SCHEDULE 14C INFORMATION
INFORMATION STATEMENT PURSUANT TO SECTION 14(c) OF THE SECURITIES
EXCHANGE ACT OF 1934
Check the appropriate box:
[ ] Preliminary Information Statement
[ ] Confidential, for Use of the Commission Only (as permitted by Rule
14c-5(d)(2))
[X] Definitive Information Statement
JOHN HANCOCK TRUST
(Name of Registrant as Specified In Its Charter)
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JOHN HANCOCK TRUST
601 CONGRESS STREET
BOSTON, MASSACHUSETTS 02210-2805
July 11, 2006
Dear Variable Annuity and Variable Life Contract Owners:
Although you are not a shareholder of John Hancock Trust (the "Trust"),
your purchase payments and the earnings on such purchase payments under your
variable annuity or variable life contracts issued by John Hancock Life
Insurance Company (U.S.A.) ("JHLICO (U.S.A.)"), John Hancock Life Insurance
Company of New York ("JHLICO New York"), John Hancock Life Insurance Company
("JHLICO") or John Hancock Variable Life Insurance Company ("JHVLICO") are
invested in subaccounts of separate accounts established by these insurance
companies, and each subaccount invests in shares of one of the separate series
or portfolios (each, a "Portfolio") of the Trust.
Enclosed is the Trust's Information Statement regarding the following
subadviser and sub-subadviser changes for the Portfolios named below. These
changes became effective on April 28, 2006.
NAME OF PORTFOLIO PRIOR SUBADVISER NEW SUBADVISER / SUB-SUBADVISER
----------------- ------------------------------- ------------------------------------------
U.S. Government Securities Trust Salomon Brothers Asset Western Asset Management Company ("Western
Management, Inc. ("SaBAM") Asset")
High Yield Trust SaBAM Western Asset / Western Asset Management
Company Limited ("WAMCL")
Strategic Bond Trust SaBAM Western Asset / WAMCL
Emerging Small Company Trust Franklin Advisers, Inc. RCM Capital Management LLC ("RCM")
("Franklin")
Real Estate Securities Trust Deutsche Asset Management, Inc. DeAM / RREEF America L.L.C. ("RREEF")*
("DeAM")
- ----------
* DeAM continues to be the subadviser to the Real Estate Securities Trust but
has delegated day-to-day management of the Portfolio to its affiliate,
RREEF, as sub-subadviser.
These subadviser and sub-subadviser changes will not result in any increase
in the advisory fee rates for the Portfolios. Each subadviser to a Portfolio is
compensated by the Trust's investment adviser, John Hancock Investment
Management Services, LLC (the "Adviser"), out of the advisory fee it receives
from the Portfolio, and any sub-subadviser is similarly compensated by a
Portfolio's subadviser out of the subadvisory fee it receives from the Adviser.
PLEASE NOTE THAT THE TRUST IS NOT REQUIRED TO OBTAIN SHAREHOLDER APPROVAL,
AND IS NOT REQUESTING THAT YOU GIVE VOTING INSTRUCTIONS, WITH RESPECT TO THESE
SUBADVISER AND SUB-SUBADVISER CHANGES. The enclosed Information Statement,
however, provides information about the new subadvisory arrangements.
If you have any questions regarding the Information Statement or the new
subadvisory arrangements, please call one of the following numbers:
--For JHLICO (U.S.A.) variable annuity contracts: (800) 344-1029
--For JHLICO (U.S.A.) variable life contracts: (800) 827-4546
--For JHLICO New York variable annuity contracts: (800) 551-2078
--For JHLICO New York variable life contracts: (888) 267-7784
--For JHLICO and JHVLICO contracts: (800) 576-2227
Sincerely,
/s/ JOHN J. DANELLO
----------------------------------------
John J. Danello
Secretary
John Hancock Trust
2
JOHN HANCOCK TRUST
601 CONGRESS STREET
BOSTON, MASSACHUSETTS 02210-2805
July 11, 2006
Dear Shareholder:
Enclosed is the Information Statement of John Hancock Trust (the "Trust")
regarding the following subadviser and sub-subadviser changes for the series or
portfolios (each, a Portfolio") of the Trust named below. These changes became
effective on April 28, 2006.
NAME OF PORTFOLIO PRIOR SUBADVISER NEW SUBADVISER / SUB-SUBADVISER
----------------- ------------------------------- ------------------------------------
U.S. Government Securities Trust Salomon Brothers Asset Western Asset Management Company
Management, Inc. ("SaBAM") ("Western Asset")
High Yield Trust SaBAM Western Asset / Western Asset
Management Company Limited ("WAMCL")
Strategic Bond Trust SaBAM Western Asset / WAMCL
Emerging Small Company Trust Franklin Advisers, Inc. RCM Capital Management LLC ("RCM")
("Franklin")
Real Estate Securities Trust Deutsche Asset Management, Inc. DeAM / RREEF America L.L.C.
("DeAM") ("RREEF")*
- ----------
* DeAM continues to be the subadviser to the Real Estate Securities Trust but
has delegated day-to-day management of the Portfolio to its affiliate,
RREEF, as sub-subadviser.
These subadviser and sub-subadviser changes will not result in any increase
in the advisory fee rates for the Portfolios. Each subadviser to a Portfolio is
compensated by the Trust's investment adviser, John Hancock Investment
Management Services, LLC (the "Adviser"), out of the advisory fee it receives
from the Portfolio, and any sub-subadviser is similarly compensated by a
Portfolio's subadviser out of the subadvisory fee it receives from the Adviser.
PLEASE NOTE THAT THE TRUST IS NOT REQUIRED TO OBTAIN SHAREHOLDER APPROVAL,
AND IS NOT REQUESTING THAT YOU VOTE OR SEND A PROXY, WITH RESPECT TO THESE
SUBADVISER AND SUB-SUBADVISER CHANGES. The enclosed Information Statement,
however, provides information about the new subadvisory arrangements.
If you have any questions regarding the Information Statement or the new
subadvisory arrangements, please call one of the following numbers:
--For JHLICO (U.S.A.) variable annuity contracts: (800) 344-1029
--For JHLICO (U.S.A.) variable life contracts: (800) 827-4546
--For JHLICO New York variable annuity contracts: (800) 551-2078
--For JHLICO New York variable life contracts: (888) 267-7784
--For JHLICO and JHVLICO contracts: (800) 576-2227
Sincerely,
/s/ JOHN J. DANELLO
----------------------------------------
John J. Danello
Secretary
John Hancock Trust
JOHN HANCOCK TRUST
601 CONGRESS STREET
BOSTON, MASSACHUSETTS 02210-2805
----------
INFORMATION STATEMENT
NEW SUBADVISORY ARRANGEMENTS FOR
THE U.S. GOVERNMENT SECURITIES TRUST,
HIGH YIELD TRUST, STRATEGIC BOND TRUST,
EMERGING SMALL COMPANY TRUST AND
REAL ESTATE SECURITIES TRUST
----------
INTRODUCTION
This Information Statement provides notice of and information regarding new
subadvisory arrangements for the above-named series or portfolios (each, a
"Portfolio") of John Hancock Trust (the "Trust"). It is first being sent to
shareholders of these Portfolios on or about July 11, 2006.
