AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 15, 2004
REGISTRATION NO. 33-96668
811-09092
________________________________________________________________________________
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM N-1A
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933 [x]
PRE-EFFECTIVE AMENDMENT NO. [ ]
POST-EFFECTIVE AMENDMENT NO. 9 [x]
AND/OR
REGISTRATION STATEMENT
UNDER
THE INVESTMENT COMPANY ACT OF 1940
AMENDMENT NO. 11 [x]
(CHECK APPROPRIATE BOX OR BOXES)
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FIRST EAGLE VARIABLE FUNDS
(EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER)
1345 AVENUE OF THE AMERICAS
NEW YORK, NY 10105
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (212) 698-3000
ROBERT BRUNO
FIRST EAGLE VARIABLE FUNDS
1345 AVENUE OF THE AMERICAS
NEW YORK, NY 10105
(NAME AND ADDRESS OF AGENT FOR SERVICE)
COPY TO:
PAUL S. SCHREIBER, ESQ.
SHEARMAN & STERLING
599 LEXINGTON AVENUE
NEW YORK, NY 10022
It is proposed that this filing will become effective (check appropriate
box):
[ ] Immediately upon filing pursuant to paragraph (b)
[x] On April 30, 2004 pursuant to paragraph (b) of Rule 485
[ ] 60 days after filing pursuant to paragraph (a)(1)
[ ] On (date) pursuant to paragraph (a)(1) of Rule 485
[ ] 75 days after filing pursuant to paragraph (a)(2)
[ ] On (date) pursuant to paragraph (a)(2) of Rule 485
If appropriate, check the following box:
[ ] This post-effective amendment designates a new effective date for a previously filed post-effective amendment.
TITLE OF SECURITIES BEING REGISTERED:
FIRST EAGLE OVERSEAS VARIABLE FUND -- COMMON STOCK
FIRST EAGLE VARIABLE FUNDS
advised by Arnhold and S. Bleichroeder Advisers, LLC
PROSPECTUS
APRIL 30, 2004
FIRST EAGLE OVERSEAS VARIABLE FUND
1345 AVENUE OF THE AMERICAS
NEW YORK, NEW YORK 10105
(212) 698-3000
Like all mutual funds, these securities have not been approved or disapproved by the Securities and Exchange Commission nor has the SEC passed on the accuracy of this prospectus. It is a criminal offense to claim otherwise.
Welcome to First Eagle Variable Funds (the 'Trust'), managed by Arnhold and S. Bleichroeder Advisers, LLC (the 'Adviser' or 'ASB Advisers'), a wholly owned subsidiary of Arnhold and S. Bleichroeder Holdings, Inc. ('ASB Holdings'). Jean-Marie Eveillard and Charles de Vaulx of ASB Advisers have primary responsibility for the management of the portfolio of the Company.
First Eagle Overseas Variable Fund (the 'Fund') is a separate portfolio of the Trust, an open-end management investment company, that offers its shares only to separate accounts of U.S. insurance companies to serve as an investment medium for variable life insurance policies and variable annuity contracts issued by the insurance companies.
Investment Objective.
First Eagle Overseas Variable Fund seeks long-term growth of capital.
Before you invest in a mutual fund, you need to know that all mutual funds have common attributes:
Shares of the mutual fund can fluctuate in value.
You could make money or lose money.
There is no guarantee that a fund will achieve its investment objective.
This prospectus tells you about our Fund. We urge you to read it very carefully before you decide to invest and ask that you keep it for future reference.
TABLE OF CONTENTS
PAGE
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The Fund.................................................... 1
About First Eagle Overseas Variable Fund................ 1
Objective and Approach.............................. 1
Related Risks....................................... 1
The Fund's Performance.............................. 3
Fees and Expenses................................... 3
Our Management Team......................................... 4
The Adviser............................................. 4
Distribution and Shareholder Services Expenses.......... 5
About Your Investment....................................... 5
How to Purchase Shares.................................. 5
Anti-Money Laundering Compliance........................ 6
Short-Term Trading of Fund Shares....................... 6
How Fund Share Prices Are Calculated.................... 6
Information on Dividends, Distributions and Taxes........... 6
Financial Highlights........................................ 8
Useful Shareholder Information (Back Cover)
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THE FUND
ABOUT FIRST EAGLE OVERSEAS VARIABLE FUND
OBJECTIVE AND APPROACH
The investment objective of the Fund is long-term growth of capital. To achieve its objective, the Fund will invest primarily in equities, including common and preferred stocks, warrants or other similar rights, and convertible securities, issued by non-U.S. companies. The Fund may invest in securities traded in mature as well as emerging markets. The Fund particularly seeks companies that have financial strength and stability, strong management and fundamental value. However, the Fund may invest in companies that do not have all of these characteristics. Under normal circumstances, the Fund invests at least 80% of its total assets, taken at market value, in foreign securities. The Fund may invest up to 20% of its total assets in debt securities, including lower-rated securities and securities that are not rated. The Fund may also invest in 'structured securities' in which the value is linked to the price of an underlying instrument, such as a currency, commodity or index.
The investment objective of the Fund is not a fundamental policy and can be changed without shareholder approval. Shareholders will be notified a minimum of 60 days in advance of any change in investment objective.
RELATED RISKS
Investing in the Fund involves various risks.
Foreign Investments
Foreign securities involve certain inherent risks that are different from those of domestic securities, including political or economic instability of the issuer or the country of issue, changes in foreign currency and exchange rates, and the possibility of adverse changes in investment or exchange control regulations. Currency fluctuations will also affect the net asset value of the Fund irrespective of the performance of the underlying investments in foreign issuers. Typically, there is less publicly available information about a foreign company and foreign companies may be subject to less stringent reserve, auditing and reporting requirements. Many foreign stock markets are not as large or liquid as in the United States; fixed commissions on foreign stock exchanges are generally higher than the negotiated commissions on U.S. exchanges; and there is generally less government supervisions and regulation of foreign stock exchanges, brokers and companies than in the United States. Foreign governments can also levy confiscatory taxes, expropriate assets and limit repatriations of assets. As a result of these and other factors, foreign securities purchased by the Fund may be subject to greater price fluctuation than securities of U.S. companies. These risks may be more pronounced with respect to investments in emerging markets.
Debt Securities
Securities with the lowest investment grade ratings are considered to be medium grade and to have speculative characteristics. Debt securities that are unrated are considered by the Adviser to be equivalent to below investment grade (often referred to as 'junk bonds'). On balance, debt securities that are below investment grade are considered predominately speculative with respect to the issuer's capacity to pay interest and repay principal according to the terms of the obligation and, therefore, carry greater investment risk, including the possibility of default and bankruptcy. They are likely to be less marketable and more adversely affected by economic downturns than higher-quality debt securities.
Small and Medium Size Companies Risks
The Fund may invest in smaller companies, which historically have been more volatile in price than larger company securities, especially over the short-term. Among the reasons for the greater price volatility are the less certain growth prospects of smaller companies, the lower degree of liquidity in the markets for such securities and the greater sensitivity of smaller companies to changing economic
conditions. In addition, smaller companies may lack depth of management, they may be unable to generate funds necessary for growth or development, or they may be developing or marketing new products or services for which markets are not yet established and may never become established. The Fund considers small companies to be companies with market capitalizations of less than $1 billion and medium size companies to have market capitalizations of less than $10 billion.
Market Risk
In general, a fund's share price fluctuates over the short term in reaction to stock market movements. This means that an investor could lose money over short periods, and perhaps over longer periods during extended market downturns.
Currency Exchange Transactions
The Fund may engage in currency exchange transactions to hedge against losses in the U.S. dollar value of its portfolio securities resulting from possible variations in exchange rates and not for speculation. A currency exchange may be conducted on a spot (i.e., cash) basis or through a forward currency exchange contract ('forward contract'). Although forward contracts may be used to protect a fund from adverse currency movements, the use of such hedges may reduce or eliminate potential profits from currency fluctuations that are otherwise in a fund's favor.
Gold Risks
The Fund may also invest in precious metals, such as gold, as well as precious metal-related issues. It is therefore susceptible to specific political and economic risks affecting the price of gold and other precious metals including changes in U.S. or foreign tax, currency or mining laws, increased environmental costs, international monetary and political policies, economic conditions within an individual country, trade imbalances and trade or currency restrictions between countries. The price of gold, in turn, is likely to affect the market prices of securities of companies mining or processing gold, and accordingly, the value of the Fund's investments in such securities may also be affected. Gold-related investments as a group have not performed as well as the stock market in general during periods when the U.S. dollar is strong, inflation is low and general economic conditions are stable. In addition, returns on gold-related investments have traditionally been more volatile than investments in broader equity or debt markets.
Although the risks related to investing in gold and other precious metals directly (as the Fund is authorized to do) are similar to those of investing in precious metal finance and operating companies, as just described, there are additional considerations, including custody and transaction (i.e., brokerage) costs that may be higher than those involving securities. Moreover, holding such metals results in no income being derived from such holding, unlike securities which may pay dividends or make other current payments. Investing in futures contracts and similar 'derivative' instruments related to precious metals also carries additional risks, in that these types of investments (i) are often more volatile than direct investments in the commodity underlying them, because they commonly involve significant 'built in' leverage, and (ii) are subject to the risk of default by the counterparty to the contract. Although the Fund has contractual protections with respect to the credit risk of its custodian, precious metals held in physical form (even in a segregated account) involves the risk of delay in obtaining the assets in the case of bankruptcy or insolvency of the custodian. This could impair disposition of the assets under those circumstances. Finally, although not currently anticipated, if such metals in the future were held in book account, it would involve risks of the credit of the party holding them.
Temporary Strategies
The Fund has the flexibility to respond promptly to changes in market and economic conditions. Pursuant to a defensive strategy, the Fund may temporarily hold cash and/or invest up to 100% of its assets in high quality debt securities or money market instruments of U.S. or foreign issuers. Most or all of the Fund's investments may be made in the U.S. and denominated in U.S. dollars. In such a case, the Fund may not be able to pursue, and may not achieve its investment objective. It is impossible to
predict whether, when or for how long the Fund will employ defensive strategies. In addition, pending investment of proceeds from new sales of shares or to meet ordinary daily cash needs, the Fund temporarily may hold cash and may invest any portion of its assets in money market instruments.
THE FUND'S PERFORMANCE
Many factors affect a fund's performance. The following information provides some indication of the risks of investing in the Fund by showing changes in the Fund's performance from year to year and by showing how the Fund's average annual returns over the periods indicated compare to those of a broad measure of market performance.
Calendar Year Total Returns Chart
First Eagle Overseas Variable Fund
(numbers are in percentages)
1998 4.21
1999 42.15
2000 7.31
2001 7.46
2002 15.72
2003 51.01
For the periods presented in the bar chart above, here is some additional
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return information.
Best Quarter 20.19% Second Quarter 2003 Worst Quarter (12.41%) Third Quarter 2002 |
The following table illustrates how the Fund's average annual returns for different calendar periods compare to the return of the Morgan Stanley Capital International (MSCI) EAFE Index. The MSCI EAFE Index is a total return index, reported in U.S. dollars, based on share prices and reinvested gross dividends of approximately 1,100 companies from 20 countries. The figures in the table assume that you sold your shares at the end of each period and are shown on a before-tax basis. (After-tax returns vary based on an investor's individual tax situation and are generally not relevant to investors who hold fund shares in tax-deferred arrangements, including most variable life insurance or variable annuity contracts.)
AVERAGE ANNUAL TOTAL RETURN COMPARISONS TABLE AS OF DECEMBER 31, 2003
SINCE
1 YEAR 5 YEARS INCEPTION*
------ ------- ----------
First Eagle Overseas Variable Fund........................ 51.01% 23.43% 16.76%
MSCI EAFE Index........................................... 38.59% (0.05)% 3.46%
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* For the period beginning February 3, 1997 (commencement of operations) through December 31, 2003.
Both the bar chart and table assume reinvestment of dividends and distributions. As with all mutual funds, past performance is not an indication of future performance.
FEES AND EXPENSES
The following information describes the fees and expenses you may pay if you buy and hold shares of the Fund. Operating expenses are paid from the Fund's assets and are therefore incurred by share holders indirectly. The expenses shown below do not reflect the separate account fees charged in the
Variable Contracts, as defined herein, in which the Fund is offered. Please see your Variable Contract prospectus for more details on the separate account fees.
FIRST EAGLE OVERSEAS VARIABLE FUND'S FEES AND EXPENSES
ANNUAL OPERATING EXPENSES
Management Fees............................................. 0.75%
Distribution (12b-1) Fees................................... 0.25%
Other Expenses*............................................. 0.37%
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Total Annual Operating Expenses......................... 1.37%
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* Other expenses reflect the actual expenses experienced during the fiscal year ended December 31, 2003 and include fees paid and costs reimbursed to parties providing various services to the Fund. The three largest categories of such expenses were for: (i) custody services; (ii) transfer agency services, including those provided by insurance companies maintaining omnibus accounts with the Fund and acting as sub-transfer agents on behalf of their Variable Contract holders; and (iii) accounting services.
EXAMPLE
This example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds. This hypothetical example assumes that you invest $10,000 in the Fund for the time periods indicated and then redeem all of your shares at the end of those periods. The example also assumes that the average annual return is 5% and that operating expenses remain the same. The example does not represent the Fund's actual past or future expenses and returns. The example also does not reflect charges imposed by the Variable Contract. See your Variable Contract prospectus for information on those charges.
Although your actual costs may be higher or lower, based on these assumptions, your costs would be:
1 YEAR 3 YEARS 5 YEARS 10 YEARS
First Eagle Overseas Variable Fund.................. $139 $434 $750 $1,646
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OUR MANAGEMENT TEAM
THE ADVISER
The Adviser of the Fund is Arnhold and S. Bleichroeder Advisers, LLC, a wholly owned subsidiary of Arnhold and S. Bleichroeder Holdings, Inc. Based in New York City since 1937, ASB Holdings is the successor firm to two German banking houses -- Gebr. Arnhold founded in Dresden in 1864 and S. Bleichroeder founded in Berlin in 1803. The Adviser offers a variety of investment management services. In addition to the Fund, its clients include the First Eagle Funds, foundations, major retirement plans and high net worth individuals. As of January 2004, the Adviser had more than $15 billion under management.
Jean-Marie Eveillard, Co-President of the Trust, and Charles de Vaulx, Senior Vice President of the Trust, are primarily responsible for the day-to-day management of the Fund's investment portfolio. Mr. Eveillard has acted in such capacity since the inception of the Fund. Mr. Eveillard is an officer of the Adviser and was formerly a Director and President or Executive Vice President of Societe Generale Asset Management Corp. ('SGAM Corp.') since 1990. Mr. de Vaulx is an officer of the Adviser and was formerly associated with SGAM Corp. since 1987. Mr. de Vaulx has been a Co-Portfolio Manager of the Fund since December 31, 1999.
The Adviser is responsible for the management of the Fund's portfolio and constantly reviews its holdings in the light of its own research analyses and those of other relevant sources. In return for its
investment management services, the Fund pays the Adviser a fee at the annual rate of the average daily value of the Fund's net assets as follows:
First Eagle Overseas Variable Fund....0.75%
The Adviser also performs certain administrative and accounting services on behalf of the Fund, and, in accordance with the agreement between them, the Fund reimburses the Adviser for costs (including personnel, overhead and other costs) related to those services. These reimbursements may not exceed an annual rate of 0.05% of the value of the Fund's average daily net assets.
DISTRIBUTION AND SHAREHOLDER SERVICES EXPENSES
The Fund's shares are offered, in states and countries in which such offer is lawful, to investors either through selected securities dealers or directly by First Eagle Funds Distributors, a division of ASB Securities LLC ('First Eagle Distributors'), the Fund's principal underwriter and, as with ASB Advisers, a wholly owned subsidiary of ASB Holdings.
The Fund has adopted a Distribution Plan and Agreement (the 'Plan') pursuant to Rule 12b-1 of the Investment Company Act of 1940. Under the Plan, the Fund pays First Eagle Distributors a monthly distribution related fee at an annual rate of 0.25% of the average daily value of the Fund's net assets. Under the terms of the Plan, the Fund is authorized to make payments to First Eagle Distributors for remittance to an insurance company that is the issuer of a variable life insurance contract or variable annuity contract (each, a 'Variable Contract') invested in shares of the Fund in order to pay or reimburse such insurance company for distribution and shareholder servicing-related expenses incurred or paid by such insurance company. First Eagle Distributors bears distribution expenses to the extent that they are not covered by payments under the Plan. Any distribution expenses incurred by First Eagle Distributors in any fiscal year of the Fund, which are not reimbursed from payments under the Plan accrued in such fiscal year, will not be carried over for payment under the Plan in any subsequent year. Because these fees are paid out of the Fund's assets on an on-going basis, over time these fees will increase the cost of an investment in the Fund and may ultimately cost more than paying other types of sales charges.
In addition, certain investing insurance companies request payments for services they provide their Variable Contract holders -- e.g., client statements, tax reporting, order-processing and client relations. Such 'sub-transfer agency' fees paid by the Fund are in aggregate not more than what otherwise would have been paid for the same services to DST Systems, Inc., the Fund's transfer agent. Arrangements may involve a per-account fee, an asset-based fee, a sales-based fee or, in some cases, a combination of the three. These fees are directly attributable to the relevant Variable Contract holder. (Although the payments cover services received, the Trust and/or First Eagle Distributors may be required to obtain and pay for such services as a condition of distribution, and as noted, they may in part be calculated by reference to assets raised or maintained.)
Any portion of the sub-transfer agency fees that exceed the costs of similar services provided by DST, or any other payment requirement of an insurance company, is paid by First Eagle Distributors out of its own resources. First Eagle Distributors also pays from its own resources for travel and similar expenses incurred by insurance companies or their representatives related to diligence or informational meetings in which such representatives meet with investment professionals employed by the Adviser, as well as for costs of organizing and holding such meetings. The Trust and/or First Eagle Distributors also may be requested to, and/or make, payments to or on behalf of insurance companies or their representatives for other types of events.
ABOUT YOUR INVESTMENT
HOW TO PURCHASE SHARES
Shares of the Fund may be offered for purchase by separate accounts of insurance companies for the purpose of serving as an investment medium for Variable Contracts. Shares of the Fund are sold at their net asset value (without a sales charge) next computed after a receipt of a purchase order by an insurance company whose separate account invests in the Fund. For information on how to purchase shares, please refer to the prospectus of the pertinent separate account.
Shares of the Fund are sold to insurance company separate accounts funding both variable annuity contracts and variable life insurance contracts and may be sold to insurance companies that are not affiliated. The Trust currently does not foresee any disadvantages to Variable Contract owners arising from offering the Fund's shares to separate accounts of unaffiliated insurers, or separate accounts funding both life insurance policies and annuity contracts; however, due to differences in tax treatment or other considerations, it is theoretically possible that the interests of owners of various contracts participating in the Fund might at some time be in conflict. The Trust's Board of Trustees and insurance companies whose separate accounts invest in the Fund are required to monitor events in order to identify any material conflicts between variable annuity contract owners and variable life policy owners, and between separate accounts of unaffiliated insurers. The Board of Trustees will determine what action, if any, should be taken in the event of such a conflict. If such a conflict were to occur, one or more insurance company separate accounts might withdraw their investment in the Fund. This could force the Fund to sell securities at disadvantageous prices.
ANTI-MONEY LAUNDERING COMPLIANCE
The Trust, First Eagle Distributors and the insurance companies issuing the Variable Contracts are required to comply with various anti-money laundering laws and regulations. Consequently, additional information regarding your identity and source of funds may be required of you. If the information submitted does not provide for adequate identity verification, you may not be able to establish an account with your insurance company or that account may be closed at the then-current net asset value. Similarly, suspicious account activity or account information matching that on government lists of suspicious persons may prevent establishment of an account or may require 'freezing' an account, reporting to governmental agencies or other financial institutions or the transfer of account assets to governmental agencies. In some circumstances, the law may not permit notification to the affected account holder of these actions.
SHORT-TERM TRADING OF FUND SHARES
The Fund is not intended as a vehicle for frequent traders, whose trading activity may increase the Fund's transaction costs and otherwise negatively impact its investment program. The Trust routinely reviews trading by the investing insurance company separate accounts to seek to identify inappropriate trading patterns and reserves the right to suspend trading privileges or close those accounts should such activity be identified. With respect to limiting trades by the individual holders of the Variable Contracts, however, the Trust is largely dependent on cooperation from the relevant insurance companies.
HOW FUND SHARE PRICES ARE CALCULATED
Net asset value of the Fund is determined as of the close of trading on the New York Stock Exchange ('NYSE') on each day during which the NYSE is open for trading. The net asset value per share is computed by dividing the total current value of the assets of the Fund, less its liabilities, by the total number of shares outstanding at the time of such computation. Because the Fund may invest in securities that are listed on foreign exchanges that may trade on weekends or other days when the Fund does not price its shares, the Fund's share value may change on days when shareholders will not be able to purchase or redeem the Fund's shares.
In circumstances leading the Adviser to believe that significant events occurring after the close of a foreign market have materially affected the value of the Fund's holdings, such holdings may be 'fair valued' to reflect the events in accordance with procedures approved by the Board of Trustees. As a result, the value assigned to the Fund's holdings may differ on occasion from reported market values.
INFORMATION ON DIVIDENDS, DISTRIBUTIONS AND TAXES
It is the policy of the Fund to make periodic distributions of net investment income and net realized capital gains, if any. Unless a shareholder elects otherwise, ordinary income dividends and capital gains distributions will be reinvested in additional shares of the Fund at net asset value per share calculated as of the payment date. The Fund pays both ordinary income dividends and capital gains distributions on a per share basis. As a result, on the ex-dividend date of such payment, the net asset value per share of the Fund will be reduced by the amount of such payment.
The Fund intends to qualify and has elected to be treated as a 'regulated investment company' under Subchapter M of the Internal Revenue Code of 1986, as amended (the 'Code'). To qualify, the Fund must meet certain income, diversification and distribution requirements. As a regulated investment company, the Fund generally will not be subject to federal income or excise taxes on income and capital gains distributed to shareholders within applicable time limits, although foreign source income received by the Fund may be subject to foreign withholding taxes.
The Fund also intends to comply with the diversification regulations under
Section 817(h) of the Code that apply to mutual funds underlying Variable
Contracts. Generally, the Fund will be required to diversify its investments so
that on the last day of each quarter of a calendar year no more than 55% of the
value of its total assets is represented by any one investment, no more than 70%
is represented by any two investments, no more than 80% is represented by any
three investments, and no more than 90% is represented by any four investments.
For this purpose, securities of a given issuer generally are treated as one
investment, but each U.S. Government agency and instrumentality is treated as a
separate issuer.
Shareholders normally will be taxed on the ordinary income dividends and capital gains distributions they receive from the Fund whether received in additional shares or cash. However, the Fund expects that any distributions to Variable Contract investors will be exempt from current federal income taxation to the extent such distributions accumulate in a variable annuity contract or variable life insurance policy. For a discussion of the tax consequences of variable annuity contracts or variable life insurance policies, please refer to the prospectus offered by the participating insurance company.
Tax issues can be complicated. Please consult your tax adviser about federal, state, or local tax consequences or with any other tax questions you may have.
FINANCIAL HIGHLIGHTS
The Financial Highlights Table is intended to help you understand the Fund's financial performance for the last five fiscal years. The total returns in the table represent the rate that an investor would have earned (or lost) on an investment in the Fund (assuming reinvestment of all dividends and distributions). This information has been audited by KPMG LLP, independent auditors, whose report, along with the Fund's financial statements, are incorporated by reference in the Statement of Additional Information. The Fund's Semi-Annual and Annual Reports and the Statement of Additional Information are available upon request.
FOR THE YEAR ENDED
DECEMBER 31,
--------------------------------------------------------
2003 2002 2001 2000 1999
---- ---- ---- ---- ----
Selected Per Share Data(a)
Net asset value, beginning of year............ $ 14.96 $ 13.16 $ 14.01 $ 14.16 $10.07
-------- ------- ------- ------- ------
Income from investment operations:
Net investment income..................... 0.20 0.04 0.14 0.23 0.16
Net realized and unrealized gains on
investments............................. 7.43 2.02 0.84 0.79 4.08
-------- ------- ------- ------- ------
Total income from investment
operations.......................... 7.63 2.06 0.98 1.02 4.24
-------- ------- ------- ------- ------
Less distributions:
Dividends from net investment income...... (0.01) (0.04) (0.68) (0.22) --
Dividends from capital gains.............. (0.00)(b) (0.22) (1.15) (0.95) (0.15)
-------- ------- ------- ------- ------
(0.01) (0.26) (1.83) (1.17) (0.15)
-------- ------- ------- ------- ------
Net asset value, end of year.................. $ 22.58 $ 14.96 $ 13.16 $ 14.01 $14.16
-------- ------- ------- ------- ------
-------- ------- ------- ------- ------
Total Return.......................... 51.01% 15.72% 7.46% 7.31% 42.15%
Ratios and Supplemental Data
Net assets, end of year (000's)............... $127,647 $63,730 $18,027 $14,514 $9,156
Ratio of operating expenses to average
net assets(c)............................... 1.37% 1.49% 1.50% 1.50% 1.50%
Ratio of net investment income to average
net assets(d)............................... 1.12% 0.31% 0.94% 1.60% 1.50%
Portfolio turnover rate....................... 12.22% 27.93% 37.80% 57.88% 65.38%
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(a) Per share amounts have been calculated using the average shares method.
(b) Amount represents less than $0.01 per share.
(c) The annualized ratios of operating expenses to average net assets for the years ended December 31, 2001, 2000 and 1999 would have been 2.08%, 2.65% and 3.32%, respectively, without the effects of the earnings credits, the investment advisory fee waiver and the expense reimbursement provided previously by the investment adviser.
(d) The annualized ratios of net investment income to average net assets for the years ended December 31, 2001, 2000 and 1999 would have been 0.36%, 0.44% and (0.32%), respectively, without the effects of the earnings credits, the investment advisory fee waiver and the expense reimbursement provided previously by the investment adviser.
USEFUL SHAREHOLDER INFORMATION
HOW TO OBTAIN OUR SHAREHOLDER REPORTS
You will receive copies of our Annual and Semi-Annual Reports on a regular basis once you become a shareholder. The Annual Report contains a discussion of the market conditions and investment strategies that significantly affected the Fund's performance during the last fiscal year. It also contains financial statements by the Fund's independent accountants.
HOW TO OBTAIN OUR STATEMENT OF ADDITIONAL INFORMATION
The Statement of Additional Information ('SAI'), which is referenced in this prospectus is available to you without charge from us. You may visit the SEC's Internet Website (http://www.sec.gov) to view the SAI and other information. Also, you can obtain copies of the SAI by sending your request and fee to the SEC's Public Reference Section, Washington, D.C. 20549-0102. You also may review and copy information about the Fund, including the SAI, at the SEC's Public Reference Room in Washington, D.C. To find out more about the Public Reference Room, call the SEC at (202) 942-8090.
HOW TO REACH FIRST EAGLE VARIABLE FUNDS
You can send all requests for information or transactions to:
First Eagle Variable Funds 1345 Avenue of the Americas New York, NY 10105
You can contact us by telephone at (800) 747-2008
ADVISER
ARNHOLD AND S. BLEICHROEDER ADVISERS, LLC
1345 Avenue of the Americas
New York, NY 10105
Investment Company Act File Number: 811-09092
STATEMENT OF ADDITIONAL INFORMATION
FIRST EAGLE OVERSEAS VARIABLE FUND
A SERIES OF FIRST EAGLE VARIABLE FUNDS
APRIL 30, 2004
1345 AVENUE OF THE AMERICAS
NEW YORK, NY 10105
(212) 698-3000
ARNHOLD AND S. BLEICHROEDER ADVISERS, LLC
1345 AVENUE OF THE AMERICAS
NEW YORK, NY 10105
INVESTMENT ADVISER
FIRST EAGLE FUNDS DISTRIBUTORS,
A DIVISION OF ASB SECURITIES, LLC
1345 AVENUE OF THE AMERICAS
NEW YORK, NY 10105
DISTRIBUTOR
This Statement of Additional Information provides information about First
Eagle Overseas Variable Fund (the 'Fund'), a separate portfolio of First Eagle
Variable Funds (the 'Trust'), an open-end management investment company, in
addition to the information contained in the Prospectus of the Fund dated
April 30, 2004. This Statement of Additional Information is not a prospectus. It
relates to and should be read in conjunction with the Prospectus of the Trust, a
copy of which can be obtained by writing or by calling the Trust at
(800) 747-2008.
Certain disclosures, including the Fund's financial statements and the notes thereto, have been incorporated by reference into this Statement of Additional Information from the Trust's annual reports. For a free copy of the annual report, please call (800) 747-2008.
APRIL 30, 2004
TABLE OF CONTENTS
STATEMENT OF
ADDITIONAL
INFORMATION
PAGE
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Organization of the Fund.................................... 1
Investment Objective, Policies and Restrictions............. 2
Management of the Trust..................................... 10
Investment Advisory and Other Services...................... 18
Voting of Proxies........................................... 19
Distribution of the Fund's Shares........................... 19
Computation of Net Asset Value.............................. 20
Disclosure of Portfolio Holdings............................ 21
How to Purchase Shares...................................... 21
Tax Status.................................................. 21
Portfolio Transactions and Brokerage........................ 27
Capital Stock............................................... 28
Custody of Portfolio........................................ 29
Independent Auditors........................................ 29
Financial Statements........................................ 29
Appendix.................................................... A-1
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ORGANIZATION OF THE FUND
First Eagle Overseas Variable Fund (the 'Fund') is a separate portfolio of First Eagle Variable Funds (the 'Trust'), an open-end management investment company that was originally incorporated under the laws of Maryland in September 1995 and reorganized as a statutory trust under the laws of Delaware in April 2004. In its prior format as a Maryland corporation, the Trust operated under the names 'First Eagle SoGen Variable Funds, Inc.' and (prior to December 31, 1999) 'SoGen Variable Funds, Inc.' The Trust's investment adviser is Arnhold and S. Bleichroeder Advisers, LLC ('ASB Advisers' or the 'Adviser'), a registered investment adviser. The Trust's distributor is First Eagle Funds Distributors, a division of ASB Securities LLC ('First Eagle Distributors'), a registered broker-dealer located in New York City. Both ASB Advisers and ASB Securities LLC are wholly owned subsidiaries of Arnhold and S. Bleichroeder Holdings, Inc. ('ASB Holdings'), a privately owned holding company organized under the laws of New York.
Pursuant to the laws of Delaware, the Trust's state of incorporation, the Board of Trustees of the Trust has adopted By-Laws that do not require annual meetings of the Fund's shareholders. The absence of a requirement that the Trust hold annual meetings of the Fund's shareholders reduces its expenses. Meetings of shareholders will continue to be held when required by the Investment Company Act of 1940, as amended (the 'Investment Company Act') or Delaware law or when called by the Chairman of the Board of Trustees, the President or shareholders owning 10% of the Fund's outstanding shares. The cost of any such notice and meeting will be borne by the Fund.
Under the provisions of the Investment Company Act, a vacancy on the Board of Trustees of the Trust may be filled between meetings of the shareholders of the Trust by vote of the trustees then in office if, immediately after filling such vacancy, at least two-thirds of the trustees then holding office have been elected to the office of trustee by the shareholders of the Trust. In the event that at any time less than a majority of the trustees of the Trust holding office at that time were elected by the shareholders of the Trust, the Board of Trustees or the Chairman of the Board shall, within sixty days, cause a meeting of shareholders to be held for the purpose of electing trustees to fill any vacancies in the Board of Trustees.
The staff of the Securities and Exchange Commission has advised the Trust that it interprets Section 16(c) of the Investment Company Act, which provides a means for dissident shareholders of common-law trusts to communicate with other shareholders of such trusts and to vote upon the removal of trustees upon the request in writing by the record holders of not less than 10% of the outstanding shares of the trust, to apply to investment companies, such as the Fund, that are incorporated under Delaware law.
INVESTMENT OBJECTIVE, POLICIES AND RESTRICTIONS
INVESTMENT OBJECTIVE
The Fund, which is a diversified portfolio, seeks long-term growth of capital. The Fund uses the techniques and invests in the types of securities described below and in the Prospectus.
INVESTMENT POLICIES, TECHNIQUES AND RISKS
Foreign Securities. The Fund will invest in foreign securities, which may entail a greater degree of risk (including risks relating to exchange rate fluctuations, tax provisions, or expropriation of assets) than does investment in securities of domestic issuers. The Fund may invest in securities of foreign issuers directly or in the form of American Depository Receipts (ADRs), Global Depository Receipts (GDRs), European Depository Receipts (EDRs), or other securities representing underlying shares of foreign issuers. Positions in these securities are not necessarily denominated in the same currency as the common stocks into which they may be converted. ADRs are receipts typically issued by an American bank or trust company evidencing ownership of the underlying securities. EDRs are European receipts evidencing a similar arrangement. GDRs are global offerings where two securities are issued simultaneously in two markets, usually publicly in non-U.S. markets and privately in the U.S. market. Generally ADRs, in registered form, are designed for use in the U.S. securities markets, EDRs, in bearer form, are designed for use in European securities markets. GDR's are designed for use in the U.S. and European securities markets. The Fund may invest in both 'sponsored' and 'unsponsored' ADRs. In a sponsored ADR, the issuer typically pays some or all of the expenses of the depository and agrees to provide its regular shareholder communications to ADR holders. An unsponsored ADR is created independently of the issuer of the underlying security. The ADR holders generally pay the expenses of the depository and do not have an undertaking from the issuer of the underlying security to furnish shareholder communications. Issuers of unsponsored ADRs are not obligated to disclose material information in the United States and, therefore, there may not be a correlation between such information and the market value of the ADRs. The Fund does not expect to invest 5% or more of its total assets in unsponsored ADRs.
With respect to portfolio securities that are issued by foreign issuers or denominated in foreign currencies, the investment performance of the Fund is affected by the strength or weakness of the U.S. dollar against these currencies. For example, if the dollar falls in value relative to the Japanese yen, the dollar value of a yen-denominated stock held in the portfolio will rise even though the price of the stock remains unchanged. Conversely, if the dollar rises in value relative to the yen, the dollar value of the yen-denominated stock will fall. (See discussion of transaction hedging and portfolio hedging under 'Currency Exchange Transactions.')
Investors should understand and consider carefully the risks involved in foreign investing. Investing in foreign securities, positions which are generally denominated in foreign currencies, and utilization of forward foreign currency exchange contracts involve certain risks and opportunities not typically associated with investing in U.S. securities. These considerations include: fluctuations in the rates of exchange between the U.S. dollar and foreign currencies; possible imposition of exchange control regulations or currency restrictions that would prevent cash from being brought back to the United States; less public information with respect to issuers of securities; less governmental supervision of stock exchanges, securities brokers, and issuers of securities; different accounting, auditing and financial reporting standards; different settlement periods and trading practices; less liquidity and frequently greater price volatility in foreign markets than in the United States; imposition of foreign taxes; and sometimes less advantageous legal, operational and financial protections applicable to foreign sub-custodial arrangements.
Although the Fund seeks to invest in companies and governments of countries having stable political environments, there is the possibility of expropriation or confiscatory taxation, seizure or nationalization of foreign bank deposits or other assets, establishment of exchange controls, the adoption of foreign government restrictions, or other adverse political, social or diplomatic developments that could affect investment in these nations.
Currency Exchange Transactions. A currency exchange transaction may be conducted either on a spot (i.e., cash) basis at the spot rate for purchasing or selling currency prevailing in the foreign
exchange market or through a forward currency exchange contract ('Forward Contract'). A Forward Contract is an agreement to purchase or sell a specified currency at a specified future date (or within a specified time period) and price set at the time of the contract. Forward Contracts are usually entered into with banks and broker/dealers, are not exchange traded and are usually for less than a one-year period, but may be renewed.
