Registration Nos. 333-32723
811-08321
==============================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
____________________
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [ ]
Pre-Effective Amendment No. [ ]
Post-Effective Amendment No. 4 [X]
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [ ]
Amendment No. 5 [X]
(Check appropriate box or boxes.)
INVESTORS MARK SERIES FUND, INC.
_________________________________________________
(Exact name of registrant as specified in charter)
700 Karnes Boulevard
Kansas City, Missouri 64108
________________________________________ __________
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, Including Area Code (816) 753-8000
David A. Gates, Esq.
700 Karnes Boulevard
Kansas City, Missouri 64108
(Name and Address of Agent For Service)
Copies to:
Raymond A. O'Hara III, Esq. and to David A. Gates, Esq.
Blazzard, Grodd & Hasenauer, P.C. 700 Karnes Boulevard
P.O. Box 5108 Kansas City, MO 64108
Westport, CT 06881 (816) 751-5441
(203) 226-7866
It is proposed that this filing will become effective:
_____ immediately upon filing pursuant to paragraph (b)
__X__ on May 1, 2000 pursuant to paragraph (b)
_____ 60 days after filing pursuant to paragraph (a)(1)
_____ on (date) pursuant to paragraph (a)(1)
_____ 75 days after filing pursuant to paragraph (a)(2)
_____ 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: Investment Company Shares
INVESTORS MARK SERIES FUND, INC.
CROSS REFERENCE SHEET
(as required by Rule 404 (c))
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N-1A
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Item No. Location
- --------
PART A
Item 1. Front and Back Cover Pages............. Front and Back Cover Pages
Item 2. Risk/Return Summary: Investments,
Risks and Performance.................. Summary
Item 3. Risk/Return Summary: Fee Table......... Not Applicable
Item 4. Investment Objectives, Principal
Investment Strategies, and Related
Risks.................................. Summary; More About Portfolio
Investments
Item 5. Management's Discussion of Fund
Performance............................ Not Applicable
Item 6. Management, Organization, and
Capital Structure...................... Management of the Fund
Item 7. Shareholder Information................ Summary
Item 8. Distribution Arrangements.............. Not Applicable
Item 9. Financial Highlight Information........ Financial Highlights
PART B
Item 10. Cover Page and Table of Contents....... Cover Page and Table of Contents
Item 11. Fund History........................... General Information and History;
General Information
Item 12. Description of the Fund and Its
Investments and Risks.................. Investment Objectives and
Policies; Additional Investment
Risks
Item 13. Management of the Fund................. Directors and Officers of the
Fund
Item 14. Control Persons and Principal
Holders of Securities.................. Control Persons and Principal
Shareholders
Item 15. Investment Advisory and Other
Services............................... The Adviser; Sub-Advisers
Item 16. Brokerage Allocations and Other
Practices.............................. Portfolio Transactions
Item 17. Capital Stock and Other
Securities............................. Description of Shares
Item 18. Purchase, Redemption and
Pricing of Shares...................... Purchase and Redemption of
Shares; Determination of Net
Asset Value
Item 19. Taxation of the Fund................... Taxes
Item 20. Underwriters........................... The Distributor
Item 21. Calculation of Performance Data........ Performance Information
Item 22. Financial Statements................... Financial Statements
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PART C
Information required to be included in Part C is set forth under the appropriate
Item, so numbered, in Part C to this Registration Statement.
PART A
INVESTORS MARK SERIES FUND, INC.
700 Karnes Boulevard
Kansas City, Missouri 64108
Investors Mark Series Fund, Inc. is a management investment company,
sometimes called a mutual fund. It is divided into the following different
series or Portfolios
Balanced Portfolio
Global Fixed Income Portfolio
Growth & Income Portfolio
Intermediate Fixed Income Portfolio
Large Cap Value Portfolio
Large Cap Growth Portfolio
Mid Cap Equity Portfolio
Money Market Portfolio
Small Cap Equity Portfolio
The Securities and Exchange Commission has not approved or disapproved these
securities nor has it determined that this prospectus is accurate or complete.
It is a criminal offense to state otherwise.
Prospectus dated May 1, 2000
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TABLE OF CONTENTS
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Page
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SUMMARY.................................................................... 3
MORE ABOUT PORTFOLIO INVESTMENTS........................................... 17
MANAGEMENT OF THE FUND..................................................... 22
PERFORMANCE OF THE PORTFOLIOS.............................................. 27
COMPARABLE PERFORMANCE..................................................... 27
FINANCIAL HIGHLIGHTS....................................................... 29
</TABLE>
SUMMARY
This prospectus provides important information about Investors Mark Series
Fund, Inc. (the "Fund") and its nine Portfolios. Investors Mark Advisors, LLC
(the "Adviser") serves as the investment adviser for all nine Portfolios and
employs Sub-Advisers to assist it in managing the Portfolios.
Individuals cannot invest in the shares of the Portfolios directly. Instead
they participate through variable annuity contracts and variable life insurance
policies (collectively, the "Contracts") issued by an insurance company. You
can participate either through a Contract that you purchase yourself or through
a Contract purchased by your employer.
Through your participation in the Contract, you indirectly participate in
Portfolio earnings or losses, in proportion to the amount of money you invest.
Depending on your Contract, if you withdraw your money before retirement, you
may incur charges and additional tax liabilities. For further information about
your Contract, please refer to your Contract prospectus.
The Contracts may be sold by banks. An investment in a Portfolio of the Fund
through a Contract is not a deposit of a bank and is not insured or guaranteed
by the Federal Deposit Insurance Corporation or any other government agency.
The investment objectives of the Portfolios may be changed without
shareholder approval.
Some of the Portfolios have names and investment objectives that are very
similar to certain publicly available mutual funds that are managed by the same
money managers. These Portfolios are not those publicly available mutual funds
and will not have the same performance. Different performance will result from
such factors as different implementation of investment policies, different cash
flows into and out of the Portfolios, different fees, and different sizes.
A Portfolio's performance may be affected by risks specific to certain types of
investments, such as foreign securities, derivative investments, non-investment
grade debt securities, initial public offerings (IPOs) or companies with
relatively small market capitalizations. IPOs and other investment techniques
may have a magnified performance impact on a Portfolio with a small asset base.
A Portfolio may not experience similar performance as its assets grow.
Balanced Portfolio
Fact Sheet
Sub-Adviser: Kornitzer Capital Management, Inc.
For more information about each type of investment, please read the section
in this prospectus called "More About Portfolio Investments."
Investment Objective
. seeks long-term capital growth and high current income
Principal Investment Strategy
The Portfolio's Sub-Adviser seeks to achieve long-term capital growth
primarily by investment in common stocks and secondarily by investment in
convertible bonds and convertible preferred stocks. The Sub-Adviser seeks to
achieve high current income by investing in:
. corporate bonds
. government bonds
. mortgage-backed securities
. convertible bonds
. preferred stocks
. convertible preferred bonds
The Portfolio will normally invest in a broad array of securities,
diversified as to types, companies and industries. The Sub-Adviser anticipates
that the majority of common stocks purchased will be those of mid to large
capitalization companies (those with capitalization in excess of $1 billion).
The Portfolio may invest up to 75% of its assets in:
. corporate bonds
. convertible bonds
. preferred stocks
. convertible preferred stocks
The Sub-Adviser expects that from time to time these securities may be rated
below investment grade (BBB) by the major rating agencies. Such securities are
commonly known as "junk bonds." The Sub-Adviser believes this policy is
justified given
. the Sub-Adviser's view that these securities from time to time offer
superior value
. the Sub-Adviser's experience and substantial in-house credit research
capabilities with higher yielding securities
The Portfolio is authorized to write (i.e. sell) covered call options on the
securities in which it may invest and to enter into closing purchase
transactions with respect to certain of such options. Up to 25% of the
Portfolio's total assets may be subject to covered call options. A covered call
option is an option where the Portfolio in return for a premium gives another
party a right to buy specified securities owned by the Portfolio at a specified
future date and price set at the time of the contract. Covered call options
serve as a partial hedge against the price of the underlying security
declining.
The proportion of the Portfolio invested in each type of security is
expected to change over time in accordance with the Sub-Adviser's
interpretation of economic conditions and underlying security values. However
the Sub-Adviser expects that a minimum of 25% of the Portfolio's total assets
will always be invested in fixed income senior securities and that a minimum of
25% of the Portfolio's total assets will always be invested in equity
securities.
Principal Risks
The principal risks of investing in the Portfolio are:
Market Risk: the risk that the value of the securities purchased by the
Portfolio will decline as a result of economic, political or market conditions
or an issuer's financial circumstances.
Credit Risk: the risk that an issuer of a fixed income security owned by the
Portfolio may be unable to make interest or principal payments.
Interest Rate Risk: the risk that fluctuations in interest rates may affect
the value of the Portfolio's interest-paying fixed income securities.
Prepayment Risk: the risk that the holder of a mortgage underlying a
mortgage-backed security owned by the Portfolio will prepay principal,
particularly during periods of declining interest rates.
The lower ratings of certain securities held by the Portfolio may enhance
the risks described above. Lower rated instruments, especially so called "junk
bonds," involve greater risks due to the financial health of the issuer and the
economy generally and their market prices can be more volatile.
Performance Information
The performance information presented herein is intended to help you
evaluate the potential risks and rewards of an investment in the Portfolio by
showing changes in the Portfolio's performance and comparing the Portfolio's
performance with the performance of a broad based market index. How the
Portfolio performed in the past is not necessarily an indication of how the
Portfolio will perform in the future. The fees and expenses related to your
Contract have not been included in the calculations of performance shown below.
Therefore, the actual performance you would have received through your Contract
would have been less than the results shown below.
1999 1998
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8.21% - 6.03%
Best Quarter: Q.2. 1999 10.17%
Worst Quarter: Q.3. 1998 -13.57%
This table compares the Portfolio's average annual returns to the returns of
the Standard & Poor's 500 Composite Stock Price Index ("S&P 500 Index") and the
Merrill Lynch High Yield Master Index for 1 calendar year and since inception.
Average Annual Total Return as of December 31, 1999
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Since
Inception
1 (November 17,
Year 1997)
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Portfolio.................................................. 8.21% 0.88%
S&P 500 Index and Merrill Lynch High Yield Master Index
(Weighted Average)...................................... 6.91% N/A
</TABLE>
. The S&P 500 Index is an unmanaged index of 500 leading stocks.
. The Merrill Lynch High Yield Master Index is a broad-based measure of
the performance of the non-investment grade U.S. domestic market,
currently capturing close to $200 billion of the outstanding debt of
domestic market issuers rated below investment grade but not in default.
Global Fixed Income Portfolio
Fact Sheet
Sub-Adviser: Standish International Management Company, L.P.
For more information about each type of investment, please read the section
in the prospectus called "More About Portfolio Investments."
Investment Objective
. seeks maximum total return while realizing a market level of income
consistent with preserving capital and liquidity.
Principal Investment Strategy
The Portfolio normally invests at least 65% of its total assets in fixed
income securities of foreign governments or their political subdivisions and
companies located in at least three countries around the world, including the
United States.
The Portfolio intends, however, to invest in no fewer than eight foreign
countries. The Portfolio may invest a substantial portion of its assets in one
or more of those eight countries. The Portfolio may also invest up to 10% of
its total assets in emerging markets generally and may invest up to 3% of its
total assets in any one emerging market.
The Portfolio will be an actively managed non-diversified portfolio
consisting primarily of fixed income securities denominated in foreign
currencies and the U.S. dollar. Non-diversified means that the Portfolio may
invest more than 5% of its total assets in the securities of a single issuer.
The Sub-Adviser seeks to add value to the Portfolio by selecting undervalued
investments, rather than by varying the average maturity of the Portfolio to
reflect interest rate forecasts. The Sub-Adviser utilizes fundamental credit
and sector valuation techniques to evaluate what it considers to be less
efficient markets and sectors of the fixed income marketplace in an attempt to
select securities with the potential for the highest return. The Sub-Adviser
emphasizes intermediate term economic fundamentals relating to foreign
countries and emerging markets, rather than focusing on day-to-day fluctuations
in a particular currency or in the fixed income markets.
The Portfolio invests primarily in investment grade fixed income securities
or those determined by the Sub-Adviser to be of comparable quality, but it may
invest up to 15% of its total assets in below-investment grade securities (junk
bonds). The average dollar weighted credit quality of the Portfolio is expected
to be in a range of Aa to A according to Moody's or AA to A according to S&P,
Duff, Fitch or IBCA.
The Portfolio may invest in all types of fixed income securities including
. bonds
. notes (including structured or hybrid notes)
. mortgage-backed securities
. asset-backed securities
. convertible securities
. Eurodollar and Yankee Dollar instruments
. preferred stocks (including convertible preferred stocks)
. warrants
. money market instruments
These fixed income securities may be issued by various entities including
. foreign and U.S. corporations or entities
. foreign governments and their political subdivisions
. the U.S. Government and its agencies, authorities, instrumentalities or
sponsored enterprises
. supranational entities, including international organizations designated
or supported by governmental entities to promote economic reconstruction
or development, and international banking institutions and related
government agencies
The Portfolio may engage in a variety of foreign currency exchange
transactions to protect against uncertainty in the levels of future currency
exchange rates. These transactions may include the purchase and sale of foreign
currencies and options on foreign currencies. They also may include the purchase
and sale of currency forward contracts and currency futures contracts and
related options.
Principal Risks
The principal risks of investing in the Portfolio are:
Market Risk: the risk that the value of the securities purchased by the
Portfolio will decline as a result of economic, political or market conditions
or an issuer's financial circumstances.
Credit Risk: the risk that an issuer of a fixed income security owned by the
Portfolio may be unable to make interest or principal payments.
Interest Rate Risk: the risk that fluctuations in interest rates may affect
the value of the Portfolio's interest-paying fixed income securities.
Prepayment Risk: the risk that the holder of a mortgage underlying a
mortgage-backed security owned by the Portfolio will prepay principal,
particularly during periods of declining interest rates.
Lack of Diversification Risk: the risk that by investing a significant
amount of the Portfolio's assets in the securities of a small number of foreign
issuers, the Portfolio's net asset value will be more sensitive to events
affecting those issuers.
Foreign Securities Risks
Political Risk: the risk that a change in a foreign government will occur
and that the assets of a company in which the Portfolio has invested will be
affected.
Currency Risk: the risk that a foreign currency will decline in value. The
Portfolio may trade in currencies other than the U.S. dollar. An increase in
the value of the U.S. dollar relative to a foreign currency will adversely
affect the value of the Portfolio.
Limited Information Risk: the risk that foreign companies may not be subject
to accounting standards or governmental supervision comparable to U.S.
companies and that less public information about their operations may exist.
Emerging Market Country Risk: the risks associated with investment in
foreign securities are heightened in connection with investments in the
securities of issuers in emerging markets, as these markets are generally more
volatile than the markets of developed countries.
Settlement and Clearance Risk: the risks associated with the clearance and
settlement procedures in non-U.S. markets, which may be unable to keep pace
with the volume of securities transactions and may cause delays.
Liquidity Risk: foreign markets may be less liquid and more volatile than
U.S. markets and offer less protection to investors.
The lower ratings of certain securities held by the Portfolio may enhance
the risks described above. Lower rated instruments, especially so called "junk
bonds," involve greater risks due to the financial health of the issuer and the
economy generally and their market prices can be more volatile.
Performance Information
The performance information presented herein is intended to help you
evaluate the potential risks and rewards of an investment in the Portfolio by
showing changes in the Portfolio's performance and comparing the Portfolio's
performance with the performance of a broad based market index. How the
Portfolio performed in the past is not necessarily an indication of how the
Portfolio will perform in the future. The fees and expenses related to your
Contract have not been included in the calculations of performance shown below.
Therefore, the actual performance you would have received through your Contract
would have been less than the results shown below.
1999 1998
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-0.27% 7.23%
Best Quarter: Q.3. 1998 2.88%
Worst Quarter: Q.2. 1999 -1.29%
This table compares the Portfolio's average annual returns to the returns of
the JP Morgan Global Bond Index (Hedged) for 1 calendar year and since
inception.
Average Annual Total Return as of December 31, 1999
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Since
Inception
(November 13,
1 Year 1997)
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Portfolio.................................................. -0.27% 4.02%
JP Morgan Global
Bond Index (Hedged)........................................ 0.73% N/A
</TABLE>
. The JP Morgan Global Bond Index (Hedged) is an index for government debt
markets currently comprised of the local currency fixed-rate coupons of
thirteen markets.
Growth & Income Portfolio
Fact Sheet
Sub-Adviser: Lord, Abbett & Co.
For more information about each type of investment, please read the section
in this prospectus called "More About Portfolio Investments."
Investment Objective
. seeks to provide long-term growth of capital and income without excessive
fluctuation in market value.
Principal Investment Strategy
The Portfolio intends to keep its assets invested in those securities which
are selling at reasonable prices in relation to value and, to do so, it may
have to forego some opportunities for gains when, in the judgment of Portfolio
management, they carry excessive risk.
The Portfolio will try to anticipate major changes in the economy and select
stocks which it believes will benefit most from these changes.
The Portfolio will normally invest in common stocks (including securities
convertible into common stocks) of large, seasoned companies, generally with
over $6 billion in market capitalization, that are in sound financial
condition, which common stocks are expected to show above-average price
appreciation. Although the prices of common stocks fluctuate and their
dividends vary, historically, common stocks have appreciated in value and their
dividends have increased when the companies they represent have prospered and
grown.
The Portfolio constantly seeks to balance the opportunity for profit against
the risk of loss. In the past, very few industries have continuously provided
the best investment opportunities. The Portfolio will take a flexible approach
and adjust the Portfolio to reflect changes in the opportunity for sound
investments relative to the risks assumed. Therefore, the Portfolio will sell
stocks that are judged to be overpriced and reinvest the proceeds in other
securities which are believed to offer better values for the Portfolio.
Principal Risks
The principal risks of investing in the Portfolio are:
Market Risk: the risk that the value of the securities purchased by the
Portfolio will decline as a result of economic, political or market conditions
or an issuer's financial circumstances.
Value Investing Risk: the risk that the portfolio manager's judgment that a
particular security is undervalued in relation to the company's fundamental
economic values may prove incorrect.
Risk of Investing in Larger Companies: the risk that larger more established
companies may be unable to respond quickly to new competitive challenges such
as changes in technology and consumer tastes. Many larger companies also may
not be able to attain the high growth rates of successful smaller companies,
especially during extended periods of economic expansion.
Performance Information
The performance information presented herein is intended to help you
evaluate the potential risks and rewards of an investment in the Portfolio by
showing changes in the Portfolio's performance and comparing the Portfolio's
performance with the performance of a broad based market index. How the
Portfolio performed in the past is not necessarily an indication of how the
Portfolio will perform in the future. The fees and expenses related to your
Contract have not been included in the calculations of performance shown below.
Therefore, the actual performance you would have received through your Contract
would have been less than the results shown below.
1999 1998
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16.65% 12.03%
Best Quarter: Q.4. 1998 17.09%
Worst Quarter: Q.3. 1998 -12.63%
This table compares the Portfolio's average annual returns to the returns
of the S&P 500 Index for 1 calendar year and since inception.
Average Annual Total Return as of December 31, 1999
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Since
Inception
(November 12,
1 Year 1997)
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Portfolio.................................................. 16.65% 15.59%
S&P 500 Index.............................................. 21.00% 27.21%
</TABLE>
. The S&P 500 Index is an unmanaged index of 500 leading stocks.
Intermediate Fixed Income Portfolio
Fact Sheet
Sub-Adviser: Standish, Ayer & Wood, Inc.
For more information about each type of investment, please read the section
in this prospectus called "More About Portfolio Investments."
Investment Objective
. primarily to achieve a high level of current income consistent with
preserving capital and liquidity.
. secondarily to seek capital appreciation when changes in interest rates or
other economic conditions indicate that capital appreciation may be
available without significant risk to principal.
Principal Investment Strategy
The Portfolio normally invests substantially all, and at least 65% of its
assets, in investment grade fixed income securities. The Portfolio may invest
up to 20% of its assets in fixed income securities of foreign corporations and
foreign governments and their political subdivisions, including securities of
issuers located in emerging markets. No more than 10% of the Portfolio's total
assets will be invested in foreign securities not subject to currency hedging
transactions back into U.S. dollars.
The Sub-Adviser's primary investment management and research focus is at
the security and industry sector level. The Sub-Adviser seeks to add value to
the Portfolio by selecting undervalued investments, rather than by varying the
average maturity of the Portfolio to reflect interest rate forecasts. The Sub-
Adviser utilizes fundamental credit and sector valuation techniques to
evaluate what it considers to be less efficient markets and sectors of the
fixed income marketplace in an attempt to select securities with the potential
for the highest return.
The Portfolio invests primarily in investment grade fixed income securities
or those determined by the Sub-Adviser to be of comparable quality. It may,
however, invest up to 20% of its total assets in below-investment grade
securities (junk bonds). The average dollar-weighted credit quality of the
Portfolio is expected to be Aa according to Moody's or AA according to S&P,
Duff or Fitch.
The Portfolio may invest in all types of fixed income securities including:
. bonds
. notes (including structured or hybrid notes)
. mortgage-backed securities
. asset-backed securities
. convertible securities
. Eurodollar and Yankee Dollar investments
. preferred stocks
. money market instruments
These fixed income securities may be issued by
. U.S. and foreign corporations or entities
. U.S. and foreign banks
. The U.S. Government and its agencies, authorities, instrumentalities or
sponsored enterprises, and foreign governments and their political
subdivisions.
The Portfolio may engage in a variety of foreign currency exchange
transactions to protect against uncertainty in the levels of future currency
exchange rates. These transactions may include the purchase and sale of
foreign currencies and options on foreign currencies. They also may include
the purchase and sale of currency forward contracts and currency futures
contracts and related options.
The Portfolio generally invests in securities with final maturities, average
lives or interest rate reset frequencies of 15 years or less.
Under normal conditions, the Portfolio's average dollar-weighted effective
portfolio maturity will vary from five to thirteen years.
Principal Risks
The principal risks of investing in the Portfolio are:
Market Risk: the risk that the value of the securities purchased by the
Portfolio will decline as a result of economic, political or market conditions
or an issuer's financial circumstances.
Credit Risk: the risk that an issuer of a fixed income security owned by the
Portfolio may be unable to make interest or principal payments.
Interest Rate Risk: the risk that fluctuations in interest rates may affect
the value of the Portfolio's interest-paying fixed income securities.
Prepayment Risk: the risk that the holder of a mortgage underlying a
mortgage-backed security owned by the Portfolio will prepay principal,
particularly during periods of declining interest rates.
Foreign Securities Risks
Political Risk: the risk that a change in a foreign government will occur
and that the assets of a company in which the Portfolio has invested will be
affected.
Currency Risk: the risk that a foreign currency will decline in value. The
Portfolio may trade in currencies other than the U.S. dollar. An increase in
the value of the U.S. dollar relative to a foreign currency will adversely
affect the value of the Portfolio.
Limited Information Risk: the risk that foreign companies may not be subject
to accounting standards or governmental supervision comparable to U.S.
companies and that less public information about their operations may exist.
Emerging Market Country Risk: the risks associated with investment in
foreign securities are heightened in connection with investments in the
securities of issuers in emerging markets, as these markets are generally more
volatile than the markets of developed countries.
Settlement and Clearance Risk: the risks associated with the clearance and
settlement procedures in non-U.S. markets, which may be unable to keep pace
with the volume of securities transactions and may cause delays.
Liquidity Risk: foreign markets may be less liquid and more volatile than
U.S. markets and offer less protection to investors.
The lower ratings of certain securities held by the Portfolio may enhance
the risks described above. Lower rated instruments, especially so called "junk
bonds," involve greater risks due to the financial health of the issuer and the
economy generally and their market prices can be more volatile.
Performance Information
The performance information presented herein is intended to help you
evaluate the potential risks and rewards of an investment in the Portfolio by
showing changes in the Portfolio's performance and comparing the Portfolio's
performance with the performance of a broad based market index. How the
Portfolio performed in the past is not necessarily an indication of how the
Portfolio will perform in the future. The fees and expenses related to your
Contract have not been included in the calculations of performance shown below.
Therefore, the actual performance you would have received through your Contract
would have been less than the results shown below.
1999 1998
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-0.19% 5.16%
Best Quarter: Q.2. 1998 2.15%
Worst Quarter: Q.2. 1999 -0.80%
This table compares the Portfolio's average annual returns to the returns of
the Lehman Brothers Aggregate Bond Index for 1 calendar year and since
inception.
Average Annual Total Return as of December 31, 1999
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Since Inception
(November 13,
1 Year 1997)
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Portfolio................................................ -0.19% 2.91%
Lehman Brothers Aggregate Bond Index..................... -0.82% 4.26%
</TABLE>
. The Lehman Brothers Aggregate Bond Index is an unmanaged index of average
yield U.S. investment grade bonds.
Large Cap Value Portfolio
Fact Sheet
Sub-Adviser: David L. Babson & Co., Inc.
For more information about each type of investment, please read the section
in this prospectus called "More About Portfolio Investments."
Investment Objective
. seeks long-term growth of capital and income by investing principally in
a diversified portfolio of common stocks which are considered to be
undervalued in relation to earnings, dividends and/or assets.
Principal Investment Strategy
The Portfolio will normally invest at least 90% of its assets in common
stocks, either listed on an exchange or over-the-counter. The Portfolio may
invest in securities convertible into common stocks.
The Portfolio intends to invest in stocks of companies which are rated "B-"
or better in investment quality (growth and stability of earnings and
dividends) by S&P and/or "B" or better by Value Line in financial strength.
The Sub-Adviser will consider a stock to be undervalued if it is currently
trading at a price below which the Sub-Adviser believes it should be trading
and therefore represents a superior potential investment based on one or more
of the following comparisons:
1. price relative to earnings,
2. price relative to dividends,
3. price relative to assets as measured by book value.
Valuation levels as described above for each security will be compared to a
large universe of stocks as selected by the Sub-Adviser, as well as its own
past history of valuation over several years. The universe will vary from time
to time and may consist of as many as a thousand stocks. Generally, the
Portfolio will invest in securities of companies with market capitalizations of
over $6 billion. The holdings in the Portfolio will be monitored regularly by
the Sub-Adviser to determine that they continue to be relatively favorable
investments.
The Portfolio will typically hold shares of companies whose shares are
relatively unpopular and out-of-favor among investors generally at the time of
purchase. Thus the Portfolio may be considered to be "contrarian" in nature.
However, the Portfolio will be restricted to companies which the Sub-Adviser
believes are sound businesses with good future potential and should, therefore,
eventually gain greater investor favor.
Principal Risks
The principal risks of investing in the Portfolio are:
Market Risk: the risk that the value of the securities purchased by the
Portfolio will decline as a result of economic, political or market conditions
or an issuer's financial circumstances.
Value Investing Risk: the risk that the portfolio manager's judgment that a
particular security is undervalued in relation to the company's fundamental
economic values may prove incorrect.
Risk of Investing in Larger Companies: the risk that larger more established
companies may be unable to respond quickly to new competitive challenges such
as changes in technology and consumer tastes. Many larger companies also may
not be able to attain the high growth rates of successful smaller companies,
especially during extended periods of economic expansion.
Performance Information
The performance information presented herein is intended to help you
evaluate the potential risks and rewards of an investment in the Portfolio by
showing changes in the Portfolio's performance and comparing the Portfolio's
performance with the performance of a broad based market index. How the
Portfolio performed in the past is not necessarily an indication of how the
Portfolio will perform in the future. The fees and expenses related to your
Contract have not been included in the calculations of performance shown below.
Therefore, the actual performance you would have received through your Contract
would have been less than the results shown below.
1999 1998
------ --------
0.79% 5.03%
Best Quarter: Q.1. 1998 14.24%
Worst Quarter: Q.3. 1998 -18.21%
This table compares the Portfolio's average annual returns to the returns of
the S&P 500 Index for 1 calendar year and since inception.
Average Annual Total Return as of December 31, 1999
<TABLE>
<CAPTION>
Since Inception
1 (December 7,
Year 1997)
----- ---------------
<S> <C> <C>
Portfolio................................................. 0.79% 1.26%
S&P 500 Index.............................................21.00% N/A
</TABLE>
. The S&P 500 Index is an unmanaged index of 500 leading stocks.
Large Cap Growth Portfolio
Fact Sheet
Sub-Adviser: Stein Roe & Farnham, Incorporated
For more information about each type of investment, please read the section
in this prospectus called "More About Portfolio Investments."
Investment Objective
. seeks long-term capital appreciation
Principal Investment Strategy
The Portfolio normally invests at least 65% of its total assets in common
stocks and other equity-type securities that the Sub-Adviser believes have
long-term appreciation possibilities. Such equity-type securities include
. preferred stocks
. securities convertible into or exchangeable for common stocks
. warrants or rights to purchase common stocks
The Portfolio is designed for long-term investors who desire to participate
in the stock market with more investment risk and volatility than the stock
market in general, but with less investment risk and volatility than aggressive
capital appreciation funds. The Portfolio seeks to reduce risk by investing in
a diversified portfolio, but this does not eliminate risk.
The Sub-Adviser considers a company to be large cap if its market
capitalization is at least 90 percent of the weighted market capitalization of
the Standard & Poor's Mid-Cap 400 Index.
The Portfolio also may invest in investment grade debt securities of
corporate and government issuers.
The Portfolio may invest up to 25% of its total assets in foreign
securities. The Portfolio also may invest in options, futures contracts and
futures options.
Principal Risks
The principal risks of investing in the Portfolio are:
Market Risk: the risk that the value of the securities purchased by the
Portfolio will decline as a result of economic, political or market conditions
or an issuer's financial circumstances.
Growth Investing Risk: the risk of the volatility of growth stocks. Growth
companies usually invest a high portion of earnings in their businesses, and
may lack the dividends of value stocks that can cushion prices in a falling
market. Also, earnings disappointments often lead to sharp declines in prices
because investors buy growth stocks in anticipation of superior earnings
growth.
Risk of Investing in Larger Companies: the risk that larger more established
companies may be unable to respond quickly to new competitive challenges such
as changes in technology and consumer tastes. Many larger companies also may
not be able to attain the high growth rates of successful smaller companies,
especially during extended periods of economic expansion.
Foreign Securities Risks
Political Risk: the risk that a change in a foreign government will occur
and that the assets of a company in which the Portfolio has invested will be
affected.
Currency Risk: the risk that a foreign currency will decline in value. The
Portfolio may trade in currencies other than the U.S. dollar. An increase in
the value of the U.S. dollar relative to a foreign currency will adversely
affect the value of the Portfolio.
Limited Information Risk: the risk that foreign companies may not be subject
to accounting standards or governmental supervision comparable to U.S.
companies and that less public information about their operations may exist.
Emerging Market Country Risk: the risks associated with investment in
foreign securities are heightened in connection with investments in the
securities of issuers in emerging markets, as these markets are generally more
volatile than the markets of developed countries.
Settlement and Clearance Risk: the risks associated with the clearance and
settlement procedures in non-U.S. markets, which may be unable to keep pace
with the volume of securities transactions and may cause delays.
Liquidity Risk: foreign markets may be less liquid and more volatile than
U.S. markets and offer less protection to investors.
Performance Information
The performance information presented herein is intended to help you
evaluate the potential risks and rewards of an investment in the Portfolio by
showing changes in the Portfolio's performance and comparing the Portfolio's
performance with the performance of a broad based market index. How the
Portfolio performed in the past is not necessarily an indication of how the
Portfolio will perform in the future. The fees and expenses related to your
Contract have not been included in the calculations of performance shown below.
Therefore, the actual performance you would have received through your Contract
would have been less than the results shown below.
1999 1998
------- --------
35.46% 24.35%
Best Quarter: Q.4. 1999 26.53%
Worst Quarter: Q.3. 1998 -14.86%
This table compares the Portfolio's average annual returns to the returns of
the S&P 500 Index for 1 calendar year and since inception.
Average Annual Total Return as of December 31, 1999
<TABLE>
<CAPTION>
Since
Inception
1 (November 13,
Year 1997)
----- -------------
<S> <C> <C>
Portfolio................................................... 35.46% 31.90%
S&P 500 Index............................................... 21.00% N/A
</TABLE>
. The S&P 500 Index is an unmanaged index of 500 leading stocks.
Mid Cap Equity Portfolio
Fact Sheet
Sub-Adviser: Standish, Ayer & Wood, Inc.
For more information about each type of investment, please read the section
in this prospectus called "More About Portfolio Investments."
Investment Objective
. seeks to achieve long-term growth of capital through investment
primarily in equity and equity-related securities of companies which
appear to be undervalued.
Principal Investment Strategy
The Portfolio will normally invest at least 80% of the Portfolio's total
assets in equity and equity-related securities issued by U.S. or foreign
companies. These include
. exchange-traded and over-the-counter common and preferred stocks
. warrants
. rights
. convertible securities
. depository shares and receipts
. trust certificates
. shares of other investment companies
. limited partnership interests
. equity participations
The Portfolio follows a disciplined investment strategy, emphasizing stocks
which the Sub-Adviser believes offer above average potential for capital
growth. The Sub-Adviser intends to use statistical modeling techniques that
utilize stock specific factors to identify attractive equity securities. Such
factors include:
. current price earnings ratios
. stability of earnings growth
. forecasted changes in earnings growth
. trends in consensus analysts' estimates
. measures of earnings results relative to expectations
Once identified, these securities will be subject to further fundamental
analysis by the Sub-Adviser's professional staff before they are included in
the Portfolio's holdings. Securities selected for inclusion in the Portfolio's
holdings will represent various industries and sectors. The Sub-Adviser's
security selection tends to have a midcap bias, as its research indicates that
the potential returns associated with its approach are highest in that sector
of the market. The Sub-Adviser defines mid-cap as companies with market
capitalizations generally under $6 billion.
The Sub-Adviser seeks to add value to portfolios of securities by finding
companies with improving business momentum whose securities have reasonable
valuations. The Sub-Adviser utilizes both quantitative and fundamental analysis
to find stocks whose estimates of earnings are being revised upwards but whose
valuation does not yet reflect this positive trend.
When the Sub-Adviser believes that foreign markets offer above average
growth potential, the Portfolio may invest without limit in equity and equity-
related securities of foreign issuers that are listed on a United States
securities exchange or traded in the U.S. over-the-counter market.
The Portfolio may invest in shares of real estate investment trusts (REITs),
which are pooled investment vehicles that invest in real estate or real estate
loans or interests.
The Portfolio may invest in debt securities and preferred stocks which are
convertible into, or exchangeable for, common stocks.
Principal Risks
The principal risks of investing in the Portfolio are:
Market Risk: the risk that the value of the securities purchased by the
Portfolio will decline as a result of economic, political or market conditions
or an issuer's financial circumstances.
Value Investing Risk: the risk that the portfolio manager's judgment that a
particular security is undervalued in relation to the company's fundamental
economic values may prove incorrect.
Foreign Securities Risks
Political Risk: the risk that a change in a foreign government will occur
and that the assets of a company in which the Portfolio has invested will be
affected.
Currency Risk: the risk that a foreign currency will decline in value. The
Portfolio may trade in currencies other than the U.S. dollar. An increase in
the value of the U.S. dollar relative to a foreign currency will adversely
affect the value of the Portfolio.
Limited Information Risk: the risk that foreign companies may not be subject
to accounting standards or governmental supervision comparable to U.S.
companies and that less public information about their operations may exist.
Emerging Market Country Risk: the risks associated with investment in
foreign securities are heightened in connection with investments in the
securities of issuers in emerging markets, as these markets are generally more
volatile than the markets of developed countries.
Settlement and Clearance Risk: the risks associated with the clearance and
settlement procedures in non-U.S. markets, which may be unable to keep pace
with the volume of securities transactions and may cause delays.
Liquidity Risk: foreign markets may be less liquid and more volatile than
U.S. markets and offer less protection to investors; over-the-counter
securities may also be less liquid than exchange-traded securities.
Performance Information
The performance information presented herein is intended to help you
evaluate the potential risks and rewards of an investment in the Portfolio by
showing changes in the Portfolio's performance and comparing the Portfolio's
performance with the performance of a broad based market index. How the
Portfolio performed in the past is not necessarily an indication of how the
Portfolio will perform in the future. The fees and expenses related to your
Contract have not been included in the calculations of performance shown below.
Therefore, the actual performance you would have received through your Contract
would have been less than the results shown below.
1999 1998
------ --------
2.26% 7.03%
Best Quarter: Q.4. 1998 18.56%
Worst Quarter: Q.3. 1998 -18.01%
This table compares the Portfolio's average annual returns to the returns of
the Standard & Poors Mid-Cap 400 Index ("S&P Mid-Cap 400 Index") for 1 calendar
year and since inception.
Average Annual Total Return as of December 31, 1999
<TABLE>
<CAPTION>
Since
Inception
1 (November 13,
Year 1997)
----- -------------
<S> <C> <C>
Portfolio................................................... 2.26% 6.78%
S&P Mid-Cap 400 Index.......................................14.70% N/A
</TABLE>
. The S&P Mid-Cap 400 Index is a capitalization-weighted index of 400
domestic stocks chosen on the basis of market capitalization, liquidity
and industry group representation.
Money Market Portfolio
Fact Sheet
Sub-Adviser: Standish, Ayer & Wood, Inc.
For more information about each type of investment, please read the section
in this prospectus called "More About Portfolio Investments."
Investment Objective
. seeks to obtain the highest level of current income which is consistent
with the preservation of capital and maintenance of liquidity.
Principal Investment Strategy
The Portfolio invests only in:
. obligations of the United States Government
. obligations issued by agencies or instrumentalities of the United States
Government
. instruments that are secured or collateralized by obligations of the
United States Government, its agencies or its instrumentalities
. short-term obligations of United States banks and savings and loan
associations and companies having assets of more than $1 billion
. instruments fully secured or collateralized by such bank and savings and
loan obligations
. dollar-denominated short-term obligations of foreign banks, foreign
branches of foreign or U.S. banks (referred to as "Eurodollars"), and
short-term obligations of U.S. branches and agencies of foreign banks
(referred to as "Yankee dollars")
. commercial paper and short-term corporate debt securities rated in one
of the two highest categories for short term debt securities by at least
two nationally recognized statistical rating organizations (NRSROs) or
one such NRSRO if only one has rated the security
. corporate or other notes guaranteed by letters of credit from banks in
the United States having assets of more than $1 billion or
collateralized by United States Government obligations
. obligations of (i) consumer and commercial finance companies, (ii)
securities brokerage companies, (iii) leasing companies and (iv)
insurance companies.
Certain of these obligations may be variable or floating rate instruments.
The Portfolio may only invest in high quality U.S. dollar-denominated
instruments that are determined to present minimal credit risks.
The Portfolio will enter into repurchase agreements under which it
purchases securities, subject to agreement by the seller to repurchase the
securities at a higher price on a specified date, with the gain establishing
the yield during the Portfolio's holding period. The Sub-Adviser, under
general policies established by the Fund's Directors, reviews the
creditworthiness of the other party to any repurchase agreement, and will only
enter into repurchase agreements with parties whose credit is deemed
satisfactory.
Principal Risks
The principal risks of investing in the Portfolio are:
Risk of Money Market Funds: Although the Portfolio seeks to preserve the
value of your investment at $1.00 per share, it is possible to lose money by
investing in the Portfolio. An investment in the Portfolio is not insured or
guaranteed by the Federal Deposit Insurance Corporation or any other
government agency.
Credit Risk: the risk that an issuer of a fixed income security owned by
the Portfolio may be unable to make interest or principal payments.
Interest Rate Risk: the risk that fluctuations in interest rates may affect
the value of the Portfolio's interest-paying fixed income securities.
Repurchase Agreement Risk: the risk that if the seller becomes bankrupt,
the Portfolio may experience delays in recovering its money, fail to recover
part or all of its investment, and incur costs in disposing of the securities
used as collateral for the seller's repurchase obligation.
Performance Information
The performance information presented herein is intended to help you
evaluate the potential risks and rewards of an investment in the Portfolio by
showing changes in the Portfolio's performance.
How the Portfolio performed in the past is not necessarily an indication of
how the Portfolio will perform in the future. The fees and expenses related to
your Contract have not been included in the calculations of performance shown
below. Therefore, the actual performance you would have received through your
Contract would have been less than the results shown below.
1999 1998
------ --------
4.60% 5.05%
Best Quarter: Q.2. 1998 1.34%
Worst Quarter: Q.4. 1998 1.05%
Average Annual Total Return as of December 31, 1999
<TABLE>
<CAPTION>
Since
Inception
1 (November 13,
Year 1997)
----- -------------
<S> <C> <C>
Portfolio................................................... 4.60% 4.87%
</TABLE>
7 day yield as of December 31, 1999 was ____%
Small Cap Equity Portfolio
Fact Sheet
Sub-Adviser: Stein Roe & Farnham, Incorporated
For more information about each type of investment, please read the section
in this prospectus called "More About Portfolio Investments."
Investment Objective
. seeks long-term capital appreciation
Principal Investment Strategy
The Portfolio invests primarily in a diversified portfolio of common stocks
and other equity-type securities of entrepreneurially managed companies that
the Sub-Adviser believes represent special opportunities. Equity-type
securities include:
. preferred stocks
. securities convertible or exchangeable for common stocks
. warrants or rights to purchase common stocks
The Portfolio emphasizes investments in financially strong small and medium-
sized companies, based principally on appraisal of their management and stock
valuations. The Sub-Adviser considers "small" and "medium-sized" companies to
be those with market capitalizations of less than $1 billion and $1 to $3
billion, respectively.
In both its initial and ongoing appraisals of a company's management, the
Sub-Adviser seeks to know both the principal owners and senior management and
to assess their business judgment and strategies through personal visits. The
Sub- Adviser favors companies whose management has an owner/operator, risk-
adverse orientation and a demonstrated ability to create wealth for investors.
Attractive company characteristics include
. unit growth
. favorable cost structures or competitive positions
. financial strength that enables management to execute business
strategies under difficult conditions
The Sub-Adviser believes that a company is attractively valued when its
stock can be purchased at a meaningful discount to the value of the underlying
business.
The Portfolio is designed for long-term investors who want greater return
potential than is available from the stock market in general, and who are
willing to tolerate the greater investment risk and market volatility
associated with investments in small and medium-sized companies. Although the
Portfolio does not attempt to reduce or limit risk through wide industry
diversification of investment, it usually allocates its investments among a
number of different industries rather than concentrating in a particular
industry or group of industries.
The Portfolio may invest up to 35% of its assets in debt securities of
corporate and governmental issuers, primarily investment grade.
The Portfolio may invest up to 25% of its total assets in foreign securities.
The Portfolio also may invest in options, futures contracts and futures options.
Principal Risks
The principal risks of investing in the Portfolio are:
Market Risk: the risk that the value of the securities purchased by the
Portfolio will decline as a result of economic, political or market conditions
or an issuer's financial circumstances.
Small Capitalization Company Risk: the risk that small companies may be
generally subject to more abrupt or erratic market movements than securities of
larger, more established companies.
Liquidity Risk: the risk that the degree of market liquidity of some stocks
in which the Portfolio invests may be relatively limited in that the Portfolio
invests in over-the-counter stocks.
Credit Risk: the risk that an issuer of a fixed income security owned by the
Portfolio may be unable to make interest or principal payments.
Interest Rate Risk: the risk that fluctuations in interest rates may affect
the value of the Portfolio's interest-paying fixed income securities.
Foreign Securities Risks
Political Risk: the risk that a change in a foreign government will occur
and that the assets of a company in which the Portfolio has invested will be
affected.
Currency Risk: the risk that a foreign currency will decline in value. The
Portfolio may trade in currencies other than the U.S. dollar. An increase in
the value of the U.S. dollar relative to a foreign currency will adversely
affect the value of the Portfolio.
Limited Information Risk: the risk that foreign companies may not be subject
to accounting standards or governmental supervision comparable to U.S.
companies and that less public information about their operations may exist.
Emerging Market Country Risk: the risks associated with investment in
foreign securities are heightened in connection with investments in the
securities of issuers in emerging markets, as these markets are generally more
volatile than the markets of developed countries.
Settlement and Clearance Risk: the risks associated with the clearance and
settlement procedures in non-U.S. markets, which may be unable to keep pace
with the volume of securities transactions and may cause delays.
Liquidity Risk: foreign markets may be less liquid and more volatile than
U.S. markets and offer less protection to investors; over-the-counter
securities may also be less liquid than exchange-traded securities.
Performance Information
The performance information presented herein is intended to help you
evaluate the potential risks and rewards of an investment in the Portfolio by
showing changes in the Portfolio's performance and comparing the Portfolio's
performance with the performance of a broad based market index. How the
Portfolio performed in the past is not necessarily an indication of how the
Portfolio will perform in the future. The fees and expenses related to your
Contract have not been included in the calculations of performance shown below.
Therefore, the actual performance you would have received through your Contract
would have been less than the results shown below.
1999 1998
------- --------
62.16% -16.22%
Best Quarter: Q.4. 1999 34.39%
Worst Quarter: Q.3. 1998 -20.62%
This table compares the Portfolio's average annual returns to the returns of
the Standard & Poor's Small Cap 600 Index ("S&P Small Cap 600 Index") for 1
calendar year and since inception.
Average Annual Total Return as of December 31, 1999
<TABLE>
<CAPTION>
Since
Inception
(December 13,
1 Year 1997)
------ -------------
<S> <C> <C>
Portfolio.................................................. 62.16% 13.94%
S&P Small Cap 600 Index.................................... 12.40% N/A
</TABLE>
. The Standard & Poor's Small Cap 600 Index is a capitalization-weighted
index of 600 domestic stocks chosen for market size, liquidity and
industry group representation.
MORE ABOUT PORTFOLIO INVESTMENTS
Certain of the investment techniques, instruments and risks associated with
each Portfolio are referred to in the discussion that follows.
Equity Securities
Equity securities represent an ownership position in a company. The prices
of equity securities fluctuate based on changes in the financial condition of
the issuing company and on market and economic conditions. Companies sell
equity securities to get the money they need to grow.
Stocks are one type of equity security. Generally, there are two types of
stocks:
Common stock--Each share of common stock represents a part of the ownership
of a company. The holder of common stock participates in the growth of a
company through increasing stock price and dividends. If a company experiences
difficulty, a stock price can decline and dividends may not be paid.
Preferred stock--Each share of preferred stock allows the holder to receive
a dividend before the common stock shareholders receive dividends on their
shares.
Other types of equity securities include, but are not limited to,
convertible securities, warrants, rights and foreign equity securities such as
American Depository Receipts (ADRs), European Depository Receipts (EDRs), and
Global Depository Receipts (GDRs).
Fixed Income Securities
Fixed income securities include a broad array of short, medium and long
term obligations, including notes and bonds. Fixed income securities may have
fixed, variable or floating rates of interest, including rates of interest that
vary inversely at a multiple of a designated or floating rate, or that vary
according to changes in relative values of currencies. Fixed income securities
generally involve an obligation of the issuer to pay interest on either a
current basis or at the maturity of the security and to repay the principal
amount of the security at maturity.
Bonds are one type of fixed income security and are sold by governments on
the local, state and federal levels and by companies. Investing in a bond is
like making a loan for a fixed period of time at a fixed interest rate. During
the fixed period, the bond pays interest on a regular basis. At the end of the
fixed period, the bond matures and the investor usually gets back the principal
amount of the bond.
Fixed periods to maturity are categorized as:
. Short-term (generally less than 12 months)
. Intermediate- or Medium-term (one to ten years)
. Long-term (10 years or more)
Commercial paper--is a specific type of corporate or short-term note. In
fact, it is very short-term, being paid in less than 270 days. Most commercial
paper matures in 50 days or less.
Mortgage-backed securities--are securities representing interests in "pools"
of mortgage loans securitized by residential or commercial property. Payments
of interest and principal on these securities are generally made monthly, in
effect, "passing through" monthly payments made by individual borrowers on the
mortgage loans which underlie the securities.
U.S. Government securities--are obligations of, or guaranteed by the U.S.
Government or its agents or instrumentalities. Some U.S. Government securities,
such as Treasury bills, notes, bonds and securities issued by GNMA, are
supported by the full faith and credit of the U.S.; others such as securities
issued by the Federal Home Loan Banks, are supported by the right of the issuer
to borrow from the U.S. Treasury; others such as those of FNMA, and FHLMC are
supported by the discretionary authority of the U.S. Government to purchase the
agency's obligations, while still others such as those of the Student Loan
Marketing Association, the Tennessee Valley Authority and the Small Business
Authority are supported only by the credit of the instrumentality. High quality
money market instruments may include:
. Cash and cash equivalents
. U.S. Government securities
. Certificates of deposit or other obligations of U.S. banks with total
assets in excess of $1 billion
. Corporate debt obligations with remaining maturities of 12 months or
less
. Commercial paper sold by corporations and finance companies
. Repurchase agreements, money market securities of foreign issuers
payable in U.S. dollars, asset-backed securities, loan participations
and adjustable rate securities
. Bankers' acceptances
. Time deposits
Bonds, commercial paper and mortgage-backed securities are not the only
types of fixed income securities. Other fixed income securities and instruments
include, but are not limited to:
. convertible bonds, debentures and notes
. asset-backed securities
. certificates of deposit
. fixed time deposits
. bankers' acceptances
. repurchase agreements
. reverse repurchase agreements
Money Market Instruments
All of the Portfolios may invest in high quality money market instruments. A
money market instrument is high quality when it is rated in one of the two
highest rating categories by S&P or Moody's or another nationally recognized
service, or if unrated, deemed high quality by the Adviser or a Sub-Adviser.
Foreign Securities
Foreign securities are the equity, fixed income or money market securities
of foreign issuers. Securities of foreign issuers include obligations of
foreign branches of U.S. banks and of foreign banks, common and preferred
stocks, and fixed income securities issued by foreign governments, corporations
and supranational organizations. They also include ADRs, GDRs, IDRs and EDRs.
ADRs are certificates issued by a U.S. bank or trust company and represent
the right to receive securities of a foreign issuer deposited in a domestic
bank or foreign branch of a U.S. Bank. GDRs, IDRs and EDRs are receipts
evidencing an arrangement with a non-U.S. bank.
Portfolio Turnover
Portfolio turnover occurs when a Portfolio sells its investments and buys
new ones. In some Portfolios, high portfolio turnover occurs when they engage
in frequent trading as part of their investment strategy.
High portfolio turnover may cause a Portfolio's expenses to increase. For
example, a Portfolio may have to pay brokerage fees and other related expenses.
A portfolio turnover rate of 100% or more a year is considered high. A high
rate increases a Portfolio's transaction costs and expenses.
Portfolio turnover rates for each Portfolio are found in the Financial
Highlights section of this Prospectus.
A Word About Risk
As described in the fact sheet for each Portfolio, participation in a
Portfolio involves risk--even the risk that you will receive a minimal return
on your investment or the value of your investment will decline. It is
important for you to consider carefully the following risks when you allocate
purchase payments or premiums to the Portfolios.
Market Risk
Market risk refers to the loss of capital resulting from changes in the
price of investments. Generally, equity securities are considered to be subject
to market risk. For example, market risk occurs when the expectations of lower
corporate profits in general cause the broad market of stocks to fall in price.
When this happens, even though a company may be experiencing a growth in
profits, the price of its stock could fall.
Growth Investing Risk
This investment approach has additional risk associated with it due to the
volatility of growth stocks. Growth companies usually invest a high portion of
earnings in their businesses, and may lack the dividends of value stocks that
can cushion prices in a falling market. Also, earnings disappointments often
lead to sharply falling prices because investors buy growth stocks in
anticipation of superior earnings growth.
Value Investing Risk
This investment approach has additional risk associated with it because the
Portfolio manager's judgment that a particular security is undervalued in
relation to the company's fundamental economic values may prove incorrect.
Credit Risk
Credit risk refers to the risk that an issuer of a fixed income security may
be unable to pay principal or interest payments due on the securities. To help
the Portfolios' Sub-Advisers decide which corporate and foreign fixed income
securities to buy, they rely on Moody's and S&P (two nationally recognized bond
rating services), and on their own research, to lower the risk of buying a
fixed income security of a company that may not pay the interest or principal
on the fixed income security.
The credit risk of a portfolio depends on the quality of its investments.
Fixed income securities that are rated as investment grade have ratings ranging
from AAA to BBB. These fixed income securities are considered to have adequate
ability to make interest and principal payments.
Interest Rate Risk
Interest rate risk refers to the risk that fluctuations in interest rates
may affect the value of interest paying securities in a Portfolio. Fixed income
securities such as U.S. Government bonds are subject to interest rate risk. If
a Portfolio sells a bond before it matures, it may lose money, even if the bond
is guaranteed by the U.S. Government. Say, for example, a Portfolio bought an
intermediate government bond last year that was paying interest at a fixed rate
of 6%, it will have to sell it at a discount (and realize a loss) to attract
buyers if they can buy new bonds paying an interest rate of 7%.
Risks of Investing in Below Investment Grade Bonds or Junk Bonds
Investing in below investment grade bonds, such as the lower quality, higher
yielding bonds called junk bonds, can increase the risks of loss for a
Portfolio. Junk bonds are bonds that are issued by small companies or companies
with limited assets or short operating histories. These companies are more
likely than more established or larger companies to default on the bonds and
not pay interest or pay back the full principal amount. Third parties may not
be willing to purchase the bonds from the Portfolios, which means they may be
difficult to sell and some may be considered illiquid. Because of these risks,
the companies issuing the junk bonds pay higher interest rates than companies
issuing higher grade bonds. The higher interest rates can give investors a
higher return on their investment.
Prepayment Risk
Prepayment risk is the risk that the holder of a mortgage underlying a
mortgage-backed security owned by the Portfolio will prepay principal,
particularly during periods of declining interest rates. This will reduce the
stream of cash payments that flow through to the Portfolio. Securities subject
to prepayment risk also pose a potential for loss when interest rates rise.
Rising interest rates may cause prepayments to occur at a slower rate than
expected thereby lengthening the maturity of the security and making it more
sensitive to interest rate changes.
Risks Associated with Foreign Securities
A foreign security is a security issued by an entity domiciled or
incorporated outside of the U.S. Among the principal risks of owning foreign
securities are:
Political Risk: the risk that a change in a foreign government will occur
and that the assets of a company in which the Portfolio has invested will be
affected. In some countries there is the risk that the government may take over
the assets or operations of a company and/or that the government may impose
taxes or limits on the removal of a Portfolio's assets from that country.
Currency Risk: the risk that a foreign currency will decline in value. As
long as a Portfolio holds a security denominated in a foreign currency, its
value will be affected by the value of that currency relative to the U.S.
dollar. An increase in the value of the U.S. dollar relative to a foreign
currency will adversely affect the value of the Portfolio.
Liquidity Risk: foreign markets may be less liquid and more volatile than
U.S. markets and offer less protection to investors. Certain markets may
require payment for securities before delivery and delays may be encountered in
settling securities transactions. In some foreign markets there may not be
protection against failure by other parties to complete transactions.
