<PAGE>
Registration No. 2-94479
811-4161
As filed with the Securities and Exchange Commission on March 2, 1998.
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
-------------------------
REGISTRATION STATEMENT UNDER
THE SECURITIES ACT OF 1933
Pre-effective Amendment No.
Post-effective Amendment No. 22 /X/
and/or
REGISTRATION STATEMENT UNDER
THE INVESTMENT COMPANY ACT OF 1940
Amendment No. 23 /x/
Jefferson Pilot Variable Fund, Inc.
(Exact name of Registrant as Specified in Charter)
One Granite Place
Concord, New Hampshire 03301
(Address of Principal Executive Offices)
603-226-5000
(Registrant's Telephone Number)
Ronald R. Angarella, President
One Granite Place
Concord, New Hampshire 03301
(Name and Address of Agent for Service)
Copies To:
THOMAS H. ELWOOD, Esq. JOAN BOROS, Esq.
Jefferson Pilot Variable Fund, Inc. Jordan, Burt, Boros
One Granite Place 1025 Thomas Jefferson Street, N.W.
Concord, NH 03301 Washington, D.C. 20007
It is proposed that this filing will become effective on May 1, 1998
pursuant to Rule 485 (a).
The Registrant has registered an indefinite number or amount of its shares of
common stock under the Securities Act of 1933 pursuant to Rule 24f-2 under the
Investment Company Act of 1940. The Registrant filed a Rule 24f-2 Notice on
February , 19 .
<PAGE>
JEFFERSON PILOT VARIABLE FUND, INC.
CROSS REFERENCE SHEET
Cross reference sheet showing location in the Prospectus of information
required by the Items in Part A of Form N-1A.
Item
Number Heading In Prospectus
- ------
1 Cover Page
2 *(Synopsis)
3 Financial Highlights
4 Investment Objectives and Policies, Capital Stock
5 Management of the Fund
6 Capital Stock, Taxes and Dividends
7 Offering and Redemption of Shares
8 Offering and Redemption of Shares
9 *(Legal Proceedings)
- ----------
* Indicates inapplicable or negative.
<PAGE>
________________________________________________________________________________
JEFFERSON PILOT VARIABLE FUND, INC.
ONE GRANITE PLACE
CONCORD, NEW HAMPSHIRE 03301
(603) 226-5000
________________________________________________________________________________
Jefferson Pilot Variable Fund, Inc., formerly The Chubb America Fund, Inc.,
(the "Fund") is an open-end management investment company which was incorporated
in Maryland on October 19, 1984. The Fund is composed of twelve separate
Portfolios which operate as distinct investment vehicles. The names and
investment objectives of the Portfolios currently offered are as follows:
World Growth Stock Portfolio: seeks to achieve long-term capital growth
through a policy of investing primarily in stocks of companies organized in the
United States or in any foreign nation. A portion of the Portfolio may also be
invested in debt obligations of companies and governments of any nation. Any
income realized will be incidental.
International Equity Portfolio: seeks long-term growth of capital through
investments in securities whose primary trading markets are outside the United
States.
Money Market Portfolio: seeks to achieve as high a level of current income as
is consistent with preservation of capital and liquidity. AN INVESTMENT IN THE
MONEY MARKET PORTFOLIO IS NEITHER INSURED NOR GUARANTEED BY THE U.S GOVERNMENT.
Global Hard Assets Portfolio: seeks long-term capital appreciation by
investing globally, primary in "Hard Asset Securities." Income is a secondary
consideration.
High Yield Bond Portfolio: seeks a high level of current income by investing
primarily in corporate obligations with emphasis on higher yielding, higher
risk, lower-rated or unrated securities. These securities may be considered
speculative and involve greater risks, including risk of default, than higher
rated securities. Investors should carefully consider these risks before
investing.
Domestic Growth Stock Portfolio: to achieve reasonable income and growth of
capital by investing primarily in a diversified portfolio of equity securities
issued by companies organized in the U.S. and considered by the Sub-Investment
Manager to be undervalued in light of the company's earning power and growth
potential.
Growth Portfolio: seeks capital growth by investing primarily in equity
securities that the Sub-Investment Manager believes have above-average growth
prospects.
Growth and Income Portfolio: to seek long-term growth of capital by investing
primarily in a wide range of equity issues that may offer capital appreciation
and, secondarily, to seek a reasonable level of current income.
Capital Growth Portfolio: to seek capital growth. Realization of income is
not a significant investment consideration and any income realized will be
incidental.
Balanced Portfolio: to seek reasonable current income and long-term capital
growth, consistent with conservation of capital, by investing primarily in
common stocks and fixed income securities.
Emerging Growth Portfolio: seeks to provide long-term growth of capital.
Dividend and interest income from portfolio securities, if any, is incidental to
the Portfolio's investment objective of long-term growth. THE PORTFOLIO IS
INTENDED FOR INVESTORS WHO UNDERSTAND AND ARE WILLING TO ACCEPT RISKS ENTAILED
IN SEEKING LONG-TERM GROWTH OF CAPITAL.
The World Growth Stock Portfolio, International Equity Portfolio, the Global
Hard Assets Portfolio, High Yield Bond Portfolio, the Growth and Income
Portfolio, the Growth Portfolio, the Capital Growth Portfolio, the Balanced
Portfolio and the Emerging Growth Portfolio permit investments in any nation,
and investments in these Portfolios involve special considerations and
risks.
1
<PAGE>
AN INVESTMENT IN THE MONEY MARKET PORTFOLIO IS NEITHER INSURED NOR GUARANTEED
BY THE UNITED STATES GOVERNMENT. INVESTMENTS IN THE PORTFOLIOS ARE NOT BANK
DEPOSITS AND ARE NOT INSURED BY, GUARANTEED BY, OBLIGATIONS OF, OR OTHERWISE
SUPPORTED BY THE FDIC OR ANY BANK. AN INVESTMENT IN ANY OF THE PORTFOLIOS IS
SUBJECT TO RISK THAT MAY CAUSE THE VALUE OF THE INVESTMENT TO FLUCTUATE, AND
WHEN THE INVESTMENT IS REDEEMED, THE VALUE MAY BE HIGHER OR LOWER THAN THE
AMOUNT ORIGINALLY INVESTED BY THE INVESTOR.
This Prospectus sets forth concisely the information about the Fund and its
Portfolios that a prospective investor should know before investing. This
Prospectus should be read and retained for future reference.
A Statement of Additional Information for the Fund, dated May 1, 1998, has
been filed with the Securities and Exchange Commission and is incorporated
herein by reference. This Statement of Additional Information is available upon
request, and without charge, from the Fund by calling 1-800-452-4822 or at the
address or telephone number above. Inquiries about the Fund should be directed
to the Fund at the same address or telephone number.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
THE DATE OF THIS PROSPECTUS IS MAY 1, 1998
2
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
FINANCIAL HIGHLIGHTS...................................................
PERFORMANCE AND YIELD INFORMATION......................................
PORTFOLIOS.............................................................
INVESTMENT OBJECTIVES AND POLICIES.....................................
World Growth Stock Portfolio..........................................
Investment Objectives...............................................
Investment Policies.................................................
Risk Factors........................................................
International Equity Portfolio........................................
Investment Objectives...............................................
Investment Policies.................................................
Money Market Portfolio................................................
Investment Objectives...............................................
Investment Policies.................................................
Risk Factors........................................................
Gold Stock Portfolio..................................................
Investment Objectives...............................................
Investment Policies.................................................
Risk Factors........................................................
Bond Portfolio........................................................
Investment Objectives...............................................
Investment Policies.................................................
Risk Factors........................................................
High Yield Bond Portfolio.............................................
Investment Objectives...............................................
Investment Policies.................................................
Risk Factors........................................................
Domestic Growth Stock Portfolio.......................................
Investment Objectives...............................................
Investment Policies.................................................
Risk Factors........................................................
Growth Portfolio......................................................
Investment Objectives...............................................
Investment Policies.................................................
Growth and Income Portfolio...........................................
Investment Objectives...............................................
Investment Policies.................................................
Risk Factors........................................................
Capital Growth Portfolio..............................................
Investment Objectives...............................................
Investment Policies.................................................
Risk Factors........................................................
Balanced Portfolio....................................................
Investment Objectives...............................................
Investment Policies.................................................
Risk Factors........................................................
Emerging Growth Portfolio.............................................
Investment Objective................................................
Investment Policies.................................................
Risk Factors........................................................
Additional Risk Factors...............................................
Convertible Securities................................................
Foreign Securities....................................................
</TABLE>
3
<PAGE>
<TABLE>
PAGE
----
<S> <C>
Foreign Currencies....................................................
Brady Bonds...........................................................
Non-Diversified Status................................................
Emerging Market Securities............................................
Depository Receipts...................................................
Forward Foreign Currency Exchange Contracts...........................
Repurchase Agreements.................................................
High Yield Securities.................................................
Zero Coupon Bonds.....................................................
Securities and Index Options..........................................
Purchasing Put and Call Options.......................................
Futures Contracts.....................................................
Lending of Securities.................................................
When Issued Securities................................................
Mortgage Backed and Corporate Asset-Backed Securities.................
Stripped Mortgage-Backed Securities...................................
Borrowing.............................................................
Warrants..............................................................
Restricted and Illiquid Securities....................................
Dollar Roll Transactions..............................................
Swap Transactions.....................................................
Loan Participations and Other Direct Indebtedness.....................
INVESTMENT RESTRICTIONS................................................
Portfolio Turnover....................................................
MANAGEMENT OF THE FUND.................................................
CAPITAL STOCK..........................................................
TAXES AND DIVIDENDS....................................................
OFFERING AND REDEMPTION OF SHARES......................................
OTHER INFORMATION......................................................
</TABLE>
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING IN ANY JURISDICTION IN WHICH
SUCH OFFERING MAY NOT LAWFULLY BE MADE. NO PERSON IS AUTHORIZED TO MAKE ANY
REPRESENTATIONS IN CONNECTION WITH THIS OFFERING OTHER THAN THOSE CONTAINED IN
THIS PROSPECTUS, IN THE STATEMENT OF ADDITIONAL INFORMATION, AND IN THE ATTACHED
PROSPECTUS FOR THE POLICY.
4
<PAGE>
[THIS PAGE INTENTIONALLY LEFT BLANK]
5
<PAGE>
FINANCIAL HIGHLIGHTS
The following tables include selected data for a share of capital stock
outstanding for each portfolio throughout the periods indicated. The related
financial statements and report of ,
are incorporated by reference into the Statement of Additional Information and
both are available upon request and without charge by calling
1-800-452-4822.
For a share outstanding throughout the period:
6
<PAGE>
WORLD GROWTH STOCK PORTFOLIO
<TABLE>
<CAPTION>
YEAR YEAR YEAR YEAR YEAR
ENDED ENDED ENDED ENDED ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1997 1996 1995 1994 1993
<S> <C> <C> <C> <C>
Net asset value, beginning of period $ 21.20 $ 19.00 $ 20.89 $16.73
INCOME FROM INVESTMENT OPERATIONS
Net investment income 0.49 0.45 0.25 0.24
Net gains and losses on securities and foreign
currencies (both realized and unrealized) 3.56 2.65 (0.89) 5.40
----------- ----------- ----------- ------
Total from investment operations 4.05 3.10 (0.64) 5.64
LESS DISTRIBUTIONS TO SHAREHOLDERS
Dividends from net investment income (0.48) (0.43) (0.25) (0.24)
Dividends in excess of net investment income
Distributions from capital gains (1.46) (0.47) (0.81)
Distributions in excess of capital gains (0.19)
-----------
Returns of capital
Total distributions (1.94) (0.90) (1.25)
Net asset value, end of period $ 23.31 $ 21.20 $ 19.00
=========== =========== ===========
Total Return (A) 19.22% 16.35% (3.05%)
Ratios to Average Net Assets:
Expenses 0.88% 0.96% 1.00%
Net investment income 2.20% 2.31% 1.56%
Portfolio Turnover Rate 27.50% 18.09% 18.47%
Average Commission Rate Paid $ 0.0155
Net Assets, At end of period $91,995,634 $73,692,357 $52,903,768
</TABLE>
(A) Total return assumes reinvestment of all dividends during the period and
does not reflect deduction of account fees and charges that apply to the
separate account or related insurance policies. Investment returns and
principal values will fluctuate and shares, when redeemed, may be worth more
or less than the original cost. Total return figures for periods of less
than one year have not been annualized.
7
<PAGE>
WORLD GROWTH STOCK PORTFOLIO
<TABLE>
<CAPTION>
YEAR YEAR YEAR YEAR YEAR YEAR
ENDED ENDED ENDED ENDED ENDED ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1992 1991 1990 1989 1988 1987
<S> <C> <C> <C> <C> <C>
$ 16.45 $ 13.70 $ 16.07 $ 12.77 $ 11.48 $ 13.75
0.35 0.34 0.36 0.32 0.18 0.06
0.65 2.75 2.00 3.34 1.32 (0.91)
----------- ----------- ----------- ----------- ---------- ----------
1.00 3.09 3.66 1.50 (0.85)
(0.35) (0.34) (1.64) (0.36) (0.18) (0.34)
(1.46) (0.37) (0.81)
(0.37) (0.36) (0.03) (1.08)
----------- ----------- ---------- ----------
(0.72) (0.34) (0.73) (0.36) (0.21) (1.42)
$16.73 $ 16.45 $ 13.70 $ 16.07 $ 12.77 $ 11.48
=========== =========== =========== =========== ========== ==========
6.10% 22.53% (10.38%) (28.62%) 13.10% (7.74%)
1.17% 1.14% 1.22% 1.42% 1.60% 1.81%
2.19% 2.40% 2.65% 2.46% 1.80% 1.14%
32.27% 50.06% 25.79% 5.73% 14.75% 8.88%
$25,416,357 $22,659,930 $16,052,089 $14,467,050 $8,781,827 $5,253,616
</TABLE>
FINANCIAL HIGHLIGHTS--(CONTINUED)
For a share outstanding throughout the period:
8
<PAGE>
MONEY MARKET PORTFOLIO (A)
<TABLE>
<CAPTION>
YEAR YEAR YEAR YEAR YEAR
ENDED ENDED ENDED ENDED ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1997 1996 1995 1994 1993
<S> <C> <C> <C> <C>
Net asset value, beginning of period $ 10.27 $ 10.25 $ 10.26 $ 10.22
INCOME FROM INVESTMENT OPERATIONS
Net investment income 0.50 0.50 0.35 0.20
Net gains and losses on securities (both
realized and unrealized) (0.02) 0.02 (0.01) 0.04
---------- ---------- ---------- ----------
Total from investment operations 0.48 0.52 0.34 0.24
LESS DISTRIBUTIONS TO SHAREHOLDERS
Dividends from net investment income (0.50) (0.50) (0.35) (0.20)
Dividends in excess of net investment income
Distributions from capital gains
Distributions in excess of capital gains
Returns of capital
Total distributions (0.50) (0.50) (0.35) (0.20)
Net asset value, end of period $ 10.25 $ 10.27 $ 10.25 $ 10.26
========== ========== ========== ==========
Total Return (B) 4.65% 5.06% 3.28% 2.32%
Ratios to Average Net Assets:
Expenses 0.62% 0.63% 0.65% 0.74%
Net investment income 4.54% 4.89% 3.31% 2.32%
Portfolio Turnover Rate (C) N/A N/A N/A N/A
Average Commission Rate Paid (D) N/A N/A N/A N/A
Net Assets, At end of period $7,896,257 $8,312,676 $7,680,485 $5,061,181
</TABLE>
(A) The per share amounts which are shown have been computed based on the
average number of shares outstanding during each period.
(B) Total return assumes reinvestment of all dividends during the period and
does not reflect deduction of account fees and charges that apply to the
separate account or related insurance policies. Investment returns and
principal values will fluctuate and shares, when redeemed, may be worth more
or less than the original cost. Total return figures for periods of less
than one year have not been annualized.
(C) There were no purchase and/or sales of securities other than short term
obligations during the year. Therefore, the portfolio turnover rate has not
been calculated.
(D) During the period, the portfolio held less than 10% of the value of average
net assets in equity securities. Therefore, the Average Commission Rate Paid
has not been calculated.
9
<PAGE>
MONEY MARKET PORTFOLIO
<TABLE>
<CAPTION>
YEAR YEAR YEAR YEAR YEAR YEAR
ENDED ENDED ENDED ENDED ENDED ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1992 1991 1990 1989 1988 1987
<S> <C> <C> <C> <C> <C>
$ 10.22 $ 10.21 $ 10.18 $ 10.16 $ 10.09 $ 10.56
0.29 0.52 0.73 0.78 0.63 0.49
(0.01)
----------
0.29 0.53 0.73 0.78 0.63 0.49
(0.29) (0.52) (0.70) (0.76) (0.56) (0.96)
(0.29) (0.52) (0.70) (0.76) (0.56) (0.96)
$ 10.22 $ 10.22 $ 10.21 $ 10.18 $ 10.16 $ 10.09
======================== ========== ========== ========== ========== ==========
2.83% 5.18% 7.15% 7.63% 6.33% 4.85%
0.85% 0.85% 1.09% 1.37% 1.79% 1.81%
2.81% 4.95% 6.90% 7.35% 6.16% 4.75%
N/A N/A N/A N/A N/A N/A
N/A N/A N/A N/A N/A N/A
$3,956,152 $3,672,941 $2,910,677 $2,496,140 $2,228,190 $1,539,184
</TABLE>
FINANCIAL HIGHLIGHTS--(CONTINUED)
For a share outstanding throughout the period:
10
<PAGE>
GLOBAL HARD ASSETS PORTFOLIO
<TABLE>
<CAPTION>
YEAR YEAR YEAR YEAR YEAR
ENDED ENDED ENDED ENDED ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1997 1996 1995 1994 1993
<S> <C> <C> <C> <C>
Net asset value, beginning of period $ 16.61 $ 16.25 $ 19.00 $ 11.57
INCOME FROM INVESTMENT OPERATIONS
Net investment income (loss) (0.03) 0.05 0.03 0.02
Net gains and losses on securities and foreign
currency (both realized and unrealized) 0.45 0.40 (2.65) 7.43
---------- ---------- ---------- ----------
Total from investment operations 0.42 0.45 (2.62) 7.45
LESS DISTRIBUTIONS TO SHAREHOLDERS
Dividends from net investment income (0.05) (0.03) (0.02)
Dividends in excess of net investment income (0.04)
Distributions from capital gains (0.43)
Distributions in excess of capital gains (0.10)
Returns of capital
Total distributions (0.43) (0.09) (0.13) (0.02)
Net asset value, end of period $ 16.60 $ 16.61 $ 16.25 $ 19.00
========== ========== ========== ==========
Total Return (A) 2.57% 2.76% (13.77%) 63.90%
Ratios to Average Net Assets:
Expenses 1.04% 1.01% 0.99% 1.01%
Net investment income (0.11%) 0.24% 0.18% 0.14%
Portfolio Turnover Rate 64.78% 23.98% 11.12% 7.32%
Average Commission Rate Paid $ 0.0151
Net Assets, At end of period $7,554,427 $6,867,645 $7,351,625 $7,863,581
</TABLE>
(A) Total return assumes reinvestment of all dividends during the period and
does not reflect deduction of account fees and charges that apply to the
separate account or related insurance policies. Investment returns and
principal values will fluctuate and shares, when redeemed, may be worth more
or less than the original cost. Total return figures for periods of less
than one year have not been annualized.
11
<PAGE>
GLOBAL HARD ASSETS PORTFOLIO
<TABLE>
<CAPTION>
YEAR YEAR YEAR YEAR YEAR YEAR
ENDED ENDED ENDED ENDED ENDED ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1992 1991 1990 1989 1988 1987
<S> <C> <C> <C> <C> <C>
$11.99 $ 12.76 $ 16.95 $ 14.37 $ 18.24 $ 13.59
0.03 0.07 0.07 0.06 (0.03)\ (0.03)
(0.42) (0.77) (4.19) 2.70 (3.84) 4.69
----------------------- ---------- ---------- ---------- ---------- ----------
(0.39) (0.70) (4.12) 2.76 (3.87) 4.66
(0.03) (0.07) (0.07) (0.05)
(0.12)
(0.01)
----------
(0.03) (0.07) (0.07) (0.18) (0.01)
$11.57 $ 11.99 $ 12.76 $ 16.95 $ 14.37 $ 18.24
======================= ========== ========== ========== ========== ==========
(3.29%) (5.48%) (24.28%) 19.24% (21.24%) 34.29%
1.13% 1.16% 1.36% 1.39% 1.62% 1.92%
0.24% 0.57% 0.59% 0.39% (0.38%) (0.24%)
7.78% 14.23% 17.61% 3.05% 9.92% 7.02%
$4,338,297 $4,646,951 $5,390,279 $5,969,256 $4,258,297 $3,821,605
</TABLE>
FINANCIAL HIGHLIGHTS--(CONTINUED)
For a share outstanding throughout the period:
12
<PAGE>
DOMESTIC GROWTH STOCK PORTFOLIO
<TABLE>
<CAPTION>
YEAR YEAR YEAR YEAR YEAR
ENDED ENDED ENDED ENDED ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1997 1996 1995 1994 1993
<S> <C> <C> <C> <C>
Net asset value, beginning of period $ 17.87 $ 15.94 $ 16.14 $ 15.16
INCOME FROM INVESTMENT OPERATIONS
Net investment income 0.06 0.15 0.09 0.12
Net gains and losses on securities (both
realized and unrealized) 2.85 4.48 1.12 2.29
----------- ----------- ----------- -----------
Total from investment operations 2.91 4.63 1.21 2.41
LESS DISTRIBUTIONS TO SHAREHOLDERS
Dividends from net investment income (0.06) (0.15) (0.09) (0.12)
Dividends in excess of net investment income
Distributions from capital gains (2.53) (2.55) (1.32) (1.31)
Distributions in excess of capital gains
Returns of capital
Total distributions (2.59) (2.70) (1.41) (1.43)
Net asset value, end of period $ 18.19 $ 17.87 $ 15.94 $ 16.14
=========== =========== =========== ===========
Total Return (A) 16.46% 29.72% 7.66% 15.89%
Ratios to Average Net Assets:
Expenses 0.85% 0.87% 0.89% 0.97%
Net investment income 0.31% 0.95% 0.63% 0.76%
Portfolio Turnover Rate 49.75% 64.17% 46.65% 49.47%
Average Commission Rate Paid $ 0.0555
Net Assets, At end of period $62,166,366 $48,517,886 $31,458,666 $25,072,289
</TABLE>
(A) Total return assumes reinvestment of all dividends during the period and
does not reflect deduction of account fees and charges that apply to the
separate account or related insurance policies. Investment returns and
principal values will fluctuate and shares, when redeemed, may be worth more
or less than the original cost. Total return figures for periods of less
than one year have not been annualized.
13
<PAGE>
DOMESTIC GROWTH STOCK PORTFOLIO
<TABLE>
<CAPTION>
YEAR YEAR YEAR YEAR YEAR YEAR
ENDED ENDED ENDED ENDED ENDED ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1992 1991 1990 1989 1988 1987
<S> <C> <C> <C> <C> <C>
$ 12.96 $ 10.15 $ 13.25 $ 11.71 $ 9.54 $ 10.57
0.14 0.24 0.26 0.18 0.11 0.04
3.27 3.13 (2.71) 2.06 2.40 (0.11)
----------- ----------- ----------- ----------- ---------- ----------
3.41 3.37 (2.45) 2.24 2.51 (0.07)
(0.14) (0.24) (0.26) (0.21) (0.10) (0.12)
(1.07) (0.32) (0.39) (0.49) (0.24) (0.84)
(1.21) (0.56) (0.65) (0.70) (0.34) (0.96)
$ 15.16 $ 12.96 $ 10.15 $ 13.25 $ 11.71 $ 9.54
=========== =========== =========== =========== ========== ==========
26.50% 33.18% (18.55%) 19.36% 26.31% (1.61%)
1.07% 1.13% 1.25% 1.45% 1.70% 1.75%
1.07% 2.02% 2.38% 1.59% 1.26% 0.71%
41.36% 40.93% 15.17% 10.32% 22.69% 13.53%
$19,985,838 $15,583,806 $10,517,783 $11,320,279 $6,893,776 $3,448,383
</TABLE>
FINANCIAL HIGHLIGHTS--(CONTINUED)
For a share outstanding throughout the period:
14
<PAGE>
GROWTH AND INCOME PORTFOLIO
<TABLE>
<CAPTION>
YEAR YEAR YEAR YEAR YEAR PERIOD FROM
ENDED ENDED ENDED ENDED ENDED MAY 1, 1992 TO
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1997 1996 1995 1994 1993 1992 (A)
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ 14.41 $ 11.22 $ 12.35 $ 11.10 $ 10.27
INCOME FROM INVESTMENT OPERATIONS
Net investment income 0.18 0.15 0.13 0.12 0.02
Net gains and losses on securities
(both realized and unrealized) 3.12 3.62 (0.65) 1.53 0.83
----------- ----------- ---------- ---------- ----------
Total from investment operations 3.30 3.77 (0.52) 1.65 0.85
LESS DISTRIBUTIONS TO SHAREHOLDERS
Dividends from net investment income (0.18) (0.15) (0.13) (0.12) (0.02)
Dividends in excess of net investment income
Distributions from capital gains (0.62) (0.29) (0.48) (0.28)
Distributions in excess of capital gains (0.14)
Returns of capital
Total distributions (0.80) (0.58) (0.61) (0.40) (0.02)
Net asset value, end of period $ 16.91 $ 14.41 $ 11.22 $ 12.35 $ 11.10
=========== =========== ========== ========== ==========
Total Return (B) 22.88% 33.58% (4.24%) 14.94% 12.48%(C)
Ratios to Average Net Assets:
Expenses 0.88% 0.92% 1.10% 1.35% 2.09%(C)
Net investment income 1.39% 1.50% 1.52% 1.38% 0.36%(C)
Portfolio Turnover Rate 35.69% 32.30% 38.17% 77.68% 54.11%
Average Commission Rate Paid $ 0.0700
Net Assets, At end of period $23,711,696 $13,126,023 $5,610,472 $2,831,442 $1,489,179
</TABLE>
(A) Per share data calculated from the initial offering date, May 1, 1992, for
sale to Chubb Separate Account A.
(B) Total return assumes reinvestment of all dividends during the period and
does not reflect deduction of account fees and charges that apply to the
separate account or related insurance policies. Investment returns and
principal values will fluctuate and shares, when redeemed, may be worth more
or less than the original cost. Total return figures for periods less than
one year have not been annualized.
(C) Per share data and ratios calculated on an annualized basis.
FINANCIAL HIGHLIGHTS--(CONTINUED)
For a share outstanding throughout the period:
15
<PAGE>
CAPITAL GROWTH PORTFOLIO
<TABLE>
<CAPTION>
FOR THE
YEAR YEAR YEAR YEAR YEAR PERIOD FROM
ENDED ENDED ENDED ENDED ENDED MAY 1, 1992 TO
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1997 1996 1995 1994 1993 1992 (A)
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ 17.38 $ 13.38 $ 14.26 $ 12.42 $ 9.95
INCOME FROM INVESTMENT OPERATIONS
Net investment income 0.05 0.03 0.03 (0.01)
Net gains and losses on securities
(both realized and unrealized) 3.24 5.56 (0.49) 3.03 2.69
----------- ----------- ----------- ----------- ----------
Total from investment operations 3.29 5.59 (0.46) 3.03 2.68
LESS DISTRIBUTIONS TO SHAREHOLDERS
Dividends from net investment income (0.05) (0.03) (0.03)
Dividends in excess of net investment income
Distributions from capital gains (3.36) (1.56) (0.33) (1.19) (0.21)
Distributions in excess of capital gains (0.06)
Returns of capital
Total distributions (3.41) (1.59) (0.42) (1.19) (0.21)
Net asset value, end of period $ 17.26 $ 17.38 $ 13.38 $ 14.26 $ 12.42
=========== =========== =========== =========== ==========
Total Return (B) 19.25% 41.74% (3.26%) 24.73% 40.40%(C)
Ratios to Average Net Assets:
Expenses 1.13% 1.15% 1.22% 1.33% 1.96%(C)
Net investment income 0.30% 0.21% 0.25% (0.11%) (0.37%)(C)
Portfolio Turnover Rate 147.82% 170.32% 202.04% 162.79% 104.76%
Average Commission Rate Paid $ 0.0502
Net Assets, At end of period $70,832,162 $49,853,029 $27,564,086 $15,373,489 $5,343,734
</TABLE>
(A) Per share data calculated from the initial offering date, May 1, 1992 for
sale to Chubb Separate Account A.
(B) Total return assumes reinvestment of all dividends during the period and
does not reflect deduction of account fees and charges that apply to the
separate account or related insurance policies. Investment returns and
principal values will fluctuate and shares, when redeemed, may be worth more
or less than the original cost. Total return figures for periods less than
one year have not been annualized.
(C) Per share data and ratios calculated on an annualized basis.
FINANCIAL HIGHLIGHTS--(CONTINUED)
For a share outstanding throughout the period:
16
<PAGE>
BALANCED PORTFOLIO
<TABLE>
<CAPTION>
YEAR YEAR YEAR YEAR YEAR PERIOD FROM
ENDED ENDED ENDED ENDED ENDED MAY 1, 1992 TO
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1997 1996 1995 1994 1993 1992 (A)
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ 11.91 $ 10.62 $ 11.22 $ 10.77 $ 10.10
INCOME FROM INVESTMENT OPERATIONS
Net investment income 0.26 0.37 0.32 0.25 0.16
Net gains and losses on securities
(both realized and unrealized) 0.99 1.99 (0.47) 0.74 0.67
----------- ----------- ----------- ----------- ----------
Total from investment operations 1.25 2.36 (0.15) 0.99 0.83
LESS DISTRIBUTIONS TO SHAREHOLDERS
Dividends from net investment income (0.26) (0.37) (0.32) (0.25) (0.16)
Dividends in excess of net investment income
Distributions from capital gains (0.83) (0.70) (0.13) (0.25)
Distributions in excess of capital gains (0.04)
Returns of capital
Total distributions (1.09) (1.07) (0.45) (0.54) (0.16)
Net asset value, end of period $ 12.07 $ 11.91 $ 10.62 $ 11.22 $ 10.77
=========== =========== =========== =========== ==========
Total Return (B) 10.56% 22.35% (1.33%) 9.27% 12.33%(C)
Ratios to Average Net Assets:
Expenses 0.97% 0.99% 1.01% 1.07% 1.43%(C)
Net investment income 2.20% 3.20% 3.34% 2.79% 2.80%(C)
Portfolio Turnover Rate 222.35% 164.70% 103.68% 65.49% 77.33%
Average Commission Rate Paid $ 0.0601
Net Assets, At end of period $18,256,430 $14,532,268 $14,764,853 $11,703,898 $6,944,437
</TABLE>
(A) Per share data calculated from the initial offering date, May 1, 1992, for
sale to Chubb Separate Account A.
(B) Total return assumes reinvestment of all dividends during the year and does
not reflect deduction of account fees and charges that apply to the separate
account or related insurance policies. Investment returns and principal
values will fluctuate and shares, when redeemed, may be worth more or less
than the original cost. Total return figures for periods less than one year
have not been annualized.
(C) Per share data and ratios calculated on an annualized basis.
FINANCIAL HIGHLIGHTS--(CONTINUED)
For a share outstanding throughout the period:
17
<PAGE>
EMERGING GROWTH PORTFOLIO
<TABLE>
<CAPTION>
YEAR YEAR PERIOD FROM
ENDED ENDED MAY 1, 1995 THROUGH
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1997 1996 1995 (A)
<S> <C> <C>
Net asset value, beginning of period $ 13.29 $ 10.00
INCOME FROM INVESTMENT OPERATIONS
Net investment income (loss) (0.05) (0.04)
Net gain on securities (both realized and unrealized) 2.48 3.33
----------- -----------
Total from investment operations 2.43 3.29
LESS DISTRIBUTIONS TO SHAREHOLDERS
Dividends from net investment income
Dividends in excess of net investment income
Distributions from capital gains
Distributions in excess of capital gains
Returns of capital
Total distributions (0.49) 0.00
Net asset value, end of period $ 15.23 $ 13.29
=========== ===========
Total Return (B) 18.30% 32.91%
Ratios to Average Net Assets:
Expenses 1.16% 1.63% (C)
Net investment income (0.48%) (0.84%)(C)
Portfolio Turnover Rate 94.58% 30.31%
Average Commission Rate Paid $ 0.0390
Net Assets, At end of period $30,794,030 $11,439,524
</TABLE>
(A) Per share data calculated from the initial offering date, May 1, 1995, for
sale to Chubb Separate Account A.
(B) Total return assumes reinvestment of all dividends during the period and
does not reflect deduction of account fees and charges that apply to the
separate account or related insurance policies. Investment returns and
principal values will fluctuate and shares, when redeemed, may be worth more
or less than the original cost. Total return figures for periods less than
one year have not been annualized.
(C) Per share data and ratios calculated on an annualized basis.
18
<PAGE>
PERFORMANCE AND YIELD INFORMATION
From time to time the Fund may advertise the yield and/or the average annual
total return of some or all of its twelve investment portfolios. These figures
are based on historical earnings and are not intended to indicate future
performance. Shares of the portfolios are presently offered only to
corresponding divisions of separate accounts established by Jefferson Pilot
Financial Insurance Company ("JPF" or "Jefferson Pilot Financial") (formerly
Chubb Life Insurance Company of America ("Chubb Life"), Jefferson Pilot Life
Insurance Company ("Jefferson Pilot"), Alexander Hamilton Life ("Hamilton") or
their affiliated insurance companies, to fund variable annuities and flexible
premium life insurance policies. None of these performance figures reflect fees
and charges imposed under such variable annuities or flexible premium life
insurance policies, which fees and charges will reduce the yield and total
return to policyowners; therefore, these performance figures may be of limited
use for comparative purposes.
The Money Market Portfolio's yield quotations represent the Portfolio's
investment income, less expenses, expressed as a percentage of assets on an
annualized basis for a seven-day period. The yield is expressed as both a simple
annualized yield and a compounded effective yield. The yield for the non-money
market portfolios is calculated by dividing the portfolio's net investment
income per share during a recent 30-day period by the maximum offering price per
share of that Portfolio (which is the net asset value of that Portfolio) on the
last day of the period.
The average annual total return quotations of the non-money market portfolios
are determined by computing the average annual percentage change in value of a
$1,000 investment, made at the maximum public offering price (which is net asset
value) for certain specified periods. This computation assumes reinvestment of
all dividends and distributions.
PORTFOLIOS
The Fund currently consists of twelve investment portfolios, eleven of which
are currently available namely the World Growth Stock Portfolio, the
International Equity Portfolio, the Money Market Portfolio, the Global Hard
Assets Portfolio, the High Yield Bond Portfolio, the Domestic Growth Stock
Portfolio, the Growth Portfolio, the Growth and Income Portfolio, the Capital
Growth Portfolio, the Balanced Portfolio and the Emerging Growth Portfolio (the
"Portfolios").
The separate accounts established by JPF, Jefferson Pilot, Hamilton or their
affiliated insurance companies are used for the purpose of funding variable
annuities and Flexible Premium Variable Life Insurance Policies (the "Policies")
issued by JP, Jefferson Pilot, Hamilton or their affiliated insurance companies
and their successors or assigns. The owner of a Policy may allocate among the
Portfolios the amounts available for investment under the Policy. JPF, Jefferson
Pilot and Hamilton (the "Affiliates") are wholly-owned subsidiaries of
Jefferson-Pilot Corporation, a North Carolina Corporation.
In the future, the Fund may sell its shares to other separate accounts,
funding variable annuities and variable life insurance policies, established by
JP Financial, its affiliates, successors or assigns, or by other insurance
companies with which JP Financial may or may not be affiliated, and the Fund may
add or delete Portfolios.
Shares of each Portfolio are both offered and redeemed at their net asset
value without the addition of any sales load or redemption charge. See "OFFERING
AND REDEMPTION OF SHARES" in the Prospectus.
The investment manager to the Fund is Jefferson Pilot Investment Advisory
Corporation (the "Investment Manager" or "Jefferson Pilot Investment Advisory"),
formerly Chubb Investment Advisory Corporation, a wholly-owned subsidiary of
Jefferson Pilot Financial. Jefferson Pilot Investment Advisory and the Fund have
contracted with nine unaffiliated companies, Templeton Global Advisors, Limited
("Templeton"), Lombard Odier International Portfolio Management Limited
("Lombard Odier"), Van Eck Associates Corporation ("Van Eck Associates"),
Pioneering Management Corporation ("Pioneer"), Janus Capital Corporation
("Janus"), J.P. Morgan Investment Management, Inc. ("Morgan"), Massachusetts
Financial Services Company ("MFS"), Strong Capital Management, Inc. ("Strong"),
and Warburg Pincus Asset Management, Inc. formerly Warburg Pincus Counsellors,
Inc. ("Warburg") to act as sub-investment advisers or managers to the World
Growth Stock, International Equity, Global Hard Assets, Domestic Growth Stock,
Capital Growth, Balanced, High Yield Bond, Emerging Growth and Money Market,
Growth, and Growth and Income Portfolios, respectively. (Collectively the "Sub-
Investment Managers"). The fees of the Sub-Investment Managers are paid directly
by the Investment Manager.
INVESTMENT OBJECTIVES AND POLICIES
The investment objectives and policies of each Portfolio are described below.
The investment objectives of a Portfolio, and certain investment restrictions
discussed in the Statement of Additional Information, may be changed only with
the approval of the
19
<PAGE>
stockholders of each Portfolio that are affected by such change. The investment
policies of a Portfolio, used to achieve the Portfolio's objectives, may be
changed by the Fund's Board of Directors without the approval of the Portfolio's
stockholders.
Because investment involves both opportunities for gain and risks of loss, no
assurance can be given that the Portfolios will achieve their objectives. The
difference in objectives and policies among the various Portfolios can be
expected to affect each Portfolio's investment return as well as the degree of
market and financial risks to which each Portfolio is subject. Prospective
purchasers of Policies should carefully review the objectives and policies of
the Portfolios and consider their ability to assume the risks involved before
purchasing Policies and allocating amounts thereunder to particular Portfolios.
World Growth Stock Portfolio
Investment Objectives. The investment objective of the World Growth Stock
Portfolio is long-term capital growth, which it seeks to achieve through a
flexible policy of investing primarily in stocks of companies organized in the
United States or in any foreign nation. A portion of the Portfolio may also be
invested in debt obligations of companies and governments of any nation. Any
income realized will be incidental.
The Portfolio invests primarily in securities of companies of any size that
are (i) believed to be well-managed and possessing good growth potential or (ii)
are considered by Templeton, the Sub-Investment Manager, to be undervalued. See
"Foreign Securities," in the Prospectus.
Investment Policies. The Portfolio believes that in a world where investment
opportunities change rapidly, not only from company to company and from industry
to industry but also from one national economy to another, its objective is more
likely to be achieved through an investment policy that is flexible and mobile.
Accordingly, the Portfolio seeks investment opportunities in all types of
securities issued by companies or governments of any nation. Investments are
usually made in common stocks, but may also include preferred stocks and certain
debt securities, rated or unrated, such as convertible bonds and bonds selling
at a discount; all of these debt securities will have credit ratings in the four
highest rating categories of Standard & Poor's Rating Service Corporation
("Standard & Poor's") or Moody's Investors Service, Inc. ("Moody's") or other
nationally recognized statistical rating organizations ("NRSROs") or, if not
rated, will be of comparable quality to obligations so rated in the judgment of
Templeton. Securities rated BBB or Baa by Standard & Poor's or Moody's are
considered investment-grade obligations and are regarded as having adequate
capacity to pay interest and repay principal, although adverse economic
conditions or changing circumstances are more likely to lead to a weakening of
such capacity than for higher grade bonds. Such securities may be considered to
have speculative characteristics. See "DESCRIPTION OF CERTAIN INVESTMENTS" in
the Statement of Additional Information for a more complete description of
investment ratings. In the event that the ratings of securities held by the
Portfolio fall below investment grade, the Portfolio will not be obligated to
dispose of such securities and may continue to hold such securities if, in the
opinion of the Sub-Investment Manager, such investment is considered appropriate
under the circumstances.
Notwithstanding the investment objective of long-term capital growth, the
Portfolio may on occasion, for defensive purposes and without limitation as to
amount, invest in debt obligations of the U.S. Government, its agencies or
instrumentalities for the purpose of earning income; hold cash and time deposits
with banks in the U.S. or Canadian currencies or currencies of other nations;
acquire repurchase agreements with respect to U.S. or Canadian government
obligations; or invest in high-grade commercial paper. For a more complete
description of obligations of the U.S. Government, its agencies or
instrumentalities, see the DESCRIPTION OF CERTAIN INVESTMENTS. The Portfolio may
also invest in warrants, which are rights to buy certain securities at set
prices during specified time periods. See "DESCRIPTION OF CERTAIN INVESTMENTS"
in the Statement of Additional Information for more information concerning
repurchase agreements, warrants, and commercial paper. See also "Repurchase
Agreements" in the Prospectus.
The Portfolio may enter into agreements with banks or broker-dealers to
purchase some securities on a "forward commitment," "when issued" or on a
"delayed delivery" basis. Such agreements involve a commitment to purchase
securities at a price, which is fixed at the time of commitment, for delivery at
a future date, which may be up to three months in the future. The Portfolio will
not pay for the securities or begin earning interest on them until the
securities are paid for and received. The securities so purchased are subject to
market fluctuations so that at the time of delivery, the value of such
securities may be more or less than the purchase price.
The Portfolio will generally be composed of investments from among many
different industries. Although management may invest up to 25% of the
Portfolio's assets in a single industry, it has no present intention of doing
so. As a general matter, the Portfolio will be invested in a minimum of five
different foreign countries at all times. However, this minimum is reduced to
four
20
<PAGE>
when foreign country investments comprise less than 80% of the Portfolio's net
asset value; to three when less than 60% of such value; to two when less than
40%; and to one when less than 20%.
Risk Factors. All or a significant portion of this Portfolio may be invested
in foreign securities, including Depository Receipts, and investors should
understand the special considerations and risks related to such an investment
emphasis. See "Foreign Securities" and "Depository Receipts" in the Prospectus.
International Equity Portfolio
Investment Objective. The International Portfolio's investment objective is
long-term capital appreciation. The Portfolio will seek to achieve its objective
by investing substantially all, and at least 65%, of its total assets in equity
and equity-related securities of companies from countries outside of the United
States. The Portfolio will be "non-diversified" as defined in the 1940 Act. See
"Non-Diversified Status." The International Equity Portfolio is intended for
investors who can accept the risks involved in investments in equity and equity-
related securities of non-U.S. issuers, as well as in foreign currencies and in
the active management techniques, that the Fund generally employs.
Investment Policies. The equity and equity-related securities in which the
International Equity Portfolio will primarily invest are common stock, preferred
stock, convertible debt obligations, convertible preferred stock and warrants or
other rights to acquire stock that Lombard Odier International Portfolio
Management Limited ("Lombard Odier"), the sub-investment manager, believes offer
the potential for long-term capital appreciation. Issuers of such securities may
include smaller, emerging companies. The Portfolio also may invest in securities
of foreign issuers in the form of sponsored and unsponsored ADRs, EDRs, GDRs
(see "Depository Receipts" below), or other similar instruments representing
securities of foreign issuers. The Portfolio may purchase securities on a when-
issued basis. See "Investment Methods and Risks."
While the investment policy of the Portfolio is to be broadly diversified as
to both countries and individual issuers, Lombard Odier selects individual
countries and securities on the basis of several factors. Investments are
allocated among issuers in countries selected based on a comparison of values
between the equity markets in those countries. This comparison is based upon
criteria such as return on equity, book value, earnings, dividends, and interest
rates in each market. After evaluating these factors and others for each country
and comparing opportunities among countries, the sub-adviser selects those
countries which in its opinion, have the most attractive equity markets. This
evaluation is influential in deciding the amount of investment in each equity
market. Individual equity securities are selected within each market. The
International Equity Portfolio will invest in individual equity securities based
on factors such as book value, earnings per share and other financial data. The
sub-adviser will also endeavor to identify industry, political, and geographical
trends which may affect equity values within individual countries or among a
group of countries. The Portfolio may also invest cash temporarily in short-term
debt instruments to maintain liquidity or pending other investment.
The International Equity Portfolio may purchase and sell foreign currency on
a spot basis in connection with the settlement of transactions in securities
traded in such foreign currency. The Portfolio will not purchase and sell
foreign currencies for speculative purposes. The Portfolio may enter into
forward foreign currency contacts and foreign currency futures contracts for
hedging purposes only. This includes entering into forward currency contracts
and foreign currency futures contracts as an anticipatory hedge.
The International Equity Portfolio may invest cash, held to meet redemption
requests and expenses, in obligations of the United States and of foreign
governments (including their political subdivisions), commercial paper, bankers'
acceptances, certificates of deposit and other short-term evidences of
indebtedness. The Portfolio will only purchase commercial paper if it is rated
Prime-1 or Prime-2 by Moody's or A-1 or A-2 by Standard & Poor's. The Portfolio
also may invest cash held for such purposes in short-term, high grade foreign
debt securities. The Portfolio may lend portfolio securities to unaffiliated
brokers, dealers and financial institutions provided that (a) immediately after
any such loan, the value of the securities loaned does not exceed 15% of the
total value of the Portfolio's assets, and (b) any securities loan is
collateralized in accordance with applicable regulatory requirements.
The International Equity Portfolio may invest up to 15% of its assets in
illiquid securities. The Portfolio also may make short sales and short sales
"against the box". The Portfolio may not make short sales or maintain a short
position if to do so would cause more than 25% of its total assets, taken at
market value, to be held as collateral for such sales.
The International Equity Portfolio's investments may include U.S. Government
Securities, restricted securities, mortgage-backed obligations, repurchase
agreements, debt obligations of corporate and asset-backed issuers, debt
obligations of foreign
21
<PAGE>
governments and their respective agencies, instrumentalities, political
subdivisions and authorities and debt obligations issued or guaranteed by
international or supranational entities that, in the opinion of Lombard Odier,
offer the potential to enhance total return. The timing of purchase and sale
transactions in debt obligations may result in capital appreciation or
depreciation because the value of debt obligations varies inversely with
prevailing interest rates. Under normal circumstances, the Portfolio will not
invest more than 35% of its total assets in such debt obligations. The debt
obligations in which the Portfolio may invest will be rated BBB or higher by S&P
or Baa or higher by Moody's or if unrated, determined by the sub-adviser to be
of comparable credit quality. The Portfolio will limit its investment in
corporate debt obligations to less than 35% of its total assets. A detailed
discussion of the risks associated with lower rated corporate debt obligations
is found in "Investment Methods and Risks" under "Lower Rated Corporate Debt
Obligations" and in the SAI. See Appendix A to the SAI for a description of the
corporate bond ratings assigned by Standard & Poor's and Moody's.
Notwithstanding the International Equity Portfolio's investment objective of
long-term capital appreciation through investment in equity and equity-related
securities of non-U.S. issuers or of companies whose securities are principally
traded outside the United States, the Portfolio may on occasion, for temporary
defensive purposes to preserve capital, hold part of all of its assets in cash,
money market instruments, non-convertible preferred stocks, or, subject to
certain tax restrictions, foreign currencies. The Portfolio may assume a
temporary defensive posture only when political and economic factors affect
foreign equity markets to such an extent that the sub-adviser believes there to
be extraordinary risks in being substantially invested in such markets.
Money Market Portfolio
Investment Objectives. The primary objective of the Money Market Portfolio is
to seek as high a level of current income as is consistent with preservation of
capital and liquidity.
Investment Policies. The Portfolio invests exclusively in (1) obligations
whose timely payment of principal and interest is backed by the full faith and
credit of the U.S. Government or that of its agencies or instrumentalities
("U.S. Government Obligations") or which are secured or collateralized by such
obligations, (2) short-term obligations of U.S. banks which are members of the
Federal Deposit Insurance Corporation ("FDIC"), (3) U.S. dollar obligations of
foreign branches of U.S. banks, or (4) instruments fully secured or
collateralized by such bank obligations. Some of the obligations which the
Portfolio buys are insured by the FDIC up to $100,000. The Portfolio may also
invest in commercial paper, and may buy corporate or other notes if such notes
are guaranteed as to the payment of principal and interest by U.S. banks'
letters of credit or collateralized by U.S. Government Obligations. For a more
complete description of U.S. Government Obligations see the description in the
"Investment Policies" section of the description of the Bond Portfolio.
The Portfolio will invest only in securities which present minimal credit
risk and (1) which have been rated or whose issuer has received a rating at the
time of acquisition in one of the two highest rating categories for short-term
debt obligations by any two Nationally Recognized Securities Rating Organization
("NRSROs"), or by one NRSRO if it is the only NRSRO to have issued a rating,
("Requisite NRSROs") or (2) which are unrated securities of comparable quality.
The Portfolio will invest no more than 5% of the value of its total assets, at
time of acquisition, in the securities of any one issuer, other than U.S.
Government Obligations, except that the Portfolio may invest more than 5% of its
total assets in securities of a single issuer rated in the highest rating
category by the Requisite NRSROs for up to three business days after purchase.
The Portfolio will also invest no more than 5% of its total assets, at time of
acquisition, in securities rated in the second highest rating category by the
Requisite NRSROs, with investment in any one issuer limited to no more than the
greater of 1% of the Portfolio's total assets or $1,000,000.
MFS, the Sub-Investment Manager, under the supervision of Chubb Investment
Advisory, will use its best judgment in selecting investments, taking into
consideration rates, terms, and marketability of obligations as well as the
capitalization, earnings, liquidity, and other indicators of the financial
condition of their issuers. Because the market value of debt obligations
fluctuates as an inverse function of changing interest rates, the Portfolio
seeks to minimize the effect of such fluctuations by investing in instruments
with a remaining maturity of 397 calendar days or less at the time of
investment, except for U.S. government obligations which may have a remaining
maturity of 762 calendar days or less. The Portfolio will maintain a dollar-
weighted average portfolio maturity of 90 days or less.
The Portfolio may enter into repurchase agreements whereby it purchases
securities, subject to agreement by the other party to repurchase the
obligations at a specified price and date. Repurchase agreements may involve
certain additional risks. See "Repurchase Agreements" in the Prospectus and
"RISK CONSIDERATIONS" in the Statement of Additional Information for a
discussion of these risks. See "DESCRIPTION OF CERTAIN INVESTMENTS" in the
Statement of Additional Information for a more complete description of
repurchase agreements.
22
<PAGE>
Risk Factors. The principal risk factors associated with investment in the
Money Market Portfolio are the risk of fluctuations in short-term interest rates
and the risk of default among one or more issuers of securities which comprise
the Portfolio's assets. Compared with the other available Portfolios, the Money
Market Portfolio could be considered the least risky of all the Fund's
Portfolios. See "RISK CONSIDERATIONS" in the Statement of Additional Information
for a description of the risks associated with investment in U.S. dollar
obligations of foreign branches of U.S. banks.
Global Hard Assets Portfolio (formerly, Gold Stock Portfolio)
Objective. The Portfolio seeks long-term capital appreciation by globally
investing primarily in "Hard Asset Securities." Income is a secondary
consideration.
Investment Policies. The Sub-Investment Manager believes "Hard Asset
Securities" (as defined below) offer an opportunity to achieve long-term capital
appreciation and to protect wealth against eroding monetary values during
periods of cyclical economic expansions. Since the market action of Hard Asset
Securities may move against or independently of the market trend of industrial
shares, the addition of such securities to an overall portfolio may increase the
return and reduce the price fluctuations of such a portfolio. There can be no
assurance that an increased rate of return or a reduction in price fluctuations
of a portfolio will be achieved. An investment in the Portfolio's shares should
be considered part of an overall investment program rather than a complete
investment program.
Hard Asset Securities include equity and debt securities of "Hard Asset
Companies" and securities, including structured notes, whose value is linked to
the price of a Hard Asset commodity or a commodity index. "Hard Asset Companies"
includes companies that are directly or indirectly (whether through supplier
relationships, servicing agreements or otherwise) engaged to a significant
extent in the exploration, development, production or distribution of one or
more of the following (together "Hard Assets"): (i) precious metals, ferrous and
non-ferrous metals, (iii) oil, gas, petroleum, petrochemicals or other
hydrocarbons, (iv) forest productions, (v) real estate and (vi) other basic non-
agricultural commodities.
Under normal market conditions, the Portfolio will invest at least 65% of its
total assets in "Hard Asset Securities" and the Portfolio will invest at least
5% of its assets in each of the first five sectors listed above. The Portfolio
has a fundamental policy of concentrating in such industries and may invest up
to 50% of its assets in any one of the above sectors during periods when the
Sub-Investment Manager believes that a particular sector offers highly
attractive opportunities based upon valuations, industry timeliness, important
technological developments or other appropriate considerations. Therefore, it
may be subject to greater risks and market fluctuations than other investment
companies with more diversified portfolios. Hard Asset Securities entail certain
risks including, but not limited to greater volatility of energy. Therefore, it
may be subject to greater risks and market fluctuations than other investment
companies with more diversified portfolios. Some of these risks including, but
not limited to Hard Asset Securities entail certain risks including but not
limited to greater volatility of energy and basic materials prices; possible
instability of the supply of various Hard Assets; the risks generally associated
with extraction of natural resources; actions and changes in government which
could affect the production and marketing of Hard Assets; and Hard Asset
Securities may also experience greater price fluctuations that the relevant Hard
Asset.
The Portfolio seeks investment opportunities worldwide. Under normal
conditions, the Portfolio will invest its assets in at least three countries
including the United States. There is no limitation or restriction on the amount
of assets to be invested in any one country, developed or underdeveloped. Global
investing involves economic and political conditions not typically applicable to
the U.S. markets.