Currency exchange transactions may involve currencies of the different countries in which the Fund may invest, and serve as hedges against possible variations in the exchange rates between these currencies and the U.S. dollar. The Fund's currency transactions are limited to transaction hedging and portfolio hedging involving either specific transactions or portfolio positions. Transaction hedging is the purchase or sale of a Forward Contract with respect to specific payables or receivables of the Fund accruing in connection with the purchase or sale of portfolio securities. Portfolio hedging is the use of a Forward Contract with respect to a portfolio security position denominated or quoted in a particular currency. The Fund may engage in portfolio hedging with respect to the currency of a particular country in amounts approximating actual or anticipated positions in securities denominated in that currency.
If the Fund enters into a Forward Contract, the custodian bank will, to the extent required (i.e., to the extent that the Forward Contract is not otherwise covered), segregate liquid assets of the Fund having a value equal to the Fund's commitment under such Forward Contract. At the maturity of a Forward Contract to deliver a particular currency, the Fund may either sell the portfolio security related to such contract and make delivery of the currency, or it may retain the security and either acquire the currency on the spot market or terminate its contractual obligation to deliver the currency by purchasing an offsetting contract with the same currency trader obligating it to purchase on the same maturity date the same amount of the currency.
It is impossible to forecast with absolute precision the market value of portfolio securities at the expiration of a Forward Contract. Accordingly, it may be necessary for the Fund to purchase additional currency on the spot market (and bear the expense of such purchase) if the market value of the security is less than the amount of currency the Fund is obligated to deliver, and if a decision is made to sell the security and make delivery of the currency. Conversely, it may be necessary to sell on the spot market some of the currency received upon the sale of the portfolio security if its market value exceeds the amount of currency the Fund is obligated to deliver.
If the Fund retains the portfolio security and engages in an offsetting transaction, the Fund will incur a gain or a loss to the extent that there has been movement in Forward Contract prices. If the Fund engages in an offsetting transaction, it may subsequently enter into a new Forward Contract to sell the currency. Should forward prices decline during the period between the date the Fund enters into a Forward Contract for the sale of a currency and the date it enters into an offsetting contract for the purchase of the currency, the Fund will realize a gain to the extent the price of the currency it has agreed to sell exceeds the price of the currency it has agreed to purchase. Should forward prices increase, the Fund will suffer a loss to the extent the price of the currency it has agreed to purchase exceeds the price of the currency it has agreed to sell. A default on the contract would deprive the Fund of unrealized profits or force the Fund to cover its commitments for purchase or sale of currency, if any, at the current market price.
Hedging against a decline in the value of a currency does not eliminate fluctuations in the prices of portfolio securities or prevent losses if the prices of such securities decline. Such transactions also preclude the opportunity for gain if the value of the hedged currency should rise. Moreover, it may not be possible for the Fund to hedge against a devaluation that is so generally anticipated that the Fund is not able to contract to sell the currency at a price above the devaluation level it anticipates. The cost to the Fund of engaging in currency exchange transactions varies with such factors as the currency involved, the length of the contract period and prevailing market conditions. Since currency exchange transactions are usually conducted on a principal basis, no fees or commissions are involved.
Lower-Rated Debt Securities. The Fund may invest in debt securities, including lower-rated securities (i.e., securities rated BB or lower by Standard & Poor's Corporation ('S&P') or Ba or lower by Moody's Investors Service, Inc. ('Moody's'), commonly called 'junk bonds') and securities that are not rated. There are no restrictions as to the ratings of debt securities acquired by the Fund or the portion of the Fund's assets that may be invested in debt securities in a particular rating category, except
that the Fund will not invest more than 20% of its assets in securities rated below investment grade or unrated securities considered by the investment adviser to be of comparable credit quality.
Securities rated BBB by S&P or Baa by Moody's (the lowest investment grade ratings) are considered to be of medium grade and to have speculative characteristics. Debt securities rated below investment grade are predominantly speculative with respect to the issuer's capacity to pay interest and repay principal. Although lower-rated debt and comparable unrated debt securities may offer higher yields than do higher-rated securities, they generally involve greater volatility of price and risk of principal and income, including the possibility of default by, or bankruptcy of, the issuers of the securities. In addition, the markets in which lower-rated and unrated debt securities are traded are more limited than those in which higher-rated securities are traded. Adverse publicity and investors' perceptions, whether or not based on fundamental analysis, may decrease the values and liquidity of lower-rated debt securities, especially in a thinly traded market. During periods of thin trading in these markets, the spread between bid and asked prices is likely to increase significantly, and the Fund may have greater difficulty selling its portfolio securities. See 'Computation of Net Asset Value.' Analyses of the creditworthiness of issuers of lower-rated debt securities may be more complex than for issuers of higher rated securities, and the ability of the Fund to achieve its investment objective may, to the extent of investment in lower-rated debt securities, be more dependent upon such creditworthiness analyses than would be the case if the Fund were investing in higher rated securities.
Lower-rated debt securities may be more susceptible to real or perceived adverse economic and competitive industry conditions than investment grade securities. The prices of lower-rated debt securities have been found to be less sensitive to interest rate changes than higher rated investments, but more sensitive to adverse economic downturns or individual corporate developments. A projection of an economic downturn or of a period of rising interest rates, for example, could cause a decline in lower-rated debt securities' prices because the advent of a recession could lessen the ability of a highly leveraged company to make principal and interest payments on its debt securities. If the issuer of lower-rated debt securities defaults, the Fund may incur additional expenses seeking recovery.
A more complete description of the characteristics of bonds in each rating category is included in the appendix to this Statement of Additional Information.
Direct Investments in Loans. In addition to investing in debt securities, the Fund may directly invest in loans (through buying loans or other direct debt instruments originated by other lenders or lending syndicates). The Fund is therefore able to take advantage of opportunities that the Adviser may at times consider more attractive than bonds and similar debt instruments. Investing directly in loans or other direct debt instruments, however, exposes the Fund to various risks similar to those borne by a creditor. Such risks include the risk of default, which refers to the possibility that the borrower will be unable or unwilling to repay all or part of the amount owed; the risk of delayed repayment, which refers to the possibility that the borrower will be unable or unwilling to make payment at the time expected; and the risk of inadequate collateral, which refers to the possibility that any property that may have been pledged to secure the borrower's promise to pay will be worth less when delivered than expected. Investments in loans are also less liquid than investments in publicly traded securities and carry less legal protections in the event of fraud or misrepresentation. Unlike debt instruments that are securities, investments in loans are not regulated by federal securities laws or the SEC. In addition, loan participations involve a risk of insolvency by the lending bank or other financial intermediary.
Other Investment Companies. Certain markets are closed in whole or in part to equity investments by foreigners. The Fund may be able to invest in such markets solely or primarily through governmentally authorized investment companies. The Fund generally may invest up to 10% of its assets in shares of other investment companies and up to 5% of its assets in any one investment company (in each case measured at the time of investment), as long as no investment represents more than 3% of the outstanding voting stock of the acquired investment company at the time of investment. These restrictions do not apply to certain investment companies known as private investment companies and 'qualified purchaser' investment companies.
Investment in another investment company may involve the payment of a premium above the value of the issuer's portfolio securities, and is subject to market availability. In the case of a purchase of shares of such a company in a public offering, the purchase price may include an underwriting spread.
The Fund does not intend to invest in such an investment company unless, in the judgment of the Adviser, the potential benefits of such investment justify the payment of any applicable premium or sales charge. As a shareholder in an investment company, the Fund would bear its ratable share of that investment company's expenses, including its advisory and administration fees. At the same time, the Fund would continue to pay its own management fees and other expenses.
'When-Issued' or 'Delayed Delivery' Securities. The Fund may purchase securities on a 'when-issued' or 'delayed delivery' basis. When-issued or delayed delivery securities are securities purchased for future delivery at a stated price and yield. The Fund will generally not pay for such securities or start earning interest on them until they are received. Securities purchased on a when-issued or delayed delivery basis are recorded as assets and are marked-to-market daily. Although the payment and interest terms of these securities are established at the time the Fund enters into the commitment, the securities may be delivered and paid for a month or more after the date of purchase, when their value may have changed. The Fund will not invest more than 25% of its assets in when-issued or delayed delivery securities, does not intend to purchase such securities for speculative purposes and will make commitments to purchase securities on a when-issued or delayed delivery basis with the intention of actually acquiring the securities. However, the Fund reserves the right to sell acquired when-issued or delayed delivery securities before their settlement dates if deemed advisable. At the time the Fund enters into a binding obligation to purchase securities on a when-issued basis, to the extent required, liquid assets of the Fund having a value at least as great as the purchase price of the securities to be purchased will be segregated on the books of the Fund and held by the Fund's custodian throughout the period of the obligation. The use of these investment strategies, as well as any borrowing by the Fund, may increase net asset value fluctuation.
Bank Obligations. The Fund may invest in bank obligations, which may include bank certificates of deposit, time deposits or bankers' acceptances. Certificates of deposit and time deposits are negotiable certificates issued against funds deposited in a commercial bank for a definite period of time and earning a specified return. Bankers' acceptances are negotiable drafts or bills of exchange, normally drawn by an importer or exporter to pay for specific merchandise, which are 'accepted' by a bank, meaning in effect that the bank unconditionally agrees to pay the face value of the instrument on maturity. Investments in these instruments are limited to obligations of domestic banks (including their foreign branches) and U.S. and foreign branches of foreign banks having capital surplus and undivided profits in excess of $100 million.
Structured Securities. The Fund may invest in structured notes and/or preferred stock, the value of which is linked to currencies, interest rates, other commodities, indices or other financial indicators. Structured securities differ from other types of securities in which the Fund may invest in several respects. For example, the coupon dividend and/or redemption amount at maturity may be increased or decreased depending on changes in the value of the underlying instrument.
Investment in structured securities involves certain risks. In addition to the credit risk of the security's issuer and the normal risks of price changes in response to changes in interest rates, the redemption amount may decrease as a result of changes in the price of the underlying instrument. Further, in the case of certain structured securities, the coupon and/or dividend may be reduced to zero, and any further declines in the value of the underlying instrument may then reduce the redemption amount payable on maturity. Finally, structured securities may be more volatile than the price of the underlying instrument.
Illiquid Securities. The Fund may invest up to 15% of its total assets in illiquid securities, including certain securities that are subject to legal or contractual restrictions on resale ('restricted securities').
Generally, restricted securities may be sold only in privately negotiated transactions or in a public offering with respect to which a registration statement is in effect under the Securities Act of 1933 (the '1933 Act'). Where registration is required, the Fund may be obligated to pay all or part of the registration expenses and a considerable period may elapse between the time of the decision to sell and the time the Fund may be permitted to sell a security under an effective registration statement. If, during such a period, adverse market conditions were to develop, the Fund might obtain a less favorable price than that which prevailed when it decided to sell. Restricted securities will be priced at fair value as determined in good faith by the Board of Directors. If, through the appreciation of illiquid
securities or the depreciation of liquid securities, the Fund should be in a position where more than 15% of the value of its net assets is invested in illiquid assets, including restricted securities, the Fund will take appropriate steps to protect liquidity.
Notwithstanding the above, the Fund may purchase securities that have been privately placed but that are eligible for purchase and sale under Rule 144A under the 1933 Act. That rule permits certain qualified institutional buyers, such as the Fund, to trade in privately placed securities that have not been registered for sale under the 1933 Act. The Adviser, under the supervision of the Board of Directors of the Fund, will consider whether securities purchased under Rule 144A are illiquid and thus subject to the Fund's restriction on investing in illiquid securities. A determination as to whether a Rule 144A security is liquid or not is a question of fact. In making this determination, the Adviser will consider the trading markets for the specific security, taking into account the unregistered nature of a Rule 144A security. In addition, the Adviser could consider (1) the frequency of trades and quotes, (2) the number of dealers and potential purchasers, (3) the dealer undertakings to make a market, and (4) the nature of the security and of market place trades (e.g., the time needed to dispose of the security, the method of soliciting offers and the mechanics of transfer). The liquidity of Rule 144A securities would be monitored and if, as a result of changed conditions, it is determined that a Rule 144A security is no longer liquid, the Fund's holdings of illiquid securities would be reviewed to determine what steps, if any, are required to assure that the Fund does not invest more than the maximum percentage of its assets in illiquid securities. Investing in Rule 144A securities could have the effect of increasing the amount of the Fund's assets invested in illiquid securities if qualified institutional buyers are unwilling to purchase such securities.
Private Investment Funds. The Fund may invest to a limited extent in private investment funds. Such funds are not registered under the Investment Company Act and are therefore not subject to the extensive regulatory requirements it imposes. Private investment funds typically do not disclose the contents of their portfolios, which may make it difficult for the Fund to independently verify the value of an investment in a private investment fund. In addition, the Fund typically will not be able to withdraw an investment in a private investment fund except at certain designated times, presenting the risk that the Fund would not be able to withdraw from a private investment fund as soon as desired, especially during periods of volatility in markets in which such a private investment fund invests. Investments in private investment funds generally will be subject to the Fund's limitations on investments in 'illiquid securities,' as described immediately above.
Futures and Options on Futures. The Fund may utilize futures contracts and options on futures. These transactions may be effected on securities exchanges or in the over-the-counter market. When purchased over-the-counter, the Fund bears the risk that the counterparty to the contract will be unable or unwilling to perform its obligations. These contracts may also be illiquid and, in such cases, the Fund may have difficulty closing out its position. Engaging in these types of transactions is a speculative activity and involves risk of loss. In addition, engaging in these types of transactions may increase the volatility of returns, because they commonly involve significant 'built in' leverage and can be entered into with relatively small 'margin' commitments relative to the resulting investment exposure. Futures contracts and similar 'derivative' instruments are also subject to the risk of default by the counterparties to the contracts.
The Fund may enter into futures contracts in U.S. markets or on exchanges located outside the United States. Foreign markets may offer advantages such as trading opportunities or arbitrage possibilities not available in the United States. Foreign markets, however, may have greater risk potential than U.S. markets. For example, some foreign exchanges are principal markets so that no common clearing facility exists and an investor may look only to the broker for performance of the contract. In addition, any profits realized could be eliminated by adverse changes in the exchange rate. Transactions on foreign exchanges may include both commodities that are traded on U.S. exchanges and those that are not. Unlike trading on U.S. commodity exchanges, trading on foreign commodity exchanges is not regulated by the Commodity Futures Trading Commission ('CFTC').
Many futures exchanges and boards of trade limit the amount of fluctuation permitted in futures contract prices during a single trading day. Once the daily limit has been reached in a particular contract, no trades may be made that day at a price beyond that limit or trading may be suspended for
specified periods during the trading day. Futures contract prices could move to the limit for several consecutive trading days with little or no trading, preventing prompt liquidation of futures positions and potentially subjecting the Fund to substantial losses. Successful use of futures also is subject to the investment adviser's ability to predict correctly movements in the direction of the relevant market, and, to the extent the transaction is entered into for hedging purposes, to determine the appropriate correlation between the transaction being hedged and the price movements of the futures contract.
Positions of the SEC and its staff may require the Fund to segregate liquid assets in connection with its options and commodities (futures) transactions in an amount generally equal to the value of the underlying option or commodity. The segregation of these assets will have the effect of limiting the investment adviser's ability otherwise to invest those assets. Futures and related options transactions must constitute permissible transactions pursuant to regulations promulgated by the CFTC. As a general matter, the investment adviser intends to conduct the operations of the Fund in compliance with CFTC Rule 4.5 under the Commodity Exchange Act of 1974, as amended, in order to avoid regulation by the CFTC as a commodity pool operator with respect to the Fund.
Precious Metals. The Fund may invest in precious metals, such as gold, and precious metal-related issues. It is therefore susceptible to specific political and other risks affecting the price of gold and other precious metals. The price of gold, for example, has been subject to substantial upward and downward price movements over short periods of time and may be affected by unpredictable international monetary and political policies, such as currency devaluations or revaluations, economic conditions within an individual country, trade imbalances or trade or currency restrictions between countries and world inflation rates and interest rates. The price of gold, in turn, is likely to affect the market prices of securities of companies mining, processing or dealing in gold, and accordingly, the value of the Fund's investments in such securities also may be affected.
In addition to investing in precious metal finance and operating companies, the Fund may also invest directly in precious metals (such as gold bullion) or purchase or sell contracts for their future delivery ('futures contracts,' the risks of which are described above under 'Futures and Options on Futures'). The risks related to investing in precious metals directly are similar to those of investing in precious metal finance and operating companies, as described in the Fund's Prospectus. There are, however, additional considerations related to such direct precious metal investments, including custody and transaction (i.e., brokerage) costs that may be higher than those involving securities. Moreover, holding such metals, whether in physical form or book account, results in no income being derived from such holding, unlike securities which may pay dividends or make other current payments. In addition, income derived from trading in precious metals must be closely monitored to avoid potentially negative tax consequences. Although the Fund has contractual protections with respect to the credit risk of its custodian, precious metals held in physical form (even in a segregated account) involves the risk of delay in obtaining the assets in the case of bankruptcy or involvency of the custodian. This could impair disposition of the assets under those circumstances. Finally, although not currently anticipated, if such metals in the future were held in book account, it would involve risks of the credit of the party holding them.
Change of Objective. The investment objective of the Trustees is not a fundamental policy and, accordingly, may be changed by the Board of Trustees without shareholder approval. Shareholders will be notified a minimum of 60 days in advance of any change in investment objective.
INVESTMENT RESTRICTIONS
In pursuing its investment objective, the Fund will not:
1. With respect to 75% of the value of the Fund's total assets, invest more than 5% of its total assets (valued at time of investment) in securities of any one issuer, except securities issued or guaranteed by the government of the United States, or any of its agencies or instrumentalities, or acquire securities of any one issuer which, at the time of investment, represent more than 10% of the voting securities of the issuer;
2. Borrow money except that in exceptional circumstances the Fund may borrow from banks for temporary purposes, provided that such borrowings shall be unsecured and may not exceed 10%
of the Fund's net assets at the time of the borrowing (including the amount borrowed). The Fund will not purchase securities while borrowings exceed 5% of its total assets;
3. Invest more than 25% of its assets (valued at time of investment) in securities of companies in any one industry other than U.S. Government Securities;
4. Make direct loans, but this restriction shall not prevent the Fund from
(a) buying a part of an issue of bonds, debentures, or other obligations
that are publicly distributed, or from investing up to an aggregate of
15% of its total assets (taken at market value at the time of each
purchase) in parts of issues of bonds, debentures or other obligations of
a type privately placed with financial institutions, (b) buying loans (or
portions of them), or other direct debt instruments including loan
participations, originated by another party or parties with respect to
corporate borrowers, or (c) lending portfolio securities, provided that
the Fund may not lend securities if, as a result, the aggregate value of
all securities loaned would exceed 33% of its total assets (taken at
market value at the time of such loan);*
5. Underwrite the distribution of securities of other issuers; however, the Fund may acquire 'restricted' securities which, in the event of a resale, might be required to be registered under the 1933 Act on the grounds that the Fund could be regarded as an underwriter as defined by the 1933 Act with respect to such resale;
6. Purchase and sell real estate or interests in real estate, although it may invest in marketable securities of enterprises that invest in real estate or interests in real estate;
7. Make margin purchases of securities, except for the use of such short-term credits as are needed for clearance of transactions;
8. Sell securities short or maintain a short position, except short sales against-the-box.
Restrictions 1 through 8 above (except the portions in parentheses) are 'fundamental,' which means that they cannot be changed without the vote of a majority of the outstanding voting securities of the Fund (defined by the Investment Company Act as the lesser of (i) 67% of the Fund's shares present at a meeting if more than 50% of the shares outstanding are present or (ii) more than 50% of the Fund's outstanding shares). In addition, the Fund is subject to a number of restrictions that may be changed by the Board of Directors without shareholder approval. Under those non-fundamental restrictions, the Fund will not:
a. Invest in companies for the purpose of management or the exercise of control;
b. Invest in oil, gas or other mineral leases or exploration or development programs, although it may invest in marketable securities of enterprises engaged in oil, gas or mineral exploration;
c. Invest more than 10% of its net assets (valued at time of investment) in warrants, valued at the lower of cost or market; provided that warrants acquired in units or attached to securities shall be deemed to be without value for purposes of this restriction;
d. Pledge, mortgage or hypothecate its assets, except as may be necessary in connection with permitted borrowings or in connection with short sales;
e. Purchase or sell commodities or commodity contracts, except that it may enter into forward contracts and may sell commodities received by it as distributions on portfolio investments (however, the Fund may purchase or sell precious metals directly and purchase or sell precious metal commodity contracts or options on such contracts in compliance with applicable commodities laws); and
f. Purchase or sell put and call options on securities or on futures contracts.
Notwithstanding the foregoing investment restrictions, the Fund may purchase securities pursuant to the exercise of subscription rights, provided that such purchase will not result in the Fund's ceasing to be a diversified investment company. Japanese and European corporations frequently issue additional capital stock by means of subscription rights offerings to existing shareholders at a price substantially below the market price of the shares. The failure to exercise such rights would result in the Fund's interest in the issuing company being diluted. The market for such rights is not well developed in all
cases and, accordingly, the Fund may not always realize full value on the sale of rights. The exception applies in cases where the limits set forth in the investment restrictions would otherwise be exceeded by exercising rights or would have already been exceeded as a result of fluctuations in the market value of the Fund's portfolio securities with the result that the Fund would be forced either to sell securities at a time when it might not otherwise have done so, or to forego exercising the rights.
PERFORMANCE
Total Return. From time to time the Fund will advertise its average annual
total return. Quotations of average annual returns for the Fund will be
expressed in terms of the average annual compounded rates of return of a
hypothetical investment in the Fund over periods of 1, 5 and 10 years (up to the
life of the Fund), calculated pursuant to the following formula:
P(1+T)'pp'(n)=ERV (where P = a hypothetical initial payment of $1000, T = the
average annual return, n = the number of years, and ERV = the ending redeemable
value of a hypothetical $1000 payment made at the beginning of the period). This
calculation assumes deduction of a proportional share of Fund expenses on an
annual basis and assumes reinvestment of all income dividends and capital gains
distributions during the period. During the one year period ended December 31,
2003, the Fund's average annual rate of return was 51.01%. Under the same
assumptions, during the five year period ended December 31, 2003 an investment
in the Fund would have increased at an average annual compounded rate of return
of 23.43%.
Comparison of Portfolio Performance. From time to time, the Fund may discuss in sales literature and advertisements, specific performance grades or rankings or other information as published by recognized mutual fund statistical services, such as Morningstar, Inc. or Lipper Analytical Services, Inc., or by publications of general interest such as Barron's, Business Week, Financial World, Forbes, Fortune, Kiplinger's Personal Finance, Money, Morningstar Mutual Funds, Smart Money, The Wall Street Journal or Worth. Total return information for the Fund will not be advertised or included in sales literature unless accompanied by comparable performance information for a separate account to which the Fund offers its shares. Quotations of total return for the Fund will not take into account charges and deductions against any separate accounts to which the Fund shares are sold or charges and deductions against the pertinent variable life insurance and variable annuity contracts ('Variable Contracts'). The Fund's total return should not be compared with mutual funds that sell their shares directly to the public since the figures provided do not reflect charges against the separate accounts or the Variable Contracts.
Portfolio Turnover. Although the Fund will not make a practice of short-term trading, purchases and sales of securities will be made whenever appropriate, in the investment adviser's view, to achieve the Fund's investment objective. The rate of portfolio turnover is calculated by dividing the lesser of the cost of purchases or the proceeds from sales of portfolio securities (excluding short-term U.S. government obligations and other short-term investments) for the particular fiscal year by the monthly average of the value of the portfolio securities (excluding short-term U.S. government obligations and short-term investments) owned by the Fund during the particular fiscal year. Although higher portfolio turnover rates are likely to result in higher brokerage commissions paid by the Fund, portfolio turnover is not a limiting factor when management deems portfolio changes appropriate to achieve the Fund's stated objective.
MANAGEMENT OF THE TRUST
The business of the Trust is managed by its Board of Trustees, which elects officers responsible for the day to day operations of the Fund and for the execution of the policies formulated by the Board of Trustees.
Pertinent information regarding the members of the Board of Trustees and principal officers of the Trust is set forth below. Some of the Trustees and officers are employees of the Adviser and its affiliates. At least a majority of the Trust's Board of Trustees are not 'interested persons' as that term is defined in the Investment Company Act.
INDEPENDENT TRUSTEES(1)
NUMBER OF
PORTFOLIOS IN
TERM OF THE FUND OTHER
POSITION(S) OFFICE(2) AND PRINCIPAL COMPLEX DIRECTORSHIPS/
HELD WITH LENGTH OF OCCUPATION(S) OVERSEEN BY TRUSTEESHIPS
NAME, DATE OF BIRTH AND ADDRESS THE TRUST TIME SERVED DURING PAST 5 YEARS TRUSTEE HELD BY TRUSTEE
------------------------------- --------- ----------- ------------------- ------- ---------------
Candace K. Beinecke........ Trustee December Chair, Hughes 6 Director,
One Battery Park Plaza (Chair) 1999 to Hubbard & ALSTOM;
New York, New York present Reed Director, Jacob's
10004 Pillow Dance
(born December 1946) Festival, Inc.;
Director, Merce
Cunningham
Dance Foundation,
Inc.; Director, First
Eagle Funds, Inc.
(5 portfolios)
Jean D. Hamilton (3) ...... Trustee March Independent 6 Director, Women's
1345 Avenue of the 2003 to Consultant/ Private Economic Round Table;
Americas present Investor; prior to Director, New York
New York, New York November 2002, Chief Women's Forum
10105 Executive Officer, (Treasurer, New York
(born January 1947) Presidential Women's Forum Education
Institutional, and Fund); Director, Four
Executive Vice Nations; Director,
President, First Eagle Funds, Inc.
Prudential (5 portfolios)
Financial, Inc.;
prior to November
1998, various
executive positions
within the
Prudential
organization
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NUMBER OF
PORTFOLIOS IN
TERM OF THE FUND OTHER
POSITION(S) OFFICE(2) AND PRINCIPAL COMPLEX DIRECTORSHIPS/
HELD WITH LENGTH OF OCCUPATION(S) OVERSEEN BY TRUSTEESHIPS
NAME, DATE OF BIRTH AND ADDRESS THE TRUST TIME SERVED DURING PAST 5 YEARS TRUSTEE HELD BY TRUSTEE
------------------------------- --------- ----------- ------------------- ------- ---------------
William M. Kelly ............ Trustee December 1999 Senior Associate, 6 Trustee, New York
500 Fifth Avenue, to present Lingold Associates Foundation; Treasurer
50th Floor and Trustee, Black Rock
New York, New York 10110 Forest Consortium;
(born February 1944) Director, First Eagle
Funds, Inc.
(5 portfolios)
Paul J. Lawler .............. Trustee March 2002 to Vice President -- 6 Director, Junior
One Michigan Avenue East present Investments and Achievement of
Battle Creek, Michigan Chief Investment Southwest Michigan;
49017 Officer, W.K. Finance Committee
(born May 1948) Kellogg Foundation; Member, Battle Creek
prior to June 1997, Community Foundation;
Vice President for Custody Advisory
Finance, Rensselaer Committee Member, The
Polytechnic Bank of New York;
Institute Director, First Eagle
Funds, Inc.
(5 portfolios)
Dominique Raillard .......... Trustee September Independent 6 Director, First Eagle
15 Boulevard Delessert 1995 to Consultant/Private Funds, Inc.
75016 Paris France present Investor; prior to (5 portfolios)
(born June 1938) December 2001,
Managing Director of
Act 2 International
(Consulting)
Nathan Snyder ............... Trustee September Independent 6 Director, First Eagle
1345 Avenue of the Americas 1995 to Consultant/Private Funds, Inc.
New York, New York 10105 present Investor (5 portfolios)
(born October 1934)
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(1) Trustees who are not 'interested persons' of the Trust as defined in the Investment Company Act.
(2) The term of office of each Trustee expires on his/her 70th birthday.
(3) Ms. Hamilton was previously employed by certain of the Prudential companies, which provide portfolio brokerage and distribution services with respect to the Fund and its affiliates. She retired from her positions with those companies on November 16, 2002.
INTERESTED TRUSTEES(1)
NUMBER OF
PORTFOLIOS IN
TERM OF THE FUND OTHER
POSITION(S) OFFICE(2) AND PRINCIPAL COMPLEX DIRECTORSHIPS/
HELD WITH LENGTH OF OCCUPATION(S) OVERSEEN BY TRUSTEESHIPS
NAME, DATE OF BIRTH AND ADDRESS THE TRUST TIME SERVED DURING PAST 5 YEARS TRUSTEE HELD BY TRUSTEE
------------------------------- --------- ----------- ------------------- ------- ---------------
John P. Arnhold............ Co-President; December Co-President, 6 Director, Aquila
1345 Avenue of the Trustee 1999 to Co-CEO and International
Americas present Director, Arnhold Fund, Ltd.;
New York, New York and S. Bleichroeder Director,
10105 Holdings, Inc.; Arnhold
(born December 1953) Chairman, CEO Ceramics; Co-
and Director, President and
Arnhold and S. Director, First
Bleichroeder Eagle Funds,
Advisers, LLC and Inc.
ASB Securities (5 portfolios)
LLC; President
and Director,
Natexis
Bleichroeder, Inc.
and Natexis
Bleichroeder UK
Ltd.; President,
WorldVest, Inc.
James E. Jordan ........... Trustee December Managing Director, 6 Director, Leucadia
1345 Avenue of the 1999 to Arnhold and National
Americas present S. Bleichroeder Corporation;
New York, New York 10105 Advisers, LLC and Director, Empire
(born April 1944) Director, ASB Insurance Company;
Securities LLC and ASB Director, JZ Equity
Advisers UK, Ltd. since Partners, Plc. (a
July 2002; prior British investment
thereto, private trust company);
investor and consultant Director, Columbia
to The Jordan Company University School of
(private investment International and
banking firm) since Public Affairs;
June 1997; prior Chairman's Council,
thereto, President and Conservation
Chief Investment International;
Officer of The William Director, First
Penn Company Eagle Funds, Inc.
(a registered (5 portfolios)
investment adviser)
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(1) Trustees who are 'interested persons' of the Company as defined in the Investment Company Act. Each of Messrs. Arnhold and Jordan is an interested person of the Trust by virtue of being an officer or an officer and/or director of the investment adviser and principal underwriter of the Trust.
(2) The term of office of each Trustee expires on his/her 70th birthday.
OFFICERS
POSITION(S) TERM OF OFFICE
HELD WITH AND LENGTH OF PRINCIPAL OCCUPATION(S)
NAME, DATE OF BIRTH AND ADDRESS THE TRUST TIME SERVED (1) DURING PAST FIVE (5) YEARS
------------------------------- --------- --------------- --------------------------
John P. Arnhold................... Co-President; December 1999 See table on preceding page
1345 Avenue of the Trustee to present related to Interested Directors
Americas
New York, New York
10105
(born December 1953)
Jean-Marie Eveillard ............. Co-President December 1999 Senior Vice President, Arnhold
1345 Avenue of the Americas (portfolio to present and S. Bleichroeder Advisers,
New York, New York 10105 manager) (with LLC; Co-President, First Eagle
(born January 1940) portfolio Funds, Inc.; prior to 1999,
management Director and President or
responsibility Executive Vice President of
since Societe Generale Asset Management
commencement Corp.
of investment
operations in
February
1997)
Charles de Vaulx ................. Senior Vice December 1999 Senior Vice President, Arnhold
1345 Avenue of the Americas President to present and S. Bleichroeder Advisers,
New York, New York 10105 (portfolio (with LLC; Senior Vice President, First
(born October 1961) manager) portfolio Eagle Funds, Inc.; Senior Vice
management President, Societe Generale Asset
responsibility Management Corp. since 1998,
since Associate Portfolio Manager from
commencement December 1996, Securities
of investment Analyst, prior to December 1996
operations in
February
1997)
Robert Bruno ..................... Vice President, December 1999 Senior Vice President, Arnhold
1345 Avenue of the Americas Secretary and to present and S. Bleichroeder Advisers,
New York, New York 10105 Treasurer LLC; Senior Vice President, ASB
(born June 1964) Securities LLC; Vice President,
Secretary and Treasurer, First
Eagle Funds, Inc.
Suzan J. Afifi ................... Vice President December 1999 Vice President, Arnhold and
1345 Avenue of the Americas and Assistant to present S. Bleichroeder Advisers, LLC;
New York, New York 10105 Secretary Vice President, ASB Securities
(born October 1952) LLC; Vice President and Assistant
Secretary, First Eagle Funds,
Inc.
Andrew DeCurtis .................. Vice President November 2000 Vice President, Arnhold and
1345 Avenue of the Americas to present S. Bleichroeder Advisers, LLC;
New York, New York 10105 Vice President, First Eagle
(born March 1968) Funds, Inc.
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POSITION(S) TERM OF OFFICE
HELD WITH AND LENGTH OF PRINCIPAL OCCUPATION(S)
NAME, DATE OF BIRTH AND ADDRESS THE TRUST TIME SERVED (1) DURING PAST FIVE (5) YEARS
------------------------------- --------- --------------- --------------------------
Edwin S. Olsen ................... Vice President November 2000 Vice President of Arnhold and
1345 Avenue of the Americas to present S. Bleichroeder Advisers, LLC;
New York, New York 10105 Vice President, First Eagle
(born September 1939) Funds, Inc.; Vice President, SG
Cowen Securities Corp. from prior
to 1999
Stefanie Spritzler ............... Assistant May 2000 to Vice President, Arnhold and S.
1345 Avenue of the Americas Treasurer present Bleichroeder Advisers, LLC; Vice
New York, New York 10105 President, ASB Securities LLC;
(born July 1973) Assistant Treasurer, First Eagle
Funds, Inc.
Winnie Chin ...................... Assistant March 2001 to Assistant Treasurer, First Eagle
1345 Avenue of the Americas Treasurer present Funds, Inc.
New York, New York 10105
(born July 1974)
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(1) The term of office of each officer is indefinite.
The following table describes the standing committees of the Board of Trustees of the Trust.
NUMBER OF COMMITTEE
MEETINGS IN THE
COMMITTEE NAME MEMBERS FUNCTION(S) LAST FISCAL YEAR
-------------- ------- ----------- ----------------
Audit Committee William M. Kelly Reviews the contract 2
Paul J. Lawler (Chair) between the Trust
Jean D. Hamilton and its auditors,
oversees the Trust's
accounting and
financial reporting
policies, procedures
and internal controls,
and acts as liaison to
auditors.
Nominating and Candace K. Beinecke (Chair) Nominates new 3
Governance William M. Kelly Independent Trustees
Committee Dominique Raillard of the Trust. (The
Nominating Committee
does not consider
shareholder
recommendations.)
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NUMBER OF COMMITTEE
MEETINGS IN THE
COMMITTEE NAME MEMBERS FUNCTION(S) LAST FISCAL YEAR
-------------- ------- ----------- ----------------
Valuation Committee John P. Arnhold Sets and recommends 1
Nathan Snyder securities valuation
policies, supervises
the Adviser in the
valuation of Fund
assets, and, in
certain instances,
values Fund assets
directly.
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COMPENSATION OF TRUSTEES AND CERTAIN OFFICERS. The Trust makes no payments to any of its officers for services. However, those Trustees of the Trust who are not officers or employees of the Adviser or ASB Holdings are paid by the Trust and First Eagle Funds, Inc. an annual fee of $18,000 and a fee of $2,000 for each meeting of the Trust's Board of Trustees and a fee of $1,000 for each meeting of any Committee of the Board that they attend. The Trustees also receive an annual fee of $2,500 for serving as the chair of either of the Board's Audit or Nominating and Governance Committees. Prior to January 1, 2003, these fees were $12,000 annually plus $2,000 per meeting of the Board and $1,000 per meeting of a Committee of the Board (with no additional compensation to Committee chairs). Such fees are allocated, generally, between the Trust and First Eagle Funds, Inc. on a pro rata basis in relationship to their relative net assets. Each Trustee is reimbursed by the Trust for any expenses he or she may incur by reason of attending such meetings or in connection with services he or she may perform for the Trust. During the fiscal year ended December 31, 2003, an aggregate of $2,752 was paid, accrued or owed for Trustees' fees and expenses by the Trust.
