As filed with the Securities and Exchange Commission on March 1, 1999
Registration No. 2-75503
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 (X)
Pre-Effective Amendment No. _____ |_|
Post-Effective Amendment No. 60
|X|
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
Amendment No. 60 |X|
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MAXIM SERIES FUND, INC.
(Exact Name of Registrant as Specified in Charter)
8515 E. Orchard Road
Englewood, Colorado 80111
Registrant's Telephone Number, including Area Code:
(303) 689-3000
W. T. McCallum
President and Chief Executive Officer
Great-West Life & Annuity Insurance Company
8515 E. Orchard Road
Englewood, Colorado 80111
(Name and Address of Agent for Service)
Copies of Communications to:
James F. Jorden, Esquire
Jorden Burt Berenson & Johnson, LLP
1025 Thomas Jefferson St. N. W.
Suite 400 East
Washington, D. C. 20007-0805
Approximate Date of Proposed Public Offering
It is proposed that this filing will become effective (check appropriate box)
|X| immediately upon filing pursuant to paragraph (b) of Rule 485 |_| on
pursuant to paragraph (b) of Rule 485 |_| 60 days after filing pursuant to
paragraph (a)(1) of Rule 485 |_| on __________pursuant to paragraph (a)(1) of
Rule 485 |_| 75 days after filing pursuant to paragraph (a)(2) of Rule 485 |_|
on pursuant to paragraph (a)(2) of Rule 485.
If appropriate, check the following box:
|_| this post-effective amendment designates a new effective date for a
previously filed post-effective amendment
Title of Securities Being Registered: Securities of an open-end investment
company.
<PAGE>
EXPLANATORY NOTE
This Post-Effective Amendment shall not supersede or affect this Registration
Statement as it applies to the Prospectus or Statement of Additional Information
for the Maxim MidCap Portfolio filed in Post Effective Amendment No 58.
This Post-Effective Amendment shall not supersede or affect this Registration
Statement as it applies to the Prospectuses or Statements of Additional
Information for the Money Market, Bond, Stock Index, U.S. Government Securities,
Small-Cap Index, International Equity, Maxim T.Rowe Price Equity/Income, Maxim
INVESCO Small-Cap Growth, Maxim INVESCO ADR, Small-Cap Value, Maxim INVESCO
Balanced, Corporate Bond, Short-Term Maturity Bond, Value Index, Growth Index,
Small-Cap Aggressive Growth, Blue Chip, MidCap Growth, U.S. Government Mortgage,
Investment Grade Corporate Bond, Foreign Equity, Aggressive Profile, Moderately
Aggressive Profile, Moderate Profile, Moderately Conservative Profile and
Conservative Profile Portfolios.
<PAGE>
2
MAXIM SERIES FUND, INC.
Maxim Vista Growth & Income Portfolio
8515 E. Orchard Rd., Englewood, Colorado 80111
Phone No. (303) 689-3000
This prospectus explains the objectives, risks and strategies of the
Maxim Vista Growth & Income Portfolio ("Portfolio")
The Portfolio is one of several mutual funds that comprise the Maxim
Series Fund, Inc. ("Fund")
The Portfolio's objective is long-term growth and dividend income
The Portfolio seeks to achieve this objective by investing all of
its assets in the Vista Growth and Income Portfolio ("Vista
Portfolio"), another mutual fund
The Portfolio's investment adviser is GW Capital Management, LLC,
("GW Capital"), a wholly owned subsidiary of Great-West Life & Annuity
Insurance Company ("GWL&A")
The Portfolio is available only as an investment option for
certain variable annuity contracts. Therefore you cannot purchase
shares of the Portfolio directly; rather you must own one of those
contracts that makes the Portfolio available for investment.
Mutual fund shares are not deposits, obligations of, or guaranteed by,
any depository institution. Shares are not insured by the FDIC, the Federal
Reserve Board, or any other agency, and are subject to investment risk,
including the possible loss of principal.
TheSecurities and Exchange Commission has not approved or disapproved these
securities or passed upon the adequacy of this prospectus. Any
representation to the contrary is a
criminal offense.
The date of this Prospectus is March 1, 1999
<PAGE>
<TABLE>
TABLE OF CONTENTS
Page
<S> <C>
The Portfolio at a Glance.......................................................3
Investment Objective....................................................3
Principal Investment Strategy...........................................3
Principal Investment Risks..............................................3
Portfolio Performance Information...............................................4
Year by Year Performance Returns........................................4
Highest and Lowest Quarter Returns......................................4
Average Annual Total Return.............................................4
The Portfolio in Detail.........................................................5
The Maxim Vista Growth & Income Portfolio...............................5
Investment Objective....................................................5
Principal Investment Strategy...........................................5
Principal Investment Risks..............................................5
Management of the Portfolio and the Vista Portfolio.....................7
Year 2000 Issues........................................................7
Important Information About Your Investment.....................................8
Investing In the Portfolio..............................................8
Share Price.............................................................8
Dividends and Capital Gain Distributions................................8
Tax Consequences........................................................8
Annual and Semi-Annual Shareholder Reports..............................9
Change in Investment Strategy...................................................9
Financial Highlights............................................................10
Statement of Additional Information.........................................Back Cover
</TABLE>
<PAGE>
THE PORTFOLIO AT A GLANCE
Maxim Vista Growth & Income Portfolio
The following information is only a summary of important information you
should know about the Portfolio. Detailed information is included elsewhere in
this prospectus and the Statement of Additional Information ("SAI") and should
be read in addition to this summary.
Investment Objective:
The Portfolio seeks long term capital growth and dividend income. As
with any mutual fund, there is no guarantee that the Portfolio will achieve its
objectives. The Portfolio's share price will fluctuate and your shares could be
worth more or less than what you paid for them.
Principal Investment Strategy:
The Portfolio invests all of its assets in the Vista Portfolio. Under
normal market conditions, the Vista Portfolio invests at least 80% of its total
assets in common stocks of a broad range of companies most of which have a
market capitalization above $1 billion. Market capitalization is the total
market value of a company's shares.
Principal Investment Risks:
The Portfolio is considered "non-diversified" because it invests all
of its assets in one issuer, the Vista Portfolio. Thus, the performance of
the Portfolio depends on the performance of the Vista Portfolio. Due to this
investment structure, the Portfolio is subject to all of the risks to which
the Vista Portfolio is subject.
The Vista Portfolio is also non-diversified. It may invest a greater
percentage of its assets in a particular issuer or group of issuers than a
diversified mutual fund would. Since a relatively high percentage of the
Vista Portfolio's assets may be invested in the securities of a limited
number of issuers, some of which may be in the same industry, the Vista
Portfolio may be more sensitive to changes in the market value of a single
issuer or industry.
The Vista Portfolio will invest in common stocks. Stocks and stock
markets are volatile and can decline significantly in response to adverse
issuer, political, regulatory, market or economic developments. Different
parts of the market can react differently to these developments.
The Vista Portfolio may invest in foreign securities. Foreign markets,
particularly emerging markets, can be more volatile than the U.S. market due to
increased risks of adverse issuer, political, regulatory, market, currency
valuation or economic developments and can perform differently than the U.S.
market
The Vista Portfolio's equity holdings may also include real estate
investment trusts (REITs), which are pools of investments primarily in
income-producing real estate or loans related to real estate. The value of
REITs will depend on the value of the underlying properties or the
underlying loans or interest. The value of REITs may decline when interest
rates rise.
The value of an individual security or particular type of security
can be more volatile than the market as a whole and can perform differently
than the value of the market as a whole.
An investment in the Portfolio is not insured or guaranteed by the Federal
Deposit Insurance Corporation or any other government agency.
<PAGE>
PORTFOLIO PERFORMANCE INFORMATION
The bar chart and table below provide an indication of the risk of investment in
the Portfolio. The bar chart shows the Portfolio's performance in each full
calendar year since its inception on December 21, 1994. The table shows how the
Portfolio's average annual total return for the one year and since inception
periods compare to a broad based stock market index and an average of the
performance of a universe of growth and income mutual funds. The returns shown
below are historical and are not an indication of future performance.
Year By Year Performance Returns:
[OBJECT OMITTED]
1995 1996 1997 1998
28.10% 19.73% 30.00% 14.42%
Highest and Lowest Quarter Returns:
During the periods shown in the chart the highest return for a quarter was
16.75% (Quarter ending December 31, 1998) and the Lowest return for a quarter
was -12.15% (Quarter ending September 30, 1998).
Average Annual Total Return for the
Periods Ending December 31, 1998:
1 Year Since Inception of
the Portfolio
Maxim Vista Growth & 14.42% 22.61%
Income Portfolio
Lipper Growth & 16.83% 32.01%
Income Fund Average
S&P 500 Index 28.58% 30.44%
The Lipper Growth & Income Fund Average represents the average performance of a
universe of 718 actively managed growth and income funds. Lipper is an
independent mutual fund performance monitor whose results are based on total
return and do not reflect a sales charge. An individual cannot invest directly
in the average.
The Standard & Poor's 500 Index is a broad based index that is generally
considered representative of the U.S. stock market. The index is unmanaged and
reflects the reinvestment of dividends. An individual cannot invest directly in
the index.
<PAGE>
THE PORTFOLIO IN DETAIL
The Maxim Vista Growth & Income Portfolio
Investment Objective:
The Portfolio seeks long term capital growth and dividend income.
Principal Investment Strategy:
To achieve this objective, the Portfolio invests all of its assets in
the Vista Portfolio. Therefore, the Portfolio's investment objectives are
identical to those of the Vista Portfolio. The risks described below apply to
the Portfolio as well as the Vista Portfolio. The investment strategies of the
Vista Portfolio, described below, will directly influence the value of the
Portfolio's shares.
Under normal circumstances the Vista Portfolio invests at least 80% of
its total assets in common stocks of a broad range of companies, most of which
have a market capitalization above $1 billion. Market capitalization is the
total market value of a company's shares. The Vista Portfolio's investment
advisers do quantitative analysis and fundamental research to seek to identify
undervalued stocks which have the potential to increase in value. The investment
advisers first seek to find companies with the best earnings prospects and then
select companies which appear to have the most attractive values. The investment
advisers also seek to invest in sectors with good earnings prospects as well.
The investment advisers may look for value-oriented factors, such as a
low price-to-earnings or price-to-cash ratio, in determining whether a stock is
undervalued. In addition, they may also attempt to identify those undervalued
companies which will experience earnings growth or improved earnings
characteristics. The investment advisers may seek current income through various
methods, including investing in convertible securities and seeking to identify
companies with characteristics such as average or above average dividend yields.
In determining whether to sell a stock, the investment advisers will use
the same type of analysis that it uses in buying stocks in order to determine
whether the stock is still undervalued. This may include those securities which
have appreciated to meet their target valuations.
The Vista Portfolio may invest up to 20% of its total assets in foreign
securities. These investments may include depositary receipts. The Vista
Portfolio may also invest up to 20% of its total assets in convertible
securities, which generally pay interest or dividends and which can be converted
into common or preferred stock.
Although the Vista Portfolio intends to invest primarily in equity
securities, under normal market conditions it may invest up to 20% of its total
assets in high quality money market instruments and repurchase agreements. To
temporarily defend its assets, the Vista Portfolio may put any amount of its
assets in these investments as well as in U.S. Government debt securities and
investment grade debt securities. When it employs such a temporary defensive
strategy, the Vista Portfolio's investment objective may not be achieved. During
unusual market conditions, the Fund may invest up to 20% of its assets in U.S.
Government debt securities.
The Vista Portfolio may invest in derivatives, which are financial
instruments whose value is based on another security, index or exchange rate.
The Vista Portfolio may use derivatives to hedge various market risks or to
increase the Vista Portfolio's income or gain.
Principal Investment Risks
All mutual funds carry a certain amount of risk. You will lose money if
you sell your shares for less than you paid for them. Loss of money is a risk of
investing in the Portfolio. Some of the specific risks of investing in this
Portfolio are described below.
MasterFeeder Structure:
Unlike most other mutual funds, the Portfolio does not directly acquire
and manage its own portfolio of securities. Rather, the Portfolio invests all of
its assets in another mutual fund, the Vista Portfolio. This investment
relationship is referred to as a master/feeder relationship. The Portfolio is
referred to as a "feeder" fund because it invests all of its assets in the
"master" fund, the Vista Portfolio. The Vista Portfolio is referred to as a
"master" fund because in addition to the Portfolio there are other funds which
"feed" (that is, invest) their assets to the Vista Portfolio.
There are some general risks that are specifically associated with the
master/feeder relationship. For example, if a large "feeder" fund withdraws from
the Vista Portfolio, the remaining funds may experience higher operating
expenses. Higher expenses may produce lower returns. A large "feeder" fund's
withdrawal may also result in the Vista Portfolio's investment holdings being
less diversified which will increase portfolio risk. This latter risk also
exists for traditionally structured funds which have large and/or institutional
investors.
A change in the Vista Portfolio's objectives, policies or restrictions
this may require the Portfolio to redeem its interest in the Vista Portfolio.
This could result in a distribution of securities to the Portfolio by the Vista
Portfolio, as opposed to a cash distribution. A distribution of securities may
mean additional brokerage fees or other transaction costs to convert the
distributed securities to cash. A distribution of this type may also result in
the Portfolio being less diversified and less liquid.
Equity Securities:
Equity securities, such as common stocks, fluctuate in value, often
based on factors unrelated to the value of the issuer of the securities, and
those fluctuations can be pronounced. Changes in the value of the Vista
Portfolio's investments will result in changes in the value of its shares and,
consequently, the value of the shares of the Portfolio. The Vista Portfolio may
not achieve its objective if securities which the investment advisers believe
are undervalued do not appreciate as much as the investment advisers anticipate
or if the companies in which it invests do not pay dividends.
Foreign Securities:
Investments in foreign securities may have higher risks than United
States investments. Higher risks result from the following possibilities:
Less publicly available information Different settlement
procedures Smaller and less liquid securities markets
Difficulty converting investments into cash Political and
economic instability Imposition of government controls
Higher brokerage commissions and custody costs Different
regulations and standards
These risks increase when investing in securities issued in developing
countries. Changes in currency exchange rates also affect foreign securities
since they are normally denominated and traded in foreign currencies.
Additionally, investment in unsponsored depositary receipts may carry higher
risks than sponsored depositary receipts due to less available information about
the issuer and different voting privileges.
In early 1999, the European Monetary Union implemented a new currency
called the "euro." It is possible that the euro could increase volatility in
financial markets, which could have a negative effect on the value of shares of
the Fund.
Convertible Securities:
The market value of convertible securities tends to decline as interest
rates increase and increase as interest rates decline. The value of these
securities also tends to change whenever the market value of the underlying
common or preferred stock fluctuates.
Money Market and Debt Obligations:
If the Vista Portfolio invests a substantial portion of its assets in
money market instruments and debt obligations, including where the Vista
Portfolio is investing for temporary defensive purposes, its investment
objective may not be achieved.
Real Estate Investment Trusts:
The value of REITs will depend on the value of the underlying properties
or the underlying loans or interest. The value of REITs may decline when
interest rates rise. The value of a REIT will also be affected by the real
estate market and by the management of the REIT's underlying properties. REITs
may be more volatile or more illiquid than other types of securities.
Derivatives:
Derivatives may be more risky than other types of investments because
they may respond more to changes in economic conditions than other types of
investments. If they are used for non-hedging purposes they could cause losses
that exceed the Vista Portfolio's original investment.
Vista Portfolio Turnover
The Vista Portfolio may engage in active and frequent trading of its portfolio
securities to achieve its principal investment strategies. Such trading could
result in higher brokerage costs. Brokerage costs affect the performance of the
Portfolio and the expenses you will indirectly pay because the Vista Portfolio
must pay these costs from its own assets.
MANAGEMENT OF THE PORTFOLIO AND THE VISTA PORTFOLIO
Maxim Vista Growth & Income Portfolio
GW Capital provides investment advisory, accounting and administrative
services for the Portfolio. GW Capital's address is 8515 East Orchard Road,
Englewood, Colorado 80111. GW Capital provides investment management services
for mutual funds and other investment portfolios representing assets of over $xx
billion. GW Capital (and its predecessor company, The Great-West Life Assurance
Company) has been providing investment management services since 1969.
The aggregate fee paid to GW Capital for the Portfolio's fiscal year
ending October 31, 1998 was 0.53% of the average daily net assets of the
Portfolio.
<PAGE>
Vista Growth and Income Portfolio
The investment adviser of the Vista Portfolio is The Chase Manhattan Bank
("Chase"), 270 Park Avenue, New York, New York 10017. Chase Asset Management,
Inc. is the sub-adviser to the Vista Portfolio. Chase Asset Management's address
is 1211 Avenue of the Americas, New York, New York 10036. Chase Asset Management
makes the day to day investment decisions for the Vista Portfolio.
The aggregate fee paid to Chase for the Vista Portfolio's fiscal year
ending October 31, 1998 was 0.40% of the average daily net assets of the Vista
Portfolio. From this fee, Chase paid Chase Asset Management an aggregate fee of
0.20% of the average daily net assets of the Vista Portfolio.
Vista Growth and Income Portfolio Managers
Greg Adams and Diane Sobin, Senior Portfolio Managers at Chase, are
responsible for the day to day management of the Vista Portfolio. Mr. Adams
joined Chase in 1987 and has been a manager of the Vista Portfolio since March
1995.
Ms. Sobin joined Chase in 1997 and has been a manager of the Vista
Portfolio since July 1997. Prior to joining Chase, Ms. Sobin was a senior
portfolio manager at Oppenheimer Funds Inc. where she managed mutual funds.
Prior to 1995, Ms. Sobin was a senior portfolio manager at Dean Witter Discover,
where she managed several mutual funds and other accounts.