Limited Information Risk: the risk that less government supervision of
foreign markets may occur. Foreign issuers may not be subject to the uniform
accounting, auditing and financial reporting standards and practices that apply
to U.S. issuers. In addition, less public information about their operations
may exist.
Emerging Market Country Risk: the risks associated with investment in
foreign securities are heightened in connection with investments in the
securities of issuers in emerging markets countries. Such countries are
generally defined as countries in the initial stages of their industrialization
cycles with low per capita income. Although the markets of these developing
countries offer higher rates of return, they also pose additional risks to
investors, including immature economic structures, national policies
restricting investments by foreigners and different legal systems.
Settlement and Clearance Risk: the risks associated with the different
clearance and settlement procedures that are utilized in certain foreign
markets. In certain foreign markets, settlements may be unable to keep pace
with the volume of securities transactions, which may cause delays. If there is
a settlement delay, a Portfolio's assets may be uninvested and not earning
returns. A Portfolio also may miss investment opportunities or be unable to
dispose of a security because of these delays.
Managing Investment Risks
In pursuing its investment objective, each Portfolio assumes investment
risk. The Portfolios try to limit their investment risk by diversifying their
investment portfolios across different industry sectors.
Defensive Investment Strategy
Under normal market conditions, none of the Portfolios intends to have a
substantial portion of its assets invested in cash or money market instruments,
except the Money Market Portfolio. When a Sub-Adviser determines that adverse
market conditions exist, a Portfolio may adopt a temporary defensive position
and invest entirely in cash and money market instruments. When a Portfolio is
invested in this manner, it may not be able to achieve its investment
objective.
Derivatives
Certain Portfolios may use various investment strategies
. to hedge market risks
. to manage the effective maturity or duration of fixed income securities
or
. to enhance potential gain
The strategies which may be used by all the Portfolios include, but are not
limited to, financial futures contracts, options on financial futures, options
on broad market indices and options on securities.
Certain Portfolios may purchase and sell foreign currencies on a spot basis
in connection with the settlement of transactions traded in such foreign
currencies. These Portfolios may also hedge the risks associated with their
investments by entering into forward foreign currency contracts and foreign
currency futures and options contracts, generally in anticipation of making
investments in companies whose securities are denominated in those currencies.
These investments are often referred to as derivatives.
MANAGEMENT OF THE FUND
The management and affairs of the Fund are supervised by the Board of
Directors under the laws of the State of Maryland. The Directors have approved
agreements under which, as described below, certain companies provide essential
management services to the Fund.
INVESTMENT ADVISER
Investors Mark Advisors, LLC (the "Adviser"), 700 Karnes Boulevard, Kansas
City, Missouri 64108, serves as the investment adviser of each Portfolio and,
as such, provides each Portfolio with professional investment supervision and
management. The Adviser, a Delaware limited liability company, is a wholly-
owned subsidiary of Jones & Babson, Inc. ("Jones & Babson"). Jones & Babson is
a wholly-owned subsidiary of Business Men's Assurance Company of America
("BMA"). Assicurazioni Generali S.p.A., an insurance organization founded in
1831 based in Trieste, Italy, is the ultimate parent of BMA.
The Adviser, formed in 1997, has been the investment adviser for each
Portfolio since its inception.
The Adviser oversees each Portfolio's day-to-day operations and supervises
the purchase and sale of Portfolio investments. The Adviser employs Sub-
Advisers to make investment decisions for each of the Portfolios.
The Adviser serves in its capacity as investment adviser through an
investment advisory agreement it enters into with the Fund. The Investment
Advisory Agreement provides for the Fund to pay all expenses not specifically
assumed by the Adviser. Examples of expenses paid by the Fund include custodial
fees, and the fees of outside legal and auditing firms. The Fund allocates
these expenses to each Portfolio in a manner approved by the Directors. The
Investment Advisory Agreement is renewed each year by the Directors.
Personnel of Jones & Babson provide the Adviser with experienced
professional fund administration and portfolio accounting under a services
agreement between the Adviser and Jones & Babson. As compensation, Jones &
Babson receives an annual fee equal to 0.06% of the average daily net assets of
the Fund. Jones & Babson, founded in 1960, serves as the investment manager of
numerous other mutual funds.
Advisory Fees
Each Portfolio pays the Adviser a fee based on its average daily net asset
value. A Portfolio's net asset value is the total value of the Portfolio's
assets minus any money it owes for operating expenses plus any other
liabilities, such as the fee paid to its Custodian to safeguard the Portfolio's
investments.
During 1999, each of the Portfolios paid the Adviser the following
percentage of its average daily net assets as compensation for its services
as investment adviser to the Portfolios:
<TABLE>
<CAPTION>
Advisory
Portfolio Fee Paid
- - --------- --------
<S> <C>
Intermediate Fixed Income.............................................. .60%
Mid Cap Equity......................................................... .80%
Money Market........................................................... .40%
Global Fixed Income.................................................... .75%
Small Cap Equity....................................................... .95%
Large Cap Growth....................................................... .80%
Large Cap Value........................................................ .80%
Growth & Income........................................................ .80%
Balanced............................................................... .80%
</TABLE>
As full compensation for its services under the Investment Advisory
Agreement, the Fund pays Adviser a monthly fee at the annual rates shown in the
table below based on the average daily net assets of each Portfolio.
<TABLE>
<CAPTION>
Advisory Fee
(Annual Rate Based
on Average Daily
Net Assets of Each
Portfolio Portfolio)
- - --------- ------------------
<S> <C>
Intermediate Fixed Income.................................... .60%
Mid Cap Equity............................................... .80%
Money Market................................................. .40%
Global Fixed Income.......................................... .75%
Small Cap Equity............................................. .95%
Large Cap Growth............................................. .80%
Large Cap Value.............................................. .80%
Growth & Income.............................................. .80%
Balanced..................................................... .80%
</TABLE>
The Adviser may enter into administrative services agreements with insurance
companies pursuant to which the Adviser will compensate such companies for
administrative responsibilities relating to the Fund which are performed by
such insurance companies.
The Adviser has agreed that it will, if necessary, pay the expenses of each
Portfolio of the Fund until April 30, 2001 to the extent that expenses of a
Portfolio exceed the following percentages:
<TABLE>
<CAPTION>
Expense
Portfolio Cap
- - --------- -------
<S> <C>
Mid Cap Equity.......................................................... .90%
Large Cap Growth........................................................ .90%
Large Cap Value......................................................... .90%
Growth & Income......................................................... .90%
Balanced................................................................ .90%
Intermediate Fixed Income............................................... .80%
Money Market............................................................ .50%
Global Fixed Income..................................................... 1.00%
Small Cap Equity........................................................ 1.05%
</TABLE>
This expense limitation may be modified or terminated in the discretion of
the Adviser at any time without notice to shareholders after April 30, 2001.
The Adviser may be reimbursed by the Portfolios for such expenses at a later
date. This may be done only if such reimbursement does not cause a Portfolio's
expenses to exceed the expense cap percentage shown above.
During fiscal 1999, total expenses, including investment advisory fees, of
each of the Portfolios amounted to the following percentages of average net
assets, reflecting the expense limitation in effect during the period:
<TABLE>
<S> <C>
Mid Cap Equity......................................................... .90%
Large Cap Growth....................................................... .90%
Large Cap Value........................................................ .90%
Growth & Income........................................................ .90%
Balanced............................................................... .90%
Intermediate Fixed Income.............................................. .80%
Money Market........................................................... .50%
Global Fixed Income.................................................... 1.00%
Small Cap Equity....................................................... 1.05%
</TABLE>
The expense limitation currently in effect is described above.
SUB-ADVISERS
For all of the Portfolios, the Adviser works with Sub-Advisers, financial
service companies that specialize in certain types of investing. However, the
Adviser still retains ultimate responsibility for managing the Portfolios. Each
Sub-Adviser's role is to make investment decisions for the Portfolios according
to each Portfolio's investment objectives and restrictions.
The following organizations act as Sub-Advisers to the Portfolios:
Standish, Ayer & Wood, Inc. ("Standish"), One Financial Center, Boston,
Massachusetts 02111, is the Sub-Adviser for the Intermediate Fixed Income, Mid
Cap Equity and Money Market Portfolios of the Fund. Standish is a Massachusetts
corporation incorporated in 1933 and is a registered investment adviser under
the Investment Advisers Act of 1940. Standish provides fully discretionary
management services and counseling and advisory services to a broad range of
clients throughout the United States and abroad. As of December 31, 1999,
Standish managed approximately $44 billion of assets.
The Intermediate Fixed Income Portfolio manager is Caleb F. Aldrich. Mr.
Aldrich also manages the Standish Fixed Income Fund. During the past seven
years, Mr. Aldrich has served as a Managing Director and Vice President of
Standish.
The Mid Cap Equity Portfolio managers are Ralph S. Tate and David C.
Cameron. Mr. Tate and Mr. Cameron also manage the Equity Portfolio of the
Standish, Ayer & Wood Master Portfolio. During the past six years, Mr. Tate
has served as a Managing Director of Standish (since 1995) and President of
Standish International Management Company, L.P. ("SIMCO") (since 1996) and both
Messrs. Tate and Cameron have served as a Director and Vice President of
Standish and a Director of SIMCO (since 1995 for Mr. Cameron).
The Money Market Portfolio manager is Jennifer A. Pline. Ms. Pline also
manages the Standish Short-Term Asset Reserve Fund. During the past seven years,
Ms. Pline has served as a Vice President and Associate Director (since 1998)
of Standish.
SIMCO, One Financial Center, Boston, Massachusetts 02111, is the Sub-Adviser
for the Global Fixed Income Portfolio of the Fund. SIMCO is a Delaware limited
partnership organized in 1991 and is a registered investment adviser under the
Investment Advisers Act of 1940. The general partner of SIMCO is Standish
which holds a 99.98% partnership interest. The limited partners, who each hold
a 0.01% interest in SIMCO, are Walter M. Cabot, Sr., a Senior Adviser to SIMCO
and Standish, and D. Barr Clayson, Chairman and Vice President of the Board of
SIMCO and Director and Vice President of Standish. Ralph S. Tate, Managing
Director of Standish, is President and a Director of SIMCO. Richard S. Wood,
Vice President and a Managing Director of Standish, is the Executive Vice
President of SIMCO. Standish and SIMCO provide fully discretionary management
services and counseling and advisory services to a broad range of clients
throughout the United States and abroad.
The Global Fixed Income Portfolio manager is Richard S. Wood. Mr. Wood also
manages the Standish International Fixed Income Fund and the Standish Global
Fixed Income Portfolio. During the past seven years, Mr. Wood has served as a
Vice President and a Managing Director (since 1995) of Standish and Executive
Vice President of SIMCO.
Stein Roe & Farnham Incorporated ("Stein Roe"), One South Wacker Drive,
Chicago, Illinois 60606, is the Sub-Adviser for the Large Cap Growth and Small
Cap Equity Portfolios of the Fund. Stein Roe is registered as an investment
adviser under the Investment Advisers Act of 1940. Stein Roe was organized in
1986 to succeed to the business of Stein Roe & Farnham, a partnership that had
advised and managed mutual funds since 1949. Stein Roe is a wholly-owned
subsidiary of Liberty Financial Companies, Inc. ("Liberty Financial"), which in
turn is a majority owned indirect subsidiary of Liberty Mutual Insurance
Company.
The Large Cap Growth Portfolio manager is Erik P. Gustafson. Mr. Gustafson
also manages the Growth Stock Portfolio of SR&F Base Trust and had managed
Stein Roe Growth Stock Fund since 1994. Mr. Gustafson is a senior vice
president and senior portfolio manager with Stein Roe which he joined in 1992.
He holds a B.A. from the University of Virginia (1985) and M.B.A. and J.D.
degrees from Florida State University (1989). Mr. Gustafson was
responsible for managing $2 billion in mutual fund net assets at December 31,
1999. David P. Brady is associate portfolio manager. Mr. Brady is a vice
president of Stein Roe, which he joined in 1993.
The Small Cap Equity Portfolio manager is William M. Garrison. Mr. Garrison
has had full responsibility for the management of the Portfolio since June,
1999. Mr. Garrison had, prior to July 1999, co-managed the Portfolio.
David L. Babson & Co. Inc. ("Babson"), One Memorial Drive, Cambridge,
Massachusetts 02142-1300, is the Sub-Adviser for the Large Cap Value Portfolio
of the Fund. Babson, a registered investment adviser under the Investment
Advisers Act of 1940, is an indirect subsidiary of Massachusetts Mutual Life
Insurance Company headquartered in Springfield, Massachusetts. Massachusetts
Mutual Life Insurance Company is an insurance organization founded in 1851 and
is considered to be a controlling person of Babson under the 1940 Act.
The Large Cap Value Portfolio manager is Anthony M. Maramarco. Mr.
Maramarco also manages the Babson Value Fund. He joined David L. Babson &
Co. in 1996 and has over 18 years of investment management experience.
Mr. Maramarco is a Chartered Financial Analyst.
Lord, Abbett & Co. ("Lord Abbett"), 90 Hudson Street, Jersey City, NJ
07302, is the Sub-Adviser for the Growth & Income Portfolio of the Fund.
Lord Abbett, a registered investment adviser under the Investment Advisers
Act of 1940, has been an investment manager for 70 years. As of December 31,
1999, Lord Abbett managed approximately $35 billion in a family of mutual
funds and other advisory accounts.
The Growth & Income Portfolio manager is W. Thomas Hudson, Jr. Mr. Hudson
has been employed by Lord Abbett since 1982. Mr. Hudson has been a portfolio
manager since 1989 and became a Partner of Lord Abbett in 1997.
Kornitzer Capital Management, Inc. ("Kornitzer"), 7715 Shawnee Mission
Parkway, Shawnee Mission, Kansas 66202, is the Sub-Adviser for the Balanced
Portfolio of the Fund. Kornitzer, a registered investment adviser under the
Investment Advisers Act of 1940, is an independent investment counseling firm
founded in 1989. It serves a broad variety of individual, corporate and other
institutional clients by maintaining an extensive research and analytical
staff. Kornitzer is a closely held corporation and has limitations in the
ownership of its stock designed to maintain control in those who are active in
management. Owners of 5% or more of Kornitzer are John C. Kornitzer, Kent W.
Gasaway, Willard R. Lynch, Thomas W. Laming and Susan Stack. Kornitzer manages
over $1.3 billion including the Buffalo family of mutual funds.
The Balanced Portfolio utilizes a team approach to both research and
portfolio management.
Sub-Advisory Fees
Under the Sub-Advisory Agreements, the Adviser has agreed to pay each Sub-
Adviser a fee for its services out of the fees the Adviser receives from the
Portfolios. During 1999, the Adviser paid the Sub-Advisers fees based on the
following percentages of each Portfolio's average daily net assets:
<TABLE>
<CAPTION>
Sub-
Advisory
Portfolio Fee Paid
- - --------- --------
<S> <C>
Intermediate Fixed Income.............................................. .20%
Mid Cap Equity......................................................... .35%
Money Market........................................................... .15%
Global Fixed Income.................................................... .35%
Small Cap Equity....................................................... .55%
</TABLE>
<TABLE>
<CAPTION>
Sub-
Advisory
Portfolio Fee Paid
- - --------- --------
<S> <C>
Large Cap Growth....................................................... .45%
Large Cap Value........................................................ .45%
Growth & Income........................................................ .45%
Balanced............................................................... .40%
</TABLE>
Under the terms of each Sub-Advisory Agreement, the Adviser is obligated to
pay each Sub-Adviser, as full compensation for services rendered under the Sub-
Advisory Agreement with respect to each Portfolio, monthly fees at the
following annual rates based on the average daily net assets of each Portfolio:
<TABLE>
<CAPTION>
Portfolio Sub-Advisory Fee
--------- ----------------
<S> <C>
Intermediate Fixed
Income Portfolio.... .20%
Mid Cap Equity
Portfolio........... .35%
Money Market
Portfolio........... .15%
Global Fixed Income
Portfolio........... .35%
Small Cap Equity
Portfolio........... .55%
Large Cap Growth
Portfolio........... .45%
Large Cap Value
Portfolio........... .45% of first $40 million .40% of average daily net
assets over and above $40 million
Growth & Income
Portfolio........... .45% of first $40 million .40% of average daily net
assets over and above $40 million
Balanced Portfolio... .40% of first $40 million .35% of average daily net
assets over and above $40 million
</TABLE>
Placing Orders for Shares
The prospectus for your Contract describes the procedures for investing your
purchase payments or premiums in shares of the Portfolios. You may obtain a
copy of that prospectus, free of charge, from the life insurance company or
from the person who sold you the Contract. The Portfolios do not charge any fees
for selling (redeeming) shares.
Payment for Redemptions
Payment for orders to sell (redeem) shares will be made within seven days
after the Fund receives the order.
Suspension or Rejection of Purchases and Redemptions
The Portfolios may suspend the offer of shares, or reject any specific
request to purchase shares from a Portfolio at any time. The Portfolios may
suspend their obligation to redeem shares or postpone payment for redemptions
when the New York Stock Exchange is closed or when trading is restricted on the
Exchange for any reason, including emergency circumstances established by the
Securities and Exchange Commission.
Right to Restrict Transfers
Neither the Fund nor the insurance company separate accounts ("Separate
Accounts") are designed for professional market timing organizations, other
entities, or individuals using programmed, large and/or frequent transfers.
The Separate Accounts, in coordination with the Fund, reserve the right to
temporarily or permanently refuse exchange requests if, in the Adviser's
judgment, a Portfolio would be unable to invest effectively in accordance
with its investment objectives and policies, or would otherwise potentially
be adversely affected. In particular, a pattern of exchanges that coincides
with a "market timing" strategy may be disruptive to a Portfolio and therefore
may be refused. Investors should consult the Separate Account prospectus that
accompanies this Fund Prospectus for information on other specific limitations
on the transfer privilege.
Net Asset Value
The value or price of each share of each Portfolio (net asset value per
share) is calculated at the close of business, usually 4:00 p.m., of the New
York Stock Exchange, every day that the New York Stock Exchange is open for
business. The value of all assets held by each Portfolio at the end of the day,
is determined by subtracting all liabilities and dividing the total by the
total number of shares outstanding. This value is provided to the life
insurance company, which uses it to calculate the value of your interest in
your Contract. It is also the price at which shares will be bought or sold in
the Portfolios for orders they received that day.
The value of the net assets of a Portfolio is determined by obtaining
market quotations, where available, usually from pricing services. Short-term
debt instruments maturing in less than 60 days are valued at amortized cost.
Securities for which market quotations are not available are valued at their
fair value as determined, in good faith, by the Adviser based on policies
adopted by the Board of Directors.
Some of the Portfolios trade securities on foreign markets or in foreign
currencies. Those markets are open at different times and occasionally on
different days than securities traded on the New York Stock Exchange. Exchange
rates for foreign currencies are usually determined at 1:00 p.m. rather than
4:00 p.m. These factors may mean that the value of the securities held by these
Portfolios may change after the close of business of the New York Stock
Exchange.
Dividends and Distributions
Each Portfolio will declare and distribute dividends from net ordinary
income and will distribute its net realized capital gains, if any, at least
annually. The life insurance companies generally direct that all dividends and
distributions of the Portfolios be reinvested in the Portfolios under the terms
of the Contracts.
Tax Matters
The Fund intends to qualify as a regulated investment company under the tax
law and, as such distributes substantially all of each Portfolio's ordinary net
income and capital gains each calendar year as a dividend to the Separate
Accounts funding the Contracts to avoid an excise tax on certain undistributed
amounts. The Fund expects to pay no income tax. Dividends are reinvested in
additional full and partial shares of the Portfolios as of the dividend payment
date.
The Fund and its Portfolios intend to comply with special diversification
and other tax law requirements that apply to investments under the Contracts.
Under these rules, shares of the Fund will generally only be available through
the purchase of a variable life insurance or annuity contract. Income tax
consequences to Contract owners who allocate purchase payments or premiums to
Fund shares are discussed in the Separate Account prospectus for the Contracts
that accompanies this Prospectus.
Additional Information
This Prospectus sets forth concisely the information about the Fund and each
Portfolio that you should know before you invest money in a Portfolio. Please
read this Prospectus carefully and keep it for future reference. The Fund has
prepared and filed with the Securities and Exchange Commission a Statement of
Additional Information that contains more information about the Fund and the
Portfolios. You may obtain a free copy of the Statement of Additional
Information from your registered representative who offers you the Contract.
You may also obtain copies by calling the Fund at 1-888-262-8131 or by writing
to the Fund at the following address: BMA Service Center, 9735 Landmark Parkway
Drive, St. Louis, Missouri 63127-1690.
Mixed and Shared Funding
The Portfolios may sell their shares to insurance companies as investments
under both variable annuity contracts and variable life insurance policies. We
call this mixed funding. The Portfolios may also sell shares to more than one
insurance company. We call this shared funding. Under certain circumstances,
there could be conflicts between the interests of the different insurance
companies, or conflicts between the different kinds of insurance products using
the Portfolios. If conflicts arise, the insurance company with the conflict
might be forced to redeem all of its interest in the Portfolio. If the
Portfolio is required to sell a large percentage of its assets to pay for the
redemption, it may be forced to sell the assets at a discounted price. The
Board of Directors will monitor the interests of the insurance company
shareholders for conflicts to attempt to avoid problems.
Legal Proceedings
Neither the Fund nor any Portfolio is involved in any material legal
proceedings. Neither the Adviser nor any Sub-Adviser is involved in any legal
proceedings that if decided against any such party would materially affect the
ability of the party to carry out its duties to the Portfolios. None of such
persons is aware of any litigation that has been threatened.
PERFORMANCE OF THE PORTFOLIOS
Performance information for the Portfolios of the Fund, including a bar
chart and average annual total return information since the inception of the
Portfolios, is contained in this Prospectus under the heading "Performance
Information."
COMPARABLE PERFORMANCE
Public Fund Performance
Certain Portfolios of the Fund have the same investment objectives and
follow substantially the same investment strategies as certain mutual funds
whose shares are sold to the public and managed by the Sub-Advisers.
The historical performance of each of these public mutual funds is shown
below. This performance data should not be considered as an indication of
future performance of the Portfolios. The public mutual fund performance
figures shown below:
. reflect the deduction of the historical fees and expenses (including any
applicable sales loads) paid by the public mutual funds and not those to
be paid by the Portfolios. The total anticipated expenses of the
Intermediate Fixed Income, Mid Cap Equity and Global Fixed Income
Portfolios are materially higher than those of the corresponding public
funds. Higher expenses will reduce performance.
. do not reflect Contract fees or charges imposed by the insurance
companies. Investors should refer to the Separate Account prospectus for
information describing the Contract fees and charges. These fees and
charges will have a detrimental effect on Portfolio performance.
The Portfolios and their corresponding public mutual fund series are
expected to hold similar securities. The Portfolios have substantially similar
investment objectives, policies and strategies as their corresponding public
mutual fund series. However, their investment results are expected to differ
for the following reasons:
. differences in asset size and cash flow resulting from purchases and
redemptions of Portfolio shares may result in different security
selections
. differences in the relative weightings of securities
. differences in the price paid for particular portfolio holdings
. differences relating to certain tax matters
The following table shows average annualized total returns for each
comparable public mutual fund for their fiscal 1999 years (ended December 31,
1999).
<TABLE>
<CAPTION>
10 Years
Intermediate Fixed or Since
Income Portfolio 1 Year* 5 Years* Inception*
- - ------------------ ------- -------- ----------
<S> <C> <C> <C>
Corresponding Series of the Public Fund
Standish, Ayer & Wood Investment Trust--Standish
Fixed Income Fund................................. -0.70% 7.44% 7.98%
<CAPTION>
10 Years
or Since
Mid Cap Equity Portfolio 1 Year* 5 Years* Inception*
- - ------------------------ ------- -------- ----------
<S> <C> <C> <C>
Corresponding Series of the Public Fund
Standish, Ayer & Wood Investment Trust--Standish
Equity Fund....................................... -0.17% 20.54% 17.65%
</TABLE>
<TABLE>
<CAPTION>
Inception 01/03/1991
10 Years
or Since
Global Fixed Income Portfolio 1 Year* 5 Years* Inception*
- - ----------------------------- ------- -------- ----------
<S> <C> <C> <C>
Corresponding Series of the Public Fund
Standish, Ayer & Wood Investment Trust--Standish
Global Fixed Income Fund.......................... -0.64% 9.65% 6.67%
<CAPTION>
Inception 01/01/1994
10 Years
or Since
Large Cap Growth Portfolio 1 Year* 5 Years* Inception*
- - -------------------------- ------- -------- ----------
<S> <C> <C> <C>
Corresponding Series of the Public Fund
Stein Roe Investment Trust--Stein Roe Growth Stock
Fund.............................................. 36.61% 29.93% 12.12%
<CAPTION>
10 Years
or Since
Large Cap Value Portfolio 1 Year* 5 Years* Inception*
- - ------------------------- ------- -------- ----------
<S> <C> <C> <C>
Corresponding Public Fund
Babson Value Fund, Inc............................. 1.10% 17.00% 13.80%
<CAPTION>
10 Years
or Since
Balanced Portfolio 1 Year* 5 Years* Inception*
- - ------------------ ------- -------- ----------
<S> <C> <C> <C>
Corresponding Public Fund
Buffalo Balanced Fund, Inc......................... 5.40% 11.10% 9.60%
<CAPTION>
10 Years
or Since
Money Market Portfolio 1 Year* 5 Years* Inception*
- - ---------------------- ------- -------- ----------
<S> <C> <C> <C>
Corresponding Series of the Public Fund
Standish, Ayer & Wood Investment Trust--Standish
Short-Term Asset Reserve Fund..................... 4.64% 5.95% 5.97%
<CAPTION>
10 Years
or Since
Growth & Income Portfolio 1 Year* 5 Years* Inception*
- - ------------------------- ------- -------- ----------
<S> <C> <C> <C>
Corresponding Public Fund
Lord Abbett Affiliated Fund (Class A Shares)....... 16.90% 21.50% 15.00%
</TABLE>
- - --------
* Results shown are through the year ended December 31, 1999 for each public
fund shown. The inception dates for each public fund with less than 10 years
of performance history are: January 3, 1991 for the Standish Equity Fund,
January 1, 1994 for the Standish Global Fixed Income Fund and August 12,
1994 for the Buffalo Balanced Fund, Inc.
FINANCIAL HIGHLIGHTS
The Financial Highlights table is intended to help you understand each
Portfolio's financial performance for the period shown. Certain information
reflects financial results for a single Portfolio share. The total return
figures in the table represent the rate that an investor would have earned on an
investment in the Fund (assuming reinvestment of all dividends and
distributions). Your total return would be less due to the fees and charges
under your variable annuity contract or variable life insurance policy. Ernst &
Young LLP has audited the financial statements from which this information has
been derived and its report and the Fund's financial statements, are included in
the Statement of Additional Information, which is available upon request.
Condensed data for a share of capital stock
outstanding throughout each period.
<TABLE>
<CAPTION>
LARGE CAP GROWTH
FOR THE PERIOD
FROM 11/13/97
YEARS ENDED DECEMBER 31, (COMMENCEMENT)
1999 1998 TO 12/31/97
<S> <C> <C> <C>
Net asset value, beginning of period $ 9.88 $ 9.69 $ 10.00
Income from investment operations:
Net investment income (loss) 0.22 0.13 0.02
Net gains (losses) on securities
(both realized and unrealized) (0.15) 0.35 (0.31)
Total income (loss) from investment operations 0.07 0.48 (0.29)
Less distributions:
Dividends from net investment income (0.22) (0.14) (0.02)
Distributions from capital gains (0.33) (0.15) -
Total distributions (0.55) (0.29) (0.02)
Net asset value, end of period $ 9.40 $ 9.88 $ 9.69
Total return* 0.79% 5.03% (2.86%)
Ratios/Supplemental Data
Net assets, end of period (in thousands) $ 3,193 $ 3,226 $ 2,444
Ratio of expenses to average net assets** 0.90% 0.90% 0.90%
Ratio of net investment income (loss)
to average net assets** 2.00% 1.44% 2.21%
Ratio of expenses to average net assets before
voluntary expense reimbursement ** 1.49% 1.55% 2.78%
Ratio of net investment income (loss) to average
net assets before voluntary expense
reimbursement ** 1.41% 0.79% 0.33%
Portfolio turnover rate 23% 18% -
*Total return not annualized for periods less
than one full year
**Annualized for periods less than one full year
</TABLE>
See accompanying Notes to Financial Statements.
Financial Highlights
Condensed data for a share of capital stock
outstanding throughout each period.
<TABLE>
<CAPTION>
LARGE CAP GROWTH
FOR THE PERIOD
FROM 11/13/97
YEARS ENDED DECEMBER 31, (COMMENCEMENT)
1999 1998 TO 12/31/97
<S> <C> <C> <C>
Net asset value, beginning of period $ 13.31 $ 10.71 $ 10.00
Income from investment operations:
Net investment income (loss) (0.03) - -
Net gains (losses) on securities
(both realized and unrealized) 4.75 2.61 0.71
Total income (loss) from investment operations 4.72 2.61 0.71
Less distributions:
Dividends from net investment income - (0.01) -
Distributions from capital gains - - -
Total distributions - (0.01) -
Net asset value, end of period $ 18.03 $ 13.31 $ 10.71
Total return* 35.46% 24.35% 7.10%
Ratios/Supplemental Data
Net assets, end of period (in thousands) $ 4,608 $ 2,993 $ 2,157
Ratio of expenses to average net assets** 0.90% 0.90% 0.90%
Ratio of net investment income (loss)
to average net assets** (0.23%) (0.02%) 0.33%
Ratio of expenses to average net assets before
voluntary expense reimbursement ** 1.49% 1.66% 3.19%
Ratio of net investment income (loss) to average
net assets before voluntary expense
reimbursement ** (0.82%) (0.78%) (1.96%)
Portfolio turnover rate 72% 49% -
*Total return not annualized for periods less
than one full year
**Annualized for periods less than one full year
</TABLE>
See accompanying Notes to Financial Statements.
Financial Highlights
Condensed data for a share of capital stock
outstanding throughout each period.
<TABLE>
<CAPTION>
MID CAP EQUITY
FOR THE PERIOD
FROM 11/13/97
YEARS ENDED DECEMBER 31, (COMMENCEMENT)
1999 1998 TO 12/31/97
<S> <C> <C> <C>
Net asset value, beginning of period $ 11.11 $ 10.49 $ 10.00
Income from investment operations:
Net investment income (loss) 0.04 0.04 0.02
Net gains (losses) on securities
(both realized and unrealized) 0.21 0.69 0.49
Total income (loss) from investment operations 0.25 0.73 0.51
Less distributions:
Dividends from net investment income (0.03) (0.03) (0.02)
Distributions from capital gains (0.03) (0.08) -
Total distributions (0.06) (0.11) (0.02)
Net asset value, end of period $ 11.30 $ 11.11 $ 10.49
Total return* 2.26% 7.03% 5.07%
Ratios/Supplemental Data
Net assets, end of period (in thousands) $ 2,762 $ 2,468 $ 2,119
Ratio of expenses to average net assets** 0.90% 0.90% 0.90%
Ratio of net investment income (loss)
to average net assets** 0.38% 0.38% 1.34%
Ratio of expenses to average net assets before
voluntary expense reimbursement ** 2.33% 2.38% 3.40%
Ratio of net investment income (loss) to average
net assets before voluntary expense
reimbursement ** (1.05%) (1.10%) (1.16%)
Portfolio turnover rate 97% 166% 13%
*Total return not annualized for periods less
than one full year
**Annualized for periods less than one full year
</TABLE>
See accompanying Notes to Financial Statements.
Financial Highlights
Condensed data for a share of capital stock
outstanding throughout each period.
<TABLE>
<CAPTION>
SMALL CAP EQUITY
FOR THE PERIOD
FROM 11/13/97
YEARS ENDED DECEMBER 31, (COMMENCEMENT)
1999 1998 TO 12/31/97
<S> <C> <C> <C>
Net asset value, beginning of period $ 8.14 $ 9.72 $ 10.00
Income from investment operations:
Net investment income (loss) (0.05) (0.05) -
Net gains (losses) on securities
(both realized and unrealized) 5.11 (1.53) (0.28)
Total income (loss) from investment operations 5.06 (1.58) (0.28)
Less distributions:
Dividends from net investment income - - -
Distributions from capital gains - - -
Total distributions - - -
Net asset value, end of period $ 13.20 $ 8.14 $ 9.72
Total return* 62.16% (16.22%) (2.80%)
Ratios/Supplemental Data
Net assets, end of period (in thousands) $ 3,192 $ 1,786 $ 1,960
Ratio of expenses to average net assets** 1.05% 1.05% 1.05%
Ratio of net investment income (loss) to average
net assets** (0.61%) (0.52%) 0.29%
Ratio of expenses to average net assets before
voluntary expense reimbursement ** 2.53% 2.29% 3.49%
Ratio of net investment income (loss) to
average net assets before voluntary
expense reimbursement ** (2.09%) (1.76%) (2.15%)
Portfolio turnover rate 123% 132% 8%
*Total return not annualized for periods less
than one full year
**Annualized for periods less than one full year
</TABLE>
See accompanying Notes to Financial Statements.
Financial Highlights
Condensed data for a share of capital stock
outstanding throughout each period.
<TABLE>
<CAPTION>
GROWTH & INCOME
FOR THE PERIOD
FROM 11/13/97
YEARS ENDED DECEMBER 31, (COMMENCEMENT)
1999 1998 TO 12/31/97
<S> <C> <C> <C>
Net asset value, beginning of period $ 11.53 $ 10.41 $ 10.00
Income from investment operations:
Net investment income (loss) 0.11 0.13 0.02
Net gains (losses) on securities
(both realized and unrealized) 1.80 1.12 0.40
Total income (loss) from investment operations 1.91 1.25 0.42
Less distributions:
Dividends from net investment income (0.11) (0.13) (0.01)
Distributions from capital gains (0.66) - -
Total distributions (0.77) (0.13) (0.01)
Net asset value, end of period $ 12.67 $ 11.53 $ 10.41
Total return* 16.65% 12.03% 4.25%
Ratios/Supplemental Data
Net assets, end of period (in thousands) $ 3,634 $ 2,765 $ 2,101
Ratio of expenses to average net assets** 0.90% 0.90% 0.90%
Ratio of net investment income (loss)
to average net assets** 0.92% 1.23% 1.50%
Ratio of expenses to average net assets before
voluntary expense reimbursement ** 1.67% 1.75% 3.19%
Ratio of net investment income (loss) to average
net assets before voluntary expense
reimbursement ** 0.15% 0.38% (0.79%)
Portfolio turnover rate 66% 76% -
*Total return not annualized for periods less
than one full year
**Annualized for periods less than one full year
</TABLE>
See accompanying Notes to Financial Statements.
Financial Highlights
Condensed data for a share of capital stock
outstanding throughout each period.
<TABLE>
<CAPTION>
BALANCED
FOR THE PERIOD
FROM 11/13/97
YEARS ENDED DECEMBER 31, (COMMENCEMENT)
1999 1998 TO 12/31/97
<S> <C> <C> <C>
Net asset value, beginning of period $ 8.88 $ 9.96 $ 10.00
Income from investment operations:
Net investment income (loss) 0.45 0.47 0.06
Net gains (losses) on securities
(both realized and unrealized) 0.28 (1.08) (0.04)
Total income (loss) from investment operations 0.73 (0.61) 0.02
Less distributions:
Dividends from net investment income (0.45) (0.47) (0.06)
Distributions from capital gains (0.08) - -
Total distributions (0.53) (0.47) (0.06)
Net asset value, end of period $ 9.08 $ 8.88 $ 9.96
Total return* 8.21% (6.03%) 0.18%
Ratios/Supplemental Data
Net assets, end of period (in thousands) $ 2,971 $ 2,644 $ 2,518
Ratio of expenses to average net assets** 0.90% 0.90% 0.90%
Ratio of net investment income (loss)
to average net assets** 4.88% 5.00% 4.78%
Ratio of expenses to average net assets before
voluntary expense reimbursement ** 1.72% 1.59% 2.78%
Ratio of net investment income (loss) to average
net assets before voluntary expense
reimbursement ** 4.06% 4.31% 2.90%
Portfolio turnover rate 43% 73% -
*Total return not annualized for periods less
than one full year
**Annualized for periods less than one full year
</TABLE>
See accompanying Notes to Financial Statements.
Financial Highlights
Condensed data for a share of capital stock
outstanding throughout each period.
<TABLE>
<CAPTION>
INTERMEDIATE FIXED
FOR THE PERIOD
FROM 11/13/97
YEARS ENDED DECEMBER 31, (COMMENCEMENT)
1999 1998 TO 12/31/97
<S> <C> <C> <C>
Net asset value, beginning of period $ 9.95 $ 10.06 $ 10.00
Income from investment operations:
Net investment income 0.60 0.57 0.07
Net gains (losses) on securities
(both realized and unrealized) (0.62) (0.05) 0.06
Total income (loss) from investment operations (0.02) 0.52 0.13
Less distributions:
Dividends from net investment income (0.60) (0.56) (0.07)
Dividends from capital gains (0.05) (0.07) -
Tax return of capital - - -
Total distributions (0.65) (0.63) (0.07)
Net asset value, end of period $ 9.28 $ 9.95 $ 10.06
Total return* (0.19%) 5.16% 1.27%
Ratios/Supplemental Data
Net assets, end of period (in thousands) $ 2,540 $ 2,415 $ 2,038
Ratio of expenses to average net assets** 0.80% 0.80% 0.80%
Ratio of net investment income (loss) to average
net assets** 6.01% 5.75% 5.40%
Ratio of expenses to average net assets before
voluntary expense reimbursement ** 2.25% 1.97% 3.09%
Ratio of net investment income (loss) to average
net assets before voluntary expense
reimbursement ** 4.56% 4.58% 3.11%
Portfolio turnover rate 147% 132% 39%
*Total return not annualized for periods less
than one full year
**Annualized for periods less than one full year
</TABLE>
See accompanying Notes to Financial Statements.
Financial Highlights
Condensed data for a share of capital stock
outstanding throughout each period.
<TABLE>
<CAPTION>
GLOBAL FIXED
FOR THE PERIOD
FROM 11/13/97
YEARS ENDED DECEMBER 31, (COMMENCEMENT)
1999 1998 TO 12/31/97
<S> <C> <C> <C>
Net asset value, beginning of period $ 9.92 $ 10.09 $ 10.00
Income from investment operations:
Net investment income (loss) 0.51 0.84 0.09
Net gains (losses) on securities
(both realized and unrealized) (0.54) (0.11) 0.08
Total income (loss) from investment operations (0.03) 0.73 0.17
Less distributions:
Dividends from net investment income (0.68) (0.54) (0.08)
Distributions from capital gains - (0.06) -
Tax return of capital - (0.30) -
Total distributions (0.68) (0.90) (0.08)
Net asset value, end of period $ 9.21 $ 9.92 $ 10.09
Total return* (0.27%) 7.23% 1.70%
Ratios/Supplemental Data
Net assets, end of period (in thousands) $ 5,516 $ 5,483 $ 5,099
Ratio of expenses to average net assets** 1.00% 1.00% 1.00%
Ratio of net investment income (loss)
to average net assets** 5.17% 5.40% 5.29%
Ratio of expenses to average net assets before
voluntary expense reimbursement ** 1.67% 1.47% 2.28%
Ratio of net investment income (loss) to average 4.50% 4.93% 4.01%
net assets before voluntary expense
reimbursement** 167% 185% 25%
Portfolio turnover rate
*Total return not annualized for periods less
than one full year
**Annualized for periods less than one full year
</TABLE>
See accompanying Notes to Financial Statements.
Financial Highlights
Condensed data for a share of capital stock
outstanding throughout each period.
<TABLE>
<CAPTION>
MONEY MARKET
FOR THE PERIOD
FROM 11/13/97
YEARS ENDED DECEMBER 31, (COMMENCEMENT)
1999 1998 TO 12/31/97
<S> <C> <C> <C>
Net asset value, beginning of period $ 1.00 $ 1.00 $ 1.00
Income from investment operations:
Net investment income (loss) 0.05 0.05 0.01
Net gains (losses) on securities
(both realized and unrealized) - - -
Total income (loss) from investment operations 0.05 0.05 0.01
Less distributions:
Dividends from net investment income (0.05) (0.05) (0.01)
Distributions from capital gains - - -
Tax return of capital - - -
Total distributions (0.05) (0.05) (0.01)
Net asset value, end of period $ 1.00 $ 1.00 $ 1.00
Total return* 4.60% 5.05% 0.71%
Ratios/Supplemental Data
Net assets, end of period (in thousands) $ 1,601 $ 1,270 $ 1,019
Ratio of expenses to average net assets** 0.50% 0.50% 0.50%
Ratio of net investment income (loss)
to average net assets** 4.52% 4.93% 5.26%
Ratio of expenses to average net assets before
voluntary expense reimbursement ** 2.72% 2.89% 4.90%
Ratio of net investment income (loss) to average
net assets before voluntary expense
reimbursement ** 2.30% 2.54% 0.86%
Portfolio turnover rate - - -
*Total return not annualized for periods less
than one full year
**Annualized for periods less than one full year
</TABLE>
See accompanying Notes to Financial Statements.
INTERESTED IN LEARNING MORE?
The Statement of Additional Information incorporated by reference into this
prospectus contains additional information about the Fund's operations.
Further information about the Fund's investments is available in the Fund's
annual and semi-annual reports to shareholders. The Fund's annual report
discusses market conditions and investment strategies that significantly
affected the Fund's performance results during its last fiscal year.
The Fund can provide you with a free copy of these materials or other
information about the Fund. You may reach the Fund
By Mail: BMA Service Center
9735 Landmark Parkway Drive
St. Louis, Missouri 63127-1690
By Phone: 1-888-262-8131
Or you may view or obtain these documents from the Securities and Exchange
Commission:
* Call the Commission at 1-202-942-8090 for information on the
operation of the Public Reference Room
* Reports and other information about the Fund are available on
the EDGAR Database on the Commission's Internet site at
http://www.sec.gov
* Copies of the information may be obtained, after paying a
duplicating fee, by electronic request at [email protected],
or by writing the Commission's Public Reference Section, Wash.
D.C. 20549-0102
On the Internet: www.sec.gov
The Fund's Investment Company Act filing number is 811-08321.
PART B
STATEMENT OF ADDITIONAL INFORMATION
INVESTORS MARK SERIES FUND, INC.
700 KARNES BOULEVARD
KANSAS CITY, MISSOURI 64108
This Statement of Additional Information ("SAI") is not a prospectus but should
be read in conjunction with the prospectus for Investors Mark Series Fund, Inc.,
dated May 1, 2000 (the "Prospectus"). A copy of the Prospectus may be obtained
without charge by calling 1-888-262-8131, or writing BMA Service Center, 9735
Landmark Parkway Drive, St. Louis, MO 63127-1690.
The Prospectus incorporates this SAI by reference. The Prospectus and this SAI
omit certain of the information contained in the registration statement filed
with the Securities and Exchange Commission ("SEC"), Washington, D.C. These
items may be obtained from the SEC upon payment of the fee prescribed, or
inspected at the SEC's office at no charge. The SEC maintains a Web Site
(http://www.sec.gov) that contains the SAI, material incorporated by reference,
and other information regarding the Fund.
THIS STATEMENT OF ADDITIONAL INFORMATION IS
DATED MAY 1, 2000
TABLE OF CONTENTS
Page
GENERAL INFORMATION AND HISTORY............................. 3
INVESTMENT OBJECTIVES AND POLICIES.......................... 3
ADDITIONAL INFORMATION CONCERNING INVESTMENT RISKS..........31
INVESTMENT RESTRICTIONS.....................................34
DIRECTORS AND OFFICERS OF THE FUND..........................47
COMPENSATION TABLE..........................................49
THE ADVISER.................................................51
SUB-ADVISERS................................................52
THE DISTRIBUTOR.............................................53
OTHER SERVICE PROVIDERS.....................................53
PERFORMANCE INFORMATION.....................................54
PURCHASE AND REDEMPTION OF SHARES...........................55
DETERMINATION OF NET ASSET VALUE............................56
TAXES.......................................................58
PORTFOLIO TRANSACTIONS......................................60
PORTFOLIO TURNOVER..........................................62
DESCRIPTION OF SHARES.......................................62
CONTROL PERSONS AND PRINCIPAL SHAREHOLDERS..................63
GENERAL INFORMATION.........................................63
FINANCIAL STATEMENTS........................................64
APPENDIX....................................................65
GENERAL INFORMATION AND HISTORY
Investors Mark Series Fund, Inc. ("Fund") is an open-end management investment
company incorporated in Maryland on June 27, 1997. This SAI relates to all
Portfolios of the Fund. No investment in shares of a Portfolio should be made
without first reading the Prospectus. Capitalized terms not defined herein are
defined in the Prospectus.
INVESTMENT OBJECTIVES AND POLICIES
This SAI contains additional information concerning certain investment policies,
practices and restrictions of the Fund and is provided for those investors
wishing to have more comprehensive information than that contained in the
Prospectus.
Shares of the Portfolios of the Fund are not available directly to individual
investors but may be offered only to life insurance companies. Certain
Portfolios of the Fund may not be available in connection with a particular
Contract or may not be available in a particular state. Investors should consult
the Separate Account prospectus of the specific insurance product for
information on the availability of the various Portfolios of the Fund.
Except as described below under "Investment Restrictions", the investment
objectives and policies described in the Prospectus and in this SAI are not
fundamental, and the Directors may change the investment objectives and policies
of a Portfolio without an affirmative vote of shareholders of the Portfolio.
RIGHTS AND WARRANTS
Certain Portfolios may invest in rights and warrants. Rights represent a
privilege offered to holders of record of issued securities to subscribe
(usually on a pro rata basis) for additional securities of the same class, of a
different class, or of a different issuer, as the case may be. Warrants
represent the privilege to purchase securities at a stipulated price and are
usually valid for several years. Warrants are subject to the same market risks
as stocks, but may be more volatile in price. Rights and warrants generally do
not entitle a holder to dividends or voting rights with respect to the
underlying securities nor do they represent any rights in the assets of the
issuing company.
Also, the value of a right or warrant may not necessarily change with the value
of the underlying securities, and rights and warrants cease to have value if
they are not exercised prior to their expiration date.
CONVERTIBLE SECURITIES
Certain Portfolios may invest in convertible securities consisting of bonds,
notes, debentures and preferred stocks. Convertible debt securities and
preferred stock acquired by a Portfolio entitle the Portfolio to exchange such
instruments for common stock of the issuer at a predetermined rate.
By investing in convertible securities, a Portfolio obtains the right to benefit
from the capital appreciation potential in the underlying stock upon exercise of
the conversion right, while earning higher current income than would be
available if the stock were purchased directly. In determining whether to
purchase a convertible, the Sub-Adviser will consider substantially the same
criteria that would be considered in purchasing the underlying stock.
Convertible securities are subject both to the credit and interest rate risks
associated with debt obligations and to the stock market risk associated with
equity securities. While convertible securities purchased by a Portfolio are
frequently rated investment grade, certain Portfolios may purchase unrated
securities or securities rated below investment grade if the securities meet the
Sub-Adviser's other investment criteria. Convertible securities rated below
investment grade (a) tend to be more sensitive to interest rate and economic
changes, (b) may be obligations of issuers who are less creditworthy than
issuers of higher quality convertible securities, and (c) may be more thinly
traded due to such securities being less well known to investors than either
common stock or conventional debt securities. As a result, the Sub-Adviser's own
investment research and analysis tends to be more important in the purchase of
such securities than other factors.
The International Equity Portfolio will not invest in any security in default at
the time of purchase or in any nonconvertible debt securities rated below
investment grade, and will invest less than 20% of the market value of its
assets at the time of purchase in convertible securities rated below investment
grade. If convertible securities purchased by the International Equity Portfolio
are downgraded following purchase, or if other circumstances cause 20% or more
of the International Equity Portfolio's assets to be invested in convertible
securities rated below investment grade, the Directors of the Fund, in
consultation with the Sub-Adviser, will determine what action, if any, is
appropriate in light of all relevant circumstances.
SMALL CAPITALIZATION STOCKS. Certain Portfolios may invest in securities of
companies with small or mid-sized market capitalizations. Market capitalization
is defined as the total current market value of a company's outstanding common
stock. Although investments in small capitalization companies may present
greater opportunities for growth, they also involve greater risks than are
customarily associated with investments in larger, more established companies.
The securities of small companies may be subject to more volatile market
movements than securities of larger, more established companies. Smaller
companies may have limited product lines, markets or financial resources, and
they may depend upon a limited or less experienced management group. The
securities of small capitalization companies may be traded only on the
over-the-counter market or on a regional securities exchange and may not be
traded daily or in the volume typical of trading on a national securities
exchange. As a result, the disposition by a Portfolio of securities in order to
meet redemptions or otherwise may require the Portfolio to sell securities at a
discount from market prices, over a longer period of time or during periods when
disposition is not desirable.
UNSEASONED ISSUERS. Certain of the Portfolios may invest in unseasoned
issuers. Unseasoned issuers are companies with a record of less than three
years' continuous operation, even including the operations of any predecessors
and parents. Unseasoned issuers by their nature have only a limited operating
history which can be used for evaluating the company's growth prospects. As a
result, investment decisions for these securities may place a greater emphasis
on current or planned product lines and the reputation and experience of the
company's management and less emphasis on fundamental valuation factors than
would be the case for more mature growth companies. In addition, many unseasoned
issuers may also be small companies and involve the risks and price volatility
associated with smaller companies. The International Equity Portfolio may invest
up to 5% of its total assets in such securities.
MORTGAGE-RELATED OBLIGATIONS
MORTGAGE-BACKED SECURITIES. Certain Portfolios may invest in privately
issued mortgage-backed securities and mortgage-backed securities issued or
guaranteed by foreign entities or the U.S. Government or any of its agencies,
instrumentalities or sponsored enterprises, including, but not limited to, the
Government National Mortgage Association ("GNMA"), the Federal National Mortgage
Association ("FNMA") or the Federal Home Loan Mortgage Corporation ("FHLMC").
Mortgage-backed securities represent direct or indirect participations in, or
are collateralized by and payable from, mortgage loans secured by real property.
Mortgagors can generally prepay interest or principal on their mortgages
whenever they choose. Therefore, mortgage-backed securities are often subject to
more rapid repayment than their stated maturity date would indicate as a result
of principal prepayments on the underlying loans. This can result in
significantly greater price and yield volatility than is the case with
traditional fixed income securities. During periods of declining interest rates,
prepayments can be expected to accelerate, and thus impair a Portfolio's ability
to reinvest the returns of principal at comparable yields.
Conversely, in a rising interest rate environment, a declining prepayment
rate will extend the average life of many mortgage-backed securities, increase a
Portfolio's exposure to rising interest rates and prevent a Portfolio from
taking advantage of such higher yields.
GNMA securities are backed by the full faith and credit of the U.S.
Government, which means that the U.S. Government guarantees that the interest
and principal will be paid when due. FNMA securities and FHLMC securities are
not backed by the full faith and credit of the U.S. Government; however, these
enterprises have the ability to obtain financing from the U.S. Treasury. GNMA,
FNMA and FHLMC certificates are described further below.
Multiple class securities include collateralized mortgage obligations
("CMOs") and Real Estate Mortgage Investment Conduit ("REMIC") pass-through or
participation certificates. CMOs provide an investor with a specified interest
in the cash flow from a pool of underlying mortgages or other mortgage-backed
securities. CMOs are issued in multiple classes, each with a specified fixed or
floating interest rate and a final scheduled distribution date. In most cases,
payments of principal are applied to the CMO classes in the order of their
respective stated maturities, so that no principal payments will be made on a
CMO class until all other classes having an earlier stated maturity date are
paid in full. A REMIC is a CMO that qualifies for special tax treatment under
the Internal Revenue Code of 1986, as amended ("Code"), and invests in certain
mortgages principally secured by interests in real property and other permitted
investments. The Portfolios do not intend to purchase residual interests in
REMICs.
Stripped mortgage-backed securities ("SMBS") are derivative multiple class
mortgage-backed securities. SMBS are usually structured with two different
classes; one that receives 100% of the interest payments and the other that
receives 100% of the principal payments from a pool of mortgage loans. If the
underlying mortgage loans experience prepayments of principal at a rate
different from what was anticipated, a Portfolio may fail to fully recoup its
initial investment in these securities. Although the market for SMBS is
increasingly liquid, certain SMBS may not be readily marketable and will be
considered illiquid for purposes of each Portfolio's limitation on investments
in illiquid securities. The market value of the class consisting entirely of
principal payments generally is unusually volatile in response to changes in
interest rates. The yields on a class of SMBS that receives all or most of the
interest from mortgage loans are generally higher than prevailing market yields
on other mortgage-backed securities because their cash flow patterns are more
volatile and there is a greater risk that the initial investment will not be
fully recouped.
LIFE OF MORTGAGE-RELATED OBLIGATIONS. The average life of mortgage-related
obligations is likely to be substantially less than the stated maturities of the
mortgages in the mortgage pools underlying such securities. Prepayments or
refinancing of principal by mortgagors and mortgage foreclosures will usually
result in the return of the greater part of principal invested long before the
maturity of the mortgages in the pool.
As prepayment rates of individual mortgage pools will vary widely, it is not
possible to predict accurately the average life of a particular issue of
mortgage-related obligations. However, with respect to GNMA Certificates,
statistics published by the FHA are normally used as an indicator of the
expected average life of an issue. The actual life of a particular issue of GNMA
Certificates, however, will depend on the coupon rate of the financing.
GNMA CERTIFICATES. GNMA was established in 1968 when FNMA was separated into two
organizations, GNMA and FNMA. GNMA is a wholly-owned government corporation
within the Department of Housing and Urban Development. GNMA developed the first
mortgage-backed pass-through instruments in 1970 for Farmers Home
Administration-FHMA-insured, Federal Housing Administration-FHA- insured and for
Veterans Administration-or VA-guaranteed mortgages ("government mortgages").
GNMA purchases government mortgages and occasionally conventional mortgages to
support the housing market. GNMA is known primarily, however, for its role as
guarantor of pass-through securities collateralized by government mortgages.
Under the GNMA securities guarantee program, government mortgages that are
pooled must be less than one year old by the date GNMA issues its commitment.
Loans in a single pool must be of the same type in terms of interest rate and
maturity. The minimum size of a pool is $1 million for single-family mortgages
and $500,000 for manufactured housing and project loans.
Under the GNMA II program, loans with different interest rates can be included
in a single pool and mortgages originated by more than one lender can be
assembled in a pool. In addition, loans made by a single lender can be packaged
in a custom pool (a pool containing loans with specific characteristics or
requirements).
GNMA GUARANTEE. The National Housing Act authorizes GNMA to guarantee the timely
payment of principal of and interest on securities backed by a pool of mortgages
insured by FHA or FHMA, or guaranteed by VA. The GNMA guarantee is backed by the
full faith and credit of the United States. GNMA is also empowered to borrow
without limitation from the U.S. Treasury if necessary to make any payments
required under its guarantee.
