SCHEDULE 14C INFORMATION
INFORMATION STATEMENT PURSUANT TO SECTION 14(c) OF THE SECURITIES
EXCHANGE ACT OF 1934
Check the appropriate box:
[ ] Preliminary Information Statement
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Rule 14c-5(d)(2))
[X] Definitive Information Statement
JOHN HANCOCK TRUST
(Name of Registrant as Specified In Its Charter)
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2) Aggregate number of securities to which transaction applies:
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pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
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JOHN HANCOCK TRUST
601 CONGRESS STREET
BOSTON, MASSACHUSETTS 02210-2805
October 23, 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 change for the Portfolio named below. This change became effective on
September 30, 2006.
NAME OF PORTFOLIO OLD SUBADVISER NEW SUBADVISER
- ----------------- -------------- --------------
Large Cap Value Trust Fund Asset Management, L.P. BlackRock Investment
(doing business as Mercury Management, LLC
Advisors) ("FAM") ("BlackRock")
In connection with the combination of FAM and certain of its affiliates,
each an indirect wholly owned subsidiary of Merrill Lynch & Co., with BlackRock,
Inc. to form a new asset management company operating under the BlackRock name,
the Board of Trustees of the Trust has approved appointing BlackRock, an
indirect wholly-owned subsidiary of BlackRock, Inc., to succeed FAM as the
subadviser to the Large Cap Value Trust. The former FAM portfolio manager has
continued to manage the Portfolio for BlackRock, and the new subadvisory
agreement with BlackRock has not resulted in any change in the level or quality
of subadvisory services provided to the Portfolio or in the advisory or
subadvisory fee rates for the Portfolio. However, effective December 1, 2006,
the advisory and subadvisory fee rates for the Portfolio will decrease as a
result of the new fee breakpoint schedule approved by the Board.
PLEASE NOTE THAT THE TRUST IS NOT REQUIRED TO OBTAIN SHAREHOLDER APPROVAL,
AND IS NOT REQUESTING THAT YOU GIVE VOTING INSTRUCTIONS WITH RESPECT TO THIS
SUBADVISER CHANGE. The enclosed Information Statement, however, provides
information about the change.
If you have any questions regarding the Information Statement or the
subadvisory change, 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/ THOMAS M. KINZLER
----------------------------------------
Secretary
JOHN HANCOCK TRUST
601 CONGRESS STREET
BOSTON, MASSACHUSETTS 02210-2805
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INFORMATION STATEMENT
NEW SUBADVISORY AGREEMENT
FOR THE LARGE CAP VALUE TRUST
----------
INTRODUCTION
This Information Statement provides notice of and information regarding a
new subadvisory agreement for the Large Cap Value Trust, one of the separate
series or portfolios (each, a "Portfolio") of John Hancock Trust (the "Trust").
It is first being mailed to shareholders of this Portfolio on or about October
23, 2006.
THE TRUST. The Trust is an 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, which are sold without a
sales charge, are divided into 101 separate series corresponding to the 101
Portfolios which the Trust currently offers. Shares of the Portfolios 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, compensates and monitors the performance of subadvisers
that manage the investment and reinvestment of the assets of the Portfolios
pursuant to subadvisory agreements with the Adviser. The Adviser and each of the
subadvisers named in this Information Statement are registered as investment
advisers 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 that are not affiliates of the Adviser.
Because the new subadvisory agreement described in this Information Statement
does not involve a subadviser which is affiliated with the Adviser for purposes
of the SEC order, THE TRUST IS NOT REQUIRED TO ASK SHAREHOLDErS FOR A PROXY TO
APPROVE THE NEW SUBADVISORY AGREEMENT, AND SHAREHOLDERS ARE REQUESTED NOT TO
SEND A PROXY.
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, Treasurer.
NEW SUBADVISORY AGREEMENT
FOR THE LARGE CAP VALUE TRUST
At its meeting held on June 29-30, 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 a new subadvisory agreement appointing
BlackRock Investment Management, LLC ("BlackRock") to replace Fund Investment
Management L.P. ("FAM") (doing business as Mercury Advisors) as the subadviser
to the Large Cap Value Trust. At its meeting held September 28-29, 2006, the
Board approved an amendment to the BlackRock subadvisory agreement to add
additional breakpoints to the subadvisory fee.
The new subadvisory agreement with BlackRock became effective, and the old
agreement with FAM terminated, on September 30, 2006. The old subadvisory
agreement with FAM, dated May 1, 2003, as amended October 17, 2005 and June 30,
2006, was most recently approved by the Board (including a majority of the
Independent Trustees) on June 3, 2006 in connection with its annual renewal and
by the sole shareholder of the Large Cap Value Trust on May 1, 2003 in
connection with the initial organization of the Portfolio.