The Portfolio may invest in common stocks; preferred stocks (either
convertible or non-convertible); debt securities, rights; warrants; direct
equity interests in trusts, partnerships, joint ventures and other incorporated
entities or enterprises; and special classes of shares available only to foreign
persons in those markets that restrict ownership of certain classes of equity to
nationals or residents of that country. Direct investments are generally
considered illiquid and will be aggregated with other illiquid investments for
purposes of the limitation on illiquid investments. The Portfolio may invest up
to 10% of its net assets, taken at market value at the time of investment, in
precious metals, either in bullion or coins.
The Fund may invest in lower quality, high-yielding debt securities (commonly
referred to as "junk bonds") of Hard Asset Companies rated as low as CCC by S&P
or Caa by Moody's. These debt instruments have some "equity" characteristics in
that, while not directly linked, their value may increase or decrease with the
value of a Hard Asset, reflecting the ability of the Hard Asset Company to make
scheduled payments of interest and principal. Lower rated debt securities are
considered speculative and involve greater risk of loss than higher rated debt
securities and are more sensitive to changes in the issuer's capacity to pay.
Debt rated Caa or CCC presents a significantly greater risk of default than do
higher rated securities and, in times of poor business or economic conditions,
the Fund may lose interest and/or principal on such securities. In addition to
sensitivity to interest rates, debt securities of Hard Asset Companies may
fluctuate in price in connection with changes in the price of the relevant Hard
Asset. The Fund will not invest more than 25% of its assets in debt securities
rated below BBB by S&P or Baa by Moody's.
The Portfolio may invest in derivatives. Derivatives in which the Portfolio
may invest include future contracts, forward contracts, options, swaps and
structured notes and other similar securities as may become available in the
market. The Portfolio may invest in indexed securities whose value is linked to
one or more currencies, interest rates, commodities, or financial or commodity
indices. An indexed security enables the investor to purchase a note whose
coupons and/or principal redemption are linked to the performance of an
underlying asset. Indexed securities may be publicly traded or may be two-party
contracts (such two-party agreements are structured notes). When the Portfolio
purchases a structured note it will make a payment of principal to the
counterparty. The Portfolio will purchase structured notes only from
counterparties rated A or better by S&P, Moody's or another nationally
recognized statistical rating organization. The Sub-Investment Manager will
monitor the liquidity of structured notes under the supervision of the Board of
Directors and structured notes determined to be illiquid will be aggregated with
other
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illiquid securities and limited to 15% of the net assets of the Portfolio.
Indexed securities may be more volatile than the underlying instrument itself,
and present many of the same risks as investing in futures and options. Indexed
securities are also subject to credit risks associated with the issuer of the
security with respect to both principal and interest. In addition, the Portfolio
may invest in futures and forward contracts and options on precious metals and
other Hard Assets.
The Portfolio may invest up to 5% of its net assets in premiums for options
on equity securities and equity indexes and up to 5% of its net assets in
warrants, including options and warrants traded in over-the-counter markets.
Warrants received as dividends on securities held by the Portfolio and warrants
acquired in units or attached to securities are not included in this
restriction. The Portfolio may buy and sell financial futures contracts and
options in financial futures contracts. The Portfolio may purchase or sell puts
and calls on foreign currencies and securities; invest in "when-issued"
securities, "partly paid" securities (securities paid for over a period of time)
and securities of foreign issuers; and may lend its portfolio securities and
borrow money for investment purposes.
The Portfolio may invest up to 35% of its net assets in debt securities
whose value is not linked to the value of a Hard Asset or a Hard Asset Company
and securities of companies which are not Hard Asset Companies. Non-Hard Asset
debt securities include high grade, liquid debt securities of foreign companies,
foreign governments and the U.S. Government and their respective agencies,
instrumentalities, political subdivisions and authorities, as well as in money
market instruments denominated in U.S. dollars or a foreign currency.
The Sub-Investment Manager believes the Portfolio may offer a hedge against
inflation, particularly commodity price driven inflation. However, there is no
assurance that rising commodity (or other hard asset) prices will result in
higher earnings or share prices for the Hard Asset Companies held by the
Portfolio. Hard Asset Company equities are affected by many factors, including
movements in the overall stock market. Inflation may cause a decline in the
overall stock market, including the stocks of Hard Asset Companies.
The assets of the Portfolio invested in fixed income securities, excluding
fixed income securities whose value is linked to the value of a Hard Asset and
of Hard Asset Companies, will consist of securities which are believed by the
Sub-Investment Manager to be high grade, that is rated A or better by Standard &
Poor's Corporation ("S&P") or Moody's Investors Service, Inc. ("Moody's),
Fitch-1 by Fitch or Duff-1 by Duff & Phelps ("D&P") or if unrated, of comparable
quality in the judgment of the Sub-Investment Manager, subject to the
supervision of the Board of Directors. The assets of the Portfolio invested in
short-term instruments will consist primarily of securities rated in the highest
category (for example, commercial paper rated "Prime-1" or "A-1" by Moody's and
S&P, respectively) or if unrated, in instruments that are determined to be of
comparable quality in the judgment of the Sub-Investment Manager, subject to the
ultimate supervision of the Board of Directors, or are insured by foreign or
U.S. governments, their agencies or instrumentalities as to payment of principal
and interest. The Portfolio may invest up to 10% of its assets in asset-backed
securities such as collateralized mortgage obligations and other mortgage and
non-mortgage asset-backed securities. Asset-backed securities backed by Hard
Assets and whose value is expected to be linked to underlying Hard Assets are
excluded from the 10% limitation.
Although the Portfolio will not invest in real estate directly, it may invest
up to 50% of its assets in equity securities of real estate investment trusts
("REIT's") and other real estate industry companies or companies with
substantial real estate investments. REITs are pooled investment vehicles which
invest primarily in income producing real estate or real estate related loans or
interests. REIT's and other real estate investments of the Portfolio are subject
to certain risks See "Real Estate Securities".
High Yield Bond Portfolio
Investment Objectives. The High Yield Bond Portfolio seeks a high level of
current income. The Portfolio will seek to achieve its objective by investing
primarily in corporate obligations with emphasis on higher-yielding, higher
risk, lower-rated or unrated securities.
Investment Policies. Under normal conditions, Massachusetts Financial
Services Company ("MFS"), the Sub-Investment Manager, expects that the
Portfolio's assets will primarily consist of a diversified portfolio of high-
yielding bonds, convertible securities and preferred stock of both domestic and
foreign issuers. The Portfolio may purchase securities on a when-issued basis
and on a forward commitment basis.
The debt securities in which the High Yield Bond Portfolio may invest include
bonds, debentures, notes, equipment lease certificates, equipment trust
certificates (including interests in trusts or other entities representing such
obligations), conditional sales contracts, commercial paper and U.S. Government
Securities, mortgage-backed securities including CMOs, stripped
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<PAGE>
mortgage-backed securities, asset-backed bonds, collateralized bond or loan
obligations, bonds on which interest is payable in kind, deferred interest bonds
and zero coupon bonds. The Fund may also invest in parallel pay CMOs and PAC
Bonds. The High Yield Bond Portfolio also may invest in common stocks, warrants,
loan participation, assignments, securities sold through private placements and
ADRs, EDRs and GDRs. See "Depository Receipts" below. The sub-adviser believes
that these investments will increase the Fund's diversification and enhance
return, but also involve certain risks, described below. These investments and
techniques and their attendant risks are described in "Investment Methods and
Risks."
The High Yield Bond Portfolio may also invest in other instruments or utilize
investment techniques that involve special risks. These include: emerging market
securities, Brady Bonds, interest rate swaps, currency swaps, other types of
available swap agreements, mortgage dollar roll transactions, options on
securities and securities indices, forward foreign currency exchange contracts,
options on foreign currency, futures contracts and options thereon, repurchase
agreements, borrowing from a bank and lending portfolio securities. The
Portfolio may invest up to 15% of its assets in illiquid securities. The
Portfolio may also invest up to 50% (and MFS expects generally to invest between
0% and 20%) of its total assets in foreign securities (not including ADRs). The
Portfolio may hold foreign currency received in connection with investments in
foreign securities when, in the judgment of the sub-advisor, 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 Portfolio may also hold
foreign currency in anticipation of purchasing foreign securities.
The Portfolio may invest in futures contracts for hedging purposes only. The
Portfolio has adopted the additional restriction that it will not enter into a
futures contract if, immediately thereafter, the value of securities and other
obligations underlying all such futures contracts would exceed 50% of the value
of the Portfolio's total assets.
The High Yield Bond Portfolio may sell a security short as a hedge against
portfolio holdings whose credit is deteriorating. The Fund's short sales are
limited to situations where the Portfolio owns a debt security of a company and
sells short a different type of security issued by the same company such as
common or preferred stock or a senior or junior debt security. The total market
value of all securities sold short may not exceed 2% of the Portfolio's net
assets.
During periods of unusual market conditions when the Sub-Investment Manager
believes that investing for temporary defensive purposes is appropriate, part or
all of the assets of the Fund may be invested in cash (including foreign
currency) or short-term money market instruments.
When and if available, fixed-income securities may be purchased at a discount
from face value. However, the Portfolio does not intend to hold such securities
to maturity for the purpose of achieving potential capital gains, unless current
yields on these securities remain attractive. From time to time the Portfolio
may purchase securities not paying interest at the time acquired if, in the
opinion of the Sub-Investment Manager, such securities have the potential for
future income or capital appreciation.
Securities offering the high current income sought by the High Yield Bond
Portfolio are ordinarily in the lower rating categories of recognized rating
agencies (that is, ratings of Baa or lower by Moody's or BBB by Standard &
Poor's) or are unrated and generally involve greater volatility of price and
risk of principal and income than securities in the higher rating categories.
The Portfolio may invest in securities rated Baa by Moody's or BBB by Standard &
Poor's as well as securities rated Ba or lower by Moody's or BB or lower by
Standard & Poor's. No minimum rating standard is required by the Portfolio. A
detailed discussion of the risks associated with lower rated corporate debt
obligations is found in "High Yield Securities" below. See the SAI for a
description of corporate bond ratings assigned by Standard & Poor's and Moody's.
While the Sub-Investment Manager may refer to ratings issued by established
credit rating agencies, it is not the Portfolio's policy to rely exclusively on
ratings issued by these rating agencies, but rather to supplement such ratings
with MFS's own independent ongoing review of the credit quality. The Portfolio's
achievement of its investment objective may be more dependent on the sub-
adviser's own credit analysis than in the case of an investment company
primarily investing in higher quality fixed-income securities. Since shares of
the Portfolio represent an investment in securities with fluctuating market
prices, the value of shares of the Portfolio will vary as the aggregate value of
the portfolio securities of the Portfolio increases or decreases. However,
changes in the value of securities subsequent to their acquisition will not
affect cash income or yield to maturity to the Portfolio.
Risk Factors. The Portfolio seeks to maximize the return on its portfolio by
taking advantage of market developments, yield disparities and variations in the
creditworthiness of issuers. This may result in increases or decreases in the
holding by the Fund of debt securities which sell at moderate to substantial
premiums or discounts from face value. Moreover, if the sub-adviser's
expectations of changes in interest rates or its evaluation of the normal yield
relationship between two securities proves to be incorrect, the income, net
asset value and potential capital gain of the Portfolio may be decreased or its
potential capital loss may be increased. The Portfolio will be diversified as
defined under the Investment Company Act of 1940.
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Domestic Growth Stock Portfolio
Investment Objectives. The investment objective of the Domestic Growth Stock
Portfolio is to achieve reasonable income and growth of capital by investing
primarily in a diversified portfolio of equity securities issued by companies
organized in the U.S. and considered to be undervalued in light of the company's
earning power and growth potential.
Investment Policies. The mix of assets of the Portfolio will vary with
prevailing economic and market conditions. Generally, at least 80% of the
Portfolio's assets are invested in common stocks and other equity related
securities such as preferred stocks and securities convertible into common
stock. The Portfolio may also invest up to 20% of its assets in both U.S.
Government Obligations and corporate debt securities, which will be rated within
the top four rating categories of Standard & Poor's or Moody's or other NRSROs
or, if unrated, are considered by the Portfolio's Sub-Investment Manager to be
of comparable quality and cash equivalent investments, such as certificates of
deposit, bankers' acceptances, and commercial paper, having ratings of A-1 or
Prime-1 by Standard & Poor's or Moody's or other NRSROs or, if unrated, are
considered by the Portfolio's Sub-Investment Manager to be of comparable
quality. Securities rated BBB or Baa by Standard & Poor's or Moody's are
considered investment-grade obligations and are regarded as having adequate
capacity to pay interest and repay principal, although adverse economic
conditions or changing circumstances are more likely to lead to a weakening of
such capacity than for higher grade bonds. Such securities may be considered to
have speculative characteristics. In the event that the ratings of securities
held by the Portfolio fall below investment grade, the Portfolio will not be
obligated to dispose of such securities and may continue to hold such securities
if, in the opinion of the Sub-Investment Manager, such investment is considered
appropriate under the circumstances. Generally, at least 60% of the Portfolio's
assets will be invested in securities which have paid dividends or interest
within the preceding 12 months, but non-income producing securities will be held
for anticipated increases in value. The Portfolio may also invest in warrants,
which are rights to buy certain securities at set prices during specified time
periods. See "Warrants" below.
This Portfolio invests primarily in stocks listed on the New York Stock
Exchange and on other national securities exchanges and, to a lesser extent, in
stocks that are traded over-the-counter. Securities are selected principally for
their potential appreciation and anticipated income. Assets of the Portfolio
will be substantially fully invested at all times.
Risk Factors. The prices of the types of securities usually purchased for the
Domestic Growth Stock Portfolio will tend to fluctuate more than the prices of
the securities usually purchased for the Bond Portfolio or the Money Market
Portfolio. As a result, the net asset value of the Domestic Growth Stock
Portfolio may experience greater short-term and long-term variations than
Portfolios that invest primarily in fixed income securities.
Growth Portfolio
Investment Objectives. The Growth Portfolio seeks capital growth. The
Portfolio invests primarily in equity securities that Strong Capital Management,
Inc. ("Strong"), the Growth Portfolio's Sub-Investment Manager, believes have
above-average growth prospects. Under normal market conditions, the Portfolio
will invest at least 65% of its total assets in equity securities, including
common stocks, preferred stocks and securities that are convertible into common
or preferred stocks, such as warrants and convertible bonds. While the emphasis
of the Growth Portfolio is clearly on equity securities, the Growth Portfolio
may invest a limited portion of its assets in debt obligations when the
Portfolio's sub-adviser perceives that they are more attractive than stocks on a
long-term basis. When the sub-adviser determines that market conditions warrant
a temporary defensive position, the Growth Portfolio may invest without
limitation in cash and short-term fixed-income securities.
Investment Policies. Strong will generally invest Portfolio assets in
companies whose earnings are believed to be in a relatively strong growth trend,
and, to a lesser extent, in companies in which significant further growth is not
anticipated but whose market value is thought to be undervalued. In identifying
companies with favorable growth prospects, the sub-adviser ordinarily looks to
certain other characteristics, such as the following: (1) prospects for above-
average sales and earnings growth; (2) high return on invested capital; (3)
overall financial strength, including sound financial and accounting policies
and a strong balance sheet; (4) competitive advantages, including innovative
products and service; (5) effective research, product development, and
marketing; and (6) stable, capable management.
The Growth Portfolio may invest up to 35% of its total assets in debt
obligations that are considered investment grade or, if not rated, of equivalent
investment quality as determined by Strong, including intermediate to long-term
corporate, U.S. Government or agency debt securities, bank obligations or
commercial paper. When Strong determines that market conditions warrant a
temporary defensive position, the Growth Portfolio may invest without
limitations in cash and short-term fixed income securities. Although the debt
obligations in which it invests will be primarily investment grade, the Fund may
invest up to 5% of its net assets in non-investment grade debt obligations (debt
securities rated Ba or lower by Moody's or BB or lower by Standard &
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Poor's). A detailed discussion of the risks associated with lower rated debt
obligations is found in "High Yield Securities" and in the SAI. See the SAI for
a description of the bond ratings assigned by Standard & Poor's and Moody's.
The Growth Portfolio may invest up to 25% of its net assets directly in
foreign securities, including both direct investments and investments made
through depositary receipts. See "Foreign Securities" and "Depositary Receipts"
for the special risks associated with foreign investments.
The Portfolio may purchase obligations on a when-issued or forward commitment
basis, enter into repurchase, reverse repurchase and mortgage dollar roll
agreements, swap agreements, foreign currency transactions, loan its portfolio
securities, purchase restricted securities, forward foreign currency contracts,
options and futures contracts and borrow from banks. The Portfolio may purchase
zero coupon bonds, mortgage and other asset backed securities, bonds with
interests payable in kind, foreign government securities and the securities of
unsecured issuers. The Portfolio may also purchase the securities of other
investment companies and small capitalization companies. The Growth Portfolio
may make short sales "against the box," and invest up to 15% of its assets in
illiquid securities. These investments and techniques and their attendant risks
are more fully described in "Investment Methods and Risks." The Portfolio will
be a diversified investment company.
Growth and Income Portfolio
Investment Objectives. The objective of the Growth and Income Portfolio is to
seek long-term growth of capital by investing primarily in a wide range of
equity issues that may offer capital appreciation and, secondarily, to seek a
reasonable level of current income.
Investment Policies. The Growth and Income Portfolio invests at least 80% of
its assets in common stocks and other equity securities such as preferred stocks
and securities convertible into common stock that are either listed on the New
York Stock Exchange, traded over-the-counter or, to a lesser extent, listed on
other national securities exchanges. Securities are selected principally for
potential capital appreciation, based upon such criteria as relatively low price
to earnings ratio and relatively low price to book value ratio, as compared to
such ratios for the market in general and, secondarily, for current income and
increasing future dividends. While the Growth and Income Portfolio intends to
invest at least 60% of its assets in securities which have paid dividends or
interest within the preceding 12 months, the Portfolio may invest in securities
not currently paying dividends where Warburg the Sub-Investment Manager
anticipates that they will increase in value. The Portfolio may invest up to 10%
of its assets in fixed income securities (including Convertible Bonds rated
below investment grade ("Junk Bonds")) and up to an additional 10% of its assets
in convertible securities rated below investment grade at the time of purchase.
The Growth and Income Portfolio may also invest for temporary or defensive
purposes in high-grade debt securities and money market securities, including
U.S. Government Obligations, commercial paper and bank obligations, and
repurchase agreements.
The Growth and Income Portfolio will invest primarily in U.S. companies, but
may, when deemed appropriate by Warburg, invest in and hold up to 20% of the
Portfolio's total assets in foreign securities, which are either traded in the
U.S. or securities of foreign issuers purchased directly in foreign markets or
foreign securities represented by Depository Receipts. The Portfolio's
investments in foreign securities will primarily be in equity securities of
companies organized outside the U.S., but may also include debt obligations of
foreign companies and governments. See "Foreign Securities" and "Depository
Receipts" in the Prospectus and "DESCRIPTION OF CERTAIN INVESTMENTS--Depository
Receipts" in the Statement of Additional Information.
The Growth and Income Portfolio may write covered call options or purchase
put and call options with respect to certain of its portfolio securities or
purchase stock index options for hedging purposes or to enhance income. The
Growth and Income Portfolio may also purchase or write futures contracts,
including stock index futures contracts. The Portfolio may also enter into
closing transactions with respect to such options and futures contracts. See
"Securities and Index Options" and "Futures Contracts" in this Prospectus.
Risk Factors. The prices of the securities purchased for the Growth and
Income Portfolio will tend to fluctuate more than the prices of securities
purchased for the Bond Portfolio or the Money Market Portfolio. As a result, the
net asset value of the Growth and Income Portfolio may experience greater short-
term and long-term variations than Portfolios that invest primarily in fixed
income securities.
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Capital Growth Portfolio
Investment Objectives. The investment objective of the Capital Growth
Portfolio is to seek capital growth. Realization of income is not a significant
investment consideration and any income realized will be incidental.
Investment Policies. The Capital Growth Portfolio will invest primarily in
common stocks when Janus, the Sub-Investment Manager believes that the market
environment favors investment in those securities. Common stock investments are
selected in industries and companies that Janus believes are experiencing
favorable demand for their products and services and that operate in a favorable
environment from a competitive and regulatory standpoint.
It is the policy of the Capital Growth Portfolio to purchase and hold
securities for capital growth. If the Sub-Investment Manager is satisfied with
the performance of a security and anticipates continued appreciation, the
Portfolio will generally retain such security. However, changes in the Portfolio
will generally be made whenever the Sub-Investment Manager believes they are
advisable, either as a result of securities having reached a price objective, or
by reason of developments not foreseen at the time of the investment decision.
Since investment changes usually will be made without reference to the length of
time a security has been held, a significant number of short-term transactions
may result. To a limited extent, the Portfolio may also purchase individual
securities in anticipation of relatively short-term price gains, and the rate of
portfolio turnover will not be a determining factor in the sale of such
securities. However, certain tax rules may restrict the Portfolio's ability to
sell securities held for less than 90 days.
Although the Portfolio expects that under normal conditions its assets will
be primarily invested in common stocks, to the extent that it is not so
invested, the Capital Growth Portfolio may also invest in other securities,
including: U.S. Government Obligations, corporate bonds and debentures, high
grade commercial paper, preferred stocks, convertible securities, warrants or
other securities of U.S. issuers when the Sub-Investment Manager perceives an
opportunity for capital growth from such securities or so that the Portfolio may
receive a return on its idle cash. The Portfolio's cash position may increase
when the Sub-Investment Manager is unable to locate investment opportunities
that it believes have desirable risk/reward characteristics. Investments in debt
securities will be limited to securities of U.S. companies, the U.S. Government
and foreign governments and foreign governmental entities. Foreign governmental
entities include supranational organizations, such as the European Economic
Community and the World Bank, that are chartered to promote economic development
and are supported by various governments and governmental entities. All debt
securities in which the Portfolio invests, except as noted below, will have
credit ratings in the four highest rating categories of Standard & Poor's or
Moody's or other NRSROs or, if not rated, will be of comparable quality to
obligations so rated in the judgment of the Sub-Investment Manager. The Capital
Growth Portfolio may invest up to 5% of its assets in high-yield/high-risk
bonds. Such securities include debt securities that are below investment grade
(securities rated Ba or lower by Moody's or BB or lower by Standard & Poor's)
and unrated securities of comparable quality as determined by the Sub-Investment
Manager.
Investments may also be made in foreign equity securities and in Depository
Receipts. The Portfolio will not invest more than 25% of its assets in foreign
securities denominated in foreign currencies and not publicly traded in the U.S.
See "Foreign Securities" and "Depository Receipts" in the Prospectus.
Additionally, in order to manage exchange rate risks, the Portfolio may enter
into foreign currency exchange contracts (agreements to exchange one currency
for another at a future date). See "Forward Foreign Currency Exchange Contracts"
in the Prospectus.
The Portfolio may purchase and sell futures contracts as more fully described
under "Futures Contracts" in this Prospectus and may write covered call options
and purchase call and put options as described under "Securities and Index
Options" in this Prospectus.
The Portfolio may invest in "special situations" from time to time. A special
situation arises when, in the Sub-Investment Manager's opinion, the securities
of a particular company will be recognized and appreciate in value due to a
specific development, such as a technological breakthrough or a new product, at
that company.
The Portfolio expects that its securities will primarily be traded on U.S.
and foreign securities exchanges and established over-the-counter markets.
Risk Factors. The foreign securities and ADRs, EDRs and GDRs in which the
Portfolio may invest involve special considerations and risks. See "Foreign
Securities" and "Depository Receipts" in this Prospectus. Investing in foreign
currency exchange contracts involves certain risks since shifting the
Portfolio's currency exposure from one currency to another removes the
Portfolio's opportunity to profit from increases in the value of the original
currency and involves a risk of increased losses if the Sub-Investment Manager's
projection of future exchange rates is inaccurate. Investment in special
situations may carry an additional risk of loss in the event that the
anticipated development does not occur or does not attract the expected
attention. The
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price of the securities purchased by the Capital Growth Portfolio will tend to
fluctuate more than the prices of securities purchased by the Bond Portfolio and
the Money Market Portfolio.
Balanced Portfolio
Investment Objectives. The investment objective of the Balanced Portfolio is
to seek reasonable current income and long-term capital growth, consistent with
conservation of capital, by investing primarily in common stocks and fixed
income securities.
Investment Policies. The Balanced Portfolio intends to invest based on
combined considerations of risk, income, capital enhancement and protection of
capital value. The Balanced Portfolio may invest in any type or class of
security. Normally, the Balanced Portfolio will invest in common stocks and
fixed income securities; however, it may also invest in warrants and in
securities convertible into common stocks. At least 25% of the value of its
assets will be invested in high-grade fixed income senior securities which are
rated in the three highest rating categories by any NRSRO or, if unrated, are
considered by Morgan, the Portfolio's Sub-Investment Manager, to be of
comparable quality. The Portfolio may purchase and sell futures contracts as
more fully described under "Futures Contracts" in this Prospectus and may write
covered call options and purchase call and put options as described under
"Securities and Index Options" in this Prospectus. The Portfolio may also invest
in zero coupon debt obligations. In order to provide additional diversification
the Portfolio may invest in equity and debt securities of foreign issuers
limited to 15% of the Portfolio's total assets and in Depository Receipts. See
"Foreign Securities" and "Depository Receipts" in this Prospectus.
In implementing the investment objectives of the Balanced Portfolio, Morgan
will select securities believed to have potential for the production of current
income, with emphasis on securities that also have potential for capital
enhancement. In an effort to protect its assets against major market declines,
or for other temporary defensive purposes, the Balanced Portfolio may actively
pursue a policy of retaining cash or investing part or all of its assets in cash
equivalents, such as U.S. Government Obligations, high grade commercial paper
and U.S. dollar obligations of foreign branches of U.S. banks.
Risk Factors. The prices of equity securities in which the Balanced Portfolio
invests will fluctuate day to day and, as a result, the value of an investment
in the Balanced Portfolio will vary based upon such market conditions. The value
of the Balanced Portfolio's investment in fixed income securities will vary
depending on various factors including prevailing interest rates. Fixed income
securities are also subject to the ability of the issuer to make payments of
principal and interest when due. Although the Balanced Portfolio seeks to reduce
both financial and market risks associated with any one investment medium,
performance of the Balanced Portfolio will depend on such additional factors as
timing the mix of investments and the ability of Morgan to predict and react to
changing market conditions. Investment in foreign securities and ADRs involve
special considerations and risks. See "Foreign Securities" and "Depository
Receipts" in this Prospectus.
Emerging Growth Portfolio
Investment Objective. The Emerging Growth Portfolio seeks to provide long-
term growth of capital. Dividend and interest income from portfolio securities,
if any, is incidental to the Portfolio's investment objective of long term
growth of capital.
Investment Policies. The Portfolio's policy is to invest primarily (i.e., at
least 80% of its assets under normal circumstances) in common stocks of
companies that are early in their life cycle but which have the potential to
become major enterprises (emerging growth companies). Such companies generally
would be expected to show earnings growth over time that is well above the
growth rate of the overall economy and the rate of inflation, and would have the
products, technologies, management and market and other opportunities which are
usually necessary to become more widely recognized as growth companies. Emerging
growth companies can be of any size and the Portfolio may also invest in larger
or more established companies whose rates of earnings growth are expected to
accelerate because of special factors, such as rejuvenated management, new
products, changes in consumer demand, or basic changes in the economic
environment.
While the Portfolio will invest primarily in common stocks, the Portfolio
may, to a limited extent, seek appreciation in other types of securities such as
fixed income securities (which may be unrated), convertible securities and
warrants when relative values make such purchases appear attractive either as
individual issues or as types of securities in certain economic environments.
The Portfolio may also enter into forward foreign currency exchange contracts
for the purchase or sale of foreign currency for hedging purposes and non-
hedging purposes, including transactions entered into for the purpose of
profiting from anticipated changes in foreign currency exchange rates, as well
as options on foreign currencies. The Portfolio may also hold foreign currency
(see "Risk Factors" below). The Portfolio may invest up to 25% (and generally
expects to invest between 0% and 10%) of its total assets in foreign securities
(not including American Depository Receipts ("ADRs") (see "American Depository
Receipts" below)), which
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may be traded on foreign exchanges (see "Risk Factors" and "Foreign Securities"
below). The Portfolio may hold cash equivalents or other forms of debt
securities as a reserve for future purchases of common stock or to meet
liquidity needs. The Portfolio may also invest in emerging market securities.
The Portfolio may invest in corporate asset-backed securities (see "Corporate
Asset-Backed Securities" below). The Portfolio may write covered call and put
options and purchase call and put options on securities and stock indices in an
effort to increase current income and for hedging purposes. The Portfolio may
also purchase and sell stock index futures contracts and may write and purchase
options thereon for hedging purposes and for non-hedging purposes, subject to
applicable law (see "Futures Contracts" below and the Statement of Additional
Information). In addition, the Portfolio may purchase portfolio securities on a
"when-issued" or on a "forward delivery" basis (See "When-Issued Securities"
below). The Portfolio may also invest a portion of its assets in "loan
participations" (see "Loan Participations and Other Direct Indebtedness" below
and in the Statement of Additional Information).
While it is not generally the Portfolio's policy to invest or trade for
short-term profits, the Portfolio may dispose of a portfolio security whenever
MFS, the Sub-Investment Manager, is of the opinion that such security no longer
has an appropriate appreciation potential or when another security appears to
offer relatively greater appreciation potential. Subject to tax requirements,
portfolio changes are made without regard to the length of time a security has
been held, or whether a sale would result in a profit or loss.
During periods of unusual market conditions when MFS, believes that investing
for temporary defensive purposes is appropriate, or in order to meet anticipated
redemption requests, a large portion or all of the assets of the Portfolio may
be invested in cash or cash equivalents including, but not limited to,
obligations of banks (including certificates of deposit, bankers' acceptances
and repurchases agreements) with assets of $1 billion or more, commercial paper,
short-term notes, obligations issued or guaranteed by the U.S. Government or any
of its agencies, authorities or instrumentalities and related repurchase
agreements. U.S. Government securities also include interests in trust or other
entities representing interests in obligations that are issued or guaranteed by
the U.S. Government, its agencies, authorities or instrumentalities.
Risk Factors. The nature of investing in emerging growth companies involves
greater risk than is customarily associated with investments in more established
companies. Emerging growth companies often have limited product lines, markets
or financial resources, and they may be dependent on one-person management. In
addition, there may be less research available on many promising small and
medium sized emerging growth companies. The securities of emerging growth
companies may have limited marketability and may be subject to more abrupt or
erratic market movements than securities of larger, more established growth
companies or the market averages in general. Shares of the Portfolio, therefore,
are subject to greater fluctuation in value than shares of a conservative equity
Portfolio or of a growth Portfolio which invests entirely in proven growth
stocks.
The Portfolio may invest up to 5% of its assets in lower rated fixed income
securities or comparable unrated securities. Investments in lower rated income
securities, while offering generally high current income and generally providing
greater income and opportunity for gain than investments in higher rated
securities, usually entail greater risk of principal and income (including the
possibility of default or bankruptcy of the issuers of such securities), and
involve greater volatility of price (especially during periods of economic
uncertainty or change) than investments in higher rated securities and because
yields may vary over time, no specified level of income can ever be assured. In
particular, securities rated lower than Baa by Moody's Investors Service, Inc.
("Moody's") or BBB by Standard & Poor's Rating Service or comparable unrated
securities (commonly known as "junk bonds") are considered speculative. These
lower rated high yielding fixed income securities generally tend to reflect
economic changes (and the outlook for economic growth), short-term corporate and
industry developments and the market's perception of their credit quality
(especially during times of adverse publicity) to a greater extent than higher
rated securities which react primarily to fluctuations in the general level of
interest rates (although these lower rated fixed income securities are also
affected by changes in interest rates). In the past, economic downturns or an
increase in interest rates have under certain circumstances caused a higher
incidence of default by the issuers of these securities and may do so in the
future, especially in the case of highly leveraged issuers. During certain
periods, the higher yields on the Portfolio's lower rated high yielding fixed
income securities are paid primarily because of the increased risk of loss of
principal and income, arising from such factors as the heightened possibility of
default or bankruptcy of the issuers of such securities. Due to the fixed income
payments of these securities, the Portfolio may continue to earn the same level
of interest income while its net asset value declines due to portfolio losses,
which could result in an increase in the Portfolio's yield despite the actual
loss of principal. The prices for these securities may be affected by
legislative and regulatory developments. An effect of such rules may be to
depress the prices of outstanding lower rated high yielding fixed income
securities. Changes in the value of securities subsequent to their acquisition
will not affect cash income or yield to maturity to the Portfolio but will be
reflected in the net asset value of shares of the Portfolio. The market for
these lower rated fixed income securities may be less liquid than the market for
investment grade fixed income securities. Furthermore, the liquidity of these
lower
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rated securities may be affected by the market's perception of their credit
quality. Therefore, the Sub-Investment Manager's judgment may at times play a
greater role in valuing these securities than in the case of investment grade
fixed income securities, and it also may be more difficult during times of
certain adverse market conditions to sell these lower rated securities at their
fair value to meet redemption requests or to respond to changes in the market.
No minimum rating standard is required by the Portfolio. To the extent the
Portfolio invests in these lower rated fixed income securities, the achievement
of its investment objective may be more dependent on the Sub-Investment
Manager's own credit analysis than in the case of a Portfolio investing in
higher quality bonds. While the Sub-Investment Manager may refer to ratings
issued by established credit rating agencies, it is not a policy of the
Portfolio to rely exclusively on ratings issued by these agencies, but rather to
supplement such ratings with the Sub-Investment Manager's own independent and
ongoing review of credit quality.
The Portfolio may also invest in fixed income securities rated Baa by Moody's
or BBB by S&P and comparable unrated securities. These securities, while
normally exhibiting adequate protection parameters, may have speculative
characteristics and changes in economic conditions and other circumstances are
more likely to lead to a weakened capacity to make principal and interest
payments than in the case of higher rated securities.
Additional Risk Factors
The net asset value of the shares of an open-end investment company which may
invest to a limited extent in fixed income securities changes as the general
levels of interest rates fluctuate. When interest rates decline, the value of a
fixed income portfolio can be expected to rise. Conversely, when interest rates
rise, the value of a fixed income portfolio can be expected to decline.
Although changes in the value of securities subsequent to their acquisition
are reflected in the net asset value of shares of the Portfolio, such changes
will not affect the income received by the Portfolios from such securities.
However, the dividends paid by the Portfolios, if any, will increase or decrease
in relation to the income received by the Portfolio from its investments, which
would in any case be reduced by the Portfolio's expenses before it is
distributed to shareholders.
In addition, the use of options, futures contracts, options on futures
contracts, forward contracts and options on foreign currencies may result in the
loss of principal, particularly where such instruments are traded for other than
hedging purposes (e.g., to enhance current yield).
The Emerging Growth Portfolio is aggressively managed and, therefore, the
value of its shares is subject to greater fluctuation and investments in its
shares involve the assumption of a higher degree of risk than would be the case
with an investment in a conservative equity portfolio or a growth portfolio
investing entirely in proven growth equities.
See the Statement of Additional Information for further discussion of foreign
securities and the holding of foreign currency as well as the associated risks.
Given the above average investment risk inherent to the Emerging Growth
Portfolio, investment in shares of the Emerging Growth Portfolio should not be
considered a complete investment program and may not be appropriate for all
investors.
Governmental Securities
U.S. Governmental Obligations consist of marketable securities issued or
guaranteed as to the timely payment of both principal and interest by the U.S.
Government, its agencies or instrumentalities. Federal agency securities are
debt obligations issued by agencies of the U.S. Government established under
authority grated by Congress. Such obligations include, but are not limited to,
those issued by the Federal Housing Authority, Maritime Administration,
Governmental National Mortgage Association, the Tennessee Valley Authority, and
the General Services Administration. Instrumentalities include, for example,
each of the Federal Home Loan Banks, the National Bank for Cooperatives, the
Federal Home Loan Mortgage Corporation, the Farm Credit Banks, the National
Mortgage Association, and the U.S. Postal Service. These U.S. Government
Obligations are either (i) backed by the full faith and by conversion of fixed
income securities or by the exercise of related warrants.
The Portfolio may enter into agreements with banks or broker-dealers to
purchase some securities on a "forward commitment," "when -issued" or on a
"delayed delivery" basis. Such agreements involve a commitment to purchase
securities at a price, which is fixed at the time of commitment, for delivery at
a future date, which may be up to three months in the future. The Portfolio will
not pay for the securities or begin earning interest on them until the
securities are paid for and received. The securities so purchased are subject to
market fluctuations so that at the time of deliver, the value of such securities
may be more or less than the purchase price.
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Convertible Securities
All Funds except the Money Market Portfolio may invest in convertible
securities, Convertible securities may include corporate notes or preferred
stock but are ordinarily a long-term debt obligation of the issuer convertible
at a stated price or at a stated exchange rate into common stock of the issuer.
As with all debt securities, the market value of convertible securities tends to
decline as interest rates increase and, conversely, to increase as interest
rates decline. Convertible securities generally offer lower interest or dividend
yields than non-convertible securities of similar quality. However, when the
market price of the common stock underlying a convertible security exceeds the
conversion price, the price of the convertible security tends to reflect the
value of the underlying common stock. As the market price of the underlying
common stock declines, the convertible security tends to trade increasingly on a
yield basis, and thus may not depreciate to the same extent as the underlying
common stock. Convertible securities generally rank senior to common stocks in
an issuer's capital structure and are consequently of higher quality and entail
less risk of declines in market value than the issuer's common stock. However,
the extent to which such risk is reduced depends in large measure upon the
degree to which the convertible security sells above its value as a fixed-income
security. The convertible debt securities in which a Fund may invest are subject
to the same rating criteria as that Fund's investment in non-convertible debt
securities.
Foreign Securities
The World Growth Stock Portfolio, the International Equity Portfolio, the
High Yield Portfolio, the Growth Portfolio, the Capital Growth Portfolio, the
Global Hard Assets Portfolio and the Emerging Growth Portfolio intend to
purchase securities that are listed on stock exchanges in foreign countries.
They may also, to a limited extent, purchase unlisted foreign securities. The
Growth and Income Portfolio, the Capital Growth Portfolio, Global Hard Assets
Portfolio and the Balanced Portfolio may also invest in listed and unlisted
foreign securities. Foreign investments may involve greater risks than are
present in domestic investments. Compared to domestic companies, there is
generally less publicly available information about foreign companies, less
comprehensive accounting, reporting and disclosure requirements, and there may
be less governmental regulation and supervision of foreign stock exchanges,
brokers and listed companies. Investments in foreign securities also involve the
risk of expropriation or confiscatory taxation that could affect investments,
currency blockages which would prevent cash from being brought back into the
United States, generally higher brokerage and custodial costs than those of
domestic securities and settlement of transactions with respect to such
securities may sometimes be delayed beyond periods customary in the United
States. The Sub-Investment Managers, under the supervision of Jefferson Pilot
Investment Advisory, consider possible political and financial instability
abroad, as well as the liquidity and volatility of foreign investments.
Investing in foreign securities or on foreign exchanges may present a greater
degree of risk than investing in domestic issuers. These risks include changes
in currency rates, exchange control regulations, governmental administration,
economic or monetary policy (in this country or abroad), war or expropriation.
In particular, the dollar value of portfolio securities of non-U.S. issuers
fluctuates with changes in market and economic conditions abroad and with
changes in relative currency values (when the value of the dollar increases as
compared to a foreign currency, the dollar value of a foreign-denominated
security decreases, and vice versa). Costs may be incurred in connection with
conversions between various currencies. Special considerations may also include
more limited information about foreign issuers, higher brokerage costs,
different accounting standards and thinner trading markets. Foreign securities
markets may also be less liquid, more volatile and less subject to government
supervision than in the United States. Investments in foreign countries could be
affected by other factors including confiscatory taxation and potential
difficulties in enforcing contractual obligations and could be subject to
extended settlement periods. Therefore, an investment in shares of a Portfolio
may be subject to a greater degree of risk than investments in other investment
companies which invest exclusively in domestic securities.
Foreign Currencies
As a result of its investments in foreign securities, the Portfolios may
receive interest or dividend payments, or the proceeds of the sale or redemption
of such securities, in the foreign currencies in which such securities are
denominated. In that event, a Portfolio may promptly convert such currencies
into dollars at the then current exchange rate. Under certain circumstances,
however, such as where the Sub-Investment Manager believes that the applicable
exchange rate is unfavorable at the time the currencies are received or the Sub-
Investment Manager anticipates, for any other reason, that the exchange rate
will improve, a Portfolio may hold such currencies for an indefinite period of
time.
In addition, a Portfolio may be required to receive delivery of the foreign
currency underlying forward currency contracts it has entered into. This could
occur, for example, if an option written by the Portfolio is exercised or is
unable to close out a forward
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contract it has entered into. A Portfolio may also hold foreign currency in
anticipation of purchasing foreign securities. A Portfolio may also elect to
take delivery of the currencies underlying options or forward contracts if, in
the judgment of the Sub-Investment Manager, it is in the best interest of the
Portfolio to do so. In such instances as well, a Portfolio may promptly convert
the foreign currencies to dollars at the then current exchange rate, or may hold
such currencies for an indefinite period of time.
While the holding of currencies will permit a Portfolio to take advantage of
favorable movements in the applicable exchange rate, it also exposes a Portfolio
to risk of loss if such rates move in a direction adverse to the Portfolio's
position. Such losses could reduce any profits or increase any losses sustained
by the Portfolio from the sale or redemption of securities, and could reduce the
dollar value of interest or dividend payments received. In addition, the holding
of currencies could adversely affect the Portfolio's profit or loss on currency
options or forward contracts, as well as its hedging strategies.
Prior to investing in foreign securities, a Portfolio may hold funds
temporarily in foreign currencies. The value of the assets of that Portfolio may
be affected favorably or unfavorably by changes in foreign currency exchange
rates and exchange control regulations. The Portfolio may also incur costs in
connection with conversions between various currencies. The Portfolios will,
therefore, consider foreign exchange rates in making investment decisions, but,
other than the Capital Growth Portfolio and the Emerging Growth Portfolio, will
not actively hedge foreign currency fluctuations by entering into contracts to
purchase or sell foreign currencies at a future date or options or futures
contracts on foreign currencies. See "RISK CONSIDERATIONS--Foreign Securities"
in the Statement of Additional Information.
Brady Bonds
Certain of the Portfolios consistent with their objectives and policies may
invest in Brady Bonds, which are securities created through exchange of existing
commercial bank loans to public and private entities in certain emerging markets
for new bonds in connection with debt restructuring under a debt restructuring
plan introduced by former U.S. Secretary of the Treasury, Nicholas F. Brady (the
"Brady Plan"). Brady Plan debt restructuring have been implemented to date in
Argentina, Brazil, Bulgaria, Costa Rica, Croatia, Dominican Republic, Ecuador,
Jordan, Mexico, Morocco, Nigeria, Panama, Peru, the Philippines, Poland,
Slovenia, Uruguay and Venezuela. Brady Bonds may be collateralized or
uncollateralized, are issued in various currencies (but primarily the U.S.
Dollar) and are actively traded in the over-the-counter markets. U.S. dollar
denominated, collateralized Brady Bonds, which may be fixed-rate bonds, or
floating rate bonds, are generally collateralized in full as to principal by
U.S. Treasury zero coupon bonds having the same maturity as the bonds. Brady
Bonds are often viewed as having four valuation components: the collateralized
repayment of principal at final maturity; the collateralized interest payments;
the uncollateralized interest payments; and any uncollateralized repayments of
principal at maturity (these uncollateralized amounts constituting the "residual
risk"). In light of the residual risk of Brady Bonds and the history of defaults
of countries issuing Brady Bonds with respect to the commercial bank loans by
public and private entities, investments in Brady Bonds may be viewed as
speculative.
Non-Diversified Status
Since the International Equity Portfolio is not "diversified" as defined by
the Investment Company Act of 1940, as amended ("ICA") it may invest a greater
percentage of its assets in any single issuer or on a single industry than
otherwise permissible for a diversified investment company, and it will be more
susceptible to adverse developments affecting any single issuer or industry.
Nonetheless, this "non-diversified" Portfolio is still subject to the
diversification requirements that arise under the federal tax laws.
Precious Metals
The Global Hard Assets Portfolio may invest in precious metal coins, which
have no numismatic value, and bullion. The value of such coins and bullion is
based primarily on their precious metal content. Since such investments do not
generate any investment income, the sole source of return from such investments
would be from gains or losses realized on their sale. The Portfolio incurs
additional costs in storing gold bullion and coins. These storage costs are
generally higher than custodial costs for securities. Although subject to
substantial fluctuations in value, management believes such investments could be
beneficial to the investment performance of the Portfolio and could be a
potential hedge against inflation, as well as an investment with possible growth
potential. In addition, at the appropriate time, investments in precious metal
coins or bullion could help to moderate fluctuations in the Portfolio's value,
as at times the prices of precious metals have tended not to fluctuate as widely
as shares of issues engaged in the mining of such precious metals, In view of
the established world market for precious metals, the daily value of such coins
is readily ascertainable and their liquidity is assured. The Portfolio will
maintain its precious metal coins and bullion with Wilmington Trust
Company.
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Precious metal trading is a speculative activity and its markets at times
volatile. Prices of precious metals are affected by factors such as cyclical
economic conditions, political events and monetary policies of various
countries. Markets are, therefore, volatile at times and there may be sharp
fluctuations in prices, even during periods of rising prices. Under current U.S.
tax law, the Fund may not receive more than 10% of its yearly income from gains
resulting from the sale of precious metals or any other physical commodity. The
Portfolio may be required, therefore, to hold its precious metals or sell them
at a loss, or to sell its portfolio securities at a gain, when it would not
otherwise do so for investment reasons.
Emerging Market Securities
Consistent with the Portfolios' objectives and policies the Portfolios may
invest in securities of issuers whose principal activities are located in
emerging market countries. Emerging market countries include any country
determined by the Sub-Investment Manager to have an emerging market economy,
taking into account a number of factors including whether the country has a low
to middle economy according to the International Bank for Reconstruction and
Development, the country's foreign currency debt rating, its political and
economic stability and the development of its financial and capital markets. The
Sub-Investment Manager determines whether an issuer's principal activities are
located in an emerging market country by considering such factors as country of
organization, the principal trading market for its securities and the source of
its revenues and assets. The issuer's principal activities generally are deemed
to be located in a particular country if: (a) the security is issued or
guaranteed by the government of the country or any of its agencies, authorities,
or instrumentalities; (b) the issuer is organized under the laws of, and
maintains a principal office in that country; (c) the issuer has its principal
securities trading market in that country; (d) the issuer derives 50% or more of
its total revenue from goods sold or services performed in that country; or (e)
the issuer has 50% or more of its assets in that country.
Depository Receipts
The World Growth Portfolio, the International Equity Portfolio, the Global
Hard Assets Portfolio, the Growth Portfolio, the Growth and Income Portfolios,
the Capital Growth Portfolio, the Balanced Portfolio, the High Yield Bond
Portfolio and the Emerging Growth Portfolio may also invest in Depository
Receipts, (ADRs, GDRs and EDRs.) ADRs are certificates issued by a United States
bank representing the right to receive securities of a foreign issuer deposited
in a foreign branch of a United States bank and traded on a United States
exchange or over-the-counter. European Depository Receipts ("EDRs") and Global
Depository Receipts ("GDRs") are typically issued by foreign banks or trust
companies, although they may be by US banks or trust companies, and also
evidence ownership of underlying securities issued by a foreign or U.S.
securities market. Generally, Depository Receipts in registered form are
designed for use in the U.S. securities market and Depository Receipts in bearer
form are designed for use in securities markets outside the United States.
Depository Receipts may not necessarily be denominated in the same currency as
the underlying securities in to which they may be converted. Depository Receipts
may be issued pursuant to sponsored or unsponsored programs. In sponsored
programs, an issuer has made arrangements to have its securities traded in the
form of Depository Receipts. In unsponsored programs the issuer may not be
directly involved in the creation of the program. In some cases it may be easier
to obtain financial information from an issuer that has participated in the
creation of the sponsored program. Accordingly, there may be less information
available regarding issuers of securities underlying unsponsored programs and
there may not be a correlation between such information and the market value of
the Securities. Brokerage commissions will be incurred if ADRs are purchased
through brokers on the U.S. stock exchanges.
Depository Receipts also involve the risks of other investment in foreign
securities; for purposes of each Fund's investment policies, a Fund's investment
in Depository Receipts will be deemed to be investments in the underlying
securities.
Forward Foreign Currency Exchange Contracts
The Portfolios (except the Money Market Portfolio) may utilize forward
foreign currency exchange contracts ("forward currency contracts"). A forward
currency contract involves an obligation to purchase or sell a specific currency
at a future date, which may be any fixed number of days from the date of the
forward currency contract agreed upon by the parties, at a price set at the time
of the contract. These forward currency contracts are principally traded in the
interbank market conducted directly between currency traders (usually large
commercial banks) and their customers. The Portfolios will enter into forward
currency contracts only under two circumstances. First, when a Portfolio has
entered into a contract to purchase or sell a security denominated in a foreign
currency, the Portfolio may be able to protect itself against a possible loss,
between trade date and settlement date for such security, resulting from an
adverse change in the relationship between the U.S. dollar and the foreign
currency in which such security is denominated, by entering into a forward
currency contract in U.S. dollars for the purchase or sale of the amount of the
foreign currency involved in the underlying security transaction. However, this
tends to limit potential gains which might result from a positive change in such
currency relationships. Second, when management of a Portfolio believes
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that the currency of a particular foreign country may suffer or enjoy a
substantial movement against the U.S. dollar (or another currency), the
Portfolio may enter into a forward currency contract to sell or buy an amount of
foreign currency approximating the value of some or all of the Portfolio's
securities denominated in such foreign currency, or a proxy currency whose
performance is expected to correlate to the currency. The forecasting of short-
term currency market movement is extremely difficult and whether such a short-
term hedging strategy will be successful is highly uncertain.
Repurchase Agreements
All of the Portfolios may enter into repurchase agreements, whereby the
Portfolio purchases securities (referred to as "underlying securities") from
well-established securities dealers or banks, subject to agreement by the seller
to repurchase the securities at a stated price on a specified date. Repurchase
agreements involve certain risks not associated with direct investment in
securities, including the risk that the original seller will default on its
obligations to repurchase, as a result of bankruptcy or otherwise. To minimize
this risk, a Portfolio will enter into repurchase agreements only if the
repurchase agreement is structured in a manner reasonably designed to
collateralize fully the value of a Portfolio's investment during the entire term
of the agreement and in accordance with guidelines regarding the
creditworthiness of the seller determined by the Board of Directors of the Fund.
As a general matter, if the seller of the repurchase agreement is a bank it must
have assets of at least $1,000,000,000; if the seller is a broker-dealer it must
have a net worth of at least $25,000,000. The underlying securities, held as
collateral, will be marked to market on a daily basis, and must be high-quality
short-term securities. In addition, the securities underlying repurchase
agreements must be either U.S. Government Obligations or securities that, at the
time the repurchase agreement is made, are rated in the highest rating category
by the Requisite NRSROs. Nevertheless, in the event that the other party to the
agreement fails to repurchase the securities subject to the agreement, a
Portfolio could suffer a loss to the extent proceeds from the sale of the
underlying securities held as collateral were less than the price specified in
the repurchase agreement.
Real Estate Securities
Although the Global Hard Assets Portfolio will not invest in real estate
directly, it may invest up to 50% of its assets in equity securities of Real
Estate Investment Trusts ("REITs") and other real estate industry companies or
companies with substantial real estate investments. Investment in real estate
relative securities are subject to certain risks associated with the real estate
industry in general and REITs in particular. REITs are subject to interest rate
risk, heavy cash flow dependency, default by borrowers, self-liquidation and the
possibilities of failing to qualify for the exemption from tax for distributed
income under the Code. See "Real Estate Securities" in the Statement of
Additional Information.
Short Sales
The Global Hard Assets Portfolio may make short sales of equity securities.
A short sale occurs when the Portfolio sells a security which it does not own by
borrowing it from broker. In the event that the value of the security that the
Portfolio sold short declines, the Portfolio will gain as it repurchases the
security in the market at the lower price. If the price of the security
increases, the Portfolio will suffer a loss as it will have to repurchase the
security at the higher price. Short sales may incur higher transaction costs
than regular securities transactions.
The Portfolio will establish a segregated account with respect to is short
sales and maintain in such account cash not available for investment, U.S.
Government securities or other liquid, high-quality debt securities or liquid
equity securities having a value equal to the difference between (i) the market
value of the securities sold short at the time they were sold short and (ii) any
cash, U.S. Government securities or other liquid, high-quality securities
required to be deposited as collateral with the broker in connection with the
short sale (not including the proceeds from the short sale). Such segregated
account will be marked to market daily, so that (i) the amount in the segregated
account plus the amount deposited with the broker as collateral equals the
current market value of the securities sold short and (ii) in no event will the
amount in the segregated account plus the amount deposited with the broker as
collateral fall below the original value of the securities at the time they were
sold short. The total value of the assets deposited as collateral with the
broker and deposited in the segregated account will not exceed 50% of the
Portfolio's net assets. The Portfolio's ability to engage in snort sales may be
limited by the requirements of current U.S. tax law that the Portfolio derive
less than 30% of its gross income from the sale or other disposition of
securities held less than three months. Securities sold short and then
repurchased, regardless of the actual time between the two transactions, are
considered to have been held for less than three months. (See "Short Sales" in
the Statement of Additional Information.
