As filed with the Securities and Exchange Commission on January 5, 2001
Securities Act File No. 333-48456
Investment Company Act File No. 811-10183
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 X
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Pre-Effective Amendment No. 1
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Post-Effective Amendment No. X
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REGISTRATION STATEMENT UNDER THE INVESTMENT
COMPANY ACT OF 1940 X
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Amendment No. 1
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MET INVESTORS SERIES TRUST
(Exact Name of Registrant as Specified in Charter)
610 Newport Center Drive, Suite 1350
Newport Beach, California 92660
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(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, Including Area Code: (800) 848-3854
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Elizabeth M. Forget
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President
Met Investors Series Trust
610 Newport Center Drive, Suite 1350, Newport Beach, California 92660
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(Name and Address of Agent for Service)
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Copies to:
Robert N. Hickey, Esq.
Sullivan & Worcester LLP
1025 Connecticut Avenue, N.W. Washington, D.C. 20036
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Approximate date of proposed public offering: As soon as practicable after the
effective date of this Registration Statement.
The Registrant hereby amends this Registration Statement on such date or dates
as may be necessary to delay its effective date until the Registrant shall file
a further amendment which specifically states that this Registration Statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
The Registrant hereby declares its intention to register an indefinite number of
shares of its J.P. Morgan Quality Bond Portfolio, J.P. Morgan Small Cap Stock
Portfolio, J.P. Morgan Enhanced Index Portfolio, J.P. Morgan Select Equity
Portfolio, J.P. Morgan International Equity Portfolio, Lord Abbett Bond
Debenture Portfolio, Lord Abbett Mid-Cap Value Portfolio, Lord Abbett Developing
Growth Portfolio, Lord Abbett Growth and Income Portfolio, Firstar Balanced
Portfolio, Firstar Equity Income Portfolio, Firstar Growth & Income Equity
Portfolio, BlackRock Equity Portfolio, BlackRock U.S. Governmental Income
Portfolio, PIMCO Total Return Portfolio, PIMCO Money Market Portfolio, PIMCO
Innovation Portfolio, Oppenheimer Capital Appreciation Portfolio, Putnam
Research Portfolio, MFS Mid Cap Growth Portfolio, MFS Research International
Portfolio, Janus Aggressive Growth Portfolio and Lord Abbett Growth
Opportunities Portfolio.
<PAGE>
[FRONT COVER]
Met Investors Series Trust
BlackRock Equity Portfolio
BlackRock U.S. Government Income Portfolio
J.P. Morgan Quality Bond Portfolio
J.P. Morgan Small Cap Stock Portfolio
J.P. Morgan Enhanced Index Portfolio
J.P. Morgan Select Equity Portfolio
J.P. Morgan International Equity Portfolio
Lord Abbett Bond Debenture Portfolio
Lord Abbett Mid-Cap Value Portfolio
Lord Abbett Developing Growth Portfolio
Lord Abbett Growth and Income Portfolio
Lord Abbett Growth Opportunities Portfolio
Firstar Balanced Portfolio
Firstar Equity Income Portfolio
Firstar Growth & Income Equity Portfolio
Putnam Research Portfolio
Oppenheimer Capital Appreciation Portfolio
PIMCO Total Return Portfolio
PIMCO Money Market Portfolio
PIMCO Innovation Portfolio
MFS Mid Cap Growth Portfolio
MFS Research International Portfolio
Janus Aggressive Growth Portfolio
Class A Shares
Prospectus
February[ ], 2001
Like all securities, these securities have not been approved or disapproved
by the Securities and Exchange Commission, nor has the Securities and Exchange
Commission passed upon the accuracy or adequacy of this Prospectus. Any
representation to the contrary is a criminal offense.
<PAGE>
Table of Contents
Page
INTRODUCTION........................................................3
Understanding the Trust....................................3
Understanding the Portfolios...............................3
THE PORTFOLIOS......................................................6
Investment Summary.........................................6
BlackRock Equity Portfolio........................8
BlackRock U.S. Government Income Portfolio.......11
J.P. Morgan Quality Bond Portfolio...............15
J.P. Morgan Small Cap Stock Portfolio............20
J.P. Morgan Enhanced Index Portfolio.............23
J.P. Morgan Select Equity Portfolio..............26
J.P. Morgan International Equity Portfolio.......29
Lord Abbett Bond Debenture Portfolio.............32
Lord Abbett Mid-Cap Value Portfolio..............36
Lord Abbett Developing Growth Portfolio..........39
Lord Abbett Growth and Income Portfolio..........42
Lord Abbett Growth Opportunities Portfolio.......45
Firstar Balanced Portfolio..................... 47
Firstar Equity Income Portfolio................ 52
Firstar Growth & Income Equity Portfolio....... 55
Putnam Research Portfolio......................58
Oppenheimer Capital Appreciation Portfolio.......60
PIMCO Total Return Portfolio.....................62
PIMCO Money Market Portfolio.....................65
PIMCO Innovation Portfolio.......................68
MFS Mid Cap Growth Portfolio.....................70
MFS Research International Portfolio.............72
Janus Aggressive Growth Portfolio................75
Additional Investment Strategies........................ 81
Management.............................................. 96
The Manager.................................... 96
The Advisers................................... 99
Distribution Plans............................ 112
YOUR INVESTMENT................................................. 113
Shareholder Information................................ 113
Dividends, Distributions and Taxes..................... 113
Sales and Purchases of Shares.......................... 114
FINANCIAL HIGHLIGHTS............................................ 116
FOR MORE INFORMATION............................................ 145
<PAGE>
INTRODUCTION
Understanding the Trust
Met Investors Series Trust (the "Trust") is an open-end management
investment company that offers a selection of twenty-three managed investment
portfolios or mutual funds (the "Portfolios"). Each of these Portfolios has its
own investment objective designed to meet different investment goals. Please see
the Investment Summary section of this Prospectus for specific information on
each Portfolio.
Investing Through a Variable Insurance Contract
Shares of these Portfolios are currently only sold to separate accounts
of Metropolitan Life Insurance Company and certain of its affiliates
(collectively, "MetLife") to fund the benefits under certain individual flexible
premium variable life insurance policies and individual and group variable
annuity contracts ("Contracts") and to qualified pension and profit sharing
plans (each a "Plan, collectively the Plans").
As a Contract owner or Plan participant, your premium payments are
allocated to one or more of the Portfolios in accordance with your Contract or
Plan.
A particular Portfolio of the Trust may not be available under the
Contract or Plan you have chosen. The prospectus or disclosure document for the
Contract or Plan shows the Portfolios available to you. Please read this
Prospectus carefully before selecting a Portfolio. It provides information to
assist you in your decision. If you would like additional information about a
Portfolio, please request a copy of the Statement of Additional Information
("SAI"). For details about how to obtain a copy of the SAI and other reports and
information, see the back cover of this Prospectus. The SAI is incorporated by
reference into this Prospectus.
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 investment advisers. The Portfolios in this Prospectus 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 investment restrictions, different cash flows
into and out of the Portfolios, different fees, and different asset sizes.
[SIDE BAR:
Please see the Contract or Plan prospectus that accompanies this
Prospectus for a detailed explanation of your Contract or Plan.]
Understanding the Portfolios
After this Introduction you will find an Investment Summary for each
Portfolio. Each Investment Summary presents important facts about a Portfolio,
including information about its investment objective, principal investment
strategy, primary risks and past performance.
Each of the twenty-three Portfolios of the Trust falls into one of four
categories of funds. A particular type of Portfolio may be more appropriate for
you depending upon your investment needs. Please see the Risk/Reward spectrum on
the next page which lists the Portfolios in order of risk/reward from highest to
lowest.
Description of Types of Funds:
Equity Funds
Although they may involve more risk, historically, equity securities
such as common stocks have offered higher returns than bonds or other
investments over the long term. A domestic equity fund principally invests in
equity securities of U.S. companies and may also, to a minor extent, invest in
securities of companies located outside the United States. An international
equity fund principally invests in the equity securities of companies located
outside the United States.
Balanced Funds
Balanced funds are generally "middle-of-the-road" investments that seek
to provide some combination of growth, income, and conservation of capital by
investing in a mix of stocks, bonds, and/or money market instruments. Because
the prices of stocks and bonds do not tend to move in lockstep, balanced funds
are able to use rewards from one type of investment to help offset the risks
from another.
Fixed Income Funds
Fixed income securities are securities that pay a specified rate of
return. Historically, fixed income funds are not as volatile as equity funds.
These funds may lend stability to a portfolio made up primarily of stocks.
Money Market Funds
Money market funds try (although there is no assurance that they will
be successful) to maintain a share price of $1.00 while paying income to its
shareholders. A stable share price protects your investment from loss.
<PAGE>
<TABLE>
<CAPTION>
Before you choose a Portfolio, please consider...
<S> <C> <C>
Higher
Risk/Reward
All of the Portfolios involve risk, but there is also the PIMCO Innovation Portfolio
potential for reward. You can lose money - and you can make J.P. Morgan Small Cap Stock Portfolio
money. The Portfolios are structured so that each offers a Janus Aggressive Growth Portfolio
different degree of risk and reward than others. Lord Abbett Developing Growth Portfolio
Notice the scale at the right. It covers, in the opinion of the Portfolios'
Manager, the full spectrum of risk/ reward of the Portfolios described in this
Prospectus.
What risk/reward level is for you? Ask yourself the following: MFS Mid-Cap Growth Portfolio
Lord Abbett Growth Opportunities Portfolio
(1) How well do I handle fluctuations in my account value? MFS Research International Portfolio
The higher a Portfolio is on the risk/ reward spectrum, the J.P. Morgan International Equity Portfolio
more its price is likely to move up and down on a day to day
basis. If this makes you uncomfortable, you may prefer an
investment at the lower end of the scale that may not
fluctuate in price as much.
(2) Am I looking for a higher rate of return? Generally, the higher the
potential return, the higher the risk. If you find the potential to make
money is worth the possibility of losing more, then a Portfolio at the
higher end of the spectrum may be right for you.
Oppenheimer Capital Appreciation Portfolio
J.P. Morgan Select Equity Portfolio
Lord Abbett Mid-Cap Value Portfolio
BlackRock Equity Portfolio
J.P. Morgan Enhanced Index Portfolio
Lord Abbett Growth and Income Portfolio
Firstar Growth & Income Equity Portfolio
Firstar Equity Income Portfolio
Putnam Research Portfolio
A final note: These Portfolios are designed for long-term Lord Abbett Bond Debenture Portfolio
investment. Firstar Balanced Portfolio
PIMCO Total Return Portfolio
BlackRock U.S. Government Income Lower
Portfolio
J.P. Morgan Quality Bond Portfolio Risk/Reward
PIMCO Money Market Portfolio
</TABLE>
<PAGE>
THE PORTFOLIOS
Investment Summary
Each Portfolio's summary discusses the following :
o Investment Objective
What is the Portfolio's investment goal?
o Principal Investment Strategy
How does the Portfolio attempt to achieve its investment goal?
What types of investments does it contain? What style of
investing and investment philosophy does it follow?
o Primary Risks
What are the specific risks of investing in the Portfolio?
o Past Performance
How well has the Portfolio performed over time?
[SIDE BAR: Each Portfolio in this Prospectus is a mutual fund: a pooled
investment that is professionally managed and that gives you the opportunity to
participate in financial markets. Each Portfolio strives to reach its stated
investment objective, which can be changed without shareholder approval. As with
all mutual funds, there is no guarantee that a Portfolio will achieve its
investment objective.
In addition to its principal investment strategy, each Portfolio may
invest in various types of securities and engage in various investment
techniques and practices which are not the principal focus of the Portfolio and
therefore are not described in this section of the Prospectus. These other
securities and investment techniques and practices in which a Portfolio may
engage, together with their risks, are briefly discussed in "Additional
Investment Strategies" in this Prospectus.
[SIDE BAR: A Portfolio's Adviser may sell a portfolio security when the
value of the investment reaches or exceeds its estimated fair value, to take
advantage of more attractive fixed income yield opportunities, when the issuer's
investment fundamentals begin to deteriorate, when the Portfolio must meet
redemptions, or for other investment reasons.]
Following the Investment Summary is the section entitled "Primary Risks
of Investing in the Portfolios" which lists some of the factors that may affect
the value of a Portfolio's investments.
[SIDE BAR: The Contracts may be sold by banks. An investment in a Portfolio
of the Trust through a Contract is not a deposit or obligation of, or guaranteed
by, any bank, and is not federally insured by the Federal Deposit Insurance
Corporation, the Federal Reserve Board, or any other agency of the U.S.
government.]
The SAI provides more detailed information regarding the various types
of securities that a Portfolio may purchase and certain investment techniques
and practices of its Adviser.
A NOTE ON FEES
As an investor in any of the Portfolios, you will incur various
operating costs, including management expenses. You also will incur fees
associated with the Contracts and Plans which you purchase. Detailed information
about the cost of investing in a Portfolio is presented in the "Annuity Policy
Fee Table" section of the accompanying prospectus for the Contracts through
which Portfolio shares are offered to you. Information about fees associated
with Plans can be obtained from the Plan sponsor.
<PAGE>
[Left Side:]
BlackRock Equity Portfolio
Investment Objective:
To provide growth of capital and income.
Principal Investment Strategy:
Under normal circumstances, the Portfolio invests at least 65% of its
assets in common stocks. The Adviser uses the S&P 500 index as a benchmark and
seeks to invest in stocks and market sectors in similar proportion to that
index. The Adviser seeks to own securities in all sectors, but can overweight or
underweight securities within sectors as it identifies market opportunities.
The Portfolio is managed in a way that takes advantage of trends in the
domestic stock market that favor different styles of stock selection including
value or growth stocks issued by all different sizes of companies (small, medium
and large). The Adviser initially screens for "value" and "growth" stocks from
the universe of companies with market capitalization above $1 billion. Whether
screening growth or value stocks, the Adviser is seeking companies that are
currently undervalued. The Adviser uses fundamental analysis to examine each
company for financial strength before deciding to purchase the stock.
The Portfolio may also invest up to 20% of its total assets in U.S.
Government securities, including U.S. Treasury and agency obligations.
[SIDE BAR:
GROWTH STOCKS have higher earnings that will, in the Adviser's opinion,
lead to growth in stock prices.]
VALUE STOCKS are, in the Adviser's opinion, considered undervalued or
worth more than their current price.
<PAGE>
[Right side:]
Primary Risks:
The value of your investment in the Portfolio may be affected by one or
more of the following risks, which are described in detail on page __, any of
which could cause the Portfolio's return on the price of its shares to decrease
or could cause the Portfolio's yield to fluctuate:
o Market risk
o Interest rate risk
o Market capitalization risk
o Investment style risk
Past Performance
The information below provides an indication of the risks of investing
in the Portfolio by showing the volatility of the Portfolio's returns. Both
tables assume reinvestment of dividends and distributions. Note that the results
in each table do not include the effect of Contract charges. If these Contract
charges had been included, performance would have been lower. As with all mutual
funds, past returns are not a prediction of future returns.
The Portfolio's performance shown below is the performance of its
predecessor fund (BlackRock Equity Series, a portfolio of Security First Trust)
managed by the Adviser using the same investment objective and strategy as the
Portfolio. The assets of the predecessor fund were transferred to the Portfolio
on February 5, 2001.
The bar chart below shows you the Portfolio's performance for each full
calendar year since its inception (5/19/93) and indicates how it has varied from
year to year. The Portfolio can also experience short-term performance swings as
indicated in the high and low quarter information at the bottom of the chart.
Year-by-Year Total Return as of 12/31 of Each Year
------------- ---------- ---------- ---------- ----------- ----------- ----
(6.3)% 28.0% 18.5% 29.3% 23.2% 20.7% %
94 95 96 97 98 99 00
------------- ---------- ---------- ---------- ----------- ----------- ----
High Quarter: 4th - 1998 + 20.80%
Low Quarter: 3rd -1998 - 11.16%
The table below compares the Portfolio's average annual compounded
total returns for the 1-year period, 5-year period, and from inception through
12/31/00 with the Standard & Poor's 500 Composite Stock Price Index (the "S&P
500 Index"), a widely recognized unmanaged index that measures the stock
performance of 500 large - and medium-sized publicly traded companies and is
often used to indicate the performance of the overall stock market. An index
does not include transaction costs associated with buying and selling securities
or any mutual fund expenses. It is not possible to invest directly in an index.
-----------------------------------------------------------------------------
Average Annual Total Return as of 12/31/00
-------------- ----------- ------------ -------------
Since
1 Year 5 Year Inception
-------------- ----------- ------------ -------------
Portfolio ___% ___% ___%
S&P 500 Index ___% ___% ___%*
---------------------------- ----------- ------------ ------------- --------
* From 4/30/93
[SIDE BAR:
Portfolio Management:
o BlackRock Advisors, Inc.
see page
o For financial highlights
see page ]
<PAGE>
[Left Side:]
BlackRock U.S. Government Income Portfolio
Investment Objective:
To provide current income.
Principal Investment Strategy:
The Portfolio normally invests at least 80% of its total assets in debt
securities and at least 65% of its total assets in U.S. Government securities
which are securities that are primary obligations of or guaranteed by the U.S.
Government and its agencies. These securities include direct obligations of the
U.S. Treasury, such as Treasury bills, notes, and bonds. Securities purchased by
the Portfolio are rated in the highest rating category (AAA by Standard & Poor's
Ratings Services ("S&P") or Aaa by Moody's Investors Service, Inc. ("Moody's"))
at the time of purchase or are determined by the Adviser to be of comparable
quality.
The Adviser evaluates categories of the government/agency market and
individual debt securities within these categories. The Adviser selects debt
securities from several categories including: U.S. Treasuries and agency
securities, residential and commercial mortgage-backed securities (including
collateralized mortgage obligations and GNMA certificates) and asset-backed
securities. Securities are purchased for the Portfolio when the Adviser
determines that they have the potential for above-average current income.
The Portfolio's current average weighted maturity for its fixed income
securities is 5.65 years. The Adviser will normally attempt to structure the
Portfolio's investment securities to have comparable duration to its benchmark,
the Lehman Brothers Intermediate Government Bond Index. Currently, the
benchmark's duration is approximately 5.67 years.
[SIDE BAR:
Duration, which measures price sensitivity to interest rate changes, is
not necessarily equal to average maturity. While average maturity measures the
average final payable dates of debt instruments, average duration measures how
long the debt securities can be expected to be held, regardless of the technical
maturity date.
<PAGE>
[Right side:]
Primary Risks:
The value of your investment in the Portfolio may be affected by one or
more of the following risks, which are described in detail on page _____, any of
which could cause the Portfolio's return on the price of its shares to decrease
or could cause the Portfolio's yield to fluctuate:
o Interest rate risk
o Credit risk
Like other debt securities, changes in interest rates generally affect
the value of a mortgage-backed security. Additionally, some mortgage-backed
securities may be structured so that they may be particularly sensitive to
interest rates.
Investments in mortgage-related securities are also subject to special
risks of prepayment. Prepayment risk occurs when the issuer of a security can
prepay the principal prior to the security's maturity. Securities subject to
prepayment risk, including the collateralized mortgage obligations and other
mortgage-related securities that the Portfolio can buy, generally offer less
potential for gains when prevailing interest rates decline, and have greater
potential for loss when interest rates rise depending upon the coupon of the
underlying securities. The impact of prepayments on the price of a security may
be difficult to predict and may increase the volatility of the price. In
addition, early repayment of mortgages underlying these securities may expose
the Portfolio to a lower rate of return when it reinvests the principal.
Further, the Portfolio may buy mortgage-related securities at a premium.
Accelerated prepayments on those securities could cause the Portfolio to lose a
portion of its principal investment represented by the premium the Portfolio
paid.
If interest rates rise rapidly, prepayments may occur at slower rates
than expected, which could have the effect of lengthening the expected maturity
of a short- or medium-term security. That could cause its value to fluctuate
more widely in response to changes in interest rates. In turn, this could cause
the value of the Portfolio's shares to fluctuate more.
Non-mortgage asset-backed securities are not issued or guaranteed by
the U.S. Government or its agencies or government-sponsored entities. In the
event of a failure of these securities to pay interest or repay principal, the
assets backing these securities such as automobiles or credit card receivables
may be insufficient to support the payments on the securities.
Past Performance
The information below provides an indication of the risks of investing
in the Portfolio by showing the volatility of the Portfolio's returns. Both
tables assume reinvestment of dividends and distributions. Note that the results
in each table do not include the effect of Contract charges. If these Contract
charges had been included, performance would have been lower. As with all mutual
funds, past returns are not a prediction of future returns.
The Portfolio's performance shown below is the performance of its
predecessor fund (BlackRock U.S. Government Income Series, a portfolio of
Security First Trust) managed by the Adviser using the same investment objective
and strategy as the Portfolio. The assets of the predecessor fund were
transferred to the Portfolio on February 5, 2001.
The bar chart below shows you the Portfolio's performance for each full
calendar year since its inception (5/19/93) and indicates how it has varied from
year to year. The Portfolio can also experience short-term performance swings as
indicated in the high and low quarter information at the bottom of the chart.
Year-by-Year Total Return as of 12/31 of Each Year
------------ ---------- ---------- ---------- --------- ------------ -----
(2.9)% 13.5% 3.6% 7.0% 7.4% (2.5)% %
94 95 96 97 98 99 00
------------ ---------- ---------- ---------- --------- ------------ -----
High Quarter: 2nd - 1995 + 4.48%
Low Quarter: 1st - 1994 - 2.54%
The table below compares the Portfolio's average annual compounded
total returns for the 1-year period, 5-year period, and from inception through
12/31/00 with the Lehman Brothers Intermediate Government Bond Index, a widely
recognized unmanaged index measuring the performance of all U.S. Treasury and
agency securities with remaining maturities of from one to ten years and issue
amounts of at least $100 million outstanding. An index does not include
transaction costs associated with buying and selling securities or any mutual
fund expenses. It is not possible to invest directly in an index.
------------------------------------------------------------------------
Average Annual Total Return as of 12/31/00
------------------ ----------- ------------- ---------------
Since
1 Year 5 Year Inception
------------------ ----------- ------------- ---------------
Portfolio ____% ____% ____%
Lehman Brothers Intermediate ____% ____% ____%
Government Bond Index
-------------------------------- ----------- ------------- -------------
[SIDE BAR:
Portfolio Management:
o BlackRock Advisors, Inc.
see page
o For financial highlights
see page ]
<PAGE>
[Left Side:]
J.P. Morgan Quality Bond Portfolio
Investment Objective:
To provide a high total return consistent with moderate risk of capital
and maintenance of liquidity.
Principal Investment Strategy:
The Portfolio will invest at least 65% of its total assets in
investment grade fixed income securities under normal circumstances.
The Portfolio invests in broad sectors of the fixed income market,
including U.S. Government and agency securities, corporate securities including
bonds, debentures and notes, asset-backed securities and mortgage-backed and
mortgage related securities. The Adviser actively manages the Portfolio's
duration, the allocation of securities across market sectors, and the selection
of specific securities within sectors. Based on fundamental, economic and
capital markets research, the Adviser adjusts the duration of the Portfolio in
light of market conditions and the Adviser's interest rate outlook. For example,
if interest rates are expected to fall, the duration may be lengthened to take
advantage of the expected associated increase in bond prices. The Adviser
selects specific securities which it believes are undervalued for purchase
using: advanced quantitative tools, analysis of credit risk, the expertise of a
dedicated trading desk, and the judgment of fixed income portfolio managers and
analysts. A security is considered undervalued when its price is lower than one
would expect for an investment of similar quality, duration and structural
characteristics.
Under normal market conditions, the Portfolio's duration will range
between one year shorter and one year longer than the duration of the U.S.
investment grade fixed income universe, as represented by Salomon Brothers Broad
Investment Grade Bond Index, the Portfolio's benchmark. Currently, the
benchmark's duration is approximately 5 years. The maturities of the individual
securities in the Portfolio may vary widely, however.
The Portfolio may invest in obligations issued or guaranteed by the
U.S. Government and backed by the full faith and credit of the United States
including Treasury securities and GNMA certificates as well as obligations
issued or guaranteed by U.S. Government agencies or instrumentalities where the
Portfolio must look principally to the issuing or guaranteeing agency for
ultimate repayment. Some examples of agencies or instrumentalities issuing these
obligations are the Federal Farm Credit System, the Federal Home Loan Banks and
the Federal National Mortgage Association.
The Portfolio may also invest in municipal obligations that have been
issued on a taxable basis or that have an attractive yield excluding tax
considerations.
It is a current policy of the Portfolio that under normal circumstances
at least 65% of its total assets will consist of investment grade securities
that are rated at least A by S&P or that are unrated and in the Adviser's
opinion are of comparable quality. In the case of 30% of the Portfolio's
investments, the Portfolio may purchase investment grade securities that are
rated Baa or better by Moody's or BBB or better by S&P or are unrated and in the
Adviser's opinion are of comparable quality.
The Portfolio may invest up to 20% of its assets in foreign debt
securities, including Eurodollar bonds and Yankee bonds and securities of
foreign governments and governmental entities. The Portfolio may also invest in
debt securities of issuers located in emerging market countries.
The Portfolio may keep a portion of its assets in cash or cash
equivalents such as high quality short-term debt obligations including bankers'
acceptances, commercial paper, certificates of deposit, Eurodollar obligations,
variable amount master demand notes and money market mutual funds. Investments
in cash or similar liquid securities (cash equivalents)generally do not provide
as high a return as would assets invested in other types of securities.
The Adviser may, when consistent with the Portfolio's investment
objective, use options or futures for hedging and for risk management (i.e., to
adjust duration or yield curve exposure, or to establish or adjust exposure to
particular securities markets, or currencies); risk management may include
management of the Portfolio's exposure relative to its benchmark.
<PAGE>
[Right side:]
Primary Risks:
The value of your investment in the Portfolio may be affected by one or
more of the following risks, which are described in detail on page ____, any of
which could cause the Portfolio's return on the price of its shares to decrease
or could cause the Portfolio's yield to fluctuate:
o Interest rate risk
o Credit risk
o Foreign investment risk
Like other debt securities, changes in interest rates generally affect
the value of a mortgage-backed security. Additionally, some mortgage-backed
securities may be structured so that they may be particularly sensitive to
interest rates.
Investments in mortgage-related securities are also subject to special
risks of prepayment. Prepayment risk occurs when the issuer of a security can
prepay the principal prior to the security's maturity. Securities subject to
prepayment risk, including the collateralized mortgage obligations and other
mortgage-related securities that the Portfolio can buy, generally offer less
potential for gains when prevailing interest rates decline, and have greater
potential for loss when interest rates rise depending upon the coupon of the
underlying securities. The impact of prepayments on the price of a security may
be difficult to predict and may increase the volatility of the price. In
addition, early repayment of mortgages underlying these securities may expose
the Portfolio to a lower rate of return when it reinvests the principal.
Further, the Portfolio may buy mortgage-related securities at a premium.
Accelerated prepayments on those securities could cause the Portfolio to lose a
portion of its principal investment represented by the premium the Portfolio
paid.
If interest rates rise rapidly, prepayments may occur at slower rates
than expected, which could have the effect of lengthening the expected maturity
of a short- or medium-term security. That could cause its value to fluctuate
more widely in response to changes in interest rates. In turn, this could cause
the value of the Portfolio's shares to fluctuate more.
Non-mortgage asset-backed securities are not issued or guaranteed by
the U.S. Government or its agencies or government-sponsored entities. In the
event of a failure of these securities to pay interest or repay principal, the
assets backing these securities such as automobiles or credit card receivables
may be insufficient to support the payments on the securities.
In addition, investments in emerging markets include all of the risks
of investments in foreign securities and are subject to severe price declines.
The economic and political structures of developing nations, in most cases, do
not compare favorably with the U.S. or other developed countries in terms of
wealth and stability, and their financial markets often lack liquidity. Such
countries may have relatively unstable governments, immature economic
structures, national policies restricting investments by foreigners and
economies based on only a few industries. For these reasons, all of the risks of
investing in foreign securities are heightened by investing in emerging markets
countries. The markets of developing countries have been more volatile than the
markets of developed countries with more mature economies. These markets often
have provided significantly higher or lower rates of return than developed
markets, and significantly greater risks, to investors.
Finally, the Portfolio's investments in derivatives to manage interest
rate or currency exposure can significantly increase the Portfolio's exposure to
market risk or risk of non-performance of the counterparty. Derivatives also
involve the risk of mispricing or improper valuation and the risks that changes
in value of the derivative may not correlate perfectly with the relevant assets,
rates and indices.
Past Performance
The information below provides an indication of the risks of investing
in the Portfolio by showing the volatility of the Portfolio's returns. Both
tables assume reinvestment of dividends and distributions. Note that the results
in each table do not include the effect of Contract charges. If these Contract
charges had been included, performance would have been lower. As with all mutual
funds, past returns are not a prediction of future returns.
The Portfolio's performance shown below is the performance of its
predecessor fund (Quality Bond Portfolio, a series of Cova Series Trust) managed
by the Adviser using the same investment objective and strategy as the
Portfolio. The assets of the predecessor fund were transferred to the Portfolio
on February 5, 2001.
The bar chart below shows you the Portfolio's performance for each full
calendar year since its inception (5/1/96) and indicates how it has varied from
year to year. The Portfolio can also experience short-term performance swings as
indicated in the high and low quarter information at the bottom of the chart.
Year-by-Year Total Return as of 12/31 of Each Year
------------- ----------- ----------- -----------
9.06% 8.37% -1.54% %
97 98 99 00
------------- ----------- ----------- -----------
High Quarter: 3rd - 1998 +4.15%
Low Quarter: 2nd -1999 - 1.46%
The table below compares the Portfolio's average annual compounded
total returns for the 1-year period and from inception through 12/31/00 with the
Salomon Brothers Broad Investment Grade Bond Index, a widely recognized
unmanaged market-capitalized weighted index which includes fixed-rate treasury,
government sponsored, corporate (Baa3/BBB or better) and mortgage securities. An
index does not include transaction costs associated with buying and selling
securities or any mutual fund expenses. It is not possible to invest directly in
an index.
---------------------------------------------------------------------------
Average Annual Total Return as of 12/31/00
--------------- -------------- ---- -----------------
Since
1 Year Inception
--------------- -------------- ---- -----------------
Portfolio ____% ____%
Salomon Brothers Broad ____% ____%
Investment Grade Bond
Index
----------------------------- -------------- ---- ----------------- ---------
[SIDE BAR:
Portfolio Management:
o J.P. Morgan Investment Management Inc.
see page
o For financial highlights
see page ]
<PAGE>
[Left Side:]
J.P. Morgan Small Cap Stock Portfolio
Investment Objective:
To provide a high total return from a portfolio of equity securities of
small companies.
Principal Investment Strategy:
Substantially all of the Portfolio's net assets will normally be
invested in common stocks. The Portfolio invests primarily in the common stock
of those small U.S. companies included in the Russell 2000 Index. The Portfolio
may invest to a limited extent in initial public offerings (IPOs) of companies
not included in the Russell 2000 Index.
The Adviser seeks to enhance the Portfolio's total return relative to
that of the U.S. small company universe. To do so, the Adviser uses research,
valuation and a stock selection process. The Adviser continually screens the
universe of small capitalization companies to identify for further analysis
those companies which exhibit favorable characteristics such as significant and
predictable cash flow and high quality management. Based on fundamental research
and using a systematic valuation methodology, the Adviser ranks these companies
within economic sectors according to their relative value. Some of the
additional characteristics the Adviser analyzes are: price/earnings growth,
discounted cash flow analysis and multiples of revenue with more or less weight
given to these factors depending on the sector. The Adviser then selects for
purchase the most attractive companies within each economic sector. The Adviser
believes that under normal market conditions, the Portfolio will have sector
weightings comparable to that of the U.S. small company universe, although it
may moderately under- or over-weight selected economic sectors. In selecting
securities, income is not an important factor.
<PAGE>
[Right side:]
Primary Risks:
The value of your investment in the Portfolio may be affected by one or
more of the following risks, which are described in detail on page ____, any of
which could cause the Portfolio's return on the price of its shares to decrease
or could cause the Portfolio's yield to fluctuate:
o Market risk
o Market capitalization risk
o Investment style risk
Past Performance
The information below provides an indication of the risks of investing
in the Portfolio by showing the volatility of the Portfolio's returns. Both
tables assume reinvestment of dividends and distributions. Note that the results
in each table do not include the effect of Contract charges. If these Contract
charges had been included, performance would have been lower. As with all mutual
funds, past returns are not a prediction of future returns.
The Portfolio's performance shown below is the performance of its
predecessor fund (Small Cap Stock Portfolio, a series of Cova Series Trust)
managed by the Adviser using the same investment objective and strategy as the
Portfolio. The assets of the predecessor fund were transferred to the Portfolio
on February 5, 2001.
The bar chart below shows you the Portfolio's performance for each full
calendar year since its inception (5/1/96) and indicates how it has varied from
year to year. The Portfolio can also experience short-term performance swings as
indicated in the high and low quarter information at the bottom of the chart.
Year-by-Year Total Return as of 12/31 of Each Year
------------- ------------ ------------ -----------
20.89% -5.40% 44.56% %
97 98 99 00
------------- ------------ ------------ -----------
High Quarter: 4th - 1999 + 35.13%
Low Quarter: 3rd -1998 - 21.49%
The table below compares the Portfolio's average annual compounded
total returns for the 1-year period and from inception through 12/31/00 with the
Russell 2000 Index, a widely recognized unmanaged index that measures small
company stock performance. An index does not include transaction costs
associated with buying and selling securities or any mutual fund expenses. It is
not possible to invest directly in an index.
-----------------------------------------------------------------------------
Average Annual Total Return as of 12/31/00
-------------- ---------------- --- -----------------
Since
1 Year Inception
-------------- ---------------- --- -----------------
Portfolio ____% ____%
Russell 2000 Index ____% ____%
---------------------------- ---------------- --- ----------------- ---------
SIDE BAR:
Portfolio Management:
o J.P. Morgan Investment Management Inc.
see page
o For financial highlights
see page ]
<PAGE>
[Left Side:]
J.P. Morgan Enhanced Index Portfolio
Investment Objective:
To provide long-term growth of capital and income.
Principal Investment Strategy:
The Portfolio is an actively managed portfolio of medium- to
large-capitalization equity securities that seeks to outperform the total return
of the S&P 500 Index, consistent with reasonable investment risk. Ordinarily,
the Portfolio pursues its investment objective by investing substantially all of
its total assets in dividend-paying common stock.
The Portfolio is not subject to any limit on the size of companies in
which it may invest, but intends, under normal circumstances, to be fully
invested to the extent practicable in the stock of large- and medium-sized
companies typically represented by the S&P 500 Index. In managing the Portfolio,
the potential for appreciation and dividend growth is given more weight than
current dividends. The Portfolio attempts to reduce risk by investing in many
different economic sectors, industries and companies. The Portfolio is highly
diversified and will typically hold approximately 300 stocks.
Portfolio sector weightings will generally equal those of the S&P 500
Index. In selecting securities, the Adviser will emphasize securities that it
believes to be undervalued. Securities of a company may be undervalued for a
variety of reasons such as an overreaction by investors to unfavorable news
about a company, an industry, or the stock markets in general as a result of a
market decline, poor economic conditions or tax-loss selling, or actual or
anticipated unfavorable developments affecting a company.
The Adviser uses a dividend discount model to rank companies within
economic sectors according to their relative value and then separates them into
quintiles by sector. The Portfolio will normally be comprised, based on the
dividend discount model, of stocks in the first three quintiles. As a guideline,
the Adviser seeks to achieve gross income for the Portfolio equal to at least
75% of the dividend income generated on the stocks included in the S&P 500
Index.
<PAGE>
[Right side:]
Primary Risks:
The value of your investment in the Portfolio may be affected by one or
more of the following risks, which are described in detail on page____, any of
which could cause the Portfolio's return on the price of its shares to decrease
or could cause the Portfolio's yield to fluctuate:
o Market risk
o Market capitalization risk
o Investment style risk
Past Performance
The information below provides an indication of the risks of investing
in the Portfolio by showing the volatility of the Portfolio's returns. Both
tables assume reinvestment of dividends and distributions. Note that the results
in each table do not include the effect of Contract charges. If these Contract
charges had been included, performance would have been lower. As with all mutual
funds, past returns are not a prediction of future returns.
The Portfolio's performance shown below is the performance of its
predecessor fund (Large Cap Stock Portfolio, a series of Cova Series Trust)
managed by the Adviser using the same investment objective and strategy as the
Portfolio. The assets of the predecessor fund were transferred to the Portfolio
on February 5, 2001.
The bar chart below shows you the Portfolio's performance for each full
calendar year since its inception (5/1/96) and indicates how it has varied from
year to year. The Portfolio can also experience short-term performance swings as
indicated in the high and low quarter information at the bottom of the chart.
Year-by-Year Total Return as of 12/31 of Each Year
------------- ----------- ------------ -----------
33.25% 32.31% 17.64% %
97 98 99 00
------------- ----------- ------------ -----------
High Quarter: 4th -1998 + 22.93
Low Quarter: 3rd - 1998 - 9.85%
The table below compares the Portfolio's average annual compounded
total returns for the 1-year period and from inception through 12/31/00 with the
S&P 500 Index, a widely recognized unmanaged index that measures the stock
performance of 500 large - and medium - sized publicly traded companies and is
often used to indicate the performance of the overall stock market. An index
does not include transaction costs associated with buying and selling securities
or any mutual fund expenses. It is not possible to invest directly in an index.
---------------------------------------------------------------------------
Average Annual Total Return as of 12/31/00
-------------- --------------- -- -------------------
Since
1 Year Inception
-------------- --------------- -- -------------------
Portfolio ____% ____%
S&P 500 Index ____% ____%
---------------------------- --------------- -- ------------------- -------
[SIDE BAR:
Portfolio Management:
o J.P. Morgan Investment Management Inc.
see page
o For financial highlights
see page ]
<PAGE>
[Left Side:]
J.P. Morgan Select Equity Portfolio
Investment Objective:
To provide long-term growth of capital and income.
Principal Investment Strategy:
The Portfolio is an actively managed portfolio of selected equity
securities that seeks to outperform the total return of the S&P 500, consistent
with reasonable investment risk. Under normal circumstances, the Portfolio will
be fully invested in the dividend-paying common stocks of large- and
medium-sized companies primarily included in the S&P 500. The Portfolio will
typically hold between 60 and 90 stocks.
The Portfolio is not subject to any limit on the size of companies in
which it may invest, but intends, under normal circumstances, to be fully
invested to the extent practicable in the stock of large- and medium-sized
companies primarily included in the S&P 500. In managing the Portfolio, the
potential for appreciation and dividend growth is given more weight than current
dividends.
The Portfolio does not seek to achieve its objective with any
individual portfolio security, but rather it aims to manage the portfolio as a
whole in such a way as to achieve its objective. The Portfolio attempts to
reduce risk by investing in many different economic sectors, industries and
companies. The Adviser may under- or over-weight selected economic sectors
against the S&P 500's Index sector weightings to seek to enhance the Portfolio's
total return or reduce fluctuations in market value relative to the S&P 500
Index. In selecting securities, the Adviser will emphasize securities that it
believes to be undervalued. Securities of a company may be undervalued for a
variety of reasons such as an overreaction by investors to unfavorable news
about a company, an industry, or the stock markets in general as a result of a
market decline, poor economic conditions, tax-loss selling, or actual or
anticipated unfavorable developments affecting a company.
The Adviser uses a dividend discount model to rank companies within
economic sectors according to their relative value and then separates them into
quintiles by sector. The Portfolio will primarily overweight stocks from the
first and second quintiles after consideration is given to market
capitalizations. As a guideline, the Adviser seeks to achieve gross income for
the Portfolio equal to at least 75% of the dividend income generated on the
stocks included in the S&P 500.
<PAGE>
[Right side:]
Primary Risks:
The value of your investment in the Portfolio may be affected by one or
more of the following risks, which are described in detail on page ____, any of
which could cause the Portfolio's return on the price of its shares to decrease
or could cause the Portfolio's yield to fluctuate:
o Market risk
o Market capitalization risk
o Investment style risk
Past Performance
The information below provides an indication of the risks of investing
in the Portfolio by showing the volatility of the Portfolio's returns. Both
tables assume reinvestment of dividends and distributions. Note that the results
in each table do not include the effect of Contract charges. If these Contract
charges had been included, performance would have been lower. As with all mutual
funds, past returns are not a prediction of future returns.
The Portfolio's performance shown below is the performance of its
predecessor fund (Select Equity Portfolio, a series of Cova Series Trust)
managed by the Adviser using the same investment objective and strategy as the
Portfolio. The assets of the predecessor fund were transferred to the Portfolio
on February 5, 2001.
The bar chart below shows you the Portfolio's performance for each full
calendar year since its inception (5/1/96) and indicates how it has varied from
year to year. The Portfolio can also experience short-term performance swings as
indicated in the high and low quarter information at the bottom of the chart.
Year-by-Year Total Return as of 12/31 of Each Year
-------------- ----------- ---------- ---------
31.55% 22.56% 9.71% %
97 98 99 00
-------------- ----------- ---------- ---------
High Quarter: 4th - 1998 + 21.63%
Low Quarter: 2nd - 1999 - 12.95%
The table below compares the Portfolio's average annual compounded
total returns for the 1-year period and from inception through 12/31/00 with the
S&P 500 Index, a widely recognized unmanaged index that measures the stock
performance of 500 large - and medium - sized publicly traded companies and is
often used to indicate the performance of the overall stock market. An index
does not include transaction costs associated with buying and selling securities
or any mutual fund expenses. It is not possible to invest directly in an index.
-----------------------------------------------------------------------------
Average Annual Total Return as of 12/31/00
-------------- ----------------- --- ----------------
Since
1 Year Inception
-------------- ----------------- --- ----------------
Portfolio ____% ____%
S&P 500 Index ____% ____%
---------------------------- ----------------- --- ---------------- ---------
[SIDE BAR:
Portfolio Management:
o J.P. Morgan Investment Management Inc.
see page
o For financial highlights
see page ]
<PAGE>
[Left Side:]
J.P. Morgan International Equity Portfolio
Investment Objective:
To provide a high total return from a portfolio of equity securities of
foreign corporations.
Principal Investment Strategy:
The Adviser intends to keep the Portfolio essentially fully invested
with substantially all of the value of its total assets in equity securities of
foreign issuers. The Adviser seeks to outperform the Morgan Stanley Capital
International Europe, Australia and Far East Index (the "MSCI EAFE Index").
The Portfolio's primary equity investments are the common stocks of
established companies based in developed countries outside the United States.
Such investments will be made in at least three foreign countries. The Portfolio
invests in securities listed on foreign or domestic securities exchanges and
securities traded in foreign or domestic over-the-counter markets.
The Portfolio seeks to achieve its investment objective through country
allocation, stock selection and management of currency exposure. The Adviser
uses a disciplined portfolio construction process to seek to enhance returns and
reduce volatility in the market value of the Portfolio relative to that of the
MSCI EAFE Index.
Based on fundamental research, quantitative valuation techniques, and
experienced judgment, the Adviser uses a structured decision-making process to
allocate the Portfolio primarily across the developed countries of the world
outside the United States by under- or over-weighting selected countries in the
MSCI EAFE Index.
Using a dividend discount model and based on analysts' industry
expertise, securities within each country are ranked within economic sectors
according to their relative value. Based on this valuation, the Adviser selects
the securities which appear the most attractive for the Portfolio. The Adviser
believes that under normal market conditions, economic sector weightings
generally will be similar to those of the MSCI EAFE Index.
Finally, the Adviser actively manages currency exposure, in conjunction
with country and stock allocation, in an attempt to protect and possibly enhance
the Portfolio's market value. Through the use of forward foreign currency
exchange contracts, the Adviser will adjust the Portfolio's foreign currency
weightings to reduce its exposure to currencies deemed unattractive and, in
certain circumstances, increase exposure to currencies deemed attractive, as
market conditions warrant, based on fundamental research, technical factors, and
the judgment of a team of experienced currency managers.
<PAGE>
[Right side:]
Primary Risks:
The value of your investment in the Portfolio may be affected by one or
more of the following risks, which are described in detail on page___, any of
which could cause the Portfolio's return on the price of its shares to decrease
or could cause the Portfolio's yield to fluctuate:
o Market risk
o Market capitalization risk
o Investment style risk
o Foreign investment risk
Past Performance
The information below provides an indication of the risks of investing
in the Portfolio by showing the volatility of the Portfolio's returns. Both
tables assume reinvestment of dividends and distributions. Note that the results
in each table do not include the effect of Contract charges. If these Contract
charges had been included, performance would have been lower. As with all mutual
funds, past returns are not a prediction of future returns.
The Portfolio's performance shown below is the performance of its
predecessor fund (International Equity Portfolio, a series of Cova Series Trust)
managed by the Adviser using the same investment objective and strategy as the
Portfolio. The assets of the predecessor fund were transferred to the Portfolio
on February 5, 2001.
The bar chart below shows you the Portfolio's performance for each full
calendar year since its inception (5/1/96) and indicates how it has varied from
year to year. The Portfolio can also experience short-term performance swings as
indicated in the high and low quarter information at the bottom of the chart.
Year-by-Year Total Return as of 12/31 of Each Year
------------- ----------- ------------ -----------
5.96% 14.07% 28.52% %
97 98 99 00
------------- ----------- ------------ -----------
High Quarter: 4th - 1998 + 19.07%
Low Quarter: 3rd - 1998 - 16.54%
The table below compares the Portfolio's average annual compounded
total returns for the 1-year period and from inception through 12/31/00 with the
MSCI EAFE Index, a widely recognized unmanaged index measuring the broad market
performance of equity securities throughout Europe, Australia and the Far East.
An index does not include transaction costs associated with buying and selling
securities or any mutual fund expenses. It is not possible to invest directly in
an index.
----------------------------------------------------------------------------
Average Annual Total Return as of 12/31/00
-------------- ---------------- --- -----------------
Since
1 Year Inception
-------------- ---------------- --- -----------------
Portfolio ____% ____%
MSCI EAFE Index ____% ____%
---------------------------- ---------------- --- ----------------- ---------
[SIDE BAR:
Portfolio Management:
o J.P. Morgan Investment Management Inc.
see page
o For financial highlights
see page ]
<PAGE>
[Left Side:]
Lord Abbett Bond Debenture Portfolio
Investment Objective:
To provide high current income and the opportunity for capital
appreciation to produce a high total return.
Principal Investment Strategy:
Under normal circumstances, the Portfolio invests substantially all of
its total assets in fixed income securities of various types. To pursue its
goal, the Portfolio normally invests in high yield and investment grade debt
securities, convertible securities and preferred stocks. The Portfolio may
invest substantially all of its total assets in high yield/high risk debt
securities (junk bonds). Debt securities normally will consist of secured debt
obligations of the issuer (i.e., bonds), general unsecured debt obligations of
the issuer (i.e., debentures) and debt securities which are subordinate in right
of payment to other debt of the issuer. In no event will the Portfolio invest
more than 10% of its gross assets at the time of investment in debt securities
which are in default as to interest or principal. At least 20% of the
Portfolio's assets must be invested in any combination of investment grade debt
securities, U.S. Government securities and cash equivalents.
The Adviser will actively manage the Portfolio and seek unusual values,
particularly in lower-rated debt securities, some of which are convertible into
common stocks or have warrants attached to purchase common stocks. In selecting
lower-rated bonds for investment, the Adviser does not rely upon ratings, which
evaluate only the safety of principal and interest, not market value risk, and
which, furthermore, may not accurately reflect an issuer's current financial
condition. The Portfolio does not have any minimum rating criteria for its
investments in bonds and some issuers may default as to principal and/or
interest payments subsequent to the purchase of their securities. Through
portfolio diversification, good credit analysis and attention to current
developments and trends in interest rates and economic conditions, the Adviser
believes that investment risk may be reduced, although there is no assurance
that losses will not occur.
The Portfolio normally invests in long-term debt securities when the
Adviser believes that interest rates in the long run will decline and prices of
such securities generally will be high. When the Adviser believes that long-term
interest rates will rise, it will endeavor to shift the Portfolio into
short-term debt. Under normal circumstances, the duration of the Portfolio's
debt securities will be between 4 to 6.7 years with a targeted average maturity
of 6.5 to 9.5 years.
Capital appreciation potential and current income are important
considerations in the selection of portfolio securities. Capital appreciation
potential is an important consideration in the selection of portfolio
securities. Capital appreciation may be obtained by investing in:
debt securities when the trend of interest rates is expected to be down;
convertible debt securities or debt securities with warrants attached
entitling the holder to purchase common stock; and
debt securities of issuers in financial difficulties when, in the view
of the Adviser, the problems giving rise to such difficulties can be
successfully resolved, with a consequent improvement in the credit
standing of the issuers (such investments involve corresponding risks
that interest and principal payments may not be made if such
difficulties are not resolved).
The Portfolio may invest up to 20% of its net assets, at market value,
in debt securities primarily traded in foreign countries.
The Portfolio may hold or sell any property or securities which it may
obtain through the exercise of conversion rights or warrants or as a result of
any reorganization, recapitalization or liquidation proceedings for any issuer
of securities owned by it. In no event will the Portfolio voluntarily purchase
any securities other than debt securities, if, at the time of such purchase or
acquisition, the value of the property and securities, other than debt
securities, in the Portfolio is greater than 20% of the value of its gross
assets.
<PAGE>
[Right side:]
Primary Risks:
The value of your investment in the Portfolio may be affected by one or
more of the following risks, which are described in detail on page____, any of
which could cause the Portfolio's return on the price of its shares to decrease
or could cause the Portfolio's yield to fluctuate:
o Interest rate risk
o Credit risk
o High yield debt security risk
o Foreign investment risk
Past Performance
The information below provides an indication of the risks of investing
in the Portfolio by showing the volatility of the Portfolio's returns. Both
tables assume reinvestment of dividends and distributions. Note that the results
in each table do not include the effect of Contract charges. If these Contract
charges had been included, performance would have been lower. As with all mutual
funds, past returns are not a prediction of future returns.
The Portfolio's performance shown below is the performance of its
predecessor fund (Bond Debenture Portfolio, a series of Cova Series Trust)
managed by the Adviser using the same investment objective and strategy as the
Portfolio. The assets of the predecessor fund were transferred to the Portfolio
on February 5, 2001.
The bar chart below shows you the Portfolio's performance for each full
calendar year since its inception (5/1/96) and indicates how it has varied from
year to year. The Portfolio can also experience short-term performance swings as
indicated in the high and low quarter information at the bottom of the chart.
Year-by-Year Total Return as of 12/31 of Each Year
------------- ------------ ----------- ------------
15.63% 6.26% 3.40% %
97 98 99 00
------------- ------------ ----------- ------------
High Quarter: 2nd -1997 + 6.25%
Low Quarter: 3rd -1998 - 4.31%
The table below compares the Portfolio's average annual compounded
total returns for the 1-year period and from inception through 12/31/00 with the
Salomon Brothers Broad Investment-Grade Bond Index, a widely recognized
unmanaged market-capitalized index that includes fixed-rate Treasury, government
sponsored, corporate (Baa3/BBB or better) and mortgage securities; with the
Credit Suisse First Boston High Yield Index, which is representative of the
lower rated debt (including non-convertible-preferred stocks) investments in the
Portfolio; and with the Merrill Lynch All Convertible Index, which is
representative of the equity-related securities in the Portfolio. An index does
not include transaction costs associated with buying and selling securities or
any mutual fund expenses. It is not possible to invest directly in an index.
-----------------------------------------------------------------------------
Average Annual Total Return as of 12/31/00
----------------- ----------------- --- ---------------
Since
1 Year Inception
----------------- ----------------- --- ---------------
Portfolio ____% ____%
Salomon Brothers Broad ____% ____%
Investment-Grade Bond Index
Credit Suisse First Boston ____% ____%
High Yield Index
Merrill Lynch ____% ____%
All Convertible Index
------------------------------- ----------------- --- --------------- -------
[SIDE BAR:
Portfolio Management:
o Lord, Abbett & Co.
see page
o For financial highlights
see page ]
<PAGE>
[Left Side:]
Lord Abbett Mid-Cap Value Portfolio
Investment Objective:
The Portfolio seeks capital appreciation through investments, primarily
in equity securities, which are believed to be undervalued in the marketplace.
Principal Investment Strategy:
Under normal circumstances, at least 65% of the Portfolio's assets will
consist of investments in mid-sized companies, with market capitalizations of
roughly $500 million to $10 billion.
The Portfolio normally will be diversified among many issues
representing many different industries. Selection of stocks is based on
appreciation potential, without regard to current income. The Portfolio invests
primarily in common stocks, including convertible securities, in companies with
good prospects for improvement in earnings trends or asset values that are not
yet fully recognized in the investment community. This potential for improvement
may derive from such factors as:
changes in the economic and financial environment,
new or improved products or services,
new or rapidly expanding markets,
changes in management or structure of the company,
price increases due to shortages of resources or productive capacity,
improved efficiencies resulting from new technologies or changes in
distribution, or
changes in governmental regulations, political climate or competitive
conditions.
The companies represented in the Portfolio will have a strong or, in
the perception of the Adviser, an improving financial position. At the time of
purchase, the stocks may be largely neglected by the investment community or, if
widely followed, they may be out of favor or at least controversial.
<PAGE>
[Right side:]
Primary Risks:
The value of your investment in the Portfolio may be affected by one or
more of the following risks, which are described in detail on page ___, any of
which could cause the Portfolio's return on the price of its shares to decrease
or could cause the Portfolio's yield to fluctuate:
o Market risk
o Market capitalization risk
o Investment style risk
Past Performance
The information below provides an indication of the risks of investing
in the Portfolio by showing the volatility of the Portfolio's returns. Both
tables assume reinvestment of dividends and distributions. Note that the results
in each table do not include the effect of Contract charges. If these Contract
charges had been included, performance would have been lower. As with all mutual
funds, past returns are not a prediction of future returns.
The Portfolio's performance shown below is the performance of its
predecessor fund (Mid-Cap Value Portfolio, a series of Cova Series Trust)
managed by the Adviser using the same investment objective and strategy as the
Portfolio. The assets of the predecessor fund were transferred to the Portfolio
on February 5, 2001.
The bar chart below shows you the Portfolio's performance for each full
calendar year since its inception (8/20/97) and indicates how it has varied from
year to year. The Portfolio can also experience short-term performance swings as
indicated in the high and low quarter information at the bottom of the chart.
Year-by-Year Total Return as of 12/31 of Each Year
----------- ---------- ----------
1.11% 5.71% %
98 99 00
----------- ---------- ----------
High Quarter: 2nd - 1999 + 16.83%
Low Quarter: 3rd - 1998 - 17.02%
The table below compares the Portfolio's average annual compounded
total returns for the 1-year period and from inception through 12/31/00 with the
Russell MidCap Index, a widely recognized unmanaged index measuring the broad
market performance of the 800 smallest companies in the Russell 1000 Index,
which represents approximately 24% of the total market capitalization of the
Russell 1000 Index. An index does not include transaction costs associated with
buying and selling securities or any mutual fund expenses. It is not possible to
invest directly in an index.
-----------------------------------------------------------------------------
Average Annual Total Return as of 12/31/00
-------------- ----------------- --- ----------------
Since
1 Year Inception
-------------- ----------------- --- ----------------
Portfolio ____% ____%
Russell Mid-Cap Index ____% ____%*
---------------------------- ----------------- --- ---------------- ---------
*From 9/1/97
[SIDE BAR:
Portfolio Management:
o Lord, Abbett & Co.
see page
o For financial highlights
see page ]
<PAGE>
[Left Side:]
Lord Abbett Developing Growth Portfolio
Investment Objective:
The Portfolio seeks long-term growth of capital through a diversified
and actively-managed portfolio consisting of developing growth companies, many
of which are traded over-the-counter.
Principal Investment Strategy:
The Portfolio normally will invest substantially all of its assets in
the common stocks of smaller companies considered to be in their developing
growth phase which is one generally characterized by a dramatic rate of growth.
Developing growth companies are almost always small, usually young and their
shares are generally traded over-the-counter. Having, in the view of the
Adviser, passed the pitfalls of the formative years, they are strongly
positioned to grow rapidly in their market. The Portfolio also may invest in
securities of companies which are in their formative phase including securities
purchased in initial public offerings (IPOs).
At any given time, there are many hundreds of publicly-traded
corporations in the developing growth phase. In choosing from among them, the
Adviser looks for special characteristics that will help their growth including
a unique product or service for which management foresees a rising demand; a
special area of technological expertise; or a competitive advantage or new
opportunities in foreign trade or from shifts in government priorities and
programs.
The Adviser also looks for certain financial characteristics such as:
at least five years of higher-than-average growth of revenues and
earnings per share;
higher-than-average returns on equity;
ability to finance growth in the form of a lower-than-average ratio of
long-term debt to capital and price/earnings ratios that are below
expected growth rates.
Securities being considered for the Portfolio are analyzed using
traditional investment fundamentals. In addition to the financial data already
mentioned, the Adviser evaluates the market for each company's products or
services, the strengths and weaknesses of competitors, the availability of raw
materials, diversity of product mix, etc.
Finally, in assembling the investment portfolio, the Adviser tries to
diversify the Portfolio's investments by investing in many securities and
industries.
<PAGE>
[Right side:]
Primary Risks:
The value of your investment in the Portfolio may be affected by one or
more of the following risks, which are described in detail on page ____, any of
which could cause the Portfolio's return on the price of its shares to decrease
or could cause the Portfolio's yield to fluctuate:
o Market risk
o Market capitalization risk
o Investment style risk
Past Performance
The information below provides an indication of the risks of investing
in the Portfolio by showing the volatility of the Portfolio's returns. Both
tables assume reinvestment of dividends and distributions. Note that the results
in each table do not include the effect of Contract charges. If these Contract
charges had been included, performance would have been lower. As with all mutual
funds, past returns are not a prediction of future returns.
The Portfolio's performance shown below is the performance of its
predecessor fund (Developing Growth Portfolio, a series of Cova Series Trust)
managed by the Adviser using the same investment objective and strategy as the
Portfolio. The assets of the predecessor fund were transferred to the Portfolio
on February 5, 2001.
The bar chart below shows you the Portfolio's performance for each full
calendar year since its inception (8/20/97) and indicates how it has varied from
year to year. The Portfolio can also experience short-term performance swings as
indicated in the high and low quarter information at the bottom of the chart.
Year-by-Year Total Return as of 12/31 of Each Year
------------ ----------- ----------
6.60% 32.47% %
98 99 00
------------ ----------- ----------
High Quarter: 4th -1998 + 26.01%
Low Quarter: 3rd -1998 - 21.82%
The table below compares the Portfolio's average annual compounded
total returns for the 1-year period and from inception through 12/31/00 with the
Russell 2000 Index, a widely recognized unmanaged index that measures small
company stock performance. An index does not include transaction costs
associated with buying and selling securities or any mutual fund expenses. It is
not possible to invest directly in an index.
-----------------------------------------------------------------------------
Average Annual Total Return as of 12/31/00
-------------- ---------------- ---- ----------------
Since
1 Year Inception
-------------- ---------------- ---- ----------------
Portfolio ____% ____%
Russell 2000 Index ____% ____%*
---------------------------- ---------------- ---- ---------------- ---------
*From 9/1/97
[SIDE BAR:
Portfolio Management:
o Lord, Abbett & Co.
see page
o For financial highlights
see page ]
<PAGE>
[Left Side:]
Lord Abbett Growth and Income Portfolio
Investment Objective:
To achieve long-term growth of capital and income without excessive
fluctuation in market value.
Principal Investment Strategy:
The Portfolio will normally invest substantially all of its assets in
common stocks of large, seasoned U.S. companies which the Adviser believes are
undervalued. The Portfolio chooses stocks based on:
o Quantitative research to identify which stocks are believed to represent
the best bargains
o Fundamental research to learn about a company's operating environment,
resources and strategic plans and to assess its prospects for exceeding
earnings expectations
o Business cycle analysis to determine how buying or selling securities
changes the overall portfolio's sensitivity to interest rates and economic
conditions.
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 the
Adviser, they carry excessive risk.
The Adviser tries to anticipate major changes in the economy and select
stocks which it believes will benefit most from these changes. The Adviser
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 Adviser 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 Adviser 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.
<PAGE>
[Right side:]
Primary Risks:
The value of your investment in the Portfolio may be affected by one or
more of the following risks, which are described in detail on page ___, any of
which could cause the Portfolio's return on the price of its shares to decrease
or could cause the Portfolio's yield to fluctuate:
o Market risk
o Investment style risk
o Market capitalization risk
Past Performance
The information below provides an indication of the risks of investing
in the Portfolio by showing the volatility of the Portfolio's returns. Both
tables assume reinvestment of dividends and distributions. Note that the results
in each table do not include the effect of Contract charges. If these Contract
charges had been included, performance would have been lower. As with all mutual
funds, past returns are not a prediction of future returns.
The Portfolio's performance shown below is the performance of its
predecessor fund (Lord Abbett Growth and Income Portfolio, a series of Cova
Series Trust) managed by the Adviser using the same investment objective and
strategy as the Portfolio. The assets of the predecessor fund were transferred
to the Portfolio on February 5, 2001.
The bar chart below shows you the Portfolio's performance for the first
full calendar year since its inception (1/8/99). The Portfolio can also
experience short-term performance swings as indicated in the high and low
quarter information at the bottom of the chart.
Year-by-Year Total Return as of 12/31 of Each Year
------------
%
00
------------
High Quarter: -- - 2000 + %
Low Quarter: -- - 2000 - %
The table below compares the Portfolio's average annual compounded
total returns for the 1-year period and from inception through 12/31/00 with the
S&P 500 Index, a widely recognized unmanaged index that measures the stock
performance of 500 large - and medium - sized companies and is often used to
indicate the performance of the overall stock market. An index does not include
transaction costs associated with buying and selling securities or any mutual
fund expenses. It is not possible to invest directly in an index.
-----------------------------------------------------------------------------
Average Annual Total Return as of 12/31/00
-------------- ---------------- ---- ----------------
Since
1 Year Inception
-------------- ---------------- ---- ----------------
Portfolio ____% ____%
S&P 500 Index ____% ____%*
---------------------------- ---------------- ---- ---------------- ---------
*From 1/1/99
[SIDE BAR:
Portfolio Management:
o Lord, Abbett & Co.
see page
o For financial highlights
see page ]
<PAGE>
[Left Side:]
Lord Abbett Growth Opportunities Portfolio
Investment Objective:
Capital appreciation.
Principle Investment Strategy:
The Portfolio invests primarily in common stocks of mid-sized companies
with market capitalizations between $1 billion and $10 billion. The Portfolio
uses a growth style of investing which means that the Adviser favors companies
that show the potential for strong revenue and earnings growth. Under normal
circumstances, the Portfolio will invest at least 65% of its total assets in
growth company stocks.
Typically, in choosing stocks, the Adviser looks for mid-sized
companies using:
o quantitative research to identify companies with superior growth
possibilities
o fundamental research to identify companies likely to produce superior
returns over a two to five year time frame, by analyzing the dynamics in
each company within its industry and within the economy
The Portfolio may invest up to 25% of its total assets in foreign
equity securities and American Depositary Receipts.
<PAGE>
[Right side:]
Primary Risks:
The value of your investment in the Portfolio may be affected by one or
more of the following risks, which are described in detail on page ___, any of
which could cause the Portfolio's return on the price of its shares to decrease
or could cause the Portfolio's yield to fluctuate:
o Market risk
o Investment style risk
o Market capitalization risk
Past Performance
The Portfolio commenced operations on February [5], 2001. No
performance information is currently available. For information on Lord Abbett &
Co.'s prior performance with a comparable fund, see page ___.
[SIDE BAR:
Portfolio Management:
o Lord, Abbett & Co.
see page ]
<PAGE>
[Left Side:]
Firstar Balanced Portfolio
Investment Objective:
To maximize total return through a combination of growth of capital and
current income consistent with the preservation of capital.
Principal Investment Strategy:
The Portfolio's policy is generally to invest at least 25% of the value
of its total assets in investment grade fixed income securities and no more than
75% in equity securities, although the percentage allocations will vary. The
Adviser allocates the Portfolio's assets based upon its evaluation of the
relative attractiveness of three major asset groups: equity securities, fixed
income securities and cash or cash equivalents. In making asset allocation
decisions, the Adviser evaluates forecasts for inflation, interest rates and
long-term corporate earnings growth. The Portfolio may emphasize, from time to
time, particular companies or market sectors, such as technology, in attempting
to achieve its investment objective.
In an effort to better quantify the relative attractiveness of the
major asset groups over a one- to three-year period of time, the Adviser has
incorporated into its asset allocation decision-making process several dynamic
computer models which it has created. The purpose of these models is to show the
statistical impact of the Adviser's economic outlook upon the future returns of
each asset group. The models are especially sensitive to the forecasts for
inflation, interest rates and long-term corporate earnings growth. Investment
returns are normally heavily impacted by such variables and their expected
changes over time. Therefore, the Adviser's method attempts to take advantage of
changing economic conditions by increasing or decreasing the ratio of stocks to
bonds in the Portfolio. For example, if the Adviser expected more rapid economic
growth leading to better corporate earnings, it would increase the Portfolio's
holdings of equity securities and reduce its holdings of fixed income securities
and cash equivalents.
The Portfolio's equity securities will consist mainly of common stocks
of companies with large market capitalizations. In selecting equity securities,
the Adviser considers historical and projected earnings, the price/earnings
relationship and company growth and asset value. The equity securities in which
the Portfolio invests include common stock, preferred stock and convertible
securities.
In selecting fixed-income securities, the Adviser seeks those issues
representing the best value among various sectors, and also considers credit
quality, prevailing interest rates and liquidity. The fixed income securities in
which the Portfolio invests include U.S. Government securities or other
investment grade fixed-income and related debt securities, including:
mortgage-backed securities;
a broad range of fixed and variable rate bonds, debentures, notes, and
securities convertible into or exchangeable for common stock;
participation certificates in pools of mortgages, including mortgages
issued or guaranteed by the U.S. Government, its agencies or
instrumentalities, collateralized mortgage obligations and other
mortgage-related securities.
The dollar-weighted average quality of the Portfolio's debt securities
is expected to be at least "A" or higher. In making investment decisions, the
Adviser will consider a number of factors including current yield, maturity,
yield to maturity, anticipated changes in interest rates, and the overall
quality of the investment. Under normal circumstances, the Portfolio's average
targeted maturity is 7.5 years and its duration is 5 years. The Portfolio seeks
to provide a current yield greater than that generally available from money
market instruments.
The Portfolio may invest up to 15% of its total assets in both foreign
equity and debt securities, including Eurodollar bonds and Yankee bonds.
<PAGE>
[Right side:]
Primary Risks:
The value of your investment in the Portfolio may be affected by one or
more of the following risks, which are described in detail on page ___, any of
which could cause the Portfolio's return on the price of its shares to decrease
or could cause the Portfolio's yield to fluctuate:
o Market risk
o Interest rate risk
o Credit risk
o Foreign investment risk
o Market capitalization risk
o Investment style risk
Like other debt securities, changes in interest rates generally affect
the value of a mortgage-backed security. Additionally, some mortgage-backed
securities may be structured so that they may be particularly sensitive to
interest rates.
Investments in mortgage-related securities are also subject to special
risks of prepayment. Prepayment risk occurs when the issuer of a security can
prepay the principal prior to the security's maturity. Securities subject to
prepayment risk, including the collateralized mortgage obligations and other
mortgage-related securities that the Portfolio can buy, generally offer less
potential for gains when prevailing interest rates decline, and have greater
potential for loss when interest rates rise depending upon the coupon of the
underlying securities. The impact of prepayments on the price of a security may
be difficult to predict and may increase the volatility of the price. In
addition, early repayment of mortgages underlying these securities may expose
the Portfolio to a lower rate of return when it reinvests the principal.
Further, the Portfolio may buy mortgage-related securities at a premium.
Accelerated prepayments on those securities could cause the Portfolio to lose a
portion of its principal investment represented by the premium the Portfolio
paid.
If interest rates rise rapidly, prepayments may occur at slower rates
than expected, which could have the effect of lengthening the expected maturity
of a short- or medium-term security. That could cause its value to fluctuate
more widely in response to changes in interest rates. In turn, this could cause
the value of the Portfolio's shares to fluctuate more.
Past Performance
The information below provides an indication of the risks of investing
in the Portfolio by showing the volatility of the Portfolio's returns. Both
tables assume reinvestment of dividends and distributions. Note that the results
in each table do not include the effect of Contract charges. If these Contract
charges had been included, performance would have been lower. As with all mutual
funds, past returns are not a prediction of future returns.
The Portfolio's performance shown below is the performance of its
predecessor fund (Balanced Portfolio, a series of Cova Series Trust) managed by
the Adviser using the same investment objective and strategy as the Portfolio.
The assets of the predecessor fund were transferred to the Portfolio on February
5, 2001.
The bar chart below shows you the Portfolio's performance for each full
calendar year since its inception (7/1/97) and indicates how it has varied from
year to year. The Portfolio can also experience short-term performance swings as
indicated in the high and low quarter information at the bottom of the chart.
Year-by-Year Total Return as of 12/31 of Each Year
------------- ------------ -----------
13.31% 7.14% %
98 99 00
------------- ------------ -----------
High Quarter: 4th - 1998 + 11.64%
Low Quarter: 3rd - 1999 - 5.16%
The table below compares the Portfolio's average annual compounded
total returns for the 1-year period and from inception through 12/31/00 with the
S&P 500 Index, a widely recognized unmanaged index that measures the stock
performance of 500 large - and medium-sized publicly traded companies and is
often used to indicate the performance of the overall stock market; and with the
Salomon Brothers Broad Investment Grade Bond Index, a widely recognized
unmanaged market-capitalized weighted index which includes fixed-rate Treasury,
government sponsored, corporate (Baa3/BBB or better) and mortgage securities. An
index does not include transaction costs associated with buying and selling
securities or any mutual fund expenses. It is not possible to invest directly in
an index.
-----------------------------------------------------------------------------
Average Annual Total Return as of 12/31/00
-------------- ---------------- ----- ---------------
Since
1 Year Inception
-------------- ---------------- ----- ---------------
Portfolio ____% ____%
S&P 500 Index ____% _____%
Salomon Brothers Broad
Investment Grade Bond ____% ____%
Index
---------------------------- ---------------- ----- --------------- ---------
[SIDE BAR:
Portfolio Management:
o Firstar Investment Research & Management Company, LLC
see page
o For financial highlights
see page ]
<PAGE>
[Left Side:]
Firstar Equity Income Portfolio
Investment Objective:
To provide an above-average level of income consistent with long-term
capital appreciation.
Principal Investment Strategy:
Under normal market and economic conditions, the Portfolio will invest
at least 65% of its total assets in income-producing equity securities,
primarily common stocks. The stocks or securities in which the Portfolio invests
may offer above average dividend yields, with corresponding above average levels
of income, in each case as compared to the S&P 500 Index. Stocks purchased for
the Portfolio generally will be listed on a national securities exchange or will
be unlisted securities with an established over-the-counter market.
The Portfolio invests primarily in the common stocks of companies with
large market capitalizations (generally, $5 billion or higher). The Adviser will
select stocks based on a number of quantitative factors including dividend
yield, current and future earnings potential compared to stock prices, total
return potential, and other measures of value, if appropriate, such as cash
flow, asset value or book value. A convertible security may be purchased for the
Portfolio when, in the Adviser's opinion, the price and yield of the convertible
security is favorable as compared to the price and yield of the issuer's common
stock. The Portfolio may emphasize, from time to time, particular companies or
market sectors in attempting to achieve its investment objectives.
The Portfolio may invest up to 15% of its total assets in foreign
securities either indirectly through the purchase of such instruments as
American Depositary Receipts or directly in foreign equity securities.
<PAGE>
[Right side:]
Primary Risks:
The value of your investment in the Portfolio may be affected by one or
more of the following risks, which are described in detail on page ___, any of
which could cause the Portfolio's return on the price of its shares to decrease
or could cause the Portfolio's yield to fluctuate:
o Market risk
o Interest rate risk
o Foreign investment risk
o Market capitalization risk
o Investment style risk
Past Performance
The information below provides an indication of the risks of investing
in the Portfolio by showing the volatility of the Portfolio's returns. Both
tables assume reinvestment of dividends and distributions. Note that the results
in each table do not include the effect of Contract charges. If these Contract
charges had been included, performance would have been lower. As with all mutual
funds, past returns are not a prediction of future returns.
The Portfolio's performance shown below is the performance of its
predecessor fund (Equity Income Portfolio, a series of Cova Series Trust)
managed by the Adviser using the same investment objective and strategy as the
Portfolio. The assets of the predecessor fund were transferred to the Portfolio
on February 5, 2001.
The bar chart below shows you the Portfolio's performance for each full
calendar year since its inception (7/1/97) and indicates how it has varied from
year to year. The Portfolio can also experience short-term performance swings as
indicated in the high and low quarter information at the bottom of the chart.
Year-by-Year Total Return as of 12/31 of Each Year
----------- ---------- ----------
9.35% 2.51% %
98 99 00
----------- ---------- ----------
High Quarter: 2nd -1998 +12.31%
Low Quarter: 3rd - 1998 - 9.34%
The table below compares the Portfolio's average annual compounded
total returns for the 1-year period and from inception through 12/31/00 with the
Russell 1000 Index, a widely recognized unmanaged index which consists of the
largest 1000 companies in the Russell 3000 Index. An index does not include
transaction costs associated with buying and selling securities or any mutual
fund expenses. It is not possible to invest directly in an index.
-----------------------------------------------------------------------------
Average Annual Total Return as of 12/31/00
------------------ ------------ ----- ---------------
Since
1 Year Inception
------------------ ------------ ----- ---------------
Portfolio ____% ____%
Russell 1000 Index ____% ____%
-------------------------------- ------------ ----- --------------- ---------
[SIDE BAR:
Portfolio Management:
o Firstar Investment Research & Management Company, LLC
see page
o For financial highlights
see page ]
<PAGE>
[Left Side:]
Firstar Growth & Income Equity Portfolio
Investment Objective:
To provide long-term capital growth and income.
Principal Investment Strategy:
The Portfolio intends to invest, under normal market and economic
conditions, substantially all of its assets in common stock. The Portfolio
selects common stocks primarily from a universe of domestic companies that have
established dividend-paying histories. The Portfolio generally invests in
medium-to-large-sized companies with stock market capitalizations over $1
billion that the Adviser considers to be well managed and to have attractive
fundamental financial characteristics such as low debt, high return on equity,
consistent revenue and earnings per share, and growth over the prior three to
five years. The Portfolio may also invest a portion of its assets in companies
with smaller market capitalizations.
The Adviser selects stocks based on a number of factors including:
historical and projected earnings
growth and asset value
earnings compared to stock prices generally (as measured by the S&P
500 Index)
consistency of earnings growth and earnings quality
Stocks purchased for the Portfolio generally will be listed on a
national securities exchange or will be unlisted securities with an established
over-the-counter market. The stocks or securities in which the Portfolio invests
may be expected to produce some income but income is not a major criterion in
their selection. In general, the Portfolio's stocks and securities will be
diversified over a number of industry groups in an effort to reduce the risks
inherent in such investments.
The Portfolio may invest up to 15% of its total assets indirectly in
foreign securities through the purchase of American Depositary Receipts and
European Depositary Receipts.
<PAGE>
[Right side:]
Primary Risks:
The value of your investment in the Portfolio may be affected by one or
more of the following risks, which are described in detail on page ___, any of
which could cause the Portfolio's return on the price of its shares to decrease
or could cause the Portfolio's yield to fluctuate:
o Market risk
o Foreign investment risk
o Market capitalization risk
o Investment style risk
Past Performance
The information below provides an indication of the risks of investing
in the Portfolio by showing the volatility of the Portfolio's returns. Both
tables assume reinvestment of dividends and distributions. Note that the results
in each table do not include the effect of Contract charges. If these Contract
charges had been included, performance would have been lower. As with all mutual
funds, past returns are not a prediction of future returns.
The Portfolio's performance shown below is the performance of its
predecessor fund (Growth & Income Equity Portfolio, a series of Cova Series
Trust) managed by the Adviser using the same investment objective and strategy
as the Portfolio. The assets of the predecessor fund were transferred to the
Portfolio on February 5, 2001.
The bar chart below shows you the Portfolio's performance for each full
calendar year since its inception (7/1/97) and indicates how it has varied from
year to year. The Portfolio can also experience short-term performance swings as
indicated in the high and low quarter information at the bottom of the chart.
Year-by-Year Total Return as of 12/31 of Each Year
------------- ----------- -----------
14.95% 16.17% %
98 99 00
------------- ----------- -----------
High Quarter: 4th - 1998 + 20.31%
Low Quarter: 3rd - 1998 - 13.62%
The table below compares the Portfolio's average annual compounded
total returns for the 1-year period and from inception through 12/31/00 with the
S&P 500 Index, a widely recognized unmanaged index that measures the stock
performance of 500 large - and medium-sized publicly traded companies and is
often used to indicate the performance of the overall stock market. An index
does not include transaction costs associated with buying and selling securities
or any mutual fund expenses. It is not possible to invest directly in an index.
-----------------------------------------------------------------------------
Average Annual Total Return as of 12/31/00
-------------- ----------------- -- -----------------
Since
1 Year Inception
-------------- ----------------- -- -----------------
Portfolio ____% ____%
S&P 500 Index ____% ____%
---------------------------- ----------------- -- ----------------- ---------
[SIDE BAR:
Portfolio Management:
o Firstar Investment Research & Management Company, LLC
see page
o For financial highlights
see page ]
<PAGE>
[Left Side:]
Putnam Research Portfolio
Investment Objective:
The Portfolio seeks capital appreciation
Principal Investment Strategy:
The Portfolio invest mainly in common stocks of large U.S. companies
that the Adviser thinks have the greatest potential for capital appreciation,
with stock prices that reflect a value lower than that which the Adviser places
on the company, or whose earnings the Adviser believes are likely to grow over
time. The Adviser also looks for the presence of factors that it believes will
cause the stock price to rise.
In choosing an investment, the Adviser will consider, among other
factors, a company's financial strength, competitive position in its industry,
projected future earnings, cash flows and dividends when deciding whether to buy
or sell investments.
<PAGE>
[Right side:]
Primary Risks:
The value of your investment in the Portfolio may be affected by one or
more of the following risks, which are described in detail on page __, any of
which could cause the Portfolio's return on the price of its shares to decrease
or could cause the Portfolio's yield to fluctuate:
o Market risk
o Market capitalization risk
o Investment style risk
Past Performance
The Portfolio commenced operations on February [5], 2001. No
performance information is currently available. For information on Putnam
Investment Management, LLC's prior performance with a comparable fund, see page
___.
[SIDE BAR:
Portfolio Management:
o Putnam Investment Management, LLC
see page
<PAGE>
[Left Side:]
Oppenheimer Capital Appreciation Portfolio
Investment Objective:
The Portfolio seeks capital appreciation.
Principal Investment Strategy:
The Portfolio invests mainly in common stocks of "growth companies".
These may be newer companies or established companies of any capitalization
range that the Adviser believes may appreciate in value over the long term. The
Portfolio currently focuses mainly on mid-cap and large-cap domestic companies.
The Portfolio may also purchase the securities of foreign issuers.
In deciding what securities to buy or sell, the Portfolio's Adviser
looks for growth companies that are believed to have reasonably priced stock in
relation to overall stock market valuations. The Adviser focuses on factors that
may vary in particular cases and over time in seeking broad diversification of
the Portfolio's investments among industries and market sectors. Currently, the
Adviser looks for:
o Companies with above-average growth potential;
o Companies with increasing earnings momentum and a history of positive
earnings growth;
o Stocks with low valuations relative to their growth potential;
o Companies with the potential for positive earnings surprises;
o Growth rates that the Adviser believes are sustainable over time.
<PAGE>
[Right side:]
Primary Risks:
The value of your investment in the Portfolio may be affected by one or
more of the following risks, which are described in detail on page __, any of
which could cause the Portfolio's return on the price of its shares to decrease
or could cause the Portfolio's yield to fluctuate:
o Market risk
o Market capitalization risk
o Investment style risk
o Foreign investment risk
Past Performance
The Portfolio commenced operations on February [5], 2001. No
performance information is currently available. For information on
OppenheimerFunds, Inc.'s prior performance with a comparable fund, see page
____.
[SIDE BAR:
Portfolio Management:
o OppenheimerFunds, Inc.
see page
<PAGE>
[Left Side:]
PIMCO Total Return Portfolio
Investment Objective:
The Portfolio seeks maximum total return, consistent with the
preservation of capital and prudent investment management.
Principal Investment Strategy:
The Portfolio seeks to achieve its investment objective by investing
under normal circumstances at least 65% of its assets in a diversified portfolio
of fixed income instruments of varying maturities. The average portfolio
duration of the Portfolio normally varies within a three- to six-year time frame
based on the Adviser's forecast for interest rates.
The Portfolio invests primarily in investment grade debt securities.
U.S. Government securities and commercial paper and other short-term
obligations. The Portfolio may invest up to 20% of its assets in securities
denominated in foreign currencies, and may invest beyond this limit in U.S.
dollar-denominated securities of foreign issuers. The Portfolio will normally
hedge at least 75% of its exposure to foreign currency to reduce the risk of
loss due to fluctuations in currency exchange rates.
The Portfolio may invest all of its assets in derivative instruments,
such as options, futures contracts or swap agreements, or in mortgage- or
asset-backed securities. In addition, the Portfolio may engage in forward
commitments, when-issued and delayed delivery securities transactions. The
Portfolio may, without limitation, seek to obtain market exposure to the
securities in which it primarily invests by entering into a series of purchase
and sale contracts or by using other investment techniques (such as buy backs or
dollar rolls). The "total return" sought by the Portfolio consists of income
earned on the Portfolio's investments, plus capital appreciation, if any, which
generally arises from decreases in interest rates or improving credit
fundamentals for a particular sector or security.
<PAGE>
[Right side:]
Primary Risks:
The value of your investment in the Portfolio may be affected by one or
more of the following risks, which are described in detail on page ___, any of
which could cause the Portfolio's return on the price of its shares to decrease
or could cause the Portfolio's yield to fluctuate:
o Market risk
o Interest rate risk
o Credit risk
o Foreign investment risk
Like other debt securities, changes in interest rates generally affect
the value of a mortgage-backed security. Additionally, some mortgage-backed
securities may be structured so that they may be particularly sensitive to
interest rates.
Investments in mortgage-related securities are also subject to special
risks of prepayment. Prepayment risk occurs when the issuer of a security can
prepay the principal prior to the security's maturity. Securities subject to
prepayment risk, including the collateralized mortgage obligations and other
mortgage-related securities that the Portfolio can buy, generally offer less
potential for gains when prevailing interest rates decline, and have greater
potential for loss when interest rates rise depending upon the coupon of the
underlying securities. The impact of prepayments on the price of a security may
be difficult to predict and may increase the volatility of the price. In
addition, early repayment of mortgages underlying these securities may expose
the Portfolio to a lower rate of return when it reinvests the principal.
Further, the Portfolio may buy mortgage-related securities at a premium.
Accelerated prepayments on those securities could cause the Portfolio to lose a
portion of its principal investment represented by the premium the Portfolio
paid.
If interest rates rise rapidly, prepayments may occur at slower rates
than expected, which could have the effect of lengthening the expected maturity
of a short- or medium-term security. That could cause its value to fluctuate
more widely in response to changes in interest rates. In turn, this could cause
the value of the Portfolio's shares to fluctuate more.