THE TRUST. The Trust is a no-load, open-end management investment company,
commonly known as a mutual fund, registered under the Investment Company Act of
1940, as amended (the "1940 Act"). The shares of the Trust are divided into 101
separate series corresponding to the 101 Portfolios which the Trust currently
offers. Shares of the Trust are sold principally to separate accounts of
insurance companies as the underlying investment media for variable annuity and
variable life insurance contracts issued by such companies and to trustees of
certain qualified pension and retirement plans.
THE ADVISER. John Hancock Investment Management Services, LLC (the
"Adviser") serves as investment adviser for the Trust and for each Portfolio
that has an adviser. Pursuant to an investment advisory agreement with the Trust
(the "Advisory Agreement"), the Adviser administers the business and affairs of
the Trust and retains and compensates subadvisers which manage the investment
and reinvestment of the assets of the Portfolios. The Adviser and each of the
subadvisers and sub-subadvisers named in this Information Statement is
registered as an investment adviser under the Investment Advisers Act of 1940,
as amended.
THE DISTRIBUTOR. John Hancock Distributors, LLC ("JH Distributors") serves
as the Trust's distributor.
The offices of the Adviser and JH Distributors are located at 601 Congress
Street, Boston, MA 02210, and their ultimate parent entity is Manulife Financial
Corporation ("MFC"), a publicly traded company based in Toronto, Canada. MFC and
its subsidiaries operate as "Manulife Financial" in Canada and Asia and
primarily as "John Hancock" in the United States.
Pursuant to an order received by the Trust from the Securities and Exchange
Commission ("SEC"), the Adviser may, without obtaining shareholder approval,
enter into and change the terms (including subadvisory fees) of subadvisory
agreements with Portfolio subadvisers which are not affiliates of the Adviser.
Because the new subadvisory arrangements described in this Information Statement
do not involve subadvisers or sub-subadvisers which are affiliated with the
Adviser for purposes of the SEC order, THE TRUST IS NOT REQUIRED TO ASK
SHAREHOLDERS FOR A PROXY, AND SHAREHOLDERS ARE REQUESTED NOT TO SEND A PROXY, TO
APPROVE THE NEW SUBADVISORY ARRANGEMENTS.
ANNUAL AND SEMI-ANNUAL REPORTS. The Trust will furnish, without charge, a
copy of the Trust's most recent annual report and semi-annual report to any
shareholder or variable contract owner upon request. To obtain a report, please
call the Trust at 1-800-344-1029 or write to the Trust at 601 Congress Street,
Boston, MA 02110, Attn.: Gordon Shone.
OVERVIEW OF NEW SUBADVISORY ARRANGEMENTS
At its meeting held on March 30-31, 2006, the Board of Trustees of the
Trust (the "Board" or "Trustees"), including all the Trustees who are not
"interested persons" (as defined in the 1940 Act) of the Trust or the Adviser
(the "Independent Trustees"), approved new subadvisory and sub-subadvisory
agreements appointing new subadvisers and sub-subadvisers as described below for
the Portfolios named below. These agreements with new subadvisers and
sub-subadvisers became effective, and the prior agreements with prior
subadvisers terminated, on April 28, 2006.
NAME OF PORTFOLIO PRIOR SUBADVISER NEW SUBADVISER / SUB-SUBADVISER
----------------- ------------------------------- ------------------------------------
U.S. Government Securities Trust Salomon Brothers Asset Western Asset Management Company
Management, Inc. ("SaBAM") ("Western Asset")
High Yield Trust SaBAM Western Asset / Western Asset
Management Company Limited ("WAMCL")
Strategic Bond Trust SaBAM Western Asset / WAMCL
Emerging Small Company Trust Franklin Advisers, Inc. RCM Capital Management LLC ("RCM")
("Franklin")
Real Estate Securities Trust Deutsche Asset Management, Inc. DeAM / RREEF America L.L.C.
("DeAM") ("RREEF")*
- ----------
* DeAM continues to be the subadviser to the Real Estate Securities Trust but
has delegated day-to-day management of the Portfolio to its affiliate,
RREEF, as sub-subadviser.
Under the new subadvisory and sub-subadvisory agreements, the subadvisers
or sub-subadvisers manage the investment and reinvestment of the assets of the
Portfolios, subject to the supervision of the Board and the Adviser (or the
subadviser in the case of a sub-subadviser), and formulate continuous investment
programs for the Portfolios consistent with their respective investment
objectives and policies. The subadvisers or sub-subadvisers implement such
programs by purchases and sales of securities and regularly report thereon to
the Board and the Adviser (or the subadviser in the case of a sub-subadviser).
The new agreements do not result in any changes in the nature or level of
services provided to the Portfolios.
Under the agreements, each subadviser is paid a fee by the Adviser out of
the advisory fee it receives from the applicable Portfolio, and each
sub-subadviser is paid a fee by the subadviser out of the fee it receives from
the Adviser. THESE SUBADVISORY AND SUB-SUBADVISORY FEES FOR A PORTFOLIO ARE NOT
ADDITIONAL CHARGES TO THE PORTFOLIO.
Advisory, subadvisory and sub-subadvisory fees for a Portfolio are each
determined by applying the daily equivalent of an annual fee rate to the net
assets of the Portfolio. The annual fee rate is calculated each day by applying
an annual percentage rate schedule (including breakpoints, if any) for a
Portfolio to applicable portions of Aggregate Net Assets and dividing the sum so
determined by Aggregate Net Assets. "Aggregate Net Assets" include the net
assets of the Portfolio and of a corresponding fund of John Hancock Funds II
("JHF II") that is managed by the same subadviser (but only for the period
during which the subadviser to the Portfolio also serves as the subadviser to
the JHF II fund). JHF II is also a mutual fund which is registered under the
1940 Act and for which the Adviser is the investment adviser. JHF II commenced
operations in October 2005.
The new subadvisers and sub-subadvisers, their compensation under the new
subadvisory and sub-subadvisory agreements, and the Board's determinations in
approving the particular subadvisory arrangements are described in separate
sections below for: (i) the U.S. Government Securities Trust, High Yield Trust
and Strategic Bond Trust; (ii) the Emerging Small Company Trust; and (iii) the
Real Estate Securities Trust.