SUBADVISER CHANGE
Effective September 30, 2006, pursuant to an agreement between Merrill
Lynch & Co., ("ML & Co.") and BlackRock, Inc., certain indirect, wholly-owned
subsidiaries of ML & Co., including FAM, were combined with BlackRock, Inc. to
form a new asset management company operating under the BlackRock name (the
"Transaction"). As a result of the Transaction, and pursuant to the terms of the
old subadvisory agreement with FAM and provisions of the 1940 Act, the old
subadvisory agreement with FAM automatically terminated. At the time the Board
was advised of the proposed Transaction, the Adviser recommended to the Board
that appointing BlackRock, an indirect wholly-owned subsidiary of BlackRock,
Inc., as the new subadviser for the Large Cap Value Trust would be in the best
interest of the Portfolio's shareholders (including variable contract owners) by
promoting continuity of the Portfolio's investment strategies and management.
Following the Transaction, the former FAM portfolio manager for the Portfolio
has continued to serve in that capacity for BlackRock, and there has been no
change in the Portfolio's investment objective and policies. THE NEW SUBADVISORY
AGREEMENT WITH BLACKROCK HAS NOT RESULTED IN ANY CHANGES IN THE LEVEL OR QUALITY
OF SUBADVISORY SERVICES PROVIDED TO THE PORTFOLIO OR IN THE ADVISORY OR
SUBADVISORY FEE RATES FOR THE PORTFOLIO. However, the advisory and subadvisory
fee rates will decrease as of December 1, 2006, as a result of the new fee
breakpoint schedule approved by the Board.
As a result of the Transaction, BlackRock Inc. is owned approximately 49%
by ML & Co., approximately 34% by The PNC Financial Services Group, Inc. ("PNC")
and approximately 17% by employees and public shareholders. PNC is a diversified
financial services organization with headquarters at 249 Fifth Avenue, One PNC
Plaza, Pittsburgh, Pennsylvania 15222. ML & Co. is a financial services holding
company with offices at World Financial Center, North Tower, 250 Vesey Street,
New York, NY 10080. ML & Co. and PNC may be deemed "controlling persons" (as
defined in the 1940 Act) of BlackRock because of their ownership of the voting
securities of BlackRock, Inc. or their power to exercise a controlling influence
over its management or policies.
The offices of BlackRock are located at 800 Scudders Mill Road, Plainsboro,
New Jersey 08536.
NEW SUBADVISORY AGREEMENTS
Under the new subadvisory agreement with BlackRock, as under the old
subadvisory agreement with FAM, the subadviser manages the day-to-day investment
and reinvestment of the assets of the Portfolio, subject to the supervision of
the Board and the Adviser, and formulates a continuous investment program for
the Portfolio consistent with its investment objective and policies. The
subadviser implements such program by purchases and sales of securities and
regularly reports thereon to the Board and the Adviser.
2
The terms of the old subadvisory agreement with FAM and the new subadvisory
agreement with BlackRock are substantially the same, including with respect to
subadviser compensation. The agreements are described below under "Description
of Old and New Subadvisory Agreements."
Subadviser Compensation. Under the agreements, the subadviser is paid a fee
by the Adviser out of the advisory fee it receives from the Portfolio. THE
SUBADVISORY FEE THUS IS NOT AN ADDITIONAL CHARGE TO THE PORTFOLIO.
The subadvisory 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. "Aggregate
Net Assets" include the net assets of the Portfolio and of a corresponding fund
of John Hancock Funds II ("JHF II"), the Large Cap Value Fund, 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.
The following table sets forth the schedule of the annual percentage rates
of the subadvisory fee for the Portfolio under the old and new subadvisory
agreements. As indicated, the rates are the same under both agreements.
SUBADVISORY FEES
(RATES APPLIED TO AGGREGATE NET ASSETS)(1)
Between
First $500 million Excess
$500 million and $1 billion Over $1 billion
- ------------ -------------- ---------------
0.375% 0.350% 0.325%
- ----------
(1) Aggregate Net Assets include the net assets of the Large Cap Value Trust
and the net assets of the JHF II Large Cap Value Fund. Their respective net
assets at June 30, 2006 were $339,924,965 and $237,838,167.
For the fiscal year ended December 31, 2005, the Adviser paid FAM a
subadvisory fee of $926,979 with respect to the Large Cap Value Trust. If the
subadvisory fee rates in the above table, which became effective on June 1,
2006, had been in effect for that fiscal year, the subadvisory fee paid to FAM
would have been $854,478 (a decrease of 7.82%). If the new subadvisory agreement
with BlackRock had been in effect for that fiscal year, the subadvisory fee paid
to BlackRock would also have been $854,478 (a decrease of 7.82%).