The following table sets forth information regarding compensation of Trustees by the Trust and by the fund complex of which the Trust is a part for the fiscal year ended December 31, 2003. Officers of the Trust and Interested Trustees do not receive any compensation from the Trust or any other fund in the fund complex which is a U.S. registered investment company.
COMPENSATION TABLE
FISCAL YEAR ENDED DECEMBER 31, 2003
TOTAL
PENSION OR COMPENSATION
RETIREMENT PAID OR OWED
AGGREGATE BENEFITS ESTIMATED FROM
COMPENSATION ACCRUED ANNUAL REGISTRANT AND
PAID OR AS PART OF BENEFITS FUND COMPLEX
OWED FROM FUND UPON PAID TO
NAME OF PERSON, POSITION REGISTRANT EXPENSES RETIREMENT TRUSTEES***
------------------------ ---------- -------- ---------- -----------
John P. Arnhold, Trustee*...................... $ 0 N/A N/A $ 0(1)
Candace K. Beinecke, Trustee................... $ 486 N/A N/A $37,383(1)
Jean D. Hamilton, Trustee**.................... $ 276 N/A N/A $23,383(1)
James E. Jordan, Trustee*...................... $ 0 N/A N/A $ 0(1)
William M. Kelly, Trustee...................... $ 465 N/A N/A $36,883(1)
Paul J. Lawler, Trustee........................ $ 456 N/A N/A $35,383(1)
Dominique Raillard, Trustee.................... $ 435 N/A N/A $33,883(1)
Nathan Snyder, Trustee......................... $ 390 N/A N/A $30,883(1)
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* Interested Trustee.
** Ms. Hamilton joined the Board of Trustees in March 2003.
*** For this purpose, the fund complex consists of the First Eagle Overseas Variable Fund and the five portfolios of First Eagle Funds, Inc. (Global Fund, Overseas Fund, U.S. Value Fund, Gold Fund and the First Eagle Fund of America). The number in parentheses indicates the total number of other boards in the fund complex on which the Trustee served as of December 31, 2003.
ADDITIONAL INFORMATION REGARDING THE TRUSTEES. The following table sets forth information as of December 31, 2003 regarding ownership by the Trustees of the Trust of equity securities of the Trust or
any other fund in the same fund complex for which each is also a director or trustee. ('Fund complex' has the same meaning as in the footnote to the table above.) Dollar ranges of ownership are indicated as follows: A = None; B = $1 to $10,000; C = $10,001 to $50,000; D = $50,001 to $100,000; E = over $100,000.
INDEPENDENT TRUSTEES
DOLLAR RANGE OF OWNERSHIP OF EQUITY AGGREGATE OWNERSHIP OF EQUITY SECURITIES IN
SECURITIES IN THE FUND AS OF ALL FUNDS OVERSEEN BY TRUSTEE IN THE FUND
NAME DECEMBER 31, 2003 COMPLEX AS OF DECEMBER 31, 2003
---- ----------------- -------------------------------
Candace K. Beinecke... A C
Jean D. Hamilton*..... A C
William M. Kelly...... A D
Paul J. Lawler........ A E
Dominique Raillard.... A C
Nathan Snyder......... A D
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INTERESTED TRUSTEES
DOLLAR RANGE OF OWNERSHIP OF EQUITY AGGREGATE OWNERSHIP OF EQUITY SECURITIES IN
SECURITIES IN THE FUND AS OF ALL FUNDS OVERSEEN BY TRUSTEE IN THE FUND
NAME DECEMBER 31, 2003 COMPLEX AS OF DECEMBER 31, 2003
---- ----------------- -------------------------------
John P. Arnhold....... A E
James E. Jordan....... A E
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Since January 1, 2003, none of the Independent Trustees who is a director of
another investment company whose adviser and principal underwriter are ASB
Advisers and First Eagle Distributors, respectively (e.g., First Eagle Funds,
Inc.), has held any other position with (i) the Trust (other than as a Trustee),
(ii) an investment company having the same adviser or principal underwriter as
the Fund or an adviser or principal underwriter that controls, is controlled by,
or is under common control with the Adviser or First Eagle Distributors (other
than as a Trustee), (iii) the Adviser, First Eagle Distributors or other
affiliate of the Trust, or (iv) any person controlling, controlled by or under
common control with the Adviser or First Eagle Distributors. Also since
January 1, 2003, none of these individuals owns, beneficially or of record,
securities issued by (i) the Adviser or First Eagle Distributors or (ii) any
person (other than a registered investment company) directly or indirectly
controlling, controlled by or under common control with the Adviser or First
Eagle Distributors. Finally, none of these individuals or their immediate family
members has an interest in a transaction with a 'related person' of the company.
A 'related person' is (i) an executive officer of the Trust, (ii) an investment
company having the same adviser or principal underwriter as the Fund or an
adviser or principal underwriter that controls, is controlled by or is under
common control with the Adviser or First Eagle Distributors, (iii) an executive
officer of such an investment company, (iv) the Adviser or First Eagle
Distributors, (v) an executive officer of the Adviser or First Eagle
Distributors, (vi) a person directly or indirectly controlling, controlled by,
or under common control with the Adviser or First Eagle Distributors, or
(vii) an executive officer of a person described in clause (vi) above.
The Company, the Adviser, and its principal distributor, First Eagle Distributors, have adopted a code of ethics under Rule 17j-1 of the Investment Company Act. This code of ethics permits personnel subject to the code to invest in securities, including securities that may be purchased or held by the Fund, with certain exceptions.
As of March 31, 2004, the officers and Trustees of the Trust, as a group, owned less than 1% of the outstanding shares of capital stock of the Fund. As of March 31, 2004, the following entities held of record 5% or more of the outstanding shares of the Fund:
NAME AND ADDRESS PERCENTAGE OF SHARES
HELD OF RECORD HELD OF RECORD
-------------- --------------
SunLife Financial-Futurity NY .............................. 81%
1 SunLife Executive Park
Sun Code 1335
Wellesly, MA 02481-9134
CNA Valley Forge Variable Annuity .......................... 10%
100 CNA Drive
Nashville, TN 37214-9134
IL Annuity and Insurance Company Visionary Star ............ 9%
2960 N. Meridian St. Box 7149
Indianapolis, IN 46208-4715
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While the Trust is a Delaware statutory trust, certain of its Trustees and officers are non-residents of the United States and may have all, or a substantial part, of their assets located outside the United States. As a result, it may be difficult for U.S. investors to effect service of process upon such non-U.S. Trustees or officers within the United States or effectively to enforce judgments of courts of the United States predicated upon civil liabilities of such officers or Trustees under the federal securities laws of the United States.
INVESTMENT ADVISORY AND OTHER SERVICES
As described in the Trust's Prospectus, ASB Advisers is the Trust's investment adviser and, as such, manages the Fund's portfolio. ASB Advisers is a wholly owned subsidiary of ASB Holdings, a privately owned holding company. The Adviser's primary offices are located at 1345 Avenue of the Americas, New York, NY 10105.
Under its investment advisory contract with the Trust, which became effective December 31, 1999, ASB Advisers furnishes the Trust with investment advice consistent with the Fund's stated investment objective. Prior to December 31, 1999, the Fund had an advisory contract with Societe Generale Asset Management Corp. ('SGAM Corp.'). ASB Advisers also furnishes the Trust with office space and certain facilities required for the business of the Fund, and statistical and research data, and pays any expenses of the Trust's officers. In return, the Fund pays ASB Advisers a monthly fee at the annual rate of 0.75% of the average daily value of the Fund's net assets. This annual fee rate is higher than the rate of fees paid by most U.S. mutual funds. The Trust believes, however, that the advisory fee rate is not higher than the rate of fees paid by most other mutual funds that invest significantly in foreign equity securities.
For the fiscal years ended December 31, 2003 and 2002, the Fund paid investment advisory fees to the Adviser in the amount of $660,117 and $216,555, respectively. Under a now-discontinued expense limitation arrangement, the Adviser waived advisory fees of $95,233 for the year ended December 31, 2001 and waived its advisory fees of $93,015 in their entirety for the year ended December 31, 2000. Pursuant to the same arrangement, the Adviser voluntarily reimbursed the Fund for expenses in the amount of $47,189 for the year ended December 31, 2000. The Adviser also performs certain administrative and accounting services on behalf of the Fund, and, in accordance with the agreement between them, the Fund reimburses the Adviser for costs (including personnel, overhead and other costs) related to those services. These reimbursements may not exceed an annual rate of 0.05% of the value of the Fund's average daily net assets.
On December 22, 1999, the shareholders of the Trust approved the Advisory Agreement between the Trust and the Adviser. The Board of Trustees of the Trust approved the Advisory Agreement most recently on December 16, 2003. In doing so, the Trustees considered the desirability of continuing the Fund's historic relationship with the Adviser in light of the total compensation to be received by the Adviser, the expenses incurred by the Adviser in performing services under the Advisory Agreement and the total cost to the Fund of using the Adviser's services, taking into account any expenses that the Adviser may pass to the Fund. The Trustees also considered the effects of indirect compensation to the Adviser, such as soft dollar and other service benefits, and the effect of the advisory fee on the ratio of total expenses to total assets. In addition, they compared competitive prices for comparable services and evaluated the Adviser's past performance and reliability as well as its profitability, capabilities and financial condition. Among other things, the Trustees determined that the Adviser's fees were competitive to those charged by investment advisers to similar funds, total compensation was reasonable, and the Fund's expense ratio was reasonable both on an absolute basis and when compared to those of similar funds. The Trustees also determined that the Adviser's past performance and reliability on behalf of the Fund were excellent when compared with investment advisers to similar funds and the Adviser's profitability and financial condition were satisfactory. Accordingly, they concluded that the Advisory Agreement serves the interests of the Fund and its shareholders.
The Advisory Agreement will continue in effect after the end of the initial two-year period from the date of execution only so long as such continuance is specifically approved at least annually in conformity with the Investment Company Act. The Advisory Agreement provides that the Adviser will not be liable for any error of judgment or for any loss suffered by the Fund in connection with the matters to which the Advisory Agreement relates, except a loss resulting from willful misfeasance, bad faith, gross negligence or reckless disregard of duty. The Advisory Agreement provides that it will terminate automatically if assigned, within the meaning of the Investment Company Act, and that it may be terminated without penalty by either party upon not more than 60 days' nor less than 30 days' written notice.
VOTING OF PROXIES
The Board of Trustees has delegated to the Adviser the authority to vote
proxies received by the Fund from the companies in which they invest (for this
purpose, the 'portfolio positions'). The Adviser has adopted policies and
procedures (the 'Policies') regarding the voting of such proxies, which Policies
have been reviewed and approved by the Board of Trustees as appropriate to their
management of the Fund's assets. The Policies provide that the Adviser will vote
client proxies in a manner that serves the best interest of the client, as
determined by the Adviser in its discretion, taking into account relevant
factors, including: (i) the impact on returns to be earned by the client;
(ii) alignment of the interests of management of the portfolio position with
that of the client, including establishing appropriate incentives for
management; (iii) the ongoing relationship between the client and the portfolio
positions in which it is invested, including the continued or increased
availability of information regarding such position; and (iv) industry and
business practices. The Policies also establish guidelines under which the
Adviser generally will vote with management of a portfolio position on various
routine matters (such as the election of directors, the appointment of auditors,
and establishing the date and place of an annual meeting, among others) but will
evaluate non-routine matters (such as compensation plans, changes in investment
policies, and changes in voting rights, among others) on a case by case basis.
Finally, the Policies provide procedures that address conflicts of interest
between the Adviser and a client with respect to voting proxies, which may
involve review of a proposed vote by their compliance personnel and, in certain
circumstances, will require consultation with the client or its representative
(the Board of Trustees, in the case of the Trust). The Adviser may abstain from
voting from time to time when it determines that the costs associated with
voting a proxy outweigh the benefits derived from exercising the right to vote.
Information regarding the Adviser's proxy-voting record on behalf of the Trust for any twelve-month period ended June 30 will be available beginning June 30, 2004. Please call the Trust at (800) 747-2008 to request this information, which is also available on the SEC's website at http://www.sec.gov.
DISTRIBUTION OF THE FUND'S SHARES
First Eagle Funds Distributors, a division of ASB Securities LLC, serves as the Distributor of the Fund's shares. ASB Securities LLC is a registered broker-dealer and a member of the National Association of Securities Dealers ('NASD'). ASB Securities LLC, as with the Adviser, is a wholly-owned subsidiary of ASB Holdings.
In this regard, the Trust and First Eagle Distributors have entered into a distribution contract pursuant to which First Eagle Distributors offers, as agent, share of the Fund continuously to the separate accounts of insurance companies. First Eagle Distributors is not obligated thereunder to sell any specific amount of Fund shares.
The Fund has adopted a Distribution Plan and Agreement (the 'Plan') pursuant to Rule 12b-1 of the Investment Company Act. Under the Plan, the Fund may pay First Eagle Distributors a monthly distribution related fee at an annual rate not to exceed 0.25% of the average daily value of the Fund's net assets. Under the terms of the Plan, the Fund is authorized to make payments to First Eagle Distributors for remittance to an insurance company that is the issuer of a Variable Contract invested in shares of the Fund in order to pay or reimburse such insurance company for distribution and shareholder servicing-related expenses incurred or paid by such insurance company. Distribution expenses incurred in any fiscal year, which are not reimbursed from payment under the Plan accrued in such fiscal year, will not be carried over for payment under the Plan in any subsequent year. (First Eagle Distributors may also make payments to such insurance companies from its own resources in support of those companies distribution and shareholder-servicing efforts on behalf of the Fund. Such payments are not covered by the Plan.)
During the fiscal years ended 2003, 2002 and 2001, the Fund incurred distribution related fees for expenditures under the Plan in the aggregate amount of $220,039, $72,185 and $40,133, respectively, which constituted 0.25% of the Fund's average daily net assets during such periods. Such amount is payable to the insurance companies which issued the Variable Contracts invested in shares of the Fund.
Expenses payable pursuant to this Plan may include, but are not limited to, expenses relating to the preparation, printing and distribution of prospectuses to existing and prospective Variable Contract owners; development, preparation, printing and mailing of Fund advertisements; expenses relating to holding seminars and sales meetings designed to promote the distribution of Fund shares; training sales personnel regarding the Fund; compensating sales personnel in connection with the allocation of cash values and premiums of the Variable Contracts to the Fund; and financing any other activity that the Fund's Board of Trustees determines is primarily intended to result in the sale of shares.
The Plan is deemed reasonably likely to benefit the Fund and the Variable Contract owners in at least one of several ways. Specifically, it is expected that the insurance companies that issue Variable Contracts invested in shares of the Fund would have less incentive to educate Variable Contract owners and sales people concerning the Fund if expenses associated with such services were not paid by the Fund. In addition, the payment of distribution fees to insurers should motivate them to maintain and enhance the level of services relating to the Fund provided to Variable Contract owners, which would, of course, benefit such Variable Contract owners. The adoption of the Plan would also likely help to maintain and may lead to an increase in net assets given the foregoing incentives. Further, it is anticipated that Plan fees may be used to educate potential and existing owners of Variable Contracts concerning the Fund, the securities markets and related risks.
The Plan provides that it will continue in effect only so long as its continuance is approved at least annually by the trustees of the Trust and by the trustees who are not interested persons of the Trust and who have no direct or indirect financial interest in the operation of the Plan or in any agreements relating to the Plan (previously defined as the 'Independent Trustees'). In the case of an agreement relating to the Plan, the Plan provides that such agreement may be terminated, without penalty, by a vote of a majority of the Independent Trustees, or by a majority of the Fund's outstanding voting securities on 60 days' written notice to First Eagle Distributors, and provides further that such agreement will automatically terminate in the event of its assignment. The Plan also states that it may not be amended to increase the maximum amount of the payments thereunder without the approval of a majority of the outstanding voting securities (as defined above under 'Management of the Trust -- Investment Restrictions') of the Fund. No material amendment to the Plan will, in any event, be effective unless it is approved by a vote of the trustees and the Independent Trustees of the Trust.
When the Trust seeks an Independent Trustee to fill a vacancy on the board or as an addition to the board or as a nominee for election by stockholders, the selection or nomination of the Independent Trustee is, under resolutions adopted by the trustees, contemporaneously with their adoption of the Plan, committed to the discretion of the Independent Trustees.
The expenses incurred by the Trust in connection with its organization, its registration with the Securities and Exchange Commission and any states where registered, and the public offering of its shares were advanced on behalf of the Trust by ASB Advisers. These organizational expenses were deferred and amortized by the Trust over a period of 60 months and have now been paid in full.
COMPUTATION OF NET ASSET VALUE
The Fund computes its net asset value once daily as of the close of trading on each day the New York Stock Exchange is open for trading. The Exchange is closed on the following days: New Year's Day, Rev. Dr. Martin Luther King, Jr. Day, Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day and Christmas Day. The net asset value per share is computed by dividing the total current value of the assets of the Fund, less its liabilities, by the total number of shares outstanding at the time of such computation.
A portfolio security, other than a bond, which is traded on a U.S. national securities exchange or a securities exchange abroad is normally valued at the price of the last sale on the exchange as of the close of business on the date on which assets are valued. If there are no sales on such date, such portfolio securities will be valued at the mean between the closing bid and asked prices. Securities, other than bonds, traded in the over-the-counter market are valued at the mean between the last bid and asked prices prior to the time of valuation, except if such unlisted security is traded on the NASDAQ in which case it is valued at its last sale price (or, if available in the case of NASDAQ securities, the NASDAQ Official Closing Price ('NOCP')). All bonds, whether listed on an exchange
or traded in the over-the-counter market, for which market quotations are readily available are valued at the mean between the last bid and asked prices received from dealers in the over-the-counter market in the United States or abroad, except that when no asked price is available, bonds are valued at the last bid price alone. Short-term investments maturing in sixty days or less are valued at cost plus interest earned, which approximates value. Securities for which current market quotations are not readily available are valued at fair value as determined in good faith by the Trust's Board of Trustees or its delegates. A make-up sheet showing the computation of the total offering price, using as a basis the value of the Fund's portfolio securities and other assets and their outstanding securities as of December 31, 2003, appears as the Statement of Assets and Liabilities for the Fund.
In circumstances leading the Adviser to believe that significant events occurring after the close of trading on a foreign market have materially affected the value of the Fund's holdings, such holdings may be 'fair valued' to reflect these events in accordance with procedures approved by the Board of Trustees. As a result, the value assigned to the Fund's holding may differ on occasion from reported market values.
DISCLOSURE OF PORTFOLIO HOLDINGS
The Fund publicly discloses its portfolio holdings periodically as required by the Investment Company Act and may make more frequent public disclosures voluntarily from time to time. The Fund may also make disclosures to rating agencies and others having a legitimate business purpose related to receipt of such information, subject to the requirement that if such information is made available more frequently than to the public it be subject at all times to appropriate contractual protections against misuse.
HOW TO PURCHASE SHARES
The methods of buying and selling shares and the sales charges applicable to purchases of shares of the Fund are described in the prospectus of the pertinent separate account.
TAX STATUS
The Fund intends to qualify annually as a 'regulated investment company'
under the Internal Revenue Code of 1986, as amended (the 'Code'). In order to
qualify as a regulated investment company for a taxable year, the Fund must,
among other things, (a) derive at least 90% of its gross income from dividends,
interest, payments with respect to certain securities loans, gains from the sale
or other disposition of stock, securities or foreign currencies or other income
(such as gains from options, futures or forward contracts) derived with respect
to the business of investing in such stock, securities or currencies;
(b) diversify its holdings so that, at the end of each fiscal quarter, (i) at
least 50% of the market value of its assets is represented by cash, cash items,
U.S. government securities, securities of other regulated investment companies
and other securities, with such other securities of any one issuer qualifying
only if the Fund's investment is limited to an amount not greater than 5% of the
value of the Fund's assets and not more than 10% of the voting securities of
such issuer, and (ii) not more than 25% of the value of its assets is invested
in the securities of any one issuer (other than U.S. government securities or
securities of other regulated investment companies) or of two or more issuers
which the Fund controls and which are determined, under Treasury regulations, to
be engaged in the same or similar trades or businesses or related trades or
businesses; and (c) distribute at least 90% of its investment company taxable
income (which includes, among other items, dividends and interest net of
expenses and net short-term capital gains in excess of net long-term capital
losses) for the year.
As a regulated investment company, the Fund generally will not be subject to U.S. federal income tax on its investment company taxable income and net capital gains (the excess of net long-term capital gains over net short-term capital losses), if any, that it distributes to shareholders. The Fund intends to distribute to its shareholders (the separate accounts and other qualified investors), at least annually, substantially all of its investment company taxable income and net capital gains. Amounts not distributed on a timely basis in accordance with a calendar year distribution requirement generally are subject to a non-deductible 4% excise tax. To prevent imposition of the excise tax, the Fund must distribute during each calendar year an amount equal to the sum of (1) at least 98% of its ordinary income (not taking into account any capital gains or losses) for the calendar year, (2) at least 98% of its
capital gains in excess of its capital losses (adjusted for certain ordinary
losses) for the one-year period ending on October 31 of the calendar year, and
(3) 100% of any ordinary income and capital gains for the preceding year that
were not distributed during that year. A distribution will be treated as paid on
December 31 of the current calendar year if it is declared by the Fund in
October, November or December with a record date in such a month and paid by the
Fund during January of the following calendar year. Such distributions will be
taxable to shareholders in the calendar year in which the distributions are
declared, rather than the calendar year in which the distributions are received.
To prevent application of the excise tax, the Fund intends to make its
distributions in accordance with the calendar year distribution requirement. In
some circumstances, the Fund may qualify for an exception to the excise tax
distribution requirements, but the Fund is not required to qualify for such
exception.
If in any taxable year the Fund fails to qualify as a regulated investment company under the Code, the Fund would be taxed in the same manner as a corporation and distributions to its shareholders would not be deductible by the Fund in computing its taxable income. In addition, in order to requalify for taxation as a regulated investment company that is accorded special tax treatment, the Fund may be required to recognize unrealized gains, incur substantial taxes and interest on such unrealized gains, and make certain substantial distributions.
Aside from the requirements attendant to the Fund's qualification as a
regulated investment company discussed above, Section 817(h) of the Code imposes
certain diversification standards on the underlying assets of variable annuity
contracts and variable life insurance policies. The Code provides that a
variable annuity contract and a variable life insurance policy shall not be
treated, respectively, as an annuity contract or life insurance policy for any
period for which the investments are not, in accordance with regulations
prescribed by the U.S. Treasury Department, adequately diversified.
Disqualification of the contract or policy as an annuity contract or life
insurance policy would result in the immediate imposition of federal income tax
on variable annuity contract and variable life insurance policy owners,
respectively, with respect to earnings allocable to the contract or policy
(including accumulated earnings), and the tax liability would generally arise
prior to the receipt of payments under the contracts. Section 817(h)(2) of the
Code is a safe harbor rule which provides that a variable annuity contract or a
variable life insurance policy satisfies the diversification requirements if, as
of the close of each quarter of a taxable year, the underlying assets of such
contract or policy meet the diversification standards for a regulated investment
company, and no more than 55% of such contract's or policy's total underlying
assets consist of cash, cash items, U.S. government securities, and securities
of other regulated investment companies. The U.S. Treasury Department has issued
regulations (specifically Section 1.817-5 of the Treasury Regulations -- the
'Regulations') that establish diversification requirements for the investment
portfolios underlying variable insurance contracts. The Regulations amplify the
diversification requirements for variable annuity contracts and variable life
insurance policies set forth in Section 817(h) of the Code, and provide an
alternative to the safe harbor provision described above. Under the Regulations,
an investment portfolio will be deemed adequately diversified if: (1) no more
than 55% of the value of total assets is represented by any one investment;
(2) no more than 70% of such value is represented by any two investments; (3) no
more than 80% of such value is represented by any three investments; and (4) no
more than 90% of such value is represented by any four investments. For purposes
of the Regulations, all securities of the same issuer are treated as a single
investment. The Regulations provide that, in the case of a regulated investment
company whose shares are available to the public only through variable insurance
contracts (such as the Fund) which meet certain other requirements, the
diversification tests are applied by reference to the underlying assets owned by
the regulated investment company (i.e., on a 'look-through' basis) rather than
by reference to the shares of the regulated investment company owned under the
annuity contract. The Fund intends to meet the requirements for application of
the diversification tests on a look-through basis.
The Treasury Department has indicated in published statements that it would issue future regulations or rulings addressing the circumstances in which a Variable Contract owner's control of the investments of a separate account may cause such contract owner, rather than the insurance company, to be treated as the owner of the assets held by the separate account. If the contract owner is considered the owner of the securities underlying the separate account, income and gains produced by those
securities would be included currently in the contract owner's gross income. It is not known at the present time what standards will be set forth in such regulations or rulings.
In the event that such rules or regulations were adopted, there can be no assurance that the Fund will be able to operate as currently described in the Prospectus, or that the Fund will not have to change its investment objective or investment policies. Furthermore, the Fund would still be required as to comply with the diversification requirements set forth in Section 817(h) and/or the Regulations. However, it is possible that in order to comply with the aforementioned diversification requirements, less desirable investment decisions may be made which could affect the investment performance of the Fund.
Variable annuity contracts and variable life insurance policies purchased through insurance company separate accounts provide for the accumulation of all earnings from interest, dividends, and capital appreciation generally without current federal income tax liability for an individual owner. Different rules apply to corporations, taxable trusts, or other entities which own variable annuity contracts and variable life insurance policies. Depending on the variable annuity contract or variable life insurance policy, distributions from the contract or policy may be subject to federal income tax, as well as a 10% penalty tax on distributions before age 59 1/2. Only the portion of a distribution attributable to income on the investment in the contract or policy should be subject to federal income tax. Additional state and/or local income taxes and penalties could be imposed on such distributions. For a further discussion of investing in variable annuity contracts or variable life insurance policies, please refer to the prospectus offered by the participating insurance company. In addition, investors should consult their own tax advisors for a more complete discussion of possible tax consequences to their particular situations.
Investments by the Fund in securities issued or acquired at a discount, or providing for deferred interest or payment of interest as in the form of additional obligations could result in income to the Fund equal generally to a portion of the excess of the face value of the securities over their issue or acquisition price (the 'original issue discount') each year that the securities are held, even though the Fund receives no actual interest payments. In addition, a Fund's investment in foreign currencies or foreign currency denominated or referenced debt, certain asset-backed securities, section 1256 contracts (as described below) and contingent payment and inflation-indexed debt instruments also may increase or accelerate a Fund's recognition of income, including the recognition of taxable income in excess of cash generated by such investments. Such income must be included in determining the amount of income which the Fund must distribute in order to meet various distribution requirements. In such case, the Fund could be required to dispose of securities which it might otherwise have continued to hold or borrow to generate cash to satisfy its distribution requirements.
Certain regulated futures contracts, nonequity options, and foreign currency contracts in which the Fund may invest may be 'section 1256 contracts.' Gains or losses on section 1256 contracts generally are considered 60% long-term and 40% short-term capital gains or losses; however, foreign currency gains or losses arising from certain section 1256 contracts may be treated as ordinary income or loss. Also, section 1256 contracts held by the Fund at the end of each taxable year (and, generally, for purposes of the 4% excise tax, on October 31 of each year) are 'marked-to-market' (that is, treated as sold at their fair market value), resulting in unrealized gains or losses being treated as though they were realized.
Generally, the hedging transactions undertaken by the Fund may result in 'straddles' for U.S. federal income tax purposes. The straddle rules may cause certain gains to be treated as short-term rather than long-term and certain losses to be treated as long-term rather than short-term. In addition, losses realized by the Fund on positions that are part of a straddle may be deferred under the straddle rules, rather than being taken into account in calculating the taxable income for the taxable year in which the losses are realized and certain interest expenses may be required to be capitalized. Because only a few regulations implementing the straddle rules have been promulgated, the tax consequences to the Fund of engaging in hedging transactions are not entirely clear. Hedging transactions may increase the amount of short-term capital gains realized by the Fund which is taxed as ordinary income when distributed to shareholders.
The Fund may make one or more of the elections available under the Code which are applicable to straddles. If the Fund makes any of such elections, the amount, character and/or timing of the recognition of gains or losses from the affected straddle positions will be determined under rules that vary according to the election(s) made. The rules applicable under certain of the elections may operate to accelerate the recognition of gains or losses from the affected straddle positions.
Because the straddle rules may affect the character of gains or losses, defer losses and/or accelerate the recognition of gain or losses from the affected straddle positions, the amount which may be distributed to shareholders as ordinary income or long-term capital gains may be increased or decreased, respectively, compared to a fund that did not engage in such hedging transactions.
Notwithstanding any of the foregoing, the Fund may recognize gain from a constructive sale of certain 'appreciated financial positions' if generally the Fund enters into a short sale of offsetting notional principal contract with respect to, or a futures or a forward contract to deliver the same or substantially identical property or, in the case of an appreciated financial position that is a short sale, an offsetting notional principal contract or a futures or forward contract, if the Fund acquires the same or substantially identical property as the underlying property for the position. Appreciated financial positions subject to this constructive sale treatment are interests (including options and forward contracts and short sales) in stock, partnership interests, certain actively traded trust instruments and certain debt instruments. Constructive sale treatment does not apply to certain transactions that are closed before the end of the 30th day after the end of the taxable year in which the transaction was entered into if the taxpayer holds the appreciated financial position throughout the 60 day period beginning on the date the transaction is closed and at no time during this 60 day period is the taxpayer's risk of loss with respect to the appreciated securities reduced by certain circumstances.
If the Fund has long-term capital gain from a 'constructive ownership transaction' with respect to any financial asset, the amount of such gain which may be treated as long-term capital gain by the Fund is limited to the amount of such gain which the Fund would have recognized if it had been holding such financial asset directly, rather than through a constructive ownership transaction, with any gain in excess of this amount being treated as ordinary income. In addition, any such gain recharacterized as ordinary income is treated as having been realized ratably over the duration of such constructive ownership transaction grossed up by an interest charge when reported in the year recognized. A constructive ownership transaction includes holding a long position under a notional principal contract with respect to, or entering into a forward or futures contract to acquire certain financial assets, or both holding a call option and granting a put option with respect to certain financial assets where such options have substantially equal strike prices and contemporaneous maturity dates.
Under the Code, gains or losses attributable to fluctuations in exchange rates which occur between the time the Fund accrues receivables or liabilities denominated in a foreign currency or determined with reference to one or more foreign currencies and the time the Fund actually collects such receivables, or pays such liabilities, generally are treated as ordinary income or loss. Similarly, on disposition of debt securities denominated in a foreign currency or determined with reference to one or more foreign currencies gains or losses attributable to fluctuations in the value of foreign currency between the date of acquisition of the security or contract and the date of disposition thereof also are treated as ordinary income or loss. Generally gains or losses with respect to forward contracts, futures contracts, options or similar financial instruments (other than section 1256 contracts) which are denominated in terms of a foreign currency or determined by reference to the value of one or more foreign currencies are treated as ordinary gains or losses, as the case may be. These gains or losses, referred to under the Code as 'section 988' gains or losses, may increase or decrease the amount of the Fund's investment company taxable income to be distributed to its shareholders as ordinary income. However, in certain circumstances, it may be possible to make an election to treat such gains or losses as capital gains or losses or as subject to the rules applicable to section 1256 contracts, rather than subject to section 988 treatment. Furthermore, if section 988 losses exceed other investment company taxable income generated by a Fund during a taxable year, the Fund's distributions for the taxable year (including distributions made before such section 988 losses were recouped) world be treated as a return of capital to the Fund's shareholders (rather than as dividends), thereby reducing the basis of each shareholder's Fund shares and potentially resulting in a capital gain for any shareholder receiving a
distribution greater than such shareholder's adjusted tax basis in Fund shares (assuming such shares are held as a capital asset).
Upon the sale or other disposition of shares of the Fund, a shareholder may realize a capital gain or loss which may be eligible for reduced federal income tax rates, generally depending upon the shareholder's holding period for the shares. Any loss recognized on a sale or exchange will be disallowed to the extent the shares disposed of are replaced (including shares acquired pursuant to a dividend reinvestment plan) within a period of 61 days beginning 30 days before and ending 30 days after disposition of the shares. In such a case, the basis of the shares acquired will be adjusted to reflect the disallowed loss. Any loss realized by a shareholder on a disposition of Fund shares held by the shareholder for six months or less generally will be treated as a long-term capital loss to the extent of any distributions received by the shareholder with respect to such shares that are treated as long-term capital gains.
The Fund may be subject to foreign withholding taxes on income and gains derived from its investments outside the United States. Such taxes would reduce the yield on the Fund's investments. Tax treaties between certain countries and the United States may reduce or eliminate such taxes. If more than 50% of the value of the Fund's total assets at the close of any taxable year consists of stocks or securities of foreign corporations, the Fund may elect, for U.S. federal income tax purposes, to treat any foreign source income or foreign withholding taxes paid by the Fund that can be treated as income taxes under U.S. federal income tax principles, as respectively earned and paid by its shareholders. For any year that the Fund makes such an election, each of its shareholders will be required to include in computing its income its allocable share of such taxes paid by the Fund, and will be entitled, subject to certain limitations, to credit its share of such taxes against its U.S. federal income tax due, if any, or to deduct it (as an itemized deduction) from his U.S. federal gross income, if any.
Generally, a credit for foreign taxes is subject to the limitation that it may not exceed the amount of the shareholder's U.S. federal income tax liability attributable to its foreign source taxable income, except in the case of certain electing individual taxpayers who have limited creditable foreign taxes and no foreign source income other than 'qualified passive income.' With respect to the Fund, if the pass through election described above is made, the source of the Fund's income flows through to its shareholders. Certain gains from the sale of securities and certain foreign currency fluctuation gains will not be treated as foreign source taxable income. In addition, the foreign tax credit limitation must be applied separately to certain categories of foreign source income, one of which is foreign source 'passive income.' For this purpose, foreign source 'passive income' generally includes foreign source dividends (other than dividends from 'non-controlled, section 902 corporations,' and certain other corporations), interest, capital gains and certain foreign currency gains. As a consequence, some shareholders may not be able to claim a foreign tax credit for the full amount of their proportionate share of foreign taxes paid by the Fund. The foreign tax credit is disallowed with respect to foreign taxes withheld on dividends if the dividend-paying shares or the shares of the Fund are held by the Fund or the shareholders, as the case may be, for less than 16 days (46 days in the case of preferred shares) during the 30-day period (90-day period for preferred shares) beginning 15 days (45 days for preferred shares) before the shares become ex-dividend.
Certain retirement accounts as well as variable annuity contracts or variable life insurance policies cannot claim the benefit of the foreign tax credit from dividends paid on foreign securities held by the Fund.
Each shareholder will be notified within 60 days after the close of the Fund's taxable year if, pursuant to the election described above, the foreign taxes paid by the Fund will be treated as paid by its shareholders for that year and, if so, such notification will designate (i) such shareholder's portion of the foreign taxes paid to a foreign country and (ii) the portion of the Fund's dividends and distributions that represents income derived from sources within such country.