Dave Klassen, Director, U.S. Funds Management and Equity Research at
Chase, is responsible for asset allocation and investment strategy for Chase's
domestic equity portfolios. Mr. Klassen joined Chase in 1992. Prior to joining
Chase in 1992, Mr. Klassen was a vice president and portfolio manger at Dean
Witter Reynolds, responsible for managing several mutual funds and other
accounts.
Year 2000 issues
The services provided to the Portfolio by GW Capital and similarly the
services provided by Chase to the Vista Portfolio depend on the smooth
functioning of their respective computer systems. Many computer software systems
in use today cannot distinguish the year 2000 from the year 1900 because of the
way dates are encoded and calculated. That failure could have a negative impact
on the handling of securities trades, pricing and account services. GW Capital
and Chase have been actively working on necessary changes to their respective
computer systems to deal with the year 2000 issue and to obtain assurances from
service providers that they are taking similar steps.
IMPORTANT INFORMATION ABOUT YOUR INVESTMENT
Investing In the Portfolio
Shares of the Portfolio are not for sale directly to the public.
Currently, the Portfolio shares are sold to separate accounts of GWL&A to fund
benefits under certain group variable annuity contracts. In the future,
Portfolio shares may be used to fund other variable contracts offered by
Great-West, or its affiliates, or other unrelated insurance companies. For
information concerning your rights under a specific variable contract, please
refer to that.
Share Price
The price for buying or selling the Portfolio's shares is the net asset
value per share of that Portfolio. We compute the net asset value per share by
dividing the net assets of the Portfolio (that is, the value of the Portfolio's
investment in the Vista Portfolio less Portfolio expenses and liabilities) by
the number of outstanding Portfolio shares. We generally calculate the
Portfolio's NAV as of the close of regular trading on the New York Stock
Exchange (currently, 4:00 p.m. New York Time), on each day the New York Stock
Exchange is open for business. When you buy or redeem shares of the Portfolio,
your share price will be the price next computed after we receive your purchase
or redemption order. If the NYSE closes at any other time, or if an emergency
exists, the time at which the NAV is calculated may differ.
Since the Portfolio invests all its assets in the Vista Portfolio, the
value of the Portfolio's shares depends upon the investment performance of the
Vista. If the securities owned by the Vista Portfolio increase in value, the
value of the Portfolio's shares will increase and vice versa.
Vista Portfolio Share Price
The Vista Portfolio generally calculates its NAV as of the close of
trading on the NYSE every day the NYSE is open. If the NYSE closes at any other
time, or if an emergency exists, the time at which the NAV is calculated may
differ. The NAV of the Vista Portfolio is based on the market value of the
securities in which it invests. If market prices are not available or if a
security's value has been materially affected by events occurring after the
close of the exchange or market on which the security is principally traded (for
example, a foreign exchange or market), that security may be valued by another
method that Chase believes accurately reflects fair value. Certain short-term
securities are valued on the basis of amortized cost.
Dividend and Capital Gain Distributions
Dividends from the investment income of the Portfolio are declared and
reinvested quarterly in additional shares of the Portfolio at net asset value.
Distributions of net realized capital gains, if any, are declared in the fiscal
year in which they have been realized and are reinvested in additional shares of
the Portfolio at net asset value.
Tax Consequences
The Portfolio is not currently a separately taxable entity. It is
possible the Portfolio could lose this favorable tax treatment if it does not
meet certain requirements of the Internal Revenue Code of 1986, as amended. If
it does not meet those tax requirements and becomes a taxable entity, the
Portfolio would be required to pay taxes on income and capital gains. This would
affect your investment because your return would be reduced by the taxes paid by
the Portfolio.
Tax consequences of your investment in the Portfolio depend on the
provisions of the variable annuity contract through which you invest in the
Portfolio. For more information please refer to your contract.
Annual and Semi-Annual Shareholder Reports
The fiscal year of the Portfolio ends on October 31 of each year. Twice
a year you will receive a report containing a summary of the Portfolio's
performance and other information.
CHANGE OF INVESTMENT STRATEGY
The Portfolio may withdraw its investment in the Vista Portfolio at any
time without shareholder approval if the Board of Directors of the Fund decides
it is in the best interest of the Portfolio. Upon any such change, the Board
will consider what action may be taken, including the investment of assets of
the Portfolio in another underlying mutual fund having the same investment
objective as the Portfolio or the retention of an investment adviser to manage
the Portfolio's assets in accordance with the investment objective. The
investment objective of the Portfolio as well as the investment objective of the
Vista Portfolio, can only be changed with shareholder approval.
<PAGE>
FINANCIAL HIGHLIGHTS
The financial highlights table is intended to help you understand the
Portfolio's financial performance since its inception. Certain information
reflects financial results for a single Portfolio share. The total returns in
the table represent the rate that an investor would have earned (or lost) on an
investment in the Portfolio (assuming reinvestment of all dividends and
distributions.) This information has been audited by Deloitte & Touche LLP,
independent auditors, whose report, along with the Portfolio's financial
statements, are included in the Portfolio's Annual Report. A free copy of the
Annual Report is available upon request.
<TABLE>
- ----------------------------------------- --------------- ---------------- ------------- -------------
1998 1997 1996 1995 (1)
--------------- ---------------- ------------- -------------
<S> <C>
Net Asset Value, Beginning of Period $ $ $ $
1.6590 1.3957 1.2133 1.0000
Income from Investment Operations
Net Investment Income
0.0113 0.0158 0.0219 0.0174
Net Gain or Losses on Securities
(both realized and unrealized)
0.1351 0.3677 0.2147 0.2133
---------------- ------------- -------------
---------------
Total Income From Investment Operations
0.1464 0.3835 0.2366 0.2307
Less Distributions
Dividends (from net investment income)
(0.0103) (0.0162) (0.0215) (0.0174)
Distributions (from capital gains)
(0.1993) (0.1040) (0.0327)
---------------- ------------- -------------
Total Distributions
(0.2096) (0.1202) (0.0542) (0.0174)
---------------- ------------- -------------
---------------
Net Asset Value, End of Period $ $ $ $
1.5958 1.6590 1.3957 1.2133
================ ============= -------------
---------------
Total Return
9.38% 29.33% 20.01% 22.25%
Ratios/Supplemental Data
Net Assets, End of Period $ $ $ $
161,166,617 135,053,616 86,430,279 49,403,163
Ratio of Expenses to Average Net Assets
1.00% 1.00% 1.00% 1.01%*
Ratio of Net Investment Income to
Average Net Assets 0.69% 1.08% 1.75% 2.21%*
- ----------------------------------------- --------------- ---------------- ------------- -------------
Turnover rate2
113% 65% 62% 71%
- ----------------------------------------- --------------- ---------------- ------------- -------------
- -----------
1 For 1995 the period is from December 21, 1994[inception] to October 31, 1995.
* Annualized
2 The Turnover rate is that of the Master Fund, the Chase Vista Growth and Income Portfolio,
not that of the Maxim Vista Growth & Income Portfolio.
</TABLE>
<PAGE>
This prospectus should be read
and retained for future reference.
STATEMENT OF ADDITIONAL INFORMATION (SAI)
The SAI, dated March 1, 1999 contains more details about the investment
policies and techniques of the Fund and the Portfolio. A current SAI is on file
with the SEC and is incorporated into this prospectus by reference. This means
that the SAI is legally considered a part of this prospectus even though it is
not physically contained within this prospectus.
Additional information about the Portfolio's investments and the
investments of the Vista Portfolio is available in the Fund Portfolio's annual
and semi-annual reports to shareholders. In the Fund 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.
For a free copy of the SAI or annual or semi-annual reports or to
request other information or ask questions about a Fund, call 1-800-689-3000.
The SAI and the annual and semi-annual reports are available on the
SEC's Internet Web site (http://www.sec.gov). You can also obtain copies of this
information upon paying a duplicating fee, by writing the Public Reference
Section of the SEC, Washington, D.C. 20549-6009. You can also review and copy
information about the Fund, including the SAI, at the SEC's Public Reference
Room in Washington, D.C. Call 1-800-SEC-0330 for information on the operation of
the SEC's Public Reference Room.
INVESTMENT COMPANY ACT OF 1940, FILE NUMBER, 811-3364.
<PAGE>
MAXIM SERIES FUND, INC.
(the "Fund")
- -------------------------------------------------------------------------------
Maxim Vista Growth & Income Portfolio
(the "Portfolio")
- ------------------------------------------------------------------------------
STATEMENT OF ADDITIONAL INFORMATION ("SAI")
Throughout this SAI, "the Portfolio" is intended to refer to the
Portfolio listed above, unless otherwise indicated. This SAI is not a
Prospectus and should be read together with the Prospectus for the Fund
dated March 1, 1999. Requests for copies of the Prospectus should be
made by writing at 8515 East Orchard Road, Englewood, Colorado 80111, or
by calling (303) 689-3000. The financial statements appearing in the
Annual Report, which accompanies this SAI, are incorporated into this
SAI by reference.
March 1, 1999
- ------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
Page
INFORMATION ABOUT THE FUNDS.............................................2
INVESTMENT LIMITATIONS..................................................2
INVESTMENT POLICIES AND PRACTICES.......................................3
MANAGEMENT OF THE FUND..................................................17
INVESTMENT ADVISORY SERVICES............................................18
PURCHASE, REEMPTION AND PRICING OF SHARES...............................24
INVESTMENT PERFORMANCE..................................................24
DIVIDENDS, DISTRIBUTION AND TAXES.......................................26
OTHER INFORMATION.......................................................30
FINANCIAL STATEMENTS....................................................30
APPENDIX................................................................31
APPENDIX A..............................................................33
<PAGE>
12
INFORMATION ABOUT THE PORTFOLIO
Maxim Series Fund, Inc. is a Maryland corporation organized as an
open-end management investment company (the "Fund"). The Fund offers
thirty-three investment portfolios. The Fund commenced business as an investment
company in 1982. The Maxim Vista Growth & Income Portfolio (the "Portfolio") was
added effective December 21, 1994. The Portfolio invests all of its assets in
the Vista Growth and Income Portfolio (the "Vista Portfolio"), a non-diversified
open-end management investment company. The Portfolio is a "no-load" investment
meaning you pay no sales charges or distribution fees. GW Capital Management,
LLC ("GW Capital "), a wholly-owned subsidiary of Great-West Life & Annuity
Insurance Company ("GWL&A"), serves as the Fund's investment adviser.
Non-Diversified Portfolio of Securities
The Portfolio is considered "non-diversified" because it invests all of
its assets in one issuer. The Vista Portfolio in which the Portfolio invests is
also non-diversified. It may invest a greater percentage of its assets in a
particular issuer or group of issuers than a diversified fund would. Since a
relatively high percentage of the Vista Portfolio's assets may be invested in
the securities of a limited number of issuers, some of which may be in the same
industry, the Vista Portfolio may be more sensitive to changes in the market
value of a single issuer or industry.
INVESTMENT LIMITATIONS
The following policies and limitations supplement those set forth in the
Prospectus. Unless otherwise indicated, whenever an investment policy or
limitation states a maximum percentage of the Portfolio's assets that may be
invested in any security or other asset, or sets forth a policy regarding
quality standards, the indicated percentage or quality standard limitation will
be determined immediately after and as a result of the Portfolio's acquisition
of the security or other asset. Accordingly, any subsequent change in values,
net assets, or other circumstances will not be considered when determining
whether the investment complies with the Portfolio's investment policies and
limitations. The Portfolio's fundamental investment policies and limitations
cannot be changed without approval by vote of a "majority of the outstanding
voting shares" (as defined in the Investment Company Act of 1940 ("the 1940
Act")) of the Portfolio. Because the Portfolio invests all of its assets in the
Vista Portfolio, compliance with these limitations will be based on the Vista
Portfolio's investments.
The Portfolio will not:
1. Invest more than 25% of its total assets (taken at market value at the time
of each investment) in the securities of issuers primarily engaged in the
same industry; utilities will be divided according to their services; for
example, gas, gas transmission, electric and telephone each will be
considered a separate industry for purposes of this restriction; provided
that there shall be no limitation on the purchase of obligations issued or
guaranteed by the U.S. Government, or its agencies or instrumentalities, or
of certificates of deposit and bankers' acceptances, and positions in
permissible options and futures will not be subject to this restriction.
2. Alone or together with any other investor make investments for the
purpose of exercising control over, or management of any issuer.
3. Purchase or sell interests in commodities, commodities contracts, or
real estate, (including limited partnership interests but excluding
securities secured by real estate or interests therein), except that the
Portfolio may purchase securities of issuers which invest or deal in any
of the above and may engage in permissible futures and options
transactions, permissible forward purchases or sales of foreign
currencies or securities, and the purchase and sale of mortgage-backed
securities.
4. Make loans, except as provided in limitation (5) below and except
through the purchase of debt instruments (including, without limitation,
bonds, notes, debentures or other obligations and certificates of
deposit, bankers' acceptances and fixed time deposits) in private
placements (the purchase of publicly-traded obligations are not being
considered the making of a loan) and further, through the use of
repurchase agreements or the purchase of short-term obligations.
5. Lend its portfolio securities in excess of 33 1/3% of its total assets,
taken at market value at the time of the loan, and provided that such
loan shall be made in accordance with the guidelines set forth under
"Securities Loans" in this Statement of Additional Information.
6. Borrow amounts in excess of 33 1/3% of its total assets (including the
amount borrowed), taken at market value at the time of the borrowing, and
then only from banks as a temporary measure for extraordinary or emergency
purposes or by engaging in reverse repurchase transactions; nor may the
Portfolio pledge, mortgage, or hypothecate more than 1/3 of its net assets
to secure such borrowings. In the event the Portfolio borrows in excess of
5% of its total assets, the Portfolio will not purchase additional
investment securities until any borrowings that exceed 5% of the
Portfolio's total assets are repaid.
7. Mortgage, pledge, hypothecate or in any manner transfer, as security for
indebtedness, any securities owned or held by the Portfolio except as may
be necessary in connection with borrowings mentioned in limitation (6)
above, and then such mortgaging, pledging or hypothecating may not exceed
33 1/3% of the Portfolio's total assets, taken at market value at the time
thereof; provided that collateral arrangements with respect to permissible
futures and options transactions, including initial and variation margin
payments, are not considered to be the pledge of assets for purposes of
this restriction.
8. Underwrite securities of other issuers except insofar as the Vista
Portfolio may be deemed an underwriter under the Securities Act of 1933
in selling portfolio securities.
9. Issue any senior security (as defined in the 1940 Act), except that (a) the
Portfolio may engage in transactions that may result in the issuance of
senior securities to the extent permitted under the Portfolio's investment
policies and applicable regulations and interpretations of the 1940 Act or
an exemptive order; (b) the Portfolio may acquire other securities, the
acquisition of which may result in the issuance of a senior security, to
the extent permitted under the Portfolio's investment policies and
applicable regulations or interpretations of the 1940 Act; and (c) subject
to the restrictions set forth above, the Portfolio may borrow money as
authorized by the 1940 Act. For purposes of this restriction, collateral
arrangements with respect to the Portfolio's permissible options and
futures transactions, including deposits of initial and variation margin,
are not considered to be the issuance of a senior security.
........In the event the Portfolio redeemed its investment in the Vista
Portfolio and GW Capital were to manage the Portfolio's assets directly (or
delegate such management to a sub-adviser), the Portfolio would be subject to
the above-described fundamental investment policies. If the Portfolio redeemed
its investment in the Vista Portfolio and invested in another investment
company, the shareholders of the Portfolio would be asked to approve the
adoption of the investment policies of such investment company to the extent
necessary or appropriate to allow the Portfolio to make such investment.
INVESTMENT POLICIES AND PRACTICES
Except as described below and except as otherwise specifically stated in
the Prospectus or this Statement of Additional Information, the Portfolio's
investment policies set forth in the Prospectus and in this Statement of
Additional Information are not fundamental and may be changed without
shareholder approval.
The Portfolio invests all of its assets in the Vista Portfolio. The
Portfolio therefore indirectly bears the investment risk associated with the
investments of the Vista Portfolio. The following pages contain more detailed
information about types of securities in which the Vista Portfolio may invest.
The Chase Manhattan Bank ("Chase") may not buy all of these securities or use
all of these techniques to the full extent permitted unless it believes that
they are consistent with the Vista Portfolio's investment objectives and
policies and that doing so will help the Vista Portfolio achieve its objectives.
The Vista Portfolio may invest in all these securities or use all of these
techniques.
Bank Obligations. Investments in bank obligations are limited to those of U.S.
banks (including their foreign branches) which have total assets at the time of
purchase in excess of $1 billion and the deposits of which are insured by either
the Bank Insurance Fund or the Savings Association Insurance Fund of the Federal
Deposit Insurance Corporation, and foreign banks (including their U.S. branches)
having total assets in excess of $10 billion (or the equivalent in other
currencies), and such other U.S. and foreign commercial banks which are judged
by the advisers to meet comparable credit standing criteria.
Bank obligations include negotiable certificates of deposit, bankers'
acceptances, fixed time deposits and deposit notes. A certificate of deposit is
a short-term negotiable certificate issued by a commercial bank against funds
deposited in the bank and is either interest-bearing or purchased on a discount
basis. A bankers' acceptance is a short-term draft drawn on a commercial bank by
a borrower, usually in connection with an international commercial transaction.
The borrower is liable for payment as is the bank, which unconditionally
guarantees to pay the draft at its face amount on the maturity date. Fixed time
deposits are obligations of branches of United States banks or foreign banks
which are payable at a stated maturity date and bear a fixed rate of interest.
Although fixed time deposits do not have a market, there are no contractual
restrictions on the right to transfer a beneficial interest in the deposit to a
third party. Fixed time deposits subject to withdrawal penalties and with
respect to which the Vista Portfolio cannot realize the proceeds thereon within
seven days are deemed "illiquid" for the purposes of its restriction on
investments in illiquid securities. Deposit notes are notes issued by commercial
banks which generally bear fixed rates of interest and typically have original
maturities ranging from eighteen months to five years.
