<PAGE>
Registration No. 2-94479
811-4161
As filed with the Securities and Exchange Commission on September 1, 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. 24 /X/
and/or
REGISTRATION STATEMENT UNDER
THE INVESTMENT COMPANY ACT OF 1940
Amendment No. 25 /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:
CRAIG D. MORESHEAD, Esq. JOAN BOROS, Esq.
Jefferson Pilot Variable Fund, Inc. Jordan, Burt, Boros, Cicchetti,
One Granite Place Beremson & Johnson LLP
Concord, NH 03301 1025 Thomas Jefferson Street, N.W.
Washington, D.C. 20007
It is proposed that this filing will become effective on November 2, 1998
pursuant to Rule 485 (a)(1).
<PAGE>
JEFFERSON PILOT VARIABLE FUND, INC.
CROSS REFERENCE SHEET
Cross reference between items on Form N-1A and Parts A, B and C of the
registration statement.
Item No.
of Form N-1A Part A- Prospectus
- -------------------------------------------------------------------------------
1 Cover Page
2 Not applicable
3 Not applicable
4 Investment Objectives and Policies, Investment Restrictions
5 Not Applicable
6 Management of the Fund, Capital Stock
7 Offering and Redemption of Shares, Taxes and Dividends
8 Offering and Redemption of Shares
9 Financial Highlights
Item No.
of Form N-1A Part B - Statement of Additional Information
- --------------------------------------------------------------------------------
10 Cover Page, Table of Contents
11 Investment Restrictions, Description of Investments
12 Management of the Fund
13 Offering and Redemption of Shares
14 Investment Advisory and Other Services
15 Portfolio Transactions and Brokerage Allocations
16 Capital Stock
17 Offering and Redemption of Shares, Determination of Net
Asset Value
18 Taxes
19 Not Applicable
20 Performance and Yield Information
21 Financial Statements
Item No.
of Form N-1A Part C - Other Information
- --------------------------------------------------------------------------------
22 Financial Statements and Exhibits
23 Persons Controlled by or Under Common Control
24 Number of Holders of Securities
25 Indemnification
26 Business and Other Connections of Investment Advisor
27 Principal Underwriters
28 Location of Accounts and Records
29 Not Applicable
30 Not Applicable
31 Signatures
<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, primarily 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.
Small Company Portfolio: to achieve growth of capital. The Portfolio pursues
its objective by investing primarily in a diversified portfolio of equity
securities issued by small companies.
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, the Small Company 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 November 2, 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 NOVEMBER 2, 1998
2
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
FINANCIAL HIGHLIGHTS........................................... 6
PERFORMANCE AND YIELD INFORMATION.............................. 21
PORTFOLIOS..................................................... 21
INVESTMENT OBJECTIVES AND POLICIES............................. 22
World Growth Stock Portfolio.................................. 22
Investment Objectives....................................... 22
Investment Policies......................................... 22
Risk Factors................................................ 23
International Equity Portfolio................................ 23
Investment Objectives....................................... 23
Investment Policies......................................... 23
Money Market Portfolio........................................ 24
Investment Objectives....................................... 24
Investment Policies......................................... 24
Risk Factors................................................ 25
Global Hard Assets Portfolio.................................. 25
Investment Objectives....................................... 25
Investment Policies......................................... 25
High Yield Bond Portfolio..................................... 27
Investment Objectives....................................... 27
Investment Policies......................................... 27
Risk Factors................................................ 28
Small Company Portfolio....................................... 28
Investment Objectives....................................... 28
Investment Policies......................................... 28
Risk Factors................................................ 28
Growth Portfolio.............................................. 29
Investment Objectives....................................... 29
Investment Policies......................................... 29
Growth and Income Portfolio................................... 29
Investment Objectives....................................... 29
Investment Policies......................................... 29
Risk Factors................................................ 30
Capital Growth Portfolio...................................... 30
Investment Objectives....................................... 30
Investment Policies......................................... 30
Risk Factors................................................ 31
Balanced Portfolio............................................ 31
Investment Objectives....................................... 31
Investment Policies......................................... 31
Risk Factors................................................ 32
Emerging Growth Portfolio..................................... 32
Investment Objective........................................ 32
Investment Policies......................................... 32
Risk Factors................................................ 33
Additional Risk Factors....................................... 33
Governmental Securities....................................... 33
Convertible Securities........................................ 34
Foreign Securities............................................ 34
</TABLE>
3
<PAGE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Foreign Currencies............................................. 35
Brady Bonds.................................................... 35
Non-Diversified Status......................................... 35
Precious Metals................................................ 36
Emerging Market Securities..................................... 36
Depository Receipts............................................ 36
Forward Foreign Currency Exchange Contracts.................... 37
Repurchase Agreements.......................................... 37
Real Estate Securities......................................... 37
Short Sales.................................................... 37
High Yield Securities.......................................... 38
Zero Coupon Bonds.............................................. 39
Securities and Index Options................................... 39
Purchasing Put and Call Options................................ 39
Futures Contracts.............................................. 39
Lending of Securities.......................................... 40
When Issued Securities......................................... 40
Mortgage Backed and Corporate Asset-Backed Securities.......... 40
Stripped Mortgage-Backed Securities............................ 41
Borrowing...................................................... 41
Warrants....................................................... 41
Restricted and Illiquid Securities............................. 41
Dollar Roll Transactions....................................... 42
Swap Transactions.............................................. 42
Currency and Asset Swaps....................................... 43
Loan Participations and Other Direct Indebtedness.............. 43
INVESTMENT RESTRICTIONS......................................... 43
Portfolio Turnover............................................. 43
MANAGEMENT OF THE FUND.......................................... 43
CAPITAL STOCK................................................... 47
TAXES AND DIVIDENDS............................................. 48
OFFERING AND REDEMPTION OF SHARES............................... 48
YEAR 2000....................................................... 49
OTHER INFORMATION............................................... 50
</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 Ernst & Young LLP, independent auditors 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 year:
WORLD GROWTH STOCK PORTFOLIO
<TABLE>
<CAPTION>
(UNAUDITED) YEAR YEAR YEAR YEAR
SIX MONTHS ENDED ENDED ENDED ENDED
ENDED DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
JUNE 30, 1998 1997 1996 1995 1994
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year $ 23.28 $ 21.31 $ 21.20 $ 19.00 $ 20.89
INCOME FROM INVESTMENT OPERATIONS
Net investment income 0.39 0.53 0.49 0.45 0.25
Net gains and losses on securities and foreign
currencies (both realized and unrealized) 1.50 2.97 3.56 2.65 (0.89)
------------ ------------ ----------- ----------- -----------
Total from investment operations 1.89 3.50 4.05 3.10 (0.64)
LESS DISTRIBUTIONS TO SHAREHOLDERS
Dividends from net investment income (0.53) (0.48) (0.43) (0.25)
Dividends in excess of net investment income (0.03)
Distributions from capital gains (0.21) (2.76) (1.46) (0.47) (0.81)
Distributions in excess of capital gains (0.21) (0.19)
Returns of capital
Total distributions (0.21) (3.53) (1.94) (0.90) (1.25)
Net asset value, end of period $ 24.96 $ 23.28 $ 23.31 $ 21.20 $ 19.00
============ ============ =========== =========== ===========
Total Return (A) 8.07% 15.33% 19.22% 16.35% (3.05%)
Ratios to Average Net Assets:
Expenses 0.89% .91% 0.88% 0.96% 1.00%
Net investment income 3.26% 2.33% 2.20% 2.31% 1.56%
Portfolio Turnover Rate 20.61% 30.22% 27.50% 18.09% 18.47%
Average Commission Rate Paid $ 0.0038 $ 0.0120 $ 0.0155
Net Assets, At end of period $128,424,332 $105,567,503 $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.
6
<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,
1993 1992 1991 1990 1989 1988
<S> <C> <C> <C> <C> <C>
$ 16.73 $ 16.45 $ 13.70 $ 16.07 $ 12.77 $ 11.48
0.24 0.35 0.34 0.36 0.32 0.18
5.40 0.65 2.75 (2.00) 3.34 1.32
---- ----------- ----------- ----------- ----------
5.64 1.00 3.09 (1.64) 3.66 1.50
(0.24) (0.35) (0.34) (0.37) (0.36) (0.18)
(1.24) (0.37) (0.36) (0.03)
(1.48) (0.72) (0.34) (0.73) (0.36) (0.21)
$ 20.89 $ 16.73 $ 16.45 $ 13.70 $ 16.07 $ 12.77
====== =========== =========== =========== =========== ==========
33.73% 6.10% 22.53% (10.38%) (28.62%) 13.10%
1.04% 1.17% 1.14% 1.22% 1.42% 1.60%
1.64% 2.19% 2.40% 2.65% 2.46% 1.80%
34.90% 32.27% 50.06% 25.79% 5.73% 14.75%
$42,031,141 $25,416,357 $22,659,930 $16,052,089 $14,467,050 $8,781,827
</TABLE>
7
<PAGE>
FINANCIAL HIGHLIGHTS--(CONTINUED)
For a share outstanding throughout the year:
MONEY MARKET PORTFOLIO (A)
<TABLE>
<CAPTION>
(UNAUDITED) YEAR YEAR YEAR YEAR
SIX MONTHS ENDED ENDED ENDED ENDED
ENDED DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
JUNE 30, 1998 1997 1996 1995 1994
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year $ 10.23 $ 10.25 $ 10.27 $ 10.25 $ 10.26
INCOME FROM INVESTMENT OPERATIONS
Net investment income 0.23 0.52 0.50 0.50 0.35
Net gains and losses on securities (both
realized and unrealized) 0.02 (0.02) (0.02) 0.02 (0.01)
----------- ---------- ---------- ---------- ----------
Total from investment operations 0.25 0.50 0.48 0.52 0.34
LESS DISTRIBUTIONS TO SHAREHOLDERS
Dividends from net investment income (0.52) (0.50) (0.50) (0.35)
Dividends in excess of net investment income
Distributions from capital gains
Distributions in excess of capital gains
Returns of capital
----------- ---------- ---------- ---------- ----------
Total distributions 0.00 (0.52) (0.50) (0.50) (0.35)
Net asset value, end of period $ 10.48 $ 10.23 $ 10.25 $ 10.27 $ 10.25
=========== ========== ========== ========== ==========
Total Return (B) 2.45% 4.86% 4.65% 5.06% 3.28%
Ratios to Average Net Assets:
Expenses 0.62% 0.60% 0.62% 0.63% 0.65%
Net investment income 4.90% 4.74% 4.54% 4.89% 3.31%
Portfolio Turnover Rate (C) N/A N/A N/A N/A N/A
Average Commission Rate Paid (D) N/A N/A N/A N/A N/A
Net Assets, At end of period $15,803,630 $9,435,454 $7,896,257 $8,312,676 $7,680,485
</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.
(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.
8
<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,
1993 1992 1991 1990 1989 1988
<S> <C> <C> <C> <C> <C>
$10.22 $10.22 $10.21 $10.18 $10.16 $10.09
0.20 0.29 0.52 0.73 0.78 0.63
0.04 0.01
------ ------
0.24 0.29 0.53 0.73 0.78 0.63
(0.20) (0.29) (0.52) (0.70) (0.76) (0.56)
------ ------ ------ ------ ------ ------
(0.20) (0.29) (0.52) (0.70) (0.76) (0.56)
$10.26 $10.22 $10.22 $10.21 $10.18 $10.16
====== ====== ====== ====== ====== ======
2.32% 2.83% 5.18% 7.15% 7.63% 6.33%
0.74% 0.85% 0.85% 1.09% 1.37% 1.79%
2.32% 2.81% 4.95% 6.90% 7.35% 6.16%
N/A N/A N/A N/A N/A N/A
N/A N/A N/A N/A N/A N/A
$5,061,181 $3,956,152 $3,672,941 $2,910,677 $2,496,140 $2,228,190
</TABLE>
9
<PAGE>
FINANCIAL HIGHLIGHTS--(CONTINUED)
For a share outstanding throughout the year:
GLOBAL HARD ASSETS PORTFOLIO (formerly Gold Stock Portfolio)
<TABLE>
<CAPTION>
(UNAUDITED) YEAR YEAR YEAR YEAR
SIX MONTHS ENDED ENDED ENDED ENDED
ENDED DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
JUNE 30, 1998 1997 1996 1995 1994
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year $ 8.92 $ 16.60 $ 16.61 $ 16.25 $ 19.00
INCOME FROM INVESTMENT OPERATIONS
Net investment income (loss) 0.04 0.02 (0.03) 0.05 0.03
Net gains and losses on securities and foreign
currency (both realized and unrealized) (0.23) (7.30) 0.45 0.40 (2.65)
---------- ---------- ---------- ---------- ----------
Total from investment operations (0.19) (7.28) 0.42 0.45 (2.62)
LESS DISTRIBUTIONS TO SHAREHOLDERS
Dividends from net investment income (0.02) (0.05) (0.03)
Dividends in excess of net investment income (0.07) (0.04)
Distributions from capital gains (0.43)
Distributions in excess of capital gains (0.31) (0.10)
Returns of capital
Total distributions 0.00 (0.40) (0.43) (0.09) (0.13)
Net asset value, end of period $ 8.73 $ 8.92 $ 16.60 $ 16.61 $ 16.25
========== ========== ========== ========== ==========
Total Return (A) (2.05%) (44.63%) 2.57% 2.76% (13.77%)
Ratios to Average Net Assets:
Expenses 1.01% 1.07% 1.04% 1.01% 0.99%
Net investment income 1.06% 0.63% (0.11%) 0.24% 0.18%
Portfolio Turnover Rate 92.14% 19.70% 64.78% 23.98% 11.12%
Average Commission Rate Paid $ 0.0173 $ 0.0181 $ 0.0151
Net Assets, At end of period $4,814,193 $5,204,654 $7,554,427 $6,867,645 $7,351,625
</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.