Investments by the Fund in stock of certain foreign corporations which generate mostly passive income, or at least half of the assets of which generate such income (referred to as 'passive foreign investment companies' or 'PFICs'), are subject to special tax rules designed to prevent deferral of U.S. taxation of the Fund's share of the PFIC's earnings. In the absence of certain elections to report these earnings on a current basis, regardless of whether the Fund actually receives any distributions from the PFIC, the Fund would be required to report certain 'excess distributions' from, and any gain from the
disposition of stock of, the PFIC as ordinary income. Such ordinary income would be allocated ratably to the Fund's holding period for the stock. Any amounts allocated to prior taxable years would be taxable to the Fund at the highest rate of tax on ordinary income applicable in that year, increased by an interest charge at the rate prescribed for underpayments of tax. Amounts allocated to the year of the distribution or disposition would be included in the Fund's net investment income for that year and, to the extent distributed as a dividend to the Fund's shareholders, would not be taxable to the Fund.
The Fund may be able elect to mark to market its PFIC stock, resulting in the stock being treated as sold at fair market value on the last business day of each taxable year. Any resulting gain and any gain from an actual disposition of the stock would be reported as ordinary income; any resulting loss and any loss from an actual disposition of the stock would be reported as ordinary loss to the extent of any net gains reported as ordinary income in prior years. Alternatively, the Fund may be able to make an election, known as a qualified electing fund ('QEF') election, in lieu of being taxable in the manner described above, to include annually in income its pro rata share of the ordinary earnings and net capital gain of the PFIC, regardless of whether it actually received any distributions from the PFIC. These amounts would be included in the Fund's investment company taxable income and net capital gain which, to the extent distributed by the Fund as ordinary or capital gain dividends, as the case may be, would not be taxable to the Fund (but would be taxable to shareholders). In order to make a QEF election, the Fund would be required to obtain certain information from PFICs in which it invests, which in many cases may be difficult to obtain.
The Fund may be required to withhold U.S. federal income tax currently at the rate of 28% (subject to phased-in reductions) of all distributions and gross sale proceeds payable to shareholders who fail to provide the Fund with their correct taxpayer identification number or otherwise fail to comply with the applicable requirements of the backup withholding rules. Corporate shareholders and certain other shareholders specified in the Code generally are exempt from such backup withholding. Backup withholding is not an additional tax. Any amounts withheld may be allowed as a refund or a credit against the shareholder's U.S. federal income tax liability, provided that the required information is timely furnished to the IRS.
Ordinary income dividends paid by the Fund to shareholders who are non-resident aliens or foreign entities generally will be subject to a 30% U.S. withholding tax under existing provisions of the Code applicable to foreign individuals and entities unless a reduced rate of withholding is provided under applicable treaty law. Non-resident shareholders are urged to consult their own tax advisers concerning the applicability of U.S. withholding tax.
Since, at the time of an investor's purchase of the Fund's shares, a portion of the per share net asset value by which the purchase price is determined may be represented by realized or unrealized appreciation in the Fund's portfolio or undistributed income of the Fund, subsequent distributions (or a portion thereof) on such shares may in economic reality represent a return of his capital. However, such a subsequent distribution would be taxable to such investor even if the net asset value of his shares is, as a result of the distributions, reduced below his cost for such shares. Prior to purchasing shares of the Fund, an investor should carefully consider such tax liability which he might incur by reason of any subsequent distributions of net investment income and capital gains.
Fund shareholders may be subject to state, local and foreign taxes on their Fund distributions and redemptions of Fund shares. Also, the tax consequences to a foreign shareholder of an investment in the Fund may be different from those described above. Shareholders are advised to consult their own tax advisers with respect to the particular tax consequences to them of an investment in the Fund.
PORTFOLIO TRANSACTIONS AND BROKERAGE
The Adviser is responsible for decisions to buy and sell securities, futures and options on securities, on indices and on futures for the Fund, the selection of brokers, dealers and futures commission merchants to effect those transactions and the negotiations of brokerage commissions, if any. Broker- dealers and futures commission merchants may receive brokerage commissions on Fund portfolio transactions, including options and the purchase and sale of underlying securities or futures positions upon the exercise of options. Orders may be directed to any broker or futures commission merchant to the extent and in the manner permitted by applicable law.
Equity securities traded in over-the-counter market and bonds, including convertible bonds, are generally traded on a `net' basis with dealers acting as principal for their own accounts without a stated commission, although the price of the security usually includes a profit to the dealer. In underwritten offerings, securities are purchased at a fixed price which includes an amount of compensation to the underwriters, generally referred to as the underwriter's concession or discount. On occasion, certain money market instruments and U.S. government agency securities may be purchased directly from the issuer, in which case no commissions or discounts are paid. The Fund will not deal with the Distributor in any transaction in which the Distributor acts as principal. Thus, it will not deal with the Distributor acting as market maker, and it will not execute a negotiated trade with the Distributor if execution involves the Distributor acting as principal with respect to any part of the Fund's order.
Portfolio securities may not be purchased from any underwriting or selling group of which the Distributor, during the existence of the group, is a member, except in accordance with rules of the Securities and Exchange Commission. This limitation, in the opinion of the Company, will not significantly affect a Fund's ability to pursue its present investment objective.
In placing orders for portfolio securities or futures, the Adviser is required to give primary consideration to obtaining the most favorable price and efficient execution. Within the framework of this policy, the Adviser will consider the research and investment services provided by brokers, dealers or futures commission merchants who effect or are parties to portfolio transactions of the Fund, the Adviser or the Adviser's other clients. Such research and investment services are those which brokerage houses customarily provide to institutional investors and include statistical and economic data and research reports on particular companies and industries. Such services are used by the Adviser in connection with all of its investment activities, and some of such services obtained in connection with the execution of transactions for the Fund may be used in managing other investment accounts. Conversely, brokers, dealers or futures commission merchants furnishing such services may be selected for the execution of transactions of such other accounts, whose aggregate assets are far larger than the Funds, and the services furnished by such brokers, dealers or futures commission merchants may be used by the Adviser in providing investment management for the Fund. Commission rates are established pursuant to negotiations with the broker, dealer or futures commission merchant based on the quality and quantity of execution services provided by the executing party in the light of generally prevailing rates. In addition, the Adviser is authorized to pay higher commissions on brokerage transactions for the Fund to brokers other than the Distributor in order to secure the research and investment services described above, subject to review by the Board of Trustees from time to time as to the extent and continuation of this practice. The allocation of orders among brokers and the commission rates paid are reviewed periodically by the Board of Trustees.
Subject to the above considerations, the Distributor may act as a securities broker for the Fund. In order for the Distributor to effect any portfolio transactions for the Fund, the commissions, fees or other remuneration received by the Distributor must be reasonable and fair compared to the commissions, fees or other remuneration paid to other brokers in connection with comparable transactions involving similar securities being purchased or sold on an Exchange during a comparable period of time. This standard would allow the Distributor to receive no more than the remuneration expected to be received by an unaffiliated broker in a commensurate arms-length transaction.
Furthermore, the Board of Trustees, including a majority of the Trustees who are not `interested' directors, has adopted procedures which are reasonably designed to provide that any commissions, fees or other remuneration paid to the Distributor is consistent with the foregoing standard. Brokerage transactions with the Distributor also are subject to such fiduciary standards as may be imposed by applicable law. From time to time, the Fund may engage in agency cross transactions with respect to securities that meet its investment objective and policies. An agency cross transaction occurs when a broker sells securities from one client's account to another client's account. Cross transactions are executed with written permission from the Fund. This authorization permits cross transactions only between the Fund on one side and clients for which the Distributor acts as broker, but does not act as investment adviser, on the other side. The authorization can be terminated at any time by written notice to the Distributor.
The Fund may from time to time sell or purchase securities to or from companies or persons who are considered to be affiliated with the Fund solely because they are investment advisory clients of the Distributor or the Adviser. No consideration other than cash payment against prompt delivery at the then current market price of the securities will be paid to any person involved in those transactions. Additionally, all such transactions will be consistent with procedures adopted by the Board of Trustees.
For the years ended December 31, 2003, 2002 and 2001, the Fund paid a total of $130,939, $145,500 and $48,657, respectively, in brokerage commissions, with respect to portfolio transactions aggregating $51,541,205, $50,087,517 and $15,254,545, respectively, all of which was placed with brokers or dealers who provide research and investment information. Of such amounts and for the same periods $0, $8,215 and $2,213, respectively, in brokerage commissions (0%, 5.646% and 4.548%, respectively, of the aggregate) with respect to portfolio transactions aggregating $0, $1,930,215 and $535,178, respectively, (0%, 3.854% and 3.508%, respectively, of the aggregate) was placed with broker-dealer affiliates of the Adviser.
CAPITAL STOCK
The authorized capital stock of the Trust consists of one billion shares of common stock, par value $0.001 per share, of which 150,000,000 shares have been designated as shares of the Fund. All shares issued and outstanding are fully paid and non-assessable and are redeemable at net asset value at the option of shareholders. Shares have no preemptive or conversion rights and are freely transferable. The Board of Trustees is authorized to classify, reclassify and issue any unissued shares of the Fund without shareholder approval. Accordingly, in the future, the Trustees may create additional series of shares with different investment objectives, policies or restrictions. Any issuance of shares of another series or class would be governed by the Investment Company Act and Delaware law.
Pursuant to its By-Laws, the Trust does not generally hold annual meetings of shareholders. Shareholder meetings, however, will be held when required by the Investment Company Act or Delaware law, or when called by the Chairman of the Board, the President or shareholders owning at least 10% of the outstanding shares of the Fund. The cost of any such notice and meeting will be borne by the Fund.
Each share of common stock of the Fund is entitled to one vote for each dollar of net asset value and a proportionate fraction of a vote for each fraction of a dollar of net asset value, unless a different allocation of voting rights is required under applicable law for a mutual fund that is an investment medium for Variable Contracts. Generally, shares of each series vote together on any matter submitted to shareholders, except when otherwise required by the Investment Company Act, or (if shares of more than one series are outstanding) when a matter affects the interests of each series in a different way, in which case the shareholders of each series vote separately by class. If the directors determine that a matter does not affect the interests of a particular series, then the shareholders of that series will not be entitled to vote on that matter. An insurance company issuing a Variable Contract invested in shares of the Fund (or any other series issued in the future) will request voting instructions from Variable Contract owners and will vote shares in proportion to the voting instructions received. Currently, the Trust has shares of one series outstanding (the Fund).
CUSTODY OF PORTFOLIO
The Trust has appointed The Bank of New York, One Wall Street, New York, NY 10286, as custodian and foreign custody manager for the Fund's assets.
INDEPENDENT AUDITORS
The Trust's independent auditors are KPMG LLP, Certified Public Accountants, 757 Third Avenue, New York, NY 10017. KPMG LLP audits the Fund's annual financial statements and renders its report thereon, which is included in the Annual Report to Shareholders.
FINANCIAL STATEMENTS
The Fund's financial statements and notes thereto appearing in the December 31, 2003 Annual Report to Shareholders and the report thereon of KPMG LLP, Certified Public Accountants, appearing therein are incorporated by reference in this Statement of Additional Information. The Fund will furnish, without charge, a copy of such Annual Report to Shareholders on request. All such requests should be directed to the First Eagle Variable Funds, at 1345 Avenue of the Americas, New York, NY 10105.
APPENDIX
RATINGS OF INVESTMENT SECURITIES
The rating of a rating service represents the service's opinion as to the credit quality of the security being rated. However, the ratings are general and are not absolute standards of quality or guarantees as to the creditworthiness of an issuer. Consequently, the Company's investment adviser believes that the quality of debt securities in which the Fund invests should be continuously reviewed. A rating is not a recommendation to purchase, sell or hold a security, because it does not take into account market value or suitability for a particular investor. When a security has received a rating from more than one service, each rating should be evaluated independently. Ratings are based on current information furnished by the issuer or obtained by the ratings services from other sources which they consider reliable. Ratings may be changed, suspended or withdrawn as a result of changes in or unavailability of such information, or for other reasons.
The following is a description of the characteristics of ratings used by Moody's Investors Service, Inc. ('Moody's') and Standard & Poor's Corporation ('S&P').
MOODY'S RATINGS.
Aaa -- Bonds rated Aaa are judged to be 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. Although 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 bonds.
Aa -- Bonds rated Aa are judged to be 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 bonds or fluctuation of protective elements may be of greater amplitude or there may be other elements present which make the long-term risk appear somewhat larger than in Aaa bonds.
A -- Bonds rated A possess many favorable investment attributes and are to be considered as upper medium grade obligations. Factors giving security to principal and interest are considered adequate but elements may be present which suggest a susceptibility to impairment sometime in the future.
Baa -- Bonds rated Baa are considered as medium grade obligations; i.e., they are neither highly protected nor poorly secured. Interest payments and principal security appear adequate for the present but certain protective elements may be lacking or may be characteristically unreliable over any great length of time. Such bonds lack outstanding investment characteristics and in fact have speculative characteristics as well.
Ba -- Bonds rated Ba are judged to have speculative elements; their future cannot be considered as well assured. Often the protection of interest and principal payments may be very moderate and thereby not well safeguarded during both good and bad times over the future. Uncertainty of position characterizes bonds in this class.
B -- Bonds rated B generally lack characteristics of a desirable investment. Assurance of interest and principal payments or of maintenance of other terms of the contract over any long period of time may be small.
Caa -- Bonds rated Caa are of poor standing. Such bonds may be in default or there may be present elements of danger with respect to principal or interest.
Ca -- Bonds rated Ca represent obligations which are speculative to a high degree. Such bonds are often in default or have other marked shortcomings.
S&P RATINGS.
AAA -- Bonds rated AAA have the highest rating. Capacity to pay principal and interest is extremely strong.
AA -- Bonds rated AA have a very strong capacity to pay principal and interest and differ from AAA bonds only to a small degree.
A -- Bonds rated A have a strong capacity to pay principal and interest, although they are somewhat more susceptible to the adverse effects of changes in circumstances and economic conditions than bonds in higher rated categories.
BBB -- Bonds rated BBB are regarded as having an adequate capacity to pay principal and interest. Whereas they normally exhibit protection parameters, adverse economic conditions or changing circumstances are more likely to lead to a weakened capacity to pay principal and interest for bonds in this capacity than for bonds 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 obligation. BB indicates the lowest degree of speculation among such bonds and CC the highest degree of speculation. Although such bonds will likely have some quality and protective characteristics, these are outweighed by large uncertainties or major risk exposures to adverse conditions.
PART C
OTHER INFORMATION
ITEM 23. EXHIBITS
EXHIBIT
-------
(a) -- Declaration of Trust of the Registrant is filed herewith.
(b) -- By-Laws of the Registrant are filed herewith.
(c) -- Not Applicable.
(d) -- Investment Advisory Contract between the Registrant and
Arnhold and S. Bleichroeder Advisers, LLC ('ASB
Advisers').*
(e)(1) -- Distribution Agreement between the Registrant and ASB
Securities LLC ('ASB Securities').*
(e)(2) -- Form of 12b-1 Servicing Agreement Between SGCS and A Life
Insurance Company.*
(f) -- Not applicable.
(g)(1) -- Custody Agreement between the Registrant and The Bank of
New York.**
(g)(2) -- Foreign Custody Manager Agreement between the Registrant
and The Bank of New York.**
(g)(3) -- Form of Subcustodial Agreement.*
(g)(4) -- Investment Accounting Agreement between the Registrant
and State Street Bank and Trust Company is filed herewith.
(g)(5) -- Amendment adding Registrant as a party to the Transfer
Agency Agreement ('Master TA Agreement') between First
Eagle Funds, Inc. and DST Systems Inc.***
(g)(6) -- Special Custody Agreement between the Registrant and HSBC
Bank USA is filed herewith.
(h) -- Form of Participation Agreement among the Registrant, A
Life Insurance Company and ASB Securities is filed
herewith.
(i) -- Not applicable.
(j) -- Consent of KPMG LLP is filed herewith.
(k) -- Not applicable.
(l) -- Investment Representation Letter of SGAM Corp.*
(m) -- Rule 12b-1 Distribution Plan and Agreement between the
Registrant and ASB Securities.**
(n) -- Not applicable.
(p) -- Code of Ethics.**
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* Previously filed as an Exhibit to the Registration Statement.
** Incorporated herein by reference to Post-Effective Amendment No. 8 filed on or about April 13, 2001.
*** The Master TA Agreement is incorporated herein by reference to Post-Effective Amendment No. 4 to the First Eagle Funds, Inc. Registration Statement filed on or about July 25, 1997.
ITEM 24. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT
None.
ITEM 25. INDEMNIFICATION
Article VII, Section 2 of the Registrant's Declaration of Trust contains the following provision, generally providing for indemnification of Trustees, officers, employees and agents of the Registrant
against judgments, fines, penalties, settlements and expenses to the fullest extent authorized, and in the manner permitted, by applicable federal and state law.
Indemnification and Limitation of Liability. A Trustee, when acting in such capacity, shall not be personally liable to any Person, other than the Trust or a Shareholder to the extent provided in this Article VII, for any act, omission or obligation of the Trust, of such Trustee or of any other Trustee. The Trustees shall not be responsible or liable in any event for any neglect or wrongdoing of any officer, agent, employee, Manager or Principal Underwriter of the Trust. The Trust (i) may indemnify an agent of the Trust or any Person who is serving or has served at the Trust's request as an agent of another organization in which the Trust has any interest as a shareholder, creditor or otherwise and (ii) shall indemnify each Person who is, or has been, a Trustee, officer or employee of the Trust and any Person who is serving or has served at the Trust's request as a director, officer, trustee, or employee of another organization in which the Trust has any interest as a shareholder, creditor or otherwise, in the case of (i) and (ii), to the fullest extent consistent with the 1940 Act and in the manner provided in the By-Laws; provided that such indemnification shall not be available to any of the foregoing Persons in connection with a claim, suit or other proceeding by any such Person against the Trust or a Series (or Class) thereof.
The Registrant also intends to maintain an investment company directors' and officers' errors and omissions insurance policy providing for additional protections for such persons in accord with industry practice.
ITEM 26. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER
ASB Advisers is the Registrant's investment adviser. In addition to the Registrant, ASB Advisers acts as investment adviser to the First Eagle Funds, to various onshore and offshore unregistered investment funds, and to accounts managed on behalf of institutional investors and high net worth individuals.
ASB Advisers is a wholly owned subsidiary of Arnhold and S. Bleichroeder Holdings, Inc. ('ASB Holdings'), a privately-owned holding company organized under the laws of the State of New York. In connection with another wholly owned subsidiary, ASB Securities, a registered broker-dealer, and, through that company's First Eagle Funds Distributors division, which serves as the principal underwriter to the Registrant, ASB Holdings is also substantially involved in the distribution of mutual fund shares. The business and other connections of the Adviser's directors and officers are as follows:
POSITION WITH THE BUSINESS AND OTHER
NAME ADVISER CONNECTIONS
---- ------- -----------
Henry H. Arnhold...... Director Co-Chairman of the Board of Arnhold and
S. Bleichroeder Holdings, Inc.; Director,
Aquila International Fund Limited; Trustee,
The New School for Social Research; Director,
Conservation International
John P. Arnhold....... Chairman, CEO and Co-President, Co-CEO and Director, Arnhold and
Director S. Bleichroeder Holdings, Inc.; President and
Director, Natexis Bleichroeder, Inc.;
President and Director, Natexis Bleichroeder,
UK Ltd.; Chairman, CEO and Director, ASB
Securities LLC; Director, Aquila International
Fund Limited; President, WorldVest, Inc.;
Director, Arnhold Ceramics; Co-President and
Director, First Eagle Funds, Inc. and First
Eagle Variable Funds
Michael M. Kellen..... Vice Chairman and Co-CEO and Director, Arnhold and
Director S. Bleichroeder Holdings, Inc.; Director,
Arnhold and S. Bleichroeder Advisers UK, Ltd.;
Director, ASB Securities, LLC; Director,
Arnhold Ceramics
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James E. Jordan....... Managing Director Director, ASB Securities LLC and ASB Advisers
UK, Ltd.; Director, Leucadia National
Corporation; Director, Empire Insurance
Company; Director, JZ Equity Partners Plc.;
Director, School of International and Public
Affairs of Columbia University; Chairman's
Council, Conservation International; Director,
First Eagle Funds, Inc. and First Eagle
Variable Funds
Robert Miller......... Vice President, Secretary Director, Arnhold and S. Bleichroeder, UK Ltd.
and Treasurer
Robert Bruno.......... Senior Vice President Senior Vice President, ASB Securities LLC;
Vice President, Secretary and Treasurer, First
Eagle Funds, Inc. and First Eagle Variable
Funds
Charles de Vaulx...... Senior Vice President Senior Vice President, First Eagle Funds, Inc.
and First Eagle Variable Funds
Jean-Marie Senior Vice President Co-President, First Eagle Funds, Inc. and
Eveillard........... First Eagle Variable Funds
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ITEM 27. PRINCIPAL UNDERWRITERS
(a) The First Eagle Funds Distributors division of ASB Securities is the Registrant's distributor (the 'Distributor'). It also serves as principal underwriter for First Eagle Funds, Inc.
(b) The positions and offices of the Distributor's directors and officers who serve the Registrant are as follows:
NAME AND POSITION AND OFFICES POSITION AND OFFICES WITH
BUSINESS ADDRESS* WITH UNDERWRITER REGISTRANT
----------------- ---------------- ----------
John Arnhold......................... Co-President and Director Co-President and Director
James Jordan......................... Managing Director Director
Robert Bruno......................... Senior Vice President, Vice President, Secretary and
Registered Principal Treasurer
Howard Green......................... Chief Financial Officer N/A
Stefanie Spritzler................... Vice President Assistant Treasurer
Suzan Afifi.......................... Vice President Vice President and Assistant
Secretary
Andrew Baldauf....................... Vice President N/A
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* The address of each person named above is 1345 Avenue of the Americas, New York, New York 10105.
(c) The Registrant has no principal underwriter which is not an affiliated person of the Registrant.
ITEM 28. LOCATION OF ACCOUNTS AND RECORDS
All accounts, books and other documents required to be maintained by
Section 31(a) of the Investment Company Act of 1940 and the Rules promulgated
thereunder are maintained at the offices of the Registrant, 1345 Avenue of the
Americas, New York, NY 10105 with the exception of certain accounts, books and
other documents which are kept by the Registrant's custodian, The Bank of New
York, One Wall Street, New York, NY 10286.
ITEM 29. MANAGEMENT SERVICES
Not applicable.
ITEM 30. UNDERTAKINGS
The Registrant undertakes to call a meeting of shareholders for the purpose of voting upon the question of removal of a director, if requested to do so by the holders of at least 10% of a Fund's outstanding shares, and that it will assist communication with other shareholders as required by Section 16(c) of the Investment Company Act of 1940.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the Investment Company Act of 1940, the Registrant has duly caused this Post-Effective Amendment to its Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of New York and State of New York, as of the 15th day of April, 2004.
FIRST EAGLE VARIABLE FUNDS
By: *
..................................
JOHN P. ARNHOLD,
CO-PRESIDENT
Pursuant to the requirements of the Securities Act of 1933, this Post-Effective Amendment to the Registration Statement has been signed below by the following persons in the capacities and on the dates indicated.
SIGNATURE CAPACITY DATE
--------- -------- ----
* Trustee April 15, 2004
.........................................
(JOHN P. ARNHOLD)
* Trustee April 15, 2004
.........................................
(CANDACE K. BEINECKE)
* Trustee April 15, 2004
.........................................
(JEAN D. HAMILTON)
* Trustee April 15, 2004
.........................................
(JAMES E. JORDAN)
* Trustee April 15, 2004
.........................................
(WILLIAM M. KELLY)
* Trustee April 15, 2004
.........................................
(PAUL J. LAWLER)
* Trustee April 15, 2004
.........................................
(DOMINIQUE RAILLARD)
* Trustee April 15, 2004
.........................................
(NATHAN SNYDER)
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SIGNATURE CAPACITY DATE
--------- -------- ----
/S/ ROBERT BRUNO Vice President, Secretary, Treasurer April 15, 2004
......................................... (Principal Financial and
(ROBERT BRUNO) Accounting Officer)
*By: /S/ ROBERT BRUNO
.........................................
ROBERT BRUNO
POWER-OF-ATTORNEY
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EXHIBIT INDEX
EXHIBIT DESCRIPTION
------- -----------
(a) -- Declaration of Trust of the Registrant.
(b) -- By-Laws of the Registrant.
(g)(6) -- Special Custody Agreement between the Registrant and HSBC
Bank USA.
(h) -- Form of Participation Agreement among the Registrant, A
Life Insurance Company and ASB Securities.
(j) -- Consent of KPMG LLP.
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AGREEMENT AND DECLARATION OF TRUST
OF
FIRST EAGLE VARIABLE FUNDS
THIS AGREEMENT AND DECLARATION OF TRUST is made and entered into as of the date set forth below by the Trustees named hereunder for the purpose of forming a Delaware statutory trust in accordance with the provisions hereinafter set forth,
NOW, THEREFORE, the Initial Trustee hereby directs that the Certificate of Trust be filed with Office of the Secretary of State of the State of Delaware, and the Initial Trustee does hereby declare that the Trustees will hold in trust all cash, securities and other assets that the Trust now possesses or may hereafter acquire from time to time in any manner and manage and dispose of the same upon the following terms and conditions for the benefit of the holders of Shares in the Trust.
ARTICLE I
Name and Definitions
Section 1. Name. This Trust shall be known as "First Eagle Variable Funds" and the Trustees shall conduct the business of the Trust under that name or any other name as they may from time to time determine.
Section 2. Definitions. Whenever used herein, unless otherwise required by the context or specifically provided:
(a) "By-Laws" shall mean the By-Laws of the Trust, as amended from time to time, which By-Laws are expressly herein incorporated by reference as part of the "governing instrument" within the meaning of the Delaware Act;
(b) "Certificate of Trust" means the certificate of trust, as amended or restated from time to time, filed by the Trustees in the Office of the Secretary of State of the State of Delaware in accordance with the Delaware Act;
(c) "Class" means a class of Shares of a Series of the Trust established in accordance with the provisions of Article III hereof;
(d) "Commission" means the Securities and Exchange Commission;
(e) "Declaration of Trust" means this Agreement and Declaration of Trust, as amended or restated from time to time;
(f) "Delaware Act" means the Delaware Statutory Trust Act, 12 Del. C. 3801 et seq., as amended from time to time;
(g) "Initial Trustee(s)" means the person or persons who have signed this Declaration of Trust;
(h) "Manager" means a party furnishing services to the Trust pursuant to an investment management or investment advisory agreement described in Article IV, Section 8(a) hereof;
(i) "1940 Act" means the Investment Company Act of 1940 and the Rules and Regulations thereunder, all as amended from time to time;
(j) "Person" means and includes individuals, corporations, partnerships, trusts, associations, joint ventures, estates and other entities, whether or not legal entities, and governments and agencies and political subdivisions thereof, whether domestic or foreign;
(k) "Principal Underwriter" shall have the meaning given to it in the 1940 Act;
(l) "Series" means each Series of Shares established and designated under or in accordance with the provisions of Article III hereof;
(m) "Shareholder" means a beneficial owner of outstanding Shares;
(n) "Shares" means the Shares of beneficial interest into which the beneficial interest in the Trust shall be divided, from time to time, and includes fractions of Shares as well as whole Shares;
(o) "Trust" means the Delaware statutory trust established under the Delaware Act by this Declaration of Trust and the filing of the Certificate of Trust in the Office of the Secretary of State of the State of Delaware;
(p) "Trust Property" means any and all property, real or personal, tangible or intangible, that is from time to time owned or held by or for the account of the Trust; and
(q) "Trustees" means the Initial Trustee, and all other Persons who may, from time to time, be duly elected or appointed to serve as Trustees in accordance with the provisions hereof, in each case so long as such Person shall continue in office in accordance with the terms of this Declaration of Trust, and reference herein to a Trustee or the Trustees shall refer to such Person or Persons in her or his or their capacity as Trustees hereunder.
ARTICLE II
Purpose of Trust
The purpose of the Trust is to conduct, operate and carry on the business of a management investment company registered under the 1940 Act through one or more Series investing primarily in securities, and to carry on such other business as the Trustees may, from time to time, determine pursuant to their authority under this Declaration of Trust.
ARTICLE III
Shares
Section 1. Division of Beneficial Interests. The beneficial interests in the Trust may be divided into one or more Series. Each Series may be divided into one or more Classes. Subject to the further provisions of this Article III and any applicable requirements of the 1940 Act, the Trustees shall have full power and authority, in their sole discretion, and without obtaining any authorization or vote of the Shareholders of any Series or Class thereof, (i) to divide the beneficial interests in the Trust or in each Series or Class thereof into Shares, with or without par value as the Trustees shall determine, (ii) to issue Shares without limitation as to number (including fractional Shares) to such Persons and for such amount and type of consideration, including cash or securities, at such time or times and on such terms as the Trustees may deem appropriate, (iii) to establish and designate and to change in any manner any Series or Class thereof and to fix such preferences, voting powers, rights, duties and privileges and business purpose of each Series or Class thereof as the Trustees may, from time to time, determine, which preferences, voting powers, rights, duties and privileges may be senior or subordinate to (or in the case of business purpose, different from) any existing Series or Class thereof and may be limited to specified property or obligations of the Trust or profits and losses associated with specified property or obligations of the Trust, (iv) to divide or combine the Shares of any Series or Class thereof into a greater or lesser number, or issue dividends in Shares with respect to Shares of any Series or Class, without thereby materially changing the proportionate
beneficial interest of the Shares of such Series or Class in the assets held with respect to that Series or Class thereof, (v) to classify or reclassify any issued Shares of any Series or Class thereof into Shares of one or more Series or Classes thereof and (vi) to take such other action with respect to the Shares as the Trustees may deem desirable.
Subject to the distinctions permitted among Classes or otherwise in Shares of the same Series as established by the Trustees consistent with the requirements of the 1940 Act, each Share of a Series of the Trust shall represent an equal beneficial interest in the net assets of such Series, and each holder of Shares of a Series shall be entitled to receive such holder's pro rata share of distributions of income and capital gains, if any, made with respect to such Series. Upon redemption of the Shares of any Series or Class thereof, the applicable Shareholder shall be entitled to be paid solely out of the funds and property of such Series or Class thereof of the Trust.
All references to Shares in this Declaration of Trust shall be deemed to be Shares of any or all Series or Classes thereof, as the context may require. All provisions herein relating to the Trust shall apply equally to each Series of the Trust and each Class thereof, except as the context otherwise requires.
All Shares issued hereunder, including, without limitation, Shares issued in connection with a dividend in Shares or a split or reverse split of Shares, shall be fully paid and non-assessable. Except as otherwise provided by the Trustees, Shareholders shall have no appraisal, preemptive or other right to subscribe to any additional Shares or other securities issued by the Trust.
Section 2. Ownership of Shares. The ownership of Shares shall be recorded on the books of the Trust or a transfer or similar agent for the Trust, which books shall be maintained separately for the Shares of each Series (or Class). No certificates certifying the ownership of Shares shall be issued except as the Trustees may otherwise determine from time to time. The Trustees may make such rules as they consider appropriate for the issuance of Share certificates, the transfer of Shares of each Series (or Class) and similar matters. The record books of the Trust as kept by the Trust or any transfer or similar agent, as the case may be, shall be conclusive as to the identity of the Shareholders of each Series (or Class) and as to the number of Shares of each Series (or Class) held, from time to time, by each Shareholder.
Section 3. Transfer of Shares. Except as otherwise provided by the Trustees, Shares shall be transferable on the books of the Trust only by the record holder thereof or by his duly authorized agent upon delivery to the Trustees or the Trust's transfer agent of a duly executed instrument of transfer, together with a Share certificate if one is outstanding, and such evidence of the genuineness of the execution and authorization thereof as may be required by the Trustees and of such other matters as may be required by the Trustees. Upon such delivery, and subject to any further requirements specified by the Trustees or contained in the By-Laws, the transfer shall be recorded on the books of the Trust. Until a transfer is so recorded, the record holder of Shares shall be deemed to be the holder of such Shares for all purposes hereunder and neither the Trustees nor the Trust, nor any transfer agent, shareholder servicing agent or similar agent, any officer, employee or agent of the Trust, shall be affected by any notice of a proposed transfer.
Section 4. Investments in the Trust. Investments may be accepted by the Trust from such Persons, at such times, on such terms, and for such consideration as the Trustees, from time to time, may authorize.
Section 5. Status of Shares and Limitation of Personal Liability. Shares shall be deemed to be personal property giving only the rights provided in this instrument. Every Shareholder, by virtue of having become a Shareholder, shall be held to have expressly assented and agreed to the terms hereof. The death, incapacity, dissolution, termination or bankruptcy of a Shareholder during the existence of the Trust shall not operate to dissolve the Trust, nor entitle the representative of any such Shareholder to an accounting or to take any action in court or elsewhere against the Trust or the Trustees, but entitles such representative only to the rights of such Shareholder under this Trust. Ownership of Shares shall not entitle the Shareholder to any title in or to the whole or any part of the Trust Property or right to call for a partition or division of the same or for an accounting, nor shall the ownership of Shares constitute the Shareholders as partners. Neither the Trust nor the Trustees, nor any officer, employee or agent of the Trust shall have any power to bind personally any Shareholder, nor, except as specifically provided herein, to call upon any Shareholder for the payment of any sum of money or assessment whatsoever other than such as the Shareholder may at any time personally agree to pay. Except as specifically provided herein, no Shareholder shall be personally liable for the debts, liabilities, obligations or expenses incurred by, contracted for, or
otherwise existing with respect to, the Trust or by or on behalf of any Series or Class. Every note, bond, contract or other understanding issued by or on behalf of the Trust or Trustees relating to the Trust or to a Series or Class may include a recitation limiting the obligation represented thereby to the Trust or to one or more Series or Class and its respective assets (but the omission of such a recitation shall not operate to bind any Shareholder or Trustee of the Trust).
Section 6. Establishment and Designation of Series (or Class). Without obtaining any authorization or vote of the Shareholders of any Series or Class thereof (except as otherwise required by the 1940 Act), the establishment and designation of any Series (or Class) of Shares shall be effective upon the adoption by a majority of the then Trustees of a resolution that sets forth such establishment and designation and the relative rights and preferences of such Series (or Class), whether directly in such resolution or by reference to another document including, without limitation, any registration statement of the Trust, or as otherwise provided in such resolution.
Shares of each Series (or Class) established pursuant to this Article III, unless otherwise provided in the resolution establishing such Series, shall have the following relative rights and preferences:
(a) Assets Held with Respect to a Particular Series (or Class). All consideration received by the Trust for the issue or sale of Shares of a particular Series or Class thereof, together with all assets in which such consideration is invested or reinvested, all income, earnings, profits, and proceeds thereof from whatever source derived, including, without limitation, any proceeds derived from the sale, exchange or liquidation of such assets, and any funds or payments derived from any reinvestment of such proceeds in whatever form the same may be, shall irrevocably be held with respect to that Series (or Class) for all purposes, subject only to the rights of creditors of such Series (or Class thereof to the extent provided below), and shall be so recorded upon the books of account of the Trust. Such consideration, assets, income, earnings, profits and proceeds thereof, from whatever source derived, including, without limitation, any proceeds derived from the sale, exchange or liquidation of such assets, and any funds or payments derived from any reinvestment of such proceeds, in whatever form the same may be, are herein referred to as assets held with respect to that Series (or Class thereof). In the event that there are any assets, income, earnings, profits and proceeds thereof, funds or payments that are not readily identifiable as assets held with respect to any particular Series (and the Classes thereof) (collectively "General Assets"), the Trustees shall allocate such General Assets to, between or among any one or more of the Series (and the Classes thereof) in such manner and on such basis as the Trustees, in their sole discretion, deem fair and equitable, and any General Assets so allocated to a particular Series (and the Classes thereof) shall be assets held with respect to that Series and such Classes. Each such allocation by the Trustees shall be conclusive and binding upon the Shareholders of all Series and Classes for all purposes. Separate and distinct records shall be maintained for each Series (and the Classes thereof) and the assets held with respect to each Series (and the Classes thereof) shall be held and accounted for separately from the assets held with respect to all other Series (and the Classes thereof) and the General Assets of the Trust not allocated to such Series or Classes.