The dependence on the banking industry may involve certain credit risks,
such as defaults or downgrades, if at some future date adverse economic
conditions prevail in such industry. Banks are subject to extensive governmental
regulations that may limit both the amounts and types of loans and other
financial commitments that may be made and the interest rates and fees that may
be charged. The profitability of this industry is largely dependent upon the
availability and cost of capital funds for the purpose of financing lending
operations under prevailing money market conditions. Also, general economic
conditions play an important part in the operations of this industry and
exposure to credit losses arising from possible financial difficulties of
borrowers might affect a bank's ability to meet its obligations. Bank
obligations may be general obligations of the parent bank or may be limited to
the issuing branch by the terms of the specific obligations or by government
regulation. Investors should also be aware that securities of foreign banks and
foreign branches of United States banks may involve foreign investment risks in
addition to those relating to domestic bank obligations.
These investment risks may involve, among other considerations, risks
relating to future political and economic developments, more limited liquidity
of foreign obligations than comparable domestic obligations, the possible
imposition of withholding taxes on interest income, the possible seizure or
nationalization of foreign assets and the possible establishment of exchange
controls or other restrictions. There may be less publicly available information
concerning foreign issuers, there may be difficulties in obtaining or enforcing
a judgment against a foreign issuer (including branches) and accounting,
auditing and financial reporting standards and practices may differ from those
applicable to U.S. issuers. In addition, foreign banks are not subject to
regulations comparable to U.S.
banking regulations.
Borrowings. The Vista Portfolio may borrow money from banks for temporary or
short-term purposes but not to buy additional securities, which is known as
"leveraging."
Commercial Paper. Commercial paper consists of short-term (usually from 1 to 270
days) unsecured promissory notes issued by corporations in order to finance
their current operations. A variable amount master demand note (which is a type
of commercial paper) represents a direct borrowing arrangement involving
periodically fluctuating rates of interest under a letter agreement between a
commercial paper issuer and an institutional lender pursuant to which the lender
may determine to invest varying amounts.
Corporate Reorganizations. In general, securities that are the subject of a
tender or exchange offer or proposal sell at a premium to their historic market
price immediately prior to the announcement of the offer or proposal. The
increased market price of these securities may also discount what the stated or
appraised value of the security would be if the contemplated action were
approved or consummated. These investments may be advantageous when the discount
significantly overstates the risk of the contingencies involved; significantly
undervalues the securities, assets or cash to be received by shareholders of the
prospective portfolio company as a result of the contemplated transaction; or
fails adequately to recognize the possibility that the offer or proposal may be
replaced or superseded by an offer or proposal of greater value. The evaluation
of these contingencies requires unusually broad knowledge and experience on the
part of the advisers that must appraise not only the value of the issuer and its
component businesses as well as the assets or securities to be received as a
result of the contemplated transaction, but also the financial resources and
business motivation of the offeror as well as the dynamics of the business
climate when the offer or proposal is in progress. Investments in reorganization
securities may tend to increase the turnover ratio of a Fund and increase its
brokerage and other transaction expenses.
Convertible Securities. The Vista Portfolio may invest in convertible
securities, which are securities generally offering fixed interest or dividend
yields that may be converted either at a stated price or stated rate to common
or preferred stock.
Depositary Receipts. The Vista Portfolio may invest its assets in securities of
multi-national companies in the form of American Depositary Receipts or other
similar securities representing securities of foreign issuers, such as European
Depositary Receipts, Global Depositary Receipts and other similar securities
representing securities of foreign issuers (collectively, "Depositary
Receipts"). The Vista Portfolio treats Depositary Receipts as interests in the
underlying securities for purposes of its investment policies.
Foreign Securities. For purposes of the Vista Portfolio's investment policies,
the issuer of a security may be deemed to be located in a particular country if
(i) the principal trading market for the security is in such country, (ii) the
issuer is organized under the laws of such country or (iii) the issuer has at
least 50% of its assets situated in such country.
Forward Commitments. The Vista Portfolio may purchase securities on a forward
commitment basis. In order to invest the Vista Portfolio's assets immediately,
while awaiting delivery of securities purchased on a forward commitment basis,
short-term obligations that offer same-day settlement and earnings will normally
be purchased. When a commitment to purchase a security on a forward commitment
basis is made, procedures are established consistent with the General Statement
of Policy of the Securities and Exchange Commission concerning such purchases.
Since that policy currently recommends that an amount of the Vista Portfolio's
assets equal to the amount of the purchase be held aside or segregated to be
used to pay for the commitment, a separate account of the Vista Portfolio
consisting of cash or liquid securities equal to the amount of the Vista
Portfolio's forward commitments will be established at the Vista Portfolio's
custodian bank. For the purpose of determining the adequacy of the securities in
the account, the deposited securities will be valued at market value. If the
market value of such securities declines, additional cash, cash equivalents or
liquid securities will be placed in the account daily so that the value of the
account will equal the amount of such commitments by the Vista Portfolio.
Although it is not intended that such purchases would be made for
speculative purposes, purchases of securities on a forward commitment basis may
involve more risk than other types of purchases. Securities purchased on a
forward commitment basis and the securities held in the Vista Portfolio's
investment portfolio are subject to changes in value based upon the public's
perception of the issuer and changes, real or anticipated, in the level of
interest rates. Purchasing securities on a forward commitment basis can involve
the risk that the yields available in the market when the delivery takes place
may actually be higher or lower than those obtained in the transaction itself.
On the settlement date of the forward commitment transaction, the Vista
Portfolio will meet its obligations from then available cash flow, sale of
securities held in the separate account, sale of other securities or, although
it would not normally expect to do so, from sale of the forward commitment
securities themselves (which may have a value greater or lesser than the Vista
Portfolio's payment obligations). The sale of securities to meet such
obligations may result in the realization of capital gains or losses.
To the extent the Vista Portfolio engages in forward commitment
transactions, it will do so for the purpose of acquiring securities consistent
with its investment objective and policies and not for the purpose of investment
leverage, and settlement of such transactions will be within 90 days from the
trade date.
Illiquid Securities. For purposes of its limitation on investments in illiquid
securities, the Vista Portfolio may elect to treat as liquid, in accordance with
procedures established by the Board of Trustees, certain investments in
restricted securities for which there may be a secondary market of qualified
institutional buyers as contemplated by Rule 144A under the Securities Act of
1933, as amended (the "Securities Act") and commercial obligations issued in
reliance on the so-called "private placement" exemption from registration
afforded by Section 4(2) of the Securities Act ("Section 4(2) paper"). Rule 144A
provides an exemption from the registration requirements of the Securities Act
for the resale of certain restricted securities to qualified institutional
buyers. Section 4(2) paper is restricted as to disposition under the federal
securities laws, and generally is sold to institutional investors such as the
Vista Portfolio who agree that they are purchasing the paper for investment and
not with a view to public distribution. Any resale of Section 4(2) paper by the
purchaser must be in an exempt transaction.
One effect of Rule 144A and Section 4(2) is that certain restricted
securities may now be liquid, though there is no assurance that a liquid market
for Rule 144A securities or Section 4(2) paper will develop or be maintained.
The Trustees of the Vista Portfolio have adopted policies and procedures for the
purpose of determining whether securities that are eligible for resale under
Rule 144A and Section 4(2) paper are liquid or illiquid for purposes of the
limitation on investment in illiquid securities. Pursuant to those policies and
procedures, the Trustees have delegated to the advisers the determination as to
whether a particular instrument is liquid or illiquid, requiring that
consideration be given to, among other things, the frequency of trades and
quotes for the security, the number of dealers willing to sell the security and
the number of potential purchasers, dealer undertakings to make a market in the
security, the nature of the security and the time needed to dispose of the
security. The Trustees will periodically review the Vista Portfolio's purchases
and sales of Rule 144A securities and Section 4(2) paper.
Investment Grade Debt Securities. The Vista Portfolio may invest in investment
grade debt securities. Investment grade debt securities are securities rated in
the category BBB or higher by Standard & Poor's Corporation ("S&P"), or Baa or
higher by Moody's Investors Service, Inc. ("Moody's") or the equivalent by
another national rating organization, or, if unrated, determined by the advisers
to be of comparable quality.
Money Market Instruments. The Vista Portfolio may invest in cash or
high-quality, short-term money market instruments. These may include U.S.
Government securities, commercial paper of domestic and foreign issuers and
obligations of domestic and foreign banks. Investments in foreign money market
instruments may involve certain risks associated with foreign investment.
Other Investment Companies. Apart from the Portfolio investing all its assets in
the Vista Portfolio, the Vista Portfolio may invest up to 10% of its total
assets in shares of other investment companies when consistent with its
investment objective and policies, subject to applicable regulatory limitations.
Other investment companies may charge additional fees.
Real Estate Investment Trusts. The Vista Portfolio may invest in shares of real
estate investment trusts ("REITs"), which are pooled investment vehicles which
invest primarily in income-producing real estate or real estate related loans or
interests. REITs are generally classified as equity REITs or mortgage REITs.
Equity REITs invest the majority of their assets directly in real property and
derive income primarily from the collection of rents. Equity REITs can also
realize capital gains by selling properties that have appreciated in value.
Mortgage REITs invest the majority of their assets in real estate mortgages and
derive income from the collection of interest payments. The value of equity
trusts will depend upon the value of the underlying properties, and the value of
mortgage trusts will be sensitive to the value of the underlying loans or
interests.
Repurchase Agreements. The Vista Portfolio will enter into repurchase agreements
only with member banks of the Federal Reserve System and securities dealers
believed creditworthy, and only if fully collateralized by securities in which
the Vista Portfolio is permitted to invest. Under the terms of a typical
repurchase agreement, the Vista Portfolio would acquire an underlying instrument
for a relatively short period (usually not more than one week) subject to an
obligation of the seller to repurchase the instrument and the Vista Portfolio to
resell the instrument at a fixed price and time, thereby determining the yield
during the Vista Portfolio's holding period. This procedure results in a fixed
rate of return insulated from market fluctuations during such period. A
repurchase agreement is subject to the risk that the seller may fail to
repurchase the security. Repurchase agreements are considered under the 1940 Act
to be loans collateralized by the underlying securities. All repurchase
agreements entered into by the Vista Portfolio will be fully collateralized at
all times during the period of the agreement in that the value of the underlying
security will be at least equal to 100% of the amount of the loan, including the
accrued interest thereon, and the Vista Portfolio or its custodian or
sub-custodian will have possession of the collateral, which the Board of
Trustees believes will give it a valid, perfected security interest in the
collateral. Whether a repurchase agreement is the purchase and sale of a
security or a collateralized loan has not been conclusively established. This
might become an issue in the event of the bankruptcy of the other party to the
transaction. In the event of default by the seller under a repurchase agreement
construed to be a collateralized loan, the underlying securities would not be
owned by the Vista Portfolio, but would only constitute collateral for the
seller's obligation to pay the repurchase price. Therefore, the Vista Portfolio
may suffer time delays and incur costs in connection with the disposition of the
collateral. The Board of Trustees believes that the collateral underlying
repurchase agreements may be more susceptible to claims of the seller's
creditors than would be the case with securities owned by the Vista Portfolio.
Repurchase agreements maturing in more than seven days are treated as illiquid
for purposes of the Vista Portfolio's restrictions on purchases of illiquid
securities. Repurchase agreements are also subject to the risks described below
with respect to stand-by commitments.
Reverse Repurchase Agreements. Reverse repurchase agreements involve the sale of
securities held by the Vista Portfolio with an agreement to repurchase the
securities at an agreed upon price and date. The Vista Portfolio may use this
practice to generate cash for shareholder redemptions without selling securities
during unfavorable market conditions. Whenever the Vista Portfolio enters into a
reverse repurchase agreement, it will establish a segregated account in which it
will maintain liquid assets on a daily basis in an amount at least equal to the
repurchase price (including accrued interest). The Vista Portfolio would be
required to pay interest on amounts obtained through reverse repurchase
agreements, which are considered borrowings under federal securities laws. The
repurchase price is generally equal to the original sales price plus interest.
Reverse repurchase agreements are usually for seven days or less and cannot be
repaid prior to their expiration dates. Reverse repurchase agreements involve
the risk that the market value of the portfolio securities transferred may
decline below the price at which the Vista Portfolio is obliged to purchase the
securities.
Securities Loans. To the extent specified in its Prospectus, the Vista Portfolio
is permitted to lend its securities to broker-dealers and other institutional
investors in order to generate additional income. Such loans of portfolio
securities may not exceed 30% of the value of the Vista Portfolio's total
assets. In connection with such loans, the Vista Portfolio will receive
collateral consisting of cash, cash equivalents, U.S. Government securities or
irrevocable letters of credit issued by financial institutions. Such collateral
will be maintained at all times in an amount equal to at least 100% of the
current market value plus accrued interest of the securities loaned. The Vista
Portfolio may increase its income through the investment of cash collateral. The
Vista Portfolio continues to be entitled to the interest payable or any
dividend-equivalent payments received on a loaned security and, in addition, to
receive interest on the amount of the loan. However, the receipt of any
dividend-equivalent payments by the Vista Portfolio on a loaned security from
the borrower will not qualify for the dividends-received deduction. Such loans
will be terminable at any time upon specified notice. The Vista Portfolio might
experience risk of loss if the institutions with which it has engaged in
portfolio loan transactions breach their agreements with the Vista Portfolio.
The risks in lending portfolio securities, as with other extensions of secured
credit, consist of possible delays in receiving additional collateral or in the
recovery of the securities or possible loss of rights in the collateral should
the borrower experience financial difficulty. Loans will be made only to firms
deemed by the advisers to be of good standing and will not be made unless, in
the judgment of the advisers, the consideration to be earned from such loans
justifies the risk.
Stand-By Commitments. In a put transaction, the Vista Portfolio acquires the
right to sell a security at an agreed upon price within a specified period prior
to its maturity date, and a stand-by commitment entitles the Vista Portfolio to
same-day settlement and to receive an exercise price equal to the amortized cost
of the underlying security plus accrued interest, if any, at the time of
exercise. Stand-by commitments are subject to certain risks, which include the
inability of the issuer of the commitment to pay for the securities at the time
the commitment is exercised, the fact that the commitment is not marketable by
the Vista Portfolio, and that the maturity of the underlying security will
generally be different from that of the commitment. A put transaction will
increase the cost of the underlying security and consequently reduce the
available yield.
Stripped Obligations. The Vista Portfolio may invest in stripped obligations.
The principal and interest components of United States Treasury bonds with
remaining maturities of longer than ten years are eligible to be traded
independently under the Separate Trading of Registered Interest and Principal of
Securities ("STRIPS") program. Under the STRIPS program, the principal and
interest components are separately issued by the United States Treasury at the
request of depository financial institutions, which then trade the component
parts separately. The interest component of STRIPS may be more volatile than
that of United States Treasury bills with comparable maturities. The risk is
greater when the period to maturity is longer. The Vista Portfolio may invest up
to 20% of its total assets in stripped obligations only where the underlying
obligations are backed by the full faith and credit of the U.S. Government.
Supranational Obligations. Supranational organizations, include organizations
such as The World Bank, which was chartered to finance development projects in
developing member countries; the European Community, which is a twelve-nation
organization engaged in cooperative economic activities; the European Coal and
Steel Community, which is an economic union of various European nations steel
and coal industries; and the Asian Development Bank, which is an international
development bank established to lend funds, promote investment and provide
technical assistance to member nations of the Asian and Pacific regions.
Obligations of supranational agencies are supported by subscribed, but unpaid,
commitments of member countries. There is no assurance that these commitments
will be undertaken or complied with in the future, and foreign and supranational
securities are subject to certain risks associated with foreign investing.
U.S. Government Securities. U.S. Government Securities include (1) U.S. Treasury
obligations, which generally differ only in their interest rates, maturities and
times of issuance, including: U.S. Treasury bills (maturities of one year or
less), U.S. Treasury notes (maturities of one to ten years) and U.S. Treasury
bonds (generally maturities of greater than ten years); and (2) obligations
issued or guaranteed by U.S. Government agencies and instrumentalities which are
supported by any of the following: (a) the full faith and credit of the U.S.
Treasury, (b) the right of the issuer to borrow any amount listed to a specific
line of credit from the U.S. Treasury, (c) discretionary authority of the U.S.
Government to purchase certain obligations of the U.S. Government agency or
instrumentality or (d) the credit of the agency or instrumentality. Agencies and
instrumentalities of the U.S. Government include but are not limited to: Federal
Land Banks, Federal Financing Banks, Banks for Cooperatives, Federal
Intermediate Credit Banks, Farm Credit Banks, Federal Home Loan Banks, Federal
Home Loan Mortgage Corporation, Federal National Mortgage Association, Student
Loan Marketing Association, United States Postal Service, Chrysler Corporate
Loan Guarantee Board, Small Business Administration, Tennessee Valley Authority
and any other enterprise established or sponsored by the U.S. Government.
Certain U.S. Government Securities, including U.S. Treasury bills, notes and
bonds, Government National Mortgage Association certificates and Federal Housing
Administration debentures, are supported by the full faith and credit of the
United States. Other U.S. Government Securities are issued or guaranteed by
federal agencies or government sponsored enterprises and are not supported by
the full faith and credit of the United States. These securities include
obligations that are supported by the right of the issuer to borrow from the
U.S. Treasury, such as obligations of the Federal Home Loan Banks, and
obligations that are supported by the creditworthiness of the particular
instrumentality, such as obligations of the Federal National Mortgage
Association or Federal Home Loan Mortgage Corporation. For a description of
certain obligations issued or guaranteed by U.S. Government agencies and
instrumentalities, see Appendix A.