Additional information regarding the Board's evaluation of the Trust's
advisory and subadvisory arrangements and a description of the common terms of
the prior and new subadvisory and sub-subadvisory
2
agreements are included, respectively, under the captions "Board Evaluation of
Advisory and Subadvisory Arrangements" and "Description of Prior and New
Subadvisory and Sub-Subadvisory Agreements."
For information about the executive officers and directors of, and
comparable funds managed by, the new subadvisers and sub-subadvisers, see the
following appendices to this Information Statement:
Appendix A: Addition Information About Western Asset and WAMCL
Appendix B: Additional Information About RCM
Appendix C: Additional Information About RREEF
NEW SUBADVISORY AGREEMENT
FOR THE U.S. GOVERNMENT SECURITIES TRUST
NEW SUBADVISORY AND SUB-SUBADVISORY AGREEMENTS
FOR THE HIGH YIELD AND STRATEGIC BOND TRUSTS
At its meeting on March 30-31, 2006, the Board, including all the
Independent Trustees, voted to approve: (i) the replacement of SaBAM, and new
subadvisory agreements appointing Western Asset, as the subadviser to the U.S.
Government Securities Trust, High Yield Trust, and Strategic Bond Trust; and
(ii) new sub-subadvisory agreements appointing WAMCL as the sub-subadviser to
the High Yield Trust and Strategic Bond Trust.
The new subadvisory and sub-subadvisory agreements are dated April 28,
2006. The prior subadvisory agreements with SaBAM, dated December 1, 2005, were
approved by the Board (including a majority of the Independent Trustees) on
September 22-23, 2005 in connection with the then proposed sale of SaBAM by its
parent entity, Citigroup, Inc. ("Citigroup"), to Legg Mason, Inc. ("Legg Mason")
as described below.
WESTERN ASSET AND WAMCL
Western Asset is a California company founded in 1971 which
specializes in managing fixed-income investments for institutional accounts such
as corporate pension plans, mutual funds and endowment funds. Its offices are
located at 385 East Colorado Boulevard, Pasadena, CA 91101.
WAMCL is a United Kingdom company which specializes in managing
currency transactions and non-U.S. dollar denominated, fixed-income investments
for institutional accounts. Its offices are located at 10 Exchange Square,
Primrose Street, London EC2A 2EN.
Each of Western Asset and WAMCL is a wholly-owned subsidiary of Legg
Mason, a financial services company located at 100 Light Street, Baltimore, MD
21202.
On December 1, 2005, Citigroup completed the sale of substantially all
of its worldwide asset management business, including SaBAM, to Legg Mason. As a
result, SaBAM became a wholly-owned subsidiary of Legg Mason. Following this
acquisition, Legg Mason has undertaken to integrate the former Citigroup
fixed-income investment operations with those of Legg Mason's affiliates,
Western Asset and WAMCL. This process has involved, among other things, the
sharing for periods of time by Western Asset, WAMCL and SaBAM of certain
employees, including portfolio managers, and certain portfolio manager changes
with respect to the U.S. Government Securities, High Yield and Strategic Bond
Trusts as described in the Supplement dated March 31, 2006 to the Trust's
Prospectus dated April 30, 2005. Subsequent to the April 28, 2006 effective date
of the new subadvisory and sub-subadvisory agreements, the former SaBAM
portfolio managers for each of the U.S. Government Securities Trust, High Yield
Trust, and Strategic Bond Trust prior to that date have continued as Western
Asset and/or WAMCL portfolio managers for the Portfolios.
The terms of the prior subadvisory agreements with SaBAM and new
subadvisory and sub-subadvisory agreements with, respectively, Western Asset and
WAMCL are substantially the same except for changes in compensation as described
below and are described under "Description of Prior and New Subadvisory and
Sub-Subadvisory Agreements." For additional information about Western Asset and
WAMCL, see Appendix A.
3
COMPENSATION
Subadviser Compensation. As compensation for its services under the
new subadvisory agreements, the subadviser is paid a subadvisory fee by the
Adviser with respect to each Portfolio. The fee is determined by applying the
daily equivalent of an annual fee rate to the net assets of the Portfolio. The
annual fee rate is calculated each day by applying the annual percentage rates
(including breakpoints) for a Portfolio to the applicable portions of Aggregate
Net Assets and dividing the sum so determined by Aggregate Net Assets. The
following table sets forth the schedules of the annual percentage rates of the
subadvisory fees for the Portfolios under the prior and new subadvisory
agreements. As indicated, the subadvisory fee rates under the new subadvisory
agreements have decreased for the first $500 million of Aggregate Net Assets and
remain the same for Aggregate Net Assets in excess of $500 million.
SUBADVISORY FEES
(RATES APPLIED TO AGGREGATE NET ASSETS)
PRIOR SUBADVISORY AGREEMENT NEW SUBADVISORY AGREEMENT
---------------------------- ---------------------------
First Excess Over First Excess Over
PORTFOLIO $500 million $500 million $500 million $500 million
- --------- ------------- ------------ ------------ ------------
U.S. Government Securities Trust (1) 0.200% 0.100% 0.170% 0.100%
High Yield Trust (2) 0.275% 0.200% 0.250% 0.200%
Strategic Bond Trust (3)
- ----------
(1) Aggregate Net Assets include the net assets of the Portfolio and of the JHF
II U.S. Government Securities Fund. Their respective net assets at December
31, 2005 were $416,764,049 and $183,376,750.
(2) Aggregate Net Assets include the net assets of the Portfolio and of the JHF
II High Yield Fund. Their respective net assets at December 31, 2005 were
$1,638,438,519 and $1,376,649,641.
(3) Aggregate Net Assets include the net assets of the Portfolio and of the JHF
II Strategic Bond Fund. Their respective net assets at December 31, 2005
were $703,745,010 and $477,703,793.
For the fiscal year ended December 31, 2005, the Adviser paid SaBAM
subadvisory fees of $1,147,967 with respect to the U.S. Government Securities
Trust, $3,418,290 with respect to the High Yield Trust, and $2,323,855 with
respect to the Strategic Bond Trust. If the rates under the new subadvisory
agreements had been in effect for the fiscal year ended December 31, 2005, the
subadvisory fees would have been $1,006,879 (a decrease of 12.3%) with respect
to the U.S. Government Securities Trust, $3,304,134 (a decrease of 3.3%) with
respect to the High Yield Trust, and $2,207,713 (a decrease of 5.0%) with
respect to the Strategic Bond Trust.
Sub-Subadviser Compensation. As compensation for its services under
the new sub-subadvisory agreements for the High Yield and Strategic Bond Trusts,
WAMCL is paid a subadvisory fee for each Portfolio by Western Asset out of the
subadvisory fee it receives from the Adviser. The sub-subadvisory fee is
determined as a pro-rata share of Western Asset's subadvisory fee based on the
proportion of the net assets of the Portfolio managed from time to time by
WAMCL.