The following table sets forth the schedule of the annual percentage rates
of the advisory fee for the Portfolio under the advisory agreement. The advisory
fee for the Portfolio is determined on the basis of Aggregate Net Assets in the
same manner as the subadvisory fee.
ADVISORY FEES
(RATES APPLIED TO AGGREGATE NET ASSETS)(1)
Between
First $500 million Excess
$500 million and $1 billion Over $1 billion
- ------------ -------------- ---------------
0.825% 0.800% 0.775%
- ----------
(1) Aggregate Net Assets include the net assets of the Large Cap Value Trust
and the net assets of the JHF II Large Cap Value Fund. Their respective net
assets at June 30, 2006 were $339,924,965 and $237,838,167.
3
For the fiscal year ended December 31, 2005, the Portfolio paid the Adviser
an advisory fee of $1,869,079 with respect to the Large Cap Value Trust. If the
advisory fee rates in the above table, which became effective on June 1, 2006,
had been in effect for that fiscal year, the advisory fee paid to the Adviser
would have been $1,879,851 (an increase of 0.57%)(1).
CHANGE IN ADVISORY AND SUBADVISORY FEES
Effective December 1, 2006, two additional breakpoints will be added to the
advisory and subadvisory fees for the Portfolio for assets in excess of $1.5
billion.
The following tables set forth the schedules of the annual percentage rates
of advisory and subadvisory fees for the Portfolio assuming the new advisory and
subadvisory fee schedule for the Portfolio effective December 1, 2006.
SUBADVISORY FEES AS OF DECEMBER 1, 2006
(RATES APPLIED TO AGGREGATE NET ASSETS)(1)
Between Between Between Excess
First $500 million $1 billion $1.5 billion Over
$500 million and $1 billion and $1.5 billion and $2 billion $2 billion
- ------------ -------------- ---------------- -------------- ----------
0.375% 0.350% 0.325% 0.270% 0.250%
- ----------
(1) Aggregate Net Assets include the net assets of the Large Cap Value Trust
and the net assets of the JHF II Large Cap Value Fund.
If the subadvisory fee rates in the above table had been in effect for the
fiscal year ended December 31, 2005, the subadvisory fee paid to FAM would have
been $854,478, the same amount as paid under the old subadvisory agreement
(assuming the subadvisory fees effective June 1, 2006).
ADVISORY FEES AS OF DECEMBER 1, 2006
(RATES APPLIED TO AGGREGATE NET ASSETS)(1)
Between Between Between Excess
First $500 million $1 billion $1.5 billion Over
$500 million and $1 billion and $1.5 billion and $2 billion $2 billion
- ------------ -------------- ---------------- -------------- ----------
0.825% 0.800% 0.775% 0.720% 0.700%
- ----------
(1) Aggregate Net Assets include the net assets of the Large Cap Value Trust
and the net assets of the JHF II Large Cap Value Fund.
If the new advisory fee rates had been in effect for the fiscal year ended
December 31, 2005, the advisory fee would have been $1,879,851, the same amount
as paid under the old advisory agreement (assuming the advisory fees effective
June 1, 2006).
BOARD EVALUATION OF THE BLACKROCK SUBADVISORY AGREEMENT
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 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
- ----------
(1) On May 1, 2005, the Large Cap Value Trust advisory fee rates increased
from 7.5 basis points to 8.25 basis points. Using the June 1, 2006 new
advisory fee rates, which has a tiered structure starting at 8.25 basis
points, the advisory fee for the full fiscal year ended December 31, 2005
naturally would increase.
4
and the Independent Trustees are also separately assisted by independent legal
counsel. The factors considered by the Board are:
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 these factors is
relevant to its evaluation of the Trust's advisory agreements. With respect to
its evaluation of subadvisory agreements with subadvisers not affiliated with
the Adviser, the Board believes that, in view of the Trust's
"manager-of-managers" advisory structure, the costs of the services to be
provided and the profits to be realized by those subadvisers that are not
affiliated with the Adviser from their relationship with the Trust, generally,
are not a material factor in the Board's consideration of these subadvisory
agreements, because such fees are paid to subadvisers by the Adviser and not by
the Funds and because the Board relies on the ability of the Adviser to
negotiate such subadvisory fees at arms-length.
In evaluating subadvisory arrangements, the Board also considers other
material business relationships that unaffiliated subadvisers and their
affiliates 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 ("Material Relationships").