(b) Liabilities Attributable to a Particular Series (or Class). The assets of the Trust held with respect to each particular Series (or Class thereof) shall be charged exclusively with the liabilities of the Trust attributable to that Series or Class and all expenses, costs, charges and reserves attributable to that Series or Class. Any general liabilities of the Trust that are not readily identifiable as being attributable to any particular Series (and the Classes thereof) shall be allocated and charged by the Trustees to and among any one or more of the Series (and the Classes thereof) in such manner and on such basis as the Trustees in their sole discretion deem fair and equitable. All liabilities, expenses, costs, charges, and reserves so charged to a Series (and the Classes thereof) are herein referred to as "liabilities attributable to" that Series (or Class thereof). Each allocation of liabilities, expenses, costs, charges and reserves by the Trustees shall be conclusive and binding upon the Shareholders of all Series and Classes for all purposes. All liabilities attributable to a particular Series shall be enforceable against the assets held with respect to such Series only and not against the assets of the Trust generally or against the assets held with respect to any other Series. Notice of this limitation on the liability of each Series shall be set forth in the Certificate of Trust or in an amendment thereto prior to the issuance of any Shares of a Series. To the extent that the Trustees, pursuant to Section 2 of Article VII hereof, include a Class limitation on liability in any note, bond, contract, instrument, certificate or undertaking made with respect to any Class, the parties to such note, bond, contract, instrument, certificate or undertaking shall look only to the assets of such Class in satisfaction of the liabilities arising thereunder and not to the assets of any other Class of the applicable Series.
(c) Dividends, Distributions, Redemptions and Repurchases. Notwithstanding any other provision of this Declaration of Trust, including, without limitation, Article VI, no dividend or distribution, including, without limitation, any distribution paid upon dissolution of the Trust or of any Series (or Class) thereof with respect to, nor any redemption or repurchase of, the Shares of any Series (or Class thereof) shall be effected by the Trust other than from the assets held with respect to such Series (or Class thereof), nor shall any Shareholder of any particular Series (or Class thereof) otherwise have any right or claim against the assets held with respect to any other Series or Class except to the extent that such Shareholder has such a right or claim hereunder as a Shareholder of such other Series or Class. The Trustees shall have full discretion, to the extent not inconsistent with the 1940 Act, to determine which items shall be treated as income and which items as capital; and each such determination and allocation shall be conclusive and binding upon the Shareholders.
(d) Equality. All the Shares of each particular Series (or Class thereof) shall represent an equal proportionate interest in the assets held with respect to that Series (or Class thereof), and each Share of any particular Series shall be equal to each other Share of that Series (subject to the liabilities attributable to that Series and such rights and preferences as may have been established and designated with respect to Classes, or otherwise, of Shares within such Series).
(e) Fractions. Any fractional Share of a Series (or Class thereof) shall carry proportionately all the rights and obligations of a whole Share of that Series or Class, including rights with respect to voting, receipt of dividends and distributions, redemption of Shares and dissolution of the Trust.
(f) Combination of Series. The Trustees shall have the authority, without the approval of the Shareholders of any Series (or Class thereof), unless otherwise required by applicable law, to combine the assets and liabilities attributable to any two or more Series (or Classes) into assets and liabilities attributable to a single Series or Class.
(g) Elimination of Series. At any time that there are no Shares outstanding of any particular Series (or Class) previously established and designated, the Trustees may by resolution of a majority of the Trustees abolish that Series (or Class) and rescind the establishment and designation thereof and may thereafter establish a new Series (or Class) with such designation and otherwise as herein provided.
Section 7. Indemnification of Shareholders. If any Shareholder or former Shareholder shall be exposed to liability by reason of a claim or demand relating to such Person being or having been a Shareholder, and not because of such Person's acts or omissions, the Shareholder or former Shareholder (or such Person's heirs, executors, administrators, or other legal representatives or in the case of a corporation or other entity, its corporate or other general successor) shall be entitled to be held harmless from and indemnified out of the assets of the Trust against all cost and expense reasonably incurred in connection with such claim or demand, but only out of the assets held with respect to the particular Series (or Class thereof) of Shares of which such Person is or was a Shareholder and from or in relation to which such liability arose. The Series (or Class thereof) may, at its option, and shall, upon request by the Shareholder, assume the defense of any claim made against the Shareholder for any act or obligation of such Series and satisfy any judgment thereon.
ARTICLE IV
Trustees
Section 1. Election of Trustees. Upon the issuance of beneficial interests of the Trust, First Eagle Variable Funds, Inc., a Maryland corporation, as initial shareholder of the Trust, shall elect the Trustees of the Trust; to the extent that persons so elected are different from the Initial Trustee, such persons shall replace the Initial Trustee as Trustees of the Trust.
Section 2. Number, Election and Tenure. The Initial Trustee shall be James Jordan. After the initial election of Trustees, the number of Trustees shall be nine or such other number as shall, from time to time, be determined by the Trustees pursuant to Section 4 of this Article IV. Except as described above with respect to the Initial Trustee, each Trustee shall serve during the continued term of the Trust until she or he dies, resigns, is
declared bankrupt or incompetent by a court of appropriate jurisdiction, or is removed, or, if sooner, until the next meeting of Shareholders called for the purpose of electing Trustees and until the election and qualification of her or his successor. In the event that less than the majority of the Trustees holding office have been elected by the Shareholders, to the extent required by the 1940 Act, the Trustees then in office shall call a Shareholders meeting for the election of Trustees. Any Trustee may resign at any time by written instrument signed by her or him and delivered to any officer of the Trust or to the secretary of any meeting of the Trustees. Such resignation shall be effective upon receipt unless specified to be effective at some other time. Except to the extent expressly provided in a written agreement with the Trust, no Trustee resigning and no Trustee removed shall have any right to any compensation for any period following her or his resignation or removal, or any right to damages on account of such removal. The Shareholders may elect Trustees at any meeting of Shareholders called by the Trustees for that purpose. Any Trustee may be removed at any meeting of Shareholders by a majority vote of the outstanding Shares of the Trust, as defined in the 1940 Act.
Section 3. Effect of Death, Resignation or Removal of a Trustee. The death, declination to serve, resignation, retirement, removal, or incapacity of one or more Trustees, or all of them, shall not operate to annul the Trust or to revoke any existing agency created pursuant to the terms of this Declaration of Trust. Whenever there shall be fewer than the designated number of Trustees, until additional Trustees are elected or appointed as provided herein to bring the total number of Trustees equal to the designated number, the Trustees in office, regardless of their number, shall have all the powers granted to the Trustees and shall discharge all the duties imposed upon the Trustees by this Declaration of Trust. As conclusive evidence of such vacancy, a written instrument certifying the existence of such vacancy may be executed by an officer of the Trust or by a majority of the Trustees then in office. In the event of the death, declination, resignation, retirement, removal, or incapacity of all the then Trustees within a short period of time and without the opportunity for at least one Trustee being able to appoint additional Trustees to replace those no longer serving, the Trust's Manager is empowered to appoint new Trustees subject to the applicable provisions of the 1940 Act.
Section 4. Powers. Subject to the provisions of this Declaration of Trust, the business of the Trust shall be managed by the Trustees; the Trustees shall have full power and authority to do any and all acts and to make and execute any and all contracts and instruments that they may consider necessary or appropriate in connection with the management of the Trust, including the power to engage in securities transactions of all kinds on behalf of the Trust. Without limiting the foregoing, the Trustees may: adopt By-Laws not inconsistent with this Declaration of Trust providing for the regulation and management of the affairs of the Trust and may amend and repeal them to the extent that such By-Laws do not reserve that right to the Shareholders; enlarge or reduce their number; remove any Trustee with or without cause at any time by written instrument signed by at least two-thirds of the number of Trustees prior to such removal, specifying the date when such removal shall become effective and fill vacancies caused by enlargement of their number or by the death, resignation or removal of a Trustee; elect and remove, with or without cause, such officers and appoint and terminate such agents as they consider appropriate; appoint from their own number and establish and terminate one or more committees consisting of two or more Trustees which may exercise the powers and authority of the Board of Trustees to the extent that the Board of Trustees determine; deposit all or any part of such assets in a system or systems for the central handling of securities or with a Federal Reserve Bank; provide for the issuance and distribution of Shares by the Trust directly or through one or more Principal Underwriters or otherwise; redeem, repurchase and transfer Shares pursuant to applicable law; declare and pay dividends and distributions to Shareholders from the assets available therefor; and in general exercise, or delegate to any officer of the Trust, to any committee of the Trustees and to any agent or employee of the Trust or to any such custodian, transfer or Shareholder servicing agent, or Principal Underwriter, such authority as they consider desirable. Any determination as to what is in the interests of the Trust made by the Trustees in good faith shall be conclusive. In construing the provisions of this Declaration of Trust, the presumption shall be in favor of a grant of power to the Trustees. Unless otherwise specified herein or in the By-Laws or required by law, any action by the Trustees shall be deemed effective if approved or taken by a majority of the Trustees present at a meeting of Trustees at which a quorum of Trustees is present, within or without the State of Delaware.
Without limiting the foregoing, the Trustees shall have the power and authority to cause the Trust (or to act on behalf of the Trust):
(a) To operate as and carry out the business of an investment company, and exercise all the powers necessary or appropriate to the conduct of such operations;
(b) To invest and reinvest cash, to hold cash uninvested, and to subscribe for, invest in, reinvest in, purchase or otherwise acquire, own, hold, pledge, sell, assign, transfer, exchange, distribute, purchase or write options on, lend, enter into contracts for the future acquisition or delivery of, or otherwise deal in or dispose of, securities, indices, currencies, commodities or other property of every nature and kind, including, without limitation, all types of bonds, debentures, stocks, negotiable or non-negotiable instruments, obligations, evidences of indebtedness, certificates of deposit or indebtedness, commercial paper, repurchase agreements, bankers acceptances, and other securities, commodities or contracts of any kind, issued, created, guaranteed, or sponsored by any and all Persons, including, without limitation, states, territories, and possessions of the United States and the District of Columbia and any political subdivision, agency, or instrumentality thereof, the U.S. Government or any foreign government or any political subdivision of the U.S. Government or any foreign government, or any domestic or international instrumentality, or by any bank or savings institution, or by any corporation or organization organized under the laws of the United States or of any state, territory, or possession thereof, or by any corporation or organization organized under any foreign law, or in "when issued" contracts for any such securities; to change the investments of the assets of the Trust; and to exercise any and all rights, powers, and privileges of ownership or interest in respect of any and all such investments of every kind and description, including, without limitation, the right to consent and otherwise act with respect thereto, with power to designate one or more Persons to exercise any of said rights, powers, and privileges in respect of any of said instruments;
(c) To sell, exchange, lend, pledge, mortgage, hypothecate, lease, or write options (including options on futures contracts) with respect to or otherwise deal in any property rights relating to any or all of the assets of the Trust or any Series or Class thereof;
(d) To vote or give assent, or exercise any rights of ownership, with respect to stock or other securities or property; and to execute and deliver proxies or powers of attorney to such Person or Persons as the Trustees shall deem proper, granting to such Person or Persons such power and discretion with relation to securities or property as the Trustees shall deem proper;
(e) To set record dates for the determination of Shareholders with respect to various matters, which, for purposes of determining the Shareholders of any Series (or Class) who are entitled to receive payment of any dividend or of any other distribution shall be on or before the date for the payment of such dividend or such other payment, as the record date for determining the Shareholders of such Series (or Class) having the right to receive such dividend or distribution; without fixing a record date, the Trustees may for distribution purposes close the register or transfer books for one or more Series (or Classes) at any time prior to the payment of a distribution; nothing in this subsection shall be construed as precluding the Trustees from setting different record dates for different Series (or Classes);
(f) To exercise powers and rights of subscription or otherwise which in any manner arise out of ownership of securities or other property;
(g) To hold any security or property in a form not indicating any trust, whether in bearer, unregistered or other negotiable form, or in its own name or in the name of a custodian or a nominee or nominees or otherwise;
(h) To consent to or participate in any plan for the reorganization, consolidation or merger of any corporation or issuer of any security or property which is held in the Trust; to consent to any contract, lease, mortgage, purchase or sale of property by such corporation or issuer; and to pay calls or subscriptions with respect to any security or property held in the Trust;
(i) To join with other security or property holders in acting through a committee, depository, voting trustee or otherwise, and in that connection to deposit any security or property with, or transfer any security or property to, any such committee, depositary or trustee, and to delegate to them such power and authority with relation to any security or property (whether or not so deposited or transferred) as the Trustees shall deem proper, and to agree to pay, and to pay, such portion of the expenses and compensation of such committee, depositary or trustee as the Trustees shall deem proper;
(j) To compromise, arbitrate or otherwise adjust claims in favor of or against the Trust or any matter in controversy, including, but not limited to, claims for taxes;
(k) To enter into joint ventures, general or limited partnerships and any other combinations or associations;
(l) To borrow funds or other property in the name of the Trust or any Series thereof exclusively for Trust or the relevant Series purposes and in connection therewith issue notes or other evidences of indebtedness; and to mortgage and pledge the Trust Property or any part thereof to secure any or all of such indebtedness;
(m) To endorse or guarantee the payment of any notes or other obligations of any Person; to make contracts of guaranty or suretyship, or otherwise assume liability for payment thereof; and to mortgage and pledge the Trust Property or any part thereof to secure any of or all of such obligations;
(n) To purchase and pay for entirely out of Trust Property such insurance as the Trustees may deem necessary or appropriate for the conduct of the business, including, without limitation, insurance policies insuring the assets of the Trust or payment of distributions and principal on its portfolio investments, and insurance policies insuring the Shareholders, Trustees, officers, employees, agents, investment advisers, principal underwriters, or independent contractors of the Trust, individually against all claims and liabilities of every nature arising by reason of holding Shares, holding, being in or having held any such office or position, or by reason of any action alleged to have been taken or omitted by any such Person as Trustee, officer, employee, agent, investment adviser, principal underwriter, or independent contractor, including any action taken or omitted that may be determined to constitute negligence, whether or not the Trust would have the power to indemnify such Person against liability;
(o) To adopt, establish and carry out pension, profit-sharing, Share bonus, Share purchase, savings, thrift and other retirement, incentive and benefit plans and trusts, including the purchasing of life insurance and annuity contracts as a means of providing such retirement and other benefits, for any or all of the Trustees, officers, employees and agents of the Trust;
(p) To enter into contracts of any kind and description;
(q) To interpret the investment policies, practices or limitations of any Series or Class;
(r) To establish a registered office and have a registered agent in the State of Delaware;
(s) To invest part or all of the Trust Property (or part or all of the assets of any Series), or to dispose of part or all of the Trust Property (or part or all of the assets of any Series) and invest the proceeds of such disposition, in securities issued by one or more other investment companies registered under the 1940 Act (including investment by means of transfer or part of all of the Trust Property in exchange for an interest or interests in such one or more investment companies) all without any requirement of approval by Shareholders unless required by the 1940 Act. Any such other investment company may (but need not) be a trust (formed under the laws of the State of Delaware or of any other state) which is classified as a partnership for federal income tax purposes;
(t) Subject to the 1940 Act, to engage in any other lawful act or activity in which a statutory trust organized under the Delaware Act may engage; and
(u) In general to carry on any other business in connection with or incidental to any of the foregoing powers, to do everything necessary, suitable or proper for the accomplishment of any purpose or the attainment of any object or the furtherance of any power hereinbefore set forth, either alone or in association with others, and to do every other act or thing incidental or appurtenant to or growing out of or connected with the aforesaid business or purposes, objects or powers.
The foregoing clauses shall be construed as objects and powers, and the foregoing enumeration of specific powers shall not be held to limit or restrict in any manner the general power of the Trustees. Any action by
one or more of the Trustees in their capacity as such hereunder shall be deemed an action on behalf of the Trust or the applicable Series, and not an action in an individual capacity.
The Trust shall not be limited to investing in obligations maturing before the possible dissolution of the Trust or one or more of its Series or Classes thereof. The Trust shall not in any way be bound or limited by any present or future law or custom in regard to investment by fiduciaries. The Trust shall not be required to obtain any court order to deal with any assets of the Trust or take any other action hereunder.
Section 5. Payment of Expenses by the Trust. The Trustees are authorized to pay or cause to be paid out of the principal or income of the Trust, or partly out of the principal and partly out of income, as they deem fair, all expenses, fees, charges, taxes and liabilities incurred or arising in connection with the Trust, or in connection with the management thereof, including, but not limited to, the Trustees compensation and such expenses and charges for the services of the Trust's officers, employees, investment adviser or manager, Principal Underwriter, auditors, counsel, custodian, transfer agent, Shareholder servicing agent, and such other agents or independent contractors and such other expenses and charges as the Trustees may deem necessary or proper to incur, which expenses, fees, charges, taxes and liabilities shall be allocated in accordance with Article III, Section 6 hereof.
Section 6. Payment of Expenses by Shareholders. The Trustees shall have the power to cause each Shareholder, or each Shareholder of any particular Series or Class, to pay directly, at such intervals as the Trustees may determine, in advance or arrears, for charges of the Trust's transfer agent, Shareholder servicing or similar agent, an amount fixed, from time to time, by the Trustees, by setting off such charges due from such Shareholder from declared but unpaid dividends owed such Shareholder and/or by reducing the number of Shares in the account of such Shareholder by that number of full and/or fractional Shares which represents the outstanding amount of such charges due from such Shareholder.
Section 7. Ownership of Assets of the Trust. The assets of the Trust shall be held separate and apart from any assets now or hereafter held in any capacity other than as Trustee hereunder by the Trustees. Title to all of the assets of the Trust shall at all times be considered as vested in the Trust, except that the Trustees shall have power to cause legal title to any Trust Property to be held by or in the name of one or more of the Trustees, or in the name of any other Person as nominee, on such terms as the Trustees may determine. The right, title and interest of the Trustees in the Trust Property shall vest automatically in each Person who may hereafter become a Trustee. Upon the resignation, removal or death of a Trustee, she or he shall automatically cease to have any right, title or interest in any of the Trust Property, and the right, title and interest of such Trustee in the Trust Property shall vest automatically in the remaining Trustees. Such vesting and cessation of title shall be effective whether or not conveyancing documents have been executed and delivered.
Section 8. Service Contracts.
(a) Subject to such requirements and restrictions as may be set forth under applicable federal or state law and in the By-Laws, including, without limitation, on the date hereof the requirements of Section 15 of the 1940 Act, or any successor provision, the Trustees may, at any time and from time to time, contract for exclusive or nonexclusive investment advisory, management or administrative services for the Trust or for any Series (or Class thereof) with any corporation, trust, association or other organization; and any such contract may contain such other terms as the Trustees may determine, including, without limitation, authority for the Manager or administrator to delegate certain or all of its duties under such contracts to qualified investment advisers or administrators and to determine from time to time, without prior consultation with the Trustees, what investments shall be purchased, held, sold or exchanged and what portion, if any, of the assets of the Trust shall be held uninvested and to make changes in the Trust's investments, or such other activities as may specifically be delegated to such party.
(b) The Trustees may also, at any time and from time to time, contract with any corporation, trust, association or other organization, appointing it exclusive or nonexclusive distributor or Principal Underwriter for the Shares of one or more of the Series (or Classes) or other securities to be issued by the Trust. Every such contract shall comply with such requirements and restrictions as may be set forth under applicable federal or state law and in the By-Laws, including, without limitation, at the date hereof the requirements of Section 15 of the 1940 Act, or any successor provision; and any such contract may contain such other terms as the Trustees may determine.
(c) The Trustees are also empowered, at any time and from time to time, to contract with any corporations, trusts, associations or other organizations, appointing it or them the custodian, transfer agent or Shareholder servicing agent for the Trust or one or more of its Series (or Classes). Every such contract shall comply with such requirements and restrictions as may be set forth under applicable federal or state law and in the By-Laws or stipulated by resolution of the Trustees. The Trustees are empowered, at any time and from time to time, to retain sub-agents (foreign or domestic) in connection with any service provider to the Trust or one or more of its Series (or Classes).
(d) Subject to applicable law, the Trustees are further empowered, at any time and from time to time, to contract with any entity to provide such other services, including, without limitation, accounting and pricing services, to the Trust or one or more of the Series (or Classes thereof), as the Trustees determine to be in the best interests of the Trust and the applicable Series (or Class).
(e) The fact that:
(i) any of the Shareholders, Trustees, or officers of the Trust is a shareholder, director, officer, partner, trustee, employee, manager, adviser, principal underwriter, distributor, or affiliate or agent of or for any corporation, trust, association, or other organization, or for any parent or affiliate of any organization, with which an advisory, management or administration contract, or Principal Underwriter's or distributor's contract, or transfer, shareholder servicing or other type of service contract may have been or may hereafter be made, or that any such organization, or any parent or affiliate thereof, is a Shareholder or has an interest in the Trust, or that
(ii) any corporation, trust, association or other organization with which an advisory, management or administration contract or Principal Underwriter's or distributor's contract, or transfer, shareholder servicing or other type of service contract may have been or may hereafter be made with the Trust or any Series of the Trust also has an advisory, management or administration contract, or principal underwriter's or distributor's contract, or transfer, shareholder servicing or other service contract with one or more other corporations, trusts, associations, or other organizations, or has other business or interests,
shall not affect the validity of any such contract or disqualify any Shareholder, Trustee or officer of the Trust from voting upon or executing the same, or create any liability or accountability to the Trust or its Shareholders, provided approval of each such contract is made pursuant to the requirements of the 1940 Act.
Section 9. Trustees and Officers as Shareholders. Any Trustee, officer or agent of the Trust may acquire, own and dispose of Shares to the same extent as if he or she were not a Trustee, officer or agent; and the Trustees may issue and sell and cause to be issued and sold Shares to, and redeem such Shares from, any such Person or any firm or company in which such Person is interested, subject only to the general limitations contained herein or in the By-Laws relating to the sale and redemption of such Shares.
ARTICLE V
Shareholders Voting Powers and Meetings
Section 1. Voting Powers, Meetings, Notice and Record Dates. The Shareholders shall have power to vote only (i) for the election or removal of Trustees to the extent and as provided in Article IV, Section 2, and (ii) with respect to such additional matters relating to the Trust as may be required by applicable law, this Declaration of Trust, the By-Laws or any registration of the Trust with the Commission (or any successor agency) or any state, or as the Trustees may consider necessary or desirable. Each Shareholder shall be entitled to one vote for each dollar of net asset value (determined as of the applicable record date) of each Share owned by such Shareholder
(number of Shares owned times net asset value per Share) on any matter on which such Shareholder is entitled to vote and each fractional dollar amount shall be entitled to a proportionate fractional vote. Notwithstanding any other provision of this Declaration of Trust, on any matter submitted to a vote of the Shareholders, all Shares of the Trust then entitled to vote shall be voted in aggregate, except (i) when required by the 1940 Act, Shares shall be voted by individual Series or Class; and (ii) when the matter involves the termination of a Series or Class or any other action that the Trustees have determined will affect only the interests of one or more Series or Classes, then only Shareholders of such Series or Classes shall be entitled to vote thereon. There shall be no cumulative voting in the election of Trustees. Shares may be voted in person or by proxy. A proxy may be given in writing. The By-Laws may provide that proxies may also, or may instead, be given by any electronic or telecommunications device or in any other manner. Notwithstanding anything else contained herein or in the By-Laws, in the event a proposal by anyone other than the officers or Trustees of the Trust is submitted to a vote of the Shareholders of one or more Series or Classes thereof or of the Trust, or in the event of any proxy contest or proxy solicitation or proposal in opposition to any proposal by the officers or Trustees of the Trust, Shares may be voted only in person or by written proxy at a meeting. Until Shares are issued, the Trustees may exercise all rights of Shareholders and may take any action required by law, this Declaration of Trust or the By-Laws to be taken by the Shareholders. Meetings of the Shareholders shall be called and notice thereof and record dates therefor shall be given and set as provided in the By-Laws.
Section 2. Quorum and Required Vote. Except when a larger quorum is required by applicable law, by the By-Laws or by this Declaration of Trust, (i) thirty-three and one-third percent (33-1/3%) of the Shares entitled to vote shall constitute a quorum at a Shareholders meeting and (ii) when any one or more Series (or Classes) is to vote as a single class separate from any other Shares, thirty-three and one-third percent (33-1/3%) of the Shares of each such Series (or Class) entitled to vote shall constitute a quorum at a Shareholders meeting of that Series (or Class). Except when a larger vote is required by any provision of this Declaration of Trust or the By-Laws or by applicable law, when a quorum is present at any meeting, a majority of the Shares voted shall decide any questions and a plurality of the Shares voted shall elect a Trustee, provided that where any provision of law or of this Declaration of Trust requires that the holders of any Series shall vote as a Series (or that holders of a Class shall vote as a Class), then a majority of the Shares of that Series (or Class) voting on the matter (or a plurality with respect to the election of a Trustee) shall decide that matter insofar as that Series (or Class) is concerned.
Section 3. Additional Provisions. The By-Laws may include further provisions for Shareholders votes and meetings and related matters.
ARTICLE VI
Net Asset Value, Distributions and Redemptions
Section 1. Determination of Net Asset Value, Net Income, and Distributions. Subject to applicable law and Article III, Section 6 hereof, the Trustees, in their absolute discretion, may prescribe and shall set forth in the Registration Statement of the Trust as filed on Form N-1A or any successor form with the Commission (the "Registration Statement of the Trust") such bases and time or times for determining the net asset value of the Shares of any Series or Class, the net income attributable to the Shares of any Series or Class, or the declaration and payment of dividends and distributions on the Shares of any Series or Class, as they may deem necessary or desirable from time to time.
Section 2. Redemptions and Repurchases.
(a) The Trust shall purchase such Shares as are offered by any record holder of such Shares for redemption, upon the presentation of a proper instrument of transfer together with a request directed to the Trust or a Person designated by the Trust that the Trust purchase such Shares or in accordance with such other procedures for redemption as the Trustees may, from time to time, authorize, and the Trust will pay therefor the net asset value thereof as determined by the Trustees (or on their behalf), in accordance with any applicable provisions of the By-Laws and applicable law. Unless extraordinary circumstances exist, payment for said Shares shall be made by the Trust to the Shareholder within seven (7) days after the date on which the request is made in proper form. The obligation set forth in this Section 2 is subject to the provisions regarding the suspension of the right of redemption
that are set forth in the Registration Statement of the Trust, and as the Trustees, in their absolute discretion, may prescribe. In the case of a suspension of the right of redemption as provided herein, a record holder of such Shares may either withdraw the request for redemption or receive payment based on the net asset value per Share next determined after the termination of such suspension.
(b) The redemption price may, in any case or cases, be paid wholly or partly in-kind if the Trustees determine that such payment is advisable and in the interest of the remaining Shareholders of the Series or Class for which the Shares are being redeemed. The fair value, selection and quantity of securities or other property so paid or delivered as all or part of the redemption price may be determined by or under authority of the Trustees. In no case shall the Trust be liable for any delay of any corporation or other Person in transferring securities selected for delivery as all or part of any payment in-kind.
(c) If the Trustees shall, at any time and in good faith, determine that direct or indirect ownership of Shares of any Series or Class has or may become concentrated in any Person to an extent that would disqualify any Series as a regulated investment company under the Internal Revenue Code of 1986, as amended (or any successor statute thereto), then the Trustees shall have the power (but not the obligation) by such means as they deem equitable (i) to involuntarily redeem any number, or principal amount, of Shares of such Person sufficient to maintain or bring the direct or indirect ownership of Shares into conformity with the requirements for such qualification, and (ii) to refuse to transfer or issue Shares to any Person whose acquisition of the Shares in question would result in such disqualification. Any such redemption shall be effected at the redemption price and in the manner provided in this Article VI.
(d) The holders of Shares shall upon demand disclose to the Trustees in writing such information with respect to direct and indirect ownership of Shares as the Trustees deem necessary to comply with the provisions of the Internal Revenue Code of 1986, as amended (or any successor statute thereto), or to comply with the requirements of any other taxing or regulatory authority.
(e) Subject to the requirements of the 1940 Act, the Board of Trustees may cause the Trust to redeem, at the price and in the manner provided in this Article VI, Shares of any Series or Class held by any Person (i) if such Person is no longer qualified to hold such Shares in accordance with such qualifications as may be established by the Trustees, (ii) if the net asset value of such Shares is below the minimum investment amount which is set forth in the Registration Statement of the Trust or (iii) if otherwise deemed by the Trustees to be in the best interest of the Trust or that particular Series (or Class) as a whole.
(f) Shares redeemed shall, upon redemption, be deemed to be retired and restored to the status of unissued shares.
ARTICLE VII
Compensation and Limitation of Liability of Trustees
Section 1. Compensation. The Trustees as such shall be entitled to reasonable compensation from the Trust, and they may fix the amount of such compensation. Nothing herein shall in any way prevent the employment of any Trustee for advisory, management, legal, accounting, investment banking or other services and payment for the same by the Trust.
Section 2. Indemnification and Limitation of Liability. A Trustee, when acting in such capacity, shall not be personally liable to any Person, other than the Trust or a Shareholder to the extent provided in this Article VII, for any act, omission or obligation of the Trust, of such Trustee or of any other Trustee. The Trustees shall not be responsible or liable in any event for any neglect or wrongdoing of any officer, agent, employee, Manager or Principal Underwriter of the Trust. The Trust (i) may indemnify an agent of the Trust or any Person who is serving or has served at the Trust's request as an agent of another organization in which the Trust has any interest as a shareholder, creditor or otherwise and (ii) shall indemnify each Person who is, or has been, a Trustee, officer or employee of the Trust and any Person who is serving or has served at the Trust's request as a director, officer, trustee, or employee of another organization in which the Trust has any interest as a shareholder, creditor or otherwise, in the case of (i) and (ii), to the fullest extent consistent with the 1940 Act and in the manner provided in
the By-Laws; provided that such indemnification shall not be available to any of the foregoing Persons in connection with a claim, suit or other proceeding by any such Person against the Trust or a Series (or Class) thereof.
All persons extending credit to, contracting with or having any claim against the Trust or the Trustees shall look only to the assets of the appropriate Series (or Class thereof if the Trustees have included a Class limitation on liability in the agreement with such person as provided below), or, if the Trustees have yet to establish Series, of the Trust for payment under such credit, contract or claim; and neither the Trustees nor the Shareholders, nor any of the Trust's officers, employees or agents, whether past, present or future, shall be personally liable therefor.
Every note, bond, contract, instrument, certificate or undertaking and every other act or thing whatsoever executed or done by or on behalf of the Trust or the Trustees by any of them in connection with the Trust shall conclusively be deemed to have been executed or done only in or with respect to his or their capacity as Trustee or Trustees, and such Trustee or Trustees shall not be personally liable thereon. At the Trustees discretion, any note, bond, contract, instrument, certificate or undertaking made or issued by the Trustees or by any officer or officers may give notice that the Certificate of Trust is on file in the Office of the Secretary of State of the State of Delaware and that a statutory limitation on liability of Series exists and such note, bond, contract, instrument, certificate or undertaking may, if the Trustees so determine, recite that the same was executed or made on behalf of the Trust by a Trustee or Trustees in such capacity and not individually or by an officer or officers in such capacity and not individually and that the obligations of such instrument are not binding upon any of them or the Shareholders individually but are binding only on the assets and property of the Trust or a Series thereof, and may contain such further recital as such Person or Persons may deem appropriate including, without limitation, a requirement, in any note, bond, contract, instrument, certificate or undertaking made with respect to one or more Classes of any Series that the parties thereto look only to the assets of such Class or Classes in satisfaction of the liabilities arising thereunder. The omission of any such notice or recital shall in no way operate to bind any Trustees, officers or Shareholders individually.
Section 3. Trustee's Good Faith Action; Expert Advice; No Bond or Surety. The exercise by the Trustees of their powers and discretions hereunder shall be binding upon everyone interested. A Trustee shall be liable to the Trust and to any Shareholder solely for her or his own willful misfeasance, bad faith, gross negligence or reckless disregard of the duties involved in the conduct of the office of Trustee, and shall not be liable for errors of judgment or mistakes of fact or law. The Trustees may take advice of counsel or other experts with respect to the meaning and operation of this Declaration of Trust, and shall be under no liability for any act or omission in accordance with such advice, nor for failing to follow such advice. The Trustees shall not be required to give any bond as such, nor any surety if a bond is required.
Section 4. Insurance. The Trustees shall be entitled and empowered to the fullest extent permitted by law to purchase with Trust assets insurance for liability and for all expenses reasonably incurred or paid or expected to be paid by a Trustee, officer, employee or agent of the Trust in connection with any claim, action, suit or proceeding in which she or he becomes involved by virtue of her or his capacity or former capacity with the Trust.
ARTICLE VIII
Miscellaneous
Section 1. Liability of Third Persons Dealing with Trustees. No Person dealing with the Trustees shall be bound to make any inquiry concerning the validity of any transaction made or to be made by the Trustees or to see to the application of any payments made or property transferred to the Trust or upon its order.
Section 2. Termination of Trust or Series.
(a) Unless dissolved as provided herein, the Trust shall continue without limitation of time. The Trust may be dissolved at any time by vote of a majority of the Shares of each Series entitled to vote, voting separately by Series, or by the Trustees by written notice to the Shareholders. Any Series of Shares (or Class thereof) may be dissolved at any time by vote of a majority of the Shares of such Series or Class entitled to vote or by the Trustees by written notice to the Shareholders of such Series or Class.
(b) Upon the requisite Shareholder vote or action by the Trustees to dissolve the Trust or any one or more Series of Shares (or any Class thereof), after paying or otherwise providing for all charges, taxes, expenses and liabilities, whether due or accrued or anticipated, of the Trust or of the particular Series (or any Class thereof) as may be determined by the Trustees, the Trust shall in accordance with such procedures as the Trustees consider appropriate reduce the remaining assets of the Trust or of the affected Series or Class to distributable form in cash or Shares (if any Series remain) or other securities, or any combination thereof, and distribute the proceeds to the Shareholders of the Series or Classes involved, ratably according to the number of Shares of such Series or Class held by the several Shareholders of such Series or Class on the date of distribution. Thereupon, the Trust or any affected Series (or Class thereof) shall terminate and the Trustees and the Trust shall be discharged of any and all further liabilities and duties relating thereto or arising therefrom, and the right, title and interest of all parties with respect to the Trust or such Series or Class shall be canceled and discharged.
(c) Upon termination of the Trust, following completion of winding up of its business, the Trustees shall cause a certificate of cancellation of the Trust's Certificate of Trust to be filed in accordance with the Delaware Act, which certificate of cancellation may be signed by any one Trustee.
Section 3. Reorganization.
(a) Notwithstanding anything else herein, the Trustees may, without
any Shareholder approval or vote unless such approval or vote is required by
applicable law, in order to change the form or jurisdiction of organization of
the Trust or for any other purpose (i) cause the Trust to merge or consolidate
with or into one or more trusts (or series thereof to the extent permitted by
law), partnerships, associations, corporations or other business entities
(including trusts, partnerships, associations, corporations or other business
entities created by the Trustees to accomplish such merger or consolidation),
(ii) cause the Shares to be exchanged under or pursuant to any state or federal
statute to the extent permitted by law or (iii) cause the Trust to reorganize
under the laws of any state or other political subdivision of the United States,
if such action is determined by the Trustees to be in the best interests of the
Trust. Any agreement of merger or consolidation or exchange or certificate of
merger may be signed by a majority of the Trustees and facsimile signatures
conveyed by electronic or telecommunication means shall be valid.