Non-mortgage asset-backed securities are not issued or guaranteed by
the U.S. Government or its agencies or government-sponsored entities. In the
event of a failure of these securities to pay interest or repay principal, the
assets backing these securities such as automobiles or credit card receivables
may be insufficient to support the payments on the securities.
The Portfolio's investments in derivatives can significantly increase
the Portfolio's exposure to market risk or credit risk of the counterparty.
Derivatives also involve the risk of mispricing or improper valuation and the
risk that changes in the value of the derivative may not correlate perfectly
with the relevant assets, rates and indices.
Past Performance
The Portfolio commenced operations on February [5], 2001. No
performance information is currently available. For information on Pacific
Investment Management Company LLC's prior performance with a comparable fund,
see page ___.
[SIDE BAR:
Portfolio Management:
o Pacific Investment Management Company LLC
see page ]
<PAGE>
[Left Side:]
PIMCO Money Market Portfolio
Investment Objective:
The Portfolio seeks maximum current income, consistent with
preservation of capital and daily liquidity.
Principal Investment Strategy:
The Portfolio seeks to achieve its investment objective by investing at
least 95% of its total assets in a diversified portfolio of money market
securities that are in the highest rating category for short-term obligations.
The Portfolio may only invest in U.S. dollar-denominated securities that mature
in 397 days or fewer from the date of purchase. The dollar-weighted average
portfolio maturity of the Portfolio may not exceed 90 days. The Portfolio
attempts to maintain a stable net asset value of $1.00 per share, although there
is no assurance that it will be successful in doing so.
The Portfolio may invest in the following: obligations of the U.S.
Government (including its agencies and instrumentalities); short-term corporate
debt securities of domestic and foreign corporations; obligations of domestic
and foreign commercial banks, savings banks, and savings and loan associations;
commercial paper; collateralized mortgage obligations that are issued or
guaranteed by the U.S. Government or its agencies or instrumentalities; and
mortgage-backed securities such as GNMA certificates. The Portfolio may invest
more than 25% of its total assets in securities or obligations issued by U.S.
banks.
The Portfolio's investments will comply with applicable rules governing
the quality, maturity and diversification of securities held by money market
funds.
<PAGE>
[Right side:]
Primary Risks:
The value of your investment in the Portfolio may be affected by one or
more of the following risks, which are described in detail on page __, any of
which could cause the Portfolio's return on the price of its shares to decrease
or could cause the Portfolio's yield to fluctuate:
o Interest rate risk
o Credit risk
o Foreign investment risk
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.
Like other debt securities, changes in interest rates generally affect
the value of a mortgage-backed security. Additionally, some mortgage-backed
securities may be structured so that they may be particularly sensitive to
interest rates.
Investments in mortgage-related securities are also subject to special
risks of prepayment. Prepayment risk occurs when the issuer of a security can
prepay the principal prior to the security's maturity. Securities subject to
prepayment risk, including the collateralized mortgage obligations and other
mortgage-related securities that the Portfolio can buy, generally offer less
potential for gains when prevailing interest rates decline, and have greater
potential for loss when interest rates rise depending upon the coupon of the
underlying securities. The impact of prepayments on the price of a security may
be difficult to predict and may increase the volatility of the price. In
addition, early repayment of mortgages underlying these securities may expose
the Portfolio to a lower rate of return when it reinvests the principal.
Further, the Portfolio may buy mortgage-related securities at a premium.
Accelerated prepayments on those securities could cause the Portfolio to lose a
portion of its principal investment represented by the premium the Portfolio
paid.
If interest rates rise rapidly, prepayments may occur at slower rates
than expected, which could have the effect of lengthening the expected maturity
of a short- or medium-term security. That could cause its value to fluctuate
more widely in response to changes in interest rates. In turn, this could cause
the value of the Portfolio's shares to fluctuate more.
Non-mortgage asset-backed securities are not issued or guaranteed by
the U.S. Government or its agencies or government-sponsored entities. In the
event of a failure of these securities to pay interest or repay principal, the
assets backing these securities such as automobiles or credit card receivables
may be insufficient to support the payments on the securities.
Past Performance
The Portfolio commenced operations on February [5], 2001. No
performance information is currently available. For information on Pacific
Investment Management Company LLC's prior performance with a comparable fund,
see page ____.
[SIDE BAR:
Portfolio Management:
o Pacific Investment Management Company LLC
see page
<PAGE>
[Left Side:]
PIMCO Innovation Portfolio
Investment Objective:
The Portfolio seeks capital appreciation; no consideration is given to
income.
Principal Investment Strategy:
The Portfolio seeks to achieve its investment objective by normally
investing at least 65% of its assets in common stocks of companies which utilize
new, creative or different, or "innovative," technologies to gain a strategic
competitive advantage in their industry, as well as companies that provide and
service those technologies. The Portfolio identifies its investment universe of
technology-related companies primarily by reference to classifications made by
independent firms, such as Standard & Poor's (for example, companies classified
as "Information Technology" companies) and by identifying companies that derive
a substantial portion of their revenues from the manufacture, sale and/or
service of technological products. Although the Portfolio emphasizes companies
which utilize technologies, it is not required to invest exclusively in
companies in a particular business sector or industry.
The Adviser selects stocks for the Portfolio using a "growth" style.
The Adviser seeks to identify technology-related companies with well-defined
"wealth creating" characteristics, including superior earnings growth (relative
to companies in the same industry or the market as a whole), high profitability
and consistent, predictable earnings. In addition, through fundamental research,
the Adviser seeks to identify companies that are gaining market share, have
superior management and possess a sustainable competitive advantage, such as
superior or innovative products, personnel and distribution systems.
The Portfolio may invest a substantial portion of its assets in the
securities of smaller capitalization companies with total assets in excess of
$200 million and may invest in initial public offerings (IPOs). The Portfolio
may invest up to 35% of its assets in foreign equity securities, except that it
may invest up to 40% of its assets in American Depositary Receipts.
<PAGE>
[Right side:]
Primary Risks:
The value of your investment in the Portfolio may be affected by one or
more of the following risks, which are described in detail on page ___, any of
which could cause the Portfolio's return on the price of its shares to decrease
or could cause the Portfolio's yield to fluctuate:
o Market risk
o Market capitalization risk
o Investment style risk
o Foreign investment risk
Because the Portfolio concentrates its investments in companies which
utilize innovative technologies, it is subject to risks particularly affecting
those companies, such as the risks of short product cycles and rapid
obsolescence of products and services, competition from new and existing
companies, significant losses and/or limited earnings, security price volatility
and limited operating histories.
In addition to other risks, a fund that invests a substantial portion
of its assets in related industries (or "sectors") may have greater risk because
companies in these sectors may share common characteristics and may react
similarly to market developments.
Past Performance
The Portfolio commenced operations on February [5], 2001. No
performance information is currently available. For information on PIMCO Equity
Advisors' prior performance with a comparable fund, see page ___.
[SIDE BAR:
Portfolio Management:
o PIMCO Equity Advisors, a division of PIMCO Advisors L.P.
see page
[Left Side:]
MFS Mid Cap Growth Portfolio
Investment Objective:
Long-term growth of capital.
Principal Investment Strategy:
The Portfolio invests, under normal market conditions, at least 65% of
its total assets in common stocks and related securities, such as preferred
stocks, convertible securities and depositary receipts for those securities, of
companies with medium market capitalization which the Adviser believes have
above-average growth potential.
Medium market capitalization companies are defined by the Portfolio as
companies with market capitalizations equaling or exceeding $250 million but not
exceeding the top of the Russell Midcap Growth Index range at the time of the
Portfolio's investment. Companies whose market capitalizations fall below $250
million or exceed the top of the Russell Midcap Growth Index range after
purchase continue to be considered medium-capitalization companies for purposes
of the Portfolio's 65% investment policy. As of November 30, 2000, the top of
the Russell Midcap Growth Index range was $20 billion. The Portfolio's
investments may include securities listed on a securities exchange or traded in
the over-the-counter markets.
The Adviser uses a bottom-up, as opposed to a top-down, investment
style in managing the Portfolio. This means that securities are selected based
upon fundamental analysis (such as an analysis of earnings, cash flows,
competitive position and management's abilities) performed by the Portfolio's
portfolio manager and the Adviser's large group of equity research analysts.
The Portfolio is a non-diversified. This means that the Portfolio may
invest a relatively high percentage of its assets in a small number of issuers.
The Portfolio may invest up to 20% of its total assets in foreign
securities (including emerging markets securities) through which it may have
exposure to foreign currencies. In addition, the Portfolio may lend up to 30% of
its portfolio securities.
The Portfolio is expected to engage in active and frequent trading to
achieve its principal investment strategies.
<PAGE>
[Right side:]
Primary Risks:
The value of your investment in the Portfolio may be affected by one or
more of the following risks, which are described in detail on page ___, any of
which could cause the Portfolio's return on the price of its shares to decrease
or could cause the Portfolio's yield to fluctuate:
o Market risk
o Market capitalization risk
o Investment style risk
o Foreign investment risk
In addition, investments in emerging markets include all of the risks
of investments in foreign securities and are subject to severe price declines.
The economic and political structures of developing nations, in most cases, do
not compare favorably with the U.S. or other developed countries in terms of
wealth and stability, and their financial markets often lack liquidity. Such
countries may have relatively unstable governments, immature economic
structures, national policies restricting investments by foreigners and
economies based on only a few industries. For these reasons, all of the risks of
investing in foreign securities are heightened by investing in emerging markets
countries. The markets of developing countries have been more volatile than the
markets of developed countries with more mature economies. These markets often
have provided significantly higher or lower rates of return than developed
markets, and significantly greater risks, to investors.
In addition, because the Portfolio may invest its assets in a small
number of issuers, the Portfolio is more susceptible to any single economic,
political or regulatory event effecting those issuers than is a diversified
portfolio.
Past Performance
The Portfolio commenced operations on February [5], 2001. No performance
information is currently available. For information on Massachusetts Financial
Services Company's prior performance with a comparable fund, see page ___.
[SIDE BAR:
Portfolio Management:
o Massachusetts Financial Services Company
see page ]
<PAGE>
[Left Side:]
MFS Research International Portfolio
Investment Objective:
The Portfolio's investment objective is capital appreciation.
Principal Investment Policies:
The Portfolio invests, under normal market conditions, at least 65% of its
total assets in common stocks and related securities, such as preferred stocks,
convertible securities and depositary receipts of foreign companies. The
Portfolio focuses on foreign companies (including up to 20% of its total assets
in emerging market issues) that the Portfolio's Adviser believes have favorable
growth prospects and attractive valuations based on current and expected
earnings or cash flow. The Portfolio may invest in companies of any size. The
Portfolio does not emphasize any particular country and, under normal market
conditions, will be invested in at least five countries. Equity securities may
be listed on a securities exchange or traded in the over-the-counter markets.
A committee of investment research analysts selects securities for the
Portfolio. This committee includes investment analysts employed by the Adviser
and its affiliates. The committee allocates the Portfolio's assets among various
geographic regions and industries. Individual analysts then select what they
view as the securities best suited to achieve the Portfolio's investment
objective within their assigned industry responsibility.
[SIDE BAR:
A company's principal activities are determined to be located in a
particular country if the company (a) is organized under the laws of, and
maintains a principal office in a country; (b) has its principal securities
trading market in a country, (c) derives 50% of its total revenues from goods or
services performed in the country, or (d) has 50% or more of its assets in the
country.]
The Portfolio may engage in active and frequent trading to achieve its
principal investment strategies. In addition, the Portfolio may lend up to 30%
of its Portfolio securities.
<PAGE>
[Right side:]
Primary Risks:
The value of your investment in the Portfolio may be affected by one or
more of the following risks, which are described in detail on page ___, any of
which could cause the Portfolio's return on the price of its shares to decrease
or could cause the Portfolio's yield to fluctuate:
o Market risk
o Market capitalization risk
o Investment style risk
o Foreign investment risk
The Portfolio may invest a substantial amount of its assets in issuers
located in a single country or a limited number of countries. If the Portfolio
focuses its investments in this manner, it assumes the risk that economic,
political and social conditions in those countries will have a significant
impact on its investment performance.
In addition, investments in emerging markets include all of the risks
of investments in foreign securities and are subject to severe price declines.
The economic and political structures of developing nations, in most cases, do
not compare favorably with the U.S. or other developed countries in terms of
wealth and stability, and their financial markets often lack liquidity. Such
countries may have relatively unstable governments, immature economic
structures, national policies restricting investments by foreigners and
economics based on only a few industries. For these reasons, all of the risks of
investing in foreign securities are heightened by investing in emerging markets
countries. The markets of developing countries have been more volatile than the
markets of developed countries with more mature economies. These markets often
have provided significantly higher or lower rates of return than developed
markets, and significantly greater risks, to investors.
Finally, the Portfolio's investments in derivatives to manage currency
exposure can significantly increase the Portfolio's exposure to market risk or
risk of non-performance of the counterparty. Derivatives also involve the risk
of mispricing or improper valuation and the risks that changes in value of the
derivative may not correlate perfectly with the relevant assets, rates and
indices.
Past Performance
The Portfolio commenced operations on February [5], 2001. No performance
information is currently available. For information on Massachusetts Financial
Services Company's prior performance with a comparable fund, see page ____.
[SIDE BAR:
Portfolio Management:
o Massachusetts Financial Services Company
see page
<PAGE>
[Left Side:]
Janus Aggressive Growth Portfolio
Investment Objective:
The Portfolio seeks long-term growth of capital.
Principal Investment Strategy:
The Portfolio invests primarily in common stocks selected for their
growth potential. The Portfolio may also invest in other equity securities
including preferred stock. The Portfolio may invest in companies of any size,
from larger, well-established companies to smaller, emerging growth companies.
The Portfolio is non-diversified which means that it can invest a greater
portion of it assets in a small number of issuers.
The Portfolio may invest without limit in foreign equity and debt
securities including American Depositary Receipts. Such foreign securities may
include those of emerging market issuers. Less than 35% of the Portfolio's net
assets may be invested in high-yield/high-risk bonds.
The Adviser applies a "bottom up" approach in choosing investments. In
other words, the Adviser looks for companies with earnings growth potential one
at a time. If the Adviser is unable to find such investments, a significant
portion of the Portfolio's assets may be in cash or similar investments.
Foreign securities are generally selected on a stock-by-stock basis
without regard to any defined allocation among countries or geographic regions.
However, certain factors such as expected levels of inflation, government
policies influencing business conditions, the outlook for currency
relationships, and prospects for economic growth among countries, regions or
geographic areas may warrant greater consideration in selecting foreign
securities. There are no limitations on the countries in which the Portfolio may
invest and the Portfolio may at times have significant foreign exposure.
The Adviser actively manages foreign currency exposure, in conjunction
with stock selection, in an attempt to protect and possibly enhance the
Portfolio's market value. Through the use of forward foreign currency exchange
contracts, the Adviser will adjust the Portfolio's foreign currency weightings
to reduce its exposure to currencies deemed unattractive and, in certain
circumstances, increase exposure to currencies deemed attractive, as market
conditions warrant.
<PAGE>
[Right side:]
Primary Risks:
The value of your investment in the Portfolio may be affected by one or
more of the following risks, which are described in detail on page ___, any of
which could cause the Portfolio's return on the price of its shares to decrease
or could cause the Portfolio's yield to fluctuate:
o Market risk
o Interest rate risk
o Credit risk
o High yield debt security risk
o Market capitalization risk
o Investment style risk
o Foreign investment risk
In addition, investments in emerging markets include all of the risks
of investments in foreign securities and are subject to severe price declines.
The economic and political structures of developing nations, in most cases, do
not compare favorably with the U.S. or other developed countries in terms of
wealth and stability, and their financial markets often lack liquidity. Such
countries may have relatively unstable governments, immature economic
structures, national policies restricting investments by foreigners and
economies based on only a few industries. For these reasons, all of the risks of
investing in foreign securities are heightened by investing in emerging markets
countries. The markets of developing countries have been more volatile than the
markets of developed countries with more mature economies. These markets often
have provided significantly higher or lower rates of return than developed
markets, and significantly greater risks, to investors.
Furthermore, because the Portfolio may invest its assets in a small
number of issuers, the Portfolio is more susceptible to any single economic,
political or regulatory event effecting those issuers than is a diversified
portfolio.
Past Performance
The Portfolio commenced operations on February [5], 2001. No
performance information is currently available. For information on Janus Capital
Corporation's prior performance with a comparable fund, see page ___.
[SIDE BAR:
Portfolio Management:
o Janus Capital Corporation
see page
<PAGE>
Primary Risks of Investing in the Portfolios
One or more of the following primary risks may apply to your Portfolio.
Please see the Investment Summary for your particular Portfolio to determine
which risks apply and for a discussion of other risks that may apply to the
Portfolio. Please note that there are many other circumstances that could
adversely affect your investment and prevent a Portfolio from its objective,
which are not described here.
Market Risk
A Portfolio's share price can fall because of weakness in the broad
market, a particular industry, or specific holdings. The market as a whole can
decline for many reasons, including disappointing corporate earnings, adverse
political or economic developments here or abroad, changes in investor
psychology, or heavy institutional selling. The prospects for an industry or a
company may deteriorate. In addition, an assessment by a Portfolio's Adviser of
particular companies may prove incorrect, resulting in losses or poor
performance by those holdings, even in a rising market. A Portfolio could also
miss attractive investment opportunities if its Adviser underweights fixed
income markets or industries where there are significant returns, and could lose
value if the Adviser overweights fixed income markets or industries where there
are significant declines.
Stocks purchased in IPOs have a tendency to fluctuate in value
significantly shortly after the IPO relative to the price at which they were
purchased. These fluctuations could impact the net asset value and return earned
on the Portfolio's shares.
Interest Rate Risk
The values of debt securities are subject to change when prevailing
interest rates change. When interest rates go up, the value of debt securities
and certain dividend paying stocks tends to fall. If your Portfolio invests a
significant portion of its assets in debt securities or stocks purchased
primarily for dividend income and interest rates rise, then the value of your
investment may decline. Alternatively, when interest rates go down, the value of
debt securities and certain dividend paying stocks may rise.
Interest rate risk will affect the price of a fixed income security
more if the security has a longer maturity because changes in interest rates are
increasingly difficult to predict over longer periods of time. Fixed income
securities with longer maturities will therefore be more volatile than other
fixed income securities with shorter maturities. Conversely, fixed income
securities with shorter maturities will be less volatile but generally provide
lower returns than fixed income securities with longer maturities. The average
maturity and duration of a Portfolio's fixed income investments will affect the
volatility of the Portfolio's share price.
Credit Risk
The value of debt securities is directly affected by an issuer's
ability to pay principal and interest on time. If your Portfolio invests in debt
securities, the value of your investment may be adversely affected when an
issuer fails to pay an obligation on a timely basis. A Portfolio may also be
subject to credit risk to the extent it engages in transactions, such as
securities loans, repurchase agreements or certain derivatives, which involve a
promise by a third party to honor an obligation to the Portfolio. Such third
party may be unwilling or unable to honor its financial obligations.
High Yield Debt Security Risk
High yield debt securities, or junk bonds, are securities which are
rated below "investment grade" or are not rated, but are of equivalent quality.
High yield debt securities range from those for which the prospect for repayment
of principal and interest is predominantly speculative to those which are
currently in default on principal or interest payments. A Portfolio with high
yield debt securities may be more susceptible to credit risk and market risk
than a Portfolio that invests only in higher quality debt securities because
these lower-rated debt securities are less secure financially and more sensitive
to downturns in the economy. In addition, the secondary market for such
securities may not be as liquid as that for more highly rated debt securities.
As a result, a Portfolio's Adviser may find it more difficult to sell these
securities or may have to sell them at lower prices.
You should understand that high yield securities are not generally
meant for short-term investing. When a Portfolio invests in high yield
securities it generally seeks to receive a correspondingly higher return to
compensate it for the additional credit risk and market risk it has assumed.
Foreign Investment Risk
Investments in foreign securities involve risks relating to political,
social and economic developments abroad, as well as risks resulting from the
differences between the regulations to which U.S. and foreign issuers and
markets are subject:
o These risks may include the seizure by the government of
company assets, excessive taxation, withholding taxes on
dividends and interest, limitations on the use or transfer of
portfolio assets, and political or social instability.
o Enforcing legal rights may be difficult, costly and slow in
foreign countries, and there may be special problems enforcing
claims against foreign governments.
o Foreign companies may not be subject to accounting standards
or governmental supervision comparable to U.S. companies, and
there may be less public information about their operations.
o Foreign markets may be less liquid and more volatile than U.S. markets.
o Foreign securities often trade in currencies other than the U.S. dollar,
and a Portfolio may directly hold foreign currencies and purchase and sell
foreign currencies. Changes in currency exchange rates will affect a
Portfolio's net asset value, the value of dividends and interest earned,
and gains and losses realized on the sale of foreign securities. An
increase in the strength of the U.S. dollar relative to these other
currencies may cause the value of a Portfolio to decline. Certain foreign
currencies may be particularly volatile, and foreign governments may
intervene in the currency markets, causing a decline in value or liquidity
of a Portfolio's foreign currency or securities holdings.
o Costs of buying, selling and holding foreign securities,
including brokerage, tax and custody costs, may be higher than
those involved in domestic transactions.
Market Capitalization Risk
Stocks fall into three broad market capitalization categories--large,
medium and small. Investing primarily in one category carries the risk that due
to current market conditions that category may be out of favor. If valuations of
large capitalization companies appear to be greatly out of proportion to the
valuations of small or medium capitalization companies, investors may migrate to
the stocks of small and mid-sized companies causing a Portfolio that invests in
these companies to increase in value more rapidly than a Portfolio that invests
in larger, fully-valued companies. Larger more established companies may also 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 rate of successful smaller companies, especially during
extended periods of economic expansion. Investing in medium and small
capitalization companies may be subject to special risks associated with
narrower product lines, more limited financial resources, smaller management
groups, and a more limited trading market for their stocks as compared with
larger companies. Securities of smaller capitalization issuers may therefore be
subject to greater price volatility and may decline more significantly in market
downturns than securities of larger companies.
Investment Style Risk
Different investment styles tend to shift in and out of favor depending
upon market and economic conditions as well as investor sentiment. A Portfolio
may outperform or underperform other funds that employ a different investment
style. A Portfolio may also employ a combination of styles that impact its risk
characteristics. Examples of different investment styles include growth and
value investing. Growth stocks may be more volatile than other stocks because
they are more sensitive to investor perceptions of the issuing company's growth
of earnings potential. Also, since growth companies usually invest a high
portion of earnings in their business, growth stocks may lack the dividends of
value stocks that can cushion stock prices in a falling market. Growth oriented
funds will typically underperform when value investing is in favor. Value stocks
are those which are undervalued in comparison to their peers due to adverse
business developments or other factors. Value investing carries the risk that
the market will not recognize a security's inherent value for a long time, or
that a stock judged to be undervalued may actually be appropriately priced or
overvalued. Value oriented funds will typically underperform when growth
investing is in favor.
<PAGE>
Additional Investment Strategies
In addition to the principal investment strategies discussed in each
individual Portfolio's Investment Summary, a Portfolio, as indicated, may at
times invest a portion of its assets in the investment strategies and may engage
in certain investment techniques as described below. The SAI provides a more
detailed discussion of certain of these and other securities and indicates if a
Portfolio is subject to any limitations with respect to a particular investment
strategy. These strategies and techniques may involve risks. Although a
Portfolio that is not identified below in connection with a particular strategy
or technique generally has the ability to engage in such a transaction, its
Adviser currently intends to invest little, if any, of the Portfolio's assets in
that strategy or technique. (Please note that some of these strategies may be a
principal investment strategy for a particular Portfolio and consequently are
also described in that Portfolio's Investment Summary.) The Portfolios are not
limited by this discussion and may invest in other types of securities not
precluded by the policies discussed elsewhere in this Prospectus.
<PAGE>
--------------------------- ----------- ----------- ----------- -----------
BlackRock BlackRock J.P. J.P.
Equity U.S. Gov't Morgan Morgan
Portfolio Income Quality Small Cap
Portfolio Bond Stock s
Portfolio Portfolio
--------------------------- ----------- ----------- ----------- -----------
--------------------------- ----------- ----------- ----------- -----------
Brady Bonds X
--------------------------- ----------- ----------- ----------- -----------
--------------------------- ----------- ----------- ----------- -----------
Collateralized X X
Mortgage Obligations
--------------------------- ----------- ----------- ----------- -----------
--------------------------- ----------- ----------- ----------- -----------
Convertible Securities X X
--------------------------- ----------- ----------- ----------- -----------
--------------------------- ----------- ----------- ----------- -----------
Depositary Receipts X X
----------- ----------- ----------- -----------
--------------------------- ----------- ----------- ----------- -----------
Derivatives:
----------- ----------- ----------- -----------
Options X X X
Futures X X
--------------------------- ----------- ----------- ----------- -----------
Direct Participation X
in Corporate Loans
--------------------------- ----------- ----------- ----------- -----------
--------------------------- ----------- ----------- ----------- -----------
Dollar Roll Transactions X X
--------------------------- ----------- ----------- ----------- -----------
--------------------------- ----------- ----------- ----------- -----------
Foreign Currency X
Transactions
--------------------------- ----------- ----------- ----------- -----------
--------------------------- ----------- ----------- ----------- -----------
Foreign Debt Securities X
--------------------------- ----------- ----------- ----------- -----------
--------------------------- ----------- ----------- ----------- -----------
Foreign Equity Securities
--------------------------- ----------- ----------- ----------- -----------
--------------------------- ----------- ----------- ----------- -----------
Forward Commitments, X X
When-Issued and Delayed
Delivery Securities
--------------------------- ----------- ----------- ----------- -----------
--------------------------- ----------- ----------- ----------- -----------
High Quality Short-term X X X X
Debt Obligations
including Bankers'
Acceptances, Commercial
Paper, Certificates of
Deposit and Eurodollar
Obligations issued or
guaranteed by Bank
Holding Companies in the
U.S., their Subsidiaries
and Foreign Branches or
of the World Bank;
Variable Amount Master
Demand Notes and Variable
Rate Notes issued by U.S.
and Foreign Corporations
--------------------------- ----------- ----------- ----------- -----------
--------------------------- ----------- ----------- ----------- -----------
High Yield/High Risk Debt X
Securities
--------------------------- ----------- ----------- ----------- -----------
--------------------------- ----------- ----------- ----------- -----------
Hybrid Instruments X
--------------------------- ----------- ----------- ----------- -----------
--------------------------- ----------- ----------- ----------- -----------
Illiquid and Restricted X X
Securities
--------------------------- ----------- ----------- ----------- -----------
--------------------------- ----------- ----------- ----------- -----------
Indexed Securities
--------------------------- ----------- ----------- ----------- -----------
--------------------------- ----------- ----------- ----------- -----------
Interest Rate X X
Transactions
--------------------------- ----------- ----------- ----------- -----------
--------------------------- ----------- ----------- ----------- -----------
Investment Grade Debt X X
Securities
--------------------------- ----------- ----------- ----------- -----------
--------------------------- ----------- ----------- ----------- -----------
Investments in Other X
Investment Companies
including Passive Foreign
Investment Companies
--------------------------- ----------- ----------- ----------- -----------
--------------------------- ----------- ----------- ----------- -----------
Mortgage-backed X X
Securities, including
GNMA Certificates,
Mortgage-backed Bonds
--------------------------- ----------- ----------- ----------- -----------
--------------------------- ----------- ----------- ----------- -----------
Municipal Securities X
--------------------------- ----------- ----------- ----------- -----------
--------------------------- ----------- ----------- ----------- -----------
Non-mortgage Asset-backed X X
Securities
--------------------------- ----------- ----------- ----------- -----------
--------------------------- ----------- ----------- ----------- -----------
PIK (pay-in-kind) X X
Debt Securities and
Zero-Coupon Bonds
--------------------------- ----------- ----------- ----------- -----------
--------------------------- ----------- ----------- ----------- -----------
Preferred Stocks X X
--------------------------- ----------- ----------- ----------- -----------
--------------------------- ----------- ----------- ----------- -----------
Private Placements X
--------------------------- ----------- ----------- ----------- -----------
--------------------------- ----------- ----------- ----------- -----------
Real Estate Investment
Trusts
--------------------------- ----------- ----------- ----------- -----------
--------------------------- ----------- ----------- ----------- -----------
Repurchase Agreements X X X X
--------------------------- ----------- ----------- ----------- -----------
--------------------------- ----------- ----------- ----------- -----------
Reverse Repurchase X
Agreements
--------------------------- ----------- ----------- ----------- -----------
--------------------------- ----------- ----------- ----------- -----------
Rights and Warrants
--------------------------- ----------- ----------- ----------- -----------
--------------------------- ----------- ----------- ----------- -----------
Securities Loans X
--------------------------- ----------- ----------- ----------- -----------
--------------------------- ----------- ----------- ----------- -----------
Short Sales X
(Against the Box)
--------------------------- ----------- ----------- ----------- -----------
--------------------------- ----------- ----------- ----------- -----------
U.S. Government X X X X
Securities
--------------------------- ----------- ----------- ----------- -----------
<PAGE>
--------------------------- ---------- ----------- ----------- -----------
J.P. J.P. J.P. Lord
Morgan Morgan Morgan Abbett
Enhanced Select Int'l Bond
Index Equity Equity Debenture
Portfolio Portfolio Portfolio Portfolio
---------- ----------- ----------- -----------
--------------------------- ---------- ----------- ----------- -----------
Brady Bonds
--------------------------- ---------- ----------- ----------- -----------
--------------------------- ---------- ----------- ----------- -----------
Collateralized X
Mortgage Obligations
--------------------------- ---------- ----------- ----------- -----------
--------------------------- ---------- ----------- ----------- -----------
Convertible Securities X
--------------------------- ---------- ----------- ----------- -----------
--------------------------- ---------- ----------- ----------- -----------
Depositary Receipts X X X
---------- ----------- ----------- -----------
--------------------------- ---------- ----------- ----------- -----------
Derivatives:
---------- ----------- ----------- -----------
Options X
Futures
--------------------------- ---------- ----------- ----------- -----------
Direct Participation
in Corporate Loans
--------------------------- ---------- ----------- ----------- -----------
--------------------------- ---------- ----------- ----------- -----------
Dollar Roll Transactions
--------------------------- ---------- ----------- ----------- -----------
--------------------------- ---------- ----------- ----------- -----------
Foreign Currency X
Transactions
--------------------------- ---------- ----------- ----------- -----------
--------------------------- ---------- ----------- ----------- -----------
Foreign Debt Securities X
--------------------------- ---------- ----------- ----------- -----------
--------------------------- ---------- ----------- ----------- -----------
Foreign Equity Securities X
--------------------------- ---------- ----------- ----------- -----------
--------------------------- ---------- ----------- ----------- -----------
Forward Commitments,
When-Issued and Delayed
Delivery Securities
--------------------------- ---------- ----------- ----------- -----------
--------------------------- ---------- ----------- ----------- -----------
High Quality Short-term X
Debt Obligations
including Bankers'
Acceptances, Commercial
Paper, Certificates of
Deposit and Eurodollar
Obligations issued or
guaranteed by Bank
Holding Companies in the
U.S., their Subsidiaries
and Foreign Branches or
of the World Bank;
Variable Amount Master
Demand Notes and Variable
Rate Notes issued by U.S.
and Foreign Corporations
--------------------------- ---------- ----------- ----------- -----------
--------------------------- ---------- ----------- ----------- -----------
High Yield/High Risk Debt X
Securities
--------------------------- ---------- ----------- ----------- -----------
--------------------------- ---------- ----------- ----------- -----------
Hybrid Instruments
--------------------------- ---------- ----------- ----------- -----------
--------------------------- ---------- ----------- ----------- -----------
Illiquid and Restricted X X
Securities
--------------------------- ---------- ----------- ----------- -----------
--------------------------- ---------- ----------- ----------- -----------
Indexed Securities
--------------------------- ---------- ----------- ----------- -----------
--------------------------- ---------- ----------- ----------- -----------
Interest Rate
Transactions
--------------------------- ---------- ----------- ----------- -----------
--------------------------- ---------- ----------- ----------- -----------
Investment Grade Debt X
Securities
--------------------------- ---------- ----------- ----------- -----------
--------------------------- ---------- ----------- ----------- -----------
Investments in Other
Investment Companies
including Passive Foreign
Investment Companies
--------------------------- ---------- ----------- ----------- -----------
--------------------------- ---------- ----------- ----------- -----------
Mortgage-backed X
Securities, including
GNMA Certificates,
Mortgage-backed Bonds
--------------------------- ---------- ----------- ----------- -----------
--------------------------- ---------- ----------- ----------- -----------
Municipal Securities
--------------------------- ---------- ----------- ----------- -----------
--------------------------- ---------- ----------- ----------- -----------
Non-mortgage Asset-backed
Securities
--------------------------- ---------- ----------- ----------- -----------
--------------------------- ---------- ----------- ----------- -----------
PIK (pay-in-kind) X
Debt Securities and
Zero-Coupon Bonds
--------------------------- ---------- ----------- ----------- -----------
--------------------------- ---------- ----------- ----------- -----------
Preferred Stocks X
--------------------------- ---------- ----------- ----------- -----------
--------------------------- ---------- ----------- ----------- -----------
Private Placements
--------------------------- ---------- ----------- ----------- -----------
--------------------------- ---------- ----------- ----------- -----------
Real Estate Investment
Trusts
--------------------------- ---------- ----------- ----------- -----------
--------------------------- ---------- ----------- ----------- -----------
Repurchase Agreements X
--------------------------- ---------- ----------- ----------- -----------
--------------------------- ---------- ----------- ----------- -----------
Reverse Repurchase X
Agreements
--------------------------- ---------- ----------- ----------- -----------
--------------------------- ---------- ----------- ----------- -----------
Rights and Warrants
--------------------------- ---------- ----------- ----------- -----------
--------------------------- ---------- ----------- ----------- -----------
Securities Loans X
--------------------------- ---------- ----------- ----------- -----------
--------------------------- ---------- ----------- ----------- -----------
Short Sales
(Against the Box)
--------------------------- ---------- ----------- ----------- -----------
--------------------------- ---------- ----------- ----------- -----------
U.S. Government X
Securities
--------------------------- ---------- ----------- ----------- -----------
<PAGE>
--------------------------- ----------- ----------- ----------- -----------
Lord Lord Lord Lord
Abbett Abbett Abbett Abbett
Mid-Cap Dev. Growth Growth
Value Growth and Opportunitie
Portfolio Portfolio Income Portfolio
Portfolio
--------------------------- ----------- ----------- ----------- -----------
--------------------------- ----------- ----------- ----------- -----------
Brady Bonds
--------------------------- ----------- ----------- ----------- -----------
--------------------------- ----------- ----------- ----------- -----------
Collateralized
Mortgage Obligations
--------------------------- ----------- ----------- ----------- -----------
--------------------------- ----------- ----------- ----------- -----------
Convertible Securities X
--------------------------- ----------- ----------- ----------- -----------
--------------------------- ----------- ----------- ----------- -----------
Depositary Receipts X X X X
----------- ----------- -----------
--------------------------- ----------- ----------- ----------- -----------
Derivatives:
----------- ----------- -----------
Options
Futures
--------------------------- ----------- ----------- ----------- -----------
Direct Participation
in Corporate Loans
--------------------------- ----------- ----------- ----------- -----------
--------------------------- ----------- ----------- ----------- -----------
Dollar Roll Transactions
--------------------------- ----------- ----------- ----------- -----------
--------------------------- ----------- ----------- ----------- -----------
Foreign Currency
Transactions
--------------------------- ----------- ----------- ----------- -----------
--------------------------- ----------- ----------- ----------- -----------
Foreign Debt Securities
--------------------------- ----------- ----------- ----------- -----------
--------------------------- ----------- ----------- ----------- -----------
Foreign Equity Securities X X X X
--------------------------- ----------- ----------- ----------- -----------
--------------------------- ----------- ----------- ----------- -----------
Forward Commitments,
When-Issued and Delayed
Delivery Securities
--------------------------- ----------- ----------- ----------- -----------
--------------------------- ----------- ----------- ----------- -----------
High Quality Short-term
Debt Obligations
including Bankers'
Acceptances, Commercial
Paper, Certificates of
Deposit and Eurodollar
Obligations issued or
guaranteed by Bank
Holding Companies in the
U.S., their Subsidiaries
and Foreign Branches or
of the World Bank;
Variable Amount Master
Demand Notes and Variable
Rate Notes issued by U.S.
and Foreign Corporations
--------------------------- ----------- ----------- ----------- -----------
--------------------------- ----------- ----------- ----------- -----------
High Yield/High Risk Debt
Securities
--------------------------- ----------- ----------- ----------- -----------
--------------------------- ----------- ----------- ----------- -----------
Hybrid Instruments
--------------------------- ----------- ----------- ----------- -----------
--------------------------- ----------- ----------- ----------- -----------
Illiquid and Restricted X X
Securities
--------------------------- ----------- ----------- ----------- -----------
--------------------------- ----------- ----------- ----------- -----------
Indexed Securities
--------------------------- ----------- ----------- ----------- -----------
--------------------------- ----------- ----------- ----------- -----------
Interest Rate
Transactions
--------------------------- ----------- ----------- ----------- -----------
--------------------------- ----------- ----------- ----------- -----------
Investment Grade Debt
Securities
--------------------------- ----------- ----------- ----------- -----------
--------------------------- ----------- ----------- ----------- -----------
Investments in Other X
Investment Companies
including Passive Foreign
Investment Companies
--------------------------- ----------- ----------- ----------- -----------
--------------------------- ----------- ----------- ----------- -----------
Mortgage-backed
Securities, including
GNMA Certificates,
Mortgage-backed Bonds
--------------------------- ----------- ----------- ----------- -----------
--------------------------- ----------- ----------- ----------- -----------
Municipal Securities
--------------------------- ----------- ----------- ----------- -----------
--------------------------- ----------- ----------- ----------- -----------
Non-mortgage Asset-backed
Securities
--------------------------- ----------- ----------- ----------- -----------
--------------------------- ----------- ----------- ----------- -----------
PIK (pay-in-kind)
Debt Securities and
Zero-Coupon Bonds
--------------------------- ----------- ----------- ----------- -----------
--------------------------- ----------- ----------- ----------- -----------
Preferred Stocks X
--------------------------- ----------- ----------- ----------- -----------
--------------------------- ----------- ----------- ----------- -----------
Private Placements
--------------------------- ----------- ----------- ----------- -----------
--------------------------- ----------- ----------- ----------- -----------
Real Estate Investment
Trusts
--------------------------- ----------- ----------- ----------- -----------
--------------------------- ----------- ----------- ----------- -----------
Repurchase Agreements X X X
--------------------------- ----------- ----------- ----------- -----------
--------------------------- ----------- ----------- ----------- -----------
Reverse Repurchase X X X
Agreements
--------------------------- ----------- ----------- ----------- -----------
--------------------------- ----------- ----------- ----------- -----------
Rights and Warrants
--------------------------- ----------- ----------- ----------- -----------
--------------------------- ----------- ----------- ----------- -----------
Securities Loans X X X
--------------------------- ----------- ----------- ----------- -----------
--------------------------- ----------- ----------- ----------- -----------
Short Sales
(Against the Box)
--------------------------- ----------- ----------- ----------- -----------
--------------------------- ----------- ----------- ----------- -----------
U.S. Government
Securities
--------------------------- ----------- ----------- ----------- -----------
<PAGE>
------------------------------- ---------- ------------ ----------- -----------
Firstar Firstar Firstar Putnam
Balanced Equity Growth & Research
Portfolio Income Income Portfolio
Portfolio Equity
Portfolio
------------------------------- ---------- ------------ ----------- -----------
------------------------------- ---------- ------------ ----------- -----------
Brady Bonds
------------------------------- ---------- ------------ ----------- -----------
------------------------------- ---------- ------------ ----------- -----------
Collateralized Mortgage X
Obligations
------------------------------- ---------- ------------ ----------- -----------
------------------------------- ---------- ------------ ----------- -----------
Convertible Securities X X X X
------------------------------- ---------- ------------ ----------- -----------
Depositary Receipts X X X X
------------------------------- ---------- ------------ ----------- -----------
Derivatives:
Options X X
Futures
------------------------------- ---------- ------------ ----------- -----------
Direct Participation in
Corporate Loans
------------------------------- ---------- ------------ ----------- -----------
------------------------------- ---------- ------------ ----------- -----------
Dollar Roll Transactions
------------------------------- ---------- ------------ ----------- -----------
------------------------------- ---------- ------------ ----------- -----------
Foreign Currency Transactions
------------------------------- ---------- ------------ ----------- -----------
------------------------------- ---------- ------------ ----------- -----------
Foreign Debt Securities X
------------------------------- ---------- ------------ ----------- -----------
------------------------------- ---------- ------------ ----------- -----------
Foreign Equity Securities X X X
------------------------------- ---------- ------------ ----------- -----------
------------------------------- ---------- ------------ ----------- -----------
Forward Commitments, X
When-Issued and Delayed
Delivery Securities
------------------------------- ---------- ------------ ----------- -----------
------------------------------- ---------- ------------ ----------- -----------
High Quality Short-term Debt X X X X
Obligations including
Bankers' Acceptances,
Commercial Paper,
Certificates of Deposit and
Eurodollar Obligations issued
or guaranteed by Bank Holding
Companies in the U.S., their
Subsidiaries and Foreign
Branches or of the World
Bank; Variable Amount Master
Demand Notes and Variable
Rate Notes issued by U.S. and
Foreign Corporations
------------------------------- ---------- ------------ ----------- -----------
------------------------------- ---------- ------------ ----------- -----------
High Yield/High Risk Debt
Securities
------------------------------- ---------- ------------ ----------- -----------
------------------------------- ---------- ------------ ----------- -----------
Hybrid Instruments
------------------------------- ---------- ------------ ----------- -----------
------------------------------- ---------- ------------ ----------- -----------
Illiquid and Restricted
Securities
------------------------------- ---------- ------------ ----------- -----------
------------------------------- ---------- ------------ ----------- -----------
Indexed Securities
------------------------------- ---------- ------------ ----------- -----------
------------------------------- ---------- ------------ ----------- -----------
Interest Rate
Transactions
------------------------------- ---------- ------------ ----------- -----------
------------------------------- ---------- ------------ ----------- -----------
Investment Grade Debt X X
Securities
------------------------------- ---------- ------------ ----------- -----------
------------------------------- ---------- ------------ ----------- -----------
Investments in Other X X
Investment Companies
including Passive Foreign
Investment Companies
------------------------------- ---------- ------------ ----------- -----------
------------------------------- ---------- ------------ ----------- -----------
Mortgage-backed Securities, X
including GNMA Certificates,
Mortgage-backed Bonds
------------------------------- ---------- ------------ ----------- -----------
------------------------------- ---------- ------------ ----------- -----------
Municipal Securities X
------------------------------- ---------- ------------ ----------- -----------
------------------------------- ---------- ------------ ----------- -----------
Non-mortgage Asset-backed
Securities
------------------------------- ---------- ------------ ----------- -----------
------------------------------- ---------- ------------ ----------- -----------
PIK (pay-in-kind) X
Debt Securities and
Zero-Coupon Bonds
------------------------------- ---------- ------------ ----------- -----------
------------------------------- ---------- ------------ ----------- -----------
Preferred Stocks X X X X
------------------------------- ---------- ------------ ----------- -----------
------------------------------- ---------- ------------ ----------- -----------
Private Placements X
------------------------------- ---------- ------------ ----------- -----------
------------------------------- ---------- ------------ ----------- -----------
Real Estate Investment Trusts X
------------------------------- ---------- ------------ ----------- -----------
------------------------------- ---------- ------------ ----------- -----------
Repurchase Agreements X X X
------------------------------- ---------- ------------ ----------- -----------
------------------------------- ---------- ------------ ----------- -----------
Reverse Repurchase Agreements
------------------------------- ---------- ------------ ----------- -----------
------------------------------- ---------- ------------ ----------- -----------
Rights and Warrants
------------------------------- ---------- ------------ ----------- -----------
------------------------------- ---------- ------------ ----------- -----------
Securities Loans
------------------------------- ---------- ------------ ----------- -----------
------------------------------- ---------- ------------ ----------- -----------
Short Sales
(Against the Box)
------------------------------- ---------- ------------ ----------- -----------
------------------------------- ---------- ------------ ----------- -----------
U.S. Government Securities X X X
------------------------------- ---------- ------------ ----------- -----------
<PAGE>
------------------------------- ------------ ------------ ------------ --------
Oppenheimer PIMCO PIMCO PIMCO
Capital Total Money Innovation
Appreciation Return Market Portfolio
Portfolio Portfolio Portfolio
------------------------------- ------------ ------------ ------------ --------
------------------------------- ------------ ------------ ------------ --------
Brady Bonds X
------------------------------- ------------ ------------ ------------ --------
------------------------------- ------------ ------------ ------------ --------
Collateralized Mortgage X X X
Obligations
------------------------------- ------------ ------------ ------------ --------
------------------------------- ------------ ------------ ------------ --------
Convertible Securities X
------------------------------- ------------ ------------ ------------ --------
Depositary Receipts X X
------------------------------- ------------ ------------ ------------ --------
Derivatives:
Options X
Futures X
------------------------------- ------------ ------------ ------------ --------
Direct Participation in X
Corporate Loans
------------------------------- ------------ ------------ ------------ --------
------------------------------- ------------ ------------ ------------ --------
Dollar Roll Transactions X
------------------------------- ------------ ------------ ------------ --------
------------------------------- ------------ ------------ ------------ --------
Foreign Currency Transactions X
------------------------------- ------------ ------------ ------------ --------
------------------------------- ------------ ------------ ------------ --------
Foreign Debt Securities X
------------------------------- ------------ ------------ ------------ --------
------------------------------- ------------ ------------ ------------ --------
Foreign Equity Securities X X
------------------------------- ------------ ------------ ------------ --------
------------------------------- ------------ ------------ ------------ --------
Forward Commitments, X
When-Issued and Delayed
Delivery Securities
------------------------------- ------------ ------------ ------------ --------
------------------------------- ------------ ------------ ------------ --------
High Quality Short-term Debt X X X
Obligations including
Bankers' Acceptances,
Commercial Paper,
Certificates of Deposit and
Eurodollar Obligations issued
or guaranteed by Bank Holding
Companies in the U.S., their
Subsidiaries and Foreign
Branches or of the World
Bank; Variable Amount Master
Demand Notes and Variable
Rate Notes issued by U.S. and
Foreign Corporations
------------------------------- ------------ ------------ ------------ --------
------------------------------- ------------ ------------ ------------ --------
High Yield/High Risk Debt X
Securities
------------------------------- ------------ ------------ ------------ --------
------------------------------- ------------ ------------ ------------ --------
Hybrid Instruments
------------------------------- ------------ ------------ ------------ --------
------------------------------- ------------ ------------ ------------ --------
Illiquid and Restricted X X
Securities
------------------------------- ------------ ------------ ------------ --------
------------------------------- ------------ ------------ ------------ --------
Indexed Securities X
------------------------------- ------------ ------------ ------------ --------
------------------------------- ------------ ------------ ------------ --------
Interest Rate X
Transactions
------------------------------- ------------ ------------ ------------ --------
------------------------------- ------------ ------------ ------------ --------
Investment Grade Debt X X
Securities
------------------------------- ------------ ------------ ------------ --------
------------------------------- ------------ ------------ ------------ --------
Investments in Other
Investment Companies
including Passive Foreign
Investment Companies
------------------------------- ------------ ------------ ------------ --------
------------------------------- ------------ ------------ ------------ --------
Mortgage-backed Securities, X X
including GNMA Certificates,
Mortgage-backed Bonds
------------------------------- ------------ ------------ ------------ --------
------------------------------- ------------ ------------ ------------ --------
Municipal Securities X
------------------------------- ------------ ------------ ------------ --------
------------------------------- ------------ ------------ ------------ --------
Non-mortgage Asset-backed X
Securities
------------------------------- ------------ ------------ ------------ --------
------------------------------- ------------ ------------ ------------ --------
PIK (pay-in-kind) X
Debt Securities and
Zero-Coupon Bonds
------------------------------- ------------ ------------ ------------ --------
------------------------------- ------------ ------------ ------------ --------
Preferred Stocks X
------------------------------- ------------ ------------ ------------ --------
------------------------------- ------------ ------------ ------------ --------
Private Placements X
------------------------------- ------------ ------------ ------------ --------
------------------------------- ------------ ------------ ------------ --------
Real Estate Investment Trusts
------------------------------- ------------ ------------ ------------ --------
------------------------------- ------------ ------------ ------------ --------
Repurchase Agreements X X
------------------------------- ------------ ------------ ------------ --------
------------------------------- ------------ ------------ ------------ --------
Reverse Repurchase Agreements
------------------------------- ------------ ------------ ------------ --------
------------------------------- ------------ ------------ ------------ --------
Rights and Warrants
------------------------------- ------------ ------------ ------------ --------
------------------------------- ------------ ------------ ------------ --------
Securities Loans
------------------------------- ------------ ------------ ------------ --------
------------------------------- ------------ ------------ ------------ --------
Short Sales
(Against the Box)
------------------------------- ------------ ------------ ------------ --------
------------------------------- ------------ ------------ ------------ --------
U.S. Government Securities X X X
------------------------------- ------------ ------------ ------------ --------
<PAGE>
------------------------------- ------------ ------------ ------------
MFS Mid MFS Janus
Cap Growth Research Aggressive
Portfolio International Growth
Portfolio Portfolio
------------------------------- ------------ ------------ ------------
------------------------------- ------------ ------------ ------------
Brady Bonds
------------------------------- ------------ ------------ ------------
------------------------------- ------------ ------------ ------------
Collateralized Mortgage
Obligations
------------------------------- ------------ ------------ ------------
------------------------------- ------------ ------------ ------------
Convertible Securities X X X
------------------------------- ------------ ------------ ------------
Depositary Receipts X X X
------------------------------- ------------ ------------
------------
Derivatives:
Options X X X
Futures X X
------------------------------- ------------ ------------ ------------
Direct Participation in
Corporate Loans
------------------------------- ------------ ------------ ------------
------------------------------- ------------ ------------ ------------
Dollar Roll Transactions
------------------------------- ------------ ------------ ------------
------------------------------- ------------ ------------ ------------
Foreign Currency Transactions X X X
------------------------------- ------------ ------------ ------------
------------------------------- ------------ ------------ ------------
Foreign Debt Securities X X X
------------------------------- ------------ ------------ ------------
------------------------------- ------------ ------------ ------------
Foreign Equity Securities X X X
------------------------------- ------------ ------------ ------------
------------------------------- ------------ ------------ ------------
Forward Commitments, X X X
When-Issued and Delayed
Delivery Securities
------------------------------- ------------ ------------ ------------
------------------------------- ------------ ------------ ------------
High Quality Short-term Debt X X X
Obligations including
Bankers' Acceptances,
Commercial Paper,
Certificates of Deposit and
Eurodollar Obligations issued
or guaranteed by Bank Holding
Companies in the U.S., their
Subsidiaries and Foreign
Branches or of the World
Bank; Variable Amount Master
Demand Notes and Variable
Rate Notes issued by U.S. and
Foreign Corporations
------------------------------- ------------ ------------ ------------
------------------------------- ------------ ------------ ------------
High Yield/High Risk Debt X X
Securities
------------------------------- ------------ ------------ ------------
------------------------------- ------------ ------------ ------------
Hybrid Instruments X
------------------------------- ------------ ------------ ------------
------------------------------- ------------ ------------ ------------
Illiquid and Restricted X X X
Securities
------------------------------- ------------ ------------ ------------
------------------------------- ------------ ------------ ------------
Indexed Securities X X
------------------------------- ------------ ------------ ------------
------------------------------- ------------ ------------ ------------
Interest Rate
Transactions
------------------------------- ------------ ------------ ------------
------------------------------- ------------ ------------ ------------
Investment Grade Debt X X X
Securities
------------------------------- ------------ ------------ ------------
------------------------------- ------------ ------------ ------------
Investments in Other X X X
Investment Companies
including Passive Foreign
Investment Companies
------------------------------- ------------ ------------ ------------
------------------------------- ------------ ------------ ------------
Mortgage-backed Securities, X
including GNMA Certificates,
Mortgage-backed Bonds
------------------------------- ------------ ------------ ------------
------------------------------- ------------ ------------ ------------
Municipal Securities
------------------------------- ------------ ------------ ------------
------------------------------- ------------ ------------ ------------
Non-mortgage Asset-backed
Securities
------------------------------- ------------ ------------ ------------
------------------------------- ------------ ------------ ------------
PIK (pay-in-kind) X X
Debt Securities and
Zero-Coupon Bonds
------------------------------- ------------ ------------ ------------
------------------------------- ------------ ------------ ------------
Preferred Stocks X X X
------------------------------- ------------ ------------ ------------
------------------------------- ------------ ------------ ------------
Private Placements X X X
------------------------------- ------------ ------------ ------------
------------------------------- ------------ ------------ ------------
Real Estate Investment Trusts X
------------------------------- ------------ ------------ ------------
------------------------------- ------------ ------------ ------------
Repurchase Agreements X X
------------------------------- ------------ ------------ ------------
------------------------------- ------------ ------------ ------------
Reverse Repurchase Agreements
------------------------------- ------------ ------------ ------------
------------------------------- ------------ ------------ ------------
Rights and Warrants X X X
------------------------------- ------------ ------------ ------------
------------------------------- ------------ ------------ ------------
Securities Loans X X
------------------------------- ------------ ------------ ------------
------------------------------- ------------ ------------ ------------
Short Sales X
(Against the Box)
------------------------------- ------------ ------------ ------------
------------------------------- ------------ ------------ ------------
U.S. Government Securities X X X
------------------------------- ------------ ------------ ------------
<PAGE>
Brady Bonds. Brady Bonds are collateralized or uncollaterized fixed
income 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. Brady Bonds have been issued only recently
and, accordingly do not have a long payment history. These securities are
subject to credit risk and interest rate risk.
Collateralized Mortgage Obligations (CMOs). CMOs are fixed income
securities secured by mortgage loans and other mortgage-backed securities and
are generally considered to be derivatives. CMOs may be issued or guaranteed by
the U.S. Government or its agencies or instrumentalities or collateralized by a
portfolio or mortgages or mortgage-related securities guaranteed by such an
agency or instrumentality or may be non-U.S. Government guaranteed.
CMOs carry general fixed income securities risks, such as credit risk
and interest rate risk, and risks associated with mortgage-backed securities,
including prepayment risk which is the risk that the underlying mortgages or
other debt may be refinanced or paid off prior to their maturities during
periods of declining interest rates. In that case, an Adviser may have to
reinvest the proceeds from the securities at a lower rate. Potential market
gains on a security subject to prepayment risk may be more limited than
potential market gains on a comparable security that is not subject to
prepayment risk.
Convertible Securities. Convertible securities are preferred stocks or
bonds that pay a fixed dividend or interest payment and are convertible into
common stock at a specified price or conversion ratio.
Traditionally, convertible securities have paid dividends or interest
rates higher than common stocks but lower than nonconvertible securities. They
generally participate in the appreciation or depreciation of the underlying
stock into which they are convertible, but to a lesser degree. These securities
are also subject to market risk, interest rate risk and credit risk.
Depositary Receipts. Depositary receipts are receipts for shares of a
foreign-based corporation that entitle the holder to dividends and capital gains
on the underlying security. Receipts include those issued by domestic banks
(American Depositary Receipts), foreign banks (Global or European Depositary
Receipts), and broker-dealers (depositary shares).
These instruments are subject to market risk and foreign investment
risk.
Derivatives. Derivatives are used to limit risk in a Portfolio or to
enhance investment return, and have a return tied to a formula based upon an
interest rate, index, price of a security, or other measurement. Derivatives
include options, futures, forward contracts and related products.
Options are the right, but not the obligation, to buy or sell a
specified amount of securities or other assets on or before a fixed date at a
predetermined price.
Futures are contracts that obligate the buyer to receive and the seller
to deliver an instrument or money at a specified price on a specified date.
Forward contracts are contracts to purchase or sell a specified amount
of a financial instrument for an agreed upon price at a specified time.
Derivatives may be used to hedge against an opposite position that a
Portfolio holds. Any loss generated by the derivatives should be offset by gains
in the hedged investment. While hedging can reduce or eliminate losses, it can
also reduce or eliminate gains or result in losses or missed opportunities. In
addition, derivatives that are used for hedging the Portfolio in specific
securities may not fully offset the underlying positions. The counterparty to a
derivatives contract also could default. Derivatives that involve leverage could
magnify losses.
Derivatives may also be used to maintain a Portfolio's exposure to the
market, manage cash flows or to attempt to increase income. Using derivatives
for purposes other than hedging is speculative and involves greater risks. In
many foreign countries, futures and options markets do not exist or are not
sufficiently developed to be effectively used by a Portfolio that invests in
foreign securities.
Direct Participation in Corporate Loans. By purchasing a loan, the
Portfolio acquires some or all of the interest of a bank or other lending
institution in a loan to a corporate borrower. Many such loans are secured, and
most impose restrictive covenants which must be met by the borrower. These loans
are made generally to finance internal growth, mergers, acquisitions, stock
repurchases, leveraged buy-outs and other corporate activities. Such loans may
be in default at the time of purchase. The Portfolio may also purchase trade or
other claims against companies, which generally represent money owed by the
company to a supplier of goods or services. These claims may also be purchased
at a time when the company is in default. Certain of the loans acquired by a
Portfolio may involve revolving credit facilities or other standby financing
commitments which obligate the Portfolio to pay additional cash on a certain
date or on demand.
The highly leveraged nature of many such loans may make such loans
especially vulnerable to adverse changes in economic or market conditions. Loans
and other direct investments may not be in the form of securities or may be
subject to restrictions on transfer, and only limited opportunities may exist to
resell such instruments. As a result, the Portfolio may be unable to sell such
investments at an opportune time or may have to resell them at less than fair
market value.
Dollar Roll Transactions. Dollar roll transactions are comprised of the
sale by the Portfolio of mortgage-based or other fixed income securities,
together with a commitment to purchase similar, but not identical, securities at
a future date. In addition, the Portfolio is paid a fee as consideration for
entering into the commitment to purchase. Dollar rolls may be renewed after cash
settlement and initially may involve only a firm commitment agreement by the
Portfolio to buy a security. Dollar roll transactions are treated as borrowings
for purposes of the Investment Company Act of 1940, and the aggregate of such
transactions and all other borrowings of the Portfolio (including reverse
repurchase agreements) will be subject to the requirement that the Portfolio
maintain asset coverage of 300% for all borrowings.
If the broker-dealer to whom the Portfolio sells the security becomes
insolvent, the Portfolio's right to purchase or repurchase the security may be
restricted; the value of the security may change adversely over the term of the
dollar roll; the security that the Portfolio is required to repurchase may be
worth less than the security that the Portfolio originally held; and the return
earned by the Portfolio with the proceeds of a dollar roll may not exceed
transaction costs.
Foreign Currency Transactions. Foreign currency transactions are
entered into for the purpose of hedging against foreign exchange risk arising
from the Portfolio's investment or anticipated investment in securities
denominated in foreign currencies. The Portfolio also may enter into these
contracts for purposes of increasing exposure to a foreign currency or to shift
exposure to foreign currency fluctuations from one country to another. Foreign
currency transactions include the purchase of foreign currency on a spot (or
cash) basis, contracts to purchase or sell foreign currencies at a future date
(forward contracts), the purchase and sale of foreign currency futures
contracts, and the purchase of exchange traded and over-the-counter call and put
options on foreign currency futures contracts and on foreign currencies.
These hedging transactions do not eliminate fluctuations in the
underlying prices of the securities which the Portfolio owns or intends to
purchase or sell. They simply establish a rate of exchange which can be achieved
at some future point in time.
Foreign currency exchange rates may fluctuate significantly over short
periods of time. A forward foreign currency exchange contract reduces the
Portfolio's exposure to changes in the value of the currency it will deliver and
increases its exposure to changes in the value of the currency it will exchange
into. Contracts to sell foreign currency will limit any potential gain which
might be realized by the Portfolio if the value of the hedged currency
increases. In the case of forward contracts entered into for the purpose of
increasing return, the Portfolio may sustain losses which will reduce its gross
income. Forward foreign currency exchange contracts also involve the risk that
the party with which the Portfolio enters the contract may fail to perform its
obligations to the Portfolio. The purchase and sale of foreign currency futures
contracts and the purchase of call and put options on foreign currency futures
contracts and on foreign currencies involve certain risks associated with
derivatives.
Foreign Debt Securities. Foreign debt securities are issued by foreign
corporations and governments. They may include Eurodollar obligations and Yankee
bonds.
Foreign debt securities are subject to foreign investment risk, credit
risk, and interest rate risk. Securities in developing countries are also
subject to the additional risks associated with emerging markets.
Foreign Equity Securities. Foreign equity securities are subject to
foreign investment risk in addition to the risks applicable to domestic equity
securities, such as market risk.
Forward Commitments, When-Issued and Delayed Delivery Securities.
Forward commitments, when-issued and delayed delivery securities generally
involve the purchase of a security with payment and delivery at some time in the
future - i.e., beyond normal settlement. The Portfolios do not earn interest on
such securities until settlement and bear the risk of market value fluctuations
in between the purchase and settlement dates. New issues of stocks and bonds,
private placements and U.S. Government securities may be sold in this manner.
High Quality Short-term Debt Obligations including Bankers' Acceptances,
Commercial Paper, Certificates of Deposit and Eurodollar Obligations issued or
guaranteed by Bank Holding Companies in the U.S., their Subsidiaries and Foreign
Branches or of the World Bank; Variable Amount Master Demand Notes and Variable
Rate Notes issued by U.S. and Foreign Corporations.
Commercial paper is a short-term debt obligation with a maturity
ranging from one to 270 days issued by banks, corporations, and other borrowers
to investors seeking to invest idle cash.
Eurodollar obligations are dollar-denominated securities issued outside the
U.S. by foreign corporations and financial institutions and by foreign branches
of U.S. corporations and financial institutions.
Variable amount master demand notes differ from ordinary commercial
paper in that they are issued pursuant to a written agreement between the issuer
and the holder, their amounts may be increased from time to time by the holder
(subject to an agreed maximum) or decreased by the holder or the issuer, they
are payable on demand, the rate of interest payable on them varies with an
agreed formula and they are typically not rated by a rating agency. Transfer of
such notes is usually restricted by the issuer, and there is no secondary
trading market for them. Any variable amount master demand note purchased by a
Portfolio will be regarded as an illiquid security.
These instruments are subject to credit risk, interest rate risk and
foreign investment risk.
High Yield/High Risk Debt Securities. High yield/high risk debt
securities are securities that are rated below investment grade by the primary
rating agencies (e.g., BB or lower by S&P, and Ba or lower by Moody's). Other
terms commonly used to describe such securities include "lower rated bonds,"
"noninvestment grade bonds," and "junk bonds."
High yield/high risk debt securities are subject to high yield debt
security risk as described in "Primary Risks of Investing in the Portfolios"
above.
Hybrid Instruments. Hybrid instruments were recently developed and
combine the elements of futures contracts or options with those of debt,
preferred equity or a depositary instrument. They are often indexed to the price
of a commodity, particular currency, or a domestic or foreign debt or equity
security index. Examples of hybrid instruments include debt instruments with
interest or principal payments or redemption terms determined by reference to
the value of a currency or commodity or securities index at a future point in
time or preferred stock with dividend rates determined by reference to the value
of a currency.
Hybrids may bear interest or pay dividends at below market (or even
relatively nominal) rates. Under certain conditions, the redemption value of the
instrument could be zero. Hybrids can have volatile prices and limited liquidity
and their use by the Portfolio may not be successful.
Illiquid and Restricted Securities. Each Portfolio may invest a portion
of its assets in restricted and illiquid securities, which are investments that
the Portfolio cannot easily resell within seven days at current value or that
have contractual or legal restriction on resale.
If the Portfolio buys illiquid securities it may be unable to quickly
resell them or may be able to sell them only at a price below current value or
could have difficulty valuing these holdings precisely.
Indexed Securities. A Portfolio may invest in indexed securities whose
value is linked to foreign currencies, interest rates, commodities, indices or
other financial indicators. Most indexed securities are short to intermediate
term fixed income securities whose values at maturity (i.e., principal value) or
interest rates rise or fall according to changes in the value of one or more
specified underlying instruments. Indexed securities may be positively or
negatively indexed (i.e., their principal value or interest rates may increase
or decrease if the underlying instrument appreciates), and may have return
characteristics similar to direct investments in the underlying instrument or to
one or more options on the underlying instrument. Indexed securities may be more
volatile than the underlying instrument itself and could involve the loss of all
or a portion of the principal amount of, or interest on, the instrument.
Interest Rate Transactions. Interest rate transactions are hedging
transactions such as interest rate swaps and the purchase or sale of interest
rate caps and floors. They are used by a Portfolio in an attempt to protect the
value of its investments from interest rate fluctuations. Interest rate swaps
involve the exchange by the 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. The purchase of an interest rate cap entitles
the purchaser, to the extent that a specified index exceeds a predetermined
interest rate, to receive payments of interest on a notional principal amount
from the party selling such interest rate cap. The purchase of an interest rate
floor entitles the purchaser, to the extent that a specified index falls below a
predetermined interest rate, to receive payments of interest on a notional
principal amount from the party selling such interest rate floor. The Adviser to
the Portfolio enters into these transactions on behalf of the Portfolio
primarily to preserve a return or spread on a particular investment or portion
of its portfolio or to protect against any increase in the price of securities
the Portfolio anticipates purchasing at a later date. The Portfolio will not
sell interest rate caps or floors that it does not own.
There is the risk that the Adviser may incorrectly predict the
direction of interest rates resulting in losses to the Portfolio.
Investment Grade Debt Securities. Investment grade debt securities are
securities rated in one of the four highest rating categories by S&P's, Moody's
or other nationally recognized rating agency. These securities are subject to
interest rate risk and credit risk. Securities rated in the fourth investment
category by a nationally recognized rating agency (e.g. BBB by S&P and Baa by
Moody's) may have speculative characteristics.
Investments in Other Investment Companies including Passive Foreign
Investment Companies. When the Portfolio invests in another investment company,
it must bear the management and other fees of the investment company, in
addition to its own expenses. As a result, the Portfolio may be exposed to
duplicate expenses which could lower its value. Investments in passive foreign
investment companies also are subject to foreign investment risk.
Passive foreign investment companies are any foreign corporations which
generate certain amounts of passive income or hold certain amounts of assets for
the production of passive income. Passive income includes dividends, royalties,
rent, and annuities.
Mortgage-backed Securities, including GNMA Certificates,
Mortgage-backed Bonds and Stripped Mortgage-backed Securities. Mortgage-backed
securities include securities backed by Ginnie Mae and Fannie Mae. These
securities represent collections (pools) of commercial and residential
mortgages. These securities are generally pass-through securities, which means
that principal and interest payments on the underlying securities (less
servicing fees) are passed through to shareholders on a pro rata basis.
These securities carry general fixed income security risks, such as
credit risk and interest rate risk, as well as prepayment risk.
Municipal Securities. . Municipal securities are debt obligations
issued by local, state and regional governments that provide interest income
that is exempt from federal income tax. These securities are subject to interest
rate risk and credit risk.
Non-mortgage Asset-backed Securities. Non-mortgage asset-backed
securities include equipment trust certificates and interests in pools of
receivables, such as motor vehicle installment purchase obligations and credit
card receivables. Such securities are generally issued as pass-through
certificates, which represent undivided fractional ownership interests in the
underlying pools of assets. This means that principal and interest payments on
the underlying securities (less servicing fees) are passed through to
shareholders on a pro rata basis.
The value of some asset-backed securities may be particularly sensitive
to changes in prevailing interest rates, and like other fixed income
investments, the ability of the Portfolio to successfully use these instruments
may depend in part upon the ability of an Adviser to forecast interest rates and
other economic factors correctly.
PIK (pay-in-kind) Debt Securities and Zero-Coupon Bonds. PIK debt
securities are debt obligations which provide that the issuer may, at its
option, pay interest on such bonds in cash or in the form of additional debt
obligations. Such investments benefit the issuer by mitigating its need for cash
to meet debt service, but also require a higher rate of return to attract
investors who are willing to defer receipt of such cash.
Zero-coupon bonds are bonds that provide for no current interest
payment and are sold at a discount. These investments pay no interest in cash to
its holder during its life and usually trade at a deep discount from their face
or par value. These investments may experience greater volatility in market
value due to changes in interest rates than debt obligations which make regular
payments of interest. The Portfolio will accrue income on such investments for
tax accounting purposes, as required, which is distributable to shareholders and
which, because no cash is received at the time of accrual, may require the
liquidation of other portfolio securities to satisfy the Portfolio's
distribution obligations.
These securities are subject to credit risk and interest rate risk.
Preferred Stocks. Preferred stocks are equity securities that generally
pay dividends at a specified rate and have preference over common stock in the
payment of dividends and liquidation. Preferred stock generally does not carry
voting rights.
Preferred stocks are subject to market risk. In addition, because
preferred stocks pay fixed dividends, an increase in interest rates may cause
the price of a preferred stock to fall.
Real Estate Investment Trusts. Real estate investment trusts ("REITs") are
entities which invest in commercial and other real estate properties. Risks
associated with investments in securities of companies in the real estate
industry include: decline in the value of real estate; risks related to general
and local economic conditions; overbuilding and increased competition; increases
in property taxes and operating expenses; changes in zoning laws; casualty or
condemnation losses; variations in rental income; changes in neighborhood
values; the appeal of properties to tenants; and increases in interest rates. In
addition, equity REITs may be affected by changes in the values of the
underlying property owned by the trusts, while mortgage real estate investment
trusts may be affected by the quality of credit extended. REITs are dependent
upon management skills, may not be diversified and are subject to the risks of
financing projects. Such REITs are also subject to heavy cash flow dependency,
defaults by borrowers, self liquidation and the possibility of failing to
qualify for tax-free pass-through of income under the Internal Revenue Code of
1986, as amended, and to maintain exemption from the Investment Company Act of
1940, as amended. In the event an issuer of debt securities collateralized by
real estate defaults, it is conceivable that the REITs could end up holding the
underlying real estate.
Repurchase Agreements. Repurchase agreements involve the purchase of a
security by a Portfolio and a simultaneous agreement by the seller (generally a
bank or dealer) to repurchase the security from the Portfolio at a specified
date or upon demand. This technique offers a method of earning income on idle
cash.
Repurchase agreements involve credit risk, i.e. the risk that the
seller will fail to repurchase the security, as agreed. In that case, the
Portfolio will bear the risk of market value fluctuations until the security can
be sold and may encounter delays and incur costs in liquidating the security.
Reverse Repurchase Agreements. Reverse repurchase agreements involve
the sale of a security by a Portfolio to another party (generally a bank or
dealer) in return for cash and an agreement by the Portfolio to buy the security
back at a specified price and time.
Reverse repurchase agreements will be used primarily to provide cash to
satisfy unusually high redemption requests or for other temporary or emergency
purposes. Reverse repurchase agreements are considered a form of borrowing by
the Portfolio and, therefore, are a form of leverage. Leverage may cause any
gains or losses of the Portfolio to be magnified.
Rights and Warrants. Warrants basically are options to purchase equity
securities at specific prices valid for a specific period of time. Their prices
do not necessarily move parallel to the prices of the underlying securities.
Rights are similar to warrants, but normally have a short duration and are
distributed directly by the issuer to its shareholders. Rights and warrants have
no voting rights, receive no dividends and have no rights with respect to the
assets of the issuer. These investments carry the risk that they may be
worthless to the Portfolio at the time it may exercise its rights, due to the
fact that the underlying securities have a market value less than the exercise
price.
Securities Loans. The Portfolio may make secured loans of its portfolio
securities. The risks in lending Portfolio securities, as with other extensions
of secured credit, consist of possible delay in receiving additional collateral,
or in the recovery of the securities or possible loss of rights in their
collateral should the borrower fail financially.
Short Sales. Short sales are sales of securities that the seller does
not own. The seller must borrow the securities to make delivery to the buyer. A
short sale may be uncollateralized or against-the-box. A short sale is
"against-the-box" if at all times when the short position is open, the seller
owns an equal amount of the securities sold short or securities convertible
into, or exchanged without further consideration for, securities of the same
issue as the securities sold short.
The price of securities purchased to replace borrowed securities sold
short may be greater than proceeds received in the short sale resulting in a
loss to the Portfolio.
U.S. Government Securities. U.S. Government securities include direct
obligations of the U.S. Government that are supported by its full faith and
credit, like Treasury bills and GNMA certificates. Treasury bills have initial
maturities of less than one year, Treasury notes have initial maturities of one
to ten years and Treasury bonds may be issued with any maturity but generally
have maturities of at least ten years. U.S. Government securities also include
indirect obligations of the U.S. Government that are issued by federal agencies
and government-sponsored entities, like bonds and notes issued by the Federal
Home Loan Bank, Fannie Mae, and Sallie Mae. Unlike Treasury securities, agency
securities generally are not backed by the full faith and credit of the U.S.
Government. Some agency securities are supported by the right of the issuer to
borrow from the Treasury, others are supported by the discretionary authority of
the U.S. Government to purchase the agency's obligations and others are
supported only by the credit of the sponsoring agency.
U.S. Government securities are subject to interest rate risk. Credit risk
is remote.
Defensive Investments
Under adverse market or economic conditions, a Portfolio could invest
for temporary defensive purposes some or all of its assets in money market
securities or utilize other investment strategies that may be inconsistent with
a Portfolio's principal investment strategy. Although a Portfolio would employ
these measures only in seeking to avoid losses, they could reduce the benefit
from an upswing in the market or prevent the Portfolio from meeting its
investment objective.
Portfolio Turnover
The Portfolios' Advisers will sell a security when they believe it is
appropriate to do so, regardless of how long a Portfolio has owned that
security. Buying and selling securities generally involves some expense to a
Portfolio, such as commissions paid to brokers and other transaction costs.
Generally speaking, the higher a Portfolio's annual portfolio turnover rate, the
greater its brokerage costs. Increased brokerage costs may adversely affect a
Portfolio's performance. The Portfolios, with the exception of BlackRock U.S.
Government Income Portfolio, J.P. Morgan Quality Bond Portfolio, J.P. Morgan
Select Equity Portfolio, Lord Abbett Growth Opportunities Portfolio, PIMCO Money
Market Portfolio, PIMCO Innovation Portfolio, Putnam Research Portfolio, MFS Mid
Cap Growth Portfolio, MFS Research International Portfolio and Janus Aggressive
Growth Portfolio generally intend to purchase securities for long-term
investment and therefore will have a relatively low turnover rate. Annual
turnover rate of 100% or more is considered high and will result in increased
costs to the Portfolios. BlackRock U.S. Government Income Portfolio, J.P. Morgan
Quality Bond Portfolio, J.P. Morgan Select Equity Portfolio, Lord Abbett Growth
Opportunities Portfolio, PIMCO Money Market Portfolio, PIMCO Innovation
Portfolio, Putnam Research Portfolio, MFS Mid Cap Growth Portfolio, MFS Research
International Portfolio and Janus Aggressive Growth Portfolio generally will
have annual turnover rates of 100% or more.
Downgrades in Fixed Income Debt Securities
Unless required by applicable law, the Portfolios are not required to
sell or dispose of any debt security that either loses its rating or has its
rating reduced after a Portfolio purchases the security.
<PAGE>
Management
The Trust's Board of Trustees is responsible for managing the business
affairs of the Trust. The Trustees meet periodically to review the affairs of
the Trust and to establish certain guidelines which the Manager and Advisers are
expected to follow in implementing the investment policies and objectives of the
Trust. The Trustees also review the management of the Portfolios' assets by the
Advisers. Information about the Trustees and executive officers of the Trust is
contained in the SAI.
The Manager
Met Investors Advisory Corp. (formerly known as Security First
Investment Management Corp.) (the "Manager"), 610 Newport Center Drive, Suite
1350, Newport Beach, California 92660, has overall responsibility for the
general management and administration of all of the Portfolios. The Manager
selects and pays the fees of the Advisers for each of the Trust's Portfolios and
monitors each Adviser's investment program. The Manager is an indirect
wholly-owned subsidiary of Metropolitan Life Insurance Company.
As compensation for its services to the Portfolios, the Manager
receives monthly compensation at an annual rate of a percentage of' the average
daily net assets of each Portfolio. The advisory fees for each Portfolio are:
<TABLE>
<CAPTION>
-------------------------------------------------------------- ----------------------------------------------------------
Portfolio Advisory Fee
<S> <C>
-------------------------------------------------------------- ----------------------------------------------------------
-------------------------------------------------------------- ----------------------------------------------------------
BlackRock Equity Portfolio 0.65%
-------------------------------------------------------------- ----------------------------------------------------------
-------------------------------------------------------------- ----------------------------------------------------------
BlackRock U.S. Government Income Portfolio 0.55%
-------------------------------------------------------------- ----------------------------------------------------------
-------------------------------------------------------------- ----------------------------------------------------------
J.P. Morgan Quality Bond Portfolio 0.55% of first $75 million of such assets plus 0.50% of
such assets over $75 million
-------------------------------------------------------------- ----------------------------------------------------------
-------------------------------------------------------------- ----------------------------------------------------------
J.P. Morgan Small Cap Stock Portfolio 0.85%
-------------------------------------------------------------- ----------------------------------------------------------
-------------------------------------------------------------- ----------------------------------------------------------
J.P. Morgan Enhanced Index Portfolio 0.60% of first $50 million of such assets plus 0.55% of
such assets over $50 million
-------------------------------------------------------------- ----------------------------------------------------------
-------------------------------------------------------------- ----------------------------------------------------------
J.P. Morgan Select Equity Portfolio 0.65% of first $50 million of such assets plus 0.60% of
such assets over $50 million
-------------------------------------------------------------- ----------------------------------------------------------
-------------------------------------------------------------- ----------------------------------------------------------
J.P. Morgan International Equity Portfolio 0.80% of first $50 million of such assets plus 0.75% of
such assets over $50 million up to $350 million plus
0.70% of such assets over $350 million
-------------------------------------------------------------- ----------------------------------------------------------
-------------------------------------------------------------- ----------------------------------------------------------
Lord Abbett Bond Debenture Portfolio 0.60%
-------------------------------------------------------------- ----------------------------------------------------------
-------------------------------------------------------------- ----------------------------------------------------------
Lord Abbett Mid-Cap Value Portfolio
0.70% of first
$200 million of
such assets plus
0.65% of such
assets over $200
million up to
$500 million plus
0.625% of such
assets over $500
million
-------------------------------------------------------------- ----------------------------------------------------------
-------------------------------------------------------------- ----------------------------------------------------------
Lord Abbett Developing Growth Portfolio 0.75%
-------------------------------------------------------------- ----------------------------------------------------------
-------------------------------------------------------------- ----------------------------------------------------------
Lord Abbett Growth and Income Portfolio
0.60% of first
$800 million of
such assets plus
0.55% of such
assets over $800
million up to $2
billion plus
0.50% of such
assets over $2
billion
-------------------------------------------------------------- ----------------------------------------------------------
-------------------------------------------------------------- ----------------------------------------------------------
Lord Abbett Growth Opportunities Portfolio 0.70%
of first $200
million of such
assets plus 0.65%
of such assets
over $200 million
up to $500
million plus
0.625% of such
assets over $500
million
-------------------------------------------------------------- ----------------------------------------------------------
-------------------------------------------------------------- ----------------------------------------------------------
Firstar Balanced Portfolio 1.00%
-------------------------------------------------------------- ----------------------------------------------------------
-------------------------------------------------------------- ----------------------------------------------------------
Firstar Equity Income Portfolio 1.00%
-------------------------------------------------------------- ----------------------------------------------------------
-------------------------------------------------------------- ----------------------------------------------------------
Firstar Growth & Income Equity Portfolio 1.00%
-------------------------------------------------------------- ----------------------------------------------------------
-------------------------------------------------------------- ----------------------------------------------------------
Putnam Research Portfolio 0.80% of first $250 million of such assets plus 0.75% of
such assets over $250 million
-------------------------------------------------------------- ----------------------------------------------------------
-------------------------------------------------------------- ----------------------------------------------------------
Oppenheimer Capital Appreciation Portfolio 0.65%
of first $150
million of such
assets plus
0.625% of such
assets over $150
million up to
$300 million plus
0.60% of such
assets over $300
million up to
$500 million plus
0.55% of such
assets over $500
million
-------------------------------------------------------------- ----------------------------------------------------------
-------------------------------------------------------------- ----------------------------------------------------------
PIMCO Total Return Portfolio 0.50%
-------------------------------------------------------------- ----------------------------------------------------------
-------------------------------------------------------------- ----------------------------------------------------------
PIMCO Money Market 0.40%
-------------------------------------------------------------- ----------------------------------------------------------
-------------------------------------------------------------- ----------------------------------------------------------
PIMCO Innovation 1.05%
-------------------------------------------------------------- ----------------------------------------------------------
-------------------------------------------------------------- ----------------------------------------------------------
MFS Mid Cap Growth Portfolio 0.65%
of first $150
million of such
assets plus
0.625% of such
assets over $150
million up to
$300 million plus
0.60% of such
assets over $300
million
-------------------------------------------------------------- ----------------------------------------------------------
-------------------------------------------------------------- ----------------------------------------------------------
MFS Research International Portfolio 0.80%
of first $200
million of such
assets plus 0.75%
of such assets
over $200 million
up to $500
million plus
0.70% of such
assets over $500
million up to $1
billion plus
0.65% of such
assets over $1
billion
-------------------------------------------------------------- ----------------------------------------------------------
-------------------------------------------------------------- ----------------------------------------------------------
Janus Aggressive Growth Portfolio 0.80%
of first $100
million of such
assets plus 0.75%
of such assets
over $100 million
up to $500
million plus
0.70% of such
assets over $500
million
-------------------------------------------------------------- ----------------------------------------------------------
</TABLE>
Expense Limitation Agreement
In the interest of limiting expenses of each Portfolio until February,
2002 (except for the BlackRock Equity, BlackRock U.S. Government Income, J.P.
Morgan Small Cap and J.P. Morgan Select Equity Portfolios), the Manager has
entered into an expense limitation agreement with the Trust with respect to
those Portfolios ("Expense Limitation Agreement"). Pursuant to that Expense
Limitation Agreement, the Manager has agreed to waive or limit its fees and to
assume other expenses so that the total annual operating expenses of each
Portfolio other than interest, taxes, brokerage commissions (other expenditures
which are capitalized in accordance with generally accepted accounting
principles, other extraordinary expenses not incurred in the ordinary course of
each Portfolio's business and amounts payable pursuant to a plan adopted in
accordance with Rule 12b-1 under the Investment Company Act of 1940, as amended
(the "1940 Act") are limited to the following respective expense ratios:
Expense Limitation Provisions
------------------------------------------- ---------------------------------
Total Expenses Limited to (% of
Portfolios daily net assets)
------------------------------------------- ---------------------------------
J.P. Morgan Quality Bond 0.60%
J.P. Morgan Enhanced Index 0.65%
J.P. Morgan International Equity 1.05%
Lord Abbett Bond Debenture 0.70%
Lord Abbett Mid-Cap Value 0.95%
Lord Abbett Developing Growth 0.95%
Lord Abbett Growth & Income 0.65%
Lord Abbett Growth Opportunities 0.85%
Firstar Balanced 1.10%
Firstar Income Equity 1.10%
Firstar Growth & Income Equity 1.10%
Putnam Research 0.85%
Oppenheimer Capital Appreciation 0.75%
PIMCO Total Return 0.65%
PIMCO Money Market 0.50%
PIMCO Innovation 1.10%
MFS Mid Cap Growth 0.80%
MFS Research International 1.00%
Janus Aggressive Growth 0.85%
Each Portfolio may at a later date reimburse to the Manager the
management fees waived or limited and other expenses assumed and paid by the
Manager pursuant to the Expense Limitation Agreement provided such Portfolio has
reached a sufficient asset size to permit such reimbursement to be made without
causing th e total annual expense ratio of each Portfolio to exceed the
percentage limits stated above. Consequently, no reimbursement by a Portfolio
will be made unless: (i) the Portfolio's assets exceed $100 million; (ii) the
Portfolio's total annual expense ratio is less than the respective percentages
stated above; and (iii) the payment of such reimbursement has been approved by
the Trust's Board of Trustees on a quarterly basis.