In addition, certain U.S. Government agencies and instrumentalities
issue specialized types of securities, such as guaranteed notes of the Small
Business Administration, Federal Aviation Administration, Department of Defense,
Bureau of Indian Affairs and Private Export Funding Corporation, which often
provide higher yields than are available from the more common types of
government-backed instruments. However, such specialized instruments may only be
available from a few sources, in limited amounts, or only in very large
denominations; they may also require specialized capability in portfolio
servicing and in legal matters related to government guarantees. While they may
frequently offer attractive yields, the limited-activity markets of many of
these securities means that, if the Vista Portfolio were required to liquidate
any of them, it might not be able to do so advantageously; accordingly, the
Vista Portfolio normally holds such securities to maturity or pursuant to
repurchase agreements, and would treat such securities (including repurchase
agreements maturing in more than seven days) as illiquid for purposes of its
limitation on investment in illiquid securities.
Warrants and Rights. Warrants basically are options to purchase equity
securities at a specified price 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 shorter duration and are distributed
directly by the issuer to shareholders. Rights and warrants have no voting
rights, receive no dividends and have no rights with respect to the assets of
the issuer.
Additional Policies: Derivative and Related Transactions
Introduction. As explained more fully below, the Vista Portfolio may
employ derivative and related instruments as tools in the management of
portfolio assets. Put briefly, a "derivative" instrument may be considered a
security or other instrument which derives its value from the value or
performance of other instruments or assets, interest or currency exchange rates,
or indexes. For instance, derivatives include futures, options, forward
contracts, structured notes and various over-the-counter instruments.
Like other investment tools or techniques, the impact of using
derivatives strategies or similar instruments depends to a great extent on how
they are used. Derivatives are generally used by portfolio managers in three
ways: first, to reduce risk by hedging (offsetting) an investment position;
second, to substitute for another security particularly where it is quicker,
easier and less expensive to invest in derivatives; and lastly, to speculate or
enhance portfolio performance. Derivatives can offer several benefits, including
easier and more effective hedging, lower transaction costs, quicker investment
and more profitable use of portfolio assets. However, derivatives also have the
potential to significantly magnify risks, thereby leading to potentially greater
losses for the Vista Portfolio.
The Vista Portfolio may invest its assets in derivative and related
instruments subject only to the Vista Portfolio's investment objective and
policies and the requirement that the Vista Portfolio maintain segregated
accounts consisting of cash or other liquid assets (or, as permitted by
applicable regulation, enter into certain offsetting positions) to cover its
obligations under such instruments with respect to positions where there is no
underlying portfolio asset so as to avoid leveraging the Vista Portfolio.
The value of some derivative or similar instruments in which the Vista
Portfolio may invest may be particularly sensitive to changes in prevailing
interest rates or other economic factors, and--like other investments of the
Vista Portfolio--the ability of the Vista Portfolio to successfully utilize
these instruments may depend in part upon the ability of the advisers to
forecast interest rates and other economic factors correctly. If the Vista
Portfolio's advisers inaccurately forecast such factors and take positions in
derivative or similar instruments contrary to prevailing market trends, the
Vista Portfolio could be exposed to the risk of a loss. The Vista Portfolio
might not employ any or all of the strategies described herein, and no assurance
can be given that any strategy used will succeed.
Set forth below is an explanation of the various derivatives strategies
and related instruments the Vista Portfolio may employ along with risks or
special attributes associated with them. This discussion is intended to
supplement the Vista Portfolio's current prospectus as well as provide useful
information to prospective investors.
Risk Factors. As explained more fully below and in the discussions of particular
strategies or instruments, there are a number of risks associated with the use
of derivatives and related instruments and no assurance can be given that any
strategy will succeed. The value of certain derivatives or related instruments
in which the Vista Portfolio may invest may be particularly sensitive to changes
in prevailing economic conditions and market value. The ability of the Vista
Portfolio to successfully utilize these instruments may depend in part upon the
ability of its advisers to forecast these factors correctly. Inaccurate
forecasts could expose the Vista Portfolio to a risk of loss. There can be no
guarantee that there will be a correlation between price movements in a hedging
vehicle and in the portfolio assets being hedged. An incorrect correlation could
result in a loss on both the hedged assets in the Vista Portfolio and the
hedging vehicle so that the portfolio return might have been greater had hedging
not been attempted. This risk is particularly acute in the case of
"cross-hedges" between currencies. The Vista Portfolio's advisers may
inaccurately forecast interest rates, market values or other economic factors in
utilizing a derivatives strategy. In such a case, the Vista Portfolio may have
been in a better position had it not entered into such strategy. Hedging
strategies, while reducing risk of loss, can also reduce the opportunity for
gain. In other words, hedging usually limits both potential losses as well as
potential gains. The Vista Portfolio is not required to use a hedging strategy
and strategies not involving hedging invoke leverage and may increase the risk
to the Vista Portfolio. Certain strategies, such as yield enhancement, can have
speculative characteristics and may result in more risk to the Vista Portfolio
than hedging strategies using the same instruments. There can be no assurance
that a liquid market will exist at a time when the Vista Portfolio seeks to
close out an option, futures contract or other derivative or related position.
Many exchanges and boards of trade limit the amount of fluctuation permitted in
option or futures contract prices during a single day; once the daily limit has
been reached on a particular contract, no trades may be made that day at a price
beyond that limit. In addition, certain instruments are relatively new and
without a significant trading history. As a result, there is no assurance that
an active secondary market will develop or continue to exist. Finally,
over-the-counter instruments typically do not have a liquid market. Lack of a
liquid market for any reason may prevent the Vista Portfolio from liquidating an
unfavorable position. Activities of large traders in the futures and securities
markets involving arbitrage, "program trading," and other investment strategies
may cause price distortions in these markets. In certain instances, particularly
those involving over-the-counter transactions, forward contracts there is a
greater potential that a counterparty or broker may default or be unable to
perform on its commitments. In the event of such a default, the Vista Portfolio
may experience a loss. In transactions involving currencies, the value of the
currency underlying an instrument may fluctuate due to many factors, including
economic conditions, interest rates, governmental policies and market forces.
<PAGE>
Specific Uses and Strategies. Set forth below are explanations of
various strategies involving derivatives and related instruments which may be
used by the Vista Portfolio.
Options on Securities, Securities Indexes and Debt Instruments. The Vista
Portfolio may purchase, sell or exercise call and put options on (i) securities,
(ii) securities indexes, and (iii) debt instruments. Specifically, the Vista
Portfolio may (i) purchase, write and exercise call and put options on
securities and securities indexes (including using options in combination with
securities, other options or derivative instruments) and (ii) enter into swaps,
futures contracts and options on futures contracts. The Vista Portfolio may also
(i) employ forward currency contracts and (ii) purchase and sell structured
products, which are instruments designed to restructure or reflect the
characteristics of certain other investments.
Although in most cases these options will be exchange-traded, the Vista
Portfolio may also purchase, sell or exercise over-the-counter options.
Over-the-counter options differ from exchange-traded options in that they are
two-party contracts with price and other terms negotiated between buyer and
seller. As such, over-the-counter options generally have much less market
liquidity and carry the risk of default or nonperformance by the other party.
One purpose of purchasing put options is to protect holdings in an
underlying or related security against a substantial decline in market value.
One purpose of purchasing call options is to protect against substantial
increases in prices of securities the Vista Portfolio intends to purchase
pending its ability to invest in such securities in an orderly manner. The Vista
Portfolio may also use combinations of options to minimize costs, gain exposure
to markets or take advantage of price disparities or market movements. For
example, the Vista Portfolio may sell put or call options it has previously
purchased or purchase put or call options it has previously sold. These
transactions may result in a net gain or loss depending on whether the amount
realized on the sale is more or less than the premium and other transaction
costs paid on the put or call option which is sold. The Vista Portfolio may
write a call or put option in order to earn the related premium from such
transactions. Prior to exercise or expiration, an option may be closed out by an
offsetting purchase or sale of a similar option. The Vista Portfolio will not
write uncovered options.
In addition to the general risk factors noted above, the purchase and
writing of options involve certain special risks. During the option period, the
Vista Portfolio writing a covered call (i.e., where the underlying securities
are held by the Vista Portfolio) has, in return for the premium on the option,
given up the opportunity to profit from a price increase in the underlying
securities above the exercise price, but has retained the risk of loss should
the price of the underlying securities decline. The writer of an option has no
control over the time when it may be required to fulfill its obligation as a
writer of the option. Once an option writer has received an exercise notice, it
cannot effect a closing purchase transaction in order to terminate its
obligation under the option and must deliver the underlying securities at the
exercise price.
If a put or call option purchased by the Vista Portfolio is not sold
when it has remaining value, and if the market price of the underlying security,
in the case of a put, remains equal to or greater than the exercise price or, in
the case of a call, remains less than or equal to the exercise price, the Vista
Portfolio will lose its entire investment in the option. Also, where a put or
call option on a particular security is purchased to hedge against price
movements in a related security, the price of the put or call option may move
more or less than the price of the related security. There can be no assurance
that a liquid market will exist when the Vista Portfolio seeks to close out an
option position. Furthermore, if trading restrictions or suspensions are imposed
on the options markets, the Vista Portfolio may be unable to close out a
position.
Futures Contracts and Options on Futures Contracts. The Vista Portfolio may
purchase or sell (i) interest-rate futures contracts, (ii) futures contracts on
specified instruments or indices, and (iii) options on these futures contracts
("futures options").
The futures contracts and futures options may be based on various
instruments or indices in which the Funds and Portfolios may invest such as
foreign currencies, certificates of deposit, Eurodollar time deposits,
securities indices, economic indices (such as the Consumer Price Indices
compiled by the U.S. Department of Labor).
Futures contracts and futures options may be used to hedge portfolio
positions and transactions as well as to gain exposure to markets. For example,
the Vista Portfolio may sell a futures contract--or buy a futures option--to
protect against a decline in value, or reduce the duration, of portfolio
holdings. Likewise, these instruments may be used where the Vista Portfolio
intends to acquire an instrument or enter into a position. For example, the
Vista Portfolio may purchase a futures contract--or buy a futures option--to
gain immediate exposure in a market or otherwise offset increases in the
purchase price of securities or currencies to be acquired in the future. Futures
options may also be written to earn the related premiums.
When writing or purchasing options, the Vista Portfolio may
simultaneously enter into other transactions involving futures contracts or
futures options in order to minimize costs, gain exposure to markets, or take
advantage of price disparities or market movements. Such strategies may entail
additional risks in certain instances. The Vista Portfolio may engage in
cross-hedging by purchasing or selling futures or options on a security or
currency different from the security or currency position being hedged to take
advantage of relationships between the two securities or currencies.
Investments in futures contracts and options thereon involve risks
similar to those associated with options transactions discussed above. The Vista
Portfolio will only enter into futures contracts or options on futures contracts
which are traded on a U.S. or foreign exchange or board of trade, or similar
entity, or quoted on an automated quotation system.
Forward Contracts. The Vista Portfolio may use foreign currency and
interest-rate forward contracts for various purposes as described below.
Foreign currency exchange rates may fluctuate significantly over short
periods of time. They generally are determined by the forces of supply and
demand in the foreign exchange markets and the relative merits of investments in
different countries, actual or perceived changes in interest rates and other
complex factors, as seen from an international perspective. The Vista Portfolio
that may invest in securities denominated in foreign currencies may, in addition
to buying and selling foreign currency futures contracts and options on foreign
currencies and foreign currency futures, enter into forward foreign currency
exchange contracts to reduce the risks or otherwise take a position in
anticipation of changes in foreign exchange rates. A forward foreign currency
exchange contract involves an obligation to purchase or sell a specific currency
at a future date, which may be a fixed number of days from the date of the
contract agreed upon by the parties, at a price set at the time of the contract.
By entering into a forward foreign currency contract, the Vista Portfolio "locks
in" the exchange rate between the currency it will deliver and the currency it
will receive for the duration of the contract. As a result, the Vista Portfolio
reduces its 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. The effect on the value of the Vista Portfolio is similar to selling
securities denominated in one currency and purchasing securities denominated in
another. Transactions that use two foreign currencies are sometimes referred to
as "cross-hedges."
The Vista Portfolio may enter into these contracts for the purpose of
hedging against foreign exchange risk arising from the Vista Portfolio's
investments or anticipated investments in securities denominated in foreign
currencies. The Vista Portfolio may also 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.
The Vista Portfolio may also use forward contracts to hedge against
changes in interest rates, increase exposure to a market or otherwise take
advantage of such changes. An interest-rate forward contract involves the
obligation to purchase or sell a specific debt instrument at a fixed price at a
future date.
<PAGE>
Interest Rate and Currency Transactions. The Vista Portfolio may employ currency
and interest rate management techniques, including transactions in options
(including yield curve options), futures, options on futures, forward foreign
currency exchange contracts, currency options and futures and currency and
interest rate swaps. The aggregate amount of the Vista Portfolio's net currency
exposure will not exceed the total net asset value of its portfolio. However, to
the extent that the Vista Portfolio is fully invested while also maintaining
currency positions, it may be exposed to greater combined risk.
The Vista Portfolio will only enter into interest rate and currency
swaps on a net basis, i.e., the two payment streams are netted out, with the
Vista Portfolio receiving or paying, as the case may be, only the net amount of
the two payments. Interest rate and currency swaps do not involve the delivery
of securities, the underlying currency, other underlying assets or principal.
Accordingly, the risk of loss with respect to interest rate and currency swaps
is limited to the net amount of interest or currency payments that the Vista
Portfolio is contractually obligated to make. If the other party to an interest
rate or currency swap defaults, the Vista Portfolio's risk of loss consists of
the net amount of interest or currency payments that the Vista Portfolio is
contractually entitled to receive. Since interest rate and currency swaps are
individually negotiated, the Vista Portfolio expects to achieve an acceptable
degree of correlation between its portfolio investments and their interest rate
or currency swap positions.
The Vista Portfolio may hold foreign currency received in connection
with investments in foreign securities when it would be beneficial to convert
such currency into U.S. dollars at a later date, based on anticipated changes in
the relevant exchange rate.
The Vista Portfolio may purchase or sell without limitation as to a
percentage of its assets forward foreign currency exchange contracts when the
Vista Portfolio's advisers anticipate that the foreign currency will appreciate
or depreciate in value, but securities denominated in that currency do not
present attractive investment opportunities and are not held by the Vista
Portfolio. In addition, the Vista Portfolio may enter into forward foreign
currency exchange contracts in order to protect against adverse changes in
future foreign currency exchange rates. The Vista Portfolio may engage in
cross-hedging by using forward contracts in one currency to hedge against
fluctuations in the value of securities denominated in a different currency if
its advisers believe that there is a pattern of correlation between the two
currencies. Forward contracts may reduce the potential gain from a positive
change in the relationship between the U.S. Dollar and foreign currencies.
Unanticipated changes in currency prices may result in poorer overall
performance for the Vista Portfolio than if it had not entered into such
contracts. The use of foreign currency forward contracts will not eliminate
fluctuations in the underlying U.S. dollar equivalent value of the prices of or
rates of return on the Vista Portfolio's foreign currency denominated portfolio
securities and the use of such techniques will subject the Vista Portfolio to
certain risks.
The matching of the increase in value of a forward contract and the
decline in the U.S. dollar equivalent value of the foreign currency denominated
asset that is the subject of the hedge generally will not be precise. In
addition, the Vista Portfolio may not always be able to enter into foreign
currency forward contracts at attractive prices, and this will limit the Vista
Portfolio's ability to use such contract to hedge or cross-hedge its assets.
Also, with regard to the Vista Portfolio's use of cross-hedges, there can be no
assurance that historical correlations between the movement of certain foreign
currencies relative to the U.S. dollar will continue. Thus, at any time poor
correlation may exist between movements in the exchange rates of the foreign
currencies underlying the Vista Portfolio's cross-hedges and the movements in
the exchange rates of the foreign currencies in which the Vista Portfolio's
assets that are the subject of such cross-hedges are denominated.
The Vista Portfolio may enter into interest rate and currency swaps to
the maximum allowed limits under applicable law. The Vista Portfolio will
typically use interest rate swaps to shorten the effective duration of its
portfolio. Interest rate swaps involve the exchange by the Vista Portfolio with
another party of their respective commitments to pay or receive interest, such
as an exchange of fixed rate payments for floating rate payments. Currency swaps
involve the exchange of their respective rights to make or receive payments in
specified currencies.
Mortgage-Related Securities. The Vista Portfolio may purchase mortgage-backed
securities-- i.e., securities representing an ownership interest in a pool of
mortgage loans issued by lenders such as mortgage bankers, commercial banks and
savings and loan associations. Mortgage loans included in the pool--but not the
security itself--may be insured by the Government National Mortgage Association
or the Federal Housing Administration or guaranteed by the Federal National
Mortgage Association, the Federal Home Loan Mortgage Corporation or the Veterans
Administration, which guarantees are supported only by the discretionary
authority of the U.S. Government to purchase the agency's obligations.
Mortgage-backed securities provide investors with payments consisting of both
interest and principal as the mortgages in the underlying mortgage pools are
paid off. Although providing the potential for enhanced returns, mortgage-backed
securities can also be volatile and result in unanticipated losses.
The average life of a mortgage-backed security is likely to be
substantially less than the original maturity of the mortgage pools underlying
the securities. Prepayments of principal by mortgagors and mortgage foreclosures
will usually result in the return of the greater part of the principal invested
far in advance of the maturity of the mortgages in the pool. The actual rate of
return of a mortgage-backed security may be adversely affected by the prepayment
of mortgages included in the mortgage pool underlying the security. In addition,
as with callable fixed-income securities generally, if the Vista Portfolio
purchased the securities at a premium, sustained early repayment would limit the
value of the premium.