High Yield Securities
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The High Yield securities in which the High Yield Bond Portfolio and other
Portfolios, may invest may be rated below investment grade by Standard & Poor's
or by Moody's (i.e., bonds rated BB or below by Standard & Poor's or Ba or below
by Moody's) or be unrated. The High Yield Bond Portfolio may invest 100% of its
net assets in lower rated corporate debt obligations. Securities rated BB or
below by Standard & Poor's or Ba or below by Moody's (or comparable unrated
securities), commonly known as "high yield, high risk," are considered, on
balance, speculative with respect to capacity to pay interest, dividends and
repay principal in accordance with the terms of the obligation and will
generally involve more credit risk than securities in the higher rating
categories. As a result, investment in such securities will entail greater
speculative risks than those associated with investment-grade securities (i.e.,
bonds rated BBB or higher by Standard & Poor's or Baa or higher by Moody's). The
Securities and Exchange Commission takes the position that securities rated BB
or below by Standard and Poor's or Ba or below by Moody's (or comparable unrated
securities) may be classified as "junk" or "junk bonds." No minimum rating
standard is required for a purchase of securities by the High Yield Bond, Growth
and Income or Growth Portfolios. See SAI for a description of the ratings issued
by investment rating services.
An economic downturn could severely affect the ability of highly leveraged
issuers to service their debt obligations or to repay their obligations upon
maturity. Factors having an adverse impact on the market value of lower rated
securities will have an adverse effect on a Portfolio's net asset value to the
extent it invests in such securities. In addition, a Portfolio may incur
additional expenses to the extent it is required to seek recovery upon a default
in payment of principal or interest on its portfolio holdings The secondary
market for high yield, high risk bond securities, which is concentrated in
relatively few market makers, may not be as liquid as the secondary market for
more highly rated securities, a factor which may have an adverse effect on a
Portfolio's ability to dispose of a particular security when necessary to meet
its liquidity needs. Under adverse market or economic conditions, the secondary
market for high yield, high risk bond securities could contract further,
independent of any specified adverse changes in the condition of a particular
issuer. As a result, a Portfolio could find it more difficult to sell these
securities or may be able to sell the securities only at prices lower than if
such securities were widely traded. Prices realized upon the sale of such lower
rated or unrated securities, under these circumstances, may be less than the
prices used in calculating a Portfolio's net asset value.
Since investors generally perceive that there are greater risks associated
with lower-rated debt securities, the yields and prices of such securities may
tend to fluctuate more than those for higher-rated securities. In the lower
quality segments of the fixed-income securities market, changes in perceptions
of issuers' creditworthiness tend to occur more frequently and in a more
pronounced manner than do changes in higher quality segments of the fixed-income
securities market resulting in greater yield and price volatility.
Another factor which causes fluctuations in the prices of fixed-income
securities is the supply and demand for similarly rated securities. In addition,
the prices of fixed-income securities fluctuate in response to the general level
of interest rates. Fluctuations in the prices of portfolio securities subsequent
to their acquisitions will not affect cash income from such securities but will
be reflected in a Portfolio's net asset value.
Lower-rated (and comparable non-rated) securities tend to offer higher yields
than higher-rated securities with the same maturities because the historical
financial condition of the issuers of such securities may not have been as
strong as that of other issuers. In addition to the risk of default, there are
the related costs of recovery on defaulted issues. The sub-advisers will attempt
to reduce these risks through diversification of these Portfolio's portfolios
and by analysis of each issuer and its ability to make timely payments of income
and principal, as well as broad economic trends in corporate developments.
Zero Coupon Bonds
The Portfolios may invest in zero coupon bonds which are debt obligations
that do not make any interest payments for a specified period of time prior to
maturity or until maturity. The value of these obligations fluctuates more in
response to interest rate changes than does the value of debt obligations that
make current interest payments.
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<PAGE>
Securities and Index Options
The Growth, Growth and Income Portfolio, High Yield Portfolio, Growth
Portfolio, the Capital Growth Portfolio, Global Hard Assets Portfolio, the
Balanced Portfolio and the Emerging Growth Portfolio may write covered call
options and purchase call and put options on securities and stock indices. The
Growth Portfolio, High Yield Bond Portfolio, International Equity Portfolio,
Capital Growth Portfolio, Global Hard Assets Portfolio and the Emerging Growth
Portfolio may also utilize options on foreign currencies. See the Statement of
Additional Information for a more detailed description of these options.
Writing (Selling) Call Options. In order to earn additional income or to
protect partially against declines in the value of its securities, the
Portfolios noted above may write (sell) covered call options. A Portfolio may
also purchase call options to the extent necessary to close out call option
positions previously written by the Portfolio. A call option gives the holder
(purchaser) the right to buy and obligates the writer (seller) to sell, in
return for a premium paid to the writer, the underlying security at the exercise
price at any time during the option period. A call option on a securities index
is similar to a call option on an individual security, except that the value of
the option depends on the weighted value of the group of securities comprising
the index and all settlements are made in cash rather than by delivery of a
particular security.
The writing of call options on securities and securities indices involves the
following risks: (1) during the option period the writer of a call option gives
up the opportunity for capital appreciation above the exercise price should the
market price of the underlying security increase, but retains the risk of loss
should the price of the underlying security or index decline and (ii) the
inability to close out options previously written, which would require the
Portfolio to retain the option and the securities covering the option until its
exercise or expiration.
Purchasing Put and Call Options
In order to hedge against changes in the market value of their portfolio
securities, the Growth Portfolio, the High Yield Bond Portfolio, the
International Equity Portfolio, the Growth and Income Portfolio, the Capital
Growth Portfolio, the Balanced Portfolio, Global Hard Assets Portfolio and the
Emerging Growth Portfolio may also purchase put and call options with respect to
equity securities, bonds, and stock and bond indices which correlate with their
portfolio securities, provided that the premiums paid for such options are
limited in each case to no more than 5% of the Portfolio's total assets. A put
option on a security gives the purchaser of the option, in return for the
premium paid to the writer (seller), the right to sell the underlying security
at the exercise price at any time during the option period. Upon exercise by the
purchaser, the writer of a put option has the obligation to purchase the
underlying security at the exercise price. A put option on a securities index is
similar to a put option on an individual security, except that the value of the
option depends on the weighted value of the group of securities comprising the
index and all settlements are made in cash, rather than by delivery of a
particular security.
Purchasing a put or call option on securities and securities indices involves
the risk that the Portfolio may lose the premium it paid plus transaction costs.
Futures Contracts
The Growth and Income Portfolio, the Growth Portfolio, the High Yield Bond
Portfolio, the International Equity Portfolio, the Capital Growth Portfolio, the
Balanced Portfolio, Global Hard Assets Portfolio and the Emerging Growth
Portfolio may purchase and sell futures contracts on debt securities and indexes
of debt securities (i.e., interest rate futures contracts) as a hedge against or
to minimize adverse principal fluctuations resulting from anticipated interest
rate changes. They may also, where appropriate, enter into stock index futures
contracts to provide a hedge for a portion of a Portfolio's equity holdings.
Stock index futures contracts may be used as a way to implement either an
increase or decrease in portfolio exposure to the equity markets in response to
changing market conditions. The Capital Growth, Global Hard Assets Portfolio and
Emerging Growth Portfolios may also enter into currency futures contracts to
hedge the currency fluctuations of its foreign securities. A Portfolio may also
write covered call options and purchase put or call options on futures contracts
of the type which that Portfolio is permitted to purchase or sell. The
Portfolios will not enter into futures contracts for speculation and will only
enter into futures contracts that are traded on national futures exchanges. No
Portfolio will enter into futures contracts or options thereon if immediately
thereafter the sum of the amounts of initial margin deposits on the Portfolio's
existing futures contracts and premiums paid for options on unexpired futures
contracts would exceed 5% of the value of the Portfolio's total assets.
The use of futures contracts by the Growth Portfolio, High Yield Bond
Portfolio, Global Hard Assets Portfolio and International Equity Portfolio,
Growth and Income Portfolio and Capital Growth Portfolio, Balanced Portfolio and
Emerging Growth Portfolio entails certain risks, including but not limited to
the following: no assurance that futures contracts transactions
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<PAGE>
can be offset in closing transactions at favorable prices or at all unless a
liquid secondary market exists; possible reduction of the Portfolio's income due
to the use of hedging; possible reduction in value of both the securities hedged
and the hedging instrument; possible lack of liquidity due to daily limits on
price fluctuation; imperfect correlation between the contract and the securities
being hedged; and potential losses well in excess of the amount invested in
futures contracts themselves. If a Sub-Investment Manager's forecasts regarding
movements in securities prices or interest rates are incorrect, the Portfolio's
investment results may have been better without the hedge. Futures contracts and
their associated risks are described in more detail in the Statement of
Additional Information.
Lending of Securities
The Emerging Growth Portfolio, Growth Portfolio, High Yield Bond Portfolio,
Global Hard Assets Portfolio and International Equity Portfolio may make loans
of their portfolio securities. Such loans will usually be made to member banks
of the Federal Reserve System and member firms (and subsidiaries thereof) of the
New York Stock Exchange and would be required to be secured continuously by
collateral in cash, U.S. Government securities or an irrevocable letter of
credit maintained on a current basis at an amount at least equal to the market
value of the securities loaned. The Portfolio would continue to collect the
equivalent of the interest on the securities loaned and would receive either
interest (through investment of cash collateral) or a fee (if the collateral is
U.S. Government securities or a letter of credit).
When-Issued Securities
In order to help ensure the availability of suitable securities the Growth
Portfolio, High Yield Bond Portfolio, Global Hard Assets Portfolio and
International Equity Portfolio Bond, Balanced, Capital Growth, World Growth
Stock and Emerging Growth Portfolios may purchase securities on a "when-issued"
or on a "forward delivery" basis, which means that the obligations will be
delivered to the Portfolios at a future date usually beyond customary settlement
time. It is expected that, under normal circumstances, the Portfolios will take
delivery of such securities. In general, the Portfolios do not pay for the
securities until received and do not start earning interest on the obligations
until the contractual settlement date. While awaiting delivery of the
obligations purchased on such basis, the Portfolios will establish a segregated
account consisting of liquid assets equal to the amount of the commitments to
purchase "when-issued" securities. See the Statement of Additional Information.
Mortgage Backed and Corporate Asset-Backed Securities
The Growth Portfolio, High Yield Bond Portfolio, Global Hard Assets Portfolio
and International Equity Portfolio Bond and the Emerging Growth Portfolios may
invest in corporate asset-backed securities. These securities, issued by trusts
and special purpose corporations, are backed by a pool of assets, such as credit
card or automobile loan receivables, representing the obligations of a number of
different parties. Corporate asset-backed securities present certain risks. For
instance, in the case of credit card receivables, these securities may not have
the benefit of any security interest in the related collateral. See the
Statement of Additional Information for further information on these securities.
The Bond, International Equity, High Yield, Growth, Growth and Income, Global
Hard Assets Portfolio and Emerging Growth Portfolios may invest in mortgage-
backed securities, which represent direct or indirect participation in, or are
collateralized by and payable from mortgage loans secured by real property.
Mortgage backed securities are often subject to more rapid repayment than
their stated maturity date would indicate as a result of the pass-through of
prepayments of principal on the underlying loans. This can occur when interest
rates decline significantly. A Portfolio's ability to maintain positions in such
securities will be affected by reductions in the principal amount of such
securities resulting from prepayments and its ability to reinvest the returns or
principal at comparable yields is subject to generally prevailing interest rates
at that time. To the extent that a Portfolio invests in mortgage-backed
securities, the values of its securities will vary with changes in market
interest rates generally and the differentials in yields among various U.S.
Government Securities and other mortgage-backed securities.
Stripped Mortgage-Backed Securities
Certain of the Portfolios may invest a portion of their assets in stripped
mortgage-backed securities which are derivative multi-class mortgage securities
issued by agencies and instrumentalities of the United States Government or by
private originators of or investors in, mortgage loans, including savings and
loan associations, mortgage banks, commercial banks and investment banks.
Stripped mortgage-backed securities are usually structured with two classes that
receive different proportions of interest and principal distributions from a
pool of mortgage assets. A common type of stripped mortgage-backed securities
will have one class
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<PAGE>
receiving some of the interest and most of the principal from the mortgage
assets, while the other class will receive most of the interest and the
remainder of the principal. In the most extreme case, one class will receive all
of the interest (the interest only or "IO" Class) and the other class will
receive all of the principal (the principal only of "PO" Class). The yield to
maturity on an IO is extremely sensitive to the rate of principal payments
(including prepayments on the related underlying mortgage assets) and a rapid
rate of principal payments may have a material adverse effect on such
securities' yield to maturity. If the underlying mortgage assets experience
greater than anticipated prepayment of principal, the Portfolios may fail to
fully recoup their initial investment in these securities. The market value of
the class consisting primarily or entirely of principal payments generally is
unusually volatile in response to changes in interest rates. Because stripped
mortgage-backed securities were only recently introduced, established trading
markets for these securities have not yet fully developed, although the
securities are traded among institutional investors and investment banking
firms.
Borrowing
Certain of the Portfolios may borrow money but only from banks and only for
temporary or short-term purposes. These Portfolios will not borrow for
leveraging purposes the Global Hard Assets Portfolio may borrow for converted
purposes and all Portfolios will maintain continuous asset coverage of at least
300% (as defined in the Investment Company Act of 1940) with respect to all of
its borrowings, the Portfolio may be required to sell its assets within three
days to reduce debt and restore 300% asset coverage. Borrowing involves interest
costs.
Warrants
All of the Portfolios except the Money Market Portfolio, may invest in
warrants, which are rights to buy certain securities at set prices during
specified time periods. If, prior to the expiration date, the Portfolio is not
able to exercise a warrant at a cost lower than underlying securities, the
Portfolio will suffer a loss of its entire investment in the warrant.
Restricted and Illiquid Securities
All of the Portfolios may to some extent purchase certain restricted
securities (those that are not registered under the Securities Act of 1933 ("33
Act") but can be offered and sold to "qualified institutional buyers under Rule
144A of the 33 Act) and limited amounts of illiquid securities including
illiquid restricted securities. Limitations on illiquid securities and other
illiquid investments for each Portfolio are described in the Portfolio's
investment restrictions in the Statement of Additional Information incorporated
herein by reference.
Illiquid investments include many restricted securities, repurchase
agreements that mature in more than seven days or that have a notice or demand
feature more than seven days, certain over-the-counter option contracts and
participation interests in loans.
Certain repurchase agreements which provide for settlement in more than seven
days, however, can be liquidated before nominal fixed term on seven day or less
notice. The Portfolios will consider such repurchase agreements as liquid.
Likewise, restricted securities (including commercial paper issued pursuant to 4
(2) of the 33 Act) that the Board of Directors or the Sub-Investment Managers
have determined to be liquid will be treated as such.
A detailed discussion of the limitations on illiquid investments is found in
"Restricted and Illiquid Securities" in the SAI.
Dollar Roll Transactions
All Portfolios except the Money Market Portfolio and the International Equity
Portfolio may enter into mortgage "dollar roll" transactions with selected banks
and broker-dealers pursuant to which a Portfolio sells mortgage-backed
securities for delivery in the future (generally within 30 days) and
simultaneously contracts to repurchase substantially similar (same type, coupon
and maturity) securities on a specified future date. A Portfolio will only enter
into covered rolls. A covered roll is a specific type of dollar roll for which
there is an offsetting cash position or a cash equivalent security position
which matures on or before the forward settlement date of the dollar roll
transaction. In the event that the party with whom the Portfolio contracts to
replace substantially similar securities on a future date fails to deliver such
securities, the Portfolio may not be able to obtain such securities at the
prices specified in such contract and thus may not benefit from the price
differential between the current sales price and the repurchase price.
Swap Transactions
The High Yield Bond Portfolio, Global Hard Assets Portfolio and the Growth
Portfolio may, to the extent permitted by the SEC, enter into privately
negotiated "swap" transactions with other financial institutions in order to
take advantage of investment
39
<PAGE>
opportunities generally not available in public markets. In general, these
transactions involve "swapping" a return based on certain securities,
instruments, or financial indexes with another party, such as a commercial bank
in exchange for a return based on different securities, instruments, or
financial indexes.
By entering into swap transactions, a Portfolio may be able to protect the
value of a portion of its securities against declines in market values. A
Portfolio may also enter into swap transactions to facilitate implementation of
allocation strategies between different market segments or to take advantage of
market opportunities which may arise from time to time. A Portfolio may be able
to enhance its overall performance if the return offered by the other party to
the swap transaction exceeds the return swapped by the Portfolio. However, there
can be no assurance that the return a Portfolio receives from the counterparty
to the swap transaction will exceed the return it swaps to that party.
While a Portfolio will only enter into swap transactions with counterparties
it considers creditworthy (and will monitor creditworthiness of parties with
which it enters into swap transactions), a risk inherent in swap transactions is
that the other party to the transaction may default on its obligations under the
swap agreement. If the other party to the swap transaction defaults on its
obligations, a Portfolio would be limited to contractual remedies under the swap
agreement. There can be no assurance that a Portfolio will succeed when pursuing
its contractual remedies. To minimize a Portfolio's exposure in the event of a
default, the Portfolio will usually enter into swap transactions on a net basis
(i.e., the parties to the transaction will net the payments payable to each
other before such payments are made). When a Portfolio enters into swap
transactions on a net basis, the net amount of the excess, if any, of the
Portfolio's obligations over its entitlements with respect to each such swap
agreement will be accrued on a daily basis and an amount of liquid assets having
an aggregate market value at least equal to the accrued excess will be
segregated by the Portfolio's custodian. To the extent a Portfolio enters into
swap transactions other than on a net basis, the amount segregated will be the
full amount of the Portfolio's obligations, if any, with respect to each such
swap agreement, accrued on a daily basis.
Interest Rate Swaps. The High Yield Bond Portfolio, Global Hard Assets
Portfolio and the Growth Portfolio may enter into interest rate swaps for
hedging purposes and non-hedging purposes. Since swaps are entered into for good
faith hedging purposes or are offset by a segregated account, the sub-advisors
believe that swaps do not constitute senior securities as defined in the 1940
Act and, accordingly, will not treat than as being subjected to each Portfolio's
borrowing restrictions. The net amount of the excess, if any, of a Portfolio's
obligations over its "entitlement" with respect to each interest rate swap will
be accrued on a daily basis and an amount of cash or liquid high grade debt
securities (i.e., securities rated in one of the top three rating categories by
Moody's or Standard & Poor's, or, if unrated, deemed by the sub-adviser to be of
comparable credit quality) or legend equity securities having an aggregate net
asset value at least equal to such accrued excess will be maintained in a
segregated account by the custodian. A Portfolio will not enter into any
interest rate swap unless the credit quality of the unsecured senior debt or the
claims-paying ability of the other party thereto is considered to be investment
grade by the sub-adviser. If there is a default by the other party to such a
transaction, a Portfolio will have contractual remedies pursuant to the
agreement. The swap market has grown substantially in recent years with a large
number of banks and investment banking firms acting both as principals and as
agents utilizing standardized swap documentation. As a result, the swap market
has become relatively liquid in comparison with the markets for other similar
instruments which are traded in the interbank market.
Currency and Asset Swaps
Certain of the Portfolios may enter into currency swaps for hedging purposes.
Currency swaps involve the exchange of rights to make or receive payments of the
entire principal value in specified currencies. Since currency swaps are
individually negotiated, the Portfolio may expect to achieve an acceptable
degree of correlation between its portfolio investments and its currency swap
positions. The entire principal value of a currency swap is subject to the risk
that the other party to the swap will default on its contractual delivery
obligations. The Portfolio may also enter into other asset swaps. Asset swaps
are similar to currency swaps in that the performance of a Hard Asset (e.g.,
gold) may be "swapped" for another (e.g., energy).
The use of swaps is a highly specialized activity which involves investment
techniques and risks different from those associated with ordinary portfolio
transactions. If the Sub-Investment Manager is incorrect in its forecasts of
market values and currency exchange rates and Hard Assets values, the investment
performance of the Portfolio would be less favorable than it would have been if
this investment technique were not used. Swaps are generally considered illiquid
and will be aggregated with other illiquid positions for purposes of the
limitation on illiquid investments.
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<PAGE>
Loan Participations and Other Direct Indebtedness
The Growth Portfolio, High Yield Bond Portfolio, Global Hard Assets
Portfolio and International Equity Portfolio Bond and the Emerging Growth
Portfolios may invest a portion of their assets in "Loan Participations" and
other direct indebtedness. By purchasing a loan participation, the Portfolios
acquire some or all of the interest of a bank or other lending institution in a
loan to a corporate borrower. Many such loans are secured, and impose
restrictive covenants which must be met by the borrower. These loans are made
generally to finance internal growth, mergers, acquisitions, stock repurchases,
leveraged buy-outs and other corporate activities. Such loans may be in default
at the time of purchase. The Portfolios may also purchase other direct
indebtedness such as trade or other claims against companies, which generally
represent money owed by the company to a supplier of goods and services. These
claims may also be purchased at a time when the company is in default. Certain
of the loan participations and other direct indebtedness acquired by the
Portfolios may involve revolving credit facilities or other standby financing
commitments which obligate the Portfolios to pay additional cash on a certain
date or on demand.
The highly leveraged nature of many such loans and other direct
indebtedness may make such loans especially vulnerable to adverse changes in
economic or market conditions. Loan participations and other direct indebtedness
may not be in the form of securities or may be subject to restrictions on
transfer, and only limited opportunities may exist to resell such instruments.
As a result, the Portfolios may be unable to sell such investments at an
opportune time or may have to resell them at less than fair market value. For a
further discussion of loan participations, other direct indebtedness and the
risks related to transactions therein, see the Statement of Additional
Information.
INVESTMENT RESTRICTIONS
Investments of the Portfolios are further restricted by certain policies
that may not be changed without a vote of stockholders. See "INVESTMENT
RESTRICTIONS" in the Statement of Additional Information.
Portfolio Turnover
Portfolio turnover may vary and from year to year or within a year
depending upon economic, market and business conditions. The annual portfolio
turnover rates for the Portfolios in 1997 and 1996 were as follows: 27.50%
for the World Growth Stock Portfolio; 64.78% for the Global Hard
Assets Portfolio; 49.75% for the Domestic Growth Stock Portfolio;
23.25% for the Bond Portfolio; 35.69% , for the Growth
and Income Portfolio; 147.82% for the Capital Growth Portfolio,
and 94.58% for the Emerging Growth Portfolio; and 222.35% for
the Balanced Portfolio. In addition, the portfolio turnover rate for the
Balanced Portfolio for such periods can be broken down into rates of 233.29%
,respectively, for the common stock portion of the Portfolio and
202.08% , respectively, for the fixed income portion. Portfolios
having higher turnover rates may realize larger amounts of gains and losses
relative to a portfolio having a lower turnover rate and will generally incur
correspondingly greater brokerage commissions. Excessive short-term trading may
result in excessive "short-short" income under the Internal Revenue Code ("IRC")
which, in turn, could affect the status of such Portfolios as regulated
investment companies and the tax status of the contracts invested in the
Portfolio. See "TAXES AND DIVIDENDS" in this Prospectus and "PORTFOLIO
TRANSACTIONS AND BROKERAGE ALLOCATIONS" in the Statement of Additional
Information.
MANAGEMENT OF THE FUND
The Board of Directors of the Fund is responsible for the administration of
the affairs of the Fund.
The Fund's Investment Manager is Jefferson Pilot Investment Advisory
Corporation (Jefferson Pilot Investment Advisory), a registered investment
adviser, a wholly-owned subsidiary of Jefferson Pilot Financial ("JPF") which,
in turn, is a wholly-owned Subsidiary of Jefferson Pilot Corporation. Its
address is One Granite Place, Concord, NH 03301. It provides supervisory
investment advice, and provides certain administrative services for all of the
Fund's Portfolios. Its investment advisory responsibilities include, among other
things, recommending, evaluating, monitoring and overseeing the activities of
the Sub-Investment Managers and reviewing the practices of broker-dealers
selected by the Sub-Investment Managers. Jefferson Pilot Investment Advisory
also provides office space and related utilities, including telephones,
necessary for the Fund's operations; recommends auditors, counsel and
custodians; maintains records not otherwise maintained by other parties; and
provides personnel, data processing services, and supplies to the Fund. The cost
of such facilities, supplies and services is included in the investment
management fee described below. Jefferson Pilot Investment Advisory also acts as
transfer agent and dividend disbursing agent for the Fund.
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Investment management fees are paid to Jefferson Pilot Investment Advisory
monthly at an annual rate based on a percentage of the average daily net asset
value of each Portfolio as shown below:
<TABLE>
<CAPTION>
WORLD GROWTH STOCK,
GOLD STOCK,
DOMESTIC GROWTH STOCK, HIGH YIELD
MONEY MARKET GROWTH AND INCOME, CAPITAL EMERGING BOND AND INTERNATIONAL
AVERAGE DAILY NET ASSETS AND BOND AND BALANCED GROWTH GROWTH GROWTH EQUITY
<S> <C> <C> <C> <C> <C> <C>
First $200 Million .50% .75% 1.00% .80% .75% 1.00%
Next $1.1 Billion .45% .70% .95% .75% 75% 1.00%
Over $1.3 Billion .40% .65% .90% .70% .75% 1.00%
</TABLE>
The Sub-Investment Managers for the Portfolios are Templeton Global
Advisors Limited, Lyford Cay, Nassau, Bahamas for the World Growth Stock
Portfolio; Lombard Odier International Portfolio Management Limited ("Lombard
Odier"), Norfolk House, 13 South Hampton Place, London, WC1A2AJ, UK for the
International Equity Portfolio; Van Eck Associates Corporation, 99 Park Avenue,
New York, New York 10016 for the Global Hard Assets Portfolio; Pioneering
Management Corporation, 60 State Street, Boston, Massachusetts 02109 for the
Domestic Growth Stock Portfolio; Janus Capital Corporation, 100 Fillmore Street,
Suite 300, Denver, Colorado 80206 for the Capital Growth Portfolio; J.P. Morgan
Investment Management, Inc. ("Morgan") 522 Fifth Avenue, New York, New York
10036 for the Balanced Portfolio; Warburg Pincus Asset Management, Inc., 466
Lexington Avenue, New York, New York 10017-3147 for the Growth and Income
Portfolio; Massachusetts Financial Services Company, 500 Boylston Street,
Boston, Massachusetts 02116 for the Money Market High Yield Bond, and Emerging
Growth Portfolios; and Strong Capital Management, Inc. ("Strong") P.O. Box 2936,
Milwaukee, Wisconsin 53201 for the Growth Portfolio.
Templeton, Sub-Adviser to the World Growth Stock Portfolio, is a registered
investment adviser, organized under the laws of the Bahamas. Templeton is an
indirect wholly owned subsidiary of Franklin Resources, Inc. ("Franklin"), a
Delaware corporation. Franklin is a publicly traded company whose ordinary
shares of common stock are listed on the New York Stock Exchange. Templeton
serves as an investment adviser or sub-adviser to various investment companies
registered under the Investment Company Act of 1940, subject to the supervision
and direction of each company's Board of Directors and, where appropriate, the
company's investment adviser, as well as to investment companies registered in
foreign jurisdictions. In this capacity, Templeton is responsible on a daily
basis for managing the companies' investments, making investment decisions on
behalf of the companies and supplying research services. Templeton may also
provide investment research and advice to certain common trust vehicles.
Templeton is also an adviser or sub-adviser to several private accounts.
Templeton and its affiliates currently serve as investment manager to 175 U.S.
registered investment companies. Ms. Cindy Swerty is primarily responsible for
the day to day management of the World Growth Stock Portfolio. Previously Ms.
Swerty was a Vice President of investments at McDermott International
Investments Company. Ms. Swerty who has been Vice President of Templeton, a
portfolio manager and research analyst at Templeton since 1997 when she joined
Templeton as a portfolio manager.
Van Eck Associates, a registered investment adviser and a Delaware
corporation is Investment Manager to the Global Hard Assets Portfolio. It acts
as an adviser to three other registered investment companies, Van Eck Funds, Van
Eck Investment Trust and International Growth Trust and as a sub-adviser to two
other registered investment companies, Thomson Fund Group--Thomson Precious
Metals and Natural Resources Fund and GCG Trust--Natural Resources Fund, and
manages or advises managers of portfolios of pension plans and other accounts.
Mr. John C. van Eck owns 25.6% of the outstanding voting securities of Van Eck
Associates and his wife and two sons, are each the beneficial owners of 24.8% of
such securities. Mr. John C. van Eck has retained the right to direct the voting
and disposition of the shares of Van Eck Associates held by his wife. Since May
1, 1998, Derek Van Eck has been primarily responsible for the day-to-day
management of the Global Hard Assets Portfolio. He has been associated with Van
Eck Associates as a portfolio manager and is currently Director of Global
Investments and an Executive Vice President of Van Eck as well as an officer
and/or portfolio manager of other mutual funds advised by Van Eck.
Pioneer, the sub-adviser of the Domestic Growth Stock Portfolio, is a
registered investment adviser, is a Delaware corporation. It is a wholly-owned
subsidiary of The Pioneer Group, Inc., a Delaware corporation. Pioneer currently
acts as a manager and investment adviser of twenty-two other registered
investment companies. Robert W. Benson, Senior Vice President of Pioneer, has
been primarily responsible for the day-to-day management of the Domestic Growth
Stock Portfolio since 1986. Mr. Benson has been employed as a portfolio manager
by Pioneer since 1974.
Janus, a registered investment adviser, is a Colorado corporation. It
serves as investment adviser or sub-adviser to Janus Growth and Income Fund,
Janus Worldwide Fund, Janus Fund, Janus Twenty Fund, Janus Venture Fund, Janus
Flexible Income
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Fund and Janus Intermediate Government Securities Fund, as well as several other
mutual funds and individual, corporate and pension and profit-sharing accounts.
Kansas City Southern Industries, Inc. ("KCSI") owns approximately 83% of the
outstanding voting stock of Janus, most of which it acquired in 1984. KCSI is a
publicly-traded holding company whose primary subsidiaries are engaged in
transportation, financial services and real estate. Mr. Marc Pinto has been
primarily responsible for the day-to-day management of the Capital Growth Fund
since 1994. Mr. Pinto has been a portfolio manager for Janus since 1994,
previously he was employed by a family firm and as an Associate in the
Investment Banking Division of Goldman Sachs.
Warburg, Pincus, Asset Management, Inc., formerly Warburg, Pincus,
Counsellors, Inc. ("Warburg"), Sub-investment manager to the Growth and Income
Portfolio, is a wholly owned subsidiary of Warburg Pincus Counsellors G.P.
("Warburg G.P."), a New York General Partnership which is in itself controlled
by Warburg, Pincus & Co. ("W.P. & Co."), also a New York partnership. Lionel I.
Pincus, the Managing Director of W.P. & Co. may be deemed to control both W.P. &
Co. and Warburg. Warburg G.P. has no business other than being a holding company
of Warburg and its subsidiaries. Warburg, organized in 1970, is a professional
investment counseling firm which provides investment services to investment
companies, employee benefit plans, endowment funds, foundations, and other
institutions and individuals. As of May 31, 1997 Warburg managed nearly $18.8
billion in assets. Brian Posner, a managing Director of Warburg, has been with
Warburg since January 1997 and since May 1, 1997 has been chief investment
officer. Prior to joining Warburg, Mr. Posner had been a portfolio manager with
Fidelity Investments since 1987, most recently the Vice President and portfolio
manager of Fidelity Equity-Income II Fund.
J.P. Morgan Investment Management Inc. ("Morgan") is the sub-adviser to the
Balanced Portfolio. Morgan is a wholly owned subsidiary of J.P. Morgan & Co.
Incorporated, a bank holding company organized in Delaware. Morgan offers a wide
range of investment management services and acts as investment adviser to
corporate and institutional clients. As of December 31, 1997 Morgan had assets
under management of $ Billion. Michael J. Kelley, Vice President,
(employed by Morgan since 1985) and Harriet T. Huber, Vice President (employed
by Morgan since 1989) are primarily responsible for the day to day management of
and implementation of Morgan's investment process for the Balanced
Portfolio.
Massachusetts Financial Services Company ("MFS") is Sub-Investment Manager
to the Money Market, Emerging Growth and High Yield Bond Portfolio. MFS is
America's oldest mutual fund organization. MFS and its predecessor organizations
have a history of money management dating from 1924 and the founding of the
first mutual fund in the United States, Massachusetts Investors Trust. Net
assets under the management of the MFS organization were approximately $
Billion on behalf of approximately million investor accounts as of
1998. As of such date, the MFS organization manages approximately $
Billion of assets invested in equity securities and approximately $
Billion of assets invested in fixed income securities. Approximately $
Billion of the assets managed by MFS are invested in securities of foreign
issuers and non-U.S. dollar denominated securities of U.S. issuers. MFS is a
subsidiary of Sun Life Assurance Company of Canada (U.S.), which is a subsidiary
of Sun Life of Canada (U.S.) Holdings Inc., which in turn is a wholly owned
subsidiary of Sun Life Assurance Company of Canada.
MFS also serves as investment adviser to each of the other funds in the MFS
Family of Funds (the "MFS Funds") and to MFS(R) Municipal Income Trust, MFS
Multimarket Income Trust, MFS Government Markets Income Trust, MFS Intermediate
Income Trust, MFS Charter Income Trust, MFS Special Value Trust, MFS Variable
Insurance Trust, MFS Institutional Trust, MFS/Sun Life Series Trust, and seven
variable accounts, each of which is a registered investment company established
by Sun Life Assurance Company of Canada (U.S.) in connection with the sale of
various combination fixed/variable annuity contracts. MFS and its wholly owned
subsidiary, MFS Institutional Advisors, Inc., provide investment advice to
substantial private clients.
John W. Ballen and Toni Y. Shimura are the Emerging Growth Portfolio's
portfolio managers. Mr. Ballen, an Executive Vice President of MFS, has been
employed as a portfolio manager by MFS since 1984. Ms. Shimura, a Vice President
of MFS, has been employed as a portfolio manager by MFS since 1987.
Bernard Scozzafava, a Vice President of MFS will be primarily responsible
for the day-to-day management of the High Yield Bond Portfolio. Mr. Scozzafava
has been employed as a portfolio manager by MFS since 1989.
Geoffrey L. Kurinsky, a Senior Vice President of MFS, is the Portfolio
Manager of the Money Market Portfolio. Mr. Kurinsky has been employed as a
portfolio manager by MFS since 1987.
Strong Capital Management, Inc. ("Strong") is the sub-adviser to the Growth
Portfolio, was organized in 1974. Since then, Strong's principal business has
been providing investment supervision for individuals and institutional
accounts, such as pension funds and profit sharing plans. The sub-adviser also
acts as sub-adviser for its own proprietary mutual funds. As of
1997, Strong managed over $ Billion is assets.
43
<PAGE>
Subject to the supervision of the Board of Directors and the Adviser,
Strong manages the Growth Portfolio in accordance with its stated investment
objective and policies, makes investment decisions for the Portfolio, places
order to purchase and sell securities on its behalf. The portfolio manager for
the Growth Portfolio is Mr. Ronald Ognar. Mr. Ognar, a Charter Financial Analyst
with more than 25 years of investment experience joined Strong in April 1993,
after two years as a principal of and portfolio manager with RCM Capital
Management. For approximately three years prior to that he was a portfolio
manager at Kemper Financial Services in Chicago. In addition to his duties as
portfolio manager of the Growth Portfolio he also co-manages the Strong Total
Return Fund, the Strong Growth Fund II and the Asset Allocation Fund.
Lombard Odier, the sub-adviser to the International Equity Portfolio,
provides investment advisory services with respect to the Portfolio's investment
in foreign securities, including recommending optimal geographic and equity
allocation. Lombard Odier is wholly-owned by Lombard, Odier & Cie ("LOC"), one
of the largest and oldest private banks in Switzerland, established in 1798. Mr.
Jean Bonna, a Managing Partner of LOC is Chairman of Lombard Odier. Lombard
Odier presently serves as investment sub-adviser to one open-end investment
company and one closed-end investment company.
The Portfolio retains Lombard Odier to manage the investments of its assets
and to place orders for the purchase and sale of portfolio securities. Lombard
Odier will be primarily responsible for recommending the allocation of
investments among various international markets and currencies, recommendation
and selection of particular securities in the international markets and
placement of portfolio transactions in the foreign equity markets. Although,
over-all strategy is set by the Lombard Odier Strategy Committee, Mr. Ronald
Armist (15 years of investment experience) and Mr. Omid Kamshad (20 years of
investment experience) will primarily be responsible for the day-to-day
management of the International Equity Portfolio.
The compensation of the Sub-Investment Managers is paid directly from the
investment management fees of Jefferson Pilot Investment Advisory and is set
forth in the table below as an annual percentage of the average daily net asset
value of the Portfolio managed:
SUB-INVESTMENT MANAGER
<TABLE>
<CAPTION>
AVERAGE
DAILY NET ASSETS JANUS TEMPLETON VAN ECK PIONEER
<S> <C> <C> <C> <C>
First $200 Million .75% .50% .50% .50%
Next $1.1 Billion .70% .45% .45% .45%
Over $1.3 Billion .65% .40% .40% .40%
<CAPTION>
MFS MFS MFS WARBURG &
NET ASSETS EMERGING GROWTH MONEY MARKET HIGH YIELD MORGAN
<S> <C> <C> <C> <C>
First $100 Million .50% .40% .30% .45%
Next $100 Million .50% .40% .30% .40%
Next $200 Million .50% .40% .25% .35%
Over $400 Million .50% .40% .25% .30%
<CAPTION>
NET ASSETS STRONG LOMBARD ODIER
<S> <C> <C>
First $25 Million .60% .50%
Next $75 Million .50% .50%
Next $50 Million .40% .50%
Over $150 Million .30% .50%
</TABLE>
As noted above, under the Investment Management Agreement Jefferson Pilot
Investment Advisory acts as transfer agent and dividend paying agent for the
Fund and assumes a number of administrative functions in addition to its
investment management services. For example, Jefferson Pilot Investment Advisory
prepares and distributes proxy statements, prospectuses, Statements of
Additional Information, reports and other communications with stockholders;
schedules, plans the agenda for, and conducts the meetings of the Fund's
directors and stockholders; and prepares and files tax returns and reports which
federal, state, local or foreign laws may require. The cost of preparing,
printing and distributing all materials and holding such meetings is borne
44
<PAGE>
by the Fund. The Fund also pays certain other expenses which are described
under the heading "INVESTMENT ADVISORY AND OTHER SERVICES--Payment of Expenses"
in the Statement of Additional Information.
For the year ended December 31, 1997, all investment management fees paid
to Jefferson Pilot Investment Advisory totalled: .75%, .50%, .75%, .75%, .50%,
.75%, 1.00%, .75% and .80%, respectively, of the average daily net assets of the
World Growth Stock Portfolio, Money Market Portfolio, Gold Stock Portfolio,
Domestic Growth Stock Portfolio, Bond Portfolio, Growth and Income Portfolio,
Capital Growth Portfolio, Balanced Portfolio and Emerging Growth Portfolio. For
the year ended December 31, 1996 the ratio of operating expenses to average net
assets was %, %, %,
%, %, %, % and %
respectively, for the World Growth Stock Portfolio, the Money Market Portfolio,
the Global Hard Assets Portfolio, the Domestic Growth Stock Portfolio, the Bond
Portfolio, the Growth and Income Portfolio, the Capital Growth Portfolio, the
Balanced Portfolio and Emerging Growth Portfolio. Jefferson Pilot Investment
advisory paid each of its current Sub-Investment Managers a sub-advisory fee
equal to the fee levels above for the first $200 million of assets.
CAPITAL STOCK
The Fund issues a separate series of capital stock for each Portfolio. Each
share of capital stock issued with respect to a Portfolio has a pro rata
interest in the assets of that Portfolio. Each share of capital stock is
entitled to one vote on all matters submitted to a vote of all stockholders of
the Fund, and fractional shares are entitled to a corresponding fractional vote.
Shares of a Portfolio will be voted separately from shares of other Portfolios
on matters affecting only that Portfolio, including approval of the investment
management agreement, a sub-investment management agreement, and changes in
fundamental investment policies of that Portfolio. The assets of each Portfolio
are charged with the liabilities of that Portfolio and a proportionate share of
the general liabilities of the Fund. All shares may be redeemed at any time.
As a Maryland corporate entity, the Fund is not required to hold regular
annual shareholder meetings and, in the normal course, does not expect to hold
such meetings. The Fund is, however, required to hold shareholder meetings for
such purposes as, for example: (i) approving certain agreements as required by
the 1940 Act; (ii) changing fundamental investment objectives and restrictions
of the Portfolios; and (iii) filling vacancies on the Board of Directors in the
event that less than a majority of the directors were elected by shareholders.
The Fund expects that there will be no meetings of shareholders for the purpose
of electing directors unless and until such time as less than a majority of the
directors holding office have been elected by shareholders. At such time, the
directors then in office will call a shareholder meeting for the election of
directors. In addition, holders of record of not less than two-thirds of the
outstanding shares of the Fund may remove a director from office by a vote cast
in person or by proxy at a shareholder meeting called for that purpose at the
request of holders of 10% or more of the outstanding shares of the Fund. The
Fund has the obligation to assist in such shareholder communications. Except as
set forth above, directors will continue in office and may appoint successor
directors.
Jefferson Pilot Financial initially purchased 100,000 shares of the capital
stock of each Portfolio, other than the Balanced Portfolio, High Yield Bond
Portfolio, International Equity Portfolio, Growth Portfolio and the Emerging
Growth Portfolio, for its general account. Jefferson Pilot Financial initially
purchased 500,000 shares of the capital stock of the Balanced Portfolio and
300,000 shares of capital stock of the Emerging Growth Portfolio for its general
account. The purchase price of each share was $10.00. All other shares are
offered only to corresponding divisions of separate accounts established by
Jefferson Pilot Financial or its affiliated insurance companies. As of
1997, Jefferson Pilot Financial owned shares of capital stock of the Capital
Growth, the Growth and Income Portfolio and the Balanced Portfolio, representing
%, % and %, respectively, of total shares outstanding.
The shares held in a separate account which are attributable to Policies will be
voted by Jefferson Pilot Financial or its affiliated insurance companies in
accordance with instructions received from the owners of Policies. The shares
held by Jefferson Pilot Financial or its affiliated insurance companies,
including shares for which no voting instructions have been received, shares
held in the separate account representing charges imposed by Jefferson Pilot
Financial or its affiliated insurance companies against the separate account and
shares held by Jefferson Pilot Financial or its affiliated insurance companies
that are not otherwise attributable to Policies, will also be voted by Jefferson
Pilot Financial or its affiliated insurance companies in proportion to
instructions received from the owners of Policies. Jefferson Pilot Financial and
its affiliated insurance companies reserve the right to vote any or all such
shares at their discretion to the extent consistent with then current
interpretations of the Investment Company Act of 1940 and rules thereunder.
45
<PAGE>
TAXES AND DIVIDENDS
Each Portfolio intends to qualify as a "regulated investment company" under
Subchapter M of the Internal Revenue Code ("Code"). It is the Fund's policy to
comply with the provisions of the Code regarding distribution of investment
income. Under those provisions, a Portfolio will not be subject to federal
income tax on that portion of its ordinary income and net capital gains
distributed to shareholders.
The Fund expects that each Portfolio will declare and distribute by the end
of each calendar year all or substantially all ordinary income and net capital
gains. Failure to distribute substantially all ordinary and net capital gains,
as described, may subject the Fund to an excise tax.
Dividends from ordinary income will be declared and distributed with
respect to each Portfolio at least once each year. Ordinary income of each
Portfolio is the investment company taxable income as defined in Section 852(b)
of the Code. All dividends and distributions will be automatically reinvested in
additional shares of the Portfolio with respect to which dividends have been
declared, at net asset value, as of the ex-dividend date of such dividends.
Section 817(h) of the Code and regulations thereunder set standards for
diversification of the investments underlying variable life insurance policies
in order for such policies to be treated as life insurance. These requirements,
which are in addition to diversification requirements applicable to the
Portfolios under Subchapter M and the Investment Company Act of 1940, may affect
the composition of a Portfolio's investments. Since the shares of the Fund are
currently sold to segregated asset accounts underlying such variable life
insurance policies, the Fund intends to comply with the diversification
requirements as set forth in the regulations.
The Secretary of the Treasury may in the future issue additional
regulations or revenue rulings that will prescribe the circumstances in which a
policyowner's control of the investments of a separate account may cause the
policyowner, rather than the insurance company, to be treated as the owner of
the assets of the separate account. Failure to comply with Section 817(h) of the
Code or any regulations thereunder, or with any regulations or revenue rulings
on policyowner control, if promulgated, would cause earnings on a policyowner's
interest in the separate account to be includible in the policyowner's gross
income in the year earned.
OFFERING AND REDEMPTION OF SHARES
Shares of capital stock of each Portfolio of the Fund are offered only to
the corresponding division of a separate account to which premiums have been
allocated by the owner of a Policy. Shares are sold and redeemed at their net
asset value as next determined following receipt by the separate account of
premium payments, surrender requests under Policies, loan payments, transfer
requests, and similar or related transactions through the separate account. The
Fund's principal underwriter and distributor is Jefferson Pilot Variable
Corporation, One Granite Place, Concord, New Hampshire 03301. Jefferson Pilot
Variable Corporation is an affiliate of Jefferson Pilot Investment Advisory and
a wholly-owned subsidiary of Jefferson Pilot Corporation. No selling commission
or redemption charge is made with respect to the purchase or sale of Fund
shares.
Net asset value is normally determined as of the close of regular trading
on the New York Stock Exchange (presently 4:00 p.m. New York Time) on each day
during which the New York Stock Exchange is open for trading. The net asset
value of each Portfolio will not be calculated on the Friday following
Thanksgiving, the Friday following Christmas if Christmas falls on a Thursday
and Monday before Christmas if Christmas falls on a Tuesday.
An equity security listed on a stock exchange is valued at the closing sale
price on the exchange on which such security is principally traded. If no sale
took place, the mean of the bid and asked prices at the close of trading is
used. A security not listed on a stock exchange is valued at the closing sale
price as reported on a readily available market quotation system, or, if no
sales took place, the mean of the bid and asked prices at the close of trading
in the over-the-counter market. Quotations of foreign securities in foreign
currencies are converted to United States dollar equivalents using appropriately
translated foreign market prices.
Trading in securities on exchanges in European and Far Eastern countries,
and in over-the-counter markets in such other nations, is normally completed
well before the close of trading on the New York Stock Exchange. Trading of
European and Far Eastern securities, either generally or in a particular country
or countries, may not take place on every day on which the New York Stock
Exchange is open. Furthermore, trading takes place in Japanese markets on
certain Saturdays, and in various foreign markets on days which are not business
days in New York and on which the Fund's net asset value is not normally
calculated. The calculation of the net asset value of those Portfolios which do
such trading, therefore, may not take place contemporaneously with
46
<PAGE>
the determination of the prices of many of the securities of each such Portfolio
which are used in making the calculation of net asset value. Occasionally,
events affecting the values of such securities may occur between the times at
which they are determined and the close of the New York Stock Exchange, which
events may not be reflected in the computation of a Portfolio's net asset value.
If, during such periods, events occur which materially affect the value of the
securities of a Portfolio, and during such periods either shares are tendered
for redemption or a purchase or sale order is received by the Fund, such
securities will be valued at fair value as determined in good faith by the Board
of Directors of the Fund.
Short-term debt securities having remaining maturities of 60 days or less
are valued on an amortized cost basis unless the Board determines that such
method does not represent fair value. This procedure values a purchased
instrument at cost on the date of purchase plus assumes a constant rate of
amortization of any discount or premium, regardless of any intervening change in
general interest rates or the market value of the instrument.
Options and convertible preferred stocks listed on a national securities
exchange are valued as of their last sale price or, if there is no sale, at the
current bid price. Futures Contracts are valued as of their last sale price or,
if there is no sale, at the mean of the bid and asked price.
All other securities and assets are valued at their fair value as
determined in good faith by the Board of Directors of the Fund.
With the approval of the Board, the Fund may utilize a pricing service, a
bank, or a broker-dealer experienced in such matters to perform any of the
above-described valuation functions.
Further discussion of asset valuation methods is included in the Statement
of Additional Information under the heading "DETERMINATION OF NET ASSET VALUE."
OTHER INFORMATION
Shares of the Portfolios are presently offered to separate accounts of
Jefferson Pilot Financial, ("JPF") Hamilton and Jefferson Pilot, affiliates of
Jefferson Pilot Financial, Hamilton and Jefferson Pilot and may be offered in
the future to other non-affiliated insurance companies in order to fund
additional variable life insurance policies, variable annuity contracts or other
investment products.
A potential for certain conflicts of interest exists between the interests
of variable life insurance policyowners and variable annuity contract owners. In
the event that shares of the Portfolios are offered to separate accounts funding
variable annuity contracts, the Board of Directors of the Fund intends to
monitor events for the existence of any material conflict between the interests
of variable life insurance policyowners and variable annuity contract owners and
to determine what action, if any, should be taken in response thereto.
47
<PAGE>
JEFFERSON PILOT VARIABLE FUND, INC.
FORMERLY CHUBB AMERICA FUND, INC
One Granite Place
Concord, New Hampshire 03301
(603) 226-5000
A Series Fund
with a
World Growth Stock Portfolio Investing Primarily in Stocks
International Equity Portfolio Invests In Securities Whose Primary Trading
Markets Are Putside The United States.
Money Market Portfolio Investing Primarily
in Money Market Instruments
Global Hard Assets Portfolio Investing Primarily in Hard Asset Securities
High Yield Bond Portfolio Invests Primarily In Corporate Obligations With
Emphasis On Higher Yielding, Higher Risk, Lower-Rated Or Unrated
Securities.
Domestic Growth Stock Portfolio Investing Primarily in Stocks
Growth Portfolio Invests In Equity Securities That Have Above-Average
Growth Prospects.
Growth and Income Portfolio Investing Primarily in Stocks
Capital Growth Portfolio Investing Primarily in Stocks
Balanced Portfolio Investing Primarily in
Stocks and Fixed Income Securities
Emerging Growth Portfolio Investing Primarily in Common Stocks
of Small and Medium-Sized Companies
________________________________________________________________________________
This Statement of Additional Information is not a prospectus but supplements
and should be read in conjunction with the Prospectus for the Fund. It is
incorporated by reference into the Prospectus. A copy of the Prospectus may be
obtained by writing or calling the Fund at the address or telephone number
above.
________________________________________________________________________________
The date of the Prospectus to which this Statement of Additional Information
relates is May 1, 1998.
The date of this Statement of Additional Information is May 1, 1998.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Business History ..............................................................
Investment Restrictions........................................................
Description of Certain Investments.............................................
Bank Obligations..............................................................
Repurchase Agreements.........................................................
Commercial Paper..............................................................
Loan Participation and other Direct Indebtedness..............................
Corporate Asset Backed Securities.............................................
Lending of Securities.........................................................
Forward Commitments...........................................................
Warrants......................................................................
Forward Foreign Currency Exchange Contracts...................................
American Depository Receipts..................................................
Securities and Index Options..................................................
Futures Contracts and Related Options.........................................
High Yield Bonds..............................................................
Description of Investment Ratings.............................................
Risk Considerations............................................................
U.S. Dollar Obligations of Foreign............................................
Branches of U.S. Banks........................................................
Repurchase Obligations........................................................
Foreign Securities............................................................
Forward Foreign Currency Exchange Contracts...................................
Gold Mining Shares............................................................
Options.......................................................................
Futures Contracts and Related Options.........................................
Federal Tax Matters...........................................................
Investment Advisory and Other Services.........................................
Investment Management Agreements and Sub-Investment Management Agreements.....
Independent Auditors..........................................................
Custodians....................................................................
Payment of Expenses...........................................................
Portfolio Transactions and Brokerage Allocations...............................
Management of the Fund.........................................................
Capital Stock..................................................................
Offering and Redemption of Shares..............................................
Determination of Net Asset Value...............................................
Taxes..........................................................................
Performance and Yield Information..............................................
Additional Information.........................................................
Reports.......................................................................
Name and Service Mark.........................................................
</TABLE>
S-2
<PAGE>
BUSINESS HISTORY
Jefferson Pilot Variable Fund, Inc. formerly Chubb America Fund, Inc. (the
"Fund") is an open-end diversified management investment company established by
Jefferson Pilot Financial Insurance Company ("JPF") formerly Chubb Life
Insurance Company of America to provide for the investment of assets of separate
accounts established by Jefferson Pilot Financial, Jefferson Pilot Life
("Jefferson Pilot") and Alexander Hamilton Life ("Alexander Hamilton") or their
affiliated insurance companies. Jefferson Pilot Financial was purchased by
Jefferson-Pilot Corporation, a North Carolina corporation, as of April 30, 1997.
Such assets are acquired by the separate accounts pursuant to the sale of
flexible premium variable life insurance policies and variable annuities (the
"Policies"). The Fund has no business history prior to being incorporated in
Maryland on October 19, 1984. In the future, the Fund may sell its shares to
other separate accounts funding variable annuities and variable life insurance
policies established by Jefferson Pilot Financial, its successors or assigns,
and to other insurance companies with which Jefferson Pilot Financial is
affiliated or unaffiliated, and may add or delete Portfolios.
INVESTMENT RESTRICTIONS
Each of the following investment restrictions are fundamental policies of
the World Growth Stock, Money Market, Global Hard Assets and Domestic Growth
Stock Portfolios and may not be changed for any such Portfolio without approval
of a majority of the outstanding shares of each affected Portfolio. Investment
restrictions 2, 3, 5, 6, 8-10 are fundamental policies for the Growth Portfolio.
Investment restrictions 2, 3, 5, 6, 8-12 and 17 are fundamental policies for the
Growth and Income, Capital Growth, Emerging Growth and Balanced Portfolios and
investment restrictions 2, 3, 5 and 8, 10, 12 are fundamental restrictions of
the International Equity Portfolio and investment restrictions 2, 3, 5, 6, 8, 9,
10, 11 and 12 are fundamental restrictions of the High Yield Bond Portfolio and
may not be changed for any such Portfolio without approval of a majority of the
outstanding shares of the affected Portfolio. Each restriction, whether or not
fundamental, applies to each Portfolio of the Fund, unless otherwise indicated.