The total amount of reimbursement to which the Manager may be entitled
will equal, at any time, the sum of (i) all investment management fees
previously waived or reduced by the Manager and (ii) all other payments
previously remitted by the Manager to the Portfolio during any of the previous
five fiscal years, less any reimbursement that the Portfolio has previously paid
to the Manager with respect to (a) such investment management fees previously
waived or reduced and (b) such other payments previously remitted by the Manager
to the Portfolio.
The Advisers
Under the terms of the agreements between each Adviser and the Manager,
the Adviser will develop a plan for investing the assets of each Portfolio,
select the assets to be purchased and sold by each Portfolio, select the
broker-dealer or broker-dealers through which the Portfolio will buy and sell
its assets, and negotiate the payment of commissions, if any, to those
broker-dealers. Each Adviser follows the policies set by the Manager and the
Board of Trustees for each of the Portfolios. Day-to-day management of the
investments in each Portfolio is the responsibility of the Adviser's portfolio
managers. The portfolio managers of each Portfolio are indicated below following
a brief description of each Adviser.
The Trust and the Manager have filed an exemptive application
requesting an exemptive order from the Securities and Exchange Commission that
will permit the Manager, subject to certain conditions, and without the approval
of shareholders to: (a) employ a new unaffiliated investment adviser for a
Portfolio pursuant to the terms of a new investment advisory agreement, in each
case either as a replacement for an existing Adviser or as an additional
Adviser; (b) change the terms of any investment advisory agreement; and (c)
continue the employment of an existing Adviser on the same advisory contract
terms where a contract has been assigned because of a change in control of the
Adviser. In such circumstances, shareholders would receive notice of such
action, including the information concerning the Adviser that normally is
provided in a proxy statement. The exemptive order would also permit disclosure
of fees paid to multiple unaffiliated Advisers of a Portfolio on an aggregate
basis only. There is no assurance that the Securities and Exchange Commission
will grant the Trust's and the Manager's application.
The Manager pays each Adviser a fee based on the Portfolio's average
daily net assets. No Portfolio is responsible for the fees paid to each of the
Advisers.
J.P. MORGAN INVESTMENT MANAGEMENT INC. ("J.P. Morgan"), 522 Fifth Avenue, New
York, New York 10036, a wholly-owned subsidiary of J.P. Morgan & Co.,
Incorporated, is the Adviser for the J.P. Morgan Quality Bond, J.P. Morgan
International Equity, J.P. Morgan Select Equity, J.P. Morgan Enhanced Index and
J.P. Morgan Small Cap Stock Portfolios of the Trust. The Adviser and its
affiliates had approximately $373 billion under management as of September 30,
2000.
J.P. Morgan Quality Bond Portfolio
o Jay A. Gladieux, Vice President of the Adviser. Mr. Gladieux is a portfolio
manager in the U.S. Fixed Income Group. A J.P. Morgan employee for the past
three years, he concentrates on broad market strategies. Prior to that, Mr.
Gladieux spent 15 years at Morgan Stanley & Co., of which, the last 13
years were in the fixed income division focusing on the mortgage,
derivative, and non-dollar businesses.
o James J. Dougherty, Vice President of the Adviser. Mr. Dougherty joined
J.P. Morgan in 1986 and is Head of Fixed Income Trading and Strategy
Implementation. Prior to his current assignment, Mr. Dougherty was co-Head
of the mortgage investment team with primary responsibility for asset
backed and commercial mortgage-backed securities investments.
J.P. Morgan Enhanced Index Portfolio
o Nanette Buziak, Vice President of the Adviser. Ms. Buziak is a portfolio
manager in the Adviser's Structured Equity Group with responsibility for
the daily implementation and maintenance of structured equity portfolios.
Prior to joining J.P. Morgan in 1997, Ms. Buziak spent four years at First
Marathon America, Inc., where she traded Convertible Bond Arbitrage and
Stock Index Arbitrage strategies.
o Timothy J. Devlin, Vice President of the Adviser. Mr. Devlin is a portfolio
manager in the Adviser's Structured Equity Group. Prior to joining J.P.
Morgan in 1996, Mr. Devlin was with Mitchell Hutchins Asset Management
where he managed risk-controlled equity portfolios including index,
enhanced index and market neutral strategies.
o Joseph P. Gill, Vice President of the Adviser. Mr. Gill is a portfolio
manager in the Adviser's Structured Equity Group. Prior to joining J.P.
Morgan in 1996, Mr. Gill was a portfolio manager and client adviser at Bank
of Tokyo - Mitsubishi Asset Management where he had direct investment and
relationship responsibilities.
J.P. Morgan International Equity Portfolio
o Nigel F. Emmett, Vice President of the Adviser. Mr. Emmett is a portfolio
manager with the Adviser's International Equity Group. Prior to joining
J.P. Morgan in 1997, Mr. Emmett was employed by Brown Brothers Harriman &
Co. in New York from 1995 to 1997 and by Gartmore Investment Management and
Equitable Life Insurance in London prior to that time.
o Paul Quinsee, Managing Director of the Adviser. Mr. Quinsee, an
international equity portfolio manager and Vice-Chairman of the Adviser's
International Equity Strategy Group, relocated to the Adviser's New York
office in 1996. He joined the Adviser's London office in 1992 as an
international portfolio manager.
J.P. Morgan Small Cap Stock Portfolio
o Marian U. Pardo, Managing Director of the Adviser. Ms. Pardo is a portfolio
manager and Head of the Adviser's small company investment team. She has
been with J.P. Morgan since 1968, having joined the investment management
business in 1980 as a research analyst. Ms. Pardo has held a number of
positions at J.P. Morgan including managing equity and convertible funds
and large- cap equity portfolios for individual clients and institutional
investors.
o Alexandra Wells, Vice President of the Adviser. Ms. Wells is a portfolio
manager in the Small Cap Equity Group. She joined J.P. Morgan in 1992
initially working as an analyst in the Equity Research department before
moving to the Equity and Balanced Group as a portfolio manager in 1995. Ms.
Wells transferred to the Adviser's London office in 1997 where she spent a
year as a portfolio manager responsible for U.S. equities before joining
the Small Cap Equity Group in March, 1998.
J.P. Morgan Select Equity Portfolio
o Thomas M. Luddy, Managing Director of the Adviser. Mr. Luddy is Head of
U.S. Equity Research. A J.P. Morgan employee since 1976, Mr. Luddy has held
numerous key positions in the firm, including such roles as, Global Head of
Equity and Chief Investment Officer. He started as an equity research
analyst, becoming a portfolio manager in 1982 and has managed portfolios in
his various roles for most of the past 18 years.
o James Russo, Vice President of the Adviser. Mr. Russo is a portfolio
manager in the Adviser's Equity Group. A J.P. Morgan employee since 1994,
Mr. Russo previously served in the equity research group as an analyst
covering consumer cyclical stocks.
LORD, ABBETT & CO. ("Lord Abbett"), 90 Hudson Street, Jersey City, NJ 07302, is
the Adviser to the Lord Abbett Bond Debenture, Lord Abbett Mid-Cap Value, Lord
Abbett Developing Growth , Lord Abbett Growth and Income and Lord Abbett Growth
Opportunities of the Trust. Lord Abbett has been an investment manager for 70
years and as of September 30, 2000 managed approximately $34.9 billion in a
family of mutual funds and other advisory accounts.
Lord Abbett Bond Debenture Portfolio
o Lord Abbett uses a team of investment managers and analysts acting together
to manage the Portfolio's investments. Christopher J. Towle, Partner of
Lord Abbett, heads the team, the other senior members of which include
Richard Szaro, Michael Goldstein and Thomas Baade. Messrs. Towle and Szaro
have been with Lord Abbett since 1988 and 1983, respectively. Mr. Goldstein
has been with Lord Abbett since 1997. Before joining Lord Abbett, Mr.
Goldstein was a bond trader for Credit Suisse BEA Associates from August
1992 through April 1997. Mr. Baade joined Lord Abbett in 1998; prior to
that he was a credit analyst with Greenwich Street Advisors.
Lord Abbett Mid-Cap Value Portfolio
o Lord Abbett uses a team of investment managers and analysts acting together
to manage the Portfolio's investments. Edward K. von der Linde, Investment
Manager, heads the team, the other senior members are Eileen Banko, Howard
Hansen, and David Builder. Both Mr. von der Linde , Ms. Banko, and Mr.
Hansen have been with Lord Abbett for more than five years. Mr. Builder
joined Lord Abbett in 1998; prior to that he was an analyst at Bear Stearns
from 1996 to 1998 and at Weiss, Peck & Greer from 1994 to 1995.
Lord Abbett Developing Growth Portfolio
o Lord Abbett uses a team of investment managers and analysts acting together
to manage the Portfolio's investments. Stephen J. McGruder, Partner of Lord
Abbett, heads the team, the other senior members include Lesley-Jane Dixon
and Rayna Lesser. Mr. McGruder and Ms. Dixon have been with Lord Abbett
since 1995; Ms. Lesser has been with Lord Abbett since 1996. Ms. Lesser
joined Lord Abbett directly from Barnard College.
Lord Abbett Growth and Income Portfolio
o Lord Abbett uses a team of portfolio managers and analysts acting together
to manage the Portfolio's investments. The portfolio management team is
headed by Robert G. Morris, W. Thomas Hudson and Eli Salzman. Messrs.
Morris and Hudson, Partners of Lord Abbett, have been with Lord Abbett for
more than five years. Mr. Salzman joined Lord Abbett in 1997; prior to that
he was a Vice President with Mutual of America Capital Corp. from 1996 to
1997, and was a Vice President at Michell Hutchins Asset Management Inc.
from 1986 to 1996.
Lord Abbett Growth Opportunities Portfolio
o Lord Abbett uses a team of portfolio managers and analysts acting together
to manage the Portfolio's investments. The senior members of the team
include Kevin P. Ferguson, Stephen J. McGruder and Frederic D. Ohr . Mr.
Ferguson joined Lord Abbett in 1999. From 1992 until 1999, Mr. Ferguson was
a Portfolio Manager/Senior Vice President at Lynch & Mayer, Inc. Mr.
McGruder, Partner of Lord Abbett, has been with Lord Abbett since 1995. Mr.
Ohr joined Lord Abbett in 1998. Before joining Lord Abbett, Mr. Ohr was a
Vice President and Senior Analyst with Chase Asset Management from 1991 to
1998.
PRIOR EXPERIENCE WITH COMPARABLE FUND
The Lord Abbett Growth Opportunities Portfolio and the Lord Abbett
Growth Opportunities Fund have substantially similar investment objectives,
policies, and strategies. Since the Portfolio commenced operations in February
2001, it does not have any operating history. In order to provide you with
information regarding the investment capabilities of Lord Abbett, performance
information regarding the Lord Abbett Growth Opportunities Fund is presented.
Such performance information should not be relied upon as an indication of the
future performance on the Portfolio.
The table below compares the Lord Abbett Growth Opportunities Fund's
average annual compounded total returns for the 1- and 5-year periods and since
inception of the Class A shares on 8/1/95 through 12/31/00 with the Russell Mid
Cap Growth Index and the S&P Mid Cap 400 Index. The Russell Mid Cap Growth Index
is an unmanaged index which measures the performance of the 800 smallest
companies in the Russell 1000 Index which represents approximately 24% of the
total market capitalization of the Russell 1000 Index. The median market
capitalization is approximately $3.2 billion. The S&P 400 Mid Cap Index is an
unmanaged market weighted index of 400 domestic stocks chosen for market size
(median market capitalization of about $610 million), liquidity, and industry
group representation. An index does not include transaction costs associated
with buying and selling securities or any mutual fund expenses. It is not
possible to invest directly in an index. The calculations of total return assume
the reinvestment of all dividends and capital gain distributions and the
deduction of all recurring expenses that were charged to shareholder accounts.
These figures do not include the effect of Contract charges. If these Contract
charges had been included, performance would have been lower.
<TABLE>
<CAPTION>
------------------------------------------------------------ ---------------------------------------------------------
Average Annual Total Return as of 12/31/00
------------------------------------------------------------ ---------------------------------------------------------
------------------------------------------------------------ ------------------ ------------------- ------------------
1 Year 5 Year Since Inception
<S> <C> <C> <C>
------------------------------------------------------------ ------------------ ------------------- ------------------
------------------------------------------------------------ ------------------ ------------------- ------------------
Lord Abbett Growth Opportunities Fund -
Class A shares (with sales charge)
------------------------------------------------------------ ------------------ ------------------- ------------------
------------------------------------------------------------ ------------------ ------------------- ------------------
Lord Abbett Growth Opportunities Fund -
Class A shares (without sales charge)
------------------------------------------------------------ ------------------ ------------------- ------------------
------------------------------------------------------------ ------------------ ------------------- ------------------
Russell Mid Cap Growth Index
------------------------------------------------------------ ------------------ ------------------- ------------------
------------------------------------------------------------ ------------------ ------------------- ------------------
S & P Mid Cap 400 Index
------------------------------------------------------------ ------------------ ------------------- ------------------
</TABLE>
Firstar Investment Research & Management Company, LLC ("FIRMCO"), Firstar
Center, 777 East Wisconsin Avenue, 8th Floor, Milwaukee, Wisconsin 53202, is the
Adviser to the Firstar Balanced, Firstar Equity Income and Firstar Growth &
Income Equity Portfolios of the Trust. FIRMCO is a subsidiary of Firstar
Corporation. As of September 30, 2000, FIRMCO had approximately $30 billion in
assets under investment management.
Firstar Balanced Portfolio
o Robert Bernstein, CFA, an Investment Officer of the Adviser,
joined Firstar Corporation in 1992 and has over 20 years
investment management experience, both as a research analyst
and portfolio manager. He is currently a member of the Equity
Management Committee.
Firstar Equity Income Portfolio
o Joseph Belew, a Vice President of the Adviser, joined Firstar Corporation
in 1979 and has over 21 years investment management experience .
Firstar Growth & Income Equity Portfolio
o Marian Zentmyer, CFA, joined Firstar Corporation as a
financial planning and research analyst in 1982 and became an
equity fund manager in 1989. She has 21 years of investment
management experience and was named Chief Equity Investment
Officer of FIRMCO in 1998.
BLACKROCK ADVISORS, INC. ("BlackRock"), 345 Park Avenue, New York, New York,
10154, is the Adviser to the BlackRock Equity and BlackRock U.S. Government
Income Portfolios of the Trust. BlackRock is a wholly-owned subsidiary of
BlackRock, Inc. which is, in turn, a subsidiary of PNC Bank, N.A. ("PNC")
BlackRock, Inc. is a fully integrated money management firm with global fixed
income, equity and cash management capabilities. As of September 30, 2000,
BlackRock, Inc. and its subsidiaries managed or administered approximately $191
billion in assets.
BlackRock Equity Portfolio
o R. Andrew Damm, Managing Director. Mr. Damm specializes in large cap growth
and core equity products. He is also responsible for risk modeling and
quantitative analysis. Prior to joining BlackRock in July, 2000, Mr. Damm
was with PNC Asset Management Group. He joined PNC in 1995 as Senior
Investment Strategist, responsible for managing the equity portion of
balanced portfolios and the asset allocation for PNC's blended portfolio
products. Previously he was a portfolio manager with PNC's Investment
Management and Trust Division.
BlackRock U.S. Government Income Portfolio
o Scott Amero, Managing Director. Mr. Amero joined BlackRock in 1990 and has
been a Managing Director since March, 1998. Mr. Amero is also a member of
the Adviser's Investment Strategy Committee and a Vice President for
BlackRock's family of closed-end mutual funds and the Smith Barney
Adjustable Rate Government Income Fund.
OPPENHEIMERFUNDS, INC. ("Oppenheimer"), Two World Center, 34th Floor, New York,
New York 10048-0203, is the Adviser to the Oppenheimer Capital Appreciation
Portfolio of the Trust. Oppenheimer has operated as an investment adviser since
January 1960. Oppenheimer (including subsidiaries) managed more than $120
billion in assets as of September 30, 2000, including other Oppenheimer funds
with more than 5 million shareholder accounts.
o Jane Putnam, Vice President and Manager. Ms. Putnam has been associated
with Oppenheimer as a portfolio manager since July 1995.
PRIOR EXPERIENCE WITH COMPARABLE FUND
The Oppenheimer Capital Appreciation Portfolio and the Oppenheimer
Capital Appreciation Fund have substantially similar investment objectives,
policies, and strategies. Since the Portfolio commenced operations in February
2001, it does not have any operating history. In order to provide you with
information regarding the investment capabilities of Oppenheimer, performance
information regarding the Oppenheimer Capital Appreciation Fund is presented.
Such performance information should not be relied upon as an indication of the
future performance on the Portfolio.
The table below compares the Oppenheimer Capital Appreciation Fund's average
annual compounded total returns for the 1-,5- and 10-year periods through
12/31/00 with the S & P 500 Index. An index does not include transaction costs
associated with buying and selling securities or any mutual fund expenses. It is
not possible to invest directly in an index. The calculations of total return
assume the reinvestment of all dividends and capital gain distributions and the
deduction of all recurring expenses that were charged to shareholder accounts.
These figures do not include the effect of Contract charges. If these Contract
charges had been included, performance would have been lower.
<TABLE>
<CAPTION>
---------------------------------------------------- -----------------------------------------------------------------
Average Annual Total Return as of 12/31/00
---------------------------------------------------- -----------------------------------------------------------------
---------------------------------------------------- --------------------- ---------------------- --------------------
1 Year 5 Year 10 Year
<S> <C> <C> <C>
---------------------------------------------------- --------------------- ---------------------- --------------------
---------------------------------------------------- --------------------- ---------------------- --------------------
Oppenheimer Capital Appreciation Fund - Class A
shares (with sales charge)
---------------------------------------------------- --------------------- ---------------------- --------------------
---------------------------------------------------- --------------------- ---------------------- --------------------
Oppenheimer Capital Appreciation Fund - Class A
shares (without sales charge)
---------------------------------------------------- --------------------- ---------------------- --------------------
---------------------------------------------------- --------------------- ---------------------- --------------------
S & P 500 Index
---------------------------------------------------- --------------------- ---------------------- --------------------
PUTNAM INVESTMENT MANAGEMENT, LLC ("Putnam"), One Post Office Square, Boston,
Massachusetts, 02109 is the Adviser to the Putnam Research Portfolio of the
Trust. Putnam has been managing mutual funds since 1937 and is an indirect
subsidiary of Marsh & McLennan Companies. As of September 30, 2000, Putnam had
approximately $406 billion in assets under investment management.
o Putnam's Global Equity Research Team has primary
responsibility for the day-to-day management of the Portfolio.
PRIOR EXPERIENCE WITH COMPARABLE FUND
The Putnam Research Portfolio and the Putnam Research Fund have
substantially similar investment objectives, policies, and strategies. Since the
Portfolio commenced operations in February 2001, it does not have any operating
history. In order to provide you with information regarding the investment
capabilities of Putnam, performance information regarding the Fund is presented.
Management fees paid by the Putnam Research Fund are less than the fees paid by
the Portfolio. If the same level of management fees charged to the Portfolio had
been charged to the Putnam Research Fund, the average annual return during the
periods would have been approximately 0.19% lower than the numbers set forth
below. This result assumes that the current management fee paid by the Putnam
Research Fund, as a percentage of average net asset, applied to all prior
periods. Such performance information should not be relied upon as an indication
of the future performance on the Portfolio.
The table below compares the Putnam Research Fund's average annual
compounded total returns for the 1-, 5- and 10- year periods through 12/31/00
with the S&P 500 Index. An index does not include transaction costs associated
with buying and selling securities or any mutual fund expenses. It is not
possible to invest directly in an index. The calculations of total return assume
the reinvestment of all dividends and capital gain distributions and the
deduction of all recurring expenses that were charged to shareholder accounts.
These figures do not include the effect of Contract charges. If these Contract
charges had been included, performance would have been lower.
-------------------------------------------------- -------------------------------------------------------------------
Average Annual Total Return as of 12/31/00
-------------------------------------------------- -------------------------------------------------------------------
-------------------------------------------------- ---------------------- ---------------------- ---------------------
1 Year 5 Year 10 Year
-------------------------------------------------- ---------------------- ---------------------- ---------------------
-------------------------------------------------- ---------------------- ---------------------- ---------------------
Putnam Research Fund -
Class A shares (with sales charge)
-------------------------------------------------- ---------------------- ---------------------- ---------------------
-------------------------------------------------- ---------------------- ---------------------- ---------------------
Putnam Research Fund -
Class A shares (without sales charge)
-------------------------------------------------- ---------------------- ---------------------- ---------------------
-------------------------------------------------- ---------------------- ---------------------- ---------------------
S&P 500 Index
-------------------------------------------------- ---------------------- ---------------------- ---------------------
PACIFIC INVESTMENT MANAGEMENT COMPANY LLC ("PIMCO"), 840 Newport Center Drive,
Newport Beach, California 92660, is the Adviser to the PIMCO Total Return and
PIMCO Money Market Portfolios of the Trust. PIMCO is a subsidiary of PIMCO
Advisors L.P., which in turn, is controlled by Allianz AG, a European-based,
multinational insurance and financial services holding company. Organized in
1971, PIMCO provides investment management and advisory services to private
accounts of institutional and individual clients and to mutual funds. As of
September 30, 2000, PIMCO had approximately $272 billion in assets under
arrangement.
PIMCO Total Return Portfolio
o William H. Gross, is a Managing Director, the Chief Investment Officer and a
founding partner of PIMCO.
PRIOR EXPERIENCE WITH COMPARABLE FUND
The PIMCO Total Return Portfolio and the PIMCO Total Return Fund have
substantially similar investment objectives, policies, and strategies. Since the
Portfolio commenced operations in February 2001, it does not have any operating
history. In order to provide you with information regarding the investment
capabilities of PIMCO, performance information regarding the PIMCO Total Return
Fund is presented. Management fees paid by the PIMCO Total Return Fund are less
than the fees paid by the Portfolio. If the same level of management fees
charged to the Portfolio had been charged to the PIMCO Total Return Fund, the
average annual return during the periods would have been approximately 0.25%
lower than the numbers set forth below. This result assumes that the current
management fee paid by the PIMCO Total Return Fund, as a percentage of average
net assets, applied to all prior periods. Such performance information should
not be relied upon as an indication of the future performance on the Portfolio.
The table below compares the PIMCO Total Return Fund's average annual
compounded total returns for the 1-,5- and 10-year periods through 12/31/00 with
the Lehman Brothers Aggregate Bond Index. The Lehman Brothers Aggregate Bond
Index is an unmanaged index of investment grade, U.S. dollar-denominated fixed
income securities of domestic issuers having a maturity greater than one year.
An index does not include transaction costs associated with buying and selling
securities or any mutual fund expenses. It is not possible to invest directly in
an index. The calculations of total return assume the reinvestment of all
dividends and capital gain distributions and the deduction of all recurring
expenses that were charged to shareholder accounts. These figures do not include
the effect of Contract charges. If these Contract charges had been included,
performance would have been lower.
-------------------------------------------------- -------------------------------------------------------------------
Average Annual Total Return as of 12/31/00
-------------------------------------------------- -------------------------------------------------------------------
-------------------------------------------------- ----------------------- ---------------------- --------------------
1 Year 5 Year 10 Year
-------------------------------------------------- ----------------------- ---------------------- --------------------
-------------------------------------------------- ----------------------- ---------------------- --------------------
PIMCO Total Return Fund -
Institutional shares
-------------------------------------------------- ----------------------- ---------------------- --------------------
-------------------------------------------------- ----------------------- ---------------------- --------------------
Lehman Brothers Aggregate Bond Index
-------------------------------------------------- ----------------------- ---------------------- --------------------
PIMCO Money Market Portfolio
o Paul A. McCulley, Managing Director. He has managed fixed
income assets since joining PIMCO in 1999. Prior to joining
PIMCO, Mr. McCulley was associated with Warburg Dillion Reed
as a Managing Director from 1992 to 1999 and Head of Economic
and Strategy Research for the Americas from 1995 to 1999,
where he managed macro research world-wide.
PRIOR EXPERIENCE WITH COMPARABLE FUND
The PIMCO Money Market Portfolio and the PIMCO Money Market Fund have
substantially similar investment objectives, policies, and strategies. Since the
Portfolio commenced operations in February 2001, it does not have any operating
history. In order to provide you with information regarding the investment
capabilities of PIMCO, performance information regarding the PIMCO Money Market
Fund is presented. Management fees paid by the PIMCO Money Market Fund are less
than the fees paid by the Portfolio. If the same level of management fees
charged to the Portfolio had been charged to the PIMCO Money Market Fund, the
average annual return during the periods would have been approximately 0.35%
lower than the numbers set forth below. This result assumes that the current
management fee paid by the PIMCO Money Market Fund, as a percentage of average
net assets, applied to all prior periods. Such performance information should
not be relied upon as an indication of the future performance on the Portfolio.
The table below compares the PIMCO Money Market Fund's average annual
compounded total returns for the 1- and 5- year periods and since inception of
the Institutional shares on 3/1/91 through 12/31/00 with Salomon 3-Month
Treasury Bill Index. This Index is an unmanaged index representing monthly
return equivalents of yield averages of the last 3 month Treasury Bill issues.
An index does not include transaction costs associated with buying and selling
securities or any mutual fund expenses. It is not possible to invest directly in
an index. The calculations of total return assume the reinvestment of all
dividends and capital gain distributions and the deduction of all recurring
expenses that were charged to shareholder accounts. These figures do not include
the effect of Contract charges. If these Contract charges had been included,
performance would have been lower.
-------------------------------------------------- -------------------------------------------------------------------
Average Annual Total Return as of 12/31/00
-------------------------------------------------- -------------------------------------------------------------------
-------------------------------------------------- ---------------------- ---------------------- ---------------------
1 Year 5 Year Since Inception
-------------------------------------------------- ---------------------- ---------------------- ---------------------
-------------------------------------------------- ---------------------- ---------------------- ---------------------
PIMCO Money Market Fund -
Institutional shares
-------------------------------------------------- ---------------------- ---------------------- ---------------------
-------------------------------------------------- ---------------------- ---------------------- ---------------------
Salomon 3-Month Treasury Bill
*
-------------------------------------------------- ---------------------- ---------------------- ---------------------
*From 2/28/91
PIMCO Equity Advisors, a division of PIMCO Advisors L.P. ("PIMCO Advisors"),
1345 Avenue of the Americas, 50th Floor, New York, New York 10105 is the Adviser
to the PIMCO Innovation Portfolio of the Trust. Organized in 1987, PIMCO
Advisors provides investment management and advisory services to private
accounts of institutional and individual clients and to mutual funds. As of
September 30, 2000, PIMCO Advisors had approximately $260 billion in assets
under management.
o Dennis P. McKechnie, joined PIMCO Advisors in 1999 as a
portfolio manager. From 1991 to 1999, he was a portfolio
manager with Columbus Circle Investors, formerly a subsidiary
of PIMCO Advisors.
PRIOR EXPERIENCE WITH COMPARABLE FUND
The PIMCO Innovation Portfolio and the PIMCO Innovation Fund have
substantially similar investment objectives, policies, and strategies. Since the
portfolio commenced operations in February 2001, it does not have any operating
history. In order to provide you with information regarding the investment
capabilities of PIMCO Advisors, performance information regarding the PIMCO
Innovation Fund is presented. Management fees paid by the PIMCO Innovation Fund
are less than the fees paid by the Portfolio. If the same level of management
fees charged to the Portfolio had been charged to the PIMCO Innovation Fund, the
average annual return during the periods would be approximately 0.40% lower than
the numbers set forth below. This result assumes that the current management fee
paid by the PIMCO Innovation Fund, as a percentage of average net asset, applied
to all prior periods. Such performance information should not be relied upon as
an indication of the future performance on the Portfolio.
The table below compares the PIMCO Innovation Fund's average annual
compounded total returns for the 1- and 5- year periods and since inception on
12/22/94 through 12/31/00 with the S&P 500 Index. An index does not include
transaction costs associated with buying and selling securities or any mutual
fund expenses. It is not possible to invest directly in an index. The
calculations of total return assume the reinvestment of all dividends and
capital gain distributions and the deduction of all recurring expenses that were
charged to shareholder accounts. These figures do not include the effect of
Contract charges. If these Contract charges had been included, performance would
have been lower.
-------------------------------------------------- -------------------------------------------------------------------
Average Annual Total Return as of 12/31/00
-------------------------------------------------- -------------------------------------------------------------------
-------------------------------------------------- ---------------------- ---------------------- ---------------------
1 Year 5 Year Since Inception
-------------------------------------------------- ---------------------- ---------------------- ---------------------
-------------------------------------------------- ---------------------- ---------------------- ---------------------
PIMCO Innovations Fund -
Institutional shares
-------------------------------------------------- ---------------------- ---------------------- ---------------------
-------------------------------------------------- ---------------------- ---------------------- ---------------------
S&P 500 Index
*
-------------------------------------------------- ---------------------- ---------------------- ---------------------
*From ____/94
MASSACHUSETTS FINANCIAL SERVICES COMPANY ("MFS"), 500 Boylston Street, Boston,
Massachusetts 02116, is the Adviser to the MFS Mid Cap Growth and MFS Research
International Portfolios of the Trust. MFS is American's oldest mutual fund
organization. MFS is an indirect subsidiary of Sun Life Assurance Company of
Canada. MFS and its predecessor organizations have a history of money management
dating from 1924 and the founding of the first mutual fund, Massachusetts
Investors Trust. Net assets under the management of the MFS organization were
approximately $157.71 billion as of September 30, 2000.
MFS Mid Cap Growth Portfolio
o Mark Regan, Senior Vice President of the Adviser. Mr. Regan has been
employed in the investment management area of the Adviser since 1989.
o David E. Sette-Ducati, Vice President of the Adviser. Mr. Sette-Ducati has
been employed in the investment management area of the Adviser since 1995.
PRIOR EXPERIENCE WITH COMPARABLE FUND
The MFS Mid Cap Growth Portfolio and the MFS Mid Cap Growth Fund have
substantially similar investment objectives, policies, and strategies. Since the
Portfolio commenced operations in February 2001, it does not have any operating
history. In order to provide you with information regarding investment
capabilities of MFS, performance information regarding the MFS Mid Cap Growth
Fund is presented. Such performance information should not be relied upon as an
indication of the future performance of the Portfolio.
The table below compares the MFS Mid Cap Growth Fund's average
annual compounded total returns for the 1- and 5- year periods and from
inception on 12/1/93 through 12/31/00 with the Russell Mid Cap Growth Index. The
Russell Mid Cap Growth Index is an unmanaged index that measures the performance
of the 800 smallest companies in the Russell 1000 Index, which represents
approximately 24% of the total market capitalization of the Russell 1000 Index.
The Index measures the performance of those companies with higher price-to-book
ratios and higher forecasted growth rates. An index does not include transaction
costs associated with buying and selling securities or any mutual fund expenses.
It is not possible to invest directly in an index. The calculations of total
return assume the reinvestment of all dividends and capital gain distributions
and the deduction of all recurring expenses that were charged to shareholder
accounts. These figures do not include the effect of Contract charges. If these
Contract charges had been included, performance would have been lower.
-------------------------------------------------- ----------------------------------------------------------------------------
Average Annual Total Return as of 12/31/00
-------------------------------------------------- ----------------------------------------------------------------------------
-------------------------------------------------- ----------------------- ----------------------- ----------------------------
1 Year 5 Year Since Inception
-------------------------------------------------- ----------------------- ----------------------- ----------------------------
-------------------------------------------------- ----------------------- ----------------------- ----------------------------
MFS Mid Cap Growth Fund -
Class A shares (with sales charge)
-------------------------------------------------- ----------------------- ----------------------- ----------------------------
-------------------------------------------------- ----------------------- ----------------------- ----------------------------
MFS Mid Cap Growth Fund -
Class A shares (without sales charge)
-------------------------------------------------- ----------------------- ----------------------- ----------------------------
-------------------------------------------------- ----------------------- ----------------------- ----------------------------
Russell Mid Cap Growth Index
-------------------------------------------------- ----------------------- ----------------------- ----------------------------
MFS Research International Portfolio
o The Portfolio is managed by a committee of investment research analysts
under the general supervision of David A. Antonelli, Senior Vice President
and the Director of International Equity Research. Mr. Antonelli has been
employed in the investment management area of MFS since 1991.
PRIOR EXPERIENCE WITH COMPARABLE FUND
The MFS Research International Portfolio and the MFS Research
International Fund have substantially similar investment objectives, policies,
and strategies. Since the Portfolio commenced operations in February 2001, it
does not have any operating history. In order to provide you with information
regarding investment capabilities of MFS, performance information regarding the
MFS Research International Fund is presented. Such performance information
should not be relied upon as an indication of the future performance on the
Portfolio.
The table below compares the MFS Research International Fund's average
annual compounded total returns for the one year period and from inception on
1/2/97 through 12/31/00 with the MSCI EAFE Index. An index does not include
transaction costs associated with buying and selling securities or any mutual
fund expenses. It is not possible to invest directly in an index. The
calculations of total return assume the reinvestment of all dividends and
capital gain distributions and the deduction of all recurring expenses that were
charged to shareholder accounts. These figures do not include the effect of
Contract charges. If these Contract charges had been included, performance would
have been lower.
-------------------------------------------------- -------------------------------------------------------------------
Average Annual Total Return as of 12/31/00
-------------------------------------------------- -------------------------------------------------------------------
-------------------------------------------------- --------------------------------- ---------------------------------
1 Year Since Inception
-------------------------------------------------- --------------------------------- ---------------------------------
-------------------------------------------------- --------------------------------- ---------------------------------
MFS Research International Fund -
Class A shares (with sales charge)
-------------------------------------------------- --------------------------------- ---------------------------------
-------------------------------------------------- --------------------------------- ---------------------------------
MFS Research International Fund -
Class A shares (without sales charge)
-------------------------------------------------- --------------------------------- ---------------------------------
-------------------------------------------------- --------------------------------- ---------------------------------
MSCI EAFE Index
-------------------------------------------------- --------------------------------- ---------------------------------
JANUS CAPITAL CORPORATION, ("JANUS"), 100 Fillmore Street, Denver,
Colorado 80206-4928, is the Adviser to the Janus Aggressive Growth Portfolio of
the Trust. Janus began serving as investment adviser in 1970 and currently
serves as investment adviser to all of the Janus funds, acts as sub-adviser for
a number of private-label mutual funds and provides separate account advisory
services for institutional accounts. Janus is a subsidiary of Stilwell
Financial, Inc. As of September 30, 2000, Janus managed approximately $307.6 in
assets.
o Claire Young, Executive Vice President of the Adviser. Ms. Young has been
the portfolio manager of the Janus Olympus Fund since August, 1997. She
previously served as an assistant portfolio manager of Janus Growth and
Income Fund and Janus Twenty Fund. Ms. Young joined Janus in January, 1992.
The Janus Aggressive Growth Portfolio and the Janus Olympus Fund have
substantially similar investment objectives, policies, and strategies. Since the
Portfolio commenced operations in February 2001, it does not have any operating
history. In order to provide you with information regarding the investment
capabilities of Janus, performance information regarding the Janus Olympus Fund
is presented. Such performance information should not be relied upon as an
indication of the future performance on the Portfolio.
The table below compares the Janus Olympus Fund's average annual
compounded total returns for the 1-, 5- and 10-year periods through 12/31/00
with the S&P 500 Index. An index does not include transaction costs associated
with buying and selling securities or any mutual fund expenses. It is not
possible to invest directly in an index. The calculations of total return assume
the reinvestment of all dividends and capital gain distributions and the
deduction of all recurring expenses that were charged to shareholder accounts.
These figures do not include the effect of Contract charges. If these Contract
charges had been included, performance would have been lower.
-------------------------------------------------- -------------------------------------------------------------------
Average Annual Total Return as of 12/31/00
-------------------------------------------------- -------------------------------------------------------------------
-------------------------------------------------- ---------------------- ---------------------- ---------------------
1 Year 5 Year 10 Year
-------------------------------------------------- ---------------------- ---------------------- ---------------------
-------------------------------------------------- ---------------------- ---------------------- ---------------------
Janus Olympus Fund
-------------------------------------------------- ---------------------- ---------------------- ---------------------
-------------------------------------------------- ---------------------- ---------------------- ---------------------
S&P 500 Index
-------------------------------------------------- ---------------------- ---------------------- ---------------------
</TABLE>
<PAGE>
YOUR INVESTMENT
Shareholder Information
The separate accounts of MetLife are the record owner of the
Portfolios' shares. Any reference to the shareholder in this Prospectus
technically refers to those separate accounts and not to you, the Contract owner
or Plan participant. The legal rights of you, the Contract owner or Plan
participant, are different from the legal rights of the record owner.
However, MetLife is required to solicit instructions from the Contract
owners or Plan participants when voting on shareholder issues. Any voting by
MetLife as shareholder would therefore reflect the actual votes of Contract
owners and Plan participants. Please see "Voting Rights" in the prospectus for
the Contracts or Plans accompanying this Prospectus for more information on your
voting rights.
Dividends, Distributions and Taxes
Dividends and Distributions
Each Portfolio intends to distribute substantially all of its net
investment income, if any. Each Portfolio distributes its dividends from its net
investment income to MetLife's separate accounts at least once (except in the
case of the PIMCO Money Market Portfolio whose dividends are declared daily and
paid monthly) a year and not to you, the Contract owner. These distributions are
in the form of additional shares of stock and not cash. The result is that a
Portfolio's investment performance, including the effect of dividends, is
reflected in the cash value of the Contracts. Please see the Contracts
prospectus accompanying this Prospectus for more information.
All net realized long- or short-term capital gains of each Portfolio
are also declared once a year and reinvested in the Portfolio.
Taxes
Please see the Contract or Plan prospectus accompanying this Prospectus
for a discussion of the tax impact on you resulting from the income taxes the
separate accounts owe as a result of their ownership of a Portfolio's shares and
their receipt of dividends and capital gains.
Each Portfolio expects to qualify and to continue to qualify as a
regulated investment company under Subchapter M of the Internal Revenue Code of
1986, as amended ("Code"). As qualified, a Portfolio is not subject to federal
income tax on that part of its taxable income that it distributes to you.
Taxable income consists generally of net investment income, and any capital
gains. It is each Portfolio's intention to distribute all such income and gains.
Shares of each Portfolio are currently offered only to the separate
accounts of MetLife and to qualified pension and retirement plans. Separate
accounts are insurance company separate accounts that fund the policies and the
annuity contracts. Under the Code, an insurance company pays no tax with respect
to income of a qualifying separate account when the income is properly allocable
to the value of eligible variable annuity or variable life insurance contracts.
For a discussion of the taxation of life insurance companies and the separate
accounts, as well as the tax treatment of the policies and annuity contracts and
the holders thereof, see the discussion of federal income tax considerations
included in the respective prospectuses for the Contracts.
Section 817(h) of the Code and the regulations thereunder impose
"diversification" requirements on the assets underlying a Contract. Each
Portfolio intends to maintain diversification which will allow each Contract to
satisfy these requirements. These requirements are in addition to the
diversification requirements imposed on each Portfolio by Subchapter M and the
1940 Act. Technically, the section 817(h) requirements provide that, with
limited exceptions, as of the end of each calendar quarter or within thirty days
thereafter no more than 55% of the assets underlying a Contract may be
represented by any one investment, no more than 70% by any two investments, no
more than 80% by any three investments, and no more than 90% by any four
investments. For this purpose, an investment in a Portfolio is treated not as a
single investment but as an investment in each asset owned by the Portfolio, so
long as shares of the Portfolio are owned only by separate accounts of insurance
companies, by qualified pension and retirement plans, and by a limited class of
other investors. The Portfolios are and will be so owned. Thus so long as each
Portfolio meets the section 817(h) diversification tests, each Contract will
also meet those tests. See the prospectuses for the Contracts.
The foregoing is only a summary of some of the important federal income
tax considerations generally affecting a Portfolio and you; see the SAI for a
more detailed discussion. You are urged to consult your tax advisers.
Report to Policyholders
The fiscal year of each Portfolio ends on December 31 of each year. The
Trust will send to you, at least semi-annually, reports which show the
Portfolios' composition and other information. An annual report, with audited
information, will be sent to you each year.
Sales and Purchases of Shares
The Trust does not sell its shares directly to the public. The Trust
continuously sells shares of each Portfolio only to the separate accounts of
MetLife and to qualified pension and profit-sharing plans. It could also offer
shares to other separate accounts of other insurers if approved by the Board of
Trustees.
Purchase and Redemption of Shares
MetLife Investors Distribution Company, is the principal underwriter
and distributor of the Contracts. MetLife Investors Distribution Company places
orders for the purchase or redemption of shares of each Portfolio based on,
among other things, the amount of net Contract premiums or purchase payments
transferred to the separate accounts, transfers to or from a separate account
investment division and benefit payments to be effected on a given date pursuant
to the terms of the Contracts. Such orders are effected, without sales charge,
at the net asset value per share for each Portfolio determined on that same
date.
Shares are sold and redeemed at their net asset value without the
imposition of any sales commission or redemption charge. Class A shares are not
subject to a Rule 12b-1 fee. (However, certain sales or other charges may apply
to the Plans or Contracts, as described in the product prospectus.)
Right to Restrict Transfers
Neither the Trust nor the Contracts are designed for professional
market timing organizations, other entities, or individuals using programmed,
large and/or frequent transfers. MetLife, in coordination with the Trust's
Manager and Advisers, reserves the right to temporarily or permanently refuse
exchange requests if, in its 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 Contract
prospectus that accompanies this Prospectus for information on other specific
limitations on the transfer privilege.
Valuation of Shares
Each Portfolio's net asset value per share is ordinarily determined
once daily, as of the close of the regular session of business on the New York
Stock Exchange (NYSE) (usually at 4:00 p.m., Eastern Time), on each day the
Exchange is open.
Net asset value of a Portfolio share is computed by dividing the value
of the net assets of the Portfolio by the total number of shares outstanding in
the Portfolio. Share prices for any transaction are those next calculated after
receipt of an order.
Except for the assets of the PIMCO Money Market Portfolio and other
Portfolios' money market instruments maturing in 60 days or less, securities
held by the Portfolios are valued at market value. If market values are not
readily available, securities are valued at fair value as determined by the
Valuation Committee of the Trust's Board of Trustees.
The assets of the PIMCO Money Market Portfolio are valued on a basis
(amortized cost) designed to maintain the net asset value at $1.00 per share.
Money market instruments of the Trust's other Portfolios maturing in 60 days or
less, are valued on the amortized cost basis.
<PAGE>
FINANCIAL HIGHLIGHTS
The following financial highlights tables are intended to help you
understand each Portfolio's financial performance for the past 5 years (or for
its period of operation in the case of Portfolios that have operated for less
than 5 years). Certain information reflects financial results for a single
Portfolio share. Total return in each table shows how much an investment in a
Portfolio would have increased (or decreased) during each period (assuming
reinvestment of all dividends and distributions). This information with respect
to the Portfolios other than BlackRock Equity Portfolio and BlackRock U.S.
Government Income Portfolio for the years or periods ended on or prior to
December 31, 1999 has been audited by KPMG LLP, whose report, along with each
Portfolio's financial statements, is included in the Annual Report of Cova
Series Trust (the funds of which are predecessors of the Portfolios), which is
available upon request. The information for the six-month period ended June 30,
2000 is unaudited and is included in Cova Series Trust's Semi-Annual Report,
which is available upon request. The information with respect to BlackRock
Equity Portfolio and BlackRock U.S. Government Income Portfolio for the years
ended July 31, 1999 and July 31, 2000 has been audited by Deloitte & Touche LLP.
For the years 1996 through 1998, other independent accountants have audited this
information. Deloitte & Touche LLP's report, along with each Portfolio's
financial statements, is included in the Annual Report of Security First Trust
(the funds of which are predecessors of the Portfolios), which is available upon
request.
<PAGE>
BlackRock Equity Portfolio*
<TABLE>
<CAPTION>
FOR THE YEARS ENDED JULY 31,
2000 1999 1998 1997 1996
<S> <C> <C> <C> <C> <C>
Operating performance:
Net asset value at beginning of year.... $8.54 $8.57 $8.18 $6.05 $5.70
Net investment income................ $.02 $0.06 $.07 $.09 $.10
Net realized and unrealized gains
(losses) on
Investments.......................... $.68 $1.42 $1.04 $2.60 $.46
Total income/(loss) from investment
operations........................... $.70 $1.48 $1.11 $2.69 $.56
Distributions:
Dividends from net investment income.... (.05) (.07) (.08) (.11) (.05)
Distributions from realized capital
gains................................ (.26) (1.44) (.64) (.45) (.16)
Total distributions.................. (.31) (1.51) (.72) (.56) (.21)
Net asset value at, end of year...... $8.93 $8.54 $8.57 $8.18 $6.05
Total return(1)...................... 8.20% 17.27% 13.57% 44.46% 9.82%
Ratios to average net assets/
supplemental data:
Ratio of operating expenses to
average net assets .................. .80% .81% .91%+ 1.00%+ 1.00%
Ratio of net investment income to
average net assets................... .31% .72% .86%+ 1.56%+ 2.24%
Ratio of net expenses to average net
assets ..............................
Portfolio turnover rate.............. 83% 23% 87% 55% 88%
Net assets, end of year.............. $59,015,427 $58,313,162 $54,803,152 $47,571,469 $20,701,776
* On February 5, 2001, the Portfolio received, through a plan of
reorganization, all of the assets and assumed the identified
liabilities of the BlackRock Equity Series, a portfolio of Security
First Trust, that followed the same investment objective as the
Portfolio. The information for each of the periods is that of the
predecessor BlackRock Equity Series whose fiscal year ends were July
31.
(1) Total return computed after deduction of all series expenses, but
before deduction of actuarial risk charges and other fees of the
variable annuity account.
+ The former investment adviser had agreed to waive a portion of its
management and advisory fees. Absent this agreement, the ratio of
expenses to average net assets and the ratio of net investment income
to average net assets would have been .98% and .81% and 1.05% and 1.51%
for 1998 and 1997 respectively.
<PAGE>
BlackRock U.S. Government Income Portfolio*
FOR THE YEARS ENDED JULY 31,
2000 1999 1998 1997 1996
Operating performance:
Net asset value at beginning of year... $5.10 $5.45 $5.36 $5.15 $5.13
Net investment income................ $.30 $.30 $.27 $.23 $.18
Net realized and unrealized gains
(losses) on investments.............. $(.01) $(.24) $.06 $.20 $.04
Total increase/(loss) from
investment operations................ $.29 $.06 $.33 $.43 $.22
Distributions:
Dividends from net investment income... (.29) (.31) (.24) (.22) (.19)
Distributions from realized capital
gains........................................--- (.10) --- --- (.01)
Total distributions.........................(.29) (.41) (.24) (.22) (.20)
Net asset value, end of
Year................................. $5.10 $5.10 $5.45 $5.36 $5.15
Total return(1)...................... 5.69% 1.10% 6.16% 8.35% 4.29%
Ratios to average net assets/
supplemental data:
Ratio of operating expenses to
average net assets .................. .71% .71% .66%+ .70%+ .70%
Ratio of net investment income to
average net assets................... 5.85% 5.37% 5.53%+ 5.68%+ 5.38%
Portfolio turnover rate.............. 159% 307% 103% 62% 148%
Net assets, end of year.............. $32,520,049 $32,312,549 $34,090,919 $28,889,460 $14,888,824
* On February 5, 2001, the Portfolio received, through a plan of
reorganization, all of the assets and assumed the identified
liabilities of the BlackRock U.S. Government Income Series, a portfolio
of Security First Trust, that followed the same investment objective as
the Portfolio. The information for each of the periods is that of the
predecessor BlackRock U.S. Government Income Series whose fiscal year
ends were July 31.
(1) Total return computed after deduction of all series expenses, but
before deduction of actuarial risk charges and other fees of the
variable annuity account.
+ The former investment adviser had agreed to waive a portion of its
management and advisory fees. Absent this agreement, the ratio of
expenses to average net assets and the ratio of net investment income
to average net assets would have been .90% and 5.27% and 1.04% and
5.34% for 1998 and 1997 respectively.
<PAGE>
J.P. Morgan Quality Bond Portfolio*
FOR THE YEARS ENDED DECEMBER 31,
Six Months For the period from May 1,
Ended June 30, 1996 (date of initial
2000 public offering) to
(Unaudited) December 31, 1996
1999 1998 1997
NET ASSET VALUE, BEGINNING OF PERIOD.. $10.669 $11.020 $10.405 $10.082 $9.897
INCOME FROM INVESTMENT OPERATIONS:
Net investment income................. 0.386 0.459 0.490 0.446 0.459
Net realized and unrealized gains
(losses).............................. (0.001) (0.631) 0.365 0.452 0.102
TOTAL FROM INVESTMENT OPERATIONS...... 0.385 (0.172) 0.855 0.898 0.561
DISTRIBUTIONS:
Dividends from net investment income.... (0.647) (0.119) (0.240) (0.531) (0.376)
Dividends from net realized gains....... --- (0.060) --- (0.044) ---
TOTAL DISTRIBUTIONS... (0.647) (0.179) (0.240) (0.575) (0.376)
NET ASSET VALUE, END OF PERIOD........ $10.407 $10.669 $11.020 $10.405 $10.082
TOTAL RETURN.......................... 3.65%+ (1.54)% 8.37% 9.06% 5.68%+
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (In
millions)............................. $91.4 $95.6 $45.8 $18.6 $5.8
RATIOS TO AVERAGE NET ASSETS(1):
Expenses.............................. 0.63%++ 0.64% 0.65% 0.65% 0.65%++
Net investment income................. 6.47%++ 5.67% 5.59% 5.92% 5.94%++
PORTFOLIO TURNOVER RATE............... 135.5%+ 369.5% 255.4% 163.7% 181.3%+
(1) If certain expenses had not been reimbursed by the Adviser, total return would have been lower and the ratios would have
been as follows:
Ratio of Operating Expenses to
Average Net Assets: 0.72%++ 0.71% 0.86% 1.08% 1.52%++
Ratio of Net Investment Income to
Average Net Assets:
6.38%++ 5.60% 5.38% 5.49% 5.07%++
* On February 5, 2001, the Portfolio received, through a plan of
reorganization, all of the assets and assumed the identified
liabilities of the Quality Bond Portfolio, a portfolio of Cova Series
Trust, that followed the same investment objective as the Portfolio.
The information for each of the periods is that of the predecessor
Quality Bond Portfolio.
+ Non-annualized
++ Annualized
(1) Amount is less than 0.00%
<PAGE>
J.P. Morgan Small Cap Stock Portfolio*
FOR THE YEARS ENDED DECEMBER 31,
Six Months For the period from May 1,
Ended 1996 (date of initial
June 30, 2000 public offering) to
(Unaudited) December 31, 1996
1999 1998 1997
NET ASSET VALUE, BEGINNING OF PERIOD..
$17.269 $11.982 $13.105 $10.922 $10.512
INCOME FROM INVESTMENT OPERATIONS:
NET INVESTMENT INCOME.................
0.000+ 0.015 0.051 0.057 0.057
Net realized and unrealized gains
(losses).............................. 0.119 5.307 (0.722) 2.217 0.843
TOTAL FROM INVESTMENT OPERATIONS...... 0.119 5.322 (0.671) 2.274 0.900
DISTRIBUTIONS:
Dividends from net investment income.... ---+ (0.035) (0.017) (0.055) (0.055)
Dividends from net realized gains....... (0.688) --- (0.435) (0.036) (0.435)
TOTAL DISTRIBUTIONS..................... (0.688) (0.035) (0.452) (0.091) (0.490)
NET ASSET VALUE, END OF PERIOD........ $16.700 $17.269 $11.982 $13.105 $10.922
TOTAL RETURN.......................... 0.80%++ 44.56% (5.40)% 20.89% 8.65%++
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (In
millions)............................. $113.2 $109.3 $78.2 $59.8 $14.7
RATIOS TO AVERAGE NET ASSETS(1):
Expenses.............................. 1.03%+++ 1.05% 0.95% 0.95% 0.95%+++
Net investment income................. 0.00%+++(1) 0.11% 0.45% 0.56% 0.87%+++
PORTFOLIO TURNOVER RATE............... 5.74%++ 123.5% 62.4% 79.1% 102.4%++
(1) If certain expenses had not been reimbursed by the Adviser, total return would have been lower and the ratios would have
been as follows:
Ratio of Operating Expenses to
Average Net Assets: N/A 1.09% 1.12% 1.39% 2.68%+++
Ratio of Net Investment Income to
Average Net Assets:
N/A 0.07% 0.28% 0.12% (0.86%)+++
* On February 5, 2001, the Portfolio received, through a plan of
reorganization, all of the assets and assumed the identified
liabilities of the Small Cap Stock Portfolio, a portfolio of Cova
Series Trust, that followed the same investment objective as the
Portfolio. The information for each of the periods is that of the
predecessor Small Cap Stock Portfolio.
+ Less than $.0005 per share
++ Non-annualized
+++ Annualized
(1) Amount is less than 0.00%
N/A Not Applicable
<PAGE>
J.P. Morgan Enhanced Index Portfolio*
FOR THE YEARS ENDED DECEMBER 31,
Six Months For the period from May 1,
Ended 1996 (date of initial
June 30, 2000 public offering) to
(Unaudited) December 31, 1996
1999 1998 1997
NET ASSET VALUE, BEGINNING OF PERIOD..
$20.675 $18.115 $13.845 $11.112 $10.003
INCOME FROM INVESTMENT OPERATIONS:
Net investment income................. 0.055 0.105 0.098 0.113 0.124
Net realized and unrealized gains
(losses).............................. (0.507) 3.057 4.357 3.560 1.304
TOTAL FROM INVESTMENT OPERATIONS...... (0.452) 3.162 4.455 3.673 1.428
DISTRIBUTIONS:
Dividends from net investment income... (0.125) (0.026) (0.043) (0.118) (0.122)
Distributions from net realized gains.. (1.554) (0.576) (0.142) (0.822) (0.197)
TOTAL DISTRIBUTIONS.................... (1.679) (0.602) (0.185) (0.940) (0.319)
NET ASSET VALUE, END OF PERIOD........ $18.544 $20.675 $18.115 $13.845 $11.112
TOTAL RETURN.......................... (2.15%)+ 17.64% 32.31% 33.25% 14.35%+
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (In
millions)............................. $276.3 $263.1 $103.8 $32.3 $16.8
RATIOS TO AVERAGE NET ASSETS(1):
Expenses.............................. 0.74%++ 0.75% 0.75% 0.75% 0.75%++
Net investment income................. 0.71%++ 0.75% 0.77% 0.99% 1.56%++
PORTFOLIO TURNOVER RATE............... 30.1%+ 63.2% 62.4% 59.5% 35.5%+
(1) If certain expenses had not been reimbursed by the Adviser, total return would have been lower and the ratios would have
been as follows:
Ratio of Operating Expenses to
Average Net Assets: N/A 0.76% 0.94% 1.08% 1.23%++
Ratio of Net Investment Income to
Average Net Assets:
N/A 0.74% 0.58% 0.66% 1.08%++
* On February 5, 2001, the Portfolio received, through a plan of
reorganization, all of the assets and assumed the identified
liabilities of the Large Cap Stock Portfolio, a portfolio of Cova
Series Trust, that followed the same investment objective as the
Portfolio. The information for each of the periods is that of the
predecessor Large Cap Stock Portfolio.
+ Non-annualized
++ Annualized
N/A Not Applicable
<PAGE>
J.P. Morgan Select Equity Portfolio*
FOR THE YEARS ENDED DECEMBER 31,
Six Months Ended For the period from May 1,
June 30, 2000 1996 (date of initial
(Unaudited) public offering) to
December 31, 1996
1999 1998 1997
NET ASSET VALUE, BEGINNING OF PERIOD..
$16.112 $16.076 $13.966 $10.742 $10.084
INCOME FROM INVESTMENT OPERATIONS:
Net investment income................. 0.034 0.074 0.091 0.078 0.081
Net realized and unrealized gains
(losses).............................. (0.197) 1.451 2.983 3.294 0.771
TOTAL FROM INVESTMENT OPERATIONS...... (0.163) 1.525 3.074 3.372 0.852
DISTRIBUTIONS:
Dividends from net investment income... (0.079) (0.043) (0.046) (0.077) (0.081)
Distributions from net realized gains.... (1.053) (1.446) (0.918) (0.071) (0.113)
TOTAL DISTRIBUTIONS..................... (1.132) (1.489) (0.964) (0.148) (0.194)
NET ASSET VALUE, END OF PERIOD........ $14.817 $16.112 $16.076 $13.966 $10.742
TOTAL RETURN.......................... (0.97%)+ 9.71% 22.56% 31.55% 8.52%+
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (In
millions)............................. $245.9 $249.7 $197.8 $106.9 $23.8
RATIOS TO AVERAGE NET ASSETS(1):
Expenses.............................. 0.76%++ 0.77% 0.78% 0.83% 0.85%++
Net investment income................. 0.46%++ 0.55% 0.68% 0.81% 1.35%++
PORTFOLIO TURNOVER RATE............... 4.6%+ 133.8% 182.9% 134.8% 123.9%+
(1) If certain expenses had not been reimbursed by the Adviser, total return would have been lower and the ratios would have
been as follows:
Ratio of Operating Expenses to
Average Net Assets: N/A N/A 0.86% 1.00% 1.70%++
Ratio of Net Investment Income to
Average Net Assets:
N/A N/A 0.60% 0.64% 0.50%++
* On February 5, 2001, the Portfolio received, through a plan of
reorganization, all of the assets and assumed the identified
liabilities of the Select Equity Portfolio, a portfolio of Cova Series
Trust, that followed the same investment objective as the Portfolio.
The information for each of the periods is that of the predecessor
Select Equity Portfolio.
+ Non-annualized
++ Annualized
N/A Not Applicable
<PAGE>
J.P. Morgan International Equity Portfolio*
FOR THE YEARS ENDED DECEMBER 31,
Six Months Ended For the period from May 1,
June 30, 2000 1996 (date of initial
(Unaudited) public offering) to
December 31, 1996
1999 1998 1997
NET ASSET VALUE, BEGINNING OF PERIOD..
$16.225 $12.857 $11.472 $10.959 $10.215
INCOME FROM INVESTMENT OPERATIONS:
Net investment income................. 0.056 0.083 0.117 0.122 0.096
Net realized and unrealized gains
(losses).............................. (0.723) 3.534 1.491 0.539 0.755
TOTAL FROM INVESTMENT OPERATIONS...... (0.667) 3.617 1.608 0.661 0.851
DISTRIBUTIONS:
Dividends from net investment income.... (0.066) (0.068) (0.220) (0.137) (0.086)
Distributions from net realized gains.. (0.962) (0.181) (0.003) (0.011) (0.021)
TOTAL DISTRIBUTIONS.................... (1.028) (0.249) (0.223) (0.148) (0.107)
NET ASSET VALUE, END OF PERIOD....... $14.530 $16.225 $12.857 $11.472 $10.959
TOTAL RETURN.......................... (4.08%)+ 28.52% 14.07% 5.96% 8.44%+
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (In
millions)............................. $137.7 $138.1 $104.5 $68.8 $15.6
RATIOS TO AVERAGE NET ASSETS(1):
Expenses.............................. 1.15%++ 1.10% 0.91% 0.95% 0.95%++
Net investment income................. 0.80%++ 0.62% 0.97% 1.35% 1.43%++
PORTFOLIO TURNOVER RATE............... 56.3%+ 82.8% 74.0% 74.1% 48.2%+
(1) If certain expenses had not been reimbursed by the Adviser, total return would have been lower and the ratios would have
been as follows:
Ratio of Operating Expenses to
Average Net Assets: N/A 1.15% 1.09% 1.53% 3.80%++
Ratio of Net Investment Income to
Average Net Assets:
N/A 0.57% 0.79% 0.77% (1.42%)++
* On February 5, 2001, the Portfolio received, through a plan of
reorganization, all of the assets and assumed the identified
liabilities of the International Equity Portfolio, a portfolio of Cova
Series Trust, that followed the same investment objective as the
Portfolio. The information for each of the periods is that of the
predecessor International Equity Portfolio.
+ Non-annualized
++ Annualized
N/A Not Applicable
<PAGE>
Lord Abbett Bond Debenture Portfolio*
FOR THE YEARS ENDED DECEMBER 31,
Six Months Ended For the period from May 1,
June 30, 2000 1996 (date of initial
(Unaudited) public offering) to
December 31, 1996
1999 1998 1997
NET ASSET VALUE, BEGINNING OF PERIOD..
$12.475 $12.381 $12.112 $10.970 $10.098
INCOME FROM INVESTMENT OPERATIONS:
Net investment income................. 0.509 0.710 0.682 0.544 0.345
Net realized and unrealized gains
(losses).............................. (0.333) (0.293) 0.072 1.147 0.949
TOTAL FROM INVESTMENT OPERATIONS...... 0.176 0.417 0.754 1.691 1.294
DISTRIBUTIONS:
Dividends from net investment income... (0.832) (0.244) (0.349) (0.549) (0.342)
Distributions from net realized gains... ---- (0.079) (0.136) ---- (0.080)
TOTAL DISTRIBUTIONS.................... (0.832) (0.323) (0.485) (0.549) (0.422)
NET ASSET VALUE, END OF PERIOD........ $11.819 $12.475 $12.381 $12.112 $10.970
TOTAL RETURN.......................... 1.47%+ 3.40% 6.26% 15.63% 12.89%+
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (In
millions)............................. $165.2 $170.2 $120.0 $55.4 $7.7
RATIOS TO AVERAGE NET ASSETS(1):
Expenses.............................. 0.85%++ 0.85% 0.85% 0.85% 0.85%++
Net investment income................. 8.01%++ 6.74% 6.58% 6.68% 7.26%++
PORTFOLIO TURNOVER RATE............... 34.7%+ 46.7% 84.7% 100.3% 58.1%+
(1) If certain expenses had not been reimbursed by the Adviser, total return would have been lower and the ratios would have
been as follows:
Ratio of Operating Expenses to
Average Net Assets: 0.87%++ 0.86% 0.93% 1.07% 2.05%++
Ratio of Net Investment Income to
Average Net Assets:
7.99%++ 6.73% 6.50% 6.46% 6.06%++
* On February 5, 2001, the Portfolio received, through a plan of
reorganization, all of the assets and assumed the identified
liabilities of the Bond Debenture Portfolio, a portfolio of Cova Series
Trust, that followed the same investment objective as the Portfolio.
The information for each of the periods is that of the predecessor Bond
Debenture Portfolio.
+ Non-annualized
++ Annualized
<PAGE>
Lord Abbett Mid-Cap Value Portfolio*
FOR THE YEARS ENDED
DECEMBER 31,
For the period from
Six months ended August 20, 1997
June 30, 2000 (Commencement of
(unaudited) operations) to December
1999 1998 31, 1997
NET ASSET VALUE, BEGINNING OF PERIOD..................
$11.168 $10.583 $10.481 $10.000
INCOME FROM INVESTMENT OPERATIONS:
Net investment income................................. 0.028 0.042 0.032 0.010
Net realized and unrealized gains (losses)............ 1.956 0.557 0.087 0.481
TOTAL FROM INVESTMENT OPERATIONS...................... 1.984 0.599 0.119 0.491
DISTRIBUTIONS:
Dividends from net investment income.........................(0.039) (0.014) (0.017) (0.010)
Distributions from net realized gains........................(0.082) ---- ---- ----
TOTAL DISTRIBUTIONS..........................................(0.121) (0.014) (0.017) (0.010)
NET ASSET VALUE, END OF PERIOD........................ $13.031 $11.168 $10.583 $10.481
TOTAL RETURN.......................................... 17.72%+ 5.71% 1.11% 4.90%+
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (In millions)............... $39.0 $29.4 $18.3 $2.2
RATIOS TO AVERAGE NET ASSETS (1):
Expenses.............................................. 1.30%++ 1.25% 1.10% 1.10%++
Net investment income................................. 0.58%++ 0.50% 0.44% 0.97%++
PORTFOLIO TURNOVER RATE............................... 47.8%+ 64.3% 41.0% 1.5%+
(1) If certain expenses had not been reimbursed by the Adviser, total return would have been lower and the ratios would have
been as follows:
Ratio of Operating Expenses to Average Net Assets:
1.31%++ 1.41% 1.68% 8.41%++
Ratio of Net Investment Income to Average Net Assets:
0.57%++ 0.34% (0.14%) (6.34%)++
* On February 5, 2001, the Portfolio received, through a plan of
reorganization, all of the assets and assumed the identified
liabilities of the Mid-Cap Value Portfolio, a portfolio of Cova Series
Trust, that followed the same investment objective as the Portfolio.
The information for each of the periods is that of the predecessor
Mid-Cap Value Portfolio.
+ Non-annualized
++ Annualized
</TABLE>
<PAGE>
Lord Abbett Developing Growth Portfolio*
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
DECEMBER 31,
For the period from
Six months ended August 20, 1997
June 30, 2000 (Commencement of
(unaudited) operations) to December
31, 1997
1999 1998
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD..................
$14.885 $11.241 $10.549 $10.000
INCOME FROM INVESTMENT OPERATIONS:
Net investment income................................. (0.041) (0.073) (0.025) 0.002
Net realized and unrealized gains (losses)............ (1.734) 3.717 0.723 0.549
TOTAL FROM INVESTMENT OPERATIONS......................
(1.775) 3.644 0.698 0.551
DISTRIBUTIONS:
Dividends from net investment income.......................... ---- ---- ---- (0.002)
Distributions from net realized gains........................(0.673) ---- (0.006) ----
TOTAL DISTRIBUTIONS..........................................(0.673) ---- (0.006) (0.002)
NET ASSET VALUE, END OF PERIOD........................ $12.437 $14.885 $11.241 $10.549
TOTAL RETURN.......................................... (11.78%)+ 32.47%+ 6.60% 5.52%*
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (In millions)............... $40.8 $33.6 $15.9 $1.7
RATIOS TO AVERAGE NET ASSETS (1):
Expenses.............................................. 1.23%++ 1.15% 1.00% 1.00%++
Net investment income................................. (0.71%)++ (0.73%) (0.47%) 0.18%++
PORTFOLIO TURNOVER RATE............................... 26.0%+ 53.2% 18.7% 9.1%+
(1) If certain expenses had not been reimbursed by the Adviser, total return would have been lower and the ratios would have
been as follows:
Ratio of Operating Expenses to Average Net Assets:
1.23%++ 1.34% 1.70% 9.00%++
Ratio of Net Investment Income to Average Net Assets:
(0.71%)++ (0.92%) (1.17%) (7.82%)++
* On February 5, 2001, the Portfolio received, through a plan of
reorganization, all of the assets and assumed the identified
liabilities of the Developing Growth Portfolio, a portfolio of Cova
Series Trust, that followed the same investment objective as the
Portfolio. The information for each of the periods is that of the
predecessor Developing Growth Portfolio.
+ Non-annualized
++ Annualized
</TABLE>
<PAGE>
Lord Abbett Growth and Income Portfolio*
<TABLE>
<CAPTION>
For the period from January
8, 1999 (Commencement of
Six months ended June 30, operations) to
2000 December 31, 1999
(unaudited)
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD......................
$24.071 $21.603
INCOME FROM INVESTMENT OPERATIONS:
Net investment income..................................... 0.173 0.274
Net realized and unrealized gains (losses)................ (0.688) 2.194
TOTAL FROM INVESTMENT OPERATIONS..........................
(0.515) 2.468
DISTRIBUTIONS:
Dividends from net investment income.......................... (0.283) ----
Distributions from net realized gains......................... (0.393) ----
TOTAL DISTRIBUTIONS........................................... (0.676) ----
NET ASSET VALUE, END OF PERIOD............................ $22.880 $24.071
TOTAL RETURN.............................................. (2.17%)+ 11.38%+
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (In millions)................... $839.4 $887.0
RATIOS TO AVERAGE NET ASSETS (1):
Expenses.................................................. 0.70%++ 0.70%++
Net investment income..................................... 1.43%++ 1.24%++
PORTFOLIO TURNOVER RATE................................... 28.6%+ 70.8%+
(1) If certain expenses had not been reimbursed by the Adviser, total return would have been lower and the ratios
would have been as follows:
Ratio of Operating Expenses to Average Net Assets:
N/A N/A
Ratio of Net Investment Income to Average Net Assets:
N/A N/A
* On February 5, 2001, the Portfolio received, through a plan of
reorganization, all of the assets and assumed the identified
liabilities of the Lord Abbett Growth and Income Portfolio, a portfolio
of Cova Series Trust, that followed the same investment objective as
the Portfolio. The information for each of the periods is that of the
predecessor Lord Abbett Growth and Income Portfolio.
+ Non-annualized
++ Annualized
N/A Not Applicable
</TABLE>
<PAGE>
Firstar Balanced Portfolio*
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
DECEMBER 31,
For the period from July
Six months ended 1, 1997 (Commencement of
June 30, 2000 operations) to December
(unaudited) 31, 1997
1999 1998
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD..................
$11.858 $11.398 $10.389 $10.000
INCOME FROM INVESTMENT OPERATIONS:
Net investment income................................. 0.135 0.232 0.223 0.123
Net realized and unrealized gains/(losses)............ (0.136) 0.581 1.152 0.477
TOTAL FROM INVESTMENT OPERATIONS......................
(0.001) 0.813 1.375 0.600
DISTRIBUTIONS:
Dividends from net investment income.........................(0.001) (0.233) (0.222) (0.124)
Distributions from net realized gains........................(0.080) (0.120) (0.144) (0.087)
TOTAL DISTRIBUTIONS..........................................(0.081) (0.353) (0.366) (0.211)
NET ASSET VALUE, END OF PERIOD........................ $11.776 $11.858 $11.398 $10.389
TOTAL RETURN.......................................... 0.01%+ 7.14% 13.31% 6.01%+
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (In millions)............... $9.9 $9.7 $4.6 $1.5
RATIOS TO AVERAGE NET ASSETS (1):
Expenses.............................................. 1.10%++ 1.10% 1.10% 1.10%++
Net investment income................................. 2.36%++ 2.52% 2.54% 2.74%++
PORTFOLIO TURNOVER RATE............................... 23.3%+ 27.4% 36.0% 13.6%+
(1) If certain expenses had not been reimbursed by the Adviser, total return would have been lower and the ratios would have
been as follows:
Ratio of Operating Expenses to Average Net Assets:
1.82%++ 2.06% 3.08% 3.81%++
Ratio of Net Investment Income to Average Net Assets:
1.64%++ 1.56% 0.56% 0.03%++
* On February 5, 2001, the Portfolio received, through a plan of
reorganization, all of the assets and assumed the identified
liabilities of the Balanced Portfolio, a portfolio of Cova Series
Trust, that followed the same investment objective as the Portfolio.
The information for each of the periods is that of the predecessor
Balanced Portfolio.
+ Non-annualized
++ Annualized
<PAGE>
Firstar Equity Income Portfolio*
FOR THE YEARS ENDED
DECEMBER 31,
For the period from July
Six months ended 1, 1997 (Commencement of
June 30, 2000 operations) to December
(unaudited) 31, 1997
1999 1998
NET ASSET VALUE, BEGINNING OF PERIOD..................
$11.169 $11.626 $11.047 $10.000
INCOME FROM INVESTMENT OPERATIONS:
Net investment income................................. 0.093 0.194 0.167 0.074
Net realized and unrealized gains (losses)............ (0.439) 0.107 0.862 1.192
TOTAL FROM INVESTMENT OPERATIONS......................
(0.346) 0.301 1.029 1.266
DISTRIBUTIONS:
Dividends from net investment income.........................(0.002) (0.190) (0.167) (0.074)
Distributions from net realized gains......................... ---- (0.568) (0.283) (0.145)
TOTAL DISTRIBUTIONS..........................................(0.002) (0.758) (0.450) (0.219)
NET ASSET VALUE, END OF PERIOD........................ $10.821 $11.169 $11.626 $11.047
TOTAL RETURN.......................................... (3.11%)+ 2.51% 9.35% 12.69%+
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (In millions)............... $6.9 $7.0 $4.7 $1.7
RATIOS TO AVERAGE NET ASSETS (1):
Expenses.............................................. 1.10%++ 1.10% 1.10% 1.10%++
Net investment income................................. 1.75%++ 1.85% 1.79% 1.65%++
PORTFOLIO TURNOVER RATE............................... 27.4%+ 58.8% 79.4% 17.9%+
(1) If certain expenses had not been reimbursed by the Adviser, total return would have been lower and the ratios would have
been as follows:
Ratio of Operating Expenses to Average Net Assets:
2.12%++ 2.23% 2.69% 3.58%++
Ratio of Net Investment Income to Average Net Assets:
0.73%++ 0.72% 0.20% (0.83%)++
* On February 5, 2001, the Portfolio received, through a plan of
reorganization, all of the assets and assumed the identified
liabilities of the Equity Income Portfolio, a portfolio of Cova Series
Trust, that followed the same investment objective as the Portfolio.
The information for each of the periods is that of the predecessor
Equity Income Portfolio.
+ Non-annualized
++ Annualized
<PAGE>
Firstar Growth & Income Equity Portfolio*
FOR THE YEARS ENDED
DECEMBER 31,
For the period from July
Six months 1, 1997 (Commencement of
ended 6/30/00 operations) to December
(unaudited) 31, 1997
1999 1998
NET ASSET VALUE, BEGINNING OF PERIOD......................
$13.788 $11.995 $10.710 $10.000
INCOME FROM INVESTMENT OPERATIONS:
Net investment income..................................... 0.019 0.049 0.057 0.033
Net realized and unrealized gains (losses)................ (0.255) 1.890 1.538 0.793
TOTAL FROM INVESTMENT OPERATIONS..........................
(0.236) 1.939 1.595 0.826
DISTRIBUTIONS:
Dividends from net investment income.......................... ---- (0.049) (0.058) (0.032)
Distributions from net realized gains......................... (0.192) (0.097) (0.252) (0.084)
TOTAL DISTRIBUTIONS........................................... (0.192) (0.146) (0.310) (0.116)
NET ASSET VALUE, END OF PERIOD............................ $13.360 $13.788 $11.995 $10.710
TOTAL RETURN.............................................. (1.72%)+ 16.17% 14.95% 8.26%+
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (In millions)................... $16.4 $16.4 $9.1 $2.4
RATIOS TO AVERAGE NET ASSETS (1):
Expenses.................................................. 1.10%++ 1.10% 1.10% 1.10%++
Net investment income..................................... 0.29%++ 0.45% 0.65% 0.87%++
PORTFOLIO TURNOVER RATE................................... 32.7%+ 37.8% 57.5% 18.1%+
(1) If certain expenses had not been reimbursed by the Adviser, total return would have been lower and the ratios would have
been as follows:
Ratio of Operating Expenses to Average Net Assets:
1.51%++ 1.59% 2.00% 3.51%++
Ratio of Net Investment Income to Average Net Assets:
(0.12%)++ (0.04%) (0.25%) (1.54%)++
* On February 5, 2001, the Portfolio received, through a plan of
reorganization, all of the assets and assumed the identified
liabilities of the Growth & Income Equity Portfolio, a portfolio of
Cova Series Trust, that followed the same investment objective as the
Portfolio. The information for each of the periods is that of the
predecessor Growth & Income Equity Portfolio.
+ Non-annualized
++ Annualized
</TABLE>
<PAGE>
- 145 -
FOR MORE INFORMATION
If you would like more information about a Portfolio, the following documents
are available to you free upon request:
Annual/Semi-annual Reports
Contain additional information about a Portfolio's performance. In a
Portfolio's annual report, you will find a discussion of the market conditions
and investment strategies that significantly affected the Portfolio's
performance during its last fiscal year.
Statement of Additional Information ("SAI")
Provides a fuller technical and legal description of the Portfolio's
policies, investment restrictions, and business structure. The SAI is legally
considered to be a part of this Prospectus.
If you would like a copy of the current versions of these documents, or other
information about a Portfolio, contact:
Met Investors Series Trust
1-800-848-3854
Information about a Portfolio, including the Annual and Semi-annual Reports and
SAI, may also be obtained from the Securities and Exchange Commission (`SEC"):
oIn person Review and copy documents in the SEC's Public Reference Room in
Washington, D.C. (for information call 202-942-8090).
oOn line Retrieve information from the EDGAR database on the SEC's web site at:
http://www.sec.gov.
oBy mail Request documents, upon payment of a duplicating fee, by writing to
SEC, Public Reference Section, Washington, D.C. 20549 or by e-mailing the
SEC at [email protected].
SEC FILE # 811-10183
<PAGE>
[FRONT COVER]
Met Investors Series Trust
BlackRock Equity Portfolio
BlackRock U.S. Government Income Portfolio
J.P. Morgan Quality Bond Portfolio
J.P. Morgan Small Cap Stock Portfolio
J.P. Morgan Enhanced Index Portfolio
J.P. Morgan Select Equity Portfolio
J.P. Morgan International Equity Portfolio
Lord Abbett Bond Debenture Portfolio
Lord Abbett Mid-Cap Value Portfolio
Lord Abbett Developing Growth Portfolio
Lord Abbett Growth and Income Portfolio
Lord Abbett Growth Opportunities Portfolio
Firstar Balanced Portfolio
Firstar Equity Income Portfolio
Firstar Growth & Income Equity Portfolio
Putnam Research Portfolio
Oppenheimer Capital Appreciation Portfolio
PIMCO Total Return Portfolio
PIMCO Money Market Portfolio
PIMCO Innovation Portfolio
MFS Mid Cap Growth Portfolio
MFS Research International Portfolio
Janus Aggressive Growth Portfolio
Class B Shares
Prospectus
February[ ], 2001
Like all securities, these securities have not been approved or disapproved
by the Securities and Exchange Commission, nor has the Securities and Exchange
Commission passed upon the accuracy or adequacy of this Prospectus. Any
representation to the contrary is a criminal offense.
<PAGE>
Table of Contents
Page
INTRODUCTION........................................................3
Understanding the Trust....................................3
Understanding the Portfolios...............................3
THE PORTFOLIOS......................................................6
Investment Summary.........................................6
BlackRock Equity Portfolio........................8
BlackRock U.S. Government Income Portfolio.......11
J.P. Morgan Quality Bond Portfolio...............15
J.P. Morgan Small Cap Stock Portfolio............20
J.P. Morgan Enhanced Index Portfolio.............23
J.P. Morgan Select Equity Portfolio..............26
J.P. Morgan International Equity Portfolio.......29
Lord Abbett Bond Debenture Portfolio.............32
Lord Abbett Mid-Cap Value Portfolio..............36
Lord Abbett Developing Growth Portfolio..........39
Lord Abbett Growth and Income Portfolio..........42
Lord Abbett Growth Opportunities Portfolio.......45
Firstar Balanced Portfolio..................... 47
Firstar Equity Income Portfolio................ 52
Firstar Growth & Income Equity Portfolio....... 55
Putnam Research Portfolio......................58
Oppenheimer Capital Appreciation Portfolio.......60
PIMCO Total Return Portfolio.....................62
PIMCO Money Market Portfolio.....................65
PIMCO Innovation Portfolio.......................68
MFS Mid Cap Growth Portfolio.....................70
MFS Research International Portfolio.............72
Janus Aggressive Growth Portfolio................75
Additional Investment Strategies........................ 81
Management.............................................. 96
The Manager.................................... 96
The Advisers................................... 99
Distribution Plans............................ 112
YOUR INVESTMENT................................................. 113
Shareholder Information................................ 113
Dividends, Distributions and Taxes..................... 113
Sales and Purchases of Shares.......................... 114
FINANCIAL HIGHLIGHTS............................................ 116
FOR MORE INFORMATION............................................ 145
<PAGE>
INTRODUCTION
Understanding the Trust
Met Investors Series Trust (the "Trust") is an open-end management
investment company that offers a selection of twenty-three managed investment
portfolios or mutual funds (the "Portfolios"). Each of these Portfolios has its
own investment objective designed to meet different investment goals. Please see
the Investment Summary section of this Prospectus for specific information on
each Portfolio.
Investing Through a Variable Insurance Contract
Shares of these Portfolios are currently only sold to separate accounts
of Metropolitan Life Insurance Company and certain of its affiliates
(collectively, "MetLife") to fund the benefits under certain individual flexible
premium variable life insurance policies and individual and group variable
annuity contracts ("Contracts") and to qualified pension and profit sharing
plans (each a "Plan, collectively the Plans").
As a Contract owner or Plan participant, your premium payments are
allocated to one or more of the Portfolios in accordance with your Contract or
Plan.
A particular Portfolio of the Trust may not be available under the
Contract or Plan you have chosen. The prospectus or disclosure document for the
Contract or Plan shows the Portfolios available to you. Please read this
Prospectus carefully before selecting a Portfolio. It provides information to
assist you in your decision. If you would like additional information about a
Portfolio, please request a copy of the Statement of Additional Information
("SAI"). For details about how to obtain a copy of the SAI and other reports and
information, see the back cover of this Prospectus. The SAI is incorporated by
reference into this Prospectus.
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 investment advisers. The Portfolios in this Prospectus 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 investment restrictions, different cash flows
into and out of the Portfolios, different fees, and different asset sizes.
[SIDE BAR:
Please see the Contract or Plan prospectus that accompanies this
Prospectus for a detailed explanation of your Contract or Plan.]
Understanding the Portfolios
After this Introduction you will find an Investment Summary for each
Portfolio. Each Investment Summary presents important facts about a Portfolio,
including information about its investment objective, principal investment
strategy, primary risks and past performance.
Each of the twenty-three Portfolios of the Trust falls into one of four
categories of funds. A particular type of Portfolio may be more appropriate for
you depending upon your investment needs. Please see the Risk/Reward spectrum on
the next page which lists the Portfolios in order of risk/reward from highest to
lowest.
Description of Types of Funds:
Equity Funds
Although they may involve more risk, historically, equity securities
such as common stocks have offered higher returns than bonds or other
investments over the long term. A domestic equity fund principally invests in
equity securities of U.S. companies and may also, to a minor extent, invest in
securities of companies located outside the United States. An international
equity fund principally invests in the equity securities of companies located
outside the United States.
Balanced Funds
Balanced funds are generally "middle-of-the-road" investments that seek
to provide some combination of growth, income, and conservation of capital by
investing in a mix of stocks, bonds, and/or money market instruments. Because
the prices of stocks and bonds do not tend to move in lockstep, balanced funds
are able to use rewards from one type of investment to help offset the risks
from another.
Fixed Income Funds
Fixed income securities are securities that pay a specified rate of
return. Historically, fixed income funds are not as volatile as equity funds.