10
<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,
1993 1992 1991 1990 1989 1988
<S> <C> <C> <C> <C> <C>
$ 11.57 $ 11.99 $ 12.76 $ 16.95 $ 14.37 $ 18.24
0.02 0.03 0.07 0.07 0.06 (0.03)
7.43 (0.42) (0.77) (4.19) 2.70 (3.84)
-------- ---------- --------- --------- -------- ---------
7.45 (0.39) (0.70) (4.12) 2.76 (3.87)
(0.02) (0.03) (0.07) (0.07) (0.05)
(0.12)
(0.01)
(0.02) (0.03) (0.07) (0.07) (0.18)
$ 19.00 $ 11.57 $ 11.99 $ 12.76 $ 16.95 $ 14.37
========= ========== ========= ========= ======== =========
63.90% (3.29%) (5.48%) (24.28%) 19.24% (21.24%)
1.01% 1.13% 1.16% 1.36% 1.39% 1.62%
0.14% 0.24% 0.57% 0.59% 0.39% (0.38%)
7.32% 7.78% 14.23% 17.61% 3.05% 9.92%
$7,863,581 $4,338,297 $4,646,951 $5,390,279 $5,969,256 $4,258,297
</TABLE>
11
<PAGE>
FINANCIAL HIGHLIGHTS--(CONTINUED)
For a share outstanding throughout the year:
SMALL COMPANY PORTFOLIO (formerly Domestic Growth Stock Portfolio)
<TABLE>
<CAPTION>
(UNAUDITED) YEAR YEAR YEAR YEAR
SIX MONTHS ENDED ENDED ENDED ENDED
ENDED DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
JUNE 30, 1998 1997 1996 1995 1994
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year $ 20.43 $ 18.19 $ 17.87 $ 15.94 $ 16.14
INCOME FROM INVESTMENT OPERATIONS
Net investment income 0.30 0.09 0.06 0.15 0.09
Net gains and losses on securities (both
realized and unrealized) 0.19 4.17 2.85 4.48 1.12
----------- ----------- ----------- ----------- -----------
Total from investment operations 0.49 4.26 2.91 4.63 1.21
LESS DISTRIBUTIONS TO SHAREHOLDERS
Dividends from net investment income (0.09) (0.06) (0.15) (0.09)
Dividends in excess of net investment income
Distributions from capital gains (0.22) (1.93) (2.53) (2.55) (1.32)
Distributions in excess of capital gains
Returns of capital
Total distributions (0.22) (2.02) (2.59) (2.70) (1.41)
Net asset value, end of period $ 20.70 $ 20.43 $ 18.19 $ 17.87 $ 15.94
=========== =========== =========== =========== ===========
Total Return (A) 2.33% 23.60% 16.46% 29.72% 7.66%
Ratios to Average Net Assets:
Expenses 0.82% 0.83% 0.85% 0.87% 0.89%
Net investment income 0.77% 0.47% 0.31% 0.95% 0.63%
Portfolio Turnover Rate 14.50% 52.92% 49.75% 64.17% 46.65%
Average Commission Rate Paid 0.0556 $ 0.0554 $ 0.0555
Net Assets, At end of period $94,336,783 $81,505,107 $62,166,366 $48,517,886 $31,458,666
</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.
12
<PAGE>
SMALL COMPANY 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,
1993 1992 1991 1990 1989 1988
<S> <C> <C> <C> <C> <C>
$ 15.16 $ 12.96 $ 10.15 $ 13.25 $ 11.71 $ 9.54
0.12 0.14 0.24 0.26 0.18 0.11
2.29 3.27 3.13 (2.71) 2.06 2.40
-------- ----------- ----------- ----------- ----------- ----------
2.41 3.41 3.37 (2.45) 2.24 2.51
(0.12) (0.14) (0.24) (0.26) (0.21) (0.10)
(1.31) (1.07) (0.32) (0.39) (0.49) (0.24)
(1.43) (1.21) (0.56) (0.65) (0.70) (0.34)
$16.14 $ 15.16 $ 12.96 $ 10.15 $ 13.25 $ 11.71
========= =========== =========== =========== =========== ==========
15.89% 26.50% 33.18% (18.55%) 19.36% 26.31%
0.97% 1.07% 1.13% 1.25% 1.45% 1.70%
0.76% 1.07% 2.02% 2.38% 1.59% 1.26%
49.47% 41.36% 40.93% 15.17% 10.32% 22.69%
$25,072,289 $19,985,838 $15,583,806 $10,517,783 $11,320,279 $6,893,776
</TABLE>
13
<PAGE>
FINANCIAL HIGHLIGHTS--(CONTINUED)
For a share outstanding throughout the year:
GROWTH AND INCOME PORTFOLIO
<TABLE>
<CAPTION>
(UNAUDITED) YEAR YEAR YEAR YEAR YEAR PERIOD FROM
SIX MONTHS ENDED ENDED ENDED ENDED ENDED MAY 1, 1992 TO
ENDED DECEMBER DECEMBER DECEMBER DECEMBER DECEMBER DECEMBER
JUNE 30, 1998 31, 1997 31, 1996 31, 1995 31, 1994 31, 1993 31, 1992 (A)
<S> <C> <C> <C> <C> <C> <C> <C>
Net asset value, beginning
of year $ 17.11 $ 16.91 $ 14.41 $ 11.22 $ 12.35 $ 11.10 $ 10.27
INCOME FROM INVESTMENT
OPERATIONS
Net investment income 0.09 0.15 0.18 0.15 0.13 0.12 0.02
Net gains and losses on
securities (both realized
and unrealized) 2.17 4.67 3.12 3.62 (0.65) 1.53 0.83
----------- ----------- ----------- ----------- ---------- ---------- ----------
Total from investment
operations 2.26 4.82 3.30 3.77 (0.52) 1.65 0.85
LESS DISTRIBUTIONS TO
SHAREHOLDERS
Dividends from net
investment income (0.15) (0.18) (0.15) (0.13) (0.12) (0.02)
Dividends in excess of net
investmentincome
Distributions from
capital gains (4.21) (0.62) (0.29) (0.48) (0.28)
Distributions in excess
of capital gains (0.26) (0.14)
Returns of capital
----------- ----------- ----------- ----------- ---------- ---------- ----------
Total distributions 0.00 (4.62) (0.80) (0.58) (0.61) (0.40) (0.02)
Net asset value, end of
period $ 19.37 $ 17.11 $ 16.91 $ 14.41 $ 11.22 $ 12.35 $ 11.10
=========== =========== =========== =========== ========== ========== ==========
Total Return (B) 13.21% 28.92% 22.88% 33.58% (4.24%) 14.94% 12.48%(C)
Ratios to Average Net Assets:
Expenses 0.84% 0.85% 0.88% 0.92% 1.10% 1.35% 2.09%(C)
Net investment income 1.02% 1.03% 1.39% 1.50% 1.52% 1.38% 0.36%(C)
Portfolio Turnover Rate 29.81% 129.53% 35.69% 32.30% 38.17% 77.68% 54.11%
Average Commission Rate Paid $ 0.0599 $ 0.0604 $ 0.0700
Net Assets, At end of period $63,387,409 $39,678,076 $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 year and does
not reflect deduction of account fees and charges that apply to the separate
accounts or related insurance policies and annuity contracts. Investment
returns and principal values will fluctuate and shares, when redeemed, may
be worth more or less than the original cost.
(C) Per share data and ratios calculated on an annualized basis.
14
<PAGE>
FINANCIAL HIGHLIGHTS--(CONTINUED)
For a share outstanding throughout the year:
CAPITAL GROWTH PORTFOLIO
<TABLE>
<CAPTION>
FOR THE
(UNAUDITED) YEAR YEAR YEAR YEAR YEAR PERIOD FROM
SIX MONTHS ENDED ENDED ENDED ENDED ENDED MAY 1, 1992 TO
ENDED DECEMBER DECEMBER DECEMBER DECEMBER DECEMBER DECEMBER 31,
JUNE 30, 1998 31, 1997 31, 1996 31, 1995 31, 1994 31, 1993 1992 (A)
<S> <C> <C> <C> <C> <C> <C> <C>
Net asset value, beginning
of year $ 21.23 $ 17.26 $ 17.38 $ 13.38 $ 14.26 $ 12.42 $ 9.95
INCOME FROM INVESTMENT
OPERATIONS
Net investment income (0.01) 0.05 0.03 0.03 (0.01)
Net gains and losses on
securities
(both realized and
unrealized) 5.32 4.99 3.24 5.56 (0.49) 3.03 2.69
------------ ------------ ----------- ----------- ----------- ----------- ---------
Total from investment
operations 5.31 4.99 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 (0.06) (0.81) (3.36) (1.56) (0.33) (1.19) (0.21)
Distributions in excess
of capital gains (0.21) (0.06)
Returns of capital
------------ ------------ ----------- ----------- ----------- ----------- ---------
Total distributions (0.06) (1.02) (3.41) (1.59) (0.42) (1.19) (0.21)
Net asset value, end of
period $ 26.48 $ 21.23 $ 17.26 $ 17.38 $ 13.38 $ 14.26 $ 12.42
============ ============ =========== =========== =========== =========== =========
Total Return (B) 25.03% 29.41% 19.25% 41.74% (3.26%) 24.73% 40.40% (C)
Ratios to Average Net
Assets:
Expenses 1.07% 1.09% 1.13% 1.15% 1.22% 1.33% 1.96% (C)
Net investment income (0.36%) 0.02% 0.30% 0.21% 0.25% (0.11%) (0.37%)(C)
Portfolio Turnover Rate 26.60% 91.66% 147.82% 170.32% 202.04% 162.79% 104.76%
Average Commission Rate
Paid $ 0.0487 $ 0.0568 $ 0.0502
Net Assets, At end of
period $173,459,262 $124,123,995 $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 year and does
not reflect deduction of account fees and charges that apply to the separate
accounts or related insurance policies and annuity contracts. Investment
returns and principal values will fluctuate and shares, when redeemed, may
be worth more or less than the original cost.
(C) Per share data and ratios calculated on an annualized basis.
15
<PAGE>
FINANCIAL HIGHLIGHTS--(CONTINUED)
For a share outstanding throughout the year:
BALANCED PORTFOLIO
<TABLE>
<CAPTION>
(UNAUDITED) YEAR YEAR YEAR YEAR YEAR PERIOD FROM
SIX MONTHS ENDED ENDED ENDED ENDED ENDED MAY 1, 1992 TO
ENDED DECEMBER DECEMBER DECEMBER DECEMBER DECEMBER DECEMBER
JUNE 30, 1998 31, 1997 31, 1996 31, 1995 31, 1994 31, 1993 31, 1992 (A)
<S> <C> <C> <C> <C> <C> <C> <C>
Net asset value, beginning
of year $ 11.75 $ 12.07 $ 11.91 $ 10.62 $ 11.22 $ 10.77 $ 10.10
INCOME FROM INVESTMENT
OPERATIONS
Net investment income 0.13 0.30 0.26 0.37 0.32 0.25 0.16
Net gains and losses on
securities
(both realized and
unrealized) 0.99 1.60 0.99 1.99 (0.47) 0.74 0.67
----------- ----------- ----------- ----------- ----------- ----------- ----------
Total from investment
operations 1.12 1.90 1.25 2.36 (0.15) 0.99 0.83
LESS DISTRIBUTIONS TO
SHAREHOLDERS
Dividends from net
investment income (0.30) (0.26) (0.37) (0.32) (0.25) (0.16)
Dividends in excess of net
investment income
Distributions from
capital gains (1.64) (0.83) (0.70) (0.13) (0.25)
Distributions in excess
of capital gains (0.28) (0.04)
Returns of capital
----------- ----------- ----------- ----------- ----------- ----------- ----------
Total distributions 0.00 (2.22) (1.09) (1.07) (0.45) (0.54) (0.16)
Net asset value, end of
period $ 12.87 $ 11.75 $ 12.07 $ 11.91 $ 10.62 $ 11.22 $ 10.77
=========== =========== =========== =========== =========== =========== ==========
Total Return (B) 9.56% 16.33% 10.56% 22.35% (1.33%) 9.27% 12.33%(C)
Ratios to Average Net
Assets:
Expenses 0.91% 0.97% 0.97% 0.99% 1.01% 1.07% 1.43%(C)
Net investment income 2.30% 2.60% 2.20% 3.20% 3.34% 2.79% 2.80%(C)
Portfolio Turnover Rate 136.00% 254.04% 222.35% 164.70% 103.68% 65.49% 77.33%
Average Commission Rate
Paid $ 0.0423 $ 0.0351 $ 0.0601
Net Assets, At end of
period $32,091,134 $22,637,577 $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
accounts or related insurance policies and annuity contracts. Investment
returns and principal values will fluctuate and shares, when redeemed, may
be worth more or less than the original cost.
