. and Miller Anderson & Sherrerd, LLP dated October 1, 1996 adding the Value and High Yield Trusts -- Filed herewith. (5)(b)(xvii) Form of Subadvisory Agreement between NASL Financial Services, Inc. and Warburg Pincus Counsellors, Inc. adding the Emerging Growth Trust -- previously filed as exhibit (5)(b)(xvii) to post-effective amendment no. 34 filed on October 4,1996. (5)(b)(xviii) Form of Subadvisory Agreement between NASL Financial Services, Inc. and Manufacturers Adviser Corporation dated October 1, 1996 providing for the Money Market Trust -- previously filed as exhibit (5)(b)(xviii) to post-effective amendment no.34 filed on October 4,1996. 9 161 (5)(b)(xix) Subadvisory Agreement between NASL Financial Services, Inc. and Pilgrim Baxter & Associates, Inc. dated December 31, 1996 adding the Pilgrim Baxter Growth Trust -- Filed herewith. (5)(b)(xx) Form of Amendment to Subadvisory Agreement between NASL Financial Services, Inc. and Manufacturers Adviser Corporation dated December 31, 1996 adding the Pacific Rim Emerging Markets, Common Stock, Real Estate Securities, Equity Index, Capital Growth Bond, Lifestyle Conservative 280, Lifestyle Moderate 460, Lifestyle Balanced 640, Lifestyle Growth 820 and Lifestyle Aggressive 1000 Trusts -- Filed herewith. (5)(b)(xxi) Subadvisory Agreement between NASL Financial Services, Inc. and Fidelity Management Trust Company dated January 1, 1996 as amended December 31, 1996 providing for the Equity, Conservative Asset Allocation, Moderate Asset Allocation and Aggressive Asset Allocation Trusts -- Filed herewith. (5)(b)(xxii) Form of Amendment to Subadvisory Agreement between NASL Financial Services, Inc. and T. Rowe Price Associates, Inc. dated December 31, 1996 adding the Science & Technology Trust -- Filed herewith. (8)(a) Custodian Agreement Between NASL Series Fund, Inc. and State Street Bank and Trust Company -- previously filed as exhibit (8)(b) to post-effective amendment no. 6 filed on March 14, 1988. (10)(a)(i) Opinion and Consent of Ropes & Gray -- previously filed as exhibit (10)(a) to post-effective amendment no. 7 filed on October 31, 1988. (10)(a)(ii) Opinion and Consent of Tina M. Perrino, Esq. -- previously filed as exhibit (10)(a)(ii) to post-effective amendment no. 14 filed April 15, 1991. (10)(a)(iii) Opinion and Consent of Tina M. Perrino, Esq. -- previously filed as exhibit (10)(a)(iii) to post-effective amendment no. 22 filed October 30, 1992. (10)(a)(iv) Opinion and Consent of Betsy A. Seel, Esq.-- previously filed as exhibit (10)(a)(iv) to post-effective amendment no. 27 filed October 20, 1994. (10)(a)(v) Opinion and Consent of Betsy A. Seel, Esq. -- previously filed as exhibit (10)(a)(v) to post effective amendment no. 30 filed December 14,1995. (10)(a)(vi) Opinion and Consent of Betsy A. Seel, Esq. -- previously filed as exhibit (10)(a)(vi) to post effective amendment no. 33 filed July 10, 1996. 10 162 (10)(a)(vii) Opinion and Consent of Betsy Anne Seel, Esq. -- Filed herewith. (10)(b) Consent of Jones & Blouch L.L.P. -- Filed herewith. (11)(a) Consent of Coopers & Lybrand L.L.P. -- Filed herewith. (11)(b) Consent of Ernst & Young - Filed herewith (13) Letter Containing Investment Undertaking of North American Life Assurance Company -- previously filed as exhibit 13 to post-effective amendment no. 4 filed on December 24, 1987. (16)(a) Schedule of computations of Total Return Figures for the U.S. Government Securities, Growth and Income and Investment Quality Bond Trusts -- previously filed as exhibit (16) (a) to post-effective amendment no. 16 filed on October 23, 1991. (16)(b) Schedule of Computations of Total Return Figures for the Equity, Global Equity and Global Government Bond -- previously filed as exhibit 16 to post-effective amendment no. 10 filed on May 19, 1989. (16)(c) Schedule of Computations of Total Return Figures for the Asset Allocation Trusts, Value Equity Trust, Pasadena Growth Trust and the Strategic Bond Trust -- previously filed as exhibit 16(c) to post-effective amendment no. 25 filed on March 2, 1994. (16)(d) Schedule of Computations of Total Return Figures for the International Growth & Income Trust. -- previously filed as Exhibit 16(d) to post-effective amendment no. 29 on June 29, 1995. (16)(e) Additional Schedule of Computations - general formula -- previously filed as exhibit (b)(16)(e) to post-effective amendment no. 31 filed February 28, 1996. (18)(a) Power of Attorney - Trustees -- previously filed as Exhibit (17) to post-effective amendment no. 23 filed on February 2, 1993. (18)(b) Power of Attorney - Richard C. Hirtle, Vice President and Treasurer (Principal Financial and Accounting Officer) -- previously filed as exhibit 17(b) to post effective amendment no. 24 filed April 2, 1993. (18)(c) Powers of Attorney -- previously filed as exhibit 17(d) to post effective amendment no. 27 filed October 20, 1994. 11 163 (18)(d) Power of Attorney -- John D. DesPrez, President -- previously filed as exhibit (18)(e) to post-effective amendment no. 34 filed on October 4, 1996. (27)(a) NASL Series Trust - Financial Data Schedules for December 31, 1995, June 30,1996 and November 30, 1996 financial statements. -- Filed herewith. (27)(b) Manulife Series Fund, Inc. - Financial Data Schedules (Common Stock, Pacific Rim Emerging Markets, Real Estate Securities, Capital Growth Bond and Equity Index portfolios only) for June 30, 1996 and December 31, 1995 - Filed herewith. ITEM 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT The Trust has three shareholders: (i) North American Security Life Insurance Company ("Security Life"), (ii) its wholly-owned subsidiary, First North American Life Assurance Company ("FNAL") and (iii) The Manufacturers Life Insurance Company of America ("Manulife America"). Security Life, FNAL and Manulife America hold Trust shares attributable to variable contracts in their respective separate accounts and will solicit voting instructions from variable contract owners and vote all shares held in proportion to the instructions received. THE MANUFACTURERS LIFE INSURANCE COMPANY (Subsidiaries Organization Chart - - including certain Significant Investments) The Manufacturers Life Insurance Company (Canada) 1. ManuLife Holdings (Hong Kong) Limited - H.K. (100%) 2. ManuLife Financial Systems (Hong Kong) Limited - H.K. (100%) 3. P.T. Asuransi Jiwa Dharmala Manulife - Indonesia (51%) 4. WT (SW) Properties Ltd. - U.K. (100%) 5. OUB Manulife Pte. Ltd. - Singapore (50%) 6. Manulife (Malaysia) SDN. BHD. - Malaysia (100%) 7. Manulife (Thailand) Ltd. - Thailand (100%) 12 164 8. Young Poong Manulife Insurance Company - Korea (50%) 9. Ennal, Inc. - Ohio (100%) 10. First North American Realty, Inc. - Minnesota (100%) 11. NAL Resources Limited - Alberta (100%) (a) Nottingham Gas Limited - Saskatchewan (31%) 12. Nottingham Gas Limited - Saskatchewan (31%) 13. 484551 Ontario Limited - Ontario (100%) (a) 911164 Ontario Limited - Ontario (100%) 14. Peel-de Maisonneuve Investments Ltd. - Canada (50%) (a) 2932121 Canada Inc. - Canada (100%) 15. Balmoral Developments Inc. - Canada (100%) 16. KY Holding Corporation - Canada (100%) 17. 165351 Canada Limited - Canada (100%) 18. 172846 Canada Limited - Canada (100%) 19. 576986 Ontario Inc. - Ontario (100%) 20. Cantay Holdings Inc. - Ontario (100%) 21. Manufacturers Life Capital Corporation Inc. - Canada (100%) 22. Elliott & Page Asset Management Ltd. - Canada (100%) 23. 495603 Ontario Limited - Ontario (100%) 24. 994744 Ontario Inc. - Ontario (100%) 25. The North American Group Inc. - Ontario (100%) 26. Manulife Investment Management Corporation - Canada (100%) (a) 159139 Canada Inc. - Canada (50%) i. Altamira Management Ltd. - Canada (60.96%) A. ACI2 Limited - Cayman (100%) 13 165 a/ Regent Pacific Group Limited-Cayman (63.8%) a.1 Manulife Regent Investment Corporation - Barbados (100%) [50% by Regent Pacific Group Limited and 50% by Manulife Data Services Inc.] b.1 Manulife Regent Investment Asia Limited - Hong Kong (100%) B. Altamira Financial Services Inc. - Ontario (100%) a/ AIS Securities (Partnership) - Ontario (100%) [5% by Altamira Financial Services, Inc. and 95% by Altamira Investment Services Inc.] b/ Altamira Investment Services Inc. - Ontario (100%) (a) AIS Securities (Partnership) - Ontario (100%)[95% by by Altamira Investment Services Inc. and 5% by Altamira Financial Services Inc.] (b) Altamira (Alberta) Ltd. - Alberta (100%) (c) Capital Growth Financial Services Inc. - Ontario (100%) 27. Manulife International Investment Management Limited - U.K. (100%) (a) Manulife International Fund Management Limited - U.K. (100%) 28. Manulife (International) Limited - Bermuda (100%) (a) The Manufacturers (Pacific Asia) Insurance Company Limited - Hong Kong (100%) (b) Newtime Consultants Limited - Hong Kong (100%) 29. Manulife Data Services Inc.- Barbados (100%) (a) Manulife Regent Investment Corporation - Barbados - (100%) [50% by Manulife Data Services Inc. and 50% by Regent Pacific Group Limited] (b) Manulife Regent Investment Asia Limited - Hong Kong (100%) 30. FNA Financial Inc. - Canada (100%) (a) NAL Trustco Inc. - Ontario (100%) (b) First North America Insurance Company - Canada (100%) (c) Elliott & Page Limited - Ontario (100%) (d) Seamark Asset Management Ltd. - Canada (69.175%) (e) NAL Resources Management Limited - Canada (100%) (i) NAL Energy Inc. - Alberta (100%) 31. ManuCab Ltd. - Canada (100%) (a) Plazcab Service Limited - Canada (100%) 14 166 32. Townvest Inc. - Ontario (100%) 33. Manulife Reinsurance Corporation (U.S.A.) - Michigan (100%) (a) The Manufacturers Life Insurance Company (U.S.A.) - Michigan (100%) (b) Manulife Holding Corporation - Delaware (100%) i. Manufacturers Life Mortgage Securities Corporation - Delaware (100%) ii. Manulife Property Management of Washington, D.C., Inc. - Washington D.C. (100%) iii. Capital Design Corporation - California - (100%) iv. ManEquity, Inc. - Colorado (100%) v. Manulife Service Corporation - Colorado (100%) vi. Succession Planning International Inc. - Wisconsin (100%) (c) The Manufacturers Life Insurance Company of America - Michigan (100%) i. Manulife Series Fund, Inc. - Maryland (100%) ii. Manufacturers Adviser Corporation - Colorado (100%) (d) Manulife Reinsurance Limited - Bermuda (100%) 34. The Manufacturers Investment Corporation - Michigan (100%) 35. Capitol Bankers Life Insurance Company - Minnesota (100%) 36. NAWL (North American Wood Logan Holding Company) - Delaware (85%) (a) Wood Logan Associates Inc. - Connecticut (100%) (i) Wood Logan Distributors - Connecticut (100%) (b) North American Security Life Insurance Company - Delaware (100%) (i) NASL Financial Services, Inc. - Massachusetts (100%) (ii) First North American Life Assurance Company - New York (100%) 37. Manulife (International) Reinsurance Limited - Bermuda (100%) (a) Manulife (International) P&C Limited - Bermuda (100%) (b) Manufacturers P&C Limited - Barbados (100%) 38. Manulife Financial Holdings Limited - Ontario (100%) (a) 742166 Ontario Inc. - Ontario (100%) (b) Family Realty Firstcorp Limited - Ontario (100%) (c) Thos. N. Shea Investment Corporation Limited - Ontario (100%) (d) Manulife Bank of Canada - Canada (100%) i. Manulife Securities International Ltd. - Canada (100%) 15 167 ITEM 26. NUMBER OF HOLDERS OF SECURITIES As of November 30, 1996 the number of holders of the shares of beneficial interest of each series of shares of the Registrant is as follows:
Title of Series Number of Record Holders --------------- ------------------------ Global Equity Trust Shares of Beneficial Interest 2 Blue Chip Growth Trust Shares of Beneficial Interest 2 Equity Trust Shares of Beneficial Interest 3 Equity-Income Trust Shares of Beneficial Interest 3 Growth and Income Trust Shares of Beneficial Interest 3 Strategic Bond Trust Shares of Beneficial Interest 2 Global Government Bond Trust Shares of Beneficial Interest 2 Investment Quality Bond Trust Shares of Beneficial Interest 2 U.S. Government Securities Trust Shares of Beneficial Interest 3 Money Market Trust Shares of Beneficial Interest 2 Conservative Asset Allocation Trust Shares of Beneficial Interest 3 Moderate Asset Allocation Trust Shares of Beneficial Interest 3 Aggressive Asset Allocation Trust Shares of Beneficial Interest 3 International Growth and Income Trust Shares of Beneficial Interest 2 Small/Mid Cap Trust Shares of Beneficial Interest 2 International Small Cap Trust Shares of Beneficial Interest 2 Growth Trust Shares of Beneficial Interest 2
16 168 Pacific Rim Emerging Markets Trust Shares of Beneficial Interest 0 Science & Technology Trust Shares of Beneficial Interest 0 Emerging Growth Trust Shares of Beneficial Interest 0 Pilgrim Baxter Growth Trust Shares of Beneficial Interest 0 International Stock Trust Shares of Beneficial Interest 0 Worldwide Growth Trust Shares of Beneficial Interest 0 Common Stock Trust Shares of Beneficial Interest 0 Equity Index Trust Shares of Beneficial Interest 0 Value Trust Shares of Beneficial Interest 0 Real Estate Securities Trust Shares of Beneficial Interest 0 Balanced Trust Shares of Beneficial Interest 0 High Yield Trust Shares of Beneficial Interest 0 Capital Growth Bond Trust Shares of Beneficial Interest 0 Lifestyle Conservative 280 Trust Shares of Beneficial Interest 0 Lifestyle Moderate 460 Trust Shares of Beneficial Interest 0 Lifestyle Balanced 640 Trust Shares of Beneficial Interest 0 Lifestyle Growth 820 Trust Shares of Beneficial Interest 0 Lifestyle Aggressive 1000 Trust Shares of Beneficial Interest 0
ITEM 27. INDEMNIFICATION Sections 6.4 and 6.5 of the Agreement and Declaration of Trust of the Registrant provide that the Registrant shall indemnify each of its Trustees and officers against all liabilities, including but not limited to amounts paid in satisfaction of judgments, in compromise or as fines and penalties, and against all expenses, including but not limited to accountants and counsel fees, reasonably incurred in connection with the defense or disposition of any action, 17 169 suit or other proceeding, whether civil or criminal, before any court or administrative or legislative body, in which such Trustee or officer may be or may have been involved as a party or otherwise or with which such person may be or may have been threatened, while in office or thereafter, by reason of being or having been such a Trustee or officer, except that indemnification shall not be provided if it shall have been finally adjudicated in a decision on the merits by the court or other body before which the proceeding was brought that such Trustee or officer (i) did not act in good faith in the reasonable belief that his or her action was in the best interests of the Registrant or (ii) is liable to the Registrant or its shareholders by reason of willful misfeasance, bad faith, gross negligence or reckless disregard of the duties involved in the conduct of such person's office. ITEM 28. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER See "Management of the Trust" in the Prospectus and "Investment Management Arrangements" in the Statement of Additional Information for information regarding the business of the Adviser and each of the Subadvisers. For information as to the business, profession, vocation or employment of a substantial nature of each director, officer or partner of the Adviser and each of the Subadvisers, reference is made to the respective Form ADV, as amended, filed under the Investment Advisers Act of 1940, each of which is herein incorporated by reference. ITEM 29. PRINCIPAL UNDERWRITERS Not applicable. ITEM 30. LOCATION OF ACCOUNTS AND RECORDS All accounts, books and other documents required to be maintained under Section 31(a) of the Investment Company Act of 1940 are kept by NASL Financial Services, Inc., the Registrant's investment adviser, at its offices at 116 Huntington Avenue, Boston, Massachusetts 02116, by Fidelity Management Trust Company, the investment subadviser to the Equity, Conservative Asset Allocation, Moderate Asset Allocation and Aggressive Asset Allocation Trusts, at its offices at 82 Devonshire Street, Boston, MA 02109, by Oechsle International Advisors, L.P., the investment subadviser to the Global Government Bond Trust, at its offices at One International Place, Boston, Massachusetts 02110, by Wellington Management Company, the investment subadviser to the Growth and Income and Investment Quality Bond Trusts, at its offices at 75 State Street, Boston, Massachusetts 02109, by Salomon Brothers Asset Management Inc., the investment subadviser to the U.S. Government Securities and Strategic Bond Trusts, at its offices at 7 World Trade Center, New York, New York 10048, by Fred Alger Management, Inc., the investment subadviser for the Small/Mid Cap Trust, at its offices at 75 Maiden Lane, New York, NY 10038, by Founders Asset Management, Inc., the investment subadviser for the Growth, International Small Cap, 18 170 Worldwide Growth and Balanced Trusts, at its offices at 2930 East Third Avenue, Denver, Colorado 80206, by J.P. Morgan Investment Management Inc., the investment subadviser to the International Growth and Income Trust, at its offices at 522 5th Avenue, New York, New York, 10036, by T. Rowe Price Associates, Inc., the investment subadviser to the Blue Chip Growth, Science & Technology and Equity-Income Trusts, at its offices at 100 East Pratt Street, Baltimore, MD 21202, by Rowe Price-Fleming International, Inc., the investment subadviser to the International Stock Trust, at its offices at 100 East Pratt Street, Baltimore, MD 21202, by Morgan Stanley Asset Management, Inc., the investment subadviser of the Global Equity Trust, at its offices at 1221 Avenue of the Americas, New York, New York 10020, by Miller Anderson & Sherrerd, LLP, the investment subadviser to the Value and High Yield Trusts, at its offices at One Tower Bridge, Conshohocken PA 19428, by Warburg Pincus Counsellors, Inc., the investment subadviser to the Emerging Growth Trust, at its offices at 466 Lexington Avenue, New York, New York 10017-3147, by Pilgrim Baxter & Associates, Inc., the investment subadviser to the Pilgrim Baxter Growth Trust, at its offices at 355 Lexington Avenue, New York, New York by Manufacturers Adviser Corporation, the investment subadviser to the Pacific Rim Emerging Markets, Common Stock, Real Estate Securities, Equity Index, Capital Growth Bond, Lifestyle and Money Market Trusts, at its offices at 200 Bloor Street East, Toronto, Ontario, Canada M4W lE5, by the Registrant at its principal business office located at 116 Huntington Avenue, Boston, Massachusetts 02116, or by State Street Bank and Trust Company, the custodian and transfer agent for the Trust, at its offices at 225 Franklin Street, Boston, Massachusetts 02110. ITEM 31. MANAGEMENT SERVICES Not applicable. ITEM 32. UNDERTAKINGS Not applicable. 19 171 SIGNATURES Pursuant to the requirements of the Securities Act of 1933 and the Investment Company Act of 1940 the Registrant, NASL Series Trust, has duly caused this Amendment to its Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Boston, and Commonwealth of Massachusetts, on the 17th day of December, 1996. NASL SERIES TRUST ----------------- (Registrant) By: /s/ JOHN D. DESPREZ III ----------------------- John D. DesPrez III, President Attest: /s/ JAMES D. GALLAGHER - ---------------------- James D. Gallagher, Secretary 172 Pursuant to the requirements of the Securities Act of 1933, this amended Registration Statement has been signed by the following persons in the capacities and on the date indicated. * Trustee December 17, 1996 ---------------------- ----------------- Don B. Allen (Date) /s/ JOHN D. DESPREZ III President - December 17, 1996 - ----------------------- ----------------- John D. DesPrez III (Chief Executive Officer) (Date) * Trustee December 17, 1996 ---------------------- ----------------- Charles L. Bardelis (Date) * Trustee December 17, 1996 ---------------------- ----------------- Samuel Hoar (Date) * Trustee December 17, 1996 ---------------------- and Chairman ----------------- Brian L. Moore (Date) * Trustee December 17, 1996 ---------------------- ----------------- Robert J. Myers (Date) /s/ RICHARD C. HIRTLE Vice President and December 17, 1996 ---------------------- Treasurer (Prin- ----------------- Richard C. Hirtle cipal Financial and (Date) Accounting Officer) *By:/s/ JAMES D. GALLAGHER December 17, 1996 ------------------------ ----------------- James D. Gallagher (Date) Attorney-in-Fact Pursuant to Powers of Attorney