DECREASE IN ADVISORY FEES
In connection with the decrease in subadvisory fee rates described
above, the Board, including all the Independent Trustees, also approved at the
March 30-31, 2006 meeting an amendment to the Advisory Agreement with respect to
each of the Portfolios decreasing the rates of the advisory fees paid to the
Adviser by the Portfolios. The advisory fee for each Portfolio is determined on
the basis of Aggregate Net Assets in the same manner as the subadvisory fee. The
following table sets forth the prior and new schedules of the annual percentage
rates of the advisory fees for the Portfolios. As under the new subadvisory
agreements, the advisory fee rates under the amended Advisory Agreement have
decreased for the first $500 million of Aggregate Net Assets and remain the same
for Aggregate Net Assets in excess of $500 million. The decrease in advisory fee
rates became effective on April 28, 2006.
4
ADVISORY FEES
(RATES APPLIED TO AGGREGATE NET ASSETS)
PRIOR ADVISORY FEE RATES NEW ADVISORY FEE RATES
---------------------------- ---------------------------
First Excess Over First Excess Over
PORTFOLIO $500 million $500 million $500 million $500 million
- --------- ------------- ------------ ------------ ------------
U.S. Government Securities Trust (1) 0.650% 0.550% 0.620% 0.550%
High Yield Trust (2) 0.725% 0.650% 0.700% 0.650%
Strategic Bond Trust (3)
- ----------
(1) Aggregate Net Assets include the net assets of the Portfolio and of the JHF
II U.S. Government Securities Fund.
(2) Aggregate Net Assets include the net assets of the Portfolio and of the JHF
II High Yield Fund.
(3) Aggregate Net Assets include the net assets of the Portfolio and of the JHF
II Strategic Bond Fund.
For the fiscal year ended December 31, 2005, the Trust paid the
Adviser advisory fees of $3,951,607 with respect to the U.S. Government
Securities Trust, $9,837,898 with respect to the High Yield Trust, and
$6,437,799 with respect to the Strategic Bond Trust. The prior advisory fee
rates, which are set forth in the table above, reflect an increase of 0.10% at
each breakpoint level that became effective on May 1, 2005. If the prior
advisory fee rates had been in effect for the entire fiscal year ended December
31, 2005, the Trust would have paid advisory fees of $4,197,517 with respect to
the U.S. Government Securities Trust, $10,338,192 with respect to the High Yield
Trust, and $6,770,798 with respect to the Strategic Bond Trust. If the new
advisory fee rates had been in effect for the entire fiscal year ended December
31, 2005, the advisory fees would have been $4,056,431(a decrease of 3.7%) with
respect to the U.S. Government Securities Trust, $10,223,836 (a decrease of
1.1%) with respect to the High Yield Trust, and $6,655,292 (a decrease of 1.7%)
with respect to the Strategic Bond Trust.
CONSIDERATION BY THE BOARD OF TRUSTEES
Various factors considered by the Board in approving the subadvisory
agreements with Western Asset for the U.S. Government Securities, High Yield and
Strategic Bond Trusts and the sub-subadvisory agreements with WAMCL for the High
Yield and Strategic Bond Trusts are described below under "Board Evaluation of
Advisory and Subadvisory Arrangements." In addition, the Board's approval was
based on a number of specific considerations, including the following:
1. Each of Western Asset and WAMCL has extensive experience (Western Asset
since 1971) as a manager with respect to fixed-income assets, and their
respective expertise in managing U.S. fixed-income securities and currency
transactions and non-U.S. dollar-denominated fixed-income securities are
complementary;
2. Each of Western Asset and WAMCL may be expected to provide a high quality
of investment personnel to the Portfolios, and the service of the former
SaBAM portfolio managers as Western Asset and/or WAMCL portfolio managers
provides continuity in management services;
3. The historical performance of comparable mutual funds and other accounts
managed by Western Asset or WAMCL has generally been exceeded the
performance of the Portfolios and their respective benchmark indices, as
follows:
- a blended group of U.S. Government accounts managed by
Western Asset has outperformed its blended benchmark of U.S.
Government indices over the one, three and five year periods
and the Short Government Bond peer group average over the
one, three and five year periods;
- the Western Asset High Yield Composite has outperformed its
benchmark index over the most recent one-year period and its
peer group average over the one, three and five year
periods; and
- The Western Asset Core Plus Bond Institutional mutual fund
has outperformed its benchmark index over the three and five
year periods and its peer group average over the one, three
and five
5
year periods; and
4. The subadvisory fees with respect to the Portfolios are the products of
arms-length negotiation between the Adviser and Western Asset, are within
industry norms and in the case of the High Yield and Strategic Bond Trusts
are lower than their peer group medians, are lower than under the prior
subadvisory agreement and will result in advisory fee decreases benefiting
the shareholders of the Portfolios; and the subadvisory and sub-subadvisory
fees are not paid by the Portfolios.
NEW SUBADVISORY AGREEMENT
FOR THE EMERGING SMALL COMPANY TRUST
At its meeting on March 30-31, 2006, the Board, including all the
Independent Trustees, voted to accept the resignation of Franklin, and to
approve a subadvisory agreement appointing RCM, as the new subadviser to the
Emerging Small Company Trust. Franklin had agreed to resign as subadviser to the
Portfolio following discussions with the Adviser regarding the Portfolio's
performance having lagged its peer group average over the one, three and five
year periods ended December 31, 2005.
The new subadvisory agreement with RCM is dated April 28, 2006. The
prior subadvisory agreement with Franklin, originally dated February 1, 1999,
was most recently approved by the Board (including a majority of the Independent
Trustees) on June 3, 2005 in connection with the annual renewal thereof.
RCM
RCM is a Delaware limited liability company with offices at Four
Embarcadero Center, San Francisco, CA 94111. RCM (together with its predecessor
firms) has been providing investment advisory services since 1970. RCM is a
wholly-owned subsidiary of RCM US Holdings LLC ("RCM Holdings"), a Delaware
limited liability company which also has offices at Four Embarcadero Center, San
Francisco, CA 94111. RCM Holdings is a wholly-owned subsidiary of Allianz Global
Investors AG ("AGI"). AGI, with offices at Nymphenburger Strasse 112-116, 80636
Munich, Germany, is in turn owned by Allianz AG. The offices of Allianz AG are
located at Koeniginstrasse 28, Frankfurt, Germany.
The terms of the prior subadvisory agreement with Franklin and the new
subadvisory agreement with RCM are substantially the same except for changes in
compensation as described below and are described under "Description of Prior
and New Subadvisory and Sub-Subadvisory Agreements." For additional information
about RCM, see Appendix B.