(C) Per share data and ratios calculated on an annualized basis.
16
<PAGE>
FINANCIAL HIGHLIGHTS--(CONTINUED)
For a share outstanding throughout the year:
EMERGING GROWTH PORTFOLIO
<TABLE>
<CAPTION>
(UNAUDITED) YEAR YEAR PERIOD FROM
SIX MONTHS ENDED ENDED MAY 1, 1995 THROUGH
ENDED DECEMBER 31, DECEMBER 31, DECEMBER 31,
JUNE 30, 1998 1997 1996 1995 (A)
<S> <C> <C> <C> <C>
Net asset value, beginning of year $ 17.47 $ 15.23 $ 13.29 $ 10.00
INCOME FROM INVESTMENT OPERATIONS
Net investment income (loss) (0.05) (0.07) (0.05) (0.04)
Net gain on securities (both realized and unrealized) 3.68 3.19 2.48 3.33
----------- ----------- ----------- -----------
Total from investment operations 3.63 3.12 2.43 3.29
LESS DISTRIBUTIONS TO SHAREHOLDERS
Dividends from net investment income
Dividends in excess of net investment income
Distributions from capital gains (0.06) (0.88) (0.49)
Distributions in excess of capital gains
Returns of capital
----------- ----------- ----------- -----------
Total distributions (0.06) (0.88) (0.49) 0.00
Net asset value, end of period $ 21.04 $ 17.47 $ 15.23 $ 13.29
=========== =========== =========== ===========
Total Return (B) 20.78% 20.47% 18.30% 32.91%
Ratios to Average Net Assets:
Expenses 0.89% 1.00% 1.16% 1.63% (C)
Net investment income (0.58%) (0.61%) (0.48%) (0.84%)(C)
Portfolio Turnover Rate 29.60% 122.85% 94.58% 30.31%
Average Commission Rate Paid $ 0.0544 $ 0.0688 $ 0.0390
Net Assets, At end of period $77,665,917 $56,229,175 $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 year and does
not reflect deduction of account fees and charges that apply to the separate
accounts or related insurance policies and annuity contracts. 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.
17
<PAGE>
FINANCIAL HIGHLIGHTS--(CONTINUED)
For a share outstanding throughout the year:
HIGH YIELD BOND PORTFOLIO
<TABLE>
<CAPTION>
(UNAUDITED)
SIX MONTHS
ENDED
JUNE 30, 1998
<S> <C>
Net asset value, beginning of period $ 10.00
INCOME FROM INVESTMENT OPERATIONS
Net investment income (loss) 0.26
Net gains and losses on securities and foreign
currency (both realized and unrealized) 0.13
----------
Total from investment operations 0.39
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 0.00
Net asset value, end of period $ 10.39
==========
Total Return (A) 3.87%
Ratios to Average Net Assets:
Expenses 1.28%
Net investment income 7.30%
Portfolio Turnover Rate 61.23%
Average Commission Rate Paid N/A
Net Assets, At end of period $7,298,981
</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.
(B) During the period, the Portfolio held less than 10% of the value of its
average net assets in equity securities. Therefore, the Average Commission
Rate Paid has not been calculated.
18
<PAGE>
FINANCIAL HIGHLIGHTS--(CONTINUED)
For a share outstanding throughout the year:
GROWTH PORTFOLIO
<TABLE>
<CAPTION>
(UNAUDITED)
SIX MONTHS
ENDED
JUNE 30, 1998
<S> <C>
Net asset value, beginning of period $ 10.00
INCOME FROM INVESTMENT OPERATIONS
Net investment income (loss) (0.02)
Net gains and losses on securities and foreign
currency (both realized and unrealized) 1.71
----------
Total from investment operations 1.69
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 0.00
Net asset value, end of period $ 11.69
==========
Total Return (A) 16.91%
Ratios to Average Net Assets:
Expenses 1.07%
Net investment income (0.39%)
Portfolio Turnover Rate 145.86%
Average Commission Rate Paid $ 0.0669
Net Assets, At end of period $9,070,871
</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.
19
<PAGE>
FINANCIAL HIGHLIGHTS--(CONTINUED)
For a share outstanding throughout the year:
INTERNATIONAL EQUITY PORTFOLIO
<TABLE>
<CAPTION>
(UNAUDITED)
SIX MONTHS
ENDED
JUNE 30, 1998
<S> <C>
Net asset value, beginning of period $ 10.00
INCOME FROM INVESTMENT OPERATIONS
Net investment income (loss) 0.05
Net gains and losses on securities and foreign
currency (both realized and unrealized) 1.55
----------
Total from investment operations 1.60
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 0.00
Net asset value, end of period $ 11.60
==========
Total Return (A) 16.04%
Ratios to Average Net Assets:
Expenses 1.60%
Net investment income 1.00%
Portfolio Turnover Rate 61.42%
Average Commission Rate Paid $ 0.0252
Net Assets, At end of period $9,949,877
</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.
20
<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" "JP Financial" or "Jefferson Pilot
Financial") (formerly Chubb Life Insurance Company of America ("Chubb Life"),
Jefferson-Pilot Life Insurance Company ("Jefferson Pilot"), Alexander Hamilton
Life Insurance Company of America ("Hamilton") or their affiliated insurance
companies, to fund variable annuities and flexible premium variable life
insurance policies. None of these performance figures reflect fees and charges
imposed under such variable annuities or flexible premium variable 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 Small Company 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 JPF, 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 Corporation. 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. ("Warburg") to act as sub-investment
advisers or managers to the World Growth Stock, International Equity, Global
Hard Assets, Small Company, Capital Growth, Balanced, High Yield Bond, Emerging
Growth, 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.
21
<PAGE>
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 stockholders of each Portfolio that are affected by such
change. The fundamental 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 in a Portfolio 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 investors should carefully review the objectives and policies of the
Portfolios and consider their ability to assume the risks involved before
allocating amounts 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.
22
<PAGE>
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.
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 Equity 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 Investment Company Act of 1940. 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 the
time of investment, 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
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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.
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 Jefferson Pilot
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.
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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, (ii)
ferrous and non-ferrous metals, (iii) oil and 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 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.
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.
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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 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, but are not limited to, 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").
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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 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.
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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.
Small Company Portfolio
Investment Objectives. The investment objective of the Small Company
Portfolio is to achieve growth of capital. The Portfolio pursues its objective
by investing primarily in a diversified portfolio of equity securities issued by
small companies.
Investment Policies. The mix of assets of the Portfolio will vary with
prevailing economic and market conditions. Generally, at least 65% of the
Portfolio's gross assets will be invested in common stocks of small companies,
which are defined for this purpose as companies with market capitalizations
equal to or less than the capitalization of the largest company in the Russell
2000(R) Index. The Portfolio may also invest in other equity related securities
such as preferred stocks and bonds convertible into common stock.
The Small Company Portfolio may also invest up to 20% of its gross assets in
debt securities, including U.S. Government Obligations and corporate debt
securities. No more than 5% of the Portfolio's gross assets may be invested in
debt securities which are not investment grade quality. Non-investment grade
debt securities may be considered to have speculative characteristics. See "High
Yield Securities", below. In the event that the rating of an investment grade
debt security held by the Portfolio falls below investment grade, the Portfolio
may continue to hold such security if, in the opinion of the Sub-Investment
Manager, such investment is considered appropriate under the circumstances and
is consistent with the Portfolio's investment objective and policies.
The Small Company Portfolio intends to be substantially fully invested at all
times. If suitable investments are not immediately available, the Portfolio may
hold a portion of its assets in short-term investments such as commercial paper,
cash and cash equivalents, certificates of deposit, bankers' acceptances, and
other money market instruments. Short-term investments will not normally
represent more than 10% of the Portfolio's gross assets. For temporary defensive
purposes, however, the Portfolio may invest up to 100% of its gross assets in
such short-term investments. The Portfolio will assume a defensive posture only
when political and economic factors affect common stock markets to such an
extent that the Sub-Investment Manager believes there to be extraordinary risks
in being substantially invested in common stocks.
The Small Company Portfolio will invest primarily in U.S. companies, but may,
when deemed appropriate by the Sub-Investment Manager, invest in an hold up to
25% of the Portfolio's gross assets in foreign securities, including both direct
investments and investments made through depository receipts. It is anticipated
that the Portfolio's investments in foreign securities will consist primarily of
equity securities of companies organized outside the U.S., though they may also
include debt obligations of foreign companies and governments. See "Foreign
Securities" and "Depository Receipts" for the special risks associated with
foreign investments.
The Small Company Portfolio may invest in warrants, which are rights to buy
certain securities at set prices during specified time periods. The Portfolio
may also write covered call options and purchase call and put options on
securities and stock indices. The Portfolio may also purchase or write financial
futures contracts and options thereon, including stock index futures contracts.
The Portfolio may also enter into closing transactions with respect to such
options and futures contracts. See "Warrants", "Securities and Index Options",
"Purchasing Put and Call Options" and "Futures Contracts" below.
Risk Factors. Issuers of small company securities tend to be companies which
are smaller or newer than those listed on the New York or American Stock
Exchanges and are traded primarily in the over-the-counter market (though they
may be listed for
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trading on the New York or American Stock Exchange). Because issuers of small
company securities tend to be smaller or less well established companies, they
may have limited product lines, market share or financial resources. While
small-cap company securities may offer a greater capital appreciation potential
than investments in mid- or large-cap company securities, they may also present
greater risks. Small-cap company securities tend to be more sensitive to changes
in earnings expectations and have lower trading volumes than mid- to large-cap
company securities and, as a result, they may experience more abrupt and erratic
price movements.
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-Adviser, 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 & 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 in foreign
securities, including both direct investments and investments made through
depository receipts. See "Foreign Securities" and "Depository 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 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
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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 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.
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.
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. Pursuant to an exemptive order received by
the Sub-Investment Manager from the SEC, the Portfolio may also invest in money
market funds managed by the Sub-Investment Manager as a means of receiving a
return on idle cash. The Portfolio's cash position may increase when the Sub-
Investment Manager is unable locate
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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 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 price of the securities purchased by the Capital Growth Portfolio
will tend to fluctuate more than the prices of securities purchased by 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 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 (and in Depository
Receipts) limited to 15% of the Portfolio's total assets. 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.
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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 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.
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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 below investment grade
fixed income securities or comparable unrated securities. Investments in below
investment grade fixed 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. (See "High Yield Securities", below)
The Portfolio may also invest in fixed income securities rated Baa (Moody's)
or BBB (S&P), or better, and comparable unrated securities. Securities rated Baa
or BBB, 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
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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 delivery, the value of such
securities may be more or less than the purchase price.
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 Bond Portfolio, the Growth Portfolio, the Capital Growth Portfolio,
the Global Hard Assets Portfolio, the Small Company 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, the Global Hard Assets Portfolio, the Small Company 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.
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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 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.
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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.
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 Small Company Portfolio, the
Growth and Income Portfolio, 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.
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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 or exposed
to 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 or exposed, 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 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 or exposed to 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
related 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.
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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. (See "Short Sales" in the Statement of Additional
Information.)
High Yield Securities
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 Portfolios' 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.
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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.
Securities and Index Options
The Growth Portfolio, the Growth and Income Portfolio, the High Yield Bond
Portfolio, the Capital Growth Portfolio, the Global Hard Assets Portfolio, the
Balanced Portfolio, the Small Company 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, the High Yield Bond
Portfolio, the International Equity Portfolio, the Capital Growth Portfolio, the
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, the Global Hard Assets Portfolio, the
Small Company 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, the Global Hard Assets Portfolio, the Small Company
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 Portfolio, the Growth Portfolio, the Global Hard Assets Portfolio
and the Emerging Growth Portfolio 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
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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 for
purposes other than bona fide hedging 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, the High Yield Bond
Portfolio, the Global Hard Assets Portfolio, the International Equity Portfolio,
the Growth and Income Portfolio, the Capital Growth Portfolio, the Balanced
Portfolio, the Small Company Portfolio and the Emerging Growth Portfolio entails
certain risks, including but not limited to the following: no assurance that
futures contracts transactions 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, the Growth Portfolio, the High Yield Bond
Portfolio, the Global Hard Assets Portfolio and the 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, Small Company Portfolio, High Yield Bond Portfolio, Global Hard
Assets Portfolio, International Equity Portfolio, Balanced Portfolio, Capital
Growth Portfolio, World Growth Stock Portfolio and Emerging Growth Portfolio 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, the High Yield Bond Portfolio, the Global Hard Assets
Portfolio, the International Equity Portfolio and the Emerging Growth Portfolio
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 International Equity Portfolio, the High Yield Bond Portfolio, the Growth
Portfolio, the Growth and Income, the Global Hard Assets Portfolio and the
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
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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 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 investment
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. Leveraging by means of borrowing will exaggerate the effect of any
increase or decrease in the value of portfolio securities on the Fund's net
asset value, and money borrowed will be subject to interest and other costs
which may or may not exceed the investment return received from the securities
purchased with borrowed funds. It is anticipated that such borrowings would be
pursuant to a negotiated loan agreement with a commercial bank or other
institutional lender.