173 EXHIBITS 174 EXHIBIT INDEX NO. DESCRIPTION (l)(m) Establishment and Designation of Additional Series of Shares of Beneficial Interest - Value Trust, High Yield Trust, International Stock Trust, Science & Technology Trust, Balanced Trust, Worldwide Growth Trust, Emerging Growth Trust, Pilgrim Baxter Growth Trust, Pacific Rim Emerging Markets Trust, Real Estate Securities Trust, Capital Growth Bond Trust, Equity Index Trust, Common Stock Trust, Lifestyle Conservative 280 Trust, Lifestyle Moderate 460 Trust, Lifestyle Balanced 640 Trust, Lifestyle Growth 820 Trust, Lifestyle Aggressive 1000 Trust -- and Redesignation of the Series of Shares known as the "Pasadena Growth Trust" to the "Blue Chip Growth Trust" and the Series of Shares known as the "Value Equity Trust" to the "Equity-Income Trust" (5)(a)(4) Amendment to Advisory Agreement between NASL Series Trust and NASL Financial Services, Inc. adding Emerging Growth Trust, Pilgrim Baxter Growth Trust, Pacific Rim Emerging Markets Trust, International Stock Trust, Worldwide Growth Trust, Science & Technology Trust, Common Stock Trust, Real Estate Securities Trust, Value Trust, Equity Index Trust, Balanced Trust, High Yield Trust, Capital Growth Bond Trust, Lifestyle Conservative 280 Trust, Lifestyle Moderate 460 Trust. Lifestyle Balanced 640 Trust, Lifestyle Growth 820 Trust, and Lifestyle Aggressive 1000 Trust (5)(b)(xiii) Subadvisory Agreement between NASL Financial Services, Inc. and T. Rowe Price Associates, Inc. dated October 1, 1996 providing for the Blue Chip Growth and Equity-Income Trusts (5)(b)(xv) Subadvisory Agreement between NASL Financial Services, Inc. and Morgan Stanley Asset Management, Inc. dated October 1, 1996 providing for the Global Equity Trust (5)(b)(xvi) Subadvisory Agreement between NASL Financial Services, Inc. and Miller Anderson & Sherrerd, LLP dated October 1, 1996 adding the Value and High Yield Trusts (5)(b)(xix) Subadvisory Agreement between NASL Financial Services, Inc. and Pilgrim Baxter & Associates, Inc. dated December 31, 1996 adding the Pilgrim Baxter Growth Trust 175 (5)(b)(xx) Form of Amendment to Subadvisory Agreement between NASL Financial Services, Inc. and Manufacturers Adviser Corporation dated December 31, 1996 adding the Pacific Rim Emerging Markets, Common Stock, Real Estate Securities, Equity Index, Capital Growth Bond, Lifestyle Conservative 280, Lifestyle Moderate 460, Lifestyle Balanced 640, Lifestyle Growth 820 and Lifestyle Aggressive 1000 Trusts (5)(b)(xxi) Subadvisory Agreement between NASL Financial Services, Inc. and Fidelity Management Trust Company dated December 31, 1996 providing for the Equity, Conservative Asset Allocation, Moderate Asset Allocation and Aggressive Asset Allocation Trusts (5)(b)(xxii) Form of Amendment to Subadvisory Agreement between NASL Financial Services, Inc. and T. Rowe Price Associates, Inc. dated December 31, 1996 adding the Science & Technology Trust (10)(a)(vii) Opinion and Consent of Betsy Anne Seel, Esq. (10)(b) Consent of Jones & Blouch L.L.P. (11)(a) Consent of Coopers & Lybrand L.L.P. (11)(b) Consent of Ernst & Young LLP (27)(a) Financial Data Schedules for NASL Series Trust December 31, 1995, June 30,1996 and November 30, 1996 financial statements (27)(b) Financial Data Schedules for Manulife Series Fund, Inc. (Common Stock, Pacific Rim Emerging Markets, Real Estate Securities, Capital Growth Bond and Equity Index portfolios only) June 30, 1996 and December 31, 1995 financial statements. 2 EX-99.B1(M) 2 DESIGNATION OF ADDITIONAL SERIES OF SHARES 1 EXHIBIT 99.B1(M) NASL SERIES TRUST Establishment and Designation of Additional Series of Shares of Beneficial Interest ($0.01 par value per share) The undersigned, being a majority of the Trustees of NASL Series Trust (the "Trust"), acting pursuant to Section 4.1(a) of the Agreement and Declaration of Trust of the Trust dated September 29, 1988 (the "Declaration of Trust") hereby establish and designate thirteen new Series of Shares (as defined in the Declaration of Trust), such Series of Shares to have the following special and relative rights: 1. The new Series of Shares shall be designated the: 1. "Value" 14. "Lifestyle Conservative 280" 2. "High Yield" 15. "Lifestyle Moderate 460" 3. "International Stock" 16. "Lifestyle Balanced 640" 4. "Science & Technology" 17. "Lifestyle Growth 820" 5. "Balanced" 18. "Lifestyle Aggressive 1000" 6. "Worldwide Growth" 7. "Emerging Growth" 8. "Pilgrim Baxter Growth" 9. "Pacific Rim Emerging Markets" 10. "Real Estate Securities" 11. "Capital Growth Bond" 12. "Equity Index" 13. "Quantitative Equity" 2. The new Series of Shares shall have the relative rights and preferences described in Section 4.2 of the Declaration of Trust, provided that the Trustees, in their absolute discretion, may amend any previously established relative rights and preferences as they may deem necessary or desirable to enable the Trust to comply with the Investment Company Act of 1940 or other applicable law. 2 In witness whereof, the undersigned have executed this instrument in duplicate original counterparts and have caused a duplicate original to be lodged among the records of the Trust this _____ day of ____________, 199__. - -------------------------------- Don B. Allen - -------------------------------- Charles L. Bardelis - -------------------------------- Samuel Hoar - -------------------------------- Robert J. Myers - -------------------------------- Brian L. Moore The Agreement and Declaration of Trust of the Trust, September 29, 1988, a copy of which together with all amendments thereto is on file in the office of the Secretary of The Commonwealth of Massachusetts, provides that this instrument was executed by the Trustees of the Trust as Trustees and not individually and that the obligations of this instrument are not binding upon any of them or the shareholders of the Trust individually but are binding only upon the assets belonging to the Trust, or the particular Series of Shares in question, as the case may be. 3 NASL SERIES TRUST Establishment and Designation of Additional Series of Shares of Beneficial Interest ($0.01 par value per share) The undersigned, being a majority of the Trustees of NASL Series Trust (the "Trust"), acting pursuant to Section 4.1(a) of the Agreement and Declaration of Trust of the Trust dated September 29, 1988 (the "Declaration of Trust") hereby redesignate the Series of Shares set forth below, such Series to continue to have the relative rights and preferences described in Section 4.2 of the Declaration of Trust, provided that the Trustees, in their absolute discretion, may amend any previously established relative rights and preferences as they may deem necessary or desirable to enable the Trust to comply with the Investment Company Act of 1940 or other applicable law. "Pasadena Growth" redesignated as "Blue Chip Growth." In witness whereof, the undersigned have executed this instrument in duplicate original counterparts and have caused a duplicate original to be lodged among the records of the Trust this 1st day of October, 1996. /s/ Don B. Allen - -------------------------------- Don B. Allen /s/ Charles L. Bardelis /s/ Brian L. Moore - -------------------------------- -------------------------------- Charles L. Bardelis Brian L. Moore /s/ Samuel Hoar /s/ Robert J. Myers - -------------------------------- -------------------------------- Samuel Hoar Robert J. Myers The Agreement and Declaration of Trust of the Trust, September 29, 1988, a copy of which together with all amendments thereto is on file in the office of the Secretary of The Commonwealth of Massachusetts, provides that this instrument was executed by the Trustees of the Trust as Trustees and not individually and that the obligations of this instrument are not binding upon any of them or the shareholders of the Trust individually but are binding only upon the assets belonging to the Trust, or the particular Series of Shares in question, as the case may be. 4 NASL SERIES TRUST Establishment and Designation of Additional Series of Shares of Beneficial Interest ($0.01 par value per share) The undersigned, being a majority of the Trustees of NASL Series Trust (the "Trust"), acting pursuant to Section 4.1(a) of the Agreement and Declaration of Trust of the Trust dated September 29, 1988 (the "Declaration of Trust") hereby redesignate the Series of Shares set forth below, such Series to continue to have the relative rights and preferences described in Section 4.2 of the Declaration of Trust, provided that the Trustees, in their absolute discretion, may amend any previously established relative rights and preferences as they may deem necessary or desirable to enable the Trust to comply with the Investment Company Act of 1940 or other applicable law. "Value Equity" redesignated as "Equity-Income." 5 In witness whereof, the undersigned have executed this instrument in duplicate original counterparts and have caused a duplicate original to be lodged among the records of the Trust this ____ day of _________, 199__. - -------------------------------- Don B. Allen - -------------------------------- -------------------------------- Charles L. Bardelis Brian L. Moore - -------------------------------- -------------------------------- Samuel Hoar Robert J. Myers The Agreement and Declaration of Trust of the Trust, September 29, 1988, a copy of which together with all amendments thereto is on file in the office of the Secretary of The Commonwealth of Massachusetts, provides that this instrument was executed by the Trustees of the Trust as Trustees and not individually and that the obligations of this instrument are not binding upon any of them or the shareholders of the Trust individually but are binding only upon the assets belonging to the Trust, or the particular Series of Shares in question, as the case may be. EX-99.B4(A) 3 ADVISORY AGREEMENT 1 EXHIBIT 99.B5(A)(4) NASL SERIES TRUST AMENDMENT TO ADVISORY AGREEMENT AMENDMENT made this 31st day December, 1996, to the Advisory Agreement dated January 1, 1996, as amended June 20, 1996 and October 1, 1996 between NASL Series Trust, a Massachusetts business trust (the "Trust") and NASL Financial Services, Inc., a Massachusetts corporation ("NASL Financial" or the "Adviser"). In consideration of the mutual covenants contained herein, the parties agree as follows: 1. CHANGE IN APPENDIX A Appendix A to this Agreement is revised to reflect the appointment and compensation of NASL Financial as investment adviser for the additional portfolios (the "Portfolios") as set forth in Appendix A to this Amendment. 2. CHANGE IN APPENDIX B Appendix B to this Agreement is revised to include the Portfolios as set forth in Appendix B to this Amendment. 3. CHANGE IN SECTION 2 "DUTIES OF THE ADVISER' Section 2 "Duties of the Adviser" is amended to add the following: "With respect to the Lifestyle Trusts (the "fund of funds"), the Adviser may elect to manage the investments and determine the composition of the assets of a Lifestyle Trust, subject to the approval of the Trustees of the Trust." 4. EFFECTIVE DATE This Amendment shall become effective with respect to each Portfolio on the later of (i) the date of its execution, (ii) the effective date of the post-effective amendment to the registration statement of NASL Series Trust under the Securities Act of 1933 that incorporates with respect to the Portfolio the terms of the Agreement as amended herein and (iii) the date of the meeting of shareholders (or sole shareholder if applicable) of the Portfolio called for the purpose of voting on this Amendment, at which meeting this Amendment shall have been approved by the vote of a majority of the outstanding voting securities (as defined in the Investment Company Act of 1940, as amended) of the Portfolio. NASL SERIES TRUST BY:______________________ NASL FINANCIAL SERVICES, INC. BY:______________________ BY:______________________ 2 APPENDIX A 1. Global Equity Trust: .90% of the current net assets of the Portfolio. 2. Blue Chip Growth Trust: .925% of the current net assets of the Portfolio. 3. Equity Trust: .75% of the current net assets of the Portfolio. 4. Equity-Income Trust: .80% of the current net assets of the Portfolio. 5. Growth and Income Trust: .75% of the current net assets of the Portfolio. 6. Strategic Bond Trust: .775% of the current net assets of the Portfolio. 7. Global Government Bond Trust: .80% of the current net assets of the Portfolio. 8. Investment Quality Bond Trust: .65% of the current net assets of the Portfolio. 9. U.S. Government Securities Trust: .65% of the current net assets of the Portfolio. 10. Money Market Trust: .50% of the current net assets of the Portfolio. 11. Aggressive Asset Allocation Trust: .75% of the current net assets of the Portfolio. 12. Moderate Asset Allocation Trust: .75% of the net assets of the Portfolio. 13. Conservative Asset Allocation Trust: .75% of the net assets of the Portfolio. 14. International Growth and Income Trust: .95% of the net assets of the Portfolio. 15. Small/Mid Cap Trust: 1.0% of the net assets of the Portfolio. 16. International Small Cap Trust: 1.10% of the net assets of the Portfolio. 17. Growth Trust: .85% of the net assets of the Portfolio. 18. Value Trust: .80% of the current net assets of the Portfolio. 19. High Yield Trust: .775% of the current net assets of the Portfolio. 20. International Stock Trust: 1.05% of the current net assets of the Portfolio. 21. Science & Technology Trust: 1.10% of the current net assets of the Portfolio. 22. Balanced Trust: .80% of the current net assets of the Portfolio. 3 23. Worldwide Growth Trust: 1.00% of the current net assets of the Portfolio. 24. Emerging Growth Trust: 1.05% of the current net assets of the Portfolio. 25. Pilgrim Baxter Growth Trust: 1.05% of the current net assets of the Portfolio. 26. Pacific Rim Emerging Markets Trust: .85% of the current net assets of the Portfolio. 27. Real Estate Securities Trust: .70% of the current net assets of the Portfolio. 28. Capital Growth Bond Trust: .65% of the current net assets of the Portfolio. 29. Equity Index Trust: .25% of the current net assets of the Portfolio. 30. Common Stock Trust: .70% of the current net assets of the Portfolio. 31. Lifestyle Conservative 280 Trust: 0% of the current net assets of the Portfolio. 32. Lifestyle Moderate 460 Trust: 0% of the current net assets of the Portfolio. 33. Lifestyle Balanced 640 Trust: 0% of the current net assets of the Portfolio. 34. Lifestyle Growth 820 Trust: 0% of the current net assets of the Portfolio. 35. Lifestyle Aggressive 1000 Trust: 0% of the current net assets of the Portfolio. The Percentage Fee for each Portfolio shall be accrued for each calendar day and the sum of the daily fee accruals shall be payable monthly to the Adviser. The daily fee accruals will be computed by multiplying the fraction of one over the number of calendar days in the year by the applicable annual rate described in the preceding paragraph, and multiplying this product by the net assets of the Portfolio as determined in accordance with the Trust's prospectus and statement of additional information as of the close of business on the previous business day on which the Trust was open for business. If this Agreement becomes effective or terminates before the end of any month, the fee for the period from the effective date to the end of such month or from the beginning of such month to the date of termination, as the case may be, shall be prorated according to the proportion which such period bears to the full month in which such effectiveness or termination occurs. 4 APPENDIX B ---------- The Expense Limit for each Portfolio for the purposes of paragraph 2.d.i(C) shall be .50% for each Portfolio except the following: Portfolio Percent --------- ------- Global Equity Trust .75% Global Government Bond Trust .75% International Growth and Income Trust .75% International Small Cap Trust .75% International Stock Trust .75% Worldwide Growth Trust .75% Pacific Rim Emerging Markets Trust .75% Equity Index Trust .15% Lifestyle Conservative 280 Trust No expense limit is applicable Lifestyle Moderate 460 Trust No expense limit is applicable Lifestyle Balanced 640 Trust No expense limit is applicable Lifestyle Growth 820 Trust No expense limit is applicable Lifestyle Aggressive 1000 Trust No expense limit is applicable EX-99.B5(B)(XII) 4 SUBADVISORY AGREEMENT 1 EXHIBIT 99.B5(B)(xiii) NASL SERIES TRUST SUBADVISORY AGREEMENT AGREEMENT made this 1st day of October, 1996, between NASL Financial Services, Inc., a Massachusetts corporation ("NASL Financial" or the "Adviser"), and T. Rowe Price Associates, Inc., a Maryland Corporation (the "Subadviser"). In consideration of the mutual covenants contained herein, the parties agree as follows: 1. APPOINTMENT OF SUBADVISER The Subadviser undertakes to act as investment subadviser to, and, subject to the supervision of the Trustees of NASL Series Trust (the "Trust") and the terms of this Agreement, to manage the investment and reinvestment of the assets of the Portfolios specified in Appendix A to this Agreement as it shall be amended by the Adviser and the Subadviser from time to time (the "Portfolios"). The Subadviser will be an independent contractor and will have no authority to act for or represent the Trust or Adviser in any way except as expressly authorized in this Agreement or another writing by the Trust and Adviser. 