These funds may lend stability to a portfolio made up primarily of stocks.
Money Market Funds
Money market funds try (although there is no assurance that they will
be successful) to maintain a share price of $1.00 while paying income to its
shareholders. A stable share price protects your investment from loss.
<PAGE>
<TABLE>
<CAPTION>
Before you choose a Portfolio, please consider...
<S> <C> <C>
Higher
Risk/Reward
All of the Portfolios involve risk, but there is also the PIMCO Innovation Portfolio
potential for reward. You can lose money - and you can make J.P. Morgan Small Cap Stock Portfolio
money. The Portfolios are structured so that each offers a Janus Aggressive Growth Portfolio
different degree of risk and reward than others. Lord Abbett Developing Growth Portfolio
Notice the scale at the right. It covers, in the opinion of the Portfolios'
Manager, the full spectrum of risk/ reward of the Portfolios described in this
Prospectus.
What risk/reward level is for you? Ask yourself the following: MFS Mid-Cap Growth Portfolio
Lord Abbett Growth Opportunities Portfolio
(1) How well do I handle fluctuations in my account value? MFS Research International Portfolio
The higher a Portfolio is on the risk/ reward spectrum, the J.P. Morgan International Equity Portfolio
more its price is likely to move up and down on a day to day
basis. If this makes you uncomfortable, you may prefer an
investment at the lower end of the scale that may not
fluctuate in price as much.
(2) Am I looking for a higher rate of return? Generally, the higher the
potential return, the higher the risk. If you find the potential to make
money is worth the possibility of losing more, then a Portfolio at the
higher end of the spectrum may be right for you.
Oppenheimer Capital Appreciation Portfolio
J.P. Morgan Select Equity Portfolio
Lord Abbett Mid-Cap Value Portfolio
BlackRock Equity Portfolio
J.P. Morgan Enhanced Index Portfolio
Lord Abbett Growth and Income Portfolio
Firstar Growth & Income Equity Portfolio
Firstar Equity Income Portfolio
Putnam Research Portfolio
A final note: These Portfolios are designed for long-term Lord Abbett Bond Debenture Portfolio
investment. Firstar Balanced Portfolio
PIMCO Total Return Portfolio
BlackRock U.S. Government Income Lower
Portfolio
J.P. Morgan Quality Bond Portfolio Risk/Reward
PIMCO Money Market Portfolio
</TABLE>
<PAGE>
THE PORTFOLIOS
Investment Summary
Each Portfolio's summary discusses the following :
o Investment Objective
What is the Portfolio's investment goal?
o Principal Investment Strategy
How does the Portfolio attempt to achieve its investment goal?
What types of investments does it contain? What style of
investing and investment philosophy does it follow?
o Primary Risks
What are the specific risks of investing in the Portfolio?
o Past Performance
How well has the Portfolio performed over time?
[SIDE BAR: Each Portfolio in this Prospectus is a mutual fund: a pooled
investment that is professionally managed and that gives you the opportunity to
participate in financial markets. Each Portfolio strives to reach its stated
investment objective, which can be changed without shareholder approval. As with
all mutual funds, there is no guarantee that a Portfolio will achieve its
investment objective.
In addition to its principal investment strategy, each Portfolio may
invest in various types of securities and engage in various investment
techniques and practices which are not the principal focus of the Portfolio and
therefore are not described in this section of the Prospectus. These other
securities and investment techniques and practices in which a Portfolio may
engage, together with their risks, are briefly discussed in "Additional
Investment Strategies" in this Prospectus.
[SIDE BAR: A Portfolio's Adviser may sell a portfolio security when the
value of the investment reaches or exceeds its estimated fair value, to take
advantage of more attractive fixed income yield opportunities, when the issuer's
investment fundamentals begin to deteriorate, when the Portfolio must meet
redemptions, or for other investment reasons.]
Following the Investment Summary is the section entitled "Primary Risks
of Investing in the Portfolios" which lists some of the factors that may affect
the value of a Portfolio's investments.
[SIDE BAR: The Contracts may be sold by banks. An investment in a Portfolio
of the Trust through a Contract is not a deposit or obligation of, or guaranteed
by, any bank, and is not federally insured by the Federal Deposit Insurance
Corporation, the Federal Reserve Board, or any other agency of the U.S.
government.]
The SAI provides more detailed information regarding the various types
of securities that a Portfolio may purchase and certain investment techniques
and practices of its Adviser.
A NOTE ON FEES
As an investor in any of the Portfolios, you will incur various
operating costs, including management expenses. You also will incur fees
associated with the Contracts and Plans which you purchase. Detailed information
about the cost of investing in a Portfolio is presented in the "Annuity Policy
Fee Table" section of the accompanying prospectus for the Contracts through
which Portfolio shares are offered to you. Information about fees associated
with Plans can be obtained from the Plan sponsor.
<PAGE>
[Left Side:]
BlackRock Equity Portfolio
Investment Objective:
To provide growth of capital and income.
Principal Investment Strategy:
Under normal circumstances, the Portfolio invests at least 65% of its
assets in common stocks. The Adviser uses the S&P 500 index as a benchmark and
seeks to invest in stocks and market sectors in similar proportion to that
index. The Adviser seeks to own securities in all sectors, but can overweight or
underweight securities within sectors as it identifies market opportunities.
The Portfolio is managed in a way that takes advantage of trends in the
domestic stock market that favor different styles of stock selection including
value or growth stocks issued by all different sizes of companies (small, medium
and large). The Adviser initially screens for "value" and "growth" stocks from
the universe of companies with market capitalization above $1 billion. Whether
screening growth or value stocks, the Adviser is seeking companies that are
currently undervalued. The Adviser uses fundamental analysis to examine each
company for financial strength before deciding to purchase the stock.
The Portfolio may also invest up to 20% of its total assets in U.S.
Government securities, including U.S. Treasury and agency obligations.
[SIDE BAR:
GROWTH STOCKS have higher earnings that will, in the Adviser's opinion,
lead to growth in stock prices.]
VALUE STOCKS are, in the Adviser's opinion, considered undervalued or
worth more than their current price.
<PAGE>
[Right side:]
Primary Risks:
The value of your investment in the Portfolio may be affected by one or
more of the following risks, which are described in detail on page __, any of
which could cause the Portfolio's return on the price of its shares to decrease
or could cause the Portfolio's yield to fluctuate:
o Market risk
o Interest rate risk
o Market capitalization risk
o Investment style risk
Past Performance
The information below provides an indication of the risks of investing
in the Portfolio by showing the volatility of the Portfolio's returns. Both
tables assume reinvestment of dividends and distributions. Note that the results
in each table do not include the effect of Contract charges. If these Contract
charges had been included, performance would have been lower. As with all mutual
funds, past returns are not a prediction of future returns.
The Portfolio's performance shown below is the performance of its
predecessor fund (BlackRock Equity Series, a portfolio of Security First Trust)
managed by the Adviser using the same investment objective and strategy as the
Portfolio. The assets of the predecessor fund were transferred to the Portfolio
on February 5, 2001.
The bar chart below shows you the Portfolio's performance for each full
calendar year since its inception (5/19/93) and indicates how it has varied from
year to year. The Portfolio can also experience short-term performance swings as
indicated in the high and low quarter information at the bottom of the chart.
Year-by-Year Total Return as of 12/31 of Each Year
------------- ---------- ---------- ---------- ----------- ----------- ----
(6.3)% 28.0% 18.5% 29.3% 23.2% 20.7% %
94 95 96 97 98 99 00
------------- ---------- ---------- ---------- ----------- ----------- ----
High Quarter: 4th - 1998 + 20.80%
Low Quarter: 3rd -1998 - 11.16%
The table below compares the Portfolio's average annual compounded
total returns for the 1-year period, 5-year period, and from inception through
12/31/00 with the Standard & Poor's 500 Composite Stock Price Index (the "S&P
500 Index"), a widely recognized unmanaged index that measures the stock
performance of 500 large - and medium-sized publicly traded companies and is
often used to indicate the performance of the overall stock market. An index
does not include transaction costs associated with buying and selling securities
or any mutual fund expenses. It is not possible to invest directly in an index.
-----------------------------------------------------------------------------
Average Annual Total Return as of 12/31/00
-------------- ----------- ------------ -------------
Since
1 Year 5 Year Inception
-------------- ----------- ------------ -------------
Portfolio ___% ___% ___%
S&P 500 Index ___% ___% ___%*
---------------------------- ----------- ------------ ------------- --------
* From 4/30/93
[SIDE BAR:
Portfolio Management:
o BlackRock Advisors, Inc.
see page
o For financial highlights
see page ]
<PAGE>
[Left Side:]
BlackRock U.S. Government Income Portfolio
Investment Objective:
To provide current income.
Principal Investment Strategy:
The Portfolio normally invests at least 80% of its total assets in debt
securities and at least 65% of its total assets in U.S. Government securities
which are securities that are primary obligations of or guaranteed by the U.S.
Government and its agencies. These securities include direct obligations of the
U.S. Treasury, such as Treasury bills, notes, and bonds. Securities purchased by
the Portfolio are rated in the highest rating category (AAA by Standard & Poor's
Ratings Services ("S&P") or Aaa by Moody's Investors Service, Inc. ("Moody's"))
at the time of purchase or are determined by the Adviser to be of comparable
quality.
The Adviser evaluates categories of the government/agency market and
individual debt securities within these categories. The Adviser selects debt
securities from several categories including: U.S. Treasuries and agency
securities, residential and commercial mortgage-backed securities (including
collateralized mortgage obligations and GNMA certificates) and asset-backed
securities. Securities are purchased for the Portfolio when the Adviser
determines that they have the potential for above-average current income.
The Portfolio's current average weighted maturity for its fixed income
securities is 5.65 years. The Adviser will normally attempt to structure the
Portfolio's investment securities to have comparable duration to its benchmark,
the Lehman Brothers Intermediate Government Bond Index. Currently, the
benchmark's duration is approximately 5.67 years.
[SIDE BAR:
Duration, which measures price sensitivity to interest rate changes, is
not necessarily equal to average maturity. While average maturity measures the
average final payable dates of debt instruments, average duration measures how
long the debt securities can be expected to be held, regardless of the technical
maturity date.
<PAGE>
[Right side:]
Primary Risks:
The value of your investment in the Portfolio may be affected by one or
more of the following risks, which are described in detail on page _____, any of
which could cause the Portfolio's return on the price of its shares to decrease
or could cause the Portfolio's yield to fluctuate:
o Interest rate risk
o Credit risk
Like other debt securities, changes in interest rates generally affect
the value of a mortgage-backed security. Additionally, some mortgage-backed
securities may be structured so that they may be particularly sensitive to
interest rates.
Investments in mortgage-related securities are also subject to special
risks of prepayment. Prepayment risk occurs when the issuer of a security can
prepay the principal prior to the security's maturity. Securities subject to
prepayment risk, including the collateralized mortgage obligations and other
mortgage-related securities that the Portfolio can buy, generally offer less
potential for gains when prevailing interest rates decline, and have greater
potential for loss when interest rates rise depending upon the coupon of the
underlying securities. The impact of prepayments on the price of a security may
be difficult to predict and may increase the volatility of the price. In
addition, early repayment of mortgages underlying these securities may expose
the Portfolio to a lower rate of return when it reinvests the principal.
Further, the Portfolio may buy mortgage-related securities at a premium.
Accelerated prepayments on those securities could cause the Portfolio to lose a
portion of its principal investment represented by the premium the Portfolio
paid.
If interest rates rise rapidly, prepayments may occur at slower rates
than expected, which could have the effect of lengthening the expected maturity
of a short- or medium-term security. That could cause its value to fluctuate
more widely in response to changes in interest rates. In turn, this could cause
the value of the Portfolio's shares to fluctuate more.
Non-mortgage asset-backed securities are not issued or guaranteed by
the U.S. Government or its agencies or government-sponsored entities. In the
event of a failure of these securities to pay interest or repay principal, the
assets backing these securities such as automobiles or credit card receivables
may be insufficient to support the payments on the securities.
Past Performance
The information below provides an indication of the risks of investing
in the Portfolio by showing the volatility of the Portfolio's returns. Both
tables assume reinvestment of dividends and distributions. Note that the results
in each table do not include the effect of Contract charges. If these Contract
charges had been included, performance would have been lower. As with all mutual
funds, past returns are not a prediction of future returns.
The Portfolio's performance shown below is the performance of its
predecessor fund (BlackRock U.S. Government Income Series, a portfolio of
Security First Trust) managed by the Adviser using the same investment objective
and strategy as the Portfolio. The assets of the predecessor fund were
transferred to the Portfolio on February 5, 2001.
The bar chart below shows you the Portfolio's performance for each full
calendar year since its inception (5/19/93) and indicates how it has varied from
year to year. The Portfolio can also experience short-term performance swings as
indicated in the high and low quarter information at the bottom of the chart.
Year-by-Year Total Return as of 12/31 of Each Year
------------ ---------- ---------- ---------- --------- ------------ -----
(2.9)% 13.5% 3.6% 7.0% 7.4% (2.5)% %
94 95 96 97 98 99 00
------------ ---------- ---------- ---------- --------- ------------ -----
High Quarter: 2nd - 1995 + 4.48%
Low Quarter: 1st - 1994 - 2.54%
The table below compares the Portfolio's average annual compounded
total returns for the 1-year period, 5-year period, and from inception through
12/31/00 with the Lehman Brothers Intermediate Government Bond Index, a widely
recognized unmanaged index measuring the performance of all U.S. Treasury and
agency securities with remaining maturities of from one to ten years and issue
amounts of at least $100 million outstanding. An index does not include
transaction costs associated with buying and selling securities or any mutual
fund expenses. It is not possible to invest directly in an index.
------------------------------------------------------------------------
Average Annual Total Return as of 12/31/00
------------------ ----------- ------------- ---------------
Since
1 Year 5 Year Inception
------------------ ----------- ------------- ---------------
Portfolio ____% ____% ____%
Lehman Brothers Intermediate ____% ____% ____%
Government Bond Index
-------------------------------- ----------- ------------- -------------
[SIDE BAR:
Portfolio Management:
o BlackRock Advisors, Inc.
see page
o For financial highlights
see page ]
<PAGE>
[Left Side:]
J.P. Morgan Quality Bond Portfolio
Investment Objective:
To provide a high total return consistent with moderate risk of capital
and maintenance of liquidity.
Principal Investment Strategy:
The Portfolio will invest at least 65% of its total assets in
investment grade fixed income securities under normal circumstances.
The Portfolio invests in broad sectors of the fixed income market,
including U.S. Government and agency securities, corporate securities including
bonds, debentures and notes, asset-backed securities and mortgage-backed and
mortgage related securities. The Adviser actively manages the Portfolio's
duration, the allocation of securities across market sectors, and the selection
of specific securities within sectors. Based on fundamental, economic and
capital markets research, the Adviser adjusts the duration of the Portfolio in
light of market conditions and the Adviser's interest rate outlook. For example,
if interest rates are expected to fall, the duration may be lengthened to take
advantage of the expected associated increase in bond prices. The Adviser
selects specific securities which it believes are undervalued for purchase
using: advanced quantitative tools, analysis of credit risk, the expertise of a
dedicated trading desk, and the judgment of fixed income portfolio managers and
analysts. A security is considered undervalued when its price is lower than one
would expect for an investment of similar quality, duration and structural
characteristics.
Under normal market conditions, the Portfolio's duration will range
between one year shorter and one year longer than the duration of the U.S.
investment grade fixed income universe, as represented by Salomon Brothers Broad
Investment Grade Bond Index, the Portfolio's benchmark. Currently, the
benchmark's duration is approximately 5 years. The maturities of the individual
securities in the Portfolio may vary widely, however.
The Portfolio may invest in obligations issued or guaranteed by the
U.S. Government and backed by the full faith and credit of the United States
including Treasury securities and GNMA certificates as well as obligations
issued or guaranteed by U.S. Government agencies or instrumentalities where the
Portfolio must look principally to the issuing or guaranteeing agency for
ultimate repayment. Some examples of agencies or instrumentalities issuing these
obligations are the Federal Farm Credit System, the Federal Home Loan Banks and
the Federal National Mortgage Association.
The Portfolio may also invest in municipal obligations that have been
issued on a taxable basis or that have an attractive yield excluding tax
considerations.
It is a current policy of the Portfolio that under normal circumstances
at least 65% of its total assets will consist of investment grade securities
that are rated at least A by S&P or that are unrated and in the Adviser's
opinion are of comparable quality. In the case of 30% of the Portfolio's
investments, the Portfolio may purchase investment grade securities that are
rated Baa or better by Moody's or BBB or better by S&P or are unrated and in the
Adviser's opinion are of comparable quality.
The Portfolio may invest up to 20% of its assets in foreign debt
securities, including Eurodollar bonds and Yankee bonds and securities of
foreign governments and governmental entities. The Portfolio may also invest in
debt securities of issuers located in emerging market countries.
The Portfolio may keep a portion of its assets in cash or cash
equivalents such as high quality short-term debt obligations including bankers'
acceptances, commercial paper, certificates of deposit, Eurodollar obligations,
variable amount master demand notes and money market mutual funds. Investments
in cash or similar liquid securities (cash equivalents)generally do not provide
as high a return as would assets invested in other types of securities.
The Adviser may, when consistent with the Portfolio's investment
objective, use options or futures for hedging and for risk management (i.e., to
adjust duration or yield curve exposure, or to establish or adjust exposure to
particular securities markets, or currencies); risk management may include
management of the Portfolio's exposure relative to its benchmark.
<PAGE>
[Right side:]
Primary Risks:
The value of your investment in the Portfolio may be affected by one or
more of the following risks, which are described in detail on page ____, any of
which could cause the Portfolio's return on the price of its shares to decrease
or could cause the Portfolio's yield to fluctuate:
o Interest rate risk
o Credit risk
o Foreign investment risk
Like other debt securities, changes in interest rates generally affect
the value of a mortgage-backed security. Additionally, some mortgage-backed
securities may be structured so that they may be particularly sensitive to
interest rates.
Investments in mortgage-related securities are also subject to special
risks of prepayment. Prepayment risk occurs when the issuer of a security can
prepay the principal prior to the security's maturity. Securities subject to
prepayment risk, including the collateralized mortgage obligations and other
mortgage-related securities that the Portfolio can buy, generally offer less
potential for gains when prevailing interest rates decline, and have greater
potential for loss when interest rates rise depending upon the coupon of the
underlying securities. The impact of prepayments on the price of a security may
be difficult to predict and may increase the volatility of the price. In
addition, early repayment of mortgages underlying these securities may expose
the Portfolio to a lower rate of return when it reinvests the principal.
Further, the Portfolio may buy mortgage-related securities at a premium.
Accelerated prepayments on those securities could cause the Portfolio to lose a
portion of its principal investment represented by the premium the Portfolio
paid.
If interest rates rise rapidly, prepayments may occur at slower rates
than expected, which could have the effect of lengthening the expected maturity
of a short- or medium-term security. That could cause its value to fluctuate
more widely in response to changes in interest rates. In turn, this could cause
the value of the Portfolio's shares to fluctuate more.
Non-mortgage asset-backed securities are not issued or guaranteed by
the U.S. Government or its agencies or government-sponsored entities. In the
event of a failure of these securities to pay interest or repay principal, the
assets backing these securities such as automobiles or credit card receivables
may be insufficient to support the payments on the securities.
In addition, investments in emerging markets include all of the risks
of investments in foreign securities and are subject to severe price declines.
The economic and political structures of developing nations, in most cases, do
not compare favorably with the U.S. or other developed countries in terms of
wealth and stability, and their financial markets often lack liquidity. Such
countries may have relatively unstable governments, immature economic
structures, national policies restricting investments by foreigners and
economies based on only a few industries. For these reasons, all of the risks of
investing in foreign securities are heightened by investing in emerging markets
countries. The markets of developing countries have been more volatile than the
markets of developed countries with more mature economies. These markets often
have provided significantly higher or lower rates of return than developed
markets, and significantly greater risks, to investors.
Finally, the Portfolio's investments in derivatives to manage interest
rate or currency exposure can significantly increase the Portfolio's exposure to
market risk or risk of non-performance of the counterparty. Derivatives also
involve the risk of mispricing or improper valuation and the risks that changes
in value of the derivative may not correlate perfectly with the relevant assets,
rates and indices.
Past Performance
The information below provides an indication of the risks of investing
in the Portfolio by showing the volatility of the Portfolio's returns. Both
tables assume reinvestment of dividends and distributions. Note that the results
in each table do not include the effect of Contract charges. If these Contract
charges had been included, performance would have been lower. As with all mutual
funds, past returns are not a prediction of future returns.
The Portfolio's performance shown below is the performance of its
predecessor fund (Quality Bond Portfolio, a series of Cova Series Trust) managed
by the Adviser using the same investment objective and strategy as the
Portfolio. The assets of the predecessor fund were transferred to the Portfolio
on February 5, 2001.
The bar chart below shows you the Portfolio's performance for each full
calendar year since its inception (5/1/96) and indicates how it has varied from
year to year. The Portfolio can also experience short-term performance swings as
indicated in the high and low quarter information at the bottom of the chart.
Year-by-Year Total Return as of 12/31 of Each Year
------------- ----------- ----------- -----------
9.06% 8.37% -1.54% %
97 98 99 00
------------- ----------- ----------- -----------
High Quarter: 3rd - 1998 +4.15%
Low Quarter: 2nd -1999 - 1.46%
The table below compares the Portfolio's average annual compounded
total returns for the 1-year period and from inception through 12/31/00 with the
Salomon Brothers Broad Investment Grade Bond Index, a widely recognized
unmanaged market-capitalized weighted index which includes fixed-rate treasury,
government sponsored, corporate (Baa3/BBB or better) and mortgage securities. An
index does not include transaction costs associated with buying and selling
securities or any mutual fund expenses. It is not possible to invest directly in
an index.
---------------------------------------------------------------------------
Average Annual Total Return as of 12/31/00
--------------- -------------- ---- -----------------
Since
1 Year Inception
--------------- -------------- ---- -----------------
Portfolio ____% ____%
Salomon Brothers Broad ____% ____%
Investment Grade Bond
Index
----------------------------- -------------- ---- ----------------- ---------
[SIDE BAR:
Portfolio Management:
o J.P. Morgan Investment Management Inc.
see page
o For financial highlights
see page ]
<PAGE>
[Left Side:]
J.P. Morgan Small Cap Stock Portfolio
Investment Objective:
To provide a high total return from a portfolio of equity securities of
small companies.
Principal Investment Strategy:
Substantially all of the Portfolio's net assets will normally be
invested in common stocks. The Portfolio invests primarily in the common stock
of those small U.S. companies included in the Russell 2000 Index. The Portfolio
may invest to a limited extent in initial public offerings (IPOs) of companies
not included in the Russell 2000 Index.
The Adviser seeks to enhance the Portfolio's total return relative to
that of the U.S. small company universe. To do so, the Adviser uses research,
valuation and a stock selection process. The Adviser continually screens the
universe of small capitalization companies to identify for further analysis
those companies which exhibit favorable characteristics such as significant and
predictable cash flow and high quality management. Based on fundamental research
and using a systematic valuation methodology, the Adviser ranks these companies
within economic sectors according to their relative value. Some of the
additional characteristics the Adviser analyzes are: price/earnings growth,
discounted cash flow analysis and multiples of revenue with more or less weight
given to these factors depending on the sector. The Adviser then selects for
purchase the most attractive companies within each economic sector. The Adviser
believes that under normal market conditions, the Portfolio will have sector
weightings comparable to that of the U.S. small company universe, although it
may moderately under- or over-weight selected economic sectors. In selecting
securities, income is not an important factor.
<PAGE>
[Right side:]
Primary Risks:
The value of your investment in the Portfolio may be affected by one or
more of the following risks, which are described in detail on page ____, any of
which could cause the Portfolio's return on the price of its shares to decrease
or could cause the Portfolio's yield to fluctuate:
o Market risk
o Market capitalization risk
o Investment style risk
Past Performance
The information below provides an indication of the risks of investing
in the Portfolio by showing the volatility of the Portfolio's returns. Both
tables assume reinvestment of dividends and distributions. Note that the results
in each table do not include the effect of Contract charges. If these Contract
charges had been included, performance would have been lower. As with all mutual
funds, past returns are not a prediction of future returns.
The Portfolio's performance shown below is the performance of its
predecessor fund (Small Cap Stock Portfolio, a series of Cova Series Trust)
managed by the Adviser using the same investment objective and strategy as the
Portfolio. The assets of the predecessor fund were transferred to the Portfolio
on February 5, 2001.
The bar chart below shows you the Portfolio's performance for each full
calendar year since its inception (5/1/96) and indicates how it has varied from
year to year. The Portfolio can also experience short-term performance swings as
indicated in the high and low quarter information at the bottom of the chart.
Year-by-Year Total Return as of 12/31 of Each Year
------------- ------------ ------------ -----------
20.89% -5.40% 44.56% %
97 98 99 00
------------- ------------ ------------ -----------
High Quarter: 4th - 1999 + 35.13%
Low Quarter: 3rd -1998 - 21.49%
The table below compares the Portfolio's average annual compounded
total returns for the 1-year period and from inception through 12/31/00 with the
Russell 2000 Index, a widely recognized unmanaged index that measures small
company stock performance. An index does not include transaction costs
associated with buying and selling securities or any mutual fund expenses. It is
not possible to invest directly in an index.
-----------------------------------------------------------------------------
Average Annual Total Return as of 12/31/00
-------------- ---------------- --- -----------------
Since
1 Year Inception
-------------- ---------------- --- -----------------
Portfolio ____% ____%
Russell 2000 Index ____% ____%
---------------------------- ---------------- --- ----------------- ---------
SIDE BAR:
Portfolio Management:
o J.P. Morgan Investment Management Inc.
see page
o For financial highlights
see page ]
<PAGE>
[Left Side:]
J.P. Morgan Enhanced Index Portfolio
Investment Objective:
To provide long-term growth of capital and income.
Principal Investment Strategy:
The Portfolio is an actively managed portfolio of medium- to
large-capitalization equity securities that seeks to outperform the total return
of the S&P 500 Index, consistent with reasonable investment risk. Ordinarily,
the Portfolio pursues its investment objective by investing substantially all of
its total assets in dividend-paying common stock.
The Portfolio is not subject to any limit on the size of companies in
which it may invest, but intends, under normal circumstances, to be fully
invested to the extent practicable in the stock of large- and medium-sized
companies typically represented by the S&P 500 Index. In managing the Portfolio,
the potential for appreciation and dividend growth is given more weight than
current dividends. The Portfolio attempts to reduce risk by investing in many
different economic sectors, industries and companies. The Portfolio is highly
diversified and will typically hold approximately 300 stocks.
Portfolio sector weightings will generally equal those of the S&P 500
Index. In selecting securities, the Adviser will emphasize securities that it
believes to be undervalued. Securities of a company may be undervalued for a
variety of reasons such as an overreaction by investors to unfavorable news
about a company, an industry, or the stock markets in general as a result of a
market decline, poor economic conditions or tax-loss selling, or actual or
anticipated unfavorable developments affecting a company.
The Adviser uses a dividend discount model to rank companies within
economic sectors according to their relative value and then separates them into
quintiles by sector. The Portfolio will normally be comprised, based on the
dividend discount model, of stocks in the first three quintiles. As a guideline,
the Adviser seeks to achieve gross income for the Portfolio equal to at least
75% of the dividend income generated on the stocks included in the S&P 500
Index.
<PAGE>
[Right side:]
Primary Risks:
The value of your investment in the Portfolio may be affected by one or
more of the following risks, which are described in detail on page____, any of
which could cause the Portfolio's return on the price of its shares to decrease
or could cause the Portfolio's yield to fluctuate:
o Market risk
o Market capitalization risk
o Investment style risk
Past Performance
The information below provides an indication of the risks of investing
in the Portfolio by showing the volatility of the Portfolio's returns. Both
tables assume reinvestment of dividends and distributions. Note that the results
in each table do not include the effect of Contract charges. If these Contract
charges had been included, performance would have been lower. As with all mutual
funds, past returns are not a prediction of future returns.
The Portfolio's performance shown below is the performance of its
predecessor fund (Large Cap Stock Portfolio, a series of Cova Series Trust)
managed by the Adviser using the same investment objective and strategy as the
Portfolio. The assets of the predecessor fund were transferred to the Portfolio
on February 5, 2001.
The bar chart below shows you the Portfolio's performance for each full
calendar year since its inception (5/1/96) and indicates how it has varied from
year to year. The Portfolio can also experience short-term performance swings as
indicated in the high and low quarter information at the bottom of the chart.
Year-by-Year Total Return as of 12/31 of Each Year
------------- ----------- ------------ -----------
33.25% 32.31% 17.64% %
97 98 99 00
------------- ----------- ------------ -----------
High Quarter: 4th -1998 + 22.93
Low Quarter: 3rd - 1998 - 9.85%
The table below compares the Portfolio's average annual compounded
total returns for the 1-year period and from inception through 12/31/00 with the
S&P 500 Index, a widely recognized unmanaged index that measures the stock
performance of 500 large - and medium - sized publicly traded companies and is
often used to indicate the performance of the overall stock market. An index
does not include transaction costs associated with buying and selling securities
or any mutual fund expenses. It is not possible to invest directly in an index.
---------------------------------------------------------------------------
Average Annual Total Return as of 12/31/00
-------------- --------------- -- -------------------
Since
1 Year Inception
-------------- --------------- -- -------------------
Portfolio ____% ____%
S&P 500 Index ____% ____%
---------------------------- --------------- -- ------------------- -------
[SIDE BAR:
Portfolio Management:
o J.P. Morgan Investment Management Inc.
see page
o For financial highlights
see page ]
<PAGE>
[Left Side:]
J.P. Morgan Select Equity Portfolio
Investment Objective:
To provide long-term growth of capital and income.
Principal Investment Strategy:
The Portfolio is an actively managed portfolio of selected equity
securities that seeks to outperform the total return of the S&P 500, consistent
with reasonable investment risk. Under normal circumstances, the Portfolio will
be fully invested in the dividend-paying common stocks of large- and
medium-sized companies primarily included in the S&P 500. The Portfolio will
typically hold between 60 and 90 stocks.
The Portfolio is not subject to any limit on the size of companies in
which it may invest, but intends, under normal circumstances, to be fully
invested to the extent practicable in the stock of large- and medium-sized
companies primarily included in the S&P 500. In managing the Portfolio, the
potential for appreciation and dividend growth is given more weight than current
dividends.
The Portfolio does not seek to achieve its objective with any
individual portfolio security, but rather it aims to manage the portfolio as a
whole in such a way as to achieve its objective. The Portfolio attempts to
reduce risk by investing in many different economic sectors, industries and
companies. The Adviser may under- or over-weight selected economic sectors
against the S&P 500's Index sector weightings to seek to enhance the Portfolio's
total return or reduce fluctuations in market value relative to the S&P 500
Index. In selecting securities, the Adviser will emphasize securities that it
believes to be undervalued. Securities of a company may be undervalued for a
variety of reasons such as an overreaction by investors to unfavorable news
about a company, an industry, or the stock markets in general as a result of a
market decline, poor economic conditions, tax-loss selling, or actual or
anticipated unfavorable developments affecting a company.
The Adviser uses a dividend discount model to rank companies within
economic sectors according to their relative value and then separates them into
quintiles by sector. The Portfolio will primarily overweight stocks from the
first and second quintiles after consideration is given to market
capitalizations. As a guideline, the Adviser seeks to achieve gross income for
the Portfolio equal to at least 75% of the dividend income generated on the
stocks included in the S&P 500.
<PAGE>
[Right side:]
Primary Risks:
The value of your investment in the Portfolio may be affected by one or
more of the following risks, which are described in detail on page ____, any of
which could cause the Portfolio's return on the price of its shares to decrease
or could cause the Portfolio's yield to fluctuate:
o Market risk
o Market capitalization risk
o Investment style risk
Past Performance
The information below provides an indication of the risks of investing
in the Portfolio by showing the volatility of the Portfolio's returns. Both
tables assume reinvestment of dividends and distributions. Note that the results
in each table do not include the effect of Contract charges. If these Contract
charges had been included, performance would have been lower. As with all mutual
funds, past returns are not a prediction of future returns.
The Portfolio's performance shown below is the performance of its
predecessor fund (Select Equity Portfolio, a series of Cova Series Trust)
managed by the Adviser using the same investment objective and strategy as the
Portfolio. The assets of the predecessor fund were transferred to the Portfolio
on February 5, 2001.
The bar chart below shows you the Portfolio's performance for each full
calendar year since its inception (5/1/96) and indicates how it has varied from
year to year. The Portfolio can also experience short-term performance swings as
indicated in the high and low quarter information at the bottom of the chart.
Year-by-Year Total Return as of 12/31 of Each Year
-------------- ----------- ---------- ---------
31.55% 22.56% 9.71% %
97 98 99 00
-------------- ----------- ---------- ---------
High Quarter: 4th - 1998 + 21.63%
Low Quarter: 2nd - 1999 - 12.95%
The table below compares the Portfolio's average annual compounded
total returns for the 1-year period and from inception through 12/31/00 with the
S&P 500 Index, a widely recognized unmanaged index that measures the stock
performance of 500 large - and medium - sized publicly traded companies and is
often used to indicate the performance of the overall stock market. An index
does not include transaction costs associated with buying and selling securities
or any mutual fund expenses. It is not possible to invest directly in an index.
-----------------------------------------------------------------------------
Average Annual Total Return as of 12/31/00
-------------- ----------------- --- ----------------
Since
1 Year Inception
-------------- ----------------- --- ----------------
Portfolio ____% ____%
S&P 500 Index ____% ____%
---------------------------- ----------------- --- ---------------- ---------
[SIDE BAR:
Portfolio Management:
o J.P. Morgan Investment Management Inc.
see page
o For financial highlights
see page ]
<PAGE>
[Left Side:]
J.P. Morgan International Equity Portfolio
Investment Objective:
To provide a high total return from a portfolio of equity securities of
foreign corporations.
Principal Investment Strategy:
The Adviser intends to keep the Portfolio essentially fully invested
with substantially all of the value of its total assets in equity securities of
foreign issuers. The Adviser seeks to outperform the Morgan Stanley Capital
International Europe, Australia and Far East Index (the "MSCI EAFE Index").
The Portfolio's primary equity investments are the common stocks of
established companies based in developed countries outside the United States.
Such investments will be made in at least three foreign countries. The Portfolio
invests in securities listed on foreign or domestic securities exchanges and
securities traded in foreign or domestic over-the-counter markets.
The Portfolio seeks to achieve its investment objective through country
allocation, stock selection and management of currency exposure. The Adviser
uses a disciplined portfolio construction process to seek to enhance returns and
reduce volatility in the market value of the Portfolio relative to that of the
MSCI EAFE Index.
Based on fundamental research, quantitative valuation techniques, and
experienced judgment, the Adviser uses a structured decision-making process to
allocate the Portfolio primarily across the developed countries of the world
outside the United States by under- or over-weighting selected countries in the
MSCI EAFE Index.
Using a dividend discount model and based on analysts' industry
expertise, securities within each country are ranked within economic sectors
according to their relative value. Based on this valuation, the Adviser selects
the securities which appear the most attractive for the Portfolio. The Adviser
believes that under normal market conditions, economic sector weightings
generally will be similar to those of the MSCI EAFE Index.
Finally, the Adviser actively manages currency exposure, in conjunction
with country and stock allocation, in an attempt to protect and possibly enhance
the Portfolio's market value. Through the use of forward foreign currency
exchange contracts, the Adviser will adjust the Portfolio's foreign currency
weightings to reduce its exposure to currencies deemed unattractive and, in
certain circumstances, increase exposure to currencies deemed attractive, as
market conditions warrant, based on fundamental research, technical factors, and
the judgment of a team of experienced currency managers.
<PAGE>
[Right side:]
Primary Risks:
The value of your investment in the Portfolio may be affected by one or
more of the following risks, which are described in detail on page___, any of
which could cause the Portfolio's return on the price of its shares to decrease
or could cause the Portfolio's yield to fluctuate:
o Market risk
o Market capitalization risk
o Investment style risk
o Foreign investment risk
Past Performance
The information below provides an indication of the risks of investing
in the Portfolio by showing the volatility of the Portfolio's returns. Both
tables assume reinvestment of dividends and distributions. Note that the results
in each table do not include the effect of Contract charges. If these Contract
charges had been included, performance would have been lower. As with all mutual
funds, past returns are not a prediction of future returns.
The Portfolio's performance shown below is the performance of its
predecessor fund (International Equity Portfolio, a series of Cova Series Trust)
managed by the Adviser using the same investment objective and strategy as the
Portfolio. The assets of the predecessor fund were transferred to the Portfolio
on February 5, 2001.
The bar chart below shows you the Portfolio's performance for each full
calendar year since its inception (5/1/96) and indicates how it has varied from
year to year. The Portfolio can also experience short-term performance swings as
indicated in the high and low quarter information at the bottom of the chart.
Year-by-Year Total Return as of 12/31 of Each Year
------------- ----------- ------------ -----------
5.96% 14.07% 28.52% %
97 98 99 00
------------- ----------- ------------ -----------
High Quarter: 4th - 1998 + 19.07%
Low Quarter: 3rd - 1998 - 16.54%
The table below compares the Portfolio's average annual compounded
total returns for the 1-year period and from inception through 12/31/00 with the
MSCI EAFE Index, a widely recognized unmanaged index measuring the broad market
performance of equity securities throughout Europe, Australia and the Far East.
An index does not include transaction costs associated with buying and selling
securities or any mutual fund expenses. It is not possible to invest directly in
an index.
----------------------------------------------------------------------------
Average Annual Total Return as of 12/31/00
-------------- ---------------- --- -----------------
Since
1 Year Inception
-------------- ---------------- --- -----------------
Portfolio ____% ____%
MSCI EAFE Index ____% ____%
---------------------------- ---------------- --- ----------------- ---------
[SIDE BAR:
Portfolio Management:
o J.P. Morgan Investment Management Inc.
see page
o For financial highlights
see page ]
<PAGE>
[Left Side:]
Lord Abbett Bond Debenture Portfolio
Investment Objective:
To provide high current income and the opportunity for capital
appreciation to produce a high total return.
Principal Investment Strategy:
Under normal circumstances, the Portfolio invests substantially all of
its total assets in fixed income securities of various types. To pursue its
goal, the Portfolio normally invests in high yield and investment grade debt
securities, convertible securities and preferred stocks. The Portfolio may
invest substantially all of its total assets in high yield/high risk debt
securities (junk bonds). Debt securities normally will consist of secured debt
obligations of the issuer (i.e., bonds), general unsecured debt obligations of
the issuer (i.e., debentures) and debt securities which are subordinate in right
of payment to other debt of the issuer. In no event will the Portfolio invest
more than 10% of its gross assets at the time of investment in debt securities
which are in default as to interest or principal. At least 20% of the
Portfolio's assets must be invested in any combination of investment grade debt
securities, U.S. Government securities and cash equivalents.
The Adviser will actively manage the Portfolio and seek unusual values,
particularly in lower-rated debt securities, some of which are convertible into
common stocks or have warrants attached to purchase common stocks. In selecting
lower-rated bonds for investment, the Adviser does not rely upon ratings, which
evaluate only the safety of principal and interest, not market value risk, and
which, furthermore, may not accurately reflect an issuer's current financial
condition. The Portfolio does not have any minimum rating criteria for its
investments in bonds and some issuers may default as to principal and/or
interest payments subsequent to the purchase of their securities. Through
portfolio diversification, good credit analysis and attention to current
developments and trends in interest rates and economic conditions, the Adviser
believes that investment risk may be reduced, although there is no assurance
that losses will not occur.
The Portfolio normally invests in long-term debt securities when the
Adviser believes that interest rates in the long run will decline and prices of
such securities generally will be high. When the Adviser believes that long-term
interest rates will rise, it will endeavor to shift the Portfolio into
short-term debt. Under normal circumstances, the duration of the Portfolio's
debt securities will be between 4 to 6.7 years with a targeted average maturity
of 6.5 to 9.5 years.
Capital appreciation potential and current income are important
considerations in the selection of portfolio securities. Capital appreciation
potential is an important consideration in the selection of portfolio
securities. Capital appreciation may be obtained by investing in:
debt securities when the trend of interest rates is expected to be down;
convertible debt securities or debt securities with warrants attached
entitling the holder to purchase common stock; and
debt securities of issuers in financial difficulties when, in the view
of the Adviser, the problems giving rise to such difficulties can be
successfully resolved, with a consequent improvement in the credit
standing of the issuers (such investments involve corresponding risks
that interest and principal payments may not be made if such
difficulties are not resolved).
The Portfolio may invest up to 20% of its net assets, at market value,
in debt securities primarily traded in foreign countries.
The Portfolio may hold or sell any property or securities which it may
obtain through the exercise of conversion rights or warrants or as a result of
any reorganization, recapitalization or liquidation proceedings for any issuer
of securities owned by it. In no event will the Portfolio voluntarily purchase
any securities other than debt securities, if, at the time of such purchase or
acquisition, the value of the property and securities, other than debt
securities, in the Portfolio is greater than 20% of the value of its gross
assets.
<PAGE>
[Right side:]
Primary Risks:
The value of your investment in the Portfolio may be affected by one or
more of the following risks, which are described in detail on page____, any of
which could cause the Portfolio's return on the price of its shares to decrease
or could cause the Portfolio's yield to fluctuate:
o Interest rate risk
o Credit risk
o High yield debt security risk
o Foreign investment risk
Past Performance
The information below provides an indication of the risks of investing
in the Portfolio by showing the volatility of the Portfolio's returns. Both
tables assume reinvestment of dividends and distributions. Note that the results
in each table do not include the effect of Contract charges. If these Contract
charges had been included, performance would have been lower. As with all mutual
funds, past returns are not a prediction of future returns.
The Portfolio's performance shown below is the performance of its
predecessor fund (Bond Debenture Portfolio, a series of Cova Series Trust)
managed by the Adviser using the same investment objective and strategy as the
Portfolio. The assets of the predecessor fund were transferred to the Portfolio
on February 5, 2001.
The bar chart below shows you the Portfolio's performance for each full
calendar year since its inception (5/1/96) and indicates how it has varied from
year to year. The Portfolio can also experience short-term performance swings as
indicated in the high and low quarter information at the bottom of the chart.
Year-by-Year Total Return as of 12/31 of Each Year
------------- ------------ ----------- ------------
15.63% 6.26% 3.40% %
97 98 99 00
------------- ------------ ----------- ------------
High Quarter: 2nd -1997 + 6.25%
Low Quarter: 3rd -1998 - 4.31%
The table below compares the Portfolio's average annual compounded
total returns for the 1-year period and from inception through 12/31/00 with the
Salomon Brothers Broad Investment-Grade Bond Index, a widely recognized
unmanaged market-capitalized index that includes fixed-rate Treasury, government
sponsored, corporate (Baa3/BBB or better) and mortgage securities; with the
Credit Suisse First Boston High Yield Index, which is representative of the
lower rated debt (including non-convertible-preferred stocks) investments in the
Portfolio; and with the Merrill Lynch All Convertible Index, which is
representative of the equity-related securities in the Portfolio. An index does
not include transaction costs associated with buying and selling securities or
any mutual fund expenses. It is not possible to invest directly in an index.
-----------------------------------------------------------------------------
Average Annual Total Return as of 12/31/00
----------------- ----------------- --- ---------------
Since
1 Year Inception
----------------- ----------------- --- ---------------
Portfolio ____% ____%
Salomon Brothers Broad ____% ____%
Investment-Grade Bond Index
Credit Suisse First Boston ____% ____%
High Yield Index
Merrill Lynch ____% ____%
All Convertible Index
------------------------------- ----------------- --- --------------- -------
[SIDE BAR:
Portfolio Management:
o Lord, Abbett & Co.
see page
o For financial highlights
see page ]
<PAGE>
[Left Side:]
Lord Abbett Mid-Cap Value Portfolio
Investment Objective:
The Portfolio seeks capital appreciation through investments, primarily
in equity securities, which are believed to be undervalued in the marketplace.
Principal Investment Strategy:
Under normal circumstances, at least 65% of the Portfolio's assets will
consist of investments in mid-sized companies, with market capitalizations of
roughly $500 million to $10 billion.
The Portfolio normally will be diversified among many issues
representing many different industries. Selection of stocks is based on
appreciation potential, without regard to current income. The Portfolio invests
primarily in common stocks, including convertible securities, in companies with
good prospects for improvement in earnings trends or asset values that are not
yet fully recognized in the investment community. This potential for improvement
may derive from such factors as:
changes in the economic and financial environment,
new or improved products or services,
new or rapidly expanding markets,
changes in management or structure of the company,
price increases due to shortages of resources or productive capacity,
improved efficiencies resulting from new technologies or changes in
distribution, or
changes in governmental regulations, political climate or competitive
conditions.
The companies represented in the Portfolio will have a strong or, in
the perception of the Adviser, an improving financial position. At the time of
purchase, the stocks may be largely neglected by the investment community or, if
widely followed, they may be out of favor or at least controversial.
<PAGE>
[Right side:]
Primary Risks:
The value of your investment in the Portfolio may be affected by one or
more of the following risks, which are described in detail on page ___, any of
which could cause the Portfolio's return on the price of its shares to decrease
or could cause the Portfolio's yield to fluctuate:
o Market risk
o Market capitalization risk
o Investment style risk
Past Performance
The information below provides an indication of the risks of investing
in the Portfolio by showing the volatility of the Portfolio's returns. Both
tables assume reinvestment of dividends and distributions. Note that the results
in each table do not include the effect of Contract charges. If these Contract
charges had been included, performance would have been lower. As with all mutual
funds, past returns are not a prediction of future returns.
The Portfolio's performance shown below is the performance of its
predecessor fund (Mid-Cap Value Portfolio, a series of Cova Series Trust)
managed by the Adviser using the same investment objective and strategy as the
Portfolio. The assets of the predecessor fund were transferred to the Portfolio
on February 5, 2001.
The bar chart below shows you the Portfolio's performance for each full
calendar year since its inception (8/20/97) and indicates how it has varied from
year to year. The Portfolio can also experience short-term performance swings as
indicated in the high and low quarter information at the bottom of the chart.
Year-by-Year Total Return as of 12/31 of Each Year
----------- ---------- ----------
1.11% 5.71% %
98 99 00
----------- ---------- ----------
High Quarter: 2nd - 1999 + 16.83%
Low Quarter: 3rd - 1998 - 17.02%
The table below compares the Portfolio's average annual compounded
total returns for the 1-year period and from inception through 12/31/00 with the
Russell MidCap Index, a widely recognized unmanaged index measuring the broad
market performance of the 800 smallest companies in the Russell 1000 Index,
which represents approximately 24% of the total market capitalization of the
Russell 1000 Index. An index does not include transaction costs associated with
buying and selling securities or any mutual fund expenses. It is not possible to
invest directly in an index.
-----------------------------------------------------------------------------
Average Annual Total Return as of 12/31/00
-------------- ----------------- --- ----------------
Since
1 Year Inception
-------------- ----------------- --- ----------------
Portfolio ____% ____%
Russell Mid-Cap Index ____% ____%*
---------------------------- ----------------- --- ---------------- ---------
*From 9/1/97
[SIDE BAR:
Portfolio Management:
o Lord, Abbett & Co.
see page
o For financial highlights
see page ]
<PAGE>
[Left Side:]
Lord Abbett Developing Growth Portfolio
Investment Objective:
The Portfolio seeks long-term growth of capital through a diversified
and actively-managed portfolio consisting of developing growth companies, many
of which are traded over-the-counter.
Principal Investment Strategy:
The Portfolio normally will invest substantially all of its assets in
the common stocks of smaller companies considered to be in their developing
growth phase which is one generally characterized by a dramatic rate of growth.
Developing growth companies are almost always small, usually young and their
shares are generally traded over-the-counter. Having, in the view of the
Adviser, passed the pitfalls of the formative years, they are strongly
positioned to grow rapidly in their market. The Portfolio also may invest in
securities of companies which are in their formative phase including securities
purchased in initial public offerings (IPOs).
At any given time, there are many hundreds of publicly-traded
corporations in the developing growth phase. In choosing from among them, the
Adviser looks for special characteristics that will help their growth including
a unique product or service for which management foresees a rising demand; a
special area of technological expertise; or a competitive advantage or new
opportunities in foreign trade or from shifts in government priorities and
programs.
The Adviser also looks for certain financial characteristics such as:
at least five years of higher-than-average growth of revenues and
earnings per share;
higher-than-average returns on equity;
ability to finance growth in the form of a lower-than-average ratio of
long-term debt to capital and price/earnings ratios that are below
expected growth rates.
Securities being considered for the Portfolio are analyzed using
traditional investment fundamentals. In addition to the financial data already
mentioned, the Adviser evaluates the market for each company's products or
services, the strengths and weaknesses of competitors, the availability of raw
materials, diversity of product mix, etc.
Finally, in assembling the investment portfolio, the Adviser tries to
diversify the Portfolio's investments by investing in many securities and
industries.
<PAGE>
[Right side:]
Primary Risks:
The value of your investment in the Portfolio may be affected by one or
more of the following risks, which are described in detail on page ____, any of
which could cause the Portfolio's return on the price of its shares to decrease
or could cause the Portfolio's yield to fluctuate:
o Market risk
o Market capitalization risk
o Investment style risk
Past Performance
The information below provides an indication of the risks of investing
in the Portfolio by showing the volatility of the Portfolio's returns. Both
tables assume reinvestment of dividends and distributions. Note that the results
in each table do not include the effect of Contract charges. If these Contract
charges had been included, performance would have been lower. As with all mutual
funds, past returns are not a prediction of future returns.
The Portfolio's performance shown below is the performance of its
predecessor fund (Developing Growth Portfolio, a series of Cova Series Trust)
managed by the Adviser using the same investment objective and strategy as the
Portfolio. The assets of the predecessor fund were transferred to the Portfolio
on February 5, 2001.
The bar chart below shows you the Portfolio's performance for each full
calendar year since its inception (8/20/97) and indicates how it has varied from
year to year. The Portfolio can also experience short-term performance swings as
indicated in the high and low quarter information at the bottom of the chart.
Year-by-Year Total Return as of 12/31 of Each Year
------------ ----------- ----------
6.60% 32.47% %
98 99 00
------------ ----------- ----------
High Quarter: 4th -1998 + 26.01%
Low Quarter: 3rd -1998 - 21.82%
The table below compares the Portfolio's average annual compounded
total returns for the 1-year period and from inception through 12/31/00 with the
Russell 2000 Index, a widely recognized unmanaged index that measures small
company stock performance. An index does not include transaction costs
associated with buying and selling securities or any mutual fund expenses. It is
not possible to invest directly in an index.
-----------------------------------------------------------------------------
Average Annual Total Return as of 12/31/00
-------------- ---------------- ---- ----------------
Since
1 Year Inception
-------------- ---------------- ---- ----------------
Portfolio ____% ____%
Russell 2000 Index ____% ____%*
---------------------------- ---------------- ---- ---------------- ---------
*From 9/1/97
[SIDE BAR:
Portfolio Management:
o Lord, Abbett & Co.
see page
o For financial highlights
see page ]
<PAGE>
[Left Side:]
Lord Abbett Growth and Income Portfolio
Investment Objective:
To achieve long-term growth of capital and income without excessive
fluctuation in market value.
Principal Investment Strategy:
The Portfolio will normally invest substantially all of its assets in
common stocks of large, seasoned U.S. companies which the Adviser believes are
undervalued. The Portfolio chooses stocks based on:
o Quantitative research to identify which stocks are believed to represent
the best bargains
o Fundamental research to learn about a company's operating environment,
resources and strategic plans and to assess its prospects for exceeding
earnings expectations
o Business cycle analysis to determine how buying or selling securities
changes the overall portfolio's sensitivity to interest rates and economic
conditions.
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 the
Adviser, they carry excessive risk.
The Adviser tries to anticipate major changes in the economy and select
stocks which it believes will benefit most from these changes. The Adviser
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 Adviser 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 Adviser 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.
<PAGE>
[Right side:]
Primary Risks:
The value of your investment in the Portfolio may be affected by one or
more of the following risks, which are described in detail on page ___, any of
which could cause the Portfolio's return on the price of its shares to decrease
or could cause the Portfolio's yield to fluctuate:
o Market risk
o Investment style risk
o Market capitalization risk
Past Performance
The information below provides an indication of the risks of investing
in the Portfolio by showing the volatility of the Portfolio's returns. Both
tables assume reinvestment of dividends and distributions. Note that the results
in each table do not include the effect of Contract charges. If these Contract
charges had been included, performance would have been lower. As with all mutual
funds, past returns are not a prediction of future returns.
The Portfolio's performance shown below is the performance of its
predecessor fund (Lord Abbett Growth and Income Portfolio, a series of Cova
Series Trust) managed by the Adviser using the same investment objective and
strategy as the Portfolio. The assets of the predecessor fund were transferred
to the Portfolio on February 5, 2001.
The bar chart below shows you the Portfolio's performance for the first
full calendar year since its inception (1/8/99). The Portfolio can also
experience short-term performance swings as indicated in the high and low
quarter information at the bottom of the chart.
Year-by-Year Total Return as of 12/31 of Each Year
------------
%
00
------------
High Quarter: -- - 2000 + %
Low Quarter: -- - 2000 - %
The table below compares the Portfolio's average annual compounded
total returns for the 1-year period and from inception through 12/31/00 with the
S&P 500 Index, a widely recognized unmanaged index that measures the stock
performance of 500 large - and medium - sized companies and is often used to
indicate the performance of the overall stock market. An index does not include
transaction costs associated with buying and selling securities or any mutual
fund expenses. It is not possible to invest directly in an index.
-----------------------------------------------------------------------------
Average Annual Total Return as of 12/31/00
-------------- ---------------- ---- ----------------
Since
1 Year Inception
-------------- ---------------- ---- ----------------
Portfolio ____% ____%
S&P 500 Index ____% ____%*
---------------------------- ---------------- ---- ---------------- ---------
*From 1/1/99
[SIDE BAR:
Portfolio Management:
o Lord, Abbett & Co.
see page
o For financial highlights
see page ]
<PAGE>
[Left Side:]
Lord Abbett Growth Opportunities Portfolio
Investment Objective:
Capital appreciation.
Principle Investment Strategy:
The Portfolio invests primarily in common stocks of mid-sized companies
with market capitalizations between $1 billion and $10 billion. The Portfolio
uses a growth style of investing which means that the Adviser favors companies
that show the potential for strong revenue and earnings growth. Under normal
circumstances, the Portfolio will invest at least 65% of its total assets in
growth company stocks.
Typically, in choosing stocks, the Adviser looks for mid-sized
companies using:
o quantitative research to identify companies with superior growth
possibilities
o fundamental research to identify companies likely to produce superior
returns over a two to five year time frame, by analyzing the dynamics in
each company within its industry and within the economy
The Portfolio may invest up to 25% of its total assets in foreign
equity securities and American Depositary Receipts.
<PAGE>
[Right side:]
Primary Risks:
The value of your investment in the Portfolio may be affected by one or
more of the following risks, which are described in detail on page ___, any of
which could cause the Portfolio's return on the price of its shares to decrease
or could cause the Portfolio's yield to fluctuate:
o Market risk
o Investment style risk
o Market capitalization risk
Past Performance
The Portfolio commenced operations on February [5], 2001. No
performance information is currently available. For information on Lord Abbett &
Co.'s prior performance with a comparable fund, see page ___.
[SIDE BAR:
Portfolio Management:
o Lord, Abbett & Co.
see page ]
<PAGE>
[Left Side:]
Firstar Balanced Portfolio
Investment Objective:
To maximize total return through a combination of growth of capital and
current income consistent with the preservation of capital.
Principal Investment Strategy:
The Portfolio's policy is generally to invest at least 25% of the value
of its total assets in investment grade fixed income securities and no more than
75% in equity securities, although the percentage allocations will vary. The
Adviser allocates the Portfolio's assets based upon its evaluation of the
relative attractiveness of three major asset groups: equity securities, fixed
income securities and cash or cash equivalents. In making asset allocation
decisions, the Adviser evaluates forecasts for inflation, interest rates and
long-term corporate earnings growth. The Portfolio may emphasize, from time to
time, particular companies or market sectors, such as technology, in attempting
to achieve its investment objective.
In an effort to better quantify the relative attractiveness of the
major asset groups over a one- to three-year period of time, the Adviser has
incorporated into its asset allocation decision-making process several dynamic
computer models which it has created. The purpose of these models is to show the
statistical impact of the Adviser's economic outlook upon the future returns of
each asset group. The models are especially sensitive to the forecasts for
inflation, interest rates and long-term corporate earnings growth. Investment
returns are normally heavily impacted by such variables and their expected
changes over time. Therefore, the Adviser's method attempts to take advantage of
changing economic conditions by increasing or decreasing the ratio of stocks to
bonds in the Portfolio. For example, if the Adviser expected more rapid economic
growth leading to better corporate earnings, it would increase the Portfolio's
holdings of equity securities and reduce its holdings of fixed income securities
and cash equivalents.
The Portfolio's equity securities will consist mainly of common stocks
of companies with large market capitalizations. In selecting equity securities,
the Adviser considers historical and projected earnings, the price/earnings
relationship and company growth and asset value. The equity securities in which
the Portfolio invests include common stock, preferred stock and convertible
securities.
In selecting fixed-income securities, the Adviser seeks those issues
representing the best value among various sectors, and also considers credit
quality, prevailing interest rates and liquidity. The fixed income securities in
which the Portfolio invests include U.S. Government securities or other
investment grade fixed-income and related debt securities, including:
mortgage-backed securities;
a broad range of fixed and variable rate bonds, debentures, notes, and
securities convertible into or exchangeable for common stock;
participation certificates in pools of mortgages, including mortgages
issued or guaranteed by the U.S. Government, its agencies or
instrumentalities, collateralized mortgage obligations and other
mortgage-related securities.
The dollar-weighted average quality of the Portfolio's debt securities
is expected to be at least "A" or higher. In making investment decisions, the
Adviser will consider a number of factors including current yield, maturity,
yield to maturity, anticipated changes in interest rates, and the overall
quality of the investment. Under normal circumstances, the Portfolio's average
targeted maturity is 7.5 years and its duration is 5 years. The Portfolio seeks
to provide a current yield greater than that generally available from money
market instruments.
The Portfolio may invest up to 15% of its total assets in both foreign
equity and debt securities, including Eurodollar bonds and Yankee bonds.
<PAGE>
[Right side:]
Primary Risks:
The value of your investment in the Portfolio may be affected by one or
more of the following risks, which are described in detail on page ___, any of
which could cause the Portfolio's return on the price of its shares to decrease
or could cause the Portfolio's yield to fluctuate:
o Market risk
o Interest rate risk
o Credit risk
o Foreign investment risk
o Market capitalization risk
o Investment style risk
Like other debt securities, changes in interest rates generally affect
the value of a mortgage-backed security. Additionally, some mortgage-backed
securities may be structured so that they may be particularly sensitive to
interest rates.
Investments in mortgage-related securities are also subject to special
risks of prepayment. Prepayment risk occurs when the issuer of a security can
prepay the principal prior to the security's maturity. Securities subject to
prepayment risk, including the collateralized mortgage obligations and other
mortgage-related securities that the Portfolio can buy, generally offer less
potential for gains when prevailing interest rates decline, and have greater
potential for loss when interest rates rise depending upon the coupon of the
underlying securities. The impact of prepayments on the price of a security may
be difficult to predict and may increase the volatility of the price. In
addition, early repayment of mortgages underlying these securities may expose
the Portfolio to a lower rate of return when it reinvests the principal.
Further, the Portfolio may buy mortgage-related securities at a premium.
Accelerated prepayments on those securities could cause the Portfolio to lose a
portion of its principal investment represented by the premium the Portfolio
paid.
If interest rates rise rapidly, prepayments may occur at slower rates
than expected, which could have the effect of lengthening the expected maturity
of a short- or medium-term security. That could cause its value to fluctuate
more widely in response to changes in interest rates. In turn, this could cause
the value of the Portfolio's shares to fluctuate more.
Past Performance
The information below provides an indication of the risks of investing
in the Portfolio by showing the volatility of the Portfolio's returns. Both
tables assume reinvestment of dividends and distributions. Note that the results
in each table do not include the effect of Contract charges. If these Contract
charges had been included, performance would have been lower. As with all mutual
funds, past returns are not a prediction of future returns.
The Portfolio's performance shown below is the performance of its
predecessor fund (Balanced Portfolio, a series of Cova Series Trust) managed by
the Adviser using the same investment objective and strategy as the Portfolio.
The assets of the predecessor fund were transferred to the Portfolio on February
5, 2001.
The bar chart below shows you the Portfolio's performance for each full
calendar year since its inception (7/1/97) and indicates how it has varied from
year to year. The Portfolio can also experience short-term performance swings as
indicated in the high and low quarter information at the bottom of the chart.
Year-by-Year Total Return as of 12/31 of Each Year
------------- ------------ -----------
13.31% 7.14% %
98 99 00
------------- ------------ -----------
High Quarter: 4th - 1998 + 11.64%
Low Quarter: 3rd - 1999 - 5.16%
The table below compares the Portfolio's average annual compounded
total returns for the 1-year period and from inception through 12/31/00 with the
S&P 500 Index, a widely recognized unmanaged index that measures the stock
performance of 500 large - and medium-sized publicly traded companies and is
often used to indicate the performance of the overall stock market; and with the
Salomon Brothers Broad Investment Grade Bond Index, a widely recognized
unmanaged market-capitalized weighted index which includes fixed-rate Treasury,
government sponsored, corporate (Baa3/BBB or better) and mortgage securities. An
index does not include transaction costs associated with buying and selling
securities or any mutual fund expenses. It is not possible to invest directly in
an index.
-----------------------------------------------------------------------------
Average Annual Total Return as of 12/31/00
-------------- ---------------- ----- ---------------
Since
1 Year Inception
-------------- ---------------- ----- ---------------
Portfolio ____% ____%
S&P 500 Index ____% _____%
Salomon Brothers Broad
Investment Grade Bond ____% ____%
Index
---------------------------- ---------------- ----- --------------- ---------
[SIDE BAR:
Portfolio Management:
o Firstar Investment Research & Management Company, LLC
see page
o For financial highlights
see page ]
<PAGE>
[Left Side:]
Firstar Equity Income Portfolio
Investment Objective:
To provide an above-average level of income consistent with long-term
capital appreciation.
Principal Investment Strategy:
Under normal market and economic conditions, the Portfolio will invest
at least 65% of its total assets in income-producing equity securities,
primarily common stocks. The stocks or securities in which the Portfolio invests
may offer above average dividend yields, with corresponding above average levels
of income, in each case as compared to the S&P 500 Index. Stocks purchased for
the Portfolio generally will be listed on a national securities exchange or will
be unlisted securities with an established over-the-counter market.
The Portfolio invests primarily in the common stocks of companies with
large market capitalizations (generally, $5 billion or higher). The Adviser will
select stocks based on a number of quantitative factors including dividend
yield, current and future earnings potential compared to stock prices, total
return potential, and other measures of value, if appropriate, such as cash
flow, asset value or book value. A convertible security may be purchased for the
Portfolio when, in the Adviser's opinion, the price and yield of the convertible
security is favorable as compared to the price and yield of the issuer's common
stock. The Portfolio may emphasize, from time to time, particular companies or
market sectors in attempting to achieve its investment objectives.
The Portfolio may invest up to 15% of its total assets in foreign
securities either indirectly through the purchase of such instruments as
American Depositary Receipts or directly in foreign equity securities.
<PAGE>
[Right side:]
Primary Risks:
The value of your investment in the Portfolio may be affected by one or
more of the following risks, which are described in detail on page ___, any of
which could cause the Portfolio's return on the price of its shares to decrease
or could cause the Portfolio's yield to fluctuate:
o Market risk
o Interest rate risk
o Foreign investment risk
o Market capitalization risk
o Investment style risk
Past Performance
The information below provides an indication of the risks of investing
in the Portfolio by showing the volatility of the Portfolio's returns. Both
tables assume reinvestment of dividends and distributions. Note that the results
in each table do not include the effect of Contract charges. If these Contract
charges had been included, performance would have been lower. As with all mutual
funds, past returns are not a prediction of future returns.
The Portfolio's performance shown below is the performance of its
predecessor fund (Equity Income Portfolio, a series of Cova Series Trust)
managed by the Adviser using the same investment objective and strategy as the
Portfolio. The assets of the predecessor fund were transferred to the Portfolio
on February 5, 2001.
The bar chart below shows you the Portfolio's performance for each full
calendar year since its inception (7/1/97) and indicates how it has varied from
year to year. The Portfolio can also experience short-term performance swings as
indicated in the high and low quarter information at the bottom of the chart.
Year-by-Year Total Return as of 12/31 of Each Year
----------- ---------- ----------
9.35% 2.51% %
98 99 00
----------- ---------- ----------
High Quarter: 2nd -1998 +12.31%
Low Quarter: 3rd - 1998 - 9.34%
The table below compares the Portfolio's average annual compounded
total returns for the 1-year period and from inception through 12/31/00 with the
Russell 1000 Index, a widely recognized unmanaged index which consists of the
largest 1000 companies in the Russell 3000 Index. An index does not include
transaction costs associated with buying and selling securities or any mutual
fund expenses. It is not possible to invest directly in an index.
-----------------------------------------------------------------------------
Average Annual Total Return as of 12/31/00
------------------ ------------ ----- ---------------
Since
1 Year Inception
------------------ ------------ ----- ---------------
Portfolio ____% ____%
Russell 1000 Index ____% ____%
-------------------------------- ------------ ----- --------------- ---------
[SIDE BAR:
Portfolio Management:
o Firstar Investment Research & Management Company, LLC
see page
o For financial highlights
see page ]
<PAGE>
[Left Side:]
Firstar Growth & Income Equity Portfolio
Investment Objective:
To provide long-term capital growth and income.
Principal Investment Strategy:
The Portfolio intends to invest, under normal market and economic
conditions, substantially all of its assets in common stock. The Portfolio
selects common stocks primarily from a universe of domestic companies that have
established dividend-paying histories. The Portfolio generally invests in
medium-to-large-sized companies with stock market capitalizations over $1
billion that the Adviser considers to be well managed and to have attractive
fundamental financial characteristics such as low debt, high return on equity,
consistent revenue and earnings per share, and growth over the prior three to
five years. The Portfolio may also invest a portion of its assets in companies
with smaller market capitalizations.
The Adviser selects stocks based on a number of factors including:
historical and projected earnings
growth and asset value
earnings compared to stock prices generally (as measured by the S&P
500 Index)
consistency of earnings growth and earnings quality
Stocks purchased for the Portfolio generally will be listed on a
national securities exchange or will be unlisted securities with an established
over-the-counter market. The stocks or securities in which the Portfolio invests
may be expected to produce some income but income is not a major criterion in
their selection. In general, the Portfolio's stocks and securities will be
diversified over a number of industry groups in an effort to reduce the risks
inherent in such investments.
The Portfolio may invest up to 15% of its total assets indirectly in
foreign securities through the purchase of American Depositary Receipts and
European Depositary Receipts.
<PAGE>
[Right side:]
Primary Risks:
The value of your investment in the Portfolio may be affected by one or
more of the following risks, which are described in detail on page ___, any of
which could cause the Portfolio's return on the price of its shares to decrease
or could cause the Portfolio's yield to fluctuate:
o Market risk
o Foreign investment risk
o Market capitalization risk
o Investment style risk
Past Performance
The information below provides an indication of the risks of investing
in the Portfolio by showing the volatility of the Portfolio's returns. Both
tables assume reinvestment of dividends and distributions. Note that the results
in each table do not include the effect of Contract charges. If these Contract
charges had been included, performance would have been lower. As with all mutual
funds, past returns are not a prediction of future returns.
The Portfolio's performance shown below is the performance of its
predecessor fund (Growth & Income Equity Portfolio, a series of Cova Series
Trust) managed by the Adviser using the same investment objective and strategy
as the Portfolio. The assets of the predecessor fund were transferred to the
Portfolio on February 5, 2001.
The bar chart below shows you the Portfolio's performance for each full
calendar year since its inception (7/1/97) and indicates how it has varied from
year to year. The Portfolio can also experience short-term performance swings as
indicated in the high and low quarter information at the bottom of the chart.
Year-by-Year Total Return as of 12/31 of Each Year
------------- ----------- -----------
14.95% 16.17% %
98 99 00
------------- ----------- -----------
High Quarter: 4th - 1998 + 20.31%
Low Quarter: 3rd - 1998 - 13.62%
The table below compares the Portfolio's average annual compounded
total returns for the 1-year period and from inception through 12/31/00 with the
S&P 500 Index, a widely recognized unmanaged index that measures the stock
performance of 500 large - and medium-sized publicly traded companies and is
often used to indicate the performance of the overall stock market. An index
does not include transaction costs associated with buying and selling securities
or any mutual fund expenses. It is not possible to invest directly in an index.
-----------------------------------------------------------------------------
Average Annual Total Return as of 12/31/00
-------------- ----------------- -- -----------------
Since
1 Year Inception
-------------- ----------------- -- -----------------
Portfolio ____% ____%
S&P 500 Index ____% ____%
---------------------------- ----------------- -- ----------------- ---------
[SIDE BAR:
Portfolio Management:
o Firstar Investment Research & Management Company, LLC
see page
o For financial highlights
see page ]
<PAGE>
[Left Side:]
Putnam Research Portfolio
Investment Objective:
The Portfolio seeks capital appreciation
Principal Investment Strategy:
The Portfolio invest mainly in common stocks of large U.S. companies
that the Adviser thinks have the greatest potential for capital appreciation,
with stock prices that reflect a value lower than that which the Adviser places
on the company, or whose earnings the Adviser believes are likely to grow over
time. The Adviser also looks for the presence of factors that it believes will
cause the stock price to rise.
In choosing an investment, the Adviser will consider, among other
factors, a company's financial strength, competitive position in its industry,
projected future earnings, cash flows and dividends when deciding whether to buy
or sell investments.
<PAGE>
[Right side:]
Primary Risks:
The value of your investment in the Portfolio may be affected by one or
more of the following risks, which are described in detail on page __, any of
which could cause the Portfolio's return on the price of its shares to decrease
or could cause the Portfolio's yield to fluctuate:
o Market risk
o Market capitalization risk
o Investment style risk
Past Performance
The Portfolio commenced operations on February [5], 2001. No
performance information is currently available. For information on Putnam
Investment Management, LLC's prior performance with a comparable fund, see page
___.
[SIDE BAR:
Portfolio Management:
o Putnam Investment Management, LLC
see page
<PAGE>
[Left Side:]
Oppenheimer Capital Appreciation Portfolio
Investment Objective:
The Portfolio seeks capital appreciation.
Principal Investment Strategy:
The Portfolio invests mainly in common stocks of "growth companies".
These may be newer companies or established companies of any capitalization
range that the Adviser believes may appreciate in value over the long term. The
Portfolio currently focuses mainly on mid-cap and large-cap domestic companies.
The Portfolio may also purchase the securities of foreign issuers.
In deciding what securities to buy or sell, the Portfolio's Adviser
looks for growth companies that are believed to have reasonably priced stock in
relation to overall stock market valuations. The Adviser focuses on factors that
may vary in particular cases and over time in seeking broad diversification of
the Portfolio's investments among industries and market sectors. Currently, the
Adviser looks for:
o Companies with above-average growth potential;
o Companies with increasing earnings momentum and a history of positive
earnings growth;
o Stocks with low valuations relative to their growth potential;
o Companies with the potential for positive earnings surprises;
o Growth rates that the Adviser believes are sustainable over time.
<PAGE>
[Right side:]
Primary Risks:
The value of your investment in the Portfolio may be affected by one or
more of the following risks, which are described in detail on page __, any of
which could cause the Portfolio's return on the price of its shares to decrease
or could cause the Portfolio's yield to fluctuate:
o Market risk
o Market capitalization risk
o Investment style risk
o Foreign investment risk
Past Performance
The Portfolio commenced operations on February [5], 2001. No
performance information is currently available. For information on
OppenheimerFunds, Inc.'s prior performance with a comparable fund, see page
____.
[SIDE BAR:
Portfolio Management:
o OppenheimerFunds, Inc.
see page
<PAGE>
[Left Side:]
PIMCO Total Return Portfolio
Investment Objective:
The Portfolio seeks maximum total return, consistent with the
preservation of capital and prudent investment management.
Principal Investment Strategy:
The Portfolio seeks to achieve its investment objective by investing
under normal circumstances at least 65% of its assets in a diversified portfolio
of fixed income instruments of varying maturities. The average portfolio
duration of the Portfolio normally varies within a three- to six-year time frame
based on the Adviser's forecast for interest rates.
The Portfolio invests primarily in investment grade debt securities.
U.S. Government securities and commercial paper and other short-term
obligations. The Portfolio may invest up to 20% of its assets in securities
denominated in foreign currencies, and may invest beyond this limit in U.S.
dollar-denominated securities of foreign issuers. The Portfolio will normally
hedge at least 75% of its exposure to foreign currency to reduce the risk of
loss due to fluctuations in currency exchange rates.
The Portfolio may invest all of its assets in derivative instruments,
such as options, futures contracts or swap agreements, or in mortgage- or
asset-backed securities. In addition, the Portfolio may engage in forward
commitments, when-issued and delayed delivery securities transactions. The
Portfolio may, without limitation, seek to obtain market exposure to the
securities in which it primarily invests by entering into a series of purchase
and sale contracts or by using other investment techniques (such as buy backs or
dollar rolls). The "total return" sought by the Portfolio consists of income
earned on the Portfolio's investments, plus capital appreciation, if any, which
generally arises from decreases in interest rates or improving credit
fundamentals for a particular sector or security.
<PAGE>
[Right side:]
Primary Risks:
The value of your investment in the Portfolio may be affected by one or
more of the following risks, which are described in detail on page ___, any of
which could cause the Portfolio's return on the price of its shares to decrease
or could cause the Portfolio's yield to fluctuate:
o Market risk
o Interest rate risk
o Credit risk
o Foreign investment risk
Like other debt securities, changes in interest rates generally affect
the value of a mortgage-backed security. Additionally, some mortgage-backed
securities may be structured so that they may be particularly sensitive to
interest rates.
Investments in mortgage-related securities are also subject to special
risks of prepayment. Prepayment risk occurs when the issuer of a security can
prepay the principal prior to the security's maturity. Securities subject to
prepayment risk, including the collateralized mortgage obligations and other
mortgage-related securities that the Portfolio can buy, generally offer less
potential for gains when prevailing interest rates decline, and have greater
potential for loss when interest rates rise depending upon the coupon of the
underlying securities. The impact of prepayments on the price of a security may
be difficult to predict and may increase the volatility of the price. In
addition, early repayment of mortgages underlying these securities may expose
the Portfolio to a lower rate of return when it reinvests the principal.
Further, the Portfolio may buy mortgage-related securities at a premium.
Accelerated prepayments on those securities could cause the Portfolio to lose a
portion of its principal investment represented by the premium the Portfolio
paid.
If interest rates rise rapidly, prepayments may occur at slower rates
than expected, which could have the effect of lengthening the expected maturity
of a short- or medium-term security. That could cause its value to fluctuate
more widely in response to changes in interest rates. In turn, this could cause
the value of the Portfolio's shares to fluctuate more.
Non-mortgage asset-backed securities are not issued or guaranteed by
the U.S. Government or its agencies or government-sponsored entities. In the
event of a failure of these securities to pay interest or repay principal, the
assets backing these securities such as automobiles or credit card receivables
may be insufficient to support the payments on the securities.
The Portfolio's investments in derivatives can significantly increase
the Portfolio's exposure to market risk or credit risk of the counterparty.
Derivatives also involve the risk of mispricing or improper valuation and the
risk that changes in the value of the derivative may not correlate perfectly
with the relevant assets, rates and indices.
Past Performance
The Portfolio commenced operations on February [5], 2001. No
performance information is currently available. For information on Pacific
Investment Management Company LLC's prior performance with a comparable fund,
see page ___.
[SIDE BAR:
Portfolio Management:
o Pacific Investment Management Company LLC
see page ]
<PAGE>
[Left Side:]
PIMCO Money Market Portfolio
Investment Objective:
The Portfolio seeks maximum current income, consistent with
preservation of capital and daily liquidity.
Principal Investment Strategy:
The Portfolio seeks to achieve its investment objective by investing at
least 95% of its total assets in a diversified portfolio of money market
securities that are in the highest rating category for short-term obligations.
The Portfolio may only invest in U.S. dollar-denominated securities that mature
in 397 days or fewer from the date of purchase. The dollar-weighted average
portfolio maturity of the Portfolio may not exceed 90 days. The Portfolio
attempts to maintain a stable net asset value of $1.00 per share, although there
is no assurance that it will be successful in doing so.
The Portfolio may invest in the following: obligations of the U.S.
Government (including its agencies and instrumentalities); short-term corporate
debt securities of domestic and foreign corporations; obligations of domestic
and foreign commercial banks, savings banks, and savings and loan associations;
commercial paper; collateralized mortgage obligations that are issued or
guaranteed by the U.S. Government or its agencies or instrumentalities; and
mortgage-backed securities such as GNMA certificates. The Portfolio may invest
more than 25% of its total assets in securities or obligations issued by U.S.
banks.
The Portfolio's investments will comply with applicable rules governing
the quality, maturity and diversification of securities held by money market
funds.
<PAGE>
[Right side:]
Primary Risks:
The value of your investment in the Portfolio may be affected by one or
more of the following risks, which are described in detail on page __, any of
which could cause the Portfolio's return on the price of its shares to decrease
or could cause the Portfolio's yield to fluctuate:
o Interest rate risk
o Credit risk
o Foreign investment risk
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.
Like other debt securities, changes in interest rates generally affect
the value of a mortgage-backed security. Additionally, some mortgage-backed
securities may be structured so that they may be particularly sensitive to
interest rates.
Investments in mortgage-related securities are also subject to special
risks of prepayment. Prepayment risk occurs when the issuer of a security can
prepay the principal prior to the security's maturity. Securities subject to
prepayment risk, including the collateralized mortgage obligations and other
mortgage-related securities that the Portfolio can buy, generally offer less
potential for gains when prevailing interest rates decline, and have greater
potential for loss when interest rates rise depending upon the coupon of the
underlying securities. The impact of prepayments on the price of a security may
be difficult to predict and may increase the volatility of the price. In
addition, early repayment of mortgages underlying these securities may expose
the Portfolio to a lower rate of return when it reinvests the principal.
Further, the Portfolio may buy mortgage-related securities at a premium.
Accelerated prepayments on those securities could cause the Portfolio to lose a
portion of its principal investment represented by the premium the Portfolio
paid.
If interest rates rise rapidly, prepayments may occur at slower rates
than expected, which could have the effect of lengthening the expected maturity
of a short- or medium-term security. That could cause its value to fluctuate
more widely in response to changes in interest rates. In turn, this could cause
the value of the Portfolio's shares to fluctuate more.
Non-mortgage asset-backed securities are not issued or guaranteed by
the U.S. Government or its agencies or government-sponsored entities. In the
event of a failure of these securities to pay interest or repay principal, the
assets backing these securities such as automobiles or credit card receivables
may be insufficient to support the payments on the securities.
Past Performance
The Portfolio commenced operations on February [5], 2001. No
performance information is currently available. For information on Pacific
Investment Management Company LLC's prior performance with a comparable fund,
see page ____.
[SIDE BAR:
Portfolio Management:
o Pacific Investment Management Company LLC
see page
<PAGE>
[Left Side:]
PIMCO Innovation Portfolio
Investment Objective:
The Portfolio seeks capital appreciation; no consideration is given to
income.
Principal Investment Strategy:
The Portfolio seeks to achieve its investment objective by normally
investing at least 65% of its assets in common stocks of companies which utilize
new, creative or different, or "innovative," technologies to gain a strategic
competitive advantage in their industry, as well as companies that provide and
service those technologies. The Portfolio identifies its investment universe of
technology-related companies primarily by reference to classifications made by
independent firms, such as Standard & Poor's (for example, companies classified
as "Information Technology" companies) and by identifying companies that derive
a substantial portion of their revenues from the manufacture, sale and/or
service of technological products. Although the Portfolio emphasizes companies
which utilize technologies, it is not required to invest exclusively in
companies in a particular business sector or industry.
The Adviser selects stocks for the Portfolio using a "growth" style.
The Adviser seeks to identify technology-related companies with well-defined
"wealth creating" characteristics, including superior earnings growth (relative
to companies in the same industry or the market as a whole), high profitability
and consistent, predictable earnings. In addition, through fundamental research,
the Adviser seeks to identify companies that are gaining market share, have
superior management and possess a sustainable competitive advantage, such as
superior or innovative products, personnel and distribution systems.
The Portfolio may invest a substantial portion of its assets in the
securities of smaller capitalization companies with total assets in excess of
$200 million and may invest in initial public offerings (IPOs). The Portfolio
may invest up to 35% of its assets in foreign equity securities, except that it
may invest up to 40% of its assets in American Depositary Receipts.
<PAGE>
[Right side:]
Primary Risks:
The value of your investment in the Portfolio may be affected by one or
more of the following risks, which are described in detail on page ___, any of
which could cause the Portfolio's return on the price of its shares to decrease
or could cause the Portfolio's yield to fluctuate:
o Market risk
o Market capitalization risk
o Investment style risk
o Foreign investment risk
Because the Portfolio concentrates its investments in companies which
utilize innovative technologies, it is subject to risks particularly affecting
those companies, such as the risks of short product cycles and rapid
obsolescence of products and services, competition from new and existing
companies, significant losses and/or limited earnings, security price volatility
and limited operating histories.
In addition to other risks, a fund that invests a substantial portion
of its assets in related industries (or "sectors") may have greater risk because
companies in these sectors may share common characteristics and may react
similarly to market developments.
Past Performance
The Portfolio commenced operations on February [5], 2001. No
performance information is currently available. For information on PIMCO Equity
Advisors' prior performance with a comparable fund, see page ___.
[SIDE BAR:
Portfolio Management:
o PIMCO Equity Advisors, a division of PIMCO Advisors L.P.
see page
[Left Side:]
MFS Mid Cap Growth Portfolio
Investment Objective:
Long-term growth of capital.
Principal Investment Strategy:
The Portfolio invests, under normal market conditions, at least 65% of
its total assets in common stocks and related securities, such as preferred
stocks, convertible securities and depositary receipts for those securities, of
companies with medium market capitalization which the Adviser believes have
above-average growth potential.
Medium market capitalization companies are defined by the Portfolio as
companies with market capitalizations equaling or exceeding $250 million but not
exceeding the top of the Russell Midcap Growth Index range at the time of the
Portfolio's investment. Companies whose market capitalizations fall below $250
million or exceed the top of the Russell Midcap Growth Index range after
purchase continue to be considered medium-capitalization companies for purposes
of the Portfolio's 65% investment policy. As of November 30, 2000, the top of
the Russell Midcap Growth Index range was $20 billion. The Portfolio's
investments may include securities listed on a securities exchange or traded in
the over-the-counter markets.
The Adviser uses a bottom-up, as opposed to a top-down, investment
style in managing the Portfolio. This means that securities are selected based
upon fundamental analysis (such as an analysis of earnings, cash flows,
competitive position and management's abilities) performed by the Portfolio's
portfolio manager and the Adviser's large group of equity research analysts.
The Portfolio is a non-diversified. This means that the Portfolio may
invest a relatively high percentage of its assets in a small number of issuers.