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.
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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, Growth Portfolio
and Capital 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 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, Growth Portfolio and Capital 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 liquid 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.
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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.
Loan Participations and Other Direct Indebtedness
The Growth Portfolio, Capital Growth Portfolio, High Yield Bond Portfolio,
Global Hard Assets Portfolio and International Equity Portfolio and the Emerging
Growth Portfolio 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: 30.22% and 27.50% for
the World Growth Stock Portfolio; 19.70% and 64.78% for the Global Hard Assets
Portfolio; 52.92% and 49.75% for the Small Company Portfolio; 129.53% and
35.69%, 64.38 (1997) for the Growth and Income Portfolio; 91.66% and 147.82% for
the Capital Growth Portfolio; 122.85% and 94.58% for the Emerging Growth
Portfolio and 254.04 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 276.54% and 233.29%, respectively, for the common
stock portion of the Portfolio and 220.70% 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.
43
<PAGE>
The Fund's Investment Manager is Jefferson Pilot Investment Advisory
Corporation (Jefferson Pilot Investment Advisory), a registered investment
adviser and 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.
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,
GLOBAL HARD ASSETS,
SMALL COMPANY, 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 Small Company
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.
The Fund and Jefferson Pilot Investment Advisory have obtained an exemptive
order from the Securities and Exchange Commission which permits Jefferson Pilot
Investment Advisory, subject to certain conditions, to replace or add
Subadvisers and to enter into Subadviser Agreements with those Subadvisers
without shareholder approval. Approval of the Fund's Board of Directors would
still be required. Shareholders will be notified of the hiring of any new
Subadviser or the implementation of any proposed material change in a Subadviser
Agreement. Jefferson Pilot Investment Advisory will not enter into a Subadviser
Agreement with any Affiliated Subadviser without that agreement being approved
by the shareholders of the applicable Portfolio. JEFFERSON PILOT INVESTMENT
ADVISORY HAS ULTIMATE RESPONSIBILITY FOR THE INVESTMENT MANAGEMENT OF EACH
PORTFOLIO EMPLOYING SUBADVISERS DUE TO ITS RESPONSIBILITY TO OVERSEE SUBADVISERS
AND RECOMMEND THEIR HIRING, TERMINATION, AND REPLACEMENT.
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 Sweeting is primarily responsible for
the day to day management of the World Growth Stock Portfolio. Previously Ms.
Sweeting was a Vice President of investments at McDermott International
Investments Company. Ms. Sweeting 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.
44
<PAGE>
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 two other registered investment companies, Van Eck Funds and
Van Eck Worldwide Insurance Trust and as a sub-adviser to two other registered
investment companies, PIMCO Funds Multi-Manager Series--Precious Metals Fund and
The GCG Trust--Hard Assets Series, and manages or advises managers of portfolios
of pension plans and other accounts. Mr. John C. van Eck and members of his
immediate family own 100% of the outstanding voting securities of Van Eck
Associates. Since May 1, 1998, Derek van Eck and Kevin L. Reid have been
primarily responsible for the day-to-day management of the Global Hard Assets
Portfolio. Mr. Van Eck has been associated with Van Eck Associates as a
portfolio manager since 1988 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. Kevin L. Reid now serves as
Co-Portfolio Manager of Worldwide Hard Assets Fund with Derek van Eck. Messrs.
van Eck and Reid are jointly responsible for managing this Fund's portfolio of
investments.
Pioneer, a registered investment adviser and a Delaware corporation is the
sub-adviser of the Small Company Portfolio. 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. Todd E. Grady, Vice President of Pioneer, has primary responsibility
for the day-to-day management of the Small Company Portfolio. Mr. Grady has
seven years of investment experience, including four years at Pioneer, and has
had primary responsibility for day-to-day management of the Pioneer Small
Company Fund since January 24, 1997.
Janus, a registered investment adviser, is a Colorado corporation. It serves
as investment adviser or sub-adviser to the Janus Funds, 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. ("Warburg"), Sub-investment manager to
the Growth and Income Portfolio, is indirectly controlled by Warburg, Pincus &
Co. ("W.P.&CO."), a New York partnership which has no business other than being
a holding company for Warburg and its affiliates. Lionel I. Pincus, the Managing
Director of W.P. & Co. may be deemed to control both W.P. & Co. and Warburg.
Warburg, organized in 1970, is a professional investment advisory firm which
provides investment services to investment companies, employee benefit plans,
endowment funds, foundations, and other institutions and individuals. As of
January 31, 1998 Warburg managed nearly $19.9 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 ("JPM & Co."), 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 JPM &
Co. through Morgan and its other subsidiaries, had assets under management of
approximately $255 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 $77.6
Billion on behalf of approximately 2.9 million investor accounts as of February
28, 1998. As of such date, the MFS organization manages approximately $52.6
Billion of assets invested in equity securities and approximately $20.4 Billion
of assets invested in fixed income securities. Approximately $4.0 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
of Canada (U.S.) Financial Services Holdings, Inc., which in turn is an indirect
wholly owned subsidiary of Sun Life.
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
45
<PAGE>
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.), a subsidiary of Sun Life
Assurance Company of Canada ("Sun Life"), 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 is 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.
Strong Capital Management, Inc. ("Strong") 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 adviser for its own proprietary mutual funds. As of February 28, 1998,
Strong managed over $29.8 Billion in assets.
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 orders to
purchase and sell securities on its behalf. The portfolio manager for the Growth
Portfolio is Mr. Ronald Ognar. Mr. Ognar, a Chartered Financial Analyst with
more than 25 years of investment experience joined Strong in April 1993, after
two years as a principal 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 manages the Strong Growth Fund, the Strong Growth
20 Fund, and co-manages the Strong Total Return 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.
Philippe Sarasin, 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,
overall strategy is set by the Lombard Odier Strategy Committee, Mr. Ronald
Armist (15 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 Capital Growth World Growth Global Hard Assets Small Company
- ---------------- -------------- ------------ ------------------ -------------
<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%
</TABLE>
46
<PAGE>
<TABLE>
<CAPTION>
High Yield &
NET ASSETS Growth & Income Emerging Growth Money Market Balanced
- ---------- --------------- --------------- ------------ --------
<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 Growth International Equity
- ---------- ------ --------------------
<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 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, Global Hard Assets
Portfolio, Small Company Portfolio, Growth and Income Portfolio, Capital Growth
Portfolio, Balanced Portfolio and Emerging Growth Portfolio. For the year ended
December 31, 1997 the ratio of operating expenses to average net assets was
.91%, .60%, 1.07%, .83%, .60%, 1.09%, .97%, and 1.00% respectively, for the
World Growth Stock Portfolio, the Money Market Portfolio, the Global Hard Assets
Portfolio, the Small Company 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.
47
<PAGE>
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. 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.
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.
48
<PAGE>
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 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."
YEAR 2000
The Fund it has contracted with a number of affiliated and unaffiliated service
agents to provide all its computer and data processing support.
These service agents have been using certain computer programs which were
originally written using two rather than four digits to define applicable years.
As a result they may be using computer programs that have no time sensitive
software which may recognize a date using "00" as the 1900 rather than the year
2000 (the "Year 2000 Matter"). This could result in a system failure which may
disrupt operations, including an inability to accurately process purchases and
sales or calculate asset values or complete other important data processing
functions.
The service agents will have to identify, replace or modify portions of their
software and hardware so that their systems will function properly with respect
to dates in the Year 2000 and thereafter. If these modifications are not made or
are not completed on a timely basis, the Year 2000 Matter could have a material
adverse effect on the Fund and its Portfolios and there is no guarantee that the
Fund's service agents will be in compliance on a timely basis.
49
<PAGE>
Jefferson-Pilot Corporation, the parent of many of the Fund's affiliated service
agents, has developed a centralized oversight and project management process to
facilitate the conversion of all information systems to be ready for the year
2000 and has been converting critical data processing systems. The Investment
Manager is monitoring similar projects involving service agents which are not
affiliates of Jefferson Pilot. The Fund does not currently expect the Year 2000
Matter to have a significant effect on its operations.
OTHER INFORMATION
Shares of the Portfolios are presently offered to separate accounts of
Jefferson Pilot Financial, Alexander Hamilton Life, Jefferson-Pilot Life, or
their affiliated insurance companies, 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.
50
<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 Outside 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 Investing Primarily In Corporate Obligations With
Emphasis On Higher Yielding, Higher Risk, Lower-Rated Or Unrated
Securities.
Small Company Portfolio Investing Primarily in Equity Securities of Small
Companies.
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 November 2, 1998.
The date of this Statement of Additional Information is November 2, 1998.
<PAGE>
TABLE OF CONTENTS
<TABLE>
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Page
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<S> <C>
Business History......................................................................... S-3
Investment Restrictions.................................................................. S-3
Description of Certain Investments....................................................... S-6
Bank Obligations........................................................................ S-6
Repurchase Agreements................................................................... S-6
Commercial Paper........................................................................ S-6
Loan Participation and other Direct Indebtedness........................................ S-7
Corporate Asset Backed Securities....................................................... S-8
Lending of Securities................................................................... S-8
Forward Commitments..................................................................... S-9
Forward Foreign Currency Exchange Contracts............................................. S-9
Depository Receipts..................................................................... S-9
Restricted and Illiquid Securities...................................................... S-9
Securities and Index Options............................................................ S-10
Futures Contracts and Related Options................................................... S-11
Options on Foreign Currencies........................................................... S-13
Limitations on Purchase and Sale of Futures Contracts and Options on Futures Contracts.. S-13
High Yield Bonds........................................................................ S-14
Description of Investment Ratings....................................................... S-14
Risk Considerations...................................................................... S-16
U.S. Dollar Obligations of Foreign Branches of U.S. Banks............................... S-16
Repurchase Agreements................................................................... S-16
Foreign Securities...................................................................... S-16
Forward Foreign Currency Exchange Contracts............................................. S-17
Options................................................................................. S-17
Futures Contracts and Related Options................................................... S-18
Federal Tax Matters..................................................................... S-18
Investment Advisory and Other Services................................................... S-19
Investment Management Agreements and Sub-Investment Management Agreements............... S-19
Independent Auditors.................................................................... S-20
Custodians.............................................................................. S-21
Payment of Expenses..................................................................... S-21
Portfolio Transactions and Brokerage Allocations......................................... S-21
Management of the Fund................................................................... S-22
Capital Stock............................................................................ S-23
Offering and Redemption of Shares........................................................ S-24
Determination of Net Asset Value......................................................... S-25
Taxes.................................................................................... S-26
Performance and Yield Information........................................................ S-26
Money Market Portfolio.................................................................. S-26
Non-Money Market Portfolios............................................................. S-26
Additional Information................................................................... S-28
Reports................................................................................. S-28
Name and Service Mark................................................................... S-28
Financial Statements..................................................................... S-28
</TABLE>
<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
Insurance Company ("Jefferson Pilot") and Alexander Hamilton Life Insurance
Company of America ("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 Small Company
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, the Balanced Portfolio,
Global Hard Assets Portfolio, the Small Company 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 and
Global Hard Assets may enter into financial and commodity futures, forward
and options contract thereon, 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
S-3
<PAGE>
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 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, Small Company 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, the Small
Company 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.
S-4
<PAGE>
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, Small Company 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.
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, Small Company Portfolio and
Emerging Growth Portfolio invest in or write puts, calls, straddles, or
spreads (except that the Small Company Portfolio may not write puts).
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 Bond 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 Bond 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 Bond 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 Bond 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.
S-5
<PAGE>
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:
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, 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
Small Company 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, 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.
S-6
<PAGE>
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 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 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
S-7
<PAGE>
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 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
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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 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 or exposed. 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 or
exposed to 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.
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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
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 Small Company
Portfolio may purchase put and call options 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.
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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.
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, the Small Company 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
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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.
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, the
Small Company 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.
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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 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 for purposes other than bona fide
hedging 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"
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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
The medium and lower quality debt securities in which the Growth, Capital
Growth, High Yield Bond, Global Hard Assets, Small Company 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.
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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.
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.
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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".
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.
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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 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.
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 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
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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 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.
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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.
Jefferson Pilot Investment Advisory has 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 Asset Management, 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; Small Company; 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 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
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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, 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
Small Company Portfolio (formerly 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 $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 Small Company 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 31, 1997 the Fund paid $281,312, $16,816, $16,911,
$201,449, $83,877, $264,808, $59,682, $132,766 to Jefferson Pilot Investment
Advisory for the World Growth Stock Portfolio, the Money Market Portfolio, the
Global Hard Assets Portfolio, the Small Company Portfolio, the Growth and Income
Portfolio, the Capital Growth Portfolio, the Balanced Portfolio and the Emerging
Growth Portfolio.