The Vista Portfolio may also invest in securities representing interests
in collateralized mortgage obligations ("CMOs"), real estate mortgage investment
conduits ("REMICs") and in pools of certain other asset-backed bonds and
mortgage pass-through securities. Like a bond, interest and prepaid principal
are paid, in most cases, monthly. CMOs may be collateralized by whole
residential or commercial mortgage loans but are more typically collateralized
by portfolios of mortgage pass-through securities guaranteed by the U.S.
Government, or U.S. Government-related entities, and their income streams.
CMOs are structured into multiple classes, each bearing a different
expected average life and/or stated maturity. Actual maturity and average life
will depend upon the prepayment experience of the collateral. Monthly payment of
principal received from the pool of underlying mortgages, including prepayments,
are allocated to different classes in accordance with the terms of the
instruments, and changes in prepayment rates or assumptions may significantly
affect the expected average life and value of a particular class.
REMICs include governmental and/or private entities that issue a fixed
pool of mortgages secured by an interest in real property. REMICs are similar to
CMOs in that they issue multiple classes of securities. REMICs issued by private
entities are not U.S. Government securities and are not directly guaranteed by
any government agency. They are secured by the underlying collateral of the
private issuer.
The Vista Portfolio's advisers expect that governmental,
government-related or private entities may create mortgage loan pools and other
mortgage-related securities offering mortgage pass-through and
mortgage-collateralized investments in addition to those described above. The
mortgages underlying these securities may include alternative mortgage
instruments, that is, mortgage instruments whose principal or interest payments
may vary or whose terms to maturity may differ from customary long-term
fixed-rate mortgages. The Vista Portfolio may also invest in debentures and
other securities of real estate investment trusts. As new types of
mortgage-related securities are developed and offered to investors, the Funds
and Portfolios may consider making investments in such new types of
mortgage-related securities.
Dollar Rolls. Under a mortgage "dollar roll," the Vista Portfolio sells
mortgage-backed securities for delivery in the current month and simultaneously
contracts to repurchase substantially similar (same type, coupon and maturity)
securities on a specified future date. During the roll period, the Vista
Portfolio forgoes principal and interest paid on the mortgage-backed securities.
The Vista Portfolio is compensated by the difference between the current sales
price and the lower forward price for the future purchase (often referred to as
the "drop") as well as by the interest earned on the cash proceeds of the
initial sale. the Vista Portfolio may only enter into covered rolls. A "covered
roll" is a specific type of dollar roll for which there is an offsetting cash
position which matures on or before the forward settlement date of the dollar
roll transaction. At the time the Vista Portfolio enters into a mortgage "dollar
roll", it will establish a segregated account with its custodian bank in which
it will maintain cash or liquid securities equal in value to its obligations in
respect of dollar rolls, and accordingly, such dollar rolls will not be
considered borrowings. Mortgage dollar rolls involve the risk that the market
value of the securities the Vista Portfolio is obligated to repurchase under the
agreement may decline below the repurchase price. Also, these transactions
involve some risk to the Vista Portfolio if the other party should default on
its obligation and the Vista Portfolio is delayed or prevented from completing
the transaction. In the event the buyer of securities under a mortgage dollar
roll files for bankruptcy or becomes insolvent, the Vista Portfolio's use of
proceeds of the dollar roll may be restricted pending a determination by the
other party, or its trustee or receiver, whether to enforce the Vista
Portfolio's obligation to repurchase the securities.
Asset-Backed Securities. The Vista Portfolio may invest in asset-backed
securities which represent a participation in, or are secured by and payable
from, a stream of payments generated by particular assets, most often a pool of
assets similar to one another, such as motor vehicle receivables or credit card
receivables. These securities also include conditional sales contracts,
equipment lease certificates and equipment trust certificates. The advisers
expect that other asset-backed securities (unrelated to mortgage loans) will be
offered to investors in the future. Several types of asset-backed securities
already exist, including, for example, "Certificates for Automobile
ReceivablesSM" or "CARSSM" ("CARS"). CARS represent undivided fractional
interests in a trust whose assets consist of a pool of motor vehicle retail
installment sales contracts and security interests in the vehicles securing the
contracts. Payments of principal and interest on CARS are passed-through monthly
to certificate holders, and are guaranteed up to certain amounts and for a
certain time period by a letter of credit issued by a financial institution
unaffiliated with the trustee or originator of the CARS trust. An investor's
return on CARS may be affected by early prepayment of principal on the
underlying vehicle sales contracts. If the letter of credit is exhausted, the
CARS trust may be prevented from realizing the full amount due on a sales
contract because of state law requirements and restrictions relating to
foreclosure sales of vehicles and the obtaining of deficiency judgments
following such sales or because of depreciation, damage or loss of a vehicle,
the application of federal and state bankruptcy and insolvency laws, the failure
of servicers to take appropriate steps to perfect the CARS trust's rights in the
underlying loans and the servicer's sale of such loans to bona fide purchasers,
giving rise to interests in such loans superior to those of the CARS trust, or
other factors. As a result, certificate holders may experience delays in
payments or losses if the letter of credit is exhausted. The Vista Portfolio
also may invest in other types of asset-backed securities. In the selection of
other asset-backed securities, the advisers will attempt to assess the liquidity
of the security giving consideration to the nature of the security, the
frequency of trading in the security, the number of dealers making a market in
the security and the overall nature of the marketplace for the security.
Structured Products. The Vista Portfolio may invest in interests in entities
organized and operated solely for the purpose of restructuring the investment
characteristics of certain other investments. This type of restructuring
involves the deposit with or purchase by an entity, such as a corporation or
trust, or specified instruments (such as commercial bank loans) and the issuance
by that entity of one or more classes of securities ("structured products")
backed by, or representing interests in, the underlying instruments. The cash
flow on the underlying instruments may be apportioned among the newly issued
structured products to create securities with different investment
characteristics such as varying maturities, payment priorities and interest rate
provisions, and the extent of the payments made with respect to structured
products is dependent on the extent of the cash flow on the underlying
instruments. The Vista Portfolio may invest in structured products which
represent derived investment positions based on relationships among different
markets or asset classes.
The Vista Portfolio may also invest in other types of structured
products, including, among others, inverse floaters, spread trades and notes
linked by a formula to the price of an underlying instrument. Inverse floaters
have coupon rates that vary inversely at a multiple of a designated floating
rate (which typically is determined by reference to an index rate, but may also
be determined through a dutch auction or a remarketing agent or by reference to
another security) (the "reference rate"). As an example, inverse floaters may
constitute a class of CMOs with a coupon rate that moves inversely to a
designated index, such as LIBOR (London Interbank Offered Rate) or the Cost of
Funds Index. Any rise in the reference rate of an inverse floater (as a
consequence of an increase in interest rates) causes a drop in the coupon rate
while any drop in the reference rate of an inverse floater causes an increase in
the coupon rate. A spread trade is an investment position relating to a
difference in the prices or interest rates of two securities where the value of
the investment position is determined by movements in the difference between the
prices or interest rates, as the case may be, of the respective securities. When
the Vista Portfolio invests in notes linked to the price of an underlying
instrument, the price of the underlying security is determined by a multiple
(based on a formula) of the price of such underlying security. A structured
product may be considered to be leveraged to the extent its interest rate varies
by a magnitude that exceeds the magnitude of the change in the index rate of
interest. Because they are linked to their underlying markets or securities,
investments in structured products generally are subject to greater volatility
than an investment directly in the underlying market or security. Total return
on the structured product is derived by linking return to one or more
characteristics of the underlying instrument. Because certain structured
products of the type in which the Vista Portfolio may invest may involve no
credit enhancement, the credit risk of those structured products generally would
be equivalent to that of the underlying instruments. The Vista Portfolio may
invest in a class of structured products that is either subordinated or
unsubordinated to the right of payment of another class. Subordinated structured
products typically have higher yields and present greater risks than
unsubordinated structured products. Although the Vista Portfolio's purchase of
subordinated structured products would have similar economic effect to that of
borrowing against the underlying securities, the purchase will not be deemed to
be leverage for purposes of the Vista Portfolio's fundamental investment
limitation related to borrowing and leverage.
Certain issuers of structured products may be deemed to be "investment
companies" as defined in the 1940 Act. As a result, the Vista Portfolio's
investments in these structured products may be limited by the restrictions
contained in the 1940 Act. Structured products are typically sold in private
placement transactions, and there currently is no active trading market for
structured products. As a result, certain structured products in which the Vista
Portfolio invests may be deemed illiquid and subject to its limitation on
illiquid investments.
Investments in structured products generally are subject to greater
volatility than an investment directly in the underlying market or security. In
addition, because structured products are typically sold in private placement
transactions, there currently is no active trading market for structured
products.
Additional Restrictions on the Use of Futures and Option Contracts. the Vista
Portfolio is not a "commodity pool" (i.e., a pooled investment vehicle which
trades in commodity futures contracts and options thereon and the operator of
which is registered with the CFTC) and futures contracts and futures options
will be purchased, sold or entered into only for bona fide hedging purposes,
provided that the Vista Portfolio may enter into such transactions for purposes
other than bona fide hedging if, immediately thereafter, the sum of the amount
of its initial margin and premiums on open contracts and options would not
exceed 5% of the liquidation value of the Vista Portfolio's portfolio, provided,
further, that, in the case of an option that is in-the-money, the in-the-money
amount may be excluded in calculating the 5% limitation.
When the Vista Portfolio purchases a futures contract, an amount of cash
or cash equivalents or liquid securities will be deposited in a segregated
account with the Vista Portfolio's custodian or sub-custodian so that the amount
so segregated, plus the initial deposit and variation margin held in the account
of its broker, will at all times equal the value of the futures contract,
thereby insuring that the use of such futures is unleveraged.
<PAGE>
MANAGEMENT OF THE FUND
The Fund
The Fund is governed by the Board of Directors. The Board is responsible
for overall management of the Funds' business affairs. The Directors meet at
least 4 times during the year to, among other things, oversee the Funds'
activities, review contractual arrangements with companies that provide services
to the Funds, and review performance.
Directors and Officers
The directors and executive officers of the Fund, their ages,
position(s) with the Fund, and their principal occupations during the last five
years (or as otherwise indicated) are set forth below. The business address of
each director and officer is 8515 East Orchard Road, Englewood, Colorado 80111
(unless otherwise indicated). Those directors and officers who are "interested
persons" (as defined in the Investment Company Act of 194, as amended) by virtue
of their affiliation with either the Fund or GW Capital are indicated by an
asterisk (*).
Rex Jennings (74), Director; President Emeritus, Denver Metro Chamber of
Commerce.
Richard P. Koeppe (67), Director; Retired Superintendent, Denver Public Schools.
*Douglas L. Wooden (42), Director and President; Executive Vice President,
Financial Services (1998 to Present); Senior Vice President, Financial
Services of GWL&A (1996-1998);Senior Vice President, Chief Financial
Officer of GWL&A (1991-1996)
*James D. Motz (49), Director; Executive Vice President, Employee Benefits of
GWL&A (1997 to present) Senior Vice President, Employee Benefits of
GWL&A (1991-1997).
Sanford Zisman (59), Director; Attorney, Zisman & Ingraham, P.C.
*David G. McLeod (36), Treasurer; Vice President, Investment Operations, (1998
to Present) Assistant Vice President, Investment Administration of GWL&A
(1994 to 1998); Manager, Securities and Equities Administration of GWL&A
(1992-1994).
*Bruce Hatcher (35), Assistant Treasurer, Manager, Investment Company
Administration (1998 - present); Associate Manager, Separate Account
Administration (1993-1998)
*Beverly A. Byrne (43), Secretary, Assistant Vice President, Associate Counsel
and Assistant Secretary of GWL&A (1997 - present); Assistant Counsel and
Assistant Secretary of GWL&A (1993-1997).
Compensation
The Fund pays no salaries or compensation to any of its officers or
directors affiliated with GW Capital or its affiliates. The chart below sets
forth the annual fees paid or expected to be paid to the non-interested
directors and certain other information.
<PAGE>
<TABLE>
- ------------------------- ----------------------- ----------------------- -----------------------
R.P. Koeppe R. Jennings S. Zisman
- ------------------------- ----------------------- ----------------------- -----------------------
- ------------------------- ----------------------- ----------------------- -----------------------
Compensation Received
<S> <C> <C> <C>
from the Fund $ 9,000 $ 11,000 $ 11,000
- ------------------------- ----------------------- ----------------------- -----------------------
- ------------------------- ----------------------- ----------------------- -----------------------
Pension or Retirement
Benefits Accrued as $ 0 $ 0 $ 0
Fund Expense
- ------------------------- ----------------------- ----------------------- -----------------------
- ------------------------- ----------------------- ----------------------- -----------------------
Total Compensation
Received from the Fund $ 19,000 $ 21,000 $ 21,000
and All Affiliated
Funds*
- ------------------------- ----------------------- ----------------------- -----------------------
</TABLE>
* As of October 31, 1998 there were thirty-six funds for which the
directors serve as Directors or Trustees, of which twenty-eight are
portfolios of the Fund. The total compensation paid is comprised of the
amount estimated to be paid during the Fund's current fiscal year by the
Fund and its affiliated investment companies.
Ownership of the Fund
All of the shares of the Portfolio are owned by FutureFunds II Series
Account a separate account of Great-West Life & Annuity Insurance Company.
INVESTMENT ADVISORY SERVICES
Investment Adviser
GW Capital is a Colorado corporation, located at 8515 East Orchard Road,
Englewood, Colorado 80111, and serves as the investment adviser to the Fund
pursuant to an Investment Advisory Agreement dated April 1, 1982. GW Capital is
a wholly owned subsidiary of GWL&A which is a wholly owned indirect subsidiary
of The Great-West Life Assurance Company ("Great-West"), a Canadian stock life
insurance company. Great-West is a 99.4% owned subsidiary of Great-West Lifeco
Inc., which in turn is an 86.4% subsidiary of Power Financial Corporation,
Montreal, Quebec. Power Corporation of Canada, a holding and management company
has voting control of Power Financial Corporation. Mr. Paul Desmarais, and his
associates, a group of private holding companies, have voting control of Power
Corporation of Canada.
Investment Advisory Agreement
The Investment Advisory Agreement became effective April 1, 1982 and was
most recently amended December 5, 1997. As approved, the Agreement will remain
in effect until November 1, 1999 and will continue in effect from year to year
if approved annually (a) by the Board of Directors of the Fund or by a majority
of the outstanding shares of the Fund, including a majority of the outstanding
shares of each portfolio, and (b) by a majority of the Directors who are not
parties to such contract or interested persons of any such party. Any amendment
to the Agreement becomes effective with respect to a Portfolio upon approval by
a vote of a majority of the voting securities of the specific Portfolio. The
agreement is not assignable and may be terminated without penalty with respect
to any Portfolio either by the Board of Directors or by vote of a majority of
the outstanding voting securities of such Portfolio or by GW Capital, each on 60
days' written notice to the other party.
Under the terms of the investment advisory agreement with the Fund, GW
Capital acts as investment adviser and, subject to the supervision of the Board
of Directors, directs the investments of the Fund in accordance with each
portfolio's investment objective, policies and limitations. GW Capital also
provides the Fund with all necessary office facilities and personnel for
servicing the portfolios' investments, compensates all officers of the Fund and
all Directors who are "interested persons" of the Fund or of GW Capital, and all
personnel of the Fund or GW Capital performing services relating to research,
statistical and investment activities.
In addition, GW Capital , subject to the supervision of the Board of
Directors, provides the management and administrative services necessary for the
operation of the Fund. These services include providing facilities for
maintaining the fund's organization; supervising relations with custodians,
transfer and pricing agents, accountants, underwriters and other persons dealing
with the portfolios; preparing all general shareholder communications and
conducting shareholder relations; maintaining the Fund's records and the
registration of the Fund's shares under federal securities laws and making
necessary filings under state securities laws; developing management and
shareholder services for the Fund; and furnishing reports, evaluations and
analyses on a variety of subjects to the Directors.
Management Fees
The Portfolio pays a management fee to GW Capital for managing its
investments and business affairs. GW Capital is paid monthly at an annual rate
of 0.53%% of the Portfolio's average net assets. For the period of November 1to
October 31 for the fiscal years 1996, 1997 and 1998, GW Capital was paid
$360,710, $597,408 and $ 832,302 respectively for the services it provided to
the Portfolio.
The Vista Portfolio
Trustees and Officers
The Trustees and officers and their principal occupations for at least
the past five years are set forth below. Their titles may have varied during
that period. Asterisks indicate those Trustees and officers that are "interested
persons" (as defined in the 1940 Act).
FERGUS REID, III - Chairman and Trustee. Chairman and Chief Executive Officer,
Lumelite Corporation, since September 1985; Trustee, Morgan Stanley Funds.
Address: 202 June Road, Stamford, Connecticut 06903. Age: 66
H. RICHARD VARTABEDIAN* - Trustee and President. Investment Management
Consultant, formerly, Senior Investment Officer, Division Executive of the
Investment Management Division of The Chase Manhattan Bank, N.A., 1980 through
1991. Address: P.O. Box 296, Beach Road, Hendrick's Head, Southport, Maine
04576. Age: 62
WILLIAM J. ARMSTRONG - Trustee. Vice President and Treasurer, Ingersoll-Rand
Company. Address: 49 Aspen Way, Upper Saddle River, New Jersey 07458; Age: 56.