A change in policy affecting only one Portfolio may be effected with the
approval of a majority of the outstanding shares of that Portfolio only. (As
used in the Prospectus and this Statement of Additional Information, the term
"majority of the outstanding voting shares" means the lesser of (1) 67% of the
shares represented at a meeting at which more than 50% of the outstanding shares
are represented or (2) more than 50% of the outstanding shares.) A Portfolio
will not:
1. Invest more than 10%, or in the case of Emerging Growth Portfolio, High Yield
Bond Portfolio, Global Hard Assets Portfolio and the Growth Portfolio 15%, of
the value of the total assets of the Portfolio in securities, or 5%, except
with respect to Emerging Growth Portfolio, International Equity Portfolio and
the Growth Portfolio, of the value of the total assets of the Portfolio in
equity securities, which are not readily marketable, such as repurchase
agreements having a maturity of more than seven days, restricted securities,
and securities that are secured by interests in real estate.
2. Invest in real estate, although it may buy securities of companies which deal
in real estate and securities which are secured by interests in real estate,
including interests in real estate investment trusts.
3. Invest in commodities or commodity contracts, except that the Growth and
Income Portfolio, International Equity Portfolio, High Yield Bond Portfolio,
the Growth Portfolio, the Capital Growth Portfolio, Global Hard Assets
Portfolio, the Balanced Portfolio Global Hard Assets Portfolio and the
Emerging Growth Portfolio may each enter into financial futures contracts and
options thereon that are listed on a national securities or commodities
exchange if, immediately thereafter for that Portfolio: (a) the total of the
initial margin deposits required with respect to all open futures positions
at the time such positions were established plus the sum of the premiums paid
for all unexpired options on futures contracts would not exceed 5% of the
value of a Portfolio's total assets and (b) a segregated account consisting
of cash or liquid high-grade debt securities or liquid equity securities in
an amount equal to the total market value of any futures contracts purchased
by a Portfolio, less the amount of any initial margin, is established by that
Portfolio. In the case of an option that is "in-the-money" at the time of
purchase, the "in-the-money" amount, as defined under Commodity Futures
Trading Commission regulations, may be excluded in computing the 5% limit.
Except the Growth Portfolio and Global Hard Assets Portfolio may engage in
futures or options transactions which are permissible pursuant to Rule 4.5
under the Commodity Exchange Act, provided, however, that the Portfolio may
use futures and options on futures (within the meaning of the Commodity
Exchange Act), provided that the initial margin and premiums required to
establish such positions, less the amount by which such options positions are
in the money (within the meaning of the Commodity Exchange Act), do not
exceed 5% of the Portfolio's net assets. In addition, (i) the aggregate value
of securities underlying call options on securities written by the Growth
Portfolio or obligations underlying put options on securities written by the
Portfolio determined as of the date the options are written will not exceed
50% of the Portfolio's net assets; (ii) the aggregate premiums paid on all
options purchased by the Portfolio and which are being held will not exceed
20% of the Portfolio's net assets; (iii) the Portfolio will not purchase put
or call options, other than hedging positions, if, as a result thereof, more
than
S-3
<PAGE>
5% of its total assets would be so invested; and (iv) the aggregate margin
deposits required on all futures and options on futures transactions being
held will not exceed 5% of the Portfolio's total assets.
4. Invest in securities of other investment companies, except by purchases in
the open market involving only customary broker's commissions or as part of a
merger, consolidation, or acquisition, subject to limitations in the
Investment Company Act of 1940 (the "1940 Act") and rules thereunder.
5. Make loans, except by the purchase of bonds or other debt obligations
customarily distributed privately to institutional investors and except that
the Fund may buy repurchase agreements and provided that the Emerging Growth
Fund may lend its portfolio securities representing not in excess of 30% of
its total assets (taken at market value and further provided the
International Equity Portfolio, Global Hard Assets Portfolio and the High
Yield Bond Portfolio may make loans if as a result less than 33 1/3% of the
Portfolio's assets would be lent to other persons).
6. Except with respect to the International Equity Portfolio, make an investment
unless, when considering all its other investments, 75% of the value of the
Portfolio's assets would consist of cash, cash items, U.S. Government
securities, securities of other investment companies, and other securities.
For this restriction, "other securities" are limited, for each issuer, to not
more than 5% of the value of the Portfolio's assets and to not more than 10%
of the issuer's outstanding voting securities.
As a matter of operating policy, the Fund except the International Equity
Portfolio considers bank obligations as "other securities" and will invest no
more than 5% of a Portfolio's total assets in the obligations of any one issuer
and will own no more than 10% of the outstanding voting securities of such
issuer. Pursuant to this operating policy, the Fund will not consider repurchase
agreements to be subject to this 5% limitation if the collateral underlying the
repurchase agreements are exclusively U.S. Government Obligations.
7. Except with respect to the International Equity Portfolio, Growth and Income
Portfolio; Capital Growth Portfolio; Balanced Portfolio; Emerging Growth
Portfolio, Global Hard Assets Portfolio and High Yield Bond Portfolio invest
more than 5% of the value of the total assets of the Portfolio in securities
of companies having a record of less than three years' continuous operations,
including predecessors and unconditional guarantors.
8. Act as an underwriter of securities of other issuers, except to the extent
that it may be deemed to be an underwriter in reselling securities, such as
restricted securities, acquired in private transactions and subsequently
registered under the Securities Act of 1933.
9. Except with respect to the Emerging Growth Portfolio and Global Hard Assets
Portfolio, borrow money, except that, as a temporary measure for
extraordinary or emergency purposes and not for investment purposes, any
Portfolio may borrow from banks up to 5% of its assets taken at cost,
provided in each case that the total borrowings have an asset coverage, of at
least 300%. The Emerging Growth Portfolio, High Yield Bond Portfolio, Global
Hard Assets Portfolio and Growth Portfolio may not borrow money in an amount
in excess of 33 1/3% of its total assets, and then only as a temporary
measure for extraordinary or emergency purposes. This restriction will not
prevent the Growth Portfolio, International Equity Portfolio, High Yield Bond
Portfolio, Growth and Income Portfolio, the Capital Growth Portfolio, Global
Hard Assets Portfolio, the Balanced Portfolio or Emerging Growth Portfolio
from entering into futures contracts as set forth above in restriction 3.
10. Issue securities senior to its common stock except to the extent set out in
paragraph 9 above. For purposes hereof, writing covered call options, and as
regards Emerging Growth Portfolio, and Global Hard Assets Portfolio put
options, and entering into futures contracts, to the extent permitted by
restrictions 3 and 13, and with respect to Global Hard Assets Portfolio
currency and commodity contracts and related options purchased on margin and
currency swaps shall not involve the issuance of senior securities.
11. Sell securities short, except the International Equity Portfolio, Growth
Portfolio, Growth and Income Portfolio, Capital Growth Portfolio, the
Balanced Portfolio and Emerging Growth Portfolio may make short sales
against the box and the Global Hard Assets Portfolio may make short sales
for any reason.
12. Buy securities on margin, except that (1) it may obtain such short-term
credits as may be necessary for the clearance of purchases and sales of
securities, and (2) the Growth and Income Portfolio, the Capital Growth
Portfolio, the Balanced Portfolio, Growth Portfolio, Global Hard Assets
Portfolio, and the Emerging Growth Portfolio may make margin deposits in
connection with futures contracts and options transactions to the extent
permitted by restrictions 3 and 13.
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13. Except for the Growth Portfolio, Growth and Income Portfolio, High Yield
Bond Portfolio, International Equity Portfolio, Balanced Portfolio, Capital
Growth Portfolio, Global Hard Assets Portfolio, and Emerging Growth
Portfolio invest in or write puts, calls, straddles, or spreads. However,
this restriction shall not prohibit the Portfolios (other than the Money
Market Portfolio) from writing or selling covered call options or purchasing
call options in order to close transactions. Nor shall this restriction
prohibit the Emerging Growth, Global Hard Assets Portfolio or Capital Growth
Portfolio from writing or selling covered call and put options or purchasing
call or put options. (In addition, as a matter of operating policy, no
Portfolio may write covered call options if, as a result, a Portfolio's
securities covering all call options written or subject to put or call
options would exceed 25% of the value of the Portfolio's total assets.)
Provided that the International Equity Portfolio and the High Yield Bond
Portfolio may write covered calls or put options with respect to 25% of
their assets at any time and may invest more that 25% of the value of their
net assets at any time in purchased puts, calls, spreads or straddles, or
any combination thereof other than protective put options. The aggregate
value or premiums paid on all options held by either the International
Equity Portfolio, Global Hard Assets Portfolio, or the High Yield Portfolio
may not exceed 20% of the Portfolio's total net assets.
14. Except for the Growth and Income Portfolio, the International Equity
Portfolio, the High Yield Portfolio, Global Hard Assets Portfolio and the
Growth Portfolio enter into a repurchase agreement with Jefferson Pilot
Financial Insurance Company ("JPF"); The Chubb Corporation; or a subsidiary
of either of such corporations.
15. Except for the Emerging Growth Portfolio, the International Equity
Portfolio, the High Yield Portfolio and the Growth Portfolio participate on
a joint or joint and several basis in any trading account in securities.
Transactions for the Portfolios and any other accounts under common
management may be combined or allocated between the Portfolios and such
other accounts.
16. Except for the Growth and Income Portfolio, the International Equity
Portfolio, the High Yield Portfolio and the Growth Portfolio invest in
companies for the purpose of exercising control of management.
17. Invest more than 25% of the value of the total assets of the Portfolio
(other than the Global Hard Assets Portfolio) in securities of any one
industry. Banks are not considered a single industry for purposes of this
restriction. (As a matter of operating policy, only the Money Market
Portfolio may utilize this exception.) Nor shall this restriction apply to
securities issued or guaranteed by the U.S. Government, its agencies or
instrumentalities.
18. Invest in interests, other than debentures or equity stock interests, in oil
and gas or other mineral exploration or development programs.
19. Invest more than 5% of the total value of the assets of the Portfolio in
warrants, whether or not the warrants are listed on the New York or American
Stock Exchanges, or more than 2% of the value of the assets of the Portfolio
in warrants which are not listed on those exchanges. Warrants acquired in
units or attached to securities are not included in this restriction.
20. Invest more than 15% of the value of the assets of the Portfolios (except
the Emerging Growth Portfolio, Global Hard Assets Portfolio and the
International Equity Portfolio, Growth Portfolio, and High Yield Bond
Portfolio) in securities of foreign issuers that are not listed on a
recognized U.S. or foreign securities exchange, or quoted on an inter-dealer
quotation system. Provided, however that the International Equity Portfolio
may not invest in foreign issuers unless, after such investment, issuers in
at least the following number of different countries are represented in the
Portfolio's holding: if up to 40% of the Portfolio's total assets are
invested in foreign issuers, two foreign countries; if between 40% and 60%
of the Portfolio's total assets are invested in foreign issuers, three
foreign countries; if between 60% and 80% of the Portfolio's total assets
are invested in foreign issuers, four foreign countries if over 80% of the
Portfolio's total assets are invested in foreign issuers, five foreign
countries.
DESCRIPTION OF CERTAIN INVESTMENTS
The following is a description of certain types of investments which may be
made by the Portfolios and which may involve certain specific risks, discussed
under "RISK CONSIDERATIONS" below:
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Bank Obligations
All of the Portfolios may acquire obligations of banks. These include
certificates of deposit, which are normally limited to $100,000 per issuing
bank, bankers' acceptances and time deposits. Certificates of deposit are
generally short-term, interest-bearing negotiable certificates issued by
commercial banks or savings and loan associations against funds deposited in the
issuing institution. Bankers' acceptances are time drafts drawn on a commercial
bank by a borrower, usually in connection with an international commercial
transaction (to finance the import, export, transfer or storage of goods). With
a bankers' acceptance, 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. Most bankers' acceptances have maturities of six months or less and are
traded in secondary markets prior to maturity. Time deposits are generally
short-term, interest-bearing negotiable obligations issued by commercial banks
against funds deposited in the issuing institution. None of the Portfolios will
invest in time deposits maturing in more than seven days.
The Money Market Portfolio will not invest in any security issued by a
commercial bank unless the bank is organized and operating in the U.S. and is a
member of the Federal Deposit Insurance Corporation. However, this limitation
shall not prohibit investments in foreign branches of U.S. banks which otherwise
meet the foregoing requirements.
Repurchase Agreements
All of the Portfolios, except the Domestic Growth Stock Portfolio, may invest
in repurchase agreements.
A repurchase agreement customarily obligates the seller, at the time it sells
securities to the Portfolio, to repurchase the securities at a mutually agreed
upon time and price. The total amount received on repurchase would be calculated
to exceed the price paid by the Portfolio, reflecting an agreed upon market rate
of interest for the period from the time of the repurchase agreement to the
settlement date, and would not necessarily be related to the interest rate on
the underlying securities. The differences between the total amount to be
received upon repurchase of the securities and the price which was paid by the
Portfolio upon their acquisition is accrued as interest and is included in the
Portfolio's net income declared as dividends. The underlying securities will
consist of high-quality securities. With respect to the Money Market Portfolio,
the underlying security must be either a U.S. Government Obligation or a
security rated in the highest rating category by the Requisite NRSROs (as
defined in the Prospectus) and must be determined to present minimal credit
risk. The Fund has the right to sell securities subject to repurchase agreements
but would be required to deliver identical securities upon maturity of the
repurchase agreements unless the seller fails to pay the repurchase price. It is
each Portfolio's intention not to sell securities subject to repurchase
agreements prior to the agreement's maturity.
Commercial Paper
All of the Portfolios may invest in commercial paper. Commercial paper
involves an unsecured promissory note issued by a corporation. It is usually
sold on a discount basis and has a maturity at the time of issuance of nine
months or less. In connection with the World Growth Stock Portfolio and the
Domestic Growth Stock Portfolio, on the date of investment, such paper must be
rated A-1 by Standard & Poor's Corporation ("Standard & Poor's") or Prime-1 by
Moody's Investor's Service, Inc. ("Moody's"), the highest commercial paper
ratings, or the highest commercial paper ratings by other Nationally Recognized
Securities Rating Organization (NRSROs), or, if not rated, must have been issued
by a corporation with an outstanding debt issue rated AAA or AA by Standard &
Poor's or AAA or Aa by Moody's as described below, and be of equivalent
investment quality in the judgment of the Portfolio's Investment Manager or Sub-
Investment Manager, as appropriate. On the date of investment, with respect to
the Money Market Portfolio, such paper or its issuer must be rated in one of the
two highest commercial paper rating categories by at least two NRSROs which have
issued a rating with respect to such commercial paper or its issuer or by one
NRSRO if that paper or its issuer has been rated by only one NRSRO or, if not
rated, must be of comparable quality. In connection with the Growth and Income
Portfolio, the Capital Growth Portfolio and the Balanced Portfolio, on the date
of investment, such paper must be rated within the three highest categories by
Moody's, Standard & Poor's or other NRSROs or, if not rated, must be of
equivalent investment quality in the judgment of the Portfolio's Investment
Manager or Sub-Investment Manager, as appropriate.
Commercial Paper
The Global Hard Assets Portfolio may invest in commercial paper which is
indexed to certain specific foreign currency exchange rates. The terms of such
commercial paper provide that its principal amount is adjusted upwards or
downwards (but not below zero) at maturity to reflect changes in the exchange
rate between two currencies while the obligation is outstanding. The Portfolio
will purchase such commercial paper with the currency in which it is denominated
and, at maturity, will receive interest and principal payments thereon in that
currency, but the amount or principal payable by the issuer at maturity will
change in
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proportion to the change (if any) in the exchange rate between two specified
currencies between the date the instrument is issued and the date the instrument
matures. While such commercial paper entails the risk of loss of principal;, the
potential for realizing gains as a result of changes in foreign currency
exchange rate enables the Portfolio to hedge or cross-hedge against a decline in
the U.S. dollar value of investments denominated in foreign currencies while
providing an attractive money market rate of return. The Portfolio will purchase
such commercial paper for hedging purposes only, not for speculation. The staff
of the Securities and Exchange Commission has been considering whether the
purchase of this type of commercial paper would result in the issuance of a
"senior security" within the meaning of the 1940 Act. The Portfolio believes
that such investments do not involve the creation of such a senior security, but
nevertheless will establish a segregated account with respect to its investments
in this type of commercial paper and to maintain in such account cash not
available for investment or U.S. Government securities or other liquid high
quality securities having a value equal to the aggregate principal amount of
outstanding commercial paper of this type.
Loan Participations and Other Direct Indebtedness
As described in the Prospectus, the Portfolios may purchase loan
participations and other direct indebtedness. In purchasing a loan
participation, a Portfolio acquires some or all of the of the interest of a bank
or other lending institution in a loan to a corporate borrower. Many such loans
are secured, although some may be unsecured. Such loans may be in default at
the time of purchase. Loans and other direct indebtedness that are fully
secured offer a Portfolio more protection than an unsecured loan in the event of
non-payment of scheduled interest or principal. However, there is no assurance
that the liquidation collateral from a secured loan or other direct indebtedness
would satisfy the corporate borrower's obligation, or that the collateral can be
liquidated.
These loans and other direct indebtedness are made generally to finance
internal growth, mergers, acquisitions, stock repurchases, leveraged buy-outs
and other corporate activities. Such loans and other direct indebtedness loans
are typically made by a syndicate of lending institutions represented by an
agent lending institution which has negotiated and structured the loan and is
responsible for collecting interest, principal and other amounts due on its own
behalf and on behalf of the others in the syndicate, and for enforcing its and
their other rights against the borrower. Alternatively, such loans and other
direct indebtedness may be structured as a novation, pursuant to which the
Portfolio would assume all of the rights of the lending institution in a loan,
or as an assignment, pursuant to which the Portfolio would purchase an
assignment of a portion of a lender's interest in a loan or other direct
indebtedness either directly from the lender or through an intermediary. A
Portfolio may also purchase trade or other claims against companies, which
generally represent money owed by the company to a supplier of goods or
services. These claims may also be purchased at a time when the company is in
default.
Certain of the loan participations and other direct indebtedness acquired by
a Portfolio may involve revolving credit facilities or other standby financing
commitments which obligates a Portfolio to pay additional cash on a certain date
or on demand. These commitments may have the effect of requiring a Portfolio to
increase its investment in a company at a time when the Emerging Growth
Portfolio might not otherwise decide to do so (including at a time when the
company's financial condition makes it unlikely that such amounts will be
repaid). To the extent that a Portfolio is committed to advance additional
funds, it will at all times hold and maintain in a segregated account liquid
assets in an amount sufficient to meet such commitments.
The Portfolio's ability to receive payment of principal, interest and other
amounts due in connection with these investments will depend primarily on the
financial condition of the borrower. In selecting the loan participations and
other direct indebtedness which the Portfolio will purchase, The Sub-Investment
Manager will rely upon its own (and not the original lending institution's)
credit analysis of the borrower. As the Portfolio may be required to rely upon
another lending institution to collect and pass on to the Portfolio amounts
payable with respect to the loan and to enforce the Portfolio's rights under the
loan and other direct indebtedness, an insolvency, bankruptcy or reorganization
of the lending institution may delay or prevent the Portfolio from receiving
such amounts. In such cases, the Portfolio will evaluate as well the
creditworthiness of the lending institution and will treat both the borrower and
the lending institution as an "issuer" of the loan participation for the
purposes of certain investment restrictions pertaining to the diversification of
the Portfolio's investments. The highly leveraged nature of many such loans and
other direct indebtedness may make such loans and other direct indebtedness
especially vulnerable to adverse changes in economic or market conditions.
Investments in such loans and other direct indebtedness may involve additional
risk to the Portfolio. For example, if a loan or other direct indebtedness is
foreclosed, the Portfolio could become part owner of any collateral, and would
bear the costs and liabilities associated with owning and disposing of
collateral. In addition, it is conceivable that under emerging legal theories of
lender liability, the Portfolio could be held liable as co-lender. It is unclear
whether loans and other forms of direct indebtedness offer securities law
protections against fraud and misrepresentation. In the absence of definitive
regulatory guidance, the Portfolio relies on the Sub-Investment Manager's
research in an attempt to avoid situations where fraud and misrepresentation
could adversely affect the Portfolio. In addition, loan participations and other
direct investments may not be in the form of securities or may be subject to
restrictions on transfer, and only limited opportunities may exist to resell
such instruments. As a result, the Portfolio may be unable to sell such
investments at an opportune time or may have to resell them at less than fair
market
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value. To the extent that the Sub-Investment Manager determines that any such
investments are illiquid, the Portfolio will include them in the investment
limitations described below .
Corporate Asset-Backed Securities
As described in the Prospectus, the Fund may invest in corporate asset-backed
securities. These securities, issued by trusts and special purposes
corporations, are backed by a pool of assets, such as credit card and automobile
loan receivables, representing the obligations of a number of different parties.
Corporate asset-backed securities present certain risks. For instance, in the
case of credit card receivables, these securities may not have the benefit of
any security interest in the related collateral. Credit card receivables are
generally unsecured and the debtors are entitled to the protection of a number
of state and federal consumer credit laws, many of which give such debtors the
right to set off certain amounts owed on the credit cards, thereby reducing the
balance due. Most issuers of automobile receivables permit the servicers to
retain possession of the underlying obligations. If the servicer were to sell
these obligations to another party, there is a risk that the purchaser would
acquire an interest superior to that of the holders of the related automobile
receivables. In addition, because of the large number of vehicles involved in a
typical issuance and technical requirements under state laws, the trustee for
the holders of the automobile receivables may not have a proper security
interest in all of the obligations backing such receivables. Therefore, there is
the possibility that recoveries on repossessed collateral may not, in some
cases, be available to support payments on these securities. The underlying
assets (e.g., loans) are also subject to prepayments which shorten the
securities' weighted average life and may lower their return.
Corporate asset-backed securities are often backed by a pool of assets
representing the obligations of a number of different parties. To lessen the
effect of failures by obligors and underlying assets to make payments, the
securities may contain elements of credit support which fall into two
categories: (i) liquidity protection and (ii) protection against losses
resulting from ultimate default by an obligor on the underlying assets.
Liquidity protection refers to the provision of advances, generally by the
entity administering the pool of assets, to ensure that the receipt of payments
on the underlying pool occurs in a timely fashion. Protection against losses
resulting from ultimate default ensures payment through insurance policies or
letter of credit obtained by the issuer or sponsor from third parties. The Fund
will not pay any additional or separate fees for credit support. The degree of
credit support provided for each issue is generally based on historical
information respecting the level of credit risk associated with the underlying
assets. Delinquency or loss in excess of that anticipated or failure of the
credit support could adversely affect the return on an investment in such a
security.
Lending of Securities
Subject to their investment limitations the Portfolios may seek to increase
their income by lending portfolio securities. Such loans will usually be made to
member banks of the Federal Reserve System and to its member firms (and
subsidiaries thereof) of the New York Stock Exchange and would be required to be
secured continuously by collateral in cash, cash equivalents, or U.S. Government
securities maintained on a current basis at an amount at least equal to the
market value of the securities loaned. The Portfolios would have the right to
call a loan and obtain the securities loaned at any time on customary industry
settlement notice (which will usually not exceed five days). During the
existence of a loan, the Portfolio would continue to receive the equivalent of
the interest or dividends paid by the issuer on the securities loaned and would
also receive compensation based on investment of the cash collateral or a fee.
The Emerging Growth Portfolio would not, however, have the right to vote any
securities having voting rights during the existence of the loan, but would call
the loan in anticipation of an important vote to be taken among holders of the
securities or of the giving or withholding of their consent on a material matter
affecting the investment. As with other extensions of credit, there are risks of
delay in recovery or even loss of rights in the collateral should the borrower
fail financially. However, the loans would be made only to firms deemed by The
Sub-Investment Manager to be of good standing, and when, in the judgment of The
Sub-Investment Manager, the consideration which could be earned currently from
securities loans of this type justifies the attendant risk. If The Sub-
Investment Manager determines to make securities loans, it is not intended that
the value of the securities loaned would exceed 30% of the value of the Emerging
Growth Portfolio's total assets.
Forward Commitments
The Portfolios except the Money Market Portfolio may, from time to time,
purchase securities on a forward commitment, when issued, or delayed delivery
basis. The price of such forward commitment securities, which may be expressed
in yield terms, is fixed at the time the commitment to purchase is made.
Delivery and payment will take place at a later date. Normally, the settlement
date may take up to three months. During the period between purchase and
settlement, no payments are made by the Portfolio to the issuer and no interest
accrues to the Portfolio. Forward commitments involve a risk of loss if the
value of the
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security to be purchased declines prior to the settlement date. While forward
commitment securities may be sold prior to the settlement date, each Portfolio
intends to purchase such securities with the purpose of actually acquiring them,
unless a sale appears desirable for investment reasons. At the time a Portfolio
makes the commitment to purchase a security on a forward commitment basis, the
Portfolio will record the transaction and reflect the value of the security in
determining its net asset value. The Investment Managers do not believe that the
net asset value or income of the Portfolios will be adversely affected by the
purchase of securities on a forward commitment basis. Each Portfolio using
forward commitments will maintain with it's custodian in a segregated account
liquid assets equal in value to its total commitments for forward commitment
securities.
Forward Foreign Currency Exchange Contracts
Certain of the Portfolios may use forward foreign currency exchange contracts
("forward currency contracts") to hedge against the decline of a currency in
which the Portfolio's securities are denominated. A forward currency contract
involves an obligation to purchase or sell a specific currency at a future date,
which may be any fixed number of days from the date of the contract as agreed by
the parties, at a price set at the time of the contracts.
The Portfolios may enter into forward currency contracts or maintain a net
exposure on such contracts only if (i) the consummation of the contracts would
not obligate the Portfolio to deliver an amount of foreign currency in excess of
the value of the Portfolio's securities or other assets denominated in the
currency and (ii) the Portfolios maintain with their custodian liquid assets in
a segregated account in an amount not less than the value of the Portfolio's
total assets committed to the consummation of the contracts or otherwise cover
the forward currency contract in accordance with the current SEC's regulations.
Depository Receipts
Certain of the Portfolios may invest in American Depository Receipts
("ADR's"), Global Depository Receipts ("GDR's"), and European Depository
Receipts ("EDR's"). ADR's are certificates issued by a U.S. bank representing
the right to receive securities of a foreign issuer deposited in that bank or a
correspondent bank. There are no fees imposed on the purchase or sale of ADR's
when purchased from the issuing bank in the initial underwriting, although the
issuing bank may impose charges for the collection of dividends and the
conversion of ADR's into the underlying ordinary shares. Brokerage commissions
will be incurred if ADR's are purchased through brokers on U.S. stock exchanges.
Investments in ADR's often have advantages over direct investments in the
underlying foreign securities, including the following: they are more liquid
investments, they can be sold for U.S. dollars, they may be transferred easily,
market quotations are readily available in the U.S. and more uniform financial
information is available for the issuers of such securities. GDRs and EDRs are
similar to ADRs except that they are not necessarily issued by a US Bank in that
they represent evidence of ownership of underlying securities issued in the US
or foreign securities market. Generally, Depository Receipts in bearer form are
designed for care in securities market outside the United States. Depository
Receipts may not necessarily be denominated in the same currency as the
underlying securities into which they may be converted. Depository Receipts may
be in sponsored or unsponsored programs. The issuer may not be involved and less
issuer information may be available. The Fund believes that the risk associated
with ownership of depository receipts are no greater than the risks associated
with the direct ownership of foreign shares.
Restricted and Illiquid Securities
All of the Portfolios may to some extent purchase certain restricted
securities (those that are not registered under the Securities Act of 1933 ("33
Act") but can be offered and sold to "qualified institutional buyers" under Rule
144A of the 33 Act) and limited amounts of illiquid investments, including
illiquid restricted securities. Limitations on illiquid securities and other
illiquid investments for each Portfolio are described in the Portfolio's
investment restriction above.
Illiquid investments include many restricted securities, repurchase
agreements that mature in more than seven days, currency and interest rate
swaps, time deposits that mature in more than seven days or that have a notice
or demand period more than seven days, certain over-the-counter option
contracts, participation interests in loans, securities not readily marketable
and certain restricted securities.
Certain repurchase agreements which provide for settlement in more than seven
days, however, can be liquidated before the nominal fixed term on seven days or
less notice. The Portfolios will consider such repurchase agreements as liquid.
Likewise, restricted securities (including commercial paper issued pursuant to
4(2) of the 33 Act) that the Board of Directors or the sub-advisers have
determined to be liquid will be treated as such.
Securities and Index Options
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All of the Portfolios, except the Money Market Portfolio Portfolio may write
(sell) covered call options and purchase call options in order to close
transactions. In addition, the Growth and Income Portfolio, the Capital Growth
Portfolio, the Balanced Portfolio, the International Equity Portfolio; the
Growth Portfolio, the High Yield Bond Portfolio, the Global Hard Assets
Portfolio and the Emerging Growth Portfolio may purchase put and call options to
enhance investment performance or for hedging purposes. The options activities
of a Portfolio may increase its portfolio turnover rate and the amount of
brokerage commissions paid. These commissions may be higher than those which
would apply to purchases and sales of securities directly.
Writing Covered Call Options. A call option is a contract that gives the
holder (buyer) of the option the right to buy (in return for a premium paid),
and the writer of the option (in return for a premium received) the obligation
to sell, the underlying security at a specified price (the exercise price) at
any time before the option expires. A covered call option is a call in which the
writer of the option, for example, owns the underlying security throughout the
option period. In such cases, the security covering the call will be maintained
in a segregated account with the Fund's custodian. The exercise price of a call
option written by a Portfolio may be below, equal to or above the current market
value of the underlying security at the time the option is written. A Portfolio
will write covered call options to reduce the risks associated with certain of
its investments or to increase total investment return through the receipt of
premiums.
A Portfolio may attempt to protect itself from loss due to a decline in
value of the underlying security or from the loss of appreciation due to its
rise in value by buying an identical option, in which case the purchase cost of
such option may offset the premium received for the option previously written.
In order to do this, the Portfolio makes a "closing purchase transaction" by the
purchase of a call option on the same security with the same exercise price and
expiration date as the covered call option which it has previously written. The
Portfolio will realize a gain or loss from a closing purchase transaction if the
amount paid to purchase a call option is less or more than the amount received
from the sale of the corresponding call option. Also, because increases in the
market price of a call option will generally reflect increases in the market
price of the underlying security, any loss resulting from the exercise or
closing out of a call option is likely to be offset in whole or in part by
unrealized appreciation of the underlying security owned by the Portfolio.
Purchasing Put and Call Options. A Portfolio may purchase put options on
securities to protect its holdings in an underlying or related security against
an anticipated decline in market value. Such hedge protection is provided only
during the life of the option. Securities are considered related if their price
movements generally correlate with one another. The purchase of put options on
securities held by a Portfolio or related to such securities will enable a
Portfolio to preserve, at least partially, unrealized gains in an appreciated
security in its portfolio without actually selling the security. In addition, a
Portfolio will continue to receive interest or dividend income on the security.
A Portfolio may purchase call options on individual securities or stock
indices in order to take advantage of anticipated increases in the price of
those securities by purchasing the right to acquire the securities underlying
the option or, with respect to options on indices, to receive income equal to
the value of such index over the strike price. As the holder of a call option
with respect to individual securities, a Portfolio obtains the right to purchase
the underlying securities at the exercise price at any time during the option
period. As the holder of a call option on a stock index, a Portfolio obtains the
right to receive, upon exercise of the option, a cash payment equal to the
multiple of any excess of the value of the index on the exercise date over the
strike price specified in the option.
Options on Indexes. A Portfolio may write covered call options and purchase
put and call options on appropriate securities indexes for the purpose of
hedging against the risk of unfavorable price movements adversely affecting the
value of a Portfolio's securities or to enhance income. Unlike a stock option
which gives the holder the right to purchase or sell a specified stock at a
specified price, an option on a securities index gives the holder the right to
receive a cash settlement amount based upon price movements in the stock market
generally (or in a particular industry or segment of the market represented by
the index) rather than the price movements in individual stocks.
A securities index fluctuates with changes in the market values of the
securities so included. For example, some securities index options are based on
a broad market index such as the S&P 500 or the NYSE Composite Index, or a
narrower market index such as the S&P 100. Indexes may also be based on an
industry or market segment such as the AMEX Oil and Gas Index or the Computer
and Business Equipment Index. Options on stock indexes are currently traded on
the following exchanges, among others: The Chicago Board Options Exchange, New
York Stock Exchange and American Stock Exchange. Options on other types of
securities indexes, which do not currently exist, including indexes on certain
debt securities, may be introduced and traded on exchanges in the future.
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Futures Contracts and Related Options
The Growth and Income Portfolio, Growth Portfolio, High Yield Bond Portfolio,
International Equity Portfolio, the Capital Growth Portfolio, the Balanced
Portfolio, the Global Hard Assets Portfolio, and the Emerging Growth Portfolio
may purchase or sell futures contracts and related options.
Futures Transactions. A futures contract is an agreement to buy or sell a
security (or deliver a final cash settlement price in the case of a contract
relating to an index or otherwise not calling for physical delivery at the end
of trading in the contracts) for a set price in the future. Futures exchanges
and trading in futures is regulated under the Commodity Exchange Act by the
Commodity Futures Trading Commission ("CFTC"). Futures contracts trade on
certain regulated contracts markets.
Positions taken in the futures markets are not normally held until delivery
or cash settlement is required, but are instead liquidated through offsetting
transactions which may result in a gain or a loss. While futures positions taken
by a Portfolio will usually be liquidated in this manner, the Portfolio may
instead make or take delivery of underlying securities whenever it appears
economically advantageous to the Portfolio to do so. A clearing organization
associated with the exchange on which futures are traded assumes responsibility
for closing-out transactions and guarantees that, as between the clearing
members of an exchange, the sale and purchase obligations will be performed with
regard to all positions that remain open at the termination of the contract.
Upon entering into a futures contract, a Portfolio will be required to
deposit with a futures commission merchant a certain percentage (usually 1% to
5%) of the futures contracts market value as initial margin. A Portfolio may not
commit in the aggregate more than 5% of the market value of its total assets to
initial margin deposits on the Portfolio's existing futures contracts and
premium paid for options on unexpired futures contracts used for non hedging
purposes. Initial margin is in the nature of a performance bond or good faith
deposit on the contract which is returned upon termination of the futures
contract if all contractual obligations have been satisfied. The initial margin
in most cases will consist of cash or U.S. Government securities. Subsequent
payments, called variation margin, may be made with the futures commission
merchant as a result of marking the contracts to market on a daily basis as the
contract value fluctuates.
Futures on Debt Securities. A futures contract on a debt security is a
binding contractual commitment which, if held to maturity, will result in an
obligation to make or accept delivery, during a particular future month, of
securities having a standardized face value and rate of return. By purchasing
futures on debt securities [assuming a "long" position] a Portfolio will legally
obligate itself to accept the future delivery of the underlying security and pay
the agreed price. By selling futures on debt securities [assuming a "short"
position] it will legally obligate itself to make the future delivery of the
security against payment of the agreed price. Open future positions on debt
securities will be valued at the most recent settlement price, unless such price
does not appear to the Sub-Investment Manager to reflect the fair value of the
contract, in which case the positions will be valued by, or under the direction
of, the Board of Directors.
The Portfolios by hedging through the use of futures on debt securities seek
to establish more certainty with respect to the effective rate of return on
their portfolio securities. A Portfolio may, for example, take a "short"
position in the futures market by selling contracts for the future delivery of
debt securities held by the Portfolio (or securities having characteristics
similar to those held by the Portfolio) in order to hedge against an anticipated
rise in interest rates that would adversely affect the value of the Portfolio's
portfolio securities. When hedging of this character is successful, any
depreciation in the value of portfolio securities will be substantially offset
by appreciation in the value of the futures position.
On other occasions, a Portfolio may take a "long" position by purchasing
futures on debt securities. This would be done, for example, when the Portfolio
intends to purchase particular debt securities, but expects the rate of return
available in the bond market at that time to be less favorable than rates
currently available in the futures markets. If the anticipated rise in the price
of the debt securities should occur (with its concomitant reduction in yield),
the increased cost to the Portfolio of purchasing the debt securities will be
offset, at least to some extent, by the rise in the value of the futures
position in debt securities taken in anticipation of the subsequent purchase of
such debt securities.
The Portfolio could accomplish similar results by selling debt securities
with long maturities and investing in debt securities with short maturities when
interest rates are expected to increase or by buying debt securities with long
maturities and selling debt securities with short maturities when interest rates
are expected to decline. However, by using futures contracts as a risk
management technique (to reduce a Portfolio's exposure to interest rate
fluctuations), given the greater liquidity in the futures market than in the
bond market, it might be possible to accomplish the same result more effectively
and perhaps at a lower cost. See Limitations on Purchase and Sale of Futures
Contracts and Options on Futures Contracts below.
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Stock Index Futures. A stock index futures contract does not require the
physical delivery of securities, but merely provides for profits and losses
resulting from changes in the market value of the contract to be credited or
debited at the close of each trading day to the respective accounts of the
parties to the contract. On the contract's expiration date, a final cash
settlement occurs and the futures positions are simply closed out. Changes in
the market value of a particular stock index futures contract reflect changes in
the specified index of equity securities on which the future is based.
Stock index futures may be used to hedge the equity portion of a Portfolio's
securities portfolio with regard to market risk (involving the market's
assessment of over-all economic prospects), as distinguished from stock-specific
risk (involving the market's evaluation of the merits of the issuer of a
particular security). By establishing an appropriate "short" position in stock
index futures, a Portfolio may seek to protect the value of its portfolio
against an overall decline in the market for equity securities. Alternatively,
in anticipation of a generally rising market, a Portfolio can seek to avoid
losing the benefit of apparently low current prices by establishing a "long"
position in stock index futures and later liquidating that position as
particular equity securities are in fact acquired. To the extent that these
hedging strategies are successful, a Portfolio will be affected to a lesser
degree by adverse overall market price movements, unrelated to the merits of
specific portfolio equity securities, than would otherwise be the case. See
Limitations on Purchase and Sale of Futures Contracts and Options on Futures
Contracts below.
Options on Futures. The Growth Portfolio, International Equity Portfolio,
High Yield Bond Portfolio, Growth and Income Portfolio, the Capital Growth
Portfolio, the Global Hard Assets Portfolio, the Emerging Growth Portfolio and
the Balanced Portfolio may purchase put and call options and write call options
on futures contracts. These options are traded on exchanges that are licensed
and regulated by the CFTC for the purpose of options trading. A call option on a
futures contract gives the purchaser the right, in return for the premium paid,
to purchase a futures contract (assume a "long" position) at a specified
exercise price at any time before the option expires. A put option gives the
purchaser the right, in return for the premium paid, to sell a futures contract
(assume a "short" position) at a specified exercise price at any time before the
option expires. Upon the exercise of a call, the writer of the option is
obligated to sell the futures contract (to deliver a "long" position to the
option holder) at the option exercise price, which presumably will be lower than
the current market price of the contract in the futures market. Upon exercise of
a put, the writer of the option is obligated to purchase the futures contract
(to deliver a "short" position to the option holder) at the option exercise
price which presumably will be higher than the current market price of the
contract in the futures market. When a Portfolio, as a purchaser of an option on
a futures contract, exercises such option and assumes a long futures position,
in the case of a call, or a short futures position, in the case of a put, its
gain will be credited to its futures variation margin account. Any loss suffered
by the writer of the option of a futures contract will be debited to its futures
variation margin account. However, as with the trading of futures, most
participants in the options markets do not seek to realize their gains or losses
by exercise of their option rights. Instead, the holder of an option usually
will realize a gain or loss by buying or selling an offsetting option at a
market price that will reflect an increase or a decrease from the premium
originally paid as purchaser or required as a writer.
Options on futures contracts can be used by a Portfolio to hedge the same
risks as might be addressed by the direct purchase or sale of the underlying
futures contracts themselves. Depending on the pricing of the option, compared
to either the futures contract upon which it is based or upon the price of the
underlying securities themselves, it may or may not be less risky than direct
ownership of the futures contract or the underlying securities.
In contrast to a futures transaction, in which only transaction costs are
involved, benefits received by a Portfolio as a purchaser in an option
transaction will be reduced by the amount of the premium paid as well as by
transaction costs. In the event of an adverse market movement, however, a
Portfolio which purchased an option will not be subject to a risk of loss on the
option transaction beyond the price of the premium it paid plus its transaction
costs, and may consequently benefit from a favorable movement in the value of
its portfolio securities that would have been more completely offset if the
hedge had been effected through the use of futures.
If a Portfolio writes call options on futures contracts, the Portfolio will
receive a premium but will assume a risk of adverse movement in the price of the
underlying futures contract comparable to that involved in holding a futures
position. If the option is not exercised, the Portfolio will realize a gain in
the amount of the premium, which may partially offset unfavorable changes in the
value of securities held by, or to be acquired for, the Portfolio. If the option
is exercised, the Portfolio will incur a loss in the option transaction, which
will be reduced by the amount of the premium it has received, but which may be
partially offset by favorable changes in the value of its portfolio securities.
While the purchaser or writer of an option on a futures contract may normally
terminate its position by selling or purchasing an offsetting option of the same
series, a Portfolio's ability to establish and close out options positions at
fairly established prices will be subject to the existence of a liquid market.
The Portfolios will not purchase or write options on futures contracts unless,
in
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the Sub-Investment Manager's opinion, the market for such options has sufficient
liquidity that the risks associated with such options transactions are not at
unacceptable levels.
Options on Foreign Currencies
As noted in the Prospectus, the Capital Growth, Global Hard Assets and
Emerging Growth Portfolios may purchase and write options on foreign currencies
for hedging purposes in a manner similar to that in which Forward Contracts will
be utilized. For example, a decline in the dollar value of a foreign currency
in which portfolio securities are denominated will reduce the dollar value of
such securities, even if their value in the foreign currency remains
constant.
In order to protect against such diminutions in the value of portfolio
securities, the Portfolios may purchase put options on the foreign currency. If
the value of the currency does decline, the Portfolios will have the right to
sell such currency for a fixed amount in dollars and will thereby offset, in
whole or in part, the adverse effect on its investments which otherwise would
have resulted.
Conversely, where a rise in the dollar value of a currency in which
securities to be acquired are denominated is projected, thereby increasing the
cost of such securities, the Capital Growth, Global Hard Assets Portfolio and
the Emerging Growth Portfolios may purchase call options thereon. The purchase
of such options could offset, at least partially, the effects of the adverse
movements in exchange rates. As in the case of other types of options, however,
the benefit to Portfolios deriving from purchases of foreign options will be
reduced by the amount of the premium and related transactions costs. In
addition, where currency exchange rates do not move in the direction or to the
extent anticipated, Portfolios could sustain losses on transactions in foreign
currency options which would require it to forgo a portion or all of the
benefits of advantageous changes in such rates.
The Capital Growth, Growth, International Equity, High Yield Bond, Global
Hard Assets, and Emerging Growth Portfolios may write options on foreign
currencies for the same types of hedging purposes. For example, where the
Capital Growth, Global Hard Assets, or Emerging Growth Portfolios anticipate a
decline in the dollar value of foreign-dominated securities due to adverse
fluctuations in exchange rates it could, instead of purchasing a put option,
write a call option on the relevant currency. If the expected decline occurs,
the options will most likely not be exercised, and the diminution in value of
portfolio securities will be offset by the amount of premium received.
Similarly, instead of purchasing a call option to hedge against anticipated
increase in the dollar cost of securities to be acquired, a Portfolio could
write a put option on the relevant currency which, if rates move in the manner
projected, will expire unexercised and allow a Portfolio to hedge such increased
costs up to the amount of the premium. Foreign currency options written by a
Portfolio will generally be covered in a manner similar to the covering of other
types of options. As in the case of other types of options, however, the writing
of a foreign currency option will constitute only a partial hedge up to the
amount of the premium, and only if rates move in the expected direction. If this
does not occur, the option may be exercised and the Portfolio would be required
to purchase or sell the underlying currency at a loss which may not be offset by
the amount of the premium. Through the writing of options on foreign currencies,
a Portfolio also may be required to forgo all or a portion of the benefits which
might otherwise have been obtained from favorable movements in exchange rates.
Limitations on Purchase and Sale of Futures Contracts and Options on Futures
Contracts
The Portfolios except the Growth Portfolio and Global Hard Assets Portfolio
will engage in transactions in futures contracts and related options for bona
fide hedging purposes and not for speculation. These Portfolios may not purchase
or sell futures contracts or related options if immediately thereafter the sum
of the amounts of initial margin deposits on a Portfolio's existing futures
contracts and premiums paid for unexpired options on futures contracts would
exceed 5% of the value of the Portfolio's total assets; provided, however, that
in the case of an option that is "in-the-money" at the time of purchase, the
"in-the-money" amount may be excluded in calculating the 5% limitation. In
instances involving the purchase or sale of futures contracts or the writing of
covered call options thereon by a Portfolio, such positions will always be
"covered", as appropriate, by either (i) an amount of cash and cash equivalents,
equal to the market value of the futures contracts purchased or sold and options
written thereon (less any related margin deposits), deposited in a segregated
account with its custodian or (ii) by owning the instruments underlying the
futures contract sold (i.e., short futures positions) or option written thereon
or by holding a separate option permitting the Portfolio to purchase or sell the
same futures contract or option at the same strike price or better.
High Yield Bonds
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The medium and lower quality debt securities in which the Growth, Capital
Growth, High Yield Bond, Global Hard Assets and Emerging Growth Portfolios may
invest are regarded as predominantly speculative with respect to the issuer's
continuing ability to meet principal and interest payments. Medium and lower
quality bonds may be more susceptible to real or perceived adverse economic and
individual corporate developments than would investment grade bonds. For
example, a projected economic downturn or the possibility of an increase in
interest rates could cause a decline in high yield bond prices because such an
event might lessen the ability of highly leveraged high yield issuers to meet
their principal and interest payment obligations, meet projected business goals
or obtain additional financing. In addition, the secondary trading market for
medium and lower quality bonds may be less liquid than the market for investment
grade bonds. This potential lack of liquidity may make it more difficult for the
Sub-Investment Manager to accurately value certain portfolio securities.
Further, there is the risk that certain high yield bonds containing redemption
or call provisions may be called by the issuers of such bonds in a declining
interest rate market and the Portfolio might then have to replace such called
bonds with lower yielding bonds, thereby decreasing the net investment income to
the Portfolio.
Description of Investment Ratings
Moody's - Bond Ratings
Aaa-Bonds which are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to as
"gilt-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, 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 other good and bad times over the future. Uncertainty of position
characterizes bonds in this class.
B-Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
Caa-Bonds which are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal or
interest.
Ca-Bonds which are rated Ca represent obligations which are speculative in a
high degree. Such issues are often in default or have other marked shortcomings.
C-Bonds which are rated C are the lowest rated class of bonds and issues so
rated can be regarded as having extremely poor prospects of ever attaining any
real investment standing.
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Moody's Commercial Paper Ratings
Moody's Commercial Paper ratings are opinions of the ability of issuers to
repay punctually promissory obligations not having an original maturity in
excess of nine months. Moody's employs the following three designations, all
judged to be investment grade, to indicate the relative capacity of rated
issuers:
Issuers rated Prime-1 (or related supporting institutions) have a superior
capacity for repayment of short-term promissory obligations.
Issuers rated Prime-2 (or related supporting institutions) have a strong
capacity for repayment of short-term promissory obligations.
Issuers rated Prime-3 (or related supporting institutions) have an acceptable
capacity for repayment of short-term promissory obligations.
Issuers rated Not Prime do not fall within any of the Prime rating
categories.
Standard & Poor's - Bond Ratings
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 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 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 adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay principal and interest for bonds in
this category than for bonds in the A category.
BB, B, CCC, CC-Bonds rated BB, B, CCC, and CC are regarded, on balance, as
predominantly speculative with respect to the issuer's capacity to pay interest
and repay principal in accordance with the terms of the obligation. BB indicates
the lowest degree of speculation and CC the highest degree. While such bonds
will likely have some equality and protective characteristics, these are
outweighed by large uncertainties or major risk exposures to adverse conditions.
C-Bonds rated C are typically subordinated to senior debt which is assigned
an actual or implied CCC rating.
D-Bonds rated D are in payment default or may be used upon the filing of a
bankruptcy petition if debt service payments are jeopardized.
Standard & Poor's Commercial Paper Ratings
A Standard & Poor's Commercial Paper Rating is a current assessment of the
likelihood of timely payment of debt having an original maturity of no more than
365 days. Ratings are graded into four categories, ranging from "A" for the
highest quality obligations to "D" for the lowest. Ratings are applicable to
both taxable and tax-exempt commercial paper. The four categories are as
follows:
A-Issues assigned this highest rating are regarded as having the greatest
capacity for timely payment. Issues 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 on issues with this designation is strong.
However, the relative degree of safety is not as overwhelming as for issues
designated "A-1".
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A-3-Issues 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 designations.
The Commercial Paper Rating is not a recommendation to purchase or sell a
security. The ratings are based on current information furnished to Standard &
Poor's by the issuer and obtained by Standard & Poor's from other sources it
considers reliable. The ratings may be changed, suspended, or withdrawn as a
result of changes in, or unavailability of, such information.
SP-1-A very strong, or strong, capacity to pay principal and interest. Issues
that possess overwhelming safety characteristics will be given a "+"
designation.
SP-2-A satisfactory capacity to pay principal and interest.
SP-3-A speculative capacity to pay principal and interest.
Standard & Poor's may continue to rate note issues with a maturity greater
than three years in accordance with the same rating scale currently employed for
municipal bond ratings.
RISK CONSIDERATIONS
U.S. Dollar Obligations of Foreign Branches of U.S. Banks
The Money Market Portfolio and the Balanced Portfolio may regularly invest in
U.S. dollar denominated obligations of foreign branches of FDIC-member U.S.
banks. These instruments represent the loan of funds actually on deposit in the
U.S. The Fund believes that the U.S. bank would be liable in the event that the
foreign branch failed to pay on its U.S. dollar obligations. Nevertheless, the
assets supporting the liability could be expropriated or otherwise restricted if
located outside the U.S. Exchange controls, taxes, or political and economic
developments could affect liquidity or repayment. Because of possibly
conflicting laws or regulations, the issuing bank could maintain and prevail
that the liability is solely that of the branch, thus exposing the Portfolio to
a possible loss. Such U.S. dollar obligations of foreign branches of FDIC-member
U.S. banks are not covered by the usual $100,000 of FDIC insurance if they are
payable only at an office of such a bank located outside the U.S., the District
of Columbia, Puerto Rico, Guam, American Samoa, and the Virgin Islands.
Repurchase Agreements
During the holding period of a repurchase agreement, the seller marks to
market the collateral on a daily basis and must provide additional collateral if
the market value of the obligation falls below the repurchase price. If a
Portfolio acquires a repurchase agreement and then the seller defaults at a time
when the value of the underlying securities is less than the obligation of the
seller, the Fund could incur a loss. If the seller defaults or becomes
insolvent, a Portfolio could realize delays, costs or a loss in asserting its
rights to the collateral in satisfaction of the seller's repurchase agreement.
The Portfolios will enter into repurchase agreements only with sellers who are
believed to present minimal credit risks and whose creditworthiness has been
evaluated by the Board of Directors of the Fund. As a general matter, if the
seller of the repurchase agreement is a bank it must have assets of at least
$1,000,000,000; if the seller is a broker-dealer it must have a net worth of at
least $25,000,000.
Foreign Securities
The investment in securities of foreign issuers by certain of the Portfolios
may involve special considerations associated with fluctuating exchange rates,
the fact that foreign securities and the markets therefore are not as liquid as
their domestic counterparts, the imposition of exchange control restrictions,
and economic or political instability. In addition, issuers of foreign
securities are subject to different, and in some cases less comprehensive,
accounting, reporting and disclosure requirements than domestic issuers. As a
result, the selection of investments in foreign issuers may be more difficult
and subject to greater risks than investments in domestic issuers.
These Portfolios make investments in businesses located in foreign nations.
Thus, there is the possibility of expropriation or confiscatory taxation,
political or social instability or diplomatic developments which could affect
investments in those nations. Further, foreign brokerage commissions and
custodian fees are generally higher than in the U.S. In addition, government
restrictions in certain countries and other limitations or investment may affect
the maximum percentage of equity ownership in any one company by the Portfolios.
Moreover, in some countries, only special classes of securities may be purchased
by external investors and the price, liquidity, and rights with respect to such
securities may differ from those relating to shares owned by
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nationals. In addition, there may also be the absence of developed legal
structures governing private or foreign investment or allowing for judicial
redress for injury to private property. As a result, the selection of securities
of non-U.S. issuers may be more difficult and subject to greater risks than
investment in domestic issuers.
A Portfolio may be affected, either unfavorably or favorably, by fluctuations
in the relative rates of exchange between the currencies of different nations
and the exchange control regulations and by their indigenous economic and
political developments. The Sub-Investment Managers for these Portfolios will
consider these and other factors before investing in particular foreign
securities, and will not make such investments unless, in its opinion, such
investments will meet the policies and objectives of its respective Portfolio.
In addition, the Board of Directors will monitor all foreign custody
arrangements to ensure compliance with the 1940 Act and the rules thereunder,
and will review and approve, at least annually, the continuance of such
arrangements as consistent with the best interests of the Fund and the
stockholders.
Forward Foreign Currency Exchange Contracts
The Portfolios' use of forward foreign currency exchange contracts involves
the special risks described below. The precise matching of the amounts of
foreign currency contracts and the value of the portfolio securities being
hedged will not generally be possible, because the future value of such
securities in foreign currencies will change as a consequence of movements in
the market value of those securities between the dates the forward currency
contracts are entered into and the dates they mature.