YIELD CHARACTERISTICS OF GNMA CERTIFICATES. The coupon rate of interest on GNMA
Certificates is lower than the interest rated paid on the VA-guaranteed,
FHMA-insured or FHA-insured mortgages underlying the Certificates, but only by
the amount of the fees paid to GNMA and the issuer. For the most common type of
mortgage pool, containing single-family dwelling mortgages, GNMA receives an
annual fee of 0.06% of the outstanding principal for providing its guarantee,
and the issuer is paid an annual fee of 0.44% for assembling the mortgage pool
and for passing through monthly payments of interest and principal to GNMA
Certificate holders.
The coupon rate by itself, however, does not indicate the yield which will be
earned on the GNMA Certificates for several reasons. First, GNMA Certificates
may be issued at a premium or discount, rather than at par, and, after issuance,
GNMA Certificates may trade in the secondary market at a premium or discount.
Second, interest is paid monthly, rather than semi-annually as with traditional
bonds. Monthly compounding has the effect of raising the effective yield earned
on GNMA Certificates. Finally, the actual yield of each GNMA Certificate is
influenced by the prepayment experience of the mortgage pool underlying the GNMA
Certificate. If mortgagors prepay their mortgages, the principal returned to
GNMA Certificate holders may be reinvested at higher or lower rates.
MARKET FOR GNMA CERTIFICATES. Since the inception of the GNMA mortgage-backed
securities program in 1970, the amount of GNMA Certificates outstanding has
grown rapidly. The size of the market and the active participation in the
secondary market by securities dealers and many types of investors make the GNMA
Certificates a highly liquid instrument. Prices of GNMA Certificates are readily
available from securities dealers and depend on, among other things, the level
of market rates, the GNMA Certificate's coupon rate and the prepayment
experience of the pools of mortgages backing each GNMA Certificate.
FHLMC was created by the Emergency Home Finance Act of 1970. It is a private
corporation, initially capitalized by the Federal Home Loan Bank System, charged
with supporting the mortgage lending activities of savings and loan associations
by providing an active secondary market of conventional mortgages. To finance
its mortgage purchases, FHLMC issues FHLMC Participation Certificates and CMOs.
Participation Certificates represent an undivided interest in a pool of mortgage
loans. FHLMC purchases whole loans or participations on 30-year and 15-year
fixed-rate mortgages, adjustable-rate mortgages ("ARMs") and home improvement
loans. Under certain programs, it will also purchase FHA and VA mortgages.
Loans pooled for FHLMC must have a minimum coupon rate equal to the
Participation Certificate rate specified at delivery, plus a required spread for
the corporation and a minimum servicing fee, generally 0.375% (37.5 basis
points). The maximum coupon rate on loans is 2% (200 basis points) in excess of
the minimum eligible coupon rate for Participation Certificates. FHLMC requires
a minimum commitment of $1 million in mortgages but imposes no maximum amount.
Negotiated deals require a minimum commitment of $10 million. FHLMC guarantees
timely payment of the interest and the ultimate payment of principal of its
Participation Certificates. This guarantee is backed by reserves set aside to
protect against losses due to default. The FHLMC CMO is divided into varying
maturities with prepayment set specifically for holders of the shorter term
securities. The CMO is designed to respond to investor concerns about early
repayment of mortgages.
FHLMC's CMOs are general obligations, and FHLMC will be required to use its
general funds to make principal and interest payments on CMOs if payments
generated by the underlying pool of mortgages are insufficient to pay principal
and interest on the CMO.
A CMO is a cash-flow bond in which mortgage payments from underlying mortgage
pools pay principal and interest to CMO bondholders. The CMO is structured to
address two major shortcomings associated with traditional pass-through
securities: payment frequency and prepayment risk. Traditional pass-through
securities pay interest and amortized principal on a monthly basis whereas CMOs
normally pay principal and interest semi-annually. In addition, mortgage-backed
securities carry the risk that individual mortgagors in the mortgage pool may
exercise their prepayment privileges, leading to irregular cash flow and
uncertain average lives, durations and yields.
A typical CMO structure contains four tranches, which are generally referred to
as classes A, B, C and Z. Each tranche is identified by its coupon and maturity.
The first three classes are usually current interest-bearing bonds paying
interest on a quarterly or semi-annual basis, while the fourth, Class Z, is an
accrual bond. Amortized principal payments and prepayments from the underlying
mortgage collateral redeem principal of the CMO sequentially; payments from the
mortgages first redeem principal on the Class A bonds. When principal of the
Class A bonds has been redeemed, the payments then redeem principal on the Class
B bonds. This pattern of using principal payments to redeem each bond
sequentially continues until the Class C bonds have been retired. At this point,
Class Z bonds begin paying interest and amortized principal on their accrued
value.
The final tranche of a CMO is usually a deferred interest bond, commonly
referred to as the Z bond. This bond accrues interest at its coupon rate but
does not pay this interest until all previous tranches have been fully retired.
While earlier classes remain outstanding, interest accrued on the Z bond is
compounded and added to the outstanding principal. The deferred interest period
ends when all previous tranches are retired, at which point the Z bond pays
periodic interest and principal until it matures. A Sub-Adviser would purchase a
Z bond for a Portfolio if it expected interest rates to decline.
FNMA SECURITIES. FNMA was created by the National Housing Act of 1938. In 1968,
the agency was separated into two organizations, GNMA to support a secondary
market for government mortgages and FNMA to act as a private corporation
supporting the housing market.
FNMA pools may contain fixed-rate conventional loans on one-to-four-family
properties. Seasoned FHA and VA loans, as well as conventional growing equity
mortgages, are eligible for separate pools. FNMA will consider other types of
loans for securities pooling on a negotiated basis. A single pool may include
mortgages with different loan-to-value ratios and interest rates, though rates
may not vary beyond two percentage points.
PRIVATELY-ISSUED MORTGAGE LOAN POOLS. Savings associations, commercial banks and
investment bankers issue pass-through securities secured by a pool of mortgages.
Generally, only conventional mortgages on single-family properties are included
in private issues, though seasoned loans and variable rate mortgages are
sometimes included. Private placements allow purchasers to negotiate terms of
transactions. Maximum amounts for individual loans may exceed the loan limit set
for government agency purchases. Pool size may vary, but the minimum is usually
$20 million for public offerings and $10 million for private placements.
Privately-issued mortgage-related obligations do not carry government or
quasi-government guarantees. Rather, mortgage pool insurance generally is used
to insure against credit losses that may occur in the mortgage pool. Pool
insurance protects against credit losses to the extent of the coverage in force.
Each mortgage, regardless of original loan-to-value ratio, is insured to 100% of
principal, interest and other expenses, to a total aggregate loss limit stated
on the policy. The aggregate loss limit of the policy generally is 5% to 7% of
the original aggregate principal of the mortgages included in the pool.
In addition to the insurance coverage to protect against defaults on the
underlying mortgages, mortgage-backed securities can be protected against the
nonperformance or poor performance of servicers. Performance bonding of
obligations such as those of the servicers under the origination, servicing or
other contractual agreement will protect the value of the pool of insured
mortgages and enhance the marketability.
The rating received by a mortgage security will be a major factor in its
marketability. For public issues, a rating is always required, but it may be
optional for private placements depending on the demands of the marketplace and
investors.
Before rating an issue, a rating agency such as S&P or Moody's will consider
several factors, including: the creditworthiness of the issuer; the issuer's
track record as an originator and servicer; the type, terms and characteristics
of the mortgages, as well as loan-to-value ratio and loan amounts; the insurer
and the level of mortgage insurance and hazard insurance provided. Where an
equity reserve account or letter of credit is offered, the rating agency will
also examine the adequacy of the reserve and the strength of the issuer of the
letter of credit.
MATURITY AND DURATION. The effective maturity of an individual portfolio
security in which a Portfolio invests is defined as the period remaining until
the earliest date when the Portfolio can recover the principal amount of such
security through mandatory redemption or prepayment by the issuer, the exercise
by the Portfolio of a put option, demand feature or tender option granted by the
issuer or a third party or the payment of the principal on the stated maturity
date. The effective maturity of variable rate securities is calculated by
reference to their coupon reset dates. Thus, the effective maturity of a
security may be substantially shorter than its final stated maturity.
Unscheduled prepayments of principal have the effect of shortening the effective
maturities of securities in general and mortgage-backed securities in
particular. Prepayment rates are influenced by changes in current interest rates
and a variety of economic, geographic, social and other factors and cannot be
predicted with certainty. In general, securities, such as mortgage-backed
securities, may be subject to greater prepayment rates in a declining interest
rate environment. Conversely, in an increasing interest rate environment, the
rate of prepayment may be expected to decrease. A higher than anticipated rate
of unscheduled principal prepayments on securities purchased at a premium or a
lower than anticipated rate of unscheduled payments on securities purchased at a
discount may result in a lower yield (and total return) to a Portfolio than was
anticipated at the time the securities were purchased. A Portfolio's
reinvestment of unscheduled prepayments may be made at rates higher or lower
than the rate payable on such security, thus affecting the return realized by
the Portfolio.
ASSET-BACKED SECURITIES. Certain Portfolios may invest in asset-backed
securities issued by foreign or U.S. entities. The principal and interest
payments on asset-backed securities are collateralized by pools of assets such
as auto loans, credit card receivables, leases, installment contracts and
personal property. Such asset pools are securitized through the use of special
purpose trusts or corporations. Payments or distributions of principal and
interest on asset-backed securities may be guaranteed up to certain amounts and
for a certain time period by a letter of credit or a pool insurance policy
issued by a financial institution; however, privately issued obligations
collateralized by a portfolio of privately issued asset-backed securities do not
involve any government-related guaranty or insurance. Like mortgage-backed
securities, asset-backed securities are subject to more rapid prepayment of
principal than indicated by their stated maturity which may greatly increase
price and yield volatility. Asset-backed securities generally do not have the
benefit of a security interest in collateral that is comparable to mortgage
assets and there is the possibility that recoveries on repossessed collateral
may not be available to support payments on these securities.
FOREIGN SECURITIES
FOREIGN SECURITIES. Certain Portfolios may invest in securities of foreign
governments and companies. Investments in foreign securities involve certain
risks that are different from the risks of investing in securities of U.S.
issuers. (See "Investment Risks--Foreign Securities" for a discussion of these
risks.) Certain Portfolios may also invest in issuers located in emerging
markets. Investments in emerging markets involve risks in addition to those
generally associated with investments in foreign securities. (See "Investment
Risks--Investing in Emerging Markets".)
The Mid Cap Equity Portfolio may invest without limit in foreign securities
which trade on a U.S. exchange or in the U.S. OTC market, but is limited to 10%
of total assets on those foreign securities which are not so listed or traded.
The Mid Cap Equity Portfolio may invest up to 10% of its total assets in issuers
located in emerging markets generally and up to 3% of its total assets in
issuers of any one specific emerging market country.
Other than American Depositary Receipts ("ADRs"), foreign debt securities
denominated in U.S. dollars, and securities guaranteed by a U.S. person, each of
the Large Cap Growth and Small Cap Equity Portfolios is limited to investing no
more than 25% of its total assets in foreign securities.
Foreign securities may be purchased and sold on foreign stock exchanges or in
over-the-counter markets (but persons affiliated with a Portfolio will not act
as principal in such purchases and sales). Foreign stock markets are generally
not as developed or efficient as those in the United States. While growing in
volume, they usually have substantially less volume than the New York Stock
Exchange, and securities of some foreign companies are less liquid and more
volatile than securities of comparable United States companies. Fixed
commissions on foreign stock exchanges are generally higher than negotiated
commissions on United States exchanges, although each Portfolio will endeavor to
achieve the most favorable net results on its portfolio transactions. There is
generally less government supervision and regulation of stock exchanges, brokers
and listed companies abroad than in the United States.
The dividends and interest payable on certain foreign securities may be subject
to foreign withholding taxes and in some cases capital gains from such
securities may also be subject to foreign tax, thus reducing the net amount of
income or gain available for distribution to a Portfolio's shareholders.
Investors should understand that the expense ratio of a Portfolio investing in
foreign securities may be higher than that of investment companies investing
exclusively in domestic securities because of the cost of maintaining the
custody of foreign securities.
With respect to portfolio securities that are issued by foreign issuers or
denominated in foreign currencies, a Portfolio's investment performance 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 "Currency Transactions," below.)
Certain Portfolios may invest in foreign securities which take the form of
sponsored and unsponsored American Depositary Receipts and Shares ("ADRs" and
"ADSs"), Global Depository Receipts and Shares ("GDRs" and "GDSs") and European
Depository Receipts and Shares ("EDRs" and "EDSs") or other similar instruments
representing securities of foreign issuers (together, "Depository Receipts" and
("Depository Shares"). ADRs and ADSs represent the right to receive securities
of foreign issuers deposited in a domestic bank or a correspondent bank. Prices
of ADRs and ADSs are quoted in U.S. dollars and are traded in the United States
on exchanges or over-the-counter and are sponsored and issued by domestic banks.
EDRs and EDSs and GDRs and GDSs are receipts evidencing an arrangement with a
non-U.S. bank. EDRs and EDSs and GDRs and GDSs are not necessarily quoted in the
same currency as the underlying security. To the extent that a Portfolio
acquires Depository Receipts or Shares through banks which do not have a
contractual relationship with the foreign issuer of the security underlying the
Depository Receipts or Shares to issue and service such Depository Receipts or
Shares (unsponsored Depository Receipts or Shares), there may be an increased
possibility that the Portfolio would not become aware of and be able to respond
to corporate actions, such as stock splits or rights offerings involving the
foreign issuer, in a timely manner. In addition, certain benefits which may be
associated with the security underlying the Depository Receipt or Share may not
inure to the benefit of the holder of such Depository Receipt or Share. Further,
the lack of information may result in inefficiencies in the valuation of such
instruments. Investment in Depository Receipts or Shares does not eliminate all
the risks inherent in investing in securities of non-U.S. issuers. The market
value of Depository Receipts or Shares is dependent upon the market value of the
underlying securities and fluctuations in the relative value of the currencies
in which the Depository Receipt or Share and the underlying securities are
quoted. However, by investing in Depository Receipts or Shares, such as ADRs or
ADSs, that are quoted in U.S. dollars, a Portfolio will avoid currency risks
during the settlement period for purchases and sales.
As described in the Prospectus, each of the Small Cap Equity and Large Cap
Growth Portfolios may invest up to 25% of its total assets in foreign
securities. For purposes of this limitation, foreign securities do not include
ADRs or securities guaranteed by a United States person. Each of the Small Cap
Equity and Large Cap Growth Portfolios will not invest more than 5% of its net
assets in unsponsored ADRs.
EURODOLLAR AND YANKEE DOLLAR INVESTMENTS. Certain Portfolios may invest in
Eurodollar and Yankee Dollar instruments. Eurodollar instruments are bonds of
foreign corporate and government issuers that pay interest and principal in U.S.
dollars held in banks outside the United States, primarily in Europe. Yankee
Dollar instruments are U.S. dollar denominated bonds typically issued in the
U.S. by foreign governments and their agencies and foreign banks and
corporations.
EURODOLLAR CONTRACTS
Certain Portfolios may make investments in Eurodollar contracts. Eurodollar
contracts are U.S. dollar-denominated futures contracts or options thereon which
are linked to the London Interbank Offered Rate ("LIBOR"), although foreign
currency-denominated instruments are available from time to time. Eurodollar
futures contracts enable purchasers to obtain a fixed rate for the lending of
funds and sellers to obtain a fixed rate for borrowings. A Portfolio might use
Eurodollar futures contracts and options thereon to hedge against changes in
LIBOR, to which many interest rate swaps and fixed income instruments are
linked.
SOVEREIGN DEBT OBLIGATIONS. Certain Portfolios may invest in sovereign debt
obligations, which involve special risks that are not present in corporate debt
obligations. The foreign issuer of the sovereign debt or the foreign
governmental authorities that control the repayment of the debt may be unable or
unwilling to repay principal or interest when due, and a Portfolio may have
limited recourse in the event of a default. During periods of economic
uncertainty, the market prices of sovereign debt, and the Portfolio's net asset
value, to the extent it invests in such securities, may be more volatile than
prices of debt obligations of U.S. issuers. In the past, certain foreign
countries have encountered difficulties in servicing their debt obligations,
withheld payments of principal and interest and declared moratoria on the
payment of principal and interest on their sovereign debt.
A sovereign debtor's willingness or ability to repay principal and pay
interest in a timely manner may be affected by, among other factors, its cash
flow situation, the extent of its foreign currency reserves, the availability of
sufficient foreign exchange, the relative size of the debt service burden, the
sovereign debtor's policy toward principal international lenders and local
political constraints. Sovereign debtors may also be dependent on expected
disbursements from foreign governments, multilateral agencies and other entities
to reduce principal and interest arrearages on their debt. The failure of a
sovereign debtor to implement economic reforms, achieve specified levels of
economic performance or repay principal or interest when due may result in the
cancellation of third-party commitments to lend funds to the sovereign debtor,
which may further impair such debtor's ability or willingness to service its
debts.
BRADY BONDS. Brady Bonds are securities created through the exchange of
existing commercial bank loans to public and private entities in certain
emerging markets for new bonds in connection with debt restructurings. In light
of the history of defaults of countries issuing Brady Bonds on their commercial
bank loans, investments in Brady Bonds may be viewed as speculative. Brady Bonds
may be fully or partially collateralized or uncollateralized, are issued in
various currencies (but primarily in U.S. dollars) and are actively traded in
over-the-counter secondary markets. Incomplete collateralization of interest or
principal payment obligations results in increased credit risk. U.S.
dollar-denominated collateralized Brady Bonds, which may be fixed-rate bonds or
floating-rate bonds, are generally collateralized by U.S. Treasury zero coupon
bonds having the same maturity as the Brady Bonds.
OBLIGATIONS OF SUPRANATIONAL ENTITIES. Certain Portfolios may invest in
obligations of supranational entities designated or supported by governmental
entities to promote economic reconstruction or development and of international
banking institutions and related government agencies. Examples include the
International Bank for Reconstruction and Development (the "World Bank"), the
Asian Development Bank and the Inter-American Development Bank. Each
supranational entity's lending activities are limited to a percentage of its
total capital (including "callable capital" contributed by its governmental
members at the entity's call), reserves and net income. There is no assurance
that participating governments will be able or willing to honor their
commitments to make capital contributions to a supranational entity.
RESTRICTED, ILLIQUID AND RULE 144A SECURITIES
Each of the Portfolios is authorized to invest in restricted and illiquid
securities. Restricted securities are securities which are not readily
marketable because they are subject to restrictions on their resale. Illiquid
securities include those that are not readily marketable, repurchase agreements
maturing in more than seven days, time deposits with a notice or demand period
of more than seven days, certain SMBS, swap transactions, certain
over-the-counter options and certain restricted securities. Based upon
continuing review of the trading markets for a specific restricted security, the
security may be determined to be eligible for resale to qualified institutional
buyers pursuant to Rule 144A under the Securities Act of 1933 ("1933 Act") and,
therefore, to be liquid. Also, certain illiquid securities may be determined to
be liquid if they are found to satisfy certain relevant liquidity requirements.
The Board of Directors has adopted guidelines and delegated to the Adviser the
daily function of determining and monitoring the liquidity of portfolio
securities, including restricted and illiquid securities. The Board of
Directors, however, retains oversight and is ultimately responsible for such
determinations. The purchase price and subsequent valuation of illiquid
securities normally reflect a discount, which may be significant, from the
market price of comparable securities for which a liquid market exists.
Each of the Intermediate Fixed Income, Mid Cap Equity, Global Fixed Income,
International Equity, Small Cap Equity and Large Cap Growth Portfolios may
invest up to 15% of its net assets in illiquid securities. Each of the Balanced,
Large Cap Value and Money Market Portfolios may invest up to 10% of its net
assets in illiquid securities, while the Growth & Income Portfolio may invest up
to 5% of its net assets in illiquid securities. Investments in illiquid
securities involve certain risks to the extent that a Portfolio may be unable to
dispose of such a security at the time desired or at a reasonable price or, in
some cases, may be unable to dispose of it at all. In addition, in order to
resell a restricted security, a Portfolio might have to incur the potentially
substantial expense and delay associated with effecting registration. If
securities become illiquid following purchase or other circumstances cause a
Portfolio to exceed its percentage limitation which may be invested in such
securities, the Directors of the Fund, in consultation with the Adviser and the
particular Portfolio's Sub-Adviser, will determine what action, if any, is
appropriate in light of all relevant circumstances.
Rule 144A permits certain qualified institutional buyers, such as a Portfolio,
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, will consider whether securities purchased under Rule 144A are
illiquid and thus subject to a Portfolio's restriction of investing no more than
a certain percentage of its net assets in illiquid securities. A determination
of 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 the (1) frequency of trades
and quotes, (2) number of dealers and potential purchasers, (3) dealer
undertakings to make a market, and (4) nature of the security and of marketplace
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, a Portfolio's holdings
of illiquid securities would be reviewed to determine what, if any, steps are
required to assure that a Portfolio does not invest more than it is permitted to
in illiquid securities. Investing in Rule 144A securities could have the effect
of increasing the amount of a Portfolio's assets invested in illiquid securities
if qualified institutional buyers are unwilling to purchase such securities.
CORPORATE DEBT OBLIGATIONS. Certain Portfolios may invest in corporate debt
obligations and zero coupon securities issued by financial institutions and
corporations. Corporate debt obligations are subject to the risk of an issuer's
inability to meet principal and interest payments on the obligations and may
also be subject to price volatility due to such factors as market interest
rates, market perception of the creditworthiness of the issuer and general
market liquidity.
ZERO COUPON AND DEFERRED PAYMENT SECURITIES. Certain Portfolios may invest
in zero coupon and deferred payment securities. Zero coupon securities are
securities sold at a discount to par value and on which interest payments are
not made during the life of the security. Upon maturity, the holder is entitled
to receive the par value of the security. A Portfolio is required to accrue
income with respect to these securities prior to the receipt of cash payments.
Because a Portfolio will distribute this accrued income to shareholders, to the
extent that shareholders elect to receive dividends in cash rather than
reinvesting such dividends in additional shares, the Portfolio will have fewer
assets with which to purchase income producing securities. Deferred payment
securities are securities that remain zero coupon securities until a
predetermined date, at which time the stated coupon rate becomes effective and
interest becomes payable at regular intervals. Zero coupon and deferred payment
securities may be subject to greater fluctuation in value and may have less
liquidity in the event of adverse market conditions than comparably rated
securities paying cash interest at regular interest payment periods.
FORWARD ROLL TRANSACTIONS. To seek to enhance current income, the
Intermediate Fixed Income Portfolio may invest up to 10% of its net assets and
the Global Fixed Income Portfolio may invest up to 5% of its total assets in
forward roll transactions involving mortgage-backed securities. In a forward
roll transaction, a Portfolio sells a mortgage-backed security to a financial
institution, such as a bank or broker-dealer, and simultaneously agrees to
repurchase a similar security from the institution at a later date at an
agreed-upon price. The mortgage-backed securities that are repurchased will bear
the same interest rate as those sold, but generally will be collateralized by
different pools of mortgages with different prepayment histories than those
sold. During the period between the sale and repurchase, the Portfolio will not
be entitled to receive interest and principal payments on the securities sold.
Proceeds of the sale will be invested in short-term instruments, such as
repurchase agreements or other short-term securities, and the income from these
investments, together with any additional fee income received on the sale and
the amount gained by repurchasing the securities in the future at a lower price,
will generate income and gain for the Portfolio which is intended to exceed the
yield on the securities sold. Forward roll transactions involve the risk that
the market value of the securities sold by the Portfolio may decline below the
repurchase price of those securities. At the time that a Portfolio enters into a
forward roll transaction, it will place cash or liquid assets in a segregated
account that is marked to market daily having a value equal to the repurchase
price (including accrued interest).
LEVERAGE. The use of forward roll transactions involves leverage. Leverage
allows any investment gains made with the additional monies received (in excess
of the costs of the forward roll transaction), to increase the net asset value
of a Portfolio's shares faster than would otherwise be the case. On the other
hand, if the additional monies received are invested in ways that do not fully
recover the costs of such transactions to a Portfolio, the net asset value of
the Portfolio would fall faster than would otherwise be the case.
STRUCTURED OR HYBRID NOTES
Certain Portfolios of the Fund may invest in structured or hybrid notes. It is
expected that not more than 5% of a Portfolio's net assets will be at risk as a
result of such investments. The distinguishing feature of a structured or hybrid
note is that the amount of interest and/or principal payable on the note is
based on the performance of a benchmark asset or market other than fixed income
securities or interest rates. Examples of these benchmarks include stock prices,
currency exchange rates and physical commodity prices. Investing in a structured
note allows a Portfolio to gain exposure to the benchmark market while fixing
the maximum loss that it may experience in the event that the market does not
perform as expected. Depending on the terms of the note, a Portfolio may forego
all or part of the interest and principal that would be payable on a comparable
conventional note; the Portfolio's loss cannot exceed this foregone interest
and/or principal. An investment in structured or hybrid notes involves risks
similar to those associated with a direct investment in the benchmark asset.
Investments in structured and hybrid notes involve the risk that the issuer or
counterparty to the obligation will fail to perform its contractual obligations.
Certain structured or hybrid notes may also be leveraged to the extent that the
magnitude of any change in the interest rate or principal payable on the
benchmark asset is a multiple of the change in the reference price. Leverage
enhances the price volatility of the security and, therefore, a Portfolio's net
asset value. Further, certain structured or hybrid notes may be illiquid for
purposes of each Portfolio's limitations on investments in illiquid securities.
TAX-EXEMPT SECURITIES. The Intermediate Fixed Income Portfolio may invest
up to 10% of its total assets in tax-exempt securities if the Sub-Adviser
believes that tax-exempt securities will provide competitive returns.
INVERSE FLOATING RATE SECURITIES. Certain Portfolios may invest in inverse
floating rate securities. The interest rate on an inverse floater resets in the
opposite direction from the market rate of interest to which the inverse floater
is indexed. An inverse floater may be considered to be leveraged to the extent
that its interest rate varies by a magnitude that exceeds the magnitude of the
change in the index rate of interest. The higher the degree of leverage of an
inverse floater, the greater the volatility of its market value.
MONEY MARKET INSTRUMENTS AND REPURCHASE AGREEMENTS
Money market instruments include short-term U.S. and foreign Government
securities, commercial paper (promissory notes issued by corporations to finance
their short-term credit needs), negotiable certificates of deposit,
non-negotiable fixed time deposits, bankers' acceptances and repurchase
agreements.
U.S. GOVERNMENT SECURITIES. Generally, these securities include U.S. Treasury
obligations and obligations issued or guaranteed by U.S. Government agencies,
instrumentalities or sponsored enterprises which are supported by (a) the full
faith and credit of the U.S. Treasury (such as GNMA), (b) the right of the
issuer to borrow from the U.S. Treasury (such as securities of the Student Loan
Marketing Association), (c) the discretionary authority of the U.S. Government
to purchase certain obligations of the issuer (such as FNMA and FHLMC), or (d)
only the credit of the agency. No assurance can be given that the U.S.
Government will provide financial support to U.S. Government agencies,
instrumentalities or sponsored enterprises in the future. U.S. Government
securities also include Treasury receipts, zero coupon bonds, deferred interest
securities and other stripped U.S. Government securities, where the interest and
principal components of stripped U.S. Government securities are traded
independently ("STRIPS").
BANK OBLIGATIONS. Each of the Portfolios may acquire obligations of banks, which
include certificates of deposit, time deposits, and bankers' acceptances.
Certificates of deposits are generally short-term, interest-bearing negotiable
certificates issued by banks or savings and loan associations against funds
deposited in the issuing institution.
Time deposits are funds in a bank or other financial institution for a specified
period of time at a fixed interest rate for which a negotiable certificate is
not received.
A bankers' acceptance is a time draft drawn on a bank which unconditionally
guarantees to pay the draft at its face amount on the maturity date. A bank
customer, which is also liable for the draft, typically uses the funds
represented by the draft to finance the import, export, or storage of goods.
COMMERCIAL PAPER. Commercial paper involves an unsecured obligation that is
usually sold on a discount basis and has a maturity at the time of issuance of
one year or less. With respect to the Money Market Portfolio, such paper, on the
date of investment by the Portfolio, must be rated in the highest category for
short-term debt securities by at least two NRSROs (or by one NRSRO, if only one
NRSRO has rated the security.) The Money Market Portfolio may invest in unrated
commercial paper if the Board of Directors of the Fund determines, in accordance
with the procedures of Rule 2a-7 under the 1940 Act, that the unrated security
is of comparable quality to rated securities.
Investments in commercial paper by the Intermediate Fixed Income and Global
Fixed Income Portfolios will be rated "P-1" by Moody's or "A-1" by S&P, or
Duff-1 by Duff, which are the highest ratings assigned by these NRSROs (even if
rated lower by one or more of the other NRSROs), or which, if not rated or rated
lower by one or more of the NRSROs and not rated by the other NRSRO or NRSROs,
are judged by the Sub-Adviser to be of equivalent quality to the securities so
rated. With respect to the Global Fixed Income Portfolio, in determining whether
securities are of equivalent quality, the Sub-Adviser may take into account, but
will not rely entirely on, ratings assigned by foreign rating agencies.
REPURCHASE AGREEMENTS. A repurchase agreement involves the sale of securities to
a Portfolio with the concurrent agreement by the seller to repurchase the
securities at the Portfolio's cost plus interest at an agreed rate upon demand
or within a specified time, thereby determining the yield during the purchaser's
period of ownership. The result is a fixed rate of return insulated from market
fluctuations during such period. Under the 1940 Act, repurchase agreements are
considered loans by a Portfolio.
The Portfolios will enter into such repurchase agreements only with United
States banks having assets in excess of $100 million which are members of the
Federal Deposit Insurance Corporation, and with certain securities dealers who
meet the qualifications set from time to time by the Board of Directors. The
term to maturity of a repurchase agreement normally will be no longer than a few
days.
The Intermediate Fixed Income Portfolio, the Mid Cap Equity Portfolio and
the Global Fixed Income Portfolio may invest up to 5%, 10% and 25%,
respectively, of net assets in repurchase agreements. Each of the Small Cap
Equity and Large Cap Growth Portfolios may invest up to 15% of its assets in
repurchase agreements. Certain other Portfolios of the Fund may invest in
repurchase agreements as described elsewhere herein.
The use of repurchase agreements involves certain risks. For example, if the
seller of the agreement defaults on its obligation to repurchase the underlying
securities at a time when the value of these securities has declined, a
Portfolio may incur a loss upon disposition of them. If the seller of the
agreement becomes insolvent and subject to liquidation or reorganization under
the Bankruptcy Code or other laws, disposition of the underlying securities may
be delayed pending court proceedings. Finally, it is possible that a Portfolio
may not be able to perfect its interest in the underlying securities. While a
Portfolio's management acknowledges these risks, it is expected that they can be
controlled through stringent security selection criteria and careful monitoring
procedures.
MONEY MARKET INSTRUMENTS AND SHORT-TERM SECURITIES-MID CAP EQUITY
PORTFOLIO. Although the Mid Cap Equity Portfolio intends to stay invested in
equity and equity-related securities to the extent practical in light of its
investment objective, the Portfolio may, under normal market conditions,
establish and maintain cash balances and may purchase money market instruments
with maturities of less than one year and short-term interest-bearing fixed
income securities with maturities of one to three years ("Short-Term
Obligations") to maintain liquidity to meet redemptions.
Money market instruments in which the Mid Cap Equity Portfolio invests will
be rated at the time of purchase P-1 by Moody's or A-1 or Duff-1 by S&P, Duff
and Fitch or, if unrated, determined by the Sub-Adviser to be of comparable
quality. Money market instruments and Short-Term Obligations include obligations
issued or guaranteed by the U.S. Government or any of its agencies and
instrumentalities, U.S. and foreign commercial paper, bank obligations,
repurchase agreements and other debt obligations of U.S. and foreign issuers. At
least 95% of the Mid Cap Equity Portfolio's assets that are invested in
Short-Term Obligations must be invested in obligations rated at the time of
purchase Aaa, Aa, A or P-1 by Moody's or AAA, AA, A, A-1 or Duff-1 by S&P, Duff
or Fitch or, if unrated, determined by the Sub-Adviser to be of comparable
credit quality. Up to 5% of the Mid Cap Equity Portfolio's total assets invested
in Short-Term Obligations may be invested in obligations rated Baa by Moody's or
BBB by S&P, Duff or Fitch or, if unrated, determined by the Sub-Adviser to be of
comparable credit quality.
Securities rated within the top three investment grade ratings (i.e., Aaa,
Aa, A or P-1 by Moody's or AAA, AA, A, A-1 or Duff-1 by S&P, Duff or Fitch) are
generally regarded as high grade obligations. Securities rated Baa by Moody's or
BBB by S&P, Duff or Fitch are generally considered medium grade obligations and
have some speculative characteristics.
WHEN ISSUED AND DELAYED DELIVERY SECURITIES; REVERSE REPURCHASE AGREEMENTS
Certain Portfolios may purchase securities on a when-issued or delayed-delivery
basis. Delivery and payment for securities purchased on a when-issued or delayed
delivery basis will normally take place 15 to 45 days after the date of the
transaction. The payment obligation and interest rate on the securities are
fixed at the time that a Portfolio enters into the commitment, but interest will
not accrue to the Portfolio until delivery of and payment for the securities.
Although a Portfolio will only make commitments to purchase "when-issued" and
"delayed delivery" securities with the intention of actually acquiring the
securities, a Portfolio may sell the securities before the settlement date if
deemed advisable by the Sub-Adviser.
Unless a Portfolio has entered into an offsetting agreement to sell the
securities purchased on a "when-issued" basis, cash or liquid obligations with a
market value equal to the amount of the Portfolio's commitment will be
segregated with the Fund's custodian bank. The market value of the securities
when they are delivered may be less than the amount paid by the Portfolio. If
the market value of these securities declines, additional cash or securities
will be segregated daily so that the aggregate market value of the segregated
securities equals the amount of the Portfolio's commitment.
Securities purchased on a "when-issued" and "delayed delivery" basis may have a
market value on delivery which is less than the amount paid by a Portfolio.
Changes in market value may be based upon the public's perception of the
creditworthiness of the issuer or changes in the level of interest rates.
Generally, the value of "when-issued" securities will fluctuate inversely to
changes in interest rates, i.e., they will appreciate in value when interest
rates fall and will decline in value when interest rates rise.
The Global Fixed Income Portfolio may invest up to 25% of its net assets; the
Intermediate Fixed Income Portfolio may invest up to 15% of its net assets; and
the International Equity Portfolio may invest up to 5% of its net assets in
securities purchased on a "when-issued" or "delayed delivery" basis. The
International Equity Portfolio does not currently intend to purchase or sell
securities on a when-issued or delayed delivery basis if, as a result, more than
5% of its total assets taken at market value at the time of purchase would be
invested in such securities. The Large Cap Growth and Small Cap Equity
Portfolios do not currently intend to have commitments to purchase when-issued
securities in excess of 5% of their net assets.
Certain Portfolios may enter into reverse repurchase agreements with banks and
securities dealers. A reverse repurchase agreement is a repurchase agreement in
which a Portfolio is the seller of, rather than the investor in, securities and
agrees to repurchase them at an agreed-upon time and price. Use of a reverse
repurchase agreement may be preferable to a regular sale and later repurchase of
securities because it avoids certain market risks and transaction costs.
At the time a Portfolio enters into a binding obligation to purchase securities
on a when-issued basis or enters into a reverse repurchase agreement, liquid
assets (cash, U.S. government securities or other "high-grade" debt obligations)
of the Portfolio 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 Portfolio and
held by the custodian throughout the period of the obligation. The use of these
investment strategies may increase net asset value fluctuation.
LENDING OF SECURITIES
Subject to the applicable Investment Restrictions contained herein (see
"Investment Restrictions"), certain Portfolios may lend their securities to
qualified institutional investors who need to borrow securities in order to
complete certain transactions, such as covering short sales, avoiding failures
to deliver securities, or completing arbitrage operations. By lending its
securities, a Portfolio will be attempting to generate income through the
receipt of interest on the loan which, in turn, can be invested in additional
securities to pursue the Portfolio's investment objective. Any gain or loss in
the market price of the securities loaned that might occur during the term of
the loan would be for the account of the Portfolio. A Portfolio may lend its
portfolio securities to qualified brokers, dealers, banks or other financial
institutions, so long as the terms, the structure and the aggregate amount of
such loans are not inconsistent with the 1940 Act, or the Rules and Regulations
or interpretations of the SEC thereunder, which currently require that (a) the
borrower pledge and maintain with the Portfolio collateral consisting of cash,
an irrevocable letter of credit or securities issued or guaranteed by the United
States government having a value at all times not less than 100% of the value of
the securities loaned, (b) the borrower add to such collateral whenever the
price of the securities loaned rises (i.e., the borrower "marks to the market"
on a daily basis), (c) the loan be made subject to termination by the Portfolio
at any time and (d)) the Portfolio receive reasonable interest on the loan,
which interest may include the Portfolio's investing cash collateral in interest
bearing short-term investments, and (e) the Portfolio receive all dividends and
distributions on the loaned securities and any increase in the market value of
the loaned securities.
A Portfolio bears a risk of loss in the event that the other party to a
securities lending transaction defaults on its obligations and the Portfolio is
delayed in or prevented from exercising its rights to dispose of the collateral,
including the risk of a possible decline in the value of the collateral
securities during the period in which the Portfolio seeks to assert these
rights, the risk of incurring expenses associated with asserting these rights
and the risk of losing all or a part of the income from the transaction. Loan
arrangements made by a Portfolio will comply with all other applicable
regulatory requirements, including the rules of the New York Stock Exchange,
which rules presently require the borrower, after notice, to redeliver the
securities within the normal settlement time of three business days. All
relevant facts and circumstances, including creditworthiness of the broker,
dealer or institution, will be considered in making decisions with respect to
the lending of securities, subject to review by the Fund's Directors.
The International Equity Portfolio will not lend any security if, as a result of
such loan, the aggregate value of securities then on loan would exceed 33-1/3%
of the market value of the Portfolio's total assets. The market value of
securities loaned by the Global Fixed Income Portfolio may not exceed 20% of the
value of the Portfolio's total assets, with a 10% limit for any single borrower.
Each Sub-Adviser, under the supervision of the Board of Directors of the Fund,
monitors the creditworthiness of the parties to whom each Portfolio makes
securities loans.
EMERGENCY BORROWING. Certain Portfolios will be permitted to borrow money
up to one-third of the value of the Portfolio's total assets taken at current
value but only from banks as a temporary measure for extraordinary or emergency
purposes. Beyond 5% of a Portfolio's total assets (at current value), this
borrowing may not be used for investment leverage to purchase securities.
TEMPORARY DEFENSIVE INVESTMENTS. Each Portfolio may adopt a temporary
defensive position during adverse market conditions by investing without limit
in high quality money market instruments, including short-term U.S. Government
securities, negotiable certificates of deposit, non-negotiable fixed time
deposits, bankers' acceptances, commercial paper, floating-rate notes and
repurchase agreements. To the extent a Portfolio is invested in temporary
defensive instruments, it will not be pursuing its investment objective.
PORTFOLIO DIVERSIFICATION AND CONCENTRATION. The Global Fixed Income
Portfolio is non-diversified which means that it may invest more than 5% of its
total assets in the securities of a single issuer. Investing a significant
amount of the Portfolio's assets in the securities of a small number of foreign
issuers will cause the Portfolio's net asset value to be more sensitive to
events affecting those issuers. The Portfolio will not concentrate (invest 25%
or more of its total assets) in the securities of issuers in any one industry.
For purposes of this limitation, the staff of the Securities and Exchange
Commission considers (a) all supranational organizations as a group to be a
single industry and (b) each foreign government and its political subdivisions
to be a single industry.
INVESTMENTS IN OTHER INVESTMENT COMPANIES. Certain Portfolios are permitted
to invest in shares of other investment companies. A Portfolio may invest up to
10% of its total assets in shares of investment companies and up to 5% of its
total assets in any one investment company as long as that investment does not
represent more than 3% of the total voting stock of the acquired investment
company. Investments in the securities of other investment companies may involve
duplication of advisory fees and other expenses. Because certain emerging
markets are closed to investment by foreigners, a Portfolio may invest in
issuers in those markets primarily through specifically authorized investment
funds. In addition, a Portfolio may invest in investment companies that are
designed to replicate the composition and performance of a particular index. For
example, Standard & Poor's Depositary Receipts ("SPDERS") are exchange-traded
shares of a closed-end investment company designed to replicate the price
performance and dividend yield of the Standard & Poor's 500 Composite Stock
Price Index. Another example is World Equity Benchmark Series ("WEBS") which are
exchange traded shares of open-end investment companies designed to replicate
the composition and performance of publicly traded issuers in particular
countries. Investments in index baskets involve the same risks associated with a
direct investment in the types of securities included in the baskets.
The Growth & Income Portfolio may invest in shares of closed-end investment
companies if bought in primary or secondary offerings with a fee or commission
no greater than the customary broker's commission. Shares of such investment
companies sometimes trade at a discount or premium in relation to their net
asset value.
REITS. Certain of the Portfolios may invest in shares of real estate
investment trusts ("REITs"), which are pooled investment vehicles that invest in
real estate or real estate loans or interests. Investing in REITs involves risks
similar to those associated with investing in equity securities of small
capitalization companies. REITs are dependent upon management skills, are not
diversified, and are subject to risks of project financing, default by
borrowers, self-liquidation, and the possibility of failing to qualify for the
exemption from taxation under the Code.
SHORT SALES. Certain Portfolios may engage in short sales and short sales
against the box. In a short sale, a Portfolio sells a security it does not own
in anticipation of a decline in the market value of that security. In a short
sale against the box, a Portfolio either owns or has the right to obtain at no
extra cost the security sold short. The broker holds the proceeds of the short
sale until the settlement date, at which time the Portfolio delivers the
security (or an identical security) to cover the short position. The Portfolio
receives the net proceeds from the short sale. When a Portfolio enters into a
short sale other than against the box, the Portfolio must first borrow the
security to make delivery to the buyer and must place cash or liquid assets in a
segregated account with the Fund's custodian that is marked to market daily.
Short sales other than against the box involve unlimited exposure to loss. No
securities will be sold short if, after giving effect to any such short sale,
the total market value of all securities sold short would exceed 5% of the value
of a Portfolio's net assets.
STRATEGIC TRANSACTIONS OR DERIVATIVES
Certain Portfolios may, but are not required to, utilize various other
investment strategies as described below to seek to hedge various market risks
(such as interest rates, currency exchange rates, and broad or specific
fixed-income or equity market movements), to manage the effective maturity or
duration of fixed-income securities, or to enhance potential gain. Such
strategies are generally accepted as part of modern portfolio management and are
regularly utilized by many mutual funds and other institutional investors.
Techniques and instruments used by the Portfolios may change over time as new
instruments and strategies are developed or regulatory changes occur.
In the course of pursuing its investment objective, a Portfolio may purchase and
sell (write) exchange-listed and over-the-counter put and call options on
securities, equity and fixed-income indices and other financial instruments,
purchase and sell financial futures contracts and options thereon, enter into
various interest rate transactions such as swaps, caps, floors or collars; and,
to the extent a Portfolio invests in foreign securities, enter into various
currency transactions such as currency forward contracts, currency futures
contracts, currency swaps or options on currencies or currency futures
(collectively, all of the above are called "Strategic Transactions" and are also
referred to as "Derivatives"). Strategic Transactions may be used in an attempt
to protect against possible changes in the market value of securities held in or
to be purchased for a Portfolio's portfolio resulting from securities market,
interest rate or currency exchange rate fluctuations, to protect a Portfolio's
unrealized gains in the value of its portfolio securities, to facilitate the
sale of such securities for investment purposes, to manage the effective
maturity or duration of a Portfolio's portfolio, or to establish a position in
the derivatives markets as a temporary substitute for purchasing or selling
particular securities. In addition to the hedging transactions referred to in
the preceding sentence, Strategic Transactions may also be used to enhance
potential gain in circumstances where hedging is not involved although a
Portfolio will attempt to limit its net loss exposure resulting from Strategic
Transactions entered into for such purposes. (Transactions such as writing
covered call options are considered to involve hedging for purposes of this
limitation.) In calculating each Portfolio's net loss exposure from such
Strategic Transactions, an unrealized gain from a particular Strategic
Transaction position would be netted against an unrealized loss from a related
Strategic Transaction position. For example, if a Sub- Adviser believes that a
Portfolio is underweighted in cyclical stocks and overweighted in consumer
stocks, the Portfolio may buy a cyclical index call option and sell a cyclical
index put option and sell a consumer index call option and buy a consumer index
put option. Under such circumstances, any unrealized loss in the cyclical
position would be netted against any unrealized gain in the consumer position
(and vice versa) for purposes of calculating the Portfolio's net loss exposure.
The ability of a Portfolio to utilize these Strategic Transactions successfully
will depend on the Sub-Adviser's ability to predict pertinent market movements,
which cannot be assured. Each Portfolio will comply with applicable regulatory
requirements when implementing these strategies, techniques and instruments. A
Portfolio's activities involving Strategic Transactions may be limited by the
requirements of Subchapter M of the Code for qualification as a regulated
investment company.
RISK OF STRATEGIC TRANSACTIONS
The use of Strategic Transactions has associated risks including possible
default by the other party to the transaction, illiquidity and, to the extent a
Sub-Adviser's view as to certain market or interest rate movements is incorrect,
the risk that the use of such Strategic Transactions could result in losses
greater than if they had not been used. The writing of put and call options may
result in losses to a Portfolio, force the purchase or sale, respectively, of
portfolio securities at inopportune times or for prices higher than (in the case
of purchases due to the exercise of put options) or lower than (in the case of
sales due to the exercise of call options) current market values, limit the
amount of appreciation a Portfolio can realize on its investments or cause a
Portfolio to hold a security it might otherwise sell. The use of currency
transactions can result in a Portfolio's incurring losses as a result of a
number of factors including the imposition of exchange controls, suspension of
settlements, or the inability to deliver or receive a specified currency. The
use of options and futures transactions entails certain other risks. In
particular, the variable degree of correlation between price movements of
futures contracts and price movements in the related portfolio position of a
Portfolio creates the possibility that losses on the hedging instrument may be
greater than gains in the value of the Portfolio's position. The writing of
options could significantly increase a Portfolio's portfolio turnover rate and,
therefore, associated brokerage commissions or spreads. In addition, futures and
options markets may not be liquid in all circumstances and certain
over-the-counter options may have not markets. As a result, in certain markets,
a Portfolio may not be able to close out a transaction without incurring
substantial losses, if at all. Although the use of futures and options
transactions for hedging should tend to minimize the risk of loss due to a
decline in the value of the hedged position, at the same time, in certain
circumstances, they tend to limit any potential gain which might result from an
increase in value of such position. The loss incurred by a Portfolio in writing
options on futures and entering into futures transactions is potentially
unlimited; however, as described above, each Portfolio will attempt to limit its
net loss exposure resulting from Strategic Transactions entered into for
non-hedging purposes. Futures markets are highly volatile and the use of futures
may increase the volatility of a Portfolio's net asset value. Finally, entering
into futures contracts would create a greater ongoing potential financial risk
than would purchases of options where the exposure is limited to the cost of the
initial premium. Losses resulting from the use of Strategic Transactions would
reduce net asset value and the net result may be less favorable than if the
Strategic Transactions had not been utilized.
GENERAL CHARACTERISTICS OF OPTIONS
Put options and call options typically have similar structural characteristics
and operational mechanics regardless of the underlying instrument on which they
are purchased or sold. Thus, the following general discussion relates to each of
the particular types of options discussed in greater detail below. In addition,
many Strategic Transactions involving options require segregation of each
Portfolio's assets in special accounts, as described below under "Use of
Segregated Accounts."
A put option gives the purchaser of the option, in consideration for the payment
of a premium, the right to sell, and the writer the obligation to buy (if the
option is exercised), the underlying security, commodity, index, currency or
other instrument at the exercise price. For instance, a Portfolio's purchase of
a put option on a security might be designed to protect its holdings in the
underlying instrument (or, in some cases, a similar instrument) against a
substantial decline in the market value by giving the Portfolio the right to
sell such instrument at the option exercise price. A call option, in
consideration for the payment of a premium, gives the purchaser of the option
the right to buy, and the seller the obligation to sell (if the option is
exercised), the underlying instrument at the exercise price. Certain Portfolios
may purchase a call option on a security, futures contract, index, currency or
other instrument to seek to protect the Portfolio against an increase in the
price of the underlying instrument that it intends to purchase in the future by
fixing the price at which it may purchase such instrument. An American style put
or call option may be exercised at any time during the option period while a
European style put or call option may be exercised only upon expiration or
during a fixed period prior thereto. Certain Portfolios are authorized to
purchase and sell exchange listed options and over-the-counter options ("OTC
options"). Exchange listed options are issued by a regulated intermediary such
as the Options Clearing Corporation ("OCC"), which guarantees the performance of
the obligations of the parties to such options. The discussion below uses the
OCC as an example, but is also applicable to other financial intermediaries.
With certain exceptions, exchange listed options generally settle by physical
delivery of the underlying security or currency, although in the future cash
settlement may become available. Index options and Eurodollar instruments are
cash settled for the net amounts, if any, by which the option is "in-the-money"
(i.e., where the value of the underlying instrument exceeds, in the case of a
call option, or is less than, in the case of a put option, the exercise price of
the option) at the time the option is exercised. Frequently, rather than taking
or making delivery of the underlying instrument through the process of
exercising the option, listed options are closed by entering into offsetting
purchase or sale transactions that do not result in ownership of the new option.
A Portfolio's ability to close out its position as a purchaser or seller of an
exchange listed put or call option is dependent, in part, upon the liquidity of
the option market. There is no assurance that a liquid option market on an
exchange will exist. In the event that the relevant market for an option on an
exchange ceases to exist, outstanding options on that exchange would generally
continue to be exercisable in accordance with their terms.
The hours of trading for listed options may not coincide with the hours during
which the underlying financial instruments are traded. To the extent that the
option markets close before the markets for the underlying financial
instruments, significant price and rate movements can take place in the
underlying markets that cannot be reflected in the option markets.
OTC Options are purchased from or sold to securities dealers, financial
institutions or other parties ("Counterparties") through direct agreement with
the Counterparty. In contrast to exchange listed options, which generally have
standardized terms and performance mechanics, all the terms of an OTC option,
including such terms as method of settlement, term, exercise price, premium,
guarantees and security, are set by negotiation of the parties. A Portfolio will
generally sell (write) OTC options (other than OTC currency options) that are
subject to a buy-back provision permitting the Portfolio to require the
Counterparty to sell the option back to the Portfolio at a formula price within
seven days. OTC options purchased by a Portfolio, and portfolio securities
"covering" the amount of a Portfolio's obligation pursuant to an OTC option sold
by it (the cost of the sell-back plus the in-the-money amount, if any) are
subject to each Portfolio's restriction on illiquid securities, unless
determined to be liquid in accordance with procedures adopted by the Boards of
Directors. For OTC options written with "primary dealers" pursuant to an
agreement requiring a closing purchase transaction at a formula price, the
amount which is considered to be illiquid may be calculated by reference to a
formula price. The Portfolios expect generally to enter into OTC options that
have cash settlement provisions, although they are not required to do so.
Unless the parties provide for it, there is no central clearing or guaranty
function in the OTC option market. As a result, if the Counterparty fails to
make delivery of the security, currency or other instrument underlying an OTC
option it has entered into with a Portfolio or fails to make a cash settlement
payment due in accordance with the terms of that option, the Portfolio will lose
any premium it paid for the option as well as any anticipated benefit of the
transaction. Accordingly, the Sub-Adviser must assess the creditworthiness of
each such Counterparty or any guarantor or credit enhancement of the
Counterparty's credit to determine the likelihood that the terms of the OTC
option will be satisfied. A Portfolio will engage in OTC option transactions
only with U.S. Government securities dealers recognized by the Federal Reserve
Bank of New York as "primary dealers," or broker-dealers, domestic or foreign
banks or other financial institutions which have received, combined with any
credit enhancements, a long-term debt rating of A from S&P or Moody's or an
equivalent rating from any other NRSRO or which issue debt that is determined to
be of equivalent credit quality by the Sub-Adviser.
If a Portfolio sells (writes) a call option, the premium that it receives may
serve as a partial hedge, to the extent of the option premium, against a
decrease in the value of the underlying securities or instruments in its
portfolio or will increase the Portfolio's income. The sale (writing) of put
options can also provide income.
A Portfolio may purchase and sell (write) call options on securities including
U.S. Treasury and agency securities, mortgage-backed and asset-backed
securities, corporate debt securities, equity securities (including convertible
securities) and Eurodollar instruments that are traded on U.S. and foreign
securities exchanges and in the over-the-counter markets, and on securities
indices, currencies and futures contracts. All calls sold by a Portfolio must be
"covered" (i.e., the Portfolio must own the securities or the futures contract
subject to the call) or must meet the asset segregation requirements described
below as long as the call is outstanding. In addition, a Portfolio may cover a
written call option or put option by entering into an offsetting forward
contract and/or by purchasing an offsetting option or any other option which, by
virtue of its exercise price or otherwise, reduces the Portfolio's net exposure
on its written option position. Even though a Portfolio will receive the option
premium to help offset any loss, the Portfolio may incur a loss if the exercise
price is below the market price for the security subject to the call at the time
of exercise. A call sold by a Portfolio also exposes the Portfolio during the
term of the option to possible loss of opportunity to realize appreciation in
the market price of the underlying security or instrument and may require the
Portfolio to hold a security or instrument which it might otherwise have sold.
A Portfolio may purchase and sell (write) put options on securities including
U.S. Treasury and agency securities, mortgage-backed and asset-backed
securities, foreign sovereign debt, corporate debt securities, equity securities
(including convertible securities) and Eurodollar instruments (whether or not it
holds the above securities in its portfolio), and on securities indices,
currencies and futures contracts. A Portfolio will not sell put options if, as a
result, more than 50% of the Portfolio's assets would be required to be
segregated to cover its potential obligations under such put options other than
those with respect to futures and options thereon. In selling put options, there
is a risk that a Portfolio may be required to buy the underlying security at a
price above the market price.
OPTIONS ON SECURITIES INDICES AND OTHER FINANCIAL INDICES
Certain Portfolios may also purchase and sell (write) call and put options on
securities indices and other financial indices. Options on securities indices
and other financial indices are similar to options on a security or other
instrument except that, rather than settling by physical delivery of the
underlying instrument, they settle by cash settlement. For example, an option on
an index gives the holder the right to receive, upon exercise of the option, an
amount of cash if the closing level of the index upon which the option is based
exceeds, in the case of a call, or is less than, in the case of a put, the
exercise price of the option (except if, in the case of an OTC option, physical
delivery is specified). This amount of cash is equal to the differential between
the closing price of the index and the exercise price of the option, which also
may be multiplied by a formula value. The seller of the option is obligated, in
return for the premium received, to make delivery of this amount upon exercise
of the option. In addition to the methods described above, certain Portfolios
may cover call options on a securities index by owning securities whose price
changes are expected to be similar to those of the underlying index, or by
having an absolute and immediate right to acquire such securities without
additional cash consideration (or for additional cash consideration held in a
segregated account by the Fund's custodian) upon conversion or exchange of other
securities in its portfolio.