JOHN R.H. BLUM - Trustee. Attorney in private practice; formerly partner in the
law firm of Richards, O'Neil & Allegaert; Commissioner of Agriculture, State of
Connecticut 1992-1995. Address: 322 Main Street, Lakeville, Connecticut 06039;
Age: 69
STUART W. CRAGIN, JR. - Trustee. Retired; formerly, President, Fairfield Testing
Laboratory, Inc. He has previously served in a variety of marketing,
manufacturing and general management positions with Union Camp Corp., Trinity
Paper & Plastics Corp., and Conover Industries. Address: 108 Valley Road, Cos
Cob, Connecticut 06807. Age: 65
ROLAND R. EPPLEY, JR. - Trustee. Retired; formerly President and Chief Executive
Officer, Eastern States Bankcard Association Inc. (1971-1988); Director, Janel
Hydraulics, Inc.; formerly Director of The Hanover Funds, Inc. Address: 105
Coventry Place, Palm Beach Gardens, Florida 33418; Age: 66.
JOSEPH J. HARKINS* - Trustee. Retired; Commercial Sector Executive and Executive
Vice President of The Chase Manhattan Bank, N.A. from 1985 through 1989. He was
employed by Chase in numerous capacities as an officer from 1954 through 1989.
Director of Blessings Corporation, Jefferson Insurance Company of New York,
Monticello Insurance Company and National. Address: 257 Plantation Circle South,
Ponte Verde Beach, Florida 32082; Age: 67.
SARAH JONES* - Trustee. President and Chief Operating Officer of Chase Mutual
Funds Corp.; formerly Managing Director for the Global Asset Management and
Private Banking Division of The Chase Manhattan Bank. Address: One Chase
Manhattan Plaza, 3rd Fl., New York, NY 10081; Age: 47.
W.D. MACCALLAN - Trustee. Director of The Adams Express Co. and Petroleum &
Resources Corp.; formerly Chairman of the Board and Chief Executive Officer of
The Adams Express Co. and Petroleum & Resources Corp.; formerly Director of The
Hanover Funds, Inc. and The Hanover Investment Funds, Inc. Address: 624 East
45th Street Savannah, Georgia 31405; Age: 71.
W. PERRY NEFF - Trustee. Independent Financial Consultant; Director of North
America Life Assurance Co., Petroleum & Resources Corp. and The Adams Express
Co.; formerly Director and Chairman of The Hanover Funds Inc.; formerly
Director, Chairman and President of The Hanover Investments Funds Inc. Address:
RR 1 Box 102, Weston, Vermont 05181; Age: 71
LEONARD M. SPALDING, JR.* - Trustee. Executive Vice President and Chief
Executive Officer for Chase Mutual Funds, Corp.; President and Chief Executive
Officer of Vista Capital Management; formerly Chief Investment Executive of The
Chase Manhattan Private Bank. Address: 2025 Lincoln Park Road, Springfield, KY
40069; Age: 63
DR. RICHARD E. TEN HAKEN - Trustee. Former District Superintendent of Schools,
Monroe No.2 and Orleans Counties, New York; Chairman of the Board and President,
New York State Teachers' Retirement System. Address: 4 Barnfield Road,
Pittsfield, New York 14534. Age: 64
IRVING L. THODE - Trustee. Retired; formerly Vice President of Quotron Systems.
He has previously served in a number of executive positions with Control Data
Corp., including President of its Latin American Operations, and General Manager
of its Data Services business. Address: 80 Perkins Road, Greenwich, Connecticut
06830. Age: 67
MARTIN R. DEAN - Treasurer. Associate Director, accounting Services, BISYS Fund
Services; formerly Senior Manager, KPMG Peat Marwick (1987-1994). Address: 3435
Stelzer Road, Columbus, OH 43219. Age: 34.
LEE SCHULTHEIS - Assitant Treasurer and Assistant Secretary. President, BISYS
Fund Distributors; formerly Managing Director, Forum Financial Group. Address:
One Chase Manhattan Plaza, Third Floor, New York, New York 10081. Age: 42.
RICHARD BAXT - Secretary, Senior Vice President, Client Services, BISYS Fund
Services; formerly General Manager of Investment and Insurance, First Fidelity
Bank, President of First Fidelity Brokers, and President of Citicorp Investment
Services. Address: 125 W. 55th Street, New York, NY 10019. Age 45.
VICKY M. HAYES - Assistant Secretary. Vice President and Global Marketing
Manager, Vista Fund Distributors, Inc.; formerly Assistant Vice President,
Alliance Capital Management and held various positions with J. & W. Seligman &
Co. Address: One Chase Manhattan Plaza, 3rd Fl., New York, NY 10081. Age 37.
ALAINA METZ - Assistant Secretary. Chief Administrative Officer, BISYS Fund
Services; formerly Supervisor, Blue Sky Deprartment, Alliance Capital
Management, L.P. Address 3435 Stelzer Road, Columbus, OH 43219. Age 31.
* Interested person as defined under the 1940 Act. Mr. Reid is not an interested
person of Growth & Income's investment advisor or principal underwriter, but may
be deemed an interested person of Growth & Income solely by reason of being an
officer of Growth & Income.
The Board of Trustees of the Trust presently has an Audit Committee. The
members of the Audit Committee are Messrs. Ten Haken (Chairman), Armstrong,
Eppley, MacCallan and Thode. The function of the Audit Committee is to recommend
independent auditors and monitor accounting and financial matters. The Audit
Committee met two times during the fiscal year ended October 31, 1998.
The board of Trustees has established an Investment Committee. The
members of the Investment Committee are Messrs. Vartabedian (President), Reid
and Spalding. The function of the Investment Committee is to review the
investment management process of Growth & Income.
The Trustees and officers of Growth & Income appearing above also serve
in the same capacities with respect to Mutual Fund Group, Mutual Fund Trust,
Mutual Fund Variable Annuity Trust, Mutual Fund Select Group, Mutual Fund Select
Trust, Capital Growth Portfolio and International Equity Portfolio.
Investment Adviser of Vista Portfolio
The Chase Manhattan Bank ("Chase") is a New York bank, located at 270
Park Avenue, New York, New York 10017, and serves as the investment adviser of
the Vista Portfolio pursuant to an investment advisory agreement, dated May 6,
1996. Chase is a commercial bank and a wholly-owned subsidiary of The Chase
Manhattan Corporation, a registered bank holding company.
Subject to policies of the Board of Trustees, Chase makes investment
decisions for the Vista Portfolio. Chase also provides the Vista Portfolio with
such investment advice and supervision as it deems necessary for the proper
supervision of the portfolio's investments. Chase provides investment programs
and determines what securities shall be purchased, sold or exchanged and what
portion the Vista Portfolio's assets shall be held uninvested.
Chase furnishes, at its own expense, all services, facilities and
personnel necessary in connection with managing the investments and effecting
portfolio transactions for Vista Portfolio. The advisory agreement for Vista
Portfolio will continue in effect from year to year if approved annually by the
Board of Trustees or by vote of a majority of the outstanding voting securities
of Vista Portfolio and, by a majority of the Trustees who are not parties to the
contract or interested persons of any such party.
Sub-Advisor
Chase has entered into an investment sub-advisory agreement dated as of
May 6, 1996 with Chase Asset Management, Inc. ("CAM"). CAM is located at 1211
Avenue of the Americas, New York, NY 10036. CAM makes decisions concerning, and
places all orders for, purchases and sales of securities and helps maintain the
records relating to such purchases and sales with respect to the day-to-day
management of the Vista Portfolio
CAM is a wholly-owned operating subsidiary of Chase. CAM is registered
with the Securities and Exchange Commission as an investment adviser and
provides discretionary investment advisory services to institutional clients,
and the same individuals who serve as portfolio managers for CAM also serve as
portfolio managers for Chase.
The advisory and sub advisory agreements are terminable without penalty
by the Vista Portfolio. No penalty will apply if the Vista Portfolio provides
not more than 60 days, nor less than 30 days, written notice authorized either
by a majority vote of the investors or a vote of a majority of the Board of
Trustees. The agreements are also terminable without penalty by Chase or CAM. No
penalty will apply if Chase or CAM provides not more than 60 days, nor less than
30 days, written notice. The agreements will automatically terminate in the
event of its "assignment" (as defined in the 1940 Act). The advisory agreements
provide that Chase and/or CAM shall not be liable for any error of judgment or
mistake of law or for any loss arising out of any investment or for any act or
omission. This limitation will not apply for willful misfeasance, bad faith or
gross negligence in the performance of its duties, or by reason of reckless
disregard of its obligations and duties.
Under the Advisory Agreement, Chase may utilize the specialized
portfolio skills of all its various affiliates, thereby providing greater
opportunities and flexibility in accessing investment expertise.
Advisory Fees of Vista Portfolio
In consideration of the services provided by Chase pursuant to the
advisory agreement with Vista Portfolio Chase will receive an investment
advisory fee computed and paid monthly based on an annual rate equal to .40% of
the average daily net assets. However, Chase may voluntarily agree to waive a
portion of the fees payable to it on a month-to-month basis. Out of its advisory
fees, Chase pays CAM a sub-advisory fee computed and paid monthly based on an
annual rate equal to .20% of the average daily net assets.
In consideration of the services Chase provides pursuant to an
administration agreement, Chase receives a fee computed and paid monthly at an
annual rate equal to 0.05% of the average daily net assets. Chase may
voluntarily waive a portion of the fees payable to it with respect to Growth &
Income on a month-to-month basis.
For the periods of November 1to October 31, for the fiscal years 1996,
1997 and 1998, Chase was paid $9,113,836, $11,112,601 and $12,783,768
respectively for the services it provided to the Portfolio.
Portfolio Transactions and Brokerage Allocation
Because the Portfolio invests all of its assets in the Vista Portfolio,
the information listed below on portfolio transactions and brokerage allocation
is based upon the actions of the Vista Portfolio. Specific decisions to purchase
or sell securities for the Vista Portfolio are made by a portfolio manager who
is an employee of Chase or CAM to the Vista Portfolio and who is appointed and
supervised by senior officers of Chase or CAM. Changes in the Vista Portfolio's
investments are reviewed by the Board of Trustees of the Vista Portfolio. The
portfolio managers may serve other clients of the advisers in a similar
capacity.
The frequency of the Vista Portfolio's portfolio transactions--the
portfolio turnover rate--will vary from year to year depending upon market
conditions. Because a high turnover rate may increase transaction costs and the
possibility of taxable short-term gains, the advisers will weigh the added costs
of short-term investment against anticipated gains. The Vista Portfolio will
engage in portfolio trading if its advisers believe a transaction, net of costs
(including custodian charges), will help it achieve its investment objective.
The Vista Portfolio applies this policy with respect to both the equity and debt
portions of its portfolio.
The portfolio turnover rates for the Vista Portfolio for the fiscal
years ended October 31, 1996, 1997 and 1998 were 62%, 65% and 113% respectively.
Under the advisory agreement and the sub-advisory agreement, Chase and
CAM use their best efforts to seek to execute portfolio transactions at prices
which, under the circumstances, result in total costs or proceeds being the most
favorable to the Vista Portfolio. In assessing the best overall terms available
for any transaction, Chase and CAM consider all factors they deem relevant,
including the breadth of the market in the security, the price of the security,
the financial condition and execution capability of the broker or dealer,
research services provided to Chase or CAMs, and the reasonableness of the
commissions, if any, both for the specific transaction and on a continuing
basis. The Vista Portfolio's adviser and sub-adviser are not required to obtain
the lowest commission or the best net price for the Vista Portfolio on any
particular transaction, and are not required to execute any order in a fashion
either preferential to the Vista Portfolio relative to other accounts they
manage or otherwise materially adverse to such other accounts.
Debt securities are traded principally in the over-the-counter market
through dealers acting on their own account and not as brokers. In the case of
securities traded in the over-the-counter market (where no stated commissions
are paid but the prices include a dealer's markup or markdown), the Vista
Portfolio's adviser or sub-adviser normally seeks to deal directly with the
primary market makers unless, in its opinion, best execution is available
elsewhere. In the case of securities purchased from underwriters, the cost of
such securities generally includes a fixed underwriting commission or
concession. From time to time, soliciting dealer fees are available to Chase or
CAM on the tender of the Vista Portfolio's portfolio securities in so-called
tender or exchange offers. Such soliciting dealer fees are in effect recaptured
for the Vista Portfolio by Chase and CAM. At present, no other recapture
arrangements are in effect.
Under the advisory and sub-advisory agreements and as permitted by
Section 28(e) of the Securities Exchange Act of 1934, Chase or CAM may cause the
Vista Portfolio to pay a broker-dealer which provides brokerage and research
services to Chase or CAM, the Vista Portfolio and/or other accounts for which
they exercise investment discretion an amount of commission for effecting a
securities transaction for the Vista Portfolio in excess of the amount other
broker-dealers would have charged for the transaction if they determine in good
faith that the greater commission is reasonable in relation to the value of the
brokerage and research services provided by the executing broker-dealer viewed
in terms of either a particular transaction or their overall responsibilities to
accounts over which they exercise investment discretion. Not all of such
services are useful or of value in advising the Vista Portfolio. Chase and CAM
report to the Board of Trustees regarding overall commissions paid by the Vista
Portfolio and their reasonableness in relation to the benefits to the Vista
Portfolio. The term "brokerage and research services" includes advice as to the
value of securities, the advisability of investing in, purchasing or selling
securities, and the availability of securities or of purchasers or sellers of
securities, furnishing analyses and reports concerning issues, industries,
securities, economic factors and trends, portfolio strategy and the performance
of accounts, and effecting securities transactions and performing functions
incidental thereto such as clearance and settlement.
The management fees that the Vista Portfolio pays to Chase will not be
reduced as a consequence of Chase's or CAM's receipt of brokerage and research
services. To the extent the Vista Portfolio's portfolio transactions are used to
obtain such services, the brokerage commissions paid by the Vista Portfolio will
exceed those that might otherwise be paid by an amount which cannot be presently
determined. Such services generally would be useful and of value to Chase or
CAMs in serving one or more of their other clients and, conversely, such
services obtained by the placement of brokerage business of other clients
generally would be useful to Chase and CAM in carrying out their obligations to
the Vista Portfolio. While such services are not expected to reduce the expenses
of Chase or CAMs, Chase would, through use of the services, avoid the additional
expenses which would be incurred if they should attempt to develop comparable
information through their own staffs.
In certain instances, there may be securities that are suitable for one
or more of the Vista Portfolio as well as one or more of Chase's or CAM's other
clients. Investment decisions for the Vista Portfolio and for other clients are
made with a view to achieving their respective investment objectives. It may
develop that the same investment decision is made for more than one client or
that a particular security is bought or sold for only one client even though it
might be held by, or bought or sold for, other clients. Likewise, a particular
security may be bought for one or more clients when one or more clients are
selling that same security. Some simultaneous transactions are inevitable when
several clients receive investment advice from the same investment adviser,
particularly when the same security is suitable for the investment objectives of
more than one client. When two or more portfolios or other clients are
simultaneously engaged in the purchase or sale of the same security, the
securities are allocated among clients in a manner believed to be equitable to
each. It is recognized that in some cases this system could have a detrimental
effect on the price or volume of the security as far as the Vista Portfolio are
concerned. However, it is believed that the ability of the Vista Portfolio to
participate in volume transactions will generally produce better executions for
the Vista Portfolio.
No portfolio transactions are executed with Chase or CAM or a Vista
Portfolio shareholder servicing agent, or with any affiliate of Chase or CAM or
a Vista Portfolio shareholder servicing agent, acting either as principal or as
broker.
PURCHASE REDEMPTION AND PRICING OF SHARES
Purchase and Redemption of Shares. The Prospectus fully describes how shares of
the Portfolio may be purchased and redeemed. That disclosure is incorporated by
reference into this SAI. Please read the Prospectus carefully.
Pricing of Shares. The net asset value of the Portfolio is determined in the
manner described in the Prospectus. The Portfolio invests all of its assets in
the Vista Portfolio which values its shares as also described in the Prospectus.
INVESTMENT PERFORMANCE
Standardized Average Annual Total Return Quotations. Average annual total return
quotations for shares of the Portfolio are computed by finding the average
annual compounded rates of return that would cause a hypothetical investment
made on the first day of a designated period to equal the ending redeemable
value of such hypothetical investment on the last day of the designated period
in accordance with the following formula:
P(I+T)n = ERV
Where: P = a hypothetical initial payment of $1,000
T = average annual total return
n = number of years
ERV = ending redeemable value of the hypothetical $
1,000 initial payment made at the beginning of the
designated period (or fractional portion thereof)
The computation above assumes that all dividends and distributions made
by the Portfolio are reinvested at net asset value during the designated period.
The average annual total return quotation is determined to the nearest 1/100 of
1%.
One of the primary methods used to measure performance is "total
return." Total return will normally represent the percentage change in value of
the Portfolio, or of a hypothetical investment in the Portfolio, over any period
up to the lifetime of the Portfolio. Unless otherwise indicated, total return
calculations will usually assume the reinvestment of all dividends and capital
gains distributions and will be expressed as a percentage increase or decrease
from an initial value, for the entire period or for one or more specified
periods within the entire period.
Total return percentages for periods longer than one year will usually
be accompanied by total return percentages for each year within the period
and/or by the average annual compounded total return for the period. The income
and capital components of a given return may be separated and portrayed in a
variety of ways in order to illustrate their relative significance. Performance
may also be portrayed in terms of cash or investment values, without
percentages. Past performance cannot guarantee any particular result. In
determining the average annual total return (calculated as provided above),
recurring fees, if any, that are charged to all shareholder accounts are taken
into consideration.
The Portfolio's average annual total return quotations and yield
quotations as they may appear in the Prospectus, this Statement of Additional
Information or in advertising are calculated by standard methods prescribed by
the SEC.
The Portfolio may also publish its distribution rate and/or its
effective distribution rate. The Portfolio's distribution rate is computed by
dividing the most recent monthly distribution per share annualized, by the
current net asset value per share. The Portfolio's effective distribution rate
is computed by dividing the distribution rate by the ratio used to annualize the
most recent monthly distribution and reinvesting the resulting amount for a full
year on the basis of such ratio. The effective distribution rate will be higher
than the distribution rate because of the compounding effect of the assumed
reinvestment. The Portfolio's yield is calculated using a standardized formula.