2. SERVICES TO BE RENDERED BY THE SUBADVISER TO THE TRUST a. Subject always to the direction and control of the Trustees of the Trust, the Subadviser will manage the investments and determine the composition of the assets of the Portfolios in accordance with the Portfolios' registration statement, as amended. In fulfilling its obligations to manage the investments and reinvestments of the assets of the Portfolios, the Subadviser will: i. obtain and evaluate pertinent economic, statistical, financial and other information affecting the economy generally and individual companies or industries the securities of which are included in the Portfolios or are under consideration for inclusion in the Portfolios; ii. formulate and implement a continuous investment program for each Portfolio consistent with the investment objectives and related investment policies for each such Portfolio as described in the Trust's registration statement, as amended; iii. take whatever steps are necessary to implement these investment programs by the purchase and sale of securities including the placing of orders for such purchases and sales; iv. regularly report to the Trustees of the Trust with respect to the implementation of these investment programs; and v. provide assistance to the Trust's Custodian regarding the fair value of securities held by the Portfolios for which market quotations are not readily available. b. The Subadviser, at its expense, will furnish (i) all necessary investment and management facilities, including salaries of personnel required for it to execute its duties faithfully, and (ii) administrative facilities, including bookkeeping, clerical personnel and equipment necessary for the efficient conduct of the investment affairs of the Portfolios (excluding determination of net asset value and shareholder accounting services). c. The Subadviser will select brokers and dealers to effect all transactions subject to the following conditions: The Subadviser will place all orders with brokers, dealers, or issuers, and will negotiate brokerage commissions if applicable. The Subadviser is directed at all times to seek to execute brokerage transactions for the Portfolios in accordance with such policies or practices as may be established by the Trustees and described in the Trust's registration statement as amended. The Subadviser may pay a broker-dealer which provides research and brokerage services a higher spread or commission for a particular transaction than otherwise might have been charged by another broker-dealer, if the Subadviser determines that the higher spread or commission is reasonable in relation to the value of the brokerage and research services that such 2 broker-dealer provides, viewed in terms of either the particular transaction or the Subadviser's overall responsibilities with respect to accounts managed by the Subadviser. The Subadviser may use for the benefit of the Subadviser's other clients, or make available to companies affiliated with the Subadviser or to its directors for the benefit of its clients, any such brokerage and research services that the Subadviser obtains from brokers or dealers. d. On occasions when the Subadviser deems the purchase or sale of a security to be in the best interest of the Portfolio as well as other clients of the Subadviser, the Subadviser to the extent permitted by applicable laws and regulations, may, but shall be under no obligatioin to, aggregate the securities to be purchased or sold to attempt to obtain a more 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 transactiion, will be made by the Subadviser in the manner the Subadviser considers to be the most equitable and consistent with its fiduciary obligations to the Portfolio and to its other clients. e. The Subadviser will maintain all accounts, books and records with respect to the Portfolios as are required of an investment adviser of a registered investment company pursuant to the Investment Company Act of 1940 (the "Investment Company Act") and Investment Advisers Act of 1940 (the "Investment Advisers Act") and the rules thereunder. 3. COMPENSATION OF SUBADVISER The Adviser will pay the Subadviser with respect to each Portfolio the compensation specified in Appendix A to this Agreement. 4. LIABILITY OF SUBADVISER Neither the Subadviser nor any of its employees shall be liable to the Adviser or Trust for any loss suffered by the Adviser or Trust resulting from any error of judgment made in the good faith exercise of the Subadviser's investment discretion in connection with selecting Portfolio investments except for losses resulting from willful misfeasance, bad faith or gross negligence of, or from reckless disregard of, the duties of the Subadviser or any of its partners or employees; and neither the Subadviser nor any of its employees shall be liable to the Adviser or Trust for any loss suffered by the Adviser or Trust resulting from any other matters to which this Agreement relates (i.e., those other matters specified in Sections 2 and 8 of this Agreement), except for losses resulting from willful misfeasance, bad faith, or gross negligence in the performance of, or from disregard of, the duties of the Subadviser or any of its partners or employees. 5. SUPPLEMENTAL ARRANGEMENTS The Subadviser may enter into arrangements with other persons affiliated with the Subadviser to better enable it to fulfill its obligations under this Agreement for the provision of certain personnel and facilities to the Subadviser. 6. CONFLICTS OF INTEREST It is understood that trustees, officers, agents and shareholders of the Trust are or may be interested in the Subadviser as trustees, officers, partners or otherwise; that directors, officers, agents and partners of the Subadviser are or may be interested in the Trust as trustees, officers, shareholders or otherwise; that the Subadviser may be interested in the Trust; and that the existence of any such dual interest shall not affect the validity hereof or of any transactions hereunder except as otherwise provided in the Agreement and Declaration of Trust of the Trust and the Certificate of Incorporation of the Subadviser, respectively, or by specific provision of applicable law. 2 3 7. REGULATION The Subadviser shall submit to all regulatory and administrative bodies having jurisdiction over the services provided pursuant to this Agreement any information, reports or other material which any such body by reason of this Agreement may request or require pursuant to applicable laws and regulations. 8. DURATION AND TERMINATION OF AGREEMENT This Agreement shall become effective with respect to each Portfolio on the later of (i) its execution, (ii) the effective date of the registration statement of the Portfolio and (iii) with respect to each Portfolio except the Value Equity and Blue Chip Growth Portfolios, the date of the meeting of the shareholders of the Portfolio, at which meeting this Agreement is approved by the vote of a majority of the outstanding voting securities (as defined in the Investment Company Act) of the Portfolio. The Agreement will continue in effect for a period more than two years from the date of its execution only so long as such continuance is specifically approved at least annually either by the Trustees of the Trust or by a majority of the outstanding voting securities of each of the Portfolios, provided that in either event such continuance shall also be approved by the vote of a majority of the Trustees of the Trust who are not interested persons (as defined in the Investment Company Act) of any party to this Agreement cast in person at a meeting called for the purpose of voting on such approval. The required shareholder approval of the Agreement or of any continuance of the Agreement shall be effective with respect to any Portfolio if a majority of the outstanding voting securities of the series (as defined in Rule 18f-2(h) under the Investment Company Act) of shares of that Portfolio votes to approve the Agreement or its continuance, notwithstanding that the Agreement or its continuance may not have been approved by a majority of the outstanding voting securities of (a) any other Portfolio affected by the Agreement or (b) all the portfolios of the Trust. If the shareholders of any Portfolio fail to approve the Agreement or any continuance of the Agreement, the Subadviser will continue to act as investment subadviser with respect to such Portfolio pending the required approval of the Agreement or its continuance or of any contract with the Subadviser or a different adviser or subadviser or other definitive action; provided, that the compensation received by the Subadviser in respect of such Portfolio during such period is in compliance with Rule 15a-4 under the Investment Company Act. This Agreement may be terminated at any time, without the payment of any penalty, by the Trustees of the Trust, by the vote of a majority of the outstanding voting securities of the Trust, or with respect to any Portfolio by the vote of a majority of the outstanding voting securities of such Portfolio, on sixty days' written notice to the Adviser and the Subadviser, or by the Adviser or Subadviser on sixty days' written notice to the Trust and the other party. This agreement will automatically terminate, without the payment of any penalty, in the event of its assignment (as defined in the Investment Company Act) or in the event the Advisory Agreement between the Adviser and the Trust terminates for any reason. 9. PROVISION OF CERTAIN INFORMATION BY SUBADVISER The Subadviser will promptly notify the Adviser in writing of the occurrence of any of the following events: a. the Subadviser fails to be registered as an investment adviser under the Investment Advisers Act or under the laws of any jurisdiction in which the Subadviser is required to be registered as an investment adviser in order to perform its obligations under this Agreement; b. the Subadviser is served or otherwise receives notice of any action, suit, proceeding, inquiry or investigation, at law or in equity, before or by any court, public board or body, involving the affairs of the Trust; and c. any change in actual control or management of the Subadviser or the portfolio manager of any Portfolio. 3 4 10. PROVISION OF CERTAIN INFORMATION BY THE ADVISER The Adviser shall furnish the Subadviser with copies of the Trust's Prospectus and Statement of Additional Information, and any reports made by the Trust to its shareholders, as soon as practicable after such documents become available. The Adviser shall furnish the Subadviser with any further documents, materials or informaiton that the Subadviser may reasonably request to enable it to perform its duties pursuant to this Agreement." 11. SERVICES TO OTHER CLIENTS The Adviser understand, and has advised the Trust's Board of Trustees, that the Subadviser now acts, or may in the future act, as an investment adviser to fiduciary and other managed accounts and as investment adviser or subadviser to other investment companies. Further, the Adviser understands, and has advised the Trust's Board of Trustees that the Subadviser and its affiliates may give advice and take action for its accounts, including investment companies, which differs from advice given on the timing or nature of action taken for the Portfolio. The Subadviser is not obligated to initiate transaction for the Portoflio in any security which the Subadviser, its principals, affiliates or employees may purchase or sell for their own acounts or other clients." 12. AMENDMENTS TO THE AGREEMENT This Agreement may be amended by the parties only if such amendment is specifically approved by the vote of a majority of the outstanding voting securities of each of the Portfolios affected by the amendment and by the vote of a majority of the Trustees of the Trust 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. The required shareholder approval shall be effective with respect to any Portfolio if a majority of the outstanding voting securities of that Portfolio vote to approve the amendment, notwithstanding that the amendment may not have been approved by a majority of the outstanding voting securities of (a) any other Portfolio affected by the amendment or (b) all the portfolios of the Trust. 13. ENTIRE AGREEMENT This Agreement contains the entire understanding and agreement of the parties. 14. HEADINGS The headings in the sections of this Agreement are inserted for convenience of reference only and shall not constitute a part hereof. 15. NOTICES All notices required to be given pursuant to this Agreement shall be delivered or mailed to the last known business address of the Trust or applicable party in person or by registered mail or a private mail or delivery service providing the sender with notice of receipt. Notice shall be deemed given on the date delivered or mailed in accordance with this paragraph. 16. SEVERABILITY Should any portion of this Agreement for any reason be held to be void in law or in equity, the Agreement shall be construed, insofar as is possible, as if such portion had never been contained herein. 17. GOVERNING LAW The provisions of this Agreement shall be construed and interpreted in accordance with the laws of The Commonwealth of Massachusetts, or any of the applicable provisions of the Investment Company Act. To the extent that the laws of The Commonwealth of Massachusetts, or any of the provisions in this Agreement, conflict with applicable provisions of the Investment Company Act, the latter shall control. 4 5 18. LIMITATION OF LIABILITY The Agreement and Declaration of Trust dated September 28, 1988, a copy of which, together with all amendments thereto (the "Declaration"), is on file in the office of the Secretary of The Commonwealth of Massachusetts, provides that the name "NASL Series Trust" refers to the Trustees under the Declaration collectively as Trustees, but not as individuals or personally; and no Trustee, shareholder, officer, employee or agent of the 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, in connection with the affairs of the Trust or any portfolio thereof, but only the assets belonging to the Trust, or to the particular portfolio with which the obligee or claimant dealt, shall be liable. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed under seal by their duly authorized officers as of the date first mentioned above. [SEAL] NASL Financial Services, Inc. by: /s/ Richard C. Hirtle by: /s/ James D. Gallagher -------------------------- ------------------------ Richard C. Hirtle, James D. Gallagher Vice President and Vice President & Treasurer General Counsel [SEAL] T. Rowe Price Associates, Inc. by: /s/ Nancy Morris -------------------------- Nancy Morris 5 6 APPENDIX A ---------- The Subadviser shall serve as investment subadviser for the following portfolio of the Trust. The Adviser will pay the Subadviser, as full compensation for all services provided under this Agreement, the fee computed separately for each such Portfolio at an annual rate as follows (the "Subadviser Percentage Fee"): Value Equity Portfolio: .400% of the first $50,000,000, .300% between $50,000,000 and $200,000,000, .200% between $200,000,000 and $500,000,000 and .200% on the excess over $500,000,000 of the current value of the net assets of the Portfolio; Blue Chip Growth Portfolio: .500% of the first $50,000,000, .450% between $50,000,000 and $200,000,000, .400% between $200,000,000 and $500,000,000 and .325% on the excess over $500,000,000 of the current value of the net assets of the Portfolio; The Subadviser Percentage Fee for each Portfolio shall be accrued for each calendar day and the sum of the daily fee accruals shall be paid monthly to the Subadviser. The daily fee accruals will be computed by multiplying the fraction of one over the number of calendar days in the year by the applicable annual rate described in the preceding paragraph, and multiplying this product by the net assets of the Portfolio as determined in accordance with the Trust's prospectus and statement of additional information as of the close of business on the previous business day on which the Trust was open for business. If this Agreement becomes effective or terminates before the end of any month, the fee (if any) for the period from the effective date to the end of such month or from the beginning of such month to the date of termination, as the case may be, shall be prorated according to the proportion which such period bears to the full month in which such effectiveness or termination occurs. 6 EX-99.B5(B)(XV) 5 SUBADVISORY AGREEMENT 1 Exhibit 99.B5(B)(xv) NASL SERIES TRUST SUBADVISORY AGREEMENT AGREEMENT made this 1st day of October, 1996, between NASL Financial Services, Inc., a Massachusetts corporation ("NASL Financial" or the "Adviser"), and Morgan Stanley Asset Management Inc., a Delaware Corporation (the "Subadviser"). In consideration of the mutual covenants contained herein, the parties agree as follows: 1. APPOINTMENT OF SUBADVISER The Subadviser undertakes to act as investment subadviser to, and, subject to the supervision of the Trustees of NASL Series Trust (the "Trust") and the terms of this Agreement, to manage the investment and reinvestment of the assets of the Portfolios specified in Appendix A to this Agreement as it shall be amended by the Adviser and the Subadviser from time to time (the "Portfolios"). The Subadviser will be an independent contractor and will have no authority to act for or represent the Trust or Adviser in any way except as expressly authorized in this Agreement or another writing by the Trust and Adviser. 2. SERVICES TO BE RENDERED BY THE SUBADVISER TO THE TRUST a. Subject always to the direction and control of the Trustees of the Trust, the Subadviser will manage the investments and determine the composition of the assets of the Portfolios in accordance with the Portfolios' registration statement, as amended. In fulfilling its obligations to manage the investments and reinvestments of the assets of the Portfolios, the Subadviser will: i. obtain and evaluate pertinent economic, statistical, financial and other information affecting the economy generally and individual companies or industries the securities of which are included in the Portfolios or are under consideration for inclusion in the Portfolios; ii. formulate and implement a continuous investment program for each Portfolio consistent with the investment objectives and related investment policies for each such Portfolio as described in the Trust's registration statement, as amended; iii. take whatever steps are necessary to implement these investment programs by the purchase and sale of securities including the placing of orders for such purchases and sales; iv. regularly report to the Trustees of the Trust with respect to the implementation of these investment programs; and v. provide determinations, in accordance with procedures and methods established by the Trustees of the Trust, of the fair value of securities held by the Portfolios for which market quotations are not readily available for purposes of enabling the Trust's Custodian to calculate net asset value. b. The Subadviser, at its expense, will furnish (i) all necessary investment and management facilities, including salaries of personnel required for it to execute its duties faithfully, and (ii) administrative facilities, including bookkeeping, clerical personnel and equipment necessary for the efficient conduct of the investment affairs of the Portfolios (excluding determination of net asset value and shareholder accounting services). c. The Subadviser will select brokers and dealers to effect all transactions subject to the following conditions: The Subadviser will place all orders with brokers, dealers, or issuers, and will negotiate brokerage commissions if applicable. The Subadviser is directed at all times to seek to execute brokerage transactions for the Portfolios in accordance with such policies or practices as may be established by the Trustees and described in the Trust's registration statement as amended. The Subadviser may pay a broker-dealer which provides research and brokerage services a higher spread or commission for a particular transaction than otherwise might have been charged by another broker-dealer, if the Subadviser determines that the higher 2 spread or commission is reasonable in relation to the value of the brokerage and research services that such broker-dealer provides, viewed in terms of either the particular transaction or the Subadviser's overall responsibilities with respect to accounts managed by the Subadviser. The Subadviser may use for the benefit of the Subadviser's other clients, or make available to companies affiliated with the Subadviser or to its directors for the benefit of its clients, any such brokerage and research services that the Subadviser obtains from brokers or dealers. In accordance with Section 11(a) of the Securities Exchange Act of 1934, as amended and Rule 11a2-2(T) thereunder, and subject to any other applicable laws and regulations including Section 17(e) of the Investment Company Act of 1940 (the "1940 Act") and Rule 17e-1 thereunder, the Subadviser may engage its affiliates as broker-dealers to effect portfolio transactions in securities for the Portfolios. d. The Subadviser will maintain all accounts, books and records with respect to the Portfolios as are required of an investment adviser of a registered investment company pursuant to the Investment Company Act of 1940 (the "Investment Company Act") and Investment Advisers Act of 1940 (the "Investment Advisers Act") and the rules thereunder. 3. COMPENSATION OF SUBADVISER The Adviser will pay the Subadviser with respect to each Portfolio the compensation specified in Appendix A to this Agreement. 