(b) Pursuant to and in accordance with the provisions of Section 3815(f) of the Delaware Act, and notwithstanding anything to the contrary contained in this Declaration of Trust, an agreement of merger or consolidation approved by the Trustees in accordance with this Section 3 of Article VIII may effect any amendment to the governing instrument of the Trust or effect the adoption of a new trust instrument of the Trust if the Trust is the surviving or resulting trust in the merger or consolidation.
(c) The Trustees may, without any Shareholder approval or vote unless such approval or vote is required by applicable law, create one or more statutory trusts to which all or any part of the assets, liabilities, profits or losses of the Trust or any Series or Class thereof may be transferred and may provide for the conversion of Shares in the Trust or any Series or Class thereof into beneficial interests in any such newly created trust or trusts or any series or classes thereof.
(d) Notwithstanding anything else herein, the Trustees may, without Shareholder approval (unless required by the 1940 Act), invest all or a portion of the Trust Property of any Series, or dispose of all or a portion of the Trust Property of any Series, and invest the proceeds of such disposition in interests issued by one or more other investment companies registered under the 1940 Act. Any such other investment company may (but not need) be a trust (formed under the laws of the State of Delaware or any other state or jurisdiction) (or series thereof) which is classified as a partnership for federal income tax purposes. Notwithstanding anything else herein, the Trustees may, without Shareholder approval unless such approval is required by the 1940 Act, cause a Series that is organized in the master/feeder fund structure to withdraw or redeem its Trust Property from the master fund and cause such Series to invest its Trust Property directly in securities and other financial instruments or in another master fund.
Section 4. Amendments. Except as specifically provided in this Section 4 of Article VIII, the Trustees may, without Shareholder vote, restate, amend or otherwise supplement this Declaration of Trust.
Shareholders shall have the right to vote (i) on any amendment that would affect
their right to vote granted in Article V, Section 1 hereof, (ii) on any
amendment to this Section 4 of Article VIII, (iii) on any amendment that may be
required to be approved by Shareholders by applicable law or by the Trust's
registration statement filed with the Commission, and (iv) on any amendment
submitted to them by the Trustees. Any amendment required or permitted to be
submitted to the Shareholders that, as the Trustees determine, shall affect the
Shareholders of one or more Series (or Classes thereof) shall be authorized by a
vote of the Shareholders of each Series or Class affected and no vote of
Shareholders of a Series or Class not affected shall be required.
Notwithstanding anything else herein, no amendment hereof shall limit the rights
to insurance provided by Article VII, Section 4 with respect to any acts or
omissions of Persons covered thereby prior to such amendment nor shall any such
amendment limit the rights to indemnification referenced in Article VII, Section
2 hereof as provided in the By-Laws with respect to any actions or omissions of
Persons covered thereby prior to such amendment. The Trustees may, without
Shareholder vote, restate, amend, or otherwise supplement the Certificate of
Trust as they deem necessary or desirable.
Section 5. Filing of Copies, References, Headings. The original or a copy of this instrument and of each restatement and/or amendment hereto shall be kept at the office of the Trust where it may be inspected by any Shareholder. Anyone dealing with the Trust may rely on a certificate by an officer of the Trust as to whether or not any such restatements and/or amendments have been made and as to any matters in connection with the Trust hereunder; and, with the same effect as if it were the original, may rely on a copy certified by an officer of the Trust to be a copy of this instrument or of any such restatements and/or amendments. In this instrument and in any such restatements and/or amendments, references to this instrument, and all expressions such as "herein," "hereof" and "hereunder," shall be deemed to refer to this instrument as amended or affected by any such restatements and/or amendments. Headings are placed herein for convenience of reference only and shall not be taken as a part hereof or control or affect the meaning, construction or effect of this instrument. Whenever the singular number is used herein, the same shall include the plural; and the neuter, masculine and feminine genders shall include each other, as applicable. This instrument may be executed in any number of counterparts each of which shall be deemed an original.
Section 6. Applicable Law.
(a) The Trust is created under, and this Declaration of Trust is to be governed by, and construed and enforced in accordance with, the laws of the State of Delaware. The Trust shall be of the type commonly called a statutory trust, and without limiting the provisions hereof, the Trust specifically reserves the right to exercise any of the powers or privileges afforded to statutory trusts or actions that may be engaged in by statutory trusts under the Delaware Act, and the absence of a specific reference herein to any such power, privilege or action shall not imply that the Trust may not exercise such power or privilege or take such actions.
(b) Notwithstanding the first sentence of Section 6(a) of this Article
VIII, there shall not be applicable to the Trust, the Trustees or this
Declaration of Trust (x) the provisions of section 3540 of Title 12 of the
Delaware Code or (y) any provisions of the laws (statutory or common) of the
State of Delaware (other than the Delaware Act) pertaining to trusts that relate
to or regulate: (i) the filing with any court or governmental body or agency of
trustee accounts or schedules of trustee fees and charges, (ii) affirmative
requirements to post bonds for trustees, officers, agents or employees of a
trust, (iii) the necessity for obtaining a court or other governmental approval
concerning the acquisition, holding or disposition of real or personal property,
(iv) fees or other sums applicable to trustees, officers, agents or employees of
a trust, (v) the allocation of receipts and expenditures to income or principal,
(vi) restrictions or limitations on the permissible nature, amount or
concentration of trust investments or requirements relating to the titling,
storage or other manner of holding of trust assets, or (vii) the establishment
of fiduciary or other standards or responsibilities or limitations on the acts
or powers of trustees that are inconsistent with the limitations or liabilities
or authorities and powers of the Trustees set forth or referenced in this
Declaration of Trust.
Section 7. Provisions in Conflict with Law or Regulations.
(a) The provisions of the Declaration of Trust are severable, and if the Trustees shall determine, with the advice of counsel, that any of such provisions is in conflict with the 1940 Act, the regulated investment company provisions of the Internal Revenue Code of 1986, as amended (or any successor statute thereto), and the regulations thereunder, with the Delaware Act or with other applicable laws and regulations, the
conflicting provision shall be deemed never to have constituted a part of the Declaration of Trust; provided, however, that such determination shall not affect any of the remaining provisions of the Declaration of Trust or render invalid or improper any action taken or omitted prior to such determination.
(b) If any provision of the Declaration of Trust shall be held invalid or unenforceable in any jurisdiction, such invalidity or unenforceability shall attach only to such provision in such jurisdiction and shall not in any manner affect such provision in any other jurisdiction or any other provision of the Declaration of Trust in any jurisdiction.
Section 8. Statutory Trust Only. It is the intention of the Trustees to create a statutory trust pursuant to the Delaware Act. It is not the intention of the Trustees to create a general partnership, limited partnership, joint stock association, corporation, bailment, or any form of legal relationship other than a statutory trust pursuant to the Delaware Act. Nothing in this Declaration of Trust shall be construed to make the Shareholders, either by themselves or with the Trustees, partners or members of a joint stock association.
Section 9. Derivative Actions. In addition to the requirements set forth in Section 3816 of the Delaware Act, a Shareholder may bring a derivative action on behalf of the Trust only if the following conditions are met:
(a) The Shareholder or Shareholders must make a pre-suit demand upon
the Trustees to bring the subject action unless an effort to cause the Trustees
to bring such an action is not likely to succeed. For purposes of this Section
9(a), a demand on the Trustees shall only be deemed not likely to succeed and
therefore excused if a majority of the Board of Trustees, or a majority of any
committee established to consider the merits of such action, has a personal
financial interest in the transaction at issue, and a Trustee shall not be
deemed interested in a transaction or otherwise disqualified from ruling on the
merits of a Shareholder demand by virtue of the fact that such Trustee receives
remuneration for his service on the Board of Trustees of the Trust or on the
boards of one or more Trusts that are under common management with or otherwise
affiliated with the Trust.
(b) Unless a demand is not required under paragraph (a) of this
Section 9, Shareholders eligible to bring such derivative action under the
Delaware Act who hold at least 10% of the outstanding Shares of the Trust, or
10% of the outstanding Shares of the Series or Class to which such action
relates, shall join in the request for the Trustees to commence such action.
(c) Unless a demand is not required under paragraph (a) of this
Section 9, the Trustees must be afforded a reasonable amount of time to consider
such shareholder request and to investigate the basis of such claim. The
Trustees shall be entitled to retain counsel or other advisors in considering
the merits of the request and shall require an undertaking by the Shareholders
making such request to reimburse the Trust for the expense of any such advisors
in the event that the Trustees determine not to bring such action.
For purposes of this Section 9, the Board of Trustees may designate a committee of one Trustee to consider a Shareholder demand if necessary to create a committee with a majority of Trustees who do not have a personal financial interest in the transaction at issue.
IN WITNESS WHEREOF, the Initial Trustee named below does hereby make and enter into this Declaration of Trust as of March 31, 2004.
INITIAL TRUSTEE
/s/ ----------------------------------- James Jordan, as Initial Trustee |
BY-LAWS
OF
FIRST EAGLE VARIABLE FUNDS
A Delaware Statutory Trust
INTRODUCTION
A. Agreement and Declaration of Trust. These By-Laws shall be subject to the Agreement and Declaration of Trust, as from time to time in effect (the "Declaration of Trust"), of First Eagle Variable Funds, a Delaware statutory trust (the "Trust"). In the event of any inconsistency between the terms hereof and the terms of the Declaration of Trust, the terms of the Declaration of Trust shall control.
B. Definitions. Capitalized terms used herein and not herein defined are used as defined in the Declaration of Trust.
ARTICLE I
Offices
Section 1. Principal Office. The Trustees shall fix and, from time to time, may change the location of the principal executive office of the Trust at any place within or outside the State of Delaware.
Section 2. Delaware Office. The Trustees shall establish a registered office in the State of Delaware and shall appoint as the Trust's registered agent for service of process in the State of Delaware an individual resident of the State of Delaware or a Delaware corporation or a corporation authorized to transact business in the State of Delaware; in each case the business office of such registered agent for service of process shall be identical with the registered Delaware office of the Trust.
Section 3. Other Offices. The Trustees may at any time establish branch or subordinate offices at any place or places where the Trust intends to do business.
ARTICLE II
Meetings of Shareholders
Section 1. Place of Meetings. Meetings of Shareholders shall be held at any place designated by the Trustees. In the absence of any such designation, Shareholders' meetings shall be held at the principal executive office of the Trust.
Section 2. Call of Meetings. Meetings of the Shareholders may be called at any time by the Trustees or by the President for the purpose of taking action upon any matter requiring the vote or authority of the Shareholders as herein provided or provided in the
Declaration of Trust or upon any other matter as to which such vote or authority is deemed by the Trustees or the President to be necessary or desirable. To the extent required by the 1940 Act, meetings of the Shareholders for the purpose of voting on the removal of any Trustee shall be called promptly by the Trustees upon the written request of Shareholders holding at least ten percent (10%) of the outstanding Shares entitled to vote.
Section 3. Notice of Meetings of Shareholders. All notices of meetings of Shareholders shall be sent or otherwise given in accordance with Section 4 of this Article II not less than ten (10) nor more than ninety (90) days before the date of the meeting. The notice shall specify (i) the place, date and hour of the meeting, and (ii) the general nature of the business to be transacted. The notice of any meeting at which Trustees are to be elected also shall include the name of any nominee or nominees whom at the time of the notice are intended to be presented for election.
If action is proposed to be taken at any meeting for approval of (i) a contract or transaction in which a Trustee has a direct or indirect financial interest, (ii) an amendment of the Agreement and Declaration of Trust of the Trust, (iii) a reorganization of the Trust, or (iv) a voluntary dissolution of the Trust, the notice shall also state the general nature of that proposal.
Section 4. Manner of Giving Notice; Affidavit of Notice. Notice of any meeting of Shareholders shall be given either personally or by first-class mail or telegraphic or other written communication, charges prepaid, addressed to the Shareholder at the address appearing on the books of the Trust or its transfer agent or given by the Shareholder to the Trust for the purpose of notice. If no such address appears on the Trust's books or is given, notice shall be deemed to have been given if sent to the Shareholder by first-class mail or telegraphic or other written communication to the Trust's principal executive office, or if published at least once in a newspaper of general circulation in the county where that office is located. Notice shall be deemed to have been given at the time when delivered personally or deposited in the mail or sent by telegram or other means of written communication or, where notice is given by publication, on the date of publication.
If any notice addressed to a Shareholder at the address appearing on the books of the Trust is returned to the Trust by the United States Postal Service marked to indicate that the Postal Service is unable to deliver the notice to the Shareholder at that address, all future notices or reports shall be deemed to have been duly given without further mailing if available to the Shareholder on written demand of the Shareholder to the Trust.
An affidavit of the mailing or other means of giving any notice of any meeting of Shareholders shall be filed and maintained in the minute book of the Trust.
Section 5. Adjourned Meeting; Notice. Any meeting of Shareholders, whether or not a quorum is present, may be adjourned from time to time by the vote of the majority of the Shares represented at that meeting, either in person or by proxy.
When any meeting of Shareholders is adjourned to another time or place, notice need not be given of the adjourned meeting at which the adjournment is taken, unless a new record date of the adjourned meeting is fixed or unless the adjournment is for more than sixty
(60) days from the date set for the original meeting in which case the Trustees shall set a new record date. If notice of any such adjourned meeting is required, notice shall be given to each Shareholder of record entitled to vote at the adjourned meeting in accordance with the provisions of Sections 3 and 4 of this Article II. At any adjourned meeting, the Trust may transact any business which might have been transacted at the original meeting.
Section 6. Voting. The Shareholders entitled to vote at any meeting of Shareholders shall be determined in accordance with the provisions of the Declaration of Trust of the Trust, as in effect at such time. The Shareholders' vote may be by voice vote or by ballot, provided, however, that any election for Trustees must be by ballot if demanded by any Shareholder before the voting has begun. On any matter other than elections of Trustees, any Shareholder may vote part of the Shares in favor of the proposal and refrain from voting the remaining Shares or vote them against the proposal, but if the Shareholder fails to specify the number of Shares which the Shareholder is voting affirmatively, it will be conclusively presumed that the Shareholder's approving vote is with respect to the total Shares that the Shareholder is entitled to vote on such proposal.
Section 7. Waiver of Notice by Consent of Absent Shareholders. The actions taken at a meeting of Shareholders, however called and noticed and wherever held, shall be as valid as though taken at a meeting duly held after regular call and notice if a quorum is present, either in person or by proxy, and if either before or after the meeting, a majority of the persons entitled to vote were present in person or by proxy or signed a written waiver of notice or a consent to a holding of the meeting or an approval of the minutes. The waiver of notice or consent need not specify either the business to be transacted or the purpose of any meeting of Shareholders.
Attendance by a person at a meeting shall also constitute a waiver of notice of that meeting, except when the person objects at the beginning of the meeting to the transaction of any business because the meeting is not lawfully called or convened and except that attendance at a meeting is not a waiver of any right to object to the consideration of matters not included in the notice of the meeting if that objection is expressly made at the beginning of the meeting.
Section 8. Shareholder Action by Written Consent Without a Meeting. Except as provided in the Declaration of Trust or the 1940 Act, any action that may be taken at any meeting of Shareholders may be taken without a meeting and without prior notice if a consent in writing setting forth the action so taken is signed by Shareholders having not less than the minimum number of votes that would be necessary to authorize or take that action at a meeting at which all Shareholders entitled to vote on that action were present and voted. All such consents shall be filed with the Secretary of the Trust and shall be maintained in the Trust's records. Any Shareholder giving a written consent or a transferee of the Shares or a personal representative of the Shareholder or their respective proxy holders may revoke the consent by a writing received by the Secretary of the Trust before written consents of the number of votes required to authorize the proposed action have been filed with the Secretary.
If the consents of all Shareholders entitled to vote have not been solicited in writing and if the unanimous written consent of all such Shareholders shall not have been received, the Secretary shall give prompt notice of the action approved by the Shareholders
without a meeting. This notice shall be given in the manner specified in Section 4 of this Article II.
Section 9. Record Date for Shareholder Notice, Voting and Giving Consents.
(a) For purposes of determining the Shareholders entitled to vote or act at any meeting or adjournment thereof, the Trustees may fix in advance a record date which shall not be more than ninety (90) days nor less than ten (10) days before the date of any such meeting. Without fixing a record date for a meeting, the Trustees may for voting and notice purposes close the register or transfer books for one or more Series (or Classes) for all or any part of the period between the earliest date on which a record date for such meeting could be set in accordance herewith and the date of such meeting.
If the Trustees do not so fix a record date or close the register or transfer books of the affected Series (or Classes), the record date for determining Shareholders entitled to notice of or to vote at a meeting of Shareholders shall be at the close of business on the business day next preceding the day on which notice is given or if notice is waived, at the close of business on the business day next preceding the day on which the meeting is held.
(b) The record date for determining Shareholders entitled to give consent to action in writing without a meeting, (i) when no prior action of the Trustees has been taken, shall be the day on which the first written consent is given, or (ii) when prior action of the Trustees has been taken, shall be such date as determined for that purpose by the Trustees, or if no record date is fixed by the Trustees, the record date shall be the close of business on the day on which the Trustees adopt the resolution. Nothing in this Section 9 of Article II shall be construed as precluding the Trustees from setting different record dates for different Series (or Classes).
(c) Only Shareholders of record on the record date as herein determined shall have any right to vote or to act at any meeting or give consent to any action relating to such record date, notwithstanding any transfer of Shares on the books of the Trust after such record date.
Section 10. Proxies. Subject to the provisions of the Declaration of Trust, every Person entitled to vote for Trustees or on any other matter shall have the right to do so either in person or by proxy, provided that either (i) an instrument authorizing such a proxy to act is executed by the Shareholder in writing and dated not more than eleven (11) months before the meeting, unless the instrument specifically provides for a longer period or (ii) an electronic, telephonic, computerized or other alternative to execution of a written instrument authorizing the proxy to act which authorization is received not more than eleven (11) months before the meeting. A proxy shall be deemed executed by a Shareholder if the Shareholder's name is placed on the proxy (whether by manual signature, typewriting, telegraphic transmission or otherwise) by the Shareholder or the Shareholder's attorney-in-fact or other authorized agent. A valid proxy which does not state that it is irrevocable shall continue in full force and effect unless revoked before the vote pursuant to that proxy by a written notice of revocation of the proxy by the person who executed it delivered to the Trust; by a subsequent proxy executed by, or attendance at the meeting and voting in person by, the person executing that proxy; by such person using any electronic, telephonic, computerized or other alternative means authorized by
the Trustees for authorizing the proxy to act; or by a written notice to the Trust of the death or incapacity of the maker of that proxy. A proxy with respect to Shares held in the name of two or more Persons shall be valid if executed by any one of them unless at or prior to exercise of the proxy the Trust receives a specific written notice to the contrary from any of them. A proxy purporting to be executed by or on behalf of a Shareholder shall be deemed valid unless challenged at or prior to its exercise and the burden of proving invalidity shall rest on the challenger.
Section 11. Inspectors of Election. Before any meeting of Shareholders, the Trustees may appoint any person(s) other than nominees for office to act as inspector(s) of election at the meeting or its adjournment. If no inspector(s) of election are so appointed, the Chairman of the meeting may appoint inspector(s) of election at the meeting. If any person appointed as an inspector fails to appear or fails or refuses to act, the Chairman of the meeting may appoint a person to fill the vacancy.
The inspector(s) shall:
(a) Determine the number of Shares outstanding and the voting power of each, the Shares represented at the meeting, the existence of a quorum and the authenticity, validity and effect of proxies;
(b) Receive votes, ballots or consents;
(c) Hear and determine all challenges and questions in any way arising in connection with the right to vote;
(d) Count and tabulate all votes or consents;
(e) Determine when the polls shall close;
(f) Determine the result; and
(g) Do any other acts that may be proper to conduct the election or vote with fairness to all Shareholders.
ARTICLE III
Trustees
Section 1. Powers. Subject to the applicable provisions of the 1940 Act, the Declaration of Trust and these By-Laws relating to action required to be approved by the Shareholders, the business and affairs of the Trust shall be managed and all powers shall be exercised by or under the direction of the Trustees.
Section 2. Number of Trustees. The exact number of Trustees within any limits specified in the Declaration of Trust shall be fixed from time to time by a resolution of the Trustees.
Section 3. Vacancies. Vacancies in the authorized number of Trustees may be filled as provided in the Declaration of Trust.
Section 4. Place of Meetings and Meetings by Telephone. All meetings of the Trustees may be held at any place that has been designated in the notice for such meeting or as designated by the Trustees. In the absence of such a designation, regular meetings shall be held at the principal executive office of the Trust. Except as provided under the 1940 Act, any regular or special meeting may be held by conference telephone or similar communication equipment, so long as all Trustees participating in the meeting can hear one another, and all such Trustees shall be deemed to be present in person at such meeting.
Section 5. Regular Meetings. Regular meetings of the Trustees shall be held without call at such time as shall from time to time be fixed by the Trustees. Such regular meetings may be held without notice.
Section 6. Special Meetings. Special meetings of the Trustees for any purpose or purposes may be called at any time by the President or any Vice President or the Secretary or any two (2) Trustees.
Notice of the time and place of special meetings shall be delivered
personally or by telephone to each Trustee or sent by first-class mail, by
telegram or telecopy (or similar electronic means) or by nationally recognized
overnight courier, charges prepaid, addressed to each Trustee at that Trustee's
address as it is shown on the records of the Trust. In case the notice is
mailed, it shall be deposited in the United States mail at least seven (7)
calendar days before the time of the holding of the meeting. In case the notice
is delivered personally or by telephone or by telegram, telecopy (or similar
electronic means) or overnight courier, it shall be given at least twenty-four
(24) hours before the time of the holding of the meeting. Any oral notice given
personally or by telephone may be communicated either to the Trustee or to a
person at the office of the Trustee who the person giving the notice has reason
to believe will promptly communicate it to the Trustee. The notice need not
specify the purpose of the meeting or the place if the meeting is to be held at
the principal executive office of the Trust.
Section 7. Quorum. A third of the authorized number of Trustees shall constitute a quorum for the transaction of business, except to adjourn as provided in Section 9 of this Article III. Every act or decision done or made by a majority of the Trustees present at a meeting duly held at which a quorum is present shall be regarded as the act of the Trustees, subject to the provisions of the Declaration of Trust. A meeting at which a quorum is initially present may continue to transact business notwithstanding the withdrawal of Trustees if any action taken is approved by at least a majority of the required quorum for that meeting.
Section 8. Waiver of Notice. Notice of any meeting need not be given to any Trustee who either before or after the meeting signs a written waiver of notice, a consent to holding the meeting, or approves the minutes of the meeting. The waiver of notice or consent need not specify the purpose of the meeting. All such waivers, consents or approvals shall be filed with the records of the Trust or made a part of the minutes of the meeting. Notice of a meeting shall also be deemed given to any Trustee who attends the meeting without protesting before or at its commencement the lack of notice to that Trustee.
Section 9. Adjournment. A majority of the Trustees present, whether or not constituting a quorum, may adjourn any meeting to another time and place.
Section 10. Notice of Adjournment. Notice of the time and place of holding an adjourned meeting need not be given unless the meeting is adjourned for more than forty-eight (48) hours, in which case notice of the time and place shall be given before the time of the adjourned meeting in the manner specified in Section 6 of this Article III.
Section 11. Action Without a Meeting. Unless the 1940 Act requires that a particular action be taken only at a meeting at which the Trustees are present in person, any action to be taken by the Trustees at a meeting may be taken without such meeting by the written consent of a majority of the Trustees then in office. Any such written consent may be executed and given by telecopy or similar electronic means. Such written consents shall be filed with the minutes of the proceedings of the Trustees. If any action is so taken by the Trustees by the written consent of less than all of the Trustees, prompt notice of the taking of such action shall be furnished to each Trustee who did not execute such written consent, provided that the effectiveness of such action shall not be impaired by any delay or failure to furnish such notice.
Section 12. Fees and Compensation of Trustees. Trustees and members of committees may receive such compensation, if any, for their services and such reimbursement of expenses as may be fixed or determined by resolution of the Trustees. This Section 12 shall not be construed to preclude any Trustee from serving the Trust in any other capacity as an officer, agent, employee, or otherwise and receiving compensation for those services.
Section 13. Delegation of Power to Other Trustees. Any Trustee may, by power of attorney, delegate his or her power for a period not exceeding six (6) months at any one time to any other Trustee or Trustees; provided that in no case shall fewer than two (2) Trustees personally exercise the powers granted to the Trustees, except as otherwise expressly provided herein or by resolution of the Trustees. Except where applicable law may require a Trustee to be present in person, a Trustee represented by another Trustee pursuant to such power of attorney shall be deemed to be present for purposes of establishing a quorum and satisfying the required vote of Trustees.
ARTICLE IV
Committees
Section 1. Committees of Trustees. The Trustees may by resolution designate one or more committees, each consisting of two (2) or more Trustees, to serve at the pleasure of the Trustees. The Trustees may designate one or more Trustees as alternate members of any committee who may replace any absent member at any meeting of the committee. Any committee to the extent provided in the resolution of the Trustee, shall have the authority of the Trustees, except with respect to:
(a) the approval of any action which under applicable law requires approval by a majority of the entire authorized number of Trustees or certain Trustees;
(b) the filling of vacancies of Trustees;
(c) the fixing of compensation of the Trustees for services generally or as a member of any committee;
(d) the amendment or termination of the Declaration of Trust or any Series or Class or amendment of the By-Laws or the adoption of new By-Laws;
(e) the amendment or repeal of any resolution of the Trustees which by its express terms is not so amendable or repealable;
(f) a distribution to the Shareholders of the Trust, except at a rate or in a periodic amount or within a designated range determined by the Trustees; or
(g) the appointment of any other committees of the Trustees or the members of such new committees.
Section 2. Meetings and Action of Committees. Meetings and action of committees shall be governed by and held and taken in accordance with the provisions of Article III of these By-Laws, with such changes in the context thereof as are necessary to substitute the committee and its members for the Trustees generally, except that the time of regular meetings of committees may be determined either by resolution of the Trustees or by resolution of the committee. Special meetings of committees may also be called by resolution of the Trustees. Alternate members shall be given notice of meetings of committees and shall have the right to attend all meetings of committees. The Trustees may adopt rules for the governance of any committee not inconsistent with the provisions of these By-Laws.
ARTICLE V
Officers
Section 1. Officers. The officers of the Trust shall be a President, a Secretary, and a Treasurer. The Trust may also have, at the discretion of the Trustees, a Chairman of the Board (Chairman), one or more Vice Presidents, one or more Assistant Secretaries, one or more Assistant Treasurers, and such other officers as may be appointed in accordance with the provisions of Section 3 of this Article V. Any number of offices may be held by the same person. The Chairman, if there be one, shall be a Trustee and may but need not be a Shareholder; and any other officer may but need not be a Trustee or Shareholder.
Section 2. Election of Officers. The officers of the Trust, except such officers as may be appointed in accordance with the provisions of Section 3 or Section 5 of this Article V, shall be chosen by the Trustees, and each shall serve at the pleasure of the Trustees, subject to the rights, if any, of an officer under any contract of employment.
Section 3. Subordinate Officers. The Trustees may appoint and may empower the President to appoint such other officers as the business of the Trust may require, each of whom shall hold office for such period, have such authority and perform such duties as are provided in these By-Laws or as the Trustees may from time to time determine.
Section 4. Removal and Resignation of Officers. Subject to the rights, if any, of an officer under any contract of employment, any officer may be removed, either with or without cause, by the Trustees at any regular or special meeting of the Trustees or by the principal executive officer or by such other officer upon whom such power of removal may be conferred by the Trustees.
Any officer may resign at any time by giving written notice to the Trust. Any resignation shall take effect at the date of the receipt of that notice or at any later time specified in that notice; and unless otherwise specified in that notice, the acceptance of the resignation shall not be necessary to make it effective. Any resignation is without prejudice to the rights, if any, of the Trust under any contract to which the officer is a party.
Section 5. Vacancies in Offices. A vacancy in any office because of death, resignation, removal, disqualification or other cause shall be filled in the manner prescribed in these By-Laws for regular appointment to that office. The President may make temporary appointments to a vacant office pending action by the Trustees.
Section 6. Chairman. The Chairman, if such an officer is elected, shall if present preside at meetings of the Trustees and shall, subject to the control of the Trustees, have general supervision, direction and control of the business and the officers of the Trust and exercise and perform such other powers and duties as may be from time to time assigned to him by the Trustees or prescribed by the Declaration of Trust or these By-Laws.
Section 7. President. Subject to such supervisory powers, if any, as may be given by the Trustees to the Chairman, if there be such an officer, the President shall be the chief operating officer of the Trust and shall, subject to the control of the Trustees and the Chairman, have general supervision, direction and control of the business and the officers of the Trust. He or she shall preside at all meetings of the Shareholders, and in the absence of the Chairman or if there be none, at all meetings of the Trustees. He or she shall have the general powers and duties of management usually vested in the office of President of a corporation and shall have such other powers and duties as may be prescribed by the Trustees, the Declaration of Trust or these By-Laws. The Board may appoint Co-Presidents, each of which shall have the power of the President.
Section 8. Vice Presidents. In the absence or disability of the President, the Vice Presidents, if any, in order of their rank as fixed by the Trustees or if not ranked, the Executive Vice President (who shall be considered first ranked) and such other Vice Presidents as shall be designated by the Trustees, shall perform all the duties of the President and when so acting shall have all powers of and be subject to all the restrictions upon the President. The Vice Presidents shall have such other powers and perform such other duties as from time to time may be prescribed for them respectively by the Trustees or the President or the Chairman or by these By-Laws.
Section 9. Secretary. The Secretary shall keep or cause to be kept at the principal executive office of the Trust or such other place as the Trustees may direct a book of minutes of all meetings and actions of Trustees, committees of Trustees and Shareholders with the time and place of holding, whether regular or special, and if special, how authorized, the notice given, the
names of those present at Trustees' meetings or committee meetings, the number of Shares present or represented at meetings of Shareholders and the proceedings.
The Secretary shall keep or cause to be kept at the principal executive office of the Trust or at the office of the Trust's transfer agent or registrar, a Share register or a duplicate Share register showing the names of all Shareholders and their addresses, the number and classes of Shares held by each Shareholder.
The Secretary shall give or cause to be given notice of all meeting of the Shareholders required to be given by these By-Laws or by applicable law and shall have such other powers and perform such other duties as may be prescribed by the Trustees or by these By-Laws.
Section 10. Treasurer. The Treasurer shall be the chief financial officer and chief accounting officer of the Trust and shall keep and maintain or cause to be kept and maintained adequate and correct books and records of accounts of the properties and business transactions of the Trust and each Series and Class thereof, including accounts of the assets, liabilities, receipts, disbursements, gains, losses, capital and retained earnings of all Series and Classes thereof. The books of account shall at all reasonable times be open to inspection by any Trustee.
The Treasurer shall deposit all monies and other valuables in the name and to the credit of the Trust with such depositaries as may be designated by the Board of Trustees. He or she shall disburse the funds of the Trust as may be ordered by the Trustees, shall render to the President and Trustees, whenever they request it, an account of all of his or her transactions as chief financial officer and of the financial condition of the Trust and shall have other powers and perform such other duties as may be prescribed by the Trustees or these By-Laws.
ARTICLE VI
Indemnification of Trustees, Officers,
Employees and Other Agents
Section 1. Agents, Proceedings, Expenses. For the purpose of this Article, "agent" means any person who is or was a Trustee, officer, employee or other agent of the Trust or is or was serving at the request of the Trust as a trustee, director, officer, employee or agent of another organization in which the Trust has any interest as a Shareholder, creditor or otherwise: "proceeding" means any threatened, pending or completed claim, action, suit or proceeding, whether civil, criminal, administrative or investigative (including appeals); and "expenses" includes, without limitation, attorneys' fees, costs, judgments, amounts paid in settlement, fines, penalties and all other liabilities whatsoever.
Section 2. Indemnification. Subject to the exceptions and limitations contained in Section 3 below, every agent shall be indemnified by the Trust to the fullest extent permitted by law against all liabilities and against all expenses reasonably incurred or paid by him or her in connection with any proceeding in which he or she becomes involved as a party or otherwise by virtue of his or her being or having been an agent.
Section 3. Limitations, Settlements. No indemnification shall be provided hereunder to an agent:
(a) who shall have been adjudicated by the court or other body before which the proceeding was brought to be liable to the Trust or its Shareholders by reason of willful misfeasance, bad faith, gross negligence or reckless disregard of the duties involved in the conduct of his or her office (collectively, "disabling conduct"); or
(b) with respect to any proceeding disposed of (whether by settlement, pursuant to a consent decree or otherwise) without an adjudication by the court or other body before which the proceeding was brought that such agent was liable to the Trust or its Shareholders by reason of disabling conduct, unless there has been a determination that such agent did not engage in disabling conduct:
(i) by the court or other body before which the proceeding was brought;
(ii) by at least a majority of those Trustees who are neither Interested Persons (within the meaning of the 1940 Act) of the Trust nor are parties to the proceeding based upon a review of readily available facts (as opposed to a full trial-type inquiry); or
(iii) by written opinion of independent legal counsel based upon a review of readily available facts (as opposed to a full trial-type inquiry);
provided, however, that indemnification shall be provided hereunder to an agent with respect to any proceeding in the event of (1) a final decision on the merits by the court or other body before which the proceeding was brought that the agent was not liable by reason of disabling conduct, or (2) the dismissal of the proceeding by the court or other body before which it was brought for insufficiency of evidence of any disabling conduct with which such agent has been charged.
Section 4. Insurance, Rights Not Exclusive. The rights of indemnification herein provided may be insured against by policies maintained by the Trust on behalf of any agent, shall be severable, shall not be exclusive of or affect any other rights to which any agent may now or hereafter be entitled and shall inure to the benefit of the heirs, executors and administrators of any agent.
Section 5. Advance of Expenses. Expenses incurred by an agent in connection with the preparation and presentation of a defense to any proceeding may be paid by the Trust from time to time prior to final disposition thereof upon receipt of an undertaking by or on behalf of such agent that such amount will be paid over by him or her to the Trust if it is ultimately determined that he or she is not entitled to indemnification under this Article VI; provided, however, that (a) such agent shall have provided appropriate security for such undertaking, (b) the Trust is insured against losses arising out of any such advance payments or (c) either a majority of the Trustees who are neither Interested Persons of the Trust nor parties to the proceeding, or independent legal counsel in a written opinion, shall have determined, based upon a review of readily available facts (as opposed to a trial-type inquiry or full investigation), that there is reason to believe that such agent will be found entitled to indemnification under this Article VI.
Section 6. Fiduciaries of Employee Benefit Plan. This Article does not apply to any proceeding against any Trustee, investment manager or other fiduciary of an employee benefit plan in that person's capacity as such, even though that person may also be an agent of this Trust as defined in Section 1 of this Article. Nothing contained in this Article shall limit any right to indemnification to which such a Trustee, investment manager, or other fiduciary may be entitled by contract or otherwise which shall be enforceable to the extent permitted by applicable law other than this Article.
ARTICLE VII
Records and Reports
Section 1. Maintenance and Inspection of Share Registrar. The Trust shall maintain at its principal executive office or at the office of its transfer agent or registrar, if either be appointed and as determined by resolution of the Trustees, a record of its Shareholders, giving the names and addresses of all Shareholders and the number and Series (and, as applicable, Class) of Shares held by each Shareholder, and the number and date of certificates issued for the same and the number and date of cancellation of every certificate surrendered for cancellation. Subject to such reasonable standards (including standards governing what information and documents are to be furnished and at whose expense) as may be established by the Trustees from time to time, the record of the Trust's Shareholders shall be open to inspection upon the written request of any Shareholder at any reasonable time during usual business hours for a purpose reasonably related to the holder's interests as a Shareholder.
Section 2. Maintenance and Inspection of By-Laws. The Trust shall keep at its principal executive office the original or a copy of these By-Laws as amended to date, which shall be open to inspection by the Shareholders at all reasonable times during office hours.