In addition, since it is impossible to forecast with precision the market
value of portfolio securities at the expiration or maturity of a forward
currency contract, it may be necessary for the Portfolio to purchase additional
foreign currency on the spot (i.e., cash) market (and bear the expense of such
purchase) if the market value of the securities being hedged is less than the
amount of foreign currency the Portfolio would be obligated to deliver upon the
sale of such securities. Conversely, it may be necessary for the Portfolio to
sell some of the foreign currency received upon the sale of portfolio securities
on the spot market if the market value of such securities exceeds the amount of
foreign currency the Portfolio is obligated to deliver.
Further, the Portfolios may not always be able to enter into a forward
currency contract when the Sub-Investment Manager deems it advantageous to do
so, for instance, if the Portfolio is unable to find a counterparty to the
transaction at an attractive price. Moreover, the Portfolio may not be able to
purchase forward currency contracts with respect to all of the foreign
currencies in which its portfolio securities may be denominated. In those
circumstances, and in other circumstances in which the Portfolio enters into a
cross-hedging forward currency contract, the correlation between the movements
in the exchange rates of the subject currency and the currency in which the
portfolio security is denominated may not be precise. Finally, the cost of
purchasing forward currency contracts in a particular currency will reflect, in
part, the rate of return available on instruments denominated in that currency.
The cost of purchasing forward contracts to hedge portfolio securities that are
denominated in currencies that, in general, yield high rates of return may,
therefore, tend to reduce the rate of return.
Gold Mining Shares
The four largest producers of gold currently are the Republic of South
Africa, the U.S., Australia and Canada. Economic and political conditions and
objectives prevailing in these countries may have direct effects on the
production and marketing of newly produced gold and sales of central bank gold
holdings. Political and social conditions in South Africa, due to the history of
apartheid and the volatility of the political conditions in the new South
African government and unsettled political conditions which could recur in South
Africa as well as in neighboring countries, may pose certain risks to
investments in South Africa if aggravated by local or international
developments, such risks could have an adverse effect on investments in South
Africa including the Fund's investments and, under certain conditions, on the
liquidity of the Funds portfolio and its ability to meet shareholder redemption
requests. The ability of the Fund to invest or hold investments in South African
companies may be further affected by changes in the United States or South
African laws or regulations. In the past legislation has been proposed in
Congress which would require U.S. investors, including the Fund, to sell their
investment in South Africa. If such legislation were to be enacted it could
have a materially adverse effect on the value of the Fund's investments in South
Africa. Notwithstanding these considerations, the recent liberalization of South
Africa's political system could reduce the risks described above in the future.
Options
During the option period, the writer of a call option has, in return for the
premium received on the option, given up the opportunity for capital
appreciation above the exercise price should the market price of the underlying
security increase, but has retained the risk of loss should the price of the
underlying security decline. The writer has no control over the time when it may
be
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required to fulfill its obligation as a writer of the option. The premium is
intended to offset that loss in whole or in part. Unlike the situation in which
the Portfolio owns securities not subject to a call option, the Portfolio in
writing call options must assume that the call may be exercised at any time
prior to the expiration of its obligation as a seller, and that in such
circumstances the net proceeds realized from the sale of the underlying
securities pursuant to the call may be substantially below the prevailing market
price, although it must be at the previously agreed to exercise price.
The risk of purchasing a call option or a put option is that the Portfolio
may lose the premium it paid plus transaction costs. If a Portfolio does not
exercise the option and is unable to close out the position prior to expiration
of the option, it will lose its entire investment. An option position may be
closed out only on an exchange that provides a secondary market for an option of
the same series. Although a Portfolio will write and purchase options only when
the Sub-Investment Manager believes that a liquid secondary market will exist
for options of the same series, there can be no assurance that a liquid
secondary market will exist for a particular option at a particular time and
that a Portfolio, if it so desires, can close out its position by effecting a
closing transaction. If the writer of a covered call option is unable to effect
a closing purchase transaction, it cannot sell the underlying security until the
option expires or the option is exercised. Accordingly, a covered call writer
may not be able to sell the underlying security at a time when it might
otherwise be advantageous to do so.
The effectiveness of hedging through the purchase of securities index options
will depend upon the extent to which price movements in the portion of the
securities portfolio being hedged correlate with price movements in the selected
securities index. Perfect correlation is not possible because the securities
held or to be acquired by a Portfolio will not exactly match the composition of
the securities indexes on which options are written. The principal risk in
purchasing securities index options is that the premium and transaction costs
paid by a Portfolio will be lost as a result of unanticipated movements in the
price of the securities comprising the securities index for which the option has
been purchased. In writing securities index options, the principal risks are the
inability to effect closing transactions at favorable prices and the inability
to participate in the appreciation of the underlying securities.
Futures Contracts and Related Options
Positions in futures contracts and related options may be closed out only on
an exchange that provides a secondary market for such contracts or options. A
Portfolio will enter into an option or futures contract only if there appears to
be a liquid secondary market. However, there can be no assurance that a liquid
secondary market will exist for any particular option or futures contract at any
specific time. Thus, it may not be possible to close out a futures contract or
related option position. In the case of a futures contract, in the event of
adverse price movements a Portfolio would continue to be required to make daily
margin payments. In this situation, if a Portfolio has insufficient cash to meet
daily margin requirements it may have to sell portfolio securities at a time
when it may be disadvantageous to do so. In addition, a Portfolio may be
required to take or make delivery of the securities underlying the futures
contracts it holds. The inability to close out futures contracts also could have
an adverse impact on a Portfolio's ability to hedge its portfolio effectively.
There are several risks in connection with the use of futures contracts as a
hedging device. While hedging can provide protection against an adverse movement
in market prices, it can also preclude a hedger's opportunity to benefit from a
favorable market movement. In addition, investing in futures contracts and
options on futures contracts will cause a Portfolio to incur additional
brokerage commissions and may cause an increase in a Portfolio's turnover rate.
The successful use of futures contracts and related options also depends on
the ability of the Sub-Investment Manager to forecast correctly the direction
and extent of market movements within a given time frame. To the extent market
prices remain stable during the period a futures contract or option is held by a
Portfolio or such prices move in a direction opposite to that anticipated, a
Portfolio may realize a loss on the hedging transaction that will not be offset
by an increase in the value of its portfolio securities. As a result, a
Portfolio's return for the period may be less than if it had not engaged in the
hedging transaction.
Utilization of futures contracts by a Portfolio involves the risk of
imperfect correlation in movements in the price of futures contracts and
movements in the price of the securities which are being hedged. If the price of
the futures contract moves more or less than the price of the securities being
hedged, a Portfolio will experience a gain or loss which will not be completely
offset by movements in the price of the securities.
Compared to the purchase or sale of futures contracts, the purchase of put or
call options on futures contracts involves less potential risk for a Portfolio
because the maximum amount at risk is the premium paid for the options plus
transaction costs. However, there may be circumstances when the purchase of an
option on a futures contract would result in a loss to a Portfolio
S-18
<PAGE>
while the purchase or sale of the futures contract would not have resulted in a
loss, such as when there is no movement in the price of the underlying
securities.
Federal Tax Matters
A policyowner's interest in earnings on assets held in a separate account and
invested in the Fund are not includible in the policyowner's gross income
because the Policies presently qualify as life insurance contracts for Federal
income tax purposes.
The Fund intends that each Portfolio will comply with Section 817(h) of the
Code and the regulations thereunder. Pursuant to that Section, the only
shareholders of the Fund and its Portfolios will be separate accounts funding
variable annuities and variable life insurance policies established by Chubb
Life, its successors and assigns or by other insurance companies with which
Chubb Life is affiliated and Chubb Life's general account which provided the
initial capital for the Portfolios.
In addition, Section 817(h) of the Code and the regulations thereunder impose
diversification requirements on the separate accounts and on the Portfolios.
These diversification requirements are in addition to the diversification
requirements imposed by the Code for the Portfolios to be treated as regulated
investment companies. Failure to meet the requirements of Section 817(h) could
result in taxation to Chubb Life or its affiliated insurance companies and
immediate taxation of the owners of the policies funded by the Fund.
The Secretary of the Treasury may in the future issue regulations or one or
more revenue rulings which would prescribe the circumstances in which a
policyowner's control of the investments of a segregated asset account may cause
the policyowner, rather than an insurance company, to be treated as the owner of
the assets of the account. The regulations could impose requirements that are
not reflected in the Policy, relating, for example, to such elements of
policyowner control as premium allocation, transfer privileges and investment in
a division focusing on a particular investment sector such as the Global Hard
Assets Portfolio. Failure to comply with any such regulations presumably would
cause earnings on a policyowner's interest in the separate account to be
includible in the policyowner's gross income in the year earned.
The Fund may, therefore, find it necessary to take action to assure that the
Policy continues to qualify as a life insurance policy under Federal tax laws.
The Fund, for example, may be required to alter the investment objectives of any
Portfolios or substitute the shares of one Portfolio for those of another. No
such change of investment objectives or substitution of securities will take
place without notice to affected policyholders and the approval of a majority of
such policyholders or without prior approval of the Securities and Exchange
Commission, to the extent legally required. See "TAXES" below.
INVESTMENT ADVISORY AND OTHER SERVICES
Investment Management Agreements and Sub-Investment Management Agreements
The Fund has entered into Investment Management Agreements with Jefferson
Pilot Investment Advisory Corporation ("Jefferson Pilot Investment Advisory"),
formerly Chubb Investment Advisory Corporation, with respect to all Portfolios.
The Fund and Jefferson Pilot Investment Advisory have also executed Sub-
Investment Management Agreements with Templeton Global Advisors, Inc.
("Templeton"), Van Eck Associates Corporation ("Van Eck Associates"), Pioneering
Management Corporation ("Pioneer"), Janus Capital Corporation ("Janus"), J.P.
Morgan Investment Management, Inc. ("Morgan"), Warburg, Pincus Counsellors, Inc.
("Warburg") Strong Capital Management Inc. ("Strong"), Lombard Odier
International Portfolio Management Limited ("Lombard Odier") Massachusetts
Financial Services Company ("MFS") (collectively the "Sub-Investment Managers")
with regard to the World Growth Stock; Global Hard Assets; Domestic Growth
Stock; Capital Growth; Balanced, Growth and Income, Growth; International
Equity; Money Market High Yield Bond and Emerging Growth Portfolios,
respectively.
The Investment Management Agreement provides that Jefferson Pilot Investment
Advisory, subject to control and review by the Fund's Board of Directors, is
responsible for the overall management and supervision of each Portfolio and for
providing certain administrative services to the Fund. See "MANAGEMENT OF THE
FUND" in the Prospectus. The Sub-Investment Management Agreements provide that
the Sub-Investment Managers, subject to review by the Fund's Board of Directors
and by Jefferson Pilot Investment Advisory, have the day-to-day responsibility
for making decisions to buy, sell or hold any particular security for the
Portfolio which they advise.
Jefferson Pilot Investment Advisory, each Sub-Investment Manager and their
affiliates may provide investment advice to other clients, including, but not
limited to, mutual funds, individuals, pension funds and institutional
investors. Some of the
S-19
<PAGE>
advisory accounts of Jefferson Pilot Investment Advisory, each Sub-Investment
Manager, and their affiliates may have investment objectives and investment
programs similar to those of the Portfolios. Accordingly, occasions may arise
when securities that are held by other advisory accounts, or that are currently
being purchased or sold for other advisory accounts, are also being selected for
purchase or sale for a Portfolio. It is the practice of Jefferson Pilot
Investment Advisory, each Sub-Investment Manager and their affiliates to
allocate such purchases or sales insofar as feasible among their several clients
in a manner they deem equitable, to all accounts involved. Under normal
circumstances such transactions will be (1) done on a pro-rata basis
substantially in proportion to the amounts ordered by each account, (2) entered
into only if the trade is likely to produce a benefit for the Portfolios, and
(3) at the same average price for each client. While it is conceivable that in
certain instances this procedure could adversely affect the price or number of
shares involved in the Fund's transaction, it is believed that the procedure
generally contributes to better overall execution of the Fund's portfolio
transactions. It is also the policy of Jefferson Pilot Investment Advisory, each
Sub-Investment Manager, and each of their affiliates not to favor any one
account over the other.
For providing investment advisory and management services to the Fund,
Jefferson Pilot Investment Advisory receives monthly compensation from the Fund
and has sole responsibility to provide each Sub-Investment Manager, other than
Janus, with quarterly compensation and Janus with monthly compensation, at
annual rates computed as described under "MANAGEMENT OF THE FUND" in the
Prospectus. For the year ended December 31, 1995, the Fund paid $511,260,
$40,941, $59,640, $50,107, $317,840, $65,332, $387,176 and $106,430 and $33,463
to Chubb Investment Advisory for the World Growth Stock Portfolio, the Money
Market Portfolio, the Gold Stock Portfolio, the Bond Portfolio, the Domestic
Growth Stock Portfolio, the Growth and Income Portfolio, the Capital Growth
Portfolio, the Balanced Portfolio, and the Emerging Growth Portfolio,
respectively. For the year ended December 31, 1996 the Fund paid and $656,061,
$42,558, $62,705, $53,464 $480,015, $135,739, $703,701, $134,709, and $173,563
to Chubb Investment Advisory for the World Growth Stock Portfolio, the Money
Market Portfolio, the Gold Stock Portfolio, the Bond Portfolio, the Domestic
Growth Stock Portfolio, the Growth and Income Portfolio, the Capital Growth
Portfolio, the Balanced Portfolio and the Emerging Growth Portfolio. All such
fees were paid pursuant to the terms of the Investment Management Agreements and
the Sub-Investment Management Agreements. For the year ended December 1, 1997
the Fund paid $ to Jefferson Pilot
Investment Advisory to .
For providing sub-investment advisory services to the Portfolios, as
described under "MANAGEMENT OF THE FUND" Jefferson Pilot Investment Advisory for
the years 1997, 1996, and 1995 respectively paid: $ ,
$340,840 and
to Templeton for the World Growth Portfolio; $ ,
$29,791 and $28,659 to Chubb Asset Managers, Inc. for the Money Market
Portfolio for the years 1996, 1995 and 1994 respectively; $ ,
$41,803 and $37,760, to Van Eck Associates for the Global Hard Assets Portfolio;
$ , $320,010 and $211,893 to Pioneering Management for the
Domestic Growth Portfolio $37,425; $ , $90,493 and $43,555 to Chubb
Asset Managers, Inc. for the Growth and Income Portfolio;
$ , $527,776 and $290,382 to Janus for the Capital Growth
Portfolio; and $ , $89,806 and $70,953 to Phoenix for the
Balanced Portfolio; and Jefferson Pilot Investment Advisory paid $
for 1997 and $108,477 for 1996, to MFS for the Emerging Growth Portfolio.
The Investment Management Agreements also obligate Jefferson Pilot Investment
Advisory to perform certain administrative services which are described more
completely in the Prospectus. Certain of these functions have been delegated to
the Sub-Investment Managers.
The continuance of the Investment Management Agreements and the Sub-
Investment Management Agreements were approved by the Fund's Board of Directors
on January 30, 1997. As a result of the sale by the Chubb Corporation of
Jefferson Pilot Financial to Jefferson-Pilot on April 30, 1997 (the
"Transaction") and the resulting change in control of Jefferson Pilot Investment
Advisory, the Investment Management Agreements and each of the Sub-Investment
Management Agreements terminated by operation of law on that date. On April 3,
1997 the new Investment Management Agreements and the new Sub-Investment
Management Agreements were approved by Directors to become effective on the
change of control of Jefferson Pilot Financial. On April 30, 1997 the Fund and
Jefferson Pilot Investment Advisory received an exemptive order from the
Securities and Exchange Commission that permitted Jefferson Pilot Investment
Advisory to continue to provide investment management services to the Fund and
each of its series during an interim period of not more than 120 days from the
date of the Transaction and continuing through the date a new investment
management agreement and new sub-investment management agreements were approved
by Shareholders. On July 31, 1997 additional new Sub-Investment Advisory
Agreements were approved by the Fund's Board of Directors for the Money Market
Portfolio, Balanced Portfolio and Growth and Income Portfolio. On August 15,
1997 the Investment Management Agreement with Jefferson Pilot Investment
Advisory Corporation and each of the existing Sub-Investment Advisory Agreements
with the Sub-Investment Advisors were approved at a Special Meeting of
Shareholders. See "CAPITAL STOCK" in this Statement of Additional Information.
In addition, on December 10 , 1997 the Investment Management and Sub-Investment
Management Agreements relating to the Growth, High Yield Bond and International
Equity Portfolios were approved by the Fund's Board of Directors and on December
23, 1997 were approved by the Portfolio's sole shareholder.
S-20
<PAGE>
Independent Auditors
, has been selected as
the independent auditors of the Fund.
The financial statements of the Fund to be incorporated by reference in this
Statement of Additional Information and the related financial highlights
included in the Prospectus for the periods indicated therein have been audited
by , independent auditors, as set forth in their
report thereon incorporated by reference herein, and are included in reliance
upon such report given upon the authority of such firm as experts in accounting
and auditing.
Custodians
Citibank, N.A., 111 Wall Street, New York, New York 10043, acts as custodian
of the Fund's assets. The Fund has also appointed, with the approval of the
Fund's Board of Directors, from time to time, sub-custodians, qualified under
Rule 17f-5 of the 1940 Act, with respect to certain foreign securities. The Fund
may authorize Citibank to enter into an agreement with any U.S. banking
institution or trust company to act as a sub-custodian pursuant to a resolution
of the Fund's Board of Directors. Securities owned by the Fund subject to
repurchase agreements may be held in the custody of other U.S. banks.
Payment of Expenses
Jefferson Pilot Investment Advisory is obligated to assume the cost of
certain administrative expenses for the Fund, as described in the Prospectus
under the heading "MANAGEMENT OF THE FUND." The Fund pays the following
expenses: brokerage commissions and transfer taxes; other state, federal and
local taxes and filing fees; fees and expenses of qualification of the Fund and
its shares under federal and state securities laws subsequent to the effective
date of this Prospectus; compensation of directors who are not interested
persons of the Fund ("disinterested directors"); travel expenses of
disinterested directors; interest and other borrowing costs; extraordinary or
nonrecurring expenses such as litigation; costs of printing and distributing
communications to current policyowners; insurance premiums; charges and expenses
of the custodian, independent auditors, and counsel; industry association dues;
and other expenses not expressly assumed by Jefferson Pilot Investment Advisory.
Certain other expenses are assumed by Jefferson Pilot Variable Corporation ("JP
Variable Corp") pursuant to a distribution agreement with the Fund. See
"OFFERING AND REDEMPTION OF SHARES" below.
PORTFOLIO TRANSACTIONS AND BROKERAGE ALLOCATIONS
Under the Investment Management Agreements, Jefferson Pilot Investment
Advisory has ultimate authority to select broker-dealers through which
securities are to be purchased and sold, subject to the general control of the
Board of Directors. Under the Sub-Investment Management Agreements, the Sub-
Investment Managers have day-to-day responsibility for selecting broker-dealers
through which securities are to be purchased and sold, subject to Jefferson
Pilot Investment Advisory's overall monitoring and supervision. The Sub-
Investment Managers each provide the trading desk for their respective Portfolio
transactions. Jefferson Pilot Investment Advisory will perform daily valuation
of the assets of each Portfolio.
The Money Market Portfolio's investments usually will be purchased on a
principal basis directly from issuers, underwriters or dealers. Accordingly,
minimal brokerage charges are expected to be paid on such transactions.
Purchases from an underwriter generally include a commission or concession paid
by the issuer, and transactions with a dealer usually include the dealer's mark-
up.
The amount of brokerage commissions paid by the Fund for all Portfolios, for
the year 1997 were $ , and for all portfolios for 1996 were
$532,729 and Portfolios for 1995 was $402,052.
Insofar as known to management, no director or officer of the Fund, Jefferson
Pilot Investment Advisory, any Sub-Investment Manager or any person affiliated
with any of them has any material direct or indirect interest in any broker-
dealer employed by or on behalf of the Fund.
In selecting broker-dealers to execute transactions for the Fund, the Sub-
Investment Managers are obligated to use their best efforts to obtain for each
Portfolio the most favorable overall price and execution available, considering
all the circumstances. Such circumstances include the price of the security, the
size of the broker-dealer's "spread" or commission, the willingness of the
broker-dealer to position the trade, the reliability, financial strength and
stability and operational capabilities of the broker-dealer,
S-21
<PAGE>
the ability to effect the transaction at all where a large block is involved,
the availability of the broker-dealer to stand ready to execute possibly
difficult transactions in the future, and past experience as to qualified
broker-dealers, including broker-dealers who specialize in any Canadian or
foreign securities held by the Portfolios. Such considerations are judgmental
and are weighed by the Sub-Investment Managers in seeking the most favorable
overall economic result for the Fund.
Notwithstanding the foregoing, however, and subject to appropriate policies
and procedures as then approved by the Board of Directors of the Fund, Jefferson
Pilot Investment Advisory and the Sub-Investment Managers are authorized to
allocate portfolio transactions to broker-dealers who have provided brokerage
and research services, as such services are defined in Section 28(e) of the
Securities and Exchange Act of 1934, for the Portfolios or other advisory
accounts as to which Jefferson Pilot Investment Advisory or any Sub-Investment
Manager has investment discretion. In addition, Jefferson Pilot Investment
Advisory and the Sub-Investment Managers may cause the Portfolios to pay a
broker-dealer a commission for effecting a securities transaction in excess of
the amount another broker-dealer would have charged for effecting the same
transaction, if Jefferson Pilot Investment Advisory or the Sub-Investment
Manager determines in good faith that such amount of commission is reasonable in
relation to the value of the brokerage and research services, as defined above,
provided by such broker-dealer viewed in terms of either that particular
transaction or the overall responsibilities of Jefferson Pilot Investment
Advisory or the Sub-Investment Managers with respect to the Portfolios or their
other advisory accounts. Such brokerage and research services may include, among
other things, analyses and reports concerning issuers, industries, securities,
economic factors and trends, and, portfolio strategy. Such brokerage and
research services may be used by Jefferson Pilot Investment Advisory or a Sub-
Investment Manager in connection with any other advisory accounts managed by it.
Conversely, research services for any other advisory accounts may be used by the
Sub-Investment Manager or Jefferson Pilot Investment Advisory in managing the
investments of a Portfolio. Jefferson Pilot Investment Advisory or a Sub-
Investment Manager may also receive from such broker-dealers quotations for
Portfolio valuation purposes, provided that this results in no additional cost
to the Fund.
Research services may be provided to Templeton, at no additional cost to the
Fund, by various wholly owned subsidiaries, including Templeton Investment
Counsel, Inc., a corporation registered under the Investment Advisers Act of
1940, Templeton Investment Management (Hong Kong) Ltd., and Templeton Management
Limited, a Canadian company. The research services include information,
analytical reports, computer screening studies, statistical data, and factual
resumes pertaining to securities in the U.S. and in various foreign nations
which Templeton considers as having relatively stable and friendly governments.
Such supplemental research, when utilized, is subjected to analysis by Templeton
before being incorporated into the investment advisory process. Templeton pays
these subsidiaries compensation and reimbursement of expenses as mutually agreed
on, without cost to the Fund. These subsidiaries and Templeton are independent
contractors and in no sense is any of them an agent for the other. Any of them
is free to discontinue such research services at any time on 30 days' notice
without cost or penalty.
In 1997, $ of commissions were paid to brokers because
of research services provided to either Jefferson Pilot Investment Advisory or
the Sub-Investment Managers.
The Sub-Investment Managers will use their best efforts to recapture all
available tender offer solicitation fees and similar payments in connection with
tenders of the securities of the Fund and to advise the Fund of any fees or
payments of whatever type which it may be possible to obtain for the Fund's
benefit in connection with the purchase or sale of Fund securities.
Any of the Sub-Investment Managers and Jefferson Pilot Investment Advisory
may combine transactions for the Fund with transactions for other accounts
managed by them or their affiliates, including other investment companies
registered under the 1940 Act, as previously described above. Transactions will
be combined only when the transaction meets the Fund's requirements as to
selection of brokers or dealers and negotiation of prices and commissions which
the Sub-Investment Managers would otherwise apply.
S-22
<PAGE>
MANAGEMENT OF THE FUND
The directors and officers of the Fund, their addresses, their positions with
the Fund, and their principal occupations for the past five years are set forth
below:
<TABLE>
<CAPTION>
Positions
with Principal Occupations for
Name and Address the Fund the Past Five Years
- ---------------- -------- -------------------------
<S> <C> <C>
Ronald Angarella* President Senior Vice President, Jefferson Pilot Financial,
One Granite Place and Director President and Director, Jefferson Pilot Investment
Concord, N.H. 03301 Advisory, Jefferson Pilot Securities and Hampshire
Funding, Inc.; Senior Vice President and Director,
Chubb Investment Funds, Inc.
Charles C. Cornelio Vice President Executive Vice President, Jefferson Pilot Financial
One Granite Place and General Counsel and Jefferson Pilot Corporation, Vice President, and
Concord, N.H. 03301 Secretary, Jefferson Pilot Securities Corporation.
Shari J. Lease Secretary Assistant Vice President and Associate Counsel,
One Granite Place Jefferson Pilot Financial; Assistant Secretary, Chubb
Concord, N.H. 03301 Investment Advisory, previously Secretary, Chubb
Investment Funds, Inc.; Assistant Counsel and
Assistant Vice President, State Bond and Mortgage
Company and affiliated companies.
John A. Weston Treasurer Assistant Vice President of Jefferson Pilot Financial,
One Granite Place Treasurer of Jefferson Pilot Securities Corporation,
Concord, N.H. 03301 Jefferson Pilot Investment Advisory and Hampshire
Funding, Inc.; formerly, Mutual Fund Accounting Officer
for the Fund, Chubb Investment Funds, Inc. and Jefferson
Pilot Investment Advisory Corporation and Assistant
Treasurer for Chubb Securities Corporation and
Hampshire Funding, Inc.
Thomas H. Elwood Assistant Secretary Assistant Counsel, Jefferson Pilot Financial, Assistant
One Granite Place Secretary, Jefferson Pilot Investment Advisory; formerly,
Concord, N.H. 03301 Associate Counsel, New York Life Insurance Company;
Secretary New York Life Institutional Funds, Inc.,
Assistant Secretary, Mainstay Funds, Chubb Series Trust,
Chubb Investment Funds, Inc. and MFA Funds.
Mark D. Landry Assistant Treasurer Mutual Fund Accounting and Operations Officer for
One Granite Place Jefferson Pilot Financial, Concord, N.H. 03301 and
Concord, N.H. 03301 Jefferson Pilot Investment Advisory; formerly Mutual
Fund Accounting and Operations Manager for the Fund,
Chubb Investment Funds, Inc., Assistant Treasurer of
Chubb Investment Funds, Inc.; and Chubb Investment
Advisory.
Michael D. Coughlin Director President of Concord Litho Company, Inc.
106 School Street (printing company)
Concord, N.H. 03301
</TABLE>
S-23
<PAGE>
<TABLE>
<CAPTION>
Positions
with Principal Occupations for
Name and Address the Fund the Past Five Years
- ---------------- --------- -------------------
<S> <C> <C>
Elizabeth S. Hager Director State Representative, New Hampshire, Executive Director,
5 Auburn Street United Way, Consultant, Fund Development, previously,
Concord, N.H. 03301 City Councilor, City of Concord, N.H. and Mayor, City of
Concord, N.H.
Thomas D. Rath Director Partner, Rath, Young, Pignatelli, P.A.; President, PlayBall
N.H.; formerly Vice Chairman, Primary Bank; Chairman,
Horizon Bank
</TABLE>
Asterisks indicate those directors who are "interested persons" within the
meaning of Section 2(a)(19) of the 1940 Act. Mr. Coughlin and Ms. Hager are
members of the audit committee and Mr. Angarella and Ms. Hager are members of
the valuation committee.
CAPITAL STOCK
The authorized capital stock of the Fund consists of 12,000,000,000 shares of
common stock which are divided into twelve series: World Growth Stock Portfolio
common stock, International Equity Portfolio common stock, Money Market
Portfolio common stock, Global Hard Assets Portfolio common stock, Bond
Portfolio common stock, High Yield Bond Portfolio common stock, Domestic Growth
Stock Portfolio common stock, Growth and Income Portfolio common stock, Capital
Growth Portfolio common stock, Growth Portfolio common stock, Balanced Portfolio
common stock and Emerging Growth Portfolio common stock. Each series currently
consists of 1,000,000,000 shares. The Fund has the right to issue additional
shares without the consent of stockholders and may reallocate shares to new
series or to one or more of the existing series.
The assets received by the Fund for the issuance or sale of shares of each
Portfolio and all income, earnings, profits and proceeds thereof are
specifically allocated to each Portfolio. They constitute the underlying assets
of each Portfolio, are required to be segregated on the books of account and are
to be charged with the expenses of such Portfolio. Any assets which are not
clearly allocable to a particular Portfolio or Portfolios are allocated in a
manner determined by the Board of Directors. Accrued liabilities which are not
clearly allocable to one or more Portfolios would generally be allocated among
the Portfolios in proportion to their relative net assets before adjustment for
such unallocated liabilities. Each issued and outstanding share in a Portfolio
is entitled to participate equally in dividends and distributions declared with
respect to such Portfolio and in the net assets of such Portfolio upon
liquidation or dissolution remaining after satisfaction of outstanding
liabilities.
The shares of each Portfolio, when issued, will be fully paid and non-
assessable, will have no preference, preemptive, conversion, exchange or similar
rights, and will be freely transferable. Shares do not have cumulative voting
rights.
Jefferson Pilot Financial provided the initial capital for the Fund by
purchasing $1,000,000 worth of shares of the World Growth Stock Portfolio, the
Money Market Portfolio and the Global Hard Assets Portfolio for its general
account. Subsequently, upon formation of the Bond Portfolio and Domestic Growth
Stock Portfolio, Jefferson Pilot Financial purchased $1,000,000 worth of shares
of the two additional Portfolios for its general account. Most recently,
Jefferson Pilot Financial purchased $1,000,000 worth of shares of the Growth and
Income Portfolio and the Capital Growth Portfolio,$5,000,000 worth of shares of
the Balanced Portfolio and $3,000,000 worth of shares of Emerging Growth
Portfolio for its general account. Jefferson Pilot Financial intends to withdraw
such investment from time to time.
As of 1998, Jefferson Pilot
Financial owned of record and beneficially the following percentages of shares
of the Fund's Portfolios in its general account: % of the Growth
and Income Portfolio, % of the Capital Growth, Portfolio,
% of the Balanced Portfolio. Chubb Separate Account A, a separate account
established by Jefferson Pilot Financial, owned of record as of February
, % of the World Growth Stock Portfolio, the Money Market Portfolio,
the Global Hard Assets Portfolio, the Bond Portfolio, the Domestic Growth Stock
Portfolio and the Emerging Growth Portfolio, % of the Growth and
Income Portfolio, % of the Capital Growth Portfolio,
% of the Balanced Portfolio. The shares held by Jefferson Pilot Financial or its
affiliated insurance companies, including shares for which no voting
instructions have been received, shares held in a separate account representing
charges imposed by Jefferson Pilot Financial or its affiliates and shares held
by Jefferson Pilot Financial that are not otherwise attributable to Policies,
will be voted by Jefferson Pilot Financial or its affiliated insurance companies
in proportion to instructions received from the owners of Policies.
S-24
<PAGE>
Jefferson Pilot Financial and its affiliated insurance companies reserve the
right to vote any or all such shares at their discretion to the extent
consistent with then current interpretations of the 1940 Act and rules
thereunder.
The officers and directors of the Fund cannot directly own shares of the Fund
without purchasing a Policy. As a result, the amount of shares owned by the
directors and officers of the Fund as a group is less than 1% of each Portfolio.
OFFERING AND REDEMPTION OF SHARES
The Fund offers shares of each Portfolio only for purchase by the
corresponding division of separate accounts established by Jefferson Pilot
Financial or its affiliated insurance companies. It thus will serve as an
investment medium for the Policies offered by Jefferson Pilot Financial and its
affiliated insurance companies. The offering is without a sales charge and is
made at each Portfolio's net asset value per share, which is determined in the
manner set forth below under "DETERMINATION OF NET ASSET VALUE." In the future,
the shares of the Fund may be offered to additional separate accounts of
Jefferson Pilot Financial, its successor or assigns, or of its affiliated
insurance companies.
Jefferson Pilot Variable Corporation ("JP Variable Corporation") is the
principal underwriter and distributor of the Fund's shares. It is also the
principal underwriter and distributor of the Policies.
Under the terms of the Fund Distribution Agreement entered into by JP
Variable Corporation and the Fund, JP Variable Corporation is not obligated to
sell any specific number of shares of the Fund. JP Variable Corporation also
pays any distribution expenses and costs (that is, those arising from any
activity which is primarily intended to result in the sale of shares issued by
the Fund) including expenses and costs attributable to the Fund which are
related to the printing and distributing of prospectuses and periodic reports to
new or prospective owners of Policies. Such expenses are reimbursed by Jefferson
Pilot Financial or its affiliated insurance companies, their successors or
assigns, pursuant to the terms of separate agreements with Jefferson Pilot
Securities relating to the sale of Policies.
The Fund redeems all full and fractional shares of the Fund at the net asset
value per share applicable to each Portfolio. See "DETERMINATION OF NET ASSET
VALUE" below.
Redemptions are normally made in cash, but the Fund has authority, at its
discretion, to make full or partial payment by assignment to the separate
account of portfolio securities at their value used in determining the
redemption price. The Fund, nevertheless, pursuant to Rule 18f-1 under the 1940
Act, has filed a notification of election on Form N-18f-1, by which the Fund has
committed itself to pay to the separate account in cash, all such separate
account's requests for redemption made during any 90-day period, up to the
lesser of $250,000 or 1% of the applicable Portfolio's net asset value at the
beginning of such period. The securities, if any, to be paid in-kind to the
separate account will be selected in such manner as the Board of Directors deems
fair and equitable. In such cases, the separate account would incur brokerage
costs should it wish to liquidate these portfolio securities.
The right to redeem shares or to receive payment with respect to any
redemption of shares of any Portfolio may only be suspended (1) for any period
during which trading on the New York Stock Exchange is restricted or such
Exchange is closed, other than customary weekend and holiday closings, (2) for
any period during which an emergency exists as a result of which disposal of
securities or determination of the net asset value of that Portfolio is not
reasonably practicable, or (3) for such other periods as the Securities and
Exchange Commission may by order permit for the protection of stockholders of
the Portfolio.
DETERMINATION OF NET ASSET VALUE
The net asset value of the shares of each Portfolio of the Fund is determined
immediately after the declaration by the Fund of dividends, if any, as of the
close of regular trading on the New York Stock Exchange (presently 4:00 P.M. New
York Time), on each day during which the New York Stock Exchange is open for
trading except on days where both (i) the degree of trading in the Portfolio's
securities would not materially affect the net asset value of the Portfolio's
shares and (ii) no shares of the Portfolio were tendered for redemption or no
purchase order was received. The New York Stock Exchange is open from Monday
through Friday except on the following national holidays: New Years Day,
Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day, and Christmas Day. In the event that any of the above holidays
falls on a Sunday, it is regularly observed on the following Monday.
The net asset value per share of each Portfolio is computed by dividing the
sum of the value of the securities held by that Portfolio, plus any cash or
other assets and minus all liabilities, by the total number of outstanding
shares of that Portfolio at such time. Any expenses borne by the Fund, including
the investment management fee payable to Jefferson Pilot Investment Advisory,
S-25
<PAGE>
are accrued daily except for extraordinary or non-recurring expenses. See
"INVESTMENT ADVISORY AND OTHER SERVICES-Payment of Expenses" above.
Portfolio securities which are traded on national stock exchanges are valued
at the last sale price as of the close of business of the New York Stock
Exchange on the day the securities are being valued, or, lacking any sales, at
the mean between the closing bid and asked prices.
Securities traded in the over-the-counter market are valued at the closing
sales price as reported on a readily available market quotation system, or, if
no sale took place, the mean between the bid and asked prices. Securities and
assets for which market quotations are not readily available are valued at fair
value as determined in good faith by the Board of Directors of the Fund.
Quotations of foreign securities in foreign currencies are converted to U.S.
dollar equivalents using appropriately translated foreign market closing prices.
Long-Term U.S. Treasury securities and other obligations issued or guaranteed
by the U.S. Government, its agencies or instrumentalities are valued at
representative quoted prices from bond pricing services.
Long-term publicly traded corporate bonds are valued at prices obtained from
a bond pricing service when such prices are available or, when appropriate, from
broker-dealers who make a market in that security.
Debt instruments with a remaining maturity of 60 days or less are valued on
an amortized cost basis. Under this method of valuation, the security is valued
at cost on the date of purchase plus a constant rate of amortization of any
discount or premium until maturity, regardless of any intervening change in
general interest rates or the market value of the instrument. The amortized cost
value of the security may be either more or less than the market value at any
given time. If for any reason the fair value of any security is not fairly
reflected through the amortized cost method of valuation, such security will be
valued by market quotations, if available, otherwise as determined in good faith
by the Board of Directors.
TAXES
In order for each Portfolio of the Fund to qualify for Federal income tax
treatment as a regulated investment company, two of the tests they must meet are
(i) that at least 90% of its gross income for a taxable year must be derived
from qualifying income, i.e., dividends, interest, income derived from loans of
securities, and gains from the sale of securities and (ii) for fiscal years
beginning on or before August 6, 1997 gains realized on the sale or other
disposition of securities held for less than three months must be limited to
less than 30% of each Portfolio's annual gross income. It is the Fund's policy
to comply with the provisions of the Internal Revenue Code of 1986 regarding
distribution of investment income and capital gains so that each Portfolio will
not be subject to Federal income tax on amounts distributed and undistributed or
an excise tax on certain undistributed income or capital gains. For these
purposes, if a regulated investment company declares a dividend in December to
stockholders of record in December and pays such dividends before the end of
January they will be treated as paid in the preceding calendar year and to have
been received by such stockholder in December.
PERFORMANCE AND YIELD INFORMATION
Money Market Portfolio
For the seven days ended December 31, 1997, the yield of the Money Market
Portfolio expressed as a simple annualized yield was %; the yield
of the Money Market Portfolio expressed as a compounded effective yield was
.
The Money Market Portfolio's yield is its investment income, less expenses,
expressed as a percentage of assets on an annualized basis for a seven-day
period. The yield is expressed as a simple annualized yield and as a compounded
effective yield. The yield does not reflect the fees and charges imposed on the
assets of Separate Account A.
The simple annualized yield is computed by determining the net change
(exclusive of realized gains and losses from the sale of securities and
unrealized appreciation and depreciation) in the value of a hypothetical pre-
existing account having a balance of one share at the beginning of the seven-day
period, dividing the net change in account value by the value of the account at
the beginning of the period, and annualizing the resulting quotient (base period
return) on a 365-day basis. The net change in account value reflects the value
of additional shares purchased with dividends from the original shares in the
account during the seven-day period, dividends declared on such additional
shares during the period, and expenses accrued during the period.
S-26
<PAGE>
The compounded effective yield is computed by determining the unannualized
base period return, adding one to the base period return, raising the sum to a
power equal to 365 divided by seven, and subtracting one from the result.
Non-Money Market Portfolios
The yield for the 30-day period ended December 31, 1997 for the High Yield
Bond Portfolio was %.
This yield figure represents the net annualized yield based on a specified
30-day (or one month) period assuming a reinvestment semiannual compounding of
income. Yield is calculated by dividing the average daily net investment income
per share earned during the specified period by the maximum offering price,
which is net asset value per share on the last day of the period, and
annualizing the result according to the following formula:
Yield = 2(((A-B + 1) 6) -1)
---
CD
Where A equals dividends and interest earned during the period, B equals
expenses accrued for the period (net of reimbursements), C equals the average
daily number of shares outstanding during the period that were entitled to
receive dividends, and D equals the maximum offering price per share on the last
day of the period.
The average annual total return quotations for the World Growth Stock
Portfolio, the Money Market Portfolio, the Gold Stock Portfolio, the Bond
Portfolio, the Domestic Growth Stock Portfolio, the Growth and Income Portfolio,
the Capital Growth Portfolio, the Balanced Portfolio and Emerging Growth
Portfolio for the year ended December 31, 1997 are %,
%, %, %, %, %, %, % and %, respectively. The average
annual total return quotations for these Portfolios, other than the Growth and
Income Portfolio, the Capital Growth Portfolio, the Balanced Portfolio and the
Emerging Growth Portfolio, for the 5 years ended December 31, 1997 are
%, %, %, % and %, respectively. The average annual total return
quotations for these Portfolios since each Portfolio's inception are %
%, %, %, %, %, % and %, respectively.
The average annual total return figures represent the average annual
compounded rate of return of the stated period. Average annual total return
quotations reflect the percentage change between the beginning value of a static
account in the Portfolio and the ending value of that account measured by the
then current net asset value of that Portfolio assuming that all dividends and
capital gains distributions during the stated period were reinvested in shares
of the Portfolio when paid. Total return is calculated by finding the average
annual compounded rates of return of a hypothetical investment that would
compare the initial amount to the ending redeemable value of such investment
according to the following formula:
T = (ERV/P)/1/n/-1
where T equals average annual total return, where ERV, the ending redeemable
value, is the value, at the end of the applicable period, of a hypothetical
$10,000 payment made at the beginning of the applicable period, where P equals a
hypothetical initial payment of $1,000, and where N equals the number of years.
From time to time, in reports and sales literature: (1) each Portfolio's
performance or P/E ratio may be compared to: (i) the Standard & Poor's 500
Composite Stock Price Index ("S&P 500 Index") and Dow Jones Industrial Average
so that you may compare that Portfolio's results with those of a group of
unmanaged securities widely regarded by investors as representative of the U.S.
stock market in general; (ii) other groups of mutual funds traced by: (A) Lipper
Analytical Services, a widely-used independent research firm which ranks mutual
funds by overall performance, investment objectives, and asset size; (B) Forbes
Magazine's Annual Mutual Funds Survey and Mutual Fund Honor Roll; or (C) other
financial or business publications, such as the Wall Street Journal, Business
Week, Money Magazine, and Barron's, which provide similar information; (iii)
indices of stocks comparable to those in which the particular Portfolio invests;
(2) the Consumer Price Index (measure of inflation) may be used to assess the
real rate of return from an investment in each Portfolio; (3) other U.S.
government statistics such as GNP, and net import and export figures derived
from governmental publications, e.g., The Survey of Current Business, may be
used to illustrate investment attributes of each Portfolio or the general
economic, business, investment, or financial environment in which each Portfolio
operates; and (4) the effect of tax-deferred compounding on the particular
Portfolio's investment returns, or on returns in general, may be illustrated by
graphs, charts, etc. where such graphs or charts would compare, at various
points in time, the return from an investment in the particular Portfolio (or
returns in general) on a tax-deferred basis (assuming reinvestment of capital
gains and dividends and assuming one or more tax rates) with the return on a
S-27
<PAGE>
taxable basis. Each Portfolio's performance may also be compared to the
performance of other mutual funds by Morningstar, Inc. which ranks mutual funds
on the basis of historical risk and total return. Morningstar rankings are
calculated using the mutual fund's performance relative to three-month Treasury
bill monthly returns. Morningstar's rankings range from five stars (highest) to
one star (lowest) and represent Morningstar's assessment of the historical risk
level and total return of a mutual fund as a weighted average for 3, 5, and 10-
year periods. In each category, Morningstar limits its five star rankings to 10%
of the funds it follows and its four star rankings to 22.5% of the funds it
follows. Rankings are not absolute or necessarily predictive of future
performance.
The performance of the Portfolios may be compared, for example, to the record
of the S&P 500 Index, NASDAQ Composite Index, and the Europe, Australia, Far
Eastern ("EAFE") Index. The S&P 500 Index is a well known measure of the price
performance of 500 leading larger domestic stocks which represent approximately
80% of the market capitalization of the U.S. equity market. The NASDAQ Composite
Index is comprised of all stocks on NASDAQ's National Market Systems, as well as
other NASDAQ domestic equity securities. The NASDAQ Composite Index has
typically included smaller, less mature companies representing 10% to 15% of the
capitalization of the entire domestic equity market. The EAFE Index is comprised
of more than 900 companies in Europe, Australia and the Far East. All of these
indices are unmanaged and capitalization weighted. In general, the securities
comprising the NASDAQ Composite Index are more growth oriented and have a
somewhat higher beta and P/E ratio than those in the S&P 500 Index.
The total returns of all of these indices will show the changes in prices for
the stocks in each index. However, only the performance data for the S&P 500
Index assumes reinvestment of all capital gains distributions and dividends paid
by the stocks in each data base. Tax consequences will not be included in such
illustration, nor will brokerage or other fees or expenses of investing be
reflected in the NASDAQ Composite, S&P 500, EAFE Index.
ADDITIONAL INFORMATION
Reports
Annual and semi-annual reports containing financial statements of the Fund,
as well as voting instruction soliciting material for the Fund, have been sent
to Policyowners.
Name and Service Mark
The Chubb Corporation in conjunction with its sale of Jefferson Pilot
Financial to Jefferson-Pilot Corporation has granted a limited right to use the
"Chubb" name and service mark. Jefferson Pilot Corporation has also granted a
limited license to the Fund to use the Jefferson Pilot name and service mark.
FINANCIAL STATEMENTS
The financial statements contained in the are incorporated herein by
reference.
S-28
<PAGE>
PART C
OTHER INFORMATION
Item 24. Financial Statements and Exhibits
(a) Financial Statements
The financial statements contained in the Fund's
December 31, 1997 Annual Report to shareholders will be
filed by Amendment to the Fund's Statement of Additional
Information.
(b) Exhibits
1. a. Amended and Restated Articles of Incorporation,
incorporated by reference to earlier filing on
September 5, 1997 SEC file No. 2-94479 Exhibit
l.a of Form N-lA Registration Statement.
b. Articles of Amendment to the Articles of
Incorporation.
2. By-Laws.
3. Not applicable.
4. Not applicable.
C-1
<PAGE>
5. a. Investment Management Agreement between Chubb America
Fund, Inc. and Chubb Investment Advisory Corporation.
b. Investment Subadvisory Agreement among Chubb America
Fund, Inc., Chubb Investment Advisory Corporation and
Templeton Global Advisers Limited. Incorporated by
reference to earlier filing on September 5, 1997 SEC file
No. 2-94479 Exhibit 99.5B.
c. Investment Subadvisory Agreement among Chubb America
Fund, Inc., Chubb Investment Advisory Corporation and Van
Eck Associates Corporation. Incorporated by reference to
earlier filing on September 5, 1997 SEC file No. 2-94479
Exhibit 99.5C.
d. Sub-Investment Subadvisory Agreement among Chubb
America Fund, Inc., Chubb Investment Advisory Corporation
and Pioneering Management Corporation. Incorporated by
reference to earlier filing on September 5, 1997 SEC file
No. 2-94479 Exhibit 99.5D.
C-2
<PAGE>
e. Investment Sub Advisory Agreement between Chubb
America Fund, Inc., Chubb Investment Advisory Corporation
and Warburg, Pincus Counselors, Inc. for the Growth and
Income Portfolio. Incorporated by reference to earlier
filing on September 5, 1997 SEC file No. 2-94479 Exhibit
99.5E.
f. Investment Sub Advisory Agreement between Chubb
America Fund, Inc., Chubb Investment Advisory Corporation
and Janus Capital Corporation for the Capital Growth
Portfolio. Incorporated by reference to earlier filing on
September 5, 1997 SEC file No. 2-94479 Exhibit 99.5F.
g. Investment Sub Advisory Agreement between Chubb
America Fund, Inc., Chubb Investment Advisory Corporation
and J.P. Morgan Investment Management Inc. for the
Balanced Portfolio. Incorporated by reference to earlier
filing on September 5, 1997 SEC file No. 2-94479 Exhibit
99.5G.
C-3
<PAGE>
h. Investment Sub-Advisory Agreement among Chubb America
Fund, Inc., Chubb Investment Advisory Corporation, and
Massachusetts Financial Services Company with respect to
the Emerging Growth Portfolio and Money Market Portfolios.
Incorporated by reference to earlier filing on September
5, 1997 SEC file No. 2-94479 Exhibit 99.5H.
i. Investment Sub-Advisory Agreement among Chubb America
Fund, Inc., Chubb Investment Advisory Corporation and
Chubb Asset Managers, Inc. for the Bond Portfolio.
Incorporated by reference to earlier filing on September
5, 1997 SEC file No. 2-94479 Exhibit 99.5I.
j. Investment Sub-Advisory Agreement between Jefferson
Pilot Variable Fund, Inc., Jefferson Pilot Investment
Advisory Corporation and Lombard International Portfolio
Management Limited for the International Equity Portfolio.
k. Investment Sub-Advisory Agreement between Jefferson
Pilot Variable Fund, Inc., Jefferson Pilot Investment
Advisory Corporation and Strong Capital Management, Inc.
for the Growth Portfolio.
l. Investment Sub Advisory Agreement between Jefferson
Pilot Variable Fund, Inc., Jefferson Pilot Variable
Corporation and Massachusetts Financial Service Company
for the High Yield Bond Portfolio.
6. Fund Distribution Agreement between Jefferson Pilot
Variable Fund, Inc. and Jefferson Pilot Variable
Corporation.
C-4
<PAGE>
7. Not applicable.
8. a. Custodian Agreement between Chubb America Fund, Inc.
and Citibank, N.A., incorporated by reference to earlier
filing on February 21, 1991, SEC File No. 2-94479, Exhibit
8 of N-lA Registration Statement.
b. Amendment to the Custodial Services Agreement between
Chubb America Fund, Inc. and Citibank, N.A., incorporated
by reference to earlier filing on April 14, 1993, SEC File
No. 2-94479, Exhibit 8(b) of N-lA Registration Statement.
c. Amendment No. 2 to Custodial Services Agreement
between Chubb America Fund, Inc. and Citibank, N.A.,
incorporated by reference to earlier filing on April 14,
1993, SEC File No. 2-94479, Exhibit 8(c) of N-IA
Registration Statement.
9. Not applicable.
10. a. Opinion and Consent of Counsel as to the legality of
the securities being registered. Incorporated by reference
to earlier filing on September 5, 1997 SEC file No. 2-
94479 Exhibit 99.10A of N-lA Registration Statement.
11. Not applicable.
12. Not applicable.
C-5
<PAGE>
13. a. Stock Subscription Agreement between Chubb America
Fund, Inc. and The Volunteer State Life Insurance
Company, incorporated by reference to earlier filing on
April 11, 1990, SEC File No. 2-94479, Exhibit 13(a) of
N-lA Registration Statement.
b. Stock Subscription Agreement between Chubb America
Fund, Inc. and The Volunteer State Life Insurance Company,
incorporated by reference to earlier filing on April 11,
1990, SEC File No. 2-94479, Exhibit 13(b) of N-lA
Registration Statement.
c. Stock Subscription Agreement between Chubb America
Fund, Inc. and Chubb Life Insurance Company of America,
incorporated by reference to earlier filing on February
28, 1992, SEC File No. 2-94479, Exhibit 13(c) of N-lA
Registration Statement.
d. Stock Subscription Agreement between Chubb America
Fund, Inc., and Chubb Life Insurance Company of
America.
14. Not applicable.
27.1 FINANCIAL DATA SCHEDULES No. 2-94479 - To be filed by Amendment
99.1
99.2 Schedule of Computation of Performance Quotation
Incorporated by reference to earlier filing on April 7,
1997 SEC File 2-94479 EXHIBIT 99.2 of NIA Registration
Statement SEC File No. 2-94479
99.3 Diagram of Subsidiaries of the Jefferson-Pilot
Corporation Incorporated by reference to earlier filing
on April 7, 1997 SEC File No. 2-94479 Exhibit 99.3 of NIA
Registration Statement SEC File No. 2- 94479
99.4 Price Make-up Sheet Incorporated by reference to earlier
filing on April 7, 1997 SEC. File No. 2-94479 Exhibit
99.4 of NIA Registration Statement SEC File No. 2-94479
C-6
<PAGE>
Item 25. Persons Controlled by or under Common Control with Registrant
Initially, shares of the Registrant were offered and sold only to
The Volunteer State Life Insurance Company ("Volunteer"), a stock
life insurance company organized under the laws of Tennessee.
Effective July 1, 1991, Volunteer changed its name to Chubb Life
Insurance Company of America ("Chubb Life") and re-domesticated to
New Hampshire. Chubb Life will change its name to Jefferson Pilot
Financial Insurance Company ("J.P. Financial") on or before May 1,
1998. The purchasers of variable life insurance contracts issued in
connection with separate accounts established by J.P. Financial or
its affiliated insurance companies will have the right to instruct
J.P. Financial or its affiliated insurance companies with respect to
the voting of the Registrant's shares held by such separate accounts
on behalf of policyowners. The shares held by J.P. Financial or its
affiliated insurance companies, including shares for which no voting
instructions have been received, shares held in the separate
accounts representing charges imposed by J.P. Financial or its
affiliated insurance companies against the separate account and
shares held by J.P. Financial or its affiliated insurance companies
that are not otherwise attributable to Policies, will also be voted
by J.P. Financial or its affiliated insurance companies in
proportion to instructions received from owners of Policies. J.P.
Financial or its affiliated insurance companies reserve the right to
vote any or all such shares at their discretion to the extent
consistent with then current interpretations of the Investment
Company Act of 1940 and rules thereunder. Subject to such voting
instruction rights, J.P. Financial or its affiliated insurance
companies will directly control the Registrant.
Subsequently, shares of the Registrant may be offered and sold to
other separate accounts formed by J.P. Financial, its successors or
assigns, and by other insurance companies which, along with J.P.