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: $562,624, $437,374, and
$340,840 to Templeton for the World Growth Portfolio; $23,351, $29,791 and
$28,659 to Chubb Asset Managers, Inc. and in 1997 $10,214 to MFS for the Money
Market Portfolio for the years 1997, 1996 and 1995 respectively; $33,822,
$41,803 and $37,760, to Van Eck Associates for the Global Hard Assets Portfolio;
$402,898, $320,010 and $211,893 to Pioneering Management for the Small Company
Portfolio; $97,789, $90,493 and $43,555 to Chubb Asset Managers, Inc. and for
1997 $69,964 to Warburg for the Growth and Income Portfolio; $799,863, $527,776
and $290,382 to Janus for the Capital Growth Portfolio; and $69,137, $89,806 and
$70,953 to Phoenix and for 1997 $37,219 to Morgan for the Balanced Portfolio;
and Jefferson Pilot Investment Advisory paid $176,797 for 1997 $108,477 for
1996, and $20,914 for 1995 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
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shareholder. On July 30, 1998, the continuance of the Investment Management
Agreement with Jefferson Pilot Investment Advisory Corporation was approved by
the Fund's Board of Directors.
Independent Auditors
Ernst & Young LLP, 200 Clarendon Street, Boston, Massachusetts 02116 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 Ernst & Young LLP, 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 $694,293, 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.
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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, 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, no 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.
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
One Granite Place and Director Financial, President and Director,
Concord, N.H. 03301 Jefferson Pilot Investment Advisory,
Jefferson Pilot Securities and Hampshire
Funding, Inc.; Senior Vice President
and Director, Chubb Investment Funds,
Inc.
</TABLE>
S-22
<PAGE>
<TABLE>
<CAPTION>
Positions
with Principal Occupations
Name and Address the Fund for the Past Five Years
- ---------------- --------- -----------------------
<S> <C> <C>
Charles C. Cornelio Vice President Executive Vice
One Granite Place and General Counsel President, Jefferson
Concord, N.H. 03301 Pilot Financial and
Jefferson Pilot
Corporation, Vice
President, and
Secretary, Jefferson
Pilot Securities
Corporation.
Shari J. Lease Secretary Vice President and
One Granite Place Counsel, Jefferson
Concord, N.H. 03301 Pilot Financial;
Secretary, Chubb
Investment Advisory,
previously Secretary,
Chubb Investment Funds,
Inc.
Craig D. Moreshead Assistant Secretary Attorney of Jefferson
One Granite Place Pilot Financial;
Concord, N.H. 03301 formerly Compliance
Manager of BancBoston
Securities, Inc.
John A. Weston Treasurer Assistant Vice
One Granite Place President of Jefferson
Concord, N.H. 03301 Pilot Financial,
Treasurer of Jefferson
Pilot Securities
Corporation, 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.
Mark D. Landry Assistant Treasurer Mutual Fund Accounting
One Granite Place and Operations Officer
Concord, N.H. 03301 for Jefferson Pilot
Financial, Concord,
N.H. 03301 and
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
215 Mountain Road Litho Company, Inc.
Concord, N.H. 03301 (printing company)
Elizabeth S. Hager Director State Representative,
5 Auburn Street New Hampshire,
Concord, N.H. 03301 Executive Director,
United Way, Consultant,
Fund Development,
previously, City
Councilor, City of
Concord, N.H. and
Mayor, City of Concord,
N.H.
Thomas D. Rath Director Partner, Rath, Young,
One Capital Plaza, P.O. Box 1500 Pignatelli, P.A.;
Concord, N.H. 03302 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, Small Company
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
S-23
<PAGE>
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, are fully paid and non-assessable, have no
preference, preemptive, conversion, exchange or similar rights, and are 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 Small Company
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.
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. 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.
S-24
<PAGE>
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,
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.
S-25
<PAGE>
TAXES
In order for each Portfolio of the Fund to qualify for Federal income tax
treatment as a regulated investment company, at least 90% of the portfolio's
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. 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 5.05%; the yield of the
Money Market Portfolio expressed as a compounded effective yield was 5.18%.
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.
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
Yield 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 Global Hard Assets Portfolio
(formerly the Gold Stock Portfolio), the Small Company Portfolio (formerly the
Domestic Growth Stock Portfolio), the Growth and Income Portfolio, the Capital
Growth Portfolio, the Balanced Portfolio and Emerging Growth Portfolio for the
one year ended December 31, 1997 are 15.33%, 4.86%, (44.63%), 23.60%, 28.92%,
29.41%, 16.33%, and 20.47%, respectively. The average annual total return
quotations for these Portfolios, other than the Emerging Growth Portfolio, for
the 5 years ended December 31, 1997 are 15.71%, 4.03%, (3.73%), 18.43% 18.42%,
21.42% and 11.15%, respectively. The average annual total return quotations for
World Growth Stock Portfolio, the Money Market Portfolio, the Global Hard Assets
Portfolio and the Small Company Portfolio for the 10 years ended December 31,
1997 are 13.39%, (6.02%), 4.92%, and 17.03% respectively. The average annual
total return quotations for World Growth Stock Portfolio, the Money Market
Portfolio, the Global Hard Assets Portfolio, the Small Company Portfolio, the
Growth and Income Portfolio, the Capital Growth Portfolio, the
S-26
<PAGE>
Balanced Portfolio and the Emerging Growth Portfolio since each Portfolio's
inception through December 31, 1997 are 12.58%, 5.00%, (0.12%), 14.75%, 17.70%,
23.81%, 11.35%, and 27.01%, 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
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.
S-27
<PAGE>
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 Fund's December 31, 1997 Annual
Report and June 30, 1998 unaudited Semi-Annual Report are incorporated herein by
reference. In the opinion of management, no adjustments to the June 30, 1998
unaudited financial statements were necessary to provide a fair statement of the
results for that period.
S-28
<PAGE>
PART C
OTHER INFORMATION
Item 22. Financial Statements and Exhibits
(a) Financial Statements
The financial statements contained in the Fund's December 31,
1997 Annual Report to Shareholders filed on March 3, 1998 and the
Fund's June 30, 1998 unaudited Semi-Annual Report to Shareholders
filed on August 28, 1998 are incorporated by reference in the Fund's
Statement of Additional Information. In the opinion of management,
no adjustments to the June 30, 1998 unaudited financial statements
were necessary to a fair statement of the results for that period.
(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 are
incorporated by reference to earlier filing on March 2, 1998
SEC File No. 2-94479 Exhibit 1.b of Form N-1A Registration
Statement.
2. By-Laws, incorporated by reference to earlier filing on March 2, 1998
SEC File No. 2-94479 Exhibit 2 of Form N-1A Registration Statement.
3. Not applicable.
4. Not applicable.
C-1
<PAGE>
5. a. Investment Management Agreement between Chubb America Fund, Inc.
and Chubb Investment Advisory Corporation incorporated by reference to
earlier filing on March 2, 1998 SEC File No. 2-94479 Exhibit 99.5a.
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 incorporated by reference to earlier
filing on March 2, 1998 SEC File No. 2-94479 Exhibit 99.5j.
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
incorporated by reference to earlier filing on March 2, 1998 SEC File
No. 2-94479 Exhibit 99.5k.
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 incorporated by reference to earlier filing on March 2, 1998
SEC File No. 2-94479 Exhibit 99.5e.
6. Fund Distribution Agreement between Jefferson Pilot Variable
Fund, Inc. and Jefferson Pilot Variable Corporation incorporated by
reference to earlier filing on March 2, 1998 SEC File No. 2-94479
Exhibit 99.6.
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-1A 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-1A 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-1A 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.
14. Not applicable.
27.1 FINANCIAL DATA SCHEDULES No. 2-94479
99.1 Consent of Ernst & Young LLP
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
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 23. 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
changed its name to Jefferson Pilot Financial Insurance Company ("J.P.
Financial") on 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 is included in this filing.
C-7
<PAGE>
Item 24. 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.... 2
International Equity Portfolio Capital Stock; $.01 par value.. 4
Money Market Portfolio Capital Stock; $.01 par value.......... 2
Global Hard Assets Portfolio Capital Stock; $.01 par value.... 1
High Yield Bond Portfolio Capital Stock; $.01 par value....... 4
Growth Portfolio Capital Stock; $.01 par value................ 4
Small Company Portfolio Capital Stock; $.01 par value......... 2
Growth and Income Portfolio Capital Stock; $.01 par value..... 3
Capital Growth Portfolio Capital Stock; $.01 par value........ 3
Balanced Portfolio Capital Stock; $.01 par value.............. 2
Emerging Growth Portfolio Capital Stock; $.01 par value....... 4
</TABLE>
J.P. Financial has purchased 300,000 shares of capital stock of 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 25. Indemnification
Reference is made to Article VIII, Section 10 of the Registrant's
Amended and Restated Articles of Incorporation filed on September 5,
1997, as Exhibit 1.a to the Form N-lA Registration Statement and to
Article V of the Registrant's By-Laws filed on March 2, 1998, as Exhibit
2 to the Form N-1A 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 26. 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;
Senior Vice President and
Director of Jefferson Pilot
LifeAmerica; President and
Director, Jefferson Pilot
Securities, and Hampshire
Funding, Inc.; formerly
Senior Vice President and
Director, Chubb Investment
Funds, Inc.
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.
Mark D. Landry Assistant Treasurer Mutual Fund Accounting and
Operations Officer for Jefferson
Pilot Financial; 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.
Dennis R. Glass Director Executive Vice President, Chief
Financial Officer and Treasurer of
Jefferson-Pilot Corporation,
Jefferson-Pilot Life, and Alexander
Hamilton Life; Executive Vice
President and Director of Jefferson
Pilot Financial
John C. Ingram Director Senior Vice President - Securities
of Jefferson-Pilot Life, Alexander
Hamilton Life, and Jefferson Pilot
Financial
E. Jay Yelton Director Executive Vice President -
Investments of Jefferson-Pilot
Corporation, Jefferson-Pilot Life,
and Alexander Hamilton Life;
Executive Vice President -
Investments and Director of
Jefferson Pilot Financial
</TABLE>
C-l1
<PAGE>
<TABLE>
<CAPTION>
Name of Director Positions with Chubb Other Business,
or Officer of Chubb Investment Profession, Vocation or
Investment Advisory Advisory Employment During
- ------------------- --------
Past Two Years
--------------
<S> <C> <C>
Carol R. Hardiman Vice President Vice President and Director of
Jefferson Pilot Securities; Vice
President of Hampshire Funding Inc.
</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 27. Principal Underwriters
Jefferson Pilot Variable Corporation also distributes JPF Separate
Account A, JPF Separate Account B, JPF Separate Account C, JPF Separate
Account D, Alexander Hamilton Variable Annuity Separate Account and
Jefferson-Pilot Separate Account A.
The names, principal business addresses, positions and offices of each
director or officer of Jefferson Pilot Variable Corporation, and their
positions with the Fund are:
<TABLE>
<CAPTION>
Name and Principal Positions and Offices Positions and Offices
Business Address with Underwriter with Registrant
- ---------------- ---------------- ---------------
<S> <C> <C>
Ronald R. 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 Chief Financial Officer Treasurer
One Granite Place
Concord NH 03301
Shari J. Lease Secretary Secretary
One Granite Place
Concord NH 03301
W. Thomas Boulter Chief Compliance Officer None
One Granite Place
Concord NH 03301
Stafford Moser Assistant Vice President, None
Marketing
Kevin Haddad Compliance Officer None
Charles C. Cornelio Director Vice President
and General Counsel
Carol C. Hardiman Director None
</TABLE>
Item 28. 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; Warburg
Pincus Counsellors, Inc., 466 Lexington Avenue, New York, New York
10017; 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; J.P. Morgan Investment
Management, Inc., 522 Fifth Avenue, New York, New York 10036;
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 29. Management Services
Not applicable.
Item 30. Undertakings
Not applicable.