In making its determination with respect to the factors that its considers,
the Board reviewed:
1. information relating to each subadviser's business, which may include
information such as: business performance, representative clients,
assets under management, financial stability, personnel and past
subadvisory services to the Trust;
2. the historical and current performance of the Portfolio and
comparative performance information relating to the Portfolio's
benchmark and comparable funds;
3. the subadvisory fee for the Portfolio and comparative fee information;
and
4. information relating to the nature and scope of Material Relationships
and their significance to the Trust's adviser and unaffiliated
subadvisers.
Particular considerations of the Board in approving the new subadvisory
agreement with BlackRock for the Large Cap Value Trust at the June 29-30, 2006
Board meeting include the following:
1. BlackRock is expected to manage the Portfolio with the same investment
objective, policies and portfolio manager as under the old subadvisory
agreement with FAM, thus affording shareholders continuity in
investment strategies, and BlackRock may generally be expected to
provide at least the same level and quality of management services as
FAM;
2. The Portfolio has outperformed its benchmark index since the
Portfolio's inception on May 5, 2003, and the current and historical
performance of comparatively managed mutual funds and other accounts
managed by the proposed new subadviser, although not without
variation, has generally been competitive with or exceeded the
performance of their benchmarks; and
3. The subadvisory fee with respect to the Portfolio under the new
subadvisory agreement with BlackRock (i) is the product of arms-length
negotiation between the Adviser and BlackRock, (ii) is within industry
norms, (iii) is the same as under the old subadvisory agreement with
FAM, (iv) is paid by the Adviser and not by the Portfolio and will not
result in any advisory fee increase with respect to the Portfolio and
(e) contains breakpoints which are reflected in the advisory fee for
the Large Cap Value Trust permitting shareholders to benefit from
economies of scale.
5
ADDITIONAL INFORMATION ABOUT BLACKROCK
MANAGEMENT OF BLACKROCK. The names and principal occupations of the
principal executive officers of BlackRock are set forth below. The business
address of each such person is 800 Scudders Mill Road, Plainsboro, New Jersey
08536. BlackRock, an indirect wholly-owned subsidiary of BlackRock, Inc. and a
limited liability company, does not have any directors.
NAME POSITION AND PRINCIPAL OCCUPATION WITH BLACKROCK
- ---- ------------------------------------------------
Laurence Fink Chairman & Chief Executive Officer
Ralph Schlosstein President
Keith Anderson Vice Chairman
Charles Hallac Vice Chairman
Robert Kapito Vice Chairman
Barbara Novick Vice Chairman
Susan Wagner Vice Chairman & Chief Operating Officer
Steven Buller Chief Financial Officer and Managing Director
Robert Connolly General Counsel, Secretary and Managing Director
Robert Doll Vice Chairman and Chief Investment Officer of Global Equities
OTHER INVESTMENT COMPANIES ADVISED OR SUBADVISED BY BLACKROCK. BlackRock
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 Large Cap Value Trust. The tables below also state the approximate
size of each such fund as of June 30, 2006 (at which time it may have been
advised or subadvised by an ML & Co. affiliate such as FAM) and the current
advisory or subadvisory fee rate for each fund as a percentage of average daily
net assets.
ADVISORY/SUBADVISORY
FUND ASSETS AS OF 6/30/06 FEE RATE
- ---- -------------------- ------------------------
ML Large Cap Value Fund
-Class I $2,962,822,193 Fee 0.50%
ML Large Cap Value VI Fund
-Class I $ 240,165,436 Fee 0.75%
6
JHF II Large Cap Value Fund $ 237,838,167 0.375% of first
$500 million
0.350% of next
$500 million
0.325% of excess
over $1 billion
DESCRIPTION OF OLD AND NEW SUBADVISORY AGREEMENTS
The terms of the old and new 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 as
the "subadviser." The provisions described below under "Compliance" are included
in the new, but not the old, subadvisory agreements.
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, and formulates a continuous investment program for the
Portfolio consistent with its investment objective and policies. The subadviser
implements such program by purchases and sales of securities and regularly
reports thereon to the Board and the Adviser. 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.
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 (as defined by the 1940 Act). 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 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.
The subadvisory agreement 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 a
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.
7
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 SUBADVISER. Neither the subadviser nor any of its directors,
officers 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 directors.
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.
COMPLIANCE. The subadviser agrees to provide the Adviser with its written
policies and procedures ("Compliance Policies") as required by Rule 206(4)-7
under the Investment Advisers Act of 1940, as amended, and, throughout the term
of the agreement, to promptly submit to the Adviser: (i) any material changes to
the Compliance Policies, (ii) notification of the commencement of a regulatory
examination of the Subadviser and documentation describing the results thereof
as well as of any periodic testing of the Compliance Policies, and (iii)
notification of any material compliance matter that relates to the services
provided by the Subadviser, including any material violation of the Compliance
Policies or of the Subadviser's code of ethics.
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.
DC01\106196.10
ID\BWD
8