The Portfolio may invest up to 20% of its total assets in foreign
securities (including emerging markets securities) through which it may have
exposure to foreign currencies. In addition, the Portfolio may lend up to 30% of
its portfolio securities.
The Portfolio is expected to engage in active and frequent trading to
achieve its principal investment strategies.
<PAGE>
[Right side:]
Primary Risks:
The value of your investment in the Portfolio may be affected by one or
more of the following risks, which are described in detail on page ___, any of
which could cause the Portfolio's return on the price of its shares to decrease
or could cause the Portfolio's yield to fluctuate:
o Market risk
o Market capitalization risk
o Investment style risk
o Foreign investment risk
In addition, investments in emerging markets include all of the risks
of investments in foreign securities and are subject to severe price declines.
The economic and political structures of developing nations, in most cases, do
not compare favorably with the U.S. or other developed countries in terms of
wealth and stability, and their financial markets often lack liquidity. Such
countries may have relatively unstable governments, immature economic
structures, national policies restricting investments by foreigners and
economies based on only a few industries. For these reasons, all of the risks of
investing in foreign securities are heightened by investing in emerging markets
countries. The markets of developing countries have been more volatile than the
markets of developed countries with more mature economies. These markets often
have provided significantly higher or lower rates of return than developed
markets, and significantly greater risks, to investors.
In addition, because the Portfolio may invest its assets in a small
number of issuers, the Portfolio is more susceptible to any single economic,
political or regulatory event effecting those issuers than is a diversified
portfolio.
Past Performance
The Portfolio commenced operations on February [5], 2001. No performance
information is currently available. For information on Massachusetts Financial
Services Company's prior performance with a comparable fund, see page ___.
[SIDE BAR:
Portfolio Management:
o Massachusetts Financial Services Company
see page ]
<PAGE>
[Left Side:]
MFS Research International Portfolio
Investment Objective:
The Portfolio's investment objective is capital appreciation.
Principal Investment Policies:
The Portfolio invests, under normal market conditions, at least 65% of its
total assets in common stocks and related securities, such as preferred stocks,
convertible securities and depositary receipts of foreign companies. The
Portfolio focuses on foreign companies (including up to 20% of its total assets
in emerging market issues) that the Portfolio's Adviser believes have favorable
growth prospects and attractive valuations based on current and expected
earnings or cash flow. The Portfolio may invest in companies of any size. The
Portfolio does not emphasize any particular country and, under normal market
conditions, will be invested in at least five countries. Equity securities may
be listed on a securities exchange or traded in the over-the-counter markets.
A committee of investment research analysts selects securities for the
Portfolio. This committee includes investment analysts employed by the Adviser
and its affiliates. The committee allocates the Portfolio's assets among various
geographic regions and industries. Individual analysts then select what they
view as the securities best suited to achieve the Portfolio's investment
objective within their assigned industry responsibility.
[SIDE BAR:
A company's principal activities are determined to be located in a
particular country if the company (a) is organized under the laws of, and
maintains a principal office in a country; (b) has its principal securities
trading market in a country, (c) derives 50% of its total revenues from goods or
services performed in the country, or (d) has 50% or more of its assets in the
country.]
The Portfolio may engage in active and frequent trading to achieve its
principal investment strategies. In addition, the Portfolio may lend up to 30%
of its Portfolio securities.
<PAGE>
[Right side:]
Primary Risks:
The value of your investment in the Portfolio may be affected by one or
more of the following risks, which are described in detail on page ___, any of
which could cause the Portfolio's return on the price of its shares to decrease
or could cause the Portfolio's yield to fluctuate:
o Market risk
o Market capitalization risk
o Investment style risk
o Foreign investment risk
The Portfolio may invest a substantial amount of its assets in issuers
located in a single country or a limited number of countries. If the Portfolio
focuses its investments in this manner, it assumes the risk that economic,
political and social conditions in those countries will have a significant
impact on its investment performance.
In addition, investments in emerging markets include all of the risks
of investments in foreign securities and are subject to severe price declines.
The economic and political structures of developing nations, in most cases, do
not compare favorably with the U.S. or other developed countries in terms of
wealth and stability, and their financial markets often lack liquidity. Such
countries may have relatively unstable governments, immature economic
structures, national policies restricting investments by foreigners and
economics based on only a few industries. For these reasons, all of the risks of
investing in foreign securities are heightened by investing in emerging markets
countries. The markets of developing countries have been more volatile than the
markets of developed countries with more mature economies. These markets often
have provided significantly higher or lower rates of return than developed
markets, and significantly greater risks, to investors.
Finally, the Portfolio's investments in derivatives to manage currency
exposure can significantly increase the Portfolio's exposure to market risk or
risk of non-performance of the counterparty. Derivatives also involve the risk
of mispricing or improper valuation and the risks that changes in value of the
derivative may not correlate perfectly with the relevant assets, rates and
indices.
Past Performance
The Portfolio commenced operations on February [5], 2001. No performance
information is currently available. For information on Massachusetts Financial
Services Company's prior performance with a comparable fund, see page ____.
[SIDE BAR:
Portfolio Management:
o Massachusetts Financial Services Company
see page
<PAGE>
[Left Side:]
Janus Aggressive Growth Portfolio
Investment Objective:
The Portfolio seeks long-term growth of capital.
Principal Investment Strategy:
The Portfolio invests primarily in common stocks selected for their
growth potential. The Portfolio may also invest in other equity securities
including preferred stock. The Portfolio may invest in companies of any size,
from larger, well-established companies to smaller, emerging growth companies.
The Portfolio is non-diversified which means that it can invest a greater
portion of it assets in a small number of issuers.
The Portfolio may invest without limit in foreign equity and debt
securities including American Depositary Receipts. Such foreign securities may
include those of emerging market issuers. Less than 35% of the Portfolio's net
assets may be invested in high-yield/high-risk bonds.
The Adviser applies a "bottom up" approach in choosing investments. In
other words, the Adviser looks for companies with earnings growth potential one
at a time. If the Adviser is unable to find such investments, a significant
portion of the Portfolio's assets may be in cash or similar investments.
Foreign securities are generally selected on a stock-by-stock basis
without regard to any defined allocation among countries or geographic regions.
However, certain factors such as expected levels of inflation, government
policies influencing business conditions, the outlook for currency
relationships, and prospects for economic growth among countries, regions or
geographic areas may warrant greater consideration in selecting foreign
securities. There are no limitations on the countries in which the Portfolio may
invest and the Portfolio may at times have significant foreign exposure.
The Adviser actively manages foreign currency exposure, in conjunction
with stock selection, in an attempt to protect and possibly enhance the
Portfolio's market value. Through the use of forward foreign currency exchange
contracts, the Adviser will adjust the Portfolio's foreign currency weightings
to reduce its exposure to currencies deemed unattractive and, in certain
circumstances, increase exposure to currencies deemed attractive, as market
conditions warrant.
<PAGE>
[Right side:]
Primary Risks:
The value of your investment in the Portfolio may be affected by one or
more of the following risks, which are described in detail on page ___, any of
which could cause the Portfolio's return on the price of its shares to decrease
or could cause the Portfolio's yield to fluctuate:
o Market risk
o Interest rate risk
o Credit risk
o High yield debt security risk
o Market capitalization risk
o Investment style risk
o Foreign investment risk
In addition, investments in emerging markets include all of the risks
of investments in foreign securities and are subject to severe price declines.
The economic and political structures of developing nations, in most cases, do
not compare favorably with the U.S. or other developed countries in terms of
wealth and stability, and their financial markets often lack liquidity. Such
countries may have relatively unstable governments, immature economic
structures, national policies restricting investments by foreigners and
economies based on only a few industries. For these reasons, all of the risks of
investing in foreign securities are heightened by investing in emerging markets
countries. The markets of developing countries have been more volatile than the
markets of developed countries with more mature economies. These markets often
have provided significantly higher or lower rates of return than developed
markets, and significantly greater risks, to investors.
Furthermore, because the Portfolio may invest its assets in a small
number of issuers, the Portfolio is more susceptible to any single economic,
political or regulatory event effecting those issuers than is a diversified
portfolio.
Past Performance
The Portfolio commenced operations on February [5], 2001. No
performance information is currently available. For information on Janus Capital
Corporation's prior performance with a comparable fund, see page ___.
[SIDE BAR:
Portfolio Management:
o Janus Capital Corporation
see page
<PAGE>
Primary Risks of Investing in the Portfolios
One or more of the following primary risks may apply to your Portfolio.
Please see the Investment Summary for your particular Portfolio to determine
which risks apply and for a discussion of other risks that may apply to the
Portfolio. Please note that there are many other circumstances that could
adversely affect your investment and prevent a Portfolio from its objective,
which are not described here.
Market Risk
A Portfolio's share price can fall because of weakness in the broad
market, a particular industry, or specific holdings. The market as a whole can
decline for many reasons, including disappointing corporate earnings, adverse
political or economic developments here or abroad, changes in investor
psychology, or heavy institutional selling. The prospects for an industry or a
company may deteriorate. In addition, an assessment by a Portfolio's Adviser of
particular companies may prove incorrect, resulting in losses or poor
performance by those holdings, even in a rising market. A Portfolio could also
miss attractive investment opportunities if its Adviser underweights fixed
income markets or industries where there are significant returns, and could lose
value if the Adviser overweights fixed income markets or industries where there
are significant declines.
Stocks purchased in IPOs have a tendency to fluctuate in value
significantly shortly after the IPO relative to the price at which they were
purchased. These fluctuations could impact the net asset value and return earned
on the Portfolio's shares.
Interest Rate Risk
The values of debt securities are subject to change when prevailing
interest rates change. When interest rates go up, the value of debt securities
and certain dividend paying stocks tends to fall. If your Portfolio invests a
significant portion of its assets in debt securities or stocks purchased
primarily for dividend income and interest rates rise, then the value of your
investment may decline. Alternatively, when interest rates go down, the value of
debt securities and certain dividend paying stocks may rise.
Interest rate risk will affect the price of a fixed income security
more if the security has a longer maturity because changes in interest rates are
increasingly difficult to predict over longer periods of time. Fixed income
securities with longer maturities will therefore be more volatile than other
fixed income securities with shorter maturities. Conversely, fixed income
securities with shorter maturities will be less volatile but generally provide
lower returns than fixed income securities with longer maturities. The average
maturity and duration of a Portfolio's fixed income investments will affect the
volatility of the Portfolio's share price.
Credit Risk
The value of debt securities is directly affected by an issuer's
ability to pay principal and interest on time. If your Portfolio invests in debt
securities, the value of your investment may be adversely affected when an
issuer fails to pay an obligation on a timely basis. A Portfolio may also be
subject to credit risk to the extent it engages in transactions, such as
securities loans, repurchase agreements or certain derivatives, which involve a
promise by a third party to honor an obligation to the Portfolio. Such third
party may be unwilling or unable to honor its financial obligations.
High Yield Debt Security Risk
High yield debt securities, or junk bonds, are securities which are
rated below "investment grade" or are not rated, but are of equivalent quality.
High yield debt securities range from those for which the prospect for repayment
of principal and interest is predominantly speculative to those which are
currently in default on principal or interest payments. A Portfolio with high
yield debt securities may be more susceptible to credit risk and market risk
than a Portfolio that invests only in higher quality debt securities because
these lower-rated debt securities are less secure financially and more sensitive
to downturns in the economy. In addition, the secondary market for such
securities may not be as liquid as that for more highly rated debt securities.
As a result, a Portfolio's Adviser may find it more difficult to sell these
securities or may have to sell them at lower prices.
You should understand that high yield securities are not generally
meant for short-term investing. When a Portfolio invests in high yield
securities it generally seeks to receive a correspondingly higher return to
compensate it for the additional credit risk and market risk it has assumed.
Foreign Investment Risk
Investments in foreign securities involve risks relating to political,
social and economic developments abroad, as well as risks resulting from the
differences between the regulations to which U.S. and foreign issuers and
markets are subject:
o These risks may include the seizure by the government of
company assets, excessive taxation, withholding taxes on
dividends and interest, limitations on the use or transfer of
portfolio assets, and political or social instability.
o Enforcing legal rights may be difficult, costly and slow in
foreign countries, and there may be special problems enforcing
claims against foreign governments.
o Foreign companies may not be subject to accounting standards
or governmental supervision comparable to U.S. companies, and
there may be less public information about their operations.
o Foreign markets may be less liquid and more volatile than U.S. markets.
o Foreign securities often trade in currencies other than the U.S. dollar,
and a Portfolio may directly hold foreign currencies and purchase and sell
foreign currencies. Changes in currency exchange rates will affect a
Portfolio's net asset value, the value of dividends and interest earned,
and gains and losses realized on the sale of foreign securities. An
increase in the strength of the U.S. dollar relative to these other
currencies may cause the value of a Portfolio to decline. Certain foreign
currencies may be particularly volatile, and foreign governments may
intervene in the currency markets, causing a decline in value or liquidity
of a Portfolio's foreign currency or securities holdings.
o Costs of buying, selling and holding foreign securities,
including brokerage, tax and custody costs, may be higher than
those involved in domestic transactions.
Market Capitalization Risk
Stocks fall into three broad market capitalization categories--large,
medium and small. Investing primarily in one category carries the risk that due
to current market conditions that category may be out of favor. If valuations of
large capitalization companies appear to be greatly out of proportion to the
valuations of small or medium capitalization companies, investors may migrate to
the stocks of small and mid-sized companies causing a Portfolio that invests in
these companies to increase in value more rapidly than a Portfolio that invests
in larger, fully-valued companies. Larger more established companies may also 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 rate of successful smaller companies, especially during
extended periods of economic expansion. Investing in medium and small
capitalization companies may be subject to special risks associated with
narrower product lines, more limited financial resources, smaller management
groups, and a more limited trading market for their stocks as compared with
larger companies. Securities of smaller capitalization issuers may therefore be
subject to greater price volatility and may decline more significantly in market
downturns than securities of larger companies.
Investment Style Risk
Different investment styles tend to shift in and out of favor depending
upon market and economic conditions as well as investor sentiment. A Portfolio
may outperform or underperform other funds that employ a different investment
style. A Portfolio may also employ a combination of styles that impact its risk
characteristics. Examples of different investment styles include growth and
value investing. Growth stocks may be more volatile than other stocks because
they are more sensitive to investor perceptions of the issuing company's growth
of earnings potential. Also, since growth companies usually invest a high
portion of earnings in their business, growth stocks may lack the dividends of
value stocks that can cushion stock prices in a falling market. Growth oriented
funds will typically underperform when value investing is in favor. Value stocks
are those which are undervalued in comparison to their peers due to adverse
business developments or other factors. Value investing carries the risk that
the market will not recognize a security's inherent value for a long time, or
that a stock judged to be undervalued may actually be appropriately priced or
overvalued. Value oriented funds will typically underperform when growth
investing is in favor.
<PAGE>
Additional Investment Strategies
In addition to the principal investment strategies discussed in each
individual Portfolio's Investment Summary, a Portfolio, as indicated, may at
times invest a portion of its assets in the investment strategies and may engage
in certain investment techniques as described below. The SAI provides a more
detailed discussion of certain of these and other securities and indicates if a
Portfolio is subject to any limitations with respect to a particular investment
strategy. These strategies and techniques may involve risks. Although a
Portfolio that is not identified below in connection with a particular strategy
or technique generally has the ability to engage in such a transaction, its
Adviser currently intends to invest little, if any, of the Portfolio's assets in
that strategy or technique. (Please note that some of these strategies may be a
principal investment strategy for a particular Portfolio and consequently are
also described in that Portfolio's Investment Summary.) The Portfolios are not
limited by this discussion and may invest in other types of securities not
precluded by the policies discussed elsewhere in this Prospectus.
<PAGE>
--------------------------- ----------- ----------- ----------- -----------
BlackRock BlackRock J.P. J.P.
Equity U.S. Gov't Morgan Morgan
Portfolio Income Quality Small Cap
Portfolio Bond Stock s
Portfolio Portfolio
--------------------------- ----------- ----------- ----------- -----------
--------------------------- ----------- ----------- ----------- -----------
Brady Bonds X
--------------------------- ----------- ----------- ----------- -----------
--------------------------- ----------- ----------- ----------- -----------
Collateralized X X
Mortgage Obligations
--------------------------- ----------- ----------- ----------- -----------
--------------------------- ----------- ----------- ----------- -----------
Convertible Securities X X
--------------------------- ----------- ----------- ----------- -----------
--------------------------- ----------- ----------- ----------- -----------
Depositary Receipts X X
----------- ----------- ----------- -----------
--------------------------- ----------- ----------- ----------- -----------
Derivatives:
----------- ----------- ----------- -----------
Options X X X
Futures X X
--------------------------- ----------- ----------- ----------- -----------
Direct Participation X
in Corporate Loans
--------------------------- ----------- ----------- ----------- -----------
--------------------------- ----------- ----------- ----------- -----------
Dollar Roll Transactions X X
--------------------------- ----------- ----------- ----------- -----------
--------------------------- ----------- ----------- ----------- -----------
Foreign Currency X
Transactions
--------------------------- ----------- ----------- ----------- -----------
--------------------------- ----------- ----------- ----------- -----------
Foreign Debt Securities X
--------------------------- ----------- ----------- ----------- -----------
--------------------------- ----------- ----------- ----------- -----------
Foreign Equity Securities
--------------------------- ----------- ----------- ----------- -----------
--------------------------- ----------- ----------- ----------- -----------
Forward Commitments, X X
When-Issued and Delayed
Delivery Securities
--------------------------- ----------- ----------- ----------- -----------
--------------------------- ----------- ----------- ----------- -----------
High Quality Short-term X X X X
Debt Obligations
including Bankers'
Acceptances, Commercial
Paper, Certificates of
Deposit and Eurodollar
Obligations issued or
guaranteed by Bank
Holding Companies in the
U.S., their Subsidiaries
and Foreign Branches or
of the World Bank;
Variable Amount Master
Demand Notes and Variable
Rate Notes issued by U.S.
and Foreign Corporations
--------------------------- ----------- ----------- ----------- -----------
--------------------------- ----------- ----------- ----------- -----------
High Yield/High Risk Debt X
Securities
--------------------------- ----------- ----------- ----------- -----------
--------------------------- ----------- ----------- ----------- -----------
Hybrid Instruments X
--------------------------- ----------- ----------- ----------- -----------
--------------------------- ----------- ----------- ----------- -----------
Illiquid and Restricted X X
Securities
--------------------------- ----------- ----------- ----------- -----------
--------------------------- ----------- ----------- ----------- -----------
Indexed Securities
--------------------------- ----------- ----------- ----------- -----------
--------------------------- ----------- ----------- ----------- -----------
Interest Rate X X
Transactions
--------------------------- ----------- ----------- ----------- -----------
--------------------------- ----------- ----------- ----------- -----------
Investment Grade Debt X X
Securities
--------------------------- ----------- ----------- ----------- -----------
--------------------------- ----------- ----------- ----------- -----------
Investments in Other X
Investment Companies
including Passive Foreign
Investment Companies
--------------------------- ----------- ----------- ----------- -----------
--------------------------- ----------- ----------- ----------- -----------
Mortgage-backed X X
Securities, including
GNMA Certificates,
Mortgage-backed Bonds
--------------------------- ----------- ----------- ----------- -----------
--------------------------- ----------- ----------- ----------- -----------
Municipal Securities X
--------------------------- ----------- ----------- ----------- -----------
--------------------------- ----------- ----------- ----------- -----------
Non-mortgage Asset-backed X X
Securities
--------------------------- ----------- ----------- ----------- -----------
--------------------------- ----------- ----------- ----------- -----------
PIK (pay-in-kind) X X
Debt Securities and
Zero-Coupon Bonds
--------------------------- ----------- ----------- ----------- -----------
--------------------------- ----------- ----------- ----------- -----------
Preferred Stocks X X
--------------------------- ----------- ----------- ----------- -----------
--------------------------- ----------- ----------- ----------- -----------
Private Placements X
--------------------------- ----------- ----------- ----------- -----------
--------------------------- ----------- ----------- ----------- -----------
Real Estate Investment
Trusts
--------------------------- ----------- ----------- ----------- -----------
--------------------------- ----------- ----------- ----------- -----------
Repurchase Agreements X X X X
--------------------------- ----------- ----------- ----------- -----------
--------------------------- ----------- ----------- ----------- -----------
Reverse Repurchase X
Agreements
--------------------------- ----------- ----------- ----------- -----------
--------------------------- ----------- ----------- ----------- -----------
Rights and Warrants
--------------------------- ----------- ----------- ----------- -----------
--------------------------- ----------- ----------- ----------- -----------
Securities Loans X
--------------------------- ----------- ----------- ----------- -----------
--------------------------- ----------- ----------- ----------- -----------
Short Sales X
(Against the Box)
--------------------------- ----------- ----------- ----------- -----------
--------------------------- ----------- ----------- ----------- -----------
U.S. Government X X X X
Securities
--------------------------- ----------- ----------- ----------- -----------
<PAGE>
--------------------------- ---------- ----------- ----------- -----------
J.P. J.P. J.P. Lord
Morgan Morgan Morgan Abbett
Enhanced Select Int'l Bond
Index Equity Equity Debenture
Portfolio Portfolio Portfolio Portfolio
---------- ----------- ----------- -----------
--------------------------- ---------- ----------- ----------- -----------
Brady Bonds
--------------------------- ---------- ----------- ----------- -----------
--------------------------- ---------- ----------- ----------- -----------
Collateralized X
Mortgage Obligations
--------------------------- ---------- ----------- ----------- -----------
--------------------------- ---------- ----------- ----------- -----------
Convertible Securities X
--------------------------- ---------- ----------- ----------- -----------
--------------------------- ---------- ----------- ----------- -----------
Depositary Receipts X X X
---------- ----------- ----------- -----------
--------------------------- ---------- ----------- ----------- -----------
Derivatives:
---------- ----------- ----------- -----------
Options X
Futures
--------------------------- ---------- ----------- ----------- -----------
Direct Participation
in Corporate Loans
--------------------------- ---------- ----------- ----------- -----------
--------------------------- ---------- ----------- ----------- -----------
Dollar Roll Transactions
--------------------------- ---------- ----------- ----------- -----------
--------------------------- ---------- ----------- ----------- -----------
Foreign Currency X
Transactions
--------------------------- ---------- ----------- ----------- -----------
--------------------------- ---------- ----------- ----------- -----------
Foreign Debt Securities X
--------------------------- ---------- ----------- ----------- -----------
--------------------------- ---------- ----------- ----------- -----------
Foreign Equity Securities X
--------------------------- ---------- ----------- ----------- -----------
--------------------------- ---------- ----------- ----------- -----------
Forward Commitments,
When-Issued and Delayed
Delivery Securities
--------------------------- ---------- ----------- ----------- -----------
--------------------------- ---------- ----------- ----------- -----------
High Quality Short-term X
Debt Obligations
including Bankers'
Acceptances, Commercial
Paper, Certificates of
Deposit and Eurodollar
Obligations issued or
guaranteed by Bank
Holding Companies in the
U.S., their Subsidiaries
and Foreign Branches or
of the World Bank;
Variable Amount Master
Demand Notes and Variable
Rate Notes issued by U.S.
and Foreign Corporations
--------------------------- ---------- ----------- ----------- -----------
--------------------------- ---------- ----------- ----------- -----------
High Yield/High Risk Debt X
Securities
--------------------------- ---------- ----------- ----------- -----------
--------------------------- ---------- ----------- ----------- -----------
Hybrid Instruments
--------------------------- ---------- ----------- ----------- -----------
--------------------------- ---------- ----------- ----------- -----------
Illiquid and Restricted X X
Securities
--------------------------- ---------- ----------- ----------- -----------
--------------------------- ---------- ----------- ----------- -----------
Indexed Securities
--------------------------- ---------- ----------- ----------- -----------
--------------------------- ---------- ----------- ----------- -----------
Interest Rate
Transactions
--------------------------- ---------- ----------- ----------- -----------
--------------------------- ---------- ----------- ----------- -----------
Investment Grade Debt X
Securities
--------------------------- ---------- ----------- ----------- -----------
--------------------------- ---------- ----------- ----------- -----------
Investments in Other
Investment Companies
including Passive Foreign
Investment Companies
--------------------------- ---------- ----------- ----------- -----------
--------------------------- ---------- ----------- ----------- -----------
Mortgage-backed X
Securities, including
GNMA Certificates,
Mortgage-backed Bonds
--------------------------- ---------- ----------- ----------- -----------
--------------------------- ---------- ----------- ----------- -----------
Municipal Securities
--------------------------- ---------- ----------- ----------- -----------
--------------------------- ---------- ----------- ----------- -----------
Non-mortgage Asset-backed
Securities
--------------------------- ---------- ----------- ----------- -----------
--------------------------- ---------- ----------- ----------- -----------
PIK (pay-in-kind) X
Debt Securities and
Zero-Coupon Bonds
--------------------------- ---------- ----------- ----------- -----------
--------------------------- ---------- ----------- ----------- -----------
Preferred Stocks X
--------------------------- ---------- ----------- ----------- -----------
--------------------------- ---------- ----------- ----------- -----------
Private Placements
--------------------------- ---------- ----------- ----------- -----------
--------------------------- ---------- ----------- ----------- -----------
Real Estate Investment
Trusts
--------------------------- ---------- ----------- ----------- -----------
--------------------------- ---------- ----------- ----------- -----------
Repurchase Agreements X
--------------------------- ---------- ----------- ----------- -----------
--------------------------- ---------- ----------- ----------- -----------
Reverse Repurchase X
Agreements
--------------------------- ---------- ----------- ----------- -----------
--------------------------- ---------- ----------- ----------- -----------
Rights and Warrants
--------------------------- ---------- ----------- ----------- -----------
--------------------------- ---------- ----------- ----------- -----------
Securities Loans X
--------------------------- ---------- ----------- ----------- -----------
--------------------------- ---------- ----------- ----------- -----------
Short Sales
(Against the Box)
--------------------------- ---------- ----------- ----------- -----------
--------------------------- ---------- ----------- ----------- -----------
U.S. Government X
Securities
--------------------------- ---------- ----------- ----------- -----------
<PAGE>
--------------------------- ----------- ----------- ----------- -----------
Lord Lord Lord Lord
Abbett Abbett Abbett Abbett
Mid-Cap Dev. Growth Growth
Value Growth and Opportunitie
Portfolio Portfolio Income Portfolio
Portfolio
--------------------------- ----------- ----------- ----------- -----------
--------------------------- ----------- ----------- ----------- -----------
Brady Bonds
--------------------------- ----------- ----------- ----------- -----------
--------------------------- ----------- ----------- ----------- -----------
Collateralized
Mortgage Obligations
--------------------------- ----------- ----------- ----------- -----------
--------------------------- ----------- ----------- ----------- -----------
Convertible Securities X
--------------------------- ----------- ----------- ----------- -----------
--------------------------- ----------- ----------- ----------- -----------
Depositary Receipts X X X X
----------- ----------- -----------
--------------------------- ----------- ----------- ----------- -----------
Derivatives:
----------- ----------- -----------
Options
Futures
--------------------------- ----------- ----------- ----------- -----------
Direct Participation
in Corporate Loans
--------------------------- ----------- ----------- ----------- -----------
--------------------------- ----------- ----------- ----------- -----------
Dollar Roll Transactions
--------------------------- ----------- ----------- ----------- -----------
--------------------------- ----------- ----------- ----------- -----------
Foreign Currency
Transactions
--------------------------- ----------- ----------- ----------- -----------
--------------------------- ----------- ----------- ----------- -----------
Foreign Debt Securities
--------------------------- ----------- ----------- ----------- -----------
--------------------------- ----------- ----------- ----------- -----------
Foreign Equity Securities X X X X
--------------------------- ----------- ----------- ----------- -----------
--------------------------- ----------- ----------- ----------- -----------
Forward Commitments,
When-Issued and Delayed
Delivery Securities
--------------------------- ----------- ----------- ----------- -----------
--------------------------- ----------- ----------- ----------- -----------
High Quality Short-term
Debt Obligations
including Bankers'
Acceptances, Commercial
Paper, Certificates of
Deposit and Eurodollar
Obligations issued or
guaranteed by Bank
Holding Companies in the
U.S., their Subsidiaries
and Foreign Branches or
of the World Bank;
Variable Amount Master
Demand Notes and Variable
Rate Notes issued by U.S.
and Foreign Corporations
--------------------------- ----------- ----------- ----------- -----------
--------------------------- ----------- ----------- ----------- -----------
High Yield/High Risk Debt
Securities
--------------------------- ----------- ----------- ----------- -----------
--------------------------- ----------- ----------- ----------- -----------
Hybrid Instruments
--------------------------- ----------- ----------- ----------- -----------
--------------------------- ----------- ----------- ----------- -----------
Illiquid and Restricted X X
Securities
--------------------------- ----------- ----------- ----------- -----------
--------------------------- ----------- ----------- ----------- -----------
Indexed Securities
--------------------------- ----------- ----------- ----------- -----------
--------------------------- ----------- ----------- ----------- -----------
Interest Rate
Transactions
--------------------------- ----------- ----------- ----------- -----------
--------------------------- ----------- ----------- ----------- -----------
Investment Grade Debt
Securities
--------------------------- ----------- ----------- ----------- -----------
--------------------------- ----------- ----------- ----------- -----------
Investments in Other X
Investment Companies
including Passive Foreign
Investment Companies
--------------------------- ----------- ----------- ----------- -----------
--------------------------- ----------- ----------- ----------- -----------
Mortgage-backed
Securities, including
GNMA Certificates,
Mortgage-backed Bonds
--------------------------- ----------- ----------- ----------- -----------
--------------------------- ----------- ----------- ----------- -----------
Municipal Securities
--------------------------- ----------- ----------- ----------- -----------
--------------------------- ----------- ----------- ----------- -----------
Non-mortgage Asset-backed
Securities
--------------------------- ----------- ----------- ----------- -----------
--------------------------- ----------- ----------- ----------- -----------
PIK (pay-in-kind)
Debt Securities and
Zero-Coupon Bonds
--------------------------- ----------- ----------- ----------- -----------
--------------------------- ----------- ----------- ----------- -----------
Preferred Stocks X
--------------------------- ----------- ----------- ----------- -----------
--------------------------- ----------- ----------- ----------- -----------
Private Placements
--------------------------- ----------- ----------- ----------- -----------
--------------------------- ----------- ----------- ----------- -----------
Real Estate Investment
Trusts
--------------------------- ----------- ----------- ----------- -----------
--------------------------- ----------- ----------- ----------- -----------
Repurchase Agreements X X X
--------------------------- ----------- ----------- ----------- -----------
--------------------------- ----------- ----------- ----------- -----------
Reverse Repurchase X X X
Agreements
--------------------------- ----------- ----------- ----------- -----------
--------------------------- ----------- ----------- ----------- -----------
Rights and Warrants
--------------------------- ----------- ----------- ----------- -----------
--------------------------- ----------- ----------- ----------- -----------
Securities Loans X X X
--------------------------- ----------- ----------- ----------- -----------
--------------------------- ----------- ----------- ----------- -----------
Short Sales
(Against the Box)
--------------------------- ----------- ----------- ----------- -----------
--------------------------- ----------- ----------- ----------- -----------
U.S. Government
Securities
--------------------------- ----------- ----------- ----------- -----------
<PAGE>
------------------------------- ---------- ------------ ----------- -----------
Firstar Firstar Firstar Putnam
Balanced Equity Growth & Research
Portfolio Income Income Portfolio
Portfolio Equity
Portfolio
------------------------------- ---------- ------------ ----------- -----------
------------------------------- ---------- ------------ ----------- -----------
Brady Bonds
------------------------------- ---------- ------------ ----------- -----------
------------------------------- ---------- ------------ ----------- -----------
Collateralized Mortgage X
Obligations
------------------------------- ---------- ------------ ----------- -----------
------------------------------- ---------- ------------ ----------- -----------
Convertible Securities X X X X
------------------------------- ---------- ------------ ----------- -----------
Depositary Receipts X X X X
------------------------------- ---------- ------------ ----------- -----------
Derivatives:
Options X X
Futures
------------------------------- ---------- ------------ ----------- -----------
Direct Participation in
Corporate Loans
------------------------------- ---------- ------------ ----------- -----------
------------------------------- ---------- ------------ ----------- -----------
Dollar Roll Transactions
------------------------------- ---------- ------------ ----------- -----------
------------------------------- ---------- ------------ ----------- -----------
Foreign Currency Transactions
------------------------------- ---------- ------------ ----------- -----------
------------------------------- ---------- ------------ ----------- -----------
Foreign Debt Securities X
------------------------------- ---------- ------------ ----------- -----------
------------------------------- ---------- ------------ ----------- -----------
Foreign Equity Securities X X X
------------------------------- ---------- ------------ ----------- -----------
------------------------------- ---------- ------------ ----------- -----------
Forward Commitments, X
When-Issued and Delayed
Delivery Securities
------------------------------- ---------- ------------ ----------- -----------
------------------------------- ---------- ------------ ----------- -----------
High Quality Short-term Debt X X X X
Obligations including
Bankers' Acceptances,
Commercial Paper,
Certificates of Deposit and
Eurodollar Obligations issued
or guaranteed by Bank Holding
Companies in the U.S., their
Subsidiaries and Foreign
Branches or of the World
Bank; Variable Amount Master
Demand Notes and Variable
Rate Notes issued by U.S. and
Foreign Corporations
------------------------------- ---------- ------------ ----------- -----------
------------------------------- ---------- ------------ ----------- -----------
High Yield/High Risk Debt
Securities
------------------------------- ---------- ------------ ----------- -----------
------------------------------- ---------- ------------ ----------- -----------
Hybrid Instruments
------------------------------- ---------- ------------ ----------- -----------
------------------------------- ---------- ------------ ----------- -----------
Illiquid and Restricted
Securities
------------------------------- ---------- ------------ ----------- -----------
------------------------------- ---------- ------------ ----------- -----------
Indexed Securities
------------------------------- ---------- ------------ ----------- -----------
------------------------------- ---------- ------------ ----------- -----------
Interest Rate
Transactions
------------------------------- ---------- ------------ ----------- -----------
------------------------------- ---------- ------------ ----------- -----------
Investment Grade Debt X X
Securities
------------------------------- ---------- ------------ ----------- -----------
------------------------------- ---------- ------------ ----------- -----------
Investments in Other X X
Investment Companies
including Passive Foreign
Investment Companies
------------------------------- ---------- ------------ ----------- -----------
------------------------------- ---------- ------------ ----------- -----------
Mortgage-backed Securities, X
including GNMA Certificates,
Mortgage-backed Bonds
------------------------------- ---------- ------------ ----------- -----------
------------------------------- ---------- ------------ ----------- -----------
Municipal Securities X
------------------------------- ---------- ------------ ----------- -----------
------------------------------- ---------- ------------ ----------- -----------
Non-mortgage Asset-backed
Securities
------------------------------- ---------- ------------ ----------- -----------
------------------------------- ---------- ------------ ----------- -----------
PIK (pay-in-kind) X
Debt Securities and
Zero-Coupon Bonds
------------------------------- ---------- ------------ ----------- -----------
------------------------------- ---------- ------------ ----------- -----------
Preferred Stocks X X X X
------------------------------- ---------- ------------ ----------- -----------
------------------------------- ---------- ------------ ----------- -----------
Private Placements X
------------------------------- ---------- ------------ ----------- -----------
------------------------------- ---------- ------------ ----------- -----------
Real Estate Investment Trusts X
------------------------------- ---------- ------------ ----------- -----------
------------------------------- ---------- ------------ ----------- -----------
Repurchase Agreements X X X
------------------------------- ---------- ------------ ----------- -----------
------------------------------- ---------- ------------ ----------- -----------
Reverse Repurchase Agreements
------------------------------- ---------- ------------ ----------- -----------
------------------------------- ---------- ------------ ----------- -----------
Rights and Warrants
------------------------------- ---------- ------------ ----------- -----------
------------------------------- ---------- ------------ ----------- -----------
Securities Loans
------------------------------- ---------- ------------ ----------- -----------
------------------------------- ---------- ------------ ----------- -----------
Short Sales
(Against the Box)
------------------------------- ---------- ------------ ----------- -----------
------------------------------- ---------- ------------ ----------- -----------
U.S. Government Securities X X X
------------------------------- ---------- ------------ ----------- -----------
<PAGE>
------------------------------- ------------ ------------ ------------ --------
Oppenheimer PIMCO PIMCO PIMCO
Capital Total Money Innovation
Appreciation Return Market Portfolio
Portfolio Portfolio Portfolio
------------------------------- ------------ ------------ ------------ --------
------------------------------- ------------ ------------ ------------ --------
Brady Bonds X
------------------------------- ------------ ------------ ------------ --------
------------------------------- ------------ ------------ ------------ --------
Collateralized Mortgage X X X
Obligations
------------------------------- ------------ ------------ ------------ --------
------------------------------- ------------ ------------ ------------ --------
Convertible Securities X
------------------------------- ------------ ------------ ------------ --------
Depositary Receipts X X
------------------------------- ------------ ------------ ------------ --------
Derivatives:
Options X
Futures X
------------------------------- ------------ ------------ ------------ --------
Direct Participation in X
Corporate Loans
------------------------------- ------------ ------------ ------------ --------
------------------------------- ------------ ------------ ------------ --------
Dollar Roll Transactions X
------------------------------- ------------ ------------ ------------ --------
------------------------------- ------------ ------------ ------------ --------
Foreign Currency Transactions X
------------------------------- ------------ ------------ ------------ --------
------------------------------- ------------ ------------ ------------ --------
Foreign Debt Securities X
------------------------------- ------------ ------------ ------------ --------
------------------------------- ------------ ------------ ------------ --------
Foreign Equity Securities X X
------------------------------- ------------ ------------ ------------ --------
------------------------------- ------------ ------------ ------------ --------
Forward Commitments, X
When-Issued and Delayed
Delivery Securities
------------------------------- ------------ ------------ ------------ --------
------------------------------- ------------ ------------ ------------ --------
High Quality Short-term Debt X X X
Obligations including
Bankers' Acceptances,
Commercial Paper,
Certificates of Deposit and
Eurodollar Obligations issued
or guaranteed by Bank Holding
Companies in the U.S., their
Subsidiaries and Foreign
Branches or of the World
Bank; Variable Amount Master
Demand Notes and Variable
Rate Notes issued by U.S. and
Foreign Corporations
------------------------------- ------------ ------------ ------------ --------
------------------------------- ------------ ------------ ------------ --------
High Yield/High Risk Debt X
Securities
------------------------------- ------------ ------------ ------------ --------
------------------------------- ------------ ------------ ------------ --------
Hybrid Instruments
------------------------------- ------------ ------------ ------------ --------
------------------------------- ------------ ------------ ------------ --------
Illiquid and Restricted X X
Securities
------------------------------- ------------ ------------ ------------ --------
------------------------------- ------------ ------------ ------------ --------
Indexed Securities X
------------------------------- ------------ ------------ ------------ --------
------------------------------- ------------ ------------ ------------ --------
Interest Rate X
Transactions
------------------------------- ------------ ------------ ------------ --------
------------------------------- ------------ ------------ ------------ --------
Investment Grade Debt X X
Securities
------------------------------- ------------ ------------ ------------ --------
------------------------------- ------------ ------------ ------------ --------
Investments in Other
Investment Companies
including Passive Foreign
Investment Companies
------------------------------- ------------ ------------ ------------ --------
------------------------------- ------------ ------------ ------------ --------
Mortgage-backed Securities, X X
including GNMA Certificates,
Mortgage-backed Bonds
------------------------------- ------------ ------------ ------------ --------
------------------------------- ------------ ------------ ------------ --------
Municipal Securities X
------------------------------- ------------ ------------ ------------ --------
------------------------------- ------------ ------------ ------------ --------
Non-mortgage Asset-backed X
Securities
------------------------------- ------------ ------------ ------------ --------
------------------------------- ------------ ------------ ------------ --------
PIK (pay-in-kind) X
Debt Securities and
Zero-Coupon Bonds
------------------------------- ------------ ------------ ------------ --------
------------------------------- ------------ ------------ ------------ --------
Preferred Stocks X
------------------------------- ------------ ------------ ------------ --------
------------------------------- ------------ ------------ ------------ --------
Private Placements X
------------------------------- ------------ ------------ ------------ --------
------------------------------- ------------ ------------ ------------ --------
Real Estate Investment Trusts
------------------------------- ------------ ------------ ------------ --------
------------------------------- ------------ ------------ ------------ --------
Repurchase Agreements X X
------------------------------- ------------ ------------ ------------ --------
------------------------------- ------------ ------------ ------------ --------
Reverse Repurchase Agreements
------------------------------- ------------ ------------ ------------ --------
------------------------------- ------------ ------------ ------------ --------
Rights and Warrants
------------------------------- ------------ ------------ ------------ --------
------------------------------- ------------ ------------ ------------ --------
Securities Loans
------------------------------- ------------ ------------ ------------ --------
------------------------------- ------------ ------------ ------------ --------
Short Sales
(Against the Box)
------------------------------- ------------ ------------ ------------ --------
------------------------------- ------------ ------------ ------------ --------
U.S. Government Securities X X X
------------------------------- ------------ ------------ ------------ --------
<PAGE>
------------------------------- ------------ ------------ ------------
MFS Mid MFS Janus
Cap Growth Research Aggressive
Portfolio International Growth
Portfolio Portfolio
------------------------------- ------------ ------------ ------------
------------------------------- ------------ ------------ ------------
Brady Bonds
------------------------------- ------------ ------------ ------------
------------------------------- ------------ ------------ ------------
Collateralized Mortgage
Obligations
------------------------------- ------------ ------------ ------------
------------------------------- ------------ ------------ ------------
Convertible Securities X X X
------------------------------- ------------ ------------ ------------
Depositary Receipts X X X
------------------------------- ------------ ------------
------------
Derivatives:
Options X X X
Futures X X
------------------------------- ------------ ------------ ------------
Direct Participation in
Corporate Loans
------------------------------- ------------ ------------ ------------
------------------------------- ------------ ------------ ------------
Dollar Roll Transactions
------------------------------- ------------ ------------ ------------
------------------------------- ------------ ------------ ------------
Foreign Currency Transactions X X X
------------------------------- ------------ ------------ ------------
------------------------------- ------------ ------------ ------------
Foreign Debt Securities X X X
------------------------------- ------------ ------------ ------------
------------------------------- ------------ ------------ ------------
Foreign Equity Securities X X X
------------------------------- ------------ ------------ ------------
------------------------------- ------------ ------------ ------------
Forward Commitments, X X X
When-Issued and Delayed
Delivery Securities
------------------------------- ------------ ------------ ------------
------------------------------- ------------ ------------ ------------
High Quality Short-term Debt X X X
Obligations including
Bankers' Acceptances,
Commercial Paper,
Certificates of Deposit and
Eurodollar Obligations issued
or guaranteed by Bank Holding
Companies in the U.S., their
Subsidiaries and Foreign
Branches or of the World
Bank; Variable Amount Master
Demand Notes and Variable
Rate Notes issued by U.S. and
Foreign Corporations
------------------------------- ------------ ------------ ------------
------------------------------- ------------ ------------ ------------
High Yield/High Risk Debt X X
Securities
------------------------------- ------------ ------------ ------------
------------------------------- ------------ ------------ ------------
Hybrid Instruments X
------------------------------- ------------ ------------ ------------
------------------------------- ------------ ------------ ------------
Illiquid and Restricted X X X
Securities
------------------------------- ------------ ------------ ------------
------------------------------- ------------ ------------ ------------
Indexed Securities X X
------------------------------- ------------ ------------ ------------
------------------------------- ------------ ------------ ------------
Interest Rate
Transactions
------------------------------- ------------ ------------ ------------
------------------------------- ------------ ------------ ------------
Investment Grade Debt X X X
Securities
------------------------------- ------------ ------------ ------------
------------------------------- ------------ ------------ ------------
Investments in Other X X X
Investment Companies
including Passive Foreign
Investment Companies
------------------------------- ------------ ------------ ------------
------------------------------- ------------ ------------ ------------
Mortgage-backed Securities, X
including GNMA Certificates,
Mortgage-backed Bonds
------------------------------- ------------ ------------ ------------
------------------------------- ------------ ------------ ------------
Municipal Securities
------------------------------- ------------ ------------ ------------
------------------------------- ------------ ------------ ------------
Non-mortgage Asset-backed
Securities
------------------------------- ------------ ------------ ------------
------------------------------- ------------ ------------ ------------
PIK (pay-in-kind) X X
Debt Securities and
Zero-Coupon Bonds
------------------------------- ------------ ------------ ------------
------------------------------- ------------ ------------ ------------
Preferred Stocks X X X
------------------------------- ------------ ------------ ------------
------------------------------- ------------ ------------ ------------
Private Placements X X X
------------------------------- ------------ ------------ ------------
------------------------------- ------------ ------------ ------------
Real Estate Investment Trusts X
------------------------------- ------------ ------------ ------------
------------------------------- ------------ ------------ ------------
Repurchase Agreements X X
------------------------------- ------------ ------------ ------------
------------------------------- ------------ ------------ ------------
Reverse Repurchase Agreements
------------------------------- ------------ ------------ ------------
------------------------------- ------------ ------------ ------------
Rights and Warrants X X X
------------------------------- ------------ ------------ ------------
------------------------------- ------------ ------------ ------------
Securities Loans X X
------------------------------- ------------ ------------ ------------
------------------------------- ------------ ------------ ------------
Short Sales X
(Against the Box)
------------------------------- ------------ ------------ ------------
------------------------------- ------------ ------------ ------------
U.S. Government Securities X X X
------------------------------- ------------ ------------ ------------
<PAGE>
Brady Bonds. Brady Bonds are collateralized or uncollaterized fixed
income 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. Brady Bonds have been issued only recently
and, accordingly do not have a long payment history. These securities are
subject to credit risk and interest rate risk.
Collateralized Mortgage Obligations (CMOs). CMOs are fixed income
securities secured by mortgage loans and other mortgage-backed securities and
are generally considered to be derivatives. CMOs may be issued or guaranteed by
the U.S. Government or its agencies or instrumentalities or collateralized by a
portfolio or mortgages or mortgage-related securities guaranteed by such an
agency or instrumentality or may be non-U.S. Government guaranteed.
CMOs carry general fixed income securities risks, such as credit risk
and interest rate risk, and risks associated with mortgage-backed securities,
including prepayment risk which is the risk that the underlying mortgages or
other debt may be refinanced or paid off prior to their maturities during
periods of declining interest rates. In that case, an Adviser may have to
reinvest the proceeds from the securities at a lower rate. Potential market
gains on a security subject to prepayment risk may be more limited than
potential market gains on a comparable security that is not subject to
prepayment risk.
Convertible Securities. Convertible securities are preferred stocks or
bonds that pay a fixed dividend or interest payment and are convertible into
common stock at a specified price or conversion ratio.
Traditionally, convertible securities have paid dividends or interest
rates higher than common stocks but lower than nonconvertible securities. They
generally participate in the appreciation or depreciation of the underlying
stock into which they are convertible, but to a lesser degree. These securities
are also subject to market risk, interest rate risk and credit risk.
Depositary Receipts. Depositary receipts are receipts for shares of a
foreign-based corporation that entitle the holder to dividends and capital gains
on the underlying security. Receipts include those issued by domestic banks
(American Depositary Receipts), foreign banks (Global or European Depositary
Receipts), and broker-dealers (depositary shares).
These instruments are subject to market risk and foreign investment
risk.
Derivatives. Derivatives are used to limit risk in a Portfolio or to
enhance investment return, and have a return tied to a formula based upon an
interest rate, index, price of a security, or other measurement. Derivatives
include options, futures, forward contracts and related products.
Options are the right, but not the obligation, to buy or sell a
specified amount of securities or other assets on or before a fixed date at a
predetermined price.
Futures are contracts that obligate the buyer to receive and the seller
to deliver an instrument or money at a specified price on a specified date.
Forward contracts are contracts to purchase or sell a specified amount
of a financial instrument for an agreed upon price at a specified time.
Derivatives may be used to hedge against an opposite position that a
Portfolio holds. Any loss generated by the derivatives should be offset by gains
in the hedged investment. While hedging can reduce or eliminate losses, it can
also reduce or eliminate gains or result in losses or missed opportunities. In
addition, derivatives that are used for hedging the Portfolio in specific
securities may not fully offset the underlying positions. The counterparty to a
derivatives contract also could default. Derivatives that involve leverage could
magnify losses.
Derivatives may also be used to maintain a Portfolio's exposure to the
market, manage cash flows or to attempt to increase income. Using derivatives
for purposes other than hedging is speculative and involves greater risks. In
many foreign countries, futures and options markets do not exist or are not
sufficiently developed to be effectively used by a Portfolio that invests in
foreign securities.
Direct Participation in Corporate Loans. By purchasing a loan, the
Portfolio acquires some or all of the interest of a bank or other lending
institution in a loan to a corporate borrower. Many such loans are secured, and
most impose restrictive covenants which must be met by the borrower. These loans
are made generally to finance internal growth, mergers, acquisitions, stock
repurchases, leveraged buy-outs and other corporate activities. Such loans may
be in default at the time of purchase. The Portfolio may also purchase trade or
other claims against companies, which generally represent money owed by the
company to a supplier of goods or services. These claims may also be purchased
at a time when the company is in default. Certain of the loans acquired by a
Portfolio may involve revolving credit facilities or other standby financing
commitments which obligate the Portfolio to pay additional cash on a certain
date or on demand.
The highly leveraged nature of many such loans may make such loans
especially vulnerable to adverse changes in economic or market conditions. Loans
and other direct investments may not be in the form of securities or may be
subject to restrictions on transfer, and only limited opportunities may exist to
resell such instruments. As a result, the Portfolio may be unable to sell such
investments at an opportune time or may have to resell them at less than fair
market value.
Dollar Roll Transactions. Dollar roll transactions are comprised of the
sale by the Portfolio of mortgage-based or other fixed income securities,
together with a commitment to purchase similar, but not identical, securities at
a future date. In addition, the Portfolio is paid a fee as consideration for
entering into the commitment to purchase. Dollar rolls may be renewed after cash
settlement and initially may involve only a firm commitment agreement by the
Portfolio to buy a security. Dollar roll transactions are treated as borrowings
for purposes of the Investment Company Act of 1940, and the aggregate of such
transactions and all other borrowings of the Portfolio (including reverse
repurchase agreements) will be subject to the requirement that the Portfolio
maintain asset coverage of 300% for all borrowings.
If the broker-dealer to whom the Portfolio sells the security becomes
insolvent, the Portfolio's right to purchase or repurchase the security may be
restricted; the value of the security may change adversely over the term of the
dollar roll; the security that the Portfolio is required to repurchase may be
worth less than the security that the Portfolio originally held; and the return
earned by the Portfolio with the proceeds of a dollar roll may not exceed
transaction costs.
Foreign Currency Transactions. Foreign currency transactions are
entered into for the purpose of hedging against foreign exchange risk arising
from the Portfolio's investment or anticipated investment in securities
denominated in foreign currencies. The Portfolio also may enter into these
contracts for purposes of increasing exposure to a foreign currency or to shift
exposure to foreign currency fluctuations from one country to another. Foreign
currency transactions include the purchase of foreign currency on a spot (or
cash) basis, contracts to purchase or sell foreign currencies at a future date
(forward contracts), the purchase and sale of foreign currency futures
contracts, and the purchase of exchange traded and over-the-counter call and put
options on foreign currency futures contracts and on foreign currencies.
These hedging transactions do not eliminate fluctuations in the
underlying prices of the securities which the Portfolio owns or intends to
purchase or sell. They simply establish a rate of exchange which can be achieved
at some future point in time.
Foreign currency exchange rates may fluctuate significantly over short
periods of time. A forward foreign currency exchange contract reduces the
Portfolio's exposure to changes in the value of the currency it will deliver and
increases its exposure to changes in the value of the currency it will exchange
into. Contracts to sell foreign currency will limit any potential gain which
might be realized by the Portfolio if the value of the hedged currency
increases. In the case of forward contracts entered into for the purpose of
increasing return, the Portfolio may sustain losses which will reduce its gross
income. Forward foreign currency exchange contracts also involve the risk that
the party with which the Portfolio enters the contract may fail to perform its
obligations to the Portfolio. The purchase and sale of foreign currency futures
contracts and the purchase of call and put options on foreign currency futures
contracts and on foreign currencies involve certain risks associated with
derivatives.
Foreign Debt Securities. Foreign debt securities are issued by foreign
corporations and governments. They may include Eurodollar obligations and Yankee
bonds.
Foreign debt securities are subject to foreign investment risk, credit
risk, and interest rate risk. Securities in developing countries are also
subject to the additional risks associated with emerging markets.
Foreign Equity Securities. Foreign equity securities are subject to
foreign investment risk in addition to the risks applicable to domestic equity
securities, such as market risk.
Forward Commitments, When-Issued and Delayed Delivery Securities.
Forward commitments, when-issued and delayed delivery securities generally
involve the purchase of a security with payment and delivery at some time in the
future - i.e., beyond normal settlement. The Portfolios do not earn interest on
such securities until settlement and bear the risk of market value fluctuations
in between the purchase and settlement dates. New issues of stocks and bonds,
private placements and U.S. Government securities may be sold in this manner.
High Quality Short-term Debt Obligations including Bankers' Acceptances,
Commercial Paper, Certificates of Deposit and Eurodollar Obligations issued or
guaranteed by Bank Holding Companies in the U.S., their Subsidiaries and Foreign
Branches or of the World Bank; Variable Amount Master Demand Notes and Variable
Rate Notes issued by U.S. and Foreign Corporations.
Commercial paper is a short-term debt obligation with a maturity
ranging from one to 270 days issued by banks, corporations, and other borrowers
to investors seeking to invest idle cash.
Eurodollar obligations are dollar-denominated securities issued outside the
U.S. by foreign corporations and financial institutions and by foreign branches
of U.S. corporations and financial institutions.
Variable amount master demand notes differ from ordinary commercial
paper in that they are issued pursuant to a written agreement between the issuer
and the holder, their amounts may be increased from time to time by the holder
(subject to an agreed maximum) or decreased by the holder or the issuer, they
are payable on demand, the rate of interest payable on them varies with an
agreed formula and they are typically not rated by a rating agency. Transfer of
such notes is usually restricted by the issuer, and there is no secondary
trading market for them. Any variable amount master demand note purchased by a
Portfolio will be regarded as an illiquid security.
These instruments are subject to credit risk, interest rate risk and
foreign investment risk.
High Yield/High Risk Debt Securities. High yield/high risk debt
securities are securities that are rated below investment grade by the primary
rating agencies (e.g., BB or lower by S&P, and Ba or lower by Moody's). Other
terms commonly used to describe such securities include "lower rated bonds,"
"noninvestment grade bonds," and "junk bonds."
High yield/high risk debt securities are subject to high yield debt
security risk as described in "Primary Risks of Investing in the Portfolios"
above.
Hybrid Instruments. Hybrid instruments were recently developed and
combine the elements of futures contracts or options with those of debt,
preferred equity or a depositary instrument. They are often indexed to the price
of a commodity, particular currency, or a domestic or foreign debt or equity
security index. Examples of hybrid instruments include debt instruments with
interest or principal payments or redemption terms determined by reference to
the value of a currency or commodity or securities index at a future point in
time or preferred stock with dividend rates determined by reference to the value
of a currency.
Hybrids may bear interest or pay dividends at below market (or even
relatively nominal) rates. Under certain conditions, the redemption value of the
instrument could be zero. Hybrids can have volatile prices and limited liquidity
and their use by the Portfolio may not be successful.
Illiquid and Restricted Securities. Each Portfolio may invest a portion
of its assets in restricted and illiquid securities, which are investments that
the Portfolio cannot easily resell within seven days at current value or that
have contractual or legal restriction on resale.
If the Portfolio buys illiquid securities it may be unable to quickly
resell them or may be able to sell them only at a price below current value or
could have difficulty valuing these holdings precisely.
Indexed Securities. A Portfolio may invest in indexed securities whose
value is linked to foreign currencies, interest rates, commodities, indices or
other financial indicators. Most indexed securities are short to intermediate
term fixed income securities whose values at maturity (i.e., principal value) or
interest rates rise or fall according to changes in the value of one or more
specified underlying instruments. Indexed securities may be positively or
negatively indexed (i.e., their principal value or interest rates may increase
or decrease if the underlying instrument appreciates), and may have return
characteristics similar to direct investments in the underlying instrument or to
one or more options on the underlying instrument. Indexed securities may be more
volatile than the underlying instrument itself and could involve the loss of all
or a portion of the principal amount of, or interest on, the instrument.
Interest Rate Transactions. Interest rate transactions are hedging
transactions such as interest rate swaps and the purchase or sale of interest
rate caps and floors. They are used by a Portfolio in an attempt to protect the
value of its investments from interest rate fluctuations. Interest rate swaps
involve the exchange by the 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. The purchase of an interest rate cap entitles
the purchaser, to the extent that a specified index exceeds a predetermined
interest rate, to receive payments of interest on a notional principal amount
from the party selling such interest rate cap. The purchase of an interest rate
floor entitles the purchaser, to the extent that a specified index falls below a
predetermined interest rate, to receive payments of interest on a notional
principal amount from the party selling such interest rate floor. The Adviser to
the Portfolio enters into these transactions on behalf of the Portfolio
primarily to preserve a return or spread on a particular investment or portion
of its portfolio or to protect against any increase in the price of securities
the Portfolio anticipates purchasing at a later date. The Portfolio will not
sell interest rate caps or floors that it does not own.
There is the risk that the Adviser may incorrectly predict the
direction of interest rates resulting in losses to the Portfolio.
Investment Grade Debt Securities. Investment grade debt securities are
securities rated in one of the four highest rating categories by S&P's, Moody's
or other nationally recognized rating agency. These securities are subject to
interest rate risk and credit risk. Securities rated in the fourth investment
category by a nationally recognized rating agency (e.g. BBB by S&P and Baa by
Moody's) may have speculative characteristics.
Investments in Other Investment Companies including Passive Foreign
Investment Companies. When the Portfolio invests in another investment company,
it must bear the management and other fees of the investment company, in
addition to its own expenses. As a result, the Portfolio may be exposed to
duplicate expenses which could lower its value. Investments in passive foreign
investment companies also are subject to foreign investment risk.
Passive foreign investment companies are any foreign corporations which
generate certain amounts of passive income or hold certain amounts of assets for
the production of passive income. Passive income includes dividends, royalties,
rent, and annuities.
Mortgage-backed Securities, including GNMA Certificates,
Mortgage-backed Bonds and Stripped Mortgage-backed Securities. Mortgage-backed
securities include securities backed by Ginnie Mae and Fannie Mae. These
securities represent collections (pools) of commercial and residential
mortgages. These securities are generally pass-through securities, which means
that principal and interest payments on the underlying securities (less
servicing fees) are passed through to shareholders on a pro rata basis.
These securities carry general fixed income security risks, such as
credit risk and interest rate risk, as well as prepayment risk.
Municipal Securities. . Municipal securities are debt obligations
issued by local, state and regional governments that provide interest income
that is exempt from federal income tax. These securities are subject to interest
rate risk and credit risk.
Non-mortgage Asset-backed Securities. Non-mortgage asset-backed
securities include equipment trust certificates and interests in pools of
receivables, such as motor vehicle installment purchase obligations and credit
card receivables. Such securities are generally issued as pass-through
certificates, which represent undivided fractional ownership interests in the
underlying pools of assets. This means that principal and interest payments on
the underlying securities (less servicing fees) are passed through to
shareholders on a pro rata basis.
The value of some asset-backed securities may be particularly sensitive
to changes in prevailing interest rates, and like other fixed income
investments, the ability of the Portfolio to successfully use these instruments
may depend in part upon the ability of an Adviser to forecast interest rates and
other economic factors correctly.
PIK (pay-in-kind) Debt Securities and Zero-Coupon Bonds. PIK debt
securities are debt obligations which provide that the issuer may, at its
option, pay interest on such bonds in cash or in the form of additional debt
obligations. Such investments benefit the issuer by mitigating its need for cash
to meet debt service, but also require a higher rate of return to attract
investors who are willing to defer receipt of such cash.
Zero-coupon bonds are bonds that provide for no current interest
payment and are sold at a discount. These investments pay no interest in cash to
its holder during its life and usually trade at a deep discount from their face
or par value. These investments may experience greater volatility in market
value due to changes in interest rates than debt obligations which make regular
payments of interest. The Portfolio will accrue income on such investments for
tax accounting purposes, as required, which is distributable to shareholders and
which, because no cash is received at the time of accrual, may require the
liquidation of other portfolio securities to satisfy the Portfolio's
distribution obligations.
These securities are subject to credit risk and interest rate risk.
Preferred Stocks. Preferred stocks are equity securities that generally
pay dividends at a specified rate and have preference over common stock in the
payment of dividends and liquidation. Preferred stock generally does not carry
voting rights.
Preferred stocks are subject to market risk. In addition, because
preferred stocks pay fixed dividends, an increase in interest rates may cause
the price of a preferred stock to fall.
Real Estate Investment Trusts. Real estate investment trusts ("REITs") are
entities which invest in commercial and other real estate properties. Risks
associated with investments in securities of companies in the real estate
industry include: decline in the value of real estate; risks related to general
and local economic conditions; overbuilding and increased competition; increases
in property taxes and operating expenses; changes in zoning laws; casualty or
condemnation losses; variations in rental income; changes in neighborhood
values; the appeal of properties to tenants; and increases in interest rates. In
addition, equity REITs may be affected by changes in the values of the
underlying property owned by the trusts, while mortgage real estate investment
trusts may be affected by the quality of credit extended. REITs are dependent
upon management skills, may not be diversified and are subject to the risks of
financing projects. Such REITs are also subject to heavy cash flow dependency,
defaults by borrowers, self liquidation and the possibility of failing to
qualify for tax-free pass-through of income under the Internal Revenue Code of
1986, as amended, and to maintain exemption from the Investment Company Act of
1940, as amended. In the event an issuer of debt securities collateralized by
real estate defaults, it is conceivable that the REITs could end up holding the
underlying real estate.
Repurchase Agreements. Repurchase agreements involve the purchase of a
security by a Portfolio and a simultaneous agreement by the seller (generally a
bank or dealer) to repurchase the security from the Portfolio at a specified
date or upon demand. This technique offers a method of earning income on idle
cash.
Repurchase agreements involve credit risk, i.e. the risk that the
seller will fail to repurchase the security, as agreed. In that case, the
Portfolio will bear the risk of market value fluctuations until the security can
be sold and may encounter delays and incur costs in liquidating the security.
Reverse Repurchase Agreements. Reverse repurchase agreements involve
the sale of a security by a Portfolio to another party (generally a bank or
dealer) in return for cash and an agreement by the Portfolio to buy the security
back at a specified price and time.
Reverse repurchase agreements will be used primarily to provide cash to
satisfy unusually high redemption requests or for other temporary or emergency
purposes. Reverse repurchase agreements are considered a form of borrowing by
the Portfolio and, therefore, are a form of leverage. Leverage may cause any
gains or losses of the Portfolio to be magnified.
Rights and Warrants. Warrants basically are options to purchase equity
securities at specific prices valid for a specific period of time. Their prices
do not necessarily move parallel to the prices of the underlying securities.
Rights are similar to warrants, but normally have a short duration and are
distributed directly by the issuer to its shareholders. Rights and warrants have
no voting rights, receive no dividends and have no rights with respect to the
assets of the issuer. These investments carry the risk that they may be
worthless to the Portfolio at the time it may exercise its rights, due to the
fact that the underlying securities have a market value less than the exercise
price.
Securities Loans. The Portfolio may make secured loans of its portfolio
securities. The risks in lending Portfolio securities, as with other extensions
of secured credit, consist of possible delay in receiving additional collateral,
or in the recovery of the securities or possible loss of rights in their
collateral should the borrower fail financially.
Short Sales. Short sales are sales of securities that the seller does
not own. The seller must borrow the securities to make delivery to the buyer. A
short sale may be uncollateralized or against-the-box. A short sale is
"against-the-box" if at all times when the short position is open, the seller
owns an equal amount of the securities sold short or securities convertible
into, or exchanged without further consideration for, securities of the same
issue as the securities sold short.
The price of securities purchased to replace borrowed securities sold
short may be greater than proceeds received in the short sale resulting in a
loss to the Portfolio.
U.S. Government Securities. U.S. Government securities include direct
obligations of the U.S. Government that are supported by its full faith and
credit, like Treasury bills and GNMA certificates. Treasury bills have initial
maturities of less than one year, Treasury notes have initial maturities of one
to ten years and Treasury bonds may be issued with any maturity but generally
have maturities of at least ten years. U.S. Government securities also include
indirect obligations of the U.S. Government that are issued by federal agencies
and government-sponsored entities, like bonds and notes issued by the Federal
Home Loan Bank, Fannie Mae, and Sallie Mae. Unlike Treasury securities, agency
securities generally are not backed by the full faith and credit of the U.S.
Government. Some agency securities are supported by the right of the issuer to
borrow from the Treasury, others are supported by the discretionary authority of
the U.S. Government to purchase the agency's obligations and others are
supported only by the credit of the sponsoring agency.
U.S. Government securities are subject to interest rate risk. Credit risk
is remote.
Defensive Investments
Under adverse market or economic conditions, a Portfolio could invest
for temporary defensive purposes some or all of its assets in money market
securities or utilize other investment strategies that may be inconsistent with
a Portfolio's principal investment strategy. Although a Portfolio would employ
these measures only in seeking to avoid losses, they could reduce the benefit
from an upswing in the market or prevent the Portfolio from meeting its
investment objective.
Portfolio Turnover
The Portfolios' Advisers will sell a security when they believe it is
appropriate to do so, regardless of how long a Portfolio has owned that
security. Buying and selling securities generally involves some expense to a
Portfolio, such as commissions paid to brokers and other transaction costs.
Generally speaking, the higher a Portfolio's annual portfolio turnover rate, the
greater its brokerage costs. Increased brokerage costs may adversely affect a
Portfolio's performance. The Portfolios, with the exception of BlackRock U.S.
Government Income Portfolio, J.P. Morgan Quality Bond Portfolio, J.P. Morgan
Select Equity Portfolio, Lord Abbett Growth Opportunities Portfolio, PIMCO Money
Market Portfolio, PIMCO Innovation Portfolio, Putnam Research Portfolio, MFS Mid
Cap Growth Portfolio, MFS Research International Portfolio and Janus Aggressive
Growth Portfolio generally intend to purchase securities for long-term
investment and therefore will have a relatively low turnover rate. Annual
turnover rate of 100% or more is considered high and will result in increased
costs to the Portfolios. BlackRock U.S. Government Income Portfolio, J.P. Morgan
Quality Bond Portfolio, J.P. Morgan Select Equity Portfolio, Lord Abbett Growth
Opportunities Portfolio, PIMCO Money Market Portfolio, PIMCO Innovation
Portfolio, Putnam Research Portfolio, MFS Mid Cap Growth Portfolio, MFS Research
International Portfolio and Janus Aggressive Growth Portfolio generally will
have annual turnover rates of 100% or more.
Downgrades in Fixed Income Debt Securities
Unless required by applicable law, the Portfolios are not required to
sell or dispose of any debt security that either loses its rating or has its
rating reduced after a Portfolio purchases the security.
<PAGE>
Management
The Trust's Board of Trustees is responsible for managing the business
affairs of the Trust. The Trustees meet periodically to review the affairs of
the Trust and to establish certain guidelines which the Manager and Advisers are
expected to follow in implementing the investment policies and objectives of the
Trust. The Trustees also review the management of the Portfolios' assets by the
Advisers. Information about the Trustees and executive officers of the Trust is
contained in the SAI.
The Manager
Met Investors Advisory Corp. (formerly known as Security First
Investment Management Corp.) (the "Manager"), 610 Newport Center Drive, Suite
1350, Newport Beach, California 92660, has overall responsibility for the
general management and administration of all of the Portfolios. The Manager
selects and pays the fees of the Advisers for each of the Trust's Portfolios and
monitors each Adviser's investment program. The Manager is an indirect
wholly-owned subsidiary of Metropolitan Life Insurance Company.
As compensation for its services to the Portfolios, the Manager
receives monthly compensation at an annual rate of a percentage of' the average
daily net assets of each Portfolio. The advisory fees for each Portfolio are:
<TABLE>
<CAPTION>
-------------------------------------------------------------- ----------------------------------------------------------
Portfolio Advisory Fee
<S> <C>
-------------------------------------------------------------- ----------------------------------------------------------
-------------------------------------------------------------- ----------------------------------------------------------
BlackRock Equity Portfolio 0.65%
-------------------------------------------------------------- ----------------------------------------------------------
-------------------------------------------------------------- ----------------------------------------------------------
BlackRock U.S. Government Income Portfolio 0.55%
-------------------------------------------------------------- ----------------------------------------------------------
-------------------------------------------------------------- ----------------------------------------------------------
J.P. Morgan Quality Bond Portfolio 0.55% of first $75 million of such assets plus 0.50% of
such assets over $75 million
-------------------------------------------------------------- ----------------------------------------------------------
-------------------------------------------------------------- ----------------------------------------------------------
J.P. Morgan Small Cap Stock Portfolio 0.85%
-------------------------------------------------------------- ----------------------------------------------------------
-------------------------------------------------------------- ----------------------------------------------------------
J.P. Morgan Enhanced Index Portfolio 0.60% of first $50 million of such assets plus 0.55% of
such assets over $50 million
-------------------------------------------------------------- ----------------------------------------------------------
-------------------------------------------------------------- ----------------------------------------------------------
J.P. Morgan Select Equity Portfolio 0.65% of first $50 million of such assets plus 0.60% of
such assets over $50 million
-------------------------------------------------------------- ----------------------------------------------------------
-------------------------------------------------------------- ----------------------------------------------------------
J.P. Morgan International Equity Portfolio 0.80% of first $50 million of such assets plus 0.75% of
such assets over $50 million up to $350 million plus
0.70% of such assets over $350 million
-------------------------------------------------------------- ----------------------------------------------------------
-------------------------------------------------------------- ----------------------------------------------------------
Lord Abbett Bond Debenture Portfolio 0.60%
-------------------------------------------------------------- ----------------------------------------------------------
-------------------------------------------------------------- ----------------------------------------------------------
Lord Abbett Mid-Cap Value Portfolio
0.70% of first
$200 million of
such assets plus
0.65% of such
assets over $200
million up to
$500 million plus
0.625% of such
assets over $500
million
-------------------------------------------------------------- ----------------------------------------------------------
-------------------------------------------------------------- ----------------------------------------------------------
Lord Abbett Developing Growth Portfolio 0.75%
-------------------------------------------------------------- ----------------------------------------------------------
-------------------------------------------------------------- ----------------------------------------------------------
Lord Abbett Growth and Income Portfolio
0.60% of first
$800 million of
such assets plus
0.55% of such
assets over $800
million up to $2
billion plus
0.50% of such
assets over $2
billion
-------------------------------------------------------------- ----------------------------------------------------------
-------------------------------------------------------------- ----------------------------------------------------------
Lord Abbett Growth Opportunities Portfolio 0.70%
of first $200
million of such
assets plus 0.65%
of such assets
over $200 million
up to $500
million plus
0.625% of such
assets over $500
million
-------------------------------------------------------------- ----------------------------------------------------------
-------------------------------------------------------------- ----------------------------------------------------------
Firstar Balanced Portfolio 1.00%
-------------------------------------------------------------- ----------------------------------------------------------
-------------------------------------------------------------- ----------------------------------------------------------
Firstar Equity Income Portfolio 1.00%
-------------------------------------------------------------- ----------------------------------------------------------
-------------------------------------------------------------- ----------------------------------------------------------
Firstar Growth & Income Equity Portfolio 1.00%
-------------------------------------------------------------- ----------------------------------------------------------
-------------------------------------------------------------- ----------------------------------------------------------
Putnam Research Portfolio 0.80% of first $250 million of such assets plus 0.75% of
such assets over $250 million
-------------------------------------------------------------- ----------------------------------------------------------
-------------------------------------------------------------- ----------------------------------------------------------
Oppenheimer Capital Appreciation Portfolio 0.65%
of first $150
million of such
assets plus
0.625% of such
assets over $150
million up to
$300 million plus
0.60% of such
assets over $300
million up to
$500 million plus
0.55% of such
assets over $500
million
-------------------------------------------------------------- ----------------------------------------------------------
-------------------------------------------------------------- ----------------------------------------------------------
PIMCO Total Return Portfolio 0.50%
-------------------------------------------------------------- ----------------------------------------------------------
-------------------------------------------------------------- ----------------------------------------------------------
PIMCO Money Market 0.40%
-------------------------------------------------------------- ----------------------------------------------------------
-------------------------------------------------------------- ----------------------------------------------------------
PIMCO Innovation 1.05%
-------------------------------------------------------------- ----------------------------------------------------------
-------------------------------------------------------------- ----------------------------------------------------------
MFS Mid Cap Growth Portfolio 0.65%
of first $150
million of such
assets plus
0.625% of such
assets over $150
million up to
$300 million plus
0.60% of such
assets over $300
million
-------------------------------------------------------------- ----------------------------------------------------------
-------------------------------------------------------------- ----------------------------------------------------------
MFS Research International Portfolio 0.80%
of first $200
million of such
assets plus 0.75%
of such assets
over $200 million
up to $500
million plus
0.70% of such
assets over $500
million up to $1
billion plus
0.65% of such
assets over $1
billion
-------------------------------------------------------------- ----------------------------------------------------------
-------------------------------------------------------------- ----------------------------------------------------------
Janus Aggressive Growth Portfolio 0.80%
of first $100
million of such
assets plus 0.75%
of such assets
over $100 million
up to $500
million plus
0.70% of such
assets over $500
million
-------------------------------------------------------------- ----------------------------------------------------------
</TABLE>
Expense Limitation Agreement
In the interest of limiting expenses of each Portfolio until February,
2002 (except for the BlackRock Equity, BlackRock U.S. Government Income, J.P.
Morgan Small Cap and J.P. Morgan Select Equity Portfolios), the Manager has
entered into an expense limitation agreement with the Trust with respect to
those Portfolios ("Expense Limitation Agreement"). Pursuant to that Expense
Limitation Agreement, the Manager has agreed to waive or limit its fees and to
assume other expenses so that the total annual operating expenses of each
Portfolio other than interest, taxes, brokerage commissions (other expenditures
which are capitalized in accordance with generally accepted accounting
principles, other extraordinary expenses not incurred in the ordinary course of
each Portfolio's business and amounts payable pursuant to a plan adopted in
accordance with Rule 12b-1 under the Investment Company Act of 1940, as amended
(the "1940 Act") are limited to the following respective expense ratios:
Expense Limitation Provisions
------------------------------------------- ---------------------------------
Total Expenses Limited to (% of
Portfolios daily net assets)
------------------------------------------- ---------------------------------
J.P. Morgan Quality Bond 0.60%
J.P. Morgan Enhanced Index 0.65%
J.P. Morgan International Equity 1.05%
Lord Abbett Bond Debenture 0.70%
Lord Abbett Mid-Cap Value 0.95%
Lord Abbett Developing Growth 0.95%
Lord Abbett Growth & Income 0.65%
Lord Abbett Growth Opportunities 0.85%
Firstar Balanced 1.10%
Firstar Income Equity 1.10%
Firstar Growth & Income Equity 1.10%
Putnam Research 0.85%
Oppenheimer Capital Appreciation 0.75%
PIMCO Total Return 0.65%
PIMCO Money Market 0.50%
PIMCO Innovation 1.10%
MFS Mid Cap Growth 0.80%
MFS Research International 1.00%
Janus Aggressive Growth 0.85%
Each Portfolio may at a later date reimburse to the Manager the
management fees waived or limited and other expenses assumed and paid by the
Manager pursuant to the Expense Limitation Agreement provided such Portfolio has
reached a sufficient asset size to permit such reimbursement to be made without
causing th e total annual expense ratio of each Portfolio to exceed the
percentage limits stated above. Consequently, no reimbursement by a Portfolio
will be made unless: (i) the Portfolio's assets exceed $100 million; (ii) the
Portfolio's total annual expense ratio is less than the respective percentages
stated above; and (iii) the payment of such reimbursement has been approved by
the Trust's Board of Trustees on a quarterly basis.
The total amount of reimbursement to which the Manager may be entitled
will equal, at any time, the sum of (i) all investment management fees
previously waived or reduced by the Manager and (ii) all other payments
previously remitted by the Manager to the Portfolio during any of the previous
five fiscal years, less any reimbursement that the Portfolio has previously paid
to the Manager with respect to (a) such investment management fees previously
waived or reduced and (b) such other payments previously remitted by the Manager
to the Portfolio.
The Advisers
Under the terms of the agreements between each Adviser and the Manager,
the Adviser will develop a plan for investing the assets of each Portfolio,
select the assets to be purchased and sold by each Portfolio, select the
broker-dealer or broker-dealers through which the Portfolio will buy and sell
its assets, and negotiate the payment of commissions, if any, to those
broker-dealers. Each Adviser follows the policies set by the Manager and the
Board of Trustees for each of the Portfolios. Day-to-day management of the
investments in each Portfolio is the responsibility of the Adviser's portfolio
managers. The portfolio managers of each Portfolio are indicated below following
a brief description of each Adviser.
The Trust and the Manager have filed an exemptive application
requesting an exemptive order from the Securities and Exchange Commission that
will permit the Manager, subject to certain conditions, and without the approval
of shareholders to: (a) employ a new unaffiliated investment adviser for a
Portfolio pursuant to the terms of a new investment advisory agreement, in each
case either as a replacement for an existing Adviser or as an additional
Adviser; (b) change the terms of any investment advisory agreement; and (c)
continue the employment of an existing Adviser on the same advisory contract
terms where a contract has been assigned because of a change in control of the
Adviser. In such circumstances, shareholders would receive notice of such
action, including the information concerning the Adviser that normally is
provided in a proxy statement. The exemptive order would also permit disclosure
of fees paid to multiple unaffiliated Advisers of a Portfolio on an aggregate
basis only. There is no assurance that the Securities and Exchange Commission
will grant the Trust's and the Manager's application.
The Manager pays each Adviser a fee based on the Portfolio's average
daily net assets. No Portfolio is responsible for the fees paid to each of the
Advisers.
J.P. MORGAN INVESTMENT MANAGEMENT INC. ("J.P. Morgan"), 522 Fifth Avenue, New
York, New York 10036, a wholly-owned subsidiary of J.P. Morgan & Co.,
Incorporated, is the Adviser for the J.P. Morgan Quality Bond, J.P. Morgan
International Equity, J.P. Morgan Select Equity, J.P. Morgan Enhanced Index and
J.P. Morgan Small Cap Stock Portfolios of the Trust. The Adviser and its
affiliates had approximately $373 billion under management as of September 30,
2000.
J.P. Morgan Quality Bond Portfolio
o Jay A. Gladieux, Vice President of the Adviser. Mr. Gladieux is a portfolio
manager in the U.S. Fixed Income Group. A J.P. Morgan employee for the past
three years, he concentrates on broad market strategies. Prior to that, Mr.
Gladieux spent 15 years at Morgan Stanley & Co., of which, the last 13
years were in the fixed income division focusing on the mortgage,
derivative, and non-dollar businesses.
o James J. Dougherty, Vice President of the Adviser. Mr. Dougherty joined
J.P. Morgan in 1986 and is Head of Fixed Income Trading and Strategy
Implementation. Prior to his current assignment, Mr. Dougherty was co-Head
of the mortgage investment team with primary responsibility for asset
backed and commercial mortgage-backed securities investments.
J.P. Morgan Enhanced Index Portfolio
o Nanette Buziak, Vice President of the Adviser. Ms. Buziak is a portfolio
manager in the Adviser's Structured Equity Group with responsibility for
the daily implementation and maintenance of structured equity portfolios.
Prior to joining J.P. Morgan in 1997, Ms. Buziak spent four years at First
Marathon America, Inc., where she traded Convertible Bond Arbitrage and
Stock Index Arbitrage strategies.
o Timothy J. Devlin, Vice President of the Adviser. Mr. Devlin is a portfolio
manager in the Adviser's Structured Equity Group. Prior to joining J.P.
Morgan in 1996, Mr. Devlin was with Mitchell Hutchins Asset Management
where he managed risk-controlled equity portfolios including index,
enhanced index and market neutral strategies.
o Joseph P. Gill, Vice President of the Adviser. Mr. Gill is a portfolio
manager in the Adviser's Structured Equity Group. Prior to joining J.P.
Morgan in 1996, Mr. Gill was a portfolio manager and client adviser at Bank
of Tokyo - Mitsubishi Asset Management where he had direct investment and
relationship responsibilities.
J.P. Morgan International Equity Portfolio
o Nigel F. Emmett, Vice President of the Adviser. Mr. Emmett is a portfolio
manager with the Adviser's International Equity Group. Prior to joining
J.P. Morgan in 1997, Mr. Emmett was employed by Brown Brothers Harriman &
Co. in New York from 1995 to 1997 and by Gartmore Investment Management and
Equitable Life Insurance in London prior to that time.
o Paul Quinsee, Managing Director of the Adviser. Mr. Quinsee, an
international equity portfolio manager and Vice-Chairman of the Adviser's
International Equity Strategy Group, relocated to the Adviser's New York
office in 1996. He joined the Adviser's London office in 1992 as an
international portfolio manager.
J.P. Morgan Small Cap Stock Portfolio
o Marian U. Pardo, Managing Director of the Adviser. Ms. Pardo is a portfolio
manager and Head of the Adviser's small company investment team. She has
been with J.P. Morgan since 1968, having joined the investment management
business in 1980 as a research analyst. Ms. Pardo has held a number of
positions at J.P. Morgan including managing equity and convertible funds
and large- cap equity portfolios for individual clients and institutional
investors.
o Alexandra Wells, Vice President of the Adviser. Ms. Wells is a portfolio
manager in the Small Cap Equity Group. She joined J.P. Morgan in 1992
initially working as an analyst in the Equity Research department before
moving to the Equity and Balanced Group as a portfolio manager in 1995. Ms.
Wells transferred to the Adviser's London office in 1997 where she spent a
year as a portfolio manager responsible for U.S. equities before joining
the Small Cap Equity Group in March, 1998.
J.P. Morgan Select Equity Portfolio
o Thomas M. Luddy, Managing Director of the Adviser. Mr. Luddy is Head of
U.S. Equity Research. A J.P. Morgan employee since 1976, Mr. Luddy has held
numerous key positions in the firm, including such roles as, Global Head of
Equity and Chief Investment Officer. He started as an equity research
analyst, becoming a portfolio manager in 1982 and has managed portfolios in
his various roles for most of the past 18 years.
o James Russo, Vice President of the Adviser. Mr. Russo is a portfolio
manager in the Adviser's Equity Group. A J.P. Morgan employee since 1994,
Mr. Russo previously served in the equity research group as an analyst
covering consumer cyclical stocks.
LORD, ABBETT & CO. ("Lord Abbett"), 90 Hudson Street, Jersey City, NJ 07302, is
the Adviser to the Lord Abbett Bond Debenture, Lord Abbett Mid-Cap Value, Lord
Abbett Developing Growth , Lord Abbett Growth and Income and Lord Abbett Growth
Opportunities of the Trust. Lord Abbett has been an investment manager for 70
years and as of September 30, 2000 managed approximately $34.9 billion in a
family of mutual funds and other advisory accounts.