C-13
<PAGE>
Item 31. Signatures
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 1st day of September, 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 and Shari Lease 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, September 1, 1998
- ---------------------- Principal
Ronald Angarella Executive
Officer, and
Director
/s/John A. Weston Treasurer, Principal September 1, 1998
- ---------------------- Financial Officer, and
John A. Weston, Principal Accounting
Officer
* Director September 1, 1998
- ----------------------
Michael D. Coughlin
* Director September 1, 1998
- ----------------------
Elizabeth S. Hager
* Director September 1, 1998
- ----------------------
Thomas D. Rath
*/s/ Ronald Angarella
- ----------------------
Ronald Angarella
Attorney In Fact
</TABLE>
C-15
<PAGE>
Exhibit Index
-------------
<TABLE>
<CAPTION>
Exhibit
Number Description
- ------ -----------
<C> <S>
27.1 Financial Data Schedules -
99.1 Consent of Ernst & Young L.L.P.
99.3 Diagram of Subsidiaries of the Jefferson-Pilot Corporation Incorporated
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 1
<NAME> WORLD GROWTH STOCK PORTFOLIO
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> JUN-30-1998
<INVESTMENTS-AT-COST> 105,151,013
<INVESTMENTS-AT-VALUE> 122,491,586
<RECEIVABLES> 582,350
<ASSETS-OTHER> 5,492,373
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 128,566,309
<PAYABLE-FOR-SECURITIES> 43,608
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 98,369
<TOTAL-LIABILITIES> 141,977
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 99,728,190
<SHARES-COMMON-STOCK> 5,144,793
<SHARES-COMMON-PRIOR> 4,534,236
<ACCUMULATED-NII-CURRENT> 1,494,661
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 9,865,777
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 17,335,704
<NET-ASSETS> 128,424,332
<DIVIDEND-INCOME> 2,674,150
<INTEREST-INCOME> 247,971
<OTHER-INCOME> (274,615)
<EXPENSES-NET> 577,229
<NET-INVESTMENT-INCOME> 2,070,227
<REALIZED-GAINS-CURRENT> 9,896,313
<APPREC-INCREASE-CURRENT> (2,216,228)
<NET-CHANGE-FROM-OPS> 9,750,362
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 6,248
<DISTRIBUTIONS-OF-GAINS> 1,073,078
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 200,686
<NUMBER-OF-SHARES-REDEEMED> 228,716
<SHARES-REINVESTED> 638,678
<NET-CHANGE-IN-ASSETS> 22,856,829
<ACCUMULATED-NII-PRIOR> (458,232)
<ACCUMULATED-GAINS-PRIOR> 931,406
<OVERDISTRIB-NII-PRIOR> 174,949
<OVERDIST-NET-GAINS-PRIOR> 930,784
<GROSS-ADVISORY-FEES> 476,996
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 577,229
<AVERAGE-NET-ASSETS> 128,221,087
<PER-SHARE-NAV-BEGIN> 23.28
<PER-SHARE-NII> 0.39
<PER-SHARE-GAIN-APPREC> 1.50
<PER-SHARE-DIVIDEND> 0.00
<PER-SHARE-DISTRIBUTIONS> (0.21)
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 24.96
<EXPENSE-RATIO> 0.89
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.00
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 2
<NAME> MONEY MARKET PORTFOLIO
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> JUN-30-1998
<INVESTMENTS-AT-COST> 15,792,099
<INVESTMENTS-AT-VALUE> 15,792,002
<RECEIVABLES> 833
<ASSETS-OTHER> 19,557
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 15,812,392
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 8,762
<TOTAL-LIABILITIES> 8,762
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 15,459,812
<SHARES-COMMON-STOCK> 1,508,436
<SHARES-COMMON-PRIOR> 922,650
<ACCUMULATED-NII-CURRENT> 344,860
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (945)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (97)
<NET-ASSETS> 15,803,630
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 387,908
<OTHER-INCOME> 0
<EXPENSES-NET> 43,048
<NET-INVESTMENT-INCOME> 344,860
<REALIZED-GAINS-CURRENT> (37)
<APPREC-INCREASE-CURRENT> (97)
<NET-CHANGE-FROM-OPS> 344,726
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 2,130,469
<NUMBER-OF-SHARES-REDEEMED> 1,591,369
<SHARES-REINVESTED> 46,686
<NET-CHANGE-IN-ASSETS> 6,368,176
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> (908)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 35,168
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 43,048
<AVERAGE-NET-ASSETS> 14,193,144
<PER-SHARE-NAV-BEGIN> 10.23
<PER-SHARE-NII> 0.23
<PER-SHARE-GAIN-APPREC> 0.02
<PER-SHARE-DIVIDEND> 0.00
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 10.48
<EXPENSE-RATIO> 0.62
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.00
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 3
<NAME> GLOBAL HARD ASSETS PORTFOLIO
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> JUN-30-1998
<INVESTMENTS-AT-COST> 4,860,842
<INVESTMENTS-AT-VALUE> 4,465,504
<RECEIVABLES> 1,019,834
<ASSETS-OTHER> 64,646
<OTHER-ITEMS-ASSETS> 4,233
<TOTAL-ASSETS> 5,554,217
<PAYABLE-FOR-SECURITIES> 731,454
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 8,750
<TOTAL-LIABILITIES> 740,024
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 8,536,561
<SHARES-COMMON-STOCK> 551,269
<SHARES-COMMON-PRIOR> 583,765
<ACCUMULATED-NII-CURRENT> 4,281
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (3,321,378)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (405,271)
<NET-ASSETS> 4,814,193
<DIVIDEND-INCOME> 38,620
<INTEREST-INCOME> 18,054
<OTHER-INCOME> (1,134)
<EXPENSES-NET> 27,494
<NET-INVESTMENT-INCOME> 28,046
<REALIZED-GAINS-CURRENT> (3,037,835)
<APPREC-INCREASE-CURRENT> 2,953,936
<NET-CHANGE-FROM-OPS> (55,853)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 89,883
<NUMBER-OF-SHARES-REDEEMED> 128,252
<SHARES-REINVESTED> 5,873
<NET-CHANGE-IN-ASSETS> (390,461)
<ACCUMULATED-NII-PRIOR> (17,094)
<ACCUMULATED-GAINS-PRIOR> (290,214)
<OVERDISTRIB-NII-PRIOR> 11,954
<OVERDIST-NET-GAINS-PRIOR> 154,999
<GROSS-ADVISORY-FEES> 19,884
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 27,494
<AVERAGE-NET-ASSETS> 5,342,725
<PER-SHARE-NAV-BEGIN> 8.92
<PER-SHARE-NII> 0.04
<PER-SHARE-GAIN-APPREC> (0.23)
<PER-SHARE-DIVIDEND> 0.00
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 8.73
<EXPENSE-RATIO> 1.01
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.00
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 4
<NAME> SMALL COMPANY PORTFOLIO
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> JUN-30-1998
<INVESTMENTS-AT-COST> 74,227,685
<INVESTMENTS-AT-VALUE> 89,353,044
<RECEIVABLES> 155,276
<ASSETS-OTHER> 4,897,395
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 94,405,715
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 68,932
<TOTAL-LIABILITIES> 68,932
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 75,080,603
<SHARES-COMMON-STOCK> 4,558,232
<SHARES-COMMON-PRIOR> 3,989,371
<ACCUMULATED-NII-CURRENT> 382,928
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 3,747,893
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 15,125,359
<NET-ASSETS> 94,336,783
<DIVIDEND-INCOME> 607,705
<INTEREST-INCOME> 136,729
<OTHER-INCOME> 0
<EXPENSES-NET> 384,771
<NET-INVESTMENT-INCOME> 359,663
<REALIZED-GAINS-CURRENT> 3,747,892
<APPREC-INCREASE-CURRENT> (1,928,376)
<NET-CHANGE-FROM-OPS> 2,179,179
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 977,613
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 420,866
<NUMBER-OF-SHARES-REDEEMED> 274,232
<SHARES-REINVESTED> 422,227
<NET-CHANGE-IN-ASSETS> 12,831,616
<ACCUMULATED-NII-PRIOR> 23,265
<ACCUMULATED-GAINS-PRIOR> 977,614
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 351,060
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 384,771
<AVERAGE-NET-ASSETS> 94,352,351
<PER-SHARE-NAV-BEGIN> 20.43
<PER-SHARE-NII> 0.30
<PER-SHARE-GAIN-APPREC> 0.19
<PER-SHARE-DIVIDEND> 0.00
<PER-SHARE-DISTRIBUTIONS> (0.22)
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 20.70
<EXPENSE-RATIO> 0.82
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.00
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 6
<NAME> GROWTH AND INCOME PORTFOLIO
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> JUN-30-1998
<INVESTMENTS-AT-COST> 52,777,032
<INVESTMENTS-AT-VALUE> 59,257,578
<RECEIVABLES> 133,251
<ASSETS-OTHER> 4,933,721
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 64,324,550
<PAYABLE-FOR-SECURITIES> 891,324
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 45,817
<TOTAL-LIABILITIES> 937,141
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 54,587,804
<SHARES-COMMON-STOCK> 3,273,122
<SHARES-COMMON-PRIOR> 2,319,530
<ACCUMULATED-NII-CURRENT> 286,868
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 2,032,191
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 6,480,546
<NET-ASSETS> 63,387,409
<DIVIDEND-INCOME> 440,245
<INTEREST-INCOME> 90,422
<OTHER-INCOME> (5,900)
<EXPENSES-NET> 237,899
<NET-INVESTMENT-INCOME> 286,868
<REALIZED-GAINS-CURRENT> 2,206,271
<APPREC-INCREASE-CURRENT> 4,166,596
<NET-CHANGE-FROM-OPS> 6,659,735
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 807,537
<NUMBER-OF-SHARES-REDEEMED> 442,780
<SHARES-REINVESTED> 588,835
<NET-CHANGE-IN-ASSETS> 23,709,333
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 174,080
<GROSS-ADVISORY-FEES> 211,780
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 237,899
<AVERAGE-NET-ASSETS> 56,948,895
<PER-SHARE-NAV-BEGIN> 17.11
<PER-SHARE-NII> 0.09
<PER-SHARE-GAIN-APPREC> 2.17
<PER-SHARE-DIVIDEND> 0.00
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 10.37
<EXPENSE-RATIO> 0.84
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.00
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 7
<NAME> CAPITAL GROWTH PORTFOLIO
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> JUN-30-1998
<INVESTMENTS-AT-COST> 118,778,834
<INVESTMENTS-AT-VALUE> 169,235,940
<RECEIVABLES> 891,887
<ASSETS-OTHER> 3,619,099
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 173,746,926
<PAYABLE-FOR-SECURITIES> 131,894
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 155,770
<TOTAL-LIABILITIES> 287,664
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 112,388,495
<SHARES-COMMON-STOCK> 6,549,630
<SHARES-COMMON-PRIOR> 5,846,944
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 275,501
<ACCUMULATED-NET-GAINS> 10,889,215
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 50,457,053
<NET-ASSETS> 173,459,262
<DIVIDEND-INCOME> 480,613
<INTEREST-INCOME> 55,694
<OTHER-INCOME> (1,572)
<EXPENSES-NET> 809,823
<NET-INVESTMENT-INCOME> (275,088)
<REALIZED-GAINS-CURRENT> 10,888,949
<APPREC-INCREASE-CURRENT> 22,364,417
<NET-CHANGE-FROM-OPS> 32,978,278
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 349,140
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 685,364
<NUMBER-OF-SHARES-REDEEMED> 194,630
<SHARES-REINVESTED> 211,952
<NET-CHANGE-IN-ASSETS> 49,335,267
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 349,140
<OVERDISTRIB-NII-PRIOR> (147)
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 755,870
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 809,823
<AVERAGE-NET-ASSETS> 152,515,664
<PER-SHARE-NAV-BEGIN> 21.23
<PER-SHARE-NII> (0.01)
<PER-SHARE-GAIN-APPREC> 5.32
<PER-SHARE-DIVIDEND> 0.00
<PER-SHARE-DISTRIBUTIONS> (0.06)
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 26.48
<EXPENSE-RATIO> 1.07
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.00
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 8
<NAME> BALANCED PORTFOLIO
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> JUN-30-1998
<INVESTMENTS-AT-COST> 29,969,765
<INVESTMENTS-AT-VALUE> 30,560,501
<RECEIVABLES> 594,829
<ASSETS-OTHER> 1,353,711
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 32,509,041
<PAYABLE-FOR-SECURITIES> 392,426
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 25,481
<TOTAL-LIABILITIES> 417,907
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 28,946,800
<SHARES-COMMON-STOCK> 2,492,982
<SHARES-COMMON-PRIOR> 1,926,775
<ACCUMULATED-NII-CURRENT> 334,051
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 2,206,482
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 603,801
<NET-ASSETS> 32,091,134
<DIVIDEND-INCOME> 127,129
<INTEREST-INCOME> 340,159
<OTHER-INCOME> (287)
<EXPENSES-NET> 133,728
<NET-INVESTMENT-INCOME> 333,273
<REALIZED-GAINS-CURRENT> 2,250,864
<APPREC-INCREASE-CURRENT> (16,587)
<NET-CHANGE-FROM-OPS> 2,567,550
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 329,258
<NUMBER-OF-SHARES-REDEEMED> 64,289
<SHARES-REINVESTED> 301,238
<NET-CHANGE-IN-ASSETS> 9,453,557
<ACCUMULATED-NII-PRIOR> (778)