4. LIABILITY OF SUBADVISER Neither the Subadviser nor any of its affiliates, officers, partners or employees nor anyone who controls the Subadviser (or any of its affiliates, officers, partners or employees) within the meaning of Section 15 of the Securities Act of 1933 (the "1933 Act") shall be liable to the Adviser or Trust for any loss suffered by the Adviser or Trust resulting from any error of judgment made in the good faith exercise of the Subadviser's investment discretion in connection with selecting Portfolio investments except for losses resulting from willful misfeasance, bad faith or gross negligence of, or from reckless disregard of, the duties of the Subadviser or any of its affiliates, partners or employees; and neither the Subadviser nor any of its affiliates, officers, partners or employees, nor anyone who controls the Subadviser (or any of its affiliates, officers, partners or employees) within the meaning of Section 15 of the 1933 Act shall be liable to the Adviser or Trust for any loss suffered by the Adviser or Trust resulting from any other matters to which this Agreement relates (i.e., those other matters specified in Sections 2 and 8 of this Agreement), except for losses resulting from willful misfeasance, bad faith, or gross negligence in the performance of, or from disregard of, the duties of the Subadviser or any of its affiliates partners or employees. 5. SUPPLEMENTAL ARRANGEMENTS The Subadviser may enter into arrangements with other persons affiliated with the Subadviser, including but not limited to, Morgan Stanley Asset Management Limited, to better enable it to fulfill its obligations under this Agreement for the provision of certain personnel and facilities to the Subadviser. 6. CONFLICTS OF INTEREST It is understood that trustees, officers, agents and shareholders of the Trust are or may be interested in the Subadviser as trustees, officers, partners or otherwise; that directors, officers, agents and partners of the Subadviser are or may be interested in the Trust as trustees, officers, shareholders or otherwise; that the Subadviser may be interested in the Trust; and that the existence of any such dual interest shall not affect the validity hereof or of any transactions hereunder except as otherwise provided in the Agreement and Declaration of Trust of the Trust and the Certificate of Incorporation of the Subadviser, respectively, or by specific provision of applicable law. 2 3 7. REGULATION The Subadviser shall submit to all regulatory and administrative bodies having jurisdiction over the services provided pursuant to this Agreement any information, reports or other material which any such body by reason of this Agreement may request or require pursuant to applicable laws and regulations. 8. DURATION AND TERMINATION OF AGREEMENT This Agreement shall become effective with respect to each Portfolio on the later of (i) its execution, (ii) the effective date of the registration statement of the Portfolio and (iii) with respect to each Portfolio except the Global Equity Portfolio, the date of the meeting of the shareholders of the Portfolio, at which meeting this Agreement is approved by the vote of a majority of the outstanding voting securities (as defined in the Investment Company Act) of the Portfolio. The Agreement will continue in effect for a period more than two years from the date of its execution only so long as such continuance is specifically approved at least annually either by the Trustees of the Trust or by a majority of the outstanding voting securities of each of the Portfolios, provided that in either event such continuance shall also be approved by the vote of a majority of the Trustees of the Trust who are not interested persons (as defined in the Investment Company Act) of any party to this Agreement cast in person at a meeting called for the purpose of voting on such approval. The required shareholder approval of the Agreement or of any continuance of the Agreement shall be effective with respect to any Portfolio if a majority of the outstanding voting securities of the series (as defined in Rule 18f-2(h) under the Investment Company Act) of shares of that Portfolio votes to approve the Agreement or its continuance, notwithstanding that the Agreement or its continuance may not have been approved by a majority of the outstanding voting securities of (a) any other Portfolio affected by the Agreement or (b) all the portfolios of the Trust. If the shareholders of any Portfolio fail to approve the Agreement or any continuance of the Agreement that is submitted to shareholders for approval, the Subadviser will continue to act as investment subadviser with respect to such Portfolio pending the required approval of the Agreement or its continuance or of any contract with the Subadviser or a different adviser or subadviser or other definitive action; provided, that the compensation received by the Subadviser in respect of such Portfolio during such period is in compliance with Rule 15a-4 under the Investment Company Act. This Agreement may be terminated at any time, without the payment of any penalty, by the Trustees of the Trust, by the vote of a majority of the outstanding voting securities of the Trust, or with respect to any Portfolio by the vote of a majority of the outstanding voting securities of such Portfolio, on sixty days' written notice to the Adviser and the Subadviser, or by the Adviser or Subadviser on sixty days' written notice to the Trust and the other party. This agreement will automatically terminate, without the payment of any penalty, in the event of its assignment (as defined in the Investment Company Act) or in the event the Advisory Agreement between the Adviser and the Trust terminates for any reason. 9. PROVISION OF CERTAIN INFORMATION BY SUBADVISER The Subadviser will promptly notify the Adviser in writing of the occurrence of any of the following events: a. the Subadviser fails to be registered as an investment adviser under the Investment Advisers Act or under the laws of any jurisdiction in which the Subadviser is required to be registered as an investment adviser in order to perform its obligations under this Agreement; b. the Subadviser is served or otherwise receives notice of any action, suit, proceeding, inquiry or investigation, at law or in equity, before or by any court, public board or body, involving the affairs of the Trust; and c. there is a change of control of the Subadviser which constitutes an assignment of this Agreement under the 1940 Act; d. the portfolio manager of any Portfolio changes. 3 4 10. AMENDMENTS TO THE AGREEMENT This Agreement may be amended by the parties only if such amendment is specifically approved by the vote of a majority of the outstanding voting securities of each of the Portfolios affected by the amendment and by the vote of a majority of the Trustees of the Trust 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. The required shareholder approval shall be effective with respect to any Portfolio if a majority of the outstanding voting securities of that Portfolio vote to approve the amendment, notwithstanding that the amendment may not have been approved by a majority of the outstanding voting securities of (a) any other Portfolio affected by the amendment or (b) all the portfolios of the Trust. 11. HEADINGS The headings in the sections of this Agreement are inserted for convenience of reference only and shall not constitute a part hereof. 12. NOTICES All notices required to be given pursuant to this Agreement shall be delivered or mailed to the last known business address of the Trust or applicable party in person or by registered mail or a private mail or delivery service providing the sender with notice of receipt. Notice shall be deemed given on the date delivered or mailed in accordance with this paragraph. 13. SEVERABILITY Should any portion of this Agreement for any reason be held to be void in law or in equity, the Agreement shall be construed, insofar as is possible, as if such portion had never been contained herein. 14. GOVERNING LAW The provisions of this Agreement shall be construed and interpreted in accordance with the laws of The Commonwealth of Massachusetts, or any of the applicable provisions of the Investment Company Act. To the extent that the laws of The Commonwealth of Massachusetts, or any of the provisions in this Agreement, conflict with applicable provisions of the Investment Company Act, the latter shall control. 15. LIMITATION OF LIABILITY The Agreement and Declaration of Trust dated September 28, 1988, a copy of which, together with all amendments thereto (the "Declaration"), is on file in the office of the Secretary of The Commonwealth of Massachusetts, provides that the name "NASL Series Trust" refers to the Trustees under the Declaration collectively as Trustees, but not as individuals or personally; and no Trustee, shareholder, officer, employee or agent of the 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, in connection with the affairs of the Trust or any portfolio thereof, but only the assets belonging to the Trust, or to the particular portfolio with which the obligee or claimant dealt, shall be liable. 4 5 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed under seal by their duly authorized officers as of the date first mentioned above. [SEAL] NASL Financial Services, Inc. by: /s/ Richard C. Hirtle by: /s/ James D. Gallagher -------------------------- ------------------------ Richard C. Hirtle, James D. Gallagher Vice President, Treasurer Vice President & & CFO General Counsel [SEAL] Morgan Stanley Asset Management Inc. by: /s/ James M. Allwin -------------------------- James M. Allwin, President 5 6 APPENDIX A ---------- The Subadviser shall serve as investment subadviser for the following portfolio of the Trust. The Adviser will pay the Subadviser, as full compensation for all services provided under this Agreement, the fee computed separately for each such Portfolio at an annual rate as follows (the "Subadviser Percentage Fee"): Global Equity Portfolio: .500% of the first $50,000,000, .450% between $50,000,000 and $200,000,000, .375% between $200,000,000 and $500,000,000 and .325% on the excess over $500,000,000 of the current value of the net assets of the Portfolio; The Subadviser Percentage Fee for each Portfolio shall be accrued for each calendar day and the sum of the daily fee accruals shall be paid monthly to the Subadviser. The daily fee accruals will be computed by multiplying the fraction of one over the number of calendar days in the year by the applicable annual rate described in the preceding paragraph, and multiplying this product by the net assets of the Portfolio as determined in accordance with the Trust's prospectus and statement of additional information as of the close of business on the previous business day on which the Trust was open for business. If this Agreement becomes effective or terminates before the end of any month, the fee (if any) for the period from the effective date to the end of such month or from the beginning of such month to the date of termination, as the case may be, shall be prorated according to the proportion which such period bears to the full month in which such effectiveness or termination occurs. 6 EX-99.B5(B)(XVI) 6 SUBADVISORY AGREEMENT 1 Exhibit 99.B5(B)(xvi) NASL SERIES TRUST SUBADVISORY AGREEMENT AGREEMENT made this 31st day of December, 1996, between NASL Financial Services, Inc., a Massachusetts corporation ("NASL Financial" or the "Adviser"), and Miller Anderson & Sherrerd, LLP, a Pennsylvania limited liability partnership (the "Subadviser"). In consideration of the mutual covenants contained herein, the parties agree as follows: 1. APPOINTMENT OF SUBADVISER The Subadviser undertakes to act as investment subadviser to, and, subject to the supervision of the Trustees of NASL Series Trust (the "Trust") and the terms of this Agreement, to manage the investment and reinvestment of the assets of the Portfolios specified in Appendix A to this Agreement as it shall be amended by the Adviser and the Subadviser from time to time (the "Portfolios"). The Subadviser will be an independent contractor and will have no authority to act for or represent the Trust or Adviser in any way except as expressly authorized in this Agreement or another writing by the Trust and Adviser. 2. SERVICES TO BE RENDERED BY THE SUBADVISER TO THE TRUST a. Subject always to the direction and control of the Trustees of the Trust, the Subadviser will manage the investments and determine the composition of the assets of the Portfolios in accordance with the Portfolios' registration statement, as amended. In fulfilling its obligations to manage the investments and reinvestments of the assets of the Portfolios, the Subadviser will: i. obtain and evaluate pertinent economic, statistical, financial and other information affecting the economy generally and individual companies or industries the securities of which are included in the Portfolios or are under consideration for inclusion in the Portfolios; ii. formulate and implement a continuous investment program for each Portfolio consistent with the investment objectives and related investment policies for each such Portfolio as described in the Trust's registration statement, as amended; iii. take whatever steps are necessary to implement these investment programs by the purchase and sale of securities including the placing of orders for such purchases and sales; iv. regularly report to the Trustees of the Trust with respect to the implementation of these investment programs; and v. provide determinations, in accordance with procedures and methods established by the Trustees of the Trust, of the fair value of securities held by the Portfolios for which market quotations are not readily available for purposes of enabling the Trust's Custodian to calculate net asset value. b. The Subadviser, at its expense, will furnish (i) all necessary investment and management facilities, including salaries of personnel required for it to execute its duties faithfully, and (ii) administrative facilities, including bookkeeping, clerical personnel and equipment necessary for the efficient conduct of the investment affairs of the Portfolios (excluding determination of net asset value and shareholder accounting services). c. The Subadviser will select brokers and dealers to effect all transactions subject to the following conditions: The Subadviser will place all orders with brokers, dealers, or issuers, and will negotiate brokerage commissions if applicable. The Subadviser is directed at all times to seek to execute brokerage transactions for the Portfolios in accordance with such policies or practices as may be established by the Trustees and described in the Trust's registration statement as amended. The Subadviser may pay a broker-dealer which provides research and brokerage services a higher spread or commission for a particular transaction than otherwise might have been charged by another broker-dealer, if the Subadviser determines that the higher spread or commission is 2 reasonable in relation to the value of the brokerage and research services that such broker-dealer provides, viewed in terms of either the particular transaction or the Subadviser's overall responsibilities with respect to accounts managed by the Subadviser. The Subadviser may use for the benefit of the Subadviser's other clients, or make available to companies affiliated with the Subadviser or to its directors for the benefit of its clients, any such brokerage and research services that the Subadviser obtains from brokers or dealers. In accordance with Section 11(a) of the Securities Exchange Act of 1934, as amended and Rule 11a2-2(T) thereunder, and subject to any other applicable laws and regulations including Section 17(e) of the Investment Company Act of 1940 (the "1940 Act") and Rule 17e-1 thereunder, the Subadviser may engage its affiliates as broker-dealers to effect portfolio transactions in securities for the Portfolios. d. The Subadviser will maintain all accounts, books and records with respect to the Portfolios as are required of an investment adviser of a registered investment company pursuant to the Investment Company Act of 1940 (the "Investment Company Act") and Investment Advisers Act of 1940 (the "Investment Advisers Act") and the rules thereunder. 3. COMPENSATION OF SUBADVISER The Adviser will pay the Subadviser with respect to each Portfolio the compensation specified in Appendix A to this Agreement. 4. LIABILITY OF SUBADVISER Neither the Subadviser nor any of its affiliates, officers, partners or employees nor anyone who controls the Subadviser (or any of its affiliates, officers, partners or employees) within the meaning of Section 15 of the Securities Act of 1933 (the "1933 Act") shall be liable to the Adviser or Trust for any loss suffered by the Adviser or Trust resulting from any error of judgment made in the good faith exercise of the Subadviser's investment discretion in connection with selecting Portfolio investments except for losses resulting from willful misfeasance, bad faith or gross negligence of, or from reckless disregard of, the duties of the Subadviser or any of its affiliates, partners or employees; and neither the Subadviser nor any of its affiliates, officers, partners or employees, nor anyone who controls the Subadviser (or any of its affiliates, officers, partners or employees) within the meaning of Section 15 of the 1933 Act shall be liable to the Adviser or Trust for any loss suffered by the Adviser or Trust resulting from any other matters to which this Agreement relates (i.e., those other matters specified in Sections 2 and 8 of this Agreement), except for losses resulting from willful misfeasance, bad faith, or gross negligence in the performance of, or from disregard of, the duties of the Subadviser or any of its affiliates partners or employees. 5. SUPPLEMENTAL ARRANGEMENTS The Subadviser may enter into arrangements with other persons affiliated with the Subadviser to better enable it to fulfill its obligations under this Agreement for the provision of certain personnel and facilities to the Subadviser. 6. CONFLICTS OF INTEREST It is understood that trustees, officers, agents and shareholders of the Trust are or may be interested in the Subadviser as trustees, officers, partners or otherwise; that directors, officers, agents and partners of the Subadviser are or may be interested in the Trust as trustees, officers, shareholders or otherwise; that the Subadviser may be interested in the Trust; and that the existence of any such dual interest shall not affect the validity hereof or of any transactions hereunder except as otherwise provided in the Agreement and Declaration of Trust of the Trust and the Partnership Agareement of the Subadviser, respectively, or by specific provision of applicable law. 2 3 7. REGULATION The Subadviser shall submit to all regulatory and administrative bodies having jurisdiction over the services provided pursuant to this Agreement any information, reports or other material which any such body by reason of this Agreement may request or require pursuant to applicable laws and regulations. 