COMPENSATION
As compensation for its services under the new subadvisory agreement,
RCM is paid a subadvisory fee by the Adviser with respect to the Portfolio. The
fee is determined by applying the daily equivalent of an annual fee rate to the
net assets of the Portfolio. The annual fee rate is calculated each day by
applying the annual percentage rates (including breakpoints) in the table below
to the applicable portions of Aggregate Net Assets and dividing the sum so
determined by Aggregate Net Assets. The following table sets forth the schedules
of the annual percentage rates of the subadvisory fees for the Portfolio under
the prior and new subadvisory agreements. As indicated, under the new
subadvisory agreement, the annual percentage rates have two rather than three
breakpoints and have decreased at all asset levels.
SUBADVISORY FEES
(RATES APPLIED TO AGGREGATE NET ASSETS) (1)
PRIOR SUBADVISORY AGREEMENT NEW SUBADVISORY AGREEMENT
- --------------------------------------------- --------------------------------
First Next Excess First Excess
$500 million $500 million Over $1 billion $500 million Over $500 million
- ------------ ------------ --------------- ------------ -----------------
0.55% 0.52% 0.50% 0.52% 0.45%
- ----------
(1) Aggregate Net Assets include the net assets of the Emerging Small Company
Trust and of the JHF II Emerging Small Company Fund. Their respective net
assets at December 31, 2005 were $330,506,977 and $53,664,502.
6
For the fiscal year ended December 31, 2005, the Adviser paid Franklin
a subadvisory fee of $2,585,611 with respect to the Emerging Small Company
Trust. If the rates under the new subadvisory agreement had been in effect for
the fiscal year ended December 31, 2005, the subadvisory fee would have been
$2,441,347 (a decrease of 5.6%).
DECREASE IN ADVISORY FEES
In connection with the decrease in subadvisory fee rates described
above, the Board, including all the Independent Trustees, also approved at the
March 30-31, 2006 meeting an amendment to the Advisory Agreement decreasing the
rates of the advisory fee paid to the Adviser by the Portfolio. The advisory fee
for the Portfolio is determined on the basis of Aggregate Net Assets in the same
manner as the subadvisory fee. The following table sets forth the prior and new
schedules of the annual percentage rates of the advisory fee for the Portfolio.
As under the new subadvisory agreement, the annual percentage rates under the
amended Advisory Agreement have two rather that three breakpoints and have
decreased at all asset levels.
ADVISORY FEES
(RATES APPLIED TO AGGREGATE NET ASSETS) (1)
PRIOR ADVISORY FEE RATES NEW ADVISORY FEE RATES
- --------------------------------------------- --------------------------------
First Next Excess First Excess
$500 million $500 million Over $1 billion $500 million Over $500 million
- ------------ ------------ --------------- ------------ -----------------
1.00% 0.97% 0.95% 0.97% 0.90%
- ----------
(1) Aggregate Net Assets include the net assets of the Portfolio and the net
assets of the JHF Emerging Small Company Fund.
For the fiscal year ended December 31, 2005, the Trust paid the
Adviser an advisory fee of $4,540,570 with respect to the Emerging Small Company
Trust. The prior advisory fee rates, which are set forth in the table above,
reflect an increase of 0.10% at each breakpoint level that became effective on
May 1, 2005. If the prior advisory fee rates had been in effect for the entire
fiscal year ended December 31, 2005, the Trust would have paid an advisory fee
of $4,702,382 with respect to the Emerging Small Company Trust. If the new
advisory fee rates had been in effect for the entire fiscal year ended December
31, 2005, the advisory fee would have been $4,558,385 (a decrease of 3.1%).
CHANGE IN NON-FUNDAMENTAL INVESTMENT POLICIES
In connection with approving the new subadvisory agreement with RCM
for the Emerging Small Company Trust, the Board also approved changing the
non-fundamental investment policies of the Portfolio to reflect RCM's management
style. The new investment policies are as follows:
The Portfolio invests, under normal market conditions, at least
80% of its net assets (plus borrowings for investment purposes) in
equity securities of U.S. companies with smaller capitalizations
(which RCM defines as companies with market capitalizations of not
less than 50% and not more than 200% of the weighted average market
capitalization of the Russell 2000 Index) (not less than $105 million
and not more than $4.4 billion as of December 31, 2005). The
capitalization criteria apply at the time of investment. The Portfolio
may also invest up to 15% of its assets in foreign securities
including emerging markets. The Portfolio may also invest from time to
time invest a significant percentage of its assets in the technology
and/or healthcare sectors.
RCM seeks to create an investment portfolio of growth stocks
across major industry groups. The portfolio managers evaluate
individual stocks based on their growth, quality and valuation
characteristics. Examples of growth characteristics include the
potential for sustained earnings growth and the development of
proprietary products or services; examples of quality characteristics
include the integrity of management
7
and a strong balance sheet; and examples of valuation characteristics
include relative valuation and upside potential.
In addition to traditional research activities, the portfolio
managers use Grassroots (sm) Research, which prepares research reports
based on field interviews with customers, distributors and competitors
of the companies in which the Portfolio invests or contemplates
investing, and provides a "second look" at potential investments and
checks marketplace assumptions about market demand for particular
products and services. RCM sells securities it deems appropriate in
accordance with sound investment practices and the Portfolio's
investment objectives and as necessary for redemption purposes.
CONSIDERATION BY THE BOARD OF TRUSTEES
Various factors considered by the Board in approving the new subadvisory
agreement with RCM for the Emerging Small Company Trust are described below
under "Board Evaluation of Advisory and Subadvisory Arrangements." In addition,
the Board's approval was based on a number of specific considerations, including
the following:
1. RCM (together with its predecessor firms) has more than 35 years
experience, as well as demonstrated skills, as a manager with respect
to both U.S. and foreign equity securities and may be expected to
provide a high quality of investment management services and personnel
to the Portfolio;
2. The performance of the Portfolio, under its current management, has
lagged its peer group average over the one, three and five year
periods;
3. RCM Capital Management's U.S. Small Cap Core Growth Composite has
outperformed its benchmark index and peer group average over the one
and three year (but not five year) periods; and
4. The subadvisory fee with respect to the Portfolio is the product of
arms-length negotiation between the Adviser and RCM, is within
industry norms, is lower than under the prior subadvisory agreement
and will result in an advisory fee decrease benefiting the
shareholders of the Portfolio; and the subadvisory fee is not paid by
the Portfolio.
NEW SUB-SUBADVISORY AGREEMENT
FOR THE REAL ESTATE SECURITIES TRUST
At its meeting on March 30-31, 2006, the Board, including all the
Independent Trustees, voted to approve a new sub-subadvisory agreement
appointing RREEF as the sub-subadviser to the Real Estate Securities Trust.