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 44,382
<GROSS-ADVISORY-FEES> 108,758
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 133,728
<AVERAGE-NET-ASSETS> 29,247,809
<PER-SHARE-NAV-BEGIN> 11.75
<PER-SHARE-NII> 0.13
<PER-SHARE-GAIN-APPREC> 0.99
<PER-SHARE-DIVIDEND> 0.00
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 12.87
<EXPENSE-RATIO> 0.91
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.00
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 9
<NAME> EMERGING GROWTH PORTFOLIO
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> JUN-30-1998
<INVESTMENTS-AT-COST> 60,064,494
<INVESTMENTS-AT-VALUE> 78,068,019
<RECEIVABLES> 1,973,281
<ASSETS-OTHER> 635,111
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 80,676,411
<PAYABLE-FOR-SECURITIES> 2,959,554
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 50,940
<TOTAL-LIABILITIES> 3,010,494
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 58,105,878
<SHARES-COMMON-STOCK> 3,691,339
<SHARES-COMMON-PRIOR> 3,218,595
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 197,793
<ACCUMULATED-NET-GAINS> 1,753,499
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 18,004,333
<NET-ASSETS> 77,665,917
<DIVIDEND-INCOME> 52,843
<INTEREST-INCOME> 61,734
<OTHER-INCOME> (1,373)
<EXPENSES-NET> 310,729
<NET-INVESTMENT-INCOME> (197,525)
<REALIZED-GAINS-CURRENT> 2,163,057
<APPREC-INCREASE-CURRENT> 10,716,418
<NET-CHANGE-FROM-OPS> 12,681,950
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> (212,694)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 556,799
<NUMBER-OF-SHARES-REDEEMED> 255,033
<SHARES-REINVESTED> 170,978
<NET-CHANGE-IN-ASSETS> 21,436,742
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> (197,132)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 274,074
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 310,729
<AVERAGE-NET-ASSETS> 69,165,988
<PER-SHARE-NAV-BEGIN> 17.47
<PER-SHARE-NII> (0.05)
<PER-SHARE-GAIN-APPREC> 3.68
<PER-SHARE-DIVIDEND> 0.00
<PER-SHARE-DISTRIBUTIONS> (0.06)
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 21.04
<EXPENSE-RATIO> 0.89
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.00
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 10
<NAME> INTERNATIONAL EQUITY PORTFOLIO
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> JUN-30-1998
<INVESTMENTS-AT-COST> 8,872,605
<INVESTMENTS-AT-VALUE> 9,741,940
<RECEIVABLES> 232,295
<ASSETS-OTHER> 334,717
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 10,308,952
<PAYABLE-FOR-SECURITIES> 345,639
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 13,436
<TOTAL-LIABILITIES> 359,075
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 9,049,263
<SHARES-COMMON-STOCK> 857,478
<SHARES-COMMON-PRIOR> 1
<ACCUMULATED-NII-CURRENT> 42,798
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (40,548)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 898,364
<NET-ASSETS> 9,949,877
<DIVIDEND-INCOME> 102,414
<INTEREST-INCOME> 7,816
<OTHER-INCOME> (13,475)
<EXPENSES-NET> 59,641
<NET-INVESTMENT-INCOME> 37,114
<REALIZED-GAINS-CURRENT> (34,864)
<APPREC-INCREASE-CURRENT> 898,364
<NET-CHANGE-FROM-OPS> 900,614
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 869,009
<NUMBER-OF-SHARES-REDEEMED> 11,532
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 9,949,877
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 37,214
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 59,641
<AVERAGE-NET-ASSETS> 7,508,686
<PER-SHARE-NAV-BEGIN> 10.00
<PER-SHARE-NII> 0.05
<PER-SHARE-GAIN-APPREC> 1.55
<PER-SHARE-DIVIDEND> 0.00
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 11.60
<EXPENSE-RATIO> 1.6
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.00
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 11
<NAME> GROWTH PORTFOLIO
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> JUN-30-1998
<INVESTMENTS-AT-COST> 7,475,919
<INVESTMENTS-AT-VALUE> 8,953,497
<RECEIVABLES> 20,347
<ASSETS-OTHER> 393,306
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 9,367,150
<PAYABLE-FOR-SECURITIES> 288,732
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 7,547
<TOTAL-LIABILITIES> 296,279
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 7,821,098
<SHARES-COMMON-STOCK> 775,870
<SHARES-COMMON-PRIOR> 1
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 14,783
<ACCUMULATED-NET-GAINS> (213,022)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 1,477,578
<NET-ASSETS> 9,070,871
<DIVIDEND-INCOME> 18,475
<INTEREST-INCOME> 7,834
<OTHER-INCOME> 0
<EXPENSES-NET> 41,092
<NET-INVESTMENT-INCOME> (14,783)
<REALIZED-GAINS-CURRENT> (213,022)
<APPREC-INCREASE-CURRENT> 1,477,578
<NET-CHANGE-FROM-OPS> 1,249,773
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 784,268
<NUMBER-OF-SHARES-REDEEMED> 8,399
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 9,070,861
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 28,761
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 41,092
<AVERAGE-NET-ASSETS> 7,738,638
<PER-SHARE-NAV-BEGIN> 10.00
<PER-SHARE-NII> (0.02)
<PER-SHARE-GAIN-APPREC> 1.71
<PER-SHARE-DIVIDEND> 0.00
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 11.69
<EXPENSE-RATIO> 1.07
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.00
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 12
<NAME> HIGH YIELD BOND FUND
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> JUN-30-1998
<INVESTMENTS-AT-COST> 7,011,878
<INVESTMENTS-AT-VALUE> 6,983,246
<RECEIVABLES> 148,634
<ASSETS-OTHER> 226,033
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 7,357,913
<PAYABLE-FOR-SECURITIES> 50,000
<SENIOR-LONG-TERM-DEBT> 8,932
<OTHER-ITEMS-LIABILITIES> 0
<TOTAL-LIABILITIES> 58,932
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 7,144,325
<SHARES-COMMON-STOCK> 702,718
<SHARES-COMMON-PRIOR> 1
<ACCUMULATED-NII-CURRENT> 181,588
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 1,700
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (28,632)
<NET-ASSETS> 7,298,981
<DIVIDEND-INCOME> 3,120
<INTEREST-INCOME> 210,359
<OTHER-INCOME> (143)
<EXPENSES-NET> 31,748
<NET-INVESTMENT-INCOME> 181,588
<REALIZED-GAINS-CURRENT> 1,700
<APPREC-INCREASE-CURRENT> (28,632)
<NET-CHANGE-FROM-OPS> 154,656
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 855,978
<NUMBER-OF-SHARES-REDEEMED> 153,261
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 7,298,971
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 18,655
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 31,748
<AVERAGE-NET-ASSETS> 5,018,871
<PER-SHARE-NAV-BEGIN> 10.00
<PER-SHARE-NII> 0.26
<PER-SHARE-GAIN-APPREC> 0.13
<PER-SHARE-DIVIDEND> 0.00
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 10.39
<EXPENSE-RATIO> 1.28
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.00
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 1
<NAME> WORLD GROWTH STOCK PORTFOLIO
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<INVESTMENTS-AT-COST> 97,443,710
<INVESTMENTS-AT-VALUE> 117,002,484
<RECEIVABLES> 423,151
<ASSETS-OTHER> 2,359,338
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 119,784,973
<PAYABLE-FOR-SECURITIES> 207,681
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 14,009,789
<TOTAL-LIABILITIES> 14,217,470
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 85,542,397
<SHARES-COMMON-STOCK> 4,534,236
<SHARES-COMMON-PRIOR> 3,947,054
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> (458,232)
<ACCUMULATED-NET-GAINS> 931,406
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 19,551,932
<NET-ASSETS> 105,567,503
<DIVIDEND-INCOME> 3,460,488
<INTEREST-INCOME> 440,374
<OTHER-INCOME> (271,945)
<EXPENSES-NET> 1,021,723
<NET-INVESTMENT-INCOME> 2,607,194
<REALIZED-GAINS-CURRENT> 12,217,581
<APPREC-INCREASE-CURRENT> 179,772
<NET-CHANGE-FROM-OPS> 15,004,547
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (2,503,403)
<DISTRIBUTIONS-OF-GAINS> (12,496,321)
<DISTRIBUTIONS-OTHER> (930,784)
<NUMBER-OF-SHARES-SOLD> 506,207
<NUMBER-OF-SHARES-REDEEMED> (310,198)
<SHARES-REINVESTED> 391,173
<NET-CHANGE-IN-ASSETS> 13,571,869
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 2,046,667
<OVERDISTRIB-NII-PRIOR> (490,907)
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 843,936
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,021,723
<AVERAGE-NET-ASSETS> 111,876,388
<PER-SHARE-NAV-BEGIN> 23.31
<PER-SHARE-NII> 0.53
<PER-SHARE-GAIN-APPREC> 2.97
<PER-SHARE-DIVIDEND> (0.56)
<PER-SHARE-DISTRIBUTIONS> (2.97)
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 23.28
<EXPENSE-RATIO> 0.91
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 2
<NAME> MONEY MARKET PORTFOLIO
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<INVESTMENTS-AT-COST> 9,600,265
<INVESTMENTS-AT-VALUE> 9,600,265
<RECEIVABLES> 575,535
<ASSETS-OTHER> 241,630
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 10,417,430
<PAYABLE-FOR-SECURITIES> 498,778
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 483,198
<TOTAL-LIABILITIES> 981,976
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 9,436,362
<SHARES-COMMON-STOCK> 922,650
<SHARES-COMMON-PRIOR> 770,648
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (908)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 9,435,454
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 538,304
<OTHER-INCOME> 0
<EXPENSES-NET> 60,871
<NET-INVESTMENT-INCOME> 477,433
<REALIZED-GAINS-CURRENT> 200
<APPREC-INCREASE-CURRENT> 1,235
<NET-CHANGE-FROM-OPS> 478,868
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (477,433)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1,949,895
<NUMBER-OF-SHARES-REDEEMED> (1,835,753)
<SHARES-REINVESTED> 37,860
<NET-CHANGE-IN-ASSETS> 1,539,197
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> (1,108)
<GROSS-ADVISORY-FEES> 50,381
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 60,871
<AVERAGE-NET-ASSETS> 10,076,208
<PER-SHARE-NAV-BEGIN> 10.25
<PER-SHARE-NII> 0.52
<PER-SHARE-GAIN-APPREC> (0.02)
<PER-SHARE-DIVIDEND> (0.52)
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 10.23
<EXPENSE-RATIO> 0.60
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 3
<NAME> GLOBAL HARD ASSETS PORTFOLIO
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUN-30-1997
<INVESTMENTS-AT-COST> 8,441,714
<INVESTMENTS-AT-VALUE> 5,082,507
<RECEIVABLES> 451,416
<ASSETS-OTHER> 246,484
<OTHER-ITEMS-ASSETS> 4,995
<TOTAL-ASSETS> 5,785,402
<PAYABLE-FOR-SECURITIES> 519,825
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 60,923
<TOTAL-LIABILITIES> 580,748
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 8,871,169
<SHARES-COMMON-STOCK> 583,765
<SHARES-COMMON-PRIOR> 454,995
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> (17,094)
<ACCUMULATED-NET-GAINS> (290,214)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (3,359,207)
<NET-ASSETS> 5,204,654
<DIVIDEND-INCOME> 87,367
<INTEREST-INCOME> 31,785
<OTHER-INCOME> (4,466)
<EXPENSES-NET> 72,315
<NET-INVESTMENT-INCOME> 42,371
<REALIZED-GAINS-CURRENT> (83,859)
<APPREC-INCREASE-CURRENT> (3,627,821)
<NET-CHANGE-FROM-OPS> (3,669,309)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (52,180)
<DISTRIBUTIONS-OF-GAINS> (154,999)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 364,373
<NUMBER-OF-SHARES-REDEEMED> (257,709)
<SHARES-REINVESTED> 22,106
<NET-CHANGE-IN-ASSETS> (2,349,773)
<ACCUMULATED-NII-PRIOR> 105,318
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> (135,784)
<GROSS-ADVISORY-FEES> 50,733
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 72,315
<AVERAGE-NET-ASSETS> 6,764,303
<PER-SHARE-NAV-BEGIN> 16.60
<PER-SHARE-NII> .02
<PER-SHARE-GAIN-APPREC> (7.30)
<PER-SHARE-DIVIDEND> (0.09)
<PER-SHARE-DISTRIBUTIONS> (0.31)
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 8.92
<EXPENSE-RATIO> 1.07
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 4
<NAME> SMALL COMPANY PORTFOLIO
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<INVESTMENTS-AT-COST> 69,552,238
<INVESTMENTS-AT-VALUE> 86,605,973
<RECEIVABLES> 97,205
<ASSETS-OTHER> 2,803,383
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 89,506,561
<PAYABLE-FOR-SECURITIES> 230,414
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 7,771,040
<TOTAL-LIABILITIES> 8,001,454
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 63,450,493
<SHARES-COMMON-STOCK> 3,989,371
<SHARES-COMMON-PRIOR> 3,418,546