GENERAL CHARACTERISTICS OF FUTURES
Certain Portfolios may enter into financial futures contracts or purchase or
sell put and call options on such futures. Futures are generally bought and sold
on the commodities exchanges where they are listed and involve payment of
initial and variation margin as described below. All futures contracts entered
into by a Portfolio are traded on U.S. exchanges or boards of trade that are
licensed and regulated by the Commodity Futures Trading Commission ("CFTC") or
on certain foreign exchanges. The sale of futures contracts creates a firm
obligation by a Portfolio, as seller, to deliver to the buyer the specific type
of financial instrument called for in the contract at a specific future time for
a specified price (or, with respect to index futures and Eurodollar instruments,
the net cash amount). The purchase of futures contracts creates a corresponding
obligation by a Portfolio, as purchaser, to purchase a financial instrument at a
specific time and price. Options on futures contracts are similar to options on
securities except that an option on a futures contract gives the purchaser the
right in return for the premium paid to assume a position in a futures contract
and obligates the seller to deliver such position upon exercise of the option.
Each Portfolio's use of financial futures and options thereon will in all cases
be consistent with applicable regulatory requirements and in particular the
regulations of the CFTC relating to exclusions from regulation as a commodity
pool operator. Those regulations currently provide that a Portfolio may use
commodity futures and option positions (i) for bona fide hedging purposes
without regard to the percentage of assets committed to margin and option
premiums, or (ii) for other purposes permitted by the CTFC to the extent that
the aggregate initial margin and option premiums required to establish such
non-hedging positions (net of the amount that the positions were "in the money"
at the time of purchase) do not exceed 5% of the net asset value of the
Portfolio's portfolio, after taking into account unrealized profits and losses
on such positions. Typically, maintaining a futures contract or selling an
option thereon requires a Portfolio to deposit, with its custodian for the
benefit of a futures commission merchant, or directly with the futures
commission merchant, as security for its obligations an amount of cash or other
specified assets (initial margin) which initially is typically 1% to 10% of the
face amount of the contract (but may be higher in some circumstances).
Additional cash or assets (variation margin) may be required to be deposited
directly with the futures commission merchant thereafter on a daily basis as the
value of the contract fluctuates. The purpose of an option on financial futures
involves payment of a premium for the option without any further obligation on
the part of a Portfolio. If a Portfolio exercises an option on a futures
contract it will be obligated to post initial margin (and potential subsequent
variation margin) for the resulting futures position just as it would for any
position. Futures contracts and options thereon are generally settled by
entering into an offsetting transaction but there can be no assurance that the
position can be offset prior to settlement at an advantageous price, nor that
delivery will occur. The segregation requirements with respect to futures
contracts and options thereon are described below.
CURRENCY TRANSACTIONS
Portfolios may engage in currency transactions with Counterparties to seek to
hedge the value of portfolio holdings denominated in particular currencies
against fluctuations in relative value or to enhance potential gain. Currency
transactions include currency contracts, exchange listed currency futures,
exchange listed and OTC options on currencies, and currency swaps. A forward
currency contract involves a privately negotiated obligation to purchase or sell
(with delivery generally required) a specific currency at a future date, which
may be any fixed number of days from the date of the contract agreed upon by the
parties, at a price set at the time of the contract. A currency swap is an
agreement to exchange cash flows based on the notional (agreed-upon) difference
among two or more currencies and operates similarly to an interest rate swap,
which is described below. A Portfolio may enter into over-the-counter currency
transactions with Counterparties which have received, combined with any credit
enhancements, a long term debt rating of A by S&P or Moody's, respectively, or
that have an equivalent rating from an NRSRO or (except for OTC currency
options) whose obligations are determined to be of equivalent credit quality by
the Sub-Adviser.
A Portfolio's transactions in forward currency contracts and other currency
transactions such as futures, options, options on futures and swaps will
generally be limited to hedging involving either specific transactions or
portfolio positions. See "Strategic Transactions." Transaction hedging is
entering into a currency transaction with respect to specific assets or
liabilities of a Portfolio, which will generally arise in connection with the
purchase or sale of its portfolio securities or the receipt of income therefrom.
Position hedging is entering into a currency transaction with respect to
portfolio security positions denominated or generally quoted in that currency.
A Portfolio will not enter into a transaction to hedge currency exposure to an
extent greater, after netting all transactions intended wholly or partially to
offset other transactions, than the aggregate market value (at the time of
entering into the transaction) of the securities held in its portfolio that are
denominated or generally quoted in or currently convertible into such currency,
other than with respect to proxy hedging as described below.
Certain Portfolios may also cross-hedge currencies by entering into transactions
to purchase or sell one or more currencies that are expected to decline in value
in relation to other currencies to which the Portfolio has or in which the
Portfolio expects to have portfolio exposure. For example, a Portfolio may hold
a French government bond and the Sub-Adviser may believe that French francs will
deteriorate against German marks. The Portfolio would sell french francs to
reduce its exposure to that currency and buy German marks. This strategy would
be a hedge against a decline in the value of French francs, although it would
expose the Sub-Adviser to declines in the value of the German mark relative to
the U.S. dollar.
To seek to reduce the effect of currency fluctuations on the value of existing
or anticipated holdings of portfolio securities, certain Portfolios may also
engage in proxy hedging. Proxy hedging is often used when the currency to which
a Portfolio's portfolio is exposed is difficult to hedge or to hedge against the
U.S. dollar. Proxy hedging entails entering into a forward contract to sell a
currency whose changes in value are generally considered to be linked to a
currency or currencies in which certain of a Portfolio's portfolio securities
are or are expected to be denominated, and to buy U.S. dollars. The amount of
the contract would not exceed the value of the Portfolio's securities
denominated in linked currencies. For example, if the Sub-Adviser considers that
the Austrian schilling is linked to the German deutschemark (the "D-mark"), and
a portfolio contains securities denominated in schillings and the Sub-Adviser
believes that the value of schillings will decline against the U.S. dollar, the
Sub-Adviser may enter into a contract to sell D-marks and buy dollars. Proxy
hedging involves some of the same risks and considerations as other transactions
with similar instruments. Currency transactions can result in losses to a
Portfolio if the currency being hedged fluctuates in value to a degree or in a
direction that is not anticipated. Further, there is the risk that the perceived
linkage between various currencies may not be present or may not be present
during the particular time that a Portfolio is engaging in proxy hedging. If a
Portfolio enters into a currency hedging transaction, the Portfolio will comply
with the asset segregation requirements described below.
RISK OF CURRENCY TRANSACTIONS
Currency transactions are subject to risks different from those of other
portfolio transactions. Because currency control is of great importance to the
issuing governments and influences economic planning and policy, purchases and
sales of currency and related instruments can be negatively affected by
government exchange controls, blockages, and manipulations or exchange
restrictions imposed by governments. These can result in losses to a Portfolio
if it is unable to deliver or receive currency of funds in settlement of
obligations and could also cause hedges it has entered into to be rendered
useless, resulting in full currency exposure as well as incurring transaction
costs. Buyers and sellers of currency futures are subject to the same risks that
apply to the use of futures generally. Further, settlement of a currency futures
contract for the purchase of most currencies must occur at a bank based in the
issuing nation. Trading options on currency futures is relatively new, and the
ability to establish and close out options on such positions is subject to the
maintenance of a liquid market which may not always be available. Currency
exchange rates may fluctuate based on factors extrinsic to that country's
economy.
COMBINED TRANSACTIONS
Certain Portfolios may enter into multiple transactions, including multiple
options transactions, multiple futures transactions, multiple currency
transactions (including forward currency contracts) and multiple interest rate
transactions, structured notes and any combination of futures, options, currency
and interest rate transactions ("component transactions") instead of a single
Strategic Transaction, as part of a single or combined strategy when, in the
opinion of the Sub-Adviser, it is in the best interests of the Portfolio to do
so. A combined transaction will usually contain elements of risk that are
present in each of its component transactions. Although combined transactions
are normally entered into based on the Sub-Adviser's judgment that the combined
strategies will reduce risk or otherwise more effectively achieve the desired
portfolio management goal, it is possible that the combination will instead
increase such risks or hinder achievement of the portfolio management objective.
SWAPS, CAPS, FLOORS AND COLLARS
Among the Strategic Transactions into which certain Portfolios may enter are
interest rate, currency and index swaps and the purchase or sale of related
caps, floors and collars. The Portfolios expect to enter into these transactions
primarily for hedging purposes, including, but not limited to, preserving a
return or spread on a particular investment or portion of its portfolio,
protecting against currency fluctuations, as a duration management technique or
protecting against an increase in the price of securities a Portfolio
anticipates purchasing at a later date. Swaps, caps, floors and collars may also
be used to enhance potential gain in circumstances where hedging is not involved
although, as described above, a Portfolio will attempt to limit its net loss
exposure resulting from swaps, caps, floors and collars and other Strategic
Transactions entered into for such purposes. A Portfolio will not sell interest
rate caps, floors or collars where it does not own securities or other
instruments providing the income stream the Portfolio may be obligated to pay.
Interest rate swaps involve the exchange by a Portfolio with another party of
their respective commitments to pay or receive interest, e.g., an exchange of
floating rate payments for fixed rate payments with respect to a notional amount
of principal. A currency swap is an agreement to exchange cash flows on a
notional amount of two or more currencies based on the relative differential
among them and an index swap is an agreement to swap cash flows on a notional
amount based on changes in the values of the reference indices. The purchase of
a cap entitles the purchaser to receive payments on a notional principal amount
from the party selling such cap to the extent that a specified index exceeds a
predetermined interest rate or amount. The purchase of a floor entitles the
purchaser to receive payments on a notional principal amount from the party
selling such floor to the extent that a specified index falls below a
predetermined interest rate or amount. A collar is a combination of a cap and a
floor that preserves a certain rate of return within a predetermined range of
interest rates or values.
A Portfolio will usually enter into swaps on a net basis, i.e., the two payment
streams are netted out in a cash settlement on the payment date or dates
specified in the instrument, with the Portfolio receiving or paying, as the case
may be, only the net amount of the two payments. A Portfolio will not enter into
any swap, cap, floor or collar transaction unless, at the time of entering into
such transaction, the unsecured long-term debt of the Counterparty, combined
with any credit enhancements, is rated at least A by S&P or Moody's or has an
equivalent rating from an NRSRO or the Counterparty issues debt that is
determined to be of equivalent credit quality by the Sub-Adviser. If there is a
default by the Counterparty, a Portfolio may have contractual remedies pursuant
to the agreements related to the transaction. The swap market has grown
substantially in recent years with a large number of banks and investment
banking firms acting both as principals and as agents utilizing standardized
swap documentation. As a result, the swap market has become relatively liquid.
Caps, floors and collars are more recent innovations for which standardized
documentation has not yet been fully developed. Swaps, caps, floor and collars
are considered illiquid for purposes of each Portfolio's policy regarding
illiquid securities, unless it is determined, based upon continuing review of
the trading markets for the specific security, that such security is liquid. The
Board of Directors of the Fund will delegate to the Sub-Adviser the daily
function of determining and monitoring the liquidity of swaps, caps, floors and
collars. The Board of Directors of the Fund will, however, retain oversight
focusing on factors such as valuation, liquidity and availability of information
and it is ultimately responsible for such determinations. The staff of the SEC
currently takes the position that swaps, caps, floors and collars are illiquid,
and are subject to each Portfolio's limitation on investing in illiquid
securities.
RISKS OF STRATEGIC TRANSACTIONS OUTSIDE THE UNITED STATES
When conducted outside the United States, Strategic Transactions may not be
regulated as rigorously as in the United States, may not involve a clearing
mechanism and related guarantees, and are subject to the risk of governmental
actions affecting trading in, or the prices of, foreign securities, currencies
and other instruments. The value of such positions also could be adversely
affected by: (i) lesser availability than in the United States of data on which
to make trading decisions, (ii) delays in a Portfolio's ability to act upon
economic events occurring in foreign markets during non-business hours in the
United States, (iii) the imposition of different exercise and settlement terms
and procedures and margin requirements than in the United States, (iv) lower
trading volume and liquidity, and (v) other complex foreign political, legal and
economic factors. At the same time, Strategic Transactions may offer advantages
such as trading in instruments that are not currently traded in the United
States or arbitrage possibilities not available in the United States.
USE OF SEGREGATED ACCOUNTS
A Portfolio will hold securities or other instruments whose values are expected
to offset its obligations under the Strategic Transactions. A Portfolio will
cover Strategic Transactions as required by interpretive positions of the staff
of the SEC. A Portfolio will not enter into Strategic Transactions that expose
the Portfolio to an obligation to another party unless it owns either (i) an
offsetting position in securities or other options, futures contracts or other
instruments or (ii) cash, receivables or liquid securities with a value
sufficient to cover its potential obligations. A Portfolio may have to comply
with any applicable regulatory requirements for Strategic Transactions, and if
required, will set aside cash and other assets in a segregated account with the
Fund's custodian bank in the amount prescribed. In that case, the Fund's
custodian would maintain the value of such segregated account equal to the
prescribed amount by adding or removing additional cash or other assets to
account for fluctuations in the value of the account and the Portfolio's
obligations on the underlying Strategic Transactions. Assets held in a
segregated account would not be sold while the Strategic Transaction is
outstanding, unless they are replaced with similar assets. As a result, there is
a possibility that segregation of a large percentage of a Portfolio's assets
could impede portfolio management or the Portfolio's ability to meet redemption
requests or other current obligations.
ADDITIONAL INFORMATION CONCERNING
INVESTMENT RISKS
FOREIGN SECURITIES
Investing in the securities of foreign issuers involves risks that are not
typically associated with investing in U.S. dollar-denominated securities of
domestic issuers. Investments in foreign issuers may be affected by changes in
currency rates, changes in foreign or U.S. laws or restrictions applicable to
such investments and in exchange control regulations (i.e., currency blockage).
A decline in the exchange rate of the currency (i.e., weakening of the currency
against the U.S. dollar) in which a portfolio security is quoted or denominated
relative to the U.S. dollar would reduce the value of the portfolio security.
Commissions may be higher and spreads may be greater on transactions in foreign
securities than those for similar transactions in domestic markets. In addition,
clearance and settlement procedures may be different in foreign countries and,
in certain markets, such procedures have on occasion been unable to keep pace
with the volume of securities transactions, thus making it difficult to conduct
such transactions.
Foreign issuers are not generally subject to uniform accounting, auditing
and financial reporting standards comparable to those applicable to U.S.
issuers. There may be less publicly available information about a foreign issuer
than about a U.S. issuer. In addition, there is generally less government
regulation of foreign markets, companies and securities dealers than in the U.S.
Most foreign securities markets may have substantially less trading volume than
U.S. securities markets and securities of many foreign issuers are less liquid
and more volatile than securities of comparable U.S. issuers. Furthermore, with
respect to certain foreign countries, there is a possibility of nationalization,
expropriation or confiscatory taxation, imposition of withholding or other taxes
on dividend or interest payments (or, in some cases, capital gains), limitations
on the removal of funds or other assets, political or social instability or
diplomatic developments which could affect investments in those countries.
INVESTING IN EMERGING MARKETS
Certain Portfolios may invest in securities of issuers in emerging markets,
including issuers in Asia, Eastern Europe, Latin and South America, the
Mediterranean, Russia and Africa. Certain Portfolios may also invest in
currencies of such countries and may engage in Strategic Transactions in the
markets of such countries. Investments in securities of issuers in emerging
markets may involve a high degree of risk and many may be considered
speculative. Investments in emerging markets involve risks in addition to those
generally associated with investments in foreign securities. Political and
economic structures in many emerging markets may be undergoing significant
evolution and rapid development, and such countries may lack the social,
political and economic stability characteristics of more developed countries. As
a result, the risks described above relating to investments in foreign
securities, including the risks of nationalization or expropriation of assets,
may be heightened. In addition, unanticipated political or social developments
may affect the values of a Portfolio's investments and the availability to the
Portfolio of additional investments in such emerging markets. The small size of
the securities markets in certain emerging markets and the limited volume of
trading in securities in those markets may make a Portfolio's investments in
such countries less liquid and more volatile than investments in countries with
more developed securities markets (such as the U.S., Japan and most Western
European countries).
CURRENCY RISKS
The U.S. dollar value of securities denominated in a foreign currency will
vary with changes in currency exchange rates, which can be volatile.
Accordingly, changes in the value of these currencies against the U.S. dollar
will result in corresponding changes in the U.S. dollar value of a Portfolio's
assets quoted in those currencies. Exchange rates are generally affected by the
forces of supply and demand in the international currency markets, the relative
merits of investing in different countries and the intervention or failure to
intervene of U.S. or foreign governments and central banks. Some countries in
emerging markets also may have managed currencies, which do not float freely
against the U.S. dollar and may restrict the free conversion of their currencies
into other currencies. Any devaluations in the currencies in which a Portfolio's
securities are denominated may have a detrimental impact on the Portfolio's net
asset value. A Portfolio may utilize various investment strategies to seek to
minimize the currency risks described above. These strategies include the use of
currency transactions such as currency forward and futures contracts, cross
currency forward and futures contracts, currency swaps and options and cross
currency options on currencies or currency futures.
DEBT SECURITIES
Investments in debt securities are subject to certain risks including
interest rate risk, default risk and call and extension risk.
INTEREST RATE RISK. When interest rates decline, the market value of fixed
income securities tends to increase. Conversely, when interest rates increase,
the market value of fixed income securities tends to decline.
The volatility of a security's market value will differ depending upon the
security's duration, the issuer and the type of instrument.
DEFAULT RISK/CREDIT RISK. Investments in fixed income securities are
subject to the risk that the issuer of the security could default on its
obligations causing a Portfolio to sustain losses on such investments. A default
could impact both interest and principal payments.
CALL RISK AND EXTENSION RISK. Fixed income securities may be subject to
both call risk and extension risk. Call risk exists when the issuer may exercise
a right to pay principal on an obligation earlier than scheduled which would
cause cash flows to be returned earlier than expected. This typically results
when interest rates have declined and a Portfolio will suffer from having to
reinvest in lower yielding securities. Extension risk exists when the issuer may
exercise a right to pay principal on an obligation later than scheduled which
would cause cash flows to be returned later than expected. This typically
results when interest rates have increased and a Portfolio will suffer from the
inability to invest in higher yield securities.
RISK FACTORS APPLICABLE TO HIGH-YIELD/HIGH-RISK DEBT SECURITIES
Certain Portfolios may invest in high-yield/high-risk debt securities.
Lower rated bonds involve a higher degree of credit risk, the risk that the
issuer will not make interest or principal payments when due. In the event of an
unanticipated default, a Portfolio would experience a reduction in its income,
and could expect a decline in the market value of the securities so affected.
More careful analysis of the financial condition of each issuer of lower grade
securities is therefore necessary.
During an economic downturn or substantial period of rising interest rates,
highly leveraged issuers may experience financial stress which would adversely
affect their ability to service their principal and interest payment
obligations, to meet projected business goals and to obtain additional
financing.
The market prices of lower grade securities are generally less sensitive to
interest rate changes than higher rated investments, but more sensitive to
adverse economic or political changes or, in the case of corporate issuers,
individual corporate developments. Periods of economic or political uncertainty
and change can be expected to result in volatility of prices of these
securities. Since the last major economic recession, there has been a
substantial increase in the use of high-yield debt securities to fund highly
leveraged corporate acquisitions and restructurings, so past experience with
high-yield securities in a prolonged economic downturn may not provide an
accurate indication of future performance during such periods. Lower rated
securities also may have less liquid markets than higher rated securities, and
their liquidity as well as their value may be adversely affected by adverse
economic conditions. Adverse publicity and investor perceptions, as well as new
or proposed laws, may also have a negative impact on the market for high-yield/
high-risk bonds.
Credit quality of high-yield/high risk securities (so-called "junk bonds")
can change suddenly and unexpectedly and even recently issued credit ratings may
not fully reflect the actual risks posed by a particular high-yield/high-risk
security. For these reasons, it is the Portfolios' policy not to rely primarily
on ratings issued by established credit rating agencies, but to utilize such
ratings in conjunction with each Sub-Adviser's own independent and ongoing
review of credit quality.
COVERED CALL OPTIONS
Certain Portfolios may engage in covered call options as described herein.
Up to 25% of the Balanced Portfolio's total assets may be subject to covered
call options. By writing covered call options, a Portfolio gives up the
opportunity, while the option is in effect, to profit from any price increase in
the underlying security above the option exercise price. In addition, a
Portfolio's ability to sell the underlying security will be limited while the
option is in effect unless the Portfolio effects a closing purchase transaction.
A closing purchase transaction cancels out a Portfolio's position as the writer
of an option by means of an offsetting purchase of an identical option prior to
the expiration of the option it has written.
Upon the termination of a Portfolio's obligation under a covered call
option other than through exercise of the option, the Portfolio will realize a
short-term capital gain or loss. Any gain realized by a Portfolio from the
exercise of an option will be short- or long-term depending on the period for
which the stock was held. The writing of covered call options creates a straddle
that is potentially subject to the straddle rules, which may override some of
the foregoing rules and result in a deferral of some losses for tax purposes.
INVESTMENT RESTRICTIONS
FUNDAMENTAL RESTRICTIONS
Each Portfolio has adopted certain investment restrictions which are fundamental
and may not be changed without approval by a majority vote of the Portfolio's
shareholders. Such majority is defined in the 1940 Act as the lesser of (i) 67%
or more of the voting securities of the Portfolio present in person or by proxy
at a meeting, if the holders of more than 50% of the outstanding voting
securities are present or represented by proxy; or (ii) more than 50% of the
outstanding voting securities of the Portfolio. If any percentage restriction
described below is adhered to at the time of investment, a subsequent increase
or decrease in the percentage resulting from a change in the value of the
Portfolio's assets will not constitute a violation of the restriction.
BALANCED PORTFOLIO
The Balanced Portfolio may not:
1. Purchase the securities of any one issuer, except the United States
government, if immediately after and as a result of such purchase (a) the value
of the holdings of the Portfolio in the securities of such issuer exceeds 5% of
the value of the Portfolio's total assets, or (b) the Portfolio owns more than
10% of the outstanding voting securities, or any other class of securities, of
such issuer;
2. Engage in the purchase or sale of real estate, commodities or futures
contracts;
3. Underwrite the securities of other issuers;
4. Make loans to any of its officers, directors, or employees, or to its
manager, or general distributor, or officers or directors thereof;
5. Make any loan (the purchase of a security subject to a repurchase agreement
or the purchase of a portion of an issue of publicly distributed debt securities
is not considered the making of a loan);
6. Invest in companies for the purpose of exercising control of management;
7. Purchase securities on margin, or sell securities short, except that the
Portfolio may write covered call options;
8. Purchase shares of other investment companies except in the open market at
ordinary broker's commission or pursuant to a plan of merger or consolidation;
9. Invest in the aggregate more than 5% of the value of its gross assets in the
securities of issuers (other than federal, state, territorial, or local
governments, or corporations, or authorities established thereby), which,
including predecessors, have not had at least three years' continuous
operations;
10. Except for transactions in its shares or other securities through brokerage
practices which are considered normal and generally accepted under circumstances
existing at the time, enter into dealings with its officers or directors, its
manager or underwriter, or their officers or directors, or any organization in
which such persons have a financial interest;
11. Purchase or retain securities of any company in which any Fund officers or
directors, or Portfolio manager, its partner, officer or director beneficially
owns more than 1/2 of 1% of said company's securities, if all such persons
owning more than 1/2 of 1% of such company's securities, own in the aggregate
more than 5% of the outstanding securities of such company;
12. Borrow or pledge its credit under normal circumstances, except up to 10% of
its gross assets (computed at the lower of fair market value or cost)
temporarily for emergency or extraordinary purposes, and not for the purpose of
leveraging its investments, and provided further that any borrowing in excess of
5% of the total assets of the Portfolio shall have asset coverage of at least 3
to 1;
13. Make itself or its assets liable for the indebtedness of others;
14. Invest in securities which are assessable or involve unlimited liability;
or
15. Purchase any securities which would cause 25% or more of the Portfolio's
total assets at the time of such purchase to be invested in any one industry.
GLOBAL FIXED INCOME PORTFOLIO
The Global Fixed Income Portfolio may not:
1. Invest more than 25% of the current value of its total assets in any single
industry, provided that this restriction shall not apply to debt securities
issued or guaranteed by the United States government or its agencies or
instrumentalities.
2. Underwrite the securities of other issuers, except to the extent that, in
connection with the disposition of portfolio securities, the Portfolio may be
deemed to be an underwriter under the Securities Act of 1933.
3. Purchase real estate or real estate mortgage loans, although the Portfolio
may purchase marketable securities of companies which deal in real estate, real
estate mortgage loans or interests therein.
4. Purchase securities on margin (except that the Portfolio may obtain such
short-term credits as may be necessary for the clearance of purchases and sales
of securities).
5. Purchase or sell commodities or commodity contracts except that the Portfolio
may purchase and sell financial futures contracts and options on financial
futures contracts and engage in foreign currency exchange transactions.
6. With respect to at least 50% of its total assets, invest more than 5% in the
securities of any one issuer (other than the U.S. Government, its agencies or
instrumentalities) or acquire more than 10% of the outstanding voting securities
of any issuer.
7. Issue senior securities, borrow money, enter into reverse repurchase
agreements or pledge or mortgage its assets, except that the Portfolio may (a)
borrow from banks as a temporary measure for extraordinary or emergency purposes
(but not investment purposes) in an amount up to 15% of the current value of its
total assets to secure such borrowings, (b) enter into forward roll
transactions, and (c) pledge its assets to an extent not greater than 15% of the
current value of its total assets to secure such borrowings; however, the
Portfolio may not make any additional investments while its outstanding
borrowings exceed 5% of the current value of its total assets.
8. Lend portfolio securities, except that the Portfolio may lend its portfolio
securities with a value up to 20% of its total assets (with a 10% limit for any
borrower), except that the Portfolio may enter into repurchase agreements and
except that the Portfolio may enter into repurchase agreements with respect to
25% of the value of its net assets.
GROWTH & INCOME PORTFOLIO
The Growth & Income Portfolio may not:
1. Sell short securities or buy securities or evidences of interests therein on
margin, although it may obtain short-term credit necessary for the clearance of
purchases of securities;
2. Buy or sell put or call options, although it may buy, hold or sell rights or
warrants, write covered call options and enter into closing purchase
transactions as discussed below;
3. Borrow money which is in excess of one-third of the value of its total assets
taken at market value (including the amount borrowed) and then only from banks
as a temporary measure for extraordinary or emergency purposes (borrowings
beyond 5% of such total assets, may not be used for investment leverage to
purchase securities but solely to meet redemption requests where the liquidation
of the Portfolio's investment is deemed to be inconvenient or disadvantageous);
4. Invest in securities or other assets not readily marketable at the time of
purchase or subject to legal or contractual restrictions on resale except as
described in the Prospectus and SAI;
5. Act as underwriter of securities issued by others, unless it is deemed to be
one in selling a portfolio security requiring registration under the Securities
Act of 1933, such as those described in the Prospectus and SAI;
6. Lend money or securities to any person except that it may enter into
short-term repurchase agreements with sellers of securities it has purchased,
and it may lend its portfolio securities to registered broker-dealers where the
loan is 100% secured by cash or its equivalent as long as it complies with
regulatory requirements and the Fund deems such loans not to expose the
Portfolio to significant risk (investment in repurchase agreements exceeding 7
days and in other illiquid investments is limited to a maximum of 5% of the
Portfolio's assets);
7. Pledge, mortgage or hypothecate its assets; however, this provision does not
apply to permitted borrowing mentioned above or to the grant of escrow receipts
or the entry into other similar escrow arrangements arising out of the writing
of covered call options;
8. Buy or sell real estate including limited partnership interests therein
(except securities of companies, such as real estate investment trusts, that
deal in real estate or interests therein), or oil, gas or other mineral leases,
commodities or commodity contracts in the ordinary course of its business,
except such interests and other property acquired as a result of owning other
securities, though securities will not be purchased in order to acquire any of
these interests;
9. Invest more than 5% of its gross assets, taken at market value at the time of
investment, in companies (including their predecessors) with less than three
years' continuous operation;
10. Buy securities if the purchase would then cause the Portfolio to have more
than (i) 5% of its gross assets, at market value at the time of purchase,
invested in securities of any one issuer, except securities issued or guaranteed
by the U.S. Government, its agencies or instrumentalities, or (ii) 25% of its
gross assets, at market value at the time of purchase, invested in securities
issued or guaranteed by a foreign government, its agencies or instrumentalities;
11. Buy voting securities if the purchase would then cause the Portfolio to own
more than 10% of the outstanding voting stock of any one issuer;
12. Own securities in a company when any of its officers, directors or security
holders is an officer or director of the Fund or an officer, director or partner
of the Adviser or Sub-Adviser, if after the purchase any of such persons owns
beneficially more than 1/2 of 1% of such securities and such persons together
own more than 5% of such securities;
13. Concentrate its investments in any particular industry, but if deemed
appropriate for attainment of its investment objective, up to 25% of its gross
assets (at market value at the time of investment) may be invested in any one
industry classification used for investment purposes; or
14. Buy securities from or sell them to the Fund's officers, directors, or
employees, or to the Adviser or Sub-Adviser or to their partners, directors and
employees.
INTERMEDIATE FIXED INCOME PORTFOLIO
The Intermediate Fixed Income Portfolio may not:
1. Invest, with respect to at least 75% of its total assets, more than 5% in the
securities of any one issuer (other than the U.S. Government, its agencies or
instrumentalities) or acquire more than 10% of the outstanding voting securities
of any issuer.
2. Issue senior securities, borrow money or securities or pledge or mortgage its
assets, except that the Portfolio may (a) borrow money from banks as a temporary
measure for extraordinary or emergency purposes (but not for investment
purposes) in an amount up to 15% of the current value of its total assets, (b)
enter into forward roll transactions, and (c) pledge its assets to an extent not
greater than 15% of the current value of its total assets to secure such
borrowings; however, the Portfolio may not make any additional investments while
its outstanding bank borrowings exceed 5% of the current value of its total
assets.
3. Lend portfolio securities except that the Portfolio (i) may lend portfolio
securities in accordance with the Portfolio's investment policies up to 33-1/3%
of the Portfolio's total assets taken at market value, (ii) enter into
repurchase agreements, and (iii) purchase all or a portion of an issue of debt
securities, bank loan participation interests, bank certificates of deposit,
bankers' acceptances, debentures or other securities, whether or not the
purchase is made upon the original issuance of the securities, and except that
the Portfolio may enter into repurchase agreements with respect to 5% of the
value of its net assets.
4. Invest more than 25% of the current value of its total assets in any single
industry, provided that this restriction shall not apply to U.S. Government
securities, including mortgage pass-through securities (GNMAs).
5. Underwrite the securities of other issuers, except to the extent that, in
connection with the disposition of portfolio securities, the Portfolio may be
deemed to be an underwriter under the Securities Act of 1933.
6. Purchase real estate or real estate mortgage loans, although the Portfolio
may purchase marketable securities of companies which deal in real estate, real
estate mortgage loans or interests therein.
7. Purchase securities on margin (except that the Portfolio may obtain such
short-term credits as may be necessary for the clearance of purchases and sales
of securities).
8. Purchase or sell commodities or commodity contracts except that the Portfolio
may purchase and sell financial futures contracts and options on financial
futures contracts and engage in foreign currency exchange transactions.
INTERNATIONAL EQUITY PORTFOLIO
The International Equity Portfolio may not:
1. With respect to 75% of the Portfolio's total assets, purchase the
securities of any one issuer (except U.S. government securities) if immediately
after and as a result of such purchase (a) the value of the holdings of the
Portfolio in the securities of such issuer exceeds 5% of the value of the
Portfolio's total assets or (b) the Portfolio owns more than 10% of the
outstanding voting securities of such issuer.
2. Invest in any one industry (other than U.S. government securities) 25%
or more of the value of its total assets at the time of such investment.
3. Borrow money, except from banks for temporary or emergency purposes in
amounts not to exceed 25% of the Portfolio's total assets (including the amount
borrowed) taken at market value, nor pledge, mortgage or hypothecate its assets,
except to secure permitted indebtedness and then only if such pledging,
mortgaging or hypothecating does not exceed 25% of the Portfolio's total assets
taken at market value. When borrowings exceed 5% of the Portfolio's total
assets, the Portfolio will not purchase portfolio securities.
4. Act as a securities underwriter (except to the extent the Portfolio may
be deemed an underwriter under the Securities Act of 1933 in disposing of a
security), issue senior securities (except to the extent permitted under the
Investment Company Act of 1940), invest in real estate (although it may purchase
shares of a real estate investment trust), or invest in commodities or commodity
contracts except financial futures transactions, futures contracts on securities
and securities indices and options on such futures, forward foreign currency
exchange contracts, forward commitments or securities index put or call options.
5. Make loans, except that the Portfolio may enter into repurchase
agreements and may lend portfolio securities in accordance with the Portfolio's
investment policies. The Portfolio does not, for this purpose, consider the
purchase of all or a portion of an issue of publicly distributed bonds, bank
loan participation agreements, bank certificates of deposit, bankers'
acceptances, debentures or other securities, whether or not the purchase is made
upon the original issuance of the securities, to be the making of a loan.
In applying the industry concentration investment restriction (no. 2
above), the Portfolio uses the industry groups designated by the Financial Times
World Index Service.
LARGE CAP VALUE PORTFOLIO
The Large Cap Value Portfolio may not:
1. Purchase the securities of any one issuer, except the United States
government, if immediately after and as a result of such purchase (a) the value
of the holdings of the Portfolio in the securities of such issuer exceeds 5% of
the value of the Portfolio's total assets, or (b) the Portfolio owns more than
10% of the outstanding voting securities, or any other class of securities, of
such issuer;
2. Engage in the purchase or sale of real estate or commodities;
3. Underwrite the securities of other issuers;
4. Make loans to any of its officers, directors, or employees, or to its
manager, or general distributor, or officers or directors thereof;
5. Make any loan (the purchase of a security subject to a repurchase agreement
or the purchase of a portion of an issue of publicly distributed debt securities
is not considered the making of a loan);
6. Invest in companies for the purpose of exercising control of management;
7. Purchase securities on margin, or sell securities short;
8. Purchase shares of other investment companies except in the open market at
ordinary broker's commission or pursuant to a plan of merger or consolidation;
9. Invest in the aggregate more than 5% of the value of its gross assets in the
securities of issuers (other than federal, state, territorial, or local
governments, or corporations, or authorities established thereby), which,
including predecessors, have not had at least three years' continuous
operations;
10. Except for transactions in its shares or other securities through brokerage
practices which are considered normal and generally accepted under circumstances
existing at the time, enter into dealings with its officers or directors, its
manager or underwriter, or their officers or directors, or any organization in
which such persons have a financial interest;
11. Borrow or pledge its credit under normal circumstances, except up to 10% of
its gross assets (computed at the lower of fair market value or cost) for
temporary or emergency purposes, and not for the purpose of leveraging its
investments, and provided further that any borrowing in excess of 5% of the
total assets of the Portfolio shall have asset coverage of at least 3 to 1;
12. Make itself or its assets liable for the indebtedness of others; or
13. Invest in securities which are assessable or involve unlimited liability.
SMALL CAP EQUITY AND LARGE CAP GROWTH PORTFOLIOS
Each of the Small Cap Equity and Large Cap Growth Portfolios may not:
1. With respect to 75% of its total assets, invest more than 5% of its total
assets, taken at market value at the time of a particular purchase, in the
securities of a single issuer, except for securities issued or guaranteed by the
U.S. Government or any of its agencies or instrumentalities or repurchase
agreements for such securities;
2. Acquire more than 10% taken at the time of a particular purchase, of the
outstanding voting securities of any one issuer;
3. Act as an underwriter of securities, except insofar as it may be deemed an
underwriter for purposes of the Securities Act of 1933 on disposition of
securities acquired subject to legal or contractual restrictions on resale;
4. Purchase or sell real estate (although it may purchase securities secured by
real estate or interests therein, or securities issued by companies which invest
in real estate or interests therein), commodities, or commodity contracts,
except that it may enter into (a) futures and options on futures and (b) forward
contracts;
5. Make loans, although it may (a) lend portfolio securities provided that no
such loan may be made if, as a result, the aggregate of such loans would exceed
33-1/3% of the value of its total assets (taken at market value at the time of
such loans); (b) purchase money market instruments and enter into repurchase
agreements; and (c) acquire publicly-distributed or privately-placed debt
securities;
6. Borrow except that it may (a) borrow for non-leveraging, temporary or
emergency purposes, (b) engage in reverse repurchase agreements and make other
borrowings, provided that the combination of (a) and (b) shall not exceed 33-
1/3% of the value of its total assets (including the amount borrowed) less
liabilities (other than borrowings) or such other percentage permitted by law,
and (c) enter into futures and options transactions; it may borrow from banks
and other persons to the extent permitted by law;
7. Invest in a security if more than 25% of its total assets (taken at market
value at the time of a particular purchase) would be invested in the securities
of issuers in any particular industry, except that this restriction does not
apply to securities issued or guaranteed by the U.S. Government or its agencies
or instrumentalities; or
8. Issue any senior security except to the extent permitted under the 1940 Act.
MID CAP EQUITY PORTFOLIO
The Mid Cap Equity Portfolio may not:
1. Invest more than 25% of the current value of its total assets in any single
industry, provided that this restriction shall not apply to U.S. government
securities.
2. Underwrite the securities of other issuers, except to the extent that, in
connection with the disposition of portfolio securities, the Portfolio may be
deemed to be an underwriter under the Securities Act of 1933.
3. Purchase real estate or real estate mortgage loans.
4. Purchase securities on margin (except that the Portfolio may obtain such
short-term credits as may be necessary for the clearance of purchases and sales
of securities).
5. Purchase or sell commodities or commodity contracts (except futures contracts
and options on such futures contracts and foreign currency exchange
transactions).
6. With respect to at least 75% of its total assets, invest more than 5% in the
securities of any one issuer (other than the U.S. Government, its agencies or
instrumentalities) or acquire more than 10% of the outstanding voting securities
of any issuer.
7. Issue senior securities, borrow money, enter into reverse repurchase
agreements or pledge or mortgage its assets, except that the Portfolio may
borrow from banks in an amount up to 15% of the current value of its total
assets as a temporary measure for extraordinary or emergency purposes (but not
investment purposes), and pledge its assets to an extent not greater than 15% of
the current value of its total assets to secure such borrowings; however, the
Portfolio may not make any additional investments while its outstanding
borrowings exceed 5% of the current value of its total assets.
8. Make loans of portfolio securities, except that the Portfolio may enter into
repurchase agreements and except that the Portfolio may enter into repurchase
agreements with respect to 10% of the value of its net assets.
MONEY MARKET PORTFOLIO
The Money Market Portfolio may not:
1. Invest more than 10% of the value of the total assets of the Portfolio in
securities that are not readily marketable, such as repurchase agreements having
a maturity of more than seven days and securities which are secured by interests
in real estate. This restriction does not apply to obligations issued or
guaranteed by the United States government, its agencies, or instrumentalities;
In determining the liquidity of Rule 144A Securities, which are unregistered
securities offered to qualified institutional buyers, and interest-only and
principal-only fixed mortgage-backed securities (IOs and POs) issued by the
United States government or its agencies and instrumentalities, the Sub-Adviser,
under guidelines established by the Board of Directors of the Fund, will
consider any relevant factors including the frequency of trades, the number of
dealers willing to purchase or sell the security, and the nature of marketplace
trades.
In determining the liquidity of commercial paper issued in transactions not
involving a public offering under Section 4(2) of the Securities Act of 1933, as
amended, the Sub-Adviser, under guidelines established by the Board of Directors
of the Fund, will evaluate relevant factors such as the issuer and the size and
nature of its commercial paper programs, the willingness and ability of the
issuer or dealer to repurchase the paper, and the nature of the clearance and
settlement procedures for the commercial paper.
2. Invest more than 5% of the value of the total assets of the Portfolio in
equity securities that are not readily marketable;
3. Invest in real estate, although it may buy securities of companies which deal
in real estate and securities which are secured by interests in real estate,
including interests in real estate investment trusts;
4. Invest in commodities or commodity contracts, except to the extent provided
in Item 14 below;
5. Purchase securities of other investment companies if, as a result, the
Portfolio would own more than 3% of the total outstanding voting stock of any
one investment company, or more than 5% of the Portfolio's assets would be
invested in any one investment company, or more than 10% of the Portfolio's
assets would be invested in investment company securities. These limitations do
not apply to securities acquired in connection with a merger, consolidation,
acquisition, or reorganization, or by purchase in the open market of securities
of closed-end investment companies where no underwriter or dealer's commission
or profit, other than customary broker's commission, is involved, and so long as
immediately thereafter not more than 10% of such Portfolio's total assets, taken
at market value, would be invested in such securities;
6. Make loans, except by the purchase of debt obligations customarily
distributed privately to institutional investors, and except that the Portfolio
may buy repurchase agreements;
7. As to 75% of the value of the total assets of the Portfolio, invest more than
5% of the value of such assets in securities of any one issuer, except that this
restriction shall not apply to securities issued or guaranteed by the United
States government, its agencies, or instrumentalities;
8. As to 75% of the value of the total assets of the Portfolio, invest in more
than 10% of the outstanding voting securities of any one issuer;
9. Act as an underwriter of securities of other issuers, except to the extent
that it may be deemed to be an underwriter in reselling securities, such as
restricted securities, acquired in private transactions and subsequently
registered under the Securities Act of 1933, as amended;
10. Borrow money, except that the Portfolio may enter into reverse repurchase
agreements with banks and except that, as a temporary measure for extraordinary
or emergency purposes (such as to permit the Portfolio to honor redemption
requests without being required to dispose of investments in an inopportune or
untimely manner) and not for investment purposes, any Portfolio may borrow from
banks up to 5% of its assets taken at cost, provided in each case that the total
borrowings have an asset coverage, based on value, of at least 300%;
11. Issue securities senior to its common stock except to the extent set out in
paragraph 10 above;
12. Sell securities short, or maintain a short position;
13. Buy securities on margin, except that it may obtain such short-term credits
as may be necessary for the clearance of purchases and sales of securities;
14. Invest in or write puts, call, straddles, or spreads; nor
15. Invest in companies for the purpose of exercising control of management.
NON-FUNDAMENTAL RESTRICTIONS
In addition to the foregoing, and the policies set forth in the Prospectus,
certain Portfolios have adopted additional investment restrictions which may be
amended by the Board of Directors without a vote of shareholders. If any
percentage restriction described below is adhered to at the time of investment,
a subsequent increase or decrease in the percentage resulting from a change in
the value of the Portfolio's assets will not constitute a violation of the
restriction.
GLOBAL FIXED INCOME PORTFOLIO
The Global Fixed Income Portfolio may not:
1. Invest in the securities of an issuer for the purpose of exercising control
or management but it may do so where it is deemed advisable to protect or
enhance the value of an existing investment.
2. Purchase securities of any other investment company except to the extent
permitted by the 1940 Act.
3. Invest more than 25% of its net assets in repurchase agreements.
4. Purchase additional securities if the Portfolio's borrowings exceed 5% of its
net assets.
Purchases of securities of other investment companies permitted under the
restrictions above could cause the Portfolio to pay additional management and
sub-advisory fees and distribution fees.
INTERMEDIATE FIXED INCOME PORTFOLIO
The Intermediate Fixed Income Portfolio may not:
1. Invest in the securities of an issuer for the purpose of exercising control
or management, but it may do so where it is deemed advisable to protect or
enhance the value of an existing investment.
2. Purchase securities of any other investment company except to the extent
permitted by the 1940 Act.
3. Invest more than 15% of its net assets in illiquid securities.
4. Invest more than 5% of its net assets in repurchase agreements.
5. Purchase additional securities if the Portfolio's bank borrowings exceed 5%
of its net assets.
INTERNATIONAL EQUITY PORTFOLIO
The International Equity Portfolio may not:
1. With respect to 100% of the Portfolio's total assets, purchase the
securities of any one issuer (except U.S. government securities) if immediately
after and as a result of such purchase (a) the value of the holdings of the
Portfolio in the securities of such issuer exceeds 5% of the value of the
Portfolio's total assets or (b) the Portfolio owns more than 10% of the
outstanding voting securities of such issuer.
2. Purchase securities of any company which, including its predecessors and
parents, has a record of less than three years' continuous operation, if such
purchase would cause the Portfolio's investments in all such companies taken at
cost to exceed 5% of the value of the Portfolio's total assets.
3. Purchase securities on margin from a broker or dealer, except that the
Portfolio may obtain such short-term credits as may be necessary for the
clearance of transactions, and may not make short sales of securities. This
limitation shall not prohibit or restrict the Portfolio from entering into
futures, forwards and options contracts or from making margin payments and other
deposits in connection therewith.
4. Purchase the securities of any other investment company, except by
purchase in the open market involving no commission or profit to a sponsor or
dealer (other than the customary broker's commission).
5. Invest in companies for the purposes of exercising control of
management.
6. Purchase any security, including any repurchase agreement maturing in
more than seven days, which is not readily marketable, if more than 15% of the
net assets of the Portfolio, taken at market value at the time of purchase,
would be invested in such securities.
7. Enter into any futures, forwards or options, except that only for the
purpose of hedging, the Portfolio may enter into forward foreign currency
exchange contracts with stated contract values of up to the value of the
Portfolio's assets.
8. Purchase or sell securities on a when-issued or delayed delivery basis,
if as a result more than 5% of its net assets taken at market value at the time
of purchase would be invested in such securities.
9. Purchase or sell any interest in an oil, gas or mineral development or
exploration program, including investments in oil, gas or other mineral leases,
rights or royalty contracts (except that the Portfolio may invest in the
securities of issuers engaged in the foregoing activities).
10. Invest more than 5% of its net assets in warrants. Included in that
amount, but not to exceed 2% of net assets, are warrants whose underlying
securities are not traded on principal domestic or foreign exchanges.
Warrants acquired by the Portfolio in units or attached to securities are not
subject to these limits.
SMALL CAP EQUITY AND LARGE CAP GROWTH PORTFOLIOS
Each of the Small Cap Equity and Large Cap Growth Portfolios may not:
1. Invest in any of the following: (i) interests in oil, gas or other mineral
leases or exploration or development programs (except readily marketable
securities, including but not limited to master limited partnership interests,
that may represent indirect interests in oil, gas, or other mineral exploration
or development programs); (ii) puts, calls, straddles, spreads, or any
combination thereof (except that it may enter into transactions in options,
futures, and options on futures); (iii) shares of other open-end investment
companies, except in connection with a merger, consolidation, acquisition, or
reorganization; and (iv) limited partnerships in real estate unless they are
readily marketable;
2. Invest in companies for the purpose of exercising control or management;
3. Purchase more than 3% of the stock of another investment company or purchase
stock of other investment companies equal to more than 5% of its total assets
(valued at time of purchase) in the case of any one other investment company and
10% of such assets (valued at time of purchase) in the case of all other
investment companies in the aggregate; any such purchases are to be made in the
open market where no profit to a sponsor or dealer results from the purchase,
other than the customary broker's commission, except for securities acquired as
part of a merger, consolidation or acquisition of assets;
4. Purchase or hold securities of an issuer if 5% of the securities of such
issuer are owned by those officers, or directors of the Fund or of its Adviser,
who each own beneficially more than 1/2 of 1% of the securities of that issuer;
5. Mortgage, pledge, or hypothecate its assets, except as may be necessary in
connection with permitted borrowings or in connection with options, futures, and
options on futures;
6. Invest more than 5% of its net assets (valued at time of purchase) in
warrants, nor more than 2% of its net assets in warrants that are not listed on
the New York or American Stock Exchange;
7. Write an option on a security unless the option is issued by the Options
Clearing Corporation, an exchange, or similar entity;
8. Invest more than 25% of its total assets (valued at time of purchase) in
securities of foreign issuers (other than securities represented by American
Depositary Receipts (ADRs) or securities guaranteed by a U.S. person);
9. Buy or sell an option on a security, a futures contract, or an option on a
futures contract unless the option, the futures contract, or the option on the
futures contract is offered through the facilities of a recognized securities
association or listed on a recognized exchange or similar entity;
10. Purchase a put or call option if the aggregate premiums paid for all put and
call options exceed 20% of its net assets (less the amount by which any such
positions are in-the-money), excluding put and call options purchased as closing
transactions;
11. Purchase securities on margin (except for use of short-term credits as are
necessary for the clearance of transactions), or sell securities short unless
(i) it owns or has the right to obtain securities equivalent in kind and amount
to those sold short at no added cost or (ii) the securities sold are "when
issued" or "when distributed" securities which it expects to receive in a
recapitalization, reorganization, or other exchange for securities it
contemporaneously owns or has the right to obtain and provided that transactions
in options, futures, and options on futures are not treated as short sales;
12. Invest more than 5% of its total assets (taken at market value at the time
of a particular investment) in securities of issuers (other than issuers of
federal agency obligations or securities issued or guaranteed by any foreign
country or asset-backed securities) that, together with any predecessors or
unconditional guarantors, have been in continuous operation for less than three
years ("unseasoned issuers");
13. Invest more than 5% of its total assets (taken at market value at the time
of a particular investment) in restricted securities, other than securities
eligible for resale pursuant to Rule 144A under the Securities Act of 1933;
14. Invest more than 15% of its total assets (taken at market value at the time
of a particular investment) in restricted securities and securities of
unseasoned issuers; or
15. Invest more than 15% of its net assets (taken at market value at the time of
a particular investment) in illiquid securities, including repurchase agreements
maturing in more than seven days.
MID CAP EQUITY PORTFOLIO
The Mid Cap Equity Portfolio may not:
1. Invest in the securities of an issuer for the purpose of exercising control
or management, but it may do so where it is deemed advisable to protect or
enhance the value of an existing investment.
2. Purchase the securities of any other investment company except to the extent
permitted by the 1940 Act.
3. Invest more than 15% of its net assets in securities which are illiquid.
4. Purchase additional securities if the Portfolio's borrowings exceed 5% of its
net assets.
DIRECTORS AND OFFICERS OF THE FUND
The management and affairs of the Fund are supervised by the Directors under the
laws of the State of Maryland. The Directors and executive officers of the Fund
and their principal occupations for the last five years are set forth below.
Each may have held other positions with the named companies during that period.
The age of each Director and officer is indicated in the parenthesis.
*STEPHEN S. SODEN, President, Principal Executive Officer and Director (55); BMA
Tower, 700 Karnes Boulevard, Kansas City, Missouri 64108. President of the
Adviser; President, Chief Executive Officer and Director, Jones & Babson, Inc.;
Senior Vice Presidient of Business Men's Assurance Company of America; President
and Chief Executive Officer of BMA Financial Services, Inc.; President and
Director, David L. Babson Growth Fund, Inc., D. L. Babson Money Market Fund,
Inc., D. L. Babson Tax-Free Income Fund, Inc., Babson Enterprise Fund, Inc.,
Babson Enterprise Fund II, Inc., Babson Value Fund, Inc., Shadow Stock Fund,
Inc., UMB Scout Stock Fund, Inc., UMB Scout Bond Fund, Inc., UMB Scout Money
Market Fund, Inc., UMB Scout Tax-Free Money Market Fund, Inc., UMB Scout
Regional Fund, Inc., UMB Scout WorldWide Fund, Inc., UMB Scout Balanced Fund,
Inc., Buffalo Balanced Fund, Inc., Buffalo Equity Fund, Inc., Buffalo High Yield
Fund, Inc., Buffalo USA Global Fund, Inc.; Buffalo Small Cap Fund, Inc., UMB
Scout Capital Preservation Fund, Inc., UMB Scout Kansas Tax-Exempt Bond Fund,
Inc.; President and Trustee, D. L. Babson Bond Trust; Director, AFBA Five Star
Fund, Inc.
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*NORSE N. BLAZZARD, DIRECTOR (62); 4401 W. Tradewinds Avenue, Suite 207,
Lauderdale By the Sea, Florida 33308; Principal, Blazzard, Grodd & Hasenauer,
P.C., Westport, Connecticut (counsel to the Fund); Partner, Paradigm Partners
International LLC (insurance and financial consulting firm which provides
consulting services to Business Men's Assurance Company of America).
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FRANCIS C. ROOD, DIRECTOR (65); Retired, 73-395 Agave Lane, Palm Desert,
California 92260-6653. Formerly, Group Vice President-Administration, Hallmark
Cards Inc.; Director, David L. Babson Growth Fund, Inc., D. L. Babson Money
Market Fund, Inc., D. L. Babson Tax-Free Income Fund, Inc., Babson Enterprise
Fund, Inc., Babson Enterprise Fund II, Inc., Babson Value Fund, Inc., Shadow
Stock Fund, Inc., Buffalo Balanced Fund, Inc., Buffalo Equity Fund, Inc.,
Buffalo High Yield Fund, Inc., Buffalo USA Global Fund, Inc., Buffalo Small Cap
Fund, Inc. and Babson-Stewart Ivory International Fund, Inc.; Trustee of D. L.
Babson Bond Trust.
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WILLIAM H. RUSSELL, Director (76); Financial Consultant, 645 West 67th Street,
Kansas City, Missouri 64113; Director, David L. Babson Growth Fund, Inc., D. L.
Babson Money Market Fund, Inc., D. L. Babson Tax-Free Income Fund, Inc., Babson
Enterprise Fund, Inc., Babson Enterprise Fund II, Inc., Babson Value Fund, Inc.,
Shadow Stock Fund, Inc., Babson-Stewart Ivory International Fund, Inc., Buffalo
Balanced Fund, Inc., Buffalo Equity Fund, Inc., Buffalo High Yield Fund, Inc.,
Buffalo USA Global Fund, Inc., Buffalo Small Cap Fund, Inc.; Trustee of D. L.
Babson Bond Trust.
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H. DAVID RYBOLT, Director (57); Consultant, HDR Associates, P.O. Box 2468,
Shawnee Mission, Kansas 66202; Director, David L. Babson Growth Fund, Inc., D.
L. Babson Money Market Fund, Inc. D. L. Babson Tax-Free Income Fund, Inc.,
Babson Enterprise Fund, Inc., Babson Enterprise Fund II, Inc., Babson Value
Fund, Inc., Shadow Stock Fund, Inc., Buffalo Balanced Fund, Inc., Buffalo Equity
Fund, Inc., Buffalo High Yield Fund, Inc., Buffalo USA Global Fund, Inc.,
Buffalo Small Cap Fund, Inc.; Trustee of D. L. Babson Bond Trust.