DeAM is and will continue to serve as the subadviser to the Real
Estate Securities Trust but has delegated day to day management of the assets of
the Portfolio to RREEF. As subadviser, DeAM retains ultimate responsibility for
the management of the Portfolio and has supervisory responsibilities with
respect to RREEF. The new sub-subadvisory agreement with RREEF is dated April
28, 2006. The subadvisory agreement with DeAM is dated November 23, 2002, as
amended October 17, 2005.
RREEF
RREEF is a Delaware limited liability company founded in 1975. Its
principal offices are located at 875 N. Michigan Avenue, 41st Floor, Chicago,
IL, 60611. RREEF is an indirect, wholly-owned subsidiary of Deutsche Bank AG, an
international commercial and investing group with offices at Taunusanlage 12,
Frankfurt, Germany. DeAM is also an indirect, wholly-owned subsidiary of
Deutsche Bank AG.
The terms of the new sub-subadvisory agreement with RREEF are
substantially the same as those of the subadvisory agreement with DeAM. These
terms are described below under "Description of Prior and New Subadvisory and
Sub-Subadvisory Agreements." For additional information about RREEF, see
Appendix C.
8
COMPENSATION
As compensation for its services under the new sub-subadvisory
agreement, RREEF is paid a sub-subadvisory fee by DeAM with respect to the
Portfolio. The fee is determined by applying the daily equivalent of an annual
fee rate to the net assets of the Portfolio. The annual fee rate is calculated
each day by applying the annual percentage rate for the Portfolio to Aggregate
Net Assets and dividing the sum so determined by Aggregate Net Assets. For the
Real Estate Securities Trust, the annual fee is the same as the annual
percentage rate because, as indicated in the table below, the annual percentage
rate has no breakpoints and is thus the same at all asset levels.
SUB-SUBADVISORY FEES
(RATES APPLIED TO AGGREGATE NET ASSETS) (1)
0.250% at all asset levels
- ----------
(1) Aggregate Net Assets include the net assets of the Real Estate Securities
Trust and of the JHF II Real Estate Securities Fund. Their respective net
assets at December 31, 2005 were $1,226,478,877 and $647,681,949.
The rate of the subadvisory fee payable to DeAM under the subadvisory
agreement is the same as the rate of the sub-subadvisory fee rate for RREEF.
Consequently, DeAM will pay its entire subadvisory fee for the Portfolio to
RREEF. For the fiscal year ended December 31, 2005, the Adviser paid DeAM a
subadvisory fee of $2,950,999 with respect to the Real Estate Securities Trust.
CONSIDERATION BY THE BOARD OF TRUSTEES
Various factors considered by the Board in approving the new
sub-subadvisory agreement with RREEF for the Real Estate Securities Trust are
described below under "Board Evaluation of Advisory and Subadvisory
Arrangements." In addition, the Board's approval was based on a number of
specific considerations, including the following:
1. RREEF, which has provided real estate investment management services
to institutional investors since 1975, has extensive experience and
demonstrated skills as a manager with respect to real estate
securities and may be expected to provide a high quality of investment
management services and personnel to the Portfolio;
2. RREEF will operate under the ongoing supervision of DeAM which has
been the subadviser to the Portfolio since November 2002 and which
retains ultimate responsibility for portfolio management as
subadviser;
3. The DWS RREEF Real Estate Securities Fund has outperformed its
benchmark index and peer group average over the one, three and five
year periods; and
4. The sub-subadvisory fee for RREEF is the same as the subadvisory fee
for DeAM, which is lower than its peer group median, and there will be
no increase in the advisory fee rates for the Portfolio; and the
sub-subadvisory fee is paid by DeAM and not by the Portfolio.
BOARD EVALUATION OF ADVISORY AND SUBADVISORY ARRANGEMENTS
The Board, including the Independent Trustees, is responsible for
selecting the Trust's investment adviser, approving the Adviser's selection of
Portfolio subadvisers and approving the Trust's advisory and subadvisory (and
any sub-subadvisory) agreements, their periodic continuation and any amendments.
Consistent with SEC rules, the Board regularly evaluates the Trust's advisory
and subadvisory arrangements, including consideration of the factors listed
below. The Board may also consider other factors (including conditions and
trends prevailing generally in the economy, the securities markets and the
industry) and does not treat any single factor as determinative, and each
Trustee may attribute different weights to different factors. The Board is
furnished with an analysis of its fiduciary obligations in connection with its
evaluation and, throughout the evaluation process, the Board is assisted by
counsel for the Trust and the Independent Trustees are also separately assisted
by independent legal counsel. The factors considered by the Board are:
9
1. the nature, extent and quality of the services to be provided by the
Adviser to the Trust and by the subadvisers to the Portfolios;
2. the investment performance of the Portfolios and their subadvisers;
3. the extent to which economies of scale would be realized as a
Portfolio grows and whether fee levels reflect these economies of
scale for the benefit of Trust shareholders;
4. the costs of the services to be provided and the profits to be
realized by the Adviser and its affiliates from the Adviser's
relationship with the Trust; and
5. comparative services rendered and comparative advisory and subadvisory
fee rates.
The Board believes that information relating to all factors is
relevant to its evaluation of the Trust's advisory agreements. With respect to
its evaluation of subadvisory (including sub-subadvisory) agreements with
subadvisers not affiliated with the Adviser, the Board believes that, in view of
the Trust's "manager-of-managers" advisory structure, factors (3) and (4) as
regards subadvisers generally are not material to the Board's considerations
because subadvisory fees are paid to subadvisers by the Adviser and not by the
Portfolios and because the Board relies on the ability of the Adviser to
negotiate the subadvisory fees at arms-length.
In making its determination with respect to subadvisory (including
sub-subadvisory) agreements, and with reference to the factors which it
regularly considers, the Board reviews (1) information relating to the
subadviser's business, which may include information such as business
performance, representative clients, assets under management, financial
stability, personnel and, if applicable, past subadvisory services to affiliated
funds of the Trust; (2) the investment performance of comparatively managed
funds of the Portfolio and comparative performance information relating to the
comparatively managed fund's benchmark and comparable funds; (3) the proposed
subadvisory fee for each Portfolio and comparative fee information; and (4)
information relating to the nature and scope of other material business
relationships which unaffiliated subadvisers may have with the Adviser or its
affiliates, including the involvement by certain affiliates of certain
subadvisers in the distribution of financial products, including shares of the
Trust, offered by the Adviser and other affiliates of the Adviser.
Particular considerations of the Board in approving the new
subadvisory and sub-subadvisory agreements are described above in separate
sections for the: (i) the U.S. Government Securities Trust, High Yield Trust and
Strategic Bond Trust; (ii) the Emerging Small Company Trust; and (iii) the Real
Estate Securities Trust.