<ACCUMULATED-NII-CURRENT> 23,265
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 977,614
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 17,053,735
<NET-ASSETS> 81,505,107
<DIVIDEND-INCOME> 884,475
<INTEREST-INCOME> 165,285
<OTHER-INCOME> 0
<EXPENSES-NET> 672,199
<NET-INVESTMENT-INCOME> 377,561
<REALIZED-GAINS-CURRENT> 8,322,941
<APPREC-INCREASE-CURRENT> 7,988,122
<NET-CHANGE-FROM-OPS> 16,688,624
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (377,561)
<DISTRIBUTIONS-OF-GAINS> (7,681,445)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 490,812
<NUMBER-OF-SHARES-REDEEMED> (360,301)
<SHARES-REINVESTED> 440,314
<NET-CHANGE-IN-ASSETS> 19,338,741
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 359,383
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 604,347
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 672,199
<AVERAGE-NET-ASSETS> 80,579,541
<PER-SHARE-NAV-BEGIN> 18.19
<PER-SHARE-NII> 0.09
<PER-SHARE-GAIN-APPREC> 4.17
<PER-SHARE-DIVIDEND> (0.09)
<PER-SHARE-DISTRIBUTIONS> (1.93)
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 20.43
<EXPENSE-RATIO> 0.83
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 5
<NAME> GROWTH AND INCOME PORTFOLIO
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<INVESTMENTS-AT-COST> 43,019,663
<INVESTMENTS-AT-VALUE> 45,333,613
<RECEIVABLES> 964,151
<ASSETS-OTHER> 4,788,020
<OTHER-ITEMS-ASSETS> 42
<TOTAL-ASSETS> 51,085,826
<PAYABLE-FOR-SECURITIES> 1,296,222
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 10,111,528
<TOTAL-LIABILITIES> 11,407,750
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 37,538,206
<SHARES-COMMON-STOCK> 2,319,530
<SHARES-COMMON-PRIOR> 1,402,464
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (174,080)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 2,313,950
<NET-ASSETS> 39,678,076
<DIVIDEND-INCOME> 539,554
<INTEREST-INCOME> 96,778
<OTHER-INCOME> (2,676)
<EXPENSES-NET> 287,121
<NET-INVESTMENT-INCOME> 346,535
<REALIZED-GAINS-CURRENT> 9,552,050
<APPREC-INCREASE-CURRENT> (1,869,319)
<NET-CHANGE-FROM-OPS> 8,029,266
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (346,535)
<DISTRIBUTIONS-OF-GAINS> (9,552,050)
<DISTRIBUTIONS-OTHER> (598,314)
<NUMBER-OF-SHARES-SOLD> 1,041,889
<NUMBER-OF-SHARES-REDEEMED> (216,351)
<SHARES-REINVESTED> 91,528
<NET-CHANGE-IN-ASSETS> 15,966,380
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 424,234
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 251,630
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 287,121
<AVERAGE-NET-ASSETS> 33,789,010
<PER-SHARE-NAV-BEGIN> 16.91
<PER-SHARE-NII> 0.15
<PER-SHARE-GAIN-APPREC> 4.67
<PER-SHARE-DIVIDEND> (0.15)
<PER-SHARE-DISTRIBUTIONS> (4.47)
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 17.11
<EXPENSE-RATIO> 0.85
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 6
<NAME> CAPITAL GROWTH PORTFOLIO
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<INVESTMENTS-AT-COST> 98,828,249
<INVESTMENTS-AT-VALUE> 126,920,923
<RECEIVABLES> 626,953
<ASSETS-OTHER> 1,077,271
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 128,625,147
<PAYABLE-FOR-SECURITIES> 172,052
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 4,329,100
<TOTAL-LIABILITIES> 4,501,152
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 95,682,366
<SHARES-COMMON-STOCK> 5,846,944
<SHARES-COMMON-PRIOR> 4,103,167
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> (147)
<ACCUMULATED-NET-GAINS> 349,140
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 28,092,636
<NET-ASSETS> 124,123,995
<DIVIDEND-INCOME> 973,129
<INTEREST-INCOME> 219,129
<OTHER-INCOME> (10,672)
<EXPENSES-NET> 1,157,744
<NET-INVESTMENT-INCOME> 23,842
<REALIZED-GAINS-CURRENT> 4,525,489
<APPREC-INCREASE-CURRENT> 21,641,483
<NET-CHANGE-FROM-OPS> 26,190,814
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 21,994
<DISTRIBUTIONS-OF-GAINS> 4,529,357
<DISTRIBUTIONS-OTHER> 1,177,521
<NUMBER-OF-SHARES-SOLD> 1,194,055
<NUMBER-OF-SHARES-REDEEMED> (237,318)
<SHARES-REINVESTED> 787,041
<NET-CHANGE-IN-ASSETS> 53,291,833
<ACCUMULATED-NII-PRIOR> 1,873
<ACCUMULATED-GAINS-PRIOR> 1,526,661
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1,064,671
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,157,744
<AVERAGE-NET-ASSETS> 106,467,108
<PER-SHARE-NAV-BEGIN> 17.26
<PER-SHARE-NII> 0.00
<PER-SHARE-GAIN-APPREC> 4.99
<PER-SHARE-DIVIDEND> 0.00
<PER-SHARE-DISTRIBUTIONS> (1.02)
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 21.23
<EXPENSE-RATIO> 1.09
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 7
<NAME> BALANCED PORTFOLIO
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<INVESTMENTS-AT-COST> 24,859,420
<INVESTMENTS-AT-VALUE> 25,479,808
<RECEIVABLES> 351,953
<ASSETS-OTHER> 941,852
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 26,773,613
<PAYABLE-FOR-SECURITIES> 575,267
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 3,560,769
<TOTAL-LIABILITIES> 4,136,036
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 22,060,793
<SHARES-COMMON-STOCK> 1,926,775
<SHARES-COMMON-PRIOR> 1,513,162
<ACCUMULATED-NII-CURRENT> 778
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (44,382)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 620,388
<NET-ASSETS> 22,637,577
<DIVIDEND-INCOME> 158,227
<INTEREST-INCOME> 635,546
<OTHER-INCOME> (307)
<EXPENSES-NET> 216,260
<NET-INVESTMENT-INCOME> 577,206
<REALIZED-GAINS-CURRENT> 3,064,434
<APPREC-INCREASE-CURRENT> (330,942)
<NET-CHANGE-FROM-OPS> 3,310,698
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (577,375)
<DISTRIBUTIONS-OF-GAINS> (3,064,434)
<DISTRIBUTIONS-OTHER> (527,439)
<NUMBER-OF-SHARES-SOLD> 388,779
<NUMBER-OF-SHARES-REDEEMED> (152,011)
<SHARES-REINVESTED> 176,844
<NET-CHANGE-IN-ASSETS> 4,381,147
<ACCUMULATED-NII-PRIOR> 169
<ACCUMULATED-GAINS-PRIOR> 629,848
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 166,038
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 216,260
<AVERAGE-NET-ASSETS> 22,222,435
<PER-SHARE-NAV-BEGIN> 12.07
<PER-SHARE-NII> 0.30
<PER-SHARE-GAIN-APPREC> 1.60
<PER-SHARE-DIVIDEND> (0.30)
<PER-SHARE-DISTRIBUTIONS> (1.92)
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 11.75
<EXPENSE-RATIO> 0.97
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 8
<NAME> EMERGING GROWTH PORTFOLIO
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<INVESTMENTS-AT-COST> 51,868,318
<INVESTMENTS-AT-VALUE> 59,156,233
<RECEIVABLES> 3,141,626
<ASSETS-OTHER> 91,714
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 62,389,573
<PAYABLE-FOR-SECURITIES> 3,300,421
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 2,859,977
<TOTAL-LIABILITIES> 6,160,398
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 49,138,392
<SHARES-COMMON-STOCK> 3,218,595
<SHARES-COMMON-PRIOR> 2,021,917
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (197,132)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 7,287,915
<NET-ASSETS> 56,229,175
<DIVIDEND-INCOME> 62,528
<INTEREST-INCOME> 88,301
<OTHER-INCOME> (1,333)
<EXPENSES-NET> 383,069
<NET-INVESTMENT-INCOME> (233,573)
<REALIZED-GAINS-CURRENT> 3,355,964
<APPREC-INCREASE-CURRENT> 3,520,953
<NET-CHANGE-FROM-OPS> 6,643,344
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 2,816,095
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1,772,417
<NUMBER-OF-SHARES-REDEEMED> (637,221)
<SHARES-REINVESTED> 61,482
<NET-CHANGE-IN-ASSETS> 25,435,145
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> (166,640)
<GROSS-ADVISORY-FEES> 309,563
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 383,069
<AVERAGE-NET-ASSETS> 38,440,603
<PER-SHARE-NAV-BEGIN> 15.23
<PER-SHARE-NII> (0.07)
<PER-SHARE-GAIN-APPREC> 3.19
<PER-SHARE-DIVIDEND> 0.00
<PER-SHARE-DISTRIBUTIONS> (0.88)
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 17.47
<EXPENSE-RATIO> 1.00
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<PAGE>
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the references to our firm under the captions "Financial
Highlights" in the Prospectus and "Independent Auditors" in the Statement of
Additional Information and to the incorporation by reference of our report dated
February 13, 1998 in Post-Effective Amendment Number 24 to the Registration
Statement (Form N-1A No. 2-94479) of Jefferson Pilot Variable Fund, Inc.
ERNST & YOUNG LLP
Boston, Massachusetts
August 31, 1998
<PAGE>
Exhibit 99.3
JEFFERSON-PILOT CORPORATION
CORPORATE ORGANIZATION CHART
A. Affiliates actually controlled
------------------------------
Jefferson-Pilot Corporation (North Carolina corp.)
Alexander Hamilton Life Insurance Company of America (Michigan
corp.)
AH (Michigan) Life Insurance Company (Michigan corp.)
Alexander Hamilton Capital Management, Inc. (Michigan corp.)
Alexander Hamilton Variable Insurance Trust (Massachusetts
business trust)
First Alexander Hamilton Life Insurance Company (New York
corp.)
Jefferson Pilot Financial Insurance Company (New Hampshire corp.)
(name changed effective May 1, 1998, from Chubb Life Insurance
Company of America)
Jefferson Pilot Life Insurance Agency of Massachusetts, Inc.
(Massachusetts corp.)
(name changed effective August 5, 1998, from Chubb Life
Insurance Agency of Massachusetts, Inc.)
Jefferson Pilot LifeAmerica Insurance Company (New Jersey
corp.)
(name changed effective May 1, 1998, from Chubb Colonial Life
Insurance Company)
Jefferson Pilot Service Corporation (New Hampshire corp.)
(name changed effective June 30, 1998, from Chubb America
Service Corporation)
GARCO Capital Corp. (Delaware corp.)
HARCO Capital Corp. (Delaware corp.)
Omega Jefferson Pilot Seguros de Vida S.A. (Argentina corp.)
(See note 2)
Jefferson Pilot Omega Seguros de Vida S.A. (Uruguay corp.)
Hampshire Funding Inc. (New Hampshire corp.)
JP Investment Management Company (North Carolina corp.)
Jefferson-Pilot Capital Trust A (Delaware business trust)
Jefferson-Pilot Capital Trust B (Delaware business trust)
Jefferson-Pilot Communications Company (North Carolina corp.)
Jefferson-Pilot Communications Company of California (North
Carolina corp.)
San Diego Broadcasting Corporation (California corp.)
Jefferson-Pilot Communications Company of Virginia (Virginia
corp.)
Jefferson-Pilot Sports, Inc. (North Carolina corp.)
WCSC, Inc. (South Carolina corp.)
Tall Tower, Inc. (South Carolina corp.)
Community Choice of North Carolina, Inc. (North Carolina Corp.)
Jefferson Pilot Investment Advisory Corporation (Tennessee corp.)
(name changed effective January 1, 1998, from Chubb Investment
Advisory Corporation)
Jefferson-Pilot Investments, Inc. (North Carolina corp.)
Hampshire Syndications, Inc. (New Hampshire corp.)
Jefferson Pilot Variable Corporation (North Carolina corp.)
(name changed effective January 1, 1998, from Jefferson-Pilot
Investor Services, Inc.)
Jefferson-Pilot Investor Services of Nevada, Inc. (Nevada
corp.)
Jefferson-Pilot Life Insurance Company (North Carolina corp.)
Jefferson Standard Life Insurance Company (North Carolina
corp.)
Jefferson-Pilot Property Insurance Company (North Carolina corp.)
Jefferson Pilot Securities Corporation (New Hampshire corp.)
(name changed effective January 1, 1998, from Chubb Securities
Corporation)
Notes: (1) Each indentation reflects another tier of ownership. All entities
more than 50% owned are listed.
(2) The immediate parent owns 100% of the voting securities of each
entity except that HARCO owns 70% of Omega.
B. Affiliates not controlled but state Insurance Holding Company Act
-----------------------------------------------------------------
definitions presume control starting at 10% ownership
-----------------------------------------------------
Jefferson-Pilot Life Insurance Company owns:
Athens Newspapers, Inc., Class A Common, Georgia corp., 40.0%
owned
Tomco2 Equipment Company, Class A Common, Georgia corp., 29.20%
owned
GARCO Capital Corp. owns:
International Home Furnishing Center, Inc., Common, North
Carolina corp., 25.06% owned
<PAGE>
Recent changes other than noted above:
Volunteer Garage Company, Inc. (Tennessee corp.) - liquidated 12/31/97; to be
dissolved
ChubbHealth Holdings, Inc. (New Hampshire corp.) - liquidated 12/31/97;
dissolved on 2/25/98
Medselect, Inc. (North Carolina corp.) - liquidated 6/29/98; to be dissolved
Jefferson-Pilot Health Care Delivery Systems, Inc. (North Carolina corp.) -
liquidated 6/30/98; to be dissolved