Lord Abbett Bond Debenture Portfolio
o Lord Abbett uses a team of investment managers and analysts acting together
to manage the Portfolio's investments. Christopher J. Towle, Partner of
Lord Abbett, heads the team, the other senior members of which include
Richard Szaro, Michael Goldstein and Thomas Baade. Messrs. Towle and Szaro
have been with Lord Abbett since 1988 and 1983, respectively. Mr. Goldstein
has been with Lord Abbett since 1997. Before joining Lord Abbett, Mr.
Goldstein was a bond trader for Credit Suisse BEA Associates from August
1992 through April 1997. Mr. Baade joined Lord Abbett in 1998; prior to
that he was a credit analyst with Greenwich Street Advisors.
Lord Abbett Mid-Cap Value Portfolio
o Lord Abbett uses a team of investment managers and analysts acting together
to manage the Portfolio's investments. Edward K. von der Linde, Investment
Manager, heads the team, the other senior members are Eileen Banko, Howard
Hansen, and David Builder. Both Mr. von der Linde , Ms. Banko, and Mr.
Hansen have been with Lord Abbett for more than five years. Mr. Builder
joined Lord Abbett in 1998; prior to that he was an analyst at Bear Stearns
from 1996 to 1998 and at Weiss, Peck & Greer from 1994 to 1995.
Lord Abbett Developing Growth Portfolio
o Lord Abbett uses a team of investment managers and analysts acting together
to manage the Portfolio's investments. Stephen J. McGruder, Partner of Lord
Abbett, heads the team, the other senior members include Lesley-Jane Dixon
and Rayna Lesser. Mr. McGruder and Ms. Dixon have been with Lord Abbett
since 1995; Ms. Lesser has been with Lord Abbett since 1996. Ms. Lesser
joined Lord Abbett directly from Barnard College.
Lord Abbett Growth and Income Portfolio
o Lord Abbett uses a team of portfolio managers and analysts acting together
to manage the Portfolio's investments. The portfolio management team is
headed by Robert G. Morris, W. Thomas Hudson and Eli Salzman. Messrs.
Morris and Hudson, Partners of Lord Abbett, have been with Lord Abbett for
more than five years. Mr. Salzman joined Lord Abbett in 1997; prior to that
he was a Vice President with Mutual of America Capital Corp. from 1996 to
1997, and was a Vice President at Michell Hutchins Asset Management Inc.
from 1986 to 1996.
Lord Abbett Growth Opportunities Portfolio
o Lord Abbett uses a team of portfolio managers and analysts acting together
to manage the Portfolio's investments. The senior members of the team
include Kevin P. Ferguson, Stephen J. McGruder and Frederic D. Ohr . Mr.
Ferguson joined Lord Abbett in 1999. From 1992 until 1999, Mr. Ferguson was
a Portfolio Manager/Senior Vice President at Lynch & Mayer, Inc. Mr.
McGruder, Partner of Lord Abbett, has been with Lord Abbett since 1995. Mr.
Ohr joined Lord Abbett in 1998. Before joining Lord Abbett, Mr. Ohr was a
Vice President and Senior Analyst with Chase Asset Management from 1991 to
1998.
PRIOR EXPERIENCE WITH COMPARABLE FUND
The Lord Abbett Growth Opportunities Portfolio and the Lord Abbett
Growth Opportunities Fund have substantially similar investment objectives,
policies, and strategies. Since the Portfolio commenced operations in February
2001, it does not have any operating history. In order to provide you with
information regarding the investment capabilities of Lord Abbett, performance
information regarding the Lord Abbett Growth Opportunities Fund is presented.
Such performance information should not be relied upon as an indication of the
future performance on the Portfolio.
The table below compares the Lord Abbett Growth Opportunities Fund's
average annual compounded total returns for the 1- and 5-year periods and since
inception of the Class A shares on 8/1/95 through 12/31/00 with the Russell Mid
Cap Growth Index and the S&P Mid Cap 400 Index. The Russell Mid Cap Growth Index
is an unmanaged index which measures the performance of the 800 smallest
companies in the Russell 1000 Index which represents approximately 24% of the
total market capitalization of the Russell 1000 Index. The median market
capitalization is approximately $3.2 billion. The S&P 400 Mid Cap Index is an
unmanaged market weighted index of 400 domestic stocks chosen for market size
(median market capitalization of about $610 million), liquidity, and industry
group representation. An index does not include transaction costs associated
with buying and selling securities or any mutual fund expenses. It is not
possible to invest directly in an index. The calculations of total return assume
the reinvestment of all dividends and capital gain distributions and the
deduction of all recurring expenses that were charged to shareholder accounts.
These figures do not include the effect of Contract charges. If these Contract
charges had been included, performance would have been lower.
<TABLE>
<CAPTION>
------------------------------------------------------------ ---------------------------------------------------------
Average Annual Total Return as of 12/31/00
------------------------------------------------------------ ---------------------------------------------------------
------------------------------------------------------------ ------------------ ------------------- ------------------
1 Year 5 Year Since Inception
<S> <C> <C> <C>
------------------------------------------------------------ ------------------ ------------------- ------------------
------------------------------------------------------------ ------------------ ------------------- ------------------
Lord Abbett Growth Opportunities Fund -
Class A shares (with sales charge)
------------------------------------------------------------ ------------------ ------------------- ------------------
------------------------------------------------------------ ------------------ ------------------- ------------------
Lord Abbett Growth Opportunities Fund -
Class A shares (without sales charge)
------------------------------------------------------------ ------------------ ------------------- ------------------
------------------------------------------------------------ ------------------ ------------------- ------------------
Russell Mid Cap Growth Index
------------------------------------------------------------ ------------------ ------------------- ------------------
------------------------------------------------------------ ------------------ ------------------- ------------------
S & P Mid Cap 400 Index
------------------------------------------------------------ ------------------ ------------------- ------------------
</TABLE>
Firstar Investment Research & Management Company, LLC ("FIRMCO"), Firstar
Center, 777 East Wisconsin Avenue, 8th Floor, Milwaukee, Wisconsin 53202, is the
Adviser to the Firstar Balanced, Firstar Equity Income and Firstar Growth &
Income Equity Portfolios of the Trust. FIRMCO is a subsidiary of Firstar
Corporation. As of September 30, 2000, FIRMCO had approximately $30 billion in
assets under investment management.
Firstar Balanced Portfolio
o Robert Bernstein, CFA, an Investment Officer of the Adviser,
joined Firstar Corporation in 1992 and has over 20 years
investment management experience, both as a research analyst
and portfolio manager. He is currently a member of the Equity
Management Committee.
Firstar Equity Income Portfolio
o Joseph Belew, a Vice President of the Adviser, joined Firstar Corporation
in 1979 and has over 21 years investment management experience .
Firstar Growth & Income Equity Portfolio
o Marian Zentmyer, CFA, joined Firstar Corporation as a
financial planning and research analyst in 1982 and became an
equity fund manager in 1989. She has 21 years of investment
management experience and was named Chief Equity Investment
Officer of FIRMCO in 1998.
BLACKROCK ADVISORS, INC. ("BlackRock"), 345 Park Avenue, New York, New York,
10154, is the Adviser to the BlackRock Equity and BlackRock U.S. Government
Income Portfolios of the Trust. BlackRock is a wholly-owned subsidiary of
BlackRock, Inc. which is, in turn, a subsidiary of PNC Bank, N.A. ("PNC")
BlackRock, Inc. is a fully integrated money management firm with global fixed
income, equity and cash management capabilities. As of September 30, 2000,
BlackRock, Inc. and its subsidiaries managed or administered approximately $191
billion in assets.
BlackRock Equity Portfolio
o R. Andrew Damm, Managing Director. Mr. Damm specializes in large cap growth
and core equity products. He is also responsible for risk modeling and
quantitative analysis. Prior to joining BlackRock in July, 2000, Mr. Damm
was with PNC Asset Management Group. He joined PNC in 1995 as Senior
Investment Strategist, responsible for managing the equity portion of
balanced portfolios and the asset allocation for PNC's blended portfolio
products. Previously he was a portfolio manager with PNC's Investment
Management and Trust Division.
BlackRock U.S. Government Income Portfolio
o Scott Amero, Managing Director. Mr. Amero joined BlackRock in 1990 and has
been a Managing Director since March, 1998. Mr. Amero is also a member of
the Adviser's Investment Strategy Committee and a Vice President for
BlackRock's family of closed-end mutual funds and the Smith Barney
Adjustable Rate Government Income Fund.
OPPENHEIMERFUNDS, INC. ("Oppenheimer"), Two World Center, 34th Floor, New York,
New York 10048-0203, is the Adviser to the Oppenheimer Capital Appreciation
Portfolio of the Trust. Oppenheimer has operated as an investment adviser since
January 1960. Oppenheimer (including subsidiaries) managed more than $120
billion in assets as of September 30, 2000, including other Oppenheimer funds
with more than 5 million shareholder accounts.
o Jane Putnam, Vice President and Manager. Ms. Putnam has been associated
with Oppenheimer as a portfolio manager since July 1995.
PRIOR EXPERIENCE WITH COMPARABLE FUND
The Oppenheimer Capital Appreciation Portfolio and the Oppenheimer
Capital Appreciation Fund have substantially similar investment objectives,
policies, and strategies. Since the Portfolio commenced operations in February
2001, it does not have any operating history. In order to provide you with
information regarding the investment capabilities of Oppenheimer, performance
information regarding the Oppenheimer Capital Appreciation Fund is presented.
Such performance information should not be relied upon as an indication of the
future performance on the Portfolio.
The table below compares the Oppenheimer Capital Appreciation Fund's average
annual compounded total returns for the 1-,5- and 10-year periods through
12/31/00 with the S & P 500 Index. An index does not include transaction costs
associated with buying and selling securities or any mutual fund expenses. It is
not possible to invest directly in an index. The calculations of total return
assume the reinvestment of all dividends and capital gain distributions and the
deduction of all recurring expenses that were charged to shareholder accounts.
These figures do not include the effect of Contract charges. If these Contract
charges had been included, performance would have been lower.
<TABLE>
<CAPTION>
---------------------------------------------------- -----------------------------------------------------------------
Average Annual Total Return as of 12/31/00
---------------------------------------------------- -----------------------------------------------------------------
---------------------------------------------------- --------------------- ---------------------- --------------------
1 Year 5 Year 10 Year
<S> <C> <C> <C>
---------------------------------------------------- --------------------- ---------------------- --------------------
---------------------------------------------------- --------------------- ---------------------- --------------------
Oppenheimer Capital Appreciation Fund - Class A
shares (with sales charge)
---------------------------------------------------- --------------------- ---------------------- --------------------
---------------------------------------------------- --------------------- ---------------------- --------------------
Oppenheimer Capital Appreciation Fund - Class A
shares (without sales charge)
---------------------------------------------------- --------------------- ---------------------- --------------------
---------------------------------------------------- --------------------- ---------------------- --------------------
S & P 500 Index
---------------------------------------------------- --------------------- ---------------------- --------------------
PUTNAM INVESTMENT MANAGEMENT, LLC ("Putnam"), One Post Office Square, Boston,
Massachusetts, 02109 is the Adviser to the Putnam Research Portfolio of the
Trust. Putnam has been managing mutual funds since 1937 and is an indirect
subsidiary of Marsh & McLennan Companies. As of September 30, 2000, Putnam had
approximately $406 billion in assets under investment management.
o Putnam's Global Equity Research Team has primary
responsibility for the day-to-day management of the Portfolio.
PRIOR EXPERIENCE WITH COMPARABLE FUND
The Putnam Research Portfolio and the Putnam Research Fund have
substantially similar investment objectives, policies, and strategies. Since the
Portfolio commenced operations in February 2001, it does not have any operating
history. In order to provide you with information regarding the investment
capabilities of Putnam, performance information regarding the Fund is presented.
Management fees paid by the Putnam Research Fund are less than the fees paid by
the Portfolio. If the same level of management fees charged to the Portfolio had
been charged to the Putnam Research Fund, the average annual return during the
periods would have been approximately 0.19% lower than the numbers set forth
below. This result assumes that the current management fee paid by the Putnam
Research Fund, as a percentage of average net asset, applied to all prior
periods. Such performance information should not be relied upon as an indication
of the future performance on the Portfolio.
The table below compares the Putnam Research Fund's average annual
compounded total returns for the 1-, 5- and 10- year periods through 12/31/00
with the S&P 500 Index. An index does not include transaction costs associated
with buying and selling securities or any mutual fund expenses. It is not
possible to invest directly in an index. The calculations of total return assume
the reinvestment of all dividends and capital gain distributions and the
deduction of all recurring expenses that were charged to shareholder accounts.
These figures do not include the effect of Contract charges. If these Contract
charges had been included, performance would have been lower.
-------------------------------------------------- -------------------------------------------------------------------
Average Annual Total Return as of 12/31/00
-------------------------------------------------- -------------------------------------------------------------------
-------------------------------------------------- ---------------------- ---------------------- ---------------------
1 Year 5 Year 10 Year
-------------------------------------------------- ---------------------- ---------------------- ---------------------
-------------------------------------------------- ---------------------- ---------------------- ---------------------
Putnam Research Fund -
Class A shares (with sales charge)
-------------------------------------------------- ---------------------- ---------------------- ---------------------
-------------------------------------------------- ---------------------- ---------------------- ---------------------
Putnam Research Fund -
Class A shares (without sales charge)
-------------------------------------------------- ---------------------- ---------------------- ---------------------
-------------------------------------------------- ---------------------- ---------------------- ---------------------
S&P 500 Index
-------------------------------------------------- ---------------------- ---------------------- ---------------------
PACIFIC INVESTMENT MANAGEMENT COMPANY LLC ("PIMCO"), 840 Newport Center Drive,
Newport Beach, California 92660, is the Adviser to the PIMCO Total Return and
PIMCO Money Market Portfolios of the Trust. PIMCO is a subsidiary of PIMCO
Advisors L.P., which in turn, is controlled by Allianz AG, a European-based,
multinational insurance and financial services holding company. Organized in
1971, PIMCO provides investment management and advisory services to private
accounts of institutional and individual clients and to mutual funds. As of
September 30, 2000, PIMCO had approximately $272 billion in assets under
arrangement.
PIMCO Total Return Portfolio
o William H. Gross, is a Managing Director, the Chief Investment Officer and a
founding partner of PIMCO.
PRIOR EXPERIENCE WITH COMPARABLE FUND
The PIMCO Total Return Portfolio and the PIMCO Total Return Fund have
substantially similar investment objectives, policies, and strategies. Since the
Portfolio commenced operations in February 2001, it does not have any operating
history. In order to provide you with information regarding the investment
capabilities of PIMCO, performance information regarding the PIMCO Total Return
Fund is presented. Management fees paid by the PIMCO Total Return Fund are less
than the fees paid by the Portfolio. If the same level of management fees
charged to the Portfolio had been charged to the PIMCO Total Return Fund, the
average annual return during the periods would have been approximately 0.25%
lower than the numbers set forth below. This result assumes that the current
management fee paid by the PIMCO Total Return Fund, as a percentage of average
net assets, applied to all prior periods. Such performance information should
not be relied upon as an indication of the future performance on the Portfolio.
The table below compares the PIMCO Total Return Fund's average annual
compounded total returns for the 1-,5- and 10-year periods through 12/31/00 with
the Lehman Brothers Aggregate Bond Index. The Lehman Brothers Aggregate Bond
Index is an unmanaged index of investment grade, U.S. dollar-denominated fixed
income securities of domestic issuers having a maturity greater than one year.
An index does not include transaction costs associated with buying and selling
securities or any mutual fund expenses. It is not possible to invest directly in
an index. The calculations of total return assume the reinvestment of all
dividends and capital gain distributions and the deduction of all recurring
expenses that were charged to shareholder accounts. These figures do not include
the effect of Contract charges. If these Contract charges had been included,
performance would have been lower.
-------------------------------------------------- -------------------------------------------------------------------
Average Annual Total Return as of 12/31/00
-------------------------------------------------- -------------------------------------------------------------------
-------------------------------------------------- ----------------------- ---------------------- --------------------
1 Year 5 Year 10 Year
-------------------------------------------------- ----------------------- ---------------------- --------------------
-------------------------------------------------- ----------------------- ---------------------- --------------------
PIMCO Total Return Fund -
Institutional shares
-------------------------------------------------- ----------------------- ---------------------- --------------------
-------------------------------------------------- ----------------------- ---------------------- --------------------
Lehman Brothers Aggregate Bond Index
-------------------------------------------------- ----------------------- ---------------------- --------------------
PIMCO Money Market Portfolio
o Paul A. McCulley, Managing Director. He has managed fixed
income assets since joining PIMCO in 1999. Prior to joining
PIMCO, Mr. McCulley was associated with Warburg Dillion Reed
as a Managing Director from 1992 to 1999 and Head of Economic
and Strategy Research for the Americas from 1995 to 1999,
where he managed macro research world-wide.
PRIOR EXPERIENCE WITH COMPARABLE FUND
The PIMCO Money Market Portfolio and the PIMCO Money Market Fund have
substantially similar investment objectives, policies, and strategies. Since the
Portfolio commenced operations in February 2001, it does not have any operating
history. In order to provide you with information regarding the investment
capabilities of PIMCO, performance information regarding the PIMCO Money Market
Fund is presented. Management fees paid by the PIMCO Money Market Fund are less
than the fees paid by the Portfolio. If the same level of management fees
charged to the Portfolio had been charged to the PIMCO Money Market Fund, the
average annual return during the periods would have been approximately 0.35%
lower than the numbers set forth below. This result assumes that the current
management fee paid by the PIMCO Money Market Fund, as a percentage of average
net assets, applied to all prior periods. Such performance information should
not be relied upon as an indication of the future performance on the Portfolio.
The table below compares the PIMCO Money Market Fund's average annual
compounded total returns for the 1- and 5- year periods and since inception of
the Institutional shares on 3/1/91 through 12/31/00 with Salomon 3-Month
Treasury Bill Index. This Index is an unmanaged index representing monthly
return equivalents of yield averages of the last 3 month Treasury Bill issues.
An index does not include transaction costs associated with buying and selling
securities or any mutual fund expenses. It is not possible to invest directly in
an index. The calculations of total return assume the reinvestment of all
dividends and capital gain distributions and the deduction of all recurring
expenses that were charged to shareholder accounts. These figures do not include
the effect of Contract charges. If these Contract charges had been included,
performance would have been lower.
-------------------------------------------------- -------------------------------------------------------------------
Average Annual Total Return as of 12/31/00
-------------------------------------------------- -------------------------------------------------------------------
-------------------------------------------------- ---------------------- ---------------------- ---------------------
1 Year 5 Year Since Inception
-------------------------------------------------- ---------------------- ---------------------- ---------------------
-------------------------------------------------- ---------------------- ---------------------- ---------------------
PIMCO Money Market Fund -
Institutional shares
-------------------------------------------------- ---------------------- ---------------------- ---------------------
-------------------------------------------------- ---------------------- ---------------------- ---------------------
Salomon 3-Month Treasury Bill
*
-------------------------------------------------- ---------------------- ---------------------- ---------------------
*From 2/28/91
PIMCO Equity Advisors, a division of PIMCO Advisors L.P. ("PIMCO Advisors"),
1345 Avenue of the Americas, 50th Floor, New York, New York 10105 is the Adviser
to the PIMCO Innovation Portfolio of the Trust. Organized in 1987, PIMCO
Advisors provides investment management and advisory services to private
accounts of institutional and individual clients and to mutual funds. As of
September 30, 2000, PIMCO Advisors had approximately $260 billion in assets
under management.
o Dennis P. McKechnie, joined PIMCO Advisors in 1999 as a
portfolio manager. From 1991 to 1999, he was a portfolio
manager with Columbus Circle Investors, formerly a subsidiary
of PIMCO Advisors.
PRIOR EXPERIENCE WITH COMPARABLE FUND
The PIMCO Innovation Portfolio and the PIMCO Innovation Fund have
substantially similar investment objectives, policies, and strategies. Since the
portfolio commenced operations in February 2001, it does not have any operating
history. In order to provide you with information regarding the investment
capabilities of PIMCO Advisors, performance information regarding the PIMCO
Innovation Fund is presented. Management fees paid by the PIMCO Innovation Fund
are less than the fees paid by the Portfolio. If the same level of management
fees charged to the Portfolio had been charged to the PIMCO Innovation Fund, the
average annual return during the periods would be approximately 0.40% lower than
the numbers set forth below. This result assumes that the current management fee
paid by the PIMCO Innovation Fund, as a percentage of average net asset, applied
to all prior periods. Such performance information should not be relied upon as
an indication of the future performance on the Portfolio.
The table below compares the PIMCO Innovation Fund's average annual
compounded total returns for the 1- and 5- year periods and since inception on
12/22/94 through 12/31/00 with the S&P 500 Index. An index does not include
transaction costs associated with buying and selling securities or any mutual
fund expenses. It is not possible to invest directly in an index. The
calculations of total return assume the reinvestment of all dividends and
capital gain distributions and the deduction of all recurring expenses that were
charged to shareholder accounts. These figures do not include the effect of
Contract charges. If these Contract charges had been included, performance would
have been lower.
-------------------------------------------------- -------------------------------------------------------------------
Average Annual Total Return as of 12/31/00
-------------------------------------------------- -------------------------------------------------------------------
-------------------------------------------------- ---------------------- ---------------------- ---------------------
1 Year 5 Year Since Inception
-------------------------------------------------- ---------------------- ---------------------- ---------------------
-------------------------------------------------- ---------------------- ---------------------- ---------------------
PIMCO Innovations Fund -
Institutional shares
-------------------------------------------------- ---------------------- ---------------------- ---------------------
-------------------------------------------------- ---------------------- ---------------------- ---------------------
S&P 500 Index
*
-------------------------------------------------- ---------------------- ---------------------- ---------------------
*From ____/94
MASSACHUSETTS FINANCIAL SERVICES COMPANY ("MFS"), 500 Boylston Street, Boston,
Massachusetts 02116, is the Adviser to the MFS Mid Cap Growth and MFS Research
International Portfolios of the Trust. MFS is American's oldest mutual fund
organization. MFS is an indirect subsidiary of Sun Life Assurance Company of
Canada. MFS and its predecessor organizations have a history of money management
dating from 1924 and the founding of the first mutual fund, Massachusetts
Investors Trust. Net assets under the management of the MFS organization were
approximately $157.71 billion as of September 30, 2000.
MFS Mid Cap Growth Portfolio
o Mark Regan, Senior Vice President of the Adviser. Mr. Regan has been
employed in the investment management area of the Adviser since 1989.
o David E. Sette-Ducati, Vice President of the Adviser. Mr. Sette-Ducati has
been employed in the investment management area of the Adviser since 1995.
PRIOR EXPERIENCE WITH COMPARABLE FUND
The MFS Mid Cap Growth Portfolio and the MFS Mid Cap Growth Fund have
substantially similar investment objectives, policies, and strategies. Since the
Portfolio commenced operations in February 2001, it does not have any operating
history. In order to provide you with information regarding investment
capabilities of MFS, performance information regarding the MFS Mid Cap Growth
Fund is presented. Such performance information should not be relied upon as an
indication of the future performance of the Portfolio.
The table below compares the MFS Mid Cap Growth Fund's average
annual compounded total returns for the 1- and 5- year periods and from
inception on 12/1/93 through 12/31/00 with the Russell Mid Cap Growth Index. The
Russell Mid Cap Growth Index is an unmanaged index that measures the performance
of the 800 smallest companies in the Russell 1000 Index, which represents
approximately 24% of the total market capitalization of the Russell 1000 Index.
The Index measures the performance of those companies with higher price-to-book
ratios and higher forecasted growth rates. An index does not include transaction
costs associated with buying and selling securities or any mutual fund expenses.
It is not possible to invest directly in an index. The calculations of total
return assume the reinvestment of all dividends and capital gain distributions
and the deduction of all recurring expenses that were charged to shareholder
accounts. These figures do not include the effect of Contract charges. If these
Contract charges had been included, performance would have been lower.
-------------------------------------------------- ----------------------------------------------------------------------------
Average Annual Total Return as of 12/31/00
-------------------------------------------------- ----------------------------------------------------------------------------
-------------------------------------------------- ----------------------- ----------------------- ----------------------------
1 Year 5 Year Since Inception
-------------------------------------------------- ----------------------- ----------------------- ----------------------------
-------------------------------------------------- ----------------------- ----------------------- ----------------------------
MFS Mid Cap Growth Fund -
Class A shares (with sales charge)
-------------------------------------------------- ----------------------- ----------------------- ----------------------------
-------------------------------------------------- ----------------------- ----------------------- ----------------------------
MFS Mid Cap Growth Fund -
Class A shares (without sales charge)
-------------------------------------------------- ----------------------- ----------------------- ----------------------------
-------------------------------------------------- ----------------------- ----------------------- ----------------------------
Russell Mid Cap Growth Index
-------------------------------------------------- ----------------------- ----------------------- ----------------------------
MFS Research International Portfolio
o The Portfolio is managed by a committee of investment research analysts
under the general supervision of David A. Antonelli, Senior Vice President
and the Director of International Equity Research. Mr. Antonelli has been
employed in the investment management area of MFS since 1991.
PRIOR EXPERIENCE WITH COMPARABLE FUND
The MFS Research International Portfolio and the MFS Research
International Fund have substantially similar investment objectives, policies,
and strategies. Since the Portfolio commenced operations in February 2001, it
does not have any operating history. In order to provide you with information
regarding investment capabilities of MFS, performance information regarding the
MFS Research International Fund is presented. Such performance information
should not be relied upon as an indication of the future performance on the
Portfolio.
The table below compares the MFS Research International Fund's average
annual compounded total returns for the one year period and from inception on
1/2/97 through 12/31/00 with the MSCI EAFE Index. An index does not include
transaction costs associated with buying and selling securities or any mutual
fund expenses. It is not possible to invest directly in an index. The
calculations of total return assume the reinvestment of all dividends and
capital gain distributions and the deduction of all recurring expenses that were
charged to shareholder accounts. These figures do not include the effect of
Contract charges. If these Contract charges had been included, performance would
have been lower.
-------------------------------------------------- -------------------------------------------------------------------
Average Annual Total Return as of 12/31/00
-------------------------------------------------- -------------------------------------------------------------------
-------------------------------------------------- --------------------------------- ---------------------------------
1 Year Since Inception
-------------------------------------------------- --------------------------------- ---------------------------------
-------------------------------------------------- --------------------------------- ---------------------------------
MFS Research International Fund -
Class A shares (with sales charge)
-------------------------------------------------- --------------------------------- ---------------------------------
-------------------------------------------------- --------------------------------- ---------------------------------
MFS Research International Fund -
Class A shares (without sales charge)
-------------------------------------------------- --------------------------------- ---------------------------------
-------------------------------------------------- --------------------------------- ---------------------------------
MSCI EAFE Index
-------------------------------------------------- --------------------------------- ---------------------------------
JANUS CAPITAL CORPORATION, ("JANUS"), 100 Fillmore Street, Denver,
Colorado 80206-4928, is the Adviser to the Janus Aggressive Growth Portfolio of
the Trust. Janus began serving as investment adviser in 1970 and currently
serves as investment adviser to all of the Janus funds, acts as sub-adviser for
a number of private-label mutual funds and provides separate account advisory
services for institutional accounts. Janus is a subsidiary of Stilwell
Financial, Inc. As of September 30, 2000, Janus managed approximately $307.6 in
assets.
o Claire Young, Executive Vice President of the Adviser. Ms. Young has been
the portfolio manager of the Janus Olympus Fund since August, 1997. She
previously served as an assistant portfolio manager of Janus Growth and
Income Fund and Janus Twenty Fund. Ms. Young joined Janus in January, 1992.
The Janus Aggressive Growth Portfolio and the Janus Olympus Fund have
substantially similar investment objectives, policies, and strategies. Since the
Portfolio commenced operations in February 2001, it does not have any operating
history. In order to provide you with information regarding the investment
capabilities of Janus, performance information regarding the Janus Olympus Fund
is presented. Such performance information should not be relied upon as an
indication of the future performance on the Portfolio.
The table below compares the Janus Olympus Fund's average annual
compounded total returns for the 1-, 5- and 10-year periods through 12/31/00
with the S&P 500 Index. An index does not include transaction costs associated
with buying and selling securities or any mutual fund expenses. It is not
possible to invest directly in an index. The calculations of total return assume
the reinvestment of all dividends and capital gain distributions and the
deduction of all recurring expenses that were charged to shareholder accounts.
These figures do not include the effect of Contract charges. If these Contract
charges had been included, performance would have been lower.
-------------------------------------------------- -------------------------------------------------------------------
Average Annual Total Return as of 12/31/00
-------------------------------------------------- -------------------------------------------------------------------
-------------------------------------------------- ---------------------- ---------------------- ---------------------
1 Year 5 Year 10 Year
-------------------------------------------------- ---------------------- ---------------------- ---------------------
-------------------------------------------------- ---------------------- ---------------------- ---------------------
Janus Olympus Fund
-------------------------------------------------- ---------------------- ---------------------- ---------------------
-------------------------------------------------- ---------------------- ---------------------- ---------------------
S&P 500 Index
-------------------------------------------------- ---------------------- ---------------------- ---------------------
</TABLE>
Distribution Plans
Each Portfolio has adopted for its Class B shares a plan pursuant to
Rule 12b-1 under the Investment Company Act of 1940, as amended (the "Plan") and
pursuant to the Plan, entered into a Distribution Agreement with MetLife
Investors Distribution Company located at 610 Newport Center Drive, Suite 1350,
Newport Beach, California 92660. MetLife Investors Distribution Company is an
affiliate of the Manager, and serves as principal underwriter for the Trust. The
Plan permits the use of Trust assets to help finance the distribution of the
shares of the Portfolios. Under the Plan, the Trust, on behalf of the
Portfolios, is permitted to pay to various service providers up to 0.50% of the
average daily net assets of each Portfolio as payment for services rendered in
connection with the distribution of the shares of the Portfolios. Currently,
payments are limited to 0.25% of average net assets, which amount may be
increased to the full Plan amount by the Trustees of the Trust without
shareholder approval. Because these fees are paid out of Trust assets on an
on-going basis, over time these costs will increase the cost of your investment
and may cost you more than other types of sales charges.
<PAGE>
YOUR INVESTMENT
Shareholder Information
The separate accounts of MetLife are the record owner of the
Portfolios' shares. Any reference to the shareholder in this Prospectus
technically refers to those separate accounts and not to you, the Contract owner
or Plan participant. The legal rights of you, the Contract owner or Plan
participant, are different from the legal rights of the record owner.
However, MetLife is required to solicit instructions from the Contract
owners or Plan participants when voting on shareholder issues. Any voting by
MetLife as shareholder would therefore reflect the actual votes of Contract
owners and Plan participants. Please see "Voting Rights" in the prospectus for
the Contracts or Plans accompanying this Prospectus for more information on your
voting rights.
Dividends, Distributions and Taxes
Dividends and Distributions
Each Portfolio intends to distribute substantially all of its net
investment income, if any. Each Portfolio distributes its dividends from its net
investment income to MetLife's separate accounts at least once (except in the
case of the PIMCO Money Market Portfolio whose dividends are declared daily and
paid monthly) a year and not to you, the Contract owner. These distributions are
in the form of additional shares of stock and not cash. The result is that a
Portfolio's investment performance, including the effect of dividends, is
reflected in the cash value of the Contracts. Please see the Contracts
prospectus accompanying this Prospectus for more information.
All net realized long- or short-term capital gains of each Portfolio
are also declared once a year and reinvested in the Portfolio.
Taxes
Please see the Contract or Plan prospectus accompanying this Prospectus
for a discussion of the tax impact on you resulting from the income taxes the
separate accounts owe as a result of their ownership of a Portfolio's shares and
their receipt of dividends and capital gains.
Each Portfolio expects to qualify and to continue to qualify as a
regulated investment company under Subchapter M of the Internal Revenue Code of
1986, as amended ("Code"). As qualified, a Portfolio is not subject to federal
income tax on that part of its taxable income that it distributes to you.
Taxable income consists generally of net investment income, and any capital
gains. It is each Portfolio's intention to distribute all such income and gains.
Shares of each Portfolio are currently offered only to the separate
accounts of MetLife and to qualified pension and retirement plans. Separate
accounts are insurance company separate accounts that fund the policies and the
annuity contracts. Under the Code, an insurance company pays no tax with respect
to income of a qualifying separate account when the income is properly allocable
to the value of eligible variable annuity or variable life insurance contracts.
For a discussion of the taxation of life insurance companies and the separate
accounts, as well as the tax treatment of the policies and annuity contracts and
the holders thereof, see the discussion of federal income tax considerations
included in the respective prospectuses for the Contracts.
Section 817(h) of the Code and the regulations thereunder impose
"diversification" requirements on the assets underlying a Contract. Each
Portfolio intends to maintain diversification which will allow each Contract to
satisfy these requirements. These requirements are in addition to the
diversification requirements imposed on each Portfolio by Subchapter M and the
1940 Act. Technically, the section 817(h) requirements provide that, with
limited exceptions, as of the end of each calendar quarter or within thirty days
thereafter no more than 55% of the assets underlying a Contract may be
represented by any one investment, no more than 70% by any two investments, no
more than 80% by any three investments, and no more than 90% by any four
investments. For this purpose, an investment in a Portfolio is treated not as a
single investment but as an investment in each asset owned by the Portfolio, so
long as shares of the Portfolio are owned only by separate accounts of insurance
companies, by qualified pension and retirement plans, and by a limited class of
other investors. The Portfolios are and will be so owned. Thus so long as each
Portfolio meets the section 817(h) diversification tests, each Contract will
also meet those tests. See the prospectuses for the Contracts.
The foregoing is only a summary of some of the important federal income
tax considerations generally affecting a Portfolio and you; see the SAI for a
more detailed discussion. You are urged to consult your tax advisers.
Report to Policyholders
The fiscal year of each Portfolio ends on December 31 of each year. The
Trust will send to you, at least semi-annually, reports which show the
Portfolios' composition and other information. An annual report, with audited
information, will be sent to you each year.
Sales and Purchases of Shares
The Trust does not sell its shares directly to the public. The Trust
continuously sells shares of each Portfolio only to the separate accounts of
MetLife and to qualified pension and profit-sharing plans. It could also offer
shares to other separate accounts of other insurers if approved by the Board of
Trustees.
Purchase and Redemption of Shares
MetLife Investors Distribution Company, is the principal underwriter
and distributor of the Contracts. MetLife Investors Distribution Company places
orders for the purchase or redemption of shares of each Portfolio based on,
among other things, the amount of net Contract premiums or purchase payments
transferred to the separate accounts, transfers to or from a separate account
investment division and benefit payments to be effected on a given date pursuant
to the terms of the Contracts. Such orders are effected, without sales charge,
at the net asset value per share for each Portfolio determined on that same
date.
Shares are sold and redeemed at their net asset value without the
imposition of any sales commission or redemption charge. Class B shares are
subject to a Rule 12b-1 fee of 0.25% of average daily net assets. (However,
certain sales or other charges may apply to the Plans or Contracts, as described
in the product prospectus.)
Right to Restrict Transfers
Neither the Trust nor the Contracts are designed for professional
market timing organizations, other entities, or individuals using programmed,
large and/or frequent transfers. MetLife, in coordination with the Trust's
Manager and Advisers, reserves the right to temporarily or permanently refuse
exchange requests if, in its 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 Contract
prospectus that accompanies this Prospectus for information on other specific
limitations on the transfer privilege.
Valuation of Shares
Each Portfolio's net asset value per share is ordinarily determined
once daily, as of the close of the regular session of business on the New York
Stock Exchange (NYSE) (usually at 4:00 p.m., Eastern Time), on each day the
Exchange is open.
Net asset value of a Portfolio share is computed by dividing the value
of the net assets of the Portfolio by the total number of shares outstanding in
the Portfolio. Share prices for any transaction are those next calculated after
receipt of an order.
Except for the assets of the PIMCO Money Market Portfolio and other
Portfolios' money market instruments maturing in 60 days or less, securities
held by the Portfolios are valued at market value. If market values are not
readily available, securities are valued at fair value as determined by the
Valuation Committee of the Trust's Board of Trustees.
The assets of the PIMCO Money Market Portfolio are valued on a basis
(amortized cost) designed to maintain the net asset value at $1.00 per share.
Money market instruments of the Trust's other Portfolios maturing in 60 days or
less, are valued on the amortized cost basis.
<PAGE>
FINANCIAL HIGHLIGHTS
The following financial highlights tables are intended to help you
understand each Portfolio's financial performance for the past 5 years (or for
its period of operation in the case of Portfolios that have operated for less
than 5 years). Certain information reflects financial results for a single
Portfolio share. Total return in each table shows how much an investment in a
Portfolio would have increased (or decreased) during each period (assuming
reinvestment of all dividends and distributions). This information with respect
to the Portfolios other than BlackRock Equity Portfolio and BlackRock U.S.
Government Income Portfolio for the years or periods ended on or prior to
December 31, 1999 has been audited by KPMG LLP, whose report, along with each
Portfolio's financial statements, is included in the Annual Report of Cova
Series Trust (the funds of which are predecessors of the Portfolios), which is
available upon request. The information for the six-month period ended June 30,
2000 is unaudited and is included in Cova Series Trust's Semi-Annual Report,
which is available upon request. The information with respect to BlackRock
Equity Portfolio and BlackRock U.S. Government Income Portfolio for the years
ended July 31, 1999 and July 31, 2000 has been audited by Deloitte & Touche LLP.
For the years 1996 through 1998, other independent accountants have audited this
information. Deloitte & Touche LLP's report, along with each Portfolio's
financial statements, is included in the Annual Report of Security First Trust
(the funds of which are predecessors of the Portfolios), which is available upon
request.
<PAGE>
BlackRock Equity Portfolio*
<TABLE>
<CAPTION>
FOR THE YEARS ENDED JULY 31,
2000 1999 1998 1997 1996
<S> <C> <C> <C> <C> <C>
Operating performance:
Net asset value at beginning of year.... $8.54 $8.57 $8.18 $6.05 $5.70
Net investment income................ $.02 $0.06 $.07 $.09 $.10
Net realized and unrealized gains
(losses) on
Investments.......................... $.68 $1.42 $1.04 $2.60 $.46
Total income/(loss) from investment
operations........................... $.70 $1.48 $1.11 $2.69 $.56
Distributions:
Dividends from net investment income.... (.05) (.07) (.08) (.11) (.05)
Distributions from realized capital
gains................................ (.26) (1.44) (.64) (.45) (.16)
Total distributions.................. (.31) (1.51) (.72) (.56) (.21)
Net asset value at, end of year...... $8.93 $8.54 $8.57 $8.18 $6.05
Total return(1)...................... 8.20% 17.27% 13.57% 44.46% 9.82%
Ratios to average net assets/
supplemental data:
Ratio of operating expenses to
average net assets .................. .80% .81% .91%+ 1.00%+ 1.00%
Ratio of net investment income to
average net assets................... .31% .72% .86%+ 1.56%+ 2.24%
Ratio of net expenses to average net
assets ..............................
Portfolio turnover rate.............. 83% 23% 87% 55% 88%
Net assets, end of year.............. $59,015,427 $58,313,162 $54,803,152 $47,571,469 $20,701,776
* On February 5, 2001, the Portfolio received, through a plan of
reorganization, all of the assets and assumed the identified
liabilities of the BlackRock Equity Series, a portfolio of Security
First Trust, that followed the same investment objective as the
Portfolio. The information for each of the periods is that of the
predecessor BlackRock Equity Series whose fiscal year ends were July
31.
(1) Total return computed after deduction of all series expenses, but
before deduction of actuarial risk charges and other fees of the
variable annuity account.
+ The former investment adviser had agreed to waive a portion of its
management and advisory fees. Absent this agreement, the ratio of
expenses to average net assets and the ratio of net investment income
to average net assets would have been .98% and .81% and 1.05% and 1.51%
for 1998 and 1997 respectively.
<PAGE>
BlackRock U.S. Government Income Portfolio*
FOR THE YEARS ENDED JULY 31,
2000 1999 1998 1997 1996
Operating performance:
Net asset value at beginning of year... $5.10 $5.45 $5.36 $5.15 $5.13
Net investment income................ $.30 $.30 $.27 $.23 $.18
Net realized and unrealized gains
(losses) on investments.............. $(.01) $(.24) $.06 $.20 $.04
Total increase/(loss) from
investment operations................ $.29 $.06 $.33 $.43 $.22
Distributions:
Dividends from net investment income... (.29) (.31) (.24) (.22) (.19)
Distributions from realized capital
gains........................................--- (.10) --- --- (.01)
Total distributions.........................(.29) (.41) (.24) (.22) (.20)
Net asset value, end of
Year................................. $5.10 $5.10 $5.45 $5.36 $5.15
Total return(1)...................... 5.69% 1.10% 6.16% 8.35% 4.29%
Ratios to average net assets/
supplemental data:
Ratio of operating expenses to
average net assets .................. .71% .71% .66%+ .70%+ .70%
Ratio of net investment income to
average net assets................... 5.85% 5.37% 5.53%+ 5.68%+ 5.38%
Portfolio turnover rate.............. 159% 307% 103% 62% 148%
Net assets, end of year.............. $32,520,049 $32,312,549 $34,090,919 $28,889,460 $14,888,824
* On February 5, 2001, the Portfolio received, through a plan of
reorganization, all of the assets and assumed the identified
liabilities of the BlackRock U.S. Government Income Series, a portfolio
of Security First Trust, that followed the same investment objective as
the Portfolio. The information for each of the periods is that of the
predecessor BlackRock U.S. Government Income Series whose fiscal year
ends were July 31.
(1) Total return computed after deduction of all series expenses, but
before deduction of actuarial risk charges and other fees of the
variable annuity account.
+ The former investment adviser had agreed to waive a portion of its
management and advisory fees. Absent this agreement, the ratio of
expenses to average net assets and the ratio of net investment income
to average net assets would have been .90% and 5.27% and 1.04% and
5.34% for 1998 and 1997 respectively.
<PAGE>
J.P. Morgan Quality Bond Portfolio*
FOR THE YEARS ENDED DECEMBER 31,
Six Months For the period from May 1,
Ended June 30, 1996 (date of initial
2000 public offering) to
(Unaudited) December 31, 1996
1999 1998 1997
NET ASSET VALUE, BEGINNING OF PERIOD.. $10.669 $11.020 $10.405 $10.082 $9.897
INCOME FROM INVESTMENT OPERATIONS:
Net investment income................. 0.386 0.459 0.490 0.446 0.459
Net realized and unrealized gains
(losses).............................. (0.001) (0.631) 0.365 0.452 0.102
TOTAL FROM INVESTMENT OPERATIONS...... 0.385 (0.172) 0.855 0.898 0.561
DISTRIBUTIONS:
Dividends from net investment income.... (0.647) (0.119) (0.240) (0.531) (0.376)
Dividends from net realized gains....... --- (0.060) --- (0.044) ---
TOTAL DISTRIBUTIONS... (0.647) (0.179) (0.240) (0.575) (0.376)
NET ASSET VALUE, END OF PERIOD........ $10.407 $10.669 $11.020 $10.405 $10.082
TOTAL RETURN.......................... 3.65%+ (1.54)% 8.37% 9.06% 5.68%+
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (In
millions)............................. $91.4 $95.6 $45.8 $18.6 $5.8
RATIOS TO AVERAGE NET ASSETS(1):
Expenses.............................. 0.63%++ 0.64% 0.65% 0.65% 0.65%++
Net investment income................. 6.47%++ 5.67% 5.59% 5.92% 5.94%++
PORTFOLIO TURNOVER RATE............... 135.5%+ 369.5% 255.4% 163.7% 181.3%+
(1) If certain expenses had not been reimbursed by the Adviser, total return would have been lower and the ratios would have
been as follows:
Ratio of Operating Expenses to
Average Net Assets: 0.72%++ 0.71% 0.86% 1.08% 1.52%++
Ratio of Net Investment Income to
Average Net Assets:
6.38%++ 5.60% 5.38% 5.49% 5.07%++
* On February 5, 2001, the Portfolio received, through a plan of
reorganization, all of the assets and assumed the identified
liabilities of the Quality Bond Portfolio, a portfolio of Cova Series
Trust, that followed the same investment objective as the Portfolio.
The information for each of the periods is that of the predecessor
Quality Bond Portfolio.
+ Non-annualized
++ Annualized
(1) Amount is less than 0.00%
<PAGE>
J.P. Morgan Small Cap Stock Portfolio*
FOR THE YEARS ENDED DECEMBER 31,
Six Months For the period from May 1,
Ended 1996 (date of initial
June 30, 2000 public offering) to
(Unaudited) December 31, 1996
1999 1998 1997
NET ASSET VALUE, BEGINNING OF PERIOD..
$17.269 $11.982 $13.105 $10.922 $10.512
INCOME FROM INVESTMENT OPERATIONS:
NET INVESTMENT INCOME.................
0.000+ 0.015 0.051 0.057 0.057
Net realized and unrealized gains
(losses).............................. 0.119 5.307 (0.722) 2.217 0.843
TOTAL FROM INVESTMENT OPERATIONS...... 0.119 5.322 (0.671) 2.274 0.900
DISTRIBUTIONS:
Dividends from net investment income.... ---+ (0.035) (0.017) (0.055) (0.055)
Dividends from net realized gains....... (0.688) --- (0.435) (0.036) (0.435)
TOTAL DISTRIBUTIONS..................... (0.688) (0.035) (0.452) (0.091) (0.490)
NET ASSET VALUE, END OF PERIOD........ $16.700 $17.269 $11.982 $13.105 $10.922
TOTAL RETURN.......................... 0.80%++ 44.56% (5.40)% 20.89% 8.65%++
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (In
millions)............................. $113.2 $109.3 $78.2 $59.8 $14.7
RATIOS TO AVERAGE NET ASSETS(1):
Expenses.............................. 1.03%+++ 1.05% 0.95% 0.95% 0.95%+++
Net investment income................. 0.00%+++(1) 0.11% 0.45% 0.56% 0.87%+++
PORTFOLIO TURNOVER RATE............... 5.74%++ 123.5% 62.4% 79.1% 102.4%++
(1) If certain expenses had not been reimbursed by the Adviser, total return would have been lower and the ratios would have
been as follows:
Ratio of Operating Expenses to
Average Net Assets: N/A 1.09% 1.12% 1.39% 2.68%+++
Ratio of Net Investment Income to
Average Net Assets:
N/A 0.07% 0.28% 0.12% (0.86%)+++
* On February 5, 2001, the Portfolio received, through a plan of
reorganization, all of the assets and assumed the identified
liabilities of the Small Cap Stock Portfolio, a portfolio of Cova
Series Trust, that followed the same investment objective as the
Portfolio. The information for each of the periods is that of the
predecessor Small Cap Stock Portfolio.
+ Less than $.0005 per share
++ Non-annualized
+++ Annualized
(1) Amount is less than 0.00%
N/A Not Applicable
<PAGE>
J.P. Morgan Enhanced Index Portfolio*
FOR THE YEARS ENDED DECEMBER 31,
Six Months For the period from May 1,
Ended 1996 (date of initial
June 30, 2000 public offering) to
(Unaudited) December 31, 1996
1999 1998 1997
NET ASSET VALUE, BEGINNING OF PERIOD..
$20.675 $18.115 $13.845 $11.112 $10.003
INCOME FROM INVESTMENT OPERATIONS:
Net investment income................. 0.055 0.105 0.098 0.113 0.124
Net realized and unrealized gains
(losses).............................. (0.507) 3.057 4.357 3.560 1.304
TOTAL FROM INVESTMENT OPERATIONS...... (0.452) 3.162 4.455 3.673 1.428
DISTRIBUTIONS:
Dividends from net investment income... (0.125) (0.026) (0.043) (0.118) (0.122)
Distributions from net realized gains.. (1.554) (0.576) (0.142) (0.822) (0.197)
TOTAL DISTRIBUTIONS.................... (1.679) (0.602) (0.185) (0.940) (0.319)
NET ASSET VALUE, END OF PERIOD........ $18.544 $20.675 $18.115 $13.845 $11.112
TOTAL RETURN.......................... (2.15%)+ 17.64% 32.31% 33.25% 14.35%+
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (In
millions)............................. $276.3 $263.1 $103.8 $32.3 $16.8
RATIOS TO AVERAGE NET ASSETS(1):
Expenses.............................. 0.74%++ 0.75% 0.75% 0.75% 0.75%++
Net investment income................. 0.71%++ 0.75% 0.77% 0.99% 1.56%++
PORTFOLIO TURNOVER RATE............... 30.1%+ 63.2% 62.4% 59.5% 35.5%+
(1) If certain expenses had not been reimbursed by the Adviser, total return would have been lower and the ratios would have
been as follows:
Ratio of Operating Expenses to
Average Net Assets: N/A 0.76% 0.94% 1.08% 1.23%++
Ratio of Net Investment Income to
Average Net Assets:
N/A 0.74% 0.58% 0.66% 1.08%++
* On February 5, 2001, the Portfolio received, through a plan of
reorganization, all of the assets and assumed the identified
liabilities of the Large Cap Stock Portfolio, a portfolio of Cova
Series Trust, that followed the same investment objective as the
Portfolio. The information for each of the periods is that of the
predecessor Large Cap Stock Portfolio.
+ Non-annualized
++ Annualized
N/A Not Applicable
<PAGE>
J.P. Morgan Select Equity Portfolio*
FOR THE YEARS ENDED DECEMBER 31,
Six Months Ended For the period from May 1,
June 30, 2000 1996 (date of initial
(Unaudited) public offering) to
December 31, 1996
1999 1998 1997
NET ASSET VALUE, BEGINNING OF PERIOD..
$16.112 $16.076 $13.966 $10.742 $10.084
INCOME FROM INVESTMENT OPERATIONS:
Net investment income................. 0.034 0.074 0.091 0.078 0.081
Net realized and unrealized gains
(losses).............................. (0.197) 1.451 2.983 3.294 0.771
TOTAL FROM INVESTMENT OPERATIONS...... (0.163) 1.525 3.074 3.372 0.852
DISTRIBUTIONS:
Dividends from net investment income... (0.079) (0.043) (0.046) (0.077) (0.081)
Distributions from net realized gains.... (1.053) (1.446) (0.918) (0.071) (0.113)
TOTAL DISTRIBUTIONS..................... (1.132) (1.489) (0.964) (0.148) (0.194)
NET ASSET VALUE, END OF PERIOD........ $14.817 $16.112 $16.076 $13.966 $10.742
TOTAL RETURN.......................... (0.97%)+ 9.71% 22.56% 31.55% 8.52%+
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (In
millions)............................. $245.9 $249.7 $197.8 $106.9 $23.8
RATIOS TO AVERAGE NET ASSETS(1):
Expenses.............................. 0.76%++ 0.77% 0.78% 0.83% 0.85%++
Net investment income................. 0.46%++ 0.55% 0.68% 0.81% 1.35%++
PORTFOLIO TURNOVER RATE............... 4.6%+ 133.8% 182.9% 134.8% 123.9%+
(1) If certain expenses had not been reimbursed by the Adviser, total return would have been lower and the ratios would have
been as follows:
Ratio of Operating Expenses to
Average Net Assets: N/A N/A 0.86% 1.00% 1.70%++
Ratio of Net Investment Income to
Average Net Assets:
N/A N/A 0.60% 0.64% 0.50%++
* On February 5, 2001, the Portfolio received, through a plan of
reorganization, all of the assets and assumed the identified
liabilities of the Select Equity Portfolio, a portfolio of Cova Series
Trust, that followed the same investment objective as the Portfolio.
The information for each of the periods is that of the predecessor
Select Equity Portfolio.
+ Non-annualized
++ Annualized
N/A Not Applicable
<PAGE>
J.P. Morgan International Equity Portfolio*
FOR THE YEARS ENDED DECEMBER 31,
Six Months Ended For the period from May 1,
June 30, 2000 1996 (date of initial
(Unaudited) public offering) to
December 31, 1996
1999 1998 1997
NET ASSET VALUE, BEGINNING OF PERIOD..
$16.225 $12.857 $11.472 $10.959 $10.215
INCOME FROM INVESTMENT OPERATIONS:
Net investment income................. 0.056 0.083 0.117 0.122 0.096
Net realized and unrealized gains
(losses).............................. (0.723) 3.534 1.491 0.539 0.755
TOTAL FROM INVESTMENT OPERATIONS...... (0.667) 3.617 1.608 0.661 0.851
DISTRIBUTIONS:
Dividends from net investment income.... (0.066) (0.068) (0.220) (0.137) (0.086)
Distributions from net realized gains.. (0.962) (0.181) (0.003) (0.011) (0.021)
TOTAL DISTRIBUTIONS.................... (1.028) (0.249) (0.223) (0.148) (0.107)
NET ASSET VALUE, END OF PERIOD....... $14.530 $16.225 $12.857 $11.472 $10.959
TOTAL RETURN.......................... (4.08%)+ 28.52% 14.07% 5.96% 8.44%+
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (In
millions)............................. $137.7 $138.1 $104.5 $68.8 $15.6
RATIOS TO AVERAGE NET ASSETS(1):
Expenses.............................. 1.15%++ 1.10% 0.91% 0.95% 0.95%++
Net investment income................. 0.80%++ 0.62% 0.97% 1.35% 1.43%++
PORTFOLIO TURNOVER RATE............... 56.3%+ 82.8% 74.0% 74.1% 48.2%+
(1) If certain expenses had not been reimbursed by the Adviser, total return would have been lower and the ratios would have
been as follows:
Ratio of Operating Expenses to
Average Net Assets: N/A 1.15% 1.09% 1.53% 3.80%++
Ratio of Net Investment Income to
Average Net Assets:
N/A 0.57% 0.79% 0.77% (1.42%)++
* On February 5, 2001, the Portfolio received, through a plan of
reorganization, all of the assets and assumed the identified
liabilities of the International Equity Portfolio, a portfolio of Cova
Series Trust, that followed the same investment objective as the
Portfolio. The information for each of the periods is that of the
predecessor International Equity Portfolio.
+ Non-annualized
++ Annualized
N/A Not Applicable
<PAGE>
Lord Abbett Bond Debenture Portfolio*
FOR THE YEARS ENDED DECEMBER 31,
Six Months Ended For the period from May 1,
June 30, 2000 1996 (date of initial
(Unaudited) public offering) to
December 31, 1996
1999 1998 1997
NET ASSET VALUE, BEGINNING OF PERIOD..
$12.475 $12.381 $12.112 $10.970 $10.098
INCOME FROM INVESTMENT OPERATIONS:
Net investment income................. 0.509 0.710 0.682 0.544 0.345
Net realized and unrealized gains
(losses).............................. (0.333) (0.293) 0.072 1.147 0.949
TOTAL FROM INVESTMENT OPERATIONS...... 0.176 0.417 0.754 1.691 1.294
DISTRIBUTIONS:
Dividends from net investment income... (0.832) (0.244) (0.349) (0.549) (0.342)
Distributions from net realized gains... ---- (0.079) (0.136) ---- (0.080)
TOTAL DISTRIBUTIONS.................... (0.832) (0.323) (0.485) (0.549) (0.422)
NET ASSET VALUE, END OF PERIOD........ $11.819 $12.475 $12.381 $12.112 $10.970
TOTAL RETURN.......................... 1.47%+ 3.40% 6.26% 15.63% 12.89%+
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (In
millions)............................. $165.2 $170.2 $120.0 $55.4 $7.7
RATIOS TO AVERAGE NET ASSETS(1):
Expenses.............................. 0.85%++ 0.85% 0.85% 0.85% 0.85%++
Net investment income................. 8.01%++ 6.74% 6.58% 6.68% 7.26%++
PORTFOLIO TURNOVER RATE............... 34.7%+ 46.7% 84.7% 100.3% 58.1%+
(1) If certain expenses had not been reimbursed by the Adviser, total return would have been lower and the ratios would have
been as follows:
Ratio of Operating Expenses to
Average Net Assets: 0.87%++ 0.86% 0.93% 1.07% 2.05%++
Ratio of Net Investment Income to
Average Net Assets:
7.99%++ 6.73% 6.50% 6.46% 6.06%++
* On February 5, 2001, the Portfolio received, through a plan of
reorganization, all of the assets and assumed the identified
liabilities of the Bond Debenture Portfolio, a portfolio of Cova Series
Trust, that followed the same investment objective as the Portfolio.
The information for each of the periods is that of the predecessor Bond
Debenture Portfolio.
+ Non-annualized
++ Annualized
<PAGE>
Lord Abbett Mid-Cap Value Portfolio*
FOR THE YEARS ENDED
DECEMBER 31,
For the period from
Six months ended August 20, 1997
June 30, 2000 (Commencement of
(unaudited) operations) to December
1999 1998 31, 1997
NET ASSET VALUE, BEGINNING OF PERIOD..................
$11.168 $10.583 $10.481 $10.000
INCOME FROM INVESTMENT OPERATIONS:
Net investment income................................. 0.028 0.042 0.032 0.010
Net realized and unrealized gains (losses)............ 1.956 0.557 0.087 0.481
TOTAL FROM INVESTMENT OPERATIONS...................... 1.984 0.599 0.119 0.491
DISTRIBUTIONS:
Dividends from net investment income.........................(0.039) (0.014) (0.017) (0.010)
Distributions from net realized gains........................(0.082) ---- ---- ----
TOTAL DISTRIBUTIONS..........................................(0.121) (0.014) (0.017) (0.010)
NET ASSET VALUE, END OF PERIOD........................ $13.031 $11.168 $10.583 $10.481
TOTAL RETURN.......................................... 17.72%+ 5.71% 1.11% 4.90%+
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (In millions)............... $39.0 $29.4 $18.3 $2.2
RATIOS TO AVERAGE NET ASSETS (1):
Expenses.............................................. 1.30%++ 1.25% 1.10% 1.10%++
Net investment income................................. 0.58%++ 0.50% 0.44% 0.97%++
PORTFOLIO TURNOVER RATE............................... 47.8%+ 64.3% 41.0% 1.5%+
(1) If certain expenses had not been reimbursed by the Adviser, total return would have been lower and the ratios would have
been as follows:
Ratio of Operating Expenses to Average Net Assets:
1.31%++ 1.41% 1.68% 8.41%++
Ratio of Net Investment Income to Average Net Assets:
0.57%++ 0.34% (0.14%) (6.34%)++
* On February 5, 2001, the Portfolio received, through a plan of
reorganization, all of the assets and assumed the identified
liabilities of the Mid-Cap Value Portfolio, a portfolio of Cova Series
Trust, that followed the same investment objective as the Portfolio.
The information for each of the periods is that of the predecessor
Mid-Cap Value Portfolio.
+ Non-annualized
++ Annualized
</TABLE>
<PAGE>
Lord Abbett Developing Growth Portfolio*
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
DECEMBER 31,
For the period from
Six months ended August 20, 1997
June 30, 2000 (Commencement of
(unaudited) operations) to December
31, 1997
1999 1998
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD..................
$14.885 $11.241 $10.549 $10.000
INCOME FROM INVESTMENT OPERATIONS:
Net investment income................................. (0.041) (0.073) (0.025) 0.002
Net realized and unrealized gains (losses)............ (1.734) 3.717 0.723 0.549
TOTAL FROM INVESTMENT OPERATIONS......................
(1.775) 3.644 0.698 0.551
DISTRIBUTIONS:
Dividends from net investment income.......................... ---- ---- ---- (0.002)
Distributions from net realized gains........................(0.673) ---- (0.006) ----
TOTAL DISTRIBUTIONS..........................................(0.673) ---- (0.006) (0.002)
NET ASSET VALUE, END OF PERIOD........................ $12.437 $14.885 $11.241 $10.549
TOTAL RETURN.......................................... (11.78%)+ 32.47%+ 6.60% 5.52%*
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (In millions)............... $40.8 $33.6 $15.9 $1.7
RATIOS TO AVERAGE NET ASSETS (1):
Expenses.............................................. 1.23%++ 1.15% 1.00% 1.00%++
Net investment income................................. (0.71%)++ (0.73%) (0.47%) 0.18%++
PORTFOLIO TURNOVER RATE............................... 26.0%+ 53.2% 18.7% 9.1%+
(1) If certain expenses had not been reimbursed by the Adviser, total return would have been lower and the ratios would have
been as follows:
Ratio of Operating Expenses to Average Net Assets:
1.23%++ 1.34% 1.70% 9.00%++
Ratio of Net Investment Income to Average Net Assets:
(0.71%)++ (0.92%) (1.17%) (7.82%)++
* On February 5, 2001, the Portfolio received, through a plan of
reorganization, all of the assets and assumed the identified
liabilities of the Developing Growth Portfolio, a portfolio of Cova
Series Trust, that followed the same investment objective as the
Portfolio. The information for each of the periods is that of the
predecessor Developing Growth Portfolio.
+ Non-annualized
++ Annualized
</TABLE>
<PAGE>
Lord Abbett Growth and Income Portfolio*
<TABLE>
<CAPTION>
For the period from January
8, 1999 (Commencement of
Six months ended June 30, operations) to
2000 December 31, 1999
(unaudited)
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD......................
$24.071 $21.603
INCOME FROM INVESTMENT OPERATIONS:
Net investment income..................................... 0.173 0.274
Net realized and unrealized gains (losses)................ (0.688) 2.194
TOTAL FROM INVESTMENT OPERATIONS..........................
(0.515) 2.468
DISTRIBUTIONS:
Dividends from net investment income.......................... (0.283) ----
Distributions from net realized gains......................... (0.393) ----
TOTAL DISTRIBUTIONS........................................... (0.676) ----
NET ASSET VALUE, END OF PERIOD............................ $22.880 $24.071
TOTAL RETURN.............................................. (2.17%)+ 11.38%+
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (In millions)................... $839.4 $887.0
RATIOS TO AVERAGE NET ASSETS (1):
Expenses.................................................. 0.70%++ 0.70%++
Net investment income..................................... 1.43%++ 1.24%++
PORTFOLIO TURNOVER RATE................................... 28.6%+ 70.8%+
(1) If certain expenses had not been reimbursed by the Adviser, total return would have been lower and the ratios
would have been as follows:
Ratio of Operating Expenses to Average Net Assets:
N/A N/A
Ratio of Net Investment Income to Average Net Assets:
N/A N/A
* On February 5, 2001, the Portfolio received, through a plan of
reorganization, all of the assets and assumed the identified
liabilities of the Lord Abbett Growth and Income Portfolio, a portfolio
of Cova Series Trust, that followed the same investment objective as
the Portfolio. The information for each of the periods is that of the
predecessor Lord Abbett Growth and Income Portfolio.
+ Non-annualized
++ Annualized
N/A Not Applicable
</TABLE>
<PAGE>
Firstar Balanced Portfolio*
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
DECEMBER 31,
For the period from July
Six months ended 1, 1997 (Commencement of
June 30, 2000 operations) to December
(unaudited) 31, 1997
1999 1998
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD..................
$11.858 $11.398 $10.389 $10.000
INCOME FROM INVESTMENT OPERATIONS:
Net investment income................................. 0.135 0.232 0.223 0.123
Net realized and unrealized gains/(losses)............ (0.136) 0.581 1.152 0.477
TOTAL FROM INVESTMENT OPERATIONS......................
(0.001) 0.813 1.375 0.600
DISTRIBUTIONS:
Dividends from net investment income.........................(0.001) (0.233) (0.222) (0.124)
Distributions from net realized gains........................(0.080) (0.120) (0.144) (0.087)
TOTAL DISTRIBUTIONS..........................................(0.081) (0.353) (0.366) (0.211)
NET ASSET VALUE, END OF PERIOD........................ $11.776 $11.858 $11.398 $10.389
TOTAL RETURN.......................................... 0.01%+ 7.14% 13.31% 6.01%+
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (In millions)............... $9.9 $9.7 $4.6 $1.5
RATIOS TO AVERAGE NET ASSETS (1):
Expenses.............................................. 1.10%++ 1.10% 1.10% 1.10%++
Net investment income................................. 2.36%++ 2.52% 2.54% 2.74%++
PORTFOLIO TURNOVER RATE............................... 23.3%+ 27.4% 36.0% 13.6%+
(1) If certain expenses had not been reimbursed by the Adviser, total return would have been lower and the ratios would have
been as follows:
Ratio of Operating Expenses to Average Net Assets:
1.82%++ 2.06% 3.08% 3.81%++
Ratio of Net Investment Income to Average Net Assets:
1.64%++ 1.56% 0.56% 0.03%++
* On February 5, 2001, the Portfolio received, through a plan of
reorganization, all of the assets and assumed the identified
liabilities of the Balanced Portfolio, a portfolio of Cova Series
Trust, that followed the same investment objective as the Portfolio.
The information for each of the periods is that of the predecessor
Balanced Portfolio.
+ Non-annualized
++ Annualized
<PAGE>
Firstar Equity Income Portfolio*
FOR THE YEARS ENDED
DECEMBER 31,
For the period from July
Six months ended 1, 1997 (Commencement of
June 30, 2000 operations) to December
(unaudited) 31, 1997
1999 1998
NET ASSET VALUE, BEGINNING OF PERIOD..................
$11.169 $11.626 $11.047 $10.000
INCOME FROM INVESTMENT OPERATIONS:
Net investment income................................. 0.093 0.194 0.167 0.074
Net realized and unrealized gains (losses)............ (0.439) 0.107 0.862 1.192
TOTAL FROM INVESTMENT OPERATIONS......................
(0.346) 0.301 1.029 1.266
DISTRIBUTIONS:
Dividends from net investment income.........................(0.002) (0.190) (0.167) (0.074)
Distributions from net realized gains......................... ---- (0.568) (0.283) (0.145)
TOTAL DISTRIBUTIONS..........................................(0.002) (0.758) (0.450) (0.219)
NET ASSET VALUE, END OF PERIOD........................ $10.821 $11.169 $11.626 $11.047
TOTAL RETURN.......................................... (3.11%)+ 2.51% 9.35% 12.69%+
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (In millions)............... $6.9 $7.0 $4.7 $1.7
RATIOS TO AVERAGE NET ASSETS (1):
Expenses.............................................. 1.10%++ 1.10% 1.10% 1.10%++
Net investment income................................. 1.75%++ 1.85% 1.79% 1.65%++
PORTFOLIO TURNOVER RATE............................... 27.4%+ 58.8% 79.4% 17.9%+
(1) If certain expenses had not been reimbursed by the Adviser, total return would have been lower and the ratios would have
been as follows:
Ratio of Operating Expenses to Average Net Assets:
2.12%++ 2.23% 2.69% 3.58%++
Ratio of Net Investment Income to Average Net Assets:
0.73%++ 0.72% 0.20% (0.83%)++
* On February 5, 2001, the Portfolio received, through a plan of
reorganization, all of the assets and assumed the identified
liabilities of the Equity Income Portfolio, a portfolio of Cova Series
Trust, that followed the same investment objective as the Portfolio.
The information for each of the periods is that of the predecessor
Equity Income Portfolio.
+ Non-annualized
++ Annualized
<PAGE>
Firstar Growth & Income Equity Portfolio*
FOR THE YEARS ENDED
DECEMBER 31,
For the period from July
Six months 1, 1997 (Commencement of
ended 6/30/00 operations) to December
(unaudited) 31, 1997
1999 1998
NET ASSET VALUE, BEGINNING OF PERIOD......................
$13.788 $11.995 $10.710 $10.000
INCOME FROM INVESTMENT OPERATIONS:
Net investment income..................................... 0.019 0.049 0.057 0.033
Net realized and unrealized gains (losses)................ (0.255) 1.890 1.538 0.793
TOTAL FROM INVESTMENT OPERATIONS..........................
(0.236) 1.939 1.595 0.826
DISTRIBUTIONS:
Dividends from net investment income.......................... ---- (0.049) (0.058) (0.032)
Distributions from net realized gains......................... (0.192) (0.097) (0.252) (0.084)
TOTAL DISTRIBUTIONS........................................... (0.192) (0.146) (0.310) (0.116)
NET ASSET VALUE, END OF PERIOD............................ $13.360 $13.788 $11.995 $10.710
TOTAL RETURN.............................................. (1.72%)+ 16.17% 14.95% 8.26%+
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (In millions)................... $16.4 $16.4 $9.1 $2.4
RATIOS TO AVERAGE NET ASSETS (1):
Expenses.................................................. 1.10%++ 1.10% 1.10% 1.10%++
Net investment income..................................... 0.29%++ 0.45% 0.65% 0.87%++
PORTFOLIO TURNOVER RATE................................... 32.7%+ 37.8% 57.5% 18.1%+
(1) If certain expenses had not been reimbursed by the Adviser, total return would have been lower and the ratios would have
been as follows:
Ratio of Operating Expenses to Average Net Assets:
1.51%++ 1.59% 2.00% 3.51%++
Ratio of Net Investment Income to Average Net Assets:
(0.12%)++ (0.04%) (0.25%) (1.54%)++
* On February 5, 2001, the Portfolio received, through a plan of
reorganization, all of the assets and assumed the identified
liabilities of the Growth & Income Equity Portfolio, a portfolio of
Cova Series Trust, that followed the same investment objective as the
Portfolio. The information for each of the periods is that of the
predecessor Growth & Income Equity Portfolio.
+ Non-annualized
++ Annualized
</TABLE>
<PAGE>
- 145 -
FOR MORE INFORMATION
If you would like more information about a Portfolio, the following documents
are available to you free upon request:
Annual/Semi-annual Reports
Contain additional information about a Portfolio's performance. In a
Portfolio's annual report, you will find a discussion of the market conditions
and investment strategies that significantly affected the Portfolio's
performance during its last fiscal year.
Statement of Additional Information ("SAI")
Provides a fuller technical and legal description of the Portfolio's
policies, investment restrictions, and business structure. The SAI is legally
considered to be a part of this Prospectus.
If you would like a copy of the current versions of these documents, or other
information about a Portfolio, contact:
Met Investors Series Trust
1-800-848-3854
Information about a Portfolio, including the Annual and Semi-annual Reports and
SAI, may also be obtained from the Securities and Exchange Commission (`SEC"):
oIn person Review and copy documents in the SEC's Public Reference Room in
Washington, D.C. (for information call 202-942-8090).
oOn line Retrieve information from the EDGAR database on the SEC's web site at:
http://www.sec.gov.
oBy mail Request documents, upon payment of a duplicating fee, by writing to
SEC, Public Reference Section, Washington, D.C. 20549 or by e-mailing the
SEC at [email protected].
SEC FILE # 811-10183
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
MET INVESTORS SERIES TRUST
This Statement of Additional Information provides supplementary
information pertaining to shares of the twenty-three investment portfolios
("Portfolios") of Met Investors Series Trust (the "Trust"), a diversified,
open-end, management investment company. This Statement of Additional
Information is not a prospectus and should be read in conjunction with the
Prospectus dated .....................2001 (the "Prospectus") for the J. P.
Morgan Quality Bond Portfolio, J.P. Morgan Small Cap Stock Portfolio, J.P.
Morgan Enhanced Index Portfolio, J.P. Morgan Select Equity Portfolio, J.P.
Morgan International Equity Portfolio, Lord Abbett Bond Debenture Portfolio,
Lord Abbett Mid-Cap Value Portfolio, Lord Abbett Developing Growth Portfolio,
Lord Abbett Growth and Income Portfolio, Lord Abbett Growth Opportunities
Portfolio, Firstar Balanced Portfolio, Firstar Equity Income Portfolio, Firstar
Growth & Income Equity Portfolio, BlackRock Equity Portfolio , BlackRock U.S.
Government Income Portfolio, PIMCO Total Return Portfolio, PIMCO Money Market
Portfolio, PIMCO Innovation Portfolio, MFS Mid Cap Growth Portfolio, MFS
Research International Portfolio, Putnam Research Portfolio, Janus Aggressive
Growth Portfolio, and Oppenheimer Capital Appreciation Portfolio which may be
obtained by writing the Trust at 610 Newport Center Drive, Suite 1350, Newport
Beach California 92660 or by calling (800) 848-3854 Unless otherwise defined
herein, capitalized terms have the meanings given to them in the Prospectus.
The date of this Statement of Additional Information is
...................2001.
<PAGE>
Table of Contents
Page
INVESTMENT OBJECTIVES AND POLICIES..........................................4
Asset-Backed Securities............................................4
Brady Bonds........................................................5
Convertible Securities.............................................5
Depositary Receipts................................................6
Dollar Roll Transactions...........................................6
Eurodollar and Yankee Dollar Obligations...........................7
Floaters......................................................... 8
Foreign Currency Transactions......................................8
Foreign Securities................................................11
Forward Commitments, When-Issued and Delayed Delivery Securities.14
High Yield/High Risk Debt Securities...............................14
Hybrid Instruments.................................................15
Illiquid Securities.............................................. 16
Interest Rate Transactions.........................................16
Investment Grade Corporate Debt Securities.........................17
Loans and Other Direct Indebtedness................................17
Money Market Securities.......................................... 18
Mortgage-Backed Securities....................................... 19
Municipal Fixed Income Securities..................................21
Options and Futures Strategies.....................................22
Other Investment Companies....................................... 27
Portfolio Turnover............................................... 28
Preferred Stocks................................................. 28
Real Estate Investment Trusts.................................... 29
Repurchase Agreements............................................ 29
Reverse Repurchase Agreements.................................... 29
Rights and Warrants.............................................. 30
Securities Loans................................................. 30
Short Sales......................................................31
Zero Coupon Bonds, Deferred Interest Bonds and PIK Bonds......... 32
INVESTMENT RESTRICTIONS................................................... 32
Fundamental Policies............................................. 32
Non-Fundamental Policies......................................... 33
PERFORMANCE INFORMATION................................................... 35
Total Return..................................................... 35
Yield............................................................ 36
Non-Standardized Performance..................................... 37
PORTFOLIO TRANSACTIONS.................................................... 37
MANAGEMENT OF THE TRUST................................................... 40
Trustees and Officers............................................ 40
Committees of the Board.......................................... 43
Compensation of the Trustees..................................... 43
INVESTMENT ADVISORY AND OTHER SERVICES.................................... 44
The Manager...................................................... 44
The Advisers..................................................... 50
The Administrator................................................ 53
The Distributor.................................................. 53
Code of Ethics................................................... 55
Custodian........................................................ 55
Transfer Agent................................................... 55
Legal Matters.................................................... 55
Independent Auditors............................................. 55
REDEMPTION OF SHARES...................................................... 55
NET ASSET VALUE........................................................... 56
FEDERAL INCOME TAXES...................................................... 57
ORGANIZATION AND CAPITALIZATION OF THE TRUST.............................. 59
FINANCIAL STATEMENTS...................................................... 62
APPENDIX................................................................... A-1
----------------------
No person has been authorized to give any information or to make any
representation not contained in this Statement of Additional Information or in
the Prospectus and, if given or made, such information or representation must
not be relied upon as having been authorized. This Statement of Additional
Information does not constitute an offering of any securities other than the
registered securities to which it relates or an offer to any person in any state
or other jurisdiction of the United States or any country where such offer would
be unlawful.
<PAGE>
INVESTMENT OBJECTIVES AND POLICIES
The following information supplements the discussion of the investment
objectives and policies of the Portfolios in the Prospectus.
Asset-Backed Securities (J.P. Morgan Quality Bond, Lord Abbett Bond Debenture,
Firstar Balanced, BlackRock Equity, BlackRock U.S. Government Income, Janus
Aggressive Growth and PIMCO Total Return Portfolios)
Asset-backed securities include interests in pools of receivables, such
as motor vehicle installment purchase obligations and credit card receivables.
Such securities are generally issued as pass-through certificates, which
represent undivided fractional ownership interests in the underlying pools of
assets.
Asset-backed securities are not issued or guaranteed by the U.S.
government or its agencies or government-sponsored entities; however, the
payment of principal and interest on such obligations may be guaranteed up to
certain amounts and for a certain time period by a letter of credit issued by a
financial institution (such as a bank or insurance company) unaffiliated with
the issuers of such securities. In addition, such securities generally will have
remaining estimated lives at the time of purchase of five years or less. Due to
the possibility that prepayments (on automobile loans and other collateral) will
alter the cash flow on asset-backed securities, is not possible to determine in
advance the actual final maturity date or average life. Faster prepayment will
shorten the average life and shorter prepayments will lengthen it.
The purchase of asset-backed securities raises considerations peculiar
to the financing of the instruments underlying such securities. For example,
most organizations that issue asset-backed securities relating to motor vehicle
installment purchase obligations perfect their interests in their respective
obligations only by filing a financing statement and by having the servicer of
the obligations, which is usually the originator, take custody thereof. In such
circumstances, if the servicer were to sell the same obligations to another
party, in violation of its duty not to do so, there is a risk that such party
could acquire an interest in the obligations superior to that of holders of the
asset-backed securities. Also, although most such obligations grant a security
interest in the motor vehicle being financed, in most states the security
interest in a motor vehicle must be noted on the certificate of title to perfect
such security interest against competing claims of other parties. Due to the
large number of vehicles involved, however, the certificate of title to each
vehicle financed, pursuant to the obligations underlying the asset-backed
securities, usually is not amended to reflect the assignment of the seller's
security interest for the benefit of the holders of the asset-backed securities.
Therefore, there is the possibility that recoveries on repossessed collateral
may not, in some cases, be available to support payments on those securities. In
addition, various state and federal laws give the motor vehicle owner the right
to assert against the holder of the owner's obligation certain defenses such
owner would have against the seller of the motor vehicle. The assertion of such
defenses could reduce payments on the related asset-backed securities. Insofar
as credit card receivables are concerned, credit card holders are entitled to
the protection of a number of state and federal consumer credit laws, many of
which give such holders the right to set off certain amounts against balances
owed on the credit card, thereby reducing the amounts paid on such receivables.
In addition, unlike most other asset-backed securities, credit card receivables
are unsecured obligations of the card holder.
Brady Bonds (J.P. Morgan Quality Bond , Lord Abbett Bond Debenture, Janus
Aggressive Growth and PIMCO Total Return Portfolios)
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 under a debt restructuring
plan introduced by former U.S. Secretary of the Treasury, Nicholas F. Brady (the
"Brady Plan"). Brady Plan debt restructurings have been implemented to date in
Argentina, Brazil, Bulgaria, Costa Rica, Croatia, Dominican Republic, Ecuador,
Jordan, Mexico, Morocco, Nigeria, Panama, Peru, the Philippines, Poland,
Slovenia, Uruguay and Venezuela. Brady Bonds have been issued only recently, and
for that reason do not have a long payment history. Brady Bonds may be
collateralized or uncollateralized, are issued in various currencies (but
primarily the U.S. dollar) and are actively traded in over-the-counter secondary
markets. U.S. dollar-denominated, collateralized Brady Bonds, which may be fixed
rate bonds or floating-rate bonds, are generally collateralized in full as to
principal by U.S. Treasury zero coupon bonds having the same maturity as the
bonds. Brady Bonds are often viewed as having three or four valuation
components: the collateralized repayment of principal at maturity; the
collateralized interest payments; the uncollateralized interest payments; and
any uncollateralized repayment of principal at maturity (the uncollateralized
amounts constituting the "residual risk"). In light of the residual risk of
Brady Bonds and the history of defaults of countries issuing Brady Bonds with
respect to commercial bank loans by public and private entities, investments in
Brady Bonds may be viewed as speculative.
Convertible Securities (All Portfolios except BlackRock U.S. Government Income ,
PIMCO Money Market and PIMCO Innovation Portfolios)
A Portfolio may invest in convertible securities of domestic and,
subject to the Portfolio's investment strategy, foreign issuers. The convertible
securities in which a Portfolio may invest include any debt securities or
preferred stock which may be converted into common stock or which carry the
right to purchase common stock. Convertible securities entitle the holder to
exchange the securities for a specified number of shares of common stock,
usually of the same company, at specified prices within a certain period of
time.
Convertible securities may be converted at either a stated price or
stated rate into underlying shares of common stock. Although to a lesser extent
than with fixed-income securities, the market value of convertible securities
tends to decline as interest rates increase and, conversely, tends to increase
as interest rates decline. In addition, because of the conversion feature, the
market value of convertible securities tends to vary with fluctuations in the
market value of the underlying common stock. A unique feature of convertible
securities is that as the market price of the underlying common stock declines,
convertible securities tend to trade increasingly on a yield basis, and so may
not experience market value declines to the same extent as the underlying common
stock. When the market price of the underlying common stock increases, the
prices of the convertible securities tend to rise as a reflection of the value
of the underlying common stock. While no securities investments are without
risk, investments in convertible securities generally entail less risk than
investments in common stock of the same issuer.
Convertible securities are investments that provide for a stable stream
of income with generally higher yields than common stocks. There can be no
assurance of current income because the issuers of the convertible securities
may default on their obligations. A convertible security, in addition to
providing fixed income, offers the potential for capital appreciation through
the conversion feature, which enables the holder to benefit from increases in
the market price of the underlying common stock. There can be no assurance of
capital appreciation, however, because securities prices fluctuate. Convertible
securities, however, generally offer lower interest or dividend yields than
non-convertible securities of similar quality because of the potential for
capital appreciation.
Subsequent to purchase by a Portfolio, convertible securities may cease
to be rated or a rating may be reduced below the minimum required for purchase
for that Portfolio. Neither event will require the sale of such securities,
although a Portfolio's investment adviser will consider such event in its
determination of whether the Portfolio should continue to hold the securities.
Depositary Receipts (All Portfolios except J.P. Morgan Quality Bond, Lord Abbett
Bond Debenture , BlackRock U.S. Government Income, PIMCO Money Market and PIMCO
Total Return Portfolios)
A Portfolio may purchase foreign securities in the form of American
Depositary Receipts, European Depositary Receipts, Global Depositary Receipts or
other securities convertible into securities of corporations in which the
Portfolio is permitted to invest pursuant to its investment objectives and
policies. These securities may not necessarily be denominated in the same
currency into which they may be converted. Depositary receipts are receipts
typically issued by a U.S. or foreign bank or trust company and evidence
ownership of underlying securities issued by a foreign corporation. The J.P.
Morgan Enhanced Index, J.P. Morgan Select Equity, J.P. Morgan Small Cap Stock,
Firstar Equity Income, Firstar Balanced and Firstar Growth & Income Equity
Portfolios will only invest in American Depositary Receipts. The J.P. Morgan
Enhanced Index, J.P. Morgan Select Equity and J.P. Morgan Small Cap Stock
Portfolios do not expect to invest more than 10% of their total assets in
American Depository Receipts. Because American Depositary Receipts are listed on
a U.S. securities exchange, the Portfolio's investment adviser does not treat
them as foreign securities. However, like other depositary receipts, American
Depositary Receipts are subject to many of the risks of foreign securities such
as changes in exchange rates and more limited information about foreign issuers.
Dollar Roll Transactions (J.P. Morgan Quality Bond, Lord Abbett Bond Debenture ,
BlackRock U.S. Government Income, PIMCO Money Market, PIMCO Total Return, Janus
Aggressive Growth and Oppenheimer Capital Appreciation
Portfolios)
The Portfolios may enter into "dollar roll" transactions, which consist
of the sale by the Portfolio to a bank or broker-dealer (the "counterparty") of
Government National Mortgage Association certificates, other mortgage-backed
securities or other fixed income securities together with a commitment to
purchase from the counterparty similar, but not identical, securities at a
future date. The counterparty receives all principal and interest payments,
including prepayments, made on the security while it is the holder. A Portfolio
receives a fee from the counterparty as consideration for entering into the
commitment to purchase. Dollar rolls may be renewed over a period of several
months with a different repurchase price and a cash settlement made at each
renewal without physical delivery of securities. Moreover, the transaction may
be preceded by a firm commitment agreement pursuant to which a Portfolio agrees
to buy a security on a future date.