Financial, are subsidiaries of The Jefferson Pilot Corporation, a
North Carolina corporation, or subsidiaries of such subsidiaries. In
addition, shares of the Fund may be also offered and sold to other
separate accounts of non-affiliated insurance companies. A diagram
of the subsidiaries of The Jefferson Pilot Corporation has been
incorporated by reference to earlier filing on April 7, 1997, as
Exhibit 99.3 of NIA Registration Statement SEC File No. 2-94479.
C-7
<PAGE>
Item 26. Number of Holders of Securities
As of the effective date of this Registration Statement:
<TABLE>
<CAPTION>
(2)
(1) Number of
Title of Class Record Holders
-------------- --------------
<S> <C>
World Growth Stock Portfolio Capital Stock; $.01 par value......................
International Equity Portfolio Capital Stock; $.01 par value....................
Money Market Portfolio Capital Stock; $.01 par value............................
Gold Stock Portfolio Capital Stock; $.01 par value..............................
Bond Portfolio Capital Stock; $.01 par value....................................
High Yield Bond Portfolio Capital Stock; $.01 par value.........................
Growth Portfolio Capital Stock; $.01 par value..................................
Domestic Growth Stock Portfolio Capital Stock; $.01 par value...................
Growth and Income Portfolio Capital Stock; $.01 par value.......................
Capital Growth Portfolio Capital Stock; $.01 par value..........................
Balanced Portfolio Capital Stock; $.01 par value................................
Emerging Growth Portfolio Capital Stock; $.01 par value.........................
</TABLE>
J.P. Financial has purchased 300,000 shares of capital stock of the
the Emerging Growth Portfolio. J.P. Financial Separate Account A has
purchased shares of each Portfolio in the amounts allocated to each
Portfolio by purchasers of Policies.
Item 27. Indemnification
Reference is made to Article VIII, Section 10 of the Registrant's
Amended and Restated Articles of Incorporation filed on April 11,
1990 as Exhibit 1 to the Form N-lA Registration Statement and to
Article V of the Registrant's By-Laws filed herein as Exhibit 2 to
this Registration Statement. The Amended and Restated Articles of
Incorporation provide that neither an officer nor director of the
Registrant will be liable to the Registrant or its stockholders for
monetary damages for breach of fiduciary duty as an officer or
director, except to the extent such limitation of liability is not
otherwise permitted by law. The By-Laws provide that the Registrant
will indemnify its directors and officers to the extent permitted or
required by Maryland law. A resolution of the Board of Directors
specifically approving payment or advancement of expenses to an
officer is required by the By-Laws. Indemnification may not be made
if the director or officer has incurred liability by reason of
willful misfeasance, bad faith, gross negligence or reckless
disregard of duties in the conduct of his/her office ("Disabling
Conduct"). The means of determining whether indemnification shall be
made are (1) a final decision by a court or other body before whom
the proceeding is brought that the director or officer was not
liable by reason of Disabling Conduct, or (2) in the absence of such
a decision, a reasonable determination, based on a review of the
facts, that the director or officer was not
C-8
<PAGE>
liable by reason of Disabling Conduct. Such latter determination may
be made either by (a) vote of a majority of directors who are
neither interested persons (as defined in the Investment Company Act
of 1940) nor parties to the proceeding or (b) independent legal
counsel in a written opinion. The advancement of legal expenses may
not occur unless the director or officer agrees to repay the advance
(if it is determined that the director or officer is not entitled to
the indemnification) and one of three other conditions is satisfied:
(1) the director or officer provides security for his/her agreement
to repay, (2) the Registrant is insured against loss by reason of
lawful advances, or (3) the directors who are not interested persons
and are not parties to the proceedings, or independent counsel in a
written opinion, determine that there is reason to believe that the
director or officer will be found entitled to indemnification.
Insofar as indemnification for liability arising under the
Securities Act of 1933 (the "Securities Act") may be permitted to
directors, officers and controlling persons of the Registrant
pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as
expressed in the Securities Act and is, therefore, unenforceable. In
the event that a claim for indemnification against such liabilities
(other than the payment by the Registrant of expenses incurred or
paid by a director, officer or controlling person of the Registrant
in the successful defense of any action, suit or proceeding) is
asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant
will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act and will be
governed by the final adjudication of such issue.
Item 28. Business and Other Connections of Investment Adviser
Jefferson Pilot Investment Advisory was formed in 1984 and had not
been previously engaged in any other business. The other businesses,
professions, vocations and employment of a substantial nature of its
directors and officers during the past two years are as follows:
C-9
<PAGE>
<TABLE>
<CAPTION>
Name of Director Other Business,
or Officer of Jefferson Positions with Chubb Profession, Vocation or
Pilot Investment Employment During
Investment Advisory Advisory Past Two Years
- ------------------- -------- --------------
<S> <C> <C>
Ronald Angarella President and Director Senior Vice President,
Jefferson Pilot Financial;
President and
Director, Jefferson Pilot
Securities, and Hampshire
Funding, Inc.; formerly
Senior Vice President and
Director, Chubb
Investment Funds, Inc.
Ronald H. Emery Senior Vice President Senior Vice President and
and Director Controller, Jefferson
Pilot Financial
Shari J. Lease Secretary Vice President and Counsel,
Jefferson Pilot Financial;
formerly Secretary Chubb
Investment Funds, Inc.
and Chubb Series Trust
</TABLE>
C-10
<PAGE>
<TABLE>
<CAPTION>
Other Business,
Name of Director Positions with Chubb Profession, Vocation or
or Officer of Chubb Investment Employment During
Investment Advisory Advisory Past Two Years
- ------------------- -------- --------------
<S> <C> <C>
John A. Weston Treasurer Assistant Vice President,
Mutual Fund Accounting
Officer, Jefferson Pilot
Financial; Treasurer,
Jefferson Pilot
Securities Corporation,
and Hampshire Funding,
Inc.; previously Financial
Reporting Officer, Chubb
Life, Treasurer Chubb
Investment Funds Inc. and
Chubb Series Trust.
</TABLE>
C-l1
<PAGE>
<TABLE>
<CAPTION> Other Business,
Name of Director Positions with Chubb Profession, Vocation or
or Officer of Chubb Investment Employment During
Investment Advisory Advisory Past Two Years
- ------------------- -------- --------------
<S> <C> <C>
Carol R. Hardiman Assistant Vice Vice President of
President Jefferson Pilot Securities
and Hampshire Funding Inc.
Thomas H. Elwood Assistant Secretary Assistant Counsel, Jefferson
Pilot Financial; formerly,
Associate Counsel New York Life
Insurance Company;
Secretary New York Life
Institutional Funds, Inc.,
Assistant Secretary Chubb
Series Trust, Assistant
Secretary, Chubb
Investment Funds, Inc.
MainStay Funds, and MFA
Funds.
</TABLE>
The directors, officers, employees and partners of the Sub-
Investment Managers have rendered investment advice and management
during the past two years and have not engaged in any other business
of a substantial nature.
Item 29. Principal Underwriters
Jefferson Pilot Variable Corporation also distributes Chubb Separate
Account A, Colonial Separate Account B, Chubb Separate Account C,
Colonial Separate Account D, Alexander Hamilton Variable Annuity
Separate Account and Jefferson Pilot Separate Account A.
The names, principal business addresses, positions and offices with
Jefferson Pilot Variable Corporation, and positions with the Fund,
of each director or officer of Jefferson Pilot are:
<TABLE>
<CAPTION>
Name and Principal Positions and Offices Positions and Offices
Business Address with Underwriter with Registrant
- ---------------- ---------------- ---------------
<S> <C> <C>
Ronald A. Angarella President and President and Director
One Granite Place Chairman
Concord NH 03301
David Booth Vice President, None
One Granite Place Marketing
Concord NH 03301
John A. Weston Treasurer Treasurer
One Granite Place
Concord NH 03301
Shari J. Lease Secretary Secretary
One Granite Place
Concord NH 03301
W. Thomas Boulter Assistant Vice President None
One Granite Place Compliance
Concord NH 03301
</TABLE>
Item 30. Location of Accounts and Records
The following entities prepare, maintain and preserve the records
required by Section 31(a) of the 1940 Act for the Registrant. These
services are provided to the Registrant through written agreements
between the parties to the effect that such services will be
provided to the Registrant
C-12
<PAGE>
for such periods prescribed by the Rules and Regulations of the
Securities and Exchange Commission under the 1940 Act and such
records will be surrendered promptly on request:
Citibank, N.A., 111 Wall Street, New York, New York 10043; Chubb
Asset Managers, Inc., 15 Mountain View Road, Warren, New Jersey
07061; Van Eck Associates Corporation, 99 Park Avenue, New York, New
York 10016; Jefferson Pilot Investment Advisory, One Granite Place,
Concord, New Hampshire 03301; Pioneering Management Corporation, 60
State Street, Boston, Massachusetts; Templeton, Global Advisors,
Inc., Lyford Cay, Nassau, Bahamas; Janus Capital Corporation, 100
Fillmore Street, Suite 300, Denver, Colorado 80206; Phoenix
Investment Counsel, Inc., One American Row, Hartford Connecticut
06115; Massachusetts Financial Services Company, 500 Boylston
Street, Boston, Massachusetts 02116; and Jefferson Pilot Securities
Corporation and Jefferson Pilot Variable Corporation, One Granite
Place, Concord, New Hampshire 03301.
Item 31. Management Services
Not applicable.
Item 32. Undertakings
Not applicable.
C-13
<PAGE>
Pursuant to the requirements of the Securities Act of 1933 and
the Investment Company Act of 1940, the Registrant has duly caused
this Amended Registration Statement to be signed on its behalf by
the undersigned, thereunto duly authorized, in the city of Concord,
and the State of New Hampshire on the 27th day of February,
1998.
By: /s/ Ronald Angarella
------------------------
Ronald Angarella
President
Each of the undersigned Officers and Directors of Jefferson Pilot
Variable Fund, Inc. (the "Fund") whose signatures appear below
hereby makes, constitutes and appoints Ronald Angarella, Shari Lease
and Thomas H. Elwood and each of them acting individually, his/her
true and lawful attorneys with power to act without any other and
with full power of substitution, to execute, deliver and file in
each of the undersigned Officers and Directors capacity or
capacities as shown below, this Registration Statement and any and
all documents in support of this Registration Statement or
supplement thereto, and any and all amendments, including any and
all post-effective amendments to the foregoing; and said Officers
and Directors hereby grant to said attorneys, and to any one or more
of them, full power and authority to do and perform each and every
act and thing whatsoever as said attorney or attorneys may deem
necessary or advisable to carry out fully the intent of this Power
of Attorney to the same extent and with the same effect as each of
said Officers and Directors might or could do personally in his/her
capacity or capacities as aforesaid, and each of said Officers and
Directors ratifies, confirms and approves all acts and things which
said attorney or attorneys might do or cause to be done by virtue of
this Power of Attorney and his/her signature as the same as may be
signed by said attorney or attorneys, or any one or more of them to
this Registration Statement and any and all amendments thereto,
including any and all post-effective amendments to the foregoing.
C-14
<PAGE>
Pursuant to the requirements of the Securities Act of 1933, this
Amended Registration Statement has been signed below by the
following persons in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
- --------- ----- ----
<S> <C> <C>
/s/ Ronald Angarella President, February 27, 1998
- ---------------------- Principal
Ronald Angarella Executive
Officer, and
Director
/s/ John A. Weston Treasurer, Principal February 27, 1998
- ---------------------- Financial Officer, and
John A. Weston, Principal Accounting
Officer
/s/ Michael D. Coughlin Director February 27, 1998
- -----------------------
Michael D. Coughlin
/s/ Elizabeth S. Hager Director February 27, 1998
- ----------------------
Elizabeth S. Hager
/s/ Thomas D. Rath Director February 27, 1998
- ----------------------
Thomas D. Rath
</TABLE>
C-15
<PAGE>
Exhibit Index
-------------
<TABLE>
<CAPTION>
Exhibit
Number Description
- ------ -----------
<S> <C>
l.b. Articles of Amendment to the Articles of Incorporation
5.a. Investment Management Agreement between Chubb America Fund
Inc. and Chubb Investment Advisory Corporatiom Incorporated.
b. Investment Sub Advisory Agreement among Chubb America Fund
Inc., Chubb Investment Advisory Corporation and Templeton
Global Advisors Limited for the World Growth Stock Portfolio
Incorporated by reference to earlier filing on September 5,
1997, SEC file No. 2-94479 Exhibit 99.5 of Nl-A Registration
Statement.
c. Investment Sub Advisory Agreement among Chubb America Fund
Inc., Chubb Investment Advisory Corporation and Van Eck
Associates Corporation for the Gold Stock Portfolio
Incorporated by reference to earlier filing on September 5,
1997, SEC file No. 2-94479 Exhibit 99.5 of Nl-A Registration
Statement.
d. Investment Sub Advisory Agreement among Chubb America Fund
Inc., Chubb Investment Advisory Corporation and Promising
Management Corporation for the Domestic Growth Stock
Portfolio Incorporated by reference to earlier filing on
September 5, 1997, SEC file No. 2-94479 Exhibit 99.5 of Nl-A
Registration Statement.
e. Investment Sub Advisory Agreement among Chubb America Fund,
Inc., Chubb Investment Advisory Corporation and Working,
Pincus Counselors Inc. for the Growth and Income Portfolio
Incorporated by reference to earlier filing on September 5,
1997, SEC file No. 2-94479 Exhibit 99.5 of Nl-A Registration
Statement.
f. Investment Sub Advisory Agreement among Chubb America Fund
Inc., Chubb Investment Advisory Corporation, and Janus
Capital Corporation for the Capital Growth Portfolio
Incorporated by reference to earlier filing on September 5,
1997, SEC file No. 2-94479 Exhibit 99.5 of Nl-A Registration
Statement.
g. Investment Sub Advisory Agreement among Chubb America Fund
Inc., Chubb Investment Advisory Corporation and J.P. Morgan
Investment Advisory Corporation for the Balanced Portfolio
Incorporated by reference to earlier filing on September 5,
1997, SEC file No. 2-94479 Exhibit 99.5 of Nl-A Registration
Statement.
h. Investment Sub Advisory Agreement among Chubb America Fund
Inc., Chubb Investment Advisory Corporation and
Massachusetts Financial Services Company for the Emerging
Growth and Money Market Portfolios Incorporated by reference
to earlier filing on September 5, 1997, SEC file No. 2-94479
Exhibit 99.5 of Nl-A Registration Statement.
i. Investment Sub Advisory Agreement among Chubb America Fund
Investment, Jefferson Pilot Investment Advisory Corporation
and Chubb Asset Managers for the Bond Portfolio Incorporated
by reference to earlier filing on September 5, 1997, SEC
file No. 2-94479 Exhibit 99.5 of Nl-A Registration
Statement.
j. Investment Sub-Advisory Agreement among Jefferson Pilot
Variable Fund, Inc. Jefferson Pilot Investment Advisory
Corporation and Lombard Odier International Portfolio
Management Limited for the International Equity Portfolio.
k. Investment Sub Advisory Agreement among Jefferson Pilot
Variable Fund Inc., Jefferson Pilot Investment Advisory
Corporation and Strong Capital Management for the Growth
Portfolios
1. Investment Sub Advisory Agreement among Jefferson Pilot
Variable Fund Inc., Jefferson Pilot Investment Advisory
Corporation and Massachusetts Financial Services Company for
the High Yield Bond Portfolio
6. Fund Distribution Agreement between Jefferson Pilot Variable
Fund, Inc. and Jefferson Pilot Variable Corporation
27.1 Financial Data Schedules - To be filed by Amendment
</TABLE>
<PAGE>
99.1
99.2 Schedule of Computation of Performance Quotation
Incorporated by reference to earlier filing on April 7,
1997 SEC File 2-94479 EXHIBIT 99.2 of NIA Registration
Statement SEC File No. 2-94479
99.3 Diagram of Subsidiaries of the Jefferson-Pilot Corporation
Incorporated by reference to earlier filing on April 7,
1997 SEC File No. 2-94479 Exhibit 99.3 of NIA Registration
Statement SEC File No. 2- 94479
99.4 Price Make-up Sheet Incorporated by reference to earlier
filing on April 7, 1997 SEC. File No. 2-94479 Exhibit 99.4
of NIA Registration Statement SEC File No. 2-94479
<PAGE>
ARTICLES OF AMENDMENT
(1)
(2) CHUBB AMERICA FUND INC. a Maryland Corporation hereby certifies to the
- ----------------------------
State Department of Assessments and Taxation of Maryland that:
(3) The charter of the corporation is hereby amended to be renamed as
follows:
Jefferson Pilot Variable Fund, Inc.
This amendment of the charter of the corporation (which is an open end
management investment company) has been approved by the Board of Directors on
December 10, 1997 pursuant to Md C&A Section 2-605(a)
We the undersigned President and Secretary swear under the penalties of
perjury that the foregoing is a corporate act.
(5) /s/ Shari J. Lease /s/ Ronald A. Angarella
------------------------- ----------------------------
Secretary President
Jefferson Pilot Variable Fund, Inc.
c/o Thomas H. Elwood
Chubb Life Insurance Company of America
One Granite Place
Concord, NH 03301
<PAGE>
BY-LAWS
OF
CHUBB AMERICA FUND, INC.
Effective:
January 24, 1991
<PAGE>
TABLE OF CONTENTS
-----------------
Page
----
<TABLE>
<S> <C>
ARTICLE I - MEETINGS OF STOCKHOLDERS
Section 1 - Annual Meeting
Section 2 - Special Meetings
Section 3 - Place of Meeting
Section 4 - Notice of Meetings
Section 5 - Waiver of Notice of Meetings
Section 6 - Quorum
Section 7 - Organization
Section 8 - Order of Business
Section 9 - Voting
Section 10 - Proxies
Section 11 - Required Vote
Section 12 - Ballots
Section 13 - Inspectors
Section 14 - Consent of Stockholders in Lieu
of Meeting
ARTICLE II - BOLD OF DIRECTORS
Section 1 - General Powers
Section 2 - Number of Directors
Section 3 - Election and Term of Directors
Section 4 - Resignation
Section 5 - Removal of Directors
Section 6 - Vacancies
Section 7 - Place of Meetings
Section 8 - Annual and Regular Meetings
Section 9 - Special Meetings; Notice
</TABLE>
-2-
<PAGE>
Section 10 - Waiver of Notice of Meetings
Section 11 - Quorum and Voting
Section 12 - Organization
Section 13 - Written Consent of Directors in Lieu
ARTICLE III - COMMITTEES
Section 1 - Executive Committee
Section 2 - Other Committees of the Board
Section 3 - General
ARTICLE IV - OFFICERS, AGENTS AND EMPLOYEES
Section 1 - Term and Titles
Section 2 - Chief Executive Officer
Section 3 - Resignations
Section 4 - Removal of Officer, Agent or Employee
Section 5 - Vacancies
Section 6 - Compensation
Section 7 - Bonds or Other Security
Section 8 - The President
Section 9 - The Vice Presidents
Section 10 - The Treasurer
Section 11 - The Secretary
Section 12 - Delegation of Duties
Section 13 - Authority and Duties of Officers
ARTICLE V - INDEMNIFICATION
Section 1 - General Provisions
-3-
<PAGE>
Section 2 - Continuing Right
Section 3 - Disabling Conduct
Section 4 - Advancement of Legal Fees
ARTICLE VI - CAPITAL STOCK
Section 1 - Stock Certificates
Section 2 - Open Accounts in Lieu of Certificates
Section 3 - Transfers of Shares
Section 4 - Regulations
Section 5 - Lost, Destroyed or Mutilated Certificates
Section 6 - Fixing of a Record Date for Dividends and Distributions
ARTICLE VII - SEAL
ARTICLE VIII - FISCAL YEAR
Section 1 - Fiscal Year
Section 2 - Books and Records
ARTICLE IX - DEPOSITORIES AND CUSTODIANS
Section 1 - Depositories
Section 2 - Custodians
ARTICLE X - EXECUTION OF INSTRUMENTS AND BORROWING OF MONEY
Section 1 - Execution of Instruments
Section 2 - Checks, Notes, Drafts, etc.
Section 3 - Sale or Transfer of Securities
Section 4 - Loans
Section 5 - Voting as Securityholder
Section 6 - Facsimile Signatures
ARTICLE XI - AMENDMENTS
-4-
<PAGE>
BY-LAWS
-------
OF
--
CHUEB AMERICA FUND. INC.
-----------------------
ARTICLE I
MEETING OF STOCKHOLDERS
-----------------------
Section 1. Annual Meeting. The annual meeting of the stockholders of the
--------------
Corporation for the election of directors and for the transaction of such other
business as may properly be brought before the meeting shall be held on such day
during April of each year as shall be designated annually by the Board of
Directors; provided that the Corporation shall not be required to hold an annual
meeting in any year in which the election of directors is not required to be
acted upon under the Investment Company Act of 1940. Any business of the
Corporation may be transacted at the annual meeting without being specifically
designated in the notice, except such business as is specifically required by
statute to be stated in the notice.
Section 2. Special Meetings. Special meetings of the stockholders, unless
----------------
otherwise provided by law or by the Articles of Incorporation, may be called for
any purpose or purposes by a majority of the Board of Directors, the Chairman of
the Board or the President.
Section 3. Place of Meeting. The annual meeting and any special meeting of
----------------
the stockholders shall be held at such place within the United States as the
Board of Directors may determine from time to time.
Section 4. Notice of Meetings. Notice of the place, date and time of the
------------------
holding of each annual and special meeting of the stockholders and the purpose
or purposes of each special meeting shall be given personally or by mail, not
less than 10 nor more than 90 days before the date of such meeting, to each
stockholder entitled to vote at such meeting and to each other stockholder
entitled to notice of the meeting. The Board of Directors may fix, in advance, a
record date which shall not be less than 10 nor more than 90 days before the
date of such meeting. Notice by mail shall be deemed to be duly given when
deposited in the United States mail addressed to the stockholder at his address
as it appears on the records of the Corporation, with postage thereon prepaid.
Section 5. Waiver of Notice of Meetings. Notice of any meeting of
----------------------------
stockholders shall be deemed waived by any stockholder who shall attend such
meeting in person or by proxy, or who shall, either before or after the meeting,
submit a signed waiver of notice which is filed with the records of the meeting.
When a meeting is
-5-
<PAGE>
adjourned to another time and place, unless the Board of Directors, after the
adjournment, shall fix a new record date for an adjourned meeting, or the
adjournment is for more than 120 days after the original record date, notice of
such adjourned meeting need not be given if the time and place to which the
meeting shall be adjourned were announced at the meeting at which the
adjournment is taken.
Section 6. Quorum. At all meetings of the stockholders, the holders of a
------
majority of the shares of stock of the Corporation entitled to vote at the
meeting, present in person or by proxy, shall constitute a quorum for the
transaction of any business, except as otherwise provided by statute or by the
Articles of Incorporation or these ByLaws. In the absence of a quorum no
business may be transacted, except that the holders of a majority of the shares
of stock present in person or by proxy and entitled to vote may adjourn the
meeting from time to time to a date not more than 120 days after the original
record date, without notice other than announcement thereat except as otherwise
required by these By-Laws, until the holders of the requisite amount of shares
of stock shall be so present. At any such adjourned meeting at which a quorum
may be present any business may be transacted which might have been transacted
at the meeting as originally called. When a quorum is once present to organize a
meeting, it is not broken by the subsequent withdrawal of any stockholder.
Section 7. Organization. At each meeting of the stockholders, the Chairman of
------------
the Board, of in his absence or inability to act, the President, or in the
absence or inability to act of the Chairman of the Board and the President, a
Vice President, shall act as chairman of the meeting. The Secretary, or in his
absence or inability to act, any person appointed by the chairman of the
meeting, shall act as secretary of the meeting and keep the minutes thereof.
Section 8. Order of Business. The order of business at all meetings of the
-----------------
stockholders shall be as determined by the chairman of the meeting.
Section 9. Voting. Each holder of record of shares of stock of the
------
Corporation having voting power shall be entitled at each meeting of the
stockholders to one vote for every shares of such stock standing in his name on
the record of stockholders of the Corporation as of the record date determined
pursuant to Section 4 of this Article, except as otherwise provided by the
Articles of Incorporation, the General Corporation Law, the Investment Company
Act of 1940, as amended, or other applicable law.
Section 10. Proxies. Each stockholder entitled to vote at any meeting of
-------
stockholders may authorize another person or persons to act for him by a proxy
signed by such stockholder or his attorney-in-fact. No proxy shall be
-6-
<PAGE>
valid after the expiration of eleven months from the date thereof, unless
otherwise provided in the proxy. Every proxy shall be revocable at the pleasure
of the stockholder executing it, except in those cases where such proxy states
that it is irrevocable and where an irrevocable proxy is permitted by law.
Section 11. Required Vote. Except as otherwise provided by statute, the
-------------
Articles of Incorporation or these By-Laws, any corporate action to be taken by
vote of the stockholders shall be authorized by a majority of the total votes
cast at a meeting of stockholders by the holders of shares present in person or
represented by proxy and entitled to vote on such action.
Section 12. Ballots. If a vote shall be taken on any question other than the
-------
election of directors, which shall be by written ballot, then, unless required
by statute or these By-Laws or determined by the chairman of the meeting to be
advisable, any such vote need not be by ballot. On a vote by ballot, each ballot
shall be signed by the stockholder voting, or by his proxy, if there be such
proxy, and shall state the number of shares voted.
Section 13. Inspectors. The Board may, in advance of any meeting of
----------
stockholders, appoint one or more inspectors to act at such meeting or any
adjournment thereof. If the inspectors shall be so appointed or if any of them
fail to appear or act, the chairman of the meeting may, and on the request of
any stockholder entitled to vote thereat shall, appoint inspectors. Each
inspector, before entering upon the discharge of his duties, shall take and sign
an oath to execute faithfully the duties of inspector at such meeting with
strict impartiality and according to the best of his ability. The inspectors
shall determine the number of shares outstanding and the voting power of each,
the number of shares represented at the meeting, the existence of a quorum, the
validity and effect of proxies, and shall receive votes, ballots or consents,
hear and determine all challenges and questions arising in connection with the
right to vote, count and tabulate all votes, ballots or consents, determine the
result, and do such acts as are proper to conduct the election or vote in
fairness to all stockholders. On request of the chairman of the meeting or any
stockholder entitled to vote thereat, the inspectors shall make a report in
writing of any challenge, request or matter determined by them and shall execute
a certificate of any fact found by them. No director or candidate for the office
of director shall act as inspector of an election of directors. Inspectors need
not be stockholders.
Section 14. Consent of Stockholders in Lieu of Meeting. To the fullest extent
------------------------------------------
permitted by law, whenever any action is required or permitted to be taken at a
meeting of stockholders by law, by the Articles of Incorporation or by the By-
Laws, such action may be taken without a meeting, without prior notice and
without a vote of
-7-
<PAGE>
stockholders, if a consent in writing, setting forth the action so taken, shall
be signed by the holders of all outstanding stock having voting power. The Board
of Directors may fix, in advance, a record date to express consent to any
corporate action in writing, not more than 90 days prior to any other action. If
no such record date is fixed, the record date shall be the date on which the
first written consent is received.
ARTICLE II
BOARD OF DIRECTORS
------------------
Section 1. General Powers. Except as otherwise provided in the Articles of
--------------
Incorporation, the business and affairs of the Corporation shall be managed
under the direction of its Board of Directors. The Board may exercise all the
powers of the Corporation and do all such lawful acts and things as are not by
statute or the Articles of Incorporation directed or required to be exercised or
done by the stockholders.
Section 2. Number of Directors. The number of directors shall be fixed from
-------------------
time to time by resolution of the Board of Directors adopted by a majority of
the Directors then in office; provided, however, that the number of Directors
shall in no event be less than the minimum number required by the Maryland
General Corporation Law nor more than nine. Any vacancy created by an increase
in directors may be filled in accordance with Section 6 of this Article II. No
reduction in the number of directors shall have the effect of removing any
director from office prior to the expiration of his term unless such director is
specifically removed pursuant to Section 5 of this Article II at the time of
such decrease. Directors need not be stockholders.
Section 3. Election and Term of Directors. Except as otherwise provided in
------------------------------
Section 4 and 5 of this Article, the Directors shall be elected at each annual
meeting of the stockholders held in accordance with Section 1 of Article 1 of
these By-Laws. Each Director shall hold office until the expiration of the term
for which such Director is elected and until a successor has been elected and
has qualified, or until such Director's earlier death, resignation or removal.
At each meeting of the stockholders for the election of Directors, at which a
quorum is present, the Directors shall be elected by a plurality of the votes
cast by the holders of shares entitled to vote in such election. Members of the
initial Board of Directors shall hold office until the first annual meeting of
stockholders or until their successors have been elected and qualified. The
Board of Directors shall select one of its members to serve as Chairman of the
Board. The Chairman shall preside at all meetings of the Board of Directors and
all annual meetings of stockholders.
-8-
<PAGE>
Section 4. Resignation. A Director of the Corporation may resign at any time
-----------
be giving written notice of his resignation to the Board of Directors, the
Chairman of the Board of Directors, the President, a Vice President or the
Secretary. Any such resignation shall take effect at the time specified therein
or, if the time when it shall become effective shall not be specified therein,
immediately upon its receipt. Unless otherwise specified therein, the acceptance
of such resignation shall not be necessary to make it effective.
Section 5. Removal of Directors. Any Director of the Corporation may be
--------------------
removed with or without cause by the stockholders by a vote of a majority of the
votes entitled to be cast for the election of Directors at any meeting of
stockholders, duly called and at which a quorum is present.
Section 6. Vacancies. Any vacancies in the Board, whether arising from death,
---------
resignation, removal, an increase in the number of Directors or any other cause,
shall be filled by a vote of the majority of the Directors then in office even
though such majority is less than a quorum, provided that no vacancies shall be
filled by action of the remaining Directors if, after the filling of said
vacancy or vacancies, less than two--thirds of the Directors then holding office
shall have been elected by the stockholders of the Corporation. In the event
that at any time there is a vacancy in any office of a Director which vacancy
may not be filled by the remaining Directors, a special meeting of the
stockholders shall be held as promptly as possible and in any event within sixty
days, for the purpose of filling said vacancy or vacancies. Any directors
elected or appointed to fill a vacancy shall hold office only until the next
annual meeting of stockholders of the Corporation and until a successor shall
have been chosen and qualifies or until his earlier resignation and removal.
Section 7. Place of Meetings. Meetings of the Board may be held at such place
-----------------
as the Board may from time to time determine or as shall be specified in the
notice of such meeting.
Section 8. Annual and Regular Meetings. An annual organizational meeting of
---------------------------
the Board of Directors shall be held immediately following adjournment of the
annual meeting of stockholders held in accordance with Section 1 of Article 1 of
these By-Laws at the place of such annual meeting. Notice of such meeting of the
Board need not be given. The Board from time to time may provide for the holding
of other regular meetings and fix the place (which may be within or without the
State of Maryland) and time of such meetings. Notice of regular meetings need
not be given, except that if the Board shall change the time or place of any
regular meeting, notice of such action shall be promptly communicated personally
or by telephone or sent by first class mail, telegraph, radio or cable, to
-9-
<PAGE>
each Director who shall have not been present at the meeting at which such
action was taken, addressed to such Director at such Director's residence, usual
place of business or other address designated with the Secretary for such
purpose.
Section 9. Special Meetings; Notice. Special meetings of the Board of
------------------------
Directors shall be held whenever called by the Chairman of the Board or the
President, or in the absence or disability of both, by any Vice President, or by
the Secretary at the request of any two Directors, at such place (within or
without the State of Maryland) as may be specified in the respective notices or
waivers of notice of such meeting. Except as otherwise provided by law, a notice
of each special meeting, stating the time and place thereof, shall be mailed to
each Director addressed to such Director's residence, usual place of business or
other address designated with the Secretary for such purpose, at least two
business days before the special meeting is to be held, or shall be sent to such
Director at such place by telegraph, radio or cable, or delivered personally or
by telephone not later than the day before the day on which such meeting is to
be held. Notice may be waived in accordance with Section 10 of this Article.
Section 10. Waiver of Notice of Meetings. Notice of any special meeting need
----------------------------
not be given to any director who shall, either before or after the meeting, sign
a written waiver of notice or who shall attend such meeting. Except as otherwise
specifically required by these By-Laws, a notice or waiver of notice of any
meeting need not state the purpose of such meeting.
Section 11. Quorum and Voting. One-third, but not less than two, of the
-----------------
members of the entire Board of Directors shall be present in person at any
meeting of the Board in order to constitute a quorum for the transaction of
business at such meeting. Except as otherwise required by statute, the Articles
of Incorporation, these By-Laws, or other applicable laws and regulations, the
act of a majority of the Directors present at any meeting at which a quorum is
present shall be the act of the Board. The following actions shall each require
the affirmative vote of a majority of the Directors who are not parties to any
such contract or interested persons of any such party so long as the Corporation
is subject to the provisions of the Investment Company Act of 1940, as amended:
(a) the approval of any contract with an investment adviser or principal
underwriter, as such terms are defined in the Investment Company Act of 1940, as
amended, which the Corporation enters into or any renewal or amendment thereof,
(b) the approval of the fidelity bond required by the Investment Company Act of
1940, as amended, (c) the selection of the Corporation's independent public
accountants and (d) any plan, together with the agreements related thereto, by
-10-
<PAGE>
which the Corporation engages directly or indirectly in the financing of the
sale of shares issued by the Corporation. In the absence of a quorum at any
meeting of the Board, a majority of the directors present thereat may adjourn
such meeting to another time and place until a quorum shall be present thereat.
Notice of the time and place of any such adjourned meeting shall be given to the
Directors who were not present at the time of the adjournment and, unless such
time and place were announced at the meeting at which the adjournment was taken,
to the other Directors. At any adjourned meeting at which a quorum is present,
any business may be transacted which might have been transacted at the meeting
as originally called.
Section 12. Organization. The Board shall, by resolution adopted by a
------------
majority of the entire Board, designate a Chairman of the Board, who shall
preside at each meeting of the Board. In the absence or inability of the
Chairman of the Board to preside at a meeting, the President, or, in his absence
or inability to act, another Director chosen by a majority of the directors
present, shall act as chairman of the meeting and preside thereat. The Secretary
(or, in his absence or inability to act, any person appointed by the Chairman)
shall act as secretary of the meeting and keep the minutes thereof.
Section 13. Written Consent of Directors in Lieu of a Meeting. Any action
-------------------------------------------------
required or permitted to be taken at any meeting of the Board of Directors or of
any committee thereof may be taken without a meeting if all members of the Board
or committee, as the case may be, consent thereto in writing, if the consents
are filed with the minutes of the proceedings of the Board or committee, and if
the presence in person of members of the Board or committee is not required by
the Investment Company Act of 1940, as amended, or other applicable law.
Section 14. Compensation. Directors may receive compensation for services to
------------
the Corporation in their capacities as directors or otherwise in such manner and
in such amounts as may be fixed from time to time by the Board.
Section 15. Manner of Acting. To the extent consistent with law, the Articles
----------------
of Incorporation and the By-Laws, the Board of Directors may adopt such rules
and regulations for the conduct of meetings of the Board and for the management
of the property, affairs and business of the Corporation as the Board may deem
appropriate. Members of the Board of Directors or of any Committee thereof may
participate in a meeting of the Board or of such Committee, as the cause may be,
by means of conference telephone or similar communications equipment by means of
which all persons participating in the meeting can hear each other, and such
participation shall constitute
-11-
<PAGE>
presence in person at such meeting, except as otherwise required by the
Investment Company Act of 1940, as amended, or other applicable law.
ARTICLE III
COMMITTEES
----------
Section 1. Executive Committee. The Board may designate an Executive
-------------------
Committee consisting of two or more of the Directors of the Corporation, which
committee shall have and may exercise all the powers and authority of the Board
with respect of all matters other than:
(a) The recommendation to stockholders of any action requiring authorization
of stockholders pursuant to statute or the Articles of Incorporation;
(b) The filling of vacancies on the Board of Directors;
(c) The fixing of compensation of the Directors for serving on the Board or
on any committee of the Board, including the Executive Committee;
(d) The approval or termination of any contract with an investment adviser or
principal underwriter, as such terms are defined in the Investment Company Act
of 1940, as amended, or the taking of any other action required to be taken by
the Board of Directors by the Investment Company Act of 1940, as amended;
(e) The amendment or repeal of these By-Laws or the adoption of new By-Laws;
(f) The amendment or repeal of any resolution of the Board which by its terms
may be amended or repealed only by the Board;
(g) The declaration of dividends;
(h) The approval of any merger or share exchange which does not require
shareholder approval; and
(i) The issuance of capital stock of the Corporation, except to the extent
permitted by the Maryland General Corporation Law.
The Executive Committee shall keep written minutes of its proceedings and
shall report such minutes to the Board. All such proceedings shall be subject to
revision or alteration by the Board; provided, however, that third parties shall
not be prejudiced by such revision or alteration.
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Section 2. Other Committees of the Board. The Board of Directors may from
-----------------------------
time to time, designate one or more other committees of the Board, each such
committee to consist of such number of Directors and to have such powers and
duties as the Board of Directors may, by resolution, prescribe.
Section 3. General. One-third, but not less than two, of the members of any
-------
committee shall be present in person at any meeting of such committee in order
to constitute a quorum for the transaction of business at such meeting. The act
of a majority present shall be the act of such committee. The Board may
designate a chairman of any committee, and such chairman or any two members of
any committee may fix the time and place of its meetings unless the Board shall
otherwise provide. In the absence or disqualification of any member of any
committee, the member or members thereof present at any meeting and not
disqualified from voting, whether or not he or they constitute quorum, may
appoint another member of the Board of Directors to act at the meeting in the
place of any such absent or disqualified member. The Board shall have the power
at any time to change the membership of any committee, to fill all vacancies, to
designate alternate members to replace any absent or disqualified member, or to
dissolve any such committee. Nothing herein shall be deemed to prevent the Board
from appointing one or more committees consisting in whole or in part of persons
who are not directors of the Corporation; provided, however, that no such
committee shall have or may exercise any authority or power of the Board in the
management of the business or affairs of the Corporation.
ARTICLE IV
OFFICERS, AGENTS AND EMPLOYEES
------------------------------
Section 1. Term and Titles. The officers of the Corporation shall be elected
---------------
or appointed by the Board of Directors and shall hold office at the pleasure of
the Board or until the election or appointment and the qualification of a
successor. There shall be a President, one or more Vice Presidents, a Secretary
and a Treasurer. The Board of Directors may also elect or appoint such other
officers and agents, having such titles and with such responsibilities
(including but not limited to assistants of the titles previously mentioned) as
it deems appropriate. The Board of Directors from time to time may delegate to
the chief executive officer the power to appoint each such officers or agents
and to prescribe their respective rights, terms of office, authorities and
duties. Any two or more offices may be held by the same person, except the
offices of President and Vice President, but no officer shall act in more than
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one capacity to execute, acknowledge or verify any instrument required by law to
be executed, acknowledged or verified in more than one capacity.
Section 2. Chief Executive Officer. The Board of Directors may from time to
-----------------------
time determine who among the officers and in what order, shall act as chief
executive officer. In the absence of such determination the President shall be
the chief executive officer. Subject to the control of the Board and to the
extent not otherwise prescribed by these By-Laws, the chief executive officer
shall supervise the carrying out of the policies adopted or approved by the
Board, shall exercise a general supervision and superintendence over all the
business and affairs of the Corporation and shall possess such other powers and
perform such other duties as may be incident to the office of chief executive
officer.
Section 3. Resignations. Any officer may resign at any time by delivering a
------------
signed notice of resignation to the Board of Directors, the Chairman of the
Board, the President, a Vice President or the Secretary. Such resignation shall
take effect upon the later of delivery or the date specified therein. Any
vacancy occurring in any office of the Corporation by death, resignation,
removal or otherwise, may be filled by the Board at any regular or special
meeting.
Section 4. Removal of Officer. Agent or Employee. Any officer, agent or
-------------------------------------
employee of the Corporation may be removed by the Board of Directors with or
without cause at any time, and the Board may delegate such power of removal as
to agents and employees not elected or appointed by the Board of Directors. Such
removal shall be without prejudice to such person's contact rights, if any, but
the appointment of any person as an officer, agent or employee of the
Corporation shall not of itself create contract rights.
Section 5. Vacancies. A vacancy in any office, whether arising from death,
---------
resignation, removal or any other cause, may be filled for the unexpired portion
of the term of the office which shall be vacant, in the manner prescribed in
these By-Laws for the regular election or appointment to such office.
Section 6. Compensation. The compensation of the officers of the Corporation
------------
shall be fixed by the Board of Directors, but this power may be delegated to any
officer in respect of other officers under his control.
Section 7. Bonds or Other Security. If required by the Board, any officer,
-----------------------
agent or employee of the Corporation shall give a bond or other security for the
faithful performance of his duties, in such amount and with such surety or
sureties as the Board may require.
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Section 8. The President. The President shall have the following powers and
-------------
duties:
(a) He shall be the chief operating officer of the Corporation. Subject to
the direction of the Board of Directors and (if the President is not also the
chief executive officer) the chief executive officer, he shall have general
charge of the operations of the business, affairs and property of the
Corporation and general operation of its officers, employees and agents.
(b) Subject to these By-Laws, the President shall exercise all powers and
perform all duties incident to the office of president and chief operating
officer of a corporation, and shall exercise such other powers and perform such
other duties as from time to time may be assigned to the President by the Board
or by the chief executive officer (if the President is not also the chief
executive officer).
Section 9. The Vice Presidents. Each Vice President shall exercise such
-------------------
powers and perform such duties as from time to time may be assigned to such Vice
President by the Board of Directors, the chief executive officer or the
President. In the absence or during the disability of the President, the Vice
President designated by the Board of Directors or by the President, or if no
such designation shall have been made, then the senior ranking Vice President
present shall perform all the duties of the President and, when so acting, shall
have all the powers of and be subject to all the restrictions upon the
President.
Section 10. The Treasurer. Except as may otherwise be provided by the Board
-------------
of Directors, the Treasurer shall have the following powers and duties:
(a) To have charge and supervision over and be responsible for the moneys,
securities, receipts and disbursements of the Corporation;
(b) To cause the moneys and other valuable effects of the Corporation to be
deposited in the name and to the credit of the Corporation in such banks or
trust companies or with such other depositories as shall be selected in
accordance with Article IX of these By-Laws;
(c) To cause the moneys of the Corporation to be disbursed by checks or
drafts (signed as provided in these By-Laws) upon the authorized depositories of
the Corporation and cause to be taken and preserved proper vouchers for all
moneys disbursed;
(d) To render to the Board of Directors or the chief executive officer,
whenever requested, a statement of the financial condition of the Corporation
and of all the financial transactions of the Corporation;
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(e) To be empowered from time to time to require from all officers or agents
of the Corporation reports or statements giving such information as the
Treasurer may desire with respect to any and all financial transactions of the
Corporation; and
(f) To perform all duties incident to the office of Treasurer, and such other
duties as from time to time may be assigned to the Treasurer by the Board of
Directors, the chief executive officer or the President.
Section 11. The Secretary. Except as may otherwise be provided by the Board
-------------
of Directors, the Secretary shall have the following powers and duties:
(a) To keep or cause to be kept a record of all the proceedings of the
meetings of the stockholders and of the Board of Directors;
(b) To cause all notices to the Board of Directors and stockholders to be
duly given in accordance with the provisions of these By-Laws and as required by
law;
(c) To be the custodian of the records and of the seal of the Corporation.
The Secretary may cause such seal (or a facsimile thereof) to be affixed to all
instruments the execution of which on behalf of the Corporation under its seal
shall have been duly authorized in accordance with these By-Laws, and when so
affixed may attest the same;
(d) To have charge of the stock books and ledgers of the Corporation and to
cause the stock and transfer books to be kept in such manner as to show at any
time the number of shares of stock of the Corporation of each class issued and
outstanding, the names (alphabetically arranged) and the addresses of the
holders of record of such shares, the number of shares held by each holder and
the date as of which each became such holder of record;
(e) To perform, in general, all duties incident to the office of Secretary
and such other duties as may be given to the Secretary by these By-Laws or as
may be assigned to the Secretary from time to time by the Board of Directors,
the chief executive officer or the President; and
(f) To the extent consistent with law, the Secretary may from time to time
delegate performance of any one or more of the foregoing powers and duties, or
powers and duties otherwise conferred upon the Secretary by these ByLaws, to one
or more officers, agents or employees of the Corporation.
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Section 12. Delegation of Duties. In case of the absence of any officer of
--------------------
the Corporation, or for any other reason that the Board may deem sufficient, the
Board may confer for the time being the powers or duties, or any of them, of
such officer upon any other officer or upon any director.
Section 13. Authority and Duties of Officers. The officers of the Corporation
--------------------------------
shall have such authority and shall exercise such powers and perform such duties
as may be specified in these By-Laws, or to the extent not so provided, by the
chief executive officer and other officers acting pursuant to the chief
executive officer's authority, except that in any event each officer shall
exercise such powers and perform such duties as may be required by law. The
chief executive officer may at any time suspend any officer, other than an
officer who is a Director, from any duties and authority for a period not
exceeding 90 days.
ARTICLE V
INDEMNIFICATION
---------------
Section 1. General Provisions. The Corporation shall indemnify or advance
------------------
any expenses to Directors and officers to the extent permitted or required by
the Maryland General Corporation Law, provided, however, that the Corporation
shall only be required to indemnify or advance expenses to any person, other
than a Director, to the extent specifically approved by resolution adopted by
the Board of Directors in accordance with applicable law.
Section 2. Continuing Right. The indemnification provided hereunder shall
----------------
continue as to a person who has ceased to be a Director or officer, and shall
inure to the benefit of the heirs, executors and administrators of such a
person.
Section 3. Disabling Conduct. Nothing contained in this Article shall be
-----------------
construed to protect any Director or officer of the Corporation against any
liability to the Corporation or its security holders to which he would
otherwise be subject by reason of willful misfeasance, bad faith, gross
negligence or reckless disregard of duties involved in the conduct of his
office. Such conduct is described herein as "Disabling Conduct". The means for
determining whether indemnification shall be made shall be (1) a final decision
on the merits by a court or other body before whom the proceeding was brought
that the person to be indemnified was not liable by reason of such Disabling
Conduct or (2) in the absence of such a decision, a reasonable determination,
based upon a review of the facts, that such person was not liable by reason of
such Disabling Conduct, made (a) by the vote of a majority of a
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quorum of Directors who are neither "interested" persons of the Corporation (as
defined in the Investment Company Act of 1940, as amended) nor parties to the
proceeding or (b) by an independent legal counsel in a written opinion.
Section 4. Advancement of Legal Fees. Nothing contained in this Article shall
-------------------------
be construed to permit the advancement of legal expenses for the defense of a
proceeding brought by the Corporation or its security holders against a Director
or officer of the Corporation unless an undertaking is furnished by or on behalf
of such person to repay the advance (unless it is ultimately determined that he
is entitled to indemnification) and such person complies with at least one of
the following conditions: (1) he shall provide a security for his undertaking,
(2) the Corporation shall be insured against losses arising by reason of any
lawful advances, or (3) a majority of a quorum of the Directors who are neither
interested persons (as defined in the Investment Company Act of 1940, as
amended) nor parties to the proceeding, or an independent legal counsel in a
written opinion, shall determine, based on a review of readily available facts,
as opposed to a full trial-type inquiry, that there is reason to believe that
such person ultimately will be found entitled to indemnification.
ARTICLE VI
CAPITAL STOCK
-------------
Section 1. Stock Certificates. Each holder of stock of the Corporation shall
------------------
be entitled upon request to have a certificate or certificates, in such form as
shall be approved by the Board, representing the number of shares of stock of
the Corporation owned by him, provided, however, that certificates for
fractional shares will not be delivered in any case. The certificates
representing shares of stock shall be signed by or in the name of the
Corporation by the President or a Vice President and by the Secretary or an
Assistant Secretary or the Treasurer or an Assistant Treasurer and sealed with
the seal of the Corporation. Any or all of the signatures or the seal on the
certificate may be a facsimile. In case any officer, transfer agent or registrar
who has signed or whose facsimile signature has been placed upon a certificate
shall have ceased to be such officer, transfer agent or registrar before such
certificate shall be issued, it may be issued by the Corporation with the same
effect as if such officer, transfer agent or registrar were still in office at
the date of issue.
Section 2. Open Accounts in Lieu of Certificates. The Corporation shall, for
-------------------------------------
any holder of stock who has not requested issuance of a certificate, maintain or
cause to be maintained an open account in which shall be recorded
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such stockholder's ownership c~ stock and all changes therein. Certificates need
not be issued for shares so recorded in an open account unless and until
requested by the stockholder.
Section 3. Transfer of Shares. Transfers of shares of the Corporation shall
------------------
be made on the stock records of the Corporation only by the registered holder
thereof, or by his attorney thereunto authorized by power of attorney duly
executed and filed with the Secretary or with a transfer agent or transfer
clerk, and on surrender of the certificate or certificates, if issued, for such
shares properly endorsed or accompanied by a duly executed stock transfer power
and the payment of all taxes thereon. Except as otherwise provided by law, the
Corporation shall be entitled to recognize the exclusive right of a person in
whose name any share or shares stand on the record of stockholders as the owner
of such share or shares for all purposes, including, without limitation, the
rights to receive dividends or other distributions, and to vote as such owner,
and the Corporation shall not be bound to recognize any equitable or legal claim
to or interest in any such share or shares on the part of any other person.
Section 4. Regulations. The Board may make such additional rules and
-----------
regulations, not inconsistent with these By-Laws, as it may deem expedient
concerning the issue, transfer and registration of certificates for shares of
stock of the Corporation. It may appoint, or authorize any officer or officers
to appoint, one or more transfer agents or one or more transfer clerks and one
or more registrars and may require all certificates for shares of stock to bear
the signature or signatures of any of them.
Section 5. Lost, Destroyed or Mutilated Certificates. The holder of any
-----------------------------------------
certificates representing shares of stock of the Corporation shall immediately
notify the Corporation of any loss, destruction or mutilation of such
certificate, and the Corporation may issue a new certificate of stock in the
place of any certificate theretofore issued by it which the owner thereof shall
allege to have been lost or destroyed or which shall have been mutilated, and
the Board may, in its discretion, require such owner or his legal
representatives to give to the Corporation a bond in such sum, limited or
unlimited, and in such form and with such surety or sureties, as the Board in
its absolute discretion shall determine, to indemnify the Corporation against
any claim that may be made against it on account of the alleged loss or
destruction of any such certificate, or issuance of a new certificate. Anything
herein to the contrary notwithstanding, the Board, in its absolute discretion,
may refuse to issue any such new certificate, except pursuant to legal
proceedings under the laws of the State of Maryland.
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Section 6. Fixing of a Record Date for Dividends and Distributions. The Board
-------------------------------------------------------
may fix, in advance, a date not more than ninety days preceding the date fixed
for the payment of any dividend or the making of any distribution or the
allotment of rights to subscribe for securities of the Corporation, or for the
delivery of evidences of rights or evidences of interests arising out of any
change, conversion or exchange of common stock or other securities, as the
record date for the determination of the stockholders entitled to receive any
such dividend, distribution, allotment, rights or interests. In such case, only
the stockholders of record at the time so fixed shall be entitled to receive
such dividend, distribution, allotment, rights or interests.
ARTICLE VII
SEAL
----
The seal of the Corporation shall be in the form adopted by the Board of
Directors. The seal may be used by causing it or a facsimile thereof to be
impressed, affixed or reproduced, or to place the word "(seal)" adjacent to the
signature to the authorized officer of the Corporation, or in any other lawful
manner.
ARTICLE VIII
FISCAL YEAR
-----------
Section 1. Fiscal Year. Unless otherwise determined by the Board, the fiscal
-----------
year of the Corporation shall end on the 31st day of December in each year.
Section 2. Books and Records. Except to the extent otherwise required by law,
-----------------
the books and records of the Corporation shall be kept at such place or places
(within or without the State of Maryland) as may be determined from time to time
by the Board of Directors.
ARTICLE IX
DEPOSITORIES AND CUSTODIANS
---------------------------
Section 1. depositories. The funds of the Corporation shall be deposited with
------------
such banks or other depositories as the Board of Directors of the Corporation
may from time to time determine.
Section 2. Custodians. All securities and other investments shall be
----------
deposited in the safekeeping of such banks or other companies as the Board of
Directors of the Corporation may from time to time determine. Every arrangement
entered into with any bank or other company for the safekeeping of the
securities and investments of the Corporation shall contain provisions complying
with all applicable law, rules and regulations.
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ARTICLE X
EXECUTION OF INSTRUMENTS AND BORROWING OF MONEY
-----------------------------------------------
Section 1. Execution of Instruments. Except as may otherwise be provided in a
------------------------
resolution adopted by the Board of Directors, the Chairman of the Board, the
President, or any Vice President may enter into any contract or execute and
deliver any instrument and affix the corporate seal in the name and on behalf of
the Corporation. Any Vice President designated by a number or a word or words
added before or after the title Vice President to indicate rank or
responsibilities, but not an Assistant Vice President, shall be a Vice President
for the purposes of this Article. The Board may authorize any other officer,
employee or agent to enter into any contract or execute and deliver any
instrument and affix the corporate seal in the name and on behalf of the
Corporation. Any such authorization may be general or limited to specific
contracts or instruments.
Section 2. Checks. Notes. Drafts, etc. Checks, notes, drafts, acceptances,
--------------------------
bills of exchange and other orders or obligations for the payment of money shall
be signed by such officer or officers or person or persons as the Board of
Directors by resolution shall from time to time designate.
Section 3. Sale or Transfer of Securities. Stock certificates, bonds or other
------------------------------
securities at any time owned by the Corporation may be held on behalf of the
Corporation or sold, transferred or otherwise disposed of, subject to any limits
imposed by these By-laws, and pursuant to authorization by the Board. When so
authorized to be held on behalf of the Corporation or sold, transferred or
otherwise disposed of, they may be transferred from the name of the Corporation
by the signature of the President or a Vice President or the Treasurer or the
Assistant Treasurer or the Secretary or the Assistant Secretary.