Section 3. Maintenance and Inspection of Other Records. The accounting books and records and minutes of proceedings of the Shareholders and the Trustees and any committee or committees of the Trustees shall be kept at such place or places designated by the Trustees or in the absence of such designation, at the principal executive office of the Trust. The minutes shall be kept in written form and the accounting books and records shall be kept either in written form or in any other form capable of being converted into written form. Minute books shall be open to inspection upon the written request of any Shareholder at reasonable times during usual business hours for a purpose reasonably related to the Shareholder's interests as a Shareholder. Any such inspection may be made in person or by an agent and shall include the right to copy. Notwithstanding the foregoing, the Trustees shall have the right to keep confidential from Shareholders for such period of time as the Trustees deem reasonable, any information which the Trustees reasonably believe to be in the nature of trade secrets or other information the disclosure of which the Trustees in good faith believe is not in the best interests of the Trust or could damage the Trust or its business or which the Trust is required by law or by agreement with a third party to keep confidential.
Section 4. Inspection by Trustees. Every Trustee shall have the absolute right at any reasonable time to inspect all books, records, and documents of every kind and the physical
properties of the Trust. This inspection by a Trustee may be made in person or by an agent or attorney and the right of inspection includes the right to copy and make extracts of documents.
Section 5 . Financial Statements. A copy of any financial statements and any income statement of the Trust for each semi-annual period of each fiscal year and accompanying balance sheet of the Trust as of the end of each such period that has been prepared by the Trust shall be kept on file in the principal executive office of the Trust for at least twelve (12) months and each such statement shall be exhibited at all reasonable times to any Shareholder demanding an examination of any such statement or a copy shall be mailed to any such Shareholder.
The semi-annual income statements and balance sheets referred to in this section shall be accompanied by the report, if any, of any independent accountants engaged by the Trust or the certificate of an authorized officer of the Trust that the financial statements were prepared without audit from the books and records of the Trust.
ARTICLE VIII
General Matters
Section 1. Checks, Drafts, Evidence of Indebtedness. All checks, drafts, or other orders for payment of money, notes or other evidences of indebtedness issued in the name of or payable to the Trust shall be signed or endorsed in such manner and by such person or persons as shall be designated from time to time in accordance with the resolution of the Board of Trustees.
Section 2. Contracts and Instruments; How Executed. The Trustees, except as otherwise provided in these By-Laws, may authorize any officer or officers, agent or agents, to enter into any contract or execute any instrument in the name of and on behalf of the Trust and this authority may be general or confined to specific instances; and unless so authorized or ratified by the Trustees or within the agency power of an officer, no officer, agent, or employee shall have any power or authority to bind the Trust by any contract or engagement or to pledge its credit or to render it liable for any purpose or for any amount.
Section 3. Certificates for Shares. The Trustees may at any time authorize the issuance of Share certificates for any one or more Series or Classes. In that event, each Shareholder of an affected Series or Class shall be entitled upon request to receive a certificate evidencing such Shareholder's ownership of Shares of the relevant Series or Class (in such form as shall be prescribed from time to time by the Trustees). All certificates shall be signed in the name of the Trust by the President or Vice President and by the Treasurer or an Assistant Treasurer or the Secretary or any Assistant Secretary, certifying the number of Shares and the Series of Shares owned by the Shareholders. Any or all of the signatures on the certificate may be facsimile. In case any officer, transfer agent, or registrar who has signed or whose facsimile signature has been placed on a certificate shall have ceased to be that officer, transfer agent, or registrar before that certificate is issued, it may be issued by the Trust with the same effect as if that person were an officer, transfer agent or registrar at the date of issue. Notwithstanding the foregoing, the Trust may adopt and use a system of issuance, recordation and transfer of its Shares by electronic or other means.
Section 4. Lost Certificates. Except as provided in this Section 4, no new certificates for Shares shall be issued to replace an old certificate unless the latter is surrendered to the Trust and canceled at the same time. The Trustees may, in the event any Share certificate or certificate for any other security is lost, stolen, or destroyed, authorize the issuance of a replacement certificate on such terms and conditions as the Trustees may require, including a provision for indemnification of the Trust secured by a bond or other adequate security sufficient to protect the Trust against any claim that may be made against it, including any expense or liability on account of the alleged loss, theft, or destruction of the certificate or the issuance of the replacement certificate.
Section 5. Representation of Shares of Other Entities held by Trust. The President or any Vice President or any other person authorized by the Trustees or by any of the foregoing designated officers, is authorized to vote or represent on behalf of the Trust any and all Shares of any corporation, partnership, trusts, or other entities, foreign or domestic, standing in the name of the Trust. The authority granted may be exercised in person or by a proxy duly executed by such designated person.
Section 6. Fiscal Year. The fiscal year of the Trust shall be fixed and refixed or changed from time to time by the Trustees. The fiscal year of the Trust shall be the taxable year of each Series and Class of the Trust.
Section 7. Seal. The seal of the Trust, if utilized, shall consist of the words "First Eagle Variable Funds, Delaware Statutory Trust, 2004" in a circle. However, the seal shall not be necessary to be placed on, and its absence shall not impair the validity of, any document, instrument or other paper executed and delivered by or on behalf of the Trust.
ARTICLE IX
Amendments
Section 1. Amendment. Except as otherwise provided by applicable law or by the Declaration of Trust, these By-Laws may be restated, amended, supplemented or repealed by the Trustees, provided that no restatement, amendment, supplement or repeal hereof shall limit the rights to indemnification or insurance provided in Article VI hereof with respect to any acts or omissions of agents (as defined in Article VI) of the Trust prior to such amendment.
Section 2. Incorporation by Reference into Agreement and Declaration of Trust by the Trust. These By-Laws and any amendments thereto shall be deemed incorporated by reference in the Declaration of Trust.
DEPOSITORY AGREEMENT, dated as of [April __, 2004] by and between First Eagle Variable Funds, an investment company registered as such under the Investment Company Act of 1940 as amended ("1940 Act") and organized as a statutory trust under the laws of the State of Delaware (the "Depositor"), on behalf of its sole series, the First Eagle Overseas Variable Fund, and HSBC Bank USA, a state-chartered, Federal Reserve member bank organized under the laws of the State of New York (the "Depository").
WHEREAS, Depository has provided Depositor's Board of Director with materials fairly describing its financial position, experience with respect to the safekeeping of precious metals, physical security measures, access procedures and controls and similar factors relevant to its appointment hereunder, collectively, ("Depositor Due Diligence Material ") and Depositor's Board of Directors has reviewed and considered such materials.
NOW THEREFORE:
Section 1.1. The Depositor hereby appoints the Depository as custodian of the metals described in each Safekeeping Advice (the "Precious Metals") which the Depository will issue from time to time in accordance with Section 2.2 hereof during the term of this Agreement.
Section 1.2. The Depository hereby accepts appointment as such custodian of the Precious Metals and agrees to perform its duties in respect thereof pursuant to the provisions of this Agreement. In this regard, Depository represents that it is, and will continue to be, a bank having the qualifications required by section 17(f) of the 1940 Act to serve as a custodian to a registered investment company.
Section 1.3 The Depository will provide Depositor's Board of Directors with such updated and/or supplemented Depositor due diligence materials as Depositor may reasonably request, such materials generally to be provided quarterly.
Section 2.1. Control over the Precious Metals shall be and shall remain vested in the Depositor.
Section 2.2. Each delivery of Precious Metals to the Depository shall be evidenced by a completed Safekeeping Advice, substantially in the form of Exhibit A attached hereto; and delivery of the Precious Metals by the Depository to the Depositor, or to a party designated by the Depositor pursuant to Section VII hereof, shall be evidenced by a completed Safekeeping Withdrawal Advice substantially in the form of Exhibit B attached hereto. Depository shall provide promptly to Depositor copies of each such Advice or other transaction statements.
Section 2.3. The Depository shall receive, hold and keep the Precious Metals in the Depository's custody at its premises located at 452 Fifth Avenue, New York, New York. and/or 425 Saw Mill River Road, Ardsley, New York. The Depository will not be responsible for the Precious Metals until they are actually delivered to and received by the Depository at its premises.
Section 3.1. The Depository shall be responsible for the safekeeping of the Precious Metals in the form and condition in which they are delivered to the Depository while they are in the possession or under the control of the Depository, at all times in accordance with reasonable industry practice regarding the safekeeping of such materials. The Depository shall keep the Precious Metals separately identified and segregated and shall mark in an appropriate manner the Precious Metals held for the Depositor. The Depository shall, at all times during its business hours, permit any person designated on Schedule I ("Designated Persons Schedule") attached hereto or any other person designated by the written request of the Depositor, including for this purpose, authorized representatives of the Depositor's independent auditors (collectively, "Designated Persons"), to have access to the Precious Metals for the purpose of inspection and taking inventory thereof.
Section 3.2. The Depository shall send to the Depositor monthly (i) a statement summarizing each receipt and each delivery of the Precious Metals held by it for the Depositor during such period, and (ii) a detailed statement of the Precious Metals held by the Depository pursuant to this Agreement during the period covered by such statement certified by an officer of the Depository. Unless the Depositor objects by written notice to the Depository which is received by the Depository within 10 business days after such statement is sent to the Depositor, such statement shall be conclusive and binding on the Depositor. The books, accounts and records of the Depository pertaining to its actions pursuant to this Agreement shall be kept open to inspection and audit during reasonable business hours by Designated Persons.
Section 3.3. The Depository shall, as warehouseman, acknowledge receipt from the Depositor of the Precious Metals and may, at its option, record certain specifications indicated on the Precious Metals Other than in connection with the duties undertaken at the Depositor's request pursuant to section 3.6 hereof, the Depository is not responsible for the authenticity of markings on or for the weight, fineness or contents of any of the Precious Metals, packages or sealed containers delivered to Depository by the Depositor.
Section 3.4. Delivery of the Precious Metals to the Depository will be at the Depositor's expense. The Depositor shall pay or reimburse the Depository from time to time for any taxes or other governmental charges payable, and actually paid, by the Depository upon storage or transfers of the Precious Metals made hereunder, and for all other usual, necessary and proper disbursements and expenses made or incurred by the Depository in its performance of this Agreement.
Section 3.5. The Depositor agrees to indemnify and hold harmless the Depository from and against any loss, damage, taxes, charges, expenses, assessments, claims or liabilities, including reasonable counsel fees, incurred by it as a result of its performance of this Agreement, except such as
may arise from its own gross negligence, willful default or misconduct or reckless disregard of the duties and obligations hereunder.
Section 3.6. Upon the request of the Depositor and at the Depositors' expense, the Depository will undertake to do the following:
3.6(a) Weigh and incise bars not marked to industry standard and
produce authorized bar and weight listings for corresponding
material.
3.6(b) Assay sample bars from a Depositor's inventory by an approved
assayer or transport such bars to a refinery in order to
verify content.
3.6(c) Segregate a client's Precious Metals according to collateral
requirements and confirm such action with a lending bank or
financial institution. Timely release of the Precious Metals
will be effected once the loan agreement is completed.
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Section 3.7. Neither Depository nor Depositor shall be responsible for delays or failures in performance resulting from acts beyond the control of such party, provided that any party disclaiming responsibility under this section 3.7 shall have taken reasonable measures designed to minimize the impact of the particular act. Such acts shall include but not be limited to acts such as God, strikes, lockouts, riots, acts of war, epidemics, governmental regulations superimposed after the fact, fire, communication line failures, power failures, earthquakes or other disasters.
Section 4.1. From time to time during the term of this Agreement and in accordance with instructions of the Depositor and at the Depositor's expense, the Depository will deliver, or cause to be delivered, Precious Metals to the persons named and by the method of shipment or delivery set forth in such instructions subject to the following terms:
4.1(a) Upon Depositor's request for a withdrawal, Depository will
assign the earliest available date to effect such withdrawal,
which date shall be no later than five business days from the
date of request or a later date agreed to by the parties.
4.1(b) Requests for withdrawals of small shipments (10 items or less)
may be made by telephone followed by written request. All
other preliminary requests must be made in writing, containing
the information stipulated in Section 4.1 (c) hereof and
received by the Depository signed by a duly authorized
Designated Person, or by tested telex or facsimile
transmission.
If a withdrawal involves receipted material, receipts must be
properly endorsed and delivered to the Depository at least one
full day prior to the shipment date for small shipments, and
at least five full days prior to shipment date for shipments
involving more than 100 items (100 receipts for COMEX Silver).
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HSBC Bank USA Precious Metals Depository Agreement
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4.1(c) The following information will be required for releasing
materials:
a. Bar list, receipt list or proper identification of
material
b. Gross weight of each item (if applicable)
c. Total number of items
d. Total gross weight of shipment
e. Date agreed to by Depository for shipment
f. Carrier to be used (if applicable)
g. Any special packaging instructions
4.1(d) Depository will prepare and deliver material to the United
States Post Office for delivery through the U.S. Postal System
pursuant to the rules and regulations thereof.
Fees for this service will be specified on Schedule 11 hereto
(the "Fee Schedule").
4.1(e) Given one full business day's notification, Depository will
pick up or deliver any reasonably sized shipment between our
vault and any point within the borough of Manhattan via
armored carrier. Fees for this service are available upon
request.
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Section 4.2. The Depository will prepare and complete all shipping documents and, upon delivery of the Precious Metals, send a complete set of such documents to the Depositor.
4.2(a) Upon notification of an incoming overseas shipment by the
client, Depository will arrange for customs clearance, entry
fees and bonding, and insured transportation from Port of
Entry to Depository's vault. Charges for the Customs Entry
Service are available upon request.
4.2(b) The rates quoted for Customs Entry Service are for arrivals
between the hours of 8 AM and 6 PM. Shipments arriving between
the hours of 6 PM and 8 AM will be subject to premiums and are
available upon request.
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Section 5.1. The Depository's fees for performing services pursuant to this Agreement will be in accordance with the attached Fee Schedule and shall be due and payable upon receipt of invoice..
Section 5.2. Rates for storage and withdrawal of commodities traded on exchange receipts for which Depository is a licensed depository cannot be offered at a discount. These rates are on file with each licensing exchange. Depository has the right to change any or all of these rates by giving 90 days prior notice to the appropriate exchange. In the event of a rate change, the exchange will inform its clearing members of the new rates and effective dates.
Section 5.3. Withdrawal charges quoted are for preparation and release of shipments only. Charges for pallets, strapping, special packing or other materials required will be added to the fees in the basic agreement.
Section 5.4. Depositor giving authorization to transfer funds from a demand deposit account will have its account debited within three business days of invoice date.
Section 5.5. In the event that payment has not been received within thirty (30) days of the invoice date, Depository reserves the right to review the credit status of Depositor and to institute an interest charge on any outstanding balance from the billing date at a rate of 1.5% per month 18% per year).
Section 5.6 Depositor must notify Depository of any billing errors or disputed charges within sixty (60) days of the invoice date or will thereby assume responsibility for charges including interest until notification of error is given.
Section 5.7 The Depositor hereby agrees that Depository shall have a lien upon the Precious Metals held for Depositor in an amount equal to any fees owed to Depository by Depositor, provided, however, that Depository shall not permit any creditor of Depository to establish or maintain any security interest, lien or other claim upon the Precious Metals held for the Depositor.
Section 6.1. This Agreement may be terminated by the Depositor by giving written notice to the Depository specifying the date of such termination, which shall be not less than thirty days after the date of such notice, or by the Depository by giving written notice to the Depositor specifying the date of such termination, which shall not be less than ninety days after the date of such notice. In the event notice of termination is given by the Depositor, the Depositor shall designate therein a successor depository, and the Depository shall follow the directions of the Depositor to deliver the Precious Metals to such successor depository at Depositor's expense. In the event such notice is given by the Depository the Depositor shall, on or before the termination date, deliver to the Depository a designation of a successor depository and instructions to deliver the Precious Metals to such successor depository at Depository's expense.
Section 6.2. Upon the date set forth in any notice of termination given pursuant to Section 6.1 above, this Agreement shall terminate. On such date, the Depository shall deliver directly to the successor depository (or, if there is no successor depository, the Depositor) all of the Precious Metals held by it as Depository, and the Depositor shall pay Depository all fees, expenses and other amounts to which it is entitled pursuant to the terms of this Agreement.
Section 6.3. In the event that the Depository shall become incapable of performing as custodian pursuant hereto, or shall be dissolved, adjudged a bankrupt or insolvent or a trustee, receiver or conservator of the Depository or its property shall be appointed or an application for any of the foregoing is files, or if control of the Depository or its officers or directors be taken over by any governmental or other public authority or officer, then this Agreement shall automatically terminate and the Depository or any trustee, receiver or conservator shall deliver to the Depositor or a successor depository all of the Precious Metals held by the Depository pursuant hereto upon payment by the Depositor of all fees,
expenses and other amounts as to which the Depository is entitled pursuant to the terms of this Agreement.
Section 6.4. A successor depository resulting from the provisions of
Section 6. 1, 6.2 or 6.3 shall be vested with all the powers, duties and
obligations of its predecessor under this Agreement and any amendments thereof,
and shall succeed to all exemptions and privileges of its predecessor under this
Agreement and any amendments thereof.
Section 6.5. The termination of this Agreement shall not affect the obligations of either party to the other party which arise or accrue prior to the date of termination hereof.
The following entitled Designated Persons must meet the following conditions:
i. List must be on company/personal letterhead.
ii. Designated Persons' names must be typed or printed, then signed by the individuals.
iii. Instructions must be included (i.e. multiple signatures required for withdrawals).
iv. Authorization letter must be signed by an officer of the Depositor.
Changes in the list of Designated Persons must be submitted to Depository immediately.
Section 7.1. Depositor must provide a listing of individuals authorized to transact business involving materials held by Depository. This list shall be attached to this Agreement as Schedule 1.
Section 7.2. The Depository shall be entitled to rely upon any notice or other instrument in writing received by the Depository from Designated Persons and reasonably believed by the Depository in good faith to be genuine.
Section 7.3. Depositor will hold harmless and indemnify Depository for any transaction made by Depository upon the instructions whether written or by facsimile transmission of an individual not properly removed by Depositor from the Designated Persons list.
Section 8.1. Depositor agrees that it will not divulge to third parties, without the written consent of Depository or as maybe required by law, any confidential information of Depository attained from or through same in connection with the performance of this Agreement.
Section 8.2 In all cases, Depository maintains a degree of confidentiality with respect to client records and transactions commensurate with exchange requirements and with the standards applicable to Depository's own confidential information.
Section 8.3 It is further agreed that neither party will use the name of the other or any affiliate
thereof in its advertising or in its public relations with third parties without prior written consent of the party so referenced: provided, however, that Depository acknowledges that disclosure obligations applicable to registered investment companies will require public filing of this contract with the Securities and Exchange Commission and identification of Depository as custodian to the First Eagle Overseas Variable Fund in Depositor's publicly available registration statement.
Section 9.1. Any notice, demand or instruction authorized or required by, or given pursuant to, this Agreement shall be in writing and be deemed given if sent by first class airmail or by tested telex or delivered to a party at its principal place of business set forth on Schedule III hereto.
Section 9.2. This Agreement may not be amended or modified in any manner except by a written agreement executed by both parties with the same formality as this Agreement.
Section 9.3. This Agreement shall inure to the benefit of and shall be binding upon the parties hereto and their respective successors and assigns; provided, however, that, except as provided herein, this Agreement shall not be assignable by either party without the written consent of the other party.
Section 9.4. This Agreement shall be governed by and construed in accordance with the laws of the State of New York.
Section 9.5. If any term or provision of this Agreement should be declared invalid by a court of competent jurisdiction', the remaining terms and provisions of this Agreement shall be unimpaired.
Section 9.6. This Agreement, together with all the Schedules and Exhibits attached hereto, constitutes the entire agreement between the parties with respect to the subject matter hereof and supersedes in all respects all prior proposals, negotiations, conversations, discussions, and agreements made between the parties concerning the subject matter hereof.
Section 9.7 The parties acknowledge that First Eagle Overseas Variable Fund is a separate investment portfolio of Depositor, as is permitted by the 1940 Act and Delaware law. All obligations of Depositor hereunder are limited to such portfolio and any amount owed by Depositor hereunder shall be paid only from the assets of such portfolio.
IN WITNESS WHEREOF the Parties hereto have caused this Agreement to be executed as of the date first above written by their respective officers thereunto duly authorized.
HSBC Bank USA
By: By:
------------------------------- ------------------------------------
Name: Name:
Title: Title:
By: By:
------------------------------- ------------------------------------
Name: Name:
Title: Title:
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PARTICIPATION AGREEMENT
Among
[COMPANY]
FIRST EAGLE VARIABLE FUNDS
and
FIRST EAGLE FUNDS DISTRIBUTORS
A DIVISION OF ASB SECURITIES, LLC.
THIS AGREEMENT, dated as of the 31st day of March, 2004 by and among
[INSURANCE COMPANY NAME], (the "Company"), a [name of state] insurance company,
on its own behalf and on behalf of each segregated asset account of the Company
set forth on Schedule A hereto as may be amended from time to time (each account
hereinafter referred to as the "Account"), First Eagle Variable Funds (the
"Fund"), a statutory trust organized under the laws of Delaware, and First Eagle
Funds Distributors, a division of ASB Securities, LLC (the "Underwriter"), a
Delaware limited liability company.
WHEREAS, the Fund engages in business as an open-end management investment company and is or will be available to act as the investment vehicle for separate accounts established for variable life insurance and variable annuity contracts (the "Variable Insurance Products") to be offered by insurance companies which have entered into participation agreements with the Fund and Underwriter ("Participating Insurance Companies");
WHEREAS, the shares of common stock of the Fund are divided into several series of shares, each designated a "Portfolio" and representing the interest in a particular managed portfolio of securities and other assets;
WHEREAS, the Fund has obtained an order from the Securities and Exchange Commission (the "SEC") granting Participating Insurance Companies and variable annuity and variable life insurance separate accounts exemptions from the provisions of sections 9(a), 13(a), 15(a), and 15(b) of the Investment Company Act of 1940, as amended, (the "1940 Act") and Rules 6e-2(b)(15) and 6e-3(T)(b)(15) thereunder, if and to the extent necessary to permit shares of the Fund to be sold to and held by variable annuity and variable life insurance separate accounts of both affiliated and unaffiliated life insurance companies (the "Mixed and Shared Funding Exemptive Order");
WHEREAS, the Fund is registered as an open-end management investment company under the 1940 Act and shares of the Portfolios are registered under the Securities Act of 1933, as amended (the "1933 Act");
WHEREAS, Arnhold and S. Bleichroeder Advisers, LLC (the "Adviser"), which serves as investment adviser to the Fund, is duly registered as an investment adviser under the federal Investment Advisers Act of 1940, as amended, and any applicable state securities laws;
WHEREAS, the Company has issued or will issue certain variable life insurance and/or variable annuity contracts supported wholly or partially by the Account (the "Contracts"), and said Contracts are listed in Schedule A hereto, as it may be amended from time to time by mutual written agreement;
WHEREAS, the Account is duly established and maintained as a segregated asset account, duly established by the Company, on the date shown for such Account on Schedule A hereto, to set aside and invest assets attributable to the aforesaid Contracts;
WHEREAS, the Underwriter, which serves as distributor to the Fund, is registered as a broker dealer with the SEC under the Securities Exchange Act of 1934, as amended (the "1934 Act"), and is a member in good standing of the National Association of Securities Dealers, Inc. (the "NASD"); and
WHEREAS, to the extent permitted by applicable insurance laws and regulations, the Company intends to purchase shares in the Portfolios listed in Schedule A hereto, as it may be amended from time to time by mutual written agreement (the "Designated Portfolios") on behalf of the Account to fund the aforesaid Contracts, and the Underwriter is authorized to sell such shares to the Account at net asset value;
NOW, THEREFORE, in consideration of their mutual promises, the Company, the Fund and the Underwriter agree as follows:
ARTICLE I. Sale of Fund Shares
1.1 The Fund has granted to the Underwriter exclusive authority
to distribute the Fund's shares, and has agreed to instruct, and has so
instructed, the Underwriter to make available to the Company for purchase on
behalf of the Account Fund shares of those Designated Portfolios selected by the
Underwriter. Pursuant to such authority and instructions, and subject to Article
X hereof, the Underwriter agrees to make available to the Company for purchase
on behalf of the Account, shares of those Designated Portfolios listed on
Schedule A to this Agreement, such purchases to be effected at net asset value
in accordance with Section 1.3 of this Agreement. Notwithstanding the foregoing,
(i) Fund series (other than those listed on Schedule A) in existence now or that
may be established in the future will be made available to the Company only as
the Underwriter may so provide, and (ii) the Board of Trustees of the Fund (the
"Board") may suspend or terminate the offering of Fund shares of any Designated
Portfolio or class thereof, if such action is required by law or by regulatory
authorities having jurisdiction or if, in the sole discretion of the Board
acting in good faith and in light of its fiduciary duties under federal and any
applicable state laws, suspension or termination is necessary in the best
interests of the shareholders of such Designated Portfolio.
1.2 The Fund shall redeem, at the Company's request, any full or
fractional Designated Portfolio shares held by the Company on behalf of the
Account, such redemptions to be effected at net asset value in accordance with
Section 1.3 of this Agreement. Notwithstanding the foregoing, (i) the Company
shall not redeem Fund shares attributable to Contract owners except in the
circumstances permitted in Section 10.3 of this Agreement, and (ii) the Fund may
delay redemption of Fund shares of any Designated Portfolio to the extent
permitted by the 1940 Act, any rules, regulations or orders thereunder, or the then current Fund Prospectus.
1.3 Purchase and Redemption Procedures
(a) The Fund hereby appoints the Company as an agent of the Fund for the limited purpose of receiving purchase and redemption requests on behalf of the Account (but not with respect to any Fund shares that may be held in the general account of the Company) for shares of those Designated Portfolios made available hereunder, based on allocations of amounts to the Account or subaccounts thereof under the Contracts and other transactions relating to the Contracts or the Account. Receipt of any such request (or relevant transactional information therefor) on any day the New York Stock Exchange is open for trading and on which the Fund calculates it net asset value pursuant to the rules of the SEC (a "Business Day") by the Company as such limited agent of the Fund prior to the time that the Fund calculates its net asset value as described from time to time in the Fund Prospectus (which as of the date of execution of this Agreement is 4:00 p.m. Eastern Time) shall constitute receipt by the Fund on that same Business Day, provided that the Fund receives notice of such request by 9:30 a.m. Eastern Time on the next following Business Day.
(b) The Company shall pay for shares of each Designated Portfolio on the same day that it notifies the Fund of a purchase request for such shares. Payment for Designated Portfolio shares shall be made in federal funds transmitted to the Fund by wire to be received by the Fund by 4:00 p.m. Eastern Time on the day the Fund is notified of the purchase request for Designated Portfolio shares (unless the Fund determines and so advises the Company that sufficient proceeds are available from redemption of shares of other Designated Portfolios effected pursuant to redemption requests tendered by the Company on behalf of the Account). If federal funds are not received on time, such funds will be invested, and Designated Portfolio shares purchased thereby will be issued, as soon as practicable and the Company shall promptly, upon the Fund's request, reimburse the Fund for any charges, costs, fees, interest or other expenses incurred by the Fund in connection with any advances to, or borrowing or overdrafts by, the Fund, or any similar expenses incurred by the Fund, as a result of portfolio transactions effected by the Fund based upon such purchase request. Upon receipt of federal funds so wired, such funds shall cease to be the responsibility of the Company and shall become the responsibility of the Fund.
(c) Payment for Designated Portfolio shares redeemed by the Account or the Company shall be made in federal funds transmitted by wire to the Company or any other designated person on the next Business Day after the Fund is properly notified of the redemption order of such shares (unless redemption proceeds are to be applied to the purchase of shares of other Designated Portfolio in accordance with Section 1.3(b) of this Agreement), except that the Fund reserves the right to delay payment of redemption proceeds to the extent permitted under Section 22(e) of the 1940 Act and any Rules thereunder, and in accordance
with the procedures and policies of the Fund as described in the then current prospectus. The Fund shall not bear any responsibility whatsoever for the proper disbursement or crediting of redemption proceeds by the Company. The Company alone shall be responsible for such action.
(d) Any purchase or redemption request for Designated Portfolio shares held or to be held in the Company's general account shall be effected at the net asset value per share next determined after the Fund's receipt of such request, provided that, in the case of a purchase request, payment for Fund shares so requested is received by the Fund in federal funds prior to close of business for determination of such value, as defined from time to time in the Fund Prospectus.
1.4 The Fund shall use its best efforts to make the net asset
value per share for each Designated Portfolio available to the Company by 6:30
p.m. Eastern Time each Business Day, and in any event, as soon as reasonably
practicable after the net asset value per share for such Designated Portfolio is
calculated, and shall calculate such net asset value in accordance with the
Fund's Prospectus. If the Fund provides the Company with materially incorrect
share net asset value information through no fault of the Company, the Company
on behalf of the Account shall be entitled, to the extent reasonably
practicable, to an adjustment to the number of shares purchased or redeemed to
reflect the correct net asset value, and the Underwriter shall promptly, on
request of the Company, reimburse the Company, or cause the responsible party to
reimburse the Company, for any reasonable out-of-pocket charges, costs, fees or
other expenses incurred by the Company in implementing the steps determined by
the Fund to be necessary to correct the pricing error. Neither the Fund, any
Designated Portfolio, the Underwriter, nor any of their affiliates shall be
liable for any information provided to the Company pursuant to this Agreement
which information is based on incorrect information supplied by the Company to
the Fund or the Underwriter.
1.5 The Fund shall furnish notice (by wire or telephone followed by written confirmation) to the Company as soon as reasonably practicable of any income dividends or capital gain distributions payable on any Designated Portfolio shares. The Company, on its behalf and on behalf of the Account, hereby elects to receive all such dividends and distributions as are payable on any Designated Portfolio shares in the form of additional shares of that Designated Portfolio. The Company reserves the right, on its behalf and on behalf of the Account, to revoke this election and to receive all such dividends and capital gain distributions in cash. The Fund shall notify the Company promptly of the number of Designated Portfolio shares so issued as payment of such dividends and distributions.
1.6 Issuance and transfer of Fund shares shall be by book entry only. Stock certificates will not be issued to the Company or the Account. Purchase and redemption orders for Fund shares shall be recorded in an appropriate ledger for the Account or the appropriate subaccount of the Account.
1.7 (a) The parties hereto acknowledge that the arrangement contemplated by this Agreement is not exclusive; the Fund's shares may be sold to other insurance companies (subject to Section 1.8 hereof) and the cash value of the Contracts may be
invested in other investment companies, provided, however, that until this Agreement is terminated pursuant to Article X, the Company shall give equivalent prominence to the Designated Portfolios as the Company provides to other funding vehicles available under the Contracts in promotional materials that describe funding vehicles available under the Contracts and are published by the Company.
(b) The Company shall not, without prior notice to the Underwriter (unless otherwise required by applicable law) take any action to operate the Account as a management investment company under the 1940 Act.
(c) The Company shall not, without prior notice to the Underwriter (unless otherwise required by applicable law), induce Contract owners to change or modify the Fund or change the Fund's distributor or investment adviser.
1.8 The Underwriter and the Fund shall sell Fund shares only to
Participating Insurance Companies and their separate accounts and to persons or
plans ("Qualified Persons") that qualify to purchase shares of the Fund under
Section 817(h) of the Internal Revenue Code of 1986, as amended (the "Code") and
the regulations thereunder without impairing the ability of the Account to
consider the portfolio investments of the Fund as constituting investments of
the Account for the purpose of satisfying the diversification requirements of
Section 817(h). The Underwriter and the Fund shall not sell Fund shares to any
insurance company or separate account unless an agreement complying with Article
VI of this Agreement is in effect to govern such sales. Subject to Sections 6.1
and 6.2 hereof, the Company hereby represents and warrants that it and the
Account are Qualified Persons. The Fund reserves the right to cease offering
shares of any Designated Portfolio in the discretion of the Fund.
ARTICLE II. Representations and Warranties
2.1 The Company represents and warrants that the Contracts (a) are or, prior to issuance, will be registered under the 1933 Act or, alternatively (b) are not registered because they are properly exempt from registration under the 1933 Act or will be offered exclusively in transactions that are properly exempt from registration under the 1933 Act. The Company further represents and warrants that the Contracts will be issued and sold in compliance in all material respects with all applicable federal securities and state securities and insurance laws and that the sale of the Contracts shall comply in all material respects with state insurance suitability requirements. The Company further represents and warrants that it is an insurance company duly organized and in good standing under applicable law, that it has legally and validly established the Account prior to any issuance or sale thereof as a segregated asset account under [name of state] insurance laws, and that it (a) has registered or, prior to any issuance or sale of the Contracts, will register the Account as a unit investment trust in accordance with the provisions of the 1940 Act to serve as a segregated investment account for the Contracts, or alternatively (b) has not registered the Account in proper reliance upon an exclusion from registration under the 1940 Act. The Company shall register and qualify the Contracts or interests therein as securities in accordance with the laws of the various states only if and to the extent deemed advisable by the Company.
2.2 The Fund represents and warrants that Fund shares sold pursuant to this Agreement shall be registered under the 1933 Act, duly authorized for issuance and sold in compliance with applicable state and federal securities laws and that the Fund is and shall remain registered under the 1940 Act. The Fund shall amend the registration statement for its shares under the 1933 Act and the 1940 Act from time to time as required in order to effect the continuous offering of its shares. The Fund shall register and qualify the shares for sale in accordance with the laws of the various states only if and to the extent deemed advisable by the Fund or the Underwriter.
2.3 The Fund intends to make payments to finance distribution expenses pursuant to Rule 12b-1 under the 1940 Act. In this regard, the Fund's board of trustees, a majority of whom are not interested persons of the Fund, have formulated and approved the Fund's plan adopted pursuant to Rule 12b-1 under the 1940 Act to finance distribution expenses.
2.4 The Fund makes no representations as to whether any aspect of its operations, including, but not limited to, investment policies, fees and expenses, complies with the insurance and other applicable laws of the various states, except that the Fund represents that the Fund's investment policies, fees and expenses, are and shall at all times remain in compliance with the laws of [name of state] to the extent required to perform this Agreement, provided, however, that the Company shall notify the Fund with respect to any additional requirements that are specifically directed to the Company by state insurance departments.
2.5 The Fund represents that it is lawfully organized and validly existing under the laws of the State of Delaware and that it does and will comply in all material respects with the 1940 Act.
2.6 The Underwriter represents and warrants that it is a member in good standing of the NASD and is registered as a broker-dealer with the SEC. The Underwriter further represents that it will sell and distribute the Fund shares in accordance with the laws of [name of state] and any applicable state and federal securities laws.
2.7 The Underwriter represents and warrants that the Adviser is and shall remain duly registered under all applicable federal and state securities laws and that the Adviser shall perform its obligations for the Fund in compliance in all material respects with the laws of [name of state] and any applicable state and federal securities laws.
2.8 The Fund and the Underwriter represent and warrant that all of their directors/trustees, officers, employees, investment advisers, and other individuals or entities dealing with the money and/or securities of the Fund are and shall continue to be at all times covered by a blanket fidelity bond or similar coverage for the benefit of the Fund in an amount not less than the minimum coverage as required currently by Rule 17g-1 of the 1940 Act or related provisions as may be promulgated from time to time. The aforesaid bond shall include coverage for larceny and embezzlement and shall be issued by a reputable bonding company.
2.9 The Company represents and warrants that all of its directors, officers, employees, investment advisers, and other individuals/entities employed or controlled by the Company dealing with the money and/or securities of the Account are covered by a
blanket fidelity bond or similar coverage for the benefit of the Account, in an amount not less than $5 million. The aforesaid bond includes coverage for larceny and embezzlement and is issued by a reputable bonding company.