- - ------------------
*ROBERT N. SAWYER, Director and Chairman (54); BMA Tower, 700 Karnes Boulevard,
Kansas City, Missouri 64108; Senior Vice President and Chief Investment Officer
of Business Men's Assurance Company of America; Director of Jones & Babson, Inc.
- - ------------------
JAMES SEWARD, Director (47); President and Chief Executive Officer, SLH
Corporation; Executive Vice-President, Seafield Capital Corporation; Director,
SLH Corporation, Lab One, Response Oncology, Concordia Career Colleges and
Seafield Capital Corporation.
- - ------------------
P. BRADLEY ADAMS, Principal Financial Officer and Principal Accounting Officer
(39); BMA Tower, 700 Karnes Boulevard, Kansas City, Missouri, 64108; Treasurer
of the Adviser; Vice President, Chief Financial Officer, Treasurer and Director,
Jones & Babson, Inc.; Vice President and Treasurer, David L. Babson Growth Fund,
Inc., D. L. Babson Money Market Fund, Inc., D. L. Babson Tax-Free Income Fund,
Inc., Babson Enterprise Fund, Inc., Babson Enterprise Fund II, Inc., Babson
Value Fund, Inc., Shadow Stock Fund, Inc., D. L. Babson Bond Trust, UMB Scout
Stock Fund, Inc., UMB Scout Bond Fund, Inc., UMB Scout Money Market Fund, Inc.,
UMB Scout Tax-Free Money Market Fund, Inc., UMB Scout Regional Fund, Inc., UMB
Scout WorldWide Fund, Inc., UMB Scout Balanced Fund, Inc., Buffalo Balanced
Fund, Inc., Buffalo Equity Fund, Inc., Buffalo High Yield Fund, Inc., Buffalo
USA Global Fund, Inc., Buffalo Small Cap Fund, Inc., UMB Scout Capital
Preservation Fund, Inc., UMB Scout Kansas Tax-Exempt Bond Fund, Inc.; Vice
President and Chief Financial Officer, AFBA Five Star Fund, Inc. -
- ------------------
MARTIN A. CRAMER, Secretary (50); Secretary of the Adviser; Secretary, Jones &
Babson, Inc.; Vice President and Secretary, David L. Babson Growth Fund, Inc.,
D. L. Babson Money Market Fund, Inc., D. L. Babson Tax-Free Income Fund, Inc.,
Babson Enterprise Fund, Inc., Babson Enterprise Fund II, Inc., Babson Value
Fund, Inc., Shadow Stock Fund, Inc., D. L. Babson Bond Trust, UMB Scout Stock
Fund, Inc., UMB Scout Bond Fund, Inc., UMB Scout Money Market Fund, Inc., UMB
Scout Tax-Free Money Market Fund, Inc., UMB Scout Regional Fund, Inc., UMB Scout
WorldWide Fund, Inc., UMB Scout Balanced Fund, Inc., Buffalo Balanced Fund,
Inc., Buffalo Equity Fund, Inc., Buffalo High Yield Fund, Inc., Buffalo USA
Global Fund, Inc., Buffalo Small Cap Fund, Inc., UMB Scout Capital Preservation
Fund, Inc., UMB Scout Kansas Tax-Exempt Bond Fund, Inc.; Secretary and Assistant
Vice President, AFBA Five Star Fund, Inc.
- - ------------------
EDWARD S. RITTER, Vice President (45); BMA Tower, 700 Karnes Boulevard, Kansas
City, Missouri 64108; Vice President of the Adviser; Director of Jones & Babson,
Inc.; Senior Vice President-Corporate Development, Business Men's Assurance
Company of America.
- - ------------------
*Each of these Directors may be deemed to be an "interested person" of the Fund
as that term is defined in the 1940 Act.
Each Director of the Fund who is not an "interested person" of the Fund receives
an annual fee of $3,000 and an additional fee of $1,000 for each Directors'
meeting attended and is reimbursed for expenses incurred in connection with
attending Directors' meetings.
Messrs. Rood, Russell, Rybolt and Seward have no financial interest in, nor are
they affiliated with the Fund, the Adviser or Jones & Babson, Inc.
The Audit Committee of the Board of Directors is composed of Messrs. Rood,
Russell, Rybolt and Seward. The Pricing Committee is composed of Messrs. Soden,
Sawyer and Adams. The Fund will not hold annual meetings except as required by
the Investment Company Act of 1940 and other applicable laws. The Fund is a
Maryland corporation. Under Maryland law, a special meeting of stockholders of
the Fund must be held if the Fund receives a written request for a meeting from
the stockholders entitled to cast at least 25% of all the votes entitled to be
cast at the meeting. The Fund has undertaken that its Directors will call a
meeting of stockholders if such a meeting is requested in writing by the holders
of not less than 10% of the outstanding shares of the Fund. To the extent
required by the undertaking, the Fund will assist shareholder communications in
such matters.
COMPENSATION TABLE
Compensation of Management
The table below describes the compensation paid by the Fund during the past
fiscal year to each of the Directors who is not an interested person of the
Fund. None of the officers and no Director who is an interested person of the
Fund received compensation from the Fund during the past fiscal year.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Pension or
Retirement Total
Aggregate Benefits Estimated Compensation
Compensation Accrued as Part Annual from Registrant
Name of Person, from of Fund Benefits Upon and Fund Complex
Position Registrant Expenses Retirement Paid to Directors
- - -------- ----------- -------- ---------- -----------------
Stephen S. Soden* N/A N/A N/A N/A
Director
Norse N. Blazzard N/A N/A N/A N/A
Director*
Francis C. Rood $7,000 N/A N/A $14,000
Director
William H. Russell $7,000 N/A N/A $14,000
Director
H. David Rybolt $7,000 N/A N/A $13,625
Director
Robert N. Sawyer N/A N/A N/A N/A
Director*
James Seward $7,000 N/A N/A $ 7,000
Director
</TABLE>
* Each of these Directors may be deemed to be an "interested person" of the
Fund, as that term is defined in the 1940 Act, and consequently will be
receiving no compensation from the Fund.
THE ADVISER
The Fund and Investors Mark Advisors, LLC (the "Adviser") have entered into an
Investment Advisory Agreement dated July 15, 1997 (the "Investment Advisory
Agreement"), pursuant to which the Adviser is obligated, among other things, to
formulate a continuing program for the investment of the assets of each
Portfolio of the Fund. The fees to be paid under the Investment Advisory
Agreement are set forth in the Prospectus. The Adviser has agreed to assume
certain operating expenses of the Portfolios as described in the Prospectus.
The Investment Advisory Agreement further provides that the Adviser shall
furnish the Fund with office space and necessary personnel, pay ordinary office
expenses, pay all executive salaries of the Fund and furnish, without expense to
the Fund, the services of such members of its organization as may be duly
elected officers or Directors of the Fund.
Under the Investment Advisory Agreement, the Fund is responsible for all its
other expenses including, but not limited to, the following expenses: legal,
auditing or accounting expenses, Directors' fees and expenses, insurance
premiums, brokers' commissions, taxes and governmental fees, expenses of issue
or redemption of shares, expenses of registering or qualifying shares for sale,
reports and notices to shareholders, and fees and disbursements of custodians,
transfer agents, registrars, shareholder servicing agents and dividend
disbursing agents, and certain expenses with respect to membership fees of
industry associations.
The Investment Advisory Agreement provides that the Adviser may retain
sub-advisers, at Adviser's own cost and expense, for the purpose of making
investment recommendations and research information available to the Fund.
The Investment Advisory Agreement provides that neither the Adviser nor any
director, officer or employee of Adviser will be liable for any loss suffered by
the Fund in the absence of willful misfeasance, bad faith, gross negligence or
reckless disregard of obligations and duties.
The Investment Advisory Agreement may be terminated without penalty by vote of
the Directors, as to any Portfolio by the shareholders of that Portfolio, or by
Adviser on 60 days written notice. The Investment Advisory Agreement also
terminates without payment of any penalty in the event of its assignment. In
addition, the Investment Advisory Agreement may be amended only by a vote of the
shareholders of the affected Portfolio(s), and provides that it will continue in
effect from year to year, after its initial two-year term, only so long as such
continuance is approved at least annually with respect to each Portfolio by vote
of either the Directors or the shareholders of the Portfolio, and, in either
case, by a majority of the Directors who are not "interested persons" of the
Adviser. In each of the foregoing cases, the vote of the shareholders is the
affirmative vote of a "majority of the outstanding voting securities" as defined
in the 1940 Act.
Compensation. The Adviser receives a fee from the Fund for its services as
investment adviser as described in the Prospectus.
The Adviser calculates the fee each day that the New York Stock Exchange is open
for business based on the net asset value determined for that day. The fee
accrues daily and is paid monthly. The Adviser received the following fees from
each Portfolio during the periods shown.
<TABLE>
<CAPTION>
Name of Fiscal Year Fiscal Year Period
Portfolio Ended 1999 Ended 1998 Ended 1997
- - -----------------------------------------------------------------------------
<S> <C> <C>
Intermediate Fixed Income $15,231 $13,555 $1,629
Mid Cap Equity $20,106 $18,163 $2,234
Money Market $ 5,024 $ 4,280 $ 544
Global Fixed Income $41,445 $39,623 $5,082
Small Cap Equity $19,709 $17,477 $2,443
Large Cap Growth $28,408 $19,520 $2,200
Large Cap Value $28,257 $23,015 $2,648
Growth & Income $25,049 $20,277 $2,198
Balanced $22,791 $21,284 $2,640
</TABLE>
Code of Ethics
To mitigate the possibility that a Portfolio will be adversely affected by
personal trading of employees, the Fund, the Adviser and the Sub-Advisers have
adopted Codes of Ethics under Rule 17j-1 of the 1940 Act. These Codes contain
policies restricting securities trading in personal accounts of the portfolio
managers and others who normally come into possession of information on
portfolio transactions. These Codes comply, in all material respects, with the
recommendations of the Investment Company Institute. Employees subject to the
Codes of Ethics may invest in securities for their own investment accounts,
including securities that may be purchased or held by the Fund.
SUB-ADVISERS
Each of the Sub-Advisers described in the Prospectus serves as Sub-Adviser to
one or more Portfolios of the Fund pursuant to separate written agreements (the
"Sub-Advisory Agreements"). Certain of the services provided by, and the fees
paid to, the Sub-Advisers are described in the Prospectus under "Management of
the Fund - Sub-Advisers."
Subject to the supervision of the Adviser and the Board of Directors of the
Fund, each of the Sub-Advisers invests and reinvests the Portfolios' assets
consistent with each Portfolio's respective investment objectives and policies
pursuant to the terms of the Sub-Advisory Agreements. Each Sub-Advisory
Agreement continues in effect for each Portfolio from year to year after its
initial two-year term so long as its continuation is approved at least annually
by a majority of the Directors of the Fund and by the shareholders of each
Portfolio or the Board of Directors. Each Sub-Advisory Agreement may be
terminated at any time upon 60 days notice by either party, or by a majority
vote of the outstanding shares of a Portfolio with respect to that Portfolio,
and will terminate automatically upon assignment or upon the termination of the
Investment Advisory Agreement. Additional Portfolios may be subject to a
different agreement.
Compensation. The Adviser pays the Sub-Advisers fees for their services, as
described in the Prospectus, out of the compensation the Adviser receives from
each Portfolio.
The Sub-Advisers calculate the fee each day that the New York Stock Exchange is
open for business based on the net asset value determined for that day. The fee
accrues daily and is paid monthly. The Sub-Advisers received the following fees
from the Adviser during the periods shown:
<TABLE>
<CAPTION>
Name of Fiscal Year Fiscal Year Period
Portfolio Ended 1999 Ended 1998 Ended 1997
- - ----------------------------------------------------------------------------
<S> <C> <C>
Intermediate Fixed Income $ 5,120 $ 2,915 $-0-
Mid Cap Equity $ 8,876 $ 5,027 $-0-
Money Market $ 1,902 $ 1,002 $-0-
Global Fixed Income $19,504 $12,087 $-0-
Small Cap Equity $11,431 $ 6,093 $-0-
Large Cap Growth $16,021 $ 7,103 $-0-
Large Cap Value $15,955 $ 8,186 $-0-
Growth & Income $14,133 $ 7,321 $-0-
Balanced $11,433 $ 6,638 $-0-
</TABLE>
THE DISTRIBUTOR
Jones & Babson, Inc. (the "Distributor") and the Fund are parties to a
distribution agreement (the "Distribution Agreement") pursuant to which the
Distributor serves as principal underwriter for the Fund. The Distributor will
receive no compensation for serving in such capacity.
The Distribution Agreement is renewable annually. The Distribution Agreement may
be terminated by the Distributor, by a majority vote of the Directors who are
not interested persons and have no financial interest in the Distribution
Agreement or by a majority vote of the outstanding securities of the Fund upon
not more than sixty (60) days' written notice by either party or upon assignment
by the Distributor.
OTHER SERVICE PROVIDERS
THE TRANSFER AGENT
Jones & Babson also serves as the transfer agent, dividend disbursing agent
and shareholder servicing agent for the Fund under a transfer agent agreement
with the Fund.
From time to time, the Fund may pay amounts to third parties that provide
sub-transfer agency and other administrative services relating to the Fund to
persons who beneficially own interests in the Fund.
These services may include, among other things, sub-accounting services,
answering inquiries relating to the Fund, delivering, on behalf of the Fund,
proxy statements, annual reports, updated Prospectuses, other communications
regarding the Fund, and related services as the Fund or the beneficial owners
may reasonably request.
COUNSEL AND INDEPENDENT AUDITORS
Blazzard, Grodd & Hasenauer, P.C., Westport, Connecticut, serves as counsel
to the Fund. Ernst & Young, LLP, Kansas City, Missouri, serves as the
independent auditors of the Fund.
CUSTODIANS
UMB Bank, N.A., Kansas City, Missouri, serves as the custodian for the
Small Cap Equity, Large Cap Growth, Large Cap Value, Growth & Income, Balanced
and International Equity Portfolios of the Fund. State Street Bank and Trust
Company, North Quincy, MA serves as the custodian for the Intermediate Fixed
Income, Mid Cap Equity, Money Market and Global Fixed Income Portfolios of the
Fund. UMB Bank, N.A. and State Street may be referred to collectively in the
Prospectus and in the SAI as the "Custodian". The Custodian holds cash,
securities and other assets of the Fund as required by the 1940 Act.
State Street also provides fund accounting services to the Portfolios for
which it serves as Custodian.
PERFORMANCE INFORMATION
From time to time, each Portfolio may advertise its yield and total return.
These figures will be based on historical earnings and are not intended to
indicate future performance. No representation can be made regarding actual
future yields or returns. Yield refers to the annualized income generated by an
investment in the Portfolio over a specified 30-day period. The yield is
calculated by assuming that the same amount of income generated by the
investment during that period is generated in each 30-day period over one year
and is shown as a percentage of the investment.
Total returns quoted for a Portfolio include the effect of deducting the
Portfolio's expenses, but may not include charges and expenses attributable to
any particular Contract. Accordingly, the prospectus of the sponsoring life
insurance company Separate Account should be carefully reviewed for information
on relevant charges and expenses. Excluding these charges and expenses from
quotations of a Portfolio's performance has the effect of increasing the
performance quoted, and the effect of these charges should be considered when
comparing a Portfolio's performance to that of other mutual funds.
Each Portfolio may periodically compare its performance to that of other mutual
funds tracked by mutual fund rating services (such as Lipper Analytical
Services, Inc.) or by financial and business publications and periodicals, broad
groups of comparable mutual funds, unmanaged indices which may assume investment
of dividends but generally do not reflect deductions for administrative and
management costs and other investment alternatives. Each Portfolio may quote
services such as Morningstar, Inc., a service that ranks mutual funds on the
basis of risk-adjusted performance, and Ibbotson Associates of Chicago,
Illinois, which provides historical returns of the capital markets in the U.S.
In addition, the International Equity Portfolio may compare its performance to
that of broad- based foreign securities market indices, such as the Morgan
Stanley Capital International EAFE (Europe, Australia, Asia, Far East) Index and
the Dow Jones World Index. Each Portfolio may use long-term risk versus reward
scenarios and could include the value of a hypothetical investment in any of the
capital markets. Each Portfolio may also quote financial and business
publications and periodicals as they relate to fund management, investment
philosophy, and investment techniques.
Each Portfolio may quote various measures of volatility and benchmark
correlation in advertising and may compare these measures to those of other
funds. Measures of volatility attempt to compare historical share price
fluctuations or total returns to a benchmark while measures of benchmark
correlation indicate how valid a comparative benchmark might be. Measures of
volatility and correlation are calculated using averages of historical data and
cannot be calculated precisely.
COMPUTATION OF YIELD
MONEY MARKET PORTFOLIO. The Portfolio's yield is computed by determining the
percentage net change, excluding capital changes, in the value of an investment
in one share of the Portfolio over the base period, and multiplying the net
change by 365/7 (or approximately 52 weeks). The Portfolio's effective yield
represents a compounding of the yield by adding 1 to the number representing the
percentage change in value of the investment during the base period, raising
that sum to a power equal to 365/7, and subtracting 1 from the result.
OTHER PORTFOLIOS. From time to time, a Portfolio may advertise yield. These
figures will be based on historical earnings and are not intended to indicate
future performance. The yield of a Portfolio refers to the annualized income
generated by an investment in the Portfolio over a specified 30-day period. The
yield is calculated by assuming that the income generated by the investment
during that period generated each period over one year and is shown as a
percentage of the investment. In particular, yield will be calculated according
to the following formula:
Yield = (2 (a-b/cd + 1)6 - 1) where a = dividends and interest earned during the
period; b = expenses accrued for the period (net of reimbursement); c = the
current daily number of shares outstanding during the period that were entitled
to receive dividends; and d = the maximum offering price per share on the last
day of the period.
CALCULATION OF TOTAL RETURN
From time to time, a Portfolio may advertise total return. The total return of a
Portfolio refers to the average compounded rate of return on a hypothetical
investment for designated time periods (including but not limited to, the period
from which the Portfolio commenced operations through the specified date),
assuming that the entire investment is redeemed at the end of each period and
assuming the reinvestment of all dividend and capital gain distributions. In
particular, total return will be calculated according to the following formula:
P (1 + T )n = ERV, where P = a hypothetical initial payment of $1,000; T =
average annual total return; n = number of years; and ERV = ending redeemable
value of a hypothetical $1,000 payment made at the beginning of the designated
time period as of the end of such period.
Quotations of total return, which are not annualized, represent historical
earnings and asset value fluctuations. Total return is based on past performance
and is not a guarantee of future results.
PURCHASE AND REDEMPTION OF SHARES
Individual investors may not purchase or redeem shares of the Portfolios
directly; shares may be purchased or redeemed only through Contracts offered by
Separate Accounts of life insurance companies. Please refer to the prospectus of
the sponsoring life insurance company Separate Account for instructions on
purchasing a Contract and on how to select the Portfolios as investment options
for a Contract.
PURCHASES. All investments in the Portfolios are credited to a life
insurance company's Separate Account immediately upon acceptance of the
investments by the Portfolios. Each life insurance company receives orders from
its Contract owners to purchase or redeem shares of each Portfolio on each day
that the Portfolio calculates its net asset value (a "Business Day"). That
night, all orders received by the life insurance company prior to the close of
regular trading on the New York Stock Exchange Inc. (the "NYSE") (currently 4:00
p.m., Eastern time) on that Business Day are aggregated, and the life insurance
company places a net purchase or redemption order for shares of the Portfolios
during the morning of the next Business Day. These orders are executed at the
net asset value (described below under "Net Asset Value") next computed after
receipt of such order by the life insurance company.
The Portfolios reserve the right to reject any specific purchase order.
Purchase orders may be refused if, in the Adviser's opinion, they are of a size
that would disrupt the management of the Portfolio. A Portfolio may discontinue
sales of its shares if management believes that a substantial further increase
in assets may adversely effect the Portfolio's ability to achieve its investment
objective. In such event, however, it is anticipated that existing Contract
owners would be permitted to continue to authorize investments in the
Portfolios.
REDEMPTIONS. Shares of a Portfolio may be redeemed on any Business Day.
Redemption orders which are received by a life insurance company prior to the
close of regular trading on the NYSE on any Business Day and transmitted to the
Fund or its specified agent during the morning of the next Business Day will be
processed at the next net asset value computed after receipt of such order by
the life insurance company. Redemption proceeds will normally be wired to the
life insurance company on the Business Day following receipt of the redemption
order by the life insurance company, but in no event later than seven days after
receipt of such order.
Purchases and redemptions may be made on any day on which the New York Stock
Exchange is open for business. Currently, the following holidays are observed by
the Fund: New Year's Day, President's Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving Day and Christmas Day. Shares of each
Portfolio are offered on a continuous basis.
The Fund reserves the right to suspend the right of redemption and/or to
postpone the date of payment upon redemption for any period on which trading on
the New York Stock Exchange is restricted, or during the existence of an
emergency (as determined by the SEC by rule or regulation) as a result of which
disposal or valuation of each Portfolio's securities is not reasonably
practicable, or for such other periods as the SEC has by order permitted. The
Fund also reserves the right to suspend sales of shares of a Portfolio for any
period during which the New York Stock Exchange, the Adviser, the
Sub-Adviser(s), the Transfer Agent and/or the Custodian are not open for
business.
DETERMINATION OF NET ASSET VALUE
The net asset value per share of each Portfolio is determined daily as of 4:00
p.m. Eastern time on each day the New York Stock Exchange is open for trading.
The New York Stock Exchange is normally closed on the following national
holidays: New Year's Day, Martin Luther King Day, President's Day, Good Friday,
Memorial Day, Independence Day, Labor Day, Thanksgiving, and Christmas.
The value of a foreign security is determined in its national currency as of the
close of trading on the foreign exchange on which it is traded or as of 4:00
p.m. Eastern time, if that is earlier, and that value is then converted into its
U.S. dollar equivalent at the foreign exchange rate in effect at noon, Eastern
time, on the date the value of the foreign security is determined. Portfolio
securities that are listed on foreign exchanges may trade on days on which the
New York Stock Exchange is closed. As a result, the net asset values of
Portfolios holding foreign securities may be significantly affected on days on
which shareholders have no access to the Portfolios.
The valuation of the Money Market Portfolio's portfolio securities is based upon
their amortized cost, which does not take into account unrealized securities
gains or losses. This method involves initially valuing an instrument at its
cost and thereafter assuming a constant amortization to maturity of any discount
or premium, regardless of the impact of fluctuating interest rates on the market
value of the instrument. By using amortized cost valuation, the Fund seeks to
maintain a constant net asset value of $1.00 per share for the Money Market
Portfolio, despite minor shifts in the market value of its portfolio securities.
While this method provides certainty in valuation, it may result in periods
during which value, as determined by amortized cost, is higher or lower than the
price the Money Market Portfolio would receive if it sold the instrument. During
periods of declining interest rates, the quoted yield on shares of the Money
Market Portfolio may tend to be higher than a like computation made by a fund
with identical investments utilizing a method of valuation based on market
prices and estimates of market prices for all of its portfolio instruments.
Thus, if the use of amortized cost by the Portfolio resulted in a lower
aggregate portfolio value on a particular day, a prospective investor in the
Money Market Portfolio would be able to obtain a somewhat higher yield if he or
she purchased shares of the Money Market Portfolio on that day, than would
result from investment in a fund utilizing solely market values, and existing
investors in the Money Market Portfolio would receive less investment income.
The converse would apply on a day when the use of amortized cost by the
Portfolio resulted in a higher aggregate portfolio value. However, as a result
of certain procedures adopted by the Fund, the Fund believes any difference will
normally be minimal.
The net asset value of the shares of each of the Portfolios other than the Money
Market Portfolio is determined by dividing the total assets of the Portfolio,
less all liabilities, by the total number of shares outstanding. Securities
traded on a national securities exchange or quoted on the NASDAQ National Market
System are valued at their last-reported sale price on the principal exchange or
reported by NASDAQ or, if there is no reported sale, and in the case of
over-the-counter securities not included in the NASDAQ National Market System,
at a bid price estimated by a broker or dealer. Debt securities, including
zero-coupon securities, and certain foreign securities will be valued by a
pricing service. Other foreign securities may be valued by the Fund's Pricing
Committee. Securities for which current market quotations are not readily
available and all other assets are valued at fair value as determined in good
faith by the Directors, although the actual calculations may be made by persons
acting pursuant to the direction of the Directors.
If any securities held by a Portfolio are restricted as to resale, their fair
value is generally determined as the amount which the Fund could reasonably
expect to realize from an orderly disposition of such securities over a
reasonable period of time. The valuation procedures applied in any specific
instance are likely to vary from case to case. However, consideration is
generally given to the financial position of the issuer and other fundamental
analytical data relating to the investment and to the nature of the restrictions
on disposition of the securities (including any registration expenses that might
be borne by the Fund in connection with such disposition). In addition, specific
factors are also generally considered, such as the cost of the investment, the
market value of any unrestricted securities of the same class (both at the time
of purchase and at the time of valuation), the size of the holding, the prices
of any recent transactions or offers with respect to such securities, and any
available analysts' reports regarding the issuer.
Generally, trading in certain securities (such as foreign securities) is
substantially completed each day at various times prior to the close of the New
York Stock Exchange. The values of these securities used in determining the net
asset value of the Fund's shares are computed as of such times. Also, because of
the amount of time required to collect and process trading information as to
large numbers of securities issues, the values of certain securities (such as
convertible bonds and U.S. Government Securities) are determined based on market
quotations collected earlier in the day at the latest practicable time prior to
the close of the Exchange. Occasionally, events affecting the value of such
securities may occur between such times and the close of the Exchange which will
not be reflected in the computation of the Fund's net asset value. If events
materially affecting the value of such securities occur during such period, then
these securities will be valued at their fair value, in the manner described
above.
The proceeds received by each Portfolio for each issue or sale of its shares,
and all income, earnings, profits, and proceeds thereof, subject only to the
rights of creditors, will be specifically allocated to such Portfolio, and
constitute the underlying assets of that Portfolio. The underlying assets of
each Portfolio will be segregated in the Fund's books of account, and will be
charged with the liabilities in respect of such Portfolio and with a share of
the general liabilities of the Fund. Expenses with respect to any two or more
Portfolios may be allocated in proportion to the net asset values of the
respective Portfolios except where allocations of direct expenses can otherwise
be fairly made.
TAXES
The following is only a summary of certain income tax considerations generally
affecting a Portfolio and its shareholders, and is not intended as a substitute
for careful tax planning. Shareholders are urged to consult their tax advisors
with specific reference to their own tax situations, including their state and
local income tax liabilities.
FEDERAL INCOME TAX
The following discussion of federal income tax consequences is based on the
Internal Revenue Code of 1986, as amended (the "Code"), and the regulations
issued thereunder as in effect on the date of this Statement of Additional
Information. New legislation, as well as administrative changes or court
decisions, may significantly change the conclusions expressed herein, and may
have a retroactive effect with respect to the transactions contemplated herein.
Each Portfolio intends to qualify as a "regulated investment company" ("RIC") as
defined under Subchapter M of the Code. By maintaining its qualifications as a
RIC, each Portfolio intends to eliminate or reduce to a nominal amount the
federal taxes to which it may be subject.
In order to qualify for treatment as a RIC under the Code, a Portfolio must
distribute annually to its shareholders at least the sum of 90% of its net
interest income excludable from gross income plus 90% of its investment company
taxable income (generally, net investment income plus net short-term capital
gain) ("Distribution Requirement") and also must meet several additional
requirements. Among these requirements are the following: (i) at least 90% of
the Portfolio's gross income each taxable year must be derived from dividends,
interest, payments with respect to securities loans and gains from the sale or
other disposition of stock or securities, or certain other income; (ii) at the
close of each quarter of the Portfolio's taxable year, at least 50% of the value
of its total assets must be represented by cash and cash items, U.S. Government
securities, securities of other RICs and other securities, with such other
securities limited, in respect to any one issuer, to an amount that does not
exceed 5% of the value of the Portfolio's assets and that does not represent
more than 10% of the outstanding voting securities of such issuer; and (iii) at
the close of each quarter of the Portfolio's taxable year, not more than 25% of
the value of its assets may be invested in securities (other than U.S.
Government securities or the securities of other RICs) of any one issuer or of
two or more issuers which are engaged in the same, similar or related trades or
businesses if the Portfolio owns at least 20% of the voting power of such
issuers.
Notwithstanding the Distribution Requirement described above, which requires
only that a Portfolio distribute at least 90% of its annual investment company
taxable income and does not require any minimum distribution of net capital gain
(the excess of net long-term capital gain over net short-term capital loss), the
Portfolio will be subject to a nondeductible 4% federal excise tax to the extent
it fails to distribute by the end of any calendar year 98% of its ordinary
income for that year and 98% of its capital gain net income (the excess of
short- and long-term capital gains over short- and long-term capital losses) for
the one-year period ending on October 31 of that calendar year, plus certain
other amounts.
If a Portfolio fails to qualify as a RIC for any taxable year, it will be
taxable at regular corporate rates on its net investment income and net capital
gain without any deductions for amounts distributed to shareholders. In such an
event, all distributions (including capital gains distributions) will be taxable
as ordinary dividends to the extent of that Portfolio's current and accumulated
earnings and profits and such distributions will generally be eligible for the
corporate dividends-received deduction.
SECTION 817 DIVERSIFICATION REQUIREMENTS
Section 817(h) of the Code imposes certain diversification standards on the
underlying assets of segregated asset accounts that fund contracts such as the
Contracts (that is, the assets of the Portfolios), which are in addition to the
diversification requirements imposed on the Portfolios by the 1940 Act and
Subchapter M. Failure to satisfy those standards would result in imposition of
Federal income tax on a Contract owner with respect to the increase in the value
of the Contract. Section 817(h)(2) provides that a segregated asset account that
funds contracts such as the Contracts is treated as meeting the diversification
standards if, as of the close of each calendar quarter, the assets in the
account meet the diversification requirements for a regulated investment company
and no more than 55% of those assets consist of cash, cash items, U.S.
Government securities and securities of other regulated investment companies.
The Treasury Regulations amplify the diversification standards set forth in
Section 817(h) and provide an alternative to the provision described above.
Under the regulations, an investment portfolio will be deemed adequately
diversified if (i) no more than 55% of the value of the total assets of the
portfolio is represented by any one investment; (ii) no more than 70% of such
value is represented by any two investments; (iii) no more than 80% of such
value is represented by any three investments; and (iv) no more than 90% of such
value is represented by any four investments. For purposes of these Regulations
all securities of the same issuer are treated as a single investment, but each
United States government agency or instrumentality shall be treated as a
separate issuer.
Each Portfolio will be managed with the intention of complying with these
diversification requirements. It is possible that, in order to comply with these
requirements, less desirable investment decisions may be made which would affect
the investment performance of a Portfolio.
PORTFOLIO TRANSACTIONS
Transactions on U.S. stock exchanges, commodities markets, futures markets and
other agency transactions involve the payment by the Fund of negotiated
brokerage commissions. Such commissions vary among different brokers. A
particular broker may charge different commissions according to such factors as
the difficulty and size of the transaction. Transactions in foreign securities
often involve the payment of fixed brokerage commissions, which may be higher
than those in the United States. There is generally no stated commission in the
case of securities traded in the over-the-counter markets, but the price paid by
the Fund usually includes an undisclosed dealer commission or mark-up. In
underwritten offerings, the price paid by the Fund includes a disclosed, fixed
commission or discount retained by the underwriter or dealer. It is anticipated
that most purchases and sales of securities by Portfolios investing primarily in
certain fixed-income securities will be with the issuer or with underwriters of
or dealers in those securities, acting as principal. There may be customary
mark-ups on such principal transactions. Accordingly, those Portfolios would not
ordinarily pay significant brokerage commissions with respect to securities
transactions.
It is currently intended that the Sub-Advisers will place all orders for the
purchase and sale of portfolio securities for the Fund and buy and sell
securities for the Fund through a substantial number of brokers and dealers. In
so doing, the Sub-Advisers will use their best efforts to obtain for the Fund
the best price and execution available. In seeking the best price and execution,
the Sub-Advisers, having in mind the Fund's best interests, will consider all
factors they deem relevant, including, by way of illustration, price, the size
of the transaction, the nature of the market for the security, the amount of the
commission, the timing of the transaction taking into account market prices and
trends, the reputation, experience, and financial stability of the broker-dealer
involved, and the quality of service rendered by the broker-dealer in other
transactions. Consistent with the Rules of Fair Practice of the National
Association of Securities Dealers, Inc. and subject to seeking best execution
and such other policies as the Board of Directors may determine, the
Sub-Advisers may also consider sales of Fund shares or VA Contracts and VLI
Policies as a factor in the selection of dealers to execute portfolio
transactions for the Fund.
A Sub-Adviser may place orders for the purchase and sale of exchange-listed
portfolio securities with a broker-dealer that is an affiliate of the
Sub-Adviser where in, the judgment of the Sub-Adviser, such firm will be able to
obtain a price and execution at least as favorable as other qualified brokers.
Pursuant to the rules of the SEC, a broker-dealer that is an affiliate of the
Sub-Adviser or, if it is also a broker-dealer, the Sub-Adviser may receive and
retain compensation for effecting portfolio transactions for a Portfolio on a
national securities exchange of which the broker-dealer is a member if the
transaction is "executed" on the floor of the exchange by another broker which
is not an "associated person" of the affiliated broker-dealer or the Sub-Adviser
and if there is in effect a written contract between the Sub-Adviser and the
Fund expressly permitting the affiliated broker-dealer or Sub-Adviser to receive
and retain such compensation.
SEC rules further require that commissions paid to such an affiliated
broker-dealer or Sub-Adviser by a Portfolio on exchange transactions not exceed
"usual and customary brokerage commissions." The rules define "usual and
customary" commissions to include amounts which are "reasonable and fair
compared to the commission, fee or other remuneration received or to be received
by other brokers in connection with comparable transactions involving similar
securities being purchased or sold on a securities exchange during a comparable
period of time." The Board of Directors has adopted procedures for evaluating
the reasonableness of commissions paid to broker-dealers that are affiliated
with the Sub-Advisers or to Sub-Advisers that are broker-dealers and will review
these procedures periodically.
It has for many years been a common practice in the investment advisory business
for advisers of investment companies and other institutional investors to
receive brokerage and research services (as defined in the Securities Exchange
Act of 1934 (the "1934 Act")) from broker-dealers which execute portfolio
transactions for the clients of such advisers and from third parties with which
such broker-dealers have arrangements. Consistent with this practice, the
Sub-Advisers may receive brokerage and research services and other similar
services from many broker-dealers with which they place the Fund's portfolio
transactions and from third parties with which such broker-dealers have
arrangements. These services, which in some cases may also be purchased for
cash, include such matters as general economic and security market reviews,
industry and company reviews, evaluations of securities, and recommendations as
to the purchase and sale of securities. Some of these services may be of value
to the Sub-Advisers and/or their affiliates in advising various other clients
(including the Fund), although not all of these services are necessarily useful
and of value in managing the Fund. The management fees paid by the Fund are not
reduced because the Sub-Advisers and/or their affiliates may receive such
services.
As permitted by Section 28(e) of the 1934 Act, a Sub-Adviser may cause a
Portfolio to pay a broker-dealer which provides "brokerage and research
services" as defined in the 1934 Act to the Sub-Adviser an amount of disclosed
commission for effecting a securities transaction for the Portfolio in excess of
the commission which another broker-dealer would have charged for effecting that
transaction provided that the Sub-Adviser determines in good faith that such
commission was reasonable in relation to the value of the brokerage and research
services provided by such broker-dealer viewed in terms of that particular
transaction or in terms of all of the accounts over which investment discretion
is so exercised. A Sub-Adviser's authority to cause a Portfolio to pay any such
greater commissions is also subject to such policies as the Adviser or the
Directors may adopt from time to time.
Commissions Paid by the Portfolios. The following are the aggregate amounts of
commissions paid by each of the Portfolios for brokerage during the periods
shown:
<TABLE>
<CAPTION>
Name of Fiscal Year Fiscal Year Fiscal Period
Portfolio Ended 1999 Ended 1998 Ended 1997
- - -------------------------------------------------------------------------
<S> <C> <C>
Intermediate Fixed Income - $ - $ -
Mid Cap Equity $4,481 $6,639 $1,027
Money Market - $ - $ -
Global Fixed Income - $ - $ -
Small Cap Equity $3,405 $7,200 $4,032
Large Cap Growth $5,505 $3,040 $3,030
Large Cap Value $3,326 $2,575 $3,108
Growth & Income $5,314 $4,853 $2,584
Balanced $3,247 $3,969 $1,211
</TABLE>
INVESTMENT DECISIONS. Investment decisions for the Fund and for the other
investment advisory clients of the Sub-Advisers are made with a view to
achieving their respective investment objectives and after consideration of such
factors as their current holdings, availability of cash for investment, and the
size of their investments generally. Frequently, a particular security may be
bought or sold for only one client or in different amounts and at different
times for more than one but less than all clients. Likewise, a particular
security may be bought for one or more clients when one or more other clients
are selling the security. In addition, purchases or sales of the same security
may be made for two or more clients of the Sub-Adviser on the same day. In such
event, such transactions will be allocated among the clients in a manner
believed by the Sub-Adviser to be equitable to each. In some cases, this
procedure could have an adverse effect on the price or amount of the securities
purchased or sold by the Fund. Purchase and sale orders for the Fund may be
combined with those of other clients of the Sub-Adviser in the interest of
achieving the most favorable net results for the Fund.
PORTFOLIO TURNOVER
The portfolio turnover rate of a Portfolio is defined by the SEC as the ratio of
the lesser of annual sales or purchases to the monthly average value of the
portfolio, excluding from both the numerator and the denominator securities with
maturities at the time of acquisition of one year or less. Under that
definition, the Money Market Portfolio would not calculate portfolio turnover.
Portfolio turnover generally involves some expense to a Portfolio, including
brokerage commissions or dealer mark-ups and other transaction costs on the sale
of securities and reinvestment in other securities.
DESCRIPTION OF SHARES
The Fund is authorized to issue 500,000,000 shares of each Portfolio and to
create additional portfolios of the Fund. Each share of a Portfolio represents
an equal proportionate interest in that Portfolio with each other share. Shares
are entitled upon liquidation to a pro rata share in the net assets of the
Portfolio available for distribution to shareholders. Shareholders have no
preemptive rights. All consideration received by the Fund for shares of any
Portfolio and all assets in which such consideration is invested would belong to
that Portfolio and would be subject to the liabilities related thereto.
CONTROL PERSONS AND PRINCIPAL SHAREHOLDERS
Only the life insurance companies that issue the variable annuity contracts or
variable life insurance policies that use the Portfolios for investment can own
shares in the Portfolios. The shares are usually held in a Separate Account of
the life insurance company on behalf of the holders of the variable annuity
contracts or variable life insurance policies who invest assets in the
Portfolios. As of December 31, 1999, Business Men's Assurance Company of America
("BMA"), through its separate accounts and BMA's affiliated companies, owned all
of the shares of the Fund. Assicurazioni Generali S.p.A., the ultimate parent
company of BMA, is deemed to be a controlling person of the Fund.
GENERAL INFORMATION
THE FUND
The Fund, an open-end management investment company, was incorporated in
Maryland in 1997. All consideration received by the Fund for shares of any
Portfolio and all assets of such Portfolio belong to that Portfolio and are
subject to liabilities related thereto. The Fund reserves the right to create
and issue shares of additional series.
Each Portfolio of the Fund pays its respective expenses relating to its
operation, including fees of its service providers, audit and legal expenses,
expenses of preparing prospectuses, proxy solicitation material and reports to
shareholders, costs of custodial services and registering the shares of the
Portfolio under federal securities laws, pricing and insurance expenses and pays
additional expenses including litigation and other extraordinary expenses,
brokerage costs, interest charges and taxes.
VOTING RIGHTS
Each share held entitles the shareholder of record to one vote.
Shareholders of each Portfolio will vote separately on matters relating solely
to it, such as approval of advisory agreements and changes in fundamental
policies, and matters affecting some but not all Portfolios of the Fund will be
voted on only by shareholders of the affected Portfolios. Shareholders of all
Portfolios of the Fund will vote together in matters affecting the Fund
generally, such as the election of Directors or selection of accountants. As a
Maryland corporation, the Fund is not required to hold annual meetings of
shareholders but shareholder approval will be sought for certain changes in the
operation of the Fund and for the election of Directors under certain
circumstances. In addition, a Director may be removed by the remaining Directors
or by shareholders at a special meeting called upon written request of
shareholders owning at least 10% of the outstanding shares of the Fund. In the
event that such a meeting is requested, the Fund will provide appropriate
assistance and information to the shareholders requesting the meeting. Under
current law, each insurance company is required to request voting instructions
from Contract owners and must vote all shares held in the Separate Account in
proportion to the voting instructions received. For a more complete discussion
of voting rights, refer to the Separate Account prospectus.
REPORTING
The Fund issues unaudited financial information semi-annually, and audited
financial statements annually for each Portfolio. The Fund also furnishes
periodic reports and, as necessary, proxy statements to shareholders of record.
FINANCIAL STATEMENTS
The Fund's Financial Statements and notes thereto for the period ended
December 31, 1999 and the report of Ernst & Young LLP, Independent Auditors,
with respect thereto, appear in the Fund's Annual Report for the year ended
December 31, 1999, which is incorporated by reference into this Statement of
Additional Information. The Fund delivers a copy of the Annual Report to
investors along with the Statement of Additional Information. In addition, the
Fund will furnish, without charge, additional copies of such Annual Report to
investors which may be obtained without charge by calling 1-888-262-8131.
APPENDIX
DESCRIPTION OF STOCK RATINGS
Standard & Poor's Earnings and Dividend Rankings for Common Stocks (S&P) Growth
and stability of earnings and dividends are deemed key elements in establishing
Standard & Poor's earnings and dividend rankings for common stocks. Basic scores
are computed for earnings and dividends, then adjusted by a set of predetermined
modifiers for growth, stability within long-term trend, and cyclically. Adjusted
scores for earnings and dividends are then combined to yield a final score. The
final score is measured against a scoring matrix determined by an analysis of
the scores of a large and representative sample of stocks. The rankings are:
A+ Highest
A High
A- Above Average
B+ Average
B Below Average
B- Lower
C Lowest
D In Reorganization
Value Line Ratings of Financial Strength - The financial strength of each of the
companies reviewed by Value Line is rated relative to all the others. The
ratings are:
A++ The very highest relative financial strength
A+ Excellent financial position relative to other companies.
A High grade relative financial strength.
B++ Superior financial health on a relative basis.
B+ Very good relative financial structure.
B Good overall relative financial structure.
C++ Satisfactory finances relative to other companies.
C+ Below-average relative financial position.
C Poorest financial strength relative to other major companies.
The ratings are based upon computer analysis of a number of key variables that
determine: (a) financial leverage, (b) business risk and (c) company size plus
the judgment of their analysts and senior editors regarding factors that cannot
be quantified across-the-board for all stocks. The primary variables that are
indexed and studied include equity coverage of debt, equity coverage of
intangibles, "quick ratio" accounting methods, variability of return, quality of
fixed charge coverage, stock price stability and company size.
DESCRIPTION OF NRSRO RATINGS
DESCRIPTION OF MOODY'S CORPORATE RATINGS
Aaa -- Bonds which are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to as
"gilt-edged." Interest payments are protected by a large or by an exceptionally
stable margin and principal is secure. While the various protective elements are
likely to change, such changes as can be visualized are most unlikely to impair
the fundamentally strong position of such issues.
Aa -- Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally known as
high grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities or fluctuation of protective
elements may be of greater amplitude or there may be other elements present
which make the long term risks appear somewhat larger than in Aaa securities.
A -- Bonds which are rated A 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 some time in the future.
Baa -- Bonds which are 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 which are 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 which are rated B generally lack characteristics of the
desirable investment. Assurance of interest and principal payments or of
maintenance of other terms of the contract over any long period of time may be
small.
Caa -- Bonds which are rated Caa are of poor standing. Such issues may be
in default or there may be present elements of danger with respect to principal
or interest.
Ca -- Bonds which are rated Ca represent obligations which are speculative
in a high degree. Such issues are often in default or have other marked
shortcomings.
C -- Bonds which are rated C are the lowest rated class of bonds and issues
so rated can be regarded as having extremely poor prospects of ever
attaining any real investment standing.
DESCRIPTION OF S&P CORPORATE RATINGS
AAA -- Bonds rated AAA have the highest rating assigned by Standard &
Poor's to a debt obligation. Capacity to pay interest and repay principal is
extremely strong.
AA -- Bonds rated AA have a very strong capacity to pay interest and repay
principal and differ from the highest rated issues only in small degree.
A -- Bonds rated A have a strong capacity to pay interest and repay
principal although they are somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions than bonds in higher rated
categories.
BBB -- Bonds rated BBB are regarded as having an adequate capacity to pay
interest and repay principal. Whereas they normally exhibit adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
bonds in this category than for bonds in higher rated categories.
BB-B-CCC-CC and C -- Bonds rated BB, B, CCC, CC and C 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 least degree of speculation and C the highest degree of
speculation. While such bonds will likely have some quality and protective
characteristics, these are outweighed by large uncertainties or major risk
exposures to adverse conditions. A C rating is typically applied to debt
subordinated to senior debt which is assigned an actual or implied CCC rating.
It may also be used to cover a situation where a bankruptcy petition has been
filed, but debt service payments are continued.
DESCRIPTION OF DUFF & PHELPS CORPORATE RATINGS
AAA - Highest credit quality. The risk factors are negligible being only
slightly more than for risk-free U.S. Treasury debt.
AA - risk is modest but may vary slightly from time to time because of
economic conditions.
A - Protection factors are average but adequate. However, risk factors are
more variable and greater in periods of economic stress.
BBB - Investment grade. Considerable variability in risk during economic
cycles.
BB - Below investment grade but deemed likely to meet obligations when due.
Present or prospective financial protection factors fluctuate according to
industry conditions or company fortunes. Overall quality may move up or down
frequently within this category.
B - Below investment grade and possessing risk that obligations will not be
met when due. Financial protection factors will fluctuate widely according to
economic cycles, industry conditions and/or company fortunes. Potential exists
for frequent changes in quality rating within this category or into a higher or
lower quality rating grade.
SUBSTANTIAL RISK - Well below investment grade securities. May be in
default or have considerable uncertainty as to timely payment of interest,
preferred dividends and/or principal. Protection factors are narrow and risk can
be substantial with unfavorable economic/industry conditions, and/or with
favorable company developments.
DESCRIPTION OF FITCH CORPORATE RATINGS
AAA - Bonds considered to be investment grade and of the highest credit
quality. The obligor has an exceptionally strong ability to pay interest and
repay principal, which is unlikely to be affected by reasonably foreseeable
events.
AA - Bonds considered to be investment grade and of very high credit
quality. The obligor's ability to pay interest and repay principal is very
strong, although not quite as strong as bonds rated "AAA." Because bonds rated
in the "AAA" and "AA" categories are not significantly vulnerable to foreseeable
future developments, short-term debt of these issues is generally rated "[-]+."
A - Bonds considered to be investment grade and of high credit quality. The
obligor's ability to pay interest and to repay principal is considered to be
strong, but may be more vulnerable to adverse changes in economic conditions and
circumstances than bonds with higher ratings.
BBB - Bonds considered to be investment grade and of satisfactory credit
quality. The obligor's ability to pay interest and to repay principal is
considered to be adequate. Adverse changes in economic conditions and
circumstances, however, are more likely to have an adverse impact on these
bonds, and therefore impair timely payment. The likelihood that the ratings of
these bonds will fall below investment grade is higher than for bonds with
higher ratings.
BB - Bonds considered speculative. The obligor's ability to pay interest
and repay principal may be affected over time by adverse economic changes.
B - Bonds considered highly speculative. While bonds in this class are
currently meeting debt service requirements, the probability of continued timely
payment of principal and interest reflects the obligor's limited margin of
safety.
CCC - Bonds which may have certain identifiable characteristics which, if
not remedied, may lead to the default of either principal or interest payments.
CC - Bonds which are minimally protected. Default in payment of interest
and/or principal seems probable over time.
C - Bonds which are in imminent default in payment of interest or
principal.
DESCRIPTION OF THOMSON BANKWATCH, INC. CORPORATE RATINGS
AAA - Bonds that are rated AAA indicate that the ability to repay principal
and interest on a timely basis is extremely high.
AA - Bonds that are rated AA indicate a very strong ability to repay
principal and interest on a timely basis with limited incremental risk compared
to issues rated in the highest category.
TBW may apply plus ("+") and minus ("-") modifiers in the AAA and AA
categories to indicate where within the respective category the issue is placed.
DESCRIPTION OF IBCA LIMITED AND IBCA INC. CORPORATE RATINGS
AAA - Obligations which are rated AAA are considered to be of the lowest
expectation of investment risk. Capacity for timely repayment of principal and
interest is substantial such that adverse changes in business, economic, or
financial conditions are unlikely to increase investment risk significantly.
AA - Obligations which are rated AA are considered to be of a very low
expectation of investment risk. Capacity for timely repayment of principal and
interest is substantial. Adverse changes in business, economic, or financial
conditions may increase investment risk albeit not very significantly.
DESCRIPTION OF S&P COMMERCIAL PAPER RATINGS
Commercial paper rated A-1 by S&P indicates that the degree of safety
regarding timely payments is strong. Those issues determined to possess
extremely strong safety characteristics are denoted A-1+. Capacity for timely
payment on commercial paper rated A-2 is satisfactory, but the relative degree
of safety is not as high as for issues designated A-1. An A-3 designation
indicates an adequate capacity for timely payment. Issues with this designation,
however, are more vulnerable to the adverse effects of changes in circumstances
than obligations carrying the higher designations. B issues are regarded as
having only speculative capacity for timely payment. C issues have a doubtful
capacity for payment. D issues are in payment default. The D rating category is
used when interest payments or principal payments are not made on the due date,
even if the applicable grace period has not expired, unless Standard & Poor's
believes that such payments will be made during such grace period.
DESCRIPTION OF MOODY'S COMMERCIAL PAPER RATINGS
Issuers rated Prime-1 (or supporting institutions) have a superior ability
for repayment of senior short-term debt obligations. Issuers rated Prime-2 (or
supporting institutions) have a strong ability for repayment of senior
short-term debt obligations. This will normally be evidenced by many of the
characteristics of issuers rated Prime-1 but to a lesser degree. Earnings trends
and coverage ratios, while sound, may be more subject to variation.
Capitalization characteristics, while still appropriate, may be more affected by
external conditions. Ample alternate liquidity is maintained. Issuers rated
Prime-3 (or supporting institutions) have an acceptable ability for repayment of
senior short-term obligations. The effect of industry characteristics and market
compositions may be more pronounced. Variability in earnings and profitability
may result in changes in the level of debt protection measurements and may
require relatively high financial leverage. Adequate alternate liquidity is
maintained. Issuers rated Not Prime do not fall within any of the Prime rating
categories.
DESCRIPTION OF DUFF'S COMMERCIAL PAPER RATINGS
The rating Duff-1 is the highest commercial paper rating assigned by Duff &
Phelps. Paper rated Duff-1 is regarded as having very high certainty of timely
payment with excellent liquidity factors which are supported by ample asset
protection. Risk factors are minor. Paper rated Duff-2 is regarded as having
good certainty of timely payment, good access to capital markets and sound
liquidity factors and company fundamentals. Risk factors are small.
DESCRIPTION OF FITCH'S COMMERCIAL PAPER RATINGS
The rating F-1+ (Exceptionally Strong Credit Quality) is the highest
commercial paper rating assigned by Fitch. Issues rated F-1+ are regarded as
having the strongest degree of assurance for timely payment. The rating F-1
(Very Strong Credit Quality) reflects an assurance of timely payment only
slightly less in degree than the strongest issues. An F-2 rating (Good Credit
Quality) indicates a satisfactory degree of assurance for timely payment, but
the margin of safety is not as great as for issues assigned F-1+ and F-1. Issues
rated F-3 (Fair Credit Quality) have characteristics suggesting that the degree
of assurance for timely payment is adequate; however, near-term adverse changes
could cause these securities to be rated below investment grade.
DESCRIPTION OF IBCA LIMITED AND IBCA INC. COMMERCIAL PAPER RATINGS
A1 - Short-term obligations rated A1 are supported by the highest capacity
for timely repayment. Where issues possess a particularly strong credit feature,
a rating of A1+ is assigned.
A2 - Short-term obligations rated A2 are supported by a satisfactory
capacity for timely repayment, although such capacity may be susceptible to
adverse changes in business, economic or financial conditions.
DESCRIPTION OF THOMSON BANKWATCH, INC. COMMERCIAL PAPER RATINGS
TBW-1 - Issues rated TBW-1 indicate a very high degree of likelihood that
principal and interest will be paid on a timely basis.
TBW-2 - Issues rated TBW-2 indicate that while the degree of safety
regarding timely payment of principal and interest is strong, the relative
degree of safety is not as high as for issues rated TBW-1.
PART C: OTHER INFORMATION
ITEM 23. EXHIBITS
(a) Articles of Incorporation**
(b) By-Laws***
(c) Not Applicable
(d)(1) Form of Investment Advisory Agreement between the
Registrant and Investors Mark Advisors, LLC***
(d)(2) Form of Sub-Advisory Agreement between the Registrant,
the Adviser and Stein Roe & Farnham, Inc. with respect to the
Small Cap Equity and Large Cap Growth Portfolios***
(d)(3) Form of Sub-Advisory Agreement between the Registrant, the
Adviser and Standish, Ayer & Wood, Inc. with respect to the
Money Market Portfolio***
(d)(4) Form of Sub-Advisory Agreement between the Registrant, the
Adviser and Standish, Ayer & Wood, Inc. with respect to the
Intermediate Fixed Income Portfolio***
(d)(5) Form of Sub-Advisory Agreement between the Registrant, the
Adviser and Standish, Ayer & Wood, Inc. with respect to the
Mid Cap Equity Portfolio***
(d)(6) Form of Sub-Advisory Agreement between the Registrant, the
Adviser and Standish International Management Company, L.P. with
respect to the Global Fixed Income Portfolio***
(d)(7) Form of Sub-Advisory Agreement between the Registrant, the
Adviser and Lord, Abbett & Co. with respect to the Growth &
Income Portfolio***
(d)(8) Form of Sub-Advisory Agreement between the Registrant, the
Adviser and Kornitzer Capital Management, Inc. with respect
to the Balanced Portfolio***
(d)(9) Form of Sub-Advisory Agreement between the Registrant, the
Adviser and David L. Babson & Co., Inc. with respect to the
Large Cap Value Portfolio***
(e) Form of Distribution Agreement between the Registrant
and Jones & Babson, Inc.***
(f) Not Applicable
(g)(1) Form of Custodian Agreement between the Registrant and
UMB Bank, N.A.***
(g)(2) Form of Custodian Agreement between the Registrant and
Investors Fiduciary Trust Company***
(h)(1) Form of Transfer Agency Agreement between the Registrant
and Jones & Babson, Inc.***
(h)(2) Form of Expense Limitation Agreement between the
Registrant and Investors Mark Advisors, LLC***
(h)(3) Form of Fund Participation Agreement***
(h)(4) Form of Services Agreement between Investors Mark
Advisors, LLC and Jones & Babson, Inc.***
(i) Consent and Opinion of Counsel
(j) Consent of Independent Auditors
(k) Financial Statements - incorporated herein by reference to
the Fund's Annual Report dated December 31, 1999, as filed
electronically with the Securities and Exchange Commission
on February 29, 2000.