8. DURATION AND TERMINATION OF AGREEMENT This Agreement shall become effective with respect to each Portfolio on the later of (i) its execution, (ii) the effective date of the registration statement of the Portfolio and (iii) the date of the meeting of the shareholders of the Portfolio, at which meeting this Agreement is approved by the vote of a majority of the outstanding voting securities (as defined in the Investment Company Act) of the Portfolio. The Agreement will continue in effect for a period more than two years from the date of its execution only so long as such continuance is specifically approved at least annually either by the Trustees of the Trust or by a majority of the outstanding voting securities of each of the Portfolios, provided that in either event such continuance shall also be approved by the vote of a majority of the Trustees of the Trust who are not interested persons (as defined in the Investment Company Act) of any party to this Agreement cast in person at a meeting called for the purpose of voting on such approval. The required shareholder approval of the Agreement or of any continuance of the Agreement shall be effective with respect to any Portfolio if a majority of the outstanding voting securities of the series (as defined in Rule 18f-2(h) under the Investment Company Act) of shares of that Portfolio votes to approve the Agreement or its continuance, notwithstanding that the Agreement or its continuance may not have been approved by a majority of the outstanding voting securities of (a) any other Portfolio affected by the Agreement or (b) all the portfolios of the Trust. If the shareholders of any Portfolio fail to approve the Agreement or any continuance of the Agreement that is submitted to shareholders for approval, the Subadviser will continue to act as investment subadviser with respect to such Portfolio pending the required approval of the Agreement or its continuance or of any contract with the Subadviser or a different adviser or subadviser or other definitive action; provided, that the compensation received by the Subadviser in respect of such Portfolio during such period is in compliance with Rule 15a-4 under the Investment Company Act. This Agreement may be terminated at any time, without the payment of any penalty, by the Trustees of the Trust, by the vote of a majority of the outstanding voting securities of the Trust, or with respect to any Portfolio by the vote of a majority of the outstanding voting securities of such Portfolio, on sixty days' written notice to the Adviser and the Subadviser, or by the Adviser or Subadviser on sixty days' written notice to the Trust and the other party. This agreement will automatically terminate, without the payment of any penalty, in the event of its assignment (as defined in the Investment Company Act) or in the event the Advisory Agreement between the Adviser and the Trust terminates for any reason. 9. PROVISION OF CERTAIN INFORMATION BY SUBADVISER The Subadviser will promptly notify the Adviser in writing of the occurrence of any of the following events: a. the Subadviser fails to be registered as an investment adviser under the Investment Advisers Act or under the laws of any jurisdiction in which the Subadviser is required to be registered as an investment adviser in order to perform its obligations under this Agreement; b. the Subadviser is served or otherwise receives notice of any action, suit, proceeding, inquiry or investigation, at law or in equity, before or by any court, public board or body, involving the affairs of the Trust; and c. there is a change in the membership of the subadvisers partnership; d. there is a change of control of the Subadviser which constitutes an assignment of this Agreement under the 1940 Act; e. the portfolio manager of any Portfolio changes. 10. AMENDMENTS TO THE AGREEMENT 3 4 Except to the extent permitted by the Investment Company Act or the rules and regulations thereunder or pursuant to any exemptive order issued thereunder, this Agreement may be amended by the parties only if such amendment is specifically approved by the vote of a majority of the outstanding voting securities of each of the Portfolios affected by the amendment and by the vote of a majority of the Trustees of the Trust 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. The required shareholder approval shall be effective with respect to any Portfolio if a majority of the outstanding voting securities of that Portfolio vote to approve the amendment, notwithstanding that the amendment may not have been approved by a majority of the outstanding voting securities of (a) any other Portfolio affected by the amendment or (b) all the portfolios of the Trust. 11. HEADINGS The headings in the sections of this Agreement are inserted for convenience of reference only and shall not constitute a part hereof. 12. NOTICES All notices required to be given pursuant to this Agreement shall be delivered or mailed to the last known business address of the Trust or applicable party in person or by registered mail or a private mail or delivery service providing the sender with notice of receipt. Notice shall be deemed given on the date delivered or mailed in accordance with this paragraph. 13. SEVERABILITY Should any portion of this Agreement for any reason be held to be void in law or in equity, the Agreement shall be construed, insofar as is possible, as if such portion had never been contained herein. 14. GOVERNING LAW The provisions of this Agreement shall be construed and interpreted in accordance with the laws of The Commonwealth of Massachusetts, or any of the applicable provisions of the Investment Company Act. To the extent that the laws of The Commonwealth of Massachusetts, or any of the provisions in this Agreement, conflict with applicable provisions of the Investment Company Act, the latter shall control. 15. LIMITATION OF LIABILITY The Agreement and Declaration of Trust dated September 28, 1988, a copy of which, together with all amendments thereto (the "Declaration"), is on file in the office of the Secretary of The Commonwealth of Massachusetts, provides that the name "NASL Series Trust" refers to the Trustees under the Declaration collectively as Trustees, but not as individuals or personally; and no Trustee, shareholder, officer, employee or agent of the 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, in connection with the affairs of the Trust or any portfolio thereof, but only the assets belonging to the Trust, or to the particular portfolio with which the obligee or claimant dealt, shall be liable. 4 5 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed under seal by their duly authorized officers as of the date first mentioned above. [SEAL] NASL Financial Services, Inc. by: ______________________________ by: ______________________________ [SEAL] Miller Anderson & Sherrerd LLP by: ______________________________ 5 6 APPENDIX A ---------- The Subadviser shall serve as investment subadviser for the following portfolio of the Trust. The Adviser will pay the Subadviser, as full compensation for all services provided under this Agreement, the fee computed separately for each such Portfolio at an annual rate as follows (the "Subadviser Percentage Fee"): Value Portfolio: .400% of the first $50,000,000, .300% between $50,000,000 and $200,000,000, .200% between $200,000,000 and $500,000,000 and .200% on the excess over $500,000,000 of the current value of the net assets of the Portfolio; High Yield Portfolio: .350% of the first $50,000,000, .300% between $50,000,000 and $200,000,000, .250% between $200,000,000 and $500,000,000 and .200% on the excess over $500,000,000 of the current value of the net assets of the Portfolio; The Subadviser Percentage Fee for each Portfolio shall be accrued for each calendar day and the sum of the daily fee accruals shall be paid monthly to the Subadviser. The daily fee accruals will be computed by multiplying the fraction of one over the number of calendar days in the year by the applicable annual rate described in the preceding paragraph, and multiplying this product by the net assets of the Portfolio as determined in accordance with the Trust's prospectus and statement of additional information as of the close of business on the previous business day on which the Trust was open for business. If this Agreement becomes effective or terminates before the end of any month, the fee (if any) for the period from the effective date to the end of such month or from the beginning of such month to the date of termination, as the case may be, shall be prorated according to the proportion which such period bears to the full month in which such effectiveness or termination occurs. 6 EX-99.B5(B)(XIX) 7 SUBADVISORY AGREEMENT 1 Exhibit 99.B5(B)(xix) NASL SERIES TRUST SUBADVISORY AGREEMENT AGREEMENT made this 31st day of December, 1996, between NASL Financial Services, Inc., a Massachusetts corporation ("NASL Financial" or the "Adviser"), and Pilgrim Baxter & Associates, Ltd. a Delaware Corporation (the "Subadviser"). In consideration of the mutual covenants contained herein, the parties agree as follows: 1. APPOINTMENT OF SUBADVISER The Subadviser undertakes to act as investment subadviser to, and, subject to the supervision of the Trustees of NASL Series Trust (the "Trust") and the terms of this Agreement, to manage the investment and reinvestment of the assets of the Portfolios specified in Appendix A to this Agreement as it shall be amended by the Adviser and the Subadviser from time to time (the "Portfolios"). The Subadviser will be an independent contractor and will have no authority to act for or represent the Trust or Adviser in any way except as expressly authorized in this Agreement or another writing by the Trust and Adviser. 2. SERVICES TO BE RENDERED BY THE SUBADVISER TO THE TRUST a. Subject always to the direction and control of the Trustees of the Trust, the Subadviser will manage the investments and determine the composition of the assets of the Portfolios in accordance with the Portfolios' registration statement, as amended. In fulfilling its obligations to manage the investments and reinvestments of the assets of the Portfolios, the Subadviser will: i. obtain and evaluate pertinent economic, statistical, financial and other information affecting the economy generally and individual companies or industries the securities of which are included in the Portfolios or are under consideration for inclusion in the Portfolios; ii. formulate and implement a continuous investment program for each Portfolio consistent with the investment objectives and related investment policies for each such Portfolio as described in the Trust's registration statement, as amended; iii. take whatever steps are necessary to implement these investment programs by the purchase and sale of securities including the placing of orders for such purchases and sales; iv. regularly report to the Trustees of the Trust with respect to the implementation of these investment programs; and v. provide assistance to the Trust's Custodian or other agent regarding the fair value of securities held by the Portfolios for which market quotations are not readily available. b. The Subadviser, at its expense, will furnish (i) all necessary investment and management facilities, including salaries of personnel required for it to execute its duties faithfully, and (ii) administrative facilities, including bookkeeping, clerical personnel and equipment necessary for the efficient conduct of the investment affairs of the Portfolios (excluding determination of net asset value and shareholder accounting services). c. The Subadviser will select brokers and dealers to effect all transactions subject to the following conditions: The Subadviser will place all orders with brokers, dealers, or issuers, and will negotiate brokerage commissions if applicable. The Subadviser is directed at all times to seek to execute brokerage transactions for the Portfolios in accordance with such policies or practices as may be established by the Trustees and described in the Trust's registration statement as amended. The Subadviser may pay a broker-dealer which provides research and brokerage services a higher spread or commission for a particular transaction than otherwise might have been charged by another broker-dealer, if the Subadviser determines that the higher spread or commission is reasonable in relation to the value of the brokerage and research services that such broker-dealer provides, 2 viewed in terms of either the particular transaction or the Subadviser's overall responsibilities with respect to accounts managed by the Subadviser. The Subadviser may use for the benefit of the Subadviser's other clients, or make available to companies affiliated with the Subadviser or to its directors for the benefit of its clients, any such brokerage and research services that the Subadviser obtains from brokers or dealers. d. On occasions when the Subadviser deems the purchase or sale of a security to be in the best interest of the Portfolio as well as other clients of the Subadviser, the Subadviser to the extent permitted by applicable laws and regulations, may, but shall be under no obligatioin to, aggregate the securities to be purchased or sold to attempt to obtain a more 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 transactiion, will be made by the Subadviser in the manner the Subadviser considers to be the most equitable and consistent with its fiduciary obligations to the Portfolio and to its other clients. e. The Subadviser will maintain all accounts, books and records with respect to the Portfolios as are required of an investment adviser of a registered investment company pursuant to the Investment Company Act of 1940 (the "Investment Company Act") and Investment Advisers Act of 1940 (the "Investment Advisers Act") and the rules thereunder. 3. COMPENSATION OF SUBADVISER The Adviser will pay the Subadviser with respect to each Portfolio the compensation specified in Appendix A to this Agreement. 4. LIABILITY OF SUBADVISER Neither the Subadviser nor any of its officer, directors, employees or agents shall be liable to the Adviser or Trust for any loss suffered by the Adviser or Trust or the Trust's shareholders resulting from any error of judgment or mistake of law made in the good faith exercise of the Subadviser's investment discretion in connection with selecting Portfolio investments except for losses resulting from willful misfeasance, bad faith or gross negligence of, or from reckless disregard of, the duties of the Subadviser or any of its partners or employees; and neither the Subadviser nor any of its employees shall be liable to the Adviser or Trust for any loss suffered by the Adviser or Trust resulting from any other matters to which this Agreement relates (i.e., those other matters specified in Sections 2 and 8 of this Agreement), except for losses resulting from willful misfeasance, bad faith, or gross negligence in the performance of, or from disregard of, the duties of the Subadviser or any of its officers, directors, employees or agents. 5. SUPPLEMENTAL ARRANGEMENTS The Subadviser may (at its own cost) employ, retain, or otherwise avail itself of the services and facilities of persons and entities within its own organization or any other organization for the purpose of providing the Subadviser, Adviser and the Trust with such information, advice or assistance, including but not limited to advice regarding economic factors and trends and advice as to transactions in specific securities, as the Subadviser may deem necessary, appropriate, or convenient for the discharge of its obligtions hereunder. 6. CONFLICTS OF INTEREST It is understood that trustees, officers, agents and shareholders of the Trust are or may be interested in the Subadviser as officers, directors or otherwise; that directors, officers and agents of the Subadviser are or may be interested in the Trust as trustees, officers, shareholders or otherwise; that the Subadviser may be interested in the Trust; and that the existence of any such dual interest shall not affect the validity hereof or of any transactions hereunder except as otherwise provided in the Agreement and Declaration of Trust of the Trust and the Certificate of Incorporation of the Subadviser, respectively, or by specific provision of applicable law. 7. REGULATION 2 3 The Subadviser shall submit to all regulatory and administrative bodies having jurisdiction over the services provided pursuant to this Agreement any information, reports or other material which any such body by reason of this Agreement may reasonably request or require pursuant to applicable laws and regulations. 8. DURATION AND TERMINATION OF AGREEMENT This Agreement shall become effective with respect to Pilgrim Baxter Growth Portfolio the day and year first above written and with respect to any other Portfolio, as of the date it is added to Appendix A. The Agreement will continue in effect for a period more than two years from the date of its execution only so long as such continuance is specifically approved at least annually either by the Trustees of the Trust or by a majority of the outstanding voting securities of each of the Portfolios, provided that in either event such continuance shall also be approved by the vote of a majority of the Trustees of the Trust who are not interested persons (as defined in the Investment Company Act) ("Independent Trustees") of any party to this Agreement cast in person at a meeting called for the purpose of voting on such approval. The required shareholder approval of the Agreement or of any continuance of the Agreement shall be effective with respect to any Portfolio if a majority of the outstanding voting securities of the series (as defined in Rule 18f-2(h) under the Investment Company Act) of shares of that Portfolio votes to approve the Agreement or its continuance, notwithstanding that the Agreement or its continuance may not have been approved by a majority of the outstanding voting securities of (a) any other Portfolio affected by the Agreement or (b) all the portfolios of the Trust. If the shareholders of any Portfolio fail to approve the Agreement or any continuance of the Agreement, the Subadviser may, if it so elects, continue to act as investment subadviser with respect to such Portfolio in accordance with Rule 15a-4 under the Investment Company Act pending the required approval of the Agreement or its continuance or of any contract with the Subadviser or a different adviser or subadviser or other definitive action; provided, that the compensation received by the Subadviser in respect of such Portfolio during such period is in compliance with Rule 15a-4 under the Investment Company Act. This Agreement may be terminated at any time, without the payment of any penalty, by the Trustees of the Trust, including a majority of the Independent Trustees, by the vote of a majority of the outstanding voting securities of the Trust, or with respect to any Portfolio by the vote of a majority of the outstanding voting securities of such Portfolio, on sixty days' written notice to the Adviser and the Subadviser, or by the Adviser or Subadviser on sixty days' written notice to the Trust and the other party. This agreement will automatically terminate, without the payment of any penalty, in the event of its assignment (as defined in the Investment Company Act) or in the event the Advisory Agreement between the Adviser and the Trust is assigned or terminates for any other reason. This Agreement shall also terminate upon written notice to the other party that the other party to this Agreement is in material breach of this Agreement, unless the other party in material breach of this Agreement cures such breach to the reasonable satisfaction of the party alleging the breach within thirty days after written notice. 