A Portfolio will not use such transactions for leveraging purposes and,
accordingly, will segregate cash, U.S. government securities or other liquid
assets in an amount sufficient to meet its purchase obligations under the
transactions. The Portfolio will also maintain asset coverage of at least 300%
for all outstanding firm commitments, dollar rolls and other borrowings.
Dollar rolls are treated for purposes of the Investment Company Act of
1940, as amended ("1940 Act") as borrowings of a Portfolio because they involve
the sale of a security coupled with an agreement to repurchase. Like all
borrowings, a dollar roll involves costs to a Portfolio. For example, while a
Portfolio receives a fee as consideration for agreeing to repurchase the
security, the Portfolio forgoes the right to receive all principal and interest
payments while the counterparty holds the security. These payments to the
counterparty may exceed the fee received by a Portfolio, thereby effectively
charging the Portfolio interest on its borrowing. Further, although a Portfolio
can estimate the amount of expected principal prepayment over the term of the
dollar roll, a variation in the actual amount of prepayment could increase or
decrease the cost of the Portfolio's borrowing.
The entry into dollar rolls involves potential risks of loss that are
different from those related to the securities underlying the transactions. For
example, if the counterparty becomes insolvent, a Portfolio's right to purchase
from the counterparty might be restricted. Additionally, the value of such
securities may change adversely before a Portfolio is able to purchase them.
Similarly, the Portfolio may be required to purchase securities in connection
with a dollar roll at a higher price than may otherwise be available on the open
market. Since, as noted above, the counterparty is required to deliver a
similar, but not identical, security to a Portfolio, the security that the
Portfolio is required to buy under the dollar roll may be worth less than an
identical security. Finally, there can be no assurance that a Portfolio's use of
the cash that it receives from a dollar roll will provide a return that exceeds
borrowing costs.
Eurodollar and Yankee Dollar Obligations (J.P. Morgan Quality Bond, Firstar
Balanced, Firstar Growth & Income Equity, BlackRock Equity , BlackRock U.S.
Government Income, MFS Mid Cap Growth, PIMCO Total Return, Oppenheimer Capital
Appreciation, Janus Aggressive Growth and MFS Research International Portfolios)
Eurodollar bank obligations are U.S. dollar-denominated certificates of
deposit and time deposits issued outside the U.S. capital markets by foreign
branches of U.S. banks and by foreign banks. Yankee dollar bank obligations are
U.S. dollar-denominated obligations issued in the U.S. capital markets by
foreign banks.
Eurodollar and Yankee dollar obligations are subject to the same risks
that pertain to domestic issues, notably credit risk. Additionally, Eurodollar
(and to a limited extent, Yankee dollar) obligations are subject to certain
sovereign risks. One such risk is the possibility that a sovereign country might
prevent capital, in the form of dollars, from flowing across its borders. Other
risks include adverse political and economic developments; the extent and
quality of government regulation of financial markets and institutions; the
imposition of foreign withholding taxes; and the expropriation or
nationalization of foreign issuers.
Floaters (BlackRock U.S. Government Income , PIMCO Total Return and Janus
Aggressive Growth Portfolios)
The Portfolio may invest in floaters, which are fixed income securities
with a floating or variable rate of interest, i.e., the rate of interest varies
with changes in specified market rates or indices, such as the prime rate, or at
specified intervals. Certain floaters may carry a demand feature that permits
the holder to tender them back to the issuer of the underlying instrument, or to
a third party, at par value prior to maturity. When the demand feature of
certain floaters represents an obligation of a foreign entity, the demand
feature will be subject to certain risks discussed under "Foreign Securities."
Foreign Currency Transactions (J.P. Morgan Quality Bond , J.P. Morgan
International Equity, MFS Mid Cap Growth, PIMCO Total Return, PIMCO Innovation,
Oppenheimer Capital Appreciation, Janus Aggressive Growth, Putnam Research and
MFS Research International Portfolios)
Foreign Currency Exchange Transactions. A Portfolio may engage in
foreign currency exchange transactions to protect against uncertainty in the
level of future exchange rates. The investment adviser to a Portfolio may engage
in foreign currency exchange transactions in connection with the purchase and
sale of portfolio securities ("transaction hedging"), and to protect the value
of specific portfolio positions ("position hedging").
A Portfolio may engage in "transaction hedging" to protect against a
change in the foreign currency exchange rate between the date on which the
Portfolio contracts to purchase or sell the security and the settlement date, or
to "lock in" the U.S. dollar equivalent of a dividend or interest payment in a
foreign currency. For that purpose, a Portfolio may purchase or sell a foreign
currency on a spot (or cash) basis at the prevailing spot rate in connection
with the settlement of transactions in portfolio securities denominated in or
exposed to that foreign currency.
If conditions warrant, a Portfolio may also enter into contracts to
purchase or sell foreign currencies at a future date ("forward contracts") and
purchase and sell foreign currency futures contracts as a hedge against changes
in foreign currency exchange rates between the trade and settlement dates on
particular transactions and not for speculation. A foreign currency forward
contract is a negotiated agreement to exchange currency at a future time at a
rate or rates that may be higher or lower than the spot rate. Foreign currency
futures contracts are standardized exchange-traded contracts and have margin
requirements.
For transaction hedging purposes, a Portfolio may also purchase
exchange-listed and over-the-counter call and put options on foreign currency
futures contracts and on foreign currencies. A put option on a futures contract
gives a Portfolio the right to assume a short position in the futures contract
until expiration of the option. A put option on currency gives a Portfolio the
right to sell a currency at an exercise price until the expiration of the
option. A call option on a futures contract gives a Portfolio the right to
assume a long position in the futures contract until the expiration of the
option. A call option on currency gives a Portfolio the right to purchase a
currency at the exercise price until the expiration of the option.
A Portfolio may engage in "position hedging" to protect against a
decline in the value relative to the U.S. dollar of the currencies in which its
portfolio securities are denominated, or quoted or exposed (or an increase in
the value of currency for securities which the Portfolio intends to buy, when it
holds cash reserves and short-term investments). For position hedging purposes,
a Portfolio may purchase or sell foreign currency futures contracts and foreign
currency forward contracts, and may purchase put or call options on foreign
currency futures contracts and on foreign currencies on exchanges or
over-the-counter markets. In connection with position hedging, a Portfolio may
also purchase or sell foreign currency on a spot basis.
The precise matching of the amounts of foreign currency exchange
transactions and the value of the portfolio securities involved will not
generally be possible since the future value of such securities in foreign
currencies will change as a consequence of market movements in the value of
those securities between the dates the currency exchange transactions are
entered into and the dates they mature.
It is impossible to forecast with precision the market value of
portfolio securities at the expiration or maturity of a forward or futures
contract. Accordingly, it may be necessary for a Portfolio to purchase
additional foreign currency on the spot market (and bear the expense of such
purchase) if the market value of the security or securities being hedged is less
than the amount of foreign currency the Portfolio is obligated to deliver and if
a decision is made to sell the security or securities and make delivery of the
foreign currency. Conversely, it may be necessary to sell on the spot market
some of the foreign currency received upon the sale of the portfolio security or
securities if the market value of such security or securities exceeds the amount
of foreign currency the Portfolio is obligated to deliver.
Hedging transactions involve costs and may result in losses. A
Portfolio may write covered call options on foreign currencies to offset some of
the costs of hedging those currencies. A Portfolio will engage in
over-the-counter transactions only when appropriate exchange-traded transactions
are unavailable and when, in the opinion of the Portfolio's investment adviser,
the pricing mechanism and liquidity are satisfactory and the participants are
responsible parties likely to meet their contractual obligations. A Portfolio's
ability to engage in hedging and related option transactions may be limited by
tax considerations.
Transaction and position hedging do not eliminate fluctuations in the
underlying prices of the securities which a Portfolio owns or intends to
purchase or sell. They simply establish a rate of exchange which one can achieve
at some future point in time. Additionally, although these techniques tend to
minimize the risk of loss due to a decline in the value of the hedged currency,
they tend to limit any potential gain which might result from the increase in
the value of such currency.
Currency Forward and Futures Contracts. A forward foreign currency
exchange contract involves an obligation to purchase or sell a specific currency
at a future date, which may be any fixed number of days from the date of the
contract as agreed by the parties, at a price set at the time of the contract.
In the case of a cancelable forward contract, the holder has the unilateral
right to cancel the contract at maturity by paying a specified fee. The
contracts are traded in the interbank market conducted directly between currency
traders (usually large commercial banks) and their customers. A forward contract
generally has no deposit requirement, and no commissions are charged at any
stage for trades. A foreign currency futures contract is a standardized contract
for the future delivery of a specified amount of a foreign currency at a future
date at a price set at the time of the contract. Foreign currency futures
contracts traded in the U.S. are designed by and traded on exchanges regulated
by the Commodity Futures Trading Commission ("CFTC"), such as the New York
Mercantile Exchange. A Portfolio would enter into foreign currency futures
contracts solely for hedging or other appropriate investment purposes as defined
in CFTC regulations.
Forward foreign currency exchange contracts differ from foreign
currency futures contracts in certain respects. For example, the maturity date
of a forward contract may be any fixed number of days from the date of the
contract agreed upon by the parties, rather than a predetermined date in any
given month. Forward contracts may be in any amounts agreed upon by the parties
rather than predetermined amounts. Also, forward foreign exchange contracts are
traded directly between currency traders so that no intermediary is required. A
forward contract generally requires no margin or other deposit.
At the maturity of a forward or futures contract, a Portfolio may
either accept or make delivery of the currency specified in the contract, or at
or prior to maturity enter into a closing transaction involving the purchase or
sale of an offsetting contract. Closing transactions with respect to forward
contracts are usually effected with the currency trader who is a party to the
original forward contract. Closing transactions with respect to futures
contracts are effected on a commodities exchange; a clearing corporation
associated with the exchange assumes responsibility for closing out such
contracts.
Positions in foreign currency futures contracts may be closed out only
on an exchange or board of trade which provides a secondary market in such
contracts. Although a Portfolio intends to purchase or sell foreign currency
futures contracts only on exchanges or boards of trade where there appears to be
an active secondary market, there can be no assurance that a secondary market on
an exchange or board of trade will exist for any particular contract or at any
particular time. In such event, it may not be possible to close a futures
position and, in the event of adverse price movements, a Portfolio would
continue to be required to make daily cash payments of variation margin.
Foreign Currency Options. Options on foreign currencies operate
similarly to options on securities, and are traded primarily in the
over-the-counter market, although options on foreign currencies have recently
been listed on several exchanges. Such options will be purchased or written only
when a Portfolio's investment adviser believes that a liquid secondary market
exists for such options. There can be no assurance that a liquid secondary
market will exist for a particular option at any specific time. Options on
foreign currencies are affected by all of those factors which influence foreign
exchange rates and investments generally.
The value of a foreign currency option is dependent upon the value of
the foreign currency and the U.S. dollar, and may have no relationship to the
investment merits of a foreign security. Because foreign currency transactions
occurring in the interbank market involve substantially larger amounts than
those that may be involved in the use of foreign currency options, investors may
be disadvantaged by having to deal in an odd lot market (generally consisting of
transactions of less than $1 million) for the underlying foreign currencies at
prices that are less favorable than for round lots.
There is no systematic reporting of last sale information for foreign
currencies and there is no regulatory requirement that quotations available
through dealers or other market sources be firm or revised on a timely basis.
Available quotation information is generally representative of very large
transactions in the interbank market and thus may not reflect relatively smaller
transactions (less than $1 million) where rates may be less favorable. The
interbank market in foreign currencies is a global, around-the-clock market. To
the extent that the U.S. options markets are closed while the markets for the
underlying currencies remain open, significant price and rate movements may take
place in the underlying markets that cannot be reflected in the options markets.
Foreign Currency Conversion. Although foreign exchange dealers do not
charge a fee for currency conversion, they do realize a profit based on the
difference (the "spread") between prices at which they are buying and selling
various currencies. Thus, a dealer may offer to sell a foreign currency to a
Portfolio at one rate, while offering a lesser rate of exchange should a
Portfolio desire to resell that currency to the dealer.
Foreign Securities (All Portfolios except J.P. Morgan Select Equity, J.P. Morgan
Small Cap Stock, J.P. Morgan Enhanced Index and BlackRock U.S. Government Income
Portfolios)
A Portfolio may invest in foreign equity and debt securities or U.S.
securities traded in foreign markets. In addition to securities issued by
foreign companies, permissible investments may also consist of obligations of
foreign branches of U.S. banks and of foreign banks, including European
certificates of deposit, European time deposits, Canadian time deposits, Yankee
certificates of deposit, Eurodollar bonds and Yankee bonds. The Portfolio may
also invest in Canadian commercial paper and Europaper. These instruments may
subject the Portfolio to additional investment risks from those related to
investments in obligations of U.S. issuers. In addition, foreign branches of
U.S. banks and foreign banks may be subject to less stringent reserve
requirements than those applicable to domestic branches of U.S. banks.
Foreign investments involve certain risks that are not present in
domestic securities. For example, foreign securities may be subject to currency
risks or to foreign government taxes which reduce their attractiveness. There
may be less information publicly available about a foreign issuer than about a
U.S. issuer, and a foreign issuer is not generally subject to uniform
accounting, auditing and financial reporting standards and practices comparable
to those in the U.S. Other risks of investing in such securities include
political or economic instability in the country involved, the difficulty of
predicting international trade patterns and the possibility of imposition of
exchange controls. The prices of such securities may be more volatile than those
of domestic securities. With respect to certain foreign countries, there is a
possibility of expropriation of assets or nationalization, imposition of
withholding taxes on dividend or interest payments, difficulty in obtaining and
enforcing judgments against foreign entities or diplomatic developments which
could affect investment in these countries. Losses and other expenses may be
incurred in converting between various currencies in connection with purchases
and sales of foreign securities.
Foreign stock markets are generally not as developed or efficient as,
and may be more volatile than, those in the U.S. While growing in volume, they
usually have substantially less volume than U.S. markets and a Portfolio's
investment securities may be less liquid and subject to more rapid and erratic
price movements than securities of comparable U.S. companies. Equity securities
may trade at price/earnings multiples higher than comparable U.S. securities and
such levels may not be sustainable. There is generally less government
supervision and regulation of foreign stock exchanges, brokers, banks and listed
companies abroad than in the U.S. Moreover, settlement practices for
transactions in foreign markets may differ from those in U.S. markets. Such
differences may include delays beyond periods customary in the U.S. and
practices, such as delivery of securities prior to receipt of payment, which
increase the likelihood of a "failed settlement", which can result in losses to
a Portfolio.
The value of foreign investments and the investment income derived from
them may also be affected unfavorable by changes in currency exchange control
regulations. Although the Portfolios will invest only in securities denominated
in foreign currencies that are fully exchangeable into U.S. dollars without
legal restriction at the time of investment, there can be no assurance that
currency controls will not be imposed subsequently. In addition, the value of
foreign fixed income investments may fluctuate in response to changes in U.S.
and foreign interest rates.
Foreign brokerage commissions, custodial expenses and other fees are
also generally higher than for securities traded in the U.S. Consequently, the
overall expense ratios of international or global funds are usually somewhat
higher than those of typical domestic stock funds.
Fluctuations in exchange rates may also affect the earning power and
asset value of the foreign entity issuing a security, even one denominated in
U.S. dollars. Dividend and interest payments will be repatriated based on the
exchange rate at the time of disbursement, and restrictions on capital flows may
be imposed.
The debt obligations of foreign governments and entities may or may not
be supported by the full faith and credit of the foreign government. A Portfolio
may buy securities issued by certain "supra-national" entities, which include
entities designated or supported by governments to promote economic
reconstruction or development, international banking organizations and related
government agencies. Examples are the International Bank for Reconstruction and
Development (commonly called the "World Bank"), the Asian Development Bank and
the Inter-American Development Bank.
The governmental members of these supranational entities are
"stockholders" that typically make capital contributions and may be committed to
make additional capital contributions if the entity is unable to repay its
borrowings. A supra-national entity's lending activities may be limited to a
percentage of its total capital, reserves and net income. There can be no
assurance that the constituent foreign governments will continue to be able or
willing to honor their capitalization commitments for those entities.
The Lord Abbett Bond Debenture, Lord Abbett Mid-Cap Value, Lord Abbett
Developing Growth , Lord Abbett Growth and Income and Lord Abbett Growth
Opportunities Portfolios do not expect that more than 20%, 10%, 10% , 10% and
25%, respectively, of their total assets will be invested in foreign securities.
The J.P. Morgan Enhanced Index, the J.P. Morgan Select Equity and J.P.
Morgan Small Cap Stock Portfolios may only invest in equity securities of
foreign corporations listed on a U.S. securities exchange or denominated or
principally traded in the U.S. dollar. The J.P. Morgan Quality Bond Portfolio
does not expect to invest more than 25% of its total assets in securities of
foreign issuers. In the case of the J.P. Morgan Quality Bond Portfolio, any
foreign commercial paper must not be subject to foreign withholding tax at the
time of purchase.
The Firstar Balanced, Firstar Equity Income and Firstar Growth & Equity
Income Portfolios do not except that more than 15%, 15% and 5%, respectively, of
their total assets will be invested in foreign securities. The BlackRock Equity
Portfolio does not expect that more than 5% of its total assets will be invested
in foreign securities. The MFS Mid Cap Growth Portfolio expects that less than
20% of its total assets will be invested foreign securities.
The PIMCO Total Return Portfolio does not expect that more than 20% of
its total assets will be invested in securities denominated in foreign
currencies. The Oppenheimer Capital Appreciation Portfolio, PIMCO Innovation and
the Putnam Research Portfolio do not expect that more than 35% of their assets
will be invested in foreign securities.
Emerging Market Securities. Investments in emerging market country
securities involve special risks. Political and economic structures in many of
such countries may be undergoing significant evolution and rapid development,
and such countries may lack the social, political and economic stability
characteristic of more developed countries. Certain of such countries may have
in the past failed to recognize private property rights and have at times
nationalized or expropriated the assets of private companies. As a result, the
risks described above, 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 in those
countries and the availability to a Portfolio of additional investments in those
countries. The small size and inexperience of the securities markets in certain
of such countries and the limited volume of trading in securities in those
countries may make a Portfolio's investments in such countries illiquid and more
volatile than investment in more developed countries, and a Portfolio may be
required to establish special custodial or other arrangements before making
certain investments in those countries. There may be little financial or
accounting information available with respect to issuers located in certain of
such countries, and it may be difficult as a result to assess the value or
prospects of an investment in such issuers.
Transaction costs in emerging markets may be higher than in the U.S.
and other developed securities markets. As legal systems in emerging markets
develop, foreign investors may be adversely affected by new or amended laws and
regulations or may not be able to obtain swift and equitable enforcement of
existing law.
A Portfolio may make investments denominated in emerging markets
currencies. Some countries in emerging markets also may have managed currencies,
which are not free floating against the U.S. dollar. In addition, emerging
markets are subject to the risk of restrictions upon the free conversion of
their currencies into other currencies. Any devaluations relative to the U.S.
dollar in the currencies in which the Portfolio's securities are quoted would
reduce the Portfolio's net asset value.
Certain emerging markets limit, or require governmental approval prior
to, investments by foreign persons. Repatriation of investment income and
capital from certain emerging markets is subject to certain governmental
consents. Even where there is no outright restriction on repatriation of
capital, the mechanics of repatriation may affect the operation of a Portfolio.
Forward Commitments, When-Issued and Delayed Delivery Securities (All Portfolios
except J.P. Morgan Select Equity, J.P. Morgan Small Cap Stock, J.P. Morgan
Enhanced Index, J.P. Morgan International Equity, Lord Abbett Developing Growth,
Lord Abbett Growth and Income, Firstar Balanced and Firstar Equity Income and
PIMCO Money Market Portfolios)
A Portfolio may purchase securities on a when-issued or delayed
delivery basis and may purchase or sell securities on a forward commitment
basis. Settlement of such transactions normally occurs within a month or more
after the purchase or sale commitment is made.
A Portfolio may purchase securities under such conditions only with the
intention of actually acquiring them, but may enter into a separate agreement to
sell the securities before the settlement date. Since the value of securities
purchased may fluctuate prior to settlement, the Portfolio may be required to
pay more at settlement than the security is worth. In addition, the purchaser is
not entitled to any of the interest earned prior to settlement.
Upon making a commitment to purchase a security on a when-issued,
delayed delivery or forward commitment basis the Portfolio will hold liquid
assets in a segregated account at the Portfolio's custodian bank worth at least
the equivalent of the amount due. The liquid assets will be monitored on a daily
basis and adjusted as necessary to maintain the necessary value.
Purchases made under such conditions may involve the risk that yields
secured at the time of commitment may be lower than otherwise available by the
time settlement takes place, causing an unrealized loss to the Portfolio. In
addition, when the Portfolio engages in such purchases, it relies on the other
party to consummate the sale. If the other party fails to perform its
obligations, the Portfolio may miss the opportunity to obtain a security at a
favorable price or yield. Although a Portfolio will generally enter into forward
commitments to purchase securities with the intention of actually acquiring the
security for its portfolio (or for delivery pursuant to options contracts it has
entered into), the Portfolio may dispose of a security prior to settlement if
its investment adviser deems it advisable to do so. The Portfolio may realize
short-term gains or losses in connection with such sales.
High Yield/High Risk Debt Securities (J.P. Morgan Quality Bond, Lord Abbett Bond
Debenture , BlackRock Equity MFS Mid Cap Growth, Janus Aggressive Growth and
PIMCO Total Return Portfolios)
Certain lower rated securities purchased by a Portfolio, such as those
rated Ba or B by Moody's Investors Service, Inc. ("Moody's") or BB or B by
Standard & Poor's Ratings Services ("Standard & Poor's") (commonly known as junk
bonds), may be subject to certain risks with respect to the issuing entity's
ability to make scheduled payments of principal and interest and to greater
market fluctuations. While generally providing greater income than investments
in higher quality securities, lower quality fixed income securities involve
greater risk of loss of principal and income, including the possibility of
default or bankruptcy of the issuers of such securities, and have greater price
volatility, especially during periods of economic uncertainty or change. These
lower quality fixed income securities tend to be affected by economic changes
and short-term corporate and industry developments to a greater extent than
higher quality securities, which react primarily to fluctuations in the general
level of interest rates. To the extent that a Portfolio invests in such lower
quality securities, the achievement of its investment objective may be more
dependent on the investment adviser's own credit analysis.
Lower quality fixed income securities are affected by the market's
perception of their credit quality, especially during times of adverse
publicity, and the outlook for economic growth. Economic downturns or an
increase in interest rates may cause a higher incidence of default by the
issuers of these securities, especially issuers that are highly leveraged. The
market for these lower quality fixed income securities is generally less liquid
than the market for investment grade fixed income securities. It may be more
difficult to sell these lower rated securities to meet redemption requests, to
respond to changes in the market, or to value accurately a Portfolio's portfolio
securities for purposes of determining the Portfolio's net asset value.
In determining suitability of investment in a particular unrated
security, the investment adviser takes into consideration asset and debt service
coverage, the purpose of the financing, history of the issuer, existence of
other rated securities of the issuer, and other relevant conditions, such as
comparability to other issuers.
Hybrid Instruments (J.P. Morgan Quality Bond , BlackRock Equity, Janus
Aggressive Growth and PIMCO Total Return Portfolios)
Although there are no percentage limitations on the amount of assets
that may be invested in hybrid instruments, the investment advisers to the
Portfolios do not anticipate that such investments will exceed 5% (15% with
respect to J.P. Morgan Quality Bond Portfolio) of each Portfolio's total assets.
Hybrid instruments have recently been developed and combine the elements of
futures contracts or options with those of debt, preferred equity or a
depository instrument. Often these hybrid instruments are indexed to the price
of a commodity, particular currency, or a domestic or foreign debt or equity
securities index. Hybrid instruments may take a variety of forms, including, but
not limited to, debt instruments with interest or principal payments or
redemption terms determined by reference to the value of a currency or commodity
or securities index at a future point in time, preferred stock with dividend
rates determined by reference to the value of a currency, or convertible
securities with the conversion terms related to a particular commodity. Hybrid
instruments may bear interest or pay dividends at below market (or even
relatively nominal) rates. Under certain conditions, the redemption value of
such an instrument could be zero. Hybrid instruments can have volatile prices
and limited liquidity and their use by a Portfolio may not be successful.
Illiquid Securities (All Portfolios except J.P. Morgan Select Equity, Firstar
Balanced, Firstar Equity Income and Firstar Growth & Equity Income, PIMCO Money
Market, PIMCO Innovation and Putnam Research Portfolios)
Each Portfolio may invest up to 15% of its net assets in illiquid
securities and other securities which are not readily marketable, including
non-negotiable time deposits, certain restricted securities not deemed by the
Trust's Board of Trustees to be liquid and repurchase agreements with maturities
longer than seven days. Securities eligible for resale pursuant to Rule 144A
under the Securities Act of 1933, which have been determined to be liquid, will
not be considered by the Portfolios' investment advisers to be illiquid or not
readily marketable and, therefore, are not subject to the aforementioned 15%
limit. The inability of a Portfolio to dispose of illiquid or not readily
marketable investments readily or at a reasonable price could impair the
Portfolio's ability to raise cash for redemptions or other purposes. The
liquidity of securities purchased by a Portfolio which are eligible for resale
pursuant to Rule 144A will be monitored by the Portfolios' investment advisers
on an ongoing basis, subject to the oversight of the Trustees. In the event that
such a security is deemed to be no longer liquid, a Portfolio's holdings will be
reviewed to determine what action, if any, is required to ensure that the
retention of such security does not result in a Portfolio having more than 15%
of its assets invested in illiquid or not readily marketable securities.
Interest Rate Transactions (J.P. Morgan Quality Bond, BlackRock U.S. Government
Income , BlackRock Equity, PIMCO Total Return, Janus Aggressive Growth and
Oppenheimer Capital Appreciation Portfolios)
Among the strategic transactions into which the Portfolios may enter
are interest rate swaps and the purchase or sale of related caps and floors. A
Portfolio expects to enter into these transactions primarily to preserve a
return or spread on a particular investment or portion of its portfolio, to
protect against currency fluctuations, as a duration management technique or to
protect against any increase in the price of securities the Portfolio
anticipates purchasing at a later date. A Portfolio intends to use these
transactions as hedges and not as speculative investments and will not sell
interest rate caps or floors 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 value
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 the extent that a specific index
exceeds a predetermined interest rate, to receive payments of interest on a
notional principal amount from the party selling such cap. 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 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. Inasmuch as these swaps, caps
and floors are entered into for good faith hedging purposes, the investment
advisers to the Portfolios and the Trust believe such obligations do not
constitute senior securities under the 1940 Act and, accordingly, will not treat
them as being subject to its borrowing restrictions. A Portfolio will not enter
into any swap, cap and floor 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 Standard & Poor's or
Moody's or has an equivalent rating from another nationally recognized
statistical rating organization ("NRSRO") or is determined to be of equivalent
credit quality by the investment adviser. For a description of the NRSROs and
their ratings, see the Appendix. 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 and floors are more recent innovations
for which standardized documentation has not yet been fully developed and,
accordingly, they are less liquid than swaps.
With respect to swaps, a Portfolio will accrue the net amount of the
excess, if any, of its obligations over its entitlements with respect to each
swap on a daily basis and will segregate an amount of cash or liquid high grade
securities having a value equal to the accrued excess. Caps and floors require
segregation of assets with a value equal to the Portfolio's net obligations, if
any.
Investment Grade Corporate Debt Securities (J.P. Morgan Quality Bond, Lord
Abbett Bond Debenture, Firstar Balanced, Firstar Growth & Income Equity ,
BlackRock Equity, PIMCO Money Market, PIMCO Total Return, PIMCO Innovation,
Oppenheimer Capital Appreciation, Janus Aggressive Growth, MFS Mid Cap Growth
and MFS Research
International Portfolios)
=============
Debt securities are rated by NRSROs. Securities rated BBB by Standard &
Poor's or Baa by Moody's are considered investment grade securities, but are
somewhat riskier than higher rated investment grade obligations because they are
regarded as having only an adequate capacity to pay principal and interest, and
are considered to lack outstanding investment characteristics and may be
speculative. See the Appendix to this Statement of Additional Information for a
description of the various securities ratings.
Loans and Other Direct Indebtedness (J.P. Morgan Quality Bond , PIMCO Total
Return, Janus Aggressive Growth and Oppenheimer Capital Appreciation Portfolios)
By purchasing a loan, a Portfolio acquires some or all of the interest
of a bank or other lending institution in a loan to a corporate borrower. Many
such loans are secured, and most impose restrictive covenants which must be met
by the borrower. These loans are made generally to finance internal growth,
mergers, acquisitions, stock repurchases, leveraged buy-outs and other corporate
activities. Such loans may be in default at the time of purchase. A Portfolio
may also purchase trade or other claims against companies, which generally
represent money owed by the company to a supplier of goods or services. These
claims may also be purchased at a time when the company is in default. Certain
of the loans acquired by a Portfolio may involve revolving credit facilities or
other standby financing commitments which obligate the Portfolio to pay
additional cash on a certain date or on demand.
The highly leveraged nature of many such loans may make such loans
especially vulnerable to adverse changes in economic or market conditions. Loans
and other direct investments may not be in the form of securities or may be
subject to restrictions on transfer, and only limited opportunities may exist to
resell such instruments. As a result, a Portfolio may be unable to sell such
investments at an opportune time or may have to resell them at less than fair
market value.
Money Market Securities (All Portfolios)
-----------------------
Money market securities in which the Portfolios may invest include U.S.
government securities, U.S. dollar denominated instruments (such as bankers'
acceptances, commercial paper, domestic or Yankee certificates of deposit and
Eurodollar obligations) issued or guaranteed by bank holding companies in the
U.S., their subsidiaries and their foreign branches. These bank obligations may
be general obligations of the parent bank holding company or may be limited to
the issuing entity by the terms of the specific obligation or by government
regulation.
Other money market securities in which a Portfolio may invest also
include certain variable and floating rate instruments and participations in
corporate loans to corporations in whose commercial paper or other short-term
obligations a Portfolio may invest. Because the bank issuing the participations
does not guarantee them in any way, they are subject to the credit risks
generally associated with the underlying corporate borrower. To the extent that
a Portfolio may be regarded as a creditor of the issuing bank (rather than of
the underlying corporate borrower under the terms of the loan participation),
the Portfolio may also be subject to credit risks associated with the issuing
bank. The secondary market, if any, for these loan participations is extremely
limited and any such participations purchased by a Portfolio will be regarded as
illiquid.
A Portfolio may also invest in bonds and notes with remaining
maturities of thirteen months or less, variable rate notes and variable amount
master demand notes. A variable amount master demand note differs from ordinary
commercial paper in that it is issued pursuant to a written agreement between
the issuer and the holder, its amount may be increased from time to time by the
holder (subject to an agreed maximum) or decreased by the holder or the issuer,
it is payable on demand, the rate of interest payable on it varies with an
agreed formula and it is typically not rated by a rating agency. Transfer of
such notes is usually restricted by the issuer, and there is no secondary
trading market for them. Any variable amount master demand note purchased by a
Portfolio will be regarded as an illiquid security.
Generally, the Portfolios will invest only in high quality money market
instruments, i.e., securities which have been assigned the highest quality
ratings by NRSROs such as "A-1" by Standard & Poor's or "Prime-1" by Moody's, or
if not rated, determined to be of comparable quality by the Portfolio's
investment adviser. The J.P. Morgan Quality Bond, Lord Abbett Bond Debenture,
Lord Abbett Mid-Cap Value, Lord Abbett Developing Growth , Lord Abbett Growth
and Income and Lord Abbett Growth Opportunities Portfolios may invest in money
market instruments rated A-3 by Standard & Poor's and Prime-3 by Moody's.
Mortgage-Backed Securities (J.P. Morgan Quality Bond, Lord Abbett Bond
Debenture, Firstar Balanced, Firstar Growth & Income Equity, BlackRock U.S.
Government Income , BlackRock Equity, PIMCO Money Market, PIMCO Total Return,
Janus Aggressive Growth and MFS Research International Portfolios)
A mortgage-backed security may be an obligation of the issuer backed by
a mortgage or pool of mortgages or a direct interest in an underlying pool of
mortgages. Certain Portfolios may invest in CMOs and stripped mortgage-backed
securities that represent a participation in, or are secured by, mortgage loans.
Some mortgage-backed securities, such as CMOs, make payments of both principal
and interest at a variety of intervals; others make semi-annual interest
payments at a predetermined rate and repay principal at maturity (like a typical
bond). Mortgage-backed securities are based on different types of mortgages
including those on commercial real estate or residential properties.
CMOs may be issued by a U.S. government agency or instrumentality or by
a private issuer. Although payment of the principal of, and interest on, the
underlying collateral securing privately issued CMOs may be guaranteed by the
U.S. government or its agencies or instrumentalities, these CMOs represent
obligations solely of the private issuer and are not insured or guaranteed by
the U.S. government, its agencies or instrumentalities or any other person or
entity. Prepayments could cause early retirement of CMOs. CMOs are designed to
reduce the risk of prepayment for investors by issuing multiple classes of
securities (or "tranches"), each having different maturities, interest rates and
payment schedules, and with the principal and interest on the underlying
mortgages allocated among the several classes in various ways. Payment of
interest or principal on some classes or series of CMOs may be subject to
contingencies or some classes or series may bear some or all of the risk of
default on the underlying mortgages. CMOs of different classes or series are
generally retired in sequence as the underlying mortgage loans in the mortgage
pool are repaid. If enough mortgages are repaid ahead of schedule, the classes
or series of a CMO with the earliest maturities generally will be retired prior
to their maturities. Thus, the early retirement of particular classes or series
of a CMO held by a Portfolio would have the same effect as the prepayment of
mortgages underlying other mortgage-backed securities. Conversely, slower than
anticipated prepayments can extend the effective maturities of CMOs subjecting
them to a greater risk of decline in market value in response to rising interest
rates than traditional debt securities, and, therefore, potentially increasing
the volatility of a Portfolio that invests in CMOs.
The value of mortgage-backed securities may change due to shifts in the
market's perception of issuers. In addition, regulatory or tax changes may
adversely affect the mortgage securities market as a whole. Non-government
mortgage-backed securities may offer higher yields than those issued by
government entities, but also may be subject to greater price changes than
government issues. Mortgage-backed securities have yield and maturity
characteristics corresponding to the underlying assets. Unlike traditional debt
securities, which may pay a fixed rate of interest until maturity, when the
entire principal amount comes due, payments on certain mortgage-backed
securities include both interest and a partial repayment of principal. Besides
the scheduled repayment of principal, repayments of principal may result from
the voluntary prepayment, refinancing, or foreclosure of the underlying mortgage
loans.
Mortgage-backed securities are subject to prepayment risk. Prepayment,
which occurs when unscheduled or early payments are made on the underlying
mortgages, may shorten the effective maturities of these securities and may
lower their returns. If property owners make unscheduled prepayments of their
mortgage loans, these prepayments will result in early payment of the applicable
mortgage-related securities. In that event, the Portfolios, may be unable to
invest the proceeds from the early payment of the mortgage-related securities in
an investment that provides as high a yield as the mortgage-related securities.
Consequently, early payment associated with mortgage-related securities may
cause these securities to experience significantly greater price and yield
volatility than that experienced by traditional fixed income securities. The
occurrence of mortgage prepayments is affected by factors including the level of
interest rates, general economic conditions, the location and age of the
mortgage and other social and demographic conditions. During periods of falling
interest rates, the rate of mortgage prepayments tends to increase, thereby
tending to decrease the life of mortgage-related securities. During periods of
rising interest rates, the rate of mortgage prepayments usually decreases,
thereby tending to increase the life of mortgage-related securities. If the life
of a mortgage-related security is inaccurately predicted, a Portfolio may not be
able to realize the rate of return it expected.
Mortgage-backed securities are less effective than other types of
securities as a means of "locking in" attractive long-term interest rates. One
reason is the need to reinvest prepayments of principal; another is the
possibility of significant unscheduled prepayments resulting from declines in
interest rates. Prepayments may cause losses on securities purchased at a
premium. At times, some of the mortgage-backed securities in which a Portfolio
may invest will have higher than market interest rates and, therefore, will be
purchased at a premium above their par value. Unscheduled prepayments, which are
made at par, will cause a Portfolio to experience a loss equal to any
unamortized premium.
Stripped mortgage-backed securities are created when a U.S. government
agency or a financial institution separates the interest and principal
components of a mortgage-backed security and sells them as individual
securities. The securities may be issued by agencies or instrumentalities of the
U.S. government and private originators of, or investors in, mortgage loans,
including savings and loan associations, mortgage banks, commercial banks,
investment banks and special purpose entities of the foregoing. Stripped
mortgage-backed securities are usually structured with two classes that receive
different portions of the interest and principal distributions on a pool of
mortgage loans. The holder of the "principal-only" security ("PO") receives the
principal payments made by the underlying mortgage-backed security while the
holder of the "interest-only" security ("IO") receives interest payments from
the same underlying security. The Portfolios may invest in both the IO class and
the PO class. The prices of stripped mortgage-backed securities may be
particularly affected by changes in interest rates. The yield to maturity on an
IO class of stripped mortgage-backed securities is extremely sensitive not only
to changes in prevailing interest rates but also to the rate of the principal
payments (including prepayments) on the underlying assets. As interest rates
fall, prepayment rates tend to increase, which tends to reduce prices of IOs and
increase prices of POs. Rising interest rates can have the opposite effect.
Prepayments may also result in losses on stripped mortgage-backed
securities. A rapid rate of principal prepayments may have a measurable adverse
effect on a Portfolio's yield to maturity to the extent it invests in IOs. If
the assets underlying the IO experience greater than anticipated prepayments of
principal, a Portfolio may fail to recoup fully its initial investments in these
securities. Conversely, POs tend to increase in value if prepayments are greater
than anticipated and decline if prepayments are slower than anticipated. The
secondary market for stripped mortgage-backed securities may be more volatile
and less liquid than that for other mortgage-backed securities, potentially
limiting the Portfolios' ability to buy and sell those securities at any
particular time.
The J.P. Morgan Quality Bond Portfolio may also invest in directly
placed mortgages including residential mortgages, multifamily mortgages,
mortgages on cooperative apartment buildings, commercial mortgages, and
sale-leasebacks. These investments are backed by assets such as office
buildings, shopping centers, retail stores, warehouses, apartment buildings and
single-family dwellings. In the event that the Portfolio forecloses on any
non-performing mortgage, it would end up acquiring a direct interest in the
underlying real property and the Portfolio would then be subject to the risks
generally associated with the ownership of real property. There may be
fluctuations in the market value of the foreclosed property and its occupancy
rates, rent schedules and operating expenses. Investment in direct mortgages
involve may of the same risks as investments in mortgage-related securities.
There may also be adverse changes in local, regional or general economic
conditions, deterioration of the real estate market and the financial
circumstances of tenants and sellers, unfavorable changes in zoning, building,
environmental and other laws, increased real property taxes, rising interest
rates, reduced availability and increased cost of mortgage borrowing, the need
for anticipated renovations, unexpected increases in the cost of energy,
environmental factors, acts of God and other factors which are beyond the
control of the Portfolio or its investment adviser. Hazardous or toxic
substances may be present on, at or under the mortgaged property and adversely
affect the value of the property. In addition, the owners of the property
containing such substances may be held responsible, under various laws, for
containing, monitoring, removing or cleaning up such substances. The presence of
such substances may also provide a basis for other claims by third parties.
Costs of clean-up or of liabilities to third parties may exceed the value of the
property. In addition, these risks may be uninsurable. In light of these and
similar risks, it may be impossible to dispose profitably of properties in
foreclosure.
Municipal Fixed Income Securities (J.P. Morgan Quality Bond , Firstar Growth &
Income Equity, PIMCO Total Return and PIMCO Innovation Portfolios)
A Portfolio may invest in municipal bonds of any state, territory or
possession of the U.S., including the District of Columbia. The Portfolio may
also invest in municipal bonds of any political subdivision, agency or
instrumentality (e.g., counties, cities, towns, villages, districts,
authorities) of the U.S. or its possessions. Municipal bonds are debt
instruments issued by or for a state or local government to support its general
financial needs or to pay for special projects such as airports, bridges,
highways, public transit, schools, hospitals, housing and water and sewer works.
Interest payments received by holders of these securities are generally
tax-free. Municipal bonds may also be issued to refinance public debt.
Municipal bonds are mainly divided between "general obligation" and
"revenue" bonds. General obligation bonds are backed by the full faith and
credit of governmental issuers with the power to tax. They are repaid from the
issuer's general revenues. Payment, however, may be dependent upon legislative
approval and may be subject to limitations on the issuer's taxing power.
Enforcement of payments due under general obligation bonds varies according to
the law applicable to the issuer. In contrast, revenue bonds are supported only
by the revenues generated by the project or facility.
A Portfolio may also invest in industrial development bonds. Such bonds
are usually revenue bonds issued to pay for facilities with a public purpose
operated by private corporations. The credit quality of industrial development
bonds is usually directly related to the credit standing of the owner or user of
the facilities. To qualify as a municipal bond, the interest paid on an
industrial development bond must qualify as fully exempt from federal income
tax. However, the interest paid on an industrial development bond may be subject
to the federal alternative minimum tax.
The yields on municipal bonds depend on such factors as market
conditions, the financial condition of the issuer and the issue's size, maturity
date and rating. Municipal bonds are rated by Standard & Poor's, Moody's and
Fitch IBCA, Inc. Such ratings, however, are opinions, not absolute standards of
quality. Municipal bonds with the same maturity, interest rates and rating may
have different yields, while municipal bonds with the same maturity and interest
rate, but different ratings, may have the same yield. Once purchased by the
Portfolio, a municipal bond may cease to be rated or receive a new rating below
the minimum required for purchase by the Portfolio. Neither event would require
the Portfolio to sell the bond, but the Portfolio's investment adviser would
consider such events in determining whether the Portfolio should continue to
hold it.
The ability of the Portfolio to achieve its investment objective
depends upon the continuing ability of the issuers of municipal bonds to pay
interest and principal when due. Municipal bonds are subject to the provisions
of bankruptcy, insolvency and other laws affecting the rights and remedies of
creditors. Such laws extend the time for payment of principal and/or interest,
and may otherwise restrict the Portfolio's ability to enforce its rights in the
event of default. Since there is generally less information available on the
financial condition of municipal bond issuers compared to other domestic issuers
of securities, the Portfolio's investment adviser may lack sufficient knowledge
of an issue's weaknesses. Other influences, such as litigation, may also
materially affect the ability of an issuer to pay principal and interest when
due. In addition, the market for municipal bonds is often thin and can be
temporarily affected by large purchases and sales, including those by the
Portfolio.
From time to time, Congress has considered restricting or eliminating
the federal income tax exemption for interest on municipal bonds. Such actions
could materially affect the availability of municipal bonds and the value of
those already owned by the Portfolio. If such legislation were passed, the
Trust's Board of Trustees may recommend changes in the Portfolio's investment
objectives and policies.
Options and Futures Strategies (All Portfolios except PIMCO Money Market
Portfolio)
A Portfolio may seek to increase the current return on its investments
by writing covered call or covered put options. In addition, a Portfolio may at
times seek to hedge against either a decline in the value of its portfolio
securities or an increase in the price of securities which its investment
adviser plans to purchase through the writing and purchase of options including
options on stock indices and the purchase and sale of futures contracts and
related options. A Portfolio may utilize options or futures contracts and
related options for other than hedging purposes to the extent that the aggregate
initial margins and premiums do not exceed 5% of the Portfolio's net asset
value; provided, however, in the case of an option that is in-the-money at the
time of purchase, the in-the-money amount may be excluded in calculating the 5%
limitation. The investment advisers to the J.P. Morgan Small Cap Stock, Lord
Abbett Bond Debenture, Lord Abbett Developing Growth, Lord Abbett Growth and
Income, Lord Abbett Mid-Cap Value, Lord Abbett Growth Opportunities, Firstar
Growth & Income Equity and Firstar Balanced Portfolios do not presently intend
to utilize options or futures contracts and related options but may do so in the
future. The investment adviser to the Firstar Equity Income Portfolio does not
presently intend to buy or sell put or call options (although they may write
covered call options), but may do so in the future. The investment adviser to
the PIMCO Total Return Portfolio does not presently intend to engage in options
and futures transactions on stock indices, but may do so in the future. Expenses
and losses incurred as a result of such hedging strategies will reduce a
Portfolio's current return.
The ability of a Portfolio to engage in the options and futures
strategies described below will depend on the availability of liquid markets in
such instruments. Markets in options and futures with respect to stock indices
and U.S. government securities are relatively new and still developing. It is
impossible to predict the amount of trading interest that may exist in various
types of options or futures. Therefore no assurance can be given that a
Portfolio will be able to utilize these instruments effectively for the purposes
stated below.
Writing Covered Options on Securities. A Portfolio may write covered
call options and covered put options on optionable securities of the types in
which it is permitted to invest from time to time as its investment adviser
determines is appropriate in seeking to attain the Portfolio's investment
objective. Call options written by a Portfolio give the holder the right to buy
the underlying security from the Portfolio at a stated exercise price; put
options give the holder the right to sell the underlying security to the
Portfolio at a stated price.
A Portfolio may only write call options on a covered basis or for
cross-hedging purposes and will only write covered put options. A put option
would be considered "covered" if the Portfolio owns an option to sell the
underlying security subject to the option having an exercise price equal to or
greater than the exercise price of the "covered" option at all times while the
put option is outstanding. A call option is covered if the Portfolio owns or has
the right to acquire the underlying securities subject to the call option (or
comparable securities satisfying the cover requirements of securities exchanges)
at all times during the option period. A call option is for cross-hedging
purposes if it is not covered, but is designed to provide a hedge against
another security which the Portfolio owns or has the right to acquire. In the
case of a call written for cross-hedging purposes or a put option, the Portfolio
will maintain in a segregated account at the Trust's custodian bank liquid
assets with a value equal to or greater than the Portfolio's obligation under
the option. A Portfolio may also write combinations of covered puts and covered
calls on the same underlying security.
A Portfolio will receive a premium from writing an option, which
increases the Portfolio's return in the event the option expires unexercised or
is terminated at a profit. The amount of the premium will reflect, among other
things, the relationship of the market price of the underlying security to the
exercise price of the option, the term of the option, and the volatility of the
market price of the underlying security. By writing a call option, a Portfolio
will limit its opportunity to profit from any increase in the market value of
the underlying security above the exercise price of the option. By writing a put
option, a Portfolio will assume the risk that it may be required to purchase the
underlying security for an exercise price higher than its then current market
price, resulting in a potential capital loss if the purchase price exceeds the
market price plus the amount of the premium received.
A Portfolio may terminate an option which it has written prior to its
expiration by entering into a closing purchase transaction in which it purchases
an option having the same terms as the option written. The Portfolio will
realize a profit (or loss) from such transaction if the cost of such transaction
is less (or more) than the premium received from the writing of the option.
Because increases in the market price of a call option will generally reflect
increases in the market price of the underlying security, any loss resulting
from the repurchase of a call option may be offset in whole or in part by
unrealized appreciation of the underlying security owned by the Portfolio.
Purchasing Put and Call Options on Securities. A Portfolio may purchase
put options to protect its portfolio holdings in an underlying security against
a decline in market value. This protection is provided during the life of the
put option since the Portfolio, as holder of the put, is able to sell the
underlying security at the exercise price regardless of any decline in the
underlying security's market price. For the purchase of a put option to be
profitable, the market price of the underlying security must decline
sufficiently below the exercise price to cover the premium and transaction
costs. By using put options in this manner, any profit which the Portfolio might
otherwise have realized on the underlying security will be reduced by the
premium paid for the put option and by transaction costs.
A Portfolio may also purchase a call option to hedge against an
increase in price of a security that it intends to purchase. This protection is
provided during the life of the call option since the Portfolio, as holder of
the call, is able to buy the underlying security at the exercise price
regardless of any increase in the underlying security's market price. For the
purchase of a call option to be profitable, the market price of the underlying
security must rise sufficiently above the exercise price to cover the premium
and transaction costs. By using call options in this manner, any profit which
the Portfolio might have realized had it bought the underlying security at the
time it purchased the call option will be reduced by the premium paid for the
call option and by transaction costs.
Except for the J.P. Morgan Quality Bond Portfolio, no Portfolio intends
to purchase put or call options if, as a result of any such transaction, the
aggregate cost of options held by the Portfolio at the time of such transaction
would exceed 5% of its total assets. There are no specific limitations on the
J.P. Morgan Quality Bond Portfolio's purchases of options on securities.
Purchase and Sale of Options and Futures on Stock Indices. A Portfolio
may purchase and sell options on stock indices and stock index futures contracts
either as a hedge against movements in the equity markets or for other
investment purposes.
Options on stock indices are similar to options on specific securities
except that, rather than the right to take or make delivery of the specific
security at a specific price, an option on a stock index gives the holder the
right to receive, upon exercise of the option, an amount of cash if the closing
level of that stock index is greater than, in the case of a call, or less than,
in the case of a put, the exercise price of the option. This amount of cash is
equal to such difference between the closing price of the index and the exercise
price of the option expressed in dollars times a specified multiple. The writer
of the option is obligated, in return for the premium received, to make delivery
of this amount. Unlike options on specific securities, all settlements of
options on stock indices are in cash and gain or loss depends on general
movements in the stocks included in the index rather than price movements in
particular stocks. Currently options traded include the Standard & Poor's 500
Composite Stock Price Index, the NYSE Composite Index, the AMEX Market Value
Index, the NASDAQ 100 Index, the Nikkei 225 Stock Average Index, the Financial
Times Stock Exchange 100 Index and other standard broadly based stock market
indices. Options are also traded in certain industry or market segment indices
such as the Pharmaceutical Index.
A stock index futures contract is an agreement in which one party
agrees to deliver to the other an amount of cash equal to a specific dollar
amount times the difference between the value of a specific stock index at the
close of the last trading day of the contract and the price at which the
agreement is made. No physical delivery of securities is made.
If a Portfolio's investment adviser expects general stock market prices
to rise, it might purchase a call option on a stock index or a futures contract
on that index as a hedge against an increase in prices of particular equity
securities it wants ultimately to buy for the Portfolio. If in fact the stock
index does rise, the price of the particular equity securities intended to be
purchased may also increase, but that increase would be offset in part by the
increase in the value of the Portfolio's index option or futures contract
resulting from the increase in the index. If, on the other hand, the Portfolio's
investment adviser expects general stock market prices to decline, it might
purchase a put option or sell a futures contract on the index. If that index
does in fact decline, the value of some or all of the equity securities held by
the Portfolio may also be expected to decline, but that decrease would be offset
in part by the increase in the value of the Portfolio's position in such put
option or futures contract.
Purchase and Sale of Interest Rate Futures. A Portfolio may purchase
and sell interest rate futures contracts on fixed income securities or indices
of such securities, including municipal indices and any other indices of fixed
income securities that may become available for trading either for the purpose
of hedging its portfolio securities against the adverse effects of anticipated
movements in interest rates or for other investment purposes.
A Portfolio may sell interest rate futures contracts in anticipation of
an increase in the general level of interest rates. Generally, as interest rates
rise, the market value of the securities held by a Portfolio will fall, thus
reducing the net asset value of the Portfolio. This interest rate risk can be
reduced without employing futures as a hedge by selling such securities and
either reinvesting the proceeds in securities with shorter maturities or by
holding assets in cash. However, this strategy entails increased transaction
costs in the form of dealer spreads and brokerage commissions and would
typically reduce the Portfolio's average yield as a result of the shortening of
maturities.
The sale of interest rate futures contracts provides a means of hedging
against rising interest rates. As rates increase, the value of a Portfolio's
short position in the futures contracts will also tend to increase thus
offsetting all or a portion of the depreciation in the market value of the
Portfolio's investments that are being hedged. While the Portfolio will incur
commission expenses in selling and closing out futures positions (which is done
by taking an opposite position in the futures contract), commissions on futures
transactions are lower than transaction costs incurred in the purchase and sale
of portfolio securities.
A Portfolio may purchase interest rate futures contracts in
anticipation of a decline in interest rates when it is not fully invested. As
such purchases are made, it is expected that an equivalent amount of futures
contracts will be closed out.
A Portfolio will enter into futures contracts which are traded on
national or foreign futures exchanges, and are standardized as to maturity date
and the underlying financial instrument. Futures exchanges and trading in the
U.S. are regulated under the Commodity Exchange Act by the CFTC. Futures are
traded in London at the London International Financial Futures Exchange, in
Paris at the MATIF, and in Tokyo at the Tokyo Stock Exchange.
Options on Futures Contracts. A Portfolio may purchase and write call
and put options on stock index and interest rate futures contracts. A Portfolio
may use such options on futures contracts in connection with its hedging
strategies in lieu of purchasing and writing options directly on the underlying
securities or stock indices or purchasing or selling the underlying futures. For
example, a Portfolio may purchase put options or write call options on stock
index futures or interest rate futures, rather than selling futures contracts,
in anticipation of a decline in general stock market prices or rise in interest
rates, respectively, or purchase call options or write put options on stock
index or interest rate futures, rather than purchasing such futures, to hedge
against possible increases in the price of equity securities or debt securities,
respectively, which the Portfolio intends to purchase.
In connection with transactions in stock index options, stock index
futures, interest rate futures and related options on such futures, a Portfolio
will be required to deposit as "initial margin" an amount of cash and short-term
U.S. government securities. The current initial margin requirements per contract
is range from approximately 2% to 10% of the contract amount. Thereafter,
subsequent payments (referred to as "variation margin") are made to and from the
broker to reflect changes in the value of the futures contract. Brokers may
establish deposit requirements higher than exchange minimums.
Limitations. A Portfolio will not purchase or sell futures contracts or
options on futures contracts or stock indices for non-hedging purposes if, as a
result, the sum of the initial margin deposits on its existing futures contracts
and related options positions and premiums paid for options on futures contracts
or stock indices would exceed 5% of the net assets of the Portfolio. In
addition, the BlackRock Equity Portfolio will not maintain open positions in
futures contracts it has sold or call options it has written on futures
contracts if, in the aggregate, the value of the open positions
(marked-to-market) exceeds the current market value of its securities portfolio
plus or minus the unrealized gain or loss on those open positions, adjusted for
the correlation of volatility between the hedged securities and the futures
contracts. If this limitation is exceeded at any time, the Portfolio will take
prompt action to close out a sufficient number of open contracts to bring its
open futures and options positions within this limitation.
Risks of Options and Futures Strategies. The effective use of options
and futures strategies depends, among other things, on a Portfolio's ability to
terminate options and futures positions at times when its investment adviser
deems it desirable to do so. Although a Portfolio will not enter into an option
or futures position unless its investment adviser believes that a liquid market
exists for such option or future, there can be no assurance that a Portfolio
will be able to effect closing transactions at any particular time or at an
acceptable price. The investment advisers generally expect that options and
futures transactions for the Portfolios will be conducted on recognized
exchanges. In certain instances, however, a Portfolio may purchase and sell
options in the over-the-counter market. The staff of the Securities and Exchange
Commission considers over-the-counter options to be illiquid. A Portfolio's
ability to terminate option positions established in the over-the-counter market
may be more limited than in the case of exchange traded options and may also
involve the risk that securities dealers participating in such transactions
would fail to meet their obligations to the Portfolio.
The use of options and futures involves the risk of imperfect
correlation between movements in options and futures prices and movements in the
price of the securities that are the subject of the hedge. The successful use of
these strategies also depends on the ability of a Portfolio's investment adviser
to forecast correctly interest rate movements and general stock market price
movements. This risk increases as the composition of the securities held by the
Portfolio diverges from the composition of the relevant option or futures
contract.
Other Investment Companies (All Portfolios except J.P. Morgan Quality Bond, J.P.
Morgan Select Equity, J.P. Morgan Small Cap Stock, J.P. Morgan Enhanced Index,
J.P. Morgan International Equity , BlackRock Equity, PIMCO Money Market and
Putnam Research Portfolios)
In connection with its investments in accordance with the various
investment disciplines, a Portfolio may invest up to 10% of its total assets in
shares of other investment companies investing exclusively in securities in
which it may otherwise invest. Because of restrictions on direct investment by
U.S. entities in certain countries, other investment companies may provide the
most practical or only way for a Portfolio to invest in certain markets. Such
investments may involve the payment of substantial premiums above the net asset
value of those investment companies' portfolio securities and are subject to
limitations under the 1940 Act. A Portfolio also may incur tax liability to the
extent it invests in the stock of a foreign issuer that is a "passive foreign
investment company" regardless of whether such "passive foreign investment
company" makes distributions to the Portfolio.
Each Portfolio does not intend to invest in other investment companies
unless, in the investment adviser's judgment, the potential benefits exceed
associated costs. As a shareholder in an investment company, a Portfolio bears
its ratable share of that investment company's expenses, including advisory and
administration fees.
Portfolio Turnover
While it is impossible to predict portfolio turnover rates, the
investment advisers to the Portfolios other than the BlackRock U.S. Government
Income Portfolio, J.P. Morgan Quality Bond Portfolio, J.P. Morgan Select Equity
Portfolio, MFS Mid Cap Growth Portfolio, MFS Research International Portfolio,
Janus Aggressive Growth, Putnam Research, PIMCO Innovation and Lord Abbett
Growth Opportunities Portfolio anticipate that portfolio turnover will generally
not exceed 100% per year. The investment adviser to the BlackRock U.S.
Government Income Portfolio anticipates that portfolio turnover may exceed 200%
per year, exclusive of dollar roll transactions. The investment adviser to the
J.P. Morgan Quality Bond and J.P. Morgan Select Equity Portfolios anticipates
that portfolio turnover rates generally will not exceed 300% and 150%,
respectively. The investment adviser to the MFS Mid Cap Growth Portfolio and MFS
Research International Portfolio anticipates that portfolio turnover generally
will not exceed 200% and 150%, respectively, per year. The investment adviser to
the Lord Abbett Growth Opportunities Portfolio anticipates that portfolio
turnover generally will not exceed 150% per year. The investment adviser to the
Janus Aggressive Growth Portfolio anticipates that portfolio turnover generally
will not exceed 200% per year. The investment adviser to the Putnam Research
Portfolio anticipates that portfolio turnover generally will exceed 100% per
year. The investment adviser to the PIMCO Innovation Portfolio anticipates that
portfolio turnover generally will not exceed 200% per year. Higher portfolio
turnover rates usually generate additional brokerage commissions and expenses.
Preferred Stocks (All Portfolios except J.P. Morgan Select Equity , BlackRock
U.S. Government Income, Lord Abbett Growth Opportunities and PIMCO Money Market
Portfolios)
A Portfolio may purchase preferred stock. Preferred stock, unlike
common stock, has a stated dividend rate payable from the corporation's
earnings. Preferred stock dividends may be cumulative or non-cumulative,
participating, or auction rate. "Cumulative" dividend provisions require all or
a portion of prior unpaid dividends to be paid.
If interest rates rise, the fixed dividend on preferred stocks may be
less attractive, causing the price of preferred stocks to decline. Preferred
stock may have mandatory sinking fund provisions, as well as call/redemption
provisions prior to maturity, which can be a negative feature when interest
rates decline. Preferred stock also generally has a preference over common stock
on the distribution of a corporation's assets in the event of liquidation of the
corporation. Preferred stock may be "participating" stock, which means that it
may be entitled to a dividend exceeding the stated dividend in certain cases.
The rights of preferred stock on distribution of a corporation's assets in the
event of a liquidation are generally subordinate to the rights associated with a
corporation's debt securities.
Real Estate Investment Trusts (J.P. Morgan Quality Bond, J.P. Morgan Small Cap
Stock, J.P. Morgan Enhanced Index, J.P. Morgan Select Equity, J.P. Morgan
International Equity, Lord Abbett Mid-Cap Value, Lord Abbett Developing Growth ,
Lord Abbett Growth and Income, Lord Abbett Growth Opportunities, Janus
Aggressive Growth, PIMCO Innovation and Putnam Research Portfolios)
A Portfolio may each invest up to 5% of its net assets in investments
related to real estate, including real estate investment trusts ("REITs"). Risks
associated with investments in securities of companies in the real estate
industry include: decline in the value of real estate; risks related to general
and local economic conditions; overbuilding and increased competition; increases
in property taxes and operating expenses; changes in zoning laws; casualty or
condemnation losses; variations in rental income; changes in neighborhood
values; the appeal of properties to tenants; and increases in interest rates. In
addition, equity REITs may be affected by changes in the values of the
underlying property owned by the trusts, while mortgage real estate investment
trusts may be affected by the quality of credit extended. REITs are dependent
upon management skills, may not be diversified and are subject to the risks of
financing projects. Such REITs are also subject to heavy cash flow dependency,
defaults by borrowers, self liquidation and the possibility of failing to
qualify for tax-free pass-through of income under the Code and to maintain
exemption from the 1940 Act. In the event an issuer of debt securities
collateralized by real estate defaults, it is conceivable that the REITs could
end up holding the underlying real estate.
Repurchase Agreements (J.P. Morgan Quality Bond, J.P. Morgan Small Cap Stock,
Lord Abbett Bond Debenture, Lord Abbett Mid-Cap Value, Lord Abbett Developing
Growth, Lord Abbett Growth and Income, Lord Abbett Growth Opportunities, Firstar
Balanced, Firstar Equity Income, BlackRock Equity , BlackRock U.S. Government
Income, MFS Mid Cap Growth, PIMCO Money Market, PIMCO Total Return, PIMCO
Innovation, Oppenheimer Capital Appreciation, Janus Aggressive Growth, Putnam
Research and MFS Research International Portfolios)
Each of the Portfolios may enter into repurchase agreements with a
bank, broker-dealer, or other financial institution but no Portfolio may invest
more than 15% of its net assets in illiquid securities, including repurchase
agreements having maturities of greater than seven days. A Portfolio may enter
into repurchase agreements, provided the Trust's custodian always has possession
of securities serving as collateral whose market value at least equals the
amount of the repurchase obligation. To minimize the risk of loss a Portfolio
will enter into repurchase agreements only with financial institutions which are
considered by its investment adviser to be creditworthy. If an institution
enters an insolvency proceeding, the resulting delay in liquidation of the
securities serving as collateral could cause a Portfolio some loss, as well as
legal expense, if the value of the securities declines prior to liquidation.
Reverse Repurchase Agreements (J.P. Morgan Quality Bond, Lord Abbett Bond
Debenture, Lord Abbett Mid-Cap Value, Lord Abbett Developing Growth, Lord Abbett
Growth and Income, Lord Abbett Growth Opportunities, Firstar Balanced, BlackRock
U.S. Government Income, PIMCO Money Market, PIMCO Total Return, PIMCO
Innovation, Oppenheimer Capital Appreciation, Janus Aggressive Growth and Putnam
Research Portfolios)
A Portfolio may enter into reverse repurchase agreements with brokers,
dealers, domestic and foreign banks or other financial institutions. In a
reverse repurchase agreement, the Portfolio sells a security and agrees to
repurchase it at a mutually agreed upon date and price, reflecting the interest
rate effective for the term of the agreement. It may also be viewed as the
borrowing of money by the Portfolio. The Portfolio's investment of the proceeds
of a reverse repurchase agreement is the speculative factor known as leverage.
Leverage may cause any gains or losses of the Portfolio to be magnified. The
Portfolio may enter into a reverse repurchase agreement only if the interest
income from investment of the proceeds is greater than the interest expense of
the transaction and the proceeds are invested for a period no longer than the
term of the agreement. At the time a Portfolio enters into a reverse repurchase
agreement, it will establish and maintain a segregated account with an approved
custodian containing cash or other liquid securities having a value not less
than the repurchase price (including accrued interest). If interest rates rise
during a reverse repurchase agreement, it may adversely affect the Portfolio's
net asset value. Reverse repurchase agreements are considered to be borrowings
under the 1940 Act.
The assets contained in the segregated account will be marked-to-market
daily and additional assets will be placed in such account on any day in which
the assets fall below the repurchase price (plus accrued interest). A
Portfolio's liquidity and ability to manage its assets might be affected when it
sets aside cash or portfolio securities to cover such commitments. Reverse
repurchase agreements involve the risk that the market value of the securities
retained in lieu of sale may decline below the price of the securities a
Portfolio has sold but is obligated to repurchase. In the event the buyer of
securities under a reverse repurchase agreement files for bankruptcy or becomes
insolvent, such buyer or its trustee or receiver may receive an extension of
time to determine whether to enforce a Portfolio's obligation to repurchase the
securities, and a Portfolio's use of the proceeds of the reverse repurchase
agreement may effectively be restricted pending such decision.
Rights and Warrants (All Portfolios except J.P. Morgan Quality Bond, J.P. Morgan
Select Equity, Lord Abbett Developing Growth, Lord Abbett Growth and Income,
Firstar Balanced, Firstar Equity Income , BlackRock U.S. Government Income,
PIMCO Innovation and PIMCO Money Market Portfolios)
A Portfolio may purchase rights and warrants. Warrants basically are
options to purchase equity securities at specific prices valid for a specific
period of time. Their prices do not necessarily move parallel to the prices of
the underlying securities. Rights are similar to warrants, but normally have a
short duration and are distributed directly by the issuer to its shareholders.
Rights and warrants have no voting rights, receive no dividends and have no
rights with respect to the assets of the issuer. These investments carry the
risk that they may be worthless to the Portfolio at the time it may exercise its
rights, due to the fact that the underlying securities have a market value less
than the exercise price.
Securities Loans (All Portfolios)
----------------
All securities loans will be made pursuant to agreements requiring the
loans to be continuously secured by collateral in cash or high grade debt
obligations at least equal at all times to the market value of the loaned
securities. The borrower pays to the Portfolios an amount equal to any dividends
or interest received on loaned securities. The Portfolios retain all or a
portion of the interest received on investment of cash collateral or receive a
fee from the borrower. Lending portfolio securities involves risks of delay in
recovery of the loaned securities or in some cases loss of rights in the
collateral should the borrower fail financially.
Securities loans are made to broker-dealers or institutional investors
or other persons, pursuant to agreements requiring that the loans be
continuously secured by collateral at least equal at all times to the value of
the loaned securities marked-to-market on a daily basis. The collateral received
will consist of cash, U.S. government securities, letters of credit or such
other collateral as may be permitted under a Portfolio's securities lending
program. While the securities are being loaned, a Portfolio will continue to
receive the equivalent of the interest or dividends paid by the issuer on the
securities, as well as interest on the investment of the collateral or a fee
from the borrower. A Portfolio has a right to call each loan and obtain the
securities on five business days' notice or, in connection with securities
trading on foreign markets, within such longer period for purchases and sales of
such securities in such foreign markets. A Portfolio will generally not have the
right to vote securities while they are being loaned, but its Manager or
investment adviser will call a loan in anticipation of any important vote. The
risks in lending portfolio securities, as with other extensions of secured
credit, consist of possible delay in receiving additional collateral or in the
recovery of the securities or possible loss of rights in the collateral should
the borrower fail financially. Loans will only be made to firms deemed by a
Portfolio's investment adviser to be of good standing and will not be made
unless, in the judgment of the investment adviser, the consideration to be
earned from such loans would justify the risk.
Short Sales (BlackRock U.S. Government Income , BlackRock Equity, MFS Mid Cap
Growth, Janus Aggressive Growth and PIMCO Total Return Portfolios)
A Portfolio may enter into a "short sale" of securities in
circumstances in which, at the time the short position is open, the Portfolio
owns an equal amount of the securities sold short or owns preferred stocks or
debt securities, convertible or exchangeable without payment of further
consideration, into an equal number of securities sold short. This kind of short
sale, which is referred to as one "against the box," may be entered into by each
Portfolio to, for example, lock in a sale price for a security the Portfolio
does not wish to sell immediately.
U.S. Government Securities (All Portfolios except J.P. Morgan International
Equity Portfolio)
Securities issued or guaranteed as to principal and interest by the
U.S. government or its agencies and government-sponsored entities include U.S.
Treasury obligations, consisting of bills, notes and bonds, which principally
differ in their interest rates, maturities and times of issuance, and
obligations issued or guaranteed by agencies and government-sponsored entities
which are supported by (i) the full faith and credit of the U.S. Treasury (such
as securities of the Government National Mortgage Association), (ii) the limited
authority of the issuer to borrow from the U.S. Treasury (such as securities of
the Student Loan Marketing Association) or (iii) the authority of the U.S.
government to purchase certain obligations of the issuer (such as securities of
the Federal National Mortgage Association). No assurance can be given that the
U.S. government will provide financial support to U.S. government agencies or
government-sponsored entities as described in clauses (ii) or (iii) above in the
future, other than as set forth above, since it is not obligated to do so by
law.
Zero Coupon Bonds, Deferred Interest Bonds and PIK Bonds (J.P. Morgan Quality
Bond , Lord Abbett Bond Debenture, MFS Mid Cap Growth, PIMCO Total Return, PIMCO
Innovation, Oppenheimer Capital Appreciation and Janus Aggressive Growth
Portfolios)
Zero coupon and deferred interest bonds are debt obligations which are
issued at a significant discount from face value. The discount approximates the
total amount of interest the bonds will accrue and compound over the period
until maturity or the first interest payment date at a rate of interest
reflecting the market rate of the security at the time of issuance. While zero
coupon bonds do not require the periodic payment of interest, deferred interest
bonds provide for a period of delay before the regular payment of interest
begins. Payment-in-kind ("PIK") bonds are debt obligations which provide that
the issuer thereof may, at its option, pay interest on such bonds in cash or in
the form of additional debt obligations. Such investments benefit the issuer by
mitigating its need for cash to meet debt service, but also require a higher
rate of return to attract investors who are willing to defer receipt of such
cash. Such investments may experience greater volatility in market value due to
changes in interest rates than debt obligations which make regular payments of
interest. A Portfolio will accrue income on such investments for tax and
accounting purposes, as required, which is distributable to shareholders and
which, because no cash is received at the time of accrual, may require the
liquidation of other portfolio securities to satisfy the Portfolio's
distribution obligations.
INVESTMENT RESTRICTIONS
Fundamental Policies
The following investment restrictions are fundamental policies, which
may not be changed without the approval of a majority of the outstanding shares
of the Portfolio. As provided in the 1940 Act, a vote of a majority of the
outstanding shares necessary to amend a Fundamental policy means the affirmative
vote of the lesser of (1) 67% or more of the shares present at a meeting, if the
holders of more than 50% of the outstanding shares of the Portfolio are present
or represented by proxy, or (2) more than 50% of the outstanding shares of the
Portfolio.
1. Borrowing
Each Portfolio may not borrow money, except to the extent permitted by
applicable law.
2. Diversification
Each Portfolio may not purchase a security if, as a result, with
respect to 75% (50% with respect to MFS Mid Cap Growth Portfolio and Janus
Aggressive Growth Portfolio) of the value of its total assets (i) more than 5%
of the value of the Portfolio's total assets would be invested in the securities
of a single issuer, except securities issued on guaranteed by the U.S.
government, its agencies and instrumentalities, or (ii) more than 10% of the
outstanding voting securities of any issuer would be held by the Portfolio,
other than securities issued by the U.S. government, its agencies and
instrumentalities.
3. Concentration
Each Portfolio may not invest more than 25% of the value of its total
assets in any one industry, provided that this limitation does not apply to
obligations issued or guaranteed as to interest and principal by the U.S.
government, its agencies and instrumentalities, and repurchase agreements
secured by such obligations.
4. Underwriting
Each Portfolio may not underwrite securities issued by other persons,
except to the extent that in connection with the disposition of its portfolio
investments it may be deemed to be an underwriter under federal securities laws.
5. Real Estate
Each Portfolio may not purchase or sell real estate, although a
Portfolio may purchase securities of issuers which deal in real estate,
securities which are secured by interests in real estate and securities
representing interests in real estate; provided, however, that the Portfolio may
hold and sell real estate acquired as a result of the ownership of securities.
6. Commodities
Each Portfolio may not purchase or sell physical commodities, except
that it may (i) enter into futures contracts and options thereon in accordance
with applicable law and (ii) purchase or sell physical commodities if acquired
as a result of ownership of securities or other instruments. No Portfolio will
consider stock index futures contracts, currency contracts, hybrid investments,
swaps or other similar instruments to be commodities.
7. Loans
Each Portfolio may not make loans, except through the purchase of debt
obligations and the entry into repurchase agreements or through lending of its
portfolio securities. Any loans of portfolio securities will be made according
to guidelines established by the Securities and Exchange Commission and the
Trust's Board of Trustees.
8. Senior Securities
Each Portfolio may not issue any senior security (as defined in the
1940 Act) except in compliance with applicable law.
Non-Fundamental Policies
The following investment restrictions apply to each Portfolio, except
as noted. These restrictions may be changed for any Portfolio by the Trust's
Board of Trustees without a vote of that Portfolio's shareholders.
Each Portfolio may not:
(1) Purchase securities on margin, except that each Portfolio may:
(a) make use of any short-term credit necessary for clearance
of purchases and sales of portfolio securities and (b) make
initial or variation margin deposits in connection with
futures contracts, options, currencies, or other permissible
investments;
(2) Mortgage, pledge, hypothecate or, in any manner, transfer any
security owned by the Portfolio as security for indebtedness,
except as may be necessary in connection with permissible
borrowings or investments; and then such mortgaging, pledging
or hypothecating may not exceed 33 1/3 % of the respective
total assets of each Portfolio. The deposit of underlying
securities and other assets in escrow and collateral
arrangements with respect to margin accounts for futures
contracts, options, currencies or other permissible
investments are not deemed to be mortgages, pledges, or
hypothecations for these purposes;
(3) Purchase participations or other direct interests in or enter
into leases with respect to oil, gas, or other mineral
explorations or development programs, except that the
Portfolio may invest in securities issued by companies that
engage in oil, gas or other mineral exploration or development
activities or hold mineral leases acquired as a result of its
ownership of securities;
(4) Invest in companies for the purpose of exercising management or control.
In addition, as a matter of operating policy, the J.P. Morgan Enhanced
Index, J.P. Morgan Small Cap Stock, J.P. Morgan International Equity, Lord
Abbett Bond Debenture, Lord Abbett Mid-Cap Value, Lord Abbett Developing Growth,
Lord Abbett Growth and Income, Lord Abbett Growth Opportunities, Firstar
Balanced and Firstar Equity Income Portfolios will not invest in warrants (other
than warrants acquired by the Portfolio as part of a unit or attached to
securities at the time of purchase) if, as a result the investments (valued at
the lower of cost or market) would exceed 5% of the value of the Portfolio's net
assets or if, as a result, more than 2% of the Portfolio's net assets would be
invested in warrants not listed on a recognized U.S. or foreign stock exchange.
The BlackRock Equity Portfolio and the PIMCO Total Return Portfolio
will not invest more than 5% of each Portfolio's net assets in warrants,
including those acquired in units or attached to other securities. For purposes
of the policy, warrants will be valued at the lower of cost or market, except
that warrants acquired by the Portfolio in units with or attached to securities
may be deemed to be without value.
The PIMCO Total Return Portfolio will not invest more than 5% of its
net assets (taken at market value at the time of investment ) in any combination
of interest only, principal only, or inverse floating rate securities.
With respect to borrowing, each Portfolio may borrow from banks and
enter into reverse repurchase agreements in an amount up to 33 1/3% of its total
assets, taken at market value. Each Portfolio may also borrow up to an
additional 5% of its total assets from banks or others. A Portfolio may borrow
only as a temporary measure for extraordinary or emergency purposes such as the
redemption of Portfolio shares. A Portfolio may purchase additional securities
so long as borrowings do not exceed 5% of its total assets.
With respect to loans of portfolio securities, as a matter of operating
policy, each Portfolio will limit the aggregate of such loans to 33 1/3% of the
value of the Portfolio's total assets.
With respect to real estate investments, as a matter of operating
policy, the J.P. Morgan Quality Bond, J.P. Morgan Select Equity, J.P. Morgan
Enhanced Index, J.P. Morgan International Equity, Lord Abbett Bond Debenture,
Lord Abbett Mid-Cap Value, Lord Abbett Developing Growth , Lord Abbett Growth
and Income, Lord Abbett Growth Opportunities and Putnam Research Portfolios will
not invest in real estate limited partnership interests.
With respect to when-issued and delayed delivery securities, it is the
policy of all Portfolios permitted to invest in such securities, to not enter
into when-issued commitments exceeding in the aggregate 15% (except for the J.P.
Morgan Quality Bond Portfolio) of the market value of the Portfolio's total
assets, less liabilities other than the obligations created by when-issued
commitments. There is no current policy limiting the percentage of assets of the
J.P. Morgan Quality Bond Portfolio which may be invested in when-issued
commitments.
With respect to foreign currency transactions, a Portfolio may enter
into transactions only with counterparties deemed creditworthy by the
Portfolio's investment adviser. A Portfolio will not enter into a transaction to
hedge currency exposure to an extent greater, after settling all transactions
intended to wholly or partially offset other transactions, than the aggregate
market values (at the time of entering into the transaction) of the securities
held in its portfolio that are denominated, exposed to or generally quoted in or
currently convertible into such currency other than with respect or cross
hedging or proxy hedging.
With respect to swaps, a Portfolio (except for the Lord Abbett Bond
Debenture, Lord Abbett Mid-Cap Value, Lord Abbett Developing Growth , Lord
Abbett Growth and Income and Lord Abbett Growth Opportunities Portfolios) 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
Standard & Poor's or Moody's or has an equivalent equity rating from an NRSRO or
is determined to be of equivalent credit quality of the Portfolio's investment
adviser.
PERFORMANCE INFORMATION
Total return and yield will be computed as described below.
Total Return
Each Portfolio's "average annual total return" figures described and
shown in the Prospectus are computed according to a formula prescribed by the
Securities and Exchange Commission. The formula can be expressed as follows:
P(1+T)n = ERV
Where: P = a hypothetical initial payment of $1000
T = average annual total return
n = number of years
ERV = Ending Redeemable Value of a hypothetical $1000 payment made at the
beginning of the 1, 5, or 10 years (or other) periods at the end of the 1, 5, or
10 years (or other) periods (or fractional portion thereof).
The calculations of total return assume the reinvestment of all
dividends and capital gain distributions on the reinvestment dates during the
period and the deduction of all recurring expenses that were charged to
shareholders' accounts. The total return figures do not reflect charges and
deductions which are, or may be, imposed under the Contracts.
The performance of each Portfolio will vary from time to time in
response to fluctuations in market conditions, interest rates, the composition
of the Portfolio's investments and expenses. Consequently, a Portfolio's
performance figures are historical and should not be considered representative
of the performance of the Portfolio for any future period.
Yield
From time to time, the Trust may quote the J.P. Morgan Quality Bond
Portfolio's, the Lord Abbett Bond Debenture Portfolio's , the BlackRock U.S.
Government Income Portfolio's, the PIMCO Money Market Portfolio's and the PIMCO
Total Return Portfolio's yield and effective yield in advertisements or in
reports or other communications to shareholders. Yield quotations are expressed
in annualized terms and may be quoted on a compounded basis.
The annualized current yield for the PIMCO Money Market Portfolio is
computed by: (a) determining the net change in the value of a hypothetical
pre-existing account in the Portfolio having a balance of one share at the
beginning of a seven calendar day period for which yield is to be quoted; (b)
dividing the net change by the value of the account at the beginning of the
period to obtain the base period return; and (c) annualizing the results (i.e.,
multiplying the base period return by 365/7). The net change in the value of the
account reflects the value of additional shares purchased with dividends
declared on the original share and any such additional shares, but does not
include realized gains and losses or unrealized appreciation and depreciation.
In addition, the PIMCO Money Market Portfolio may calculate a compound effective
annualized yield by adding 1 to the base period return (calculated as described
above), raising the sum to a power equal to 365/7 and subtracting 1.
The 30-day yield for the Trust's other fixed income Portfolios will be
calculated according to a formula prescribed by the Securities and Exchange
Commission. The formula can be expressed as follows:
YIELD = 2[(a-b+1)6-1]
cd
Where: a = dividends and interest earned during the period
b = expenses accrued for the period (net of reimbursement)
c = the average daily number of shares outstanding during the period that
were entitled to receive dividends
d = the net asset value per share on the last day of the period
For the purpose of determining the interest earned (variable "a" in the formula)
on debt obligations that were purchased by the Portfolio at a discount or
premium, the formula generally calls for amortization of the discount or
premium; the amortization schedule will be adjusted monthly to reflect changes
in the market values of the debt obligations.
Yield information is useful in reviewing a Portfolio's performance, but
because yields fluctuate, such information cannot necessarily be used to compare
an investment in a Portfolio's shares with bank deposits, savings accounts and
similar investment alternatives which often provide an agreed or guaranteed
fixed yield for a stated period of time. Shareholders should remember that yield
is a function of the kind and quality of the instruments in the Portfolios'
investment portfolios, portfolio maturity, operating expenses and market
conditions.
It should be recognized that in periods of declining interest rates the
yields will tend to be somewhat higher than prevailing market rates, and in
periods of rising interest rates the yields will tend to be somewhat lower.
Also, when interest rates are falling, the inflow of net new money to a
Portfolio from the continuous sale of its shares will likely be invested in
instruments producing lower yields than the balance of the Portfolio's
investments, thereby reducing the current yield of the Portfolio. In periods of
rising interest rates, the opposite can be expected to occur.
Non-Standardized Performance
In addition to the performance information described above, the Trust
may provide total return information with respect to the Portfolios for
designated periods, such as for the most recent six months or most recent twelve
months. This total return information is computed as described under "Total
Return" above except that no annualization is made.
PORTFOLIO TRANSACTIONS
Subject to the supervision and control of the Manager and the Trustees
of the Trust, each Portfolio's Adviser is responsible for decisions to buy and
sell securities for its account and for the placement of its portfolio business
and the negotiation of commissions, if any, paid on such transactions. Brokerage
commissions are paid on transactions in equity securities traded on a securities
exchange and on options, futures contracts and options thereon. Fixed income
securities and certain equity securities in which the Portfolios invest are
traded in the over-the-counter market. These securities are generally traded on
a net basis with dealers acting as principal for their own account without a
stated commission, although prices of such securities usually include a profit
to the dealer. In over-the-counter transactions, orders are placed directly with
a principal market maker unless a better price and execution can be obtained by
using a broker. In underwritten offerings, securities are usually purchased at a
fixed price which includes an amount of compensation to the underwriter
generally referred to as the underwriter's concession or discount. Certain money
market securities may be purchased directly from an issuer, in which case no
commissions or discounts are paid. U.S. government securities are generally
purchased from underwriters or dealers, although certain newly-issued U.S.
government securities may be purchased directly from the U.S. Treasury or from
the issuing agency or instrumentality. Each Portfolio's Adviser is responsible
for effecting its portfolio transactions and will do so in a manner deemed fair
and reasonable to the Portfolio and not according to any formula. The primary
consideration in all portfolio transactions will be prompt execution of orders
in an efficient manner at a favorable price. In selecting broker-dealers and
negotiating commissions, an Adviser considers the firm's reliability, the
quality of its execution services on a continuing basis and its financial
condition. When more than one firm is believed to meet these criteria,
preference may be given to brokers that provide the Portfolios or their Advisers
with brokerage and research services within the meaning of Section 28(e) of the
Securities Exchange Act of 1934. Each Portfolio's investment adviser is of the
opinion that, because this material must be analyzed and reviewed, its receipt
and use does not tend to reduce expenses but may benefit the Portfolio or other
accounts managed by the Adviser by supplementing the Adviser's research.