(l)(1) Form of Stock Subscription Agreement between the Registrant
and Jones & Babson, Inc.***
(l)(2) Agreement Governing Contribution of Working Capital to the
Fund by Business Men's Assurance Company of America***
(l)(3) Agreement Governing Contribution of Working Capital to the
Fund by Transocean Holding Corporation***
(l)(4) Agreement Governing Contribution of Working Capital to the
Fund by Generali, U.S. Branch***
(m) Not Applicable
(n) Financial Data Schedules*
(o) Not Applicable
(p)(1) Registrant's and Adviser's Code of Ethics
(p)(2) Sub-Adviser's Code of Ethics - Standish, Ayer & Wood, Inc. and
SIMCO
(p)(3) Sub-Adviser's Code of Ethics - Stein Roe & Farnham Incorporated
(p)(4) Sub-Adviser's Code of Ethics - David L. Babson & Co. Inc.
(p)(5) Sub-Adviser's Code of Ethics - Lord, Abbett & Co.
(p)(6) Sub-Adviser's Code of Ethics - Kornitzer Capital Management, Inc.
(to be filed by amendment)
* Previously filed.
** Incorporated by reference to Registrant's Registration Statement on Form
N-1A (File Nos.333-32723 and 811-08321) as filed electronically on August
1, 1997.
*** Incorporated by reference to Registrant's Pre-Effective Amendment No. 1 to
Form N-1A (File Nos. 333-32723 and 811-08321) as filed electronically on
October 17, 1997.
ITEM 24. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH THE FUND
Assicurazioni Generali S.p.A., the ultimate parent company of Transocean
Holdings Corporation, Business Men's Assurance Company of America, Generali U.S.
Branch and Jones & Babson, Inc., the sole shareholders of Registrant, is deemed
to be a controlling person of Registrant.
ITEM 25. INDEMNIFICATION
The Articles of Incorporation of the Registrant include the following:
ARTICLE VII
7.4 Indemnification. The Corporation, including its successors and assigns,
shall indemnify its directors and officers and make advance payment of related
expenses to the fullest extent permitted, and in accordance with the procedures
required, by the General Laws of the State of Maryland and the 1940 Act. The
By-Laws may provide that the Corporation shall indemnify its employees and/or
agents in any manner and within such limits as permitted by applicable law. Such
indemnification shall be in addition to any other right or claim to which any
director, officer, employee or agent may otherwise be entitled. The Corporation
may purchase and maintain insurance on behalf of any person who is or was a
director, officer, employee or agent of the Corporation or is or was serving at
the request of the Corporation as a director, officer, partner, trustee,
employee or agent of another foreign or domestic corporation, partnership, joint
venture, trust or other enterprise or employee benefit plan, against any
liability (including, with respect to employee benefit plans, excise taxes)
asserted against and incurred by such person in any such capacity or arising out
of such person's position, whether or not the Corporation would have had the
power to indemnify against such liability. The rights provided to any person by
this Article 7.4 shall be enforceable against the Corporation by such person who
shall be presumed to have relied upon such rights in serving or continuing to
serve in the capacities indicated herein. No amendment of these Articles of
Incorporation shall impair the rights of any person arising at any time with
respect to events occurring prior to such amendment.
The By-Laws of the Registrant include the following:
ARTICLE VI
Indemnification
"The Corporation shall indemnify (a) its Directors and officers, whether
serving the Corporation or at its request any other entity, to the full extent
required or permitted by (i) Maryland law now or hereafter in force, including
the advance of expenses under the procedures and to the full extent permitted by
law, and (ii) the Investment Company Act of 1940, as amended, and (b) other
employees and agents to such extent as shall be authorized by the Board of
Directors and be permitted by law. The foregoing rights of indemnification shall
not be exclusive of any other rights to which those seeking indemnification may
be entitled. The Board of Directors may take such action as is necessary to
carry out these indemnification provisions and is expressly empowered to adopt,
approve and amend from time to time such resolutions or contracts implementing
such provisions or such further indemnification arrangements as may be permitted
by law."
Insofar as indemnification for liability arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Registrant of expenses incurred
or paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suite or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
To the extent that the Articles of Incorporation, By-Laws or any other
instrument pursuant to which the Registrant is organized or administered
indemnify any director or officer of the Registrant, or that any contract or
agreement indemnifies any person who undertakes to act as investment adviser or
principal underwriter to the Registrant, any such provision protecting or
purporting to protect such persons against any liability to the Registrant or
its security holders to which he would otherwise by subject by reason of willful
misfeasance, bad faith, or gross negligence, in the performance of his duties,
or by reason of his contract or agreement, will be interpreted and enforced in a
manner consistent with the provisions of Sections 17(h) and (i) of the
Investment Company Act of 1940, as amended, and Release No. IC-11330 issued
thereunder.
ITEM 26. BUSINESS AND OTHER CONNECTIONS OF THE INVESTMENT ADVISER AND SUB-
ADVISERS:
Other business, profession, vocation, or employment of a substantial nature
in which each director or principal officer of Investors Mark Advisors, LLC is
or has been, at any time during the last two fiscal years, engaged for his own
account or in the capacity of director, officer, employee, partner or trustee
are as follows:
<TABLE>
<CAPTION>
<S> <C> <C>
Name and Position with Connection
Adviser Name of Other Company with Other
Company
Stephen S. Soden Jones & Babson, Inc. President, Chief Executive
President Business Men's Assurance Officer and Director, Senior
Company of America Vice President, President
BMA Financial Services, Inc. and Chief Executive Officer
Edward S. Ritter Jones & Babson, Inc. Director
Vice President Business Men's Assurance Senior Vice
Company of America President - Corporate
Development
Martin A. Cramer Jones & Babson, Inc. Secretary
Secretary
P. Bradley Adams Jones & Babson, Inc. Vice President,
Treasurer Chief Financial
Officer, Treasurer
and Director
</TABLE>
The principal business address of the Adviser is BMA Tower, 700 Karnes
Boulevard, Kansas City, Missouri 64108.
With respect to information regarding the Sub-Advisers, reference is hereby made
to "Management of the Fund" in the Prospectus. For information as to the
business, profession, vocation or employment of a substantial nature of each of
the officers and directors of the Sub-Advisers, reference is made to the current
Form ADVs of the Sub-Advisers filed under the Investment Advisers Act of 1940,
incorporated herein by reference, the file numbers of which are as follows:
Standish, Ayer & Wood, Inc.
File No. 801-584
Standish International Management Company, L.P.
File No. 801-639338
Stein Roe & Farnham, Incorporated
File No. 801-27653
David L. Babson & Co., Inc.
File No. 801-241
Lord, Abbett & Co.
File No. 801-6997
Kornitzer Capital Management, Inc.
File No. 801-34933
BBOI Worldwide LLC
File No. 801-52264
ITEM 27. PRINCIPAL UNDERWRITERS
(a) Furnish the name of each investment company (other than the Registrant)
for which each principal underwriter currently distributing the securities of
the Registrant also acts as a principal underwriter, distributor or investment
adviser.
Registrant's distributor, Jones & Babson, Inc., acts as distributor for:
David L. Babson Growth Fund, Inc., D. L. Babson Money Market Fund, Inc., D. L.
Babson Tax-Free Income Fund, Inc., Babson Enterprise Fund, Inc., Babson
Enterprise Fund II, Inc., Babson Value Fund, Inc., Shadow Stock Fund, Inc., D.
L. Babson Bond Trust, UMB Scout Stock Fund, Inc., UMB Scout Bond Fund, Inc., UMB
Scout Money Market Fund, Inc., UMB Scout Tax-Free Money Market Fund, Inc., UMB
Scout Regional Fund, Inc., UMB Scout WorldWide Fund, Inc., UMB Scout Balanced
Fund, Inc., Buffalo Balanced Fund, Inc., Buffalo Equity Fund, Inc., Buffalo High
Yield Fund, Inc., Buffalo USA Global Fund, Inc., Buffalo Small Cap Fund, Inc.,
UMB Scout Capital Preservation Fund, Inc., UMB Scout Kansas Tax-Exempt Bond
Fund, Inc., AFBA Five Star Fund, Inc., BMA Variable Annuity Account A and BMA
Variable Life Account A.
(b) Furnish the information required by the following table with respect to
each director, officer or partner of each principal underwriter named in the
response to Item 20:
<TABLE>
<CAPTION>
<S> <C> <C>
Positions and
Name and Principal Offices with
Business Address Positions and Offices with Underwriter Registrant
P. Bradley Adams Vice President, Chief Financial Principal Financial
Officer, Treasurer and Director Officer and Principal
Accounting Officer
Martin A. Cramer Secretary Secretary
Roy M. Moura Vice President and Chief ----
Marketing Officer
Stephen S. Soden Chairman of the Board, President and
Director ----
Giorgio Balzer Director ----
Robert T. Rakich Director ----
Edward S. Ritter Director Vice President
Robert N. Sawyer Director Chairman and Director
Vernon W. Voorhees Director ----
</TABLE>
c. None.
ITEM 28. LOCATION OF ACCOUNTS AND RECORDS
Persons maintaining physical possession of 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 include the Registrant's Secretary; the
Registrant's investment adviser, Investors Mark Advisors, LLC; the Registrant's
custodians, UMB Bank, N.A. and State Street Bank and Trust Company ("State
Street"), and the Sub-Advisers. The address of the Secretary and Investors Mark
Advisors, LLC is 700 Karnes Boulevard, Kansas City, Missouri 64108. The address
of UMB Bank is 928 Grand Avenue, Kansas City, Missouri 64141. The address of
State Street is 200 Newport Avenue, Quincy, MA 02171. The addresses of the
Sub-Advisers are contained in the Prospectus under the heading "Management of
the Fund - Sub-Advisers."
ITEM 29. MANAGEMENT SERVICES
Other than as set forth in Parts A and B of this Registration Statement, the
Registrant is not a party to any management-related service contract.
ITEM 30. UNDERTAKINGS
Not Applicable.
SIGNATURES
Pursuant to the Securities Act of 1933 and the Investment Company Act of 1940,
the Registrant certifies that it meets the requirements of Securities Act Rule
485(b) and has duly caused this Post-Effective Amendment No. 4 to its
Registration Statement to be signed on its behalf by the undersigned thereunto
duly authorized, in the City of Kansas City, and State of Missouri, on the
11th day of April, 2000.
INVESTORS MARK SERIES FUND, INC.
---------------------------------------
Registrant
By: /S/ STEPHEN S. SODEN
-----------------------------------
Stephen S. Soden
President, Principal Executive
Officer and Director
Pursuant to the requirements of the Securities Act of 1933, the Registrant has
duly caused this Post-Effective Amendment No. 4 to its Registration Statement to
be signed below by the following persons in the capacities and on the dates
indicated.
SIGNATURE AND TITLE DATE
/S/ STEPHEN S. SODEN
- -------------------- President, Principal 4/11/00
Stephen S. Soden Principal Executive Officer --------
and Director
P. BRADLEY ADAMS*
- -------------------- Principal Financial Officer 4/11/00
P. Bradley Adams and Principal Accounting --------
Officer
NORSE N. BLAZZARD*
- -------------------- Director 4/11/00
Norse N. Blazzard --------
FRANCIS C. ROOD*
- -------------------- Director 4/11/00
Francis C. Rood --------
WILLIAM H. RUSSELL*
- -------------------- Director 4/11/00
William H. Russell --------
H. DAVID RYBOLT*
- -------------------- Director 4/11/00
H. David Rybolt --------
ROBERT N. SAWYER*
- -------------------- Director 4/11/00
Robert N. Sawyer --------
JAMES SEWARD*
- -------------------- Director 4/11/00
James Seward --------
*By: /S/ STEPHEN S. SODEN
-----------------------------------
Stephen S. Soden, Attorney-in-Fact
LIMITED POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that I, Stephen S. Soden, President, Principal
Executive Officer and Director of Investors Mark Series Fund, Inc., (the
"Fund"), a Maryland corporation, do hereby appoint Robert N. Sawyer as my
attorney and agent, for me, and in my name as Director, President, Principal
Executive Officer and Director of the Fund on behalf of the Fund or otherwise,
with full power to execute, deliver and file with the Securities and Exchange
Commission all documents required for registration of a security under the
Securities Act of 1933, as amended, and the Investment Company Act of 1940, as
amended, and to do and perform each and every act that said attorney may deem
necessary or advisable to comply with the intent of the aforesaid Acts.
WITNESS my hand this 23rd day of March, 2000.
WITNESS:
/S/CHAREEN C. SMITH /S/STEPHEN S. SODEN
- -------------------- ---------------------
Stephen S. Soden
LIMITED POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that I, Robert N. Sawyer, a Director of
Investors Mark Series Fund, Inc., (the "Fund"), a Maryland corporation, do
hereby appoint Stephen S. Soden as my attorney and agent, for me, and in my name
as a Director of the Fund on behalf of the Fund or otherwise, with full power to
execute, deliver and file with the Securities and Exchange Commission all
documents required for registration of a security under the Securities Act of
1933, as amended, and the Investment Company Act of 1940, as amended, and to do
and perform each and every act that said attorney may deem necessary or
advisable to comply with the intent of the aforesaid Acts.
WITNESS my hand this 23rd day of March, 2000.
WITNESS:
/s/CHAREEN C. SMITH /s/ROBERT N. SAWYER
- -------------------- -------------------
Robert N. Sawyer
LIMITED POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that I, P. Bradley Adams, Principal Financial
Officer and Principal Accounting Officer of Investors Mark Series Fund, Inc.,
(the "Fund"), a Maryland corporation, do hereby appoint Stephen S. Soden and
Robert N. Sawyer, each individually, as my attorney and agent, for me, and in my
name as Principal Financial Officer and Principal Accounting Officer of the
Fund, on behalf of the Fund or otherwise, with full power to execute, deliver
and file with the Securities and Exchange Commission all documents required for
registration of a security under the Securities Act of 1933, as amended, and the
Investment Company Act of 1940, as amended, and to do and perform each and every
act that said attorney may deem necessary or advisable to comply with the intent
of the aforesaid Acts.
WITNESS my hand this 23rd day of March, 2000.
WITNESS:
/s/CHAREEN C. SMITH /s/P. BRADLEY ADAMS
- -------------------- --------------------
P. Bradley Adams
LIMITED POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that I, Norse N. Blazzard, a Director of
Investors Mark Series Fund, Inc., (the "Fund"), a Maryland corporation, do
hereby appoint Stephen S. Soden and Robert N. Sawyer, each individually, as my
attorney and agent, for me, and in my name as a Director of the Fund, on behalf
of the Fund or otherwise, with full power to execute, deliver and file with the
Securities and Exchange Commission all documents required for registration of a
security under the Securities Act of 1933, as amended, and the Investment
Company Act of 1940, as amended, and to do and perform each and every act that
said attorney may deem necessary or advisable to comply with the intent of the
aforesaid Acts.
WITNESS my hand this 10th day of March, 2000.
WITNESS:
/s/JACK MILRAD /s/NORSE N. BLAZZARD
- ------------------ ---------------------
Norse N. Blazzard
LIMITED POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that I, Francis C. Rood, a Director of Investors
Mark Series Fund, Inc., (the "Fund"), a Maryland corporation, do hereby appoint
Stephen S. Soden and Robert N. Sawyer, each individually, as my attorney and
agent, for me, and in my name as a Director of the Fund, on behalf of the Fund
or otherwise, with full power to execute, deliver and file with the Securities
and Exchange Commission all documents required for registration of a security
under the Securities Act of 1933, as amended, and the Investment Company Act of
1940, as amended, and to do and perform each and every act that said attorney
may deem necessary or advisable to comply with the intent of the aforesaid Acts.
WITNESS my hand this 23rd day of March, 2000.
WITNESS:
/s/CHAREEN C. SMITH /s/FRANCIS C. ROOD
- -------------------- -------------------
Francis C. Rood
LIMITED POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that I, William H. Russell, a Director of
Investors Mark Series Fund, Inc., (the "Fund"), a Maryland corporation, do
hereby appoint Stephen S. Soden and Robert N. Sawyer, each individually, as my
attorney and agent, for me, and in my name as a Director of the Fund, on behalf
of the Fund or otherwise, with full power to execute, deliver and file with the
Securities and Exchange Commission all documents required for registration of a
security under the Securities Act of 1933, as amended, and the Investment
Company Act of 1940, as amended, and to do and perform each and every act that
said attorney may deem necessary or advisable to comply with the intent of the
aforesaid Acts.
WITNESS my hand this 15th day of March, 2000.
WITNESS:
/s/CHAREEN C. SMITH /s/WILLIAM H. RUSSELL
- -------------------- ---------------------
William H. Russell
LIMITED POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that I, H. David Rybolt, a Director of Investors
Mark Series Fund, Inc., (the "Fund"), a Maryland corporation, do hereby appoint
Stephen S. Soden and Robert N. Sawyer, each individually, as my attorney and
agent, for me, and in my name as a Director of the Fund, on behalf of the Fund
or otherwise, with full power to execute, deliver and file with the Securities
and Exchange Commission all documents required for registration of a security
under the Securities Act of 1933, as amended, and the Investment Company Act of
1940, as amended, and to do and perform each and every act that said attorney
may deem necessary or advisable to comply with the intent of the aforesaid Acts.
WITNESS my hand this 20th day of March, 2000.
WITNESS:
/s/CHAREEN C. SMITH /s/H. DAVID RYBOLT
- -------------------- -------------------
H. David Rybolt
LIMITED POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that I, James Seward, a Director of Investors
Mark Series Fund, Inc., (the "Fund"), a Maryland corporation, do hereby appoint
Stephen S. Soden and Robert N. Sawyer, each individually, as my attorney and
agent, for me, and in my name as a Director of the Fund, on behalf of the Fund
or otherwise, with full power to execute, deliver and file with the Securities
and Exchange Commission all documents required for registration of a security
under the Securities Act of 1933, as amended, and the Investment Company Act of
1940, as amended, and to do and perform each and every act that said attorney
may deem necessary or advisable to comply with the intent of the aforesaid Acts.
WITNESS my hand this 23rd day of March, 2000.
WITNESS:
/s/CHAREEN C. SMITH /s/JAMES R. SEWARD
- -------------------- -------------------
James Seward
EXHIBIT LIST
Exhibit
Number Description
EX-23(i) Consent and Opinion of Counsel
EX-23(j) Consent of Independent Auditors
EX-23(p)(1) Registrant's and Adviser's Code of Ethics
EX-23(p)(2) Sub-Adviser's Code of Ethics - Standish, Ayer & Wood, Inc. and
SIMCO
EX-23(p)(3) Sub-Adviser's Code of Ethics - Stein Roe & Farnham Incorporated
EX-23(p)(4) Sub-Adviser's Code of Ethics - David L. Babson & Co. Inc.
EX-23(p)(5) Sub-Adviser's Code of Ethics - Lord, Abbett & Co.
EX-23(p)(6) Sub-Adviser's Code of Ethics - Kornitzer Capital Management, Inc.
Blazzard, Grodd & Hasenauer, P.C.
943 Post Road East
Westport, CT 06880
(203) 226-7866
April 28, 2000
Board of Directors
Investors Mark Series Fund, Inc.
700 Karnes Boulevard
Kansas City, MO 64108
Re: Opinion of Counsel - Investors Mark Series Fund, Inc.
-----------------------------------------------------
Gentlemen:
You have requested our Opinion of Counsel in connection with the filing with the
Securities and Exchange Commission of a Post-Effective Amendment to a
Registration Statement on Form N-1A with respect to Investors Mark Series Fund,
Inc.
We have made such examination of the law and have examined such records and
documents as in our judgment are necessary or appropriate to enable us to
render the opinions expressed below.
We are of the following opinions:
1. Investors Mark Series Fund, Inc. ("Fund") is an open-end management
investment company.
2. The Fund is created and validly existing pursuant to the Maryland Laws.
3. All of the prescribed Fund procedures for the issuance of the shares have
been followed, and, when such shares are issued in accordance with the
Prospectus contained in the Registration Statement for such shares, all
state requirements relating to such Fund shares will have been complied
with.
4. Upon the acceptance of purchase payments made by shareholders in
accordance with the Prospectus contained in the Registration Statement and
upon compliance with applicable law, such shareholders will have
legally-issued, fully paid, non-assessable shares of the Fund.
We consent to the reference to our Firm under the caption "Counsel and
Independent Auditors" contained in the Prospectus which forms a part of the
Registration Statement.
You may use this opinion letter, or a copy thereof, as an exhibit to the
Registration.
Sincerely,
BLAZZARD, GRODD & HASENAUER, P.C.
By: /s/RAYMOND A. O'HARA III
------------------------------
Raymond A. O'Hara III
Consent of Independent Auditors
We consent to the references to our firm under the captions "Financial
Highlights" in the Prospectus and "Counsel and Independent Auditors" and
"Financial Statements" in the Statement of Additional Information and
to the incorporation by reference of our report dated February 2, 2000
in the Registration Statement (Form N-1A) and related Prospectus of
Investors Mark Series Fund, Inc. filed with the Securities and Exchange
Commission in this Post-Effective Amendment No. 4 under the Securities
Act of 1933 (Registration No. 333-32723) and Amendment No. 5 under the
Investment Company Act of 1940 (Registration No. 811-08321).
/s/ERNST & YOUNG LLP
Ernst & Young LLP
Kansas City, Missouri
April 27, 2000
CODE OF ETHICS
- --------------------------------------------------------------------------------
JONES & BABSON, INC.
AFBA FIVE STAR FUND, INC.
BABSON FUNDS
BUFFALO FUNDS
INVESTORS MARK ADVISOR, LLC
INVESTORS MARK SERIES FUND, INC.
UMB SCOUT FUNDS
CODE OF ETHICS
(REVISED JANUARY 2000)
- --------------------------------------------------------------------------------
Terms which are in BOLD ITALICS in the text are defined in Appendix 1.
- --------------------------------------------------------------------------------
I. PURPOSE OF CODE.
The Code of Ethics establishes rules that govern personal investment
activities of the officers, directors and certain employees (or
contractors) of Jones & Babson, Inc. ("Jones & Babson"), Investors Mark
Advisor, L.L.C., Investors Mark Series Fund, Inc. and each of the funds
within the AFBA, Babson, Buffalo and UMB Scout fund groups (the "Funds"),
the names of each fund are listed on Schedule A to this Code of Ethics.
II. WHY DO WE HAVE A CODE OF ETHICS?
A. WE WANT TO PROTECT OUR CLIENTS.
We have a duty to place the interests of the shareholders of the Funds
first and to avoid even the appearance of a conflict of interest. This
is how we earn and keep the trust of Fund shareholders. We must
conduct ourselves and our personal SECURITIES transactions in a manner
that does not create a conflict of interest with the Funds or their
shareholders, or take unfair advantage of our relationship with them.
B. FEDERAL LAW REQUIRES THAT WE HAVE A CODE OF ETHICS
The Investment Company Act of 1940 and the Investment Advisers Act of
1940 require that we have in place safeguards to prevent behavior and
activities that might disadvantage the Funds or their shareholders.
These safeguards are embodied in this Code of Ethics.1
III. DOES THE CODE OF ETHICS APPLY TO YOU?
Yes! All employees (including contract personnel) of Jones & Babson and the
Funds must observe the principles contained in the Code of Ethics. Any
director, officer, employee or contractor of Jones & Babson, or any Fund
who is already subject to a substantially similar (as determined by Jones &
Babson's compliance officer) Code of Ethics because of their association
with a separate company, will not be subject to this Code of Ethics.
There are different categories of restrictions on personal investing
activities. The category in which you have been placed generally depends on
your job function, although unique circumstances may prompt us to place you
in a different category. The range of categories is as follows:
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------------
Fewest Restrictions Most Restrictions
--------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------------
NON-ACCESS PERSON ACCESS PERSON INVESTMENT PERSON PORTFOLIO PERSON
<S> <C> <C> <C>
--------------------------------------------------------------------------------------------------------------
</TABLE>
In addition, there is a fifth category for the Independent Directors of the
Funds. The standard profiles for each of the categories is described below:
A. PORTFOLIO PERSONS.
Portfolio Persons are those employees entrusted with direct
responsibility and authority to make investment decisions affecting
one or more Funds.
B. INVESTMENT PERSONS.
Investment Persons are financial analysts, investment analysts,
traders and other employees who provide information or advice to a
portfolio management team or who help execute the portfolio management
team's decisions.
C. ACCESS PERSONS.
You are an Access Person if, as part of your job, you do any of the
following:
* participate in the purchase or sale of SECURITIES for Fund
portfolios;
* perform a function which relates to the making of recommendations
with respect to such purchases or sales of SECURITIES for Fund
portfolios; OR
* have the ability to obtain information regarding the purchase or
sale of SECURITIES for Fund portfolios.
In addition, you are an Access Person if you are any of the following:
* an officer or "interested" director of any Fund; OR
* an officer or director of Jones & Babson, Inc.
As an Access Person, if you know that during the 5 days immediately
preceding or after the date of your transaction, the same SECURITY was
(1) held by one or more Fund and was being considered for sale, or (2)
being considered for purchase by one or more Fund, you must preclear
your personal security transaction requests in accordance with Section
IV A.
D. NON-ACCESS PERSONS.
If you are an officer, director, or employee of any contractor, for a
Fund or for Jones & Babson, or if you are an employee of a Fund or
Jones & Babson AND you do not fit into any of the above categories,
you are a Non-Access Person. Because you normally do not have access
to or receive confidential information about Fund portfolios, you are
subject only to Sections V(C), VI, VII, VIII, IX and X of this Code of
Ethics.
E. INDEPENDENT DIRECTORS.
If you are a director of a Fund and are not an "interested" director
as defined in the Investment Company Act of 1940 ("Independent
Director"), you are subject only to Sections II, VII, VIII and IX of
this Code of Ethics. However, if you know, or in the ordinary course
of fulfilling your official duties as an Independent Director should
know, that during the 15 days immediately preceding or after the date
of your transaction, the same SECURITY was (1) purchased or sold by
one or more Fund, or (2) was being considered for purchase or sale by
one or more Fund, you will be considered an Access Person for the
purpose of trading in that SECURITY, and you must comply with all the
requirements applicable to Access Persons.
IV. RESTRICTIONS ON PERSONAL INVESTING ACTIVITIES.
A. INVESTMENT AND PORTFOLIO PERSONS PRECLEARANCE OF PERSONAL SECURITIES
TRANSACTIONS.
Before either of the following things happen:
* the purchase or sale of a SECURITY for your own account; OR
* the purchase or sale of a SECURITY for an account for which you
are a BENEFICIAL OWNER
you must follow the following preclearance procedures:
1. Preclear the transaction with Jones & Babson's Compliance
Officer. E-mail your request to gcooke@jones&babson.com or fill
out a pre-clearance request form, and provide the following
information:
* Issuer name;
* Ticker symbol or CUSIP number;
* Type of security (stock, bond, note, etc.);
* Maximum expected dollar amount of proposed transaction; AND
* Nature of transaction (purchase or sale)
2. If you receive preclearance for the transaction2:
You have 5 business days to execute your transaction.
B. INVESTMENT AND PORTFOLIO PERSONS: ADDITIONAL RESTRICTIONS.
1. Initial Public Offerings.
You cannot acquire SECURITIES issued in an INITIAL PUBLIC
OFFERING.
2. Private Placements.
Before you acquire any SECURITIES in a private placement, you
must obtain written approval from Jones & Babson's compliance
officer3. Once you receive approval, you cannot participate in
any subsequent consideration of an investment in that issuer for
any of the Funds.
3. Short-Term Trading Profits.
You cannot profit from any purchase and sale, or sale and
purchase, of the same (or equivalent) SECURITIES within sixty
(60) calendar days.
C. PORTFOLIO PERSONS: BLACKOUT PERIOD.
If you are a Portfolio Person, you may not purchase or sell a SECURITY
within seven (7) days before and after a Fund that you manage executes
a trade in that SECURITY.
V. REPORTING REQUIREMENTS.
A. DISCLOSURE OF PERSONAL SECURITIES HOLDINGS [ACCESS, INVESTMENT AND
PORTFOLIO PERSONS]
Upon commencement of employment or acquisition of Access Person
status, whichever is sooner, and annually thereafter, you must report
all SECURITIES holdings to the compliance officer. Your initial
holdings report is due no later than 10 days after you are designated
an Access Person while your annual holdings report is due no later
than 30 days after year end. The report must include all SECURITIES
beneficially owned by you (including SECURITIES owned by certain
family members), except for CODE-EXEMPT SECURITIES.
B. QUARTERLY REPORT OF SECURITIES TRANSACTIONS [ACCESS, INVESTMENT AND
PORTFOLIO PERSONS]
Each quarter you must report the purchase or sale of a SECURITY in
which you have (or will have) any direct or indirect BENEFICIAL
OWNERSHIP. This may include securities owned by certain family
members. See Appendix 2 for details. (You do not need to report
transactions in CODE-EXEMPT SECURITIES.) Jones & Babson will provide
you with a form of report. You must file your report no later than 10
days after the end of each calendar quarter.
On the report you must state whether you have engaged in a SECURITIES
transaction during the quarter, and if so provide the following
information about each transaction:
* The date of the transaction, the description and number of
shares, and the principal amount of each SECURITY involved;
* The nature of the transaction, that is, purchase, sale or any
other type of acquisition or disposition;
* The transaction price; AND
* The name of the broker, dealer or bank through whom the
transaction was effected.
C. DUPLICATE CONFIRMATIONS [NON-ACCESS (EXCEPT INDEPENDENT DIRECTORS),
ACCESS, INVESTMENT AND PORTFOLIO PERSONS].
You must instruct your broker-dealer to send duplicate confirmations
of all transactions (excluding transactions in CODE-EXEMPT SECURITIES)
in such accounts to:
Jones & Babson Inc.
BMA Tower, 700 Karnes Blvd.
Kansas City, MO 64108-3306
Attention: Compliance Officer
Please note that "your broker-dealer" includes both of the following:
* a broker or dealer with whom you have a SECURITIES brokerage
account; AND
* a broker or dealer who maintains an account for a person whose
trades you must report because you are deemed to be a BENEFICIAL
OWNER.
VI. CAN THERE BE ANY EXCEPTIONS TO THE RESTRICTIONS?
Yes. The compliance officer or his or her designee, upon consultation
with your manager, may grant limited exemptions to specific provisions of
the Code of Ethics on a case-by-case basis.
A. HOW TO REQUEST AN EXEMPTION
Send a written request to Jones & Babson compliance officer
detailing your situation. The Jones & Babson compliance officer
has been designated to develop procedures reasonably designed to
detect violations of this Code and to grant exemptions under
certain circumstances.
B. FACTORS CONSIDERED
In considering your request, the compliance officer or his or her
designee will grant your exemption request if he or she is
satisfied that:
your request addresses an undue personal hardship imposed on you by the
Code of Ethics; your situation is not contemplated by the Code of
Ethics; and your exemption, if granted, would be consistent with the
achievement of the objectives of the Code of
Ethics.
C. EXEMPTION REPORTING
All exemptions granted must be reported to the Boards of Directors
of the Funds. The Boards of Directors may choose to delegate the
task of receiving and reviewing reports to a Committee comprised
of Independent Directors.
VII. CONFIDENTIAL INFORMATION.
All information about Fund SECURITIES transactions, actual or contemplated,
is confidential. You must not disclose, except as required by the duties of
your employment, SECURITIES transactions of Funds, actual or contemplated,
or the contents of any written or oral communication, study, report or
opinion concerning any SECURITY. This does not apply to information which
has already been publicly disclosed.
VIII. CONFLICTS OF INTEREST.
A. ALL PERSONS EXCEPT INDEPENDENT DIRECTORS
You must receive prior written approval from Jones & Babson or the
Funds and/or the Independent Directors of the Funds, as appropriate,
to do any of the following:
* negotiator enter into any agreement on the Fund's behalf with
any business concern doing or seeking to do business with the
Fund if you, or a person related to you, has a substantial
interest in the business concern;
* enter into an agreement, negotiate or otherwise do business on
the Fund's behalf with a personal friend or a person related to
you; OR
* serve on the board of directors of, or act as consultant to, any
publicly traded corporation.
B. INDEPENDENT DIRECTOR
If you are an Independent Director, you cannot serve as officer of,
director of, employee of; OR consultant to any corporation or other
business entity which
* engages in an activity in competition with a Fund; OR
* which is engaged in any activity that would create a conflict of
interest with your duties
unless you receive prior approval of the other Independent Directors.
These prohibitions also apply to anyone who lives in the same
household with you.
IX. WHAT HAPPENS IF YOU VIOLATE THE RULES IN THE CODE OF ETHICS?
You may be subject to serious penalties.
A. THE PENALTIES WHICH MAY BE IMPOSED INCLUDE:
* formal warning;
* restriction of trading privileges;
* disgorgement of trading profits;
* fine; AND/OR
* suspension or termination of employment.
B. PENALTY FACTORS
The factors which may be considered when determining the appropriate
penalty include, but are not limited to:
* the harm to the interests of the Funds and/or shareholders;
* the extent of unjust enrichment;
* the frequency of occurrence;
* the degree to which there is personal benefit from unique
knowledge obtained through employment with the Advisors;
* the degree of perception of a conflict of interest;
* evidence of fraud, violation of law, or reckless disregard of a
regulatory requirement; AND/OR
* the level of accurate, honest and timely cooperation from the
person subject to the Code of Ethics.
If you have any questions about the Code of Ethics, do not hesitate to
ask a member of management or Compliance.
X. ANNUAL CERTIFICATION OF COMPLIANCE WITH THE CODE
As a condition of your employment, you will be asked to certify annually:
* that you have read this Code of Ethics;
* that you understand this Code of Ethics; AND
* that you have complied with this Code of Ethics.
XI. REGULAR REPORTING TO FUND DIRECTORS
The management of Jones & Babson and the Funds will deliver reports to the
Board of Directors of each Fund at least annually:
* of any violation of this Code of Ethics requiring significant
sanctions;
* outlining the results of any sub-adviser or affiliate Code of Ethics
monitoring activity; AND
* certifying that Jones & Babson has adopted reasonable procedures
necessary to prevent its access persons from violating this Code of
Ethics.
XII. APPROVAL OF THIS CODE OF ETHICS
The Board of Directors, including a majority of the independent Directors,
of each Fund shall approve this Code of Ethics, and any material changes
subsequently made to it.
APPENDIX 1: DEFINITIONS
1. "BENEFICIAL OWNERSHIP"
See "Appendix 2: What is Beneficial Ownership?".
2. "CODE-EXEMPT SECURITY"
A "code-exempt security" is a security in which you may invest without
preclearing or reporting such transactions with Jones & Babson. The list of
Code-Exempt Securities appears in Appendix 3.
3. "INITIAL PUBLIC OFFERING"
"Initial public offering" means an offering of securities for which a
registration statement has not previously been filed with the SEC and for
which there is no active public market in the shares.
4. "PRIVATE PLACEMENT"
"Private placement" means an offering of securities in which the issuer
relies on an exemption from the registration provisions of the federal
securities laws, and usually involves a limited number of sophisticated
investors and a restriction on resale of the securities.
5. "SECURITY"
A "security" includes a great number of different investment vehicles.
However, for purposes of this Code of Ethics, "security" includes any of
the following:
* note,
* stock,
* treasury stock,
* bond,
* debenture,
* evidence of indebtedness,
* certificate of interest or participation in any profit-sharing
agreement,
* collateral-trust certificate,
* preorganization certificate or subscription,
* transferable share,
* investment contract,
* voting-trust certificate,
* certificate of deposit for a security,
* fractional undivided interest in oil,
* gas or other mineral rights,
* any put, call, straddle, option, or privilege on any security
(including a certificate of deposit) or on any group or index of
securities (including any interest therein or based on the value
thereof),
* or any put, call, straddle, option, or privilege entered into on a
national securities exchange relating to foreign currency, or
* in general, any interest or instrument commonly known as a "security,"
or
* any certificate of interest or participation in, temporary or interim
certificate for, receipt for, guarantee of, future on or warrant or
right to subscribe to or purchase, any of the foregoing.
APPENDIX 2: WHAT IS "BENEFICIAL OWNERSHIP"?
1. ARE SECURITIES HELD BY FAMILY MEMBERS "BENEFICIALLY OWNED" BY ME?
Probably. As a general rule, you are regarded as the beneficial owner of
securities held in the name of
* your spouse;
* your minor children;
* a relative who shares your home; OR
* any other person IF:
* You obtain from such securities benefits substantially similar to
those of ownership. For example, if you receive or benefit from
some of the income from the securities held by your spouse, you
are the beneficial owner; OR
* You can obtain title to the securities now or in the future.
2. ARE SECURITIES HELD BY A COMPANY I OWN ALSO "BENEFICIALLY OWNED" BY ME?
Probably not. Owning the securities of a company does not mean you
"beneficially own" the securities that the company itself owns. However,
you will be deemed to "beneficially own" these securities if:
* The company is merely a medium through which you (by yourself or with
others) in a small group invest or trade in securities; AND
* The company has no other substantial business.
In such cases, you and those who are in a position to control the company
will be deemed to "beneficially own" the securities owned by the company.
3. ARE SECURITIES HELD IN TRUST "BENEFICIALLY OWNED" BY ME?
Maybe. You are deemed to "beneficially own" securities held in trust if any
of the following is true:
* You are a trustee and either you or members of your immediate family
have a vested interest in the income or corpus of the trust;
* You have a vested beneficial interest in the trust; OR
* You are settlor of the trust and you have the power to revoke the
trust without obtaining the consent of all the beneficiaries.
As used in this section, the "immediate family" of a trustee means:
* A son or daughter of the trustee, or a descendent of either;
* A stepson or stepdaughter of the trustee;
* The father or mother of the trustee, or an ancestor of either;
* A stepfather or stepmother of the trustee; and
* A spouse of the trustee.
For the purpose of determining whether any of the foregoing relationships
exists, a legally adopted child of a person is considered a child of such
person by blood.
4. ARE SECURITIES IN PENSION OR RETIREMENT PLANS "BENEFICIALLY OWNED" BY ME?
Probably not. Beneficial ownership does not include indirect interest by
any person in portfolio securities held by a pension or retirement plan
holding securities of an issuer whose employees generally are the
beneficiaries of the plan.
However, your participation in a pension or retirement plan is considered
beneficial ownership of the portfolio securities if you can withdraw and
trade the securities without withdrawing from the plan.
5. EXAMPLES OF BENEFICIAL OWNERSHIP
SECURITIES HELD BY FAMILY MEMBERS
Example 1: Tom and Mary are married. Although Mary has an independent
source of income from a family inheritance and segregates her funds from
those of her husband, Mary contributes to the maintenance of the family
home. Tom and Mary have engaged in joint estate planning and have the same
financial adviser. Since Tom and Mary's resources are clearly significantly
directed towards their common property, they shall be deemed to be the
beneficial owners of each other's securities.
Example 2: Mike's adult son David lives in Mike's home. David is
self-supporting and contributes to household expenses. Mike is a beneficial
owner of David's securities.
Example 3: Joe's mother Margaret lives alone and is financially
independent. Joe has power of attorney over his mother's estate, pays all
her bills and manages her investment affairs. Joe borrows freely from
Margaret without being required to pay back funds with interest, if at all.
Joe takes out personal loans from Margaret's bank in Margaret's name, the
interest from such loans being paid from Margaret's account. Joe is a
significant heir of Margaret's estate. Joe is a beneficial owner of
Margaret's estate.
SECURITIES HELD BY A COMPANY
Example 4: ABC is a holding company with five shareholders owning equal
shares in the company. Although ABC Company does no business on its own, it
has several wholly-owned subsidiaries which invest in securities. Stan is a
shareholder of ABC Company. Stan has a beneficial interest in the
securities owned by ABC Company's subsidiaries.
SECURITIES HELD IN TRUST
Example 5: John is trustee of a trust created for his two minor children.
When both of John's children reach 21, each shall receive an equal share of
the corpus of the trust. John is a beneficial owner of the trust.
Example 6: Jane is trustee of an irrevocable trust for her daughter. Jane
is a director of the issuer of the equity securities held by the trust. The
daughter is entitled to the income of the trust until she is 25 years old,
and is then entitled to the corpus. If the daughter dies before reaching
25, Jane is entitled to the corpus. Jane is a beneficial owner of the
trust.
Example 7: Tom's spouse is the beneficiary of an irrevocable trust managed
by a third party investment adviser. Tom is a beneficial owner of the
trust.
APPENDIX 3: CODE-EXEMPT SECURITIES
Because they do not pose a possibility for abuse, some securities are exempt
from the Advisors' Code of Ethics. The following is the current list of
"Code-Exempt Securities":
* Mutual funds (open-end funds)
* Bank Certificates of Deposit
* U.S. government securities (such as Treasury notes, etc.)
* Securities which are acquired through an employer-sponsored automatic
payroll deduction plan
* securities purchased through dividend reinvestment programs
* commercial paper;
* bankers acceptances; AND
* Futures contracts (and option contracts) on the following:
* Standard & Poor's 500 Index; or
* Standard & Poor's 100 Index
We may modify this list of securities at any time, please send a written request
to Jones & Babson to request the most current list.
APPENDIX 4: HOW DOES THE PRECLEARANCE PROCESS WORK?
After requesting pre-clearance from the compliance officer, your request is then
subjected to the following test.
STEP 1: BLACKOUT TEST
* Is the security in question on the relevant Access Person, Investment or
Portfolio Person blackout list?
If "YES", the system will send a message to you to DENY the personal trade
request.
If "NO", then your request will be approved by the compliance officer.
THE PRECLEARANCE PROCESS CAN BE CHANGED AT ANY TIME TO ENSURE THAT THE GOALS OF
THE ADVISORS' CODE OF ETHICS ARE ADVANCED.
SCHEDULE A
THE FUNDS:
AFBA FIVE STAR FUND, INC.
D.L. BABSON BOND TRUST
BABSON ENTERPRISE FUND, INC.
BABSON ENTERPRISE FUND II, INC.
DAVID L. BABSON GROWTH FUND, INC.
SHADOW STOCK FUND, INC.
BABSON VALUE FUND, INC.
D.L. BABSON MONEY MARKET FUND, INC.
D.L. BABSON TAX-FREE INCOME FUND, INC.
BABSON-STEWART IVORY INTERNATIONAL FUND, INC.
BUFFALO BALANCED FUND, INC.
BUFFALO EQUITY FUND, INC.
BUFFALO SMALL CAP FUND, INC.
BUFFALO USA GLOBAL FUND, INC.
BUFFALO HIGH YIELD FUND, INC.
INVESTORS MARK SERIES FUND, INC.
UMB SCOUT CAPITAL PRESERVATION FUND, INC.
UMB SCOUT WORLDWIDE FUND
UMB SCOUT WORLDWIDE SELECT FUND
UMB SCOUT KANSAS TAX-EXEMPT BOND FUND, INC.
UMB SCOUT STOCK FUND
UMB SCOUT STOCK SELECT FUND
UMB SCOUT REGIONAL FUND, INC.
UMB SCOUT BOND FUND, INC.
UMB SCOUT MONEY MARKET FUND, INC.
UMB SCOUT TAX-FREE MONEY MARKET FUND, INC.
UMB SCOUT BALANCED FUND, INC.
UMB SCOUT EQUITY INDEX FUND
UMB SCOUT TECHNOLOGY FUND
ACKNOWLEDGMENT OF CODE OF ETHICS
I have read the Code of Ethics and agree to comply with its provisions.
________________________________________________________________
Print Name
____________________________________________________ ________________________
Signature Date
- --------
1. Section 17j of the Investment Company Act of 1940 and Rule 17j-1
thereunder as revised in 1999 and Section 204A of the Investment Advisers Act of
1940 and Rule 204-2 thereunder serve as a basis for much of what is contained in
this Code of Ethics.
2. How does Jones & Babson determine whether to approve or deny your
preclearance request? See Appendix 4 for a description of the process.
3. If you are the compliance officer, you must receive your approval from
the President.
STANDISH AYER & WOOD, INC.
STANDISH INTERNATIONAL MANAGEMENT CO., LLC
CODE OF ETHICS
--------------
A. Statement of Policy.
This Code of Ethics is based upon the principle that the officers,
directors and employees of Standish, Ayer & Wood, Inc. and Standish
International Management Co., LLC (each, the "Adviser") owe a fiduciary
duty to the investment companies registered under the Investment Company
Act of 1940 (each a "Fund") and other clients for which the Adviser acts as
investment adviser or subadviser. Accordingly, each officer, director and
employee of the Adviser should conduct personal trading activities in a
manner that does not interfere with a client's portfolio transactions or
take advantage of a relationship with any client. Persons covered by this
Code of Ethics must adhere to these general principles as well as the
Code's specific requirements.
The fundamental position of the Adviser is that in effecting personal
securities transactions personnel of the Adviser must place at all times
the interests of clients ahead of their own pecuniary interests. All
personal securities transactions by these persons must be conducted in
accordance with this Code of Ethics and in a manner to avoid any actual or
potential conflict of interest or any abuse of any person's position of
trust and responsibility. Further, these persons should not take
inappropriate advantage of their positions with or on behalf of a client.
Without limiting the foregoing, it is the intention of the Adviser that
this Code of Ethics not prohibit personal securities transactions by the
Adviser's personnel made in accordance with the letter and the spirit of
the Code.
B. Definitions.
For purposes of this Code of Ethics, the following definitions will apply:
1. Access Person. The term "Access Person" means any director, officer or
advisory person (as defined below) of the Adviser.
2. Acquisition. The term "acquisition" or "acquire" includes the receipt of
any gift of Covered Securities.
3. Advisory Person. The term "Advisory Person" means
(a) Every employee or on-site independent contractor of the Adviser
(or of any company in a control relationship to the Adviser) who, in
connection with his or her regular functions or duties, makes,
participates in, or obtains information regarding, the purchase or
sale of Covered Securities (as defined below) by a Fund or other
client, or whose functions relate to the making of any recommendations
concerning the purchase or sale of Covered Securities by a Fund or
other client; and
(b) Every natural person in a control relationship to the Adviser who
obtains information concerning recommendations made to a Fund
concerning the purchase or sale of a Covered Security and every other
employee or on-site independent contractor of the Adviser designated
as an Access Person by the Code of Ethics Supervisor.
4. Beneficial Ownership. The term "Beneficial Ownership" means a direct or
indirect "pecuniary interest" (as defined in subparagraph (a)(2) of Rule
16a-1 under the Securities Exchange Act of 1934 (the "1934 Act")) that is
held or shared by a person directly or indirectly (through any contract,
arrangement, understanding, relationship or otherwise) in a security. While
the definition of "pecuniary interest" in subparagraph (a)(2) of Rule 16a-1
is complex, this term generally means the opportunity directly or
indirectly to profit or share in any profit derived from a transaction in a
security. An indirect pecuniary interest in securities by a person would be
deemed to exist as a result of:
(a) ownership of securities by any of that person's immediate family
members sharing the same household (including a child, stepchild,
grandchild, parent, stepparent, grandparent, spouse, sibling, mother-
or father-in-law, sister- or brother-in-law, and son- or
daughter-in-law);
(b) the person's partnership interest in the portfolio securities held
by a general or limited partnership which such person controls;
(c) the person's right to receive dividends from a security if this
right is separate or separable from the underlying securities;
(d) the person's interest in securities held by a trust under certain
circumstances; and
(e) the person's right to acquire securities through the exercise or
conversion of a "derivative security" (which term excludes (i) a
broad-based index option or future, (ii) a right with an exercise or
conversion privilege at a price that is not fixed, and (iii) a
security giving rise to the right to receive another security only pro
rata and by virtue of a merger, consolidation or exchange offer
involving the issuer of the first security).
5. Code of Ethics Supervisor. The term "Code of Ethics Supervisor" means
the officer of the Adviser designated from time to time by the Adviser's
compliance officer to (a) authorize or deny permission to purchase or sell
Covered Securities, (b) receive and review reports of purchases and sales
by Access Persons and (c) receive and review other reports that may be
required from time to time. The term "Alternative Code of Ethics
Supervisor" means the officer of the Adviser designated from time to time
by the Adviser to perform the duties of the Code of Ethics Supervisor in
connection with personal transactions by the Code of Ethics Supervisor or
in the absence of the Code of Ethics Supervisor.
6. Conflicts Committee. The term "Conflicts Committee" means any committee
designated by the management of the Adviser to resolve conflicts of
interest and oversee and enforce the Adviser's Code of Ethics (or any
successor committee or person that performs substantially the same
functions as the Conflicts Committee).
7. Control. The term "Control" has the same meaning as that set forth in
Section 2(a)(9) of the 1940 Act. Section 2(a)(9) provides that Control
means the power to exercise a controlling influence over the management or
policies of the Adviser, unless such power is solely the result of an
official position with the Adviser.
8. Covered Security. The term "Covered Security" means a security as
defined in Section 2(a)(36) of the 1940 Act, except that it does not
include:
(a) Direct obligations of the government of the United States.
(b) Bankers' acceptances, bank certificates of deposit, commercial
paper and high quality short-term debt instruments, including
repurchase agreements.
(c) Shares issued by open-end management investment companies
registered under the 1940 Act.
(d) Any other security determined by the Securities and Exchange
Commission ("SEC") or its staff to be excluded from the definition of
"Covered Security" contained in Rule 17j-1 under the 1940 Act.
9. Disposition. The term "disposition" or "dispose" includes the making of
any personal or charitable gift of Covered Securities.
10. Family Account. The term "Family Account" means any brokerage or other
account containing securities (including but not limited to Covered
Securities) (1) in which an immediate family member of the Access Person
not sharing the same household has Beneficial Ownership and (2) over which
the Access Person exercises direct or indirect, sole or shared, investment
control.
11. Fund. The term "Fund" has the meaning designated in the preamble
hereto.
12. Initial Public Offering. The term "Initial Public Offering" means an
offering of securities registered under the Securities Act of 1933, as
amended (the "1933 Act"), by an issuer, which immediately before
registration, was not subject to reporting requirements of Section 13 or
15(d) of the 1934 Act.
13. Investment Decision Maker. The term "Investment Decision Maker" means
any portfolio manager of the Adviser and any other Advisory Person who
assists a portfolio manager in making investment decisions for a Fund or
other client, including, but not limited to, all analysts of the Adviser or
of any company in a control relationship to the Adviser.
14. Limited or Private Offering. The term "Limited or Private Offering"
means an offering that is exempt from registration under Section 4(2) or
4(6) of the 1933 Act or Rule 504, 505 or 506 thereunder.
15. 1940 Act. The term "1940 Act" means the Investment Company Act of 1940
and the rules and regulations thereunder, both as amended from time to
time, and any order or orders thereunder which may from time to time be
applicable to any Fund.
16. Purchase. The term "purchase" includes the writing of an option to
purchase.
17. Sale. The term "sale" includes a short sale, the writing of an option
to sell and the making of a gift.
18. Security being Considered for Purchase or Sale. A security is "being
considered for purchase or sale" when a recommendation to purchase or sell
a security has been made and communicated and, with respect to the person
making the recommendation, when such person seriously considers making such
a recommendation.
19. Security to be Held or Acquired. The phrase "security held or to be
acquired" means any Covered Security which, within the most recent 15 days,
is or has been held by a Fund or is being or has been considered by the
Adviser for purchase by a Fund or any option to purchase or sell and any
security convertible into, or exchangeable for, such Covered Security.
C. Prohibited and Restricted Activities.
While the scope of actions which may violate the Statement of Policy set
forth above cannot be exactly defined, these actions would always include
at least the following prohibited activities.
1. Competing with Client Trades. No Access Person may, directly or
indirectly, purchase or sell securities if the Access Person knows, or
reasonably should know, that these securities transactions compete in the
market with actual or considered securities transactions for a client, or
otherwise personally act to injure a client's securities transactions.
2. Personal Use of Client Trading Knowledge. No Access Person may use the
knowledge about securities purchased or sold by a client or securities
being considered for purchase or sale by a client to profit personally,
directly or indirectly, by the market effect of such transactions.
3. Disclosure of Client Trading Knowledge. No Access Person may, directly
or indirectly, communicate to any person who is not an Access Person any
non-public information relating to a client including, without limitation,
the purchase or sale or considered purchase or sale of a security on behalf
of a client, except to the extent necessary to effectuate securities
transactions on behalf of a client.
4. Initial Public Offerings. No Access Person may, directly or indirectly,
purchase any security sold in an Initial Public Offering, unless the
Conflicts Committee exempts the purchase because of special conditions
associated with the purchase.
5. Limited or Private Offerings. No Access Person may, directly or
indirectly purchase any security issued pursuant to a Limited or Private
Offering without obtaining prior written approval from the Conflicts
Committee. Access Persons who have received authorization to purchase
securities in a Limited or Private Offering must disclose their Beneficial
Ownership of these securities when these Access Persons are involved in
considering the purchase on behalf of a Fund or other client of securities
of the issuer of the privately placed securities. A decision to purchase
securities of this issuer must be independently reviewed by an investment
person with no personal interest in that issuer.
6. Acceptance of Gifts. No Access Person may accept any gift or other thing
of more than de minimis value from any person or entity that does business
with or on behalf of the Adviser. The Conflicts Committee will from time to
time specify the value which will be considered de minimis for purposes of
this restriction.
7. Board Service; Outside Employment. No Access Person may serve on the
board of directors or trustees of any organization, whether publicly traded
or otherwise, absent prior written authorization and determination by the
Conflicts Committee that the board service would be consistent with the
interests of the Funds and other clients of the Adviser. If board service
is authorized, Access Persons serving as directors or trustees of issuers
may not take part in an investment decision on behalf of the Funds or other
clients concerning securities of these issuers. Likewise, no access person
may accept any outside employment absent the prior written authorization of
the Conflicts Committee.
8. Transactions During Blackout Period. No Investment Decision Maker may,
directly or indirectly, (a) purchase or sell any Covered Security in which
he or she has any Beneficial Ownership or (b) purchase any Covered Security
if that purchase would cause the Investment Decision Maker to acquire any
Beneficial Ownership, in each case within a period of seven (7) calendar
days before and after any Fund or other client as to which he or she is an
Investment Decision Maker has purchased or sold such Covered Security.
9. Short-Term Trading. No Access Person may purchase and sell, or sell and
purchase, the same (or equivalent) Covered Securities within a 60 calendar
day period. The Conflicts Committee may, upon request, exempt an Access
Person from this prohibition if the Conflicts Committee determines that
extenuating circumstances warrant the exemption.