9. PROVISION OF CERTAIN INFORMATION BY SUBADVISER AND ADVISER a. The Subadviser will promptly notify the Adviser in writing of the occurrence of any of the following events: (1) the Subadviser fails to be registered as an investment adviser under the Investment Advisers Act or under the laws of any jurisdiction in which the Subadviser is required to be registered as an investment adviser in order to perform its obligations under this Agreement; (2) the Subadviser is served or otherwise receives notice of any action, suit, proceeding, inquiry or investigation, at law or in equity, before or by any court, public board or body, involving the affairs of the Trust; and (3) any change in actual control or management of the Subadviser or any change in the portfolio manager of any Portfolio. b. The Adviser will promptly notify the Subadviser in writing of the occurrence of any of the following events: 3 4 (1) the Adviser fails to be registered as an investment adviser under the Investment Advisers Act or under the laws of any jurisdiction in which the Adviser is required to be registered as an investment adviser in order to perform its obligations under this Agreement; (2) the Adviser is served or otherwise receives notice of any action, suit, proceeding, inquiry or investigation, at law or in equity, before or by any court, public board or body, involving the affairs of the Trust; and (3) any change in actual control or management of the Adviser or termination of the Adviser as investment adviser to the Trust. 10. SERVICES TO OTHER CLIENTS The services provided by the Subadviser hereunder are not to be deemed exclusive, and the Subadviser shall be free to furnish similar services to others so long as its services under this Agreement are not impaired thereby. Nothing in this Agreement shall limit or restrict the right of any director, officer, or employee of the Subadviser to engage in any other business or to devote his or her time and attention in part to the management or other aspects of any other business, whether of a similar nature or a dissimilar nature, nor to limit or restrict the right of the Subadviser to engage in any other business or to render services of any kind to any other corporation, firm, individual or association. 11. AMENDMENTS TO THE AGREEMENT Except to the extent permitted by the Investment Company Act or the rules and regulations thereunder or pursuant to any exemptive order issued thereunder, this Agreement may be amended by the parties only if such amendment, if material, is specifically approved by the vote of a majority of the outstanding voting securities of each of the Portfolios affected by the amendment (unless such approval is not required by Section 15 of the Investment Company Act as interpreted by the staff of the Securities and Exchange Commission) and by the vote of a majority of the Independent Trustees of the Trust cast in person at a meeting called for the purpose of voting on such approval. The required shareholder approval shall be effective with respect to any Portfolio if a majority of the outstanding voting securities of that Portfolio vote to approve the amendment, notwithstanding that the amendment may not have been approved by a majority of the outstanding voting securities of (a) any other Portfolio affected by the amendment or (b) all the portfolios of the Trust. 12. ENTIRE AGREEMENT This Agreement contains the entire understanding and agreement of the parties. 13. HEADINGS The headings in the sections of this Agreement are inserted for convenience of reference only and shall not constitute a part hereof. 14. NOTICES All notices required to be given pursuant to this Agreement shall be delivered or mailed to the last known business address of the Trust or applicable party in person or by registered mail or a private mail or delivery service providing the sender with notice of receipt. Notice shall be deemed given on the date delivered or mailed in accordance with this paragraph. 15. SEVERABILITY Should any portion of this Agreement for any reason be held to be void in law or in equity, the Agreement shall be construed, insofar as is possible, as if such portion had never been contained herein. 16. GOVERNING LAW 4 5 The provisions of this Agreement shall be construed and interpreted in accordance with the laws of The Commonwealth of Massachusetts, or any of the applicable provisions of the Investment Company Act. To the extent that the laws of The Commonwealth of Massachusetts, or any of the provisions in this Agreement, conflict with applicable provisions of the Investment Company Act, the latter shall control. 17. LIMITATION OF LIABILITY The Agreement and Declaration of Trust dated September 28, 1988, a copy of which, together with all amendments thereto (the "Declaration"), is on file in the office of the Secretary of The Commonwealth of Massachusetts, provides that the name "NASL Series Trust" refers to the Trustees under the Declaration collectively as Trustees, but not as individuals or personally; and no Trustee, shareholder, officer, employee or agent of the 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, in connection with the affairs of the Trust or any portfolio thereof, but only the assets belonging to the Trust, or to the particular portfolio with which the obligee or claimant dealt, shall be liable. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed under seal by their duly authorized officers as of the date first mentioned above. [SEAL] NASL Financial Services, Inc. by: ______________________________ by: ______________________________ [SEAL] Pilgrim Baxter & Associates, Ltd. by: ______________________________ 5 6 APPENDIX A ---------- The Subadviser shall serve as investment subadviser for the following portfolio of the Trust. The Adviser will pay the Subadviser, as full compensation for all services provided under this Agreement, the fee computed separately for each such Portfolio at an annual rate as follows (the "Subadviser Percentage Fee"): Pilgrim Baxter Growth Portfolio: .60% of the first $50,000,000, .60% between $50,000,000 and $200,000,000, .50% between $200,000,000 and $500,000,000 and .50% on the excess over $500,000,000 of the current value of the net assets of the Portfolio; The Subadviser Percentage Fee for each Portfolio shall be accrued for each calendar day and the sum of the daily fee accruals shall be paid monthly to the Subadviser. The daily fee accruals will be computed by multiplying the fraction of one over the number of calendar days in the year by the applicable annual rate described in the preceding paragraph, and multiplying this product by the net assets of the Portfolio as determined in accordance with the Trust's prospectus and statement of additional information as of the close of business on the previous business day on which the Trust was open for business. If this Agreement becomes effective or terminates before the end of any month, the fee (if any) for the period from the effective date to the end of such month or from the beginning of such month to the date of termination, as the case may be, shall be prorated according to the proportion which such period bears to the full month in which such effectiveness or termination occurs. 6 EX-99.B5(B)(XX) 8 AMENDMENT TO SUBADVISORY AGREEMENT 1 Exhibit 99.B5(B)(xx) AMENDMENT TO SUBADVISORY AGREEMENT NASL SERIES TRUST AMENDMENT made as of this 31st day of December 1996 to the Subadvisory Agreement dated October 1, 1996 (the "Agreement"), between NASL Financial Services, Inc., a Massachusetts corporation (the "Adviser"), and Manufacturers Adviser Corporation, a Colorado corporation (the "Subadviser"). In consideration of the mutual covenants contained herein, the parties agree as follows: 1. CHANGE IN APPENDIX A Providing for the appointment and compensation of the Subadviser for the new Pacific Rim Emerging Markets, Real Estate Securities, Capital Growth Bond, Equity Index, Common Stock and five Lifestyle Portfolios. Section 3 of the Agreement, "Compensation of Subadviser," is hereby amended by adding an additional portfolio to Appendix A as follows: 1. Pacific Rim Emerging Markets Portfolio: .400% of the first $50,000,000, .350% between $50,000,000 and $200,000,000, .275% between $200,000,000 and $500,000,000 and .225% on the excess over $500,000,000 of the average daily value of the net assets of the Portfolio. 2. Real Estate Securities Portfolio: .275% of the first $50,000,000, .225% between $50,000,000 and $200,000,000, .175% between $200,000,000 and $500,000,000 and .150% on the excess over $500,000,000 of the average daily value of the net assets of the Portfolio. 3. Capital Growth Bond Portfolio: .225% of the first $50,000,000, .225% between $50,000,000 and $200,000,000, .150% between $200,000,000 and $500,000,000 and .100% on the excess over $500,000,000 of the average daily value of the net assets of the Portfolio. 4. Equity Index Portfolio: .100% of the first $50,000,000, .100% between $50,000,000 and $200,000,000, .100% between $200,000,000 and $500,000,000 and .100% on the excess over $500,000,000 of the average daily value of the net assets of the Portfolio. 5. Common Stock Portfolio: .275% of the first $50,000,000, .225% between $50,000,000 and $200,000,000, .175% between $200,000,000 and $500,000,000 and .150% on the excess over $500,000,000 of the average daily value of the net assets of the Portfolio. 6. Lifestyle Conservative 280 Portfolio: no fee 7. Lifestyle Moderate 460 Portfolio: no fee 8. Lifestyle Balanced 640 Portfolio: no fee 2 9. Lifestyle Growth 820 Portfolio: no fee 10. Lifestyle Aggressive 1000 Portfolio: no fee 2. SUBADVISORY AGREEMENT In all other respects, the Agreement is confirmed and remains in full force and effect. 3. EFFFECTIVE DATE This Amendment shall become effective with respect to each Portfolio on the later of: (i) the date of its execution, (ii) the effective date of the post-effective amendment to the registration statement of NASL Series Trust under the Securities Act of 1933 that incorporates with respect to the Portfolio the terms of the Agreement as amended herein and (iii) the date of the meeting of shareholders (or sole shareholder if applicable) of the Portfolio called for the purpose of voting on this Amendment, at which meeting this Amendment shall have been approved by the vote of a majority of the outstanding voting securities (as defined in the Investment Company Act of 1940, as amended) of the Portfolio. 3 IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be executed under seal by their duly authorized officers as of the date first mentioned above. NASL Financial Services, Inc. By: _____________________________ By: _____________________________ Manufacturers Adviser Corporation By: _____________________________ EX-99.B5(B)(XXI) 9 SUBADVISORY AGREEMENT 1 Exhibit 99.B5(B)(xxi) NASL SERIES TRUST AMENDED SUBADVISORY AGREEMENT AGREEMENT made this 1st day of January, 1996, as amended December 31, 1996, between NASL Financial Services, Inc., a Massachusetts Corporation ("NASL Financial" or the "Adviser"), and Fidelity Management Trust Company, a Massachusetts Corporation (the "Subadviser"). In consideration of the mutual covenants contained herein, the parties agree as follows: 1. APPOINTMENT OF SUBADVISER The Subadviser undertakes to act as investment subadviser to, and, subject to the supervision of the Trustees of NASL Series Trust (the"Trust") and terms of this Agreement, to manage the investment and reinvestment of the assets of each of the portfolios of the Trust specified in Appendix A to this Agreement as it shall be amended by the Adviser and the Subadviser from time to time (the "Portfolio" or "Portfolios"). The Subadviser will be an independent contractor and will have no authority to act for or represent the Trust or Adviser in any way or otherwise be deemed an agent unless expressly authorized in this Agreement or another writing by the Trust and Adviser. 2. SERVICES TO BE RENDERED BY THE SUBADVISER TO THE TRUST a. The Subadviser will manage the investments and determine the composition of the assets of the Portfolios, subject always to the direction and control of the Trustees of the Trust, and in accordance with the provisions of the Trust's registration statement. In fulfilling its obligations to manage the investments and reinvestments of the assets of the Portfolios, the Subadviser will: i. obtain and evaluate pertinent economic, statistical, financial and other information affecting the economy generally and individual companies or industries the securities of which are included in the Portfolios or are under consideration for inclusion in the Portfolios; ii. formulate and implement a continuous investment program for each Portfolio consistent with the investment objectives and related investment policies for each such Portfolio as described in the Trust's registration statement, as amended; iii. take whatever steps are necessary to implement these investment programs by the purchase and sale of securities and other investments authorized under the Trust's registration statement including the placing of orders for such purchases and sales. iv. regularly report to the Trustees of the Trust with respect to the implementation of these investment programs; and v. provide determinations of the fair value of certain securities when market quotations are not readily available for purposes of calculating net asset value for the Trust's Custodian in accordance with procedures and methods established by the Trustees of the Trust. b. The Subadviser, at its expense, will furnish (i) all necessary investment and management facilities, including salaries of personnel required for it to execute its duties faithfully, and (ii) administrative facilities, including bookkeeping, clerical personnel and equipment necessary for the efficient conduct of the investment affairs of the Portfolios (excluding determination of net asset value and shareholder accounting services). c. The Subadviser will select brokers and dealers to effect all transactions subject to the following conditions: the Subadviser will place all necessary orders with brokers, dealers, or issuers, and will negotiate brokerage commissions if applicable. The Subadviser is directed at all times to seek to execute brokerage 2 transactions for the Portfolios in accordance with such policies or practices as may be established by the Trustees and described in the Trust's registration statement as amended. The Subadviser may pay a broker-dealer which provided research and brokerage services a higher commission for a particular transaction than otherwise might have been charged by another broker-dealer, if the Subadviser determines that the higher commission is reasonable in relation to the value of the brokerage and research services that such broker-dealer provides, viewed in terms of either the particular transaction or the Subadviser's overall responsibilities with respect to accounts managed by the Subadviser. The Subadviser may use for the benefit of the Subadviser's other clients, or make available to companies affiliated with the Subadviser or to its directors for the benefit of its clients, any such brokerage and research services that the Subadviser obtains from brokers or dealers. d. The Subadviser will maintain all accounts, books and records with respect to the Portfolios as are required of an investment adviser of a registered investment company pursuant to the Investment Company Act of 1940 (the "Investment Company Act") and Investment Advisers Act of 1940 (the "Investment Advisers Act") and the rules thereunder. 3. COMPENSATION OF SUBADVISER The Adviser will pay the Subadviser with respect to each Portfolio the compensation specified in Appendix A to this Agreement. 4. LIABILITY OF SUBADVISER Neither the Subadviser nor any of its directors, officers or employees shall be liable to the Adviser or Trust for any loss suffered by the Adviser or Trust resulting from its acts or omissions as Subadviser to the Portfolios, except for losses resulting from willful misfeasance, bad faith, or gross negligence in the performance of, or from reckless disregard of, the duties of the Subadviser or any of its directors, officers or employees. The Subadviser, its directors, officers or employees shall not be liable to the Adviser or Trust for any loss suffered as a consequence of any action or inaction of the Custodian in failing to observe the instructions of the Subadviser. 5. SUPPLEMENTAL ARRANGEMENTS The Subadviser may enter into arrangements with other persons affiliated with the Subadviser to better enable it to fulfill its obligations under this Agreement for the provision of certain personnel and facilities to the Subadviser. 6. CONFLICTS OF INTEREST It is understood that trustees, officers, agents and shareholders of the Trust are or may be interested in the Subadviser as trustees, officers, stockholders or otherwise; that directors, officers, agents and stockholders of the Subadviser are or may be interested in the Trust as Trustees, officers, shareholders or otherwise; that the Subadviser may be interested in the Trust; and that the existence of any such dual interest shall not affect the validity hereof or of any transactions hereunder except as otherwise provided in the Agreement and Declaration of Trust of the Trust and the Articles of Incorporation of the Subadviser, respectively, or by specific provision of applicable law. 7. REGULATION The Subadviser shall submit to all regulatory and administrative bodies having jurisdiction over the services provided pursuant to this Agreement any information, reports or other material which any such body by reason of this Agreement may request of require pursuant to applicable laws and regulations. 2 3 8. DURATION AND TERMINATION OF AGREEMENT This Agreement shall become effective with respect to each Portfolio on the later of (i) its execution and (ii) approval by the vote of a majority of the outstanding voting securities (as defined in the Investment Company Act) of the Portfolio. Thereafter, the Agreement will continue in effect for a period more than two years from the date of its execution only so long as such continuance is specifically approved at least annually either by the Trustees of the Trust or by a majority of the outstanding voting securities of each of the Portfolios, provided that in either event such continuance shall also be approved by the vote of a majority of the Trustees of the Trust who are not interested persons (as defined in the Investment Company Act) of any party to this Agreement cast in person at a meeting called for the purpose of voting on such approval. The required shareholder approval of the Agreement or any continuance of the Agreement shall be effective with respect to any Portfolio if a majority of the outstanding voting securities of that Portfolio vote to approve the Agreement or its continuance, notwithstanding that the Agreement or its continuance may not have been approved by a majority of the outstanding voting securities of (a) any other Portfolio affected by the Agreement or (b) all the portfolios of the Trust. If the Shareholders of any Portfolio fail to approve the Agreement or any continuance of the Agreement, the Subadviser will continue to act as investment subadviser with respect to such Portfolio pending the required approval of the Agreement or its continuance or of any contract with the Subadviser or a different adviser or subadviser or other definitive action; provided, that the compensation received by the Subadviser in respect of such Portfolio during such period is in compliance with Rule 15a-4 under the Investment Company Act. This Agreement may be terminated at any time, without the payment of any penalty, by the Trustees of the Trust or, with respect to any Portfolio, by the vote of a majority of the outstanding voting securities of such Portfolio, on sixty days' written notice to the Adviser and the Subadviser, or by the Adviser or Subadviser on sixty days' written notice to the Trust and the other party. This agreement will automatically terminate, without the payment of any penalty, in the event of its assignment (as defined in the Investment Company Act) or in the event the Advisory Agreement between the Adviser and the Trust terminates for any reason. 