2.10 The Company represents and warrants that it has adopted policies and procedures reasonably designed to detect and prevent money laundering activities in compliance with applicable laws, regulations and regulatory interpretations. The Company undertakes that it shall (a) conduct its operations in accordance with applicable laws, regulations and regulatory interpretations; (b) provide access to its books, records and operations relating to its anti-money laundering compliance by appropriate regulatory authorities, the Underwriter and, if appropriate, the Fund; (c) upon request, provide a copy of its anti-money laundering program (or a summary of its program) to the Underwriter and, if appropriate, the Fund; (d) upon reasonable request, certify, in writing that the Company is in compliance with applicable anti-money laundering laws, rules, regulations and regulatory interpretations with respect to the services provided under this Agreement; and (e) provide periodic reports to the Underwriter and, if appropriate, the Fund, concerning anti-money laundering activities and compliance exceptions, as may agree from time to time among the parties.
ARTICLE III. Prospectuses and Proxy Statements; Voting
3.1 The Underwriter shall provide the Company with as many copies
of the Fund's current prospectus (describing only the Designated Portfolios
listed on Schedule A) as the Company may reasonably request. The Company shall
bear the expense of printing copies of the current prospectus for the Contracts
that will be distributed to existing Contract owners, and the Company shall bear
the expense of printing copies of the Fund's prospectus that are used in
connection with offering the Contracts issued by the Company. If requested by
the Company in lieu thereof, the Fund shall provide such documentation
(including a final copy of the new prospectus on diskette at the Fund's expense)
and other assistance as is reasonably necessary in order for the Company once
each year (or more frequently if the prospectus for the Fund is amended) to have
the prospectus for the Contracts and the prospectus for the Designated
Portfolios printed together in one document (such printing to be at the
Company's expense).
3.2 The Fund's prospectus shall state that the current Statement of Additional Information ("SAI") for the Fund is available, and the Underwriter (or the Fund), at its expense, shall provide a reasonable number of copies of such SAI free of charge to the Company for itself and for any owner of a Contract who requests such SAI.
3.3 The Fund, at its expense, shall provide the Company with copies of its proxy material, reports to shareholders, and other communications to shareholders in such quantity as the Company shall reasonably require for distributing to Contract owners.
3.4 The Company shall:
(i) solicit voting instructions from Contract owners;
(ii) vote the Fund shares in accordance with instructions received from Contract owners; and
(iii) vote Fund shares for which no instructions have been received in the same proportion as Fund shares of such portfolio for which instructions have been received.
The Company will vote Fund shares held in any segregated asset account in the same proportion as Fund shares of such portfolio for which voting instructions have been received from Contract owners, to the extent permitted by law.
3.5 Participating Insurance Companies shall be responsible for assuring that each of their separate accounts participating in a Designated Portfolio calculates voting privileges as required by the Shared Funding Exemptive Order and consistent with any reasonable standards that the Fund may adopt and provide in writing. The Fund hereby confirms that the manner in which the Company currently calculates voting privileges is consistent with the manner in which other Participating Insurance Companies are required to calculate voting privileges. The Fund and the Underwriter will notify the Company if either becomes aware that another Participating Insurance Company has changed the manner in which it so calculates voting privileges.
3.6 The Fund will comply with all provisions of the 1940 Act requiring voting by shareholders, and in particular the fund will either provide for annual meetings or comply with Section 16(c) of the 1940 Act (although the Fund is not one of the trusts described in Section 16(c) of that Act) as well as Sections 16(a) and, if and when applicable, 16(b). Further, the Fund will act in accordance with the SEC's interpretation of the requirements of Section 16(a) with respect to periodic elections of trustees and with whatever rule the Commission may promulgate with respect thereto.
ARTICLE IV. Sales Material and Information
4.1 The Company shall furnish, or shall cause to be furnished, to the Fund or its designee, at least fifteen business days prior to first use, each piece of sales literature or other promotional material that the Company develops and in which the Fund (or a Designated Portfolio thereof) or the Adviser or the Underwriter is named. No such material shall be used until approved by the Fund or its designee, and the Fund will use its best efforts for it or its designee to review such sales literature or promotional material within ten Business Days after receipt of such material. The Fund or its designee reserves the right to reasonably object to the continued use of any such sales literature or other promotional material in which the Fund (or a Designated Portfolio thereof) or the Adviser or the Underwriter is named, and no such material shall be used if the Fund or its designee so object.
4.2 The Company shall not give any information or make any representations or statements on behalf of the Fund or concerning the Fund in connection with the sale of the Contracts other than the information or representations contained in the registration statement or prospectus or SAI for the Fund shares, as such registration statement and prospectus or SAI may be amended or supplemented from time to time, or in reports or proxy statements for the Fund, or in sales literature or other promotional material approved by the Fund or its designee or by the Underwriter, except with the permission of the Fund or the Underwriter or the designee of either.
4.3 The Fund and the Underwriter, or their designee, shall furnish, or shall cause to be, furnished, to the Company, at least fifteen business days prior to first use, each piece of sales literature or other promotional material that it develops and in which the Company, and/or its Account, or the Contracts, is named. No such material shall be used until approved by the Company, and the Company will use its best efforts to review such sales literature or promotional material within ten Business Days after receipt of such material. The Company reserves the right to reasonably object to the continued use of any such sales literature or other promotional material in which the Company and/or its Account, or the Contracts, is named, and no such material shall be used if the Company so objects.
4.4 The Fund and the Underwriter shall not give any information or make any representations on behalf of the Company or concerning the Company, the Account, or the Contracts other than the information or representations contained in a registration statement, prospectus (which shall include an offering memorandum, if any, if the Contracts issued by the Company or interests therein are not registered under the 1933 Act), or SAI for the Contracts, as such registration statement, prospectus, or SAI may be amended or supplemented from time to time, or in published reports for the Account which are in the public domain or approved by the Company for distribution to Contract owners, or in sales literature or other promotional material approved by the Company or its designee, except with the permission of the Company.
4.5 The Fund will provide to the Company at least one complete copy of all registration statements, prospectuses, SAIs, reports, proxy statements, sales literature and other promotional materials, applications for exemptions, requests for no-action letters, and all amendments to any of the above, that relate to the Fund or its shares, contemporaneously with the filing of such document(s) with the SEC or other regulatory authorities. The Fund will provide to the Company any complaints received that pertain to the Company, the Account, or the Contracts.
4.6 The Company will provide to the Fund at least one complete copy of all registration statements, prospectuses (which shall include an offering memorandum, if any, if the Contracts issued by the Company or interests therein are not registered under the 1933 Act), SAIs, reports, solicitations for voting instructions, sales literature and other promotional materials, applications for exemptions, requests for no-action letters, and all amendments to any of the above, that relate to the Contracts or the Account, contemporaneously with the filing of such document(s) with the SEC or other regulatory authorities. The Company shall provide to the Fund and the Underwriter any complaints received from the Contract owners pertaining to the Fund or the Designated Portfolio.
4.7 The Fund will provide the Company with as much notice as is reasonably practicable of any proxy solicitation for any Designated Portfolio, and of any material change in the Fund's registration statement, particularly any change resulting in a change to the registration statement or prospectus for any Account. The Fund will work with the Company so as to enable the Company to solicit proxies from Contract owners, or to make changes to its prospectus or registration statement, in an orderly manner. The Fund will make reasonable efforts to attempt to have changes affecting Contract prospectuses become effective simultaneously with the annual updates for such prospectuses.
4.8 For purposes of this Article IV, the phrase "sales literature and other promotional materials" includes, but is not limited to, any of the following that refer to the Fund or any affiliate of the Fund: advertisements (such as material published, or designed for use in, a newspaper, magazine, or other periodical, radio, television, telephone or tape recording, videotape display, signs or billboards, motion pictures, or other public media), and sales literature (i.e., any written or electronic communication distributed or made generally available to customers or the public, including brochures, circulars, reports, market letters, form letters, telemarketing scripts, seminar texts, reprints or excerpts of any other advertisement, sales literature, or published article), distributed or made generally available to customers or to the public, educational or training materials or other communications distributed or made generally available to some or all agents or employees, and registration statements, prospectuses, SAIs, shareholder reports, proxy materials, and any other communications distributed or made generally available with regard to the Fund.
ARTICLE V. Fees and Expenses
5.1 The Fund and the Underwriter shall pay no fee or other compensation to the Company under this Agreement, except that, the Underwriter may, to the extent permitted under the Fund's distribution plan adopted pursuant to Rule 12b-1 under the 1940 Act or as otherwise authorized by the Fund's Board of Trustees, make payments to the Company or to the underwriter for the Contracts if and in amounts agreed to by the Underwriter in writing, and such payments will be made out of existing fees otherwise payable to the Underwriter, past profits of the Underwriter, or other resources available to the Underwriter. No such payments shall be made directly by the Fund, provided that the Fund may separately agree to make payments to the Company or to the underwriter for the Contracts for certain transfer agency or other services. Notwithstanding the previous two sentences, the Underwriter may also separately agree to make payments to the Company or to the underwriter for the Contracts for these transfer agency or other services.
5.2 All expenses incident to performance by the Fund under this Agreement shall be paid by the Fund. The Fund shall see to it that all its shares are registered and authorized for issuance in accordance with applicable federal law and, if and to the extent deemed advisable by the Fund, in accordance with applicable state laws prior to their sale. The Fund shall bear the expenses for the cost of registration and qualification of the Fund's shares, preparation and filing of the Fund's prospectus and registration statement, proxy materials and reports, setting the prospectus in type, setting in type and printing the proxy materials and reports to shareholders (including the costs of printing a prospectus that constitutes an annual report), the preparation of all statements and notices required by any federal or state law, and all taxes on the issuance or transfer of the Fund's shares.
5.3 The Company shall bear the expenses of distributing the Fund's prospectus to owners of Contracts issued by the Company and of distributing the Fund's proxy materials and reports to such Contract owners.
ARTICLE VI. Diversification and Qualification
6.1 The Fund will invest its assets in such a manner as to ensure that the Contracts will be treated as annuity or life insurance contracts, whichever is appropriate, under the Code and the regulations issued thereunder (or any successor provisions). Without limiting the scope of the foregoing, each Designated Portfolio has complied and will continue to comply with Section 817(h) of the Code and Treasury Regulation 'SS' 1.817-5, and any Treasury interpretations thereof, relating to the diversification requirements for variable annuity, endowment, or life insurance contracts, and any amendments or other modifications or successor provisions to such Section or Regulations. In the event of a breach of this Article VI by the Fund, it will take all reasonable steps (a) to notify the Company of such breach and (b) to adequately diversify the Fund so as to achieve compliance within the grace period afforded by Regulation 817.5.
6.2 The Fund represents that it is or will be qualified as a Regulated Investment Company under Subchapter M of the Code, and that it will make every effort to maintain such qualification (under Subchapter M or any successor or similar provisions) and that it will notify the Company immediately upon having a reasonable basis for believing that it has ceased to so qualify or that it might not so qualify in the future.
6.3 Subject to Sections 6.1 and 6.2 hereof, the Company represents that the Contracts are currently, and at the time of issuance shall be, treated as life insurance or annuity insurance contracts, under applicable provisions of the Code, and that it will make every effort to maintain such treatment, and that it will notify the Fund and the Underwriter immediately upon having a reasonable basis for believing the Contracts have ceased to be so treated or that they might not be so treated in the future. The Company agrees that any prospectus offering a contract that is a "modified endowment contract" as that term is defined in Section 7702A of the Code (or any successor or similar provision), shall identify such contract as a modified endowment contract.
ARTICLE VII. Potential Conflicts
The following provisions shall apply only upon issuance of the Mixed and Shared Funding Order and the sale of shares of the Fund to variable life insurance separate accounts.
7.1 The Board will monitor the Fund for the existence of any material irreconcilable conflict between the interests of the Contract owners of all separate accounts investing in the Fund. An irreconcilable material conflict may arise for a variety of reasons, including: (a) an action by any state insurance regulatory authority; (b) a change in applicable federal or state insurance, tax, or securities laws or regulations, or a public ruling, private letter ruling, no-action or interpretative letter, or any similar action by insurance, tax, or securities regulatory authorities; (c) an administrative or judicial decision in any relevant proceeding; (d) the manner in which the investments of any Portfolio are being managed; (e) a difference in voting instructions given by variable annuity contract and variable life insurance contract owners; or (f) a decision by an insurer to disregard the voting instructions of contract owners. The Board shall promptly inform the Company if it determines that an irreconcilable material conflict exists and the implications thereof.
7.2 The Company will report any potential or existing conflicts of which it is aware to the Board. The Company will assist the Board in carrying out its responsibilities under the Mixed and Shared Funding Exemptive Order, by providing the Board with all information reasonably necessary for the Board to consider any issues raised. This includes, but is not limited to, an obligation by the Company to inform the Board whenever Contract owner voting instructions are disregarded.
7.3 If it is determined by a majority of the Board, or a majority of its disinterested members, that a material irreconcilable conflict exists, the Company and other Participating Insurance Companies shall, at their expense (to be allocated as near as practicable in proportion to such parties' respective responsibilities for such conflict) and to the extent reasonably practicable (as determined by a majority of the disinterested Board members), take whatever steps are necessary to remedy or eliminate the irreconcilable material conflict, up to and including: (1) withdrawing the assets allocable to some or all of the separate accounts from the Fund or any Portfolio and reinvesting such assets in a different investment medium, including (but not limited to) another Portfolio of the Fund, or submitting the question whether such segregation should be implemented to a vote of all affected contract owners and, as appropriate, segregating the assets of any appropriate group (i.e., annuity contract owners, life insurance contract owners, or variable contract owners of one or more Participating Insurance Companies) that votes in favor of such segregation, or offering to the affected contract owners the option of making such a change; and (2) establishing a new registered management investment company or managed separate account.
7.4 If a material irreconcilable conflict arises because of a decision by the Company to disregard Contract owner voting instructions and that decision represents a minority position or would preclude a majority vote, the Company may be required, at the Fund's election, to withdraw the Account's investment in the Fund and terminate this Agreement with respect to each Account; provided, however, that such withdrawal and termination shall be limited to the extent required by the foregoing material irreconcilable conflict as determined by a majority of the disinterested members of the Board. Any such withdrawal and termination must take place within six (6) months after the Fund gives written notice that this provision is being implemented, and until the end of that six month period the Fund shall continue to accept and implement orders by the Company for the purchase (and redemption) of shares of the Fund.
7.5 If a material irreconcilable conflict arises because a particular state insurance regulator's decision applicable to the Company conflicts with the majority of other state regulators, then the Company will withdraw the affected Account's investment in the Fund and terminate this Agreement with respect to such Account within six months after the Board informs the Company in writing that it has determined that such decision has created an irreconcilable material conflict; provided, however, that such withdrawal and termination shall be limited to the extent required by the foregoing material irreconcilable conflict as determined by a majority of the disinterested members of the Board. Until the end of the foregoing six month period, the Fund shall continue to accept and implement orders by the Company for the purchase (and redemption) of shares of the Fund.
7.6 For purposes of Section 7.3 through 7.6 of this Agreement, a majority of the disinterested members of the Board shall determine whether any proposed action
adequately remedies any irreconcilable material conflict, but in no event will the Fund be required to establish a new funding medium for the Contracts. The Company shall not be required by Section 7.3 to establish a new funding medium for the Contract if an offer to do so has been declined by vote of a majority of Contract owners materially adversely affected by the irreconcilable material conflict. In the event that the Board determines that any proposed action does not adequately remedy any irreconcilable material conflict, then the Company will withdraw the Account's investment in the Fund and terminate this Agreement within six (6) months after the Board informs the Company in writing of the foregoing determination; provided, however, that such withdrawal and termination shall be limited to the extent required by any such material irreconcilable conflict as determined by a majority of the disinterested members of the Board.
7.7 If and to the extent the Mixed and Shared Funding Exemption Order or any amendment thereto contains terms and conditions different from Sections 3.4, 3.5, 3.6, 7.1, 7.2, 7.3, 7.4, and 7.5 of this Agreement, then the Fund and/or the Participating Insurance Companies, as appropriate, shall take such steps as may be necessary to comply with the Mixed and Shared Funding Exemptive Order, and Sections 3.4, 3.5, 3.6, 7.1, 7.2, 7.3, 7.4 and 7.5 of this Agreement shall continue in effect only to the extent that terms and conditions substantially identical to such Sections are contained in the Mixed and Shared Funding Exemptive Order or any amendment thereto. If and to the extent that Rule 6e-2 and Rule 6e-3(T) are amended, or Rule 6e-3 is adopted, to provide exemptive relief from any provision of the 1940 Act or the rules promulgated thereunder with respect to mixed or shared funding (as defined in the Mixed and Shared Funding Exemptive Order) on terms and conditions materially different from those contained in the Mixed and Shared Funding Exemptive Order, then (a) the Fund and/or the Participating Insurance Companies, as appropriate, shall take such steps as may be necessary to comply with Rules 6e-2 and 6e-3(T), as amended, and Rule 6e-3, as adopted, to the extent such rules are applicable; and (b) Sections 3.4, 3.5, 7.1., 7.2, 7.3, 7.4, and 7.5 of this Agreement shall continue in effect only to the extent that terms and conditions substantially identical to such Sections are contained in such Rule(s) as so amended or adopted.
ARTICLE VIII. Indemnification
8.1 Indemnification By the Company
8.1(a). The Company agrees to indemnify and hold harmless the Fund, the Underwriter, the Adviser and each of its directors/trustees and officers, and each person, if any, who controls the Fund or Underwriter within the meaning of Section 15 of the 1933 Act (collectively, the "Indemnified Parties" for purposes of this Section 8.1) against any and all losses, claims, damages, liabilities (including amounts paid in settlement with the written consent of the Company) or litigation (including legal and other expenses), to which the Indemnified Parties may become subject under any statute or regulation, at common law or otherwise, insofar as such losses, claims, damages, liabilities or expenses (or actions in respect thereof) or settlements:
(i) arise out of or are based upon any untrue statement or alleged untrue statements of any material fact contained in the registration statement, prospectus (which shall include
an offering memorandum, if any), or SAI for the Contracts or contained in the Contracts or sales literature for the Contracts (or any amendment or supplement to any of the foregoing), or arise out of or are based upon the omission or the alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, provided that this agreement to indemnify shall not apply as to any Indemnified Party if such statement or omission or such alleged statement or omission was made in reliance upon and in conformity with information furnished to the Company by or on behalf of the Fund for use in the registration statement, prospectus or SAI for the Contracts or in the Contracts or sales literature (or any amendment or supplement) or otherwise for use in connection with the sale of the Contracts or Fund shares; or
(ii) arise out of or as a result of statements or representations (other than statements or representations contained in the registration statement, prospectus, SAI, or sales literature of the Fund not supplied by the Company or persons under its control) or wrongful conduct of the Company or its agents or persons under the[Company's authorization or control, with respect to the sale or distribution of the Contracts or Fund Shares; or
(iii) arise out of any untrue statement or alleged untrue statement of a material fact contained in a registration statement, prospectus, SAI, or sales literature of the Fund or any amendment thereof or supplement thereto or the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading if such a statement or omission was made in reliance upon information furnished to the Fund by or on behalf of the Company; or
(iv) arise as a result of any material failure by the Company to provide the services and furnish the materials under the terms of this Agreement (including a failure, whether unintentional or in good faith or otherwise, to comply with the qualification requirements specified in Article VI of this Agreement); or
(v) arise out of or result from any material breach of any representation and/or warranty made by the Company in this Agreement or arise out of or result from any other material breach of this Agreement by the Company,
as limited by and in accordance with the provisions of Sections 8.1 (b) and 8.1
(c) hereof.
8.1(b). The Company shall not be liable under this indemnification provision with respect to any losses, claims, damages, liabilities or litigation to which an Indemnified Party would otherwise be subject by reason of such Indemnified Party's willful misfeasance, bad faith, or gross negligence in the performance of such Indemnified Party's duties or by reason of such Indemnified Party's reckless disregard of its obligations or duties under this Agreement.
8.1(c). The Company shall not be liable under this indemnification provision with respect to any claim made against an Indemnified Party unless such Indemnified Party shall have notified the Company in writing within a reasonable time after the summons or other first legal process giving information of the nature of the claim shall have been served upon such Indemnified Party (or after such Indemnified Party shall have received notice of such service on any designated agent), but failure to notify the Company of any such claim shall not relieve the Company from any liability which it may have to the Indemnified Party against whom such action is brought otherwise than on account of this indemnification provision. In case any such action is brought against an Indemnified Party, the Company shall be entitled to participate, at its own expense, in the defense of such action. The Company also shall be entitled to assume the defense thereof, with counsel satisfactory to the party named in the action. After notice from the Company to such party of the Company's election to assume the defense thereof, the Indemnified Party shall bear the fees and expenses of any additional counsel retained by it, and the Company will not be liable to such party under this Agreement for any legal or other expenses subsequently incurred by such party independently in connection with the defense thereof other than reasonable costs of investigation.
8.1(d). The Indemnified Parties will promptly notify the Company of the commencement of any litigation or proceedings against them in connection with the issuance or sale of the Fund shares or the Contracts or the operation of the Fund.
8.2 Indemnification by the Underwriter
8.2(a). The Underwriter agrees to indemnify and hold harmless the
Company and each of it directors and officer and each person, if any, who
controls the Company within the meaning of Section 15 of the 1933 Act
(collectively, the "Indemnified Parties" for purposes of this Section 8.2)
against any and all losses, claims, damages, liabilities (including amounts paid
in settlement with the written consent of the Underwriter) or litigation
(including legal and other expenses) to which the Indemnified Parties may become
subject under any statute or regulation, at common law or otherwise, insofar as
such losses, claims, damages, liabilities or expenses (or actions in respect
thereof) or settlements:
(i) arise out of or are based upon any untrue statement or alleged untrue statement of any material fact contained in the registration statement or prospectus or SAI or sales literature of the Fund (or any amendment or supplement to any of the foregoing), or arise out of or are based upon the omission or the alleged omission to state therein a material
fact required to be stated therein or necessary to make the statements therein not misleading, provided that this agreement to indemnify shall not apply as to any Indemnified Party if such statement or omission or such alleged statement or omission was made in reliance upon and in conformity with information furnished to the Underwriter or Fund by or on behalf of the Company for use in the registration statement, prospectus or SAI for the Fund or in sales literature (or any amendment or supplement) or otherwise for use in connection with the sale of the Contracts or Fund shares; or
(ii) arise out of or as a result of statements or representations (other than statements or representations contained in the registration statement, prospectus, SAI or sales literature for the Contracts not supplied by the Underwriter or persons under its control) or wrongful conduct of the Fund or Underwriter or persons under their control, with respect to the sale or distribution of the Contracts or Fund shares; or
(iii) arise out of any untrue statement or alleged untrue statement of a material fact contained in a registration statement, prospectus, SAI or sales literature covering the Contracts, or any amendment thereof or supplement thereto, or the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statement or statements therein not misleading, if such statement or omission was made in reliance upon information furnished to the Company by or on behalf of the Fund or the Underwriter; or
(iv) arise as a result of any failure by the Fund or the Underwriter to provide the services and furnish the materials under the terms of this Agreement (including a failure of the Fund, whether unintentional or in good faith or otherwise, to comply with the diversification and other qualification requirements specified in Article VI of this Agreement); or
(v) arise out of or result from any material breach of any representation and/or warranty made by the Underwriter in this Agreement or arise out of or result from any other material breach of this Agreement by the Underwriter;
as limited by and in accordance with the provisions of Sections 8.2(b) and 8.2(c) hereof.
8.2(b). The Underwriter shall not be liable under this indemnification provision with respect to any losses, claims, damages, liabilities or litigation to which an Indemnified Party would otherwise be subject by reason of such Indemnified Party's willful misfeasance, bad faith, or gross negligence in the performance or such Indemnified Party's duties or by reason of such Indemnified Party's reckless disregard of obligations and duties under this Agreement or to the Company or the Account, whichever is applicable.
8.2(c). The Underwriter shall not be liable under this indemnification provision with respect to any claim made against an Indemnified Party unless such Indemnified Party shall have notified the Underwriter in writing within a reasonable time after the summons or other first legal process giving information of the nature of the claim shall have been served upon such Indemnified Party (or after such Indemnified Party shall have received notice of such service on any designated agent), but failure to notify the Underwriter of any such claim shall not relieve the Underwriter from any liability which it may have to the Indemnified Party against whom such action is brought otherwise than on account of this indemnification provision. In case any such action is brought against the Indemnified Party, the Underwriter will be entitled to participate, at its own expense, in the defense thereof. The Underwriter also shall be entitled to assume the defense thereof, with counsel satisfactory to the party named in the action. After notice from the Underwriter to such party of the Underwriter's election to assume the defense thereof, the Indemnified Party shall bear the fees and expenses of any additional counsel retained by it, and the Underwriter will not be liable to such party under this Agreement for any legal or other expenses subsequently incurred by such party independently in connection with the defense thereof other than reasonable costs of investigation.
8.2(d). The Company agrees promptly to notify the Underwriter of the commencement of any litigation or proceedings against it or any of its officers or directors in connection with the issuance or sale of the Contracts or the operation of the Account.
ARTICLE IX. Applicable Law
9.1 This Agreement shall be construed and the provisions hereof interpreted under and in accordance with the laws of the State of New York.
9.2 This Agreement shall be subject to the provisions of the 1933, 1934 and 1940 Acts, and the rules and regulations and rulings thereunder, including such exemptions from those statutes, rules and regulations as the SEC may grant (including, but not limited to, any Mixed and Shared Funding Exemptive Order) and the terms hereof shall be interpreted and construed in accordance therewith. If, in the future, the Mixed and Shared Funding Exemptive Order should no longer be necessary under applicable law, then Article VII shall no longer apply.
ARTICLE X. Termination
10.1 This Agreement shall continue in full force and effect until the first to occur of:
(a) termination by any party, for any reason with respect to some or all Designated Portfolios, by 120 days advance written notice delivered to the other parties; or
(b) termination by the Company by written notice to the Fund and the Underwriter based upon the Company's determination that shares of the Fund are not reasonably available to meet the requirements of the Contracts; or
(c) termination by the Company by written notice to the Fund and the Underwriter in the event any of the Designated Portfolio's shares are not registered, issued or sold in accordance with applicable state and/or federal law or such law precludes the use of such shares as the underlying investment media of the Contracts issued or to be issued by the Company; or
(d) termination by the Fund or Underwriter in the event that formal administrative proceedings are instituted against the Company by the NASD, the SEC, the Insurance Commissioner or like official of any state or any other regulatory body regarding the Company's duties under this Agreement or related to the sale of the Contracts, the operation of any Account, or the purchase of the Fund's shares; provided, however, that the Fund or Underwriter determines in its sole judgment exercised in good faith, that any such administrative proceedings will have a material adverse effect upon the ability of the Company to perform its obligations under this Agreement; or
(e) termination by the Company in the event that formal administrative proceedings are instituted against the Fund or Underwriter by the NASD, the SEC, or any state securities or insurance department or any other regulatory body; provided, however, that the Company determines in its sole judgment exercised in good faith, that any such administrative proceedings will have a material adverse effect upon the ability of the Fund or Underwriter to perform its obligations under this Agreement; or
(f) termination by the Company by written notice to the Fund and the Underwriter with respect to any Designated Portfolio in the event that such Portfolio ceases to qualify as a Regulated Investment Company under Subchapter M or fails to comply with the Section 817(h) diversification requirements specified in Article VI hereof, or if the Company reasonably believes that such Portfolio may fail to so qualify or comply; or
(g) termination by the Fund or Underwriter by written notice to the Company in the event that the Contracts fail to meet the qualifications specified in Article VI hereof, or
(h) termination by either the Fund or the Underwriter by written notice to the Company, if either one or both of the Fund or the Underwriter respectively, shall determine, in their sole judgment exercised in good faith, that the Company has suffered a material adverse change in its business, operations, financial condition, or prospects since the date of this Agreement or is the subject of material adverse publicity; or
(i) termination by the Company by written notice to the Fund and the Underwriter, if the Company shall determine, in its sole judgment exercised in good faith, that the Fund, Adviser, or the Underwriter has suffered a material adverse change in its business, operations, financial condition or prospects since the date of this Agreement or is the subject of material adverse publicity; or
(j) termination by the Company upon any substitution of the shares of another investment company or series thereof for shares of a Designated Portfolio of the Fund in accordance with the terms of the Contracts, provided that the Company has given at least 45 days prior written notice to the Fund and Underwriter of the date of substitution; or
(k) termination by any party in the event that the Fund's Board of Trustees determines that a material irreconcilable conflict exists as provided in Article VII.
10.2 Notwithstanding any termination of this Agreement, the Fund and the Underwriter shall, at the option of the Company, continue to make available additional shares of the Fund pursuant to the terms and conditions of this Agreement, for all Contracts in effect on the effective date of termination of this Agreement (hereinafter referred to as "Existing Contracts"), unless the Underwriter elects to compel a substitution of other securities for the shares of the Designated Portfolios as may be required under Article VII. Specifically, the owners of the Existing Contracts may be permitted to reallocate investments in the Fund, redeem investments in the Fund and/or invest in the Fund upon the making of additional purchase payments under the Existing Contracts (subject to any such election by the Underwriter). The parties agree that this Section 10.2 shall not apply to any terminations under Article VII and the effect of such Article VII terminations shall be governed by Article VII of this Agreement. The parties further agree that this Section 10.2 shall not apply to any terminations under Section 10.1 (f) or (g) of this Agreement.
10.3 The Company shall not redeem Fund shares attributable to the Contracts (as opposed to Fund shares attributable to the Company's assets held in the Account) except (i) as necessary to implement Contract owner initiated or approved transactions, (ii) as required by state and/or federal laws or regulations or judicial or other legal precedent of general application (hereinafter referred to as a "Legally Required Redemption"), (iii) as permitted by an order of the SEC pursuant to Section 26(b) of the 1940 Act, but only if a substitution of other securities for the shares of the Designated Portfolios is consistent with the terms of the Contracts,
or (iv) as permitted under the terms of the Contract. Upon request, the Company will promptly furnish to the Fund and the Underwriter reasonable assurance that any redemption pursuant to clause (ii) above is a Legally Required Redemption. Furthermore, except in cases where permitted under the terns of the Contracts, the Company shall not prevent Contract owners from allocating payments to a Portfolio that was otherwise available under the Contracts without first giving the Fund or the Underwriter 45 days notice of its intention to do so.
10.4 Notwithstanding any termination of this Agreement, each party's obligation under Article VIII to indemnify the other parties shall survive.
ARTICLE XI. Notices
Any notice shall be sufficiently given when sent by registered or certified mail, postage prepaid, return receipt requested, or by nationally recognized overnight courier, charges prepaid, with evidence of delivery, to the other party at the address of such party set forth below or at such other address as such party may from time to time specify in writing to the other parties, and such notice shall be effective upon delivery.
If to the Fund:
First Eagle Variable Funds
1345 Avenue of the Americas
New York, NY 10105
Attention: Suzan Afifi
If to the Company:
[COMPANY NAME]
[address]
Attention: [name]
If to the Underwriter:
ASB Securities LLC
1345 Avenue of the Americas
New York, NY 10105
Attention: Suzan Afifi
ARTICLE XII. Miscellaneous
12.1 All persons dealing with the Fund must look solely to the property of the Fund, and in the case of a series trust, the respective Designated Portfolios listed on Schedule A hereto as though each such Designated Portfolio had separately contracted with the Company and the Underwriter for the enforcement of any claims against the Fund. The parties agree that neither the Board, officers, agents nor shareholders of the Fund assume any personal liability or responsibility for obligations entered into by or on behalf of the Fund.
12.2 Subject to the requirements of legal process and regulatory authority, each party hereto shall treat as confidential the names and addresses of the owners of the Contracts and all information reasonably identified as confidential in writing by any other party hereto and, except as permitted by this Agreement, shall not disclose, disseminate or utilize such names and addresses and other confidential information without the express written consent of the affected party until such time as such information has come into the public domain.
12.3 The captions in this Agreement are included for convenience of reference only and in no way define or delineate any of the provisions hereof or otherwise affect their construction or effect.
12.4 This Agreement may be executed simultaneously in two or more counterparts, each of which taken together shall constitute one and the same instrument.
12.5 If any provision of this Agreement shall be held or made invalid by a court decision, statute, rule or otherwise, the remainder of the Agreement shall not be affected thereby.
12.6 Each party hereto shall cooperate with each other party and all appropriate governmental authorities (including without limitation the SEC, the NASD, and state insurance regulators) and shall permit such authorities reasonable access to its books and records in connection with any investigation or inquiry relating to this Agreement or the transactions contemplated hereby. Notwithstanding the generality of the foregoing, each party hereto further agrees to furnish the Insurance Commissioner of the relevant state(s) with any information or reports in connection with services provided under this Agreement which such Commissioner may request in order to ascertain whether the variable annuity operations of the Company are being conducted in a manner consistent with applicable state variable annuity laws and regulations and any other applicable law or regulations.
12.7 The rights, remedies and obligations contained in this Agreement are cumulative and are in addition to any and all rights, remedies, and obligations, at law or in equity, which the parties hereto are entitled to under state and federal laws.
12.8 This Agreement or any of the rights and obligations hereunder may not be assigned by any party without the prior written consent of all parties hereto, except that the Underwriter may effect such an assignment to any successor that becomes general distributor with respect to the Fund without such consent of the other parties hereto.
12.9 The Company shall furnish, or shall cause to be furnished, to the Fund or its designee copies of the following reports:
the Company's annual statement (prepared under statutory accounting principles) and annual report (prepared under generally accepted accounting principles) filed with any state or federal regulatory body or otherwise made available to the public, as soon as practicable and in any event within 90 days after the end of each fiscal year; and
any registration statement (without exhibits) and financial reports of the Company filed with the SEC or any state insurance regulatory, as soon as practicable after the filing thereof.
12.10 Each of the Underwriter and the Fund reserve the right, in its discretion upon notice to (and acceptance by) the other and the Company, to amend or modify this Agreement at any time. Orders received following notice to the Company of any amendment or modification to this Agreement shall be deemed to be a confirmation of the Company's acceptance of such amendment or modification. The creation of any series or class of shares of the Fund in the future will not affect the terms of this Agreement with respect to any existing series or class of shares, and will not constitute an amendment or modification to this Agreement.
IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to be executed in its name and on its behalf by its duly authorized representative and its seal to be hereunder affixed hereto as of the date specified below.
COMPANY: [COMPANY NAME]
By its authorized officer
By:
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Title:
----------------------------------
Date:
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FUND: FIRST EAGLE VARIABLE FUNDS
By its authorized officer
By:
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Title:
----------------------------------
Date:
-----------------------------------
UNDERWRITER: FIRST EAGLE FUND DISTRIBUTORS,
A DIVISION OF ASB SECURITIES, LLC.
By its authorized officer
By:
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Title:
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Date:
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SCHEDULE A
Segregated Asset Accounts of the Company
[_]
Contracts to be Issued by the Company
[_]
Designated Portfolio Shares to be Purchased
First Eagle Overseas Variable Fund
Other Funding Vehicles Available Under the Contracts
[_]
Independent Auditors' Consent
To the Shareholders and Board of Directors of First Eagle Variable Funds, Inc.:
We consent to the incorporation by reference, in this registration statement, to our report dated February 20, 2004, on the statement of assets and liabilities, including the schedule of investments, for the First Eagle Overseas Variable Fund (the "Fund"), as of December 31, 2003, and the related statement of operations for the year then ended, the statement of changes in net assets for each of the years in the two-year period then ended, and the financial highlights for each of the years in the five-year period then ended. These financial statements and financial highlights and our report thereon are included in the Annual Report of the Fund as filed on Form N-CSR.
We also consent to the references to our firm under the headings "Financial Highlights" in the Prospectus and "Independent Auditors" and "Financial Statements" in the Statement of Additional Information.
KPMG LLP
New York, New York
April 08, 2004