10. Disclosure of Personal Interest. No Investment Decision Maker may
recommend any securities transaction by a Fund or other client without
having previously disclosed any Beneficial Ownership in these securities or
the issuer thereof to the Adviser, including without limitation:
(a) That Investment Decision Maker's Beneficial Ownership of any
securities of the issuer;
(b) Any contemplated transaction by that Investment Decision Maker in
these securities;
(c) Any position with the issuer or its affiliates; and
(d) Any present or proposed business relationship between the issuer
or its affiliates and that Investment Decision Maker or any party in
which the Investment Decision Maker has a significant interest.
An interested Investment Decision Maker may not participate in a decision
to purchase and sell securities of the issuer on behalf of a Fund or any
other client.
11. "Good Until Cancelled" or "Limit Orders." No Access Person may place
any "good until cancelled" or "limit" order that does not expire on the day
preclearance is granted.
D. Exempt Transactions.
The following transactions are exempt from the preclearance requirements
and substantive prohibitions and restrictions of the Code, but are not
exempt from any reporting requirements that may apply under Section H of
this Code.
1. Purchases or sales for an account over which the Access Person has no
direct or indirect influence or control;
2. Purchases or sales which are non-volitional on the part of the Access
Person;
3. Purchases which are part of an automatic dividend reinvestment plan, but
only to the extent the access person makes no voluntary adjustment in the
rate or type of investment or divestment;
4. Purchases or sales for which the Access Person has received prior
written approval from the Code of Ethics Supervisor. Prior approval will be
granted only if a purchase or sale of Covered Securities is consistent with
the purposes of this Code of Ethics, Section 17(j) of the 1940 Act and the
rules thereunder; and
5. Purchases in an Initial Public Offering if (a) the offering is part of
the "demutualization" or similar transaction of a mutual bank, insurance
company or similar issuer and the Access Person's ability to participate is
the direct result of the Access Person's ownership of insurance policies or
deposits issued or maintained by the issuer and (b) the allocation of
shares available for acquisition by the Access Person is based on the
Access Person's ownership of these policies or deposits.
6. Transactions involving the disposition solely of fractional shares of
equity Covered Securities.
7. The receipt of any gift of Covered Securities.
Subject to applicable law, the Conflicts Committee may, upon consideration
of all of the relevant facts and circumstances, grant a written exemption
from provisions of this Code of Ethics with respect to any transaction
based on a determination that the transaction does not conflict with the
interests of any Fund or client.
E. Joint Participation.
A specific provision of the 1940 Act prohibits Access Persons, in the
absence of an order of the SEC, from effecting a transaction in which a
Fund is a "joint or a joint and several participant" with that Access
Person. Any transaction which suggests the possibility of a question in
this area should be presented to the Code of Ethics Supervisor and legal
counsel for review.
F. Duplicate Brokerage Confirmations and Statements.
Each Access Person must direct the Access Person's brokers to supply to the
Code of Ethics Supervisor, on a timely basis and not less frequently than
every calendar quarter, duplicate copies of confirmations of and account
statements reflecting all Covered Securities transactions and holdings (1)
in which the Access Person has or acquires a direct or indirect Beneficial
Ownership interest and (2) that are included in a Family Account, in each
case whether or not one of the exemptions listed in Section D above
applies.
G. Preclearance Procedures For Transactions in Securities.
1. Every Access Person must request and obtain preclearance from the Code
of Ethics Supervisor before effecting any personal securities
transactions in Covered Securities in or as to which the Access Person
both: (a) has or acquires a Beneficial Ownership and (b) has direct or
indirect, sole or shared, investment control, except for exempt
transactions described in Section D above. The Access Person must
submit to the Code of Ethics Supervisor a preclearance request on a
form designated by the Code of Ethics Supervisor from time to time for
each purchase or sale of a Covered Security on behalf of such Access
Person prior to the execution of such transaction.
2. The Code of Ethics Supervisor will compare the proposed transaction to
the daily Restricted List maintained by the Adviser. Preclearance will
be denied if: (a) the Covered Security is being considered for
purchase or sale by a Fund or other client or (b) there is an order
pending for a Fund or other client with respect to such Covered
Security. The transaction may not be effected unless the Code of
Ethics Supervisor pre-clears the transaction in writing or orally (and
subsequently confirming the oral preclearance in writing).
Preclearance is valid only for the trading day on which it is issued.
H. Reporting Requirements.
Every Access Person subject to this Section H must submit to the Code of
Ethics Supervisor, on forms designated by the Code of Ethics Supervisor,
the following reports as to (1) all Covered Securities and brokerage
accounts in which the Access Person has, or by reason of a transaction,
acquires Beneficial Ownership, whether or not the Access Person had any
direct or indirect control over the Covered Securities or accounts and (2)
all Family Accounts, in each case, including reports covering securities
exempted by Section D.
1. Initial Holdings Reports. Not later than 10 days after an Access
Person becomes an Access Person, the following information:
(a) The title, number of shares and principal amount of each
Covered Security (i) in which the Access Person had any direct or
indirect Beneficial Ownership and (ii) that was included in a
Family Account when the Access Person became an Access Person;
(b) The name of any broker, dealer or bank with whom the Access
Person maintained (i) an account containing securities (including
but not limited to Covered Securities) in which the Access Person
had any direct or indirect Beneficial Ownership or (ii) a Family
Account, each as of the date the Access Person became an Access
Person.
(c) The date the report is being submitted by the Access Person.
2. Quarterly Transaction Reports. Not later than 10 days after the end
of each calendar quarter, the following information:
(a) Covered Securities Transactions. With respect to any
acquisition or disposition during the calendar quarter of a
Covered Security (x) in which the Access Person had any direct or
indirect Beneficial Ownership and (y) that was included in a
Family Account:
(i) The date of the acquisition or disposition, the title,
the interest rate and maturity date (if applicable), the
number of shares and the principal amount of each Covered
Security;
(ii) The nature of the acquisition or disposition (i.e.,
purchase, sale, gift or any other type of acquisition or
disposition)
(iii)The price of the Covered Security at which the
acquisition or disposition was effected;
(iv) The name of the broker, dealer or bank with or through
which the acquisition or disposition was effected; and
(v) The date the report is submitted by the Access Person to
the Code of Ethics Supervisor.
However, if no reportable transactions in any Covered Securities
were effected during a calendar quarter, the affected Access
Person must submit to the Code of Ethics Supervisor, within ten
calendar days after the end of the quarter, a report stating that
no reportable Covered Securities transactions were effected.
(b) Brokerage Accounts. With respect to (i) any account
established by the Access Person containing securities (including
but not limited to Covered Securities) in which the person had a
direct or indirect Beneficial Ownership and (ii) a Family Account
during the quarter:
(1) The name of the broker, dealer or bank with whom the
Access Person established the account;
(2) The date the account was established; and
(3) The date the report is being submitted by the Access
Person.
3. Annual Holdings Reports. By a date specified by the Code of Ethics
Supervisor and as of a date within 30 days before this reporting
deadline, the following information:
(a) The title, number of shares and principal amount of each
Covered Security (i) in which the Access Person had any direct or
indirect Beneficial Ownership and (ii) that was included in a
Family Account:;
(b) The name of any broker, dealer or bank with whom the Access
Person maintained (i) an account containing securities in which
the Access Person had any direct or indirect Beneficial Ownership
and (ii) a Family Account.
(c) The date the report is being submitted by the Access Person.
4. Every report concerning a Covered Securities transaction that would
be prohibited by Section C if an exemption were not available under
Section D must identify the exemption relied upon and describe the
circumstances of the transaction.
5. Notwithstanding subparagraph 2 of this Section H, an Access Person
need not make quarterly transaction reports pursuant to this Code of
Ethics if the reported information would duplicate information
reported pursuant to Rule 204-2(a)(12) under the Investment Advisers
Act of 1940 (the "Advisers Act").
6. Any report submitted by an Access Person in accordance with this
Code may contain a statement that the report will not be construed as
an admission by that person that he or she has any direct or indirect
Beneficial Ownership in any Covered Security to which the report
relates. The existence of any report will not by itself be construed
as an admission that any event reported thereon constitutes a
violation of this Code.
7. To the extent consistent with Rule 17j-1 under the 1940 Act, and
Rule 204-2(a)(12) under the Advisers Act, the Code of Ethics
Supervisor may approve other alternative reporting procedures from
time to time.
8. With respect to transactions or holdings required to be reported
under Section H.1-3 of this Code of the type described in Section
D.1-3 as to reportable information which an Access Person does not
reasonably have access to, or which is not known by an Access Person,
on the date such report is required to be submitted, such Access
Person shall nevertheless:
(a) file the required report in a timely manner;
(b) indicate in the report, to the extent then known to the
Access Person, that certain data concerning reportable
transactions or holdings is unavailable or unknown, describing
the circumstances resulting in its being unavailable or unknown;
and
(c) submit a supplemental report containing such information
promptly upon his or her having access to such information.
I. Initial and Annual Certification of Compliance.
1. Each Access Person, within ten (10) days after becoming an Access
Person, must certify, on a form designated by the Code of Ethics
Supervisor, that the Access Person:
(a) Has received, read and understands this Code of Ethics and
recognizes that the Access Person is subject hereto;
(b) Will comply with all the requirements of this Code of Ethics; and
(c) Has disclosed to the Code of Ethics Supervisor all holdings of
Covered Securities and all accounts required to be disclosed pursuant
to the requirements of this Code of Ethics.
2. Each Access Person must also certify annually (by a date specified by
and on the form designated by the Code of Ethics Supervisor) that the
Access Person
(a) Has received, read and understand this Code of Ethics and
recognizes that the Access Person is subject hereto;
(b) Has complied with all the requirements of this Code of Ethics; and
(c) Has disclosed or reported all personal securities transactions,
holdings and accounts required to be disclosed or reported in
compliance with the requirements of this Code of Ethics.
J. Confidentiality.
All information obtained from any Access Person hereunder normally will be
kept in strict confidence by the Adviser, except that reports of
transactions and other information obtained hereunder may be made available
to the Securities and Exchange Commission or any other regulatory or
self-regulatory organization or other civil or criminal authority to the
extent required by law or regulation or to the extent considered
appropriate by senior management of the Adviser in light of all the
circumstances. In addition, in the event of violations or apparent
violations of the Code, this information may be disclosed to affected
clients.
K. Identification of and Notice to Access Persons.
The Code of Ethics Supervisor will identify all persons who are considered
to be "Access Persons" and Investment Decision Makers and inform these
persons of their respective duties and provide these persons with copies of
this Code of Ethics.
L. Review of Reports.
The Code of Ethics Supervisor will review the information to be compiled
under this Code of Ethics in accordance with such review procedures as the
Code of Ethics Supervisor and Conflicts Committee may from time to time
determine to be appropriate in light of the purposes of this Code of
Ethics.
M. Sanctions.
Any violation of this Code of Ethics will result in the imposition of such
sanctions as the Conflicts Committee may deem appropriate under the
circumstances, which may include, but are not limited to, a warning,
disgorgement of profits obtained in connection with a violation, the
imposition of fines, suspension, demotion, termination of employment or
referral to civil or criminal authorities.
N. Recordkeeping Requirements.
The Adviser will maintain and preserve:
1. In an easily accessible place, a copy of this Code of Ethics (and any
prior code of ethics that was in effect at any time during the past five
years) for a period of five years;
2. In an easily accessible place, a record of any violation of this Code of
Ethics (and any prior code of ethics that was in effect at any time during
the past five years) and of any action taken as a result of such violation
for a period of five years following the end of the fiscal year in which
the violation occurs;
3. A copy of each report (or computer printout) submitted under this Code
of Ethics for a period of five years, provided that for the first two years
such reports must be maintained and preserved in an easily accessible
place;
4. In an easily accessible place, a list of all persons who are, or within
the past five years were, required to make or required to review, reports
pursuant to this Code of Ethics.
5. A copy of each report provided to any Fund as required by paragraph
(c)(2)(ii) of Rule 17j-1 under the 1940 Act or any successor provision for
a period of five years following the end of the fiscal year in which the
report is made, provided that for the first two years such record will be
preserved in an easily accessible place; and
6. A written record of any decision, and the reasons supporting any
decision, to approve the purchase by an Access Person of any security in an
Initial Public Offering or in a Limited or Private Offering for a period of
five years following the end of the fiscal year in which the approval is
granted.
[GRAPHIC OMITTED] CODE OF ETHICS
REGARDING
PERSONAL TRADING
IN
SECURITIES
AND CONFLICTS OF INTEREST
-------------------------------------------------------
I. INTRODUCTION
A. PURPOSE
Although Stein Roe & Farnham Incorporated ("SRF") believes that individual
investment activities by its officers and employees should not be prohibited or
discouraged, the fiduciary obligations of SRF to its clients and of the Funds to
their shareholders necessarily require some restrictions on the personal
investment activities of the directors, officers, trustees and employees of SRF
and the Funds and of members of their families.
This Code of Ethics is intended to address three fundamental principles which
must guide our personal investment activities in light of our fiduciary duties:
FIRST, THE INTERESTS OF CLIENTS AND FUND SHAREHOLDERS MUST ALWAYS TAKE
PRECEDENCE OVER PERSONAL INTERESTS;
SECOND, SRF PERSONNEL MUST NOT TAKE INAPPROPRIATE ADVANTAGE OF THEIR POSITIONS
AS SECURITIES INDUSTRY PROFESSIONALS; AND,
THIRD, PERSONAL INVESTING ACTIVITIES MUST BE CONDUCTED IN SUCH A WAY AS TO AVOID
ANY ACTUAL OR POTENTIAL CONFLICT WITH INVESTMENT ACTIVITIES UNDERTAKEN FOR
CLIENTS OR FUND SHAREHOLDERS.
Further, Securities and Exchange Commission rule 17j-1 under the Investment
Company Act of 1940 requires that every investment company and any adviser to an
investment company adopt a code of ethics regarding personal investment
activities of persons having access to information about portfolio transactions
of the investment company, and rule 204-2 under the Investment Advisers Act
requires that investment advisers keep certain records, which must be available
for inspection by representatives of the SEC, regarding personal investment
activities of advisory personnel.
This Code of Ethics ("Code") has been adopted by SRF and by the respective
boards of trustees (the "Fund Boards") or similar governing bodies of the
investment companies managed by SRF ("Funds"), to address these principles and
regulatory requirements.
B. COMPLIANCE WITH THIS CODE IS A CONDITION OF EMPLOYMENT
Compliance with this Code and the principles described above is a condition of
employment of each officer and employee of SRF. Violation of this Code or the
principles may be cause for disciplinary action by SRF, including termination of
employment. Other disciplinary actions can include warnings, and periods of
"probation" during which all personal investment activities (except for
specifically approved liquidation of current positions) is prohibited.
Personal investment activities of persons covered by this Code must adhere to
the fundamental principles described above, as well as the specific provisions
of the Code. It bears emphasis that technical compliance with the letter of the
Code's requirements and procedures will not automatically insulate from scrutiny
transactions which appear to indicate a pattern of abuse of an individual's
fiduciary duties to the Funds or other clients of SRF.
C. INTERPRETATION AND ENFORCEMENT
Questions regarding personal investment activities under the Code should be
directed to SRF's Compliance Manager who also is responsible for the enforcement
of the Code subject, in the case of disciplinary sanctions, to the approval of
the General Counsel of SRF and the Chief Compliance Officer of Liberty Financial
Companies, Inc. Violations resulting in disciplinary action, including
identification of the persons involved, description of the nature of the
violation, and the disciplinary action taken, also are reported periodically to
the respective Executive Committees of Stein Roe & Farnham Private Capital
Management and Liberty Funds Group (a business unit which includes SRF's mutual
funds and institutional asset management businesses) and to the boards of the
Funds.
D. DEFINITIONS
This Code classifies directors, officers, trustees, and employees of SRF and the
Funds into several categories, and imposes varying requirements by category
appropriate to the sensitivity of the positions included in that category.
INVESTMENT PERSONNEL
Investment Personnel includes: portfolio manager, associate manager, and
research analysts entrusted with the direct responsibility and authority, either
alone or as part of a co-manager team or group, to make investment decisions
regarding a Fund or other client; and
members of investment strategy and policy committees, portfolio administrators,
trading personnel and all other directors and officers of SRF, who, in
connection with their regular duties know or have access to information about
the purchase or sale of a security by a fund or client.
ACCESS PERSONNEL
Access Persons include Investment Personnel and all other directors, officers
and employees of SRF (except Limited Access Persons), regardless of job
function, as any SRF employee can be exposed from time to time to information
about client or Fund portfolio activities.
LIMITED ACCESS PERSON
A Limited Access Persons is a person who (1) is (i) a Fund trustee who is
neither an unaffiliated trustee nor a director, officer or employee of SRF, (ii)
a director or officer, but not an employee, of SRF who does not in the course of
his or her normal duties obtain information about client or fund portfolio
activities or (iii) an employee, but not an exclusive employee, of SRF who is
also a director, officer or employee of another investment adviser or
sub-adviser to a Fund (including a person who may be dually employed by SRF and
such other adviser or sub-adviser) and (2) is subject to an Affiliate Code (as
such term is described below) of another investment adviser (the "Affiliated
Adviser") controlled by Liberty Financial Companies, Inc. ("LFC"), provided
that:
1. the Affiliated Adviser has adopted a Code of Ethics complying with
Rule 17j-1 under the Investment Company Act 1940 that has been adopted
by the Fund Boards (an "Affiliate Code");
2. such person's personal securities transactions are governed by the
Affiliate Code and;
3. the Affiliated Adviser maintains a procedure to inform the Trustees of
the Funds and the Chief Compliance Officer of SRF (a) promptly in
writing of any change to the Affiliate Code, and (b) at least
quarterly of any violations of the Affiliate Code and any action taken
in response to each such violation.
Unaffiliated Trustees are the trustees or similar governing board members
("trustees") of the Funds who are not directors, officers or employees of SRF or
of any company controlling, controlled by or under common control with SRF.
OTHER DEFINED TERMS
Personal Transactions include transactions in securities and security derivative
interests for the account of any individual subject to this Code for his or her
own account, for an account owned jointly with another person, or as guardian,
executor or trustee, or for any account in which such individual, his or her
spouse or minor child residing in the same household, has an interest.
Exceptions regarding specified accounts may be made on a case-by-case basis by
the Compliance Manager where the Access Person certifies in writing (and
annually re-certifies, as applicable) that he or she has no control over the
account, e.g., a trust or estate managed by an independent trustee or executor,
or that the account belongs to a spouse whose transactions in securities are
subject to a code of ethics of his or her employer. In making such exceptions,
the Compliance Manager may require the Access Person to comply with various
requirements under this Code, e.g., periodic filing of holdings or transaction
reports, as the Compliance Manager deems appropriate in the circumstances.
Securities include equities and equity-related securities, such as common
stocks, options on common stocks, preferred stocks, shares of closed-end
investment companies, convertible or participating debentures or notes, various
derivative and corporate and municipal bonds and notes. Securities also include
limited partnership interests and private placement common or preferred stocks
or debt instruments.
Securities for purposes of this Code do not include:
U.S. Government obligations, bankers' acceptances, bank certificates of deposit,
commercial paper, shares of registered open-end investment companies (mutual
funds), index-based futures/options, options/futures on Treasury Notes or Bills,
Currency options/futures, or Liberty Financial Companies, Inc. stock or options
thereon.
Commodity Interests include futures contracts, and options on futures, relating
to any STOCK OR BOND. Commodity interests in agricultural or industrial
commodities, such as agricultural products or precious metals, are not covered
under this Code.
II. GENERAL REQUIREMENTS
The following general requirements of the Code are applicable to all Access
Persons (that is, to all SRF directors, officers and employees except those
persons described above who are not subject to this Code of Ethics, or to other
sub-groups as indicated:
A. DISCLOSURE OF HOLDINGS AND ACCOUNTS; ANNUAL CERTIFICATION OF COMPLIANCE
All Access Persons must disclose to the Compliance Manager upon commencement of
employment, and THEREAFTER ON AN ANNUAL BASIS FOR ALL NON-INVESTMENT PERSONNEL,
all securities and commodity interest holdings and accounts.
1. Each Access Person shall notify the Compliance Department each time
he/she opens a brokerage account that may be used to transact business
in Securities. The Compliance Department shall instruct the appropriate
firm to provide duplicate confirmations and periodic statements showing
all purchases and sales of securities to:
Stein Roe & Farnham Incorporated
Attn.: Compliance Manager
P.O. Box 4859
Chicago, Illinois 60680-4859
Although the Compliance Department will instruct the firm to provide
duplicate confirmations and periodic statements, it remains the
responsibility for the person who opens the account to see that the
firm sends the required confirmations and statements to SRF.
2. For any Access Person who maintains a bank custody account for personal
holdings, the bank custodian's statements will be accepted in lieu of
broker account statements.
Each calendar year each Access Person must complete and submit to the Compliance
Manager, the form of certification stating that he/she has received and
reviewed, and will comply with, this Code of Ethics.
B. DISCLOSURE OF FAMILY MEMBERS EMPLOYED IN THE SECURITIES OR COMMODITY INDUSTRY
Every Access Person must disclose in writing to the Compliance Manager the
employment of a spouse, other family member or anyone residing at the Access
Person's address (including a parent, sibling, spouse, child, grandchild, aunt,
uncle, nephew or niece, or the parent, sibling, child, grandchild, aunt, uncle,
nephew or niece of his or her spouse) in the securities or commodity industry
with their job title. It is prohibited for any director, officer or employee to
influence the investment activities of SRF for clients for direct or indirect
personal or familial benefit.
C. TRADING WHILE IN POSSESSION OF MATERIAL NON-PUBLIC ("INSIDE") INFORMATION IS
PROHIBITED All directors, officers and employees should read, understand and
comply with SRF's "Policies and Procedures Regarding Misuse of Material
Non-Public ("Inside") Information" which is distributed annually to all
personnel by the Compliance Department. It bears emphasis that an Access
Person's knowledge of pending Fund or other client transactions in a security
may be material non-public information, and that personal trading in such
security by the Access Person or others in possession of that information not
only would violate this Code, but also could subject the trader to criminal
penalties under federal securities laws.
D. RECEIPT OF GIFTS, PREFERRED INVESTMENT OPPORTUNITIES OR OTHER THINGS OF MORE
THAN "DE MINIMIS" VALUE FROM PERSONS OR ENTITIES DOING BUSINESS OR SEEKING TO DO
BUSINESS WITH SRF IS PROHIBITED Receipt by an Access Person of a non-cash gift
of more then a "de minimis" value (i.e., in excess of $100), a cash payment in
any amount, a preferred personal investment opportunity, or other thing of more
than "de minimis" value from any person or entity doing business or seeking to
do business with SRF or any Fund, including a broker-dealer or security issuer,
poses a potential conflict of interest and is prohibited. All directors,
officers and employees should read, understand and comply with SRF's statement
of policy regarding "Conflicts of Interest in Relationships with Clients and
Service or Supply Vendors" which is attached.
E. PURCHASE OF SECURITIES FROM OR SALE OF SECURITIES TO CLIENTS PROHIBITED
Directors, officers and employees are prohibited from, directly or indirectly,
purchasing any security from or selling any security to a client account. Such a
transaction would pose a direct conflict with SRF's fiduciary duty to the
client, and would violate applicable federal and state securities laws
(including, investment company clients, Section 17(a) of the Investment Company
Act) and ERISA.
F. PURCHASE OF EQUITY SECURITIES IN AN INITIAL PUBLIC OFFERING IS PROHIBITED
Purchase of equity securities in initial public offerings (IPOs) by Access
Persons creates an appearance that such personnel have taken inappropriate
advantage of their positions for personal benefit. Accordingly, purchase of
equity securities in an IPO by Access Persons is prohibited without exception.
FURTHER, IT IS PROHIBITED TO USE THE FACILITIES OF SRF TO SECURE AN IPO EQUITY
PURCHASE, DIRECTLY OR INDIRECTLY, FOR ANY NON-CLIENT, OR TO INDIRECTLY (THAT IS,
IN CIRCUMVENTION OF SRF PROCEDURES FOR ALLOCATION OF IPO PURCHASES AMONG
CLIENTS) SECURE AN IPO EQUITY ISSUE FOR ANY CLIENT. The prohibition on
purchasing equity securities in an IPO will not apply if the Access Person has
the right to purchase such security based on a pre-existing status as a
POLICYHOLDER OR DEPOSITOR. Evidence of the pre-existing status must be presented
to the Compliance Department prior to participation in the IPO.
H. DAY TRADING IS PROHIBITED
Access Persons are permitted to execute personal trades on the Internet but day
trading (purchase then sell or vice versa the same security in the same day) is
prohibited.
III. PERSONAL TRADING PROCEDURES FOR ALL ACCESS PERSONS
A. ALL TRANSACTIONS IN SECURITIES AND COMMODITY INTERESTS MUST BE PRE-CLEARED
WITH THE COMPLIANCE DEPARTMENT Every transaction in a security (including both
publicly traded and private placement securities) or commodity interest by an
Access Person must be pre-cleared and approved by the Compliance Department
prior to executing an order. Once granted, pre-clearance approval is valid only
until the close of business on the next business day (or, in the case of a
private placement purchase, the closing of the private placement transaction).
An order which is not executed within that time must be re-submitted for
pre-clearance approval. Pre-clearance approval is requested by utilizing the
FlexSpace application on your Windows NT desktop. Choose "Personal Trades" from
the list of applications. Once the Personal trades application has been started,
open the "Trade Clearance" view by selecting that option from the View list. To
enter a trade request use the "Enter Trade" screen. The Compliance Administrator
will notify an Access Person whether or not a trade is approved via "Trade
Clearance-My Trades" screen. The Access Person may place the trade with his/her
broker as soon as he/she receives an approved pre-clearance.
In submitting a proposed transaction for pre-clearance approval, an Access
Person must certify that the proposed transaction complies with the requirements
of this Code. In addition, a Portfolio Manager or Associate Manager submitting a
pre-clearance approval request must certify that he or she has determined that
it is not then appropriate to buy/sell the particular security for a client
portfolio for whom he or she has responsibility (including Funds in regard to
Fund managers). However, because compliance with this Code of transactions by
Investment Personnel may depend on their subsequent investment activities for
clients, pre-clearance approval of a transaction by the Compliance Department
does not necessarily mean the transaction complies with this Code.
Trades can only be placed in accounts that have previously been disclosed to the
Compliance Department and for which duplicate statements are being received (or
will be received, for a new account). Once an Access Person has been notified
that a trade has been approved, it is the Access Person's responsibility to
release the trade to the broker with instructions to fill the trade no later
than the close of business on the business day following authorization.
In determining whether to approve purchases of private placement securities by
Investment Personnel, the Compliance Department shall consider, among other
factors, whether the investment opportunity should be reserved for Funds or
other clients, and whether the opportunity is being offered to the Access Person
by virtue of his or her position with SRF.
EXCEPTIONS TO PRE-CLEARANCE RULE:
1. Third Party Investment Advisers:
An exception to the pre-clearance rule is made for employees whose
assets are managed on a discretionary basis by an INDEPENDENT third
party registered investment adviser. The registered investment adviser
or representative thereof, may not be a family member. Verification of
the investment adviser's discretionary relationship must be provided to
and approved by the Compliance Manager in writing on an annual basis
(copy of the signed contract is required). Although, a power of
attorney with a broker usually provides the broker with trading
authority, it normally does not give the broker investment discretion
and therefore, a power of attorney by itself normally will not satisfy
the requirements for a pre-clearance exception. Any agreement with a
broker will only qualify for the exception if the agreement identifies
the broker as an investment adviser, not as an agent.
While these accounts are exempt from pre-clearance, they are still
subject to all other provisions of the Code (i.e., 60 day ban on short
term profits, seven-day pre-and post transaction blackout period
surrounding client or Fund transactions, prohibition on the purchase of
IPO's and providing duplicate confirmations and periodic statements).
2. Liberty Financial Companies, Inc. ("LFC") Stock Options:
An exception to the pre-clearance requirement will be made for certain
employees who received LFC stock options and wish to exercise these
stock options. These options are exercised through LFC, who will report
the exercise directly to the Compliance Manager. A cashless exercise of
a LFC stock option is permitted through Merrill Lynch. LFC should be
contacted for instructions on exercising options.
3. Purchase or sale of LFC Stock:
An exception to the pre-clearance requirement will be made for those
purchases or sales of LFC stock.
4. No-Load Stock Programs, Dividend Reinvestment Plans or Investment Clubs:
Participation in these programs for all Access Persons requires approval by
the Compliance Manager. Purchases directly from an issuer or a pre-approved
Investment Club are not subject to the pre-clearance requirement but the
transaction must be reported within three days of receipt of confirmation
that the transaction has been executed.
5. Exercise of rights issued by an issuer pro rata to all holders of a class
of its securities: Purchases effected upon the exercise of rights issued by
an issuer pro rata to all holders of a class of its securities, to the
extent such rights were acquired from such issuer, and sales of such rights
so acquired, do not need to be pre-cleared but a report of the exercise
must be forwarded to the Compliance Manager. (Purchases of such rights in
the secondary market and subsequent sale thereof are subject to
pre-clearance.)
B. SEVEN-DAY BLACKOUT PERIOD APPLICABLE TO CERTAIN MODEL PORTFOLIO STOCKS AND
RELATED SECURITIES Model Portfolios (such as the Taxable Core Equity Portfolio)
are intended to provide guidance to portfolio managers in making investment
decisions for client accounts, and are widely communicated throughout SRF.
Because SRF does not manage all client accounts identically, changes in a Model
Portfolio can be expected to result in transactions for client accounts
occurring over a period of several days following the change. Accordingly, a
"blackout" period on personal investment activity in securities which are the
subject of such a change, or of a related security, is appropriate following any
such change.
No purchase or sale of a stock (or related option or other derivative of such
security) by any Access Person is permitted for a period of seven calendar days
(exclusive of the day of the relevant change) following:
1. the addition or deletion of such stock to or from the Taxable Core
Equity Portfolio, the Non-Taxable Core Equity Portfolio, the Tax
Managed Growth Portfolio and the Monitor List (collectively "Model
Portfolios") or
2. a change in recommendation (Increase, Accumulate or Decrease) of any
stock in any Model Portfolio.
With respect to personal sales only, exceptions to the seven calendar day
blackout period may be made on a case-by-case basis by the Compliance Manager
where it appears all anticipated client and Fund transactions have been
completed prior to the expiration of the blackout period.
C. BLACKOUT PERIODS NOT APPLICABLE TO CERTAIN HIGHLY LIQUID SECURITIES OR LFC
STOCK Personal investment transactions in stocks (and in convertible bonds or
convertible preferred stocks convertible into such common stocks) of companies
with a market capitalization of $5 billion or more at the time of purchase or
sale are not subject to the seven-day blackout period otherwise applicable to
all Access Persons described in III.B., above. In addition such securities and
LFC stock are not subject to the 15 day pre- and post-transaction blackout
period otherwise applicable to Portfolio Managers and other Investment Personnel
described in IV.A., below. Since LFC stock may not be held by SRF clients, the
model portfolios, or mutual funds, activity by Access Persons in LFC stock will
not adversely affect our clients. This includes LFC options. Stocks with a
market capitalization of $5 billion or more are sufficiently liquid and actively
traded that investment transactions undertaken for SRF clients and Funds are
unlikely to have any significant impact on the market price of such stocks.
However, because options and other derivatives may involve leverage which
magnifies the effect of even small price changes in the underlying stock,
PERSONAL INVESTMENT TRANSACTIONS IN OPTIONS AND OTHER DERIVATIVES REMAIN SUBJECT
TO THE BLACKOUT PERIODS DESCRIBED IN III.B. AND IV.A.
IV. ADDITIONAL RESTRICTIONS APPLICABLE TO PORTFOLIO MANAGERS AND OTHER
INVESTMENT PERSONNEL
A. 15 DAY PRE- AND POST-TRANSACTION BLACKOUT PERIOD SURROUNDING CLIENT OR FUND
TRANSACTIONS AND MODEL PORTFOLIO CHANGES PORTFOLIO MANAGERS AND ASSOCIATE
MANAGERS are prohibited from buying or selling a security (or a related option
or other derivative of such security) during the 15 calendar days commencing on
the seventh calendar day preceding the day on which transaction in such security
is executed for the account of a Fund or other client managed by such Portfolio
Manager. This 15-day blackout period also applies to all co-managers of a Fund
or client account.
The 15-day blackout period also applies to any research analyst who recommends
the purchase or sale of the particular security to a Portfolio Manager; PROVIDED
HOWEVER, that if the recommendation is only a reiteration (Maintain) of a prior
recommendation, the analyst is prohibited from buying or selling a security on
THE BUSINESS DAY BEFORE, THE DAY OF AND THE BUSINESS DAY AFTER the reiteration
(Maintain) of the prior recommendation. Equity analysts are prohibited from
buying or selling a security (or a related option or other derivative of such
security) during the 15 calendar days commencing on the seventh calendar day
preceding the day on which such analyst's addition or deletion of such security
to Model Portfolios or such analyst's change in recommendation of such security
on Model Portfolios.
MODEL PORTFOLIO TEAM MEMBERS ARE PROHIBITED FROM BUYING OR SELLING A SECURITY
(OR A RELATED OPTION OR OTHER DERIVATIVE OF SUCH SECURITY) DURING THE 15
CALENDAR DAYS COMMENCING ON THE SEVENTH CALENDAR DAY PRECEDING THE DAY ON WHICH
ANY PURCHASE OR SALE OF SUCH SECURITY IN THE MODEL PORTFOLIO FOR WHICH SUCH TEAM
IS RESPONSIBLE.
SRF recognizes that the application of the 15-day blackout period poses certain
procedural difficulties and may result in inadvertent violations from time to
time by covered personnel. Where such a violation results from a transaction
which can be reversed prior to settlement, such transaction should be reversed,
with the cost of reversal being borne by the covered person; or, if reversal is
impractical or impossible, exceptions to this prohibition MAY be allowed by the
Compliance Manager on A CASE-BY-CASE basis, but only where no abuse is involved
and the equities of the situation strongly support an exception. If no exception
is granted the employee will be required to disgorge any profits, net of
brokerage commission, to the Stein Roe & Farnham Foundation or monetary
penalties may be imposed.
B. BAN ON SHORT TERM TRADING PROFITS.
Portfolio Managers and other Investment Personnel are prohibited from profiting
in the purchase and sale, or sale and purchase, of the same (or equivalent)
securities within 60 calendar days. Where a violation of this prohibition
results from a transaction which can be reversed prior to settlement, such
transaction should be reversed, with the cost of reversal being borne by the
covered person; or, if reversal is impractical or impossible, then any profit
realized on such short-term investment, net of brokerage commissions but before
tax effect, shall be disgorged to the Stein Roe & Farnham Foundation.
The 60-day ban on short term profits does not apply to purchase or sale of LFC
stock or the exercise of options to purchase shares of LFC and the immediate
sale of the same or identical shares, including "cashless exercise"
transactions.
IT IS RECOGNIZED THAT THIS PROHIBITION EFFECTIVELY LIMITS THE UTILITY OF OPTIONS
TRADING, SHORT SALES OF SECURITIES, AND VARIOUS LEGITIMATE AND NON-ABUSIVE
HEDGING ACTIVITIES BY PORTFOLIO MANAGERS AND OTHER INVESTMENT PERSONNEL.
SRF also recognizes that inadvertent violations of this prohibition may result
in some instances from "involuntary" sales, E.G., where the issuer of a security
purchased for long-term investment becomes the subject of a takeover bid, or
presents a tender offer prior to the 60 days, or from routine dividend
reinvestment or periodic purchase plan transactions. Accordingly, exceptions to
this prohibition MAY be allowed by the Compliance Manager on A CASE-BY-CASE
basis, but only where no abuse is involved and the equities of the situation
strongly support an exception. If no exception is granted the employee will be
required to disgorge any profits, net brokerage commission, to the Stein Roe &
Farnham Foundation or monetary penalties may be imposed.
C. DISCLOSURE AND COMPLIANCE/INVESTMENT PEER REVIEW OF CERTAIN HOLDINGS
A Fund Portfolio Manager and other Investment Personnel owning a security (or an
option or other derivative relating to such security, or any privately placed
security of the same issuer, whether debt or equity) being considered for
initial purchase by a Fund which such Portfolio Manager manages or co-manages,
or which such other Investment Personnel has recommended to a Fund Portfolio
Manager, or proposed for addition to a Model Portfolio, must disclose the fact
of his or her ownership in advance.
On or before the date any Investment Personnel recommends for a Fund (or Model
Portfolio) the purchase or sale of a security that he or she personally owns, he
or she must disclose such ownership by completing a form (Exhibit II attached)
and submitting it to the Head of Equity or the Head of Fixed Income for
signature. This disclosure requirement is specific to the individual Fund or
Model Portfolio. This means that a separate form must be completed at the time
of the initial recommendation for each Fund or Model Portfolio, even if such a
form was previously completed for a different Fund or Model Portfolio. (However,
the form does not need to be completed each time there is an addition to or
deletion from a Fund or Model Portfolio position.) The form will then be
forwarded to the Compliance Manager.
The investment decision to purchase such a security for a Fund or add such a
security to a Model Portfolio shall be subject to independent review by
Investment Personnel with no personal interest in the issuer, as follows:
1. In the case of a holding by a Fund Portfolio Manager, the independent
review shall be by the co-manager of the Fund or, if none, then by the
Head of Equity Investments, the Head of Fixed Income or the Chief
Investment Strategist;
2. In the case of a holding by an equity analyst, the independent review
shall be by the Head of Equity Investments or the Chief Investment
Strategist; and,
3. In the case a holding by a member of a Model Portfolio team, the
independent review shall be by the other member(s) of that Model
Portfolio team.
D. SERVICE AS A DIRECTOR OF A PUBLIC COMPANY
Portfolio Managers and other Investment Personnel are prohibited from serving as
directors of publicly traded companies (other than LFC), except with the prior
authorization of the Chief Compliance Officer of LFC. Such authorization, if
granted, shall be based on a determination that the board service would not be
inconsistent with the interests of the Funds and other SRF clients. In
considering such authorization, the Chief Compliance Officer of LFC shall
consult with the General Counsel of SRF concerning the imposition of appropriate
procedures to prevent the misuse of material non-public information which may be
acquired through board service, and other procedures or investment restrictions
which may be required to prevent actual or potential conflicts of interest.
V. REPORTING PROCEDURES APPLICABLE TO ALL INVESTMENT PERSONNEL
A. QUARTERLY REPORTING FOR INVESTMENT PERSONNEL ONLY:
Investment Personnel (and any joint accounts or accounts in which they have an
interest) are required to report and confirm their securities transactions to
the Compliance Manager on a quarterly basis. Attached is the required form to be
completed. (Exhibit I). The appropriate box must be checked or the required
information completed and the form signed by the employee and returned to the
Compliance Manager within 10 calendar days after the end of each calendar
quarter (March 31, June 30, September 30 and December 31). Failure to
complete/confirm and submit this quarterly transaction report within 10 calendar
days following the quarter end will result in a monetary penalty for the first
offense and the monetary penalty will continue to increase in determined
increments for every additional quarter violation. Reporting violations will be
reported quarterly to the respective Executive Committees of the Stein Roe &
Farnham Private Capital Management and the Liberty Funds Group (a business unit
which includes the Firm's mutual funds and institutional asset management
businesses) and to the boards of trustees of the Funds.
Access persons who are not Investment Personnel will annually report their
security holdings - see Section II. General Requirements.
B. ENFORCEMENT
The Compliance Manager shall review reports filed under the Code of Ethics to
determine whether any violation of this Code of Ethics may have occurred. The
Compliance Manager, acting at the direction of Stein Roe's General Counsel and
the Chief Compliance Officer of Liberty Financial Companies, shall investigate
any alleged violation of the Code of Ethics.
VI. REQUIREMENTS APPLICABLE TO LIMITED ACCESS PERSONS
A. EXEMPT TRANSACTIONS
Limited Access Persons are not subject to any procedural restrictions or
reporting requirements with respect to personal investments in U.S. Government
obligations, bankers' acceptances, bank certificates of deposit, commercial
paper, or shares of registered open-end investment companies, index-based
futures/options, options/futures on Treasury Notes or Bills, Currency
options/futures or LFC stock or options therein. (collectively, "exempt
transactions").
B. REPORTS OF NON-EXEMPT TRANSACTIONS
Pursuant to the requirements of rule 204-2 under the Investment Advisers Act,
Limited Access Persons must report in writing to the Compliance Manager all
non-exempt personal transactions in securities within 10 days of the end of the
calendar quarter in which the transactions were effected. Such report shall
include:
1. the date of the transaction, the name and number of shares or
principal amount of the security or commodity interest involved;
2. the nature of the transaction (i.e., purchase, sale or other type of
acquisition or disposition)
3. the price at which the transaction was effected; and,
4. the name of the broker, dealer or bank with or through which the
transaction was effected.
A Limited Access Person who has no reportable transactions within a calendar
quarter shall file with the Compliance Manager within ten days of the end of
such quarter a written report so stating.
C. ANNUAL REPORTS OF HOLDINGS AND ACCOUNTS; ANNUAL CERTIFICATION OF COMPLIANCE
Each Limited Access Person shall file annually with the Compliance Manager a
statement in writing disclosing all security and commodity interest accounts and
holdings, as well as a certification that such person has read, understands and
is in compliance with this Code.
D. CERTAIN OTHER GENERAL PROVISIONS OF CODE APPLICABLE TO NON-EMPLOYEE DIRECTORS
AND OFFICERS The provisions of sections II.B., II.D., II.E, and II.F. of this
Code, above, regarding disclosure to the Compliance Manager of the employment of
a spouse or other family member in the securities or commodity industry, trading
while in possession of material non-public information, receipt of gifts or
other things of value from certain persons or entities, and purchase or sale of
securities from or to clients, respectively, shall be applicable to non-employee
directors and officers of SRF.
E. CONFLICT WITH FUND SECURITY OR COMMODITY INTEREST TRANSACTIONS
A Limited Access Person who knows or should know, by reason of his or her
receipt of information, that a specific security or commodity interest is to be
purchased or sold by any Fund, or is being considered for purchase or sale by
any Fund, is prohibited from effecting any personal transaction in such security
or commodity interest (or a related option or other derivative thereof) until
the transaction(s) of the Fund(s) in such security or commodity interest have
been completed.
VII. REQUIREMENTS APPLICABLE TO UNAFFILIATED TRUSTEES OF FUNDS
A. EXEMPT TRANSACTIONS
Unaffiliated trustees are not subject to any procedural restrictions or
reporting requirements with respect to personal investments in U.S. Government
obligations, bankers' acceptances, bank certificates of deposit, commercial
paper, or shares of registered open-end investment companies, index-based
futures/options, options/futures on Treasury Notes or Bills, Currency
options/future, or LFC stock or options therein (collectively, "exempt
transactions").
B. REPORTS OF CERTAIN NON-EXEMPT TRANSACTIONS
An unaffiliated trustee shall report in writing to the Compliance Officer a
non-exempt personal transaction in a security or commodity interest within 10
days of the end of the calendar quarter in which such transaction was effected,
IF AT THE TIME SUCH TRANSACTION WAS EFFECTED, the unaffiliated trustee knows, or
in the ordinary course of fulfilling his or her official duties as a trustee
should have known, that such security or commodity interest (or a related option
or other derivative thereof or, in the case of a security or commodity interest
which is an option or derivative, the underlying security or commodity) was or
would be purchased or sold by a Fund, or such purchase or sale was or would be
considered by a Fund or SRF as a Fund's investment adviser, during the 15
calendar day period immediately preceding or following the date of such
unaffiliated trustee's transaction.
The report of an unaffiliated trustee of any such transaction shall include: the
date of the transaction; the name and number of shares or principal amount of
the security or commodity interest involved; the nature of the transaction
(i.e., purchase, sale or other type of acquisition or disposition); the price at
which the transaction was effected; and, the name of the broker, dealer or bank
with or through which the transaction was effected.
The filing of any such report of a transaction by an unaffiliated trustee shall
not be deemed an admission of an infraction of this Code nor any other
impropriety.
C. CERTAIN OTHER GENERAL PROVISIONS OF CODE APPLICABLE TO UNAFFILIATED TRUSTEES
OF THE FUNDS.
The provisions of sections II.C. of this Code, above, regarding trading while in
possession of material non-public information, shall be applicable to
unaffiliated trustees of the Funds.
D. CONFLICT WITH FUND SECURITY OR COMMODITY INTEREST TRANSACTIONS
An unaffiliated trustee of a Fund who knows or should have known that a specific
security or commodity interest is to be purchased or sold by any Fund, or is
being considered for purchase or sale by any Fund, is prohibited from effecting
any personal transaction in such security or commodity interest (or a related
option or other derivative thereof) until the transaction(s) of the Fund(s) in
such security or commodity interest have been completed, except:
1. purchases pursuant to a dividend reinvestment program or purchases
based upon preexisting status as a policy holder or depositor;
2. purchases of securities through the exercise of rights that have been
issued as part of the pro rata issue to all holders of such securities
and the sale of such rights
3. transactions that are non-volitional, including any sale out of a
brokerage account resulting from a bona fide margin call as long as
collateral was not withdrawn form such account with 10 days prior to
the call;
4. transactions for an account over which the unaffiliated trustee has no
direct or indirect influence or control, including any transaction in
a personal account managed by a registered investment adviser with
discretion provided trustee did not have prior knowledge of the
transaction;
5. transactions in securities of issuers with market capitalization's of
$5 billion or more.
VIII. PERIODIC REPORTS TO MANAGEMENT AND TRUSTEES
The Compliance Manager shall prepare and deliver to the respective Executive
Committees of the Stein Roe & Farnham Private Capital Management and the Liberty
Funds Group (a business unit which includes the Firm's mutual funds and
institutional asset management businesses) and to the boards of trustees of the
Funds reports in writing which, at a minimum:
1. not less frequently than quarterly, identify any violations of this
Code (or of an Affiliate Code by a Limited Access Person) detected
since the last such report which required significant remedial action,
including the nature of the violation, the person or persons involved,
and the disciplinary or other remedial action taken;
2. not less frequently than annually, summarize existing procedures
concerning personal investing, and any changes in such procedures
since the last such report; and,
3. not less frequently than annually, identify any recommended changes in
existing restrictions or procedures based upon experience under the
Code, evolving industry practices, or developments in applicable laws
or regulations.
CONFLICTS OF INTEREST
IN RELATIONSHIPS WITH
CLIENTS AND SERVICE OR SUPPLY VENDORS
STATEMENT OF POLICY
The policy of Stein Roe & Farnham Incorporated ("SRF") is to procure supplies
and services, including brokerage services for the execution of client
transactions, and to provide services to its clients, on the basis of quality,
appropriate requirements, and reasonable cost, consistent with high professional
standards. Accordingly, all officers and employees must remain free from any
improper influences exerted either directly or indirectly by persons or firms
which may have a material interest in or influential relationships with persons
or firms dealing with SRF or its clients.
GUIDELINES TO IMPLEMENT THE POLICY
All officers and employees of SRF are prohibited from, directly or indirectly:
(1) accepting payments, gifts, services, loans or other gratuities offered
in the course of their employment by persons or firms doing or seeking
to do business with SRF or any client or prospective client of SRF, if
the circumstances surrounding the acceptance of such gratuities might
be construed to obligate SRF, influence a business decision involving
the person or firm involved, or provide an officer or employee
something of significant value. Examples of the types of gratuities
which are prohibited include, but are not limited to:
(a) cash payments in any amount;
(b) gifts in excess of "de minimis" value, i.e., in excess of $100;
(c) lavish entertainment, i.e., beyond normal business luncheons or
dinners;
(d) domestic or foreign travel or lodging, or reimbursement for the
cost thereof, even if in connection with an otherwise legitimate
business purpose such as meetings with clients or prospective
clients, security issuers or underwriters1;
(e) loans of money or facilities; or,
(f) preferred personal investment opportunities.
(2) offering or giving payments, gifts, services, loans or other gratuities
to clients, prospective clients, government officials or government
employees2, or employees of any other firm to promote special treatment
for SRF or to influence a business decision.
(3) asking or suggesting that any other officer or employee of SRF, or an
officer or employee of any other firm, make personal political3 or
charitable contributions or payments which could be construed to
directly benefit SRF; or from using SRF funds to compensate or
reimburse the donor for any such personal political4 or charitable
contribution or payment.
ENFORCEMENT OF THE POLICY
Strict adherence to this policy is required of all officers and employees as a
condition of employment with SRF. Further, all officers and employees are
required:
(1) to disclose to SRF's compliance manager the receipt of any payments,
gifts, services, loans or other gratuities which might be in violation
of this policy; and,
(2) to annually certify in writing their understanding of and adherence to
this policy.
Notice of this policy shall be directed to all officers and employees of SRF,
and to all service or supply vendors which do business with SRF, including
broker-dealers used for the execution of client transactions
EXHIBIT I
<TABLE>
<CAPTION>
STEIN ROE & FARNHAM - QUARTERLY PERSONAL TRANSACTION REPORT FOR INVESTMENT
PERSONNEL AND AFFILIATED TRUSTEES
For the period _____________________
Employee:_________________________
During the quarter listed above, in the accounts that I directly or indirectly
control and in which I have a direct or beneficial interest, I (check one):
_____ had no reportable transactions
_____ previously reported all securities transactions and I
confirm that these transactions were placed through
the accounts for which Stein Roe receives duplicate
confirmations and statements.
_____ need to report the following securities transactions:
- -------------- ------ --------------- ----------------------------------- ----------- -----------------------
<S> <C> <C> <C> <C> <C>
B
Trade Date S* Amount Description Price Broker
- -------------- ------ --------------- ----------------------------------- ----------- -----------------------
- -------------- ------ --------------- ----------------------------------- ----------- -----------------------
- -------------- ------ --------------- ----------------------------------- ----------- -----------------------
- -------------- ------ --------------- ----------------------------------- ----------- -----------------------
- -------------- ------ --------------- ----------------------------------- ----------- -----------------------
- -------------- ------ --------------- ----------------------------------- ----------- -----------------------
- -------------- ------ --------------- ----------------------------------- ----------- -----------------------
</TABLE>
* if other than Bought or Sold, please explain on reverse side
I CERTIFY THAT THE TRANSACTIONS REPORTED HEREIN ARE IN COMPLIANCE WITH THE
PROVISIONS OF THE CODE OF ETHICS REGARDING PERSONAL TRANSACTIONS IN SECURITIES
AND COMMODITIES INTERESTS.
- -------------- -----------------------------------------
Date Signature
<TABLE>
<CAPTION>
EXHIBIT II
NOTIFICATION OF PERSONAL SECURITIES HELD
The purpose of this form is to disclose your personal holdings of the
recommended client portfolio/fund security purchase, IN ADVANCE of the purchase
for the client portfolio/fund. A written authorization is required for EACH
portfolio/fund for which you have investment discretion. Please provide this
form to the Head of Equity or the Head of Fixed Income to determine if holding
or position may require sale or closure.
Please complete all requested information.
Name:__________________________________
Date: _________________________________
<S> <C> <C>
PERSONAL HOLDINGS
- --------------------------------------------- ----------------------------------- -----------------------------------
NAME OF SECURITY/BOND COST BASIS & YEAR ACQUIRED CURRENT PRICE
- --------------------------------------------- ----------------- ----------------- -----------------------------------
- --------------------------------------------- ----------------- ----------------- -----------------------------------
- --------------------------------------------- ----------------- ----------------- -----------------------------------
- --------------------------------------------- ----------------- ----------------- -----------------------------------
- --------------------------------------------- ----------------- ----------------- -----------------------------------
LIST ALL PORTFOLIOS/FUNDS FOR WHICH THE PURCHASE IS BEING MADE.
- -------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------
Signature _________________________________________________________
(Head of Equity or Head of Fixed Income)
cc: Compliance Manager form
</TABLE>
- --------
1. It is the position of the Securities and Exchange Commission that, while
direction of client brokerage transactions in respect of the acquisition of
investment research provided by broker-dealers is protected under ss.28(e)
of the Securities Exchange Act, the provision of travel, entertainment and
lodging expenses in connection with research activities is not so
protected. Accordingly, travel, entertainment or lodging expenses, or
reimbursement therefor, may not be accepted from broker-dealers doing
business or seeking to do business with SRF, even if in connection with
appropriate investment research activities.
2. The offering or giving of gifts or gratuities to government officials or
employees may violate applicable federal, state or local anti-bribery laws,
and subject the officer or employee, or SRF, to civil or criminal
penalties, including imprisonment.
3. Solicitation of personal contributions to Political Action Committees by
officers and employees is not prohibited.
4. Reimbursement from corporate funds of personal political contributions may
violate federal, state or local campaign finance laws, and subject the
violator to civil or criminal penalties, including imprisonment.
INSIDE INFORMATION STATEMENT
AND
CODE OF ETHICS RELATING TO PERSONAL SECURITIES TRANSACTIONS
PART ONE - INTRODUCTION
This Inside Information Statement and Code of Ethics Relating to Personal
Securities Transactions (the "Code") establishes policies and procedures that
are reasonably necessary to detect and prevent insider trading and activities
that are, or might be, an abuse of fiduciary duties or create conflicts of
interest. Any person having questions as to the meaning or applicability of
these policies and procedures should contact the designated Compliance Director.
This Code of Ethics applies to:
1. all employees, officers, directors, general partners and trustees
("Associates") of (a) David L. Babson and Company Incorporated, Babson
Securities Corporation and any additional subsidiaries which may be
subsequently organized and that adopt this Code (collectively, "DLB"); and
(b) The DLB Fund Group.
2. all employees, officers, directors, and general partners of any DLB
affiliate (together with Associates, "DLB Associates") to the extent that
such individuals participate in the selection of, regularly obtain or have
ready access to information regarding, the Securities being purchased, sold
or considered for purchase or sale by DLB or by DLB investment clients,
including, without limitation, the DLB Fund Group ("Advisory Clients").
This Code of Ethics shall not apply to the extent that any such affiliate
has adopted policies that are substantially similar to this Code of Ethics,
as determined by the Compliance Director 1.
DLB expects all of those associated with it to conduct business in accordance
with the highest ethical standards and in full accordance with the letter and
spirit of all applicable laws and regulations.
Capitalized terms used in this Code that are not otherwise defined have the
meanings contained in PART FIVE, Article V: Definitions.
- --------
1 As of this printing, no subsidiaries have been determined to be exempt
from maintaining this or a substantially similar Code.
PART TWO - INSIDE INFORMATION STATEMENT
ARTICLE I: GENERAL POLICIES ON THE USE OF INSIDE INFORMATION
From time-to-time DLB Associates may, either on or off the job, come into
possession of Inside Information. It is important for all DLB Associates to
understand that anytime they come into possession of Inside Information, that
same information may become attributable to DLB as a whole. The mere possession
of Inside Information is not illegal, unethical or against DLB policy; however,
misuse of it is against the law and this Code. The following procedures and
guidelines apply to all DLB Associates.