The income component of the formula is computed from the yields to maturity of
all debt obligations held by the Portfolio based on prescribed methods (with all
purchases and sales of securities during such period included in the income
calculation on a settlement date basis). The distribution rate on the other hand
is based on the Portfolio's last monthly distribution. The Portfolio's monthly
distribution tends to be relatively stable and may be more or less than the
amount of net investment income and short- term capital gain actually earned by
the Portfolio during the month.
Other data that may be advertised or published about the Portfolio
include the average portfolio quality, the average portfolio maturity and the
average portfolio duration.
Standardized Yield Quotations. The yield of the Portfolio is computed by
dividing the Portfolio's net investment income per share during a base period of
30 days, or one month, by the maximum offering price per share on the last day
of such base period in accordance with the following formula:
2[( a - b + 1 )6 - 1 ]
(cd)
Where: a = net investment income earned during the period
b = net expenses accrued for the period
c = the average daily number of shares outstanding during
the period that were entitled to receive dividends
d = the maximum offering price per share
Net investment income will be determined in accordance with rules established by
the SEC.
Calculation of Total Return. Total return is a measure of the change in value of
an investment in the Portfolio over the time period covered . In calculating
total return, any dividends or capital gains distributions are assumed to have
been reinvested in the Portfolio immediately rather than paid to the investor in
cash. The formula for total return includes four steps (1) adding to the total
number of shares purchased by a hypothetical $1,000 investment in the Portfolio
all additional shares which would have been purchased if all dividends and
distributions paid or distributed during the period had been immediately
reinvested; (2) calculating the value of they hypothetical initial investment of
$1,000 as of the end of the period by multiplying the total number of shares
owned at the end of the period by the net asset value per share on the last
trading day of the period; (3) assuming redemption at the end of the period and
deducting any applicable contingent deferred sales charge; and (4) dividing this
account value for the hypothetical investor by the initial $1,000 investment.
Total return will be calculated for one year, five years and ten years or some
other relevant periods if the Portfolio has not been in existence for at least
ten years.
FORMULA: P(1+T) to the power of N = ERV
WHERE: T = Average annual total return
N = The number of years including portions of years where
applicable for which the performance is being measured
ERV = Ending redeemable value of a hypothetical $1.00 payment made a
the inception of the portfolio
P = Opening redeemable value of a hypothetical $1.00 payment made at
the inception of the portfolio
The above formula can be restated to solve for T as follows:
T = [(ERV/P) to the power of 1/N]-1
Performance Comparisons
Performance information contained in reports to shareholders,
advertisement, and other promotional materials may be compared to that of
various unmanaged indexes. These indexes may assume the reinvestment of
dividends, but generally do not reflect deductions for operating expenses.
Advertisements quoting performance rankings of the Portfolio as measured
by financial publications or by independent organizations such as Lipper
Analytical Services, Inc. and Morning Star, Inc., and advertisements presenting
the Portfolio's the historical performance, may form time to time be sent to
investors or placed in newspapers and magazines such as The New York Times, The
Wall Street Journal, Barons, Investor's Daily, Money Magazine, Changing Times,
Business Week and Forbes or any other media on behalf of the Portfolio.
DIVIDENDS, DISTRIBUTIONS AND TAXES
The following is only a summary of certain tax considerations generally
affecting the Portfolio and its shareholders that are not described in the
Prospectus. No attempt is made to present a detailed explanation of the tax
treatment of the Fund or its shareholders, and this discussion is not intended
as a substitute for careful tax planning.
Qualification as a Regulated Investment Company
The Internal Revenue Code of 1986, as amended (the "Code"), provides
that each investment portfolio of a series investment company is to be treated
as a separate corporation. Accordingly, the Portfolio will seek to be taxed as a
regulated investment company under Subchapter M of the Code. As a regulated
investment company, the Portfolio will not be subject federal income tax on the
portion of its net investment income (i.e., its taxable interest, dividends and
other taxable ordinary income, net of expenses) and net realized capital gain
(i.e., the excess of capital gains over capital losses) that it distributes to
shareholders, provided that it distributes at least 90% of its investment
company taxable income (i.e., net investment income and the excess of net
short-term capital gain over net long-term capital loss) and at least 90% of its
tax-exempt income (net of expenses allocable thereto) for the taxable year (the
"Distribution Requirement"), and satisfies certain other requirements of the
Code that are described below. The Portfolio will be subject to tax at regular
corporate rates on any income or gains that it does not distribute.
Distributions by a Fund made during the taxable year or, under specified
circumstances, within one month after the close of the taxable year, will be
considered distributions of income and gains of the taxable year and can
therefore satisfy the Distribution Requirement.
In addition to satisfying the Distribution Requirement, the Portfolio
must derive at least 90% of its gross income from dividends, interest, certain
payments with respect to securities loans, gains from the sale or other
disposition of stock or securities or foreign currencies (to the extent such
currency gains are ancillary to the Portfolio's principal business of investing
in stock and securities) and other income (including but not limited to gains
from options, futures or forward contracts) derived with respect to its business
of investing in such stock, securities, currencies (the "Income Requirement").
Certain debt securities purchased by the Portfolio (such as zero-coupon
bonds) may be treated for federal income tax purposes as having original issue
discount. Original issue discount, generally defined as the excess of the stated
redemption price at maturity over the issue price, is treated as interest for
Federal income tax purposes. Whether or not the Portfolio actually receives
cash, it is deemed to have earned original issue discount income that is subject
to the distribution requirements of the Code. Generally, the amount of original
issue discount included in the income of the Portfolio each year is determined
on the basis of a constant yield to maturity that takes into account the
compounding of accrued interest.
In addition, the Portfolio may purchase debt securities at a discount
that exceeds any original issue discount that remained on the securities at the
time the Portfolio purchased the securities. This additional discount represents
market discount for income tax purposes. Treatment of market discount varies
depending upon the maturity of the debt security and the date on which it was
issued. For a debt security issued after July 18, 1984 having a fixed maturity
date or more than six months from the date of issue and having market discount,
the gain realized on disposition will be treated as interest to the extent it
does not exceed the accrued market discount on the security (unless the
Portfolio elects for all its debt securities having a fixed maturity date or
more than one year from the date of issue to include market discount in income
in taxable years to which it is attributable). Generally, market discount
accrues on a daily basis. For any debt security issued on or before July 18,
1984 (unless the Portfolio makes the election to include market discount in
income currently), or any debt security having a fixed maturity date of not more
than six months from the date of issue, the gain realized on disposition will be
characterized as long-term or short-term capital gain depending on the period
the Portfolio held the security. The Portfolio may be required to capitalize,
rather than deduct currently, part of all of any net direct interest expense on
indebtedness incurred or continued to purchase or carry any debt security having
market discount (unless the Portfolio makes the election to include market
discount in income currently).
If for any taxable year the Portfolio does not qualify as a regulated
investment company, all of its taxable income (including its net capital gain)
will be subject to tax at regular corporate rates without any deduction for
distributions to shareholders, and such distributions will be taxable as
ordinary dividends to the extent of the current and accumulated earnings and
profits of the Portfolio. In such event, such distributions generally will be
eligible for the dividends-received deductions in the case of corporate
shareholders.
If the Portfolio were to fail to qualify as a RIC for one or more
taxable years, the Portfolio could then qualify (or requalify) as a RIC for
subsequent taxable year only if the Portfolio had distributed to the Portfolio's
shareholders a taxable dividend equal to the full amount of any earnings or
profits (less the interest charge mentioned below, if applicable) attributable
to such period. The Portfolio might also be required to pay to the U.S. Internal
Revenue Service interest on 50% of such accumulated earnings and profits. In
addition, pursuant to the Code and an interpretative notice issued by the IRS,
if the Portfolio should fail to qualify as a RIC and should thereafter seek to
requalify as a RIC, the Portfolio may be subject to tax on the excess (if any)
of the fair market of the Portfolio's assets over the Portfolio's basis in such
assets, as of the day immediately before the first taxable year for which the
Portfolio seeks to requalify as a RIC.
If the Portfolio determines that the Portfolio will not qualify as a RIC
under Subchapter M of the Code, the Portfolio will establish procedures to
reflect the anticipated tax liability in the Portfolio's net asset value.
Excise Tax on Regulated Investment Companies
A 4% non-deductible excise tax is imposed on regulated investment
companies that fail to distribute in each calendar year an amount equal to 98%
of ordinary taxable income for the calendar year and 98% of capital gain net
income for the one-year period ended on October 31 of such calendar year. The
balance of such income must be distributed during the next calendar year. For
the foregoing purposes, a regulated investment company is treated as having
distributed any amount on which it is subject to income tax for any taxable year
ending in such calendar year.
U.S. Treasury regulations may permit a regulated investment company, in
determining its investment company taxable income and undistributed net capital
for any taxable year, to treat any capital loss incurred after October 31 as if
it had been incurred in the succeeding year. For purposes of the excise tax, a
regulated investment company may: (I) reduce its capital gain net income by the
amount of any net ordinary loss for any calendar year; and (ii) exclude foreign
currency gains and losses incurred after October 31 of any year in determining
the amount of ordinary taxable income for the current calendar year (and,
instead, include such gains and losses in determining ordinary taxable income
for the succeeding calendar year).
The Portfolio intends to make sufficient distributions or deemed
distributions of its ordinary taxable income and capital gain net income prior
to the end of each calendar year to avoid liability for the excise tax. However,
investors should note that the Portfolio may in certain circumstances be
required to liquidate portfolio investments to make sufficient distributions to
avoid excise tax liability.
Distributions
The Portfolio anticipates distributing substantially all of its
investment company taxable income for each taxable year. Such distributions will
be taxable to shareholders as ordinary income and treated as dividends for
federal income tax purposes, but they will generally not qualify for the 70%
dividends-received deduction for corporations.
The Portfolio may either retain or distribute to shareholders the
Portfolio's net capital gain (i.e., the excess of net long-term capital gain
over net short-term capital loss) for each taxable year. The Portfolio currently
intends to distribute any such amounts. If net capital gain is distributed and
designated as a capital gain dividend, it will be taxable to shareholders as
long-term capital gain, regardless of the length of time the shareholder has
held his or her shares or whether such gain was recognized by the Portfolio
prior to the date on which the shareholder acquired his or her shares.
Conversely, if the Portfolio elects to retain net capital gain, it will be taxed
thereon (except to the extent of any available capital loss carryovers) at the
then current applicable corporate tax rate. If the Portfolio elects to retain
its net capital gain, it is expected the Portfolio will also elect to have
shareholders treated as having received a distribution of such gain, with the
result that the shareholders will be required to report their respective shares
of such gain on their returns as long-term capital gain, will receive a
refundable tax credit for their allocable share of tax paid by the Portofolio on
the gain, and will increase the tax basis for their shares by an amount equal to
the deemed distribution less the tax credit.
Investors should be careful to consider the tax implications of
purchasing shares just prior to the next dividend date of any ordinary income
dividend or capital gain dividend. Those purchasing just prior to an ordinary
income dividend or capital gain dividend will be taxed on the entire amount of
the dividend received, even though the net asset value per share on the date of
such purchase reflected the amount of such dividend.
Distributions by the Portfolio that do not constitute ordinary income
dividends or capital gain dividends will be treated as a return of capital to
the extent of (and will reduce) the shareholder's tax basis in his or her
shares; any excess will be treated as gain from the sale of his or her shares,
as discussed below.
Distributions by the Portfolio will be treated in the manner described
above regardless of whether such distributions are paid in cash or reinvested in
additional shares of the Portfolio. Shareholders receiving a distribution in the
form of additional shares will be treated as receiving a distribution in an
amount equal to the fair market value of the shares received, determined as of
the reinvestment date. Ordinarily, shareholders are required to take
distributions by the Portfolio into account in the year in which the
distributions are made. However, distributions declared in October, November or
December of any year and payable to shareholders of record on a specified date
in such month will be deemed to have been received by the shareholders (and made
by the Portfolio) on December 31, of such calendar year if such distributions
are actually made in January of the following year. Shareholders will be advised
annually as to the U.S. federal income tax consequences of distributions made
(or deemed made) during the year.
Sale or Redemption of Fund Shares
A shareholder will recognize gain or loss on the sale or redemption of
shares in an amount equal to the difference between the proceeds of the sale or
redemption and the shareholder's adjusted tax basis in the shares. In general,
any gain or loss arising from (or treated as arising from) the sale or
redemption of shares of the Portfolio will be considered capital gain or loss
and will be long-term capital gain or loss if the shares were held for longer
than 18 months. However, any capital loss arising from the sale or redemption of
shares held for six months or less will be disallowed to the extent of the
amount of exempt-interest dividends received on such shares and (to the extent
not disallowed) will be treated as long-term capital loss to the extent of the
amount of capital gain dividends received on such shares. For this purpose,
special holding period rules provided in Code Section 246(c)(3) and (4)
generally will apply in determining the holding period of shares. For
shareholders who are individuals, long term capital gains (those arising from
sales of assets held for more than 18 months) are currently taxed at rates of
10-20%; mid-term gains (those arising from sales of assets for more than 12
months) are currently taxed at the same rate as the individual's ordinary
income, subject to a maximum rate of 28 percent and the deduction of capital
losses is subject to limitation. Each January, the Portfolio will provide to
each investor and to the IRS a statement showing the tax characterization of
distributions paid during the prior year.
Backup Withholding
The Portfolio will be required in certain cases to withhold and remit to
the U.S. Treasury 31% of ordinary income dividends and capital gain dividends,
and the proceeds of redemption of shares, paid to any shareholder (i) who has
provided either an incorrect tax identification number or no number at all, (ii)
who is subject to backup withholding by the Internal Revenue Service for failure
to report the receipt of interest or dividend income properly, or (iii) who has
failed to certify to the Portfolio that it is not subject to backup withholding
or that it is a corporation or other "exempt recipient." The Portfolio also
reserves the right to close accounts that fail to provide a certified tax
identification number, by redeeming such accounts in full at the current net
asset value.
Effect of Future Legislation; Local Tax Considerations
The foregoing general discussion of U.S. federal income tax consequences
is based on the Code and the regulations issued thereunder as in effect on the
date of this Statement of Additional Information. Future legislative or
administrative changes or court decisions may significantly change the
conclusions expressed herein, and any such changes or decisions may have a
retroactive effect with respect to the transactions contemplated herein.
Rules of state and local taxation of ordinary income dividends and
capital gain dividends from regulated investment companies often differ from the
rules for U.S. federal income taxation described above. Shareholders are urged
to consult their tax advisers as to the consequences of these and other state
and local tax rules affecting investments in the Funds.
OTHER INFORMATION
Voting Rights
The shares of the Portfolio have no preemptive or conversion rights.
Voting and dividends rights, the right or redemption, and exchange privileges
are described in the Prospectus. Shares are fully paid and nonassessable. The
Fund or any portfolio may be terminated upon the sale of its assets to another
investment company (as defined in the Investment Company Act of 1940, as
amended), or upon liquidation and distribution of its assets, if approved by
vote of the holders of a majority of the outstanding shares of the Fund or the
Portfolio. If not so terminated, the Fund or the Portfolio will continue
indefinitely.
Custodian
The Bank of New York, One Wall Street, New York, New York 10286, is
custodian of the Fund's assets. The custodian is responsible for the safekeeping
of a portfolio's assets and the appointment of the subcustodian banks and
clearing agencies. The custodian takes no part in determining the investment
policies of a portfolio or in deciding which securities are purchased or sold by
a portfolio. However, a portfolio may invest in obligations of the custodian and
may purchase securities from or sell securities to the custodian.
Independent Auditors
Deloitte & Touche LLP, 555 17th Street, Suite 3600, Denver, Colorado 80202,
serves as the Fund's independent auditors. Deloitte & Touche LLP audits the
financial statements for the Fund and provides other audit, tax, and related
services.
FINANCIAL STATEMENTS
The Portfolio's audited financial statements as of October 31, 1998, together
with the notes thereto and the report of Deloitte & Touche LLP are incorporated
by reference to Registrant's N-30D filed via EDGAR on December 30, 1998.
<PAGE>
APPENDIX
Corporate Bond Ratings by Moody's Investors Service, Inc.
Aaa - Bonds which are rated Aaa are judged to be of the best quality.
They carry the smallest degree of investment risk and are generally referred to
as "gilt 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.
Aa - Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally known as
high-grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities or fluctuation of protective
elements may be of greater amplitude or there may be other elements present
which make the long-term risks appear somewhat larger than in Aaa securities.
A - Bonds which are rated A possess many favorable investment attributes
and are to be considered as upper medium-grade obligations. Factors giving
security to principal and interest are considered adequate but elements may be
present which suggest a susceptibility to impairment sometime in the future.
Baa - Bonds which are rated Baa are considered as medium grade
obligations, i.e., they are neither highly protected nor poorly secured.
Interest payments and principal security appear adequate for the present but
certain protective elements may be lacking or may be characteristically
unreliable over any great length of time. Such bonds lack outstanding investment
characteristics and in fact have speculative characteristics as well.
Ba - Bonds which are rated Ba are judged to have speculative elements;
their future cannot be considered as well-assured. Often the protection of
interest and principal payments may be very moderate, and thereby not well
safeguarded during both good and bad times over the future. Uncertainty of
position characterizes bonds in this class.
B - Bonds where 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.
Corporate Bonds Ratings by Standard & Poor's Corporation
AAA - This is the highest rating assigned by Standard & Poor's to a debt
obligation and indicates an extremely strong capacity to pay principal and
interest.
AA - Bonds rated AA also qualify as high-quality debt obligations.