An Adviser, subject to seeking the most favorable price and best
execution and in compliance with the Conduct Rules of the National Association
of Securities Dealers, Inc., may consider sales of shares of the Trust as a
factor in the selection of broker-dealers. The Trust may direct the Manager to
cause Advisers to effect securities transactions through broker-dealers in a
manner that would help to generate resources to (i) pay the cost of certain
expenses which the Trust is required to pay or for which the Trust is required
to arrange payment pursuant to the management agreement with the Manager ("Trust
Expenses"); or (ii) finance activities that are primarily intended to result in
the sale of Trust shares. At the discretion of the Board of Trustees, such
resources may be used to pay or cause the payment of Trust Expenses or may be
used to finance activities that are primarily intended to result in the sale of
Trust shares.
An Adviser may effect portfolio transactions for other investment
companies and advisory accounts. Research services furnished by broker-dealers
through which a Portfolio effects its securities transactions may be used by the
Portfolio's Adviser in servicing all of its accounts; not all such services may
be used in connection with the Portfolio. In the opinion of each Adviser, it is
not possible to measure separately the benefits from research services to each
of its accounts, including a Portfolio. Whenever concurrent decisions are made
to purchase or sell securities by a Portfolio and another account, the
Portfolio's Adviser will attempt to allocate equitably portfolio transactions
among the Portfolio and other accounts. In making such allocations between the
Portfolio and other accounts, the main factors to be considered are the
respective investment objectives, the relative size of portfolio holdings of the
same or comparable securities, the availability of cash for investment, the size
of investment commitments generally held, and the opinions of the persons
responsible for recommending investments to the Portfolio and the other
accounts. In some cases this procedure could have an adverse effect on a
Portfolio. In the opinion of each Adviser, however, the results of such
procedures will, on the whole, be in the best interest of each of the accounts.
The Advisers to the Portfolios may execute portfolio transactions
through certain of their affiliated brokers, if any, acting as agent in
accordance with the procedures established by the Board of Trustees, but will
not purchase any securities from or sell any securities to any such affiliate
acting as principal for its own account.
The following table shows the amounts of brokerage commissions paid by
certain Portfolios' predecessor funds during the fiscal years ended December 31,
2000, December 31, 1999 and December 31, 1998 or July 31, 2000, July 31, 1999
and July 31, 1998, as noted.
<TABLE>
<CAPTION>
Brokerage Commissions Paid
Portfolio 2000 1999 1998
--------- ==== ---- -----
<S> <C> <C> <C>
J. P. Morgan Quality Bond $ $10,634 NA
=
J.P. Morgan Small Cap Stock 128,288 91,650
J.P. Morgan Enhanced Index 174,716 59,636
J.P. Morgan Select Equity 564,579 437,251
J.P. Morgan International Equity 267,666 255,634
Lord Abbett Bond Debenture 5,341 3,461
Lord Abbett Mid-Cap Value 109,084 53,000
Lord Abbett Developing Growth 25,992 15,664
Lord Abbett Growth & Income 1,325,443(1)
===========
Firstar Balanced 6,617 3,945
Firstar Equity Income 12,897 10,665
Firstar Growth and Income Equity 16,692 13,871
BlackRock Equity* 97,806 28,759 109,018
====== ======
BlackRock U.S. Government Income* 0 0 0
</TABLE>
-----------------------
*For the fiscal year ended July 31.
(1) For the period 1/8/99 through 12/31/99.
In 1999, the percentage of and actual aggregate dollar amount of commissionable
transactions effected through an affiliated broker for the J.P. Morgan Small Cap
Stock and J.P. Morgan Select Equity Portfolios were as follows:
J.P. Morgan Small Cap Stock Portfolio
with Archipelago Holding, LLC- 0.0033%/$433
============
J.P. Morgan Select Equity Portfolio
with Archipelago Holding, LLC - 0.0002%/$120
============
with Conning and Company - 0.0003%/$198
========================= ============
For 1999, none of the other J.P. Morgan Portfolios' commissionable transactions
were executed through broker-dealers affiliated with an Adviser.
MANAGEMENT OF THE TRUST
The Trust is supervised by a Board of Trustees that is responsible for
representing the interests of shareholders. The Trustees meet periodically
throughout the year to oversee the Portfolios' activities, reviewing, among
other things, each Portfolio's performance and its contractual arrangements with
various service providers.
Trustees and Officers
The Trustees and executive officers of the Trust, their ages and their
principal occupations during the past five years are set forth below. Unless
otherwise indicated, the business address of each is 610 Newport Center Drive,
Suite 1350, Newport Beach, California 92660.
<TABLE>
<CAPTION>
Position(s) Principal Occupation(s)
Held with Registrant During Past 5 Years
-------------------- -------------------
Name, Age and Address
<S> <C> <C>
Elizabeth M. Forget* (34) President and Trustee Since July 2000, President of Met
========================== =====================
Investors Advisory Corp.; from June 1996
to July 2000, President and Director of
Marketing and Product Development of
Equitable Distributors, Inc.; from
September 1993 to June 1996, a Vice
President of Bankers Trust Company
Stephen M. Alderman (41) Trustee Partner in the law firm of Garfield and
========================= ======= =======================================
Merel, Ltd.
Jack R. Borsting (71) Trustee Since 1995, Executive Director, Center
====================== ======= ======================================
for Telecommunications Management,
==================================
University of Southern California;
==================================
Director, Northrup Grumman Corp., Plato
=======================================
Learning, Inc. and Whitman Education Group
==========================================
Gregory P. Brakovich* (48) Trustee Since April 2000, Co-Chief Executive
=========================== ======= ====================================
Officer of Security First Group, Inc.,
======================================
MetLife Investors Distribution Company
======================================
and Met Investors Advisory Corp.; from
======================================
April 1996 to April 2000, Co-Chief
==================================
Executive Officer and President of
==================================
Equitable Distributors, Inc. and Senior
=======================================
Vice President of the Equitable Life
====================================
Assurance Society of the United States;
=======================================
from February 1995 to April 1996,
=================================
Managing Director, Bankers Trust Company
========================================
Theodore A. Myers (70) Trustee Since 1993, Financial Consultant; Trustee
======================= ======= =========================================
of various Van Kampen American Capital
closed-end funds
Tod A. Parrott (63) Trustee Since June 1996, Managing Partner,
==================== ======= ==================================
Rockaway Partners Ltd. (financial
=================================
consultants); from 1990 to May 1996,
====================================
Executive Vice President of Pasadena
====================================
Capital Corporation; Director, U.S. Stock
=========================================
Transfer Co.
============
Dawn M. Vroegop (34) Trustee Since September 1999, Managing Director,
===================== ======= ========================================
Dresner RCM Global Investors; from July
=======================================
1994 to July 1999, Director, Schroder
=====================================
Capital Management International
================================
Roger T. Wickers (65) Trustee Since 1995, retired; from 1980 to 1995,
====================== ======= =======================================
Senior Vice President and General
=================================
Counsel, Keystone Group Inc. and the
====================================
Keystone Group of Mutual Funds; from 1995
=========================================
to 1998, Chairman of the Board of
=================================
Directors of two American International
=======================================
Group mutual funds
==================
Richard C. Pearson (57) Vice President and Since November 2000, Vice President,
======================== =================== ====================================
Secretary General Counsel and Secretary of Met
========= ====================================
Investors Advisory Corp.; since prior to
1995, President of Security First Group,
Inc. and officer of its subsidiaries
Mark Reynolds (50) Vice President, Chief Since November 2000, Vice President and
=================== =============== ================================
Financial Officer and Chief Financial Officer of Met Investors
Treasurer Advisory Corp; since June 2000, President
====================
of Cova Financial Services Life Insurance
Company; from July 1996 to June 2000,
====
Executive Vice President and Chief
Financial Officer of Cova Financial
Services Life Insurance Company; from
December 1993 to June 1996, Vice
=============
President, Treasurer and Controller of
First Variable Life Insurance Company
================
and from August 1993 to June 1996, Vice
=======================================
President and Director of First Variable
========================================
Capital Services, Inc.
======================
</TABLE>
* "Interested person" of the Trust (as that term is defined in the 1940 Act).
Committees of the Board
The Trust has a standing Audit Committee consisting of all of the
Trustees who are not "interested persons" of the Trust (as that term is defined
in the 1940 Act) ("Disinterested Trustees"). The Audit Committee's function is
to recommend to the Board independent accountants to conduct the annual audit of
the Trust's financial statements; review with the Independent accountants the
outline, scope and results of the annual audit; and review the performance and
fees charged by the independent accountants for professional services. In
addition, the Audit Committee meets with the independent accountants and
representatives of management to review accounting activities and areas of
financial reporting and control.
The Trust has a Nominating and Compensation Committee consisting of all
the Disinterested Trustees. The Nominating and Compensation Committee's function
is to nominate and evaluate Disinterested trustee candidates and review the
compensation arrangement for each of the Trustees.
The Trust has a Valuation Committee consisting of Elizabeth M. Forget,
James A. Shepherdson, Mark E. Reynolds , and such other officers of the Trust
and the Manager, as well as such officers of any Adviser to any Portfolio as are
deemed necessary by Ms. Forget, Mr. Shepherdson or Mr. Reynolds from time to
time, each of whom shall serve at the pleasure of the Board of Trustees as
members of the Valuation Committee. This committee determines the value of any
of the Trust's securities and assets for which market quotations are not readily
available or for which valuation cannot otherwise be provided.
Compensation of the Trustees
Each Trustee, who is not an employee of the Manager or any of its
affiliates, currently receives from the Trust an annual fee of $20,000 plus (i)
an additional fee of $2,000 for each regularly scheduled Board meeting attended,
(ii) $2,000 for each special Board meeting attended, and (iii) $1,000 for each
special committee meeting attended, and $500 for each telephone meeting
attended, plus reimbursement for expenses in attending in-person meetings.
A deferred compensation plan for the benefit of the Trustees has been
adopted by the Trust. Under the deferred compensation plan, each Trustee may
defer payment of all or part of the fees payable for such Trustee's services.
Each Trustee may defer payment of such fees until his or her retirement as a
Trustee or until the earlier attainment of a specified age. Fees deferred under
the deferred compensation plan, together with accrued interest thereon, will be
disbursed to a participating Trustee in monthly installments over a five to 20
year period elected by such Trustee.
The Agreement and Declaration of Trust of the Trust provides that the
Trust will indemnify its Trustees and officers against liabilities and expenses
incurred in connection with litigation in which they may be involved because of
their offices with the Trust, except if it is determined in the manner specified
in the Agreement and Declaration of Trust that they have not acted in good faith
in the reasonable belief that their actions were in the best interests of the
Trust or that such indemnification would relieve any officer or Trustee of any
liability to the Trust or its shareholders by reason of willful misfeasance, bad
faith, gross negligence or reckless disregard of his duties. The Trust, at its
expense, provides liability insurance for the benefit of its Trustees and
officers.
As of the date of this Statement of Additional Information, the
officers and Trustees of the Trust as a group owned less than 1% of the
outstanding shares of the Trust.
INVESTMENT ADVISORY AND OTHER SERVICES
The Manager
The Trust is managed by Met Investors Advisory Corp. (the "Manager")
(formerly known as Security First Investment Management Corporation) which,
subject to the supervision and direction of the Trustees of the Trust, has
overall responsibility for the general management and administration of the
Trust. Security First Group, Inc., an affiliate of Metropolitan Life Insurance
Company, owns all of the outstanding common shares of the Manager and MetLife
Distribution Company.
The Trust and Manager have entered into a Management Agreement dated
December, 2000, as amended ("Management Agreement"), which was initially
approved by the Board of Trustees on December 7, 2000 and by Security First Life
Insurance Company, as initial shareholder of the Trust, on December 8, 2000.
Subject always to the supervision and direction of the Trustees of the Trust,
under the Management Agreement the Manager will have (i) overall supervisory
responsibility for the general management and investment of each Portfolio's
assets; (ii) full discretion to select new or additional Advisers for each
Portfolio; (iii) full discretion to enter into and materially modify investment
advisory agreements with Advisers; (iv) full discretion to terminate and replace
any Adviser; and (v) full investment discretion to make all determinations with
respect to the investment of a Portfolio's assets not then managed by an
Adviser. In connection with the Manager's responsibilities under the Management
Agreement, the Manager will assess each Portfolio's investment focus and will
seek to implement decisions with respect to the allocation and reallocation of
each Portfolio's assets among one or more current or additional Advisers from
time to time, as the Manager deems appropriate, to enable each Portfolio to
achieve its investment goals. In addition, the Manager will monitor compliance
of each Adviser with the investment objectives, policies and restrictions of any
Portfolio or Portfolios (or portions of any Portfolio) under the management of
such Adviser, and review and report to the Trustees of the Trust on the
performance of each Adviser. The Manager will furnish, or cause the appropriate
Adviser(s) to furnish, to the Trust such statistical information, with respect
to the investments that a Portfolio (or portions of any Portfolio) may hold or
contemplate purchasing, as the Trust may reasonably request. On the Manager's
own initiative, the Manager will apprise, or cause the appropriate Adviser(s) to
apprise, the Trust of important developments materially affecting each Portfolio
(or any portion of a Portfolio that they advise) and will furnish the Trust,
from time to time, with such information as may be appropriate for this purpose.
Further, the Manager agrees to furnish, or cause the appropriate Adviser(s) to
furnish, to the Trustees of the Trust such periodic and special reports as the
Trustees of the Trust may reasonably request. In addition, the Manager agrees to
cause the appropriate Adviser(s) to furnish to third-party data reporting
services all currently available standardized performance information and other
customary data.
Under the Management Agreement, the Manager also is required to furnish
to the Trust, at its own expense and without remuneration from or other cost to
the Trust, the following:
o Office space, all necessary office facilities and equipment.
o Necessary executive and other personnel, including personnel for the
performance of clerical and other office functions, other than those
functions:
o related to and to be performed under the Trust's contract or contracts
for administration, custodial, accounting, bookkeeping, transfer and
dividend disbursing agency or similar services by the entity selected
to perform such services; or
o related to the investment advisory services to be provided by any
Adviser pursuant to an investment advisory agreement with the Manager
("Advisory Agreement").
o Information and services, other than services of outside counsel or
Independent accountants or investment advisory services to be provided by
any Adviser under an Advisory Agreement, required in connection with the
preparation of all registration statements, prospectuses and statements of
additional information, any supplements thereto, annual, semi-annual, and
periodic reports to Trust shareholders, regulatory authorities, or others,
and all notices and proxy solicitation materials, furnished to shareholders
or regulatory authorities, and all tax returns.
As compensation for these services the Trust pays the Manager a monthly
fee at the following annual rates of each Portfolio's average daily net assets:
<TABLE>
<CAPTION>
------------------------------------------------------------ ---------------------------------------------------------
Portfolio Fee
<S> <C>
------------------------------------------------------------ ---------------------------------------------------------
------------------------------------------------------------ ---------------------------------------------------------
J.P. Morgan Quality Bond 0.55% of first $75 million of such assets plus 0.50% of
=== ======================================================
such assets over $75 million
------------------------------------------------------------ ---------------------------------------------------------
------------------------------------------------------------ ---------------------------------------------------------
J.P. Morgan Small Cap Stock 0.85%
====
------------------------------------------------------------ ---------------------------------------------------------
------------------------------------------------------------ ---------------------------------------------------------
J.P. Morgan Enhanced Index 0.60% of first $50 million of such assets plus 0.55% of
======================================================
such assets over $50 million
------------------------------------------------------------ ---------------------------------------------------------
------------------------------------------------------------ ---------------------------------------------------------
J.P. Morgan Select Equity 0.65% of first $50 million of such assets plus 0.60 of
=====================================================
such assets over $50 million
------------------------------------------------------------ ---------------------------------------------------------
------------------------------------------------------------ ---------------------------------------------------------
J.P. Morgan International Equity 0.80% of first $50 million of such assets plus 0.75% of
======================================================
such assets over $50 million up to $350 million plus
====================================================
0.70% of such assets over $350 million
======================================
------------------------------------------------------------ ---------------------------------------------------------
------------------------------------------------------------ ---------------------------------------------------------
Lord Abbett Bond Debenture 0.60%
====
------------------------------------------------------------ ---------------------------------------------------------
------------------------------------------------------------ ---------------------------------------------------------
Lord Abbett Mid-Cap Value 0.70% of
first $200 million
of such assets plus
0.65% of such
assets over $200
million up to $500
million plus 0.625%
of such assets over
$500 million
------------------------------------------------------------ ---------------------------------------------------------
------------------------------------------------------------ ---------------------------------------------------------
Lord Abbett Developing Growth 0.75%
====
------------------------------------------------------------ ---------------------------------------------------------
------------------------------------------------------------ ---------------------------------------------------------
Lord Abbett Growth & Income 0.60% of
first $800 million
of such assets plus
0.55% of such
assets over $800
million up to $2
billion plus 0.50%
of such assets over
$2 billion
------------------------------------------------------------ ---------------------------------------------------------
------------------------------------------------------------ ---------------------------------------------------------
Lord Abbett Growth Opportunities 0.70%
of first $200
million of such
assets plus 0.65%
of such assets over
$200 million up to
$500 million plus
0.625% of such
assets over $500
million
------------------------------------------------------------ ---------------------------------------------------------
------------------------------------------------------------ ---------------------------------------------------------
Firstar Balanced 1.00%
------------------------------------------------------------ ---------------------------------------------------------
------------------------------------------------------------ ---------------------------------------------------------
Firstar Equity Income 1.00%
====
------------------------------------------------------------ ---------------------------------------------------------
------------------------------------------------------------ ---------------------------------------------------------
Firstar Growth and Income 1.00%
=== ===
------------------------------------------------------------ ---------------------------------------------------------
------------------------------------------------------------ ---------------------------------------------------------
BlackRock Equity 0.65%
====
------------------------------------------------------------ ---------------------------------------------------------
------------------------------------------------------------ ---------------------------------------------------------
BlackRock U.S. Government Income 0.55%
====
------------------------------------------------------------ ---------------------------------------------------------
------------------------------------------------------------ ---------------------------------------------------------
PIMCO Total Return 0.50%
------------------------------------------------------------ ---------------------------------------------------------
------------------------------------------------------------ ---------------------------------------------------------
PIMCO Money Market 0.40%
------------------------------------------------------------ ---------------------------------------------------------
------------------------------------------------------------ ---------------------------------------------------------
PIMCO Innovation 1.05%
------------------------------------------------------------ ---------------------------------------------------------
------------------------------------------------------------ ---------------------------------------------------------
MFS Mid Cap Growth
0.65% of first $150
million of such
assets plus 0.625%
of such assets over
$150 million up to
$300 million plus
0.60% of such
assets over $300
million
------------------------------------------------------------ ---------------------------------------------------------
------------------------------------------------------------ ---------------------------------------------------------
MFS International Research 0.80% of
first $200 million
of such assets plus
0.75% of such
assets over $200
million up to $500
million plus 0.70%
of such assets over
$500 up to $1
billion plus 0.65%
of such assets over
$1 billion
------------------------------------------------------------ ---------------------------------------------------------
------------------------------------------------------------ ---------------------------------------------------------
Putnam Research 0.80% of first $250 million of such assets plus 0.75%
=============== =====================================================
of such assets over $250 million
================================
------------------------------------------------------------ ---------------------------------------------------------
------------------------------------------------------------ ---------------------------------------------------------
Janus Aggressive Growth
0.80% of first $100
million of such
assets plus 0.75%
of such assets over
$100 million up to
$500 million plus
0.70% of such
assets over $500
million
------------------------------------------------------------ ---------------------------------------------------------
------------------------------------------------------------ ---------------------------------------------------------
Oppenheimer Capital Appreciation 0.65%
of first $150
million of such
assets plus 0.625%
of such assets over
$150 million up to
$300 million plus
0.60% of such
assets over $300
million up to $500
million plus 0.55%
of such assets over
$500 million
------------------------------------------------------------ ---------------------------------------------------------
</TABLE>
From the management fees, the Manager pays the expenses of providing investment
advisory services to the Portfolios, including the fees of the Adviser of each
Portfolio.
The Manager and the Trust have also entered into an expense limitation
agreement with respect to certain Portfolios ("Expense Limitation Agreement"),
pursuant to which the Manager has agreed to waive or limit its fees and to
assume other expenses so that the total annual operating expenses (with certain
exceptions described in the Prospectus) of each such Portfolio are limited to
the extent described in the "Management--Expense Limitation Agreement" section
of the Prospectus.
In addition to the management fees, the Trust pays all expenses not
assumed by the Manager, including, without limitation, charges for the services
and expenses of the independent accountants and legal counsel retained by the
Trust, for itself and its Disinterested trustees, accounting and auditing
services, interest, taxes, costs of printing and distributing reports to
shareholders, proxy materials and prospectuses, charges of its administrator,
custodian, transfer agent and dividend disbursing agent, registration fees, fees
and expenses of the Trustees who are not affiliated persons of the Manager,
insurance, brokerage costs, litigation, and other extraordinary or nonrecurring
expenses. All general Trust expenses are allocated among and charged to the
assets of the Portfolios of the Trust on a basis that the Trustees deem fair and
equitable, which may be on the basis of relative net assets of each Portfolio or
the nature of the services performed and relative applicability to each
Portfolio. In addition, as discussed below under "Distribution of the Trust's
Shares," the Class B shares of each Portfolio may pay for certain distribution -
related expenses in connection with activities primarily intended to result in
the sale of its shares.
The Management Agreement continues in force for two years from its
commencement date, with respect to each Portfolio, and from year to year
thereafter, but only so long as its continuation as to each Portfolio is
specifically approved at least annually (i) by the Trustees or by the vote of a
majority of the outstanding voting securities of the Portfolio, and (ii) by the
vote of a majority of the Disinterested Trustees, by votes cast in person at a
meeting called for the purpose of voting on such approval. The Management
Agreement provides that it shall terminate automatically if assigned, and that
it may be terminated as to any Portfolio without penalty by the Trustees of the
Trust or by vote of a majority of the outstanding voting securities of the
Portfolio upon 60 days' prior written notice to the Manager, or by the Manager
upon 90 days' prior written notice to the Trust, or upon such shorter notice as
may be mutually agreed upon.
The Trust commenced operations on the date of this Statement of
Additional Information. The following table shows the fees paid by certain of
the Portfolios' predecessors to the Manager or current affiliates of the Manager
and any fee waivers or reimbursements during the fiscal years ended either
December 31, 2000, December 31, 1999 and December 31, 1998 or July 31, 2000,
July 31, 1999 and July 31, 1998, as noted.
<TABLE>
<CAPTION>
2000
---------------------------------------------------------
Investment Investment Other Expenses
Management Fee Management Fee Reimbursed
Portfolio Paid Waived
========= ==== ======
<S> <C> <C> <C>
J. P. Morgan Quality Bond --- ---
========================= === ===
J.P. Morgan Small Cap Stock --- ---
=========================== === ===
J.P. Morgan Enhanced Index --- ---
========================== === ===
J.P. Morgan Select Equity --- ---
========================= === ===
J.P. Morgan International Equity --- ---
================================ === ===
Lord Abbett Bond Debenture --- ---
========================== === ===
Lord Abbett Mid-Cap Value --- ---
========================= === ===
Lord Abbett Developing Growth --- ---
============================= === ===
Lord Abbett Growth and Income
=============================
Firstar Balanced --- ---
================ === ===
Firstar Equity Income --- ---
===================== === ===
Firstar Growth & Income Equity --- ---
============================== === ===
BlackRock Equity* 418,720 --- ---
================= ======= === ===
BlackRock U.S. Government Income* 178,490 --- ---
================================= ======= === ===
-----------------------
*For the fiscal year ended July 31.
1999
---------------------------------------------------------
Investment Investment Other Expenses
Management Fee Management Fee Reimbursed
---- ---- ----------
Portfolio Paid Waived
--------- ---- ------
J. P. Morgan Quality Bond $505,285 --- ---
J.P. Morgan Small Cap Stock 687,540 --- ---
J.P. Morgan Enhanced Index 1,479,955 --- ---
J.P. Morgan Select Equity 1,507,688 --- ---
J.P. Morgan International Equity 905,709 --- ---
Lord Abbett Bond Debenture 1,210,327 --- ---
Lord Abbett Mid-Cap Value 247,340 --- ---
Lord Abbett Developing Growth 203,145 --- ---
Lord Abbett Growth and Income 5,289,797(1) --- ---
Firstar Balanced 73,532 --- ---
Firstar Equity Income 62,362 --- ---
Firstar Growth & Income Equity 131,419 --- ---
BlackRock Equity* 390,010 --- ---
BlackRock U.S. Government Income* 185,159 --- ---
-------------------------
*For the fiscal year ended July 31.
(1) For the period 1/8/99 through 12/31/99
1998
---------------------------------------------------------
Investment Investment Other Expenses
Management Fee Management Fee Reimbursed
---- ---- ----------
Portfolio Paid Waived
--------- ---- ------
J. P. Morgan Quality Bond $165,294 --- ---
J.P. Morgan Small Cap Stock 596,903 --- ---
J.P. Morgan Enhanced Index 402,802 --- ---
J.P. Morgan Select Equity 1,023,054 --- ---
J.P. Morgan International Equity 717,933 --- ---
Lord Abbett Bond Debenture 647,086 --- ---
Lord Abbett Mid-Cap Value 92,358 --- ---
Lord Abbett Developing Growth 67,992 --- ---
Firstar Balanced 27,149 --- ---
Firstar Equity Income 30,163 --- ---
Firstar Growth & Income Equity 53,799 --- ---
BlackRock Equity* 437,078 --- ---
=======
BlackRock U.S. Government Income* 258,431 --- ---
=======
</TABLE>
-----------------------
*For the fiscal year ended July 31.
The Advisers
Pursuant to an Advisory Agreement with the Manager, each Adviser to a
Portfolio furnishes continuously an investment program for the Portfolio, makes
investment decisions on behalf of the Portfolio, places all orders for the
purchase and sale of investments for the Portfolio's account with brokers or
dealers selected by such Adviser and may perform certain limited related
administrative functions in connection therewith. For its services, the Manager
pays each Adviser a fee based on a percentage of the average daily net assets of
the Portfolios.
Each Advisory Agreement will continue in force for one year (two years
with respect to the Lord Abbett Growth Opportunities, PIMCO Total Return, PIMCO
Money Market, PIMCO Innovation, MFS Mid Cap Growth, MFS Research International,
Putnam Research, Janus Aggressive Growth and Oppenheimer Capital Appreciation
Portfolios) from its commencement date, and from year to year thereafter, but
only so long as its continuation as to a Portfolio is specifically approved at
least annually (i) by the Trustees or by the vote of a majority of the
outstanding voting securities of the Portfolio, and (ii) by the vote of a
majority of the Disinterested Trustees by votes cast in person at a meeting
called for the purpose of voting on such approval. Each Advisory Agreement
provides that it shall terminate automatically if assigned or if the Management
Agreement with respect to the related Portfolio terminates, and that it may be
terminated as to a Portfolio without penalty by the Manager, by the Trustees of
the Trust or by vote of a majority of the outstanding voting securities of the
Portfolio on not less than 60 days' prior written notice to the Adviser or by
the Adviser on not less than 90 days' (60 days' with respect to Oppenheimer
Capital Appreciation and Janus Aggressive Growth Portfolios) prior written
notice to the Manager, or upon such shorter notice as may be mutually agreed
upon.
Each Advisory Agreement provides that the Adviser shall not be subject
to any liability to the Trust or the Manager for any act or omission in the
course of or connected with rendering services thereunder in the absence of
willful misfeasance, bad faith, gross negligence or reckless disregard of its
duties on the part of the Adviser.
The Trust and the Manager have applied for an exemptive order from the
Securities and Exchange Commission ("Multi-Manager Order"). The Multi-Manager
Order will permit the Manager, subject to approval of the Board of Trustees, to:
(i) select new or additional Advisers for the Trust's Portfolios; (ii) enter
into new investment advisory agreements and materially modify existing
investment advisory agreements; and (iii) terminate and replace the Advisers
without obtaining approval of the relevant Portfolio's shareholders. However,
the Manager may not enter into an investment advisory agreement with an
"affiliated person" of the Manager (as that term is defined in Section 2(a)(3)
of the 1940 Act) ("Affiliated Adviser") unless the investment advisory agreement
with the Affiliated Adviser, including compensation hereunder, is approved by
the affected Portfolio's shareholders, including, in instances in which the
investment advisory agreement pertains to a newly formed Portfolio, the
Portfolio's initial shareholder. Although shareholder approval would not be
required for the termination of Advisory Agreements, shareholders of a Portfolio
would continue to have the right to terminate such agreements for the Portfolio
at any time by a vote of a majority of outstanding voting securities of the
Portfolio. No assurance can be given that the Trust and the Manager will receive
the Multi-Manager Order.
J.P. Morgan Investment Management Inc. is the Adviser to the J. P. Morgan
Quality Bond, J.P. Morgan Small Cap Stock, J.P. Morgan Enhanced Index, J.P.
Morgan Select Equity and J.P. Morgan International Equity Portfolios.
Lord Abbett & Co. is the Adviser to the Lord Abbett Bond Debenture, Lord
Abbett Mid-Cap Value, Lord Abbett Developing Growth , Lord Abbett Growth and
Income and Lord Abbett Growth Opportunities Portfolios.
Firstar Investment Research and Management Company, LLC is the Adviser
to the Firstar Balanced, Firstar Equity Income and Firstar Growth & Income
Equity Portfolios.
BlackRock Advisors, LLC is the Adviser to the BlackRock Equity and
BlackRock U.S. Government Income Portfolios.
Pacific Investment Management Company LLC is the Adviser to the PIMCO
Total Return and PIMCO Money Market Portfolios.
PIMCO Equity Advisors, a division of PIMCO Advisors L.P., is the Adviser to the
PIMCO Innovation Portfolio.
Massachusetts Financial Services Company is the Adviser to the MFS Mid
Cap Growth and MFS International Research Portfolios.
Janus Capital Corporation is the Adviser to the Janus Aggressive Growth
Portfolio.
Putnam Investment Management LLC is the Adviser to the Putnam Research
Portfolio.
OppenheimerFunds, Inc. is the Adviser to the Oppenheimer Capital Appreciation
Portfolio.
The following table shows the fees paid with respect to certain
Portfolios to each Adviser by the Manager or current affiliates of the Manager
for the fiscal years ended December 31, 2000, December 31, 1999 and December 31,
1998 or July 31, 2000, July 31, 1999 and July 31, 1998, as noted.
<TABLE>
<CAPTION>
Advisory Fee Paid
Portfolio 2000 1999 1998
--------- ==== ---- -----
<S> <C> <C> <C>
J. P. Morgan Quality Bond $ $271,530 $90,160
= ======== ======
J.P. Morgan Small Cap Stock 485,322 421,343
======= ======
J.P. Morgan Enhanced Index 908,174 247,878
======= ======
J.P. Morgan Select Equity 947,039 649,033
======= ======
J.P. Morgan International Equity 620,473 495,276
======= ======
Lord Abbett Bond Debenture 806,885 431,397
======= ======
Lord Abbett Mid-Cap Value 185,505 69,269
======= =====
Lord Abbett Developing Growth 146,716 49,105
======= =====
Lord Abbett Growth and Income 3,328,207(1) NA
============
Firstar Balanced 47,653 20,362
====== =====
Firstar Equity Income 41,041 22,622
====== =====
Firstar Growth & Income Equity 85,817 40,349
====== =====
BlackRock Equity* 329,031 306,436 337,420
======= ======= ======
BlackRock U.S. Government Income* 129,811 134,661 125,532
======= ======= ======
</TABLE>
------------------------
*For the fiscal year ended July 31.
(1) For the period 1/8/99 through 12/31/99
----------------------
The Administrator
Pursuant to an administration agreement ("Administrative Services
Agreement"), Investors Bank & Trust Company ("Administrator") assists the
Manager in the performance of its administrative services to the Trust and
provides the Trust with other necessary administrative services. In addition,
the Administrator makes available the office space, equipment, personnel and
facilities required to provide such administrative services to the Trust.
The Administrator was organized as a Massachusetts trust company. Its
principal place of business is at 200 Clarendon Street, Boston, Massachusetts
02117. Under the Administrative Services Agreement, the Administrator is
entitled to a fee from the Trust, which is calculated daily and paid monthly, at
an annual rate of 0.06% of the average daily net assets of the Trust. The
Administrative Services Agreement shall remain in effect until July 1, 2001 and
shall thereafter continue in effect for successive periods of one year, unless
terminated by any party upon not less than ninety (90) days' prior written
notice to the other party.
The Distributor
The Trust has distribution agreements with MetLife Investors
Distribution Company ("MDI" or the "Distributor") in which MDI serves as the
Distributor for the Trust's Class A shares and Class B shares. MDI an indirect
wholly-owned subsidiary of Security First Group, Inc., which is an indirect
wholly-owned subsidiary of Metropolitan Life Insurance Company. MDI's address is
610 Newport Center Drive, Suite 1350, Newport Beach, California 92660.
The Trust's distribution agreements with respect to the Class A and
Class B shares ("Distribution Agreements") were approved by the Board of
Trustees at a Board meeting held on December 7, 2000. The Distribution
Agreements will remain in effect from year to year provided each Distribution
Agreement's continuance is approved annually by (i) a majority of the Trustees
who are not parties to such agreement or "interested persons" (as defined in the
1940 Act) of the Trust or a Portfolio and, if applicable, who have no direct or
indirect financial interest in the operation of the Class B Distribution Plan or
any such related agreement and (ii) either by vote of a majority of the Trustees
or a majority of the outstanding voting securities (as defined in the 1940 Act)
of the Trust.
The Distributor or its affiliates for the Class A shares will pay for
printing and distributing prospectuses or reports prepared for their use in
connection with the offering of the Class A shares to prospective contract
owners and preparing, printing and mailing any other literature or advertising
in connection with the offering of the Class A shares to prospective contract
owners.
Pursuant to the Class B Distribution Plan, the Trust compensates the
Distributor from assets attributable to the Class B and shares for services
rendered and expenses borne in connection with activities primarily intended to
result in the sale of the Trust's Class B shares. It is anticipated that a
portion of the amounts received by the Distributor will be used to defray
various costs incurred or paid by the Distributor in connection with the
printing and mailing of Trust prospectuses, statements of additional information
and any supplements thereto and shareholder reports, and holding seminars and
sales meetings with wholesale and retail sales personnel designed to promote the
distribution of Class B shares. The Distributor may also use a portion of the
amounts received to provide compensation to financial intermediaries and
third-party broker-dealers for their services in connection with the
distribution of the Class B shares.
The Class B Distribution Plan provides that the Trust, on behalf of
each Portfolio, may pay annually up to 0.50% of the average daily net assets of
a Portfolio attributable to its Class B shares in respect to activities
primarily intended to result in the sale of Class B shares. However, under the
Distribution Agreement, payments to the Distributor for activities pursuant to
the Class B Distribution Plan are limited to payments at an annual rate equal to
0.25% of average daily net assets of a Portfolio attributable to its Class B
shares Under terms of the Class B Distribution Plan and the Distribution
Agreement, each Portfolio is authorized to make payments monthly to the
Distributor that may be used to pay or reimburse entities providing distribution
and shareholder servicing with respect to the Class B shares for such entities'
fees or expenses incurred or paid in that regard.
The Class B Distribution Plan is of a type known as a "compensation"
plan because payments are made for services rendered to the Trust with respect
to Class B shares regardless of the level of expenditures by the Distributor.
The Trustees will, however, take into account such expenditures for purposes of
reviewing operations under the Class B Distribution Plan and in connection with
their annual consideration of the Class B Distribution Plan's renewal. The
Distributor has indicated that it expects its expenditures to include, without
limitation: (a) the printing and mailing of Trust prospectuses, statements of
additional information, any supplements thereto and shareholder reports for
prospective Contract owners with respect to the Class B shares of the Trust; (b)
those relating to the development, preparation, printing and mailing of
advertisements, sales literature and other promotional materials describing
and/or relating to the Class B shares of the Trust; (c) holding seminars and
sales meetings designed to promote the distribution of Class B shares of the
Trust; (d) obtaining information and providing explanations to wholesale and
retail distributors of contracts regarding Trust investment objectives and
policies and other information about the Trust and its Portfolios, including the
performance of the Portfolios; (3) training sales personnel regarding the Class
B shares of the Trust; and (f) financing any other activity that the Distributor
determines is primarily intended to result in the sale of Class B shares.
The Distributor for each class of shares will pay all fees and expenses
in connection with its qualification and registration as a broker or dealer
under federal and state laws. In the capacity of agent, the Distributor
currently offers shares of each Portfolio on a continuous basis to the separate
accounts of insurance companies offering the Contracts in all states in which
the Portfolio or the Trust may from time to time be registered or where
permitted by applicable law. The Distribution Agreement provides that the
Distributor shall accept orders for shares at net asset value without a sales
commission or sale load being charged. The Distributor has made no firm
commitment to acquire shares of any Portfolio.
A description of the Class B Distribution Plan with respect to the
Class B shares and related services and fees thereunder is provided in the
Prospectus for each class of shares of the Portfolios. On December 7, 2000, the
Board of Trustees of the Trust, including the Disinterested Trustees unanimously
approved the Class B Distribution Plan.
The Class B Distribution Plan and any Rule 12b-1 related agreement that
is entered into by the Trust or the Distributor of the Class B shares in
connection with the Class B Distribution Plan will continue in effect for a
period of more than one year only so long as continuance is specifically
approved at least annually by vote of a majority of the Trust's Board of
Trustees, and of a majority of the Disinterested Trustees, cast in person at a
meeting called for the purpose of voting on the Class B Distribution Plan or any
Rule 12b-1 related agreement, as applicable. In addition, the Class B
Distribution Plan and any Rule 12b-1 related agreement may be terminated as to
Class B shares of the Portfolio or by vote of a majority of the Disinterested
Trustees. The Class B Distribution Plan also provides that it may not be amended
to increase materially the amount (up to 0.50%, of average daily net assets
annually) that may be spent for distribution of Class B shares of any Portfolio
without the approval of Class B shareholders of that Portfolio.
Code of Ethics
The Trust, its Manager, its Distributor, and each of its Advisers, have
adopted Codes of Ethics pursuant to Rule 17j-1 under the 1940 Act. Each of these
Codes of Ethics permits the personnel of their respective organizations to
invest in securities for their own accounts. A copy of each of the Codes of
Ethics is on public file with, and is available from the Securities and Exchange
Commission.
Custodian
Investors Bank and Trust Company ("IBT"), located at 200 Clarendon
Street, Boston, Massachusetts 02117, serves as the custodian of the Trust. Under
the custody agreement, IBT holds the Portfolios' securities and keeps all
necessary records and documents.
Transfer Agent
IBT also serves as transfer agent for the Trust.
Legal Matters
Certain legal matters are passed on for the Trust by Sullivan &
Worcester LLP, 1025 Connecticut Avenue, N.W., Washington, D.C. 20036.
Independent Auditors
Deloitte and Touche LLP, located at 200 Berkeley Street, Boston,
Massachusetts 02116, serves as the Trust's independent auditors.
REDEMPTION OF SHARES
The Trust may suspend redemption privileges or postpone the date of
payment on shares of the Portfolios for more than seven days during any period
(1) when the New York Stock Exchange is closed or trading on the Exchange is
restricted as determined by the Securities and Exchange Commission, (2) when an
emergency exists, as defined by the Securities and Exchange Commission, which
makes it not reasonably practicable for a Portfolio to dispose of securities
owned by it or fairly to determine the value of its assets, or (3) as the
Securities and Exchange Commission may otherwise permit.
The value of the shares on redemption may be more or less than the
shareholder's cost, depending upon the market value of the portfolio securities
at the time of redemption.
NET ASSET VALUE
The net asset value per share of each Portfolio is determined as of the
close of regular trading of the New York Stock Exchange (currently 4:00 p.m.,
New York City time), each day the Exchange is open for trading. Currently, the
Exchange is closed on: New Year's Day, Martin Luther King, Jr. Day, Presidents'
Day, Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day
and Christmas Day. Portfolio securities for which the primary market is on a
domestic or foreign exchange or which are traded over-the-counter and quoted on
the NASDAQ System will be valued at the last sale price on the day of valuation
or, if there was no sale that day, at the last reported bid price, using prices
as of the close of trading. Portfolio securities not quoted on the NASDAQ System
that are actively traded in the over-the-counter market, including listed
securities for which the primary market is believed to be over-the-counter, will
be valued at the most recently quoted bid price provided by the principal market
makers.
In the case of any securities which are not actively traded, reliable
market quotations may not be considered to be readily available. These
investments are stated at fair value as determined under the direction of the
Trustees. Such fair value is expected to be determined by utilizing information
furnished by a pricing service which determines valuations for normal,
institutional-size trading units of such securities using methods based on
market transactions for comparable securities and various relationships between
securities which are generally recognized by institutional traders.
If any securities held by a Portfolio are restricted as to resale,
their fair value will be determined following procedures approved by the
Trustees. The fair value of such securities is generally determined as the
amount which the Portfolio 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 Portfolio 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.
Notwithstanding the foregoing, short-term debt securities with
maturities of 60 days or less will be valued at amortized cost.
The PIMCO Money Market Portfolio's investment policies and method of
securities valuation are intended to permit the Portfolio generally to maintain
a constant net asset value of $1.00 per share by computing the net asset value
per share to the nearest $.01 per share. The Portfolio is permitted to use the
amortized cost method of valuation for its portfolio securities pursuant to
regulations of the Securities and Exchange Commission. This method may result in
periods during which value, as determined by amortized cost, is higher or lower
than the price the Portfolio would receive if it sold the instrument. The net
asset value per share would be subject to fluctuation upon any significant
changes in the value of the Portfolio's securities. The value of debt
securities, such as those in the Portfolio, usually reflects yields generally
available on securities of similar yield, quality and duration. When such yields
decline, the value of a portfolio holding such securities can be expected to
decline. Although the Portfolio seeks to maintain the net asset value per share
of the Portfolio at $1.00, there can be no assurance that net asset value will
not vary.
The Trustees of the Trust have undertaken to establish procedures
reasonably designed, taking into account current market conditions and the
Portfolio's investment objective, to stabilize the net asset value per share for
purposes of sales and redemptions at $1.00. These procedures include the
determination, at such intervals as the Trustees deem appropriate, of the
extent, if any, to which the net asset value per share calculated by using
available market quotations deviates from $1.00 per share. In the event such
deviation exceeds one half of one percent, the Trustees are required to promptly
consider what action, if any, should be initiated.
With respect to Portfolios other than the PIMCO Money Market Portfolio,
foreign securities traded outside the United States are generally valued as of
the time their trading is complete, which is usually different from the close of
the New York Stock Exchange. Occasionally, events affecting the value of such
securities may occur between such times and the close of the New York Stock
Exchange that will not be reflected in the computation of the Portfolio's net
asset value. If events materially affecting the value of such securities occur
during such period, these securities will be valued at their fair value
according to procedures decided upon in good faith by the Trust's Board of
Trustees. All securities and other assets of a Portfolio initially expressed in
foreign currencies will be converted to U.S. dollar values at the mean of the
bid and offer prices of such currencies against U.S. dollars last quoted on a
valuation date by any recognized dealer.
The Manager may, from time to time, under the general supervision of
the Board of Trustees or the valuation committee, utilize the services of one or
more pricing services available in valuating the assets of the Trust. The
Manager will continuously monitor the performance of these services.
FEDERAL INCOME TAXES
Each Portfolio intends to qualify each year as a "regulated investment
company" under the Internal Revenue Code of 1986, as amended (the "Code"). By so
qualifying, a Portfolio will not be subject to federal income taxes to the
extent that its net investment income and net realized capital gains are
distributed.
In order to so qualify, a Portfolio must, among other things, (1)
derive at least 90% of its gross income in each taxable year from dividends,
interest, payments with respect to securities loans, gains from the sale or
other disposition of stocks or securities or foreign currencies, or other income
(including but not limited to gains from options, futures or forward contracts)
derived with respect to its business of investing in such stocks or securities;
and (2) diversify its holdings so that, at the end of each quarter of the
Portfolio's taxable year, (a) at least 50% of the market value of the
Portfolio's assets is represented by cash, government securities and other
securities limited in respect of any one issuer to 5% of the value of the
Portfolio's assets and to not more than 10% of the voting securities of such
issuer, and (b) not more than 25% of the value of its assets is invested in
securities of any one issuer (other than government securities).
As a regulated investment company, a Portfolio will not be subject to
federal income tax on net investment income and capital gains (short- and
long-term), if any, that it distributes to its shareholders if at least 90% of
its net investment income and net short-term capital gains for the taxable year
are distributed, but will be subject to tax at regular corporate rates on any
income or gains that are not distributed. In general, dividends will be treated
as paid when actually distributed, except that dividends declared in October,
November or December and made payable to shareholders of record in such a month
will be treated as having been paid by the Portfolio (and received by
shareholders) on December 31, provided the dividend is paid in the following
January. Each Portfolio intends to satisfy the distribution requirement in each
taxable year.
The Portfolios will not be subject to the 4% federal excise tax imposed
on registered investment companies that do not distribute all of their income
and gains each calendar year because such tax does not apply to a registered
investment company whose only shareholders are either tax-exempt pension trusts
or segregated asset accounts of life insurance companies held in connection with
variable annuity and/or variable life insurance policies.
The Trust intends to comply with section 817(h) of the Code and the
regulations issued thereunder. As required by regulations under that section,
the only shareholders of the Trust and its Portfolios will be life insurance
company segregated asset accounts (also referred to as separate accounts) that
fund variable life insurance or annuity contracts, tax-exempt pension trusts,
and Security First Life Insurance Company, the initial shareholder of the
Portfolios, and its affiliates. See the prospectus or other material for the
Contracts for additional discussion of the taxation of segregated asset accounts
and of the owner of the particular Contract described therein.
Section 817(h) of the Code and Treasury Department regulations
thereunder impose certain diversification requirements on the segregated asset
accounts investing in the Portfolios of the Trust. These requirements, which are
in addition to the diversification requirements applicable to the Trust under
the 1940 Act and under the regulated investment company provisions of the Code,
may limit the types and amounts of securities in which the Portfolios may
invest. Failure to meet the requirements of section 817(h) could result in
current taxation of the owner of the Contract on the income of the Contract.
The Trust may therefore find it necessary to take action to ensure that
a Contract continues to qualify as a Contract under federal tax laws. The Trust,
for example, may be required to alter the investment objectives of a Portfolio
or substitute the shares of one Portfolio for those of another. No such change
of investment objectives or substitution of securities will take place without
notice to the shareholders of the affected Portfolio and the approval of a
majority of such shareholders and without prior approval of the Securities and
Exchange Commission, to the extent legally required.
In certain foreign countries, interest and dividends are subject to a
tax which is withheld by the issuer. U.S. income tax treaties with certain
countries reduce the rates of these withholding taxes. The Trust intends to
provide the documentation necessary to achieve the lower treaty rate of
withholding whenever applicable or to seek refund of amounts withheld in excess
of the treaty rate.
Portfolios that invest in foreign securities may purchase the
securities of certain foreign investment funds or trusts called passive foreign
investment companies. Such trusts have been the only or primary way to invest in
certain countries. In addition to bearing their proportionate share of a
Portfolio's expenses (management fees and operating expenses), shareholders will
also indirectly bear similar expenses of such trusts. Capital gains on the sale
of such holdings are considered ordinary income regardless of how long a
Portfolio held its investment. In addition, a Portfolio could be subject to
corporate income tax and an interest charge on certain dividends and capital
gains earned from these investments, regardless of whether such income and gains
are distributed to shareholders. To avoid such tax and interest, a Portfolio's
investment adviser intends to treat these securities as sold on the last day of
its fiscal year and recognize any gains for tax purposes at that time;
deductions for losses are allowable only to the extent of any gains resulting
from these deemed sales for prior taxable years. Such gains will be considered
ordinary income, which a Portfolio will be required to distribute even though it
has not sold the security.
ORGANIZATION AND CAPITALIZATION OF THE TRUST
The Trust is a Delaware business trust organized on July 27, 2000. A
copy of the Trust's Agreement and Declaration of Trust, which is governed by
Delaware law, is filed as an exhibit to the Trust's registration statement. The
Trust is the successor to the Security First Trust and Cova Series Trust, the
series of which were converted to Portfolios of the Trust, effective February
[5], 2001.
The Trustees of the Trust have authority to issue an unlimited number
of shares of beneficial interest , par value $.001 per share, of one or more
series. Currently, the Trustees have established and designated twenty-three
series. Each series of shares represents the beneficial interest in a separate
Portfolio of assets of the Trust, which is separately managed and has its own
investment objective and policies. The Trustees of the Trust have authority,
without the necessity of a shareholder vote, to establish additional portfolios
and series of shares. The shares outstanding are, and those offered hereby when
issued will be, fully paid and nonassessable by the Trust. The shares have no
preemptive, conversion or subscription rights and are fully transferable.
The Trust currently offers two classes of shares on behalf of each
Portfolio. Class A shares are offered at net asset value and are not subject to
distribution fees imposed pursuant to a distribution plan. Class A shares are
only offered to contract owners and qualified plan participants who previously
allocated premiums to predecessors of the Trust's Portfolios. In addition, Class
A shares will also be offered to additional qualified pension and retirement
plans. Class B shares are offered at net asset value and are subject to
distribution fees imposed pursuant to the Class' Distribution Plan adopted
pursuant to Rule 12b-1 under the 1940 Act.
The two classes of shares are currently offered under the Trust's
multi-class distribution system approved by the Trust's Board of Trustees on
December 7, 2000, which is designed to allow promotion of insurance products
investing in the Trust through alternative distribution channels. Under the
Trust's multi-class distribution system, shares of each class of a Portfolio
represent an equal pro rata interest in that Portfolio and, generally, will have
identical voting, dividend, liquidation, and other rights, other than the
payment of distribution fees under the Distribution Plan.
The Trust continuously offers its shares to separate accounts of
insurance companies in connection with the Contracts and to qualified pension
and retirement plans. Class A and Class B shares currently are sold to the
following shareholders: (i) insurance company separate accounts in connection
with Contracts issued by the following affiliates of Security First Group, Inc.
- Cova Financial Services Life Insurance Company, Cova Financial Life Insurance
Company, First Cova Life Insurance Company, Security First Life Insurance
Company (collectively, "MetLife"); (ii) Security First Group Employees 401(k)
Plan. In addition, as of the date of this Statement of Additional Information,
Firstar Investment Research & Management Company, LLC owned of record 13.61%,
19.25% and 9.01% of Firstar Balanced, Firstar Equity Income and Firstar Growth &
Income Equity Portfolios, respectively. As of the date of this Statement of
Additional Information, MetLife owned substantially all of the Trust's
outstanding Class A and Class B shares and, as a result, may be deemed to be a
control person with respect to the Trust.
As a "series" type of mutual fund, the Trust issues separate series of
share of beneficial interest with respect to each Portfolio. Each Portfolio
resembles a separate fund issuing a separate class of stock. Because of current
federal securities law requirements, the Trust expects that its shareholders
will offer to owners of the Contracts ("Contract owners") the opportunity to
instruct them as to how shares allocable to their Contracts will be voted with
respect to certain matters, such as approval of investment advisory agreements.
To the Trust's knowledge, as of the date of this Statement of Additional
Information, the following owned Contracts entitling such persons to give voting
instructions regarding more than 5% of the outstanding shares of any Portfolio:
<TABLE>
<CAPTION>
Portfolio Contract Owner Shares of Beneficially Percentage of Ownership
Owned
<S> <C> <C> <C>
Firstar Growth & Income Equity Dorris Cottrill 55,046 5.13%
============================== =============== ====== =====
</TABLE>
The Trust may in the future offer its shares to separate accounts of
other insurance companies. The Trust does not currently foresee any
disadvantages to Contract owners arising from offering the Trust's shares to
separate accounts of insurance companies that are unaffiliated with each other.
However, it is theoretically possible that, at some time, the interests of
various Contract owners participating in the Trust through their separate
accounts might conflict. In the case of a material irreconcilable conflict, one
or more separate accounts might withdraw their investments in the Trust, which
would possibly force the Trust to sell portfolio securities at disadvantageous
prices. The Trustees of the Trust intend to monitor events for the existence of
any material irreconcilable conflicts between or among such separate accounts
and will take whatever remedial action may be necessary.
The assets received from the sale of shares of a Portfolio, and all
income, earnings, profits and proceeds thereof, subject only to the rights of
creditors, constitute the underlying assets of the Portfolio. The underlying
assets of a Portfolio are required to be segregated on the Trust's books of
account and are to be charged with the expenses with respect to that Portfolio.
Any general expenses of the Trust not readily attributable to a Portfolio will
be allocated by or under the direction of the Trustees in such manner as the
Trustees determine to be fair and equitable, taking into consideration, among
other things, the nature and type of expense and the relative sizes of the
Portfolio and the other Portfolios.
Each share has one vote, with fractional shares voting proportionately.
Shareholders of a Portfolio are not entitled to vote on any matter that requires
a separate vote of the shares of another Portfolio but which does not affect the
Portfolio. The Agreement and Declaration of Trust does not require the Trust to
hold annual meetings of shareholders. Thus, there will ordinarily be no annual
shareholder meetings, unless otherwise required by the 1940 Act. The Trustees of
the Trust may appoint their successors until fewer than a majority of the
Trustees have been elected by shareholders, at which time a meeting of
shareholders will be called to elect Trustees. Under the Agreement and
Declaration of Trust, any Trustee may be removed by vote of the Trustees or vote
of two-thirds of the outstanding shares of the Trust. Holders of 10% or more of
the outstanding shares can require the Trustees to call a meeting of
shareholders for the purpose of voting on the removal of one or more Trustees.
If ten or more shareholders who have been such for at least six months and who
hold in the aggregate shares with a net asset value of at least $25,000 inform
the Trustees that they wish to communicate with other shareholders, the Trustees
either will give such shareholders access to the shareholder lists or will
inform them of the cost involved if the Trust forwards materials to the
shareholders on their behalf. If the Trustees object to mailing such materials,
they must inform the Securities and Exchange Commission and thereafter comply
with the requirements of the 1940 Act.
<PAGE>
FINANCIAL STATEMENTS
The financial statements of the J.P. Morgan Quality Bond , J.P. Morgan
Small Cap Stock , J.P. Morgan Enhanced Index , J.P. Morgan Select Equity , J.P.
Morgan International Equity , Lord Abbett Bond Debenture , Lord Abbett Mid-Cap
Value , Lord Abbett Developing Growth , Lord Abbett Growth & Income , Firstar
Balanced , Firstar Equity Income and Firstar Growth and Income Equity
Portfolios, for the year ended December 31, 1999, including notes to the
financial statements and financial highlights and the Report of KPMG LLP,
previous Independent Auditors, are included in the Cova Series Trust's Annual
Report to Shareholders, which is incorporated by reference in this Statement of
Additional Information. A copy of the Annual Report accompanies this Statement
of Additional Information. The financial statements (including the Report of
Independent Auditors) included in the Annual Report are incorporated herein by
reference.
The financial statements of the BlackRock Equity and BlackRock U.S.
Government Income Portfolios for the fiscal year ended July 31, 2000, including
notes to the financial statements and financial highlights and the Report of
Deloitte & Touche LLP, Independent Auditors, are included in the Security First
Trust's Annual Report to Shareholders. A copy of the Annual Report accompanies
this Statement of Additional Information. The financial statements (including
the Report of Independent Auditors) included in the Annual Report are
incorporated herein by reference.
<PAGE>
APPENDIX
SECURITIES RATINGS
Standard & Poor's Bond Ratings
A Standard & Poor's corporate debt rating is a current assessment of
the creditworthiness of an obligor with respect to a specific obligation. Debt
rated "AAA" has the highest rating assigned by Standard & Poor's. Capacity to
pay interest and repay principal is extremely strong. Debt rated "AA" has a very
strong capacity to pay interest and to repay principal and differs from the
highest rated issues only in small degree. Debt rated "A" has a strong capacity
to pay interest and repay principal although it is somewhat more susceptible to
the adverse effects of changes in circumstances and economic conditions than
debt of a higher rated category. Debt rated "BBB" is regarded as having an
adequate capacity to pay interest and repay principal. Whereas it normally
exhibits adequate protection parameters, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity to pay interest and
to repay principal for debt in this category than for higher rated categories.
Bonds rated "BB", "B", "CCC" and "CC" are regarded, on balance, as predominantly
speculative with respect to the issuer's capacity to pay interest and repay
principal in accordance with the terms of the obligation. "BB" indicates the
lowest degree of speculation and "CC" the highest degree of speculation. While
such bonds will likely have some quality and protective characteristics, these
are outweighed by large uncertainties or major risk exposures to adverse
conditions. The rating "C" is reserved for income bonds on which no interest is
being paid. Debt rated "D" is in default, and payment of interest and/or
repayment of principal is in arrears. The ratings from "AA" to "B" may be
modified by the addition of a plus or minus sign to show relative standing
within the major rating categories.
Moody's Bond Ratings
Bonds which are rated "Aaa" are judged to be the best quality. They
carry the smallest degree of investment risk and are generally referred to as
"gilt-edge." Interest payments are protected by a large or by an exceptionally
stable margin, and principal is secure. 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. 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. Moody's applies numerical
modifiers 1, 2 and 3 in the Aa and A rating categories. The modifier 1 indicates
that the security ranks at a higher end of the rating category, modifier 2
indicates a mid-range rating and the modifier 3 indicates that the issue ranks
at the lower end of the rating category. 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 sometime in the future. 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. 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. 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. 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. 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. 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.
Standard & Poor's Commercial Paper Ratings
"A" is the highest commercial paper rating category utilized by
Standard & Poor's, which uses the numbers "1+", "1", "2" and "3" to denote
relative strength within its "A" classification. Commercial paper issuers rated
"A" by Standard & Poor's have the following characteristics. Liquidity ratios
are better than industry average. Long-term debt rating is "A" or better. The
issuer has access to at least two additional channels of borrowing. Basic
earnings and cash flow are in an upward trend. Typically, the issuer is a strong
company in a well-established industry and has superior management. Issues rated
"B" are regarded as having only an adequate capacity for timely payment.
However, such capacity may be damaged by changing conditions or short-term
adversities. The rating "C" is assigned to short-term debt obligations with a
doubtful capacity for repayment. An issue rated "D" is either in default or is
expected to be in default upon maturity.
Moody's Commercial Paper Ratings
"Prime-1" is the highest commercial paper rating assigned by Moody's,
which uses the numbers "1", "2" and "3" to denote relative strength within its
highest classification of Prime. Commercial paper issuers rated Prime by Moody's
have the following characteristics. Their short-term debt obligations carry the
smallest degree of investment risk. Margins of support for current indebtedness
are large or stable with cash flow and asset protection well assured. Current
liquidity provides ample coverage of near-term liabilities and unused
alternative financing arrangements are generally available. While protective
elements may change over the intermediate or longer terms, such changes are most
unlikely to impair the fundamentally strong position of short-term obligations.
Fitch IBCA, Inc. Commercial Paper Ratings. Fitch Investors Service L.P. employs
the rating F-1+ to indicate issues regarded as having the strongest degree of
assurance for timely payment. The rating F-1 reflects an assurance of timely
payment only slightly less in degree than issues rated F-1+, while the rating
F-2 indicates a satisfactory degree of assurance for timely payment, although
the margin of safety is not as great as indicated by the F-1+ and F-1
categories.
Duff & Phelps Inc. Commercial Paper Ratings. Duff & Phelps Inc. employs the
designation of Duff 1 with respect to top grade commercial paper and bank money
instruments. Duff 1+ indicates the highest certainty of timely payment:
short-term liquidity is clearly outstanding, and safety is just below risk-free
U.S. Treasury short-term obligations. Duff 1- indicates high certainty of timely
payment. Duff 2 indicates good certainty of timely payment: liquidity factors
and company fundamentals are sound.
Thomson BankWatch, Inc. ("BankWatch") Commercial Paper Ratings. BankWatch will
assign both short-term debt ratings and issuer ratings to the issuers it rates.
BankWatch will assign a short-term rating ("TBW-1", "TBW-2", "TBW-3", or
"TBW-4") to each class of debt (e.g., commercial paper or non-convertible debt),
having a maturity of one-year or less, issued by a holding company structure or
an entity within the holding company structure that is rated by BankWatch.
Additionally, BankWatch will assign an issuer rating ("A", "A/B", "B", "B/C",
"C", "C/D", "D", "D/E", and "E") to each issuer that it rates.
Various of the NRSROs utilize rankings within rating categories
indicated by a + or -. The Portfolios, in accordance with industry practice,
recognize such rankings within categories as graduations, viewing for example
Standard & Poor's rating of A-1+ and A-1 as being in Standard & Poor's highest
rating category.
<PAGE>
MET INVESTORS SERIES TRUST
PART C
Other Information
Item 23. EXHIBITS
All references are to the Registrant's registration statement on Form
N-1A as filed with the SEC on October 23, 2000, File Nos. 333-48456 and
811-10183 (the "Registration Statement")
<TABLE>
<CAPTION>
---------------------------- ------------------------------------------------------------------------
Exhibit No. Description of Exhibits
<S> <C>
---------------------------- ------------------------------------------------------------------------
---------------------------- ------------------------------------------------------------------------
(a)(1) Agreement and Declaration of Trust is incorporated by reference to
==========================
the Registration Statement.
---------------------------- ------------------------------------------------------------------------
---------------------------- ------------------------------------------------------------------------
(a)(2) Certificate of Trust is incorporated by reference to the
===============================
Registration Statement.
=======================
---------------------------- ------------------------------------------------------------------------
---------------------------- ------------------------------------------------------------------------
(b) By-Laws are incorporated by reference to the Registration Statement.
=== ====================================================================
---------------------------- ------------------------------------------------------------------------
---------------------------- ------------------------------------------------------------------------
(c) None other than Exhibit 1.
---------------------------- ------------------------------------------------------------------------
---------------------------- ------------------------------------------------------------------------
(d)(1) Management Agreement between Registrant and Met Investors Advisory
Corp. is filed herein.
---------------------------- ------------------------------------------------------------------------
---------------------------- ------------------------------------------------------------------------
(d)(1)(i) Form of Amendment No. 1 to Management Agreement is filed herein.
========= ================================================================
---------------------------- ------------------------------------------------------------------------
---------------------------- ------------------------------------------------------------------------
(d)(2) Form of Investment Advisory Agreement between J.P. Morgan Investment
Management Inc. and Met Investors Advisory Corp. with respect to the
J.P. Morgan Quality Bond Portfolio is incorporated by reference to
===========================
the Registration Statement.
==========================
---------------------------- ------------------------------------------------------------------------
---------------------------- ------------------------------------------------------------------------
(d)(3) Form of Investment Advisory Agreement between J.P. Morgan Investment
Management Inc. and Met Investors Advisory Corp. with respect to the
J.P. Morgan Small Cap Stock Portfolio is incorporated by reference
========================
to the Registration Statement.
=============================
---------------------------- ------------------------------------------------------------------------
---------------------------- ------------------------------------------------------------------------
(d)(4) Form of Investment Advisory Agreement between J.P. Morgan Investment
Management Inc. and Met Investors Advisory Corp. with respect to the
J.P. Morgan Enhanced Index Portfolio is incorporated by reference to
===========================
the Registration Statement.
==========================
---------------------------- ------------------------------------------------------------------------
---------------------------- ------------------------------------------------------------------------
(d)(5) Form of Investment Advisory Agreement between J.P. Morgan Investment
Management Inc. and Met Investors Advisory Corp. with respect to the
J.P. Morgan Select Equity Portfolio is incorporated by reference to
===========================
the Registration Statement.
---------------------------- ------------------------------------------------------------------------
---------------------------- ------------------------------------------------------------------------
(d)(6) Form of Investment Advisory Agreement between J.P. Morgan Investment
Management Inc. and Met Investors Advisory Corp. with respect to the
J.P. Morgan International Equity Portfolio is incorporated by
==============
reference to the Registration Statement.
---------------------------- ------------------------------------------------------------------------
---------------------------- ------------------------------------------------------------------------
(d)(7) Form of Investment Advisory Agreement between Lord, Abbett & Co. and
Met Investors Advisory Corp. with respect to the Lord Abbett Bond
Debenture Portfolio is incorporated by reference to the Registration
============================================
Statement.
==========
---------------------------- ------------------------------------------------------------------------
---------------------------- ------------------------------------------------------------------------
(d)(8) Form of Investment Advisory Agreement between Lord, Abbett & Co. and
Met Investors Advisory Corp. with respect to the Lord Abbett Mid-Cap
Value Portfolio is incorporated by reference to the Registration
=============================================
Statement.
==========
---------------------------- ------------------------------------------------------------------------
---------------------------- ------------------------------------------------------------------------
(d)(8)(i) Form of Amendment No. 1 to Investment Advisory Agreement with respect
========= =====================================================================
to Lord Abbett Mid-Cap Value Portfolio is filed herein.
=========================================
---------------------------- ------------------------------------------------------------------------
---------------------------- ------------------------------------------------------------------------
(d)(9) Form of Investment Advisory Agreement between Lord, Abbett & Co. and
Met Investors Advisory Corp. with respect to the Lord Abbett
Developing Growth Portfolio is incorporated by reference to the
===============================
Registration Statement.
=======================
---------------------------- ------------------------------------------------------------------------
---------------------------- ------------------------------------------------------------------------
(d)(10) Form of Investment Advisory Agreement between Lord, Abbett & Co. and
Met Investors Advisory Corp. with respect to the Lord Abbett Growth
and Income Portfolio is incorporated by reference to the
===============================
Registration Statement.
=======================
---------------------------- ------------------------------------------------------------------------
---------------------------- ------------------------------------------------------------------------
(d)(11) Form of Investment Advisory Agreement between Firstar Investment
Research & Management Company, LLC and Met Investors Advisory Corp.
=
with respect to the Firstar Balanced Portfolio is incorporated by
==============
reference to the Registration Statement.
========================================
---------------------------- ------------------------------------------------------------------------
---------------------------- ------------------------------------------------------------------------
(d)(12) Form of Investment Advisory Agreement between Firstar Investment
Research & Management Company, LLC and Met Investors Advisory Corp.
=
with respect to the Firstar Equity Income Portfolio is incorporated
===========
by reference to the Registration Statement.
===========================================
---------------------------- ------------------------------------------------------------------------
---------------------------- ------------------------------------------------------------------------
(d)(13) Form of Investment Advisory Agreement between Firstar Investment
Research & Management Company, LLC and Met Investors Advisory Corp.
=
with respect to the Firstar Growth & Income Equity Portfolio is
incorporated by reference to the Registration Statement.
========================================================
---------------------------- ------------------------------------------------------------------------
---------------------------- ------------------------------------------------------------------------
(d)(14) Form of Investment Advisory Agreement between BlackRock Advisors, Inc.
======= ======================================================================
and Met Investors Advisory Corp. with respect to the BlackRock Equity
=====================================================================
Portfolio is incorporated by reference to the Registration Statement.
=====================================================================
---------------------------- ------------------------------------------------------------------------
---------------------------- ------------------------------------------------------------------------
(d)(15) Form of Investment Advisory Agreement between BlackRock Advisors, Inc.
======= ======================================================================
and Met Investors Advisory Corp. with respect to the BlackRock U.S.
===================================================================
Government Income Portfolio is incorporated by
reference to the Registration Statement.
---------------------------- ------------------------------------------------------------------------
---------------------------- ------------------------------------------------------------------------
(d)(16) Form of Investment Advisory Agreement between Lord, Abbett & Co. and
======= ====================================================================
Met Investors Advisory Corp. with respect to the Lord Abbett Growth
===================================================================
Opportunities Portfolio is filed herein.
---------------------------- ------------------------------------------------------------------------
---------------------------- ------------------------------------------------------------------------
(d)(17) Form of Investment Advisory Agreement between Putnam Investment
======= ===============================================================
Management LLC and Met Investors Advisory Corp. with respect to the
===================================================================
Putnam Research Portfolio (to be filed by amendment).
=====================================================
---------------------------- ------------------------------------------------------------------------
---------------------------- ------------------------------------------------------------------------
(d)(18) Form of Investment Advisory Agreement between Pacific Investment
======= ================================================================
Management Company LLC and Met Investors Advisory Corp. with respect
====================================================================
to the PIMCO Total Return Portfolio is filed herein.
====================================================
---------------------------- ------------------------------------------------------------------------
---------------------------- ------------------------------------------------------------------------
(d)(19) Form of Investment Advisory Agreement between Pacific Investment
======= ================================================================
Management Company LLC and Met Investors Advisory Corp. with respect
====================================================================
to the PIMCO Money Market Portfolio is filed herein.
====================================================
---------------------------- ------------------------------------------------------------------------
---------------------------- ------------------------------------------------------------------------
(d)(20) Form of Investment Advisory Agreement between Pacific Advisors L.P.
======= ======= ==
and Met Investors Advisory Corp. with respect to the PIMCO
====
Innovation Portfolio is filed herein.
---------------------------- ------------------------------------------------------------------------
---------------------------- ------------------------------------------------------------------------
(d)(21) Form of Investment Advisory Agreement between Massachusetts
======= ===========
Financial Services Company and Met Investors Advisory Corp. with
==========================
respect to the MFS Mid Cap Growth Portfolio is filed herein.
==================
---------------------------- ------------------------------------------------------------------------
---------------------------- ------------------------------------------------------------------------
(d)(22) Form of Investment Advisory Agreement between Massachusetts Financial
======= ====================================================================
Services Company and Met Investors Advisory Corp. with respect to the
=====================================================================
MFS Research International Portfolio is filed herein.
=====================================================
---------------------------- ------------------------------------------------------------------------
---------------------------- ------------------------------------------------------------------------
(d)(23) Form of Investment Advisory Agreement between Janus Capital
======= ===========================================================
Corporation and Met Investors Advisory Corp. with respect to the
===========================================
Janus Aggressive Growth Portfolio is filed herein.
=================================
---------------------------- ------------------------------------------------------------------------
---------------------------- ------------------------------------------------------------------------
(d)(24) Form of Investment Advisory Agreement between OppenheimerFunds,
======= =================== ==============
Inc. and Met Investors Advisory Corp. with respect to the Oppenheimer
==================================== ===========
Capital Appreciation Portfolio (to be filed by amendment).
==============================
---------------------------- ------------------------------------------------------------------------
---------------------------- ------------------------------------------------------------------------
(e)(1) Form of Participation Agreement is incorporated by reference to the
====== ==================================================================
Registration Statement.
---------------------------- ------------------------------------------------------------------------
---------------------------- ------------------------------------------------------------------------
(e)(2) Form of Distribution Agreement between the
Registrant and MetLife Investors Distribution
Company with respect to the Class A shares is filed
herein.
---------------------------- ------------------------------------------------------------------------
---------------------------- ------------------------------------------------------------------------
(e)(3) Form of Distribution Agreement between the
Registrant and MetLife Investors Distribution
Company with respect to the Class B shares is filed
herein.
---------------------------- ------------------------------------------------------------------------
---------------------------- ------------------------------------------------------------------------
(f) Form of Deferred Compensation Plan is incorporated by reference to the
=== ======================================================================
Registration Statement.
---------------------------- ------------------------------------------------------------------------
---------------------------- ------------------------------------------------------------------------
(g)(1) Form of Custody Agreement between Registrant and Investors Bank &
====== =============== ================
Trust Company (to be filed by amendment).
=============
---------------------------- ------------------------------------------------------------------------
---------------------------- ------------------------------------------------------------------------
(h)(1) Form of Transfer Agency and Registrar Agreement
between Registrant and Investors Bank & Trust
Company (to be filed by amendment).
---------------------------- ------------------------------------------------------------------------
---------------------------- ------------------------------------------------------------------------
(h)(2) Form of Administration Agreement between Registrant and Investors Bank
& Trust Company (to be filed by amendment).
---------------------------- ------------------------------------------------------------------------
---------------------------- ------------------------------------------------------------------------
(h)(3) Form of Expense Limitation Agreement between Registrant and Met
======
Investors Advisory Corp. is filed herein.
---------------------------- ------------------------------------------------------------------------
---------------------------- ------------------------------------------------------------------------
(i)(1) Opinion and Consent of Sullivan & Worcester LLP
dated October 23, 2000 is incorporated by reference
to the Registration Statement.
---------------------------- ------------------------------------------------------------------------
---------------------------- ------------------------------------------------------------------------
(i)(2) Opinion and Consent of Sullivan & Worcester LLP dated December 29,
====== ==================================================================
2000 is filed herein.
=====================
---------------------------- ------------------------------------------------------------------------
---------------------------- ------------------------------------------------------------------------
(j)(1) Consent of KPMG LLP is filed herein.
====== ====================================
---------------------------- ------------------------------------------------------------------------
---------------------------- ------------------------------------------------------------------------
(j)(2) Consent of Deloitte & Touche LLP is filed herein.
====== =================================================
---------------------------- ------------------------------------------------------------------------
---------------------------- ------------------------------------------------------------------------
(k) Not Applicable.
---------------------------- ------------------------------------------------------------------------
---------------------------- ------------------------------------------------------------------------
(l) Not Applicable.
---------------------------- ------------------------------------------------------------------------
---------------------------- ------------------------------------------------------------------------
(m) Form of Distribution Plan Pursuant to Rule 12b-1
for the Registrant's Class B shares is incorporated
by reference to the Registration Statement.
---------------------------- ------------------------------------------------------------------------
---------------------------- ------------------------------------------------------------------------
(n) Form of Plan Pursuant to Rule 18f-3 is incorporated by reference to
===========================
the Registration Statement.
---------------------------- ------------------------------------------------------------------------
---------------------------- ------------------------------------------------------------------------
(o) Reserved
---------------------------- ------------------------------------------------------------------------
---------------------------- ------------------------------------------------------------------------
(p)(1) Code of Ethics of Met Investors Series Trust, Met Investors Advisory
Corp. and MetLife Investors Distribution Company is filed herein.
==============================================
---------------------------- ------------------------------------------------------------------------
---------------------------- ------------------------------------------------------------------------
(p)(2) Code of Ethics of J.P. Morgan Investment Management Inc. is
====== ===========================================================
incorporated by reference to the Registration Statement.
========================================================
---------------------------- ------------------------------------------------------------------------
---------------------------- ------------------------------------------------------------------------
(p)(3) Code of Ethics of Lord, Abbett & Co. is incorporated by reference to
====== ====================================================================
the Registration Statement.
---------------------------- ------------------------------------------------------------------------
---------------------------- ------------------------------------------------------------------------
(p)(4) Code of Ethics of Firstar Investment Research &
Management Company, LLC is incorporated by
reference to the Registration Statement.
---------------------------- ------------------------------------------------------------------------
---------------------------- ------------------------------------------------------------------------
(p)(5) Code of Ethics of BlackRock Advisors, LLC is incorporated by reference
====== ======================================================================
to the Registration Statement.
==============================
---------------------------- ------------------------------------------------------------------------
---------------------------- ------------------------------------------------------------------------
(p)(6) Code of Ethics of Janus Capital Corporation is filed herein.
====== ============================================================
---------------------------- ------------------------------------------------------------------------
---------------------------- ------------------------------------------------------------------------
(p)(7) Code of Ethics of OppenheimerFunds, Inc. is filed herein.
====== =========================================================
---------------------------- ------------------------------------------------------------------------
---------------------------- ------------------------------------------------------------------------
(p)(8) Code of Ethics of Massachusetts Financial Services Company is filed herein.
====== ===========================================================================
---------------------------- ------------------------------------------------------------------------
---------------------------- ------------------------------------------------------------------------
(p)(9) Code of Ethics of Putnam Investment Management, Inc. is filed herein.
====== ====== =
---------------------------- ------------------------------------------------------------------------
---------------------------- ------------------------------------------------------------------------
(p)(10) Code of Ethics of Pacific Investment Management Company LLC is filed
======= ===================================================================
herein.
=======
---------------------------- ------------------------------------------------------------------------
---------------------------- ------------------------------------------------------------------------
(p)(11) Code of Ethics of PIMCO Advisors L.P. is filed herein.
======= =====================================
---------------------------- ------------------------------------------------------------------------
---------------------------- ------------------------------------------------------------------------
(q) Powers of Attorney are filed herein.
---------------------------- ------------------------------------------------------------------------
</TABLE>
Item 24. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT
-------------------------------------------------------------
As of the effective date of this Registration Statement, the separate
accounts of Security First Life Insurance Company, Cova Financial Services Life
Insurance Company, Cova Financial Life Insurance Company, and First Cova Life
Insurance Company control the Registrant by virtue of their ownership of
substantially all of the Registrant's outstanding shares. Each such insurance
company is a wholly-owned indirect subsidiary of Metropolitan Life Insurance
Company.
Item 25. INDEMNIFICATION
Reference is made to the following documents:
Agreement and Declaration of Trust, as filed as Exhibit (a)(1) hereto;
By-Laws as filed as Exhibit 2 hereto; and
Form of Participation Agreement between Registrant, Met Investors Advisory
Corp. and a participating insurance company as filed as Exhibit (e)(1) hereto.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933, as amended (the "Act") may be permitted to Trustees, 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 SEC 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 Trustee, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by any such
Trustee, 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 is against public policy
as expressed in the Act and will be governed by the final adjudication of such
issue.
The Registrant, its Trustees and officers, Met Investors Advisory Corp.
(the "Manager"), and persons affiliated with them are insured under a policy of
insurance maintained by the Registrant and the Manager within the limits and
subject to the limitations of the policy, against certain expenses in connection
with the defense of actions suits or proceedings, and certain liabilities that
might me imposed as a result of such actions, suits or proceedings, to which
they are parties by reason of being or having been such Trustees or officers.
The policy expressly excludes coverage for any Trustee or officer whose personal
dishonesty, fraudulent breach of trust, lack of good faith, or intention to
deceive or defraud has been finally adjudicated or may be established or who
willfully fails to act prudently.
See "Management of the Trust" in the Prospectus and "Officers and
Trustees" in the Statement of Additional Information for information regarding
the Manager. For information as to the business, profession, vocation or
employment of a substantial nature of each of the officers and directors of the
Manager, reference is made to the Manager's current Form ADV filed under the
Investment Advisers Act of 1940, incorporated herein by reference (File No.
801-10079).
With respect to information regarding the Advisers, reference is hereby
made to "Management of the Trust" 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 Advisers, reference is made to the current
Form ADVs of the Advisers filed under the Investment Advisers Act of 1940,
incorporated herein by reference and the file numbers of which are as follows:
Lord, Abbett & Co. Janus Capital Corporation
=========================
File No. 801-6997 File No. 801-13991
==================
J.P. Morgan Investment Management Inc. OppenheimerFunds, Inc.
======================
File No. 801-21011 File No. 801-8253
=================
Firstar Investment Research & Management Company, LLC
=
File No. 801-28084
BlackRock Financial Management, Inc. Putnam Investment
File No. 801-48433 Management LLC
File No. 801-07974
Massachusetts Financial Services Company Pacific Investment Management
File No. 801-17352 Company LLC
File No. 801-48187
PIMCO Advisors L.P.
File No. 801-31227
==================
Item 27 Principal Underwriter
(a) MetLife Investors Distribution Company is the principal underwriter for
the following management investment companies (other than the Registrant) and
separate accounts: Security First Life Insurance Company Separate Account A.
(b) Officers and Directors of MetLife Distributors, Inc.
----------------------------------------------------
<TABLE>
<CAPTION>
Name and Principal Positions and Offices With Positions and Offices With
Business Address Principal Underwriter Registrant
<S> <C> <C>
Gregory Brakovich Co-President and Co-Chief Trustee
======= ======
Executive Officer
James A. Shepherdson, III Co-President and Co-Chief
Executive Officer
Philip Meserve Vice President
Charles Deuth Vice President
Richard C. Pearson Vice President and Secretary Vice President and Secretary
================== ============================ ============================
Mark Reynolds Treasurer Treasurer
============= ========= =========
</TABLE>
The principal business address of each officer and director is 610
Newport Center Drive, Suite 1350, Newport Beach, California 92660.
(c) Inapplicable
Item 28 Location of Accounts and Records
The Registrant maintains the records required by Section 31(a) of the
1940 Act and Rules 31a-1 to 31a-3 inclusive thereunder at its principal office,
located at 610 Newport Center Drive, Suite 1350, Newport Beach, California 92660
as well as at the offices of its investment advisers and administrator: J.P.
Morgan Investment Management Inc., 522 Fifth Avenue, New York, New York 10036;
Lord, Abbett & Co., 90 Hudson Street, Jersey City, New Jersey 07302; Firstar
Investment Research & Management Company, LLC, Firstar Center, 777 East
Wisconsin Avenue, 8th Floor, Milwaukee, Wisconsin 53202; BlackRock Advisors,
Inc., 345 Park Avenue, New York, New York 10154; Janus Capital Corporation, 100
Fillmore Street, Denver, Colorado 80206; Massachusetts Financial Services
Company, 500 Boylston Street, Boston, Massachusetts 02116; Putnam Investment
Management LLC, One Post Office Square, Boston, Massachusetts 02109; Pacific
Investment Management Company LLC, 840 Newport Center Drive, Newport Beach,
California 92660; PIMCO Advisors L.P., 1345 Avenue of the Americas, 50th Floor,
New York, New York 10105; OppenheimerFunds, Inc., Two World Trade Center, New
York, New York 10048; and Investors Bank & Trust Company ("IBT"), 200 Clarendon
Street, Boston, Massachusetts 02117. Certain records, including records relating
to the Registrant's shareholders and the physical possession of its securities,
may be maintained pursuant to Rule 31a-3 at the main office of IBT, the
Registrant's transfer agent , dividend disbursing agent and custodian.
Item 29 Management Services
None
Item 30 Undertakings
Inapplicable
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, and the
Investment Company Act of 1940, as amended, the Registrant, MET INVESTORS SERIES
TRUST, has duly caused this Pre-Effective Amendment No. 1 to the Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in this City of Newport Beach, State of California on the 29th day
of December, 2000.
MET INVESTORS SERIES TRUST
Registrant
By: /s/Elizabeth M. Forget
-------------==-------
Elizabeth M. Forget
==
President
Pursuant to the requirements of the Securities Act of 1933, this
Pre-Effective Amendment No. 1 to the Registration Statement has been signed
below by the following persons in the capacities and on the date(s) indicated.
<TABLE>
<CAPTION>
Signature Title Date
<S> <C> <C>
/s/Elizabeth M. Forget President (principal executive December 29, 2000
-------------==------- ===========
Elizabeth M. Forget officer), Trustee
== ======
/s/Mark E. Reynolds* Chief Financial Officer and December 29, 2000
--------==---------- ==== =================
Mark E. Reynolds Treasurer
== =========
(principal financial and
accounting officer)
/s/Stephen M. Alderman* Trustee December 29, 2000
======================= ======= =================
Stephen M. Alderman
==================
/s/Jack R. Borsting* Trustee December 29, 2000
==================== ======= =================
Jack R. Borsting
================
/s/Gregory P. Brakovich* Trustee December 29, 2000
======================== ======= =================
Gregory P. Brakovich
====================
/s/Theodore A. Myers* Trustee December 29, 2000
===================== ======= =================
Theodore A. Myers
=================
/s/Tod H. Parrott* Trustee December 29, 2000
================== ======= =================
Tod H. Parrott
==============
/s/Dawn M. Vroegop* Trustee December 29, 2000
=================== ======= =================
Dawn M. Vroegop
===============
/s/Roger T. Wickers* Trustee December 29, 2000
==================== ======= =================
Roger T. Wickers
================
</TABLE>
* By: /s/Robert N. Hickey
Robert N. Hickey
Attorney-in-fact