9. PROVISION OF CERTAIN INFORMATION BY SUBADVISER The Subadviser will promptly notify the Adviser in writing of the occurrence of any of the following events: a. the Subadviser fails to be registered as an investment adviser under the Investment Advisers Act or under the laws of any jurisdiction in which the Subadviser is required to be registered as an investment adviser in order to perform its obligations under this Agreement; b. the Subadviser is served or otherwise receives notice of any action, suit, proceeding, inquiry or investigation, at law or in equity, before or by any court, public board or body, involving the affairs of the Trust; and c. the chief executive officer or controlling stockholder of the Subadviser or the portfolio manager of any Portfolio changes. 10. USE OF SUBADVISER'S NAME The Adviser will not use the Subadviser's name (or that of any affiliate) in Trust literature without prior review and approval by the Subadviser, which will not be unreasonably withheld or delayed. 3 4 11. AMENDMENTS TO THE AGREEMENT This Agreement may be amended by the parties only if such amendment is specifically approved by the vote of a majority of the outstanding voting securities of each of the Portfolios affected by the amendment and by the vote of a majority of the Trustees of the Trust 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. The required shareholder approval shall be effective with respect to any Portfolio if a majority of the outstanding voting securities of that Portfolio vote to approve the amendment, notwithstanding that the amendment may not have been approved by a majority of the outstanding voting securities of (a) any other Portfolio affected by the amendment or (b) all the Portfolios of the Trust. 12. ENTIRE AGREEMENT This Agreement contains the entire understanding and agreement of the parties with respect to the Portfolios listed in Appendix A. 13. HEADINGS The headings in the sections of this Agreement are inserted for convenience of reference only and shall not constitute a part hereof. 14. NOTICES All notices required to be given pursuant to this Agreement shall be delivered or mailed to the last known business address of the Trust or applicable party in person or by registered mail or a private mail or delivery service providing the sender with notice of receipt. Notice shall be deemed given on the date delivered or mailed in accordance with this paragraph. 15. SEVERABILITY Should any portion of this Agreement for any reason be held to void in law or in equity, the Agreement shall be construed, insofar as is possible, as if such portion had never been contained herein. 16. GOVERNING LAW The provisions of this Agreement shall be construed and interpreted in accordance with the laws of The Commonwealth of Massachusetts, or any of the applicable provisions of the Investment Company Act. To the extent that the laws of The Commonwealth of Massachusetts, or any of the provisions in this Agreement, conflict with applicable provisions of the Investment Company Act, the latter shall control. 17. LIMITATION OF LIABILITY The Declaration of Trust establishing the Trust, dated September 28, 1988, a copy of which, together with all amendments thereto (the "Declaration"), is on file in the office of the Secretary of The Commonwealth of Massachusetts, provides that the name "NASL Series Trust" refers to the Trustees under the declaration collectively as Trustees, but not as individuals or personally; and no Trustee, shareholder, officer, employee or agent of the 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, in connection with the affairs of the Trust or any Portfolio thereof, but only the assets belonging to the Trust, or to the particular portfolio with which the obligee or claimant dealt, shall be liable. 4 5 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed under seal by their duly authorized officers as of the date first mentioned above. [SEAL] NASL Financial Services, Inc. by: ______________________________ [SEAL] Fidelity Management Trust Company by: ______________________________ 5 6 APPENDIX A ---------- The Subadviser shall serve as investment subadviser for the following portfolios of the Trust. The Adviser will pay the subadviser, as full compensation for all services provided under this Agreement, the fee computed separately for each such Portfolio at an annual rate as follows (the "Subadviser Percentage Fee"): 1. Equity Trust - .375% of the first $50,000,000 and .325% between $50,000,000 and $200,000,000, .275% between $200,000,000 and $500,000,000 and .200% on the excess over $500,000,000 of the current value of the net assets of the Portfolio; 2. Conservative Asset Allocation Trust - .350% of the first $50,000,000 and .300% between $50,000,000 and $200,000,000, .250% between $200,000,000 and $500,000,000 and .175% on the excess over $500,000,000 of the current value of the net assets of the Portfolio; 3. Moderate Asset Allocation Trust - .375% of the first $50,000,000 and .325% between $50,000,000 and $200,000,000, .275% between $200,000,000 and $500,000,000 and .200% on the excess over $500,000,000 of the current value of the net assets of the Portfolio; 4. Aggressive Asset Allocation Trust - .400% of the first $50,000,000 and .350% between $50,000,000 and $200,000,000, .300% between $200,000,000 and $500,000,000 and .225% on the excess over $500,000,000 of the current value of the net assets of the Portfolio; The Subadviser Percentage Fee for each Portfolio shall be accrued for each calendar day and the sum of the daily fee accruals shall be paid monthly to the Subadviser. The daily fee accruals will be computed by multiplying the fraction of one over the number of calendar days in the year by the applicable annual rate described in the preceding paragraph, and multiplying this product by the net assets of the Portfolio as determined in accordance with the Trust's prospectus and statement of additional information as of the close of business on the previous business day on which the Trust was open for business. If this Agreement becomes effective or terminates before the end of any month, the fee (if any) for the period from the effective date to the end of such month or from the beginning of such month to the date of termination, as the case may be, shall be prorated according to the proportion which such period bears to the full month in which such effectiveness or termination occurs. 6 EX-99.B5(B)(XXII) 10 AMENDMENT TO SUBADVISORY AGREEMENT 1 Exhibit 99.B5(B)(xxii) AMENDMENT TO SUBADVISORY AGREEMENT NASL SERIES TRUST AMENDMENT made as of this 31st day of December 1996 to the Subadvisory Agreement dated October 1, 1996 (the "Agreement"), between NASL Financial Services, Inc., a Massachusetts corporation (the "Adviser"), and T. Rowe Price Associates, Inc., a Maryland corporation (the "Subadviser"). In consideration of the mutual covenants contained herein, the parties agree as follows: 1. CHANGE IN APPENDIX A Providing for the appointment and compensation of the Subadviser for the new Science & Technology Portfolio. Section 3 of the Agreement, "Compensation of Subadviser," is hereby amended by adding an additional portfolio to Appendix A as follows: 1. Science & Technology Portfolio: .600% of the first $50,000,000, .600% between $50,000,000 and $200,000,000, .600% between $200,000,000 and $500,000,000 and .600% on the excess over $500,000,000 of the average daily value of the net assets of the Portfolio. 2. SUBADVISORY AGREEMENT In all other respects, the Agreement is confirmed and remains in full force and effect. 3. EFFECTIVE DATE This Amendment shall become effective with respect to the Science & Technology Portfolio on the later of: (i) the date of its execution, (ii) the effective date of the post-effective amendment to the registration statement of NASL Series Trust under the Securities Act of 1933 that incorporates with respect to the Portfolio the terms of the Agreement as amended herein and (iii) the date of the meeting of shareholders (or sole shareholder if applicable) of the Portfolio called for the purpose of voting on this Amendment, at which meeting this Amendment shall have been approved by the vote of a majority of the outstanding voting securities (as defined in the Investment Company Act of 1940, as amended) of the Portfolio. IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be executed under seal by their duly authorized officers as of the date first mentioned above. NASL Financial Services, Inc. By: __________________________ T. Rowe Price Associates, Inc. By: __________________________ EX-99.B10(A)(VII) 11 OPINION OF BETSY ANNE SEEL 1 EXHIBIT 99.B10(a)(vii) North American Security Life Insurance Company 116 Huntington Avenue Boston, Massachusetts 02116 (617) 266-6008 December 17, 1996 To Whom it may concern: This opinion is written in reference to the shares of beneficial interest, $.01 par value (the "Shares") of the portfolios listed below of NASL Series Trust, a Massachusetts business trust (the "Trust"), to be offered and sold pursuant to a Registration Statement on Form N-1A (registration no. 2-94157) (the "Registration Statement") filed by the Trust pursuant to the Securities Act of 1933. I have examined such records and documents and reviewed such questions of law as I deemed necessary for purposes of this opinion. 1. The Trust has been duly recorded under the laws of the Commonwealth of Massachusetts and is a validly existing Massachusetts business trust. 2. The Shares have been duly authorized and, when sold, issued and paid for in the manner contemplated by the Registration Statement, will be legally issued, fully paid and non-assessable. Value High Yield International Stock Science & Technology Balanced Worldwide Growth Emerging Growth Pilgrim Baxter Growth Pacific Rim Emerging Markets Real Estate Securities Capital Growth Bond Equity Index Quantitative Equity Lifestyle Conservative 280 Trust Lifestyle Moderate 460 Trust Lifestyle Balanced 640 Trust Lifestyle Growth 820 Trust Lifestyle Aggressive 1000 Trust I consent to the filing of this opinion with the Securities and Exchange Commission as an exhibit to the Registration Statement. Very truly yours, /s/ BETSY ANNE SEEL Betsy Anne Seel, Esq. EX-99.B10(B) 12 CONSENT OF JONES & BLOUCH, LLP 1 EXHIBIT 99.B10(B) Jones & Blouch L.L.P. Suite 405 West 1025 Thomas Jefferson Street, N.W. Washington, D.C. 20007-0805 December 17, 1996 NASL Series Trust 116 Huntington Avenue Boston, MA 02116 Dear Sirs: We hereby consent to the reference to this firm under the caption "Legal Counsel" in the Statement of Additional Information included in Post-Effective Amendment No. 35 under the Securities Act of 1933 and Amendment No. 36 under the Investment Company Act of 1940 to the Registration Statement for NASL Series Trust to be filed with the Securities and Exchange Commission, File No. 2-94157. Very truly yours, /s/ JONES & BLOUCH L.L.P. Jones & Blouch L.L.P. EX-99.B11(A) 13 CONSENT OF COOPERS & LYBRAND 1 CONSENT OF INDEPENDENT ACCOUNTANTS We consent to the inclusion through incorporation by reference into this Post-Effective Amendment No. 35 under the Securities Act of 1933 and Amendment No. 36 under the Investment Company Act of 1940 to the Registration Statement on Form N-1A (File No. 2-94157) of our report dated February 15, 1996, on our audits of the financial statements and financial highlights of NASL Series Trust, which are included in the Registration Statement. We also consent to the reference to our Firm as "Experts" under the captions "Financial Highlights" in Part A and "Independent Accountants" in Part B of the Registration Statement. /s/ COOPERS & LYBRAND L.L.P. Boston, Massachusetts December 18, 1996 EX-99.B11(B) 14 CONSENT OF ERNST & YOUNG 1 CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS We consent to the references to our firm under the captions "Financial Highlights" in the Prospectus and "Independent Accountants" in the Statement of Additional Information in Post-Effective Amendment No. 35 to the Registration Statement (Form N-1A, No. 2-94157) of NASL Series Trust. We also consent to the inclusion and incorporation by reference of our report dated February 2, 1996 on the financial statements included in the Annual Report of the Common Stock, Pacific Rim Emerging Markets, Real Estate Securities, Capital Growth Bond and Equity Index portfolios of Manulife Series Fund, Inc. for the year ended December 31, 1995. /s/ ERNST & YOUNG LLP Boston, Massachusetts December 18, 1996 EX-27.1 15 FDS EQUITY TRUST
6 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM NASL SERIES TRUST ANNUAL REPORT DATED DECEMBER 31, 1995, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 0000756913 NASL SERIES TRUST 01 EQUITY TRUST 1 USD YEAR DEC-31-1995 JAN-01-1995 DEC-31-1995 1 810,537,978 976,065,248 14,193,954 8,285 750,444 991,017,931 2,081,617 0 136,109 2,217,726 0 722,594,064 47,562,040 36,452,063 4,695,040 0 95,984,414 0 165,526,687 988,800,205 8,022,622 2,722,339 0 6,041,617 4,703,344 103,129,315 142,486,886 250,319,545 0 4,092,853 0 0 15,461,830 4,613,712 261,859 454,238,254 4,079,883 (7,140,235) 0 0 5,643,363 0 6,041,617 752,448,449 14.66 .10 6.14 .11 0 0 20.79 .80 0 0
EX-27.2 16 FDS INVESTMENT QUALITY BOND TRUST
6 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM NASL SERIES TRUST ANNUAL REPORT DATED DECEMBER 31, 1995 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 0000756913 NASL SERIES TRUST 02 INVESTMENT QUALITY BOND TRUST 1 USD YEAR DEC-31-1995 JAN-01-1995 DEC-31-1995 1 134,606,419 142,715,378 2,941,297 1,227 809 145,658,711 2,524,479 0 31,628 2,556,107 0 131,176,104 11,618,055 10,123,550 8,478,262 0 (4,660,721) 0 8,108,959 143,102,604 0 9,389,063 0 902,846 8,486,217 934,173 12,443,229 21,863,619 0 7,077,320 0 0 4,829,840 3,987,022 651,687 31,679,248 7,074,815 (5,600,344) 0 0 798,045 0 902,846 122,776,116 11.01 .77 1.28 .74 0 0 12.32 .74 0 0
EX-27.3 17 FDS MONEY MARKET TRUST
6 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM NASL SERIES TRUST ANNUAL REPORT DATED DECEMBER 31, 1995 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 0000756913 NASL SERIES TRUST 03 MONEY MARKET TRUST 1 USD YEAR DEC-31-1995 JAN-01-1995 DEC-31-1995 1 258,581,602 258,581,602 446,107 2,865 701 259,031,275 0 0 914,312 914,312 0 258,116,963 25,811,696 27,667,381 0 0 0 0 0 258,116,963 0 15,862,051 0 1,423,581 14,438,470 0 0 14,438,470 0 14,438,470 0 0 31,669,307 34,968,839 1,443,847 (18,556,843) 0 0 0 0 1,318,573 0 1,423,581 263,714,662 10.00 .55 0 .55 0 0 10.00 .54 0 0
EX-27.4 18 FDS GLOBAL EQUITY TRUST
6 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM NASL SERIES TRUST ANNUAL REPORT DATED DECEMBER 31, 1995 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 0000756913 NASL SERIES TRUST 04 GLOBAL EQUITY TRUST 1 USD YEAR DEC-31-1995 JAN-01-1995 DEC-31-1995 1 581,007,795 641,380,864 4,340,162 6,862 65,525,750 711,253,638 691,930 0 62,379,070 63,071,000 0 594,157,053 40,249,612 39,140,838 11,144,253 0 (17,623,479) 0 60,504,811 648,182,638 9,309,807 891,167 0 6,453,250 3,747,724 (7,229,061) 48,856,611 45,375,274 0 2,969,604 27,013,345 0 6,207,847 7,147,089 2,048,016 32,044,758 2,412,913 24,386,140 0 0 5,513,312 0 6,453,250 612,590,163 15.74 .29 .84 .08 .69 0 16.10 1.05 0 0
EX-27.5 19 FDS GLOBAL GOVERNMENT BOND TRUST
6 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM NASL SERIES TRUST ANNUAL REPORT DATED DECEMBER 31, 1995 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 0000756913 NASL SERIES TRUST 05 GLOBAL GOVERNMENT BOND TRUST 1 USD YEAR DEC-31-1995 JAN-01-1995 DEC-31-1995 1 215,527,656 227,153,803 6,750,983 2,355 65,468,463 299,375,604 0 0 64,132,670 64,132,670 0 210,172,142 16,160,125 16,716,312 20,496,692 0 (7,654,732) 0 12,228,832 235,242,934 0 17,051,448 0 2,046,737 15,004,711 8,387,712 22,355,680 45,748,103 0 11,483,093 0 0 3,271,665 4,742,839 914,987 26,730,264 13,288,441 (12,355,812) 0 0 1,757,909 0 2,046,737 219,738,532 12.47 1.16 1.62 .69 0 0 14.56 .93 0 0
EX-27.6 20 FDS US GOVERNMENT SECURITIES TRUST
6 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM NASL SERIES TRUST ANNUAL REPORT DATED DECEMBER 31, 1995 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 0000756913 NASL SERIES TRUST 06 US GOVERNMENT SECURITIES TRUST 1 USD YEAR DEC-31-1995 JAN-01-1995 DEC-31-1995 1 251,263,091 256,049,772 14,437,731 2,075 183 270,489,761 53,664,033 0 37,309 53,701,342 0 201,843,207 15,880,625 14,941,588 12,847,931 0 (2,689,400) 0 4,786,681 216,788,419 0 14,251,650 0 1,408,938 12,842,712 6,615,440 9,054,850 28,513,002 0 11,856,226 0 0 5,766,460 5,784,342 956,919 27,975,071 11,807,528 (9,250,923) 0 0 1,291,668 0 1,408,938 198,718,184 12.64 .89 .99 .87 0 0 13.65 .71 0 0
EX-27.7 21 FDS CONSERVATIVE ASSET ALLOCATION TRUST
6 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM NASL SERIES TRUST ANNUAL REPORT DATED DECEMBER 31, 1995 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 0000756913 NASL SERIES TRUST 07 CONSERVATIVE ASSET ALLOCATION TRUST 1 USD YEAR DEC-31-1995 JAN-01-1995 DEC-31-1995 1 209,523,478 224,247,646 5,087,670 2,247 175,019 229,512,582 4,673,692 0 448,890 5,122,582 0 196,057,546 19,363,198 20,956,187 10,622,367 0 2,923,461 0 14,786,626 224,390,000 1,117,122 11,016,349 0 1,901,334 10,232,137 8,472,474 17,545,346 36,249,957 0 10,860,847 0 0 773,201 3,426,820 1,060,630 7,674,260 11,588,833 5,903,757 0 0 1,639,903 0 1,901,334 218,653,751 10.34 .54 1.26 .55 0 0 11.59 .87 0 0
EX-27.8 22 FDS MODERATE ASSET ALLOCATION TRUST
6 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM NASL SERIES TRUST ANNUAL REPORT DATED DECEMBER 31, 1995 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 0000756913 NASL SERIES TRUST 08 MODERATE ASSET ALLOCATION TRUST 1 USD YEAR DEC-31-1995 JAN-01-1995 DEC-31-1995 1 589,635,114 648,772,669 19,242,280 6,508 1,380,470 669,401,927 18,628,439 0 637,351 19,265,790 0 538,036,239 52,461,719 56,010,309 26,460,562 0 26,127,969 0 59,511,367 650,136,137 5,596,929 25,112,904 0 5,235,236 25,474,597 27,612,332 63,670,061 116,756,990 0 24,223,191 5,181,586 0 1,091,213 7,375,131 2,735,328 45,645,062 25,570,598 3,285,302 0 0 4,667,061 0 5,235,236 622,274,842 10.79 .50 1.65 .45 .10 0 12.39 .84 0 0
EX-27.9 23 FDS AGGRESSIVE ASSET ALLOCATION TRUST
6 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM NASL SERIES TRUST ANNUAL REPORT DATED DECEMBER 31, 1995 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 0000756913 NASL SERIES TRUST 09 AGGRESSIVE ASSET ALLOCATION TRUST 1 USD YEAR DEC-31-1995 JAN-01-1995 DEC-31-1995 1 186,120,943 211,255,251 6,745,427 2,058 671,028 218,673,764 6,451,236 0 465,576 6,916,812 0 170,560,910 16,484,402 16,525,699 5,427,633 0 10,450,155 0 25,318,254 211,756,952 2,609,671 4,557,825 0 1,774,575 5,392,921 10,394,886 23,766,711 39,554,518 0 5,166,253 6,299,483 0 2,106,928 3,194,369 1,046,144 27,095,137 5,235,271 6,287,998 0 0 1,463,421 0 1,774,575 195,122,754 11.17 .35 2.07 .33 .41 0 12.85 .91 0 0
EX-27.10 24 FDS GROWTH AND INCOME TRUST
6 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM NASL SERIES TRUST ANNUAL REPORT DATED DECEMBER 31, 1995 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 0000756913 NASL SERIES TRUST 10 GROWTH AND INCOME TRUST 1 USD YEAR DEC-31-1995 JAN-01-1995 DEC-31-1995 1 550,600,569 671,637,979 1,777,317 5,639 12,526 673,433,461 0 0 4,046,217 4,046,217 0 520,900,232 40,893,098 31,409,684 11,667,389 0 15,781,628 0 121,037,995 669,387,244 14,278,070 1,545,025 0 4,168,499 11,654,596 15,794,421 103,849,728 131,298,745 0 8,549,161 4,313,653 0 10,336,698 1,799,079 945,795 259,852,899 8,554,134 4,308,680 0 0 3,922,671 0 4,168,499 523,022,838 13.04 .27 3.45 .26 .13 0 16.37 .80 0 0
EX-27.11 25 FDS PASADENA GROWTH TRUST
6 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROMNASL SERIES TRUST ANNUAL REPORT DATED DECEMBER 31, 1995 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 0000756913 NASL SERIES TRUST 11 PASADENA GROWTH TRUST 1 USD YEAR DEC-31-1995 JAN-01-1995 DEC-31-1995 1 226,902,751 277,336,287 401,009 2,420 523 277,740,239 22,266 0 43,780 66,046 0 236,892,573 24,363,208 16,757,839 908,877 0 (10,560,793) 0 50,433,536 277,674,193 2,328,072 696,239 0 2,115,434 908,877 (2,374,757) 49,321,341 47,855,461 0 834,112 0 0 10,076,574 2,556,755 85,550 125,947,492 834,112 (8,186,036) 0 0 2,115,434 0 2,234,447 216,967,554 9.05 .03 2.36 .04 0 0 11.40 .975 0 0