A. NO TRADING
Except as (1) permitted below, or (2) with prior written approval from the
Compliance Director, no DLB Associate, may directly or indirectly trade
Securities either for his or her personal account or for DLB and/or
Advisory Client accounts while:
o they are in possession of Inside Information regarding the issuer of
such Securities; or
o the issuer of such Securities appears on the Restricted List.
Notwithstanding the above, a DLB Associate, on behalf of DLB and/or its
Advisory Clients, may purchase private placement Securities of an issuer
even if the issuer has provided DLB and/or its Advisory Clients with Inside
Information as part of DLB and/or its Advisory Client's consideration as to
whether it will invest in such Securities.
B. NO COMMUNICATION OF INSIDE INFORMATION
No DLB Associate may communicate Inside Information or the content of the
Restricted List to others who do not have a clear need to know. Any DLB
Associate having Inside Information as the result of a fiduciary relationship
they might have by reason of a position as an officer or director of another
corporation or entity, should not disclose such information to anyone, including
the Compliance Director.
ARTICLE II: GUIDELINES FOR IDENTIFYING INSIDE INFORMATION
The following guidelines have been established to assist DLB Associates in
avoiding illegal Insider Trading and to aid DLB in preventing, detecting and
imposing sanctions against Insider Trading.
A. IDENTIFYING INSIDE INFORMATION
Before trading for yourself or for others (including DLB and its Advisory
Clients) in the Securities of a company about which you may have Inside
Information, you should ask yourself the following questions:
1. IS THE INFORMATION MATERIAL INFORMATION? "Material Information" in
this context means information for which there is a substantial
likelihood that a reasonable investor would consider it important in
making an investment decision, or information that is reasonably
certain to have a significant effect on the price of a company's
Securities. Information that officers, directors and employees should
consider material includes, but is not limited to: dividend changes,
earnings estimates, changes in previously released earnings estimates,
merger, acquisition or divestiture proposals or agreements, major
litigation, liquidity problems, significant management developments,
expansion or curtailment of operations, significant increases or
decreases in purchase orders, new products or discoveries,
extraordinary borrowing, purchase or sale of substantial assets,
fraud, accounting errors and irregularities, and capital restructuring
(including issue of rights, warrants or convertible Securities).
Material Information about a company does not have to originate from
such company. For example, information about the contents of a
forthcoming newspaper column or "leaks" from an insider of the issuer
that may be expected to affect the market price of a Security can be
considered material information.
2. IS THE INFORMATION NON-PUBLIC INFORMATION? Non-Public Information in
this context means information that has not been effectively
communicated to the market place. In order for information to be
considered "public", one must be able to point to some fact to show
that the information is generally available to the public and the
Securities markets have had a reasonable time to respond. For example,
the following information would be considered public information: (a)
information found in a public filing with the SEC or a stock exchange;
(b) information disseminated by the issuer or Securities analysts to
the investment community through written reports or public meetings;
or (c) information appearing in Bloomberg, Dow Jones News Service,
Reuters Economic Services, The Wall Street Journal or other
publications of general circulation.
Information has not been effectively communicated to the public if
there has been: (a) selective disclosure to DLB or other institutional
investors or to select groups of analysts or brokers; (b) partial
disclosure as long as a material component of the Inside Information
remains undisclosed; or (c) insufficient time for the relevant
Securities market(s) to trade on the information.
B. ACTION TO TAKE
No simple tests exist to determine if information is Material Information
or Non-Public Information. If after consideration of the above, you believe
that there is any possibility that the information is Material Information
and Non-Public Information or if you have any questions whatsoever as to
whether the information is Inside Information:
1. Report the matter immediately to the Compliance Director;
2. Do not purchase or sell the Securities on behalf of yourself or
others, including Advisory Clients;
3. Do not communicate the information inside or outside DLB, other than
to the Compliance Director or legal counsel;
4. After the Compliance Director has reviewed the issue, you will be
instructed to continue the prohibitions against trading and
communication, or you will be allowed to trade and communicate the
information; and
5. Keep such information secure. For example, files containing Inside
Information should be locked in filing cabinets or desks and access to
computer files containing Inside Information should be restricted.
C. RESPONSIBILITY TO UPDATE RESTRICTED LIST
Each analyst, trader or portfolio manager is individually responsible for
ensuring that all issuers, (1) about or whom they have Inside Information
or (2) that are Being Considered For Purchase or Sale, are reflected on the
Restricted List. A publicly traded equity Security is deemed to be under
Consideration for Purchase or Sale when a recommendation has been conveyed
by an analyst to a portfolio manager and should be placed on the Restricted
List at that time. The restriction will remain in place for the lesser of
48 hours or until a trade in the Security is executed or canceled.
ARTICLE III: "FIREWALL" PROCEDURES
Certain members of the DLB Organization have established "Firewalls" between
their respective organizations. The Firewalls exist so that, to the extent
practicable, Inside Information that DLB Associates have will not be passed or
imputed from one member of the DLB Organization to another member without clear
need to know. The Firewalls also exist to ensure, to the extent practicable,
that the voting and investment powers over Securities held by a member of the
DLB Organization are exercised independently from the other members. Each member
of the DLB Organization may adopt additional or amend existing Firewalls. The
primary guidelines for such policies and procedures are as follows:
A. CONFIDENTIALITY
DLB Associates shall make every effort to maintain the confidentiality of
information entrusted to them.
B. MEETINGS
DLB Associates should avoid placing themselves in a position where they
might receive Inside Information from another DLB Associate or officer,
unless they have a legitimate need to know. When meetings occur with
associates representing different members of the DLB Organization to
discuss investment related matters or to make presentations to the same
client or prospective client, the respective individuals shall determine if
Inside Information is likely to be disclosed at the meeting. Where
appropriate they should take steps, in consultation with the Compliance
Director, to ensure that Inside Information does not "pass over" a
Firewall. This may require alteration of the presentation or separate
meetings or presentations. Additionally, someone familiar with compliance
and the federal securities laws, such as the Compliance Director or an
attorney familiar with the laws governing the use of Inside Information,
could attend these meetings to ensure that there are no inadvertent
violations of the securities laws.
C. DUAL FUNCTION EMPLOYEES, OFFICERS, AND DIRECTORS
The roles of individuals who perform dual functions for members of the DLB
Organization should be limited to the extent reasonably practicable to
reduce the likelihood of potential violations of Firewalls. Generally, DLB
Associates who serve as officers or directors of more than one member of
the DLB Organization should not be involved in the other member's
investment or proxy voting decision making process or otherwise be made
aware of currently existing, specific securities positions held by such
other member that are not publicly available.
D. DUTY TO DISCLOSE BREACHES OF FIREWALL(S)
Any DLB Associate should inform the Compliance Director whenever they
become aware of a breach in said Firewalls(s) including any instance
whereby a DLB Associate becomes involved in the exercise of another
member's investment or voting decision making process (or otherwise was
made aware of specific securities positions held by such other member that
are not publicly available).
ARTICLE IV: CONFIDENTIALITY OF ADVISORY CLIENTS' TRANSACTIONS
Until disclosed in a public report to shareholders or public filing to the SEC,
all information concerning Securities Being Considered for Purchase or Sale by
or on behalf of DLB and/or any of its Advisory Clients shall be kept
confidential and disclosed by DLB Associates only on a need to know basis in
accordance with practices and policies developed and periodically reviewed for
their continuing appropriateness by the Compliance Director.
ARTICLE V: SUPERVISORY PROCEDURES AND PERSONAL LIABILITY
All supervisory personnel are responsible for the reasonable supervision of
their staff to prevent and detect violations of this Code. Failure to supervise
adequately can result in the supervisor being held personally liable for
violations of the securities laws and this Code. Supervisors shall ensure that
employees and/or consultants joining their departments are reported to the
Compliance Department.
PART THREE - CODE OF ETHICS RELATING TO
PERSONAL SECURITIES TRANSACTIONS
ARTICLE I: GENERAL POLICIES
A. PERSONAL INVESTMENT ACTIVITIES
In addition to the previously discussed duty to avoid illegal Insider
Trading, the principles that govern personal investment activities for DLB
Associates, EXCEPT FOR DISINTERESTED TRUSTEES, include:
1. The duty at all times to place the interests of DLB and/or its
Advisory Clients first;
2. The requirement that all personal securities transactions be
consistent with this Code so as to avoid any actual or potential
conflict of interest or any abuse of an individual's position of trust
and responsibility; and
3. The fundamental standard that individuals should not take
inappropriate advantage of their positions.
The fiduciary principles that govern personal investment activities for
DISINTERESTED TRUSTEES include:
1. The duty at all times to place the interests of The DLB Fund Group
first;
2. The requirement that all personal securities transactions be
consistent with this Code of Ethics so as to avoid any actual or
potential conflict of interest or any abuse of an individual's
position of trust and responsibility; and
3. The fundamental standard that individuals should not take
inappropriate advantage of their positions.
B. GENERAL PROHIBITIONS
In connection with the purchase, sale or disposition of a Security Held Or
To Be Acquired By DLB and/or its Advisory Clients no person, and, in
connection with the purchase, sale or disposition of a Security Held Or To
Be Acquired By The DLB Fund Group, no Disinterested Trustee, may directly
or indirectly:
1. Use information concerning the investment intentions of or influence
the investment decision making process of DLB and/or its Advisory
Clients for personal gain or in a manner detrimental to the interests
of DLB and/or its Advisory Clients;
2. Employ any device, scheme or artifice to defraud DLB and/or its
Advisory Clients;
3. Make an untrue statement of a material fact;
4. Omit to state a material fact necessary in order to make any statement
made to DLB and/or its Advisory Clients, in light of the circumstances
under which they are made, not misleading;
5. Engage in any act, practice, or course of business that operates or
would operate as fraud, deceit or breach of trust upon, or by, DLB
and/or its Advisory Clients; or
6. Engage in any manipulative practice with respect to DLB and/or its
Advisory Clients.
ARTICLE II: SPECIFIC POLICIES FOR
ACCESS PERSONS, INVESTMENT PERSONS AND PORTFOLIO MANAGERS
While this Code applies to all DLB Associates, there are specific policies that
govern the personal investment activities of Access Persons, Investment Persons
and Portfolio Managers.
A. ACCESS PERSONS
Access Persons are the directors, trustees and officers of DLB and The DLB
Fund Group and any other DLB Associate who in connection with his or her
regular functions or duties, makes, participates in the selection of, or
has ready access to information regarding the Securities Being Considered
for Purchase or Sale by DLB or any Advisory Client, or whose functions
relate to the making of any recommendations with respect to the purchases
or sales. ACCESS PERSONS INCLUDE INVESTMENT PERSONS AND PORTFOLIO MANAGERS.
Access Persons are subject to the following restrictions:
1. PURCHASE, SALE OR OTHER DISPOSITION OF SECURITIES
No Access Person shall purchase, sell or otherwise dispose of any
Security if that same Security is being purchased or sold or being
considered for purchase or sale by or on behalf of DLB and/or its
Advisory Clients, provided however, that this prohibition does not
apply if the disposition involves Securities that are donated to a
tax-exempt organization or if given to a member of the Access Person's
Immediate Family.
2. SERVING ON BOARDS OF TRUSTEES OR DIRECTORS
No Access Person may serve on the Board of Directors or Trustees of a
business entity without prior written approval from the President of
the DLB Organization of which the Access Person is an employee or
officer or in the case of a request by the President of DLB, its Board
of Directors. All Access Persons that wish to serve on a Board of
Directors or Trustees shall submit a written request to the Compliance
Director.
Prior approval is not required for an Access Person who is a
Disinterested Trustee of the DLB Fund Group, although the existence of
any new affiliation should be immediately disclosed to the Compliance
Director.
3. DUTY TO DISCLOSE POSSIBLE CONFLICTS OF INTEREST
(A) To the extent that any Access Person has a Beneficial Interest in
or Control of Securities of an issuer which is Being Considered
for Purchase or Sale by DLB, he or she shall disclose that actual
or potential conflict of interest in writing to his or her
manager with a copy to the Compliance Director;
(B) Such disclosure must be made prior to the execution of the
Securities transactions;
(C) Transactions where Access Persons are known to have investments
or interests deemed to be material by a Portfolio Manager or the
Compliance Director must be brought to the President of DLB or
his or her designee on a Required Approval basis; and
(D) NoAccess Person having a Beneficial Interest or Control of
Securities of an issuer shall unilaterally approve such a
transaction involving the Securities of such issuer.
4. INVESTMENT CLUBS
Participation by Access Persons in Investment Clubs is prohibited.
Access Persons who were participating in Investment Clubs prior to
January 1, 2000 are exempted from this restriction ("grandfathered").
However, those qualifying under the "grandfather" provision are
prohibited from joining additional investment clubs. If a
"grandfathered" Access Person makes a recommendation to an investment
club, such Security must be precleared by the Compliance Director
prior to trade execution. Additionally, Access Persons relying on the
"grandfather" provision must disclose their participation and related
holdings annually.
5. SHORT SALES INVOLVING DLB ADVISED OR SUB-ADVISED ENTITIES
No Access Person shall sell short a Security issued by an entity for
which DLB is an investment adviser or sub-adviser. (For example,
MassMutual Corporate Investors and MassMutual Participation
Investors.)
6. BUSINESS COURTESIES, GIFTS
No DLB Associate may receive any gift or other thing of more than $100
in value from any person or entity that does business with or on
behalf of DLB or an Advisory Client. The exchange of business
courtesies, such as reasonable entertainment and gifts of nominal
value, is generally permissible. The common practices of the business
world are acceptable but care should be taken to stay within the scope
of reasonable value, standard business practices, and professional
association or regulatory guidelines. This will help ensure that no
special indebtedness or conflict of interest arises.
Occasionally, a DLB Associate may be offered entertainment, such as
tickets for cultural or sporting events. A DLB Associate may accept
such offers but only if the offer meets the criteria above and is
associated with the business transactions between DLB and the other
party. Accepting entertainment that is primarily intended to gain
favor or influence is to be strictly avoided.
While a DLB Associate may give gifts of nominal value ($100), such as
promotional items, Access Persons may not directly or indirectly give
or accept bribes, kickbacks, special privileges, personal favors or
unusual or expensive hospitality. A DLB Associate dealing with any
U.S. Government or state agency must notify DLB's legal counsel prior
to the exchange of any business courtesies.
Whether a DLB Associate is engaged in purchasing, selling or providing
service on the behalf of DLB or not, monetary gratuities should not be
accepted.
When the business courtesy involves a gift of travel expenses or
accommodations, it must be authorized in advance by a designated
member of the DLB Board of Directors and proper trip documentation
must be completed.
B. INVESTMENT PERSONS
Investment Persons are any Access Persons who provide information and/or
advice to Portfolio Managers or who help execute a Portfolio Manager's
decisions. INVESTMENT PERSONS INCLUDE PORTFOLIO MANAGERS. In addition to
the provisions of PART THREE, Article II(A) Access Persons, Investment
Persons are subject to the following restrictions:
1. BAN ON SHORT TERM PROFITS
No Investment Person may profit from the purchase and sale, or sale
and purchase, within any 60-day period, of any Security, except for
those Securities types listed in Part THREE, Article III (A)(2)(a).
Any profits realized on such trades will be disgorged pursuant to
instructions from the Compliance Director.
2. PRIVATE PLACEMENTS
No Investment Person may acquire any Security in a private placement
without the express prior written approval of the Compliance Director.
3. INITIAL PUBLIC OFFERINGS
No Investment Person or Portfolio Manager may purchase any Security in
an Initial Public Offering except purchases of shares of a savings
association, insurance company, or similar institution, under an
existing right as a policyholder or depositor, that have been approved
and precleared in advance by the Compliance Director.
C. PORTFOLIO MANAGERS
Portfolio Managers are Investment Persons who have direct responsibility
and authority to make investment decisions affecting a particular DLB
investment portfolio or an Advisory Client account. In addition to the
provisions of PART THREE, Article II(A) & (B), Portfolio Managers are
subject to the following restrictions:
1. SEVEN-DAY "BLACKOUT" PERIOD
No Portfolio Manager may purchase, sell or dispose of any Security
within seven (7) calendar days before or after the purchase or sale of
that Security by DLB or an Advisory Client for which he or she is a
Portfolio Manager. Any profits realized with respect to such purchase
or sale shall be disgorged pursuant to instructions from the
Compliance Director. Exempt from this provision are those Securities
and transactions enumerated in PART THREE, Article III (A)(2)( a) -(
e), (Please note items ( f) and ( g) from PART THREE, Article III
(A)(2) are not exempt from this provision.)
2. CONTRA TRADING RULE
No Portfolio Manager shall, without preclearance, sell out of his or
her personal account or the account of any member of his or her
Immediate Family any Security or related Security held by DLB and/or
on behalf of its Advisory Client, for which he or she is a Portfolio
Manager. Any profits realized with respect to such purchase or sale
shall be disgorged pursuant to instructions from the Compliance
Director
Exempt from this provision are those Securities and transactions
enumerated in PART THREE, Article III (A)(2)( a) -( e), (Please note
items ( f) and ( g) from PART THREE, Article III(A)(2) are not exempt
from these provisions.)
D. DISINTERESTED TRUSTEES
1. PURCHASE, SALE OR OTHER DISPOSITION OF SECURITIES
No Disinterested Trustee shall purchase, sell or otherwise dispose of
any Security if the Disinterested Trustee has actual knowledge that
such Security is "Being Considered for Purchase or Sale" by or on
behalf of The DLB Fund Group.
ARTICLE III: PRECLEARANCE, DUPLICATE CONFIRMATIONS AND
REPORTING PROCEDURES APPLICABLE TO DLB ASSOCIATES AND DISINTERESTED TRUSTEES
There are preclearance and a number of reporting requirements that apply to
Access Persons, Investment Persons, Portfolio Managers and Disinterested
Trustees. The Compliance Director will make every effort to inform any
individual that he or she qualifies as an Access Person, Investment Person
and/or Portfolio Manager.
A. ACCESS PERSONS (INCLUDES INVESTMENT PERSONS AND PORTFOLIO MANAGERS)
1. PRECLEARANCE
No Access Person may purchase, sell or otherwise acquire or dispose of any
Security in which he or she has, or as a result of such transaction will
establish, a Beneficial Interest or Control without the prior written
approval of the Compliance Director. Preclearance is not required if
Securities are donated to a tax-exempt organization or given as a gift
between members of the Access Person's Immediate Family. PRECLEARANCE IS
VALID ONLY FOR THE DAY IT IS OBTAINED.
HOW TO OBTAIN PRECLEARANCE.
For preclearance, call the Compliance Hot-line [(413) 744-6973 "NYSE"]. The
DLB Compliance Department will typically be available for preclearance
during NYSE trading hours except on days on which DLB and/or its Advisory
Clients has an emergency closing, snow day cancellation, etc. In such cases
the Preclearance fax line (413) 744-6972 will be unavailable and a message
will be left on the Compliance Hot-line [(413) 744-6973 "NYSE"] voice mail
which will instruct the caller as to what number to dial in order to obtain
such preclearance, or in extreme cases, that preclearance is not available.
Preclearance communications may be recorded for the protection of DLB and
its Associates.
2. PRECLEARANCE EXEMPTIONS
Certain transactions do not need to be precleared.
(A) EXEMPT SECURITIES AND FUNDS
Purchases, sales or dispositions of the following types of
Securities: direct obligations of the government of the United
States, bankers' acceptances, bank certificates of deposit,
commercial paper, shares of registered Open-End Investment
Companies (closed-end mutual funds are not exempt from
preclearance), and high quality short-term debt instruments,
including repurchase agreements. High quality short-term debt
instrument means any instrument that has a maturity at issuance
of less than 366 days and that is rated in one of the two highest
rating categories by a nationally recognized rating organization.
(B) NO DIRECT OR INDIRECT CONTROL OVER ACCOUNT
Purchases, sales or dispositions of securities for an account
over which an Access Person has no direct or indirect control,
typically known as a "blind trust".
(C) INVOLUNTARY PURCHASES OR SALES
Involuntary purchases or sales made by a Access Person or by or
on behalf of an Advisory Client, such as spin-offs of shares of
an issuer to existing shareholders or a call of a debt Security
by the issuer.
(D) DIVIDEND REINVESTMENT PLAN (DRIPS)
Purchases which are part of an automatic dividend reinvestment
plan.
(E) PRO RATA DISTRIBUTIONS
Purchases resulting from the exercise of rights acquired from an
issuer as part of a pro rata distribution to all holders of a
class of Securities of such issuer (and the sale of such rights).
(F) OTHER SECURITIES
Purchases or sales of the following types of Securities:
municipal general obligations, Securities held by a Trust
established to fund the employee's retirement benefit plans such
as a 401(k) plan, interests in Securities that are related to
broad-based equity indices, and interest rate or commodity
futures. Approval from the Compliance Director is required for
these exemptions to be granted.
(G) DE MINIMIS S&P 500 PRECLEARANCE EXEMPTION
Except as provided in the following paragraph, preclearance is
not required for any acquisitions or dispositions of shares of
stock and bonds issued by a company included in the Standard &
Poor's 500 Index (the "S&P 500") if the total of such purchases,
sales and dispositions does not exceed 1,000 shares of stock or
$10,000 par value of bonds of a single issuer in any given
calendar quarter.
The De Minimis S&P 500 preclearance exemption may not be used in
connection with transactions in warrants, options and futures.
A listing of the S&P 500 is available in the DLB Compliance
Department.
3. DUPLICATE CONFIRMATIONS
All Access Persons shall arrange for copies of confirmations of all
personal Securities transactions involving a Securities account in
which the Access Person has a Beneficial Interest or Control to be
sent promptly by the Access Person's broker(s) directly to the
Compliance Director. Accounts which may only hold Open-End Investment
Companies are exempt from this reporting requirement.
4. INITIAL HOLDINGS REPORT
New Access Persons must file a report disclosing the title, number of
shares, and principal amount of all Securities in which they have any
direct or indirect beneficial ownership when the Access Person became
an Access Person and the name of any broker, dealer, or bank with whom
the Access Person maintained an account in which any Securities were
held for the direct or indirect benefit of the Access Person as of the
date when the person became an Access Person, and the date that the
report is submitted by the Access Person. This Initial Holding Report
is due within ten days after the person became an Access Person.
5. QUARTERLY REPORTS
(A) THE SEC REQUIRES that all Access Persons, within ten (10)
calendar days after the end of each calendar quarter, make a
written report (the "Quarterly Report") certifying to the
Compliance Director that the Quarterly Report lists all Security
transactions in which the Access Person has a Beneficial Interest
or over which the Access Person exercises Control. Copies of
broker prepared periodic securities account statements ("Account
Statement") may be attached to the Quarterly Report in lieu of
listing each of the transactions detailed in the Account
Statement on the Quarterly Report so long as all information
required in the Quarterly Report is contained in the Account
Statement. The Quarterly Report form will be sent out to
Associates at the end of the quarter. Late filers are in
technical violation of the law and will be subject to
disciplinary action.
(B) Each Quarterly Report must contain: (i) with respect to each
reportable transaction for the quarter, the date of the
transaction, the title, the interest rate and maturity date (if
applicable), the number of shares, and the principal amount of
each Security involved, the nature of the transaction (e.g.
purchase or sale), the price at which the transaction was
effected; and the name of the broker, dealer, or bank with or
through which the transaction was affected; (ii) with respect to
any account established by the Access Person in which any
Securities were held during the quarter for the direct or
indirect benefit of the Access Person: the name of the broker,
dealer or bank with whom the Access Person established the
account and the date the account was established; and (iii) the
date that the report is submitted by the Access Person.
(C) All Security transactions are reportable, even those exempt from
the preclearance requirements except those exempt Securities
described in;
PART THREE, Article III (A)(2)(a) and (b)
Not withstanding the above, any transaction involving shares of an
Open-End Investment Company that is advised by DLB MUST be reported in
the Quarterly Report.
6. ANNUAL CERTIFICATION OF UNDERSTANDING AND COMPLIANCE
All Access Persons shall within 10 days of employment and at least
annually thereafter, certify to the Compliance Director that they have
read and understand this Code, recognize that they are subject to it,
have complied with its requirements and have disclosed or reported all
required personal Securities transactions and holdings.
B. ACCESS PERSONS - ANNUAL DISCLOSURE OF PERSONAL SECURITIES HOLDINGS
All Access Persons shall, at least annually, disclose all Securities,
except as indicated in PART THREE, Article III(A)(2)(a) and (b), to the
Compliance Director in an Annual Disclosure of Personal Securities Holdings
Report, (i) all Securities (title, number of shares and principal amount)
in which he or she has a Beneficial Interest or Control, and (ii) the name
of any broker, dealer or bank with whom the Access Person maintains an
account in which any Securities are held for the direct or indirect benefit
of the Access Person; and (iii) the date the report is submitted by the
Access Person. Only Securities described in PART THREE, Article
III(A)(2)(a) and Securities in accounts described in (b) are exempt from
the Annual Disclosure Requirement. The information contained in the report
must be current as of a date no more than 30 days before the report is
submitted. Any Open-End Investment Company managed by DLB must be
disclosed.
C. DISINTERESTED TRUSTEES
Within thirty (30) calendar days after the end of each calendar year, each
Disinterested Trustee shall submit a written statement to the Compliance
Director, that he or she has complied with the requirements of this Code of
Ethics applicable to Disinterested Trustees.
Disinterested Trustees need NOT file (a) an initial or annual holdings
report or (b) a quarterly transaction report except where the Disinterested
Trustee knew or, in the ordinary course of fulfilling his or her official
duties as a fund trustee, should have known that during the 15-day period
immediately before and after the Disinterested Trustee's transaction in a
Security such Security is or was purchased or sold by a fund in the DLB
Fund Group or a fund in the DLB Fund Group or its investment advisor
considered purchasing such Security.
PART FOUR - COMPLIANCE DIRECTOR
ARTICLE I: COMPLIANCE DIRECTOR
The role of the Compliance Director is critical to the implementation and
maintenance of this Code.
A. APPOINTMENT
Each DLB entity's President shall designate a Compliance Director who shall
have the authority and responsibility to administer this Code as it applies
to the operations of that DLB entity and/or its Advisory Clients.
B. PREVENTION OF VIOLATIONS
The Compliance Director shall be, or shall become, familiar with investment
compliance practices and policies and shall report any material inadequacy
to the President and the Chief Legal Officer of David L. Babson Company
Incorporated.
The Compliance Director shall:
1. Furnish all Access Persons with a copy of this Code and periodically
inform them of their duties and obligations thereunder;
2. Obtain signed certifications from each Access Person stating that: (a)
such Access Person has received a copy of the Code; (b) has read it;
(c) understands it; and (d) is either in compliance with all of its
provisions or has disclosed in writing to the Compliance Director any
instance of actual or possible violation of the Code;
3. Conduct periodic educational programs to explain the terms of this
Code and applicable securities laws, regulations and cases;
4. Answer questions regarding this Code, and keep abreast of changes in
applicable laws and regulations;
5. Interpret this Code consistent with the objectives of applicable laws,
regulations and industry practices;
6. Consistent with this Code and applicable SEC rules, promptly review,
and in writing either approve or disapprove, each request of DLB
Associates for clearance to trade in specified Securities for or on
behalf of DLB, one or more Advisory Clients, or for their personal
account;
7. Conduct audits, inspections and investigations as necessary or
appropriate to prevent or detect possible violations of this Code.
Report, with his or her recommendations, any apparent and material
violations of this Code to the President and the Chief Legal Officer
of DLB. Report, where appropriate, to the directors of DLB, or any
Committee appointed by them to deal with such information;
8. Develop and maintain one or more Restricted Lists.
9. Determine whether particular Securities transactions qualify for the
De Minimis S&P 500 Exception from preclearance as set forth in PART
THREE, Article III(A)(2)( g) De Minimis S&P 500 Exception.
10. Grant exceptions or exemptions on a transaction, an individual or a
class basis, to any of the provisions of PART III, Article III:
Preclearance, Duplicate Confirmations and Reporting Procedures
applicable to DLB Associates and Disinterested Trustees, provided that
such exceptions or exemptions are consistent with the spirit of the
principles on which this Code is premised.
11. Periodic reviews of all personal Securities transactions effected by
Access Persons, the scope and frequency of such review to be
determined by the Compliance Director.
12. Oversee the manner of disposition of any profits required to be
disgorged in conformance with company guidelines.
13. Designate one or more persons to have the authority and responsibility
to act on behalf of the Compliance Director when necessary or
appropriate;
14. Maintain confidential information regarding personal Securities
transactions and holdings and only disclose such information to
persons with a clear need to know, including state and federal
regulators when required or deemed necessary or appropriate by the
Compliance Director in conformance with the provisions of the Code;
15. Develop policies and procedures designed to implement, maintain and
enforce this Code;
16. Resolve issues of whether information received by an officer, director
or employee of the DLB Organization constitutes Inside Information;
17. Confirm that there are department supervisors implementing this Code;
18. Develop, implement, review, and revise specific firewall procedures
consistent with SEC rules and this Code; and
19. Review this Code on a regular basis and recommend to the President and
the DLB Board of Directors amendments, as are necessary or
appropriate.
C. DETECTION OF VIOLATIONS
To prevent and detect Insider Trading, the Compliance Director shall:
1. Review the trading activity and Holdings reports filed by each Access
Person;
2. Review duplicate brokerage confirmations required of each Access Person.
3. Review the trading activity of DLB and its Advisory Clients; and
4. Coordinate the review of such reports with other appropriate officers,
directors or employees of the DLB Organization.
D. REPORTS AND RECORDS
1. REPORTS
The Compliance Director shall:
(A) Prepare a quarterly report containing a description of any
material violation requiring significant remedial action during
the past quarter and any other significant information concerning
the application of this Code. The Compliance Director shall
submit the report to DLB's President, Chief Legal Officer and the
Board of Trustees of each mutual fund potentially affected.
(B) Prepare written reports at least annually summarizing any
exceptions or exemptions concerning personal investing made
during the past year; listing any violations requiring
significant remedial action; identifying any recommended changes
to the Code or the procedures thereunder. The report should
include any violations that are material, any sanctions imposed
to such material violations and report any significant conflicts
of interest that arose involving the personal investment policies
of the organization, even if the conflicts have not resulted in a
violation of the Code. The Compliance Director shall submit the
Report to DLB's President, DLB's Chief Legal Officer, the Board
of Directors of DLB and the Board of Trustees of each mutual
fund. The report to the Board of Trustees shall certify that DLB
and the DLB Fund Group have adopted procedures reasonably
necessary to prevent Access Persons from violating the Code.
More frequent reports may be appropriate in certain
circumstances, such as when there have been significant
violations of a code or procedures, or significant conflicts of
interest arising under the code or procedures.
2. RECORDS
The Compliance Director shall maintain or cause to be maintained, the
following records:
(A) A copy of this Code or any other Code of Ethics which has been in
effect during the most recent 5-year period;
(B) A record of any violation of any such Code and of any action
taken as a result of such violation in the 5-year period
following the end of the fiscal year in which the violation took
place;
(C) A copy of each report made by the Compliance Director for a
period of 5 years from the end of the fiscal year of DLB and of
the DLB Fund Group, as applicable, in which such report is made
or issued;
(D) A list of all persons currently or within the most recent 5-year
period who are or were required to make reports pursuant to this,
or a predecessor Code, or who are or were responsible for
reviewing these reports; along with a copy of all Initial
Holdings Reports, Quarterly Reports, Annual Reports, Preclearance
Forms and Duplicate Confirmations filed during that same period;
(E) An up-to-date list of all Access Persons, Investment Persons and
Portfolio Managers with an appropriate description of their title
or employment; and
(F) A record of the approval of, and rationale supporting, the
acquisition of Securities in IPO's and private placements for at
least five years after the end of the fiscal year in which the
approval is granted.
The aforementioned records shall be maintained in an easily
accessible place for the time period required by applicable SEC
rules.
PART FIVE - GENERAL INFORMATION
ARTICLE I: NO DLB LIABILITY FOR LOSSES
DLB and/or its Advisory Clients shall not be liable for any losses incurred or
profits avoided by any DLB Associate resulting from the implementation or
enforcement of this Code. DLB Associates should understand that their ability to
buy and sell Securities is limited by this Code and that trading activity by DLB
and/or its Advisory Clients may affect the timing of when an Access Person can
buy or sell a particular Security.
ARTICLE II: REPORTING VIOLATIONS
Any DLB Associate who knows or has reason to believe that this Code has been or
may be violated shall bring such actual or potential violation to the immediate
attention of the Compliance Director.
ARTICLE III: PENALTIES FOR VIOLATIONS
Individuals who trade on or inappropriately communicate Inside Information are
not only violating this Code but are also involved in unlawful conduct.
Penalties for trading on or communicating Inside Information can be severe, both
for the individuals involved in such unlawful conduct and their employers. A
person can be subject to penalties even if they do not personally benefit from
the violation. Penalties may include civil injunctions, payment of profits made
or losses avoided ("disgorgement"), jail sentences, fines for the person
committing the violation of up to three times the profit gained or loss avoided,
and fines for the employer or other controlling person of up to the greater of
$1,000,000 or three times the amount of the profit gained or loss avoided.
In addition, any violation of this Code shall be subject to the imposition of
such sanctions by DLB as may be deemed appropriate under the circumstances to
achieve the purposes of applicable SEC rules and this Code. Such sanctions could
include, without limitation, bans on personal trading, reductions in salary
increases, the forfeiture of incentive compensation benefits, disgorgement of
trading profits, transfer to another position at DLB, suspension of employment
and termination of employment. Sanctions for violation of this Code by a
Disinterested Trustee of The DLB Fund Group shall be determined by a majority
vote of the fund's other Disinterested Trustees.
ARTICLE IV: AMENDMENTS
This Code may not be amended as to any entity that adopts it except in a written
form approved by a vote of such entity's Board of Trustees/Directors.
ARTICLE V: DEFINITIONS
ACCESS - PERSONS As defined in Part Three, Article II: Specific Policies for
Access Persons, Investment Persons and Portfolio Mangers.
ADVISORY CLIENT - means any person who has an investment advisory services
agreement with DLB.
ASSOCIATES - As defined in Part One - Introduction
BEING CONSIDERED FOR PURCHASE OR SALE - A Security is deemed as "Being
Considered for Purchase or Sale" when a recommendation to purchase or sell such
Security has been made and communicated to a portfolio manager, and, with
respect to the person making the recommendation, when such person seriously
considers making such a recommendation.
BENEFICIAL INTEREST OR CONTROL - means any interest by which: (a) an Access
Person exercises direct or indirect control over the purchase, sale or other
disposition of a Security; or (b) an Access Person or any member of his or her
Immediate Family can directly or indirectly derive a monetary/financial interest
from the purchase, sale, disposition or ownership of a Security.
Examples of indirect monetary/financial interests include: (a) interests in
partnerships and trusts that hold Securities but does not include Securities
held by a blind trust or by a Trust established to fund employee retirement
benefit plans such as 401(k) plans; (b) a performance-related fee received by
the Access Person for providing investment advisory services; and (c) a person's
rights to acquire Securities through the exercise or conversion of any
derivative instrument.
CLOSED-END INVESTMENT COMPANY - means a mutual fund with a set number of shares
issued and distributed to investors in a public offering, identical to the way
corporate Securities reach public hands. A Closed-End Investment Company's
capitalization is basically fixed (unless an additional public offering is
made). After the public offering stock is distributed, anyone who wants to buy
or sell shares does so in the secondary market (either on an exchange or over
the counter). Also, see definition of Open-End Investment Company.
COMPLIANCE DIRECTOR - means the person designated by each DLB entity's President
to be principally responsible for the prevention and detection of violations of
this Code and related laws and regulations.
DISINTERESTED TRUSTEE - means a Trustee of The DLB Fund Group who is not an
"interested person" of DLB within the meaning of Section 2(a)(19) of the
Investment Company Act of 1940.
DLB ORGANIZATION - means David L. Babson and Company Incorporated, the DLB Funds
and all persons controlled by, controlling or under common control except to the
extent that any such person has adopted policies and procedures to detect and
prevent insider trading that are substantially similar to this Code.
IMMEDIATE FAMILY - means related by blood or marriage AND living in the same
household includes: any child, stepchild, grandchild, parent, stepparent,
grandparent, spouse, "significant other", sibling, mother-, father-, son-,
daughter-, brother or sister-in-law, and any adoptive relationships. The
Compliance Director, after reviewing all the pertinent facts and circumstances,
may determine that an indirect Beneficial Interest in Securities held by members
of the Access Person's Immediate Family does not exist.
INSIDER - means, in most cases, employees, officers and directors of a company.
In addition, a person may become a "temporary insider" if he or she enters into
a special confidential relationship in the conduct of another company's affairs
and as a result is given access to information solely for DLB and/or its
Advisory Client's purposes. A temporary insider could include a company's
attorneys, accountants, bank lending officers and printers. A DLB Associate,
such as a securities analyst, may become a temporary insider of another company
if the other company expects such person to keep the disclosed non-public
information confidential and the relationship at least implies such a duty.
INSIDE INFORMATION - means Material Information that is Non-Public Information.
INSIDER TRADING - means trading in Securities (whether or not one is an
"Insider") while having Inside Information, or to communicating Inside
Information to others. While the law concerning insider trading is not static,
it is generally understood to prohibit:
1. trading by an Insider, while in possession of Inside Information; or
2. trading by a non-insider, while in possession of Inside Information, where
the information either was disclosed to the non-insider in violation of an
Insider's duty to keep it confidential or was misappropriated; or
3. communicating Inside Information to others by either an Insider or a
non-insider prohibited from trading by Part II of this Code.
INVESTMENT CLUB - means a group of people who pool their assets in order to make
joint decisions (typically a vote) on which Securities to buy, hold or sell.
INVESTMENT PERSON - means any Access Person who provides information and/or
advice to Portfolio Managers or who helps execute a Portfolio Manager's
decisions (e.g., traders, analysts).
MATERIAL INFORMATION - means information for which there is a substantial
likelihood that a reasonable investor would consider it important in making an
investment decision, or information that is reasonably certain to have a
significant effect on the price of a company's Securities. Information that
officers, directors and employees should consider material includes, but is not
limited to: dividend changes, earnings estimates, changes in previously released
earnings estimates, merger, acquisition or divestiture proposals or agreements,
information relating to a tender offer, major litigation, liquidity problems,
significant management developments, expansion or curtailment of operations,
significant increases or decreases in purchase orders, new products or
discoveries, adverse test results of new products, extraordinary borrowing,
purchase or sale of substantial assets, and capital restructuring (including
issue of rights, warrants or convertible securities).
Material Information does not have to relate to a company's business. For
example, information about the contents of a forthcoming newspaper column that
may be expected to affect the market price of a Security can be considered
material information.
NO SIMPLE TEST EXISTS TO DETERMINE WHEN INFORMATION IS MATERIAL. FOR THIS
REASON, YOU SHOULD DIRECT ANY QUESTIONS WHATEVER ABOUT WHETHER INFORMATION IS
MATERIAL TO THE COMPLIANCE DIRECTOR.
NON-PUBLIC INFORMATION - means information that has not been effectively
communicated to the market place. In order for information to be considered
"public", one must be able to point to some fact to show that the information is
generally available to the public and the securities markets have had a
reasonable time to respond. For example, the following information would be
considered public information: (a) information found in a public filing with the
SEC or a stock exchange; (b) information disseminated by the issuer or
securities analysts to the investment community through written reports or
public meetings; or (c) information appearing in Bloomberg, Dow Jones News
Service, Reuters Economic Services, The Wall Street Journal or other
publications of general circulation.
Information has not been effectively communicated to the public if there has
been: (a) selective disclosure to DLB or other institutional investors or to
select groups of analysts or brokers; (b) partial disclosure as long as a
material component of the Inside Information remains undisclosed; or (c)
insufficient time for a relevant securities market(s) to trade on the
information.
OPEN-END INVESTMENT COMPANY - means a mutual fund that issues its shares in
open-ended offerings. New shares are continuously created as investors buy them.
Investors who want to sell shares sell them back to the company (which redeems
them) rather than to another investor. The capitalization of such a mutual fund
is open-ended; as more investors buy mutual fund shares, the fund's capital
expands. By the same token when investors liquidate their holdings, the fund's
capital shrinks. Also, see definition of Closed-End Investment Company.
PORTFOLIO MANAGER - means an Investment Person who has the direct responsibility
and authority to make investment decisions affecting a particular DLB and/or
Advisory Client's account or portfolio.
RESTRICTED LIST - means a list(s) maintained by a DLB entity that includes the
names of the Securities of which are being actively traded, Being Considered for
Purchase or Sale by DLB and/or its Advisory Clients or, when appropriate, its
subadvisers, and the names of any issuer about whom DLB has Inside Information
or on whose board of directors DLB Associates serve. An issuer, or Security, as
applicable, will be removed from the Restricted List when what had been Inside
Information becomes available to the public, when the interlocking directorate
no longer exists or when what had been a Security Being Considered for Purchase
or Sale is no longer under such consideration. Each analyst and trader is
responsible for ensuring that all issuers with whom they have worked are
properly reflected in the Restricted List in accordance with provisions of this
Code.
The content of the Restricted List is confidential and will be distributed only
to those that have a need to know the identity of the issuers in the context of
performing their job responsibilities;
SECURITY - means any stock or transferable share; note, bond, debenture or other
evidence of indebtedness, investment contract, any warrant or option to acquire
or sell a Security, any financial futures contract, put, call, straddle, option,
or any interest in any group or index of Securities, or in general, any interest
or instrument commonly known as a "Security."
SECURITY HELD OR TO BE ACQUIRED - means any Security which, within the most
recent 15 days, (i) is or has been held by DLB and/or an Advisory Client or (ii)
is being or has been considered by DLB for itself and/or its Advisory Clients.
This includes any option on a Security that is convertible into or exchangeable
for, any Security that is held or to be acquired. The Compliance Director may
amend this definition to the extent necessary to comply with Rule 17j-1 of the
Investment Company Act of 1940.
SUB-ADVISER - means an investment adviser that has entered into an investment
sub-advisory contract with DLB to provide investment advisory services to a
portfolio or fund for which DLB is the ultimate investment adviser.
LORD, ABBETT & CO.
LORD ABBETT-SPONSORED FUNDS
AND
LORD ABBETT DISTRIBUTOR LLC
CODE OF ETHICS
I. Statement of General Principles
The personal investment activities of any officer, director, trustee or
employee of the Lord Abbett-sponsored Funds (the Funds) or any partner or
employee of Lord, Abbett & Co. (Lord Abbett) will be governed by the
following general principles: (1) Covered Persons have a duty at all times
to place first the interests of Fund shareholders and, in the case of
employees and partners of Lord Abbett, beneficiaries of managed accounts;
(2) all securities transactions by Covered Persons shall be conducted
consistent with this Code and in such a manner as to avoid any actual or
potential conflict of interest or any abuse of an individual's position of
trust and responsibility; and (3) Covered Persons should not take
inappropriate advantage of their positions with Lord Abbett or the Funds.
II. Specific Prohibitions
No person covered by this Code, shall purchase or sell a security, except
an Excepted Security, if there has been a determination to purchase or sell
such security for a Fund (or, in the case of any employee or partner of
Lord, Abbett, for another client of Lord Abbett), or if such a purchase or
sale is under consideration for a Fund (or, in the case of an employee or
partner of Lord Abbett, for another client of Lord Abbett), nor may such
person have any dealings in a security that he may not purchase or sell for
any other account in which he has Beneficial Ownership, or disclose the
information to anyone, until such purchase, sale or contemplated action has
either been completed or abandoned.
III. Obtaining Advance Approval
Except as provided in Sections V and VI of this Code, all proposed
transactions in securities (privately or publicly owned) by Covered
Persons, except transactions in Excepted Securities, should be approved
consistent with the provisions of this Code in advance by one of the
partners of Lord Abbett. In order to obtain approval, the Covered Person
must send their request via e-mail to Isabel Herrera, or in her absence,
Chrissy DeCicco, who will obtain a partner's approval. After approval has
been obtained, the Covered Person may act on it within the next seven
business days, unless he sooner learns of a contemplated action by Lord
Abbett. After the seven business days, or upon hearing of such contemplated
action, a new approval must be obtained.
Furthermore, in addition to the above requirements, partners and employees
directly involved must disclose information they may have concerning
securities they may want to purchase or sell to any portfolio manager who
might be interested in the securities for the portfolios they manage.
IV. Reporting and Certification Requirements; Brokerage Confirmations
(1) Except as provided in Sections V and VI of this Code, within 10 days
following the end of each calendar quarter each Covered Person must
file with Ms. Herrera a signed Security Transaction Reporting Form.
The form must be signed and filed whether or not any security
transaction has been effected. If any transaction has been effected
during the quarter for the Covered Person's account or for any account
in which he has a direct or indirect Beneficial Ownership, it must be
reported. Excepted from this reporting requirement are transactions
effected in any accounts over which the Covered Person has no direct
or indirect influence or control and transactions in Excepted
Securities. Ms. Herrera is responsible for reviewing these
transactions promptly and must bring any apparent violation to the
attention of the General Counsel of Lord Abbett.
(2) Each employee and partner of Lord Abbett will upon commencement of
employment and annually thereafter disclose all personal securities
holdings and annually certify that: (i) they have read and understand
this Code and recognize they are subject hereto; and (ii) they have
complied with the requirements of this Code and disclosed or reported
all securities transactions required to be disclosed or reported
pursuant to the requirements of this Code.
(3) Each employee and partner of Lord Abbett will direct his brokerage
firm to send copies of all confirmations and all monthly statements
directly to Ms. Herrera.
(4) Each employee and partner of Lord Abbett who has a Fully-Discretionary
Account (as defined in Section VI) shall disclose all pertinent facts
regarding such Account to Lord Abbett's General Counsel upon
commencement of employment. Each such employee or partner shall
thereafter annually certify on the prescribed form that he or she has
not and will not exercise any direct or indirect influence or control
over such Account, and has not discussed any potential investment
decisions with such independent fiduciary in advance of any such
transactions.
V. Special Provisions Applicable to Outside Directors and Trustees of the
Funds
The primary function of the Outside Directors and Trustees of the Funds is
to set policy and monitor the management performance of the Funds' officers
and employees and the partners and employees of Lord Abbett involved in the
management of the Funds. Although they receive complete information as to
actual portfolio transactions, Outside Directors and Trustees are not given
advance information as to the Funds' contemplated investment transactions.
An Outside Director or Trustee wishing to purchase or sell any security
will therefore generally not be required to obtain advance approval of his
security transactions. If, however, during discussions at Board meetings or
otherwise an Outside Director or Trustee should learn in advance of the
Funds' current or contemplated investment transactions, then advance
approval of transactions in the securities of such company(ies) shall be
required for a period of 30 days from the date of such Board meeting. In
addition, an Outside Director or Trustee can voluntarily obtain advance
approval of any security transaction or transactions at any time.
No report described in Section IV (1) will be required of an Outside
Director or Trustee unless he knew, or in the ordinary course of fulfilling
his official duties as a director or trustee should have known, at the time
of his transaction, that during the 15-day period immediately before or
after the date of the transaction (i.e., a total of 30 days) by the Outside
Director or Trustee such security was or was to be purchased or sold by any
of the Funds or such a purchase or sale was or was to be considered by a
Fund. If he makes any transaction requiring such a report, he must report
all securities transactions effected during the quarter for his account or
for any account in which he has a direct or indirect Beneficial Ownership
interest and over which he has any direct or indirect influence or control.
Each Outside Director and Trustee will direct his brokerage firm to send
copies of all confirmations of securities transactions to Ms. Herrera, and
annually make the certification required under Section IV(2)(i) and (ii).
Outside Directors' and Trustees' transactions in Excepted Securities are
excepted from the provisions of this Code. It shall be prohibited for an
Outside Director or Trustee to (i) trade on material non-public
information, or (ii) trade in options with respect to securities covered by
this Code without advance approval from Lord Abbett. Prior to accepting an
appointment as a director of any company, an Outside Director or Trustee
will advise Lord Abbett and discuss with Lord Abbett's Managing Partner
whether accepting such appointment creates any conflict of interest or
other issues.
If an Outside Director or Trustee, who is a director or an employee of, or
consultant to, a company, receives a grant of options to purchase
securities in that company (or an affiliate), neither the receipt of such
options, nor the exercise of those options and the receipt of the
underlying security, requires advance approval from Lord Abbett. Further,
neither the receipt nor the exercise of such options and receipt of the
underlying security is reportable by such Outside Director or Trustee.
Finally, neither the receipt nor the exercise of such options shall be
considered "trading in options" within the meaning of the preceding
paragraph of this Section V.
VI. Additional Requirements relating to Partners and Employees of Lord Abbett
It shall be prohibited for any partner or employee of Lord Abbett:
(1) To obtain or accept favors or preferential treatment of any kind or
gift or other thing having a value of more than $100 from any person
or entity that does business with or on behalf of the investment
company---no partner or employee shall have any ownership interest in
a brokerage firm;
(2) to trade on material non-public information or otherwise fail to
comply with the Firm's Statement of Policy and Procedures on Receipt
and Use of Inside Information adopted pursuant to Section 15(f) of the
Securities Exchange Act of 1934 and Section 204A of the Investment
Advisers Act of 1940;
(3) to trade in options with respect to securities covered under this
Code;
(4) to profit in the purchase and sale, or sale and purchase, of the same
(or equivalent) securities within 60 calendar days (any profits
realized on such short-term trades shall be disgorged to the
appropriate Fund or as otherwise determined);
(5) to trade in futures or options on commodities, currencies or other
financial instruments, although the Firm reserves the right to make
rare exceptions in unusual circumstances which have been approved by
the Firm in advance;
(6) to engage in short sales or purchase securities on margin;
(7) to buy or sell any security within seven business days before or after
any Fund (or other Lord Abbett client) trades in that security (any
profits realized on trades within the proscribed periods shall be
disgorged to the Fund (or the other client) or as otherwise
determined);
(8) to subscribe to new or secondary public offerings, even though the
offering is not one in which the Funds or Lord Abbett's advisory
accounts are interested;
(9) to become a director of any company without the Firm's prior consent
and implementation of appropriate safeguards against conflicts of
interest.
In connection with any request for approval, pursuant to Section III of
this Code, of an acquisition by partners or employees of Lord Abbett of any
securities in a private placement, prior approval will take into account,
among other factors, whether the investment opportunity should be reserved
for any of the Funds and their shareholders (or other clients of Lord
Abbett) and whether the opportunity is being offered to the individual by
virtue of the individual's position with Lord Abbett or the Funds. An
individual's investment in privately-placed securities will be disclosed to
the Managing Partner of Lord Abbett if such individual is involved in
consideration of an investment by a Fund (or other client) in the issuer of
such securities. In such circumstances, the Fund's (or other client's)
decision to purchase securities of the issuer will be subject to
independent review by personnel with no personal interest in the issuer.
If a spouse of a partner or employee of Lord Abbett who is a director or an
employee of, or a consultant to, a company, receives a grant of options to
purchase securities in that company (or an affiliate), neither the receipt
nor the exercise of those options requires advance approval from Lord
Abbett or reporting. Any subsequent sale of the security acquired by the
option exercise by that spouse would require advance approval and is a
reportable transaction.
Advance approval is not required for transactions in any account of a
Covered person if the Covered Person has no direct or indirect influence or
control ( a "Fully-Discretionary Account"). A Covered person will be deemed
to have "no direct or indirect influence or control" over an account only
if : (i) investment discretion for the account has been delegated to an
independent fiduciary and such investment discretion is not shared with the
employee, (ii) the Covered Person certifies in writing that he or she has
not and will not discuss any potential investment decisions with such
independent fiduciary before any transaction and (iii) the General Counsel
of Lord Abbett has determined that the account satisfies these
requirements. Transaction in Fully-Discretionary Accounts by an employee or
partner of Lord Abbett are subject to the post-trade reporting requirements
of this Code.
VII. Enforcement
The Secretary of the Funds and General Counsel for Lord Abbett (who may be
the same person) each is charged with the responsibility of enforcing this
Code, and may appoint one or more employees to aid him in carrying out his
enforcement responsibilities. The Secretary shall implement a procedure to
monitor compliance with this Code through a periodic review of personal
trading records provided under this Code against transactions in the Funds
and managed portfolios. The Secretary shall bring to the attention of the
Funds' Audit Committees any apparent violations of this Code, and the Audit
Committees shall determine what action shall be taken as a result of such
violation. The record of any violation of this Code and any action taken as
a result thereof, which may include suspension or removal of the violator
from his position, shall be made a part of the permanent records of the
Audit Committees of the Funds. The Secretary shall also prepare an annual
report to the directors or trustees of the Funds that (a) summarizes Lord
Abbett's procedures concerning personal investing, including the procedures
followed by partners in determining whether to give approvals under Section
III and the procedures followed by Ms. Herrera in determining pursuant to
Section IV whether any Funds have determined to purchase or sell a security
or are considering such a purchase or sale, and any changes in those
procedures during the past year, and (b) identifies any recommended changes
in the restrictions imposed by this Code or in such procedures with respect
to the Code and any changes to the Code based upon experience with the
Code, evolving industry practices or developments in the regulatory
environment.
The Audit Committee of each of the Funds and the General Counsel of Lord
Abbett may determine in particular cases that a proposed transaction or
proposed series of transactions does not conflict with the policy of this
Code and exempt such transaction or series of transactions from one or more
provisions of this Code.
VIII. Definitions
"Covered Person" means any officer, director, trustee, director or trustee
emeritus or employee of any of the Funds and any partner or employee of
Lord Abbett. (See also definition of "Beneficial Ownership.") "Excepted
Securities" are shares of the Funds, bankers' acceptances, bank
certificates of deposit, commercial paper, shares of registered open-end
investment companies and U.S. Government securities.
"Outside Directors and Trustees" are directors and trustees who are not
"interested persons" as defined in the Investment Company Act of 1940.
"Security" means any stock, bond, debenture or in general any instrument
commonly known as a security and includes a warrant or right to subscribe
to or purchase any of the foregoing and also includes the writing of an
option on any of the foregoing.
"Beneficial Ownership" is interpreted in the same manner as it would be
under Section 16 of the Securities Exchange Act of 1934 and Rule 16a-1
thereunder. Accordingly, "beneficial owner" includes any Covered Person
who, directly or indirectly, through any contract, arrangement,
understanding, relationship or otherwise, has or shares a direct or
indirect pecuniary interest (i.e. the ability to share in profits derived
from such security) in any equity security, including:
(i) securities held by a person's immediate family sharing the same house
(with certain exceptions);
(ii) a general partner's interest in portfolio securities held by a general
or limited partnership;
(iii)a person's interest in securities held in trust as trustee,
beneficiary or settlor, as provided in Rule 16a-8(b); and
(iv) a person's right to acquire securities through options, rights or
other derivative securities.
"Gender/Number" whenever the masculine gender is used herein, it includes the
feminine gender as well, and the singular includes the plural and the plural
includes the singular, unless in each case the context clearly indicates
otherwise.