Capacity to pay principal and interest is very strong, and in the majority of
instances they differ from AAA issues only in a small degree.
A - Bonds rated A have a strong capacity to pay principal and interest,
although they are somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions.
BBB - Bonds rated BBB are regarded as having an adequate capacity to pay
principal and interest. Whereas they normally exhibit protection parameters,
adverse economic conditions or changing circumstances are more likely to lead to
a weakened capacity for bonds rated BBB than for bonds in the A category.
BB & B - Standard & Poor's describes the BB and B rated issues together
with issues rated CCC and CC. Debt in these categories is regarded on balance as
predominantly speculative with respect to 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 debt will likely have some quality and protective characteristics, these
are outweighed by large uncertainties or major risk exposures to adverse
conditions.
Commercial Paper Ratings by Moody's Investors Service, Inc.
Prime-1 - Commercial Paper issuers rated Prime-1 are judged to be of the
best quality. 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 term, such changes are most unlikely to impair the
fundamentally strong position of short-term obligations.
Prime-2 - Issuers in the Commercial Paper market rated Prime-2 are high
quality. Protection for short-term holders is assured with liquidity and value
of current assets as well as cash generation in sound relationship to current
indebtedness. They are rated lower than the best commercial paper issuers
because margins of protection may not be as large or because fluctuations of
protective elements over the near or immediate term may be of greater amplitude.
Temporary increases in relative short and overall debt load may occur.
Alternative means of financing remain assured.
Prime-3 - Issuers in the Commercial Paper market rated Prime-3 have an
acceptable capacity for repayment of short-term promissory obligations. The
effect of industry characteristics and market composition may be more
pronounced. Variability in earning and profitability may result in changes in
the level of debt protection measurements and the requirement for relatively
high financial leverage. Adequate alternate liquidity is maintained.
Commercial Paper Ratings by Standard & Poor's Corporation
A - Issuers assigned this highest rating are regarded as having the
greatest capacity for timely payment. Issuers in this category are further
refined with the designation 1, 2 and 3 to indicate the relative degree of
safety.
A-1 - This designation indicates that the degree of safety regarding
timely payment is very strong.
A-2 - Capacity for timely payment for issuers with this designation is
strong. However, the relative degree of safety is not as overwhelming as for
issues designated "A-1".
A-3 - Issuers carrying this designation have a satisfactory capacity for
timely payment. They are, however, somewhat more vulnerable to the adverse
effects of changes in circumstances than obligations carrying the higher
designation.
<PAGE>
APPENDIX A
DESCRIPTION OF CERTAIN OBLIGATIONS
ISSUED OR GUARANTEED BY U.S. GOVERNMENT
AGENCIES OR INSTRUMENTALITIES
Federal Farm Credit System Notes and Bonds--are bonds issued by a cooperatively
owned nationwide system of banks and associations supervised by the Farm Credit
Administration, an independent agency of the U.S. Government. These bonds are
not guaranteed by the U.S.
Government.
Maritime Administration Bonds--are bonds issued and provided by the Department
of Transportation of the U.S. Government are guaranteed by the U.S. Government.
FNMA Bonds--are bonds guaranteed by the Federal National Mortgage Association.
These bonds are not guaranteed by the U.S. Government.
FHA Debentures--are debentures issued by the Federal Housing Administration of
the U.S. Government and are guaranteed by the U.S. Government.
FHA Insured Notes--are bonds issued by the Farmers Home Administration of the
U.S. Government and are guaranteed by the U.S. Government.
GNMA Certificates--are mortgage-backed securities which represent a partial
ownership interest in a pool of mortgage loans issued by lenders such as
mortgage bankers, commercial banks and savings and loan associations. Each
mortgage loan included in the pool is either insured by the Federal Housing
Administration or guaranteed by the Veterans Administration and therefore
guaranteed by the U.S. Government. As a consequence of the fees paid to GNMA and
the issuer of GNMA Certificates, the coupon rate of interest of GNMA
Certificates is lower than the interest paid on the VA-guaranteed or FHA-insured
mortgages underlying the Certificates. The average life of a GNMA Certificate is
likely to be substantially less than the original maturity of the mortgage pools
underlying the securities. Prepayments of principal by mortgagors and mortgage
foreclosures may result in the return of the greater part of principal invested
far in advance of the maturity of the mortgages in the pool. Foreclosures impose
no risk to principal investment because of the GNMA guarantee. As the prepayment
rate of individual mortgage pools will vary widely, it is not possible to
accurately predict the average life of a particular issue of GNMA Certificates.
The yield which will be earned on GNMA Certificates may vary from their coupon
rates for the following reasons: (i) Certificates may be issued at a premium or
discount, rather than at par; (ii) Certificates may trade in the secondary
market at a premium or discount after issuance; (iii) interest is earned and
compounded monthly which has the effect of raising the effective yield earned on
the Certificates; and (iv) the actual yield of each Certificate is affected by
the prepayment of mortgages included in the mortgage pool underlying the
Certificates. Principal which is so prepaid will be reinvested although possibly
at a lower rate. In addition, prepayment of mortgages included in the mortgage
pool underlying a GNMA Certificate purchased at a premium could result in a loss
to a Fund. Due to the large amount of GNMA Certificates outstanding and active
participation in the secondary market by securities dealers and investors, GNMA
Certificates are highly liquid instruments. Prices of GNMA Certificates are
readily available from securities dealers and depend on, among other things, the
level of market rates, the Certificate's coupon rate and the prepayment
experience of the pool of mortgages backing each Certificate. If agency
securities are purchased at a premium above principal, the premium is not
guaranteed by the issuing agency and a decline in the market value to par may
result in a loss of the premium, which may be particularly likely in the event
of a prepayment. When and if available, U.S. Government obligations may be
purchased at a discount from face value.
FHLMC Certificates and FNMA Certificates--are mortgage-backed bonds issued by
the Federal Home Loan Mortgage Corporation and the Federal National Mortgage
Association, respectively, and are guaranteed by the U.S. Government.
GSA Participation Certificates--are participation certificates issued by the
General Services Administration of the U.S. Government and are guaranteed by the
U.S. Government.
New Communities Debentures--are debentures issued in accordance with the
provisions of Title IV of the Housing and Urban Development Act of 1968, as
supplemented and extended by Title VII of the Housing and Urban Development Act
of 1970, the payment of which is guaranteed by the U.S. Government.
Public Housing Bonds--are bonds issued by public housing and urban renewal
agencies in connection with programs administered by the Department of Housing
and Urban Development of the U.S. Government, the payment of which is secured by
the U.S. Government.
Penn Central Transportation Certificates--are certificates issued by Penn
Central Transportation and guaranteed by the U.S. Government.
SBA Debentures--are debentures fully guaranteed as to principal and interest by
the Small Business Administration of the U.S. Government.
Washington Metropolitan Area Transit Authority Bonds--are bonds issued by the
Washington Metropolitan Area Transit Authority. Some of the bonds issued prior
to 1993 are guaranteed by the U.S. Government.
FHLMC Bonds--are bonds issued and guaranteed by the Federal Home Loan Mortgage
Corporation. These bonds are not guaranteed by the U.S. Government.
Federal Home Loan Bank Notes and Bonds--are notes and bonds issued by the
Federal Home Loan Bank System and are not guaranteed by the U.S. Government.
Student Loan Marketing Association ("Sallie Mae") Notes and bonds--are notes and
bonds issued by the Student Loan Marketing Association and are not guaranteed by
the U.S.
Government.
D.C. Armory Board Bonds--are bonds issued by the District of Columbia Armory
Board and are guaranteed by the U.S. Government.
Export-Import Bank Certificates--are certificates of beneficial interest and
participation certificates issued and guaranteed by the Export-Import Bank of
the U.S. and are guaranteed by the U.S. Government.
In the case of securities not backed by the "full faith and credit" of the U.S.
Government, the investor must look principally to the agency issuing or
guaranteeing the obligation for ultimate repayment, and may not be able to
assert a claim against the U.S. Government itself in the event the agency or
instrumentality does not meet its commitments.
Investments may also be made in obligations of U.S. Government agencies or
instrumentalities other than those listed above.
<PAGE>
PART C
OTHER INFORMATION
<PAGE>
C-1
Item 22. Financial Statements
The financial statements are incorporated by referenced to
Registrant's N-30D filed via EDGAR on December 30, 1998.
Item 23. Exhibits
Items (a)-(b), (i) and (l) are incorporated by reference to
Registrant's Pre Effective Amendment No. 1 to its Registration
Statement dated March 10, 1982.
Items (c), (e)-(f), (h), (k), (m) and (o) are not applicable
Item (d) - is incorporated by reference to Registrant's Post
Effective Amendment No. 53 to its Registration Statement dated
September 5, 1997.
Item (g) - is incorporated by reference to Registrant's Post
Effective Amendment No. 24 to its Registration Statement dated
March 1, 1993.
Item (j) - written consent of Deloitte & Touche LLP, Independent
Auditors for the Fund, is attached hereto.
Item (n) is incorporated by reference to Registrant's N-30D filed
via EDGAR on December 30, 1998.
Item 24. Persons Controlled by or under Common Control with Registrant.
See page C-2.
Item 25. Indemnification.
Item 4, Part II of Registrant's Pre-Effective Amendment No. 1 to its
Registration Statement is herein incorporated by reference.
<PAGE>
ORGANIZATIONAL CHART
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Power Corporation of Canada
100% - 2795957 Canada Inc.
100% - 171263 Canada Inc.
67.7% - Power Financial Corporation
81.2% - Great-West Lifeco Inc.
99.5% - The Great-West Life Assurance Company 100% - GWL&A Financial
(Nova Scotia) Inc.
100% - GWL&A Financial Inc.
100% - Great-West Life & Annuity Insurance Company
100% - First Great-West Life & Annuity Insurance
Company
100% - GW Capital Management, LLC 100%
- Orchard Capital Management, LLC
100% - Greenwood Investments,
Inc.
100% - Financial Administrative Services Corporation
100% - One Corporation
100% - One Health Plan of Arizona, Inc.
100% - One Health Plan of Illinois, Inc.
100% - One Health Plan of Texas, Inc.
100% - One Health Plan of California, Inc.
100% - One Health Plan of Colorado, Inc.
100% - One Health Plan of Georgia, Inc.
100% - One Health Plan of North Carolina, Inc.
100% - One Health Plan of South Carolina, Inc.
100% - One Health Plan of Washington, Inc.
100% - One Health Plan of Ohio, Inc.
100% - One Health Plan of Tennessee, Inc.
100% - One Health Plan of Oregon, Inc.
100% - One Health Plan of Florida, Inc.
100% - One Health Plan of Indiana, Inc.
100% - One Health Plan of Massachusetts, Inc.
100% - One Health Plan of Maine, Inc.
100% - One Health Plan of New Jersey, Inc.
100% - One Health Plan of New Hampshire, Inc.
100% - One Health Plan of Pennsylvania, Inc.
100% - One Health Plan, Inc. (Vermont)
100% - One Orchard Equities, Inc.
100% - Great-West Benefit Services, Inc.
100% - Benefits Communication
Corporation 100% - BenefitsCorp
Equities, Inc.
95% - Maxim Series Fund, Inc.* 100% -
Greenwood Property Corporation 100% - GWL
Properties Inc.
100% - Great-West Realty Investments Inc.
50% - Westkin Properties, Ltd.
92% - Orchard Series Fund**
* New England Life Insurance Company - 5%
** New England Life Insurance Company - 8%
</TABLE>
<PAGE>
Item 26. Business and Other Connections of Investment Adviser.
Registrant's investment adviser, GW Capital Management, LLC ("GW Capital
Management"), is a wholly-owned subsidiary of Great-West Life & Annuity
Insurance Company ("GWL&A"), which is a wholly-owned subsidiary of The
Great-West Life Assurance Company. GW Capital Management provides investment
advisory services to various unregistered separate accounts of GWL&A and to
Great-West Variable Annuity Account A and the Maxim Series Fund, Inc., which are
registered investment companies. The directors and officers of GW Capital
Management have held, during the past two fiscal years, the following positions
of a substantial nature.
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Name Position(s)
- ---- -----------
John T. Hughes Director, Chairman of the Board and
President, GW Capital Management; Senior Vice
President and Chief Investment Officer (U.S.
Operations), Great-West; Senior Vice President,
Chief Investment Officer, GWL&A; Chairman of the
Board, GWL Properties Inc.
Wayne Hoffmann Director, GW Capital Management; Vice President, Investments,
Great-West and GWL&A.
Mark S. Hollen Director, GW Capital Management; Vice
President, Financial Services, Great-West and
GWL&A; Chief Operating Officer, Financial
Administrative Services Corporation.
James M. Desmond Vice President, GW Capital Management; Assistant Vice
President, Investments, Great-West and GWL&A.
David G. McLeod Treasurer, GW Capital Management; Assistant Vice President,
Investment Administration, Great-West, GWL&A and Financial
Administrative Services Corporation.
Beverly A. Byrne Secretary, GW Capital Management; Assistant Counsel,
Great-West; Assistant Counsel and Assistant Secretary, GWL&A;
Assistant Counsel and Secretary, Financial Administrative
Services Corporation; Secretary, One Orchard Equities, Inc.,
Confed Admin Services, Inc., BenefitsCorp Equities, Inc.,
Great-West Variable Annuity Account A, and Maxim Series Fund,
Inc.; Assistant Secretary, Benefits Communication Corporation,
One Corporation and Great-West Benefit Services, Inc.
Item 27. Principal Underwriter.
(a) Not applicable.
(b) Not applicable.
(c) Not applicable.
</TABLE>
Item 28.Location of Accounts and Records.
All accounts, books, and other documents required to be maintained by Section
31(a) of the Investment Company Act of 1940 and the rules promulgated thereunder
are maintained in the physical possession of: Maxim Series Fund, Inc., 8515 East
Orchard Road, Englewood, Colorado 80111; GW Capital Management, LLC, 8515 East
Orchard Road, Englewood, Colorado 80111;
Item 29. Management Services.
Not applicable.
Item 30. Undertakings.
(a) Not applicable.
(b) Not applicable.
(c) Registrant undertakes to furnish each person to whom a prospectus
is delivered with a copy of the Registrant's latest annual report
to shareholders upon request and without charge.
<PAGE>
S-2
S-1
SIGNATURES
As required by the Securities Act of 1933 and the Investment Company Act
of 1940, the Registrant certifies that it meets all the requirements for
effectiveness of this Registration Statement pursuant to Rule 485(b) and has
duly caused Post-Effective Amendment No. 57 to the Registration Statement to be
signed on its behalf, in the City of Englewood, State of Colorado, on the _26
day of _February_________, 1999.
MAXIM SERIES FUND, INC.
(Registrant)
By: /s/ D.L. Wooden
President (D.L. Wooden)
Pursuant to the requirements of the Securities Act of 1933, this
Post-Effective Amendment No. 57 to the Registration Statement has been signed
below by the following persons in the capacities and on the dates indicated.
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Signature and Title Date
/s/ D.L. Wooden February 26, 1999
Chairman and Director (D.L. Wooden)
/s/ R. Jennings* February 26, 1999
Director (R. Jennings)
/s/ R.P. Koeppe* February 26, 1999
Director (R.P. Koeppe)
/s/ J.D. Motz February 26, 1999
Director (J.D. Motz)
/s/ S. Zisman* February 26, 1999
Director (S. Zisman)
/s/ D.G. Mcleod February 26, 1999
Treasurer (D.G. Mcleod)
*By: /s/ B.A. Byrne February 26, 1999
B.A. Byrne
Attorney-in-fact pursuant to Powers of Attorney filed under Post-Effective Amendment
No. 57 to this Registration Statement.
</TABLE>
<PAGE>
SIGNATURES
Vista Growth and Income Portfolio has duly caused this Post-Effective Amendment
to the Registration Statement on Form N-1A of Maxim Series Fund, Inc., to be
signed on its behalf by the undersigned, thereunto duly authorized, in the City
of New York and the State of New York, on the 25th day of February, 1999.
GROWTH AND INCOME PORTFOLIO
By: /s/ H.Richard Vartabedian
H. Richard Vartabedian
President and Trustee
This Registration Statement on Form N-1A of Maxim Series Fund, Inc. has been
signed below by
the following persons in the capacities and on the dates indicated.
<TABLE>
<S> <C>
/s/ H.Richard Vartabedian President and February 25, 1999
H. Richard Vartabedian Trustee
Chairman
Fergus Reid, III
Trustee
William J. Armstrong
Trustee
John R.H. Blum
Trustee
Joseph J. Harkins
Trustee
Richard E. Ten Haken
Trustee
Stuart W. Cragin, Jr.
Trustee
Irving Thode
Trustee
W. Perry Neff
Trustee
Roland R. Eppley, Jr.
Trustee
W.D. MacCallan
Trustee
Sarah E. Jones
Trustee
Leonard M. Spalding, Jr.
/s/ H.Richard Vartabedian Attorney in Fact February 25, 1999
, 1999
H. Richard Vartabedian
/s/ Martin Dean Treasurer and February 25, 1999
Martin Dean Principal Accounting Officer
</TABLE>
Exhibit 23(j)
Consent of Deloitte & Touche LLP
<PAGE>
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in this Post-Effective Amendment
No. 60 to Registration Statement 2-75503 on Form N-1A of Maxim Series Fund, Inc.
of our report dated December 29, 1998, appearing in the October 31, 1998 Annual
Report of Maxim Vista Growth & Income Portfolio of Maxim Series Fund, Inc. and
to the references to us under the headings "Financial Highlights" appearing in
the Prospectus, and "Independent Auditors" and "Financial Statements" appearing
in the Statement of Additional Information, which are also a part of such
Registration Statement.
/s/ Deloitte & Touche LLP
DELOITTE & TOUCHE LLP
Denver, Colorado
February 26, 1999