Section 4. Loans. No loan or advance shall be contracted on behalf of the
-----
Corporation, and no note, bond or other evidence of indebtedness shall be
executed or delivered in its name, except as may be authorized by the Board of
Directors. Any such authorization may be general or limited to specific loans or
advances, or notes, bonds or other evidence of indebtedness. Any officer or
agent of the Corporation so authorized may effect loans and advances on behalf
of the Corporation, and in return for any such loans or advances may execute and
deliver notes, bonds or other evidence of indebtedness of the Corporation.
Section 5. Voting as a Securityholder. The Chairman of the Board, the
--------------------------
president and such other person or persons as the Board of Directors may from
time to time authorize, shall each have full power and authority on
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behalf of the Corporation, to attend any meeting of securityholders of any
corporation in which the Corporation may hold securities, and to act, vote (or
execute proxies to vote) and exercise in person or by proxy all other rights,
powers and privileges incident to the ownership of such securities, and to
execute any instrument expressing consent to or dissent from any action of any
such corporation without a meeting, subject to such restrictions or limitations
as the Board of Directors may from time to time impose.
Section 6. Facsimile Signatures. The Board of Directors may authorize the use
--------------------
of a facsimile signature or signatures on any instrument. If any officer whose
facsimile signature has been placed upon any form of instrument shall have
ceased to be such officer before such instrument is issued, such instrument may
be issued with the same effect as if such person had been such officer at the
time of its issue.
ARTICLE XI
AMENDMENTS
----------
All By-Laws of the Corporation, whether adopted by the Board of Directors or
the stockholders, shall be subject to amendment or repeal, and new By-Laws may
be made, by the affirmative vote of the holders of a majority of the outstanding
shares of stock of the Corporation entitled to vote. All By-Laws of the
Corporation, other than this Section and any other Section that provides it may
be amended or repealed only by the stockholders, whether adopted by the Board of
Directors or the stockholders, shall be subject to amendment or repeal, and new
By-Laws may be made, by resolution adopted by a majority of the whole Board of
Directors. Notwithstanding anything herein to the contrary, no amendment or
repeal of Article V of these By-Laws shall affect adversely any then existing
right of any Director or officer.
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INVESTMENT MANAGEMENT AGREEMENT
CHUBB AMERICA FUND, INC.
THIS AGREEMENT made this 28th day of August 1997, between CHUBB AMERICA
FUND, INC., a Maryland corporation with offices at One Granite Place, Concord,
New Hampshire (the "Fund), and CHUBB INVESTMENT ADVISORY CORPORATION, a
Tennessee corporation with offices at One Granite Place, Concord, New Hampshire
("Chubb Investment");
WITNESSETH
WHEREAS, the Fund is engaged in business as an open-end management
investment company and is registered as such under the Investment Company of
1940 (the "Investment Company Act");
WHEREAS, the Fund is authorized to issue shares of common stock, $.01 par
value, ("Stock") in separate classes or series with each such class or series
representing an interest in a separate portfolio of securities and other assets,
and each with its own investment objectives, investment policies and
restrictions (individually, a "Portfolio", collectively, the "Portfolios");
WHEREAS, Chubb Investment is engaged in the business of rendering investment
advisory services and is registered as an investment adviser under the
Investment Advisers Act of 1940;
WHEREAS, the Board of Directors of the Fund desires to retain Chubb
Investment to render investment management and corporate administrative services
to the Fund's Portfolios set forth in Schedule A hereto, as such may be revised
from time to time, in the manner and on the terms set forth herein; and
WHEREAS, the Board of Directors of the Fund believes that Chubb Investment's
expertise and business contacts are and will be of material benefit to the Fund
in employing and supervising any investment subadviser ("Subadviser"), as
further described below;
NOW, THEREFORE, in consideration of the premises and the covenants
hereinafter contained, the Fund and Chubb Investment hereby agree as follows:
1. APPOINTMENT OF MANAGER. The Fund hereby appoints Chubb Investment as the
investment manager ("Investment Manager" or "Manager') for each of the
Portfolios of the Fund specified in Appendix A to this Agreement, as such
Appendix A may be amended by the Manager and the Fund from time to time, subject
to the supervision of the Directors of the Fund and in the manner under the
terms and conditions set forth in this Agreement.
2. (a) DUTIES OF CHUBB INVESTMENT. Chubb Investment hereby agrees, subject to
the supervision of the Board of Directors of the Fund (i) to act as the
investment manager of the Portfolios, and, in that connection, (ii) to select
and contract, at its own expense, with investment subadvisers ("Subadvisers") to
manage the investment operations and composition of each and every Portfolio of
the Fund, including the purchase, retention, and disposition of the investments,
securities and cash contained in each Portfolio.
In taking any action hereunder, Chubb Investment shall always be subject to, and
shall follow at all times (i) any restrictions of the Fund's Articles of
Incorporation and By-Laws, as amended from time to time, (ii) the applicable
provisions of the Investment Company Act, and any rules and regulations adopted
thereunder, (iii) the statements relating to the Portfolios' investment
objectives, policies and restrictions as the same are set forth in the
prospectus of the Fund and Statement of Additional Information then currently
effective under the Securities Act of 1933 (the "Prospectus"), and (iv) any
other provisions of state and federal law applicable to it in connection with
its duties hereunder, including any applicable provisions imposed by state
insurance regulations and under the Internal Revenue Code of 1986, as amended,
and regulations thereunder (the Code).
(b) INTERIM ARRANGEMENTS. Notwithstanding the provisions of subsection (a)
of this paragraph, the Manager may, in the event of a Subadviser becomes unable
to provide portfolio management services to a Portfolio, itself provide to the
Portfolio those services normally provided by the Subadviser under the
1
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Subadviser's agreement with the Manager, until such time as the Manager selects
and contracts with a replacement Subadviser.
(c) ADMINISTRATIVE SERVICES. Subject to the direction and control of the
Board of Directors of the Fund, Chubb Investment shall perform administrative
services in connection with the management of the Portfolios and will supervise
all aspects of the Portfolios' operations. In this connection, Chubb Investment
agrees to perform the following administrative functions:
(1) Determine the value of each Portfolio's assets and liabilities,
compute the daily income and net asset value of each Portfolio and compute the
yield and/or total return of each Portfolio as may be required, in accordance
with applicable law;
(2) Schedule, plan agendas for and conduct directors and shareholders
meetings;
(3) Recommend auditors, counsel, Custodian and others;
(4) Coordinate, supervise and direct any Subadviser, the Fund's
Custodian and the Fund's Distributor, auditors and counsel on a day-to-day
basis;
(5) Prepare and distribute all required proxy statements, reports, and
other communications with shareholders;
(6) Prepare and file tax returns, reports due and other required
filings with the Securities and Exchange Commission ("SEC"), the National
Association of Securities Dealers, Inc., state blue sky authorities, and
generally monitor compliance with all federal and state securities laws and the
Code;
(7) Supply clerical, secretarial, accounting and bookkeeping services,
data processing services, office supplies and stationery;
(8) Provide persons to perform such professional, administrative and
clerical functions as are necessary in connection with shareholder relations,
reports, redemption requests and account adjustments, including the receipt,
handling and coordination of shareholder complaints;
(9) Provide adequate office space and related services (including
telephone and other utility service) necessary for the Fund's operations;
(10) Maintain corporate records not otherwise maintained by the Fund's
Custodian, Distributor, or any Subadviser; and
(11) Assist, generally, in all aspects of the Fund's operations with
respect to the Portfolios.
The Manager may enter into arrangements with its parent or other persons
affiliated or unaffiliated with the Manager for the provisions of certain
personnel and facilities to the Manager to enable the Manager to fulfill its
duties and obligations under this Agreement. Nothing herein will be construed to
restrict the Fund's right, at its own expense, to contract for services to be
performed by third parties.
(d) ARRANGEMENTS WITH SUBADVISERS. Notwithstanding any other provision
hereof, Chubb Investment, with the approval of the Board of Directors of the
Fund, may contract with one or more Subadvisers to perform any of the investment
management services required by the Fund, and may contract with one or more
Subadvisers or other parties to perform any of the administrative services
required of Chubb Investment hereunder; provided, however, that the compensation
of such other parties will be the sole responsibility of Chubb Investment and
the duties and responsibilities of such other Subadviser or other parties shall
be as set forth in an agreement or agreements between Chubb Investment and such
other parties.
Chubb Investment shall exercise reasonable care in recommending, monitoring,
and supervising the performance of Subadviser and others serving pursuant to the
foregoing paragraph, but Chubb Investment shall not otherwise be liable or
legally responsible for the conduct of any Subadviser. In this connection, it
shall be a
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<PAGE>
particular responsibility of Chubb Investment to evaluate the investment
performance of Subadviser and that of potential Subadviser, and Chubb Investment
shall supply the Board of Directors of the Fund with such statistical and
research data bearing on each Portfolios performance and that of Subadviser and
potential Subadviser as they and Chubb Investment deem necessary. It shall also
be a particular responsibility of Chubb Investment to supervise and monitor the
practices of Subadviser in placing orders and selecting brokers and dealers to
effect Portfolio transactions and in negotiating commission rates with them, and
the services provided by such brokers and dealers.
It also is understood that Chubb Investment, at its expense, will enter into
an agreement with Chubb America Service Corporation, a New Hampshire
corporation, pursuant to which Chubb Investment will obtain from said
corporation most staff facilities and services necessary to meet its obligations
hereunder. Entering into said agreement shall in no way diminish any obligation
or liability of Chubb Investment hereunder.
3. (a) PURCHASE AND SALE OF ASSETS. Nothing in this Investment Management
Agreement shall preclude the combining of orders for the sale or purchase of
securities or other investments with other accounts managed by Chubb Investment,
provided that Chubb Investment does not favor any account over any other account
and provided further that any purchase or sale orders executed contemporaneously
shall be allocated in a manner that Chubb Investment deems to be equitable to
all accounts involved and, under normal circumstances, such transactions will be
(1) done on a pro rata basis substantially in proportion to the amounts ordered
by each account, (2) entered into only if, in Chubb Investment's opinion, the
trade is likely to produce a benefit for the Portfolio, and (3) is at a price
which is approximately the same for all parties involved. Neither Chubb
Investment, nor any of its directors, officers, or employees, nor any person,
firm, or corporation controlling, controlled by or under common control with it
shall act as a principal or receive any commission as agent in connection with
the purchase or sale of assets for the Portfolios.
(b) BROKERAGE FEES. In placing orders for the purchase or sale of
investments for the Portfolios, in the name of the Portfolio or their nominees,
Chubb Investment shall use its best efforts to obtain for the Portfolios the
most favorable price and best execution available, considering all of the
circumstances, and shall maintain records adequate to demonstrate compliance
with this requirement. Notwithstanding the foregoing, however, and subject to
appropriate policies and procedures as then approved by the Board of Directors
of the Fund, Chubb Investment may, to the extent authorized by Section 28(e) of
the Securities Exchange Act of 1934, cause the Fund to pay a broker or dealer
that provides research or other brokerage services to Chubb Investment and the
Fund with respect to the Portfolio an amount of commission for effecting a
portfolio transaction in excess of the amount of commission another broker or
dealer would have charged for effecting that transaction if Chubb Investment
determines in good faith that such amount of commission is reasonable in
relationship to the value of such services, viewed in terms of that particular
transaction or Chubb Investment's overall responsibilities to the Portfolios or
its other advisory clients. To the extent authorized by said Section 28(e) and
the Fund's Board of Directors, Chubb Investment shall not be deemed to have
acted unlawfully or to have breached any duty created by this Investment
Management Agreement or otherwise solely by reason of such action.
4. COMPENSATION OF CHUBB INVESTMENT. Except as hereinafter provided, for
the services rendered and expenses assumed by Chubb Investment, while this
Investment Management Agreement is in effect, the Fund shall pay to Chubb
Investment fees at an annual rate set forth in Schedule A attached hereto. Fees
will accrue daily and will be payable as agreed by the Fund and Chubb
Investment, but not more frequently than monthly. The average asset value of the
Portfolios shall be determined and computed in accordance with the description
of the method of determining net asset value contained in the Prospectus.
The fees payable to Chubb Investment by the Fund hereunder shall be reduced
by any tender solicitation fees or similar payments received by Chubb
Investment, or any affiliated person of Chubb Investment, in connection with the
tender of investments of any Portfolio (less any direct expenses incurred by
Chubb Investment, or any affiliated person of Chubb Investment, in connection
with obtaining such fees or payments). Chubb Investment shall use its best
efforts to recapture all available tender offer solicitation fees and similar
payments in connection with tenders of the securities of any Portfolio,
provided, however, that Chubb Investment shall not be required to register as a
broker-dealer for this purpose. Chubb Investment shall advise
3
<PAGE>
the Board of Directors of any fees or payments of whatever type which it may be
possible for Chubb Investment to receive in connection with the purchase or sale
of investment securities for any Portfolio
5. NON-EXCLUSIVITY. The Fund agrees that the services of Chubb
Investment are not to be deemed exclusive and Chubb Investment is free to act as
investment manager to various investment companies and as fiduciary for other
managed accounts. Chubb Investment shall, for all purposes herein, be deemed to
be an independent contractor and shall, unless otherwise provided or authorized,
have no authority to act for or represent the Fund with respect to the
Portfolios in any way or otherwise be deemed an agent of the Fund with respect
to the Portfolios other than in furtherance of its duties and responsibilities
as set forth in this Investment Management Agreement. It is understood and
agreed that the directors, officers and employees of Chubb Investment are not
prohibited from engaging in any other business activity or from rendering
services to any other person, or from serving as partners, officers, directors,
trustees, or employees of any other firm or corporation, including other
investment companies.
6. BOOKS AND RECORDS. Chubb Investment will maintain all books and
records required for the Fund with respect to the Portfolios, to the extent not
maintained by the Custodian or any Subadviser. Chubb Investment agrees that all
books and records which it maintains for the Fund are the Fund's property, and,
in the event of termination of this Investment Management Agreement for any
reason, Chubb Investment agrees promptly to return to the Fund, free from any
claim or retention of rights by Chubb Investment, all records relating to the
Fund. Chubb Investment also agrees, upon request of the Fund, promptly to
surrender such books and records to the Fund or, at the Fund's expense, to make
copies thereof available to the Fund or to make such books and records available
for inspection by representatives of regulatory authorities or other persons
reasonably designated by the Fund. Chubb Investment further agrees to maintain,
prepare and preserve such books and records in accordance with the Investment
Company Act and rules thereunder, including but not limited to, Rules 31a-1 and
31a-2.
Chubb Investment will use records or information obtained under this
Investment Management Agreement only for the purposes contemplated hereby, and
will not disclose such records or information in any manner other than as
expressly authorized by the Board of Directors or officers of the Fund, or
unless disclosure is expressly required by applicable federal or state
regulatory authorities or by this Investment Management Agreement. Chubb
Investment shall supply all information requested by any insurance regulatory
authorities to determine whether all insurance laws and regulations are being
complied with.
The records maintained for the Fund hereunder by Chubb Investment shall
include records showing, for each shareholder's account, the following: (a)
name, address and tax identifying number; (b) number and class of shares held;
(c) historical information regarding the account of each shareholder, including
dividends paid and the date, class of Stock and price for all transactions; (d)
any stop or restraining order placed against the account; (e) any dividend
reinvestment order, dividend address and correspondence relating to the current
maintenance of the account; (f) certificate numbers and denominations for any
Stock certificates; (g) any other information required in order for Chubb
Investment to perform the calculations contemplated or required by this
Investment Management Agreement; and (h) such other records as the Fund may from
time to time reasonably request.
7. LIABILITY. Chubb Investment will not be liable for any loss suffered
by the Portfolios in connection with any investment policy established by the
Fund for the purchase, sale or redemption of any securities at the direction of
the Board of Directors of the Fund. Nothing herein contained shall be construed
to protect Chubb Investment against any liability resulting from the willful
misfeasance, bad faith or negligence of Chubb Investment in the performance of
its duties or from reckless disregard of its obligations and duties under this
Investment Management Agreement or by virtue of violation of any applicable law.
8. (a) INITIAL DOCUMENTS. The Fund's management shall file with Chubb
Investment the following documents: (i) certified copies of the Articles of
Incorporation of the Fund and all amendments thereto, made from time to time;
(ii) a certified copy of the By-Laws of the Fund as amended, from time to time;
(iii) a copy of the resolution of the Board of Directors of the Fund authorizing
this Investment Management Agreement; (iv) specimens of all forms of outstanding
and new stock certificates, if any, with respect to Portfolio Stock in the form
approved by the Board of Directors of the Fund accompanied by Board
of Directors' resolutions approving
4
<PAGE>
such forms, and with a certificate of the Secretary of the Fund as to such
approval; (v) an opinion of counsel for the Fund with respect to the validity of
the Portfolio Stock, the number of shares authorized, the number of Shares
allocated to the Portfolio's class of Shares, the status of redeemed or
repurchased Shares and the number of Shares with respect to which a registration
statement under the Securities Act of 1933 has been filed and is in effect; and
(vi) a listing of the insurance companies with which Chubb Life through its
general account or Separate Account A or any additional separate accounts
established by Chubb Life, its successors or assigns, is affiliated.
(b) FURTHER DOCUMENTATION. The Fund's management will also furnish to
Chubb Investment from time to time the following documents: (i) each resolution
of the Board of Directors of the Fund authorizing the original issue of the
Portfolio's Shares; (ii) each registration statement filed with the SEC under
the Securities Act of 1933 or under the Investment Company Act and amendments
thereof; orders relating thereto and the Prospectus in effect with respect to
the sale of shares of the Fund; (iii) certified copies of each resolution of the
Board of Directors authorizing officers to give instructions to Chubb
Investment.
(c) INFORMATION. The Fund, its officers or agent will provide timely
information to Chubb Investment regarding such matters as purchases and
redemptions of shares in the Portfolios, cash requirements, and cash available
for investment in the Portfolios, and all other information as may be reasonably
necessary, or appropriate, in order for Chubb Investment to perform its
responsibilities hereunder.
(d) RELIANCE ON DOCUMENTS AND INFORMATION. Chubb Investment will be
entitled to rely on all documentation and information furnished to it by the
Fund's management.
9. AUTHORIZED SHARES. The Fund certifies to Chubb Investment, that as
of the close of business on the date of this Investment Management Agreement, it
has authorized one billion shares of its Stock, and further certifies that, by
virtue of its Articles of Incorporation and the provisions of the law of the
state of its incorporation, shares of its Stock which are redeemed or
repurchased by the Fund from its shareholder are restored to the status of
authorized and unissued shares.
10. (a) EXPENSES OF THE FUND. As between the Fund and Chubb Investment,
the following expenses shall be borne exclusively by the Fund;
(i) Brokerage commissions and transfer taxes in connection with
portfolio transactions and similar fees and charges for the acquisition,
disposition, lending or borrowing of portfolio investments;
(ii) All other state, federal, local or foreign governmental fees
and taxes (including any insurance, transfer, franchise or income taxes) payable
by the Fund and all corporate or filing fees payable by the Fund to any
governmental entity or agency;
(iii) All expenses, incidental and otherwise, associated with
preparing and filing with appropriate state, federal, local or foreign
governments or agencies all tax returns, including the expenses associated with
any mailings to the policy owners with respect to such returns.
(iv) Fees and expenses incurred in the registration or
qualification (and maintaining said registration or qualification) of the Fund
and its shares under federal or state securities laws, if deemed applicable,
subsequent to the effective date of the registration statement including all
fees and expenses incurred in connection with the preparation, setting in type,
printing and mailing of the registration statement and any amendments or
supplements that may be made from time to time;
(v) Compensation paid to directors who are not "interested
persons" of the Fund within the meaning of the Investment Company Act and travel
expenses paid to all directors;
(vi) Interest and any other cost related to borrowings by the
Fund;
(vii) Any extraordinary or non-recurring expenses (such as legal
claims and liabilities, and litigation costs and any indemnification related
thereto);
5
<PAGE>
(viii) Costs of printing and distributing to current policy owners,
shareholder reports, proxy statements, Prospectuses and any stickers and
supplements thereto, and otherwise communicating with the shareholders;
(ix) Costs and all incidental expenses associated with conducting
shareholder meetings;
(x) The cost of the fidelity bond required by Investment Company
Act Rule 17g-1 and any errors and omissions insurance or other liability
insurance covering the Fund and/or its officers, directors and employees;
(xi) The cost of obtaining quotes necessary for valuing the assets
and related liabilities for the Portfolios;
(xii) The charges and expenses of the Custodian, independent
accountants and independent legal counsel retained by the Fund, the charges and
expenses of any independent proxy solicitation firm retained by the Fund to
solicit voting instructions from policy owners with respect to Portfolio Shares,
and the charges and expenses of any trade association fees; and
(xiii) All other expenses not specifically assumed hereunder by
Chubb Investment.
(b) EXPENSES OF CHUBB INVESTMENT. As between the Fund and Chubb
Investment, the costs and expenses of providing the necessary facilities,
personnel, office equipment and supplies, office space, telephone service, and
other utility service necessary to carry out its obligations hereunder shall be
borne exclusively by Chubb Investment, except as otherwise herein expressly
provided. In addition, Chubb Investment shall pay and assume all expenses
specifically assumed by Chubb Investment as set forth in Paragraphs 2(c)(1),
(3), (4), (7), (8), (9), (10) and (11); and 2(d) of this Investment Management
Agreement.
11. DURATION AND TERMINATION OF THE AGREEMENT. This Investment Management
Agreement shall become effective as of the date first written above provided
that it has been approved by the majority of the outstanding shares of each of
the Portfolios. Thereafter, it shall continue in effect with respect to each of
the Portfolios from year to year, but only so long as such continuance is
specifically approved at least annually by the Board of Directors in conformity
with the requirements of the Investment Company Act. This Investment Management
Agreement may be terminated, with respect to each Portfolio, without the payment
of any penalty, by the Board of Directors of the Fund or by vote of a majority
of the outstanding shares of Portfolio on sixty days' written notice to Chubb
Investment, or by Chubb Investment on sixty days' written notice to the Fund.
This Investment Management Agreement shall automatically terminate in the event
of its assignment.
12. AMENDMENT OF THE AGREEMENT. This Investment Management Agreement may
be amended with respect to any Portfolio only if to the extent required by law,
such amendment is specifically approved by (a) the vote of a majority of the
outstanding shares of the Portfolio, and (b) by the vote of the Board of
Directors of the Fund, including a majority of those directors of the Fund who
are not parties to nor interested persons of any party to this Investment
Management Agreement cast in person at a meeting called for the purpose of
voting on such approval.
13. DEFINITIONS. The terms "assignment," "interested person," and
"majority of the outstanding shares," when used in this Investment Management
Agreement, shall have the respective meanings specified under the Investment
Company Act and rules thereunder.
14. FURTHER ACTIONS. Each party agrees to perform such further acts and
execute such further documents as are necessary to effectuate the purposes
hereof
15. NAME. This Investment Management Agreement is entered into in
recognition of an agreement, dated February 15, 1985, between the Fund and The
Chubb Corporation granting the Fund a license to use the word "Chubb" in its
corporate name and to use such words in connection with its business.
6
<PAGE>
16. PROVISIONS OF CERTAIN INFORMATION BY MANAGER. The Manager will
promptly notify the Fund in writing of the occurrence of any of the following
events:
a. the Manager fails to be registered as a investment adviser under the
Advisers Act or under the laws of any jurisdiction in which the Manager is
required to be registered as an investment adviser in order to perform its
obligations under this Agreement,
b. the Manager is served or otherwise receives notice of any action,
suit, proceeding, inquiry or investigation, at law or in the equity, before or
by any court, public board or body, involving the affairs of the Fund, and/or
c. the chief executive officer or controlling stockholder of the Manager
or the portfolio manager of any Portfolio changes or there is otherwise an
actual change in control or management of the Manager.
17. ENTIRE AGREEMENT. This Agreement contains the entire understanding
and agreement of the Parties.
18. HEADINGS. The headings in the sections of this Agreement are inserted
for convenience of reference only and shall not constitute a part hereof
19. NOTICES. All notices required to be given pursuant to this Agreement
shall be delivered or mailed to the last known business address of the Fund or
Manager in person or by registered mall or a private mail or delivery service
providing the sender with notice of receipt. Notice shall be deemed given on the
date delivered or mailed in accordance with this section.
20. FORCE MAJEURE. The Manager shall not be liable for delays or errors
occurring by reason of circumstances beyond its control, including, but not
limited to, acts of civil or military authority, national emergencies, work
stoppages, fire, flood catastrophe, acts of nature, insurrection, war, riot,
failure of communication or power supply. In the event of equipment breakdowns
beyond its control, the Manager shall take reasonable steps to minimize service
interruptions but shall have no liability with respect to such undertakings.
21. SEVERABILITY. Should any portion of this Agreement for any reason be
held to be void in law or in equity, the Agreement shall be construed, insofar
as is possible, as if such portion had never been contained in the Agreement.
22. GOVERNING LAW. The provisions of this Investment Management Agreement
shall be construed and interpreted in accordance with the laws of the State of
New Hampshire, as at the time in effect, and the applicable provisions of the
Investment Company Act and rules thereunder or other federal laws and
regulations which may be applicable. To the extent that the applicable law of
the State of New Hampshire, or any of the provisions herein, conflict with the
applicable provisions of the Investment Company Act and rules thereunder or
other federal laws and regulations which may be applicable the latter shall
control.
CHUBB AMERICA FUND, INC.
Attest: /s/ Thomas H. Elwood By: /s/ Ronald A. Angarella
--------------------------- ------------------------------
Title: Assistant Secretary Title:
CHUBB INVESTMENT ADVISORY
CORPORATION
Attest: /s/ Mark Landry By: /s/ Carol R. Hardiman
--------------------------- ------------------------------
Title: Assistant Treasurer Title:
7
<PAGE>
SCHEDULE A
CHUBB AMERICA FUND, INC.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------
NAME OF PORTFOLIO ANNUAL FEE AS A PERCENTAGE OF
AVERAGE DAILY NET ASSETS
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C>
World Growth Stock Portfolio .75% of first $200 Million
.70% of next $1.1 Billion
.65% over $1.3 Billion
- ---------------------------------------------------------------------------------------------------------
Money Market Portfolio .50% of first $200 Million
.45% of next $1.1 Billion
.40% over $1.3 Billion
- ---------------------------------------------------------------------------------------------------------
Gold Stock Portfolio .75% of first $200 Million
.70% of next $1.1 Billion
.65% over $1.3 Billion
- ---------------------------------------------------------------------------------------------------------
Bond Portfolio .50% of first $200 Million
.45% of next $1.1 Billion
.40% over $1.3 Billion
- ---------------------------------------------------------------------------------------------------------
Domestic Growth Stock Portfolio .75% of first $200 Million
.70% of next $1.1 Billion
.65% over $1.3 Billion
- ---------------------------------------------------------------------------------------------------------
Growth and Income Portfolio .75% of first $200 Million
.70% of next $1.1 Billion
.65% over $1.3 Billion
- ---------------------------------------------------------------------------------------------------------
Capital Growth Portfolio 1.00% of first $200 Million
.95% of next $1.1 Billion
.90% over $1.3 Billion
- ---------------------------------------------------------------------------------------------------------
Balanced Portfolio .75% of first $200 Million
.70% of next $1.1 Billion
.65% over $1.3 Billion
- ---------------------------------------------------------------------------------------------------------
Emerging Growth Portfolio .80% of first $200 Million
.75% of next $1.1 Billion
.70% over $1.3 Billion
- ---------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
INVESTMENT SUBADVISORY AGREEMENT
HIGH YIELD BOND PORTFOLIO
THIS AGREEMENT, made this 31ST day of December 1997, is between CHUBB INVESTMENT
ADVISORY CORPORATION, (to be renamed Jefferson Pilot Investment Advisory
Corporation) a Tennessee corporation with offices at One Granite Place, Concord,
New Hampshire, 03301 (the "Investment Manager" or "Manager") and Massachusetts
Financial Services Company, (the "Subadviser") a Delaware corporation with
offices at 500 Boylston Street, Boston, Massachusetts 02116.
WITNESSETH:
WHEREAS, Jefferson Pilot Variable Fund, Inc. (the "Fund") is engaged in
business as a diversified open-end management investment company and is
registered as such under the Investment Company Act of 1940 (the "Investment
Company Act");
WHEREAS, the Fund issues separate classes or series of stock, each of which
represents a separate Portfolio of investments;
WHEREAS, the Fund's shareholders are and will be separate accounts
maintained by insurance companies for variable life insurance policies under
which income, gains, losses, whether or not realized, from assets allocated to
such accounts are, in accordance with the Policies, credited to or charged
against such accounts without regard to other income, gains, or losses of such
insurance companies;
WHEREAS, the Fund has employed the Investment Manager to act as investment
manager of the Portfolio, as set forth in an Investment Management Agreement
between the Fund and the Investment Manager dated December 31, 1997, (the
"Investment Management Agreement") pursuant to which it was agreed that the
Investment Manager may contract with the Subadviser, or other parties for
certain investment management services;
WHEREAS, the Subadviser is engaged in the business of rendering investment
advisory services and is registered as an investment adviser under the
Investment Advisers Act of 1940 (the "Advisers Act");
WHEREAS, the Investment Manager desires to retain the Subadviser to render
investment management services to the Fund's High Yield Bond Portfolio (the
"Portfolio") in the manner and on the terms hereinafter set forth;
NOW, THEREFORE, in consideration of the premises and the covenants
hereinafter contained the Investment Manager and the Subadviser hereby agree as
follows:
1. APPOINTMENT OF THE SUBADVISER. The Manager hereby appoints the
Subadviser to act as an investment subadviser for the Portfolio and to manage
the investment and reinvestment of the assets of the Portfolio, subject to the
supervision of the Directors of the Fund and the terms and conditions of this
Agreement. The Subadviser will be an independent contractor and will have no
authority to act for or represent the Fund or Manager in any way or otherwise be
deemed an agent of the Fund or Manager except as expressly authorized in this
foregoing, the Subadviser may execute account documentation, agreements,
contracts and other documents as the Subadviser may be requested by brokers,
dealers, counterparties and other persons in connection with the Subadviser's
management of the assets of the Portfolio, provided that the Subadviser receives
the express agreement and consent of the Manager and/or the Fund's Board of
Directors to execute such documentation, agreements, contracts and other
documents. In such respect, and only for this limited purpose, the Subadviser
shall act at the Manager and/or the Fund's agent and attorney-in-fact.
2. DUTIES OF THE SUBADVISER. The Subadviser hereby agrees, subject to
the supervision of the Investment Manager and the Board of Directors of the
Fund, (1) to act as the Subadviser of the Portfolio, (2) to manage the
investment and reinvestment of the assets of the Portfolio for the period and on
the terms and conditions set forth in this Agreement, and (3) during the term
hereof, to render the services and to
1
<PAGE>
assume the obligations herein set forth in return for the compensation provided
for herein and to bear all expenses of its performance of such services and
obligations.
3. SERVICES TO BE RENDERED BY THE SUBADVISER TO THE FUND
A. The Subadviser will manage the investment and reinvestment of the
assets of the Portfolio and determine the composition of the assets of the
Portfolio, subject always to the direction and control of the Directors of the
Fund and the Manager and in accordance with the provisions of the Fund's
registration statement, as amended from time to time. In fulfilling its
obligations to manage the investment and reinvestment of the assets of the
Portfolio, the Subadviser will:
(i) obtain and evaluate pertinent economic, statistical, financial,
and other information affecting the economy generally and individual companies
or industries, the securities of which are included in the Portfolio or are
under consideration for inclusion in the Portfolio;
(ii) formulate and implement a continuous investment program for the
Portfolio (a) consistent with the investment objectives, policies, and
restrictions of the Portfolio as stated in the Fund's Agreement and Articles of
Incorporation, Bylaws, and such Portfolio's currently effective Prospectus and
Statement of Additional Information ("SM") as amended from time to time, and (b)
in compliance with the requirements applicable to both regulated investment
companies and segregated asset accounts under Subchapters M and L of the
Internal Revenue Code of 1986, as amended, and requirements applicable to
registered investment companies under applicable laws;
(iii) take whatever steps are necessary to implement the investment
program for the Portfolio by the purchase and sale of securities and other
investments authorized under the Fund's Agreement and Articles of Incorporation,
Bylaws, and such Portfolio's currently effective Prospectus and SM, including
the placing of orders for such purchases and sales;
(iv) subject to the consent of the Subadviser, regularly report to
the Directors of the Fund and the Manager with respect to the implementation of
the investment program and, in addition and subject to the consent of the
Subadviser, provide such statistical information and special reports concerning
the Portfolio and/or important developments materially affecting the investments
held, or contemplated to be purchased, by the Portfolio, as may reasonably be
requested by the Manager or the Directors of the Fund, including attendance at
Board of Directors Meetings, as reasonably requested, to present such
information and reports to the Board.
B. To facilitate the Subadviser's fulfillment of its obligations under
this Agreement, the Manager will undertake the following:
(i) the Manager agrees promptly to provide the Subadviser with all
amendments or supplements to the Registration Statement, the Fund's Agreement
and Articles of Incorporation, and Bylaws;
(ii) the Manager agrees, on an ongoing basis, to notify the
Subadviser expressly in writing of each change in the fundamental and
nonfundamental investment policies of the Portfolio;
(iii) the Manager agrees to provide or cause to be provided to the
Subadviser with such assistance as may be reasonably requested by the Subadviser
in connection with its activities pertaining to the Portfolio under this
Agreement, including, without limitation, information concerning the Portfolio,
its available funds, or funds that may reasonably become available for
investment, and information as to the general condition of the Portfolio's
affairs;
(iv) the Manager agrees to provide or cause to be provided to the
Subadviser on an ongoing basis, such information as is reasonably requested by
the Subadviser for performance by the Subadviser of its obligations under this
Agreement, and the Subadviser shall not be in breach of any term of this
Agreement or be deemed to have acted negligently if the Manager fails to provide
or cause to be
2
<PAGE>
provided such requested information and the Subadviser relies on the information
most recently furnished to the Subadviser;
(v) the Manager will promptly provide the Subadviser with any
guidelines and procedures applicable to the Subadviser or the Portfolio adopted
from time to time by the Board of Directors of the Fund and agrees to promptly
provide the Subadviser copies of all amendments thereto; and
(vi) the Board of Directors of the Fund or its officers or agent will
provide timely information to the Subadviser regarding such matters as purchases
and redemptions of shares in the Portfolio, the cash requirements, and cash
available for investment in the Portfolio and all other information as may be
reasonably necessary or appropriate in order for the Subadviser to perform its
responsibilities hereunder.
C. The Subadviser, at its expense, will furnish: (i) all necessary
investment and management facilities and investment personnel, including
salaries, expenses and fees of any personnel required for it to faithfully
perform its duties under this Agreement; and (ii) administrative facilities,
including bookkeeping, clerical personnel and equipment required for it to
faithfully perform its duties under this agreement. The Subadviser shall not be
obligated to pay any expenses of or for the Portfolio not expressly assumed by
the Subadviser pursuant to this Section 3.
D. The Subadviser will select brokers and dealers to effect all
Portfolio transactions subject to the conditions set forth herein. The
Subadviser will place all necessary orders with brokers, dealers, or issuers,
and will negotiate brokerage commissions if applicable. The Subadviser is
directed at all times to seek to execute brokerage transactions for the
Portfolio in accordance with such policies or practices as may be established by
the Board of Directors and described in the Fund's currently effective
Prospectus and SM., as amended from time to time. In placing orders for the
purchase or sale of investments for the Portfolio, in the name of the Portfolio
or its nominees, the Subadviser shall use its best efforts to obtain for the
Portfolio the most favorable price and best execution available, considering all
of the circumstances, and shall maintain records adequate to demonstrate
compliance with this requirement.
Subject to the appropriate policies and procedures approved by the Board of
Directors, the Subadviser may, to the extent authorized by Section 28(e) of the
Securities and Exchange Act of 1934, cause the Portfolio to pay a broker or
dealer that provides brokerage or research services to the Manager, the
Subadviser, or the Portfolio an amount of commissions for effecting a Portfolio
transaction in excess of the amount of commission another broker or dealer would
have charged for effecting that transaction if the Subadviser determines, in
good faith, that such amount of commission is reasonable in relationship to the
value of such brokerage or research services provided viewed in terms of that
particular transaction or the Subadviser's overall responsibilities to the
Portfolio or its other advisory clients. To the extent authorized by said
Section 28(e) and the Fund's Board of Directors, the Subadviser shall not be
deemed to have acted unlawfully or to have breached any duty created by this
Agreement or otherwise solely by reason of such action. In addition, subject to
seeking the most favorable price and best execution available, the Subadviser
may also consider sales of shares of the Fund as a factor in the selection of
brokers and dealers.
E. On occasions when the Subadviser deems the purchase or sale of a
security to be in the best interest of the Portfolio as well as other clients of
the Subadviser, the Subadviser to the extent permitted by applicable laws and
regulations, may, but shall be under no obligation to, aggregate the securities
to be purchased or sold to attempt to obtain a more favorable price or lower
brokerage commissions and efficient execution In such event, allocation of the
securities so purchased or sold, as well as the expenses incurred in the
transaction, will be made by the Subadviser in the manner the Subadviser
considers to be the most equitable and consistent with its fiduciary obligations
to the Portfolio and to its other clients.
F. The Subadviser will maintain all accounts, books and records with
respect to the Portfolio as are required of an investment adviser of a
registered investment company pursuant to the Investment Company Act and
Advisers Act and the ales thereunder.
4. COMPENSATION OF THE SUBADVISER. The Investment Manager will pay the
Subadviser, with respect to the Portfolio, the compensation specified in
Appendix A to this Agreement. Payments shall
3
<PAGE>
be made to the Subadviser on the first day of each month; however, this advisory
fee will be calculated on the daily average value of the Portfolio's assets and
accrued on a daily basis.
5. NON-EXCLUSIVITY. The Investment Manager agrees that the services of
the Subadviser are not to be deemed exclusive and the Subadviser is free to act
as investment manager to various investment companies and as fiduciary for other
managed accounts.
6. BOOKS AND RECORDS. The Subadviser agrees that all books and records
which it maintains for the Fund are the Fund's property, and, in the event of
termination of this Agreement for any reason, the Subadviser agrees promptly to
return to the Fund, free from any claim or retention of rights by the
Subadviser, all records relating to the Portfolio. The Subadviser also agrees
upon request of the Investment Manager or the Fund, promptly to surrender the
books and records to either party or make the book and records available for
inspection by representatives of regulatory authorities. In connection with its
duties hereunder, the Subadviser further agrees to maintain, prepare and
preserve books and records in accordance with the Investment Company Act and
rules thereunder, including but not limited to, Rule 31a-1 and 31a-2.
The Subadviser will use records or information obtained under this Agreement
only for the purposes contemplated hereby, and will not disclose such records or
information in any manner other than expressly authorized by the Fund, or if
disclosure is expressly required by applicable federal or state regulatory
authorities or by this Agreement. The Subadviser will furnish any informational
reports requested by any state insurance commissioner.
7. LIABILITY. The Subadviser will not be liable for any loss suffered by
the Fund in connection with any investment policy established by the Fund for
the purchase, sale or redemption of any securities at the direction of the Board
of Directors of the Fund or the Investment Manager. Nothing herein contained
shall be construed to protect the Subadviser against any liability resulting
from the willful misfeasance, bad faith or gross negligence of the Subadviser in
the performance of its duties or from reckless disregard of its obligations and
duties under this Subadviser Agreement.
8. DOCUMENTS. Neither the Fund or the Investment Manager, nor their
respective designees or agents, shall use any material describing or identifying
the Subadviser or its affiliates without the prior consent of the Subadviser.
Any material utilized by the Fund, the Investment Manager or their respective
designees or agents which contain information as to the Subadviser and/or its
affiliates shall be submitted to the Subadviser for approval prior to use, not
less than five (5) business days before such approval is requested.
9. DURATION AND TERMINATION OF THE AGREEMENT. This Subadvisory Agreement
shall become effective as of the date first written above and remain in force
until December 31, 1999. Thereafter, it shall continue in effect from year to
year, but only so long as such continuance is specifically approved at least
annually by (a) the Board of Directors of the Fund, or by the vote of a majority
of the outstanding voting securities of the Portfolio, and (b) a majority of
those directors who are not parties to this Subadvisory Agreement, not
interested persons of any party to this Subadvisory Agreement, cast in person at
a meeting called for the purpose of voting on such approval. This Agreement may
be terminated, without the payment of any penalty, by the Board of Directors of
the Fund, by a vote of a majority of the outstanding shares of the Portfolio, or
by the Investment Manager on sixty days' written notice to the Subadviser, or by
the Subadviser on sixty days' written notice to the Fund or the Investment
Manager. Termination by the Board of Directors or by the Investment Manager
shall be subject to shareholder approval to the extent legally required. This
Agreement shall automatically terminate in the event of its assignment or in the
event of termination of the Investment Management Agreement.
10. AMENDMENTS OF THE AGREEMENT. Except to the extent permitted by the
Investment Company Act or the rules or regulations thereunder or pursuant to any
exemptive relief granted by the Securities and Exchange Commission ("SEC"), this
Agreement may be amended by the parties only if such amendment, if material, is
specifically approved by the vote of a majority of the outstanding voting
securities of the Portfolio (unless such approval is not required by Section 15
of the Investment Company
4
<PAGE>
Act as interpreted by the SEC or its staff) and by the vote of a majority of the
Independent Directors cast in person at a meeting called for the purpose of
voting on such approval. The required shareholder approval shall be effective
with respect to the Portfolio if a majority of the outstanding voting securities
of the Portfolio vote to approve the amendment, notwithstanding that amendment
may not have been approved by a majority of the outstanding voting securities of
any other Portfolio affected by the amendment or all the Portfolios of the Fund.
11. DEFINITIONS. The terms "assignment", "interested person", and
"majority of the outstanding voting securities", when used in this Agreement,
shall have the respective meaning specified under the Investment Company Act and
the rules thereunder.
12. NOTICES. Any notice that is required to be given by the parties to
each other under the terms of this Agreement shall be given in writing,
delivered, or mailed postpaid to the other party, or transmitted by facsimile
with acknowledgment of receipt, to the parties at the following addresses or
facsimile numbers, which may from time to time be changed by the parties by
notice to the other party:
(a) If to the Subadviser:
Massachusetts Financial Services Company,
500 Boylston Street,
Boston, Massachusetts 02116.
(b) If to the Investment Manager:
Chubb Investment Advisory Corporation
One Granite Place
Concord, NH 03301
Attn: Ronald Angarella
Facsimile (603) 224-1691
13. GOVERNING LAW. The provisions of this Agreement shall be construed
and interpreted in accordance with the laws of the Commonwealth of Massachusetts
as at the time in effect and the applicable provisions of the Investment Company
Act or other federal laws and regulations which may be applicable. To the extent
that the applicable law of the Commonwealth of Massachusetts or any of the
provisions herein, conflict with the applicable provisions of the Investment
Company Act or other federal laws and regulations which may be applicable, the
latter shall control.
14. USE OF SUBADVISER'S NAME. Neither the Fund nor the Manager or any
affiliate or agent thereof shall make reference to or use the name, and any
derivative thereof or logo associated with that name, of the Subadviser or any
of its affiliates in any advertising or promotional materials, without the prior
approval of the Subadviser. Upon termination of this Agreement, the Manager and
the Fund shall forthwith cease to use such name (or derivative or logo) as soon
as reasonably practicable.
15. ENTIRE AGREEMENT. This Agreement contains the entire understanding
and agreement of the parties with respect to the Portfolio.
16. HEADINGS. The headings in the sections of this Agreement are inserted
for convenience of reference only and shall not constitute a part hereof
5
<PAGE>
17. SEVERABILITY. Should any portion of this Agreement for any reason be
held to be void in law or in equity, the Agreement shall be construed, insofar
as is possible, as if such portion had never been contained herein.
CHUBB INVESTMENT
ADVISORY CORPORATION
ATTEST: /s/ Thomas H. Elwood BY: /s/ Ronald A. Angarella
--------------------------- ----------------------------
TITLE: Assistant Secretary TITLE: President
MASSACHUSETTS FINANCIAL
SERVICES COMPANY
ATTEST: /s/ BY: /s/ A. Keith B
--------------------------- -----------------------------
TITLE: President TITLE: Chairman
6
<PAGE>
SCHEDULE A
INVESTMENT SUBADVISORY FEES
<TABLE>
<CAPTION>
NAME OF PORTFOLIO ANNUAL FEE AS A PERCENTAGE OF
AVERAGE DAILY NET ASSETS
- --------------------------------------------------------------------------------------------------------
<S> <C> <C>
Money Market Portfolio .30% of first $200 Million
Massachusetts Financial Services .25% over $200 Million
- --------------------------------------------------------------------------------------------------------
Emerging Growth Portfolio .40%
Massachusetts Financial Services
- --------------------------------------------------------------------------------------------------------
High Yield Bond .40%
Massachusetts Financial Services
- --------------------------------------------------------------------------------------------------------
Growth Portfolio .60% of first $ 25 Million
Strong .50% of the next $ 75 Million
.40% of the next $ 50 Million
.30% over $150 Million
- --------------------------------------------------------------------------------------------------------
Growth and Income Portfolio .50%
Warburg Pincus
- --------------------------------------------------------------------------------------------------------
World Growth Stock Portfolio .50% of first $200 Million
Templeton Global Advisors Limited .45% of next $1.1 Billion
.40% over $1.3 Billion
- --------------------------------------------------------------------------------------------------------
International Equity Portfolio .50%
Lombard Odier
- --------------------------------------------------------------------------------------------------------
Balanced Portfolio .45% of first $100 Million
J.P. Morgan Investment Management .40% of next $100 Million
.35% over $200 Million
.30% over $400 Million
- --------------------------------------------------------------------------------------------------------
Bond Portfolio .35% of first $200 Million
Chubb Asset Managers, Inc. .30% of next $1.1 Billion
.25% over $1.3 Billion
- --------------------------------------------------------------------------------------------------------
Gold Stock Portfolio .50% of first $200 Million
Van Eck Associates Corporation .45% of next $1.1 Billion
.40% over $1.3 Billion
- --------------------------------------------------------------------------------------------------------
Domestic Growth Portfolio .50% of first $200 Million
Pioneering Management Corporation .45% of next $1.1 Billion
.40% over $1.3 Billion
- --------------------------------------------------------------------------------------------------------
Capital Growth Portfolio .75% of first $200 Million
Janus Capital Corporation .70% of next $1.1 Billion
.65% over $1.3 Billion
- --------------------------------------------------------------------------------------------------------
</TABLE>
EFFECTIVE: January 1, 1998
7
<PAGE>
INVESTMENT SUBADVISORY AGREEMENT
INTERNATIONAL EQUITY PORTFOLIO
THIS AGREEMENT, made this 31ST day of December 1997 is between CHUBB
INVESTMENT ADVISORY CORPORATION, (to be renamed Jefferson Pilot Investment
Advisory Corporation) a Tennessee corporation with offices at One Granite Place,
Concord, New Hampshire, 03301 (the "Investment Manager" or "Manager) and Lombard
Odier International Portfolio Management, Ltd., (the "Subadviser") an English
corporation with offices at Norfolk House, 13 Southampton Place, London WCIA2AJ
UK.
WITNESSETH:
WHEREAS, Jefferson Pilot Variable Fund, Inc. (the "Fund") is engaged in
business as an open-end management investment company and is registered as such
under the Investment Company Act of 1940 (the "Investment Company Act");
WHEREAS, the Fund issues separate classes or series of stock, each of which
represents a separate portfolio of investments;
WHEREAS, the Fund's shareholders are and will be separate accounts
maintained by insurance companies for variable life insurance policies under
which income, gains, losses, whether or not realized, from assets allocated to
such accounts are, in accordance with the Policies, credited to or charged
against such accounts without regard to other income, gains, or losses of such
insurance companies;
WHEREAS, the Fund has employed the Investment Manager to act as investment
manager of the Portfolio, as set forth in an Investment Management Agreement
between the Fund and the Investment Manager dated December 31, 1997, (the
"Investment Management Agreement") pursuant to which it was agreed that the
Investment Manager may contract with the Subadviser, or other parties for
certain investment management services;
WHEREAS, the Subadviser is engaged in the business of rendering investment
advisory services and is registered as an investment adviser under the
Investment Advisers Act of 1940 (the "Advisers Act");
WHEREAS, the Subadviser is regulated by the Investment Management Regulatory
Organisation Limited ("IMRO"), a self regulating organisation recognized under
the UK Financial Services Act of 1986("the 1986 Act"), the said services of the
Subadviser constitute Investment Business (within the meaning of the 1986 Act)
and the Subadviser is regulated by IMRO in the conduct of Investment Business.
WHEREAS, the Investment Manager desires to retain the Subadviser to render
investment management services to the Fund's International Equity Portfolio (the
"Portfolio") in the manner and on the terms hereinafter set forth;
NOW, THEREFORE, in consideration of the premises and the covenants
hereinafter contained the Investment Manager and the Subadviser hereby agree as
follows:
1. APPOINTMENT OF THE SUBADVISER. The Manager hereby appoints the
Subadviser to act as an investment Subadviser for the Portfolio and to manage
the investment and reinvestment of the assets of the Portfolio, subject to the
supervision of the Directors of the Fund and the terms and conditions of this
Agreement. The Subadviser will be an independent contractor and will have no
authority to act for or represent the Fund or Manager in any way or otherwise be
deemed an agent of the Fund or Manager except as expressly authorized in this
Agreement or another writing by the Fund, Manager and the Subadviser.
Notwithstanding the foregoing, the Subadviser may execute account documentation,
agreements, contracts and other documents as the Subadviser may be requested by
brokers, dealers, counterparts and other persons in connection with the
Subadviser's management of the assets of the Portfolio, provided that the
Subadviser receives the express agreement and consent of the Manager and/or the
Fund's Board of Directors to execute such documentation, agreements,
1
<PAGE>
contracts and other documents. In such respect, and only for this
limited purpose, the Subadviser shall act as the Manager's and/or the Fund's
agent and attorney-in-fact.
2. DUTIES OF THE SUBADVISER. The Subadviser hereby agrees, subject to
the supervision of the Investment Manager and the Board of Directors of the
Fund, (I) to act as the Subadviser of the Portfolio, (2) to manage the
investment and reinvestment of the assets of the Portfolio for the period and on
the terms and conditions set forth in this Agreement, and (3) during the term
hereof, to render the services and to assume the obligations herein set forth in
return for the compensation provided for herein and to bear all expenses of its
performance of such services and obligations.
3. SERVICES TO BE RENDERED BY THE SUBADVISER TO THE FUND
A. The Subadviser will manage the investment and reinvestment of the
assets of the Portfolio and determine the composition of the assets of the
Portfolio, subject always to the direction and control of the Directors of the
Fund and the Manager and in accordance with the provisions of the Fund's
registration statement, as amended from time to time. In fulfilling its
obligations to manage the investment and reinvestment of the assets of the
Portfolio, the Subadviser will:
(i) obtain and evaluate pertinent economic, statistical, financial,
and other information affecting the economy generally and individual companies
or industries, the securities of which are included in the Portfolio or are
under consideration for inclusion in the Portfolio;
(ii) formulate and implement a continuous investment program for the
Portfolio (a) consistent with the investment objectives, policies, and
restrictions of the Portfolio as stated in the Fund's Agreement and Articles of
Incorporation, Bylaws, and such Portfolio's currently effective Prospectus and
Statement of Additional Information ("SAI") as amended from time to time, and
(b) in compliance with the requirements applicable to both regulated investment
companies and segregated asset accounts under Subchapters M and L of the
Internal Revenue Code of 1986, as amended, and requirements applicable to
registered investment companies under applicable laws;
(iii) take whatever steps are necessary to implement the investment
program for the Portfolio by the purchase and sale of securities and other
investments authorized under the Fund's Agreement and Articles of Incorporation,
Bylaws, and such Portfolio's currently effective Prospectus and SAI, including
the placing of orders for such purchases and sales;
(iv) regularly report to the Directors of the Fund and the Manager
with respect to the implementation of the investment program and, in addition,
provide such statistical information and special reports concerning the
Portfolio and/or important developments materially affecting the investments
held, or contemplated to be purchased, by the Portfolio, as may reasonably be
requested by the Manager or the Directors of the Fund, including attendance at
Board of Directors Meetings, as reasonably requested, to present such
information and reports to the Board;
(v) provide determinations of the fair value of certain portfolio
securities when market quotations are not readily available for the purpose of
calculating the Portfolio's net asset value in accordance with procedures and
methods established by the Directors of the Fund;
(vi) provide any and all information, records and supporting
documentation about accounts the Subadviser manages that have investment
objectives, policies, and strategies substantially similar to those employed by
the Subadviser in managing the Portfolio which may be reasonably necessary,
under applicable laws, to allow the Portfolio or its agent to present
information concerning the Subadviser's prior performance in the Prospectus and
the SAI of the Portfolio and any permissible reports and materials prepared by
the Portfolio or its agent; and
(vii) establish appropriate interfaces with the Fund's Manager in
order to provide such Manager with all necessary information requested by the
Manager.