DESCRIPTION OF PRIOR AND NEW SUBADVISORY
AND SUB-SUBADVISORY AGREEMENTS
The terms of the prior and new subsidiary and sub-subadvisory
agreements are substantially the same and are described below. For convenience,
the agreements are generally, collectively referred to as the "subadvisory
agreement" and the subadvisers and sub-subadvisers as the "subadviser."
DUTIES OF THE SUBADVISER. The subadviser manages the investment and
reinvestment of the assets of the Portfolio, subject to the supervision of the
Board and the Adviser (or the subadviser in the case of a sub-subadviser), and
formulates a continuous investment program for the Portfolio consistent with its
investment objective and policies. The subadvisers implements such program by
purchases and sales of securities and regularly report thereon to the Board and
the Adviser (or the subadviser in the case of a sub-subadviser). At its expense,
the subadviser furnishes all necessary investment and management facilities,
including salaries of personnel required for it to execute its duties. The
subadviser also furnishes administrative facilities, including bookkeeping,
clerical personnel, and equipment necessary for the conduct of the investment
affairs of the Portfolio.
10
TERM. The subadvisory agreement initially continues in effect for a period
of no more than two years from the date of its execution and thereafter only if
such continuance is specifically approved at least annually either (a) by the
Trustees or (b) by the vote of a majority of the outstanding voting securities
of the Trust. In either event, such continuance must also be approved by the
vote of a majority of the Independent Trustees.
Any required shareholder approval of any continuance of any of the
subadvisory agreement is effective with respect to a Portfolio if a majority of
the outstanding voting securities of the Portfolio votes to approve such
continuance even if such 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 of the Portfolios of the Trust.
If the outstanding voting securities of a Portfolio fail to approve any
continuance of a subadvisory agreement for the Portfolio, the subadviser will
continue to act as subadviser with respect to the Portfolio pending the required
approval of the continuance of the agreement or a new agreement with either that
subadviser or a different subadviser, or other definitive action.
TERMINATION. The subadvisory agreement provides that it 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 agreement and, as applicable, to the Trust. The
following parties or others may terminate the agreement:
- the Board of Trustees of the Trust;
- the holders of a majority of the outstanding voting securities of the
Portfolio;
- the Adviser; and
- the subadviser (or the sub-subadviser in the case of a sub-subadvisory
agreement).
Each of the subadvisory agreements automatically terminates in the event of
its assignment.
AMENDMENTS. The subadvisory agreement may be amended by the parties to the
agreement provided the amendment is approved by the vote of a majority of the
outstanding voting securities of the Trust (except as noted below) and by the
vote of a majority of the Independent Trustees of the Trust.
The required shareholder approval of any amendment shall be effective with
respect to the Portfolio if a majority of the outstanding voting securities of
the Portfolio votes to approve the amendment, even if 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 of the Portfolios of the
Trust.
Pursuant to an order received by the Trust from the SEC, the Adviser is
permitted to enter into subadvisory agreements appointing subadvisers which are
not affiliates of the Adviser (other than by reason of serving as a subadviser
to a Portfolio), and to change the terms of subadvisory agreements (including
subadvisory fees) with respect to such subadvisers, without shareholder
approval. The Trust is therefore able to engage non-affiliated subadvisers from
time to time without the expense and delays associated with holding a meeting of
shareholders.
LIABILITY OF SUBADVISERS. Neither the subadviser nor any of its partners or
employees will 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
Portfolio, 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 partners or employees.
CONSULTATION WITH SUBADVISERS TO THE PORTFOLIOS. Consistent with Rule
17a-10 under the 1940 Act, the subadvisory agreement prohibits the subadviser
from consulting with the following entities concerning transactions for a
Portfolio in securities or other assets: (a) other subadvisers to the Portfolio,
(b) subadvisers to other Portfolios, and (c) subadvisers to portfolios under
common control with the Portfolio.
CONFIDENTIALITY OF PORTFOLIO HOLDINGS. The subadviser is required to treat
Trust portfolio holdings as confidential and to prohibit its employees from
trading on such confidential information.
11
APPENDIX A
ADDITIONAL INFORMATION ABOUT WESTERN ASSET AND WAMCL
This Appendix provides additional information about Western Asset, the new
subadviser to the U.S. Government Securities, High Yield and Strategic Bond
Trusts, and WAMCL, the new sub-subadviser to the High Yield and Strategic Bond
Trusts.
MANAGEMENT OF WESTERN ASSET. The names and principal occupations of the
principal executive officers and directors of Western Asset are set forth below.
The business address of each such person is 385 East Colorado Boulevard,
Pasadena, CA 91101.
POSITION WITH
NAME WESTERN ASSET PRINCIPAL OCCUPATION
- ---- ------------- --------------------
James W. Hirschmann Director and Officer President and Chief Executive
Officer, Western Asset; Managing
Director, WAMCL
Peter L. Bain Director Senior Executive Vice President,
Legg Mason
Michael Even Director Executive Vice President, Legg
Mason
Bruce D. Alberts Officer Chief Financial Officer, Western
Asset
Gregory B. McShea Officer General Counsel, Chief Compliance
Officer, and Head of Legal and
Compliance, Western Asset and
WAMCL; Secretary, Western Asset
Gavin L. James Officer Director of Global Client Services,
Western Asset
S. Kenneth Leech Officer Chief Investment Officer, Western
Asset
Stephen A. Walsh Officer Deputy Chief Investment Officer,
Western Asset
MANAGEMENT OF WAMCL. The names and principal occupations of the principal
executive officers and directors of WAMCL are set forth below. The business
address of each such person is 10 Exchange Square Primrose Street, London EC2A
2EN.
NAME POSITION WITH WAMCL PRINCIPAL OCCUPATION
- ---- ------------------- --------------------
James W. Hirschmann Director and Officer Managing Director, WAMCL; President
and Chief Executive Officer,
Western Asset
Peter L. Bain Director Senior Executive Vice President,
Legg Mason
Edward A. Taber Director Retired Executive Vice President,
Legg Mason
Suzanne Taylor-King Officer Finance Officer, WAMCL
Gregory B. McShea Officer General Counsel, Chief Compliance
Officer, and Head of Legal and
Compliance, Western Asset and
WAMCL; Secretary, Western Asset
OTHER INVESTMENT COMPANIES ADVISED BY WESTERN ASSET AND WAMCL. While
Western Asset and WAMCL are separate organizations, they operate together with
other supervised affiliates as a combined global asset management firm. Western
Asset currently acts as adviser or subadviser to the following registered
investment companies or series thereof having similar investment objectives and
policies to those of the U.S. Government Securities Trust, High Yield Trust, and
Strategic Bond Trust. The tables below also state the approximate size of each
such fund as of December 31, 2005 and the current advisory or subadvisory fee
rate for each fund as a percentage of average daily net assets.