EX-27.12 26 FDS VALUE EQUITY TRUST
6 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM NASL SERIES TRUST ANNUAL REPORT DATED DECEMBER 31, 1995 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 0000756913 NASL SERIES TRUST 12 VALUE EQUITY TRUST 1 USD YEAR DEC-31-1995 JAN-01-1995 DEC-31-1995 1 365,206,838 395,072,032 3,680,666 3,357 979 398,757,034 1,878,666 0 51,812 1,930,478 0 336,061,467 28,733,585 19,575,533 5,009,152 0 25,890,743 0 29,865,194 396,826,556 4,568,101 3,046,996 0 2,605,945 5,009,152 25,890,743 29,918,641 60,818,536 0 1,721,862 2,091,517 0 10,319,618 1,475,942 314,376 174,991,222 1,721,862 2,091,517 0 0 2,459,247 0 2,605,945 307,406,014 11.33 .17 2.49 .08 .10 0 13.81 .85 0 0
EX-27.13 27 FDS STRATEGIC BOND TRUST
6 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM NASL SERIES TRUST ANNUAL REPORT DATED DECEMBER 31, 1995 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 0000756913 NASL SERIES TRUST 13 STRATEGIC BOND TRUST 1 USD YEAR DEC-31-1995 JAN-01-1995 DEC-31-1995 1 122,860,614 124,924,833 3,244,978 1,041 37,502,394 165,673,246 42,910,517 0 58,553 42,969,070 0 113,732,275 10,898,515 8,519,256 10,644,655 0 (3,633,638) 0 1,960,884 122,704,176 0 9,588,869 0 913,858 8,675,011 1,480,845 7,434,148 17,590,004 0 4,125,434 0 0 3,611,326 1,663,147 431,080 38,271,210 5,682,980 (4,485,030) 0 0 767,448 0 913,858 99,025,605 9.91 .78 1.04 .47 0 0 11.26 .92 0 0
EX-27.14 28 FDS INTERNATIONAL GROWTH AND INCOME TRUST
6 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM NASL SERIES TRUST ANNUAL REPORT DATED DECEMBER 31, 1995 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 0000756913 NASL SERIES TRUST 14 INTERNATIONAL GROWTH AND INCOME TRUST 1 USD YEAR DEC-31-1995 JAN-09-1995 DEC-31-1995 1 84,712,979 87,198,943 798,208 1,477 22,669,438 110,668,066 21,913,390 0 116,642 22,030,032 0 86,188,482 8,462,125 0 (70,205) 0 (233,834) 0 2,753,591 88,638,034 689,974 344,831 0 696,285 338,520 1,232,130 2,753,591 4,324,241 0 998,757 875,932 0 12,066,223 3,783,494 179,396 88,638,034 0 0 0 0 450,200 0 696,285 48,418,212 10.00 .11 .59 .12 .11 0 10.47 1.47 0 0
EX-27.15 29 FDS EQUITY TRUST
6 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE NASL SERIES TRUST FINANCIAL STATEMENTS FOR THE PERIOD ENDED JUNE 30, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 0000756913 NASL SERIES TRUST 01 EQUITY TRUST 1 U.S. DOLLARS 6-MOS DEC-31-1996 JAN-01-1996 JUN-30-1996 1 1,027,123,797 1,170,006,146 87,984,423 4,497 986,692 1,258,981,758 74,608,223 0 1,080,169 75,688,392 0 909,369,303 56,646,151 47,562,040 4,415,313 0 126,626,833 0 142,881,917 1,183,293,366 6,195,998 2,687,317 0 (4,468,001) 4,415,314 129,007,748 (22,644,770) 110,778,292 0 (4,695,040) (98,365,329) 0 9,615,887 (5,715,900) 5,184,124 194,493,162 4,695,040 95,984,414 0 0 4,147,286 0 4,468,001 1,108,981,379 20.79 .07 2.10 (.09) (1.98) 0 20.89 .81 0 0
EX-27.16 30 FDS INVESTMENT QUALITY BOND TRUST
6 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE NASL SERIES TRUST FINANCIAL STATEMENTS FOR THE PERIOD ENDED JUNE 30, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 0000756913 NASL SERIES TRUST 2 INVESTMENT QUALITY BOND TRUST 1 U.S. DOLLARS 6-MOS DEC-31-1996 JAN-01-1996 JUN-30-1996 1 141,087,282 139,671,676 2,556,284 0 0 142,227,960 260,000 0 30,913 290,913 0 141,904,938 12,258,141 11,618,055 4,898,836 0 (3,457,121) 0 (1,415,606) 141,937,047 0 5,440,151 0 541,315 4,898,836 1,209,600 (9,524,565) (3,416,129) 0 (8,478,262) 0 0 1,364,598 1,211,500 756,988 (1,165,557) 8,478,262 (4,660,721) 0 0 467,996 0 541,315 144,394,360 12.32 .37 (.65) (.71) 0 0 11.33 .75 0 0
EX-27.17 31 FDS MONEY MARKET TRUST
6 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE NASL SERIES TRUST FINANCIAL STATEMENTS FOR THE PERIOD ENDED JUNE 30, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 0000756913 NASL SERIES TRUST 3 MONEY MARKET TRUST 1 U.S. DOLLARS 6-MOS DEC-31-1996 JAN-01-1996 JUN-30-1996 1 337,731,474 337,731,474 872,582 4591 0 338,608,847 0 0 173,879 173,879 0 338,434,768 33,843,477 25,811,696 0 0 0 0 0 338,434,768 0 7,745,941 0 790,621 6,955,320 0 0 6,955,320 0 6,955,320 0 0 25,204,293 17,854,338 681,826 80,317,805 0 0 0 0 828,560 0 1,021,147 292,246,018 10.00 .40 0 (.40) 0 0 10.00 .54 0 0
EX-27.18 32 FDS GLOBAL EQUITY TRUST
6 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE NASL SERIES TRUST FINANCIAL STATEMENT FOR THE PERIOD ENDED JUNE 30, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 0000756913 NASL SERIES TRUST 4 GLOBAL EQUITY TRUST 1 U.S. DOLLARS 6-MOS DEC-31-1996 JAN-01-1996 JUN-30-1996 1 635,915,005 722,374,797 3,089,652 3,252 4,631,709 730,099,410 2,971,826 0 439,709 3,411,535 0 638,113,069 42,909,906 40,249,612 2,432,121 0 (304,130) 0 86,446,815 726,687,875 5,286,886 958,901 0 (3,687,519) 2,558,268 17,319,349 25,942,004 45,819,621 0 (11,270,400) 0 0 3,844,983 (1,861,184) 676,495 78,505,237 11,144,253 (17,623,479) 0 0 3,122,712 0 3,687,519 695,842,404 16.10 .05 1.06 (.27) 0 0 16.94 1.06 0 0
EX-27.19 33 FDS GLOBAL GOVERNMENT BOND TRUST
6 0000756913 NASL SERIES TRUST 5 GLOBAL GOVERNMENT BOND TRUST 1 U.S. DOLLARS 6-MOS DEC-31-1996 JAN-01-1996 JUN-30-1996 1 227,541,639 231,878,438 118,180,412 1165 0 350,060,015 3,777,325 0 108,747,148 112,524,473 0 227,334,529 17,466,005 16,716,312 6,855,539 0 (1,305,822) 0 4,651,296 237,535,542 0 8,527,798 0 1,105,814 7,421,484 6,348,909 (7,577,532) 6,192,861 0 (21,062,640) 0 0 3,271,665 4,742,839 914,987 2,292,608 20,496,692 (7,654,732) 0 0 938,869 0 1,105,814 235,362,028 14.56 .43 (.08) (1.31) 0 0 13.60 0.94 0 0
EX-27.20 34 FDS U.S. GOVERNMENT SECURITIES TRUST
6 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE NASL SERIES TRUST FINANCIAL STATEMENTS FOR THE PERIOD ENDED JUNE 30, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 0000756913 NASL SERIES TRUST 6 U.S. GOVERNMENT SECURITIES TRUST 1 U.S. DOLLARS 6-MOS DEC-31-1996 JAN-01-1996 JUN-30-1996 1 255,611,040 253,942,816 1,558,475 1,185 0 255,502,476 43,316,525 0 68,693 43,385,218 0 213,012,115 16,659,449 15,880,625 6,812,474 0 (6,039,107) 0 (1,668,224) 212,117,258 0 7,609,799 0 797,325 6,812,474 (3,349,707) (6,454,905) (2,992,138) 0 12,847,931 0 0 2,361,615 2,602,468 1,019,677 (4,671,161) 12,847,931 (2,689,400) 0 0 714,327 0 797,325 220,396,652 13.65 .40 (1.25) (.07) 0 0 12.73 0.72 0 0
EX-27.21 35 FDS CONSERVATIVE ASSET ALLOCATION TRUST
6 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE NASL SERIES TRUST FINANCIAL STATEMENT FOR THE PERIOD ENDED JUNE 30, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 0000756913 NASL SERIES TRUST 7 CONSERVATIVE ASSET ALLOCATION TRUST 1 U.S. DOLLARS 6-MOS DEC-31-1996 JAN-01-1996 JUN-30-1996 1 204,043,959 213,424,354 2,474,715 842 0 215,899,911 13,502 0 120,924 134,426 0 197,453,068 19,518,069 19,363,198 5,062,232 0 3,840,025 0 9,410,160 215,765,485 567,297 5,516,081 0 1,021,147 5,062,231 3,921,358 (5,376,465) 3,607,124 0 (10,622,367) (3,004,794) 0 319,270 1,419,202 1,254,803 (8,624,515) 10,622,367 2,923,461 0 0 828,560 0 1,021,147 221,556,407 11.59 .27 (.09) (.56) (.16) 0 11.05 0.92 0 0
EX-27.22 36 FDS MODERATE ASSET ALLOCATION TRUST
6 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE NASL SERIES TRUST FINANCIAL STATEMENTS FOR THE PERIOD ENDED JUNE 30, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 0000756913 NASL SERIES TRUST 8 MODERATE ASSET ALLOCATION TRUST 1 U.S. DOLLARS 6-MOS DEC-31-1996 JAN-01-1996 JUN-30-1996 1 574,882,508 622,150,600 7,413,662 806 0 629,565,068 386,568 0 343,902 730,470 0 549,816,620 53,670,880 52,461,719 13,451,645 0 17,995,438 0 47,571,075 628,834,598 2,819,886 13,444,696 0 2,813,117 13,451,465 18,293,354 (11,940,292) 19,804,527 0 (26,460,562) (26,425,885) 0 313,296 3,714,985 4,610,850 (21,301,539) 26,460,562 26,127,969 0 0 2,401,378 0 2,813,117 642,126,786 12.39 .27 .10 (.52) (.52) 0 11.72 0.88 0 0
EX-27.23 37 FDS AGGRESSIVE ASSET ALLOCATION TRUST
6 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE NASL SERIES TRUST FINANCIAL STATEMENTS FOR THE PERIOD ENDED JUNE 30, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 0000756913 NASL SERIES TRUST 9 AGGRESSIVE ASSET ALLOCATION TRUST 1 U.S. DOLLARS 6-MOS DEC-31-1996 JAN-01-1996 JUN-30-1996 1 194,441,389 219,426,526 1,832,464 581 0 221,259,571 167,024 0 187,919 354,943 0 184,491,238 17,633,320 16,484,402 3,044,817 0 8,140,214 0 25,228,359 220,904,628 1,519,848 2,570,266 0 1,045,298 3,044,816 8,268,097 (89,893) 11,223,020 0 (5,427,633) (10,578,038) 0 748,718 912,816 1,313,016 9,147,676 5,427,633 10,450,155 0 0 815,819 0 1,045,298 218,146,400 12.85 .17 .48 (.33) (.64) 0 12.53 0.96 0 0
EX-27.24 38 FDS GROWTH & INCOME TRUST
6 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE NASL SERIES TRUST FINANCIAL STATEMENTS FOR THE PERIOD ENDED JUNE 30, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 0000756913 NASL SERIES TRUST 10 GROWTH AND INCOME TRUST 1 U.S. DOLLARS 6-MOS DEC-31-1996 JAN-01-1996 JUN-30-1996 1 683346326 833769748 5037723 5504 12334 838825309 5945600 0 71189 6016789 0 649971088 48597789 40893098 6492368 0 25922016 0 150423048 832808520 8726519 776613 0 (3010764) 6492368 25922016 29385053 61799437 0 (11667389) (15781628) 0 6418602 (383559) 1669648 163421276 11667389 15781628 0 0 2824747 0 3010764 755335229 16.37 .11 1.28 (.26) (.36) 0 17.14 .80 0 0
EX-27.25 39 FDS PASEDENA GROWTH TRUST
6 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE NASL SERIES TRUST FINANCIAL STATEMENTS FOR THE PERIOD ENDED JUNE 30, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 0000756913 NASL SERIES TRUST 11 PASADENA GROWTH TRUST 1 U.S. DOLLARS 6-MOS DEC-31-1996 JAN-01-1996 JUN-30-1996 1 266844625 352666413 2330628 21367 489 355018897 3173896 0 21932 3195828 0 271823259 27150902 24363208 169072 0 (5991049) 0 85821788 351823070 1396739 298171 0 (1525839) 169071 4569744 35388252 40127067 0 (908877) 0 0 4349706 (1637815) 75803 74148875 908877 (10560793) 0 0 1525839 0 1525839 313852557 11.40 .01 1.59 (.04) 0 0 12.96 .975 0 0
EX-27.26 40 FDS VALUE EQUITY TRUST
6 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE NASL SERIES TRUST FINANCIAL STATEMENTS FOR THE PERIOD ENDED JUNE 30, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 0000756913 NASL SERIES TRUST 12 VALUE EQUITY TRUST 1 U.S. DOLLARS 6-MOS DEC-31-1996 JAN-01-1996 JUN-30-1996 1 440,219,032 490,835,031 939,396 1,147 199 491,775,773 3,947,617 0 35,075 3,982,692 0 425,016,792 35,114,976 28,733,585 3,355,978 0 8,804,336 0 50,615,975 487,793,081 1,086,249 4,152,481 0 (1,882,752) 3,355,978 8,817,608 27,750,781 32,924,367 0 (5,009,152) (25,904,015) 0 4,773,095 (678,181) 2,286,477 90,966,525 5,009,152 25,890,743 0 0 1,784,702 0 1,882,752 447,401,352 13.81 .08 1.00 (.16) (.84) 0 13.89 .84 0 0
EX-27.27 41 FDS STRATEGIC BOND TRUST
6 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE NASL SERIES TRUST FINANCIAL STATEMENTS FOR THE PERIOD ENDED JUNE 30, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 0000756913 NASL SERIES TRUST 13 STRATEGIC BOND TRUST 1 U.S. DOLLARS 6-MOS DEC-31-1996 JAN-01-1996 JUN-30-1996 1 156,191,742 158,163,955 29,932,780 807 0 188,097,542 5,433,649 0 27,342,786 32,776,435 0 148,842,826 14,105,687 10,898,515 6,300,895 0 (1,807,244) 0 1,984,630 155,321,107 0 6,711,601 0 650,970 6,060,631 1,414,296 23,746 7,498,673 0 (10,621,746) 0 0 3,295,435 1,091,260 1,002,998 32,616,931 10,644,655 (3,633,638) 0 0 547,675 0 650,970 141,723,788 11.26 .30 .30 (.85) 0 0 11.01 .92 0 0
EX-27.28 42 FDS INTERNATIONAL GROWTH AND INCOME TRUST
6 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE NASL SERIES TRUST FINANCIAL STATEMENTS FOR THE PERIOD ENDED JUNE 30, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 0000756913 NASL SERIES TRUST 14 INTERNATIONAL GROWTH AND INCOME TRUST 1 U.S. DOLLARS 6-MOS DEC-31-1996 JAN-01-1996 JUN-30-1996 1 126,710,904 129,952,515 59,665,900 715 0 189,619,130 3,103,430 0 45,418,050 48,521,480 0 131,485,203 12,753,935 8,462,125 1,137,788 0 4,863,545 0 3,611,114 141,097,650 1,535,382 541,930 0 665,915 1,411,397 4,507,347 857,525 6,776,269 0 (203,407) 0 0 6,019,136 1,746,195 18,869 52,459,615 0 0 (70,205) (233,834) 557,492 0 665,915 117,689,113 10.47 .12 .49 (.02) 0 0 11.06 1.13 0 0
EX-27.29 43 FDS SMALL/MID CAP TRUST
6 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE NASL SERIES TRUST FINANCIAL STATEMENT FOR THE PERIOD ENDED JUNE 30, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 0000756913 NASL SERIES TRUST 15 SMALL / MID CAP TRUST 1 U.S. DOLLARS 4-MOS DEC-31-1996 MAR-04-1996 JUN-30-1996 1 85,525,212 85,932,273 473,702 86 0 86,406,061 2,753,780 0 7,529 2,761,309 0 84,623,670 6,370,197 0 33,073 0 (1,419,052) 0 407,061 83,644,752 23,784 170,107 0 160,818 33,073 (1,419,052) 407,061 (978,918) 0 0 0 0 6,623,563 (253,366) 0 83,644,752 0 0 0 0 138,143 0 160,818 42,371,567 12.50 .01 .62 0 0 0 13.13 1.17 0 0
EX-27.30 44 FDS INTERNATIONAL SMALL CAP TRUST
6 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE NASL SERIES TRUST FINANCIAL STATEMENTS FOR THE PERIOD ENDED JUNE 30, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 0000756913 NASL SERIES TRUST 16 INTERNATIONAL SMALL CAP TRUST 1 U.S. DOLLARS 4-MOS DEC-31-1996 MAR-04-1996 JUN-04-1996 1 49,320,262 50,588,021 323,080 2,329 1,071,213 51,984,643 4,888,659 0 7,941 4,896,600 0 45,740,733 3,545,412 0 117,294 0 (36,019) 0 1,266,035 47,088,043 90,886 125,426 0 (99,018) 117,294 (36,019) 1,266,035 1,347,310 0 0 0 0 3,562,091 (16,679) 0 47,088,043 0 0 0 0 75,732 0 99,018 21,116,934 12.50 .03 .75 0 0 0 13.28 1.44 0 0
EX-27.31 45 FDS GROWTH
6 This schedule contains summary financial information extracted from the NASL Series Trust financial statements for the period ended November 30, 1996 and is qualified in its entirety by reference to such financial statements. 0000756913 NASL SERIES TRUST 17 GROWTH 1 U.S. DOLLARS 5-MOS DEC-31-1996 JUL-15-1996 NOV-30-1996 1 48,028,906 51,978,963 246,261 25 691 52,225,940 142,841 0 49,240 192,081 0 48,467,361 3,650,890 0 333,874 0 (717,426) 0 3,950,050 52,033,859 308,643 123,214 0 97,983 333,874 (717,426) 3,950,050 3,566,498 0 0 0 0 3,797,013 146,123 0 52,033,859 0 0 0 0 80,229 0 97,983 24,785,113 12.50 .09 1.66 0 0 0 14.25 1.04 0 0
EX-27.32 46 FDS CAPITAL GROWTH BOND WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
6 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM MANULIFE SERIES FUND SEMI-ANNUAL REPORT DATED JUNE 30, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 0000724340 MANULIFE SERIES FUND 3 CAPITAL GROWTH BOND 1 US DOLLARS 6-MOS DEC-31-1996 JAN-01-1996 JUN-30-1996 1 40,692,493 40,621,944 724,488 0 0 41,346,432 0 0 17,168 17,168 0 41,367,287 3,744,236 3,779,382 1,294,996 0 (1,262,470) 0 (70,549) 41,329,264 0 1,398,946 0 105,547 1,293,399 (202,432) (2,083,239) (992,272) 0 0 0 0 651,493 686,639 0 (1,364,522) 1,597 (1,060,038) 0 0 105,547 0 105,547 42,157,421 11.30 .35 (.61) 0 0 0 11.04 0.50 0 0
EX-27.33 47 FDS COMMON STOCK WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
6 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM MANULIFE SERIES FUND SEMI-ANNUAL REPORT DATED JUNE 30, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 0000724340 MANULIFE SERIES FUND 5 COMMON STOCK 1 US DOLLARS 6-MOS DEC-31-1996 JAN-01-1996 JUN-30-1996 1 67,403,016 76,128,531 721,585 0 0 76,850,116 787,207 0 30,811 818,018 0 59,370,162 4,059,539 3,532,074 1,463,845 0 6,472,576 0 8,725,515 76,032,098 650,953 151,112 0 172,981 629,084 4,965,989 4,889 5,599,962 0 0 0 0 743,819 216,354 0 15,036,170 834,761 1,506,587 0 0 172,981 0 172,981 71,085,179 17.27 .12 1.34 0 0 0 18.73 0.50 0 0
EX-27.34 48 FDS REAL ESTATE FUND WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
6 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM MANULIFE SERIES FUND SEMI-ANNUAL REPORT DATED JUNE 30, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 0000724340 MANULIFE SERIES FUND 6 REAL ESTATE FUND 1 US DOLLARS 6-MOS DEC-31-1996 JAN-01-1996 JUN-30-1996 1 54,187,059 55,797,294 2,541,726 0 0 58,339,020 1,455,685 0 22,972 1,478,657 0 48,830,850 3,550,678 3,472,861 3,697,651 0 2,721,627 0 1,610,235 56,860,363 1,374,851 91,455 0 134,516 1,331,790 1,881,741 9,993 3,223,524 0 0 0 0 320,217 242,400 0 4,420,246 2,365,861 839,886 0 0 134,516 0 134,516 54,606,832 15.10 .36 .55 0 0 0 16.01 0.50 0 0
EX-27.35 49 FDS PACIFIC RIM EMERGING MARKETS WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
6 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM MANULIFE SERIES FUND SEMI-ANNUAL REPORT DATED JUNE 30, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 0000724340 MANULIFE SERIES FUND 8 PACIFIC RIM EMERGING MARKETS 1 US DOLLARS 6-MOS DEC-31-1996 JAN-01-1996 JUN-30-1996 1 16,757,169 17,814,408 2,080,614 0 0 19,895,022 240,472 0 27,967 268,439 0 18,033,411 1,770,794 1,260,885 105,491 0 431,405 0 1,056,276 19,626,583 148,867 79,854 0 123,627 105,094 420,900 431,223 957,217 0 0 0 0 633,886 123,977 0 6,569,484 397 0 0 0 70,055 0 123,627 17,180,878 10.36 .06 .66 0 0 0 11.08 1.50 0 0
EX-27.36 50 FDS EQUITY INDEX FUND WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
6 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM MANULIFE SERIES FUND SEMI-ANNUAL REPORT DATED JUNE 30, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 0000724340 MANULIFE SERIES FUND 9 EQUITY INDEX FUND US DOLLARS 5-MOS DEC-31-1996 FEB-14-1996 JUN-30-1996 1 2,408,731 2,408,849 84,904 0 0 2,493,753 0 0 726 726 0 2,449,644 240,388 0 20,867 0 5,943 0 16,573 2,493,027 596 22,081 0 1,810 20,867 5,943 16,573 43,383 0 0 0 0 376,308 135,920 0 2,493,027 0 0 0 0 1,810 0 1,810 1,483,381 10.00 .09 .28 0 0 0 10.37 .40 0 0
EX-27.37 51 FDS CAPITAL GROWTH BOND FUND WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
6 0000724340 MANULIFE SERIES FUND 03 CAPITAL GROWTH BOND FUND 1 12-MOS DEC-31-1995 JAN-01-1995 DEC-31-1995 39,971,441 41,984,131 720,600 7,291 0 42,712,022 0 0 18,236 18,236 0 41,739,537 3,779,382 3,328,888 1,597 0 (1,060,038) 0 2,012,690 42,693,786 0 2,739,692 0 (198,316) 2,541,376 677,362 4,016,399 7,235,137 0 (2,545,873) (425,137) 0 1,094,742 (907,815) 263,567 9,075,873 6,094 (13,122,263) 0 0 198,000 0 198,000 39,952,419 10.10 0.72 1.32 (0.84) 0.00 0.00 11.30 0.60 0 0
EX-27.38 52 FDS COMMON STOCK FUND WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
6 0000724340 MANULIFE SERIES FUND 05 COMMON STOCK FUND 1 12-MOS DEC-31-1995 JAN-01-1995 DEC-31-1995 52,113,405 60,834,031 295,463 6,354 0 61,135,848 114,570 0 25,350 139,920 0 49,933,954 3,532,074 2,606,341 834,761 0 1,506,587 0 8,720,626 60,995,928 771,938 295,300 0 (232,477) 834,761 2,091,782 9,276,249 12,202,792 0 0 0 0 1,190,184 (264,451) 0 26,167,408 0 (585,195) 0 0 232,000 0 232,000 47,464,003 13.36 0.24 3.67 0.00 0.00 0.00 17.27 0.50 0 0
EX-27.39 53 FDS REAL ESTATE FUND WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
6 0000724340 MANULIFE SERIES FUND 06 REAL ESTATE FUND 1 12-MOS DEC-31-1995 JAN-01-1995 DEC-31-1995 48,999,671 50,599,913 3,504,522 14,188 0 54,118,623 1,656,789 0 21,717 1,678,506 0 47,634,128 3,472,861 3,190,140 2,365,861 0 839,886 0 1,600,242 52,440,117 2,320,479 277,831 0 (232,449) 2,365,861 1,242,307 3,176,323 6,784,491 0 (852,969) 0 0 815,153 (590,162) 57,730 9,868,974 852,969 (402,421) 0 0 232,000 0 232,000 46,763,291 13.34 0.67 1.35 (0.26) 0.00 0.00 15.10 0.50 0 0
EX-27.40 54 FDS PACIFIC RIM EMERGING MARKET FUND WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
6 0000724340 MANULIFE SERIES FUND 08 PACIFIC RIM EMERGING MARKETS FUND 1 12-MOS DEC-31-1995 JAN-01-1995 DEC-31-1995 11,505,710 12,130,390 521,594 895,464 0 13,547,448 474,078 0 16,271 490,349 0 12,421,144 1,260,885 813,995 397 0 10,505 0 625,053 13,057,099 215,991 58,812 0 (169,005) 105,798 56,190 1,075,635 1,237,623 0 (110,840) (46,196) 0 546,094 (114,449) 15,245 5,399,882 5,439 511 0 0 96,000 0 169,000 10,437,853 9.41 0.12 0.96 (0.13) 0.00 0.00 10.36 1.50 0 0
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