2
<PAGE>
B. To facilitate the Subadviser's fulfillment of its obligations under
this Agreement, the Manager will undertake the following:
(i) the Manager agrees promptly to provide the Subadviser with all
amendments or supplements to the Registration Statement, the Fund's Agreement
and Articles of Incorporation, and Bylaws;
(ii) the Manager agrees, on an ongoing basis, to notify the
Subadviser expressly in writing of each change in the fundamental and
nonfundamental investment policies of the Portfolio;
(iii) the Manager agrees to provide or cause to be provided to the
Subadviser with such assistance as may be reasonably requested by the Subadviser
in connection with its activities pertaining to the Portfolio under this
Agreement, including, without limitation, information concerning the Portfolio,
its available funds, or funds that may reasonably become available for
investment, and information as to the general condition of the Portfolio's
affairs;
(iv) the Manager agrees to provide or cause to be provided to the
Subadviser on an ongoing basis, such information as is reasonably requested by
the Subadviser for performance by the Subadviser of its obligations under this
Agreement, and the Subadviser shall not be in breach of any term of this
Agreement or be deemed to have acted negligently if the Manager fails to provide
or cause to be provided such requested information and the Subadviser relies on
the information most recently furnished to the Subadviser; and
(v) the Manager will promptly provide the Subadviser with any
guidelines and procedures applicable to the Subadviser or the Portfolio adopted
from time to time by the Board of Directors of the Fund and agrees to promptly
provide the Subadviser copies of all amendments thereto.
C. The Subadviser, at its expense, will furnish (i) all necessary
investment and management facilities and investment personnel, including
salaries, expenses and fees of any personnel required for it to faithfully
perform its duties under this Agreement; and (ii) administrative facilities,
including bookkeeping, clerical personnel and equipment necessary for the
efficient conduct of the investment affairs of the Portfolio (excluding that
necessary for the determination of net asset value and shareholder accounting
services). The Subadviser shall not be obligated to pay any expenses of or for
the Portfolio not expressly assumed by the Subadviser pursuant to this Section
3.
D. The Subadviser will select brokers and dealers to effect all
portfolio transactions subject to the conditions set forth herein. The
Subadviser will place all necessary orders with brokers, dealers, or issuers,
and will negotiate brokerage commissions if applicable. The Subadviser is
directed at all times to seek to execute brokerage transactions for the
Portfolio in accordance with such policies or practices as may be established by
the Board of Directors and described in the Fund's currently effective
Prospectus and SAT, as amended from time to time. In placing orders for the
purchase or sale of investments for the Portfolio, in the name of the Portfolio
or its nominees, the Subadviser shall use its best efforts to obtain for the
Portfolio the most favorable price and best execution available, considering all
of the circumstances, and shall maintain records adequate to demonstrate
compliance with this requirement.
Subject to the appropriate policies and procedures approved by the Board of
Directors, the Subadviser may, to the extent authorized by Section 28(e) of the
Securities and Exchange Act of 1934, cause the Portfolio to pay a broker or
dealer that provides brokerage or research services to the Manager, the
Subadviser, or the Portfolio an amount of commissions for effecting a portfolio
transaction in excess of the amount of commission another broker or dealer would
have charged for effecting that transaction if the Subadviser determines, in
good faith, that such amount of commission is reasonable in relationship to the
value of such brokerage or research services provided viewed in terms of that
particular transaction or the Subadviser's overall responsibilities to the
Portfolio or its other advisory clients. To the extent authorized by said
Section 28(e) and the Fund's Board of Directors, the Subadviser shall not be
deemed to have acted unlawfully or to have breached any duty created by this
Agreement or otherwise solely by reason of such action. In addition, subject to
seeking the most favorable price and best execution available, the Subadviser
may also consider sales of shares of the Fund as a factor in the selection of
brokers and dealers.
3
<PAGE>
E. On occasions when the Subadviser deems the purchase or sale of a
security to be in the best interest of the Portfolio as well as other clients of
the Subadviser, the Subadviser to the extent permitted by applicable laws and
regulations, may, but shall be under no obligation to, aggregate the securities
to be purchased or sold to attempt to obtain a more favorable price or lower
brokerage commissions and efficient execution. In such event, allocation of the
securities so purchased or sold, as well as the expenses incurred in the
transaction, will be made by the Subadviser in the manner the Subadviser
considers to be the most equitable and consistent with its fiduciary obligations
to the Portfolio and to its other clients.
F. The Subadviser will maintain all accounts, books and records with
respect to the Portfolio as are required of an investment adviser of a
registered investment company pursuant to the Investment Company Act and
Advisers Act and the rules thereunder.
4. COMPENSATION OF THE SUBADVISER. The Investment Manager will pay the
Subadviser, with respect to the Portfolio, the compensation specified in
Appendix A to this Agreement. Payments shall be made to the Subadviser on the
first day of each month; however, this advisory fee will be calculated on the
daily average value of the Portfolio's assets and accrued on a daily basis.
5. NON-EXCLUSIVITY. The Investment Manager agrees that the services of
the Subadviser are not to be deemed exclusive and the Subadviser is free to act
as investment manager to various investment companies and as fiduciary for other
managed accounts. The Subadviser shall, for all purposes herein, be deemed to be
an independent contractor and shall, unless otherwise provided or authorized,
have no authority to act for or represent the Fund or the Investment Manager in
any way or otherwise be deemed an agent of the Fund or Investment Manager other
than in furtherance of its duties and responsibilities as set forth in this
Subadvisory Agreement.
6. BOOKS AND RECORDS. The Subadviser agrees that all books and records
which it maintains for the Fund are the Fund's property, and, in the event of
termination of this Agreement for any reason, the Subadviser agrees promptly to
return to the Fund, free from any claim or retention of rights by the
Subadviser, all records relating to the Portfolio. The Subadviser also agrees
upon request of the Investment Manager or the Fund, promptly to surrender the
books and records to either party or make the book and records available for
inspection by representatives of regulatory authorities. In connection with its
duties hereunder, the Subadviser further agrees to maintain, prepare and
preserve books and records in accordance with the Investment Company Act and
rules thereunder, including but not limited to, Rule 3 la-I and 3 la-2.
Subadviser retains the right as required by IMRO to retain any and all copies of
all such books and records it may wish for a period of six years
The Subadviser will use records or information obtained under this Agreement
only for the purposes contemplated hereby, and will not disclose such records or
information in any manner other than expressly authorized by the Fund, or if
disclosure is expressly required by applicable federal or state regulatory
authorities or by this Agreement. The Subadviser will furnish any informational
reports requested by any state insurance commissioner.
7. LIABILITY. The Subadviser will not be liable for any loss suffered by
the Fund in connection with any investment policy established by the Fund for
the purchase, sale or redemption of any securities at the direction of the Board
of Directors of the Fund or the Investment Manager. Nothing herein contained
shall be construed to protect the Subadviser against any liability resulting
from the willful misfeasance, bad faith or gross negligence of the Subadviser in
the performance of its duties or from reckless disregard of its obligations and
duties under this Subadviser Agreement.
8. RELIANCE ON DOCUMENTS. The Board of Directors of the Fund or its
officers or agent will provide timely information to the Subadviser regarding
such matters as purchases and redemptions of shares in the Portfolio, the cash
requirements, and cash available for investment in the Portfolio, and all other
information as may be reasonably necessary or appropriate in order for the
Subadviser to perform its responsibilities hereunder.
Neither the Fund or the Investment Manager, nor their respective designees
or agents, shall use any material describing or identifying the Subadviser or
its affiliates without the prior consent of the Subadviser.
4
<PAGE>
Any material utilized by the Fund, the Investment Manager or their respective
designees or agents which contain information as to the Subadviser and/or its
affiliates shall be submitted to the Subadviser for approval prior to use, not
less than five (5) business days before such approval is requested.
The Investment Manager has herewith furnished the Subadviser copies of the
Fund's Prospectus, Articles of Incorporation and By-Laws as currently in effect
and agrees during the continuance of the Agreement to furnish the Subadviser
copies of any amendments or supplements thereto before or at the time the
amendments or supplements become effective. The Subadviser will be entitled to
rely on all such documents furnished to it by the Investment Manager or the
Fund.
9. DURATION AND TERMINATION OF THE AGREEMENT. This Subadvisory Agreement
shall become effective as of the date first written above and remain in force
until December 31, 1999. Thereafter, it shall continue in effect from year to
year, but only so long as such continuance is specifically approved at least
annually by (a) the Board of Directors of the Fund, or by the vote of a majority
of the outstanding voting securities of the Portfolio, and (b) a majority of
those directors who are not parties to this Subadvisory Agreement, not
interested persons of any party to this Subadvisory Agreement, cast in person at
a meeting called for the purpose of voting on such approval. This Agreement may
be terminated, without the payment of any penalty, by the Board of Directors of
the Fund, by a vote of a majority of the outstanding shares of the Portfolio, or
by the Investment Manager on sixty days' written notice to the Subadviser, or by
the Subadviser on sixty days' written notice to the Fund or the Investment
Manager. Termination by the Board of Directors or by the Investment Manager
shall be subject to shareholder approval to the extent legally required. This
Agreement shall automatically terminate in the event of its assignment or in the
event of termination of the Investment Management Agreement.
10. AMENDMENTS OF THE AGREEMENT. Except to the extent permitted by the
Investment Company Act or the rules or regulations thereunder or pursuant to any
exemptive relief granted by the Securities and Exchange Commission ("SEC"), this
Agreement may be amended by the parties only if such amendment, if material, is
specifically approved by the vote of a majority of the outstanding voting
securities of the Portfolio (unless such approval is not required by Section 15
of the Investment Company Act as interpreted by the SEC or its staff) and by the
vote of a majority of the Independent Directors cast in person at a meeting
called for the purpose of voting on such approval. The required shareholder
approval shall be effective with respect to the Portfolio if a majority of the
outstanding voting securities of the Portfolio vote to approve the amendment,
notwithstanding that amendment may not have been approved by a majority of the
outstanding voting securities of any other portfolio affected by the amendment
or all the portfolios of the Fund.
11. DEFINITIONS. The terms "assignment", "interested person", and
"majority of the outstanding voting securities", when used in this Agreement,
shall have the respective meaning specified under the Investment Company Act and
the rules thereunder.
12. NOTICES. Any notice that is required to be given by the parties to
each other under the terms of this Agreement shall be given in writing,
delivered, or mailed postpaid to the other party, or transmitted by facsimile
with acknowledgment of receipt, to the parties at the following addresses or
facsimile numbers, which may from time to time be changed by the parties by
notice in writing to the other party:
(a) If to the Subadviser:
Lombard Odier International
Portfolio Management Limited
Norfolk House
13 Southampton Place
London WC1A2AJ
Attn: Robert van Maasdijk
Managing Director
(b) If to the Investment Manager:
Chubb Investment Advisory Corporation
One Granite Place
Concord, NH 03301
5
<PAGE>
Attn: Ronald Angarella
Facsimile (603) 224-1691
13. GOVERNING LAW. The provisions of this Agreement shall be construed
and interpreted in accordance with the laws of the State of New Hampshire as at
the time in effect and the applicable provisions of the Investment Company Act
or other federal laws and regulations which may be applicable. To the extent
that the applicable law of the State of New Hampshire or any of the provisions
herein, conflict with the applicable provisions of the Investment Company Act or
other federal laws and regulations which may be applicable, the latter shall
control.
14. USE OF SUBADVISER'S NAME. Neither the Fund nor the Manager or any
affiliate or agent thereof shall make reference to or use the name, and any
derivative thereof or logo associated with that name, of the Subadviser or any
of its affiliates in any advertising or promotional materials without the prior
approval of the Subadviser, which approval shall not be unreasonably withheld or
delayed. Upon termination of this Agreement, the Manager and the Fund shall
forthwith cease to use such name (or derivative or logo) as soon as reasonably
practicable.
15. ENTIRE AGREEMENT. This Agreement contains the entire understanding
and agreement of the parties with respect to the Portfolio.
16. HEADINGS. The headings in the sections of this Agreement are inserted
for convenience of reference only and shall not constitute a part hereof
17. SEVERABILITY. Should any portion of this Agreement for any reason be
held to be void in law or in equity, the Agreement shall be construed, insofar
as is possible, as if such portion had never been contained herein.
18. CUSTODIAN The Fund throughout the period during which this Agreement
is in force shall maintain its assets pursuant to a custodian agreement
(currently with Citibank NA. as custodian for the Fund ("Custodian")), with a
custodian selected and appointed by the Fund.
No money appertaining to the Fund shall be received by or retained by the
Subadviser in the course of or ancillary to its duties under this Agreement.
No documents of title in respect of any investment appertaining to the Fund
shall be held by, forwarded to or held to the order of the Subadviser.
Unless otherwise instructed in writing by the Investment Manager of the Fund,
and subject to the provisions of this Agreement and to any guidelines or
limitations specified in writing from time to time by the Investment Manager or
by the Fund, the Subadviser shall determine the securities to be purchased and
sold by the Fund and shall place orders for the purchase, sale, or exchange of
securities for accounts with brokers or dealers and to that end the Subadviser
is authorized to give instructions to the Custodian and any SubCustodian of the
Fund as to the delivery of such securities, transfers of currencies and payments
of cash for the account of the Fund.
19. FOREX Only to the extent permitted by and described in the Fund's
then current prospectus the Subadviser is specifically authorized and empowered
by the Investment Manager to engage in foreign exchange transactions relevant to
the assets of the Fund with the Custodian or with any other person, firm, or
corporation as may be selected form a list mutually agreed between the
Subadviser and the Investment Manager (as may be selected from time to time for
the purpose by the Subadviser, with the consent of the Investment Manager); and
it is hereby stipulated that any and all obligations pertaining to foreign
exchange transactions arranged by the Subadviser as agent for the Fund shall be
treated and rank as obligations of such Fund and accordingly will have to be met
and discharged in full from said Fund.
20. RELEVANT TRANSACTIONS. The Subadviser may undertake transactions in
options, futures or contracts for difference ("Relevant Transactions") in
accordance with the Prospectus. The markets on which Relevant Transactions are
executed can be highly volatile and such investments carry a high risk of loss.
6
<PAGE>
In respect of Relevant Transactions, the Fund shall not be required to pay
margin in cash beyond the amount of cash held at the relevant time in the Fund
and if such cash is not available the Subadviser may make contractual or other
arrangements to settle or close out all or any open positions without reference
to the Fund.
21. CLIENT AND AGREEMENT STATUS. As a member of 1MRO and in light of TMRO
Rules, the Subadviser places on record that it regards this Agreement as a
"Customer Agreement" with the Fund within the meaning of the TMRO Rules because
(a) the Fund is an open-ended investment company and a non-private investor, (b)
the Investment Manager is a professional investor and (c) the subject matter of
this Agreement is a scheme management activity.
22. RECORDING OF TELEPHONE CALLS. The Subadviser, the Investment Manager
and the Fund may record telephone conversations with each other. Any recordings
made by any party hereto shall be the property of that party. Any party, upon
request of another party shall provide a copy of any such recording.
23. WRITTEN PROCEDURES The Subadviser has in operation a written
procedure in accordance with the rules of IMRO for the effective consideration
and proper handling of complaints from clients. Any complaints by the Investment
Manager and/or the Fund hereunder should be sent in writing to the Compliance
officer of the Subadviser. The Investment Manager and/or the Fund are also
entitled to make any complaint about the Subadviser to IMRO.
CHUBB INVESTMENT ADVISORY
CORPORATION
Attest: /s/ Thomas H. Elwood By: /s/ Ronald A. Angarella
--------------------------- ------------------------------
Title: Assistant Secretary Title: President
LOMBARD ODIER INTERNATIONAL
PORTFOLIO MANAGEMENT LIMITED
Attest: /s/ By: /s/
--------------------------- ------------------------------
Title: Assistant Company Secretary Title: Managing Director
Attest: /s/ /s/
------------------------------
Title: Director
7
<PAGE>
SCHEDULE A
INVESTMENT SUBADVISORY FEES
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------
NAME OF PORTFOLIO ANNUAL FEE AS A PERCENTAGE OF
AVERAGE DAILY NET ASSETS
- --------------------------------------------------------------------------------------------------------
<S> <C> <C>
Money Market Portfolio .30% of first $200 Million
Massachusetts Financial Services .25% over $200 Million
- --------------------------------------------------------------------------------------------------------
Emerging Growth Portfolio .40%
Massachusetts Financial Services
- --------------------------------------------------------------------------------------------------------
High Yield Bond .40%
Massachusetts Financial Services
- --------------------------------------------------------------------------------------------------------
Growth Portfolio .60% of first $ 25 Million
Strong .50% of the next $ 75 Million
.40% of the next $ 50 Million
.30% over $150 Million
- --------------------------------------------------------------------------------------------------------
Growth and Income Portfolio .50%
Warburg Pincus
- --------------------------------------------------------------------------------------------------------
World Growth Stock Portfolio .50% of first $200 Million
Templeton Global Advisors Limited .45% of next $1.1 Billion
.40% over $1.3 Billion
- --------------------------------------------------------------------------------------------------------
International Equity Portfolio .50%
Lombard Odier
- --------------------------------------------------------------------------------------------------------
Balanced Portfolio .45% of first $100 Million
J.P. Morgan Investment Management .40% of next $100 Million
.35% over $200 Million
.30% over $400 Million
- --------------------------------------------------------------------------------------------------------
Bond Portfolio .35% of first $200 Million
Chubb Asset Managers, Inc. .30% of next $1.1 Billion
.25% over $1.3 Billion
- --------------------------------------------------------------------------------------------------------
Gold Stock Portfolio .50% of first $200 Million
Van Eck Associates Corporation .45% of next $1.1 Billion
.40% over $1.3 Billion
- --------------------------------------------------------------------------------------------------------
Domestic Growth Portfolio .50% of first $200 Million
Pioneering Management Corporation .45% of next $1.1 Billion
.40% over $1.3 Billion
- --------------------------------------------------------------------------------------------------------
Capital Growth Portfolio .75% of first $200 Million
Janus Capital Corporation .70% of next $1.1 Billion
.65% over $1.3 Billion
- --------------------------------------------------------------------------------------------------------
</TABLE>
EFFECTIVE: January 1, 1998
8
<PAGE>
INVESTMENT SUBADVISORY AGREEMENT
GROWTH PORTFOLIO
THIS AGREEMENT, made this 31ST day of December 1997 is between CHUBB INVESTMENT
ADVISORY CORPORATION, (to be renamed Jefferson Pilot Investment Advisory
Corporation) a Tennessee corporation with offices at One Granite Place, Concord,
New Hampshire, 03301 (the "Investment Manager" or `Manager') and Strong Capital
Management, Inc., (the "Subadviser") a Wisconsin corporation with offices at 100
Heritage Reserve, Menomonee Falls, Wisconsin 53051.
WITNESSETH:
WHEREAS, Jefferson Pilot Variable Fund, Inc. (the "Fund") is engaged in
business as an open-end management investment company and is registered as such
under the Investment Company Act of 1940 (the "Investment Company Act");
WHEREAS, the Fund issues separate classes or series of stock, each of which
represents a separate portfolio of investments;
WHEREAS, the Fund's shareholders are and will be separate accounts
maintained by insurance companies for variable life insurance policies under
which income, gains, losses, whether or not realized, from assets allocated to
such accounts are, in accordance with the Policies, credited to or charged
against such accounts without regard to other income, gains, or losses of such
insurance companies;
WHEREAS, the Fund has employed the Investment Manager to act as investment
manager of the Portfolio, as set forth in an Investment Management Agreement
between the Fund and the Investment Manager dated December 31, 1997 (the
"Investment Management Agreement") pursuant to which it was agreed that the
Investment Manager may contract with the Subadviser, or other parties for
certain investment management services;
WHEREAS, the Subadviser is engaged in the business of rendering investment
advisory services and is registered as an investment adviser under the
Investment Advisers Act of 1940 (the "Advisers Act");
WHEREAS, the Investment Manager desires to retain the Subadviser to render
investment management services to the Fund's Growth Portfolio (the "Portfolio")
in the manner and on the terms hereinafter set forth;
NOW, THEREFORE, in consideration of the premises and the covenants
hereinafter contained the Investment Manager and the Subadviser hereby agree as
follows:
1. APPOINTMENT OF THE SUBADVISER. The Manager hereby appoints the
Subadviser to act as an investment subadviser for the Portfolio and to manage
the investment and reinvestment of the assets of the Portfolio, subject to the
supervision of the Directors of the Fund and the terms and conditions of this
Agreement. The Subadviser will be an independent contractor and will have no
authority to act for or represent the Fund or Manager in any way or otherwise be
deemed an agent of the Fund or Manager except as expressly authorized in this
Agreement or another writing by the Fund, Manager and the Subadviser.
Notwithstanding the foregoing, the Subadviser may execute account documentation,
agreements, contracts and other documents as the Subadviser may be requested by
brokers, dealers, counterparts and other persons in connection with the
Subadviser's management of the assets of the Portfolio. In such respect, and
only for this limited purpose, the Subadviser shall act as the Manager and/or
the Fund's agent and attorney-in-fact.
2. DUTIES OF THE SUBADVISER. The Subadviser hereby agrees, subject to
the supervision of the Investment Manager and the Board of Directors of the
Fund, (1) to act as the Subadviser of the Portfolio, (2) to manage the
investment and reinvestment of the assets of the Portfolio for the period and on
the terms and conditions set forth in this Agreement, and (3) during the term
hereof, to render the services and to
1
<PAGE>
assume the obligations herein set forth in return for the compensation provided
for herein and to bear all expenses of its performance of such services and
obligations.
3. SERVICES TO BE RENDERED BY THE SUBADVISER TO THE FUND
A. The Subadviser will manage the investment and reinvestment of the
assets of the Portfolio and determine the composition of the assets of the
Portfolio, subject always to the direction and control of the Directors of the
Fund and the Manager and in accordance with the provisions of the Fund's
registration statement, as amended from time to time. In fulfilling its
obligations to manage the investment and reinvestment of the assets of the
Portfolio, the Subadviser will:
(i) obtain and evaluate pertinent economic, statistical,
financial, and other information affecting the economy generally and individual
companies or industries, the securities of which are included in the Portfolio
or are under consideration for inclusion in the Portfolio;
(ii) formulate and implement a continuous investment program for
the Portfolio (a) consistent with the investment objectives, policies, and
restrictions of the Portfolio as stated in the Fund's Agreement and Articles of
Incorporation, Bylaws, and such Portfolio's currently effective Prospectus and
Statement of Additional Information ("SM") as amended from time to time, and (b)
in compliance with the requirements applicable to both regulated investment
companies and segregated asset accounts under Subchapters M and L of the
Internal Revenue Code of 1986, as amended, and requirements applicable to
registered investment companies under applicable laws;
(iii) take whatever steps are necessary to implement the
investment pro &ram for the Portfolio by the purchase and sale of securities and
other investments authorized under the Fund's Agreement and Articles of
Incorporation, Bylaws, and such Portfolio's currently effective Prospectus and
SM, including the placing of orders for such purchases and sales;
(iv) regularly report to the Directors of the Fund and the
Manager with respect to the implementation of the investment program and, in
addition, provide such statistical information and special reports concerning
the Portfolio and/or important developments materially affecting the investments
held, or contemplated to be purchased, by the Portfolio, as may reasonably be
requested by the Manager or the Directors of the Fund, including attendance at
Board of Directors Meetings, as reasonably requested, to present such
information and reports to the Board;
(v) provide determinations of the fair value of certain
portfolio securities when market quotations are not readily available for the
purpose of calculating the Portfolio's net asset value in accordance with
procedures and methods established by the Directors of the Fund;
(vi) provide any and all information, records and supporting
documentation about accounts the Subadviser manages that have investment
objectives, policies, and strategies substantially similar to those employed by
the Subadviser in managing the Portfolio which may be reasonably necessary,
under applicable laws, to allow the Portfolio or its agent to present
information concerning the Subadviser's prior performance in the Prospectus and
the SM of the Portfolio and any permissible reports and materials prepared by
the Portfolio or its agent; and
B. To facilitate the Subadviser's fulfillment of its obligations
under this Agreement, the Manager will undertake the following:
(i) the Manager agrees promptly to provide the Subadviser with
all amendments or supplements to the Registration Statement, the Fund's
Agreement and Articles of Incorporation, and Bylaws;
(ii) the Manager agrees, on an ongoing basis, to notify the
Subadviser expressly in writing of each change in the fundamental and
nonfundamental investment policies of the Portfolio;
2
<PAGE>
(iii) the Manager agrees to provide or cause to be provided to the
Subadviser with such assistance as may be reasonably requested by the Subadviser
in connection with its activities pertaining to the Portfolio under this
Agreement, including, without limitation, information concerning the Portfolio,
its available funds, or funds that may reasonably become available for
investment, and information as to the general condition of the Portfolio's
affairs;
(iv) the Manager agrees to provide or cause to be provided to the
Subadviser on an ongoing basis, such information as is reasonably requested by
the Subadviser for performance by the Subadviser of its obligations under this
Agreement, and the Subadviser shall not be in breach of any term of this
Agreement or be deemed to have acted negligently if the Manager fails to provide
or cause to be provided such requested information and the Subadviser relies on
the information most recently furnished to the Subadviser; and
(v) the Manager will promptly provide the Subadviser with any
guidelines and procedures applicable to the Subadviser or the Portfolio adopted
from time to time by the Board of Directors of the Fund and agrees to promptly
provide the Subadviser copies of all amendments thereto.
C. The Subadviser, at its expense, will furnish: (i) all necessary
investment and management facilities and investment personnel, including
salaries, expenses and fees of any personnel required for it to faithfully
perform its duties under this Agreement; and (ii) administrative facilities,
including bookkeeping, clerical personnel and equipment necessary for the
efficient conduct of the investment affairs of the Portfolio. The Subadviser
shall not be obligated to pay any expenses of or for the Portfolio not expressly
assumed by the Subadviser pursuant to this Section 3.
D. The Subadviser will select brokers and dealers to effect all
portfolio transactions subject to the conditions set forth herein. The
Subadviser will place all necessary orders with brokers, dealers, or issuers,
and will negotiate brokerage commissions if applicable. The Subadviser is
directed at all times to seek to execute brokerage transactions for the
Portfolio in accordance with such policies or practices as may be established by
the Board of Directors and described in the Fund's currently effective
Prospectus and SAI., as amended from time to time. In placing orders for the
purchase or sale of investments for the Portfolio, in the name of the Portfolio
or its nominees, the Subadviser shall use its best efforts to obtain for the
Portfolio the most favorable price and best execution available, considering all
of the circumstances, and shall maintain records adequate to demonstrate
compliance with this requirement.
Subject to the appropriate policies and procedures approved by the Board of
Directors, the Subadviser may, to the extent authorized by Section 28(e) of the
Securities and Exchange Act of 1934, cause the Portfolio to pay a broker or
dealer that provides brokerage or research services to the Manager, the
Subadviser, or the Portfolio an amount of commissions for effecting a portfolio
transaction in excess of the amount of commission another broker or dealer would
have charged for effecting that transaction if the Subadviser determines, in
good faith, that such amount of commission is reasonable in relationship to the
value of such brokerage or research services provided viewed in terms of that
particular transaction or the Subadviser's overall responsibilities to the
Portfolio or its other advisory clients. To the extent authorized by said
Section 28(e) and the Fund's Board of Directors, the Subadviser shall not be
deemed to have acted unlawfully or to have breached any duty created by this
Agreement or otherwise solely by reason of such action. In addition, subject to
seeking the most favorable price and best execution available, the Subadviser
may also consider sales of shares of the Fund as a factor in the selection of
brokers and dealers.
E. On occasions when the Subadviser deems the purchase or sale of a
security to be in the best interest of the Portfolio as well as other clients of
the Subadviser, the Subadviser to the extent permitted by applicable laws and
regulations, may, but shall be under no obligation to, aggregate the securities
to be purchased or sold to attempt to obtain a more favorable price or lower
brokerage commissions and efficient execution. In such event, allocation of the
securities so purchased or sold, as well as the expenses incurred in the
transaction, will be made by the Subadviser in the manner the Subadviser
considers to be the most equitable and consistent with its fiduciary obligations
to the Portfolio and to its other clients.
3
<PAGE>
F. The Subadviser will maintain all accounts, books and records with
respect to the Portfolio as are required of an investment adviser of a
registered investment company pursuant to the Investment Company Act and
Advisers Act and the rules thereunder.
4. COMPENSATION OF THE SUBADVISER. The Investment Manager will pay the
Subadviser, with respect to the Portfolio, the compensation specified in
Appendix A to this Agreement. Payments shall be made to the Subadviser on the
first day of each month; however, this advisory fee will be calculated on the
daily average value of the Portfolio's assets and accrued on a daily basis.
5. NON-EXCLUSIVITY. The Investment Manager agrees that the services of
the Subadviser are not to be deemed exclusive and the Subadviser is free to act
as investment manager to various investment companies and as fiduciary for other
managed accounts. The Subadviser shall, for all purposes herein, be deemed to be
an independent contractor and shall, unless otherwise provided or authorized,
have no authority to act for or represent the Fund or the Investment Manager in
any way or otherwise be deemed an agent of the Fund or Investment Manager other
than in furtherance of its duties and responsibilities as set forth in this
Subadvisory Agreement.
6. BOOKS AND RECORDS. The Subadviser agrees that all books and records
which it maintains for the Fund are the Fund's property, and, in the event of
termination of this Agreement for any reason, the Subadviser agrees promptly to
return to the Fund, free from any claim or retention of rights by the
Subadviser, all records relating to the Portfolio. The Subadviser also agrees
upon request of the Investment Manager or the Fund, promptly to surrender the
books and records to either party or make the book and records available for
inspection by representatives of regulatory authorities. In connection with its
duties hereunder, the Subadviser further agrees to maintain, prepare and
preserve books and records in accordance with the Investment Company Act and
rules thereunder, including but not limited to, Rule 3 la-i and 31a-2.
The Subadviser will use records or information obtained under this Agreement
only for the purposes contemplated hereby, and will not disclose such records or
information in any manner other than expressly authorized by the Fund, or if
disclosure is expressly required by applicable federal or state regulatory
authorities or by this Agreement. The Subadviser will furnish any informational
reports requested by any state insurance commissioner
7. REPRESENTATIONS AND WARRANTEES OF SUBADVISER. The Subadviser
represents and warrants to the Investment Manager and the Fund as follows:
(a) The Subadviser has filed a notice of exemption pursuant to Rule 4.14
under the Commodity Exchange Act as amended (the "CEA") with the Commodity
Futures Trading Commission (the CFTC") and the National Futures Association
(the "NFA") if applicable;
(b) The Subadviser is a corporation duly organized and validly existing
under the laws of the State of Wisconsin with the power to carry on its business
as it is now being conducted:
(c) The execution, delivery and performance by the Subadviser of this
Agreement are within the Subadviser's powers and have been duly authorized by
all necessary action, and no action by or in respect of, or filing with, any
government body, agency or official is required on the part of the Subadviser
for the execution delivery or performance by the Subadviser of this Agreement
and the execution, delivery and performance by the Subadviser of this Agreement
do not contravene or constitute a default under (i) any provision of applicable
law, rule or regulation, (ii) the Subadviser's governing instruments, or (iii)
any agreement, judgment, injunction, order, decree or other instrument binding
upon the Subadviser;
(d) The Form ADV of the Subadviser previously delivered to Investment
Manager is a true and complete copy of the form filed with the Securities and
Exchange Commission and the information contained therein is accurate and
complete in all material respects and does not omit to state any material
4
<PAGE>
fact necessary in order to make the statements made, in the light of the
circumstances under which they were made, not misleading.
8. REPRESENTATIONS AND WARRANTIES OF INVESTMENT MANAGER. The Investment
----------------------------------------------------
Manager represents and warrants to the Subadviser as follows:
(a) The Investment Manager is registered as an Investment Adviser under
the Investment Advisers Act of 1940;
(b) The Investment Adviser has filed a Notice of Exemption pursuant to
Rule 4.14 under the Commodity Exchange Act as amended (the "CEA") with the
Commodity Futures Trading Commission ("CFTC") and the National Futures
Association ("NFA").
(c) The Investment Manager is a corporation duly organized and validly
existing under the laws of the State of Tennessee with the power to carry on its
business as it is now being conducted;
(d) The execution, delivery and performance by the Investment Manager of
this Agreement are within the Investment Manger's powers and have been duly
authorized by all necessary action, and no action by or in respect of, or filing
with, any government body, agency or official is required on the part of the
Investment Manager for the execution delivery or performance by the Investment
Manager of this Agreement and the execution, delivery and performance by the
Investment Manager of this Agreement do not contravene or constitute a default
under (i) any provision of applicable law, rule or regulation, (ii) the
Investment Manager's governing instruments, or (iii) any agreement, judgment.
injunction, order, decree or other instrument binding upon the Investment
Manager;
(e) The Form ADV of the Investment Manager previously delivered to
Subadviser is a true and complete copy of the form filed with the Securities and
Exchange Commission and the information contained therein is accurate and
complete in all material respects and does not omit to state any material fact
necessary in order to make the statements made, in the light of the
circumstances under which they were made, not misleading.
(f) The Investment Manager acknowledges that it received a copy of the
Subadviser's Form ADV at least 48 hours prior to the execution of this
Agreement.
9. LIABILITY. The Subadviser will not be liable for any loss suffered by
the Fund in connection with any investment policy established by the Fund for
the purchase, sale or redemption of any securities at the direction of the Board
of Directors of the Fund or the Investment Manager. Nothing herein contained
shall be construed to protect the Subadviser against any liability resulting
from the willful misfeasance, bad faith or gross negligence of the Subadviser in
the performance of its duties or from reckless disregard of its obligations and
duties under this Subadviser Agreement.
10. RELIANCE ON DOCUMENTS. The Board of Directors of the Fund or its
officers or agent will provide timely information to the Subadviser regarding
such matters as purchases and redemptions of shares in the Portfolio, the cash
requirements, and cash available for investment in the Portfolio, and all other
information as may be reasonably necessary or appropriate in order for the
Subadviser to perform its responsibilities hereunder.
Neither the Fund or the Investment Manager, nor their respective designees
or agents, shall use any material describing or identifying the Subadviser or
its affiliates without the prior consent of the Subadviser. Any material
utilized by the Fund, the Investment Manager or their respective designees or
agents which contain information as to the Subadviser and/or its affiliates
shall be submitted to the Subadviser for approval prior to use, not less than
five (5) business days before such approval is requested.
The Investment Manager has herewith furnished the Subadviser copies of the
Fund's Prospectus, Articles of Incorporation and By-Laws as currently in effect
and agrees during the continuance of the Agreement to furnish the Subadviser
copies of any amendments or supplements thereto before or at the time
5
<PAGE>
the amendments or supplements become effective. The Subadviser will be entitled
to rely on all such documents furnished to it by the Investment Manager or the
Fund.
11. DURATION AND TERMINATION OF THE AGREEMENT. This Subadvisory Agreement
shall become effective as of the date first written above and remain in force
until December 31, 1999. Thereafter, it shall continue in effect from year to
year, but only so long as such continuance is specifically approved at least
annually by (a) the Board of Directors of the Fund, or by the vote of a majority
of the outstanding voting securities of the Portfolio, and (b) a majority of
those directors who are not parties to this Subadvisory Agreement, not
interested persons of any party to this Subadvisory Agreement, cast in person at
a meeting called for the purpose of voting on such approval. This Agreement may
be terminated, without the payment of any penalty, by the Board of Directors of
the Fund, by a vote of a majority of the outstanding shares of the Portfolio, or
by the Investment Manager on sixty days' written notice to the Subadviser, or by
the Subadviser on sixty days' written notice to the Fund or the Investment
Manager. Termination by the Board of Directors or by the Investment Manager
shall be subject to shareholder approval to the extent legally required. This
Agreement shall automatically terminate in the event of its assignment or in the
event of termination of the Investment Management Agreement.
12. SURVIVAL OF REPRESENTATIONS AND WARRANTIES; DUTY TO UPDATE
INFORMATION. All representations and warranties made by the SubAdviser and
Investment Manger pursuant to Sections 7 and 8 hereof will survive for the
duration of this Agreement and the parties shall promptly notify each other in
writing upon becoming aware that any of said representations and warranties is
no longer true.
13. VOTING OF PROXIES. The Subadviser shall direct the custodian as to
how to vote such proxies as may be necessary or advisable in connection with any
matters submitted to a vote of shareholders of securities held by the Fund.
14. INDEMNIFICATION. The Subadviser shall indemnify the Investment
Manager and the Fund, and their respective officers and directors, for any
liability and expenses, including reasonable attorney's fees which may be
sustained as a result of the Subadviser's willful misfeasance, bad faith, gross
negligence, breach of its duties hereunder or violation of applicable law. The
Investment Manager shall indemnify the Subadviser, and its respective officers
and directors, for any liability and expenses, including reasonable attorney's
fees which may be sustained as a result of the Investment Manager's willful
misfeasance, bad faith, gross negligence, breach of its duties hereunder or
violation of applicable law.
15. CONFIDENTIALITY. Subject to the duties of the Investment Manager, the
Fund and the Subadviser to comply with applicable law, including any demand of
any regulatory or taxing authority having jurisdiction, the parties hereto shall
treat as confidential all information pertaining to the Fund and the actions of
the Subadviser, the Investment Manager and the Fund in respect thereof
16. COUNTERPARTS. This Agreement may be executed in one or more
counterparts, all of which shall together constitute one and the same
instrument.
17. AMENDMENTS OF THE AGREEMENT. Except to the extent permitted by the
Investment Company Act or the rules or regulations thereunder or pursuant to any
exemptive relief granted by the Securities and Exchange Commission ("SEC"), this
Agreement may be amended by the parties only upon written consent of the parties
hereto and if such amendment, if material, is specifically approved by the vote
of a majority of the outstanding voting securities of the Portfolio (unless such
approval is not required by Section 15 of the Investment Company Act as
interpreted by the SEC or its staff) and by the vote of a majority of the
Independent Directors cast in person at a meeting called for the purpose of
voting on such approval. The required shareholder approval shall be effective
with respect to the Portfolio if a majority of the outstanding voting securities
of the Portfolio vote to approve the amendment, notwithstanding that amendment
may not have been approved by a majority of the outstanding voting securities of
any other portfolio affected by the amendment or all the portfolios of the Fund.
6
<PAGE>
18. DEFINITIONS. The terms "assignment", "interested person", and
"majority of the outstanding voting securities", when used in this Agreement,
shall have the respective meaning specified under the Investment Company Act and
the rules thereunder.
19. NOTICES. Any notice that is required to be given by the parties to
each other under the terms of this Agreement shall be given in writing,
delivered, or mailed postpaid to the other party, or transmitted by facsimile
with acknowledgment of receipt, to the parties at the following addresses or
facsimile numbers, which may from time to time be changed by the parties by
notice to the other party:
(a) If to the Subadviser:
Strong Capital Management, Inc.
100 Heritage Reserve
Menomonee Falls, WI 53051
Attn: General Counsel
Facsimile: (414)-359-3948
(b) If to the Investment Manager:
Chubb Investment Advisory Corporation
One Granite Place
Concord, NH 03301
Attn: Ronald Angarella
Facsimile (603) 224-1691
20. GOVERNING LAW. The provisions of this Agreement shall be construed
and interpreted in accordance with the laws of the State of New Hampshire as at
the time in effect and the applicable provisions of the Investment Company Act
or other federal laws and regulations which may be applicable. To the extent
that the applicable law of the State of New Hampshire or any of the provisions
herein, conflict with the applicable provisions of the Investment Company Act or
other federal laws and regulations which may be applicable, the latter shall
control.
21. USE OF SUBADVISER'S NAME. Neither the Fund nor the Manager or any
affiliate or agent thereof shall make reference to or use the name, and any
derivative thereof or logo associated with that name, of the Subadviser or any
of its affiliates in any advertising or promotional materials without the prior
approval of the Subadviser, which approval shall not be unreasonably withheld or
delayed. Upon termination of this Agreement, the Manager and the Fund shall
forthwith cease to use such name (or derivative or logo) as soon as reasonably
practicable.
22. ENTIRE AGREEMENT. This Agreement contains the entire understanding
and agreement of the parties with respect to the Portfolio.
23. HEADINGS. The headings in the sections of this Agreement are inserted
for convenience of reference only and shall not constitute a part hereof
24. SEVERABILITY. Should any portion of this Agreement for any reason be
held to be void in law or in equity, the Agreement shall be construed, insofar
as is possible, as if such portion had never been contained herein.
CHUBB INVESTMENT ADVISORY
CORPORATION
ATTEST: /S/THOMAS H. ELWOOD BY: /S/RONALD A. ANGARELLA
--------------------------- -----------------------------
TITLE: ASSISTANT SECRETARY TITLE: PRESIDENT
STRONG CAPITAL MANAGEMENT INC.
7
<PAGE>
ATTEST: /S/ BY: /S/
--------------------------- ------------------------------
TITLE: SENIOR COUNSEL TITLE: VICE PRESIDENT
8
<PAGE>
SCHEDULE A
INVESTMENT SUBADVISORY FEES
<TABLE>
<CAPTION>
NAME OF PORTFOLIO ANNUAL FEE AS A PERCENTAGE OF
AVERAGE DAILY NET ASSETS
- --------------------------------------------------------------------------------
<S> <C> <C>
Money Market Portfolio .30% of first $200 Million
Massachusetts Financial Services .25% over $200 Million
- --------------------------------------------------------------------------------
Emerging Growth Portfolio .40%
Massachusetts Financial Services
- --------------------------------------------------------------------------------
High Yield Bond .40%
Massachusetts Financial Services
- --------------------------------------------------------------------------------
Growth Portfolio .60% of first $25 Million
Strong .50% of the next $75 Million
.40% of the next $50 Million
.30% over $150 Million
- --------------------------------------------------------------------------------
Growth and Income Portfolio .50%
Warburg Pincus
- --------------------------------------------------------------------------------
World Growth Stock Portfolio .50% of first $200 Million
Templeton Global Advisors Limited .45% of next $1.1 Billion
.40% over $1.3 Billion
- --------------------------------------------------------------------------------
International Equity Portfolio .50%
Lombard Odier
- --------------------------------------------------------------------------------
Balanced Portfolio .45% of first $100 Million
J.P. Morgan Investment Management .40% of next $100 Million
.35% over $200 Million
.30% over $400 Million
- --------------------------------------------------------------------------------
Bond Portfolio .35% of first $200 Million
Chubb Asset Managers, Inc. .30% of next $1.1 Billion
.25% over $1.3 Billion
- --------------------------------------------------------------------------------
Gold Stock Portfolio .50% of first $200 Million
Van Eck Associates Corporation .45% of next $1.1 Billion
.40% over $1.3 Billion
- --------------------------------------------------------------------------------
Domestic Growth Portfolio .50% of first $200 Million
Pioneering Management Corporation .45% of next $1.1 Billion
.40% over $1.3 Billion
- --------------------------------------------------------------------------------
Capital Growth Portfolio .75% of first $200 Million
Janus Capital Corporation .70% of next $1.1 Billion
.65% over $1.3 Billion
- --------------------------------------------------------------------------------
</TABLE>
EFFECTIVE: January 1, 1998
9
<PAGE>
FUND DISTRIBUTION AGREEMENT
Between
JEFFERSON PILOT VARIABLE FUND, INC.
and
JEFFERSON PILOT VARIABLE CORPORATION
<PAGE>
Table of Contents
-----------------
<TABLE>
<S> <C>
1. Appointment of the Distributor 2
2. Exclusive Nature of Duties 2
3. Sale and Redemption of Shares of the Fund 3
4. Duties of the Fund 4
5. Duties of the Distributor 5
6. Independent Contractor 6
7. Payment of Expenses 6
8. Duration and Termination of This Agreement 7
9. Governing Law 8
10. Miscellaneous 8
</TABLE>
2
<PAGE>
FUND DISTRIBUTION AGREEMENT
---------------------------
AGREEMENT made this 31ST day of December, 1997, between JEFFERSON PILOT
VARIABLE FUND, INC., a corporation organized under the laws of Maryland (the
"Fund"), and Jefferson Pilot Variable Corporation a North Carolina corporation,
(the "Distributor");
WITNESSETH:
WHEREAS, the Fund is registered under the Investment Company Act of 1940
(the "Investment Company Act") as an open-end management investment company;
WHEREAS, it is in the interest of the Fund to offer its shares for sale
continuously pursuant to a prospectus and statement of additional information,
as now and hereafter amended or supplemented (the "Prospectus") which is
currently effective under the Securities Act of 1933 (the "Securities Act"), to
Chubb Life Insurance Company of America (to be renamed Jefferson Pilot Financial
Life Insurance Company), Alexander Hamilton Life Insurance Company of America
and Jefferson Pilot Life Insurance Company ("Jefferson Pilot") for allocation
their various separate accounts and to any other separate accounts of Jefferson
Pilot or any of its affiliated insurance companies or to separate accounts of
unaffiliated insurance companies that have entered into a Participation
Agreement with the Fund (all eligible purchasers of such shares being referred
to collectively as the "Purchasers"); and
WHEREAS, the Fund is comprised of separate portfolios, listed on the
attached Schedule A, as it may be amended from time to time, each of which
pursues its investment objectives through separate investment policies;
WHEREAS, the Distributor is a broker-dealer registered with the Securities
and Exchange Commission;
WHEREAS, the Distributor is also the principal underwriter and distributor
of variable life insurance policies and variable annuities issued by Jefferson
Pilot and funded by various separate account 5; and
3
<PAGE>
WHEREAS, the Fund and the Distributor wish to enter into an agreement with
each other with respect to the continuous offering to the Purchasers of shares
of common stock, par value $.0 1 per share, of the Fund's Portfolios (the
"Shares"), in order to promote the growth of the Fund and facilitate the
distribution of its Shares.
NOW, THEREFORE, the parties agree as follows:
1. Appointment of the Distributor. The Fund hereby appoints the Distributor
------------------------------
as the principal underwriter and distributor of the Fund to sell its Shares to
the Purchasers, and the Distributor hereby accepts such appointment. The Fund
during the term of this Agreement shall sell its Shares to the Purchasers at net
asset value for each Portfolio determined in the manner set forth in the
Prospectus, and upon the terms and conditions set forth below. No commission or
other fee shall be charged or paid to any person or entity in connection with
the sale of Fund Shares hereunder.
2. Exclusive Nature of Duties. The Distributor shall be the exclusive
--------------------------
representative of the Fund to act as principal underwriter and distributor.
3. Sale and Redemption of Shares of the Fund.
------------------------------------------
(a) Orders for the sale, redemption or repurchase of the Fund's Shares
shall be transmitted directly from the Purchasers to the Fund or its agent and
payments for shares shall be transmitted by the Purchasers directly to the
Fund's custodian.
(b) The Fund shall have the right to suspend the redemption of Shares of
any of its Portfolios pursuant to the conditions set forth in the Prospectus.
The Fund shall also have the right to suspend the sale of Shares of any or all
of its Portfolios at any time when it is authorized to suspend redemption of
such Shares, or at any time when there shall have occurred an extraordinary
event or circumstance which, in the reasonable judgment of the Fund, makes it
impracticable or inadvisable to continue to sell any such shares.
(c) The Fund will give the Distributor prompt notice of any such
suspension and shall promptly furnish such other information in connection with
the sale and redemption of Shares as the Distributor reasonably requests.
4
<PAGE>
On behalf of the Distributor, if requested, the Fund, or its agent, in
issuing Shares and processing redemptions and repurchase of Shares, shall
maintain a record of the time when a proper and complete order for each such
transaction was received by it and, to the extent legally required, confirm to
all Fund shareholders all transactions in the manner required by law, and shall
keep records of confirmations and all other records in connection with the sale,
redemption or repurchase of Fund shares required by, and subject to, all the
terms and conditions of Rules 17a-3 and 17a-4 under the Securities Exchange Act
of 1934. All records required by this paragraph to be maintained by the Fund or
its agent shall (i) be and remain the property of the Fund's Distributor and
(ii) be at all times subject to inspection by the Securities and Exchange
Commission in accordance with Section 17(a) of said Act. The Fund shall have
access to all records maintained hereunder and, upon reasonable request, copies
shall be furnished to the Fund.
4. Duties of the Fund.
-------------------
(a) The Fund shall furnish to the Distributor copies of all information,
financial statements and other papers which the Distributor may reasonably
request for use in connection with the distribution of Shares of the Fund. The
Fund shall also make available to the Distributor such number of copies of its
Prospectus as the Distributor shall reasonably request.
(b) The Fund shall take, from time to time, but subject to the necessary
approval of its shareholders, all necessary action to fix the number of its
authorized Shares in each Portfolio and to register Shares under the Securities
Act of 1933 ("Securities Act"), to the end that there will be available for sale
such number of Shares in each Portfolio as may reasonably be expected to be sold
and issued.
(c) The Fund shall use its best efforts to qualify and maintain the
qualification of an appropriate number of Shares of each of its Portfolios for
sale under the securities laws of such states as the Distributor and the Fund
may approve, if such qualification is required by such securities laws. Any such
qualification may be withheld, terminated or withdrawn by the Fund at any time
in its discretion. The Distributor shall furnish such information and other
material relating to its affairs and activities as may be required by the Fund
in connection with such qualification and with registration under the Securities
Act.
5
<PAGE>
(d) The Fund will furnish, in reasonable quantities upon request by the
Distributor, copies of annual and interim reports of the Fund.
(e) The Fund shall promptly notify the Distributor if the registration
or qualification of any Fund shares under any state or Federal securities laws,
or the Fund's registration under the Investment Company Act of 1940 (the "1940
Act"), is suspended or terminated, or if any governmental body or agency
institutes proceedings to terminate the offer and sale of any Fund shares in any
jurisdiction.
5. Duties of the Distributor. The Distributor shall be subject to the
-------------------------
direction and control of the Fund in the sale of its shares and shall not be
obligated to sell any specific number of Shares in any Portfolios. In offering
or selling the Shares of the Fund, the Distributor shall in all respects duly
conform with the requirements of all federal and state laws and regulations and
the regulations of the National Association of Securities Dealers, Inc. (the
"NASD"), relating to the offer and sale of such securities. Neither the
Distributor nor any other person is authorized by the Fund to give any
information or to make any representations, other than those contained in the
registration statement with respect to the Fund's Shares which is effective
under the Securities Act, including any amendment thereto, or related Prospectus
and any advertising or sales literature authorized by responsible officers of
Jefferson Pilot. The Distributor, directly or through the Fund, as its agent,
shall cause any sales literature, advertising, or other similar materials to be
filed and, if necessary, approved by the NASD, the Securities and Exchange
Commission, or any other required securities regulatory body, as appropriate.
6. Independent Contractor. The Distributor shall act as an independent
----------------------
contractor and nothing herein contained shall constitute the Distributor, its
agents or representatives, or any employees thereof, as employees of the Fund in
connection with the sale of Shares of the Fund. The Distributor is responsible
for its own conduct and the employment, control and conduct of its agents and
employees and for injury to such agents or employees or to others through its
agents or employees. The Distributor assumes full responsibility for its agents
and employees under applicable statutes and agrees to pay all employer taxes
6
<PAGE>
thereunder. The Distributor will maintain at its own expense insurance against
public liability in such an amount as the Fund and the Distributor may from time
to time agree.
7. Payment of Expenses. The Distributor will, from its own resources, pay
-------------------
or cause to be paid all of the following Fund expenses and costs:
(a) The distributing to new or prospective policyowners of the Fund's
Prospectus and periodic reports, and the costs of printing copies of such
documents for this purpose, except that, to the extent counsel for the Fund
believes it to be legally permissible, the Distributor shall not be required to
bear printing and distribution costs for the Prospectus for the accounts of
existing beneficial owners of the Fund.
(b) The preparation, printing and distribution of other sales
literature, and
(c) All other expenses which are primarily for the purpose of promoting
sales of the Fund's Shares to new beneficial owners.
Other than as aforesaid, the Distributor shall not be responsible for paying
any expenses of the Fund.
8. Duration and Termination of This Agreement. This Agreement shall become
------------------------------------------
effective as of the date first above written and shall remain in force
continuously thereafter, but only so long as such continuance is specifically
approved at least annually (as defined in the Investment Company Act) by (a) the
Board of Directors of the Fund, or by the vote of a majority of the outstanding
voting securities of the Fund, cast in person or by proxy, and (b) a majority of
those directors who are not parties to this Agreement, or interested persons of
any such party, cast in person at a meeting called for the purpose of voting
upon such approval.
This Agreement may be terminated at any time without the payment of any
penalty, by the Board of Directors of the Fund or by vote of a majority of the
outstanding voting securities of the Fund, or by the Distributor, on sixty days'
written notice to the other party. This Agreement shall automatically terminate
in the event of its assignment by either party.
The terms "vote of a majority of the outstanding voting securities" and
"interested person," when used in this Agreement, shall have the respective
meanings specified in the 1940 Act and rules thereunder.
7
<PAGE>
9. Governing Law. This Agreement shall be construed in accordance with the
-------------
laws of the State of New Hampshire and the applicable provisions of the 1940 Act
and rules thereunder. To the extent the applicable law of the State of New
Hampshire, or any of the provisions herein, conflict with the applicable
provisions of the 1940 Act or rules thereunder, the latter shall control.
10. Miscellaneous. The Distributor shall not disclose or use any records or
-------------
information obtained hereunder and, further, it shall keep confidential any
information obtained pursuant to its relationship with the Fund set forth
herein, and disclose such information only if the Fund has authorized such
disclosure, or if such disclosure is expressly required by appropriate Federal
or state regulatory authorities. The Distributor shall furnish state insurance
regulatory authorities with any information or reports in connection with the
services it provides to the Fund hereunder, which such authorities may request
in order to ascertain whether the variable life insurance operations of any
insurance company are being conducted in a manner consistent with applicable
laws or regulations.
IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Agreement as of the day and year first above written in Concord, New Hampshire.
JEFFERSON PILOT VARIABLE FUND, INC.
Attest:
By: /s/ Shari J. Lease By: /s/ Ron Angarella
------------------------- ---------------------------
Title:Secretary Title:President
---------------------- ------------------------
JEFFERSON PILOT VARIABLE CORPORATION
Attest:
By: /s/ Shari J. Lease By: /s/ Ron Angarella
------------------------- ---------------------------
Title:Secretary Title:President
---------------------- ------------------------
8