12
U.S. Government Securities Trust:
ASSETS AS OF ADVISORY/SUBADVISORY
NAME OF FUND 12/31/05 FEE RATE*
- ------------ ------------ --------------------
Western Asset/Claymore U.S. Treasury $394 million 0.55% at all asset levels
Inflation Protected Securities Fund
Western Asset/Claymore U.S. Treasury $824 million 0.27% at all asset levels
Inflation Protected Securities Fund 2
Legg Mason U.S. Government Money $388 million 0.15% at all asset levels
Market Fund
- ----------
* Western Asset is responsible for any compensation due to WAMCL.
High Yield Trust:
ASSETS AS OF ADVISORY/SUBADVISORY
NAME OF FUND 12/31/05 FEE RATE*
- ------------ ------------ --------------------
Western Asset High Yield Portfolio $445 million 0.50% at all asset levels
Consulting Group Capital Markets $129 million 0.30% at all asset levels
Funds High Yield Investments
Legg Mason High Yield Portfolio $169 million 0.50% at all asset levels
- ----------
* Western Asset is responsible for any compensation due to WAMCL.
Strategic Bond Trust:
ASSETS AS OF
NAME OF FUND 12/31/05 ADVISORY/SUBADVISORY FEE RATE*
- ------------ ------------ ------------------------------
Western Asset Core Plus Portfolio $6,659 million 0.45% of the first $500 million;
0.425% of the next $500 million; and
0.40% of the excess over $1 billion.
- ----------
* Western Asset is responsible for any compensation due to WAMCL.
13
APPENDIX B
ADDITIONAL INFORMATION ABOUT RCM
This Appendix provides additional information about RCM, the new subadviser
for the Emerging Small Company Trust.
MANAGEMENT OF RCM. The names and principal occupations of the principal
executive officers and directors of RCM are set forth below. The business
address of each such person is Four Embarcadero Center, San Francisco,
California 94111.
NAME POSITION WITH RCM PRINCIPAL OCCUPATION
- ---- ----------------- --------------------
Robert J. Goldstein Managing Director Chief Operating Officer; General
Counsel; and Member, RCM Management
Committee
Gregory M. Siemons Director Chief Compliance Officer; Global Head
of Compliance of RCM Global Platform
Frank Udo Managing Director Chief Executive Officer, RCM; Member,
RCM Management Committee; and Global
Chief Executive Officer of Equities,
Allianz Global Investors
Peter J. Anderson Managing Director Chief Investment Officer; and Member,
RCM Management Committee
Steve J. Berexa Managing Director Head of U.S. Research; and Global Head
of RCM Global Platform
Janie S. Kass Managing Director Co-Head of RCM Client Relations and
Marketing Group
Seth A. Reicher Managing Director Co-Chief Investment Officer and Senior
Portfolio Manager for the Large Cap
Growth Equity Team
Joanne L. Howard Managing Director Co-Chief Investment Officer and Senior
Portfolio Manager for the Large Cap
Growth Equity Team
M. Brad Branson Managing Director Chief Investment Officer of the
Private Client Group
OTHER INVESTMENT COMPANY ADVISED BY RCM. RCM currently acts as adviser or
subadviser to the following registered investment company or series thereof
having similar investment objectives and policies to those of the Emerging Small
Company Trust. The table below also states the size of such fund as of December
31, 2005 and the current advisory fee rate for such fund as a percentage of
average daily net assets.
ASSETS AS OF
NAME OF FUND 12/31/05 ADVISORY/SUBADVISORY FEE RATE
- ------------ ------------ -----------------------------
Allianz RCM Small Cap $3 million 0.85% at all asset levels
Growth Fund
14
APPENDIX C
ADDITIONAL INFORMATION ABOUT RREEF
This Appendix provides additional information about RREEF, the new
sub-subadviser for the Real Estate Securities Trust.
MANAGEMENT OF RREEF. The names and principal occupations of the principal
executive officers and directors of RREEF are set forth below. The business
address of each such person is 875 N. Michigan Avenue, 41st Floor, Chicago, IL,
60611.
NAME POSITION WITH RREEF PRINCIPAL OCCUPATION WITH RREEF
- ---- ------------------- -------------------------------
Barry Herbert Braitman Managing Director Legal Counsel
James Noel Carbone Managing Director Acquisitions
Mark D. Carlson Managing Director Acquisitions
Marlena M. Casellini Chief Operating Officer, Chief Operations, Finance
Financial Officer
Anthony Conte Chief Compliance Officer Compliance
Robert John Cook Managing Director Portfolio Management
Peter F. Feinberg Managing Director Dispositions
Laura Gaylord Managing Director Client Relations
Timothy Kevin Gonzalez Chief Investment Officer Portfolio Management
Christopher Lee Hughes Global Head Real Estate Capital Capital Markets
Timothy B. Keith Global Head Product and Business Product and Business
Development Development
Donald Alan King Vice Chairman Deutsche Asset Asset Management
Management
Charles Bertrand Leitner III Global Head DB Real Estate Asset Management
Asieh Mansour Managing Director Research
Dwight L. Merriman Managing Director Value Added/Development
Warren Hans Otto Managing Director Portfolio Management
Sollie A. Raso Global Head Client Relations Client Relations
John F. Robertson Managing Director Securities
Stephen Steppe Chief Executive Officer Chief Executive Officer
Susan Swanezy Managing Director Client Relations
John W. Vojticek Managing Director Securities
Daniel S. Weaver Managing Director Acquisitions
OTHER INVESTMENT COMPANIES ADVISED BY RREEF. RREEF currently acts as
adviser or subadviser to the following registered investment companies or series
thereof having similar investment objectives and policies to those of the Real
Estate Securities Trust. The table below also states the size of each such fund
as of December 31, 2005 and the current advisory fee rate for each fund as a
percentage of average daily net assets.
15
ASSETS AS OF
NAME OF FUND 12/31/05 ADVISORY/SUBADVISORY FEE RATE
- ------------ ------------ -----------------------------
Frank Russell Investment Company $ 466,677,941 0.60% of first $30 million;
- - Real Estate Securities Fund 0.50% of next $30 million;
0.40% of next $30 million;
0.25% of next $60 million;
0.01% of next $50 million;
0.19% of next $50 million; and
0.28% of the excess over $250
million
Russell Investment Fund - Real $ 128,531,327 Same as above
Estate Securities Fund
Scudder RREEF Real Estate $1,314,502,001 0.39% at all asset levels
Securities Fund, Inc.
Scudder VIT Fund - Real Estate $ 43,813,345 0.45% at all asset levels
Securities Portfolio
Scudder RREEF Real Estate Fund $ 564,654,453 0.25% at all asset levels
Inc.
Scudder RREEF Real Estate $1,078,024,924 0.25% at all asset levels
Fund